Telecommunications specialist TeleMasters reported a drop in gross profit and earnings per share 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 R17 million. “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 cost increase of R207 520.
* 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 eight 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.”
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2.4. Reclassification of comparative period figures
The following restatements and reclassifications were made to the comparative figures:
* The prior year revenue as previously reported included deposits received from clients to the value of R167 500. This was reclassified to trade and other payables on the Statement of Financial Position to be in line with the 2009 Annual Report and subsequent quarterly reporting;
* The prior year cost of sales as previously reported included commission paid to employees of R1 751 847. This was reclassified to employee costs to be in line with the 2009 Annual Report and subsequent quarterly reporting;
* The prior year cost of sales as previously reported included the depreciation charge on routers and handsets of R2 112 375. This was reclassified to Depreciation & Amortisation to be in line with the 2009 Annual Report and subsequent quarterly reporting;
* The prior year operating expenses as previously reported included agent call out fees to the value of R241 829. This was reclassified to cost of sales to be in line with the 2009 Annual Report and subsequent quarterly reporting;
* The prior year finance cost as previously reported included bank charges to the value of R59 749. This was reclassified to operating expenses to be in line with the 2009 Annual Report and subsequent quarterly reporting;
* The prior year operating expenses as previously reported included the petty cash balance to the value of R5 403. This was reclassified to cash and cash equivalents on the Statement of Financial Position to be in line with the 2009 Annual Report and subsequent quarterly reporting;
* Incidental loans receivable was reclassified from trade and other payables to trade and other receivables on the Statement of Financial Position to be in line with the 2009 Annual Report and subsequent quarterly reporting;
* During the previous year no deferred tax liability on property, plant and equipment was raised. This fundamental error was corrected during the current six-month period and resulted in a restatement of prior year net profit of R1.9 million.
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