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JSC - Jasco - Unaudited interim results for the six months ended 31 December
2011
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")
Unaudited Interim results for the six months ended 31 December 2011
Revenue up 55%
Operating profit up 30%
HEPS up 96%
Performance summary
The results for the six months to December 2011 were positively impacted by the
successful initial integration of the Jasco and Spescom businesses, the benefits
of the restructuring of the enlarged Jasco group and delivery on the group`s
strategy, as well as an improved contribution from the group`s investment in
cable manufacturer, M-TEC.
Headline earnings per share (HEPS) was up 96% to 6,9 cents per share (2010: 3,5
cents per share), with earnings per share (EPS) up 130% to 6,4 cents per share
(2010: 2,8 cents per share). The weighted average number of shares in issue
increased from 116,5 million to 140,8 million shares.
Financial overview
Group revenue increased by 55% to R493,9 million (2010: R313,4 million)
following the combination of Jasco and Spescom. Group operating profit increased
by 30% to R20,6 million (2010: R15,9 million). The increase in group operating
profit was mainly due to the improvement in the group`s largest consolidated
contributor, the ICT Solutions vertical, as well as lower once-off costs (down
to R1,2 million from R4,2 million in the comparative period). As outlined in
Divisional Performance below, the Enterprise Applications business negatively
impacted operating profit.
Net interest paid increased to R6,2 million (2010: R3,1 million), mainly due to
the expected reduction of the interest received from the group`s long term
rentals contract with Transnet Freight Rail and interest paid on the group`s
mortgage bond inherited through the Spescom acquisition.
The share of income from associates was substantially higher than the
comparative period, mainly due to the performance from M-TEC, with Jasco`s 34%
share of profit up 158% to R4,9 million from R1,9 million. The group`s other
associate, Maringo, is now no longer equity accounted following the acquisition
of a 100% stake in this business. Its contribution is therefore now part of
operating profit.
The taxation expense of R8,0 million represents an effective tax rate of 41,5%,
which is down from 50,6% for the comparative period. This unusually high rate is
mainly due to the R3,6 million preference share dividend paid (disclosed as
interest paid) and STC of R0,7 million on the ordinary and preference share
dividends. The group believes that its historic tax rate of 29% will reduce
going forward as statutory efficiencies are achieved.
Outside shareholders` interest represented R2,2 million (2010: R3,7 million),
which is attributable to Jasco`s international technology partners (LeBLANC
International and NewTelco GmbH both in the ICT Solutions vertical).
Profit attributable to ordinary shareholders was 193% up to R9,1 million (2010:
R3,1 million). A net positive headline adjustment of R0,6 million, being a loss
on the disposal of fixed assets, increased headline earnings by 148% to R9,7
million (2010: R3,9 million).
The net working capital days of 35 days improved from the 42 days reported for
December 2010. This was mainly due to the improvement in stock days from 35 days
to 31 days and the extension of creditor days to 75 days from 53 days. However,
the deterioration in debtors` days from 61 days to 80 days is less than
satisfactory and is receiving stringent focus from Jasco`s senior financial
team. The increase is mainly as a result of the short term funding required for
a major mobile network rollout in South Africa. The impact on the balance sheet
is expected to continue into the second half.
The statement of cash flows reflects the utilisation of cash to fund the
debtors` position. The net inflow from financing activities reflects the
increase on the mortgage on the group`s head office property in anticipation of
funding the FerroTech acquisition. Accordingly, Jasco`s net short term
borrowings increased from R16,9 million at the start of the period to R38,4
million at the period end.
Subsequent events
With effect from 1 January 2012, the group acquired Ferro Resonant Technologies
(Pty) Limited ("FerroTech"), a provider of specialised power solutions, products
and services. The purchase consideration of R13 million cash will be settled in
stepped payments by 30 June 2012. This acquisition secures Jasco`s entry into
the strategic power assurance market by adding power optimisation to Jasco`s
portfolio and allows the group to be a single partner for client requirements.
The historic PE ratio is 4,8 times. It is expected to be earnings enhancing from
the start.
There are no other material subsequent events to report.
