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JSC - Jasco Electronics Holdings Limited - Reviewed Interim Results For The
12 Months Ended 28 February 2009
JASCO ELECTRONICS HOLDINGS LIMITED
Incorporated in the Republic of South Africa
Registration number: 1987/003293/06
Share code: JSC ISIN: ZAE000003794
REVIEWED INTERIM RESULTS FOR THE 12 MONTHS ENDED 28 FEBRUARY 2009
Historic operations delivered a solid result
M-TEC disappoints
Cash from operations increased by 106%
Dividend of 10cps
INTRODUCTION
Jasco is pleased to announce that the group`s historic business continued to
show solid growth at both revenue and operating profit level, with a 16%
increase in revenue and a similar increase in operating profit. This was
achieved against tough trading conditions during the second half of the
period. However, the 12 month result to 28 February 2009 was impacted by the
knock-on effect of the slowdown in certain sectors of the South African
economy on Malesela Taihan Electric Cable (Pty) Ltd (M-TEC), the group`s
cable manufacturing associate.
The nine-month contribution from M-TEC was a disappointing R0,7 million.
However, the group remains confident that this strategic investment will
improve its contribution to the Jasco results during the next 12 - 18 months.
Jasco previously communicated that it has changed its year end from 28
February to 30 June to coincide with the year ends of its major shareholders,
Community Investment Holdings (Pty) Ltd (CIH) and AfroCentric Investment
Corporation Ltd (AfroCentric). Therefore, the current results to 28 February
2009 are treated as a second interim period. These results have accordingly
only been reviewed, not audited, and are in line with the trading update
issued on 25 March 2009.
CORPORATE ACTION DURING THE YEAR
Conversion of BEE transaction shares
As announced on SENS on 20 May 2008, the issue of Jasco ordinary shares to
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.
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 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. AfroCentric therefore
holds an effective 34,9% of Jasco. Taihan Electric Wire Company (Taihan) of
South Korea, one of the top cable manufacturing companies in the world, owns
the balance of M-TEC. In terms of the sale of shares agreement, Taihan
retained management control in M-TEC and this investment is therefore
accounted for as an associate company.
RESULTS
Income Statement
Revenue for the 12 months increased by 16% to R603 million (2008: R519
million).
In anticipation of tougher trading conditions during the last six months, the
group concentrated on efficiencies and cost savings to mitigate inflationary
cost pressures. The group`s diversification strategy paid off as the
anticipated decline in revenue, profits and margins in the Domestic Products
division was compensated for by the strong growth in the Security division
and another solid performance from the Telecommunications division. Group
margins improved slightly, increasing from 9,6% in the comparative period to
9,7%, resulting in a 16% increase in operating profit from R49 million to R58
million.
Net profit before taxation increased by 3% to R51 million (2008: R50
million). This was affected by:
- interest paid of R9 million on the R100 million redeemable preference
shares issued in terms of the M-TEC acquisition. The preference shares
are disclosed as non-current interest bearing liabilities
- a more than tripling in Jasco`s share of after tax profit from its
WebbLeBLANC JV to R3,5 million (2008: R1,1 million)
- a disappointing R0,7 million nine-month contribution from associate M-
TEC
The R9 million interest paid on the redeemable preference shares is excluded
from the effective tax rate calculation as the expense is not allowed as a
tax deduction. The average taxation rate reduced to 32,9% (2008: 33,4%).
Following the issue of 17,2 million new shares to CIH and another 27,4
million shares to acquire the group`s shareholding in M-TEC during the
period, earnings per share (EPS) and headline earnings per share (HEPS),
calculated on the weighted average numbers of shares, decreased by 34% and
33% respectively.
The 2008 EPS and HEPS were calculated before the issue of 17,2 million new
ordinary shares. The impact of this new issue of shares was to effectively
dilute both EPS and HEPS from the 49 cents per share reported for the year to
29 February 2008 to 39,1 cents per share. The adjusted EPS and HEPS of 39,1
cents per share therefore provides a more realistic base when comparing this
period`s results. Accordingly, based on this adjusted number, EPS and HEPS
for the 12 months ended 28 February 2009 decreased by 17% and 16%
respectively.
Cash Flow and Balance Sheet
Cash generated from operations increased by a pleasing 106% to R86 million
(2008: R42 million). Strong cash management resulted in an improved cash
inflow from working capital, especially compared to the first six months,
resulting in a further decrease in the average net working capital days to
23,2 days (2008: 23,9 days), still well within the group`s internal target of
30 days.
