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JSC - Jasco Electronics Holdings - Abridged audited results for the year ended
30 june 2010 and notice of annual general meeting
JASCO ELECTRONICS HOLDINGS LIMITED
Incorporated in the Republic of South Africa
Registration number 1987/003293/06
Share code: JSC
ISIN: ZAE000003794
(Jasco or "the group")
ABRIDGED AUDITED RESULTS FOR THE YEAR ENDED 30 JUNE 2010 AND NOTICE OF ANNUAL
GENERAL MEETING
INTRODUCTION
Jasco has a diversified portfolio of four divisions operating in the sectors of
Telecommunications, Domestic Products, Security and Electrical.
As Jasco changed its year end from February to June during 2009, the audited
results for the 12 months ended 30 June 2010 are compared to the 16 months to
June 2009. However, to ensure like-for-like comparison, the results commentary
is structured around the 12 months to 30 June 2010 compared to the unaudited pro
forma 12 months to 30 June 2009.
BASIS OF PREPARATION - ABRIDGED AUDITED RESULTS
The abridged consolidated audited financial statements have been prepared in
accordance with the International Financial Reporting Standard ("IFRS") and the
presentation and disclosure requirements of IAS34 (Interim Financial Reporting),
the Listings Requirements of the JSE Limited and the Companies Act 61, 1973 (as
amended). The accounting policies have been applied consistently by individual
group companies and have been applied consistently to all periods presented in
the abridged consolidated audited financial statements for the 12 months ended
30 June 2010.
BASIS OF PREPARATION - PRO FORMA 12 MONTHS TO 30 JUNE 2009
Due to Jasco`s financial year-end changing from February to June during the 2009
financial year, the Company however believes a like-for-like 12 month comparison
is more meaningful to shareholders. The preparation of the unaudited pro forma
12 month comparison is the responsibility of the directors of Jasco. (the "pro
forma 12 month information").
The unaudited pro forma 12 month information has been prepared for illustrative
purposes only to provide information on how the unaudited pro forma 12 month
information compares to the actual results of the Company for the 16 months
ended 30 June 2009 and, due to the nature thereof, may not be a fair reflection
of the Company`s results of operations.
The unaudited pro forma financial effects are based on the accounting policies
adopted by the Company and are in accordance with IFRS.
The "Unaudited 30 June 2009 12 months" column reflects the 30 June 2009 results
prepared on a pro forma 12 month period, and reflects the attributable profit of
R23,7 million for the 12 months from 1 July 2008 to 30 June 2009, extracted from
the unaudited managements accounts of the Company.
The pro forma 12 month information has not been reviewed or reported on by the
Company`s independent auditors.
FINANCIAL OVERVIEW
The year under review was challenging, with the global economic crisis impacting
negatively on Jasco`s trading environment. However, the group`s diversified
portfolio proved its resilience, with the Electrical and Domestic Products
divisions assisting to buffer against a poor performance from Telecommunications
and Security.
The R47,8 million operating profit delivered by M-TEC, our associate in the
Electrical division in which we have an economic interest of 34%, is a
substantial turnaround from the operating loss of R6,5 million during the
comparative 12 months. The Domestic Pro of R15,4 million, compared to the R10,7
million for the 12 months to June 2009.
Both the Telecommunications and Security divisions suffered from a lack of large
projects. Although customer spend on maintaining existing infrastructure
continued, large expansion projects were put on hold or cancelled due to the
economic downturn. While both divisions remained profitable, they did so at
significantly lower levels than the previous period.
Against this backdrop, the group`s revenue decreased by 7% to R559,3 million (12
months 2009: R599,8 million) and operating profit decreased by 37% to R32,3
million (12 months 2009: R51,1 million).
Earnings per share decreased by 10% to 19,1 cents per share (12 months 2009:
21,2 cents per share) and headline earnings per share decreased by 24% to 16,6
cents per share (12 months 2009: 21,7 cents per share). Earnings per share was
affected by a net income of R2,5 million, which comprised of a R24,1 million
positive fair value adjustment in our investment in WebbLeBLANC and a R21,6
million negative impact due to the impairment of our investment in M-TEC. (See
below). After eliminating these non-trading adjustments, the group`s core
earnings per share decreased by 21% to 16,8 cents per share (12 months 2009:
21,2 cents per share.)
