Technology company Square One Solutions has reported a 17.5% increase in revenue for the six months to 30 June, compared to the corresponding period a year ago, but it also achieved lower earnings.
Earnings and headline earnings attributable to ordinary shareholders of R162 000 (2007: R2.7 million) and R162 000 (2007: R2.3 million), respectively, were reported for the period under review. The company says earnings and headline earnings per share for the six-month period are 0.4c (2007: 8.2c) and 0.4c (2007: 7.1c) per share, respectively.
“The earnings are substantially down compared to the prior comparative period, despite higher turnover levels. However, this is in line with the company's decision to focus on diversifying the customer base and strategically positioning the company into new and parallel markets,” Square One says in a SENS statement to shareholders.
“These markets primarily comprise the government and parastatal markets, through strategic alliances and initiatives. Significant parastatal business was secured during May and June 2008, and will contribute significantly to revenues through the second half of the year. The major benefit of the contracts will be appreciated in the 2009 and 2010 financial years.”
Operating profit decreased from R4.9 million in 2007, to R2.2 million during the period under review.
The group says it has focused on reducing turnover from low-margin business to service and contract type business, which typically attracts a higher gross margin for the company.
“Consequently, gross margins in the operating units are well up year-on-year for the same period and the group's blended gross margin percentage is holding steady at more than respectable levels,” the group says.
Sound fundamentals
Operating expenses increased from R26 million in the prior period to R35 million, with approximately 75% of this increase being due to upfront operating costs being incurred to support the company's strategic initiatives.
“These necessary costs are considered to be primarily once-off in nature and have led to new medium- and long-term contracts being signed. The monthly overhead costs have reduced and normalised since the period end,” the company explains.
“These long-term contracts and initiatives will provide Square One with a predictable and sustainable project-based revenue flow through the 2009 and 2010 periods and, as such, a strategic decision was taken to absorb the upfront expenses in order to get the initiatives under way.”
According to Square One, while the results “appear to indicate a decline in the business, to the contrary the fundamentals and state of contracts are all healthy”.
It adds that it has bolstered its core skills sets and has a balance of seasoned professionals working for the business.
“Square One operates at the top of the SME market and has now successfully entered the government and parastatal markets through strategic alliances and associated initiatives.
“The strategic direction of the group remains consistent with previously stated intent and the group has used this solid foundation as a springboard into the newly-acquired markets and client base.”
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