| Wed 23 Mar 2011, 9:00 | | JSC - Jasco Electronics Holdings Limited - Unaudited interim results for the six |
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JSC - Jasco Electronics Holdings Limited - Unaudited interim results for the six
months ended 31 December 2010 and announcement of changes to the board.
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")
Unaudited interim results for the six months ended 31 December 2010 and
announcement of changes to the board.
Earnings per share down 72% due to:
- R4,0 million once-off Spescom acquisition cost
- R31,9 million impairment of investment in M-TEC
- R31,7 million fair value gain
Excluding these non-operational adjustments, core EPS down 35%
- Compared to preceding six months to June 2010, core EPS down 1%
COMMENTARY
The six months to 31 December 2010 remained challenging, with the aftermath of
the global economic crisis continuing to impact negatively on the trading
environment of Jasco Electronics Holdings Limited (Jasco or "the company" or
"the group"). However, the group experienced an improvement in the trading
environment compared to the preceding six month period ended 30 June 2010.
Basis of preparation
The results comply with IAS 34 - Interim Financial Reporting. The accounting
policies and methods of computation used in the preparation of this report are
consistent with those used in the preparation of the annual financial statements
for the year ended 30 June 2010, which comply with International Financial
Reporting Standards ("IFRS"), the Companies Act of South Africa and the Listings
Requirements of the JSE Limited.
Financial overview
There were several non-operational accounting entries that significantly
impacted the results during this period. These were:
R4,0 million once-off Spescom Limited ("Spescom)" acquisition
cost
- This was incurred in Jasco`s acquisition of 100% of Spescom
on 15 December 2010.
R31,9 million impairment of investment in M-TEC
- The group processed a further impairment of Jasco`s
investment in cable manufacturer M-TEC of R31,9 million due to
taking a more prudent view on the timing of any recovery. This
follows the impairment done in June 2010 of R21,6 million and
brings the total impairment done to R53,5 million, which
represents 25% of the original purchase consideration paid at
the height of the markets during June 2008.
R31,7 million fair value gain on the Spescom acquisition
- On the date of the Spescom acquisition of 15 December 2010,
the fair value of the underlying assets and liabilities of
Spescom was estimated by an independent professional advisor
to be R87,5 million. As the purchase price paid was only R55,8
million, a fair value gain of R31,7 million arose. This is the
only impact on Jasco`s statement of comprehensive income, as
Spescom`s trading results were not included in the period
under review due to the acquisition only being concluded two
weeks before period end.
Due to these non-operating impacts, the group provides reported, as well as core
numbers, in the commentary. On this basis, although reported group operating
profit declined by 1% at R15,9 million (2009: R16,1 million), excluding the
non-operating impacts, core operating profit increased by 25% to R20,1 million
(2009: R16,1 million).
Reported headline earnings per share was 65% down to 3,5 cents per share (2009:
9,9 cents per share). Excluding the once-off Spescom transaction costs, HEPS
would have been 7,1 cents per share. This is a 28% decline on 31 December 2009
and a 6% improvement from the preceding six months to 30 June 2010. Similarly,
although reported earnings per share (EPS) was down 72% to 2,8 cents per share
(2009: 10 cents per share), excluding the non-operational adjustments, core EPS
was down 35% from December 2009 and down 1% when compared to the six months to
June 2010.
The unaudited pro forma core operating profit of R20,1 million, the unaudited
pro forma core HEPS of 7,1 cents and the unaudited pro forma core EPS of 6,7
cents disclosed in this announcement ("pro forma information"), has been
prepared for illustrative purposes only to provide information on how the pro
forma information after adjusting for certain non-operational accounting entries
(disclosed above), compares to the actual condensed consolidated results for the
six months ended 31 December 2010, and may not give a fair reflection of the
group`s results for the 6 month period to 31 December 2010. The pro forma
information has been prepared using the accounting policies that comply with
IFRS and that are consistent with those applied in the published audited results
for the 12 months ended 30 June 2010. The directors of Jasco are responsible for
the compilation, contents and preparation of the pro forma financial information
and for the financial information from which it has been prepared. The directors
responsibility includes determining that: the pro forma financial information
has been properly compiled on the basis stated; the basis is consistent with the
accounting policies of Jasco and the pro forma adjustments are appropriate for
the purposes of pro forma financial information in terms of the JSE Listings
Requirements. The pro forma financial information should be read in conjunction
with the report of the independent reporting accountants, Ernst & Young Inc,
which is available for inspection at Jasco`s registered office.
