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Audited Results for the year ended 30 June 2018
JASCO ELECTRONICS HOLDINGS LIMITED
Registration number 1987/003293/06
JSE share code: JSC
ISIN: ZAE000003794
("Jasco" or "the company" or "the group")
AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2018
ORDER ENTRY
R1,2bn
Exceeded for the first time
REVENUE
Up
10%
R1,15 billion
EBITDA
Up
51%
R75,5 million
PROFIT BEFORE TAX
Up
270%
R16,1 million
EARNINGS LOSS
REDUCED BY
80%
(R7,7 million)
CONTEXT TO RESULTS
Jasco Electronics Holdings today publishes its audited year-end results to
30 June 2018 following the retraction of its previously-released results on
27 September 2018. As announced on SENS on 1 October 2018, the group
retracted its results and requested a voluntary suspension following the erroneous use
of the words "audited results" instead of "provisional results" on 27 September 2018.
There were no trades conducted between the release of the first set of results and
the voluntary suspension.
In conjunction with and under the guidance of the group's new external auditors
PwC Inc., Jasco worked through certain accounting changes. These adjustments
were required in accordance with International Financial Reporting Standards (IFRS).
These are clearly outlined in the section "Adjustments giving rise to restatement of
results" in the financial overview.
The company regrets any inconvenience caused by this bona fide error. In line with
its unwavering commitment to being a responsible corporate citizen, there was never
any intention to make materially false and/or misleading statements. Following the
publishing of these audited results, the company will apply to the JSE for the lifting of
the voluntary suspension of the shares.
It is important to note that excluding these once-off adjustments, the group continued
to deliver at an operational level, with a strong operating profit improvement.
INTRODUCTION
The tough economic conditions in South Africa continued to prevail, with the country
entering a technical recession after the second quarter of calendar 2018. This
exacerbated the ongoing volatility of the rate of exchange on the back of emerging
market weakness. These factors presented significant challenges to the group.
The main achievements and disappointments for the year are outlined below:
Achievements include:
- Continued good operating performance from the Carrier business, contributing
R53,7 million to operating profit;
- Ongoing customer diversification in Electrical Manufacturers, with volumes from
new customers contributing to the revenue growth;
- Operating profit growth from Broadcast Solutions in Intelligent Technologies on
completion of large projects;
- The acquisition of RAMM Technologies, with effect from 1 March 2018, and its
first-time profit contribution in line with expectation; and
- Good operating profit contribution from the acquisition of Reflex Solutions for
12 months.
Disappointments include:
- The biggest disappointment was the delay in issuing the June 2018 Integrated
Annual Report and related announcements of financial results and suspension of
the security on the Johannesburg Securities Exchange.
Other disappointments were:
- Continued lack of organic growth in the South African market, with Carriers
negatively impacted in the telecommunications sector;
- Lack of progress in the Middle East, which resulted in the closure of the UAE
office in favour of only project-based work;
- The rate of exchange volatility. Although an improvement from last year's
R8,6 million loss, the group suffered forex losses of R4,0 million this year;
- Ongoing margin squeeze in Electrical Manufacturers due to pressure from its
major customer. To address this, the customer diversification programme is
progressing;
- The operating loss by Datavoice in Enterprise due to the delay of projects in the
Middle East. These have materialised post year-end;
- The operating loss from Power & Renewables in Intelligent Technologies on
lower sales volumes. Restructuring has been completed and costs reduced;
- The once-off goodwill impairments in F2017 and F2018 affected the debt
to equity ratio. This resulted in the ratio exceeding the group's self-imposed
maximum level of 50%, at 56% from 43% reported in F2018. (F2017's restated
at 43% versus 34% reported). This was also below the requirements of the
corporate bond and the working capital facility; and
- Lower revenue in East Africa due to the uncertain political environment from
national elections, which resulted in low business confidence. Operations were
reduced and local Kenyan partners were introduced to grow the sales pipeline.
Based on IFRS requirements, the investment was impaired in F2018.
FINANCIAL OVERVIEW
ADJUSTMENTS GIVING RISE TO RESTATEMENT OF RESULTS
As indicated earlier, Jasco started working with new auditors this year, which resulted in a number of aspects of the results being interpreted differently in terms of IFRS. This
required the following restatements:
REVENUE
F2018 previously F2018 audited
F2017 audited F2017 restated reported (and adjusted) Financial impacts
R1,044 billion R1,037 billion R1,150 billion R1,147 billion Reported revenue changed by R7 million in F2017 and R3 million in F2018.
Reason for amendment:
Finance income of R4,3 million was offset by R1,0 million of revenue in the Enterprise business (F2017: R7,0 million). This should not have been included in revenue.
OTHER INCOME
F2018 previously
F2017 audited F2017 restated reported F2018 audited Financial impacts
R27,9 million R24,5 million No impact No impact The profit of R3,4 million on the disposal of Jasco Technical Services (Pty) Ltd (JTS)
had to be reversed, as it was consolidated from a 10% to a 100% holding. JTS was
therefore consolidated in the group statement of financial position at 30 June 2017 in
terms of IFRS 2 and IFRIC interpretation 2015. This was a change from the application
of IFRS10 in the F2017 year and the previously audited position.
Reason for amendment:
A profit of R3,4 million arising on the disposal of the group's security installation business to JTS as part of the broad-based black economic empowerment (B-BBEE)
enterprise development initiative was included in Other Income in F2017. The group retained a 25% shareholding, which was further reduced to 10% during F2018. The
majority holders of the share capital pledged their shares as security over the loan payable to the group of R3,4 million. In essence, the group granted an option to the
holders of the 90% shareholding in JTS. As the payment of the full purchase consideration had not taken place as at end of June 2018, the value of the option granted
was considered to be immaterial.
