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Audited Results And dividend declaration for the year 30 June 2016
JASCO ELECTRONICS HOLDINGS LIMITED
Registration number 1987/003293/06
JSE share code: JSC
ISIN: ZAE000003794
("Jasco" or "the company" or "the group")
AUDITED RESULTS AND DIVIDEND DECLARATION FOR THE YEAR 30 JUNE 2016
2016 IS A YEAR OF RECOGNITION AS WE CELEBRATE 40 YEARS OF STRIVING FOR EXCELLENCE.
THIS YEAR HAS ALSO BEEN A YEAR OF STABILITY AND CONSOLIDATION.
REVENUE -4% R1,076b
PBIT +158% to R41,7m
CASH GENERATED +268% to R38,7m
HEPS +164% to 6,3cps
DIVIDEND PER SHARE 2 cents
INTRODUCTION
South Africa as a country had one of the most challenging years, which resulted in
extremely tough conditions. This was even more pronounced in the second half of the year.
The financial year was therefore characterised by a strong first half and a much
weaker second half on the sharp downturn in the local economy in 2016, with
the volatile exchange rate impacting the group negatively. Despite the lower sales
volumes in the second half, the overall result for the financial year was pleasing,
with the restructured business proving its defensive capability, with all business units
contributing to profits.
The main achievements and disappointments for the year were:
Achievements:
- the sale of M-TEC and the receipt of the first R20 million in proceeds;
- the reduction in long-term debt and the improved gearing ratio from 73% to 54%;
- the strong top- and bottom-line growth in Intelligent Technologies;
- the effective return on assets managed (ROAM) by the Carrier business;
- the customer diversification at Electrical Manufacturers, with volumes from new
customers in the fourth quarter;
- the stabilisation of the Enterprise business following R32,3 million cost reductions
during the year; and
- the excellent cash generation from operations of R79,4 million.
Disappointments:
- lack of growth in the South African market;
- exchange rate volatility; and
- although an improvement, the progress in the Enterprise business unit turnaround
was slower than expected.
FINANCIAL OVERVIEW
STATEMENT OF COMPREHENSIVE INCOME
Revenue decreased by 4,2% to R1,076 billion (2015: R1,124 billion) on lower volume
growth, particularly in the second half.
The contributors to revenue were:
2016 2015
R'm % change R'm
Carriers R414,2 – R414,3
Enterprise R318,0 (16,4) R380,4
Intelligent Technologies R190,7 15,8 R164,6
Electrical Manufacturers R165,8 (5,2) R174,9
Operating profit was R41,7 million compared to the operating loss of R72,5 million in
2015 following once-off impairments and adjustments of R101,1 million in 2015.
On a like-for-like basis, the adjusted underlying operating profit improved by 46% from
R28,6 million in 2015 to R41,7 million, mainly due to the cost reductions offsetting
the impact of the lower sales volumes. The net operating margin of 3,9% improved
appreciably on last year's 2,6%.
Net interest costs of R15,2 million decreased from R16,0 million due to the reduction
in interest paid following the part repayment of long-term debt, as well as the
decrease in the overdraft.
The taxation charge of R10,5 million compares to a credit of R6,3 million in 2015
on higher profitability achieved in this financial year.
Earnings of R14,2 million increased by 117% (2015: R83,3 million loss) and
earnings per share (EPS) was up to 6,3 cents per share (2015: 38,7 cents loss per
share). Headline earnings of R14,1 million increased by 175% (2015: R5,1 million)
and headline earnings per share (HEPS) increased by 164% to 6,3 cents per share
(2015: 2,4 cents per share). The weighted average number of shares in issue was
higher at 224,6 million shares versus 215,2 million shares in 2015 following the
issue in April 2015 to reduce debt.
STATEMENT OF FINANCIAL POSITION
INVESTMENT IN M-TEC
The investment was sold for R60 million during the year, with the first R20 million in
proceeds received in May 2016. The balance of R40,0 million is reflected as a
receivable. The next payment is expected in November 2016 followed by monthly
payments of R1,5 million over the next three years. The balance will attract interest
at the prevailing prime interest rate and is secured by a pledge of the M-TEC shares.
