Vox faces declining profits

Johannesburg, 24 Apr 2009

Vox Telecoms` interim results are not looking as bright as some. However, Frost & Sullivan says it`s not as gloomy as it appears.

The company released its half-year results for the six months ended February 2009 this afternoon, with operating profit down to R56.6 million from last year`s R67.5 million. Net attributable profit also saw a downturn to R31 million from R43.2 million in the same period in 2008. Headline earnings per share fell to 2.81cps.

However, the company does sport some solid increases, with a 22% increase in revenue and a 20% increase in gross profit over the comparable period in 2008.

Frost & Sullivan ICT industry analyst Lindsey Mc Donald says the company is certainly starting to see the effects of the downturn. "However, while its interim results show a large drop in earnings per share, there is still much to recommend it.

"Vox borrowed quite a lot of money to fund its acquisitions and the cost of borrowing increased more than it anticipated. It`s re-assessment of amortisation on its customer base also had a significant impact on the earnings per share," she notes.

She says the company`s balance sheet continues to look strong, with only a slight decrease in the net asset value per share from the comparable period. "Despite its extensive acquisition spree, the significant improvement in cash generated from operations during the period means the company still has a strong bank balance."

According to Mc Donald, it is becoming increasingly difficult for operators to achieve margin and to differentiate themselves. "It`s a challenge to companies like Vox to demonstrate why a client should choose them and not someone else. I think we`re likely to see an increase in the bundling of services in the local telecommunications market because of this."

She expects the company will move into the provision of managed services such as data storage and VPN in the near future.

Vox did not declare a dividend for the first half-year.