The group profit after tax (PAT) of R24,8 million increased by R1,1 million from
R23,7 million in the comparable period. This improvement was due to the 10-month
after tax profit contribution from Lighting Structures (LS) of R8,6 million,
Jasco`s share in after-tax profits from our joint venture, WebbLeBLANC, of R2,2
million for eight months, as well as Jasco`s share in after tax profits of R7,1
million from our associates M-TEC and Maringo.
The cash generated from operations before working capital changes of R37,8
million decreased from R61,0 million generated in the comparable 12-month
period. This was mainly due to the lower profits earned. During this period, we
utilised working capital of R13,9 million.
Net financing costs of R5,6 million were lower than the R11,5 million for the
comparable period due to the general reduction in interest rates and interest
earned from our Transnet Freight Rail contract for a full 12 month period.
Interest paid includes the R8 million preference dividend paid on the R100
million redeemable preference shares.
Net tax paid of R5,9 million was significantly down on the R30,8 million paid
last year due to lower profits and an over-estimation of provisional tax payable
during the prior year.
R2,2 million was utilised in investing activities. This primarily includes R6,5
million that was invested in capital expenditure to maintain and expand
capacity, R4 million for the acquisition of Lighting Structures and the inflow
of R11,8 million in the Transnet long term receivable.
Cash from financing activities includes the long term outstanding portion of R13
million at year end of the R30 million term loan, that was secured during the
year to partly finance the cash outlay in the group`s Transnet rental project.
This loan is repayable over a 36-month period and the short term portion of R11
million is included in working capital movements.
The net result is an increase in cash resources of R23,5 million compared to the
utilisation of cash of R8,8 million in the corresponding 12 months. As a result,
the net overdraft was reduced from R28,2 million in 2009 to R4,6 million. The
debt:equity ratio reduced slightly to 49% from the 51% at the previous year-end.
Excluding the redeemable preferences shares of R100 million related to our BEE
transaction, the group`s debt:equity ratio is 15%.
Non-operational IFRS Adjustments
The group increased its investment in its joint venture, WebbLeBLANC, on 1 March
2010 to a 50,5% controlling stake. IFRS 3 (Business Combinations) requires that
the carrying value of the investment is fair valued prior to the de-recognition
of the joint venture. This resulted in a profit of R24,1 million.
Furthermore, a fair value adjustment of R21,6 million was effected against the
investment in M-TEC. The acquisition was made before the market downturn and
although we are confident of M-TEC`s continued growth following the 2010 result,
we have taken a prudent view on future cash flows and impaired the investment by
R21,6 million to R207,1 million. This constitutes 9,4% of the carrying value of
the investment. The impairment was based on lower than expected cash inflows due
to slightly lower future profit forecasts, higher working capital requirements
due to raw material imports, as well as an increase in projected capital
expenditure to maintain the current capacity.
Restructuring and Cost Saving Initiatives
The difficult trading conditions of the last 12 to 18 months provided
opportunities for the group to restructure businesses and implement cost
savings.
Following the acquisition of a controlling share in Lighting Structures and
WebbLeBLANC, the operations of these two businesses were integrated into one
business. Although the businesses service different markets and therefore
operate distinct marketing and sales units, both are involved in steel structure
design, manufacture and site build. Purchasing, design, manufacture, quality and
site build functions were integrated, allowing for the elimination of duplicated
positions and improved purchasing, production planning and services, along with
the optimal application of group skills. Cost savings of R2 million per annum
are estimated.
In the second restructuring, the group combined its Telesciences and Maringo
operations into one business with effect from 1 July 2010. The combined business
will focus on generating opportunities in South Africa and the rest of Africa.
Both these businesses, as well as the Jasco head office, were moved into one
building. Cost savings are estimated to exceed R3 million in the first year.
Outside of the restructuring benefits, we have also been able to reduce our cost
base by approximately 8% during the year in areas such as raw material
procurement and employment.
OPERATIONAL OVERVIEW
Telecommunications
Telecommunications revenue decreased by 21% from R382 million to R301 million,
whilst operating profit was down 66% to R16,3 million. Operating margin reduced
from 12,7% to 5,4% on reduced volumes.
Telecommunications operators in South Africa and the rest of Africa cut back on
spending, which severely impacted this division. This was especially noticeable
in our African-focused business due to a slowdown in mobile network rollouts
after a few years of significant growth. Revenue from cross-border business
currently represents 32% of Telecommunications revenue.
Fixed-line expenditure also continued to decline. Volumes and revenue in our
fixed-line business were down following a freeze in the network before and
during the World Cup and the operators` focus on wireless networks.
As expected at the time of acquiring a share in the start-up business of
Maringo, a loss was incurred during its first year of operation.