Jasco will retain representation on the M-TEC board until the proceeds are fully
settled.
INTANGIBLE ASSETS AND GOODWILL
In the prior year, the intangibles related to the voice transaction management
applications (technology-related) were expected to reach their end of life in 2017
due to their replacement by cloud-based applications, and were consequently fully
impaired. However, during the current year it became evident that the take-up of
cloud-based applications was progressing at a much slower than initially expected
rate. Additionally, the continued demand for the existing premises-based applications
required further development at a cost of R9,5 million.
Goodwill was unchanged from R65,8 million in 2015 following impairments of
R19,4 million in the prior year. This assessment is conducted in accordance with
Jasco's accounting policy to annually test the carrying value of goodwill.
FIXED ASSETS
Fixed assets of R61,1 million (2015: R59,4 million) increased slightly on capital
expenditure of R14,5 million (2015: R15,6 million). This relates mainly to plant and
machinery for the Electrical Manufacturers business unit, electronic equipment and IT
network upgrade.
LONG-TERM LIABILITIES
The R100 million corporate bond issued in 2015 in terms of the Domestic Medium
Term Note Programme was partly redeemed by R10 million in the current financial
year. The corporate bond attracts interest at the equivalent of the prime lending
rate and is repayable in January 2018. Other term debt was also reduced by
R10 million.
WORKING CAPITAL
Jasco's working capital management remained an area of focus, with an overall
reduction of R16,4 million achieved.
Inventories increased from R99,3 million to R108,7 million, mainly due to higher
volumes in Intelligent Technologies and Electrical Manufacturers, which increased
stock levels on the execution of its customer diversification strategy.
Trade and other receivables decreased from R370,7 million to R261,9 million on a
combination of good cash collections and lower second half volumes.
Trade and other payables also decreased from R296,8 million to R208,2 million in
line with the decrease in sales volumes, especially in the fourth quarter of the 2016
financial year.
Deferred maintenance revenue increased from R44,4 million to R63,1 million and
relates mainly to service level agreements from the Enterprise business unit.
STATEMENT OF CASH FLOWS
The statement of cash flows reflects a 61% improvement in cash generated from
operations before working capital changes, with a cash inflow of R62,9 million
compared to R39,1 million in 2015. Working capital changes reflect an inflow of
R16,4 million (2015: R22,5 million outflow) on a decrease in both receivables and
payables.
The net interest payment amounted to R15,9 million (2015: R16,0 million), while
income tax payments of R8,9 million were higher than R4,3 million in the prior year.
Total cash inflows from operating activities of R54,5 million compares favourably to
the R3,7 million outflow in 2015.
Investing activities saw an inflow of R7,3 million (2015: R7,8 million outflow) related
mainly to the proceeds from the M-TEC sale, which were somewhat offset by the capital
expenditure mentioned above. Financing activities saw an outflow of R23,1 million
(2015: R11,6 million outflow) on the R20 million reduction of long-term liabilities, as
discussed earlier.
Accordingly, Jasco's net bank position of R7,3 million improved from a R31,2 million
overdraft. The trend is expected to continue due to the cash-generative nature of
Jasco's profitability and management's focus on maintaining optimal working capital
levels.
KEY INTERNAL INITIATIVES
The following key internal initiatives are underway:
REDUCING DEBT LEVELS AND THE INTEREST BURDEN
Management made good progress during the year to reduce long-term debt
following the receipt of the first R20 million in M-TEC sale proceeds. The priority is
to continue reducing the corporate bond obligation and the funding of the group's
working capital requirements on receipt of the proceeds from the sale of M-TEC over
the next three financial years. These expected inflows, coupled with the stronger
cash generation expected from Jasco going forward due to higher profitability
levels from all business units, will allow the group to continue reducing its gearing
profile. The board has reviewed the target gearing ratios and maintained the
maximum level of long-term debt target at 50% of equity. The gearing percentage is
54%. Excluding project funding for a long-term rental contract it is 43%, which is in
line with the group's maximum threshold.