Operational overview
Introduction
As reported at the year-end results in September 2011, Jasco was restructured
into three verticals - Information and Communications Technology (ICT)
Solutions, Industry Solutions and Energy Solutions - to ensure a more integrated
business development and customer focus. ICT Solutions contains the
telecommunications and information technology businesses of Jasco and Spescom,
as well as the telecommunications arm of associate M-TEC. Industry Solutions
contains the Security business and the recently acquired FerroTech, with Energy
Solutions containing Electrical Manufacturers and Lighting Structures, as well
as the energy arm of M-TEC.
The divisional operating results are therefore disclosed on the basis of the new
segments.
Divisional performance
ICT Solutions - 66% of group consolidated revenue
ICT Carrier Solutions
Revenue increased by 50% to R286,9 million (2010: R191,0 million) due to the
successful integration of the Jasco and Spescom Carrier businesses. The group
saw extensions to contracts from its fixed-line customers and initial success
from Broadcast Solutions. Spend by the major mobile operators was slow, with
only a few actively increasing their networks in South Africa. M-TEC`s
telecommunications arm saw a pleasing improvement in its contribution. Carrier`s
aggregated operating profit (including M-TEC`s contribution) of R23,1 million
was up 80% (2010: R12,9 million) and the operating margin improved from 6,8% to
8,1%. The consolidated operating profit (excluding M-TEC) of R21,8 million was
up 49%, with operating margin down to 9,6% from 10,4% on a change in sales mix
and business development investments.
ICT Enterprise Solutions
Revenue increased to R102,6 million (2010: R2,8 million) following the inclusion
of the majority of Spescom`s businesses to this part of Jasco. Spend by most of
the corporate customers was subdued, although there were some volumes from
financial and retail sectors. The defensive nature of the large annuity revenue
base in Enterprise Communications cushioned the slowdown in spend. Operating
profit for the period was R5,4 million (2010: R1,9 million loss).
As expected, the group`s Enterprise Applications business continued to
underperform, with operating profit marginally better than break-even. In
response to this, the business and management teams were right-sized and the
business was integrated into Enterprise Communications. The group is
anticipating improved customer order flows into the second half. The operating
profit of this division was therefore impacted by once-off restructuring costs
of R1,2 million, which resulted in the margin of 5,3%.
Maringo reduced its losses compared to the same period last year from R1,9
million to R1,1 million. It has also been fully integrated in the Enterprise
Communications business unit, with the impact of improved customer orders to
flow through in the second half.
Industry Solutions - 12% of group consolidated revenue
The Industry Solutions vertical delivered an improved performance in a difficult
market where major projects continued to be occasional. Revenue increased by 4%
to R60,4 million (2010: R57,9 million) and operating profit increased by 19% to
R4,6 million (2010: R3,9 million). The entry into fire solutions contributed to
the revenue growth in this period. Margins remained under pressure in a
competitive environment, although it did improve from 6,7% to 7,6% on the back
of cost savings.
Energy Solutions - 22% of consolidated group revenue
This vertical showed a pleasing improvement. Revenue increased by 25% to R665,5
million (2010: R531,1 million) due to an improvement by M-TEC. Although Energy
Solutions` operating profit increased by 20% to R28,8 million (2010: R24,1
million), the operating margin was impacted by labour strikes during July at all
production facilities and the factory move at Electrical Manufacturers. The
operating margin at the end of the period was 4,3% (2010: 4,5%).
The overall improved performance of M-TEC was mainly due to strong volumes in
the Aluminium plant, combined with Jasco and the new management team`s focus on
increased efficiencies. This was somewhat offset by continued production and
product issues at M-TEC`s Power Cable plant.
Consolidated revenue (excluding M-TEC) of R108,1 million is 10% down on the
R120,6 million in the comparative period. The consolidated operating profit of
R10,9 million was down 25% and operating margin was down to 10,1% from 12,1% due
to the lower production which impacted sales volumes. Lighting Structures, in
particular, was hard hit by a combination of the July strikes and steel supply
shortages in the first half, coupled with lower sales.
Prospects
The newly restructured Jasco has laid the foundation for its future growth.
Further cost savings are set to be extracted from the business, such as the
benefits from rightsizing and the impact of merged businesses and lower
compliance and other costs.