IMPAIRMENT OF GOODWILL
Enterprise cash-generating unit (CGU)
F2018 previously F2018 audited
F2017 audited F2017 restated reported (and adjusted) Financial impacts
R0,0 million R28,3 million R0,0 million R4,5 million An impairment charge of R28,3 million was recorded in F2017 and R4,5 million in
F2018 in other expenses in the statements of comprehensive income. The related
goodwill balance in the statement of financial position at 30 June 2017 reduced by
R28,3 million and by R4,5 million in F2018 due to the impairment charge.
Reason for amendment:
Management performed a value in use calculation to assess if the net asset value of the Enterprise CGU (which excluded Reflex Solutions in 2018, but included it in 2017)
was recoverable at 30 June 2018. The calculation indicated that the future discounted cash flows in the value in use calculation were not sufficient to recover the net asset
value of the Enterprise CGU. The goodwill of R28,3 million allocated to this CGU was therefore fully impaired at 30 June 2018. This goodwill should have also been fully
impaired at 30 June 2017 as the F2017 calculation should have taken the reduced cash flows into account. In F2018, the goodwill arising from the Datafusion acquisition
of R4,5 million was also impaired as a "day one" loss on acquisition.
TAXATION EXPENSE AND DEFERRED TAXATION ASSET IN RESPECT OF TAX LOSSES IN JASCO ENTERPRISE (PTY) LTD
F2018 previously
F2017 audited F2017 restated reported F2018 audited Financial impacts
R27,5 million R17,8 million No impact No impact The deferred tax asset balance was written down by R10,8 million in the group
statement of financial position at 30 June 2017. A corresponding charge was recorded
in the taxation charge line in the group statement of comprehensive income.
Reason for amendment:
In performing the value in use calculation referred to above in the Enterprise CGU at 30 June 2018, which indicated that the goodwill of the Enterprise CGU was
impaired due to the reduction in the future discounted cash flows, management concluded that the revised cash flows were not sufficient to fully recover the deferred tax
asset in respect of Jasco Enterprise (Pty) Ltd. It was therefore concluded that the reduced cash flows were also applicable at 30 June 2017.
SHORT-TERM BORROWINGS AND TRADE PAYABLES
F2018 previously
F2017 audited F2017 restated reported F2018 audited Financial impacts
Short-term Trade and other payables increased by R30 million in the F2017 group statement of
borrowings: financial position and the short-term borrowings decreased by R30 million.
R50,4 million R20,4 million No impact No impact
Trade and
other payables:
R185,0 million R215,1 million No impact No impact
Reason for amendment:
The short-term borrowings in the group statement of financial position in F2017 included the deferred purchase consideration related to the group's acquisition of Reflex
Solutions. Following consultation with the new auditors, it was deemed more appropriate to include the deferred consideration of R30 million as part of trade and other
payables rather than short-term borrowings.
BASIC AND DILUTED EARNINGS PER SHARE
F2018 previously F2018 audited
F2017 audited F2017 restated reported (and adjusted) Financial impacts
Basic earnings: -17,3 cents 3,9 cents -3,3 cents Basic earnings per share decreased by 20,9 cents per share and diluted earnings per
3,6 cents share by 20,6 cents per share for F2017.
Diluted earnings: Basic earnings per share and diluted earnings per share both decreased by 7,2 cents
per share for F2018.
3,5 cents -17,1 cents 3,9 cents -3,3 cents
Reason for amendment:
Due to the impact of all adjustments outlined in this table, the basic and diluted earnings per share for the prior year had to be restated.
STATEMENT OF COMPREHENSIVE INCOME
This section should be read together with the section on adjustments giving rise to
restatement of results for additional context to changes.
Revenue
Revenue increased by 10% to R1,147 billion (F2017: R1,037 billion) on small
increases in all business units outside of Carriers, as well as a 12-month contribution
from Reflex Solutions of R157,0 million (F2017: R28,3 million for two months). This
business is included in Enterprise. RAMM Technologies contributed revenue of R13,3
million for four months and is included in Intelligent Technologies. Organic revenue
growth declined by 3%, mainly due to the decline in volumes in Carriers following
lower spend from a large Tier-1 telecommunications operator.
The main contributors to revenue were:
F2018 F2017
R'm % change R'm
Carriers 348,7 (10%) 385,9
Enterprise 401,7 28% 314,8
Intelligent Technologies 206,8 27% 163,1
Electrical Manufacturers 203,5 7% 190,8
The operating profit before net interest showed a strong improvement to
R40,4 million from the restated R3,9 million in F2017 (F2017: reported
R41,9 million), mainly due to the contributions from Reflex Solutions and RAMM
Technologies in the current year.
The F2017 restatement was impacted by:
- R28,3 million goodwill impairment;
- R3,4 million reversal of profit on disposal of JTS;
- R4,1 million Enterprise prior year audit adjustments; and
- R2,2 million Datafusion loan impairment.
The F2018 operating profit was impacted by:
- R4,5 million goodwill impairment;
- R7,4 million operating loss from JTS; and
- R2,5 million loan impairment to East Africa.
Carriers produced a 4% increase in operating profit to R53,1 million (F2017:
R51,0 million). Electrical Manufacturers' operating profit remained flat at
R13,2 million. Enterprise produced a pleasing turnaround from a loss of R5,2 million
to a profit of R11,2 million, mainly due to the 12-month contribution from Reflex
Solutions and reduced costs in Communications and Security offsetting a lower
performance from Fire Solutions, as well as the negative impact of a R7,4 million
loss of the now-consolidated JTS business. Intelligent Technologies' operating profit
declined by 17% to R18,2 million due to losses in Power and Renewables. These
losses were only partly offset by the good performance from Broadcast Solutions
and the first-time contribution from RAMM Technologies. Consequently, the group's
net operating margin of 3.5% was up on 0.4% last year.
