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Summary of Reviewed Condensed Provisional Results for the financial year ended 30 June 2021
JASCO ELECTRONICS HOLDINGS LIMITED
Incorporated in the Republic of South Africa
Registration Number 1987/003293/06
Share code: JSC ISIN: ZAE000003794
(“Jasco” or “the company” or “the group”)
SUMMARY OF REVIEWED CONDENSED PROVISIONAL RESULTS FOR THE FINANCIAL
YEAR ENDED 30 JUNE 2021
HIGHLIGHTS
- Operating profit from continuing operations increased by 107%
- Earnings per share increased by 106% to a profit of 2.9 cents per
share
- Headline earnings per share loss improved by 99% to -0.6 cents per
share
- New, more efficient operating structure implemented
- Disposal of Reflex Solutions completed in April 2021
- Group leadership and succession plan successfully executed
INTRODUCTION
Jasco Electronics Holdings Limited published its reviewed condensed
year-end results to 30 June 2021.
For the full announcement, refer to the company's website,
www.jasco.co.za.
Jasco's 45th year was no less challenging than the preceding year,
with the ongoing impact of the COVID-19 restrictions on the group's
operations and market. During these volatile times, the board and
executive team continued to address a number of pressing issues
facing the group.
The priority was to continue to restore stability to the
organisation and put Jasco back on a path of consistent
profitability.
CONTEXT TO THE RESULTS
The disposal transaction of Reflex Solutions (Reflex) was concluded
in April 2021. In addition, the Property Technology Management (PTM)
business within Intelligent Solutions was disposed of with effect
from 1 May 2021. Consequently, the results of Reflex and PTM are
separately
disclosed as "discontinued operations" for the current and prior
reporting periods.
ADDRESSING THE GROUP'S SUSTAINABILITY
Corrective actions taken during the year included:
Further restructuring and aggressive cost reduction.
A careful review of the group's strategy was undertaken in light of
the changing business environment and dynamic trading conditions in
the markets that Jasco serves. The operational
businesses were therefore restructured during the first half of the
year, with the new structure coming into effect from 1 November
2020.
The progress made so far is pleasing, with R48 million annual costs
removed and an operating structure that is closely aligned to the
group's target markets and customers.
Disposals and subsequent reduction in debt
The proceeds of R78,6 million from the disposal of Reflex and PTM
was used to reduce borrowings and fund working capital demands
across the group.
Interest-bearing debt decreased from R200 million to R150 million
following a R25 million repayment on the corporate bond and R15
million to the Bank of China with the proceeds from the sale of
Reflex, as well as the normal servicing of the instalment sale
agreements and lease
liabilities.
The extension of the working capital loan and implementation of a
capital raise Jasco is negotiating the restructure of the group's
borrowings and an extension of the working capital loan with the
Bank of China. The board also approved a capital raise of R55
million, in the
form of a rights offer partially underwritten by a key shareholder,
which is expected to be concluded before the end of December 2021.
This will fund future growth and improve the
gearing ratio through further debt reduction.
Addressing the underperformance of businesses
With the exception of Security and Fire Safety, all business units
achieved an improvement in profitability. Security and Fire Safety
continued to be impacted by delays in the team's project execution
due to COVID-19-related restrictions at customer sites. Subsequent
to year-end, this
has improved following the easing of lockdown conditions.
The team focused on an improved gross margin mix and significant
cost cutting to ensure the turnaround from losses last year to a
profit in the majority of the businesses this year.
FINANCIAL SUMMARY
Revenue of R658,5 million from continuing operations was 1% lower
(2020: R663,1 million), mainly due to the ongoing effect of the
COVID-19 related lockdowns restrictions.
Profit before interest and taxation from continuing operations
increased to a profit of R5,5 million (2020: R82,9 million loss).
This was due to improved trading margins and significant cost
savings across the group. Although the return to profitability is
pleasing, the profit remains lower than the interest charge on
borrowings, which makes further debt reduction crucial.