IMPROVING PROFITABILITY OF THE ENTERPRISE BUSINESS
Although results improved from last year, the desired improvement in the profitability
of this business was not achieved. The business unit will remain on the watch list
to ensure that the improvement in 2016 translates to a meaningful level of profit
in 2017.
WORKING CAPITAL MANAGEMENT
The continued focus on working capital during the year is evident in the cash flows
generated. Management will maintain this focus on a continued basis.
OPERATIONAL REVIEWS
The Jasco structure remained unchanged during the year.
CARRIERS
The Carriers business unit delivers products and services across the telecommunications
value chain, from design and planning of networks to configuration, integration and
support. As a systems integrator and distributor, its proven solutions focus on access,
transmission and operational support systems of telecommunications networks across the
African continent.
YEAR UNDER REVIEW
During the year, operators continued focusing on network cost reductions. This resulted
in constrained capex spending. Notwithstanding this, the business unit managed
to maintain new orders and revenue levels by deploying additional optical network
infrastructure for the two large fixed-line network operators in South Africa, as they catered
for the continued demand of data services and in-building coverage solutions for mobile
network operators. Additionally, the portfolio was diversified to cater for the increase in
demand for products and solutions such as fibre to the home and business (FTTX).
Orders showed a minimal increase year-on-year of 2% to R443,3 million, which
resulted in flat revenue at R414,2 million compared to last year's R414,3 million.
Operating profit was down by 1% from R48,3 million to R47,8 million due to the
exchange rate volatility. Nevertheless, the Carriers business unit still delivered a
healthy operating margin of 11,5% (2015: 11,7%) and remains Jasco's largest profit
contributor.
ENTERPRISE
The Enterprise business unit delivers end-to-end solutions, including contact centres,
unified communications, workforce optimisation, IT infrastructure and security and fire
solutions to corporates in Southern and East Africa.
YEAR UNDER REVIEW
The year under review continued to be difficult due to tough trading conditions in
South Africa. Even though a better result than last year was achieved, this business
unit is still not achieving the targeted profitability levels due to the continued
complexity in its restructuring and tough market conditions. However, the East Africa
office and the fire solutions division delivered strong performances. The enterprise
resource planning (ERP) system was successfully implemented, which now allows management
to determine profitability levels by customer. This has already resulted in exiting
projects that do not meet the minimum profit targets.
Revenue was down by 16,4% to R318,0 million compared to last year, largely
due to tough trading conditions and the business unit prioritising profitable projects.
Operating profit was up by 299,6%, off a low base, to R3,7 million.
Additionally overhead cost reductions of R32,3 million were achieved during the
year. Focus on diversification into new territories, ongoing cost containment and
ensuring critical mass through targeted bolt-on acquisitions will ensure that the
business unit continues its return to more sustainable profitability levels.
INTELLIGENT TECHNOLOGIES
Intelligent Technologies comprises broadcast solutions, smart buildings, data centres,
water management, power solutions and renewable energy solutions.
YEAR UNDER REVIEW
In line with the group's strategy of creating a business unit focussed on new and
developing markets two years ago, Intelligent Technologies continued to deliver
good growth, with a 15,8% increase in revenue to R190,7 million from R164,6 million
and a 31,9% increase in operating profit to R17,5 million from R13,3 million.
The operating profit percentage continued to improve from 8,1% to 9,2%.
The increase in revenue during the year was attributable to significant growth in the
power solutions business where there was continued demand for power quality and
power assurance solutions. The broadcast solutions business delivered a robust result,
with projects outside South Africa contributing significantly. The property technology
management business showed significant progress during this period and in excess
of 500 properties are now under Jasco's management.
ELECTRICAL MANUFACTURERS
The Electrical Manufacturers business unit is a component manufacturer of plastic
products, wire harnesses and metal pressings, with a special focus on the large and
small home appliances market in South Africa.