Net interest costs of R20,1 million increased from R11,5 million, mainly due to the
increase in interest paid following the utilisation of a new general working capital
facility from the Bank of China. This replaced the bank overdraft facilities from the
local commercial banks in May 2017 at improved terms. The imputed interest of
R1,0 million on the balance of the purchase consideration for the acquisitions of
Reflex Solutions (F2017: R0,7 million) and R1,0 million for RAMM Technologies were
also included in net interest costs.
The equity accounted share of losses of R4,1 million (F2017: R1,8 million) represents
Jasco's 40% share in the Middle East (R2,1 million) and its 40% share in Jasco Kenya
(R2,0 million). The Middle East failed to generate any meaningful revenue due to
increasing competition in an over-traded market. To address this, the group closed
its UAE office and amended its strategy to only target opportunities in the region on
a project basis, with our Middle Eastern partners taking the lead role. The revenue
in East Africa reduced significantly and resulted in higher operating losses than
planned. Accordingly, the operations were drastically scaled down and new local
partners secured as shareholders in the business during the year. It was decided
with the auditors to impair the investment in Jasco Kenya in F2018 by R2,5 million.
The taxation charge of R12,8 million compares to a restated R26,0 million in F2017
due to the de-recognition of deferred taxation on assessed losses at subsidiary
level. The effective tax rate is above the standard rate because of non-deductible
expenses, which resulted in a higher taxable income. The main items included
in non-deductible expenses are the interest paid on the corporate bond, the IFRS
2 share incentive scheme costs, acquisition costs, impairment of goodwill, the
impairment of a loan receivable from East Africa, and the equity accounted losses in
the Middle East and East Africa.
The minorities' share of profits increased from R3,8 million to R11,0 million, mainly
due to the 12-month contribution from Reflex Solutions and the first-time contribution
from RAMM Technologies. The other minority interests are in Co-Location Solutions,
which improved its profitability, and in Fire Solutions, which reported a small loss for
the year.
Consequently, the earnings loss reduced by 80% to R7,7 million (F2017: Loss of
R39,2 million) and earnings loss per share (EPS) reduced by 80% to 3,3 cents per
share (restated F2017: 17,3 cents loss per share). The headline earnings loss of R3,4
million reduced by 69% (restated F2017: R10,9 million) and the headline earnings
loss per share (HEPS) reduced by 69% to 1,5 cents per share (restated F2017: Loss
of 4,8 cents per share). The weighted average number of shares in issue increased
from 226,9 million to 229,1 million shares.
For ease of reference, the EPS and HEPS reported in September 2018 and the
restated EPS and HEPS reported today are outlined below:
F2018
F2018 audited
F2017 F2017 previously (and
audited restated Change reported adjusted) Change
Earnings per share (EPS)
3,6 cents -17,3 cents -20,9 cents 3,9 cents -3,3 cents -7,2 cents
Headline earnings per share (HEPS)
2,5 cents -4,8 cents -7,3 cents 2,7 cents -1,5 cents -4,2 cents
STATEMENT OF FINANCIAL POSITION
Intangibles and goodwill
Intangibles, excluding goodwill, increased to R67,9 million (F2017: R44,6 million)
due to the RAMM Technologies acquisition, and includes the following:
- The voice transaction management application and the computer software
applications (internet-of-things or IoT platform) of R30,3 million (F2017:
R26,1 million);
- Trade names of R7,5 million (F2017: R3,9 million); and
- Customer-related intangibles of R30,0 million (F2017: R14,6 million).
Goodwill increased from the restated R68,0 million in F2017 (refer to adjustments
giving rise to restatement of results earlier) to R86,7 million in F2018, mainly due to
the acquisition of RAMM Technologies. The goodwill of R4,5 million arising on the
acquisition of 51% in Datafusion in September 2017 was impaired as a "day one"
loss. There were no other impairments to the carrying value of goodwill during the
year. This assessment is conducted annually in accordance with Jasco's accounting
policy to test the carrying value of goodwill each year.
Fixed assets
Fixed assets of R79,6 million (F2017: R78,9 million) increased on capital expenditure
of R17,2 million (F2017: R25,4 million). This capital expenditure relates mainly to
R10,9 million in the Enterprise business, predominantly on technology improvements
(R9,1 million) in Reflex Solutions and on plant and machinery (R3,1 million) in the
Electrical Manufacturers business. The balance of the expenditure is spread over the
asset categories across the remaining businesses.
Long-term liabilities
The corporate bond was partly redeemed in F2017 to R44,6 million and interest
was serviced during the current financial year. The corporate bond attracts interest at
the equivalent of the prime lending rate and is repayable in January 2020. During
the year, all covenants outside of one were met. The corporate bond's interest cover
covenant for the six-month period ended 30 June 2018 was breached at 1,8 times
versus 2,0 times. This was condoned by the corporate bondholder on 28 October
2018. Consequently, the interest-bearing loan was reclassified at 30 June 2018 as
a short-term borrowing. The corporate bondholder confirmed that the repayment date
remains unchanged at 31 January 2020.
A medium-term working capital facility of R150 million was negotiated with the Bank
of China in February 2017. This replaced the general banking facilities with the
group's commercial bankers at better terms. The security provided is similar. The first
draw-down of R105 million was made in May 2017 and utilised to settle the bank
overdrafts which had historically funded the group's working capital position. A further
drawdown of R20 million was made in December 2017, increasing the liability to
R125 million at the financial year-end. The financial covenants were met during the
year. The term of the facility was extended for a further 24 months to February 2020.
Working capital
Although Jasco's working capital management remained an area of focus during the
year, the last two months of the year produced record volumes and resulted in an
increase of R39,2 million against an increase of R16,2 million in the prior financial
year.
Inventories of R102,6 million includes R4,6 million for Reflex Solutions and
R1,5 million for RAMM Technologies, and compares to R86,3 million in F2017.
Excluding these acquisitions, the remaining increase was mainly due to higher stock
of R10,7 million in the Electrical Manufacturers business in response to demand from
existing and new customers.