The benefits of operating as an integrated group, with clear verticals focused
on targeted customer segments, have only started to kick in, with the medium and
longer term outlook positive and several strategic opportunities in the short
term. The group`s sales initiatives have already improved through a focused
performance and delivery culture and the start of cross-selling initiatives.
The group`s bolt-on acquisition plan is on schedule, without sacrificing focus
on organic growth and addressing problem areas in the business.
In the ICT Solutions vertical, the group will continue to focus on growing
market share in the mature Carrier space. The vertical has already experienced
increased orders from current and new clients due to a more focused sales
offering. In the Enterprise business, the benefits of a lower cost base due to
rightsizing in a tough market will flow through in the second half, with the aim
to extract value from those customers where spend is taking place. The high
level of annuity income in Enterprise Communications through ongoing service
level agreements will continue to provide some protection in the medium term.
The second vertical, Industry Solutions, also has an established annuity income
base to ensure stability. The focus in the near future will be on completing the
group`s entry into the fire solutions market and to expand the Jasco offering
nationally. The group`s diversification into other sectors outside of financial
services has had some success, with the mining sector being a short term focus
due to some spend taking place in this area. The entry into the power
optimisation market through the acquisition of FerroTech will complement Jasco`s
offering, while Industry Solutions will continue to expand its offering in
building management.
The Energy Solutions vertical will continue to drive its strategy of bolt-on
acquisitions to position Jasco as a Tier 2 solutions provider in transmission,
distribution and balance of plant business. In the next six months, the focus
within M-TEC will be on ensuring that remaining problems are addressed in the
Power Cable plant and to grow market share aggressively by moving the sales and
marketing office closer to customer locations. A new Taihan technical and
operations team has been deployed to South Africa, which is expected to result
in further production and operational improvements. Lighting Structures will
target municipalities through transmission and distribution contractors, as well
as actively driving supplier agreements with renewable independent power
producers (IPPs). The relocation and integration of the factories within
Electrical Manufacturers will allow for increased production capacity, reliable
power supply and improved operational efficiencies over the next six months.
As outlined at the last reporting period, management has taken strong action in
terms of ensuring strategic delivery, with the focus over the next six months to
be on M-TEC and Enterprise Applications, extracting further cost savings and
improving working capital management.
The group remains committed to ensuring earnings enhancement through both
organic and acquisitive growth, whilst improving the return on equity on a
sustainable basis.
Any forecast or forward looking information included in this announcement has
not been reviewed and reported on by the company`s independent auditors.
Basis of preparation
The unaudited results comply with IAS 34 - Interim Financial Reporting. The
accounting policies and methods of computation used in the preparation of this
report are consistent with those used in the preparation of the annual financial
statements for the year ended 30 June 2011, which comply with International
Financial Reporting Standard ("IFRS"), the Listings Requirements of the JSE
Limited and the Companies Act (2008) of South Africa.
Changes to the board
The Jasco board thanks Mrs Noriah Sepuru, the former Group Company Secretary,
for her dedication and service to the company during her tenure. The Jasco board
also wishes to extend a warm welcome to Ms Shireen Lutchan who joined Jasco as
the Group Company Secretary with effect from 5 January 2012.
Dividend
In line with the group`s annual policy, the board has not declared an interim
dividend.