Group revenue increased by 20% to R318 million (2009: R264 million), with 6%
from organic growth and 14% from the acquisition of Lighting Structures and
consolidation of WebbLeBLANC.
The taxation expense of R7 million results in an effective rate of 50,1%. This
unusually high effective rate is mainly due to the once-off transaction cost of
R4 million, R3,9 million dividend paid on the preference shares, disclosed as
interest paid, and STC on the ordinary and preference dividend.
After deducting outside shareholders interest of R3,7 million (2009: R1,3
million) which relates to the group`s investment in WebbLeBLANC and Lighting
Structures, profit attributable to shareholders was R3,1 million. A net positive
headline adjustment of R0,8 million, consisting of the impairment, fair value
gain (explained above) and a profit on disposal of fixed assets, increases the
headline earnings to R3,9 million.
The statement of financial position as at 31 December 2010 includes the assets
and liabilities of Spescom. Meaningful comparison to the prior period can
therefore not be made. It is important to note that the liability for the
settlement of the acquisition price is included under liabilities. On 24 January
2011, the shareholders` capital of Jasco increased by R44,0 million on
the issue of 31,9 million shares to Spescom shareholders.
The statement of cash flows only includes the cash inflow of R51,4 million from
the Spescom acquisition, being the net cash balance of Spescom on 15 December
2010. As a result, Jasco`s net cash overdraft of R4,5 million at the beginning
of the period was turned into a net cash on hand position of R19,5 million at
31 December 2010.
Working capital management remained healthy. The decrease in debtors days from
91 days to 61 days was particularly pleasing. Net working capital days increased
slightly from the 41 days at 30 June 2010 to 42,5 days at 31 December 2010,
mainly due to a substantial decrease in creditors following on earlier
settlement of overseas creditors to benefit from the strong Rand.
Operational overview
The Spescom acquisition increased Jasco`s diversified portfolio of operating
divisions to seven, with the addition of DataFusion, DataVoice.and Media IT to
the existing Telecommunications, Security, Domestic Products and Electrical
divisions. Two divisions from the Spescom stable, NewTelco and Spescom Tele-
communi-cations, will form part of an enlarged Tele-communi-cations division.
In the group`s Telecommunications division, some improvement in spend was seen
in the fixed line and mobile markets during the last six months, as there were
renewed African roll outs and following the start of slow spend by fixed line
operators. Although revenue and operating profit in Telecommunications declined
for the six months to December 2010 when compared to the six months to December
2009, there was a strong turnaround in operating profit since June 2010. Revenue
to December 2010 declined by 18% to R143,4 million (2009: R175,2 million) and
operating profit by 29% to R12,7 million (2009: R17,9 million).
The Security division also showed an improved result, even though there were
still no large projects during this period. The increased contribution from
recurring income from blue-chip customers continued to cover overheads. Revenue
increased by 12% to R57,9 million, whilst operating profit increased by 5% to
R3,9 million. Margins remained under pressure in a competitive environment,
declining from 7,1% to 6,7%.
Domestic Products showed a strong improvement, increasing revenue by 21% to
R67,6 million. Revenue growth was boosted by the acquisition of the Snapper
brand during this period. Operating profit increased by 19% to R8,7 million and
the margin was 12,9% (2009: 13,1%).
The Electrical division consists of Jasco`s investment in associate cable
manufacturer, M-TEC, and Lighting Structures. The performance in the aluminium
and copper products divisions in M-TEC, accounting for approximately 70% of M-
TEC`s revenue, exceeded expectations. The aluminium division benefitted from
the Eskom roll out where M-TEC holds a long term supply contract and the copper
products division saw an improvement in demand for general copper products,
as well as a steady improvement in the copper price.
However, the continued low demand in the power cable and copper telecoms
division, coupled with some technical issues at the start of a new plant,
resulted in Jasco`s share of after tax income from M-TEC declining by 34% to
R1,9 million (2009: R2,9 million). The Jasco board has been instrumental in
effecting a management change at M-TEC and will continue to closely monitor
progress and liaise with Taihan in this regard. The Board has taken a
conservative approach to the impairment of M-TEC which is expected to preclude
further impairments in this asset.
Lighting Structures benefited from a continuation of the Gauteng freeway project
and electrification of previously un-serviced municipal areas. Revenue for
Lighting Structures increased by 36% to R53 million (2009: R39 million for four
months). Operating profit was R5,9 million (2009: R4 million for four months).