YEAR UNDER REVIEW
The business unit was impacted by both the low growth and exchange rate volatility
in South Africa, with a 5,2% decrease in revenue to R165,8 million from
R174,9 million and a 2,7% decrease in operating profit to R12,6 million from
R12,9 million. The operating margin continued to improve from 7,4% to 7,6% on
improved gross margins and tight cost control.
The revenue decline during the year was attributable to lower volumes from its major
customer on a depressed South African consumer market. Good progress was made
in the latter part of the year on diversifying the customer base, with two new large
customers secured and initial new sales volumes coming through in the fourth quarter.
GROUP PROSPECTS
The current economic climate is expected to prevail throughout 2017. To mitigate
this, Jasco will continue to execute its strategy and focus on the following key areas:
- Maintain our focus on costs and ensure a return to acceptable and sustainable
profitability levels in the Enterprise business
- Reduce financial gearing to less than 50% by utilising the expected proceeds
from the M-TEC disposal and cash generated by Jasco's operations
- Continue the transformation of Jasco, with black ownership, employment equity
and skills development a key priority, and improve the group's broad-based black
economic empowerment rating.
- Continue the expansion into the rest of Africa by leveraging off the recently
established base in Kenya
- Establish a presence in the UAE based on current customer geographic
expansion with a particular focus on Renewable Energy in the Middle East market
- Evaluate bolt-on acquisitions to ensure smaller businesses achieve the required
critical mass
Shareholders are advised that any forward looking information or statements
contained in this announcement have not been reviewed or reported on by Jasco's
independent auditors.
SUBSEQUENT EVENTS
There are no material subsequent events to report, apart from the dividend declared.
CHANGES TO THE BOARD
There were no changes to the board during the year under review. Sir JA Sherry
retired from the board on 13 September 2016. The board acknowledges him for his
40 years of service and his continued dedication as the founder of Jasco.
DIVIDEND
Jasco's board is pleased to declare a dividend of 2 cents per share, after four years
of no dividends.
Declaration and finalisation announcement date Monday, 26 September 2016
Last day to trade cum entitlement Tuesday, 11 October 2016
Shares trade ex-entitlement Wednesday, 12 October 2016
Record date Friday, 14 October 2016
Payment date Monday, 17 October 2016
Shares may not be dematerialised or rematerialised between Wednesday, 12 October
2016 and Friday, 14 October 2016.
In compliance with the JSE Listings Requirements, the following additional information
is disclosed:
1. the dividend has been declared out of income reserves;
2. the local Dividend Withholding Tax rate is 15%;
3. the gross local dividend amount is 2,00 cents per share for shareholders exempt
from paying Dividend Withholding Tax;
4. the net local dividend amount is 1,70 cents per share for shareholders liable to
pay Dividend Withholding Tax;
5. the issued share capital of Jasco is 229 319 191 ordinary shares; and
6. Jasco's income tax reference number is 9300/183/71/3.
For and on behalf of the board
Dr ATM Mokgokong AMF da Silva WA Prinsloo
(Non-executive chairman) (Chief executive officer) (Chief financial officer)
23 September 2016
BASIS OF PREPARATION
The summarised consolidated results have been prepared in accordance with
International Financial Reporting Standards ("IFRS"), IAS 34 Interim Financial
Reporting Standards, the SAICA Financial Reporting Guides as issued by the
Accounting Practices Committee, the Financial Reporting Pronouncements as
issued by the Financial Reporting Standards Council, the South African Companies
Act, 71 of 2008, as amended and the Listings Requirements of the JSE Limited.
The accounting policies and methods of computation used in the preparation of this
report are consistent with those of the previous year. These summarised consolidated
financial statements, which were derived from the underlying audited consolidated
financial statements for the year ended 30 June 2016, have not been audited.
