JSE-listed e-services provider Aqua Online has reported a 49.5% drop in earnings before interest, tax, depreciation and amortisation and a 68.8% decline in headline earnings per share for the half-year to end-December 2001.
Although the company says the interim results were in line with a revised earnings forecast, the share took a knock on the news, losing 6c or 25% to trade at 18c by late this morning.
The group recently concluded a worldwide software distribution agreement with International Merchant Services Limited distribute and support the IMS online casino software.
"The trading effects on Aqua of migration by its e-gaming clients to the IMS software, and the group`s significant investment in infrastructure to support its obligations under the distribution agreement, have depressed profits in the interim period as anticipated in the [revised forecast] announcement," Aqua says.
It says that to unlock significant savings over the medium term and secure its competitive edge in the longer term, it recently moved part of its call centre and back-office operations to Johannesburg.
"The group will further invest in infrastructure in support of the continued commercialisation of its enhanced services offering."
Joint CEO Tal Harpaz says the group will reflect the full impact of the dollar and sterling-denominated investment and restructure cost, and the temporary reduction in client base, in the next six months.
"This will mean a headline loss for Aqua at year-end in June 2002," he says. Although the loss will be material, the group says it has adequate cash reserves to effect the restructure.
"We remain confident that the significant positive effects which will materialise in the new financial year, will exceed the short-term impact on earnings," says Harpaz.
The group says its value proposition, underpinned by the cost-effective IMS software, has positioned it to become a prominent global solutions provider to the e-gaming industry.
"This industry continues to offer attractive growth potential, with the progressive move online by the formal gaming sector presenting an exciting prospect for Aqua."
The positive financial benefits of the distribution agreement and investment in infrastructure are expected to materialise in the 2003 financial year.
Joint CEO Brent Shahim says the group continues to earn the majority of its revenues and profits in foreign currency, and aided by the depreciation of the rand, grew its cash reserves to R42 million.
"Aqua`s cash-strong position will enable the group to absorb the short-term impact on earnings of our move to IMS," he adds. "As sole international distributor of the IMS software, the group offers a comprehensive, price-competitive e-gaming solutions package that in the medium term will position Aqua as a prominent solutions provider to this market."
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