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JSC - Jasco - Unaudited Results For The Six Months Ended 31 August 2008
Jasco Electronics Holdings Limited
Incorporated in the Republic of South Africa
Registration number: 1987/003293/06
Share code: JSC & ISIN: ZAE000003794
("Jasco" or "Company" or "Group")
Unaudited results for the six months ended 31 August 2008
* Further diversification of earnings base pays off
* Earnings per share increased by 38%
* Improved margins across the board
* New acquisition, M-TEC, earnings enhancing
Commentary
Introduction
In line with Jasco`s strategy over the last few years to further diversify
its portfolio, the group reported a pleasing 38% increase in earnings per
share (EPS) for the six months to August 2008. The group`s earnings for the
period more than compensated for the issue of additional ordinary shares in
terms of the group`s Black Economic Empowerment (BEE) transaction concluded
in March 2003 (see more detail below).
Group margins from historic business operations increased to 10,4% (2007:
6,7%). The three-month contribution from the recently acquired associate
company, Malesela Taihan Electric Cable (Pty) Ltd (M-TEC) further increased
the operating margins to 13,6%. For the period under review, M-TEC enhanced
Jasco`s earnings by 0,8 cents per share.
Headline earnings adjustments, as in the past, had a minimal effect on the
group`s results.
These results are unaudited and in line with the trading update issued on
25 August 2008.
Corporate transactions
Conversion of BEE transaction shares
As announced on SENS on 20 May 2008, the issue of Jasco ordinary shares to
Community Investment Holdings (Pty) Ltd (CIH) took place on 21 May 2008.
The group issued 17,2 million new ordinary shares to CIH in terms of its
original BEE transaction entered into on 1 March 2003, amounting to 57% of
the possible number of shares that could have been issued in terms of the
agreement.
Acquisition of an interest in M-TEC
With effect from 1 June 2008, the group acquired 51% of both the ordinary
and preference shares in M-TEC for R214,1 million, settled through a cash
consideration of R125 million, the issue of 27,4 million ordinary Jasco
shares at R3,25 each and the issue of R100 million in redeemable preference
shares to JSE-listed BEE investment group, AfroCentric. Through this
transaction, AfroCentric now holds 34,9% of Jasco.
Results
Income Statement
During the last six months, the group concentrated on efficiencies, cost
savings and increases in selling prices to mitigate inflationary cost
pressures and in anticipation of limited revenue growth in the
Telecommunications division and declining revenue in the Domestic Products
division. This focus - together with a favourable swing in the sales mix
towards higher margin/value add solutions in both the Telecommunications
and Security divisions and a significantly increased contribution from
Jasco`s 50% share in WebbLeBLANC - resulted in a 51% increase in operating
profit and improved margins across the board against almost flat group
revenue.
Net profit before taxation increased by 71% to R29,7 million (2007: R17,3
million). This was affected by:
* The 51% increase in the operating profit before interest and taxation
from the historic Jasco divisions
* Net interest paid of R4,1 million against net interest received of R0,4
million in the corresponding period. Interest paid now includes the
preference share dividend of R3,1 million payable on the R100 million
redeemable preference shares issued in terms of the M-TEC acquisition on 1
June 2008. The preference shares are disclosed as non-current interest
bearing liabilities
* Jasco`s share of after tax profit from WebbLeBLANC of R1,6 million (2007:
R0,8 million) and three-months` contribution from M-TEC of R7,8 million
(before interest) The group`s effective tax rate decreased to 31,0% (2007:
34,7%), which is the expected average taxation rate for the full year.
Cash Flow and Balance Sheet
Cash generated from operations before working capital increased by 51% to
R28,6 million (2007: R18,9 million). During the period under review, the
Security division entered into a five-year rental agreement to design,
install and maintain electronic security systems with a total project value
of R45 million. The R21 million funding incurred to date during this
reporting period had a temporary impact on cash flow. In line with IFRS, as
the actual rentals from this installation commenced after 31 August 2008,
the revenue and the resulting profit thereon can only be recognised during
the second half of this financial year.
In the meantime, the contract also resulted in a temporary increase in
working capital at 31 August 2008. This will normalise during the second
half of this year. Average net working capital days therefore increased to
37,1 days (2007: 23,5 days). Excluding the rental contract, the average net
working capital days amounted to 26,1 days, well within the group`s
internal target of 30 days. Future funding alternatives will be considered
to minimise the impact on working capital.