After funding a rental contract (R45 million) in the Security division, net
financing costs (R10 million), dividends (R11 million), taxation (R19
million) and the net outflow of R47 million in investment activities, the
group ended the period with a small overdraft of R7 million. This will be
comfortably serviced by the group`s strong cash generating ability.
The group`s non-current interest bearing liabilities increased to R102,2
million (2008: R2,9 million) primarily due to the issue of redeemable
preference shares used to fund a portion of the M-TEC acquisition.
Accordingly, the group`s debt:equity ratio is now 42% (2008: Nil), of which
38% comprises the redeemable preference shares. This ratio has already
improved from the 47% reported for 31 August 2008.
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
To compare the pure operating performances of the individual divisions,
divisional contributions to group revenue exclude interest received at head
office. Divisional contributions to operating profit also exclude head office
costs. However, it should be noted that the divisional operating profit
includes the after tax profit contributions from associate M-TEC and the JV
WebbLeBLANC, as per IFRS requirements.
Telecommunications
Revenue from the largest division increased by 8% to R305 million (2008: R282
million). A further decrease in the demand from fixed-line operators was off-
set by the increased local demand for wireless products, as well as exports
into Africa. In line with the group`s flexible business model, the
contribution to revenue from fixed-line operators decreased from 35% of
revenue for the year to February 2008 to approximately 25% for the 12 month
period to February 2009.
The robust results were also strongly impacted by the tripling of
WebbLeBLANC`s contribution on the back of solid infrastructure build, with
operating profit growing by 10% to R46 million (2008: R41 million). As
intended, the higher-margin solution business compensated for the effect of
lower-margin commodity business in the total Telecommunications mix.
Furthermore, there was a greater contribution from the higher-margin Hi Sites
business. As a result, the operating margin increased to 15,0% (2008: 14,7%).
Security
The Security division performed extremely well, increasing revenue by 86% to
R176 million (2008: R95 million) and more than tripling operating profit to
R26 million (2008: R8 million). The division enjoyed a buoyant market and
applied focused and determined leadership in the execution of a substantial
increase in revenue. Recurring business from large blue-chip customers
represents almost 45% of revenue, with significant projects accounting for
the balance. Buoyed by the high revenue, margins improved from 8,7% to 14,8%.
During the year, the Security division entered into a rental agreement
(project value of R46 million) with a large parastatal. Although the revenue
and profit resulting from the installation of this project was accounted for
during the second half of the period, annuity-based income from the rental
and maintenance agreement will continue to flow to the division over the next
5 years starting at around R7 million per annum.
Domestic Products
As reported in the August 2008 interim results, the impact of the consumer
slowdown on the demand for appliances was worse than expected. Revenue for
the 12 month period decreased by 18% to R115 million (2008: R139 million).
However, a concerted effort to reduce costs and improve efficiencies in this
tough market allowed the group to limit the impact of a decrease in volumes.
Had management not been able to reduce the fixed cost base by almost 15%, the
decline in operating profit to R12 million (2008: R16 million) would have
been much more severe. As a result, the operating margin remained above the
ten percent mark at 10,5% (2008: 11,5%).
Electrical
The newly-created Electrical division consists of Jasco`s share in cable
manufacturer, M-TEC, acquired effective 1 June 2008. M-TEC operates in the
infrastructure build side of the power and telecommunications sectors in
South Africa.
Although the results for the first three months to 31 August 2008 were within
expectations, the impact of the global financial crisis and resulting
slowdown in the South African economy substantially and unexpectedly reduced
the demand for cable products in the fourth quarter of the 2008 calendar
year.
Revenue during the period was negatively impacted by three major factors: The
delay in the awarding of a Telkom fibre and copper telecoms cable contract,
the postponement of the rollout of an Eskom aluminium overhead conductor
programme and the slowdown in the private building industry - major users of
copper power cable. Eskom delayed the expansion of their national grid by 18
months and as M-TEC was awarded a substantial portion of this contract, it
expanded capacity for the expected take off. The continued delay in the
awarding of a major fibre and copper telecommunications contract by Telkom
also negatively affected the demand for fibre, whilst no sales in copper
telecommunications materialised due to the delay in the award of the
contract.
This sudden drop in volumes was not anticipated and a reduction in fixed
costs was not immediately possible. The impact of the decrease in volumes was
exacerbated by the dramatic drop in commodity prices during this period. The
effect of this was a write down of approximately R23 million of stock on hand
in the copper power cable and aluminium conductor divisions.
Due to all the factors outlined above, Jasco`s share of the M-TEC profit
after tax for the nine months to 28 February 2009 was only R0,7 million.