Spescom acquisition
The group is pleased to report that the merger process with Spescom is
progressing smoothly, and that its view that the groups had similar cultures has
been confirmed. The group has already merged the two head offices, as well as
Jasco`s Telesciences and Maringo business with that of Spescom`s
Telecommunications division. The group has already eliminated R9,7 million from
its future cost base. These savings include the elimination of duplicated senior
executive positions such as the Spescom CEO and CFO, direct listing costs such
as non?executive directors, annual results, as well as rental savings in
consolidating the head office. As there will be short-term costs to affect the
savings, the full benefit will start to flow through from F2012.
Opportunities to cross-sell the broader product and solution offering into the
new enlarged customer base has already started to bear fruit. For example,
Spescom DataFusion has been successful in securing a R5,6 million order after
being introduced to a Jasco Security division customer. Previously, Jasco would
not have been able to service this customer in its contact centre needs.
Details of the purchase consideration, the net assets acquired and the fair
value gain on the acquisition are as follows:
R`000
Purchase consideration 55 823
Fair values of net assets:
Property, plant and equipment 59 637
Intangible assets
?Capitalised research and development 4 702
?Brand names 12 463
?Customer relations 6 901
Investments and loans 5 686
Deferred income tax asset 15 910
Inventories 15 035
Trade and other receivables 44 686
Prepaid taxation 226
Cash and cash equivalents 51 373
Non-current interest bearing liabilities (18
885)
Contract advances and deferred maintenance revenue (5 027)
Deferred tax liability (12
755)
Current interest bearing liabilities (1 530)
Current non-interest bearing liabilities (85
458)
Taxation liability (5 427)
Net identifiable assets acquired 87 537
Gain on bargain purchase 31 714
Prospects
The Spescom integration is proceeding smoothly, with business opportunities and
cost savings already materialising as committed. Jasco will consolidate
Spescom`s financials from 15 December 2010 to 30 June 2011 and the board expects
the combined results, as well as the synergies implemented, to reflect the
rationale which supported the acquisition of Spescom. The board expects a
reduction in once off costs and impairment charges in the remaining period of
2011.
However, the earnings-enhancing contribution from Spescom will be initially
off-set by the once-off restructuring costs, with benefits expected to flow
through in F2012. The enlarged new Jasco remains 54% black owned, which is a
strong competitive advantage.
Following the management change at M-TEC, Jasco will continue to closely monitor
progress, as well as further liaise with Taihan in this regard. With an
improvement in some of the market sectors, the group expects the contribution
from M-TEC to improve during the second half of the year.
The new, enlarged Jasco provides a significantly broadened access across the
fast-growing communications network. Although the trading environment in most
of the group`s markets will remain tough, the benefits of Jasco`s restructuring
and cost cutting are ahead of expectations and the group therefore expects a
somewhat better outlook for the second half of F2011.
Any forecast or forward looking information included in this announcement has
not been reviewed and reported on by the company`s independent auditors.
Subsequent events
Following the successful merger of the Telesciences and Maringo business units
during the period under review, Telesciences acquired 100% of Maringo for R8,0
million. The purchase price will be settled through the issue of Telesciences
shares to the Maringo shareholders, resulting in a dilution of Jasco`s
shareholding in Telesciences to 85%.
Changes to the Board
The Jasco board also wishes to announce that the Jasco CEO, Mr Martin Lotz, has
indicated that he will be leaving the group. Mr Lotz has worked at Jasco for 11
years as an executive team member and has been CEO since 2006. As the CEO he
was tasked with the strategy of creating scale at Jasco and building the group
to a R1 billion per year company. With the acquisition of Spescom, he has
achieved this mandate. He will be joining Jasco`s major shareholder and BBBEE
partner, Community Investment Holdings (Pty) Ltd (CIH). He will therefore leave
Jasco on 1 July 2011 after finalising the integration with Spescom, as well as
assisting the management team with the group`s finalisation of its year-end
results.
The board has asked Mr Pete da Silva to become the group`s new CEO. Mr da Silva
will join the group in an executive capacity from 1 April 2011 in order to work
closely with Mr Lotz to ensure a smooth handover process. Mr Da Silva joined the
Jasco board as an independent non-executive director 18 months ago and has very
strong business and telecommunications experience. He has over 20 years`
experience with Siemens South Africa, where his duties included heading up the
Siemens business development team in the sales environment, moving up to become
the Chief Operational Officer and then the Chief Executive Officer of Siemens
Telecommunications South Africa. In 2005, Mr Da Silva became the group CEO for
Siemens Southern Africa. Under his leadership, Siemens enjoyed first place in
most of its market segments.
The board thanks Mr Lotz for his dedication to the group and for fulfilling his
mandate so successfully over the last few years. The board wishes him well in
his new, broadened role at CIH. The board also welcomes Mr Da Silva and looks
forward to working with him.
