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SQE - Square One - Unaudited results for the year ended 31 December 2009

Release Date: 15/04/2010 17:49
Code(s): SQE
Wrap Text

SQE - Square One - Unaudited results for the year ended 31 December 2009 Square One Solutions Group Limited (Incorporated in the Republic of South Africa) (Registration number 1999/026822/06) Share code: SQE ISIN: ZAE00023768 ("Square One" or "the company") Unaudited results for the year ended 31 December 2009 The unaudited results of Square One Solutions Group for the year ended 31 December 2009 are set out below. Balance Sheets Figures in Rand 31 December 30 June 2009 31 December 2009 R `000 2008
R `000 R `000 ASSETS NonCurrent Assets 75 066 46 083 47 460 Fixed Assets 4 370 5 916 7 482 Intangible assets 54 768 31 302 31 156 Deferred Tax 15 928 8 865 8 822 Current Assets 28 529 81 275 71 536 Inventory 12 155 15 510 14 525 Trade and other receivables 15 542 65 124 56 994 Cash and cash equivalents 832 634 10 Taxation - 7 7 Total Assets 103 595 127 358 118 996 EQUITY AND LIABILITIES Equity and reserves 15 543 38 372 38 483 Share capital 31 268 31 268 31 268 Retained income (15 725) 7 104 7 215
NonCurrent Liabilities 63 111 24 814 15 444 Long term liabilities 63 111 24 814 15 444 Current Liabilities 24 941 64 172 65 069 Current portion of long term 1 080 1 284 1 752 liabilities Current tax payable 106 - - Trade and other payables 22 467 61 931 60 134 Provisions 1 288 957 1 214 Bank overdraft - - 1 969 Total Equity and Liabilities 103 595 127 358 118 996 Net asset value per share (cents) 35.0 86.4 86.7 Net tangible asset value per share -88.4 15.9 16.5 (cents) Number of shares in issue at period 44 394 44 394 44 394 end (`000) Income statements Figures in Rand Year ended 6 months Year ended 31 December ended 31 December 2009 30 June 2009 2008 R`000 R`000 R`000 Revenue 76 533 54 252 207 790 Operating profit 2 139 385 2 495 Finance costs (net) (477) (547) (2 268) Loss on disposal of subsidiary (7 860) - (80) Amortization of intangible assets (15 826) - - Profit on disposal of asset - 8 - (Loss)/Profit before taxation (22 024) (154) 147 Taxation (916) 43 (64) (Loss) / Profit for the period (22 940) (111) 83 Attributable to minorities - - - Attributable to ordinary equity (22 940) (111) 83 holders Reconciliation Adjustments for headline earnings: Loss on disposal of non-core 7 860 - 80 subsidiary Profit on sale of asset - (8) - Amortization of intangible assets 15 826 Headline earnings/(loss) for the 746 (119) 163 period Earnings/(loss) per share (cents) -51.6 -0.3 0.2 Headline earnings/(loss) per share 2.0 -0.3 0.4 (cents) Weighted average number of shares in 44 394 44 394 44 394 issue (`000) Statement of Changes in Equity Figures in Rand Share Share Distribu Sub-total Minorit capital premium table R `000 y Total R `000 R `000 Reserves Interes equity R `000 ts R`000
R `000 Balance at 01 January 329 30 824 7 132 38 400 - 38 400 2008 Surplus for the year 83 83 83 Balance at 31 December 329 30 824 7 215 38 483 - 38 483 2008 Shortfall for the year (22 940) (22 940)5 (22 940) Balance at 31 December 329 30 824 15 725 15 543 - 15 543 2009 Cash Flow Statements Figures in Rand 31 December 30 June 31 December 2009 2009 2008 R `000 R `000 R `000 Cash flows (utilised in)/generated 3 394 (6 114) 2 421 from operating activities Cash flows utilised in investing (48 268) (662) (3 589) activities Cash flows from financing activities 47 667 9 369 (4 239) Total cash movement for the period 2 791 2 593 (5 407) Cash at the beginning of the period (1 959) (1 959) 3 448 Total cash at end of the period 832 634 (1 959) COMMENTARY The board of directors hereby present the company`s results for the financial year ended 31 December 2009. These unaudited results have been prepared in accordance with IAS 34 - Interim Financial Reporting on the basis of consistent accounting policies that comply with International Financial Reporting Standards ("IFRS") the Listings requirements of the JSE and the Companies Act of 1973 as amended. BACKGROUND AND NATURE OF BUSINESS The Square One Solutions Group was founded in 1986 and listed in the year 2000. The Group is an applied technology company listed under the "Information Technology (IT) - Software and Computer Services" sector of the JSE Limited ("JSE"). Square One Solutions Group`s primary focus is the provision of niche, applied technology solutions. The Group has strong black ownership and management, a national footprint and more than 23 years experience focused on the South African market. The Group`s value-based offerings are centred on: Unified Communication solutions Networking solutions Data Voice Software Application integration solutions Infrastructure solutions - Power solutions - Facility solutions Coding and Marking solutions - CIJ - Laser - Outer case coding - Commercial printing - Outsourced coding solutions - Finance and leasing services The Group focuses on coupling innovation, technology and service in order to achieve value for its clients while striving to achieve superior returns and growth in earnings for its shareholders. INDUSTRY AND BUSINESS OVERVIEW Square One`s primary service