Trade and other receivables of R286,2 million includes R8,1 million for RAMM
Technologies, and compares to R270,0 million in F2017. Excluding the new
acquisitions, the increase was mainly due to a R25,0 million increase in Broadcast
Solutions on the completion of significant studio upgrades for major sports
broadcasters.
Trade and other payables (including provisions and deferred purchase
consideration) of R286,5 million includes R0,8 million for RAMM Technologies,
compared to the restated R235,6 million in F2017 (reported F2017: R204,6 million).
The trade and other payables in Broadcast Solutions increased as the studio
upgrades mentioned above were mostly supplier funded. The deferred purchase
consideration of R40,4 million is classified as a current liability and includes
R9,8 million for Reflex Solutions and R30,6 million for RAMM Technologies. The
second tranche payment relating to Reflex Solutions will be paid following the sign
off of Jasco's audited June 2018 annual financial statements are signed off by the
subsidiary directors and external auditors. The first tranche of R15,3 million of the
purchase price of R30,6 million was paid to the RAMM Technologies vendors on
31 August 2018. The second tranche is expected to be paid within seven days of
receipt of the reviewed May 2018 annual financial statements.
Deferred maintenance revenue decreased from the restated R56,1 million in F2017
to R38,2 million in F2018 and relates mainly to service level agreement (SLA)
renewals from Enterprise customers.
The following table compares the June 2018 net working capital to the restated June
2017 and June 2016 positions:
June 2018 June 2017 June 2016
Inventory 30,6 33,6 35,3
Receivables 89,7 91,5 107,3
Payables (100,2) (98,6) (103,8)
NWC days 20,2 29,3 38,7
Net working capital (NWC) days of 20,6 days (F2017: 29,3 days) are below the
group's target of 35 days, mainly as a result of the higher sales volumes due to the
inclusion of Reflex Solutions for a full 12 months. This excludes the impact of the
RAMM Technologies acquisition.
It is evident from this table that the working capital profile improved this year. It
must be noted that the SLA income received in advance from customers and the
SLA pre-payments made to suppliers inflate the days calculated for payables and
receivables respectively.
STATEMENT OF CASH FLOWS
The statement of cash flows reflects an inflow in cash generated from operations
before working capital changes of R94,4 million compared to the restated
R71,6 million in F2017 (reported F2017: R58,8 million), mainly due to the
contributions from the new acquisitions and the higher level of depreciation and
amortisation in the current financial year. Working capital changes reflect an
outflow of R39,2 million (restated F2017: R16,2 million versus reported R7,1 million)
on an increase in inventories, receivables and payables related to the higher fourth
quarter volumes.
The net interest payment amounted to R13,9 million (restated F2017: R8,7 million
versus reported of R11,5 million), while income tax payments of R18,7 million were
higher than R16,9 million in the prior year. An ordinary dividend of 1 cent per share
amounting to R2,2 million related to F2017 was paid in the first half. Dividends of
R3,7 million were paid to non-controlling shareholders during the year. Total cash
flows from operating activities was a R16,6 million inflow compared to the restated
R25,2 million inflow in F2017 (reported F2017: R32,1 million).
Investing activities saw a cash outflow of R44,0 million (restated F2017: inflow
of R21,4 million versus a reported F2017: R14,5 million), which mainly related to
capital expenditure on fixed assets and intangible assets and the Reflex Solutions
acquisition. Financing activities saw an outflow of R0,9 million (F2017: R41,9 million
inflow) being the R20,0 million second draw-down of the Bank of China working
capital loan. This was partly offset by the repayment of vendor funded loans and
transactions with non-controlling shareholders.
Accordingly, Jasco's net cash in the bank position of R67,9 million decreased from
R95,6 million in F2017, mainly due to the working capital demands for normal
trading in the fourth quarter.
ANTICIPATED MAJOR ACCOUNTING DEVELOPMENTS
The assessment of the impact of the new standards IFRS 15 (Revenue from Contracts
with Customers) and IFRS 9 (Financial Instruments) on F2019 must still be fully
quantified, but is not expected to have a material impact.
LITIGATION, CLAIMS AND OTHER CONTINGENCIES
The insurance claim raised against the F2017 fraud losses in the Enterprise business
was settled in full. The South African Police Service continues with their investigation
into the matter.
The minority shareholders of Reflex Solutions have raised a legal dispute with Jasco
regarding the majority ownership of the company. The outcome of this dispute may
affect the timing of the second tranche payment in respect of Reflex Solutions. The
respective parties are in negotiations to resolve this dispute.
There are no other material matters to report.
OPERATIONAL OVERVIEW
The only restatement at an operational level was in Enterprise. This was mainly
due to the consolidation of 100% of JTS. As outlined earlier, the operational
performance of the group remained solid, with good operating profit improvement
on cost reductions and a first-time contribution from RAMM Technologies.
CARRIERS - 30% of group revenue
Carriers delivers telecommunications products and services, 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 for telecommunications networks across the African
continent.
Year under review
Revenue declined by 10% to R348,7 million from R385,8 million due to lower
orders. As anticipated, Carrier Solutions experienced a continued shift in customer
capex spend from older technology to newer, integrated network technology. In
addition, one client's spend declined due to delays in their long-distance build
programme.
Orders at Webb Industries remained relatively flat. Lower orders in the projects
division, which delivers in-building solutions for mobile operators, was offset by
good growth in the kitting division, which supplies passive ancillary equipment, such
as brackets and cables, for the operators in their site build programmes.
Although revenue declined in Carriers, gross margin levels improved due to a
higher-margin product mix and improved productivity in the services business.
As this business unit focused on overhead costs and efficiencies, operating profit
was up by 4% from R51,0 million to R53,1 million, with particularly pleasing results
from Webb Industries. The operating margin remained healthy at 15.1% (F2017:
13.2%). Carriers remains Jasco's largest profit contributor.
