Wrap Text
Unaudited Interim Results for the six months ended 31 December 2016
JASCO ELECTRONICS HOLDINGS LIMITED
Registration number 1987/003293/06
JSE share code: JSC
ISIN: ZAE000003794
("Jasco" or "the company" or "the group")
UNAUDITED INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2016
REVENUE
-7%
to R521,1m
EPS
+10%
to 6.28cps
HEPS
+11%
to 6.34cps
GEARING
-40%
to 38.8%
INTRODUCTION
Operational performance
In spite of the difficult economic conditions in South Africa and the continued
negative impact of the exchange rate during the period, Jasco's first half performance
was pleasing, with the benefit of focusing on improving margins rather than revenue
growth evident in the results.
The main contributors to the results - representing 64% of group revenue - were:
- Electrical Manufacturers, bucking the market conditions and delivering a strong
top and bottom line performance, mainly due to the diversification strategy, with
new customers adding to volumes.
- Intelligent Technologies delivering another pleasing performance in spite of
lower revenue in Power and Renewables.
- Enterprise continuing to make progress on improving its profitability, with a further
reduction in the cost base following the planned exit from an unprofitable security
contract. This negatively impacted volumes during the period.
The Carrier business - representing 36% of group revenue - disappointed on
lower revenue, with reduced spend by the major telecommunications operators
due to consolidation in the market. This business was worst affected by the volatile
exchange rate.
Sale of investment in M-TEC
The majority of the proceeds of R40 million from the sale of Jasco's investment in
M-TEC was received in the second quarter. It was firstly allocated to interest and
secondly to capital. The remaining balance of R2,2 million is expected to be settled
before the end of the financial year. This continues to accrue interest.
Domestic Medium-Term Note Programme (DMTN Programme) (corporate bond)
The group redeemed a further R20 million of the capital balance at the end
of November 2016. This reduced the balance owing to R70 million as at
31 December 2016. The repayment date has been extended from 31 January 2018
to 31 January 2019.
A further R10 million was redeemed on 31 January 2017.
FINANCIAL OVERVIEW
Statement of comprehensive income
Headline earnings increased by 10.7% to R14,2 million (Dec 2015: R12,9 million) and
headline earnings per share 10.5% to 6.34 cents per share (Dec 2015: 5.74 cents per share).
Earnings per share (EPS) was up by 9.6% to 6.28 cents per share (Dec 2015: 5.73 cents per share).
The weighted average number of shares in issue was marginally
up from 224,2 million shares to 224,6 million shares. This did not have a material
dilutionary impact on EPS and HEPS.
In line with a more bottom-line focus, revenue of R521,1 million was 6.6% lower
(Dec 2015: R558,1 million). The contributors to revenue were:
Dec 2016 Dec 2015
R'm % change R'm
Carriers R191,2 (15.7) R226,7
Enterprise R147,9 (2.4) R151,4
Intelligent Technologies R83,8 (18.1) R102,3
Electrical Manufacturers R102,5 +24.9 R82,0
The exchange rate volatility impacted this period negatively, with a R6 million swing
from a net foreign exchange profit of R2,1 million in the comparative period to a net
foreign exchange loss of R3,9 million in the current period. The foreign currency risk is
carefully managed through a hedging programme, but is impacted by Rand volatility
when measuring the value of the financial instruments at reporting dates.
Profit before interest and taxation (PBIT) was flat at R30,1 million (Dec 2015: R30,1 million)
despite the losses on foreign exchange. This was mainly due to the
good performances in Intelligent Technologies and Electrical Manufacturers, an
improving performance from Enterprise and cost reductions at head office. These
compensated for the drop in profit in Carrier. The East Africa operations based in
Kenya saw strong revenue growth from R0,6 million to R10,5 million. Expected start-up
investment in the operating capacity of this operation resulted in an operating loss of
R1,0 million. This was unchanged from to the comparative period.
Net finance costs of R5,6 million reduced from the corresponding period's
R7,8 million. The finance income earned from long-term receivables decreased
and relates mainly to the group's long-term co-location contract with an African
telecommunications operator. This contract has 14 months left to completion. Also
included in finance income was the interest on the M-TEC purchase consideration. The
main contributor to finance costs was interest on the corporate bond of R5,5 million
(Dec 2015: R5,7 million). The interest on the overdraft reduced from R2,4 million to
R1,5 million.
The taxation expense of R9,3 million (Dec 2015: R8,0 million) is due to a number
of the subsidiary companies returning to tax-paying positions on full utilisation of
historically assessed losses in the prior financial year. The higher effective tax rate of
37.8% is due to the corporate bond interest, which is non-deductible.