focuses on providing niche business-enabling, technology solutions, which create value for its clients through the application of business knowledge and best practices, technological skills and capability. The Group`s core operations are focused on the provision of value-based solutions centred around Unified Communications solutions, Infrastructure, Electrical and Facility solutions, Industrial Coding and Marking solutions and Finance, Leasing and Rental solutions to its key target market of enterprise, SME, corporate and Government clients. The Company also provides 24x365 national support and service. FINANCIAL OVERVIEW The results for the financial year ended 31 December 2009 reflect a decline in earnings and an increase in headline earnings attributable to ordinary shareholders of R(22,940,000)(2008: Earnings R83,000) and R746,000 (2008: Headline Earnings R163,000) respectively for the period under review. The deficit and headline earnings per share for the year ended 31 December 2009 is - 51.6 cents (2008: Earnings 0.2 cents) and 2.0 cents (2008: 0.4 cents) per share. Income statement review Turnover has decreased by 63% over the prior period largely as a result of cutbacks in technology spend budgets by clients across the board in response to the major economic downturn especially from late 2008 to end 2009. In addition a major contract with a dominant fixed line operator which was expected to yield in excess of R100 million in turnover based on projects that had previously been planned, only yielded approximately R850,000 in new orders in 2009. As the business had been geared to service this important segment of our business the lack of orders had a significant and negative impact on our business overall. Gross profit has decreased by 45% (2008:12%). However, the Group achieved higher margins which was pleasing. In line with prior year initiatives, the Group has continued with its focus on reducing turnover from low margin distribution type business to service and contract type business which typically attracts a higher gross margin for the Group. Consequently, gross margins in the operating units have held up very well and in some cases increased particularly in light of the economic decline that has severely impacted the Group as a result of the worldwide turmoil in the financial markets. The contracts being signed with customers vary from 1 to 5 year service and/or rental contracts. In addition, the Group in the past year, focussed on diversifying the customer base and strategically positioning the company into new and parallel markets, primarily the government and parastatal markets. As stated above, unfortunately orders from a major fixed line telecommunications client declined substantially mainly attributable to the current economic climate. This contract has lapsed and was not renewed by the telecommunications operator. The loss making subsidiary was sold out of the Group with effect from 1 July 2009. The results presented show a loss on disposal of the subsidiary of -R7,860,000 (2008:-R80,000) Operating expenses decreased approximately 26.6% in the current period as compared to the prior period. This was largely due to staff cutbacks and attendant costs reductions as part of the repositioning of the Group to ensure long term longevity in light of prevailing market conditions. As stated above, expenses were reviewed and where appropriate action was taken to realign our cost structures with current revenue levels with a substantial reduction in headcount. Whilst this process was painful we are now reaping the benefits of longer term sustainability as a more than 23 year-old business in this tough trading environment. We continue to manage costs and will act aggressively where necessary to make timely adjustments to ensure the longevity of our business for shareholders, employees and all other interested stakeholders Net finance costs decreased for the comparable period not withstanding the injection of further working capital by shareholders. During the current year management (with the approval of the Audit committee) decided to write off goodwill of approximately R12 million partly as a result of an internal restructuring process as well as part of the process of streamlining the Group to focus on core areas where we see significant growth. Accordingly goodwill that had been raised in prior years now required impairment due to changed operating circumstances and muted growth expectations in the short term. Some of the goodwill impairment was also tied to activities that the Group has exited or entities sold out of the Group. The Group has, for the past five years, returned consistent growth for the market and shareholders alike. Accordingly, the executive team trusts that the market, our valued shareholders, clients, partners and other stakeholders will support the continued strategic intent to accelerate the growth of the business through the initiatives concluded in the prior year and current reporting period, in particular the push into the public sector. In particular, the Group is starting to experience the positive effects of its focus on the government and parastatal