PROSPECTS
The uncertainty brought about by the global financial crisis and the negative
impact thereof on the South African economy remains a concern. The evidence
from retail and manufacturing data, indicating that the South African economy
is heading for recession in several sectors, makes forecasting beyond the new
financial year end of 30 June 2009 very difficult.
However, Jasco believes that expenditure by operators and service providers
to improve the tele-density in Africa will continue, albeit at a slower rate
than previously planned. 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 and improve revenue
streams from the same infrastructure. Jasco`s Telecommunications division is
well positioned to take advantage of the expected growth as we offer
products, solutions and services to the access network of both fixed-line and
wireless networks.
The security sector continues to spend in the build-up to 2010 and beyond,
although the group has seen a slowdown in private and public sector
expenditure due to cost-cutting exercises and the shortage of funding. The
group`s strategy of including rental contracts, a solid flow of recurring
income from existing customers and a strong pipeline of project work, will
ensure that the Security division maintains a solid performance. However,
this business is entering a consolidation period after an extremely high
growth phase. Operating profits are therefore likely to continue to grow over
the next four months until year end, but at a more normalised rate.
The Domestic Products division is strongly affected by the downturn in
consumer spend. This is expected to continue for the rest of the current
financial year. However, decreasing interest rates and the continued roll out
of low-cost housing should have a positive impact on demand in this division
during the first half of the next calendar year. This could be marred by the
further impact the potential job losses could have on consumers.
The lower demand for cable products is expected to continue for the next six
months. Management have responded by reducing overhead costs at M-TEC to
reflect this decreased activity and, with an anticipated rise in commodity
prices, Jasco expects the next four months to 30 June 2009 to show an
improvement over the results for the nine months ended 28 February 2009.
Management remain confident that expenditure on essential infrastructure roll
outs in both the power and telecommunications sectors will continue in the
next year and therefore expect a further improvement in the result for the
full year ending 30 June 2010.
DIVIDENDS
The Board has decided, based on the continued strong performance of the
historic Jasco business and strong cash generation, to declare a 10 cents
dividend in line with its 3 times dividend cover on earnings per share
policy.
SALIENT DATES RELATING TO THE DIVIDEND DECLARED
Last day to trade shares cum-div Friday, 15 May 2009
Shares commence trading ex-div Monday, 18 May 2009
Record date Friday, 22 May 2009
Pay date Monday, 25 May 2009
Shares cannot be dematerialised or rematerialised between Monday 18 May 2009
and Friday 22 May 2009 (inclusive of both days).
For and on behalf of the Board
Dr ATM Mokgokong MH Lotz WA Prinsloo
(Non-Executive (Chief Executive (Financial Director)
Chairperson) Officer)
1 April 2009
SUMMARISED CONSOLIDATED INCOME STATEMENTS
Reviewed Audited
28 February 29 February Change
(R`000) Note 2009 2008 %
Revenue 603 329 519 161 16,2
Turnover 595 148 513 572 15,9
Interest received 8 181 5 589 46,4
Operating profit before 57 609 49 488 16,4
interest and taxation
Interest received 8 181 5 589 46,4
Interest paid (18 604) (6 527) 185,0
Profit before taxation and 47 186 48 550 (2,8)
share of income from joint
venture
Equity accounted income 704 -
from associate
Equity accounted income 3 476 1 136 206,0
from joint venture
Profit before taxation 51 366 49 686 3,4
Taxation (18 540) (16 201) 14,4
Profit for the period/year 32 826 33 485 (2,0)
attributable to ordinary
shareholders
Reconciliation of headline
earnings
Net earnings attributable 32 826 33 485 (2,0)
to ordinary shareholders
Headline earnings 479 17
adjustments
- loss on disposal of fixed 479 17
assets
Headline earnings 33 305 33 502 (0,6)
Number of shares in issue 114 509 69 931
(`000)
Treasury shares (`000) 2 769 1 527
Weighted average number of 1 100 899 68 404
shares on which earnings
per share is calculated
(`000)
Dilutive shares - pref 3 856 17 163
shares
Dilutive shares - CEO share 2 4 991 4 991
incentive scheme
Weighted average number of 109 746 90 558
shares on which diluted
earnings per share is
calculated (`000)
Ratio analysis
Attributable earnings 32 826 33 485
Earnings per share (cents) 32,5 49,0 (33,5)
Diluted earnings per share 29,9 37,0 (19,1)
(cents)
Headline earnings per share 33,0 49,0 (32,6)
(cents)
Diluted headline earnings 30,3 37,0 (18,0)
per share (cents)
EBITDA 68 833 56 125 22,6
Net asset value per share 261,3 221,0 18,3
(cents)
Net tangible asset value 216,1 154,6 39,8
per share (cents)
Dividend per share (cents) - 16,0
- final
- interim 10,0 -
Debt:Equity (%) 42,1 -
Interest cover (times) 5,9 54,0
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 preference shares
on 21 May 2008 (BEE transaction).