After funding the rental contract, payment of dividends (R10,9 million),
taxation (R6,0 million) and the net outflow of R28,6 million in investments
in fixed assets and the M-TEC acquisition, the group ended the period with
a temporary overdraft of R10,7 million. In line with the group`s historic
trend of strong cash generation, the overdraft is expected to be fully paid
off by 30 June 2009.
The group`s debt: equity ratio is now 47%, of which 40% represents the
redeemable preference shares used to fund a portion of the M-TEC
acquisition.
Basis of preparation
The abridged financial statements have been prepared in terms of IFRS and
are compliant with IAS 34 - Interim Financial Reporting.
Operational review
The divisional contributions to group revenue exclude interest received at
head office. The divisional contributions to operating profit exclude head
office costs. However, note that the operating profit includes the profit
after tax (PAT) contributions from associate M-TEC and the WebbLeBLANC JV,
as per IFRS requirements.
Telecommunications
Revenue remained flat at R143,3 million (2007: R144,5 million) due to
temporary delays in orders for broadband solutions from operators in
Africa, as well as lower than expected demand during the period for lower-
end fixed line products. However, operating profit grew by 22% to R23,0
million from R18,9 million reported in the previous period as a result of a
larger contribution from higher-margin fixed line solutions business. The
operating margin improved to 16,1% (2007: 13,1%).
Security
The turnaround in Security is now complete. Security revenue increased by
33% to R47,5 million (2007: R35,7 million) and operating profit increased
more than fourfold to R5,9 million (2007: R1,3 million). The division
demonstrated a balanced inflow of orders between recurring business from
existing blue-chip customers, as well as new large projects. Margins
improved from 3,7% to 12,3%. The improvement in recurring business is now
contributing to profit rather than merely providing the base load of
revenue as foreseen in the business model.
Domestic Products
In the 2008 Annual Report, the group reported that it expected profits in
this division to remain flat for the 12 months ended 28 February 2009.
However, the impact on the demand for smaller appliances was worse than
expected and revenue decreased by 20% to R56,7 million (2007: R70,5
million) in the six months under review.
A concerted effort to reduce costs and improve efficiencies in a tough
market allowed the group to minimise the decline in operating profit to 7%
(R5,3 million versus R5,7 million in 2007). As a result, the operating
margin improved to 9,3% (2007: 8,0%).
Electrical
The newly-created Electrical division consists of Jasco`s investment in
cable manufacturer, M-TEC from 1 June 2008.
Jasco owns 51% of the ordinary and preference shares in M-TEC, with Taihan
Electric Wire Company (Taihan) of South Korea, one of the top 10 cable
manufacturing companies in the world, owning the balance. Taihan retained
management control in M-TEC and contributes valuable technical expertise.
This investment is accounted for as an associate company.
M-TEC operates in the infrastructure build side of the power and
telecommunications sectors in South Africa. The contribution for the last
three months was within expectations, with Jasco`s after tax share of
profits for three months totalling R7,8 million.
Prospects
Although the liberalisation of the telecommunications industry has been
affected by the recent announcement by government to appeal a court
judgment in favour of Value Added Network (VAN) license holders,
government`s stated commitment to an orderly liberalisation of the
telecommunications industry in South Africa continues to offer numerous new
local opportunities in both the short and long term.
Jasco believes that expenditure by operators and service providers in
Africa will continue for the foreseeable future, supported by new network
roll outs to improve the tele-density on the continent. In addition,
broadband wireless technologies continue to be enhanced and improved,
allowing operators to upgrade existing fixed line and wireless networks to
access new customers.
In Security, management have enhanced the strategy to include rental
contracts, providing additional recurring revenue opportunities. During the
second half of the year, the division will benefit from the previously
mentioned rental contract, which is already work in progress. In addition,
the healthy order book of R50 million to be executed in the next six months
from a wide range of clients, will more than double operating profit for
the full year to February 2009.
As outlined above, the Domestic Products division is affected by the
downturn in consumer spend. This is expected to continue for the rest of
the current financial year. As a result, it is anticipated that this
division will see a reduction in profit for the full financial year,
although management does not expect this to have a material impact on the
overall group results.
Although the first three months` performance from M-TEC was in line with
expectations, the slower than expected uptake on a large overhead conductor
contract and delays in the awarding of a fibre and copper cable tender will
result in flat earnings for the next six months to February 2009.