Profit attributable to ordinary shareholders increased by 9.8% to R14,1 million
(Dec 2015: R12,9 million).
Statement of financial position
Non-current assets and liabilities
Plant and equipment of R61,2 million (Dec 2015: R55,9 million) increased
on capital expenditure of R7,0 million in the period (Dec 2015: R3,8 million).
This predominantly consisted of additions of R2,5 million to the plant and machinery
at Electrical Manufacturers, R2,0 million in post-production studio equipment
for Broadcast Solutions and R1,8 million in computer equipment for the group's
IT infrastructure.
Intangible assets (including goodwill) of R91,7 million increased from R80,1 million
in December 2015 and R88,7 million at 30 June 2016 as a result of the continued
roll-out of the ERP system into the rest of the group, as well as additional development
required in premises-based voice transaction management applications.
Other non-current financial assets of R5,2 million (Dec 2015: R21,0 million) relates
to the non-current portion of the group's finance lease receivable from its annuity
contract with a regional telecommunications operator of R2,9 million, as well as the
remaining proceeds relating to the sale of the investment in M-TEC.
The long-term interest-bearing liabilities of R74,3 million (Dec 2015: R121,3 million)
decreased, mainly due to the part redemption of the corporate bond as outlined
earlier. The balance relates mainly to the project funding from a strategic supplier to
fund the finance lease receivable. The gearing ratio improved from 54% to 39%.
Working capital
Net working capital days of 46,5 days are above the target of 35 days. This was
mainly due to lower volumes, high opening balances and the earlier payment of
creditors to take advantage of early settlement discounts and additional volume
discounts. This is expected to reduce by 30 June 2017. The following table
compares the current period to the June 2016 and December 2015 positions:
Dec Jun Dec
2016 2016 2015
Inventory 39,7 35,3 34,5
Receivables 106,0 107,3 97,1
Payables (99,2) (103,8) (93,6)
NWC days 46,5 38,8 38,0
Inventories on hand were R105,4 million (Dec 2015: R120,7 million). The inventory
levels in Electrical Manufacturers increased to cater for the increased volumes while
inventories in Carrier, Intelligent Technologies and Enterprise were all lower than the
prior year due to lower sales volumes.
The net trade receivables of R172,7 million decreased from R201,8 million
in December 2015 and R184,8 million in June 2016. The age profile of the
debtors' book is good, with isolated incidents of delayed payments from major
telecommunications operators in the Carrier business. Although Enterprise's debtors'
balance reduced from R67,5 million in December 2015 to R37,3 million in
December 2016, the age profile requires further improvement. Management is
focusing on this.
Other receivables and pre-payments decreased to R79,0 million (Dec 2015:
R153,1 million). The prior year's number was skewed by once-off trade funding for
a compact fluorescent lamp project. Also included in the balance are the prepaid
service level agreements with suppliers (mainly in Enterprise).
Trade and other payables of R165,8 million (Dec 2015: R263,4 million) decreased
mainly due to the trade funding included in December 2015 relating to the compact
fluorescent lamp supply contract mentioned above.
The deferred maintenance revenue of R68,7 million (Dec 2015: R68,9 million)
relates to prepaid service level agreements from blue-chip customers, predominantly
in Enterprise.
Statement of cash flows
The statement of cash flows reflects cash generated from operations before working
capital changes of R38,9 million. This was flat when compared to R39,1 million
in December 2015 in line with the operating profit performance. Working capital
changes reflect an outflow of R24,7 million (Dec 2015: R15,0 million outflow).
This outflow mainly relates to the decrease in trade payables on the early settlement
of certain suppliers.
The net interest payment of R5,6 million (Dec 2015: R7,8 million) reduced, while
income tax payments were flat at R4,7 million. The dividend of 2 cents per share
declared in September 2016 was paid and resulted in a R4,5 million cash outflow.
Total cash outflows from operating activities of R0,6 million therefore compare to an
R11,6 million inflow recorded in December 2015.
Investing activities saw an inflow of R33,8 million (Dec 2015: R0,2 million outflow)
on receipt of the M-TEC sale proceeds and the long-term lease receivables. This was
somewhat offset by the capital expenditure on plant and equipment and intangible
assets mentioned under the statement of financial position.
The financing activities outflow of R30,4 million (Dec 2015: R5,6 million outflow)
relates to the repayment of the corporate bond, project funding vendor loan and
other asset financing loans.
Accordingly, the difference between the closing and opening cash balances is
an increase in cash resources of R2,8 million (Dec 2015: R5,7 million increase).