The profit from discontinued operations of R32,5 million (2020:
R13,5 million) includes equity-accounted income from Reflex (R19,2
million) and the profit on disposal of Reflex (R2,3 million) and PTM
(R5,7 million).
Jasco's earnings per share increased from a 49.4 cents per share
loss to a profit of 2.9 cents per share. Headline earnings per share
(HEPS) improved from a loss of 43.0 cents per share to a loss of 0.6
cents per share. The prior year HEPS of 43.0 cents loss per share
has been restated from the previously published 44.5 cents loss per
share, to include the adjustment for the impairment
of intangible assets that was erroneously excluded from the HEPS
calculation in the prior year.
The statement of cash flows reflects cash generated from operations
before working capital changes of R46,2 million compared to R29,9
million in June 2020. Working capital changes reflect an outflow of
R27,4 million (Jun 2020: R8,0 million inflow).
The net closing cash balance of R20,4 million increased from R17,8
million in June 2020.
SOLVENCY, LIQUIDITY AND GOING CONCERN
As at 30 June 2021, Jasco had accumulated losses of R252,2 million
(2020: R257,2 million), with the group making a profit of R6,5
million in 2021 (2020: loss of R110,9 million).
The group breached its debt covenants on the corporate bond and the
working capital loan from the Bank of China. This, together with the
maturity date at year-end, resulted in the loans being recorded as
current liabilities.
With the corporate bond, the group is required to comply with the
following financial covenant conditions:
- Interest cover ratio being EBIT divided by net finance charges at
a minimum of 2.0 times. (2021: 0.50 (2020: -3.06))
- Debt to EBITDA ratio at a maximum of 3.5 times. (2021: 2.53 (2020:
5.55))
- Debt to equity ratio, being debt divided by equity, at a maximum
of 60%. (2021: 315.5% (2020: 307.8%))
With the Bank of China loan, the group is required to comply with
the following financial covenants:
- Debt to equity ratio not exceeding 150%. (2021: 319% (2020: 344%))
- Current and quick ratios not below 1.2:1 and 0.80:1 respectively.
(2021: 1.6 and 1.0 (2020: 1.3 and 0.9))
- Interest cover at a minimum of 1.5 times. (Profit before interest
and tax divided by net finance costs). (2021: 0.9 (2020: -1.7))
- Debtors of nil to 90 days to provide 120% cover on the outstanding
Bank of China balance at all times. (2021: 62% (2020: 90%))
Subsequent to the year-end, the corporate bond holder and the Bank
of China have condoned the breach of the loan covenants as at 30
June 2021.
The group's current liabilities exceed its current assets by R78,1
million (2020: R145,9 million).
The group is currently negotiating the extension of the working
capital loan from the Bank of China. Should the negotiation not be
successful, these events and conditions would cast significant doubt
on Jasco's ability to continue as a going concern and therefore, the
group may be unable to realise its assets and discharge its
liabilities in the normal course of business.
Based on the forecast cash flows from the operations for the next 12
months to December 2022, combined with the planned R55 million
rights offer, and the successful renegotiated extension of the
working capital loan from the Bank of China, the board is satisfied
that the group and company will continue as a going concern.
DIVIDEND PROPOSAL
A dividend is not proposed due to the accumulated losses reported
for the prior financial year and the high level of debt.
GROUP PROSPECTS AND KEY INTERNAL INITIATIVES
The economic outlook for the new financial year remains uncertain,
with the South African government grappling with a number of
challenges, including the ongoing COVID-19 impact, growing
unemployment, with associated social unrest, and the continued Eskom
crisis.
The most pressing issue for the group is to reduce its high debt
levels. The board remains confident that Jasco's funding initiatives
will be successful and that Jasco's stronger cash generation from
operations and the systematic debt reduction will ensure Jasco's
continuing turnaround.
