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DataPro makes R70m purchase

By Iain Scott, ITWeb group consulting editor
Johannesburg, 17 May 2006

DataPro has signed an agreement to buy, for R70 million, least-cost routing services company Definity Telecommunications.

The announcement coincides with the release of DataPro`s financial results for the six months to end-February.

The sellers, Daniel Edmiston (47%) and Wayne Gordon (53%), are to receive R35 million in cash, to be raised through the issue of renounceable letters of allocation, with the balance settled by the issue of about 63.2 million shares.

Definity provides telephony services to medium to large corporations in SA, and DataPro says the acquisition provides it with a high-quality customer base that complements that of VoxTelecom, DataPro`s voice business.

DataPro achieved a 57.5% increase in revenue to R78.74 million for the six months to February, from R50 million for the same period a year earlier, while gross profit rose to R31.33 million (2005: R22.91 million).

CEO Douglas Reed says the decline in the gross margin (gross profit as a percentage of revenue) from 45.8% to 39.8% is the result of continued spending on VoxTelecom without matching revenues.

VoxTelecom`s voice revenue rose 89% to R5.7 million. Although margins improved, start-up costs had an impact on the results. However, the company says the monthly losses have been stemmed.

Pre-tax profit soared 153% to R6 million (R2.37 million), although Reed says this is partly due to negative goodwill on the acquisition of Netralink. Net profit rose to R4.66 million (R2.62 million), representing a net margin of 5.9%, against 5.2% previously.

Earnings per share rose to 1.5c (1.1c), while headline earnings per share were flat at 1.2c (1.1c).

The group`s balance sheet records current assets of R27.26 million (R10.5 million) at the end of the period, of which cash accounted for R2.73 million (R3.68 million).

This is against current liabilities of R37.18 million (R19.69 million), representing an improved current ratio of 0.7 (0.5). The current ratio is a measure of how many times short-term debts can be paid out of short-term assets.

Reed says the company has been pursuing the broadband market aggressively and that the results reflect the positive contribution this has had with increased sales, lower input costs, usage-based billing and additional products.

"ADSL is currently growing at around 12% per month, and DataPro is quickly gaining market share."

Internet service provision, ADSL and @lantic Internet Services will continue to be a key focus for growth, Reed adds. "Upgrades off an ever-increasing base provided 50% of current ISP growth within DataPro."

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