For and on behalf of the board
Dr ATM Mokgokong
(Non-executive chairman)
AMF da Silva
(Chief executive officer)
WA Prinsloo
(Financial director)
6 February 2012
Summarised consolidated statements of comprehensive income
(R`000) Note Unaudited Unaudited % Audited
Dec 2011 Dec 2010 change June 2011
6 months 6 months 12 months
Revenue 493 940 317 934 55,4 773 038
Turnover 490 855 313 431 56,6 763 498
Interest received 3 085 4 503 9 540
Operating profit before 20 569 15 875 29,6 28 802
interest and taxation
Interest received 3 085 4 503 (31,5) 9 540
Interest paid (9 276) (7 636) 21,5 (17 972)
Equity accounted income 4 937 1 012 387,8 4 506
from associates
Profit before taxation 19 315 13 754 40,4 24 876
Taxation (8 057) (6 963) 15,7 (11 356)
Profit for the 11 258 6 791 65,8 13 520
period/year
Other comprehensive 625 - 316
income
Total comprehensive 11 883 6 791 65,8 13 836
income for the
period/year
Profit attributable to:
- minority shareholders 2 177 3 694 (41,1) 3 994
- equityholders of the 9 081 3 097 193,2 9 526
parent
Profit for the 11 258 6 791 65,8 13 520
period/year
Total comprehensive
income attributable to:
- minority shareholders 2 177 3 694 (41,1) 3 994
- equityholders of the 9 706 3 097 213,4 9 842
parent
Profit for the 11 883 6 791 75,0 13 836
period/year
Reconciliation of
headline earnings
Net earnings 9 081 3 097 193,2 9 526
attributable to
equityholders of the
parent
Headline earnings 584 803 7 664
adjustments
- Fair value adjustment on - - 2 787
disposal of associate
- Gain on bargain purchase - - (31 714) (31 714)
Spescom
- Impairment of M-TEC - 31 932 31 932
- Impairment of trade names - - 4 353
- Loss on disposal of fixed 584 585 306
assets
Headline earnings 9 665 3 900 147,8 17 190
Number of shares in 146 399 114 509 128 226
issue (`000)
Treasury shares (`000) 5 599 2 952 5 481
Weighted average number 140 801 111 557 122 745
of shares on which
earnings per share is
calculated (`000)
Dilutive shares - CEO 1 - 4 991 -
share incentive scheme
(`000)
Weighted average number 140 801 116 548 122 745
of shares on which
diluted earnings per
share is calculated
(`000)
Ratio analysis
Attributable earnings 9 081 3 097 193,2 9 526
(R`000)
EBITDA (R`000) 31 120 21 723 43,3 53 275
Earnings per share 6,4 2,8 130,3 7,8
(cents)
Diluted earnings per 6,4 2,7 138,9 7,8
share (cents)
Headline earnings per 6,9 3,5 96,1 14,0
share (cents)
Diluted headline 6,9 3,3 108,0 14,0
earnings per share
(cents)
Dividend per share - - 3,0 3,0
interim (cents)
Dividend per share - - - 2,5
final (cents)
Net asset value per 189,9 226,1 (16,0) 229,5
share (cents)
Net tangible asset 123,5 155,4 (20,5) 148,3
value per share (cents)
Debt:Equity (%) 47,5 48,1 43,8
Interest cover (times) 4,1 5,4 (23,7) 4,9
Note:
1. In terms of the Jasco Share Option Scheme as set out in the
circular dated 31 May 2007, an additional 4 990 786 shares can be
issued to the CEO provided certain profit targets are met.
Summarised consolidated statements of financial position
(R`000) Unaudited Unaudited Audited
Dec 2011 Dec 2010 Jun 2011
ASSETS
Non-current assets 436 566 441 856 449 504
Property, plant and equipment 105 691 98 658 102 685
Investment in associates 185 035 175 816 180 098
Intangibles 114 598 101 402 114 355
(Net) deferred tax asset 6 830 21 386 23 383
Other financial assets 24 412 44 594 28 983
Current assets 313 913 317 459 304 999
Inventories 74 421 85 816 79 824
Trade and other receivables 239 492 173 859 196 989
Taxation prepaid - 6 410 6 385
Cash and cash equivalents - 51 374 21 801
Total assets 750 479 759 315 754 503
EQUITY AND LIABILITIES
Share capital and reserves 346 611 339 660 343 198
Non-current liabilities 150 554 157 545 153 565
Interest bearing liabilities 149 333 134 972 136 253
Deferred maintenance revenue 1 221 5 027 1 292
Deferred tax liability - 17 546 16 020
Current liabilities 253 314 262 110 257 740
Interest bearing liabilities 15 160 28 333 14 655