Outlook
Tough trading conditions will continue in South Africa, with ongoing pressure on
pricing and capex spend in traditional areas. Further consolidation is likely in the
operator space and customers are also increasingly dealing with original equipment
manufacturers (OEMs) directly and not through systems integrators.
To counter this, Carrier Solutions will focus on selling its niche products to
Tier-2 operators in South Africa and East Africa. The group will also continue
implementing its diversification strategy of providing service capability to the top four
telecommunication original equipment manufacturers.
Jasco also has a significant passive ancillary product portfolio which positions it well
for the growing fibre to the home and business (FTTX) and 5G markets. The business
plans to increase market share through targeting the open access fibre service
providers with this product and services portfolio.
In East Africa, business conditions are expected to improve as the political
environment continues to stabilise and growth in GDP in the territory reaches
traditional highs of 6% to 7%. To tap into this, Jasco will expand its Carriers product
and service portfolio to complement the existing Enterprise portfolio.
This business unit will also remain focused on cost containment to protect operating
profit.
ENTERPRISE - 34% of group revenue
Enterprise 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
Results in this business unit had to be restated due to the consolidation of JTS
from 10% to 100%. This reduced operating profit in F2018 by R7,4 million
to R11,2 million (Restated F2017: loss of R5,2 million versus reported loss of
R3,4 million). The turnaround to a profit was due to the 12-month performance from
Reflex Solutions and the start of the benefits of corrective actions over the last two
years. Whilst the operating margin percentage is still not achieving the group's
profit target levels, it was pleasing that an operating margin of 2.8% was achieved
compared to an operating loss of 1.7% last year.
Revenue increased by 28% to R401,7 million from R314,8 million due to the first
full year of contribution from our IT services business, Reflex Solutions, compared
to two months last year. Excluding the 12-month inclusion of Reflex versus two
months in 2017, the overhead expenses declined by 3% during the year. This was
achieved through a focus on cost containment and reduction programmes and was
particularly pleasing considering average employee increases of 6% and continued
investment in East Africa's support functions.
The good performance in once-off projects in the FTTX market in Reflex Solutions
was offset by a reduction in new orders in Enterprise, especially in Fire and
Datavoice and slower expansion in East Africa following political instability and
uncertainty. The under-recovery of fixed software development costs due to lower
sales in Datavoice and the project delays and increased cost to complete projects
in Fire had a negative impact on performance.
To address the disappointing results in Datavoice and Fire, management was
replaced and the Security and Fire divisions were separated from Enterprise
and combined under one new management team to improve market focus and
service delivery to customers. These actions have already started to show some
improvement, with the businesses commencing the new financial year with strong
order books.
Outlook
South African conditions are expected to remain challenging, which will delay
customer spend.
To address this, Jasco has implemented additional marketing initiatives to address
new market segments. It has also packaged specialist integration solutions, which
will allow more attractive price points to the market and will continue to improve
cross-business sales.
The Enterprise Communications business is expanding its cloud-focused solutions,
combined with a strong focus on customer service in a market of digital migration.
The team is further diversifying the portfolio to improve service and position the
business to take advantage of growth areas that digitisation will bring.
The new management and restructuring of Security and Fire will drive an improved
performance, as well as increased opportunities for cross-selling across the joint
customer base.
The 10% interest in JTS will be disposed of in due course to the existing enterprise
development partner.
Although challenging market conditions will prevail during F2019, a further
improvement is expected from the Enterprise business unit due to ongoing cost
containment and an improved focus on market penetration.
INTELLIGENT TECHNOLOGIES - 18% of group revenue
Intelligent Technologies comprises broadcast solutions, smart buildings, data centres,
power solutions and renewable energy solutions. It also includes the recently-
acquired RAMM Technologies which provides real-time asset monitoring and
measuring solutions.
Year under review
The poor market conditions in South Africa had a particularly negative effect on the
Power assurance market, which saw a 70% decline in new orders.
Even against this, due to several long-term projects that create annuity revenue
and the inclusion of R13,3 million of RAMM Technologies for four months, revenue
increased by 27% from R163,1 million to R206,8 million.
Although revenue growth was strong, the losses incurred in the Power business due
to its lack of sales resulted in operating profit declining by 17% from R22,1 million to
R18,2 million. Operating margin was down from 13.4% to 8.8%.
The Broadcast Solutions business continued to deliver a strong set of results due to
a broader portfolio offering and increased spend on studio upgrades for the 2018
FIFA Soccer World Cup.
The Property Technology Management business delivered good growth due to more
properties under management, which increased the long-term revenue base.
Outlook
Although the growth in international entertainment providers over the internet has
increased competition, the South African broadcast market remains relatively strong.
Jasco's partnerships with global technology providers have positioned it well to offer
end-to-end broadcast solutions.
In the Power sector, the lack of government initiatives to stimulate the renewable
energy sector will continue to put pressure on the market. However, as reliable
power supplies are crucial to corporate entities and government, the group's solar
PV energy solutions are well placed. This has already led to the restructure of
the Power business and its incorporation into the Renewables business to unlock
additional cost savings and management synergies across these two areas, as well
as returning it to profitability.
Jasco has recently signed a number of professional service agreements with
landlords with significant property portfolios, as well as reviewing alternative
business models to leverage the portfolio. Intelligent Technologies now has more
than 800 buildings under its management in South Africa.
The business will expand its involvement in the Internet of Things (IoT) market through
RAMM Technologies, as well as additional partnerships with local and global IoT
players. This is a highly innovative space that shows good growth potential.
In the key market of East Africa, power quality and assurance solutions will continue
to present growth opportunities, with the team focusing on expanding the offering in
this market to include the in-house power assurance and renewable portfolio.
ELECTRICAL MANUFACTURERS - 18% of group revenue
Electrical Manufacturers is largely a component manufacturer of plastic injection-
moulded products, wire harnesses, metal pressings and household electrical
products with a special focus on the large home appliance market in South Africa.
