Telecommunications specialist TeleMasters reported a drop in gross profits and earnings per share (EPS) in its interim results for the period ending 31 March 2010. The negative shift is the first the company has experienced since listing in March 2007 and is due primarily to regulatory changes around mobile interconnect rates.
“Interconnect rate regulatory changes had a direct impact on our profitability,” says CEO Mario Pretorius. “Due to this factor, and expected changes in Mobile Termination Rates, we decided to hold back on renewing expired SIMs and therefore did not earn Connection Incentive Bonuses. This contributed directly to an 11% decrease in gross profits.”
Cash generation, however, increased by 136% to over R17m. “This is the most important factor we measure our business by” he said. “Revenue is up and we held back on claiming funds that will increase the margin until we have certainty, but above all we are satisfied that the engine is working and is pumping cash”.
Earnings per share dropped by 7.76 cents to 8.68 cents per share, driven by a range of influencers, including:
* Non-executive directors’ remuneration increased with 28% after the net appointment of two additional directors to ensure board independence;
* A higher staff complement saw employee costs rise by 11%. Additional salaries and the company policy to pay full medical aid contributions for all staff with service in excess of five years influenced the increase;
* TeleMasters rented additional office space at the beginning of the period to accommodate its increased staff complement and operational scope, leading to a total occupancy costs increase of R207 520.00;
* A total of R1 688 992 (1,5% of revenue) was written off and/or provided for bad debts. R1,5-million thereof related to amounts owed by the subsidiary of a listed financial company which stopped trading, as disclosed in the 2009 annual report. No further effects on earnings are expected;
* Investment income and finance costs are related to the prime lending rate and fluctuated according to the amendments reported by the Regulator.
“The factors impacting gross profits and EPS were largely variable and temporary,” says Pretorius. “The company achieved Return on Equity of 14% and Return on Assets of 11%. These are key figures illustrating the core strength of our business, which remains in a strong, cash positive position.”
In addition, TeleMasters' net asset value (NAV) per share increased by 10.5% over the comparative quarter, with Net Tangible Asset per share also up 18%, after total dividends of 8 cents per share were issued to shareholders.
“Given the fluidity of the factors at play we're satisfied with the results,” concludes Pretorius. “TeleMasters remains very well positioned to capitalise on the sustained growth it achieved during the downturn. We expect this growth to continue in future months.”