The directors take full responsibility for the preparation of the abridged report and
the financial information has been correctly extracted from the underlying audited
financial statements. The auditors, Ernst & Young Inc., have audited the consolidated
annual financial statements for the year ended 30 June 2016 from which this
summarised report has been derived and on which an unmodified opinion was
expressed. The annual financial statements and a copy of the unmodified audit
opinion are available at Jasco's registered office.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair values of financial instruments are determined using appropriate valuation
techniques, including recent market transaction and other valuation models, have
been applied and significant inputs include exchange rates. The group only has
assets that are carried at fair value in level 2. There is no difference between the fair
value and carrying value of financial instruments not presented below due to either
the short-term nature of these items, or the fact that they are priced at variable interest
rates.
FAIR VALUE HIERARCHY
Financial instruments carried at fair value in the statement of financial position (R'000):
– Financial assets at fair value through profit or loss 210
– Financial liabilities at fair value through profit or loss 5 009
SUMMARISED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Audited Audited
30 June 30 June
(R'000) 2016 2015 change
Revenue 1 076 429 1 123 818 (4,2)
Turnover 1 070 033 1 117 431 (4,2)
Finance income 6 396 6 387 0,1
Operating profit/(loss) before
interest and taxation 41 677 (72 456) 157,5
Finance income 6 396 6 387 0,1
Finance costs (21 596) (22 433) 3,7
Equity accounted share of loss
from associate – (689) 100,0
Profit/(loss) before taxation 26 477 (89 191) 129,7
Taxation (10 534) 6 343 (266,1)
Profit/(loss) for the year 15 943 (82 848) 119,2
Other comprehensive income 31 (1 190)
Total comprehensive income/
(loss) for the year 15 974 (84 038) 119,0
Profit/(loss) attributable to:
– non-controlling interests 1 765 424 316,3
– ordinary shareholders of the
parent 14 178 (83 272) 117,0
Profit/(loss) for the year 15 943 (82 848) 119,2
Total comprehensive (loss)/income
attributable to:
– non-controlling interests 1 765 424 316,3
– ordinary shareholders of the
parent 14 209 (84 462) 116,8
Total comprehensive income/
(loss) for the year 15 974 (84 038) 119,0
Reconciliation of headline
earnings
Net earnings attributable to
equityholders of the parent 14 178 (83 272) 117,0
Headline earnings adjustments (47) 88 409 (100,1)
- profit on disposal of subsidiary/business
unit – (777)
– loss on disposal of associate
held for sale –M-TEC 255 –
– loss on re-measurement of
associate held for sale -M-TEC – 57 421
– impairment of intangible assets - 29 560
– net (profit)/loss on disposal of
fixed assets (302) 2 205 (113,7)
Headline earnings 14 131 5 137 175,1
Number of shares in issue ('000) 229 319 229 319
Treasury shares ('000) 4 704 5 129
Weighted average number of
shares on which earnings per
share is calculated ('000) 224 616 215 155
Dilutive share options ('000) 105 –
Weighted average number of
shares on which diluted earnings
per share is calculated ('000) 224 720 215 155
Ratio analysis
Attributable earnings 14 178 (83 272) 117,0
EBITDA 57 024 37 994 50,1
Earnings per share (cents) 6,3 (38,7) 116,3
Diluted earnings per share (cents) 6,3 (38,7) 116,3
Headline earnings per share (cents) 6,3 2,4 163,5
Diluted headline earnings per
share (cents) 6,3 2,4 163,4
Net asset value per share (cents) 100,1 92,7 8,0
Net tangible asset value per share (cents) 60,6 57,0 6,2
Debt:Equity (%) 53,7 73,3 (26,7)
Interest cover (times) 2,7 1,0 175,5
EBITDA interest cover (times) 3,8 2,4 58,4
SUMMARISED CONSOLIDATED SEGMENTAL REPORT
30 June 2016 30 June 2015
Income and expenses Operating Operating
(R'000) (Audited) Revenue profit/(loss) Revenue profit/(loss)
