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JASCO AT THE END OF TWO YEARS OF THREE-YEAR RESTRUCTURING AND IMPLEMENTATION OF NEW STRATEGY

18 September 2013
Media release
18 September 2013

JASCO AT THE END OF TWO YEARS OF THREE-YEAR RESTRUCTURING AND IMPLEMENTATION OF NEW STRATEGY
Decisive corrective action taken

Jasco Electronics Holdings (Jasco) today announced results for the year ended 30 June 2013 following completion of the first two years of its three-year strategy implementation.

• Revenue surpassed the R1 billion critical mass level for the first time
• Core operational businesses improved performance
• Overall operating profit impacted by corrective action to exit Lighting Structures, Telecommunications Structures and the group’s associate M-TEC

The major milestones achieved during the first two years of the restructuring programme include:

• Surpassing the R1 billion revenue threshold in F2013
• The consolidation of five business units
• The removal of several management positions and one management level
• The de-registration or sale of 13 legal entities
• Creating a single Jasco brand from numerous disjointed brands
• Growing the order intake from R800 million in F2011 to R1,2 billion in F2013
• Expanding our national and regional footprint to better service major customers
• Expanding into 11 new product and market segments
• Reducing customer dependency, with no customer being more than 8% of group revenue (2011: 10%)

Commenting on the results, Jasco’s CEO, Pete da Silva, said:

“The group has made good progress over the last two years, with the current year’s focus being on corrective action. As a management team, we are giving the group’s challenges focused attention to ensure we address these in a swift and responsible manner.

“This focus resulted in decisive action in the underperforming areas of the business, which impacted the year’s results. However, the core operational businesses performed well. Group revenue increased by 16% and core profit before interest and taxation (excluding once-offs, restructuring costs and businesses exited) increased above expectations.

“The group’s sales also continued to improve through a targeted performance and delivery culture and the start of cross-selling initiatives. Order intake increased over the last two years of our restructure from R800 million to R1,2 billion and we continued to see new orders from businesses working together, with cross-selling improving by 78% and annuity income up 116%.”

Commenting on the outlook, he said:

“The group’s main focus areas in the last year of its restructuring programme include improving our funding position and reducing the interest burden by exiting M-TEC and settling the group’s preference shares relating to the original transaction. Exiting low value-add manufacturing in a systematic way and finalising the sale of M-TEC and other non-core manufacturing departments will also remain on our focus list.

“A rights issue of R30 million to R60 million is planned for the first half of F2014. We will focus on improving our earnings by consolidating procurement and improving working capital, as well as completing the restructure programme

“The decisive action taken during the year on non-performing areas has positioned the new core business base for growth. In the first half of F2014 further restructuring costs will impact results, with the second half to show an improvement. The full benefits of the three-year restructuring programme will be seen from F2015.”

FINANCIAL OVERVIEW

• Group revenue increased by 16% to R1,15 billion (2012: R990 million)
o Majority of operational businesses performed well
• The core profit before interest and taxation (excluding once-off impacts, restructuring costs and businesses exited) increased above expectations)
• Group profit before interest and taxation including these once-off impacts decreased significantly from a profit of R31,2 million in 2012 to a loss of R93,5 million
The once-off impacts amount to R114 million and is made up as follows:
• The sale of the group’s head office property: R8,7 million profit
• Impairments and loss on sale of assets amounting to R123 million:
M-TEC  R72,5 million  Fair value impairment
Lighting Structures  R4,8 million
R12,0 million Loss on exit
Impairment of loan
Telecommunications Structures  R24,2 million
R9,7 million Impairment of goodwill
Loss on exit

• Headline earnings per share (HEPS) was 98% down to 0,3 cents per share (2012:16,8 cents per share)
• As a consequence of the once-off impacts, the earnings per share (EPS) was a loss of 77,9 cents per share (2012: 15,6 cents profit per share)
• Net working capital days of 41.6 days was above the group’s target of 30 days due to record sales in June
o However, 50% of the total book was collected in July and bad debts are still less than 0,1% of revenue
• The statement of cash flows reflects an inflow in cash generated from operations before working capital changes of R47,7 million compared to R55,4 million in 2012
o Working capital changes reflect an outflow of R114,1 million (2012: R31,0 million outflow) due to the group’s new finance lease, which is funded through a long-term loan
o Jasco’s net overdraft increased to R56,0 million from R31,8 million at the beginning of the year. This remains within the group’s facility limits
o Management is focusing on reducing stock levels, improving terms of supply from major trade partners, and reducing trade receivables older than 90 days

OPERATIONAL SUMMARY

To ensure a more integrated business development focus, the group was restructured at the start of the three-year restructuring programme under one Jasco brand into three verticals:
• Information and Communications Technology (ICT) Solutions
• Industry Solutions
• Energy Solutions

ICT Solutions comprises the Carrier, Enterprise and Networks businesses of Jasco. Industry Solutions comprises the Security business and the low voltage Power Solutions business, with Energy Solutions comprising Electrical Manufacturers and the now disposed of Lighting Structures. As the associate M-TEC is held-for-sale, it is not included in the results.