Bank overdraft 38 414 31 931 38 735
Non-interest bearing liabilities 197 088 195 622 199 167
(Net) taxation liability 2 652 6 224 5 183
Total equity and liabilities 750 479 759 315 754 503
Summarised consolidated statement of change in equity
(R`000) Unaudited Unaudited Audited
Dec 2011 Dec 2010 Jun 2011
6 months 6 months 12 months
Attributable to equity holders of the
parent
Opening balance 323 363 280 132 280 132
Share capital to be issued - 44 008 44 008
Treasury shares - Share Incentive - (15) 1 016
Trust
Transactions between shareholders (3 187) - (8 100)
Share based payment reserve 600 600 (189)
Total Comprehensive income 10 331 3 097 9 842
- Profit for the period/year 9 706 3 097 9 526
- Other comprehensive income 625 - 316
Dividends declared (3 195) (3 435) (3 346)
Closing balance 327 912 324 387 323 363
Minority interests
Opening balance 19 835 11 579 11 579
Subsidiaries acquired during the - - (3 838)
period/year
Transactions between shareholders (3 313) - 8 100
Total comprehensive income 2 177 3 694 3 994
- Profit for the period/year 2 177 3 694 3 994
- Other comprehensive income - - -
Dividends paid to subsidiaries - - -
Closing balance 18 699 15 273 19 835
Total equity 346 611 339 660 343 198
Summarised consolidated statement of cash flows
(R`000) Unaudited Unaudited Audited
Dec 2011 Dec 2010 Jun 2011
6 months 6 months 12 months
Cash generated from operations before 33 077 21 938 49 066
working capital changes
Working capital changes (38 674) (22 517) (46 086)
Cash (utilised in)/generated from (5 597) (579) 2 980
operations
Net financing costs (6 191) (3 133) (8 432)
Net taxation paid (3 670) (11 667) (22 572)
Dividends paid (3 195) - (3 346)
Cash flow from operating activities (18 653) (15 379) (31 370)
Cash flow from investing activities (10 586) 51 088 41 173
Cash flow from financing activities 7 759 (11 627) (22 098)
(Decrease)/Increase in cash resources (21 480) 24 082 (12 295)
Summarised segmental reports
31 Dec 2011 31 Dec 2010
(Unaudited) (Unaudited)
(R`000) Revenue Operating Revenue Operating
profit/ profit/
(loss)* (loss)*
ICT - Carrier 286 931 23 090 190 956 12 850
ICT - Enterprise 102 638 5 354 2 843 (1 867)
Industry 60 381 4 626 57 859 3 902
Solutions
Energy Solutions 665 502 28 796 531 146 24 067
Sub-total 1 115 452 61 866 782 804 38 952
operating
divisions
Other 223 (17 654) 324 (14 384)
Adjustments (621 735) (23 643) (465 194) (8 693)
Total 493 940 20 569 317 934 15 875
Summarised segmental reports
30 June 2011
(Audited)
(R`000) Revenue Operating
profit/
(loss)*
ICT - Carrier 426 705 23 231
ICT - Enterprise 121 640 11 213
Industry Solutions 107 367 7 922
Energy Solutions 1 117 883 55 480
Sub-total operating divisions 1 773 595 97 846
Other 6 380 (42 746)
Adjustments (1 006 (26 298)
937)
Total 773 038 28 802
* Segmental revenue and operating profit/(loss) includes the revenue
and profit from the associates (ICT Carrier and Energy Solutions) as
well as the gross and net interest on the finance lease receivable
(Industry Solutions) and is stated before making adjustments for inter-
group interest and administration fees.
Directors
Dr ATM Mokgokong (Non-Executive Chairman), MJ Madungandaba (Non- Executive
Deputy Chairman), JC Farrant (Lead Independent Non-Executive), Dr J Rothbart
(Non-Executive), JA Sherry (Non-Executive), M Malebye (Independent Non-
Executive), H Moolla, (Independent Non-Executive), AMF da Silva (CEO),WA
Prinsloo (CFO) (Executives), S Lutchan (Group Company Secretary)
Registered office
Jasco Park, C/O 2nd Road & Alexandra Avenue, Midrand, 1685
Transfer secretaries
Link Market Services SA (Pty) Ltd
13th Floor Rennie House, 19 Ameshoff Street, Braamfontein, 2001
Sponsor
Grindrod Bank Limited
Building 3, 1st Floor, North Wing, Commerce Square, 39 Rivonia Road, Corner
Helling Road, Sandton 2156
Date: 06/02/2012 08:00:02 Supplied by www.sharenet.co.za
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