Carriers 414 153 47 778 414 319 48 293
Enterprise 317 960 3 736 380 385 935
Intelligent Technologies 190 697 17 549 164 631 13 302
Electrical Manufacturers 165 762 12 600 174 906 12 947
Sub-total operating divisions 1 088 572 81 663 1 134 241 75 477
Other 2 442 (36 786) 895 (42 716)
Adjustments (14 585) (3 200) (11 318) (105 217)
Total 1 076 429 41 677 1 123 818 (72 456)
Financial position
(R'000) (Audited) Assets Liabilities Assets Liabilities
Carriers 151 209 40 307 195 008 100 854
Enterprise 147 783 94 507 194 373 135 929
Intelligent Technologies 84 428 50 935 105 593 67 087
Electrical Manufacturers 84 301 23 382 78 749 20 103
Sub-total operating divisions 467 721 209 131 573 723 323 973
Other 100 213 191 875 113 237 214 991
Adjustments 64 726 (195) 62 463 (2 644)
Total 632 660 400 811 749 423 536 320
SUMMARISED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Audited Audited
30 June 30 June
(R'000) 2016 2015
ASSETS
Non-current assets 223 974 203 254
Plant and equipment 61 082 59 419
Intangible assets 88 731 79 891
Investment in associate – –
Deferred income tax 31 779 37 483
Other non-current assets 42 382 26 461
Non-current asset held for sale – 58 000
Current assets 408 686 488 169
Inventories 108 722 99 301
Trade and other receivables 261 899 370 712
Taxation refundable 6 131 4 037
Short-term portion of other non-current assets 24 678 13 276
Cash and cash equivalents 7 256 843
Total assets 632 660 749 423
EQUITY AND LIABILITIES
Shareholders' equity 231 849 213 103
Non-current liabilities 110 747 134 712
Interest-bearing liabilities 104 717 126 901
Deferred maintenance revenue 2 721 3 355
Deferred income tax 3 309 4 456
Current liabilities 290 064 401 608
Short-term interest-bearing liabilities 19 818 29 235
Bank overdraft – 31 983
Non-interest bearing liabilities 208 187 296 804
Deferred maintenance revenue 60 403 41 093
Taxation payable 1 656 2 493
Total equity and liabilities 632 660 749 423
SUMMARISED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Audited Audited
30 June 30 June
(R'000) 2016 2015
Attributable to equity holders of the parent
Opening balance 207 768 286 581
Issue of share capital – 5 948
Treasury shares -Share Incentive Trust 680 –
Transactions with non-controlling shareholders – (1 105)
Share based payment reserve 2 092 806
Total comprehensive income 14 209 (84 462)
– Profit/(loss) for the year 14 178 (83 272)
– Other comprehensive income 31 (1 190)
Closing balance 224 749 207 768
Non-controlling interest
Opening balance 5 335 1 111
Transactions with non-controlling shareholders 3 963
Total comprehensive income 1 765 424
– Profit for the year 1 765 424
– Other comprehensive income – –
Dividends paid to non-controlling shareholders – ( 163)
Closing balance 7 100 5 335
Total equity 231 849 213 103
SUMMARISED CONSOLIDATED STATEMENT OF CASH FLOWS
Audited Audited
30 June 30 June
(R'000) 2016 2015
Cash generated from operations before working
capital changes 62 943 39 081
Working capital changes 16 412 (22 460)
Cash generated from operations 79 355 16 621
Net financing costs paid (15 934) (16 046)
Net taxation paid (8 908) (4 253)
Cash flow from operating activities 54 513 (3 678)
Cash flow from investing activities 7 266 (7 795)
Cash flow from financing activities (23 081) (11 557)
Increase/(decrease) in cash resources 38 698 (23 030)
Directors and secretary: Dr ATM Mokgokong (Chairman), MJ Madungandaba (Deputy Chairman),
JC Farrant*, H Moolla*, S Bawa (Non–Executives), AMF da Silva (CEO), WA Prinsloo (CFO)
(Executives), Sekretari (Pty) Ltd – D du Plessis (Company Secretary) *Independent
Registered office: Jasco Park, C/O 2nd Street & 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, Fourth Floor, Grindrod Tower, 8A Protea Place, Sandton, 2146
More information is available at: www.jasco.co.za
Date: 26/09/2016 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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