Post year-end, following a number of divestments, this structure was further simplified into two verticals of ICT Solutions and Energy & Industry Solutions.

ICT SOLUTIONS - 71% OF CONSOLIDATED REVENUE

ICT Carrier – 43% of consolidated revenue
• Revenue increased by 10% to R498,8 million (2012: R454,4 million)
o Mainly due to improved market share and despite a 28% reduction in sales at Telecommunications Structures
• Operating profit increased by 31% to R56,5 million (2012: R43,2 million) at an improved operating margin of 11,3% (2012: 9,5%)
o In line with the group’s restructure, senior management overhead costs in this business was moved to head office
o Excluding these costs, Carrier Solutions and Carrier RF saw a significant increase in profit. This was somewhat offset by a significant decrease in Broadcast Solutions, which was placed on the watch list in the second half of the year. The Broadcast Solutions cost base was restructured in the last quarter, which resulted in a break-even result for the year on inclusion of once-off retrenchment costs

ICT Enterprise – 19% of consolidated revenue
• Revenue for the year increased by 8% to R219,0 million (2012: R203,3 million)
o Mainly due to new blue-chip customers even against continued slow corporate spend on technology upgrades
• Operating profit decreased by 36% to R13,8 million (2012: R21,5 million) and the operating margin was down from 10,6% to 6,3%
o Due to a change in product mix due to fluctuating demands and strategic blue-chip customer wins at initially lower margins
o The F2012 results also created a high base due to two significant, once-off equipment installations. Higher-margin service business will follow from F2015


ICT Networks - 10% of consolidated revenue
• Revenue increased by 406% to R114,6 million (2012: R22,7million)
o Mainly due to the Telecom Namibia project in Co-Location Solutions (NewTelco). This contributed R65 million on a five-year finance lease, which secures future annuity income
o Converged Solutions increased by 74% on the full-year inclusion of Arc Telecoms and good growth in the voice and data annuity volumes
• The operating loss decreased by 63% to R3,4 million (2012: R9,4 million loss) in line with the volume increase
o The total annuity revenue grew strongly from R22,9 million to R45,8 million in 2013 and is expected to continue growing off this base. This, combined with cost reductions, should result in the business achieving a breakeven position in F2014

INDUSTRY SOLUTIONS – 13% OF CONSOLIDATED REVENUE
• Revenue increased by 14% to R148,7 million (2012: R130,1 million)
o The increase was driven by Fire Solutions and a first full year of Power Solutions
• Operating profit decreased by 13% to R5,8 million (2012: R6,6 million) on the lower profit contribution from the group’s long-term rental receivable that was ended
• Although the operating margin declined from 5,1% to 3,9%, when excluding the impact of the finance lease, the operating margin improved from 1,6% to 3,9%. Cost control remains a key area of focus and the Security Solutions business will be relocated to Midrand in the next financial year
• The main imperative for this vertical is to grow revenue and further diversify the profile of the group’s customer base over the next two years

ENERGY SOLUTIONS – 16% OF CONSOLIDATED REVENUE
During the year, this division included the Electrical Manufacturers and Lighting Structures business units on a consolidated basis. The Lighting Structures business was sold in December 2012 and its contribution was therefore only for five months. The M-TEC Electrical division is not included as it is an investment “held-for-sale”.

• Consolidated revenue of R184,3 million declined by 8% (2012: R199,7 million)
• Consolidated operating profit declined by 26% from R15,9 million to R11,8 million on the disposal of Lighting Structures

• Electrical Manufacturers grew revenue by 15% to R154,0 million (2012: R133,7 million) on strong volume growth at lower margins for the business’ major customer. The operating profit of R14,7 million increased by 3% from R14,3 million on lower gross margins

• Lighting Structures’ revenue of R30,3 million compares to R66,1 million in 2012 and the operating loss was R0,7 million compared to a profit of R1,7 million.


Issued by:
HG Strategic Communications      (011) 465 0484
Heidi Geldenhuys       083 325 8924
Enquiries:
Jasco          011 266 1500