Thereafter, demand is expected to revert to the stronger growth trends
envisaged at the time of acquisition. M-TEC continues to be ideally
positioned to benefit from the long term need to build South Africa`s
infrastructure.
Barring any unforeseen circumstances or significant local impact from the
current turmoil in world markets, management expect EPS to continue to grow
for the 12 months ended 28 February 2009.
Dividends and change in year end
Dividends are paid annually.
Shareholders are advised that the group will change its year end to 30 June
2009 to correspond with the year-ends of its main shareholders and that of
M-TEC. As a result, a reviewed 12-month interim report will be issued
during April 2009 and an audited 16-month report will be issued during
September 2009.
For and on behalf of the Board
Dr ATM Mokgokong MH Lotz WA Prinsloo
(Non-Executive (Chief Executive (Financial
Chairperson) Officer) Director)
1 October 2008
Directors and Secretary
Dr ATM Mokgokong (Chairperson), MJ Madungandaba (Deputy Chairperson), PS
Chapwanya+, FE Emary, JC Farrant, Dr JM Matsipa, JA Sherry
(Non-Executives), MH Lotz (CEO), WA Prinsloo (Financial Director and acting
Company Secretary), O Seiphemo (Marketing Director) (Executives)
+ (Zimbabwean)
Registered office:
Woodmead Park, 8 Saddle Drive, Woodmead 2157
Transfer secretaries:
Link Market Services SA (Pty) Ltd, 11 Diagonal Street,
Johannesburg 2001
Sponsors: PSG Capital (Pty) Limited
Further details can be found on the group`s website: www.jasco.co.za
SUMMARISED CONSOLIDATED INCOME STATEMENTS
Unaudited Unaudited
6 months 6 months
ended ended % Audited
31 August 31 August change 28 February
(R`000) Note 2008 2007 2008
Revenue 248 947 252 871 (2,2) 519 161
Turnover 247 598 250 637 (1,9) 513 572
Interest received 1 349 2 234 5,589
Operating profit 24 318 16 159 50,5 49 488
before interest and
taxation
Interest received 1 349 2 234 5 589
Interest paid (5 408) (1 853) (6 527)
Share of income from 1 603 807 1 136
joint venture
Share of income from 7 842 - -
associate
Net profit before 29 704 17 347 71,2 49 686
taxation
Taxation (8 630) (5 739) (16 201)
Profit for the
period/year
attributable to
ordinary 21 074 11 608 81,5 33 485
shareholders
Net earnings
attributable to
ordinary
shareholders 21 074 11 608 81,5 33 485
Headline earnings 157 - 17
adjustments
- loss on disposal 157 - 17
of fixed assets
Headline earnings 21 231 11 608 82,9 33 502
Number of shares in 114 509 69 931 69 931
issue (`000)
Treasury shares 2 769 1 392 1 527
(`000)
Number of shares on
which earnings
per share is 1 90 235 68 539 68 404
calculated (`000)
Number of shares on
which diluted
earnings per share 2 102 875 101 773 90 558
is calculated (`000)
Earnings per share 23,4 16,9 37,9 49,0
(cents)
Diluted earnings per 20,5 11,4 79,6 37,0
share (cents)
Headline earnings 23,5 16,9 38,9 49,0
per share (cents)
Diluted headline 20,6 11,4 80,9 37,0
earnings per share
(cents)
Ratio analysis
Attributable 21 074 11 608 81,5 33 485
earnings (R`000)
EBITDA 37 157 19 620 89,4 44 125
Net asset value per 278,5 186,8 49,1 221,0
share (cents)
Net tangible asset 228,2 120,6 89,2 154,6
value per share
(cents)
Dividend per share - 16,0
final (cents)
Debt: Equity (%) 47 - -
Interest cover 8,3 - 53,9
(times)
Note 1: The weighted average number of shares increased from 68 404 120
shares in February 2008 after the issue of the 27 415 385 shares on the
acquisition of M-Tec (1 June 2008) and the "conversion" of the 17 162 969
shares on 21 May 2008 (BEE transaction).
Note 2: This includes the 17 162 969 preference shares "converted" on 21
May 2008 as well as the 4 990 816 options issuable in terms of the
incentive scheme.