Furthermore, in light of changes in corporate governance and with the advent
of King III, the board has committed to strengthen its current composition with
additional independent non-executive directors.
Dividend
In view of the subdued results and the cash required for the acquisition of
Snapper and Lighting Structures, no dividend was paid for the 2010 financial
year. The directors undertook to reassess the position at half year. With the
improvement in the cash position, the board declared an interim dividend of 3
cents per share on 20 December 2010, paid to shareholders on 17 January 2011.
For and on behalf of the Board
Dr ATM Mokgokong MH Lotz WA Prinsloo
(Non-Executive (Chief Executive (Financial Director)
Chairperson) Officer)
23 March 2011
Summarised consolidated statements of comprehensive income
(R`000) Note Un-audited Un- % Audited
s Dec audited change Jun
2010 Dec 2010
6 months 2009 12
6 months
months
Revenue 317 934 264 009 20,4 559 268
Turnover 313 431 258 21,1 546
744 880
Interest received 4 503 5 265 12 388
Operating profit 15 875 16 085 (1,3) 32 298
before interest
and taxation
Interest received 4 503 5 265 (14,5) 12 388
Interest paid (7 636) (8 (4,8) (18
022) 023)
Equity 1 012 2 536 (60,1) 7 084
accounted
income from
associates
Equity - 2 486 (100,0 2 246
accounted )
income from
joint venture
Profit before 13 754 18 350 (25,0) 35 993
taxation
Taxation (6 963) (5 20,0 (11
802) 187)
Profit for the 6 791 12 548 (45,9) 24 806
period/year
Other - - -
comprehensive
income
Total 6 791 12 548 (45,9) 24 806
comprehensive
income for the
period/year
Profit and
total
comprehensive
income
attributable
to:
- minority 3 694 1 319 180,1 3 535
shareholders
- equity 3 097 11 229 (72,4) 21 271
holders of the
parent
Profit for the 6 791 12 548 (45,9) 24 806
period/year
Reconciliation of
headline earnings
Net earnings 3 097 11 229 (72,4) 21 271
attributable to
equityholders
of the parent
Headline earnings 803 (204) (2
adjustments 772)
- Gain on (31 714) -
bargain
purchase -
Spescom
- Fair value - (24
adjustment on 143)
disposal of
joint venture
- Impairment of 31 932 21 565
M-TEC
- loss/(profit) 585 (204) (194)
on disposal of
fixed assets
Headline 3 900 11 025 (64,6) 18 499
earnings
Number of (`000) 114 509 114 114
shares in issue 509 509
Treasury shares (`000) 2 952 2 682 2 952
Weighted (`000) 111 557 111 111
average number 827 557
of shares on
which earnings
per share is
calculated
Dilutive shares
- CEO share (`000) 1 4 991 4 991 4 991
incentive
scheme
Weighted (`000) 116 548 116 116
average number 818 548
of shares on
which diluted
earnings per
share is
calculated
Ratio analysis
Attributable (R`000) 3 097 11 229 (72,4) 21 271
earnings
EBITDA (R`000) 21 723 25 103 (13,5) 46 835
Earnings per (cents) 2,8 10,0 (72,4) 19,1
share
Diluted (cents) 2,7 9,6 (72,4) 18,3
earnings per
share
Headline (cents) 3,5 9,9 (64,7) 16,6
earnings per
share
Diluted (cents) 3,3 9,4 (64,4) 15,9
headline
earnings per
share
Dividend per (cents) 3,0 - -
share
Net asset value (cents) 2 226,1 244,7 (7,6) 251,1
per share
Net tangible (cents) 2 155,4 198,1 (21,5) 184,5
asset value per
share
Interest cover (times) 5,4 7,7 (29,6) 7,4
Debt:Equity (%) 48,1 54,2 49,2
Note:
1. 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.
2. Calculated using the 111 557 435 shares, being the issued shares
net of the treasury shares, plus the 31 889 901 shares issued to
the Spescom shareholders on 24 January 2011.