Management maintained its focus on reducing stock levels where appropriate,
improving terms of supply from major trade partners, and improving debtors'
collections.
OPERATIONAL REVIEW
There were no changes to the group structure in this period.
Carrier - 36% of group revenue
Revenue decreased by 15.7% to R191,2 million (Dec 2015: R226,7 million), mainly
due to a continued slowdown in spend by the major telecommunications operators,
resulting from consolidation in the market. This business unit was once again affected by
the exchange rate volatility. This resulted in a loss of R3,1 million compared to a profit of
R5,0 million in the corresponding prior period. Based on this, operating profit decreased
by 21.3% to R24,8 million (Dec 2015: R31,5 million), with an operating margin of
12.9% (Dec 2015: 13.9%).
Enterprise - 28% of group revenue
Revenue decreased by 2.4% to R147,9 million (Dec 2015: R151,4 million) due to
the planned termination of an unprofitable security contract with a major financial
institution. The annuity service level agreement revenue base was maintained at
60% of overall revenue. The operating profit more than doubled to R3,9 million
(Dec 2015: R1,7 million) and the operating margin improved from 1.1% to 2.7%,
predominantly due to significant savings in the cost base offsetting the impact of the
lower sales volumes achieved. The overhead expenses of R39,1 million included
once-off costs of R1,7 million relating to the restructure that followed the termination
of the above-mentioned contract. Despite this, the overhead expenses reduced by
8.1% or R3,5 million.
Intelligent Technologies - 16% of group revenue
Revenue decreased by 18.1% to R83,8 million (Dec 2015: R102,3 million),
following lower than expected volumes in Power Solutions and Renewable Energy
Solutions due to a slowdown in project spend from major customers. The operating
profit of R9,6 million (Dec 2015: R9,5 million) was flat in spite of the lower volumes
due to improved margins and overhead reductions. The operating margin of 11.4%
improved from 9.3% last year as overhead expenses decreased by 8.2% from
R18,7 million to R17,2 million.
Electrical Manufacturers - 20% of group revenue
In line with the strategy of diversifying the customer base, Electrical Manufacturers
delivered strong revenue growth of 24.9% to R102,5 million (Dec 2015: R82,0 million)
on volumes from new customers and higher than expected volumes
from a major appliances manufacturer. The continued focus on diversifying the
revenue base is delivering good results.
The operating profit of R8,5 million increased from R6,3 million on the higher
volumes. The operating margin of 8.3% improved from 7.7% and cost control
remains very tight.
KEY INTERNAL INITIATIVES
The following key internal initiatives are underway:
Improving operating margins
The management team will remain focused on cost control in all areas of the business,
while remaining selective on the quality of gross margins on the generated revenue.
Working capital management
The focus on working capital management continued to gain momentum, with a pleasing
improvement in the stock and debtors position in Enterprise. The Carriers business
remains watchful of higher-risk customers due to ongoing consolidation taking place
in the telecommunications sector. The Electrical Manufacturers stock position increased
in line with the higher revenue, but is expected to decrease once volumes from new
customers stabilise.
Transformation
The transformation of Jasco requires ongoing attention, with a specific focus on the
following areas:
- Skills development and training of employees
- Employment equity - achieving targets at all management levels
- Retention of key technically skilled and scarce resources
- Black ownership - returning to a 51% black-owned status
GROUP PROSPECTS
As outlined, the group currently operates against difficult South African economic
and market conditions. The dramatic exchange rate volatility during the period made
trading more difficult. Higher than targeted inflation levels, together with the risk
of interest rate increases by the South African Reserve Bank, will remain in 2017
and will subdue economic growth. To counter this, Jasco will continue to execute its
strategy and concentrate on the following key areas:
- Limit the financial gearing to a maximum of 50%
- Continued increase in transformation, as outlined above
- Ongoing expansion into the rest of Africa by leveraging off the solid base
established in Kenya
- Penetrate the Middle East and North Africa markets from the recently-established
base in the United Arab Emirates
- Add new products and services to Jasco's portfolio, with an emphasis on
Managed Solutions
- Evaluate bolt-on acquisitions to ensure smaller businesses achieve the required
critical mass
Jasco's primary focus in the short-term will remain on delivering sustained profits
through a combination of organic growth and carefully targeted acquisitions in key
growth areas.
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
Aside from the R10 million partial redemption of the corporate bond on 31 January 2017,
there were no material subsequent events.
CHANGES TO THE BOARD
Sir John Sherry retired from the Board on 1 September 2016.