Security
Revenue for the 12 months decreased by 30% from R174 million to R122 million and
operating profit by 62% from R24,4 million to R9,4 million. Operating profit
includes the net interest received on the Transnet rental contract. Margins came
under pressure and reduced from 14,0% to 7,7% this year, with competitors
chasing business to the detriment of margin.
Even though the completion of various large projects in the prior year and the
absence of major new ones had a marked impact on this division, our business
model to cover overheads with recurring income succeeded. Recurring income
increased by 22% on the prior year and ensured that the division remained
profitable. With the exception of the results achieved in 2009, this year`s
results were above historic levels of profitability.
Domestic Products
The Domestic Products division was the first indicator of the impending
recession in 2008 and has now been the first to show early signs of an improving
economy. Revenue increased by 7% to R114 million, whilst operating profit
increased by 44% to R15,4 million. The margin improved from 9,9% to 13,4%.
During the year, management continued to focus on reducing costs and improving
efficiencies. The expansion of this division`s product portfolio, especially in
the automotive industry, further assisted in improving results from the previous
period. The acquisition of the established Snapper range of domestic plugs,
adaptors and cord sets will further diversify the division`s product range and
customer base.
Electrical
The Electrical division consists of M-TEC, a cable manufacturer, in which Jasco
acquired a 34% economic share in 2008. It now also includes Lighting Structures,
a manufacturer of steel structures for the lighting industry, in which Jasco
acquired a 50,5% share effective 1 September 2009.
The Electrical division performed well against current economic conditions.
Revenue increased by 31% to R906 million, whilst the losses of R6,5 million for
the prior period was turned into an operating profit of R59,9 million, at a
margin of 6,6%.
M-TEC was the main contributor in this division. An operating loss of R6,5
million during 2009 improved to a profit of R47,8 million this year due to
improved market conditions, especially in the electrical segment of the market
where we supply aluminium overhead conductors and power cable products, as well
as improving commodity prices.
Compared to a once-off stock impairment of R23 million during 2009, M-TEC
benefited from the steady increase in the price of copper and aluminium during
this period. Cost saving initiatives implemented by management during 2009
contributed to M-TEC`s improved profitability. Jasco`s after tax share of the
profits from M-TEC amounted to R9,3 million compared to a loss of R3,4 million
in the previous period. However, as outlined above, due to lower than expected
future cash flows and the increase in the carrying value of our investment, an
impairment was deemed prudent.
The Lighting Structures division, acquired and consolidated with effect from 1
September 2009, contributed R12,1 million to operating profit for the 10-month
period.
PROSPECTS
Jasco is well established in the access network in both fixed-line and wireless
sectors to offer products, services and solutions to our customers. The arrival
of various international under-sea cable networks linking numerous African
countries to the world and increasing broadband capacity will see the arrival of
new market entrants to increase and enhance the access networks across the
continent. Jasco has several years of experience in the access network to offer
products, services and solutions to access networks.
In our Security division, we expect an increase in project-related business
that, together with our recurring income from blue-chip customers, should see an
improvement in divisional earnings.
The acquisition of the Snapper brand, together with a general improvement in the
consumer market through lower interest rates and decreasing inflation, should
see Domestic Products continuing its improved performance.
Gradual infrastructure spend recovery is likely to benefit our Electrical
division, although the scheduled national infrastructure programme is likely to
roll out at a slower pace than in previous years. M-TEC has already shown signs
of further improvement, and continued expenditure by Eskom, Telkom and Transnet,
along with improved take-off by customers in the copper division, bodes well for
the future. A strong order book in Lighting Structures on the back of the
electrification of previously un-serviced communities and road development
expenditure is likely to result in another good performance.
The group`s proposed acquisition of Spescom, announced on 3 September 2010, is
set to create an integrated business that will combine Jasco`s
telecommunications experience and Spescom`s information and communications (ICT)
experience to increasing opportunities to participate in the growing converged
communications environment. The transaction will be earnings enhancing for Jasco
from the start and will increase the group`s size, enhance the earnings
potential of the combined group through various operational and financial
synergies and further diversify Jasco`s income streams.
Following this transaction, the consolidated statement of financial position
will be strengthened, as Spescom`s net asset value of R88,8 million, as
published in the interim results on 31 March 2010, includes cash on hand of R38
million and partly encumbered land and buildings valued at R55 million.