Summarised consolidated statements of financial position
(R`000) Unaudite Unaudite Audited
d d Jun 2010
Dec 2010 Dec 2009 Jasco
Jasco
ASSETS
Non-current assets 441 856 357 630 366 716
Plant and equipment 98 658 27 506 32 135
Investment in joint venture - 12 787 -
Investment in associates 175 816 221 932 206 733
Intangibles 101 402 52 091 74 338
Deferred tax asset 21 386 - 6 116
Other financial assets 44 594 43 314 47 394
Current assets 317 459 145 627 204 281
Inventories 85 816 53 648 58 836
Trade and other receivables 173 859 87 929 138 957
Taxation prepaid 6 410 4 050 2 463
Cash and cash equivalents 51 374 - 4 025
Total assets 759 315 503 257 570 997
EQUITY AND LIABILITIES
Share capital and reserves 339 660 273 588 291 711
Non-current liabilities 157 545 137 733 132 278
Interest bearing liabilities 134 972 133 025 127 699
Contract advances and deferred 5 027 - -
maintenance revenue
Deferred tax liability 17 546 4 708 4 579
Current liabilities 262 110 91 936 147 008
Interest bearing liabilities 28 333 10 608 11 303
Bank overdraft 31 931 1 8 664
Non-interest bearing 195 622 81 327 122 173
liabilities
Taxation liability 6 224 - 4 868
Total equity and liabilities 759 315 503 257 570 997
Summarised consolidated statements of cash flows
(R`000) Unaudite Unaudite Audited
d d Jun 2010
Dec 2010 Dec 2009 12
6 months 6 months months
Cash generated from operations 21 938 20 747 37 757
before working capital changes
Working capital changes (22 (15 (13
517) 814) 886)
Cash (utilised in)/generated from (579) 4 933 23 871
operations
Net financing costs (3 133) (2 757) (5 635)
Net taxation paid (11 (1 397) (5 934)
667)
Dividends paid - - -
Cash flow from operating activities (15 779 12 302
579)
Cash flow from investing activities 51 088 4 418 (2 236)
Cash flow from financing activities (11 22 193 13 417
627)
Increase in cash resources 24 082 27 390 23 483
Summarised consolidated statements of changes in equity
(R`000) Audited Unaudite Audited
Dec 2010 d Jun 2010
6 months Dec 2009 12
6 months months
Attributable to equity holders of
the parent
Opening balance 280 132 258 008 258 008
Share capital to be issued 44 008 - -
Treasury shares - Share Incentive (15) 144 (62)
Trust
Share based payment reserve 600 870 915
Total comprehensive income 3 097 11 229 21 271
- Profit for the period/year 3 097 11 229 21 271
- Other comprehensive income - - -
Dividends declared (3 435)
Closing balance 324 387 270 251 280 132
Minority interests
Opening balance 11 579 - -
Subsidiaries acquired during the - 2 018 8 023
year
Transactions between shareholders - - 21
Total comprehensive income 3 694 1 319 3 535
- Profit for the period/year 3 694 1 319 3 535
- Other comprehensive income - - -
Closing balance 15 273 3 337 11 579
Total equity 339 660 273 588 291 711
31 Dec 2010 31 Dec (Unaudited)
(Unaudited)
(R`000) Revenue Operatin Revenue Operatin
g g
profit/ profit/
(loss)* (loss)*
Telecommunications 143 359 12 722 175 199 17 944
Security 57 859 3 902 51 480 3 737
Domestic Products 67 583 8 708 55 877 7 299
Electrical 514 237 16 313 362 331 18 282
Sub-total operating 783 038 41 645 644 887 47 262
divisions
Other 324 (14 5 265 (8 742)
384)
Adjustments (465 (11 (386 (22
428) 386) 143) 435)
Total 317 934 15 875 264 009 16 085
30 June 2010
(Audited)
(R`000) Revenue Operatin
g
profit/
(loss)*
Telecommunications 300 502 16 300
Security 121 638 9 372
Domestic Products 114 474 15 368
Electrical 906 483 59 898
Sub-total operating divisions 1 443 100 938
097
Other 9 434 (8 704)
Adjustments (893 (59
262) 936)
Total 559 269 32 298
* 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.
Directors and Secretary
Dr ATM Mokgokong (Chairperson), MJ Madungandaba (Deputy Chairperson), AMF da
Silva, JC Farrant, Dr J Rothbart, JA Sherry (Non-Executives), MH Lotz (CEO), WA
Prinsloo (Financial Director), O Seiphemo (Marketing Director) (Executives), MN
Sepuru (Company Secretary)
Registered office
Cnr 2nd Road & Alexandra Avenue, Midrand, 1685
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
INCORPORATING: Webb Industries * WebbLeBLANC * Telesciences * Maringo * Spescom
Telecommunications * Spescom Newtelco Special Cables * T-Components * Multivid
* Scafell * M-TEC * Lighting Structures Spescom DataFusion * Spescom DataVoice
* Spescom Media IT
Further details can be found on the group`s website:
www.jasco.co.za
Date: 23/03/2011 09:00:03 Produced by the JSE SENS Department.
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