Mr Haroon Moolla resigned from the Board on 1 November 2016. The Board
expresses its appreciation for the fine contribution made to Jasco over the
preceding five years. The Board welcomes independent non-executive members
Mrs Pumla Radebe and Miss Thandeka Zondi who joined the Board with effect from
1 January 2017 and looks forward to their contribution. Information on the new
Board members was released on SENS on 1 and 2 December 2016 respectively.
For and on behalf of the Board
Dr ATM Mokgokong AMF da Silva WA Prinsloo
(Non-executive chairman) (Chief executive officer) (Chief financial officer)
14 February 2017
BASIS OF PREPARATION OF INTERIM RESULTS
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 2016, which comply with International
Financial Reporting Standard ("IFRS"), the SAICA Financial Reporting Guides as
issued by the Accounting Practices Committee and Financial Pronouncements as
issued by the Financial Reporting Standards Council, the Listings Requirements of the
JSE Limited and the Companies Act (2008) of South Africa.
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 -
- Financial liabilities at fair value through profit or loss 1 139
Summarised consolidated statement of comprehensive income
Unaudited Unaudited Audited
Dec 2016 Dec 2015 % Jun 2016
(R'000) 6 months 6 months change 12 months
Revenue 521 141 558 062 (6.6) 1 076 429
Turnover 518 150 555 742 (6.8) 1 070 033
Interest received 2 991 2 320 28.9 6 396
Operating profit before
interest and taxation 30 106 30 065 0.1 41 677
Interest received 2 991 2 320 28.9 6 396
Interest paid (8 603) (10 111) (14.9) (21 596)
Profit before taxation 24 494 22 274 10.0 26 477
Taxation (9 266) (7 969) 16.3 (10 534)
Profit for the period/year 15 228 14 305 6.5 15 943
Other comprehensive
income (209) - 31
Total comprehensive
income for the period/
year 15 019 14 305 5.0 15 974
Profit attributable to:
- minority shareholders 1 117 1 451 (23.0) 1 765
- equityholders of the
parent 14 111 12 854 9.8 14 178
Profit for the period/year 15 228 14 305 6.5 15 943
Total comprehensive
income attributable to:
- minority shareholders 1 117 1 451 (23.0) 1 765
- equityholders of the
parent 13 902 12 854 8.2 14 209
Total comprehensive
income for the period/
year 15 019 14 305 5.0 15 974
Reconciliation of headline
earnings
Net earnings attributable to
equityholders of the parent 14 111 12 854 9.8 14 178
Headline earnings
adjustments 135 19 (610.5) (47)
- loss on disposal of
associate held for sale - - 255
- net after-tax loss/(profit)
on disposal of fixed
assets 135 19 (302)
Headline earnings 14 246 12 873 10.7 14 131
Number of shares in issue ('000) 229 319 229 319 229 319
Treasury shares ('000) 4 704 5 129 4 704
Weighted average
number of shares on which
earnings per share is
calculated ('000) 224 616 224 190 224 616
Dilutive shares
- dilutive shares and
options ('000) 105 - 105
Weighted average number
of shares on which diluted
earnings per share is
calculated ('000) 224 721 224 190 0.2 224 721
Ratio analysis
Attributable earnings (R'000) 14 111 12 854 9.8 14 178
EBITDA (R'000) 39 040 38 330 1.9 57 024
Earnings per share (cents) 6.3 5.7 9.6 6.3
Diluted earnings per share (cents) 6.3 5.7 9.6 6.3
Headline earnings per
share (cents) 6.3 5.7 10.5 6.3
Diluted headline earnings
per share (cents) 6.3 5.7 10.5 6.3
Dividend per share - final (cents) 2.0 - 100.0 -
Net asset value per share (cents) 104.3 98.7 5.6 100.1
Net tangible asset value
per share (cents) 63.5 63.0 0.7 60.6
Debt: Equity (%) 38.8 64.8 (40.0) 53.7
Interest cover (times) 5.4 3.9 39.0 2.7
EBITDA interest cover (times) 7.0 4.9 41.4 3.8
Summarised consolidated statement of financial position
Unaudited Unaudited Audited
(R'000) Dec 2016 Dec 2015 Jun 2016
ASSETS
Non-current assets 182 428 189 870 223 974
Plant and equipment 61 186 55 874 61 082
Intangible assets 91 687 80 051 88 731
Deferred tax asset 28 640 32 961 31 779
Other non-current assets 915 20 984 42 382
Non-current assets held for sale - 58 000 -
Current assets 392 688 490 610 408 686
Inventories 105 379 120 736 108 722
