Square One's profit turns to loss

Listed Square One Solutions Group has reversed its previous profit, reporting a net loss for the year to December.

Square One, which was founded in 1986 and listed in 2000, reported a decline in net earnings, going from a profit of R83 000 to a loss of R22.9 million during the year. Attributable earnings, however, grew to R746 000 from R163 000 a year ago.

The company also made an earnings loss of 51.6c, compared with a gain of 0.2c in the previous year. Headline earnings per share improved to 2c, from 0.4c, an indication that the company's core business is sound.

Turnover decreased by 63% over the prior period, mostly as a result of cutbacks in technology spend budgets by clients across the board in response to the major economic downturn from late 2008 to end 2009.

Square One also attributes the decline in turnover to a R100 million contract with “a dominant fixed-line operator” that only added R850 000 in new orders. The company says it had geared up in anticipation of the new deal. “The lack of orders had a significant and negative impact on our business overall.”

It says it sold the business unit that was dealing with the contract in the middle of last year, but made a R7.8 million loss on disposal of the unit.

strategy has been to move to higher margin business and away from low-margin distribution type business to service and contract type business.

However, CEO Trevor James says the company does have a turnaround strategy. Square One says, although the results appear to show a decline in business, its fundamental business and contracts are healthy.

James says recessions are not new to Square One. “We are a 23-year-old company and we have been through a few recessionary periods in our life time in which we have had to make some tough decisions.”

He explains that the company's main drive in the last six months of the year was to align the company's cost base to its revenue streams that were under pressure.

“Our main focus is to continue to diversify our customer base and strategically position the company into new and parallel markets,” says James. He explains that the company will focus on small business and corporates, and will continue to target the public sector.

“Early indications are there that 2010 should be a year of positive growth and the fundamentals and state of contracts are all healthy. Square One's existing business is still profitable,” James adds.

The company's share was flat at 10c this morning.