2. In terms of the Jasco Share Option Scheme as set out in the circular dated
31 May 2007, an additional 4 990 786 shares can be issued to the CEO provided
certain profit targets are met.
SUMMARISED CONSOLIDATED BALANCE SHEETS
Reviewed Audited
28 February 29 February
(R`000) 2009 2008
ASSETS
Non-current assets 354 355 86 904
Plant and equipment 28 682 27 414
Investment in joint venture 10 407 6 931
Investment in associate 218 417 -
Intangibles 45 616 45 448
Net deferred tax asset 5 235 5 205
Other financial assets 45 998 1 906
Current assets 164 482 189 110
Inventories 58 236 51 080
Trade and other receivables 106 246 99 205
Cash and cash equivalents - 38 825
Total assets 518 837 276 014
EQUITY AND LIABILITIES
Share capital and reserves 263 695 151 178
Non-current liabilities 102 159 3 183
Interest bearing liabilities 102 159 2 884
Non-interest bearing liabilities - 299
Current liabilities 152 983 121 653
Interest bearing liabilities 8 945 8 053
Non-interest bearing liabilities 134 641 104 213
Net taxation liability 9 397 9 387
Total equity and liabilities 518 837 276 014
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
Reviewed Audited
28 February 29 February
(R`000) 2009 2008
Opening balance 151 178 125 605
Issue of share capital 88 918 -
Treasury shares - Share Incentive Trust (519) (146)
Share based payment reserve 2 251 1 146
Profit for the period/year 32 826 33 485
Dividends paid (10 959) (8 912)
Closing balance 263 695 151 178
SUMMARISED CONSOLIDATED CASH FLOW STATEMENTS
Reviewed Audited
28 February 29 February
(R`000) 2009 2008
Cash generated by operations 86 475 41 968
Net financing costs (10 423) (169)
Net taxation paid (18 561) (13 659)
Dividends paid (10 959) (8 912)
Cash flow from operating activities 46 532 19 228
Cash flow from investing activities (273 310) (12 160)
Cash flow from financing activities 180 977 1 608
(Decrease)Increase in cash resources (45 801) 8 676
SUMMARISED SEGMENTAL REPORTS
28 February 2009 29 February 2008
(Reviewed) (Audited)
(R`000) Revenue Operating Revenue Operating
profit/ profit/
(loss)* (loss)*
Telecommunications 304 853 45 668 282 034 41 453
Security 175 650 25 976 94 554 8 254
Domestic Products 114 645 12 026 139 306 16 081
Electrical - 704 - -
Sub-total operating 595 148 84 374 515 894 65 788
divisions
Other 8 181 (22 585) 3 267 (15 164)
Total 603 329 61 789 519 161 50 624
* Operating profit/(loss) of the operating divisions includes the equity
accounted income from the joint venture (Telecommunications) 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.
REVIEW OPINION
The results have been reviewed by the group`s independent auditors Ernst &
Young Inc. A copy of their unmodified review opinion is available for
inspection at the group`s registered office.
DIRECTORS AND SECRETARY
Dr ATM Mokgokong (Chairperson), MJ Madungandaba (Deputy Chairperson), PS
Chapwanya+, FE Emary, JC Farrant, Dr JM Matsipa, Dr J Rothbart, JA Sherry
(Non-Executives), MH Lotz (CEO), WA Prinsloo (Financial Director), O Seiphemo
(Marketing Director) (Executives), MN Sepuru (Company Secretary) +
(Zimbabwean)
Registered office
8 Saddle Drive, Woodmead Park, Woodmead 2157
Transfer secretaries
Link Market Services SA (Pty) Ltd, 11 Diagonal Street, Johannesburg 2001
Sponsor
PSG Capital (Pty) Ltd, Johannesburg branch, Building 8 Woodmead Estate, 1
Woodmead Drive, Woodmead 2191
Further details can be found on the group`s website: www.jasco.co.za
INCORPORATING: Webb Industries WebbLeBLANC Telesciences Tasslelane
Technologies Tasslelane Services RapidCloud Technology Special Cables T-
Components Multivid Scafell M-TEC
Date: 02/04/2009 07:05:02 Produced by the JSE SENS Department.
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