Square One attributes reduced earnings to diversification
TECHNOLOGY supplier Square One has reversed a healthy position that saw its profits climb despite a fall in revenue earlier this year, and has been forced to post figures showing that its earnings are now substantially down despite a higher turnover.
The dip was expected, the directors said, after a decision to diversify its customer base and guide the company into new markets.
Revenue for the six months to June 20 came in at R93m, up 17,5% from R79m a year ago, but the attributable profit of just R162
One of its redefined goals is to win business from the government and parastatals. Significant parastatal business was won in May and June and would contribute to revenues in the second half of the year, although the major benefit would not be seen until next year and the year after.
Square One was listed in 2000 and provides niche technology solutions including networking and communication technologies, industrial coding and marking solutions, and also finance and rental packages.
The group had focused on reducing the turnover generated by low-margin activities to concentrate on services that attracted a higher margin, CEO Craig Alexander said. That had pushed up its gross margins “to more than respectable levels”.
Operating expenses rose from R26m to R35m, with 75% of that due to up-front costs incurred to support the change of focus.
Those costs were necessary one-off events and had led to new medium and long term contracts being signed to provide a predictable revenue flow.
The expenses included staffing and project initiation costs, extra equipment, consulting fees and legal fees. The monthly overheads had been trimmed again.
While the results appeared to show a decline for Square One, the directors insisted that the business was fundamentally healthy.
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