Lesley Stones
20 October 2008
Johannesburg — INTERNAL problems rather than the global financial crisis have hammered technology company SecureData in the past year, sending its profits diving.
The main fault was selling too many low-margin products and too few high-margin products, said CEO Dean Brazier, so the revenue rose but the profit margin dipped. Sales staff were now focusing on higher-end products, and some low value products would be dropped if they were not essential for the company to supply, he said.
Another error was made in judging foreign exchange fluctuations, with SecureData losing R4,5m through badly timed contracts. That occurred mostly when the company had been between financial directors, and it was being resolved by installing new systems to protect it against foreign exchange fluctuations.
"We know what we have done wrong and we have seen the results and we have acted to mitigate them," Brazier said. Its performance in the current year was already picking up and its future earnings should pep up considerably, he said.
Revenue for the year to July jumped 83% from R148m to R271m. But net profit plunged from R26m to R8,9m after cash was whittled away by depreciation, amortisation and financial costs relating to an internal loan for the R196m acquisition of MIS in the UK. MIS contributed R29m to revenue for the last two months of the financial year. It was a sound company that should contribute well in the long term, Brazier said, even if the economic squeeze in Europe had damp ened its near-term performance.
Headline earnings per share of 5c were down from 16,2c last year, partly because currency fluctuations on the loan were shown on the balance sheet, even though it was unrealised and had no effect on cash flow, Brazier said.
The company's largest division is SecureData Africa, where the operating margin slid from 20% to 11%. "We had 50% revenue growth for SecureData but we got the product mix seriously wrong," Brazier said. "We got the growth right for lower margin products but not for higher margin products. Obviously there are some product lines we need to be in, but we are going to look at our range and if they are not strategic and are low-end, we will take them out."
The sales force had seen the results of selling the wrong mix and had acted to change the balance, and results for the first two months of the new year were already up, Brazier said.
The weak rand will continue to hit SecureData since its products have to be imported. That would partly be offset by the new forward currency exchange regime, which includes making more purchases at fixed rates.
SecureData repositioned itself to focus on information risk management technologies a few years ago. Last year it bought SensePost, which provides services such as advising financial institutions on vulnerabilities in their systems. SensePost had an operating margin of 38% on a revenue of R18m. Its income should be secure, because even in a downturn companies had to protect themselves.
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