Trade and other receivables 251 688 352 051 261 689
Foreign currency contacts - - 210
Short-term portion of other non-current assets 20 394 14 110 24 678
Taxation refundable 5 190 3 713 6 131
Cash and cash equivalents 10 037 - 7 256
Total assets 575 116 738 480 632 660
EQUITY AND LIABILITIES
Share capital and reserves 242 426 228 143 231 849
Non-current liabilities 79 523 129 621 110 747
Interest-bearing liabilities 74 333 121 294 104 717
Deferred maintenance revenue 997 3 551 2 721
Deferred tax liability 4 193 4 776 3 309
Current liabilities 253 167 380 716 290 064
Short-term portion of interest-bearing liabilities 19 649 26 591 19 818
Bank overdraft - 25 420 -
Non-interest bearing liabilities 163 424 254 704 203 178
Foreign currency contacts 1 139 8 058 5 009
Deferred maintenance revenue 67 676 65 324 60 403
Taxation liability 1 279 619 1 656
Total equity and liabilities 575 116 738 480 632 660
Summarised consolidated statement of changes in equity
Unaudited Unaudited Audited
Dec 2016 Dec 2015 Jun 2016
(R'000) 6 months 6 months 12 months
Attributable to equity holders of the
parent
Opening balance 224 749 207 768 207 768
Treasury shares - Share Incentive Trust 127 - 680
Share-based payment reserve (94) 735 2 092
Total comprehensive income 13 902 12 854 14 209
- Profit for the period/year 14 111 12 854 14 178
- Other comprehensive income (209) - 31
Dividends declared (4 475) - -
Closing balance 234 209 221 357 224 749
Non-controlling interests
Opening balance 7 100 5 335 5 335
Total comprehensive income 1 117 1 451 1 765
- Profit for the period/year 1 117 1 451 1 765
- Other comprehensive income - - -
Closing balance 8 217 6 786 7 100
Total equity 242 426 228 143 231 849
Summarised consolidated statement of cash flows
Unaudited Unaudited Audited
Dec 2016 Dec 2015 Jun 2016
(R'000) 6 months 6 months 12 months
Cash generated from operations before
working capital changes 38 946 39 065 62 943
Working capital changes (24 730) (15 033) 16 412
Cash generated from operations 14 216 24 032 79 355
Net financing costs (5 612) (7 791) (15 934)
Net taxation paid (4 679) (4 677) (8 908)
Dividends paid (4 475) - -
Cash flow from operating activities (550) 11 564 54 513
Cash flow from investing activities 33 757 (237) 7 266
Cash flow from financing activities (30 426) (5 607) (23 081)
Increase in cash resources 2 781 5 720 38 698
Summarised consolidated segmental report
31 Dec 2016 31 Dec 2015 30 June 2016
6 months 6 months 12 months
Income and expenses Operating Operating Operating
(R'000) Revenue profit/(loss) Revenue profit/(loss) Revenue profit/(loss)
Carrier 191 354 24 884 226 668 31 453 414 153 47 778
Enterprise 147 858 3 925 151 429 1 662 317 960 3 736
Intelligent Technologies 83 792 9 590 102 305 9 494 190 697 17 549
Electrical Manufacturers 102 494 8 482 82 048 6 304 165 762 12 600
Sub-total operating divisions 525 498 46 881 562 450 48 913 1 088 572 81 663
Other 1 658 (15 671) 139 (17 795) 2 442 (36 786)
Adjustments (6 015) (1 104) (4 527) (1 053) (14 585) (3 200)
Total 521 141 30 106 558 062 30 065 1 076 429 41 677
Financial position
(R'000) Assets Liabilities Assets Liabilities Assets Liabilities
Carrier 161 294 44 161 204 066 89 085 151 209 40 307
Enterprise 141 139 73 453 144 994 87 039 147 783 94 507
Intelligent Technologies 79 749 36 829 159 338 114 567 84 428 50 935
Electrical Manufacturers 78 528 10 610 62 746 7 583 84 301 23 382
Sub-total operating divisions 460 710 165 053 571 144 298 274 467 721 209 131
Other 62 846 156 319 122 803 155 583 100 213 191 875
Adjustments 51 560 11 318 44 533 56 480 64 726 (195)
Total 575 116 332 690 738 480 510 337 632 660 400 811
Directors and secretary: Dr ATM Mokgokong (Chairman), MJ Madungandaba (Deputy Chairman),
JC Farrant*, S Bawa, P Radebe*, T Zondi* (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
Additional information is available at: www.jasco.co.za
40 YEARS OF EXCELLENCE
Date: 14/02/2017 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
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