Square One Solutions Group jas announced reduced earnings and headline earnings for the year ended 31 December 2008, although the group has increased turnover and gross profit over the period.
Earnings and headline earnings attributable to ordinary shareholders are R83 000.00 (compared to R5,3-million in 2007) and R163 000.00 (down from R4,9-million last year) respectively. The earnings and headline earnings per share for the year are 0,2 cents (2007: 15.6 cents) and 0,4 cents (2007: 14.5 cents) per share.
Turnover has increased by 27% over the prior period, with gross profit increasing by a similar percentage.
In line with prior year initiatives, the group has focused on reducing turnover from low margin business to service and contract type business which typically attracts a higher gross margin. As a result, 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.
The group says that the contracts being signed with customers vary from one to five year service or rental contracts while, in the past year, it has focused on diversifying the customer base and strategically positioning the company into new and parallel markets – primarily the government and parastatal markets. This has now been achieved with the group securing new contracts with parastatals, notably Telkom, in the second half of the year.
Operating expenses increased from R61-million in the prior period to R78-million, with approximately 75% of this increase being due to upfront operating costs being incurred in order to support the strategic initiatives. Expenses relating to gearing and staffing up for this business exceeded budgeted expectations and accordingly, profit for the period is substantially down compared to the previous period.
The group believes the 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 underway.