SUMMARISED CONSOLIDATED BALANCE SHEETS
Unaudited Unaudited Audited
31 August 31 August 28 February
(R`000) 2008 2007 2008
ASSETS
Non-current assets 313 228 82 061 87 003
Plant and equipment 28 088 26 867 27 414
Investment in joint venture 8 534 6 718 6 931
Investment in associate 225 386 - -
Intangibles 45 022 45 393 45 448
Deferred tax asset 5 444 3 079 5 304
Loans 754 4 1 906
Current assets 177 026 187 713 189 813
Inventories 75 923 60 521 51 080
Trade and other receivables 100 400 107 597 99 205
Taxation 703 - 703
Cash and cash equivalents - 19 595 38 825
Total assets 490 254 269 774 276 816
EQUITY AND LIABILITIES
Share capital and reserves 250 905 128 065 151 178
Non-current liabilities 105 982 9 089 3 282
Interest bearing liabilities 105 982 8 790 2 884
Non-interest bearing - 299 299
liabilities
Deferred tax - - 99
Current liabilities 133 367 132 620 122 356
Interest bearing liabilities 10 728 - 8 053
Non-interest bearing 109 677 125 778 104 213
liabilities
Taxation 12 962 6 842 10 090
Total equity and liabilities 490 254 269 774 276 816
Contingent liability
During 2007, SARS revised its assessment of income taxation for Jasco
Electronics Holdings Limited for the years ended 29 February 2004 and 28
February 2005 by R0,5 million and R1,0 million respectively. Based on
professional advice received from two independent, non-related parties, the
directors continue to believe that the reassessments are invalid, and
continue to treat the matter conservatively as a contingent liability
whilst objections are being raised.
STATEMENTS OF CHANGES IN EQUITY
Unaudited Unaudited
6 months 6 months
ended ended Audited
31 August 31 August 28 February
(R`000) 2008 2007 2008
Opening balance 151 178 125 605 125 605
Issue of share capital 88 904 - -
Treasury shares - Share (10) (57) (146)
Incentive Trust
Share based payment reserve 718 - 1 146
Dividends paid (10 959) (9 091) (8 912)
Profit for the period/year 21 074 11 608 33 485
Closing balance 250 905 128 065 151 178
SUMMARISED CONSOLIDATED CASH FLOW STATEMENTS
Unaudited Unaudited
6 months 6 months
ended ended Audited
31 August 31 August 28 February
(R`000) 2008 2007 2008
Cash generated from 28 648 18 914 55 441
operations before working
capital changes
Working capital changes (28 653) (11 766) (13 300)
Net financing (costs)/income (4 059) 381 (169)
Net taxation paid (5 997) (3 616) (13 659)
Dividends paid (10 933) (9 073) (8 912)
Cash flow from operating (20 994) (5 160) 19 401
activities
Cash flow from investing (220 678) (6 832) (12 333)
activities
Cash flow from financing 192 119 1 514 1 608
activities
(Decrease)/increase in cash (49 553) (10 478) 8 676
resources
SUMMARISED SEGMENTAL REPORTS
for the six months ended 31 August 2008, 31 August 2007, and the year ended
29 February 2008
(R`000) Domestic
31 August 2008 Telecoms Products Security
(Unaudited)
Revenue 143 343 56 731 47 524
Operating profit/(loss)* 23 007 5 295 5 862
(R`000) Domestic
31 August 2007 Telecoms Products Security
(Unaudited)
Revenue 144 464 70 487 35 686
Operating profit/(loss)* 18 920 5 667 1 319
(R`000) Domestic
29 February 2008 Telecoms Products Security
(Audited)
Revenue 282 034 139 306 94,554
Operating profit/(loss)* 41 453 16 081 8,254
(R`000) Sub total
31 August 2008 operating
(Unaudited) Electrical divisions Other Total
Revenue - 247 598 1 349 248 947
Operating 7 842 42 006 (8 243) 33 763
profit/(loss)*
(R`000) Sub total
31 August 2007 operating
(Unaudited) Electrical divisions Other Total
Revenue - 250 637 2 234 252 871
Operating - 25 906 (8 940) 16 966
profit/(loss)*
(R`000) Sub total
29 February 2008 operating
(Audited) Electrical divisions Other Total
Revenue - 515,894 3 267 519 161
Operating - 65,788 (15 164) 50 624
profit/(loss)*
*The divisional operating profit/(loss) includes the equity-accounted
income from the joint venture (Telecoms) and associate, (Electrical)
presented after tax but excludes interest paid or received and is stated
before making adjustments for inter-group interest and administration fees.
www.jasco.co.za
Date: 02/10/2008 07:05:02 Produced by the JSE SENS Department.
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