Year under review
Despite a tough year, with the South African economy showing almost no growth,
revenue increased by 7% from R190,8 million to R203,5 million. The majority of the
increase was due to higher volumes from major appliance customers, specifically
from the refrigeration plants. For the first time in the business unit's history, it
exceeded the R200 million revenue level.
While business volumes increased, gross margins continued to come under pressure
from this business unit's largest customer in the appliance white goods market.
The more profitable product lines in the wiring harness space were also lost to
competitors due to unsustainably low pricing levels. This had a further negative
impact on the gross margin product mix.
To address this, Electrical Manufacturers continued to focus on its customer
diversification strategy, which resulted in increased sales from new customers.
Aggressive cost containment continued during the year and overhead costs
remained flat on last year even though employee costs increased by an average 6%
for the year.
All these factors resulted in maintaining the operating profit at R13,2 million, with a
decline in operating margin from 7.0% to 6.5%.
Outlook
The relatively benign South African consumer market will pose growth-related
challenges in the short term. The key focus in the coming year will be on further
diversifying the customer base and product range through a focus on small- to
medium-sized companies that will provide additional volume at improved product
margins and allow this business unit to leverage its well-established infrastructure.
The team is evaluating further diversification into other markets, such as the motor
industry accessory and plastic fibre ducting sectors. In the coming year, further
efficiency improvements in the factory production will be introduced, with higher
levels of mechanisation through robotics for automatic product extraction processes
and reduced electricity consumption through more energy-efficient replacement
machinery.
The team is investigating restructuring the business into more focused areas, such
as plastics and metal pressings, to reduce input costs from a cost of sales and
overhead perspective to improve profitability levels.
In addition, working capital levels will be reduced by increasing local raw materials
content where possible and deferring all non-essential operating expenditure through
a continued cost containment programme.
This business also plans to target increased longer-term supply contracts with higher
volumes and an improved product mix.
DELIVERY ON STRATEGY
Jasco continues to progress its strategy of offering services across the information
and communication technologies (ICT), security and fire, power and renewables and
manufacturing sectors. It operates across the entire value chain, from engineering,
solutions development, procurement, installation and integration to maintenance.
The three strategic goals underpinning our strategy are:
1. Improve earnings
2. Develop employees to achieve formal employer of choice certification
3. Accelerate transformation, with a focus on broad-based black economic
empowerment (B-BBEE), digitisation of the business and the evolution of the
portfolio into a smart solutions provider of choice
It is imperative that the organisation now shifts from planning into execution mode to
deliver against these three strategic goals. This will be management's key focus over
the next 12 months.
IMPROVE EARNINGS
Improving earnings will be a key focus area going forward. The group aims to
achieve this through:
- Improving business unit operating profit;
- Particular business units that are on the watch list due to disappointing
performances are: Power & Renewables and Datavoice. In addition, although
the Electrical Manufacturers business delivered a satisfactory performance in
F2018, it has had a very tough start to the F2019 year due to ongoing market
pressure;
- Reducing costs at the head office. Key areas being targeted are the reduction
of interest, audit costs, executive management positions and property rental
expenses. Jasco also continues to reduce debt and interest costs; and
- Improving the effective tax rate by reducing non-deductible expenses.
DEVELOP EMPLOYEES
The continued weak performance of the South African economy and the ongoing
shortage of critical, skilled resources, particularly within the ICT industry, has
resulted in the business environment becoming even more challenging during the
past 12 months. To address this, key senior and technical management resources
continue to be placed on retention schemes.
The group further invested in training of its technical resources and placed particular
emphasis on black employees.
With the implementation of the group's talent management framework, the group will
focus on its skills development programme, as well as fast-tracking black employees
to reflect the national demographics of the country.
The group is currently benchmarking itself against the top "employer of choice"
programme to ensure that it attracts, acquires, develops and retains employees to
unlock this key differentiator.
TRANSFORMATION
Jasco has identified three aspects of transformation that should be addressed to
achieve transformation objectives:
- Broad-based black economic empowerment (B-BBEE).
Due to the diverse nature of the group and its operations across four sectors,
Jasco has decided to individually rate the various legal entities in their
applicable sectors instead of only at group level.
- Digitisation of the business.
Digitisation of back-office support functions has become an imperative to
assist customer-facing business units to improve customer service. The team
is implementing a unified technology platform that addresses processes and
systems for both enterprise resource planning (ERP) and customer relationship
management (CRM).
- Evolution of the portfolio into a smart solutions provider of choice.
Whilst the economy of South Africa still shows weakness and restricted growth,
there are key segments within the group's markets it serves that offer good
prospects for growth due to shifts in technology. Jasco is well positioned to take
advantage of these segments.
GROUP PROSPECTS
To counter South Africa's low growth environment, Jasco will continue to execute its
strategy and focus on the following additional key areas:
- Reduce financial gearing during F2019 through continued cash generation from
operations;
- Address opportunities in the rest of Africa on a case by case basis to prevent
a further drag on results. The new local partnership in Kenya has significantly
reduced Jasco's risk in this market;
- Ensure a return to acceptable and sustainable profitability levels in the Power
and Renewables and Datavoice businesses;
- Drive targeted regional growth in the Western Cape, KwaZulu-Natal and the
Eastern Cape;
- Add to Jasco's products and services portfolio, with an emphasis on services in
the form of managed solutions;
- Target large corporate and public (SOE) entities with the full portfolio; and
- Continue the transformation of Jasco, with employment equity and skills
development a priority.
Following the disappointment of having to restate results and the group's voluntary
suspension, management will continue working closely with its new external auditors
going forward.
Based on a solid underlying operational performance, management's focus will be
on executing on its strategy and improving earnings in the short term.
