Accounting rules knock Vox

Johannesburg - AltX-listed telecommunications operator Vox Telecom said an accounting issue saw R13m wiped off its bottom line, despite higher earnings and revenue.

Vox Telecom provides voice and data services to the southern African market. The company's various brands include Vox DataPro, Vox Orion and Vox Telepreneur.

On Friday, the company reported a 22% increase in revenue from R869m to R1.1bn for the six months to end-February 2009. Earnings before interest, tax, depreciation and amortisation (Ebitda) increased 11% to R94m from R85m, and cash generated from operations jumped 913% to R80m from a loss of R10m in the previous period. Headline earning per share dipped 40% to 281c and profit for the year was down to R31m, a 28% decrease.

"I think the results are fair," said Vox Telecom executive chairperson Tony van Marken. "We're a little bit disappointed with our earnings per share, but I think all things considered it's a fair reflection on how we performed because we've done a lot of good things during the period."

Van Marken said the change in accounting treatment of amortisation had the most substantial impact on the results.

"In accordance with international best practice, we've had to reduce the life of the useful assets we acquired and reduce the period over which we amortise that expense.

"On a before-tax basis, that's been R26m hit to our earnings for the full year and for this period R13m," he says. "It's a non-cash item and really it's an accounting issue, but it does have a material impact on our bottom line."

Along with changes in accounting practices, Van Marken believes market conditions have further increased bad debts and negatively affected the company's performance.

"We've had high finance charges on our debt simply because interest rates have been high; we've also had higher than normal bad debt provisions which is really a function of the economy at the moment," he says.

Bad debts

More customers are failing to pay for Vox Telecoms services, resulting in an increase in lost revenue.

"We had a reduction in our total customer base of around 14 000 customers and typically those customers are on debit orders; if they don't pay, we turn them off. It's quite difficult recovering small amounts of money from thousands of individuals," said Van Marken.

"On the corporate side, we always have provisions to deal with potential bad debt. Unfortunately there's been a higher incidence of that over the period," he said. "That's really the nature of our business and we felt it was prudent to deal with this appropriately."

Despite the earnings per share and profit decrease, IT analysts at Frost & Sullivan said there are signs of strength in the company.

"Vox's balance sheet continues to look strong, with only a slight decrease in the net asset value per share from the comparable period.

"Despite its extensive acquisition spree, the significant improvement in cash generated from operations during the period means that the company still has a strong bank balance."

The company is trying to cut costs to improve its results.

"We're still making investments in the network and there are some things we simply can't avoid because we're growing, but at the same time you have to look at all of your costs across the board and we're trying to manage that very carefully," said Van Marken.

"Although we may be in a tough period right now, I think we'll be very well positioned coming through this," he said.

- Fin24.com