sector with growing orders being received from provincial and national government departments. Indications are there that 2010 should be a year of significant growth in this market segment, consistent with government`s intent to focus more on visible service delivery. Balance sheet review Fixed assets have decreased by approximately 42% over the prior year as there has been no significant acquisitions of assets in the reporting period. The decline is largely due to depreciation as the bulk of the assets acquired in the Group are technological in nature and therefore amortised over a 3 year period. There is also some impact pertaining to the disposal of the subsidiary. With the recent financial markets turmoil, there is a sharp pull back on financing activities and we have seen a sharp slowdown in this business unit for the first half of 2009. However as interest rates have declined we have started to see recovery in this business unit and expect that 2010 will be a year of resuming strong sustained growth. Accordingly we have embarked on a measured recruitment drive to ensure that we capitalise on opportunities as they arise in the market. Accounts receivable decreased by 76% (2008: increase 33%), primarily due to the decline in turnover overall as well as a focus on debtor collections to improve cashflow availability to the Group. Stock declined by 16% (2008:35%) from the prior period due to improved management of stock levels and the requirement for upfront payments in the new business area. Accounts payable decreased by 63% compared to a marginal increase in 2008 directly in line with reduced trading activity in the current period. Cash Flow Statement review As mentioned earlier, the businesses being retained were profitable and generated positive cash flow in the current reporting period. Cash inflow from financing activities primarily relates to shareholder funding advanced to the Group. This was required to support the necessary investment to consolidate the several transversal contracts secured through the strategic initiatives of the Group. In addition, further funding than had been anticipated was required to support the funding needs of the subsidiary that had been established to fulfil on the major contract with the major fixed line operator. The increase in applied shareholder funding further validates the faith and commitment that the founding shareholders have in the strategic direction of the business. As stated above, a large portion of the shareholder funding introduced in the past year was spent on integrating the new transversal government contracts into the group as well as funding operating costs pertaining to the personnel and delivery infrastructure for the major contract with the fixed line operator that failed to materialise. DIVIDENDS The directors have decided not to declare an interim dividend. ACQUISITIONS AND ISSUE OF SHARES FOR CASH Tecor Group (Pty) Ltd pursuant to a section 311 offer of compromise was acquired and brought into the Group with effect from 1 July 2009. Tecor holds several significant transversal tenders required by the Group to execute on its strategy of growing its public sector business portfolio. Tecor has now been renamed Square One Telecoms (Pty) Ltd. SUBSEQUENT EVENTS There have been no significant subsequent events that require reporting. DIRECTOR CHANGES As reported previously both Mr. C.L. Alexander and Mr F.F. Gqiba resigned as a Director of Square One, with effect from 1 September 2009 and 1 February 2010 respectively. CHANGE OF AUDITOR There have been no changes to the auditors to the company. LITIGATION There is no material litigation pending against the company. FUTURE PROSPECTS Whilst the results appear to indicate a decline in the business, the fundamentals and state of contracts are all healthy. The business and customers are more diversified. The Group has and continues to bolster 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 acquisition of several transversal contracts in the public sector space and strategic alliances and associated initiatives. Square One`s existing business is still profitable albeit supported by key restructuring initiatives on an ongoing basis and Square One is geared up to service the new business opportunities recently secured. 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. Square One expects a continued, managed and sustainable growth trend in its strategic areas of focus. Operating costs continue to be reviewed and where appropriate reduced and Square One is now starting to realise the benefits from the new direction taken in the second half of the 2009 financial year. With the groundwork now in place, Square One expects to unlock greater profitability, whilst continuing to secure additional, sustainable and predictable contract based revenues for the Group. Johannesburg 15 April 2010 Sponsor: Grindrod Bank Limited Date: 15/04/2010 17:49:01 Supplied by www.sharenet.co.za Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited (`JSE`). The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on, information disseminated through SENS.

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