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 were a number of material subsequent events that occurred between
the accounting date of 30 June 2018 and the new reporting date of today,
5 November 2018. These are:
- The group announced the F2018 provisional results on 27 September 2018
and erroneously referred to the results as "audited". This announcement was
retracted on 1 October 2018. To ensure that no shareholder was prejudiced,
the Jasco board applied for the voluntary suspension of Jasco's shares on the
Johannesburg Stock Exchange before 09:00 on the same date.
- The dividend number 24 of 1 cent per share declared by the board on
27 September 2018 had to be withdrawn on 1 October 2018 due to the
retraction of the F2018 results.
- On 12 October 2018, the external auditors, PwC Incorporated, reported to the
Independent Regulatory Board of Auditors (IRBA) that they believed a suspected
irregularity had taken place, as defined in the Auditing Professions Act, 2005
(APA). PwC was of the view that the reportable irregularity related to statements
made in the SENS announcements of 27 September and 1 October 2018. They
indicated that these announcements may have been misleading, as the audit of
the consolidated annual financial statements were not finalised at the date of
publication of the results. This could have constituted a breach of the provisions
of section 29 of the Companies Act 2008 and/or a breach of the provisions of
section 81 of the Financial Markets Act 2012. At the date of publication of these
re-published results. PwC followed up their report to the IRBA with a second
report as required by the APA, advising the IRBA that, in its view, the reportable
irregularities are no longer occurring;
- The corporate bond's interest cover covenant for the six-month period ended
30 June 2018 was breached (1,8 times versus 2,0 times) and was condoned by
the corporate bondholder on 28 October 2018. Consequently, the interest-
bearing loan was reclassified at 30 June as a short-term borrowing. The
corporate bondholder confirmed that the repayment date remains unchanged at
31 January 2020.
- The guarantees issued in favour of subsidiaries will be reduced following
the reduction in the company's shareholders' equity resulting from the F2017
restatements; and
- The minority shareholders of Reflex Solutions have raised a legal dispute with
Jasco regarding the majority ownership of the company. The outcome of this
dispute may affect the timing of the payment of the second tranche payment in
respect of Reflex Solutions.
CHANGES TO THE BOARD
There were some changes to the board during the year under review. Mr AMF da
Silva retired as the CEO on 30 June 2018 and was appointed as a non-executive
director on 1 July 2018. Mr MJ van Vuuren joined the board on 1 July 2018 as the chief
executive officer. The board expresses its gratitude to Mr Da Silva for the hard work
during his tenure and welcomes Mr Van Vuuren in his new role. Mr JC Farrant, the lead
independent non-executive director, will retire from the board at the next AGM after
21 years of service. The board thanks him for his dedicated service to the company.
DIVIDEND
Due to the earnings loss position of the group, the board deemed it prudent not to
declare a dividend this year.
For and on behalf of the board
Dr ATM Mokgokong MJ van Vuuren WA Prinsloo
(Non--executive chairman) (Chief executive officer) (Chief financial officer)
5 November 2018
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 2018, 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, PwC Inc., have audited the consolidated annual
financial statements for the year ended 30 June 2018 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 2 929
- Financial liabilities at fair value through profit or loss 83
POSTING OF INTEGRATED REPORT AND NOTICE OF ANNUAL
GENERAL MEETING
Shareholders are further advised that the company's Integrated Annual Report for the
year ended 30 June 2018, containing the unmodified annual financial statements
and notice of annual general meeting, will be distributed on or about Friday, 16 November
2018.
Included in the Integrated Annual Report is a notice of Annual General Meeting of
shareholders which will be held in the company's boardroom, Jasco Office Park,
Corner Alexandra Avenue and Second Street, Midrand, on or about Thursday, 20 December
2018, at 11:00 to transact the business as stated in the notice of the Annual
General Meeting to be posted to shareholders on or about 16 November 2018.
The record date, for purposes of determining which shareholders are entitled to
receive the notice of Annual General Meeting, will be Friday, 2 November 2018.
The last day to trade and the record date, for shareholders to be eligible to
participate in and vote at the Annual General Meeting, are Tuesday, 4 December
2018 and Friday, 7 December 2018 respectively.
The Integrated Annual Report will be available on the company website:
www.jasco.co.za on or about 16 November 2018.
SUMMARISED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Audited Restated
30 June 30 June
(R'000) 2018 2017 % change
Revenue 1 147 083 1 036 509 10,7
Cost of sales (786 607) (724 064) 8,6
Gross profit 360 476 312 445 15,4
Other income 27 437 24 490 12,0
Selling and distribution costs (1 814) (3 145) (42,3)
Administrative expenses (246 584) (209 337) 17,8
Other expenses (99 122) (120 561) (17,8)
Operating profit 40 393 3 892 937,8
Finance income 4 285 6 986 (38,7)
Finance costs (24 451) (18 520) (32,0)
Equity accounted share of loss from joint venture/associate (4 091) (1 823) (124,4)
Profit/(Loss) before taxation 16 136 (9 465) 270,5
Taxation (12 754) (25 976) 50,9
Profit/(Loss) for the year 3 382 (35 441) 109,5
Other comprehensive (loss)/income (351) 319
Total comprehensive income/(loss) for the year 3 031 (35 122) 108,6
Profit/(Loss) attributable to:
- non-controlling interests 11 047 3 807 190,2