Jasco and Spescom also have complementary businesses with limited overlap and no
conflicting businesses. Cross-selling opportunities of the different product
ranges between the respective blue-chip client bases exist, as well as numerous
opportunities for divisions to work together to create integrated and more
diverse client offerings. Significant savings are expected through cost
reductions in areas such as listed regulatory compliance costs, management
costs, as well as rental savings.
In conclusion, Jasco will continue its strong focus on cost savings and
improving efficiencies, whilst investing in the sales and technical resources
necessary to support future growth. Although the group expects short term
markets to remain tough, we believe our focus on improvements in our current
businesses will further strengthen our base for improved performance in F2011.
Any forecast or forward looking information included in this announcement has
not been reviewed and reported on by the group`s independent auditors.
DIVIDEND
In view of the subdued results, the cash required for the acquisition of Snapper
and Lighting Structures and the possible cash outlay in connection with the
proposed acquisition of Spescom, the directors decided to conserve cash and not
to pay a dividend for this year. This position will be reassessed at the half
year.
SUBSEQUENT EVENTS
Apart from the above-mentioned offer made to the Spescom board, the acquisition
of the Snapper brand and a proposed increase in the shareholding in Maringo, no
matters which are material to the financial affairs of the group have occurred
between the reporting date and the date of this announcement.
NOTICE OF ANNUAL GENERAL MEETING
Notice is hereby given that the Annual General Meeting of shareholders will be
held at 11h00 on Wednesday, 26 October 2010 in Jasco`s boardroom, 152 Roan
Crescent, Sage Corporate Park North, Midrand, to transact the business stated in
the notice of the Annual General Meeting contained in the Annual Report, which
Annual Report is in the process of being prepared and which will be posted to
shareholders by no later than 30 September 2010.
For and on behalf of the Board
Dr ATM Mokgokong MH Lotz WA Prinsloo
15 September 2010
Summarised consolidated statements of comprehensive income
(R`000) Note Audited Unaudite Audited
30 June d 30 June
2010 30 June 2009
12 months 2009 16
12 months
months
Revenue 559 268 599 763 773 250
Turnover 546 880 587 054 760 203
Interest received 12 388 12 709 13 047
Operating profit before 32 298 51 071 65 913
interest and taxation
Interest received 12 388 12 709 13 047
Interest paid (18 023) (24 (25
160) 337)
Equity accounted income 7 084 (3 417) 1 683
from associates
Equity accounted income 2 246 3 461 4 620
from joint venture
Profit before taxation 35 993 39 664 59 926
Taxation (11 187) (15 (22
953) 423)
Profit for the year/period 24 806 23 711 37 503
Other comprehensive income - - -
Total comprehensive income 24 806 23 711 37 503
for the year/period
Profit and total
comprehensive income
attributable to:
- non-controlling interest 3 535 - -
- equityholders of the 21 271 23 711 37 503
parent
Profit for the period/year 24 806 23 711 37 503
Reconciliation of headline
earnings
Net earnings attributable 21 271 23 711 37 503
to equityholders of the
parent
Headline earnings (2 772) 479 485
adjustments
- Fair value adjustment on (24 143) - -
disposal of joint venture
- Impairment of M-TEC 21 565 - -
- (profit)/loss on (194) 479 485
disposal of fixed assets
Headline earnings 18 499 24 190 37 988
Number of shares in issue 114 509 114 509 114 509
(`000)
Treasury shares 2 952 2 913 2 913
(`000)
Weighted average number of 1 111 557 111 596 103 471
shares on which earnings
per share is calculated
(`000)
Dilutive shares - pref 1 - - 2 890
shares
Dilutive shares - CEO 2 4 991 4 991 4 991
share incentive scheme
Weighted average number of 116 548 116 587 111 352
shares on which diluted
earnings per share is
calculated
(`000)
Ratio analysis
Attributable earnings 21 271 23 711 37 503
Earnings per share 19,1 21,2 36,2
(cents)
Diluted earnings per share 18,3 20,3 33,7
(cents)
Headline earnings per 16,6 21,7 36,7
share
(cents)
Diluted headline earnings 15,9 20,7 34,1
per share
(cents)
EBITDA 46 835 58 363 81 719
Net asset value per share (cents 251,1 231,2 231,2
)