The leadership team's strategic priorities in the current market
conditions are to:
- Restructure and further reduce debt and ensure the group remains
sustainable
- Address internal funding requirements to assist with profitable
growth and market relevance
- Grow revenue
- Maintain stringent cost control
SUBSEQUENT EVENTS
The group has a revised targeted debt:equity ratio of 1:1 (excluding
lease liabilities). The board and executive leadership are
implementing the following actions to improve the ratio:
- A rights offer to the value of R55 million, which is approximately
80% underwritten by the majority shareholder, Community Investment
Holdings Proprietary Limited ("CIH"), of which R20 million will be
used to repay the corporate bond and a maximum of R20 million to
reduce the working capital loan from the Bank of China.
- Negotiating an extension of the Bank of China working capital loan
to at least the end of December 2022.
Following the rights offer, which is expected to be concluded before
the end of December 2021, the debt:equity (excluding lease
liabilities) ratio is expected to improve to 97.9%.
There were no other material subsequent events.
REVIEW OPINION
The auditors, Mazars, have reviewed the condensed provisional
consolidated annual financial statements for the year ended June
2021 from which this condensed report has been derived and on which
an unqualified review opinion was expressed. The review opinion
includes the following significant
emphasis of matter:
Material Uncertainty Related to Going Concern
Without modifying our conclusion above, we draw attention to the
note headed 'Solvency, liquidity, and going concern' of the
condensed provisional consolidated annual financial statements, in
which it is stated that the ability of the group to continue as a
going concern is dependent on the renegotiation of
the working capital loan from the Bank of China, the planned rights
offer and the forecast cash flows from operations for the next 12
months. These events or conditions indicate that a material
uncertainty exists that may cast significant doubt on the group's
ability to continue as a going
concern.
A copy of the review opinion is available for inspection at Jasco's
registered office and on our website, www.jasco.co.za.
CHANGES TO THE BOARD AND THE COMPANY SECRETARY
On 1 March 2021, Mr Warren Prinsloo was appointed as chief executive
officer (CEO) and Miss Liska Prigge as chief financial officer
(CFO). Mr Pete da Silva stepped down as interim CEO and returned to
his duties as an alternative non-executive director to the deputy
chairman.
MCP Managerial Services Proprietary Limited, represented by Mr Joel
Naidoo, was appointed as Jasco's company secretary, with effect from
1 March 2021.
DIRECTORS' STATEMENT OF RESPONSIBILITY
This short-form announcement is the responsibility of the directors
and is only a summary of the information in the full announcement
and does not contain full or complete details and is not in itself
reviewed. The full announcement can be found on the company's
website at www.jasco.co.za or
https://senspdf.jse.co.za/documents/2021/jse/isse/JSC/JSC2021.pdf.
Copies of the full announcement may also be requested at the
company's registered office and at the office of the sponsor, at no
charge, during office hours. Any investment decision should be based
on the full announcement published on the company's website.
For and on behalf of the board
Dr ATM Mokgokong WA Prinsloo LA Prigge
(Non-executive chairman) (Chief executive officer) (Chief financial
officer)
29 October 2021
Directors and Secretary:
Dr ATM Mokgokong (Chairman), MJ Madungandaba (Deputy Chairman), DH
du Plessis*, MSC Bawa*, PF Radebe*,
TP Zondi* (Non-Executive) AMF da Silva (Alternate Non-executive), WA
Prinsloo (CEO), LA Prigge (CFO)
MCP Managerial Services (Pty) Limited (Company secretary)
*Independent
Registered office:
Jasco Park, c/o 2nd Street and Alexandra Avenue, Midrand, 1685
Transfer secretaries:
JSE Investor Services SA (Pty) Limited, 13th Floor, Rennie House, 19
Ameshoff Street, Braamfontein, 2001
Sponsor:
Grindrod Bank Limited, Fourth Floor, Grindrod Tower, 8A Protea Place,
Sandton, 2146
Date: 29-10-2021 05:24:00
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