- ordinary shareholders of the parent (7 665) (39 248) 80,5
Profit/(Loss) for the year 3 382 (35 441) 109,5
Total comprehensive income/(loss) attributable to:
- non-controlling interests 11 047 3 807 190,2
- ordinary shareholders of the parent (8 016) (38 929) 79,4
Total comprehensive income/(loss) for the year 3 031 (35 122) 108,6
Reconciliation of headline earnings
Net earnings loss attributable to equityholders of the parent (7 665) (39 248) 80,5
Headline earnings adjustments 4 246 28 381 (85,0)
- impairment of goodwill 4 517 28 302
- profit on disposal of subsidiary (East Africa) (206) -
- net (profit)/loss on disposal of fixed assets (65) 79
Headline earnings loss (3 419) (10 867) 68,5
Number of shares in issue ('000) 229 319 229 319
Treasury shares ('000) 250 2 407
Weighted average number of shares on which earnings
per share is calculated ('000) 229 069 226 912
Dilutive share options ('000) 373 2 451
Weighted average number of shares on which diluted
earnings per share is calculated ('000) 229 442 229 363
Ratio analysis
Attributable earnings (7 665) (39 248) 80,5
EBITDA 75 525 49 970 51,1
Earnings per share (cents) (3,3) (17,3) 80,7
Diluted earnings per share (cents) (3,3) (17,1) 80,5
Headline earnings per share (cents) (1,5) (4,8) 68,8
Diluted headline earnings per share (cents) (1,5) (4,7) 68,5
Net asset value per share (cents) 77,4 81,3 (4,8)
Net tangible asset value per share (cents) 10,0 40,1 (75,1)
Debt: Equity (%) 56,5% 43,4% 30,3
Interest cover (times) 2,0 2,6 (23,8)
EBITDA interest cover (times) 3,7 4,9 (23,3)
SUMMARISED CONSOLIDATED STATEMENTS OF CASH FLOWS
Audited Restated
30 June 30 June
(R'000) 2018 2017
Cash generated from operations before working capital changes 94 375 71 584
Working capital changes (39 207) (16 190)
Cash generated from operations 55 168 55 394
Net financing costs paid (13 925) (8 734)
Net taxation paid (18 718) (16 943)
Dividends paid (5 907) (4 478)
Cash flow from operating activities 16 618 25 239
Cash flow from investing activities (43 971) 21 373
Cash flow from financing activities (932) 41 878
(Decrease)/Increase in cash resources (28 285) 88 490
SUMMARISED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
Audited Restated
30 June 30 June
(R'000) 2018 2017
ASSETS
Non-current assets 258 819 210 788
Plant and equipment 79 596 78 936
Intangible assets 154 509 112 608
Investment in joint venture/associate 4 412 284
Deferred income tax 19 725 17 803
Other non-current assets 577 1 157
Current assets 467 229 474 072
Inventories 102 642 86 334
Trade and other receivables 286 197 269 975
Taxation refundable 9 506 7 280
Short-term portion of other non-current assets 995 14 932
Cash and cash equivalents 67 889 95 551
Total assets 726 048 684 860
EQUITY AND LIABILITIES
Shareholders' equity 204 219 201 630
Share capital 281 283 281 283
Treasury shares (450) (2 635)
Non-distributable reserves 6 941 6 427
Retained loss (110 392) (100 495)
Equity attributable to equity holders 177 382 184 580
Non-controlling interests 26 837 17 050
Non-current liabilities 139 440 168 504
Interest-bearing liabilities 128 549 162 598
Deferred maintenance revenue 518 331
Deferred income tax 10 373 5 575
Current liabilities 382 389 314 726
Trade and other payables 268 432 215 604
Provisions 18 027 19 984
Taxation 2 992 2 626
Deferred maintenance revenue 38 237 56 139
Short-term borrowings 54 701 20 373
Total equity and liabilities 726 048 684 860
SUMMARISED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
Audited Restated
30 June 30 June
(R'000) 2018 2017
Attributable to equity holders of the parent
Opening balance 184 580 224 749
Treasury shares - Share Incentive Trust 2 185 3 597
Share-based payment reserve 865 (359)
Total comprehensive income (8 016) (38 929)
- Loss for the year (7 665) (39 248)
- Other comprehensive (loss)/income (351) 319
Dividends paid (2 232) (4 478)
Closing balance 177 382 184 580
Non-controlling interest
Opening balance 17 050 7 100
Acquisition of subsidiary 8 496 6 966
Transactions with non-controlling shareholders (758) 3
Total comprehensive income 11 047 3 807
- Profit for the year 11 047 3 807
- Other comprehensive income - -
Dividends paid to non-controlling shareholders (8 998) ( 826)
Closing balance 26 837 17 050
Total equity 204 219 201 630
SUMMARISED SEGMENTAL REPORTS
Restated
Income and expenses 30 June 2018 30 June 2017
Operating Operating
(R'000) Revenue profit/(loss) Revenue profit/(loss)
Carriers 348 738 53 092 385 846 51 033
Enterprise 401 709 11 152 314 846 (5 208)
Intelligent Technologies 206 767 18 231 163 078 22 094
Electrical Manufacturers 203 530 13 158 190 795 13 275
Sub-total operating divisions 1 160 744 95 633 1 054 565 81 194
Other - (43 000) - (36 887)
Adjustments (13 661) (12 240) (18 056) (40 415)
Total 1 147 083 40 393 1 036 509 3 892
Financial position
(R'000) Assets Liabilities Assets Liabilities
Carriers 153 596 49 511 150 705 38 191
Enterprise 146 326 93 965 136 770 89 993
Intelligent Technologies 88 780 51 634 75 254 32 824
Electrical Manufacturers 95 608 22 877 89 445 19 776
Sub-total operating divisions 484 310 217 987 452 174 180 784
Other 164 159 318 897 160 963 302 827
Adjustments 77 579 (15 055) 71 723 (381)
Total 726 048 521 829 684 860 483 230
Directors and Secretary: Dr ATM Mokgokong (Chairman), MJ Madungandaba (Deputy Chairman), JC Farrant*, S Bawa*,
P Radebe*, T Zondi* AMF da Silva (Non-executives), MJ van Vuuren (CEO), WA Prinsloo (CFO), TS Petje, SM Samuels (Executives),
N Modisakeng (Company Secretary) *Independent
Registered office: Jasco Park, c/o 2nd Street and Alexandra Avenue, Midrand, 1685
Transfer secretaries: Link Market Services SA Proprietary Limited, 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
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Date: 05/11/2018 02:15:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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