Net tangible asset value (cents 184,5 190,3 190,3
per share )
Dividend per share (cents - 10,0 26,0
)
Debt:Equity (%) 49,2% 51,0% 51,0%
Interest cover (times 7,4 4,5 5,9
)
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 statements of financial position
(R`000) Audited Audited
30 June 30 June
2010 2009
12 12
months months
ASSETS
Non-current assets 366 716 360 751
Plant and equipment 32 135 27 867
Investment in joint venture - 11 551
Investment in associates 206 733 219 396
Intangible assets 74 338 45 616
Deferred tax asset 6 116 1 957
Other financial assets 47 394 54 364
Current assets 204 281 171 241
Inventories 58 836 61 791
Trade and other receivables 138 957 99 775
Taxation prepaid 2 463 9 451
Cash and cash equivalents 4 025 224
Total assets 570 997 531 992
EQUITY AND LIABILITIES
Share capital and reserves 291 711 258 008
Non-current liabilities 132 278 108 387
Interest bearing liabilities 127 699 101 530
Deferred tax liability 4 579 6 857
Current liabilities 147 008 165 597
Interest bearing liabilities 19 967 30 332
Non-interest bearing liabilities 122 173 135 229
Taxation liability 4 868 36
Total equity and liabilities 570 997 531 992
Summarised consolidated statements of changes in equity
(R`000) Audited Unaudite Audited
30 June d 30 June
2010 30 June 2009
12 2009 16
months 12 months
months
Attributable to equity holders of
the parent
Opening balance 258 008 243 383 151 178
Issue of share capital - - 88 919
Treasury shares -Share Incentive (62) (388) (231)
Trust
Share based payment reserve 915 2 758 2 758
Total Comprehensive income 21 271 23 711 37 503
- Profit for the year 21 271 23 711 37 503
- Other comprehensive income - - -
Dividends paid - (11 (22
456) 119)
Closing balance 280 132 258 008 258 008
Non-controlling interest
Opening balance - - -
Subsidiaries acquired during the 8 023 - -
year
Transactions between shareholders 21 - -
Total comprehensive income 3 535 - -
- Profit for the period/year 3 535 - -
- Other comprehensive income - -
Closing balance 11 579 - -
Total equity 291 711 258 008 258 008
Summarised segmental report
30 June 2010 30 June 2009 30 June 2009
(Audited) (Unaudited) (Audited)
(12 months) (12 months) (16 months)
Revenue Operatin Revenue Operatin Revenue Operatin
g g g
profit/ profit/ profit/
(loss) (loss) (loss)
Telecomm 300 502 16 300 381 48 534 499 301 66 389
unicatio 866
ns
Security 121 638 9 372 174 24 403 218 398 29 187
276
Domestic 114 474 15 368 107 424 10 688 145 402 13 489
Products
Electri- 906 483 59 898 684 363 (6 533) 814 355 16 437
cal
Sub- 1 443 100 938 1 347 77 092 1 677 125 502
total 097 928 456
operatin
g
division
s*
Other 9 434 (8 704) 12 865 (17 16 201 (24
653) 616)
Adjust- (893 (59 (761 (8 368) (920 (34
ments 263) 936) 030) 407) 973)
Total 559 268 32 298 599 51 071 773 250 65 913
763
* Segmental revenue and operating profit/(loss)includes the revenue
and profit from the joint venture (Telecommunication) and associates
(Telecommunication and Electrical), as well as the gross and net
interest on the finance lease receivable (Security) and is stated
before making adjustments for inter-group interest and
administration fees.
AUDIT OPINION
The annual financial statements have been audited by the group`s independent
auditors, Ernst & Young Inc. A copy of their unmodified report is available for
inspection at Jasco`s registered office. References to the comparative pro forma
12-month period ended 30 June 2009 are unaudited.
Directors and Secretary
Dr ATM Mokgokong (Chairperson), MJ Madungandaba (Deputy Chairperson), AMF da
Silva*@, JC Farrant@, Dr J Rothbart, JA Sherry, FE Emary + , PS Chapwanya+, Dr
JM Matsipa+ (Non-Executives), MH Lotz (CEO), WA Prinsloo (Financial Director), O
Seiphemo (Marketing Director) (Executives), MN Sepuru (Company Secretary)
*appointed October 2009, + retired October 2009, Zimbabwean,
@ Independent
Registered office
152 Roan Crescent, Sage Corporate Park North, Midrand 1632
Transfer secretaries
Link Market Services SA (Pty) Ltd, 11 Diagonal Street, Johannesburg 2001
Sponsor
Grindrod Bank Limited, Building 3, 1st Floor, North Wing, Commerce Square 39
Rivonia Road, Corner Helling Road, Sandton 2156
Further details can be found on the group`s website: www.jasco.co.za
Date: 15/09/2010 07:05:31 Produced by the JSE SENS Department.
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