18 February 2014
18 February 2014
JASCO IN LAST YEAR OF RESTRUCTURING AND IMPLEMENTATION OF NEW STRATEGY
Improvements starting to flow through
Jasco Electronics Holdings Limited (“Jasco”) today announced results for the six months ended 31 December 2013 as it enters the last six months of its three-year strategy implementation.
• Headline earnings and headline earnings per share increased by 6%
• Most of Jasco’s businesses performed well and partly compensated for the high revenue base of the previous period, which included Lighting Structures and Telecom Structures that were sold in the previous year
• Excluding the R45 million revenue contribution from Lighting Structures and Telecommunications Structures, revenue on a like-for-like basis increased by 5%
• Core operational businesses improved performance, with core profit before interest and taxation increasing by 2%
• Overall operating profit impacted by once-off and restructuring costs
o Cost for restructuring will end in H2 2014
The major milestones achieved during the group’s restructuring programme include:
• The consolidation of a number of businesses and the removal of management levels
• Creating a single Jasco brand from numerous disjointed brands
• Increasing scale, with order intake and revenue in excess of R1 billion
• Expanding the national footprint and product and market segments
• Reducing customer dependency, with no customer being more than 10% of group revenue
• The commencement of the disposal of non-core business units with Lighting and Telecom Structures sold in F2013 and the recent disposal of the Automotive business in January 2014. However, the process of exiting the group’s associate, M-TEC, has been slower than anticipated
• The disposal of the Midrand head office property in F2013 and the subsequent reduction in debt levels in the first half of F2014
• The completion of a successful rights issue in January 2014
Commenting on the results, Jasco’s CEO, Pete da Silva, said:
“We are pleased with the progress we have achieved during our restructuring. Although the current results were still impacted by the costs of restructuring and we have some remaining challenges to address, the key growth levers are in place to ensure the full benefits of our restructuring will come through in F2015. Our order intake increased from the start of our restructure from R800 million to over R1 billion currently and we continued to see new orders from businesses working together, with cross-selling improving and annuity income still growing strongly.”
Commenting on the outlook, he said:
“The group’s main focus areas in the last six months of our restructuring programme will be on addressing the remaining non-performing business of Security, further developing annuity business, continuing to drive negotiations to exit our investment in our associate M-TEC, settling the group’s AfroCentric preference shares and exiting non-core businesses in a systematic way. We will concentrate on improving the quality of the group’s earnings by completing the restructure programme, consolidating procurement and reducing inventory levels.
“During the restructure, decisive action was taken on non-performing areas and the new business base is positioned for growth. The rights offer also improved Jasco’s financial position. The second half of F2014 is therefore expected to show further improvement, with the full benefits of the three-year restructure to be seen from F2015.”
• Group revenue decreased by 4% to R526,7 million (Dec 2012: R552,1 million)
o Excluding the R45 million revenue contribution from Lighting Structures and Telecommunications Structures that was sold last year, revenue on a like-for-like basis, increased by 5%
• Core operating profit before interest and taxation (excluding all once-off impacts and restructuring costs) increased by 2% to R21,2 million (Dec 2012: R20,7 million)
• Group profit before interest and taxation decreased by 33% from R19,0 million in December 2012 to a R12,8 million
o This was mainly due to the once-off impacts and restructuring, which are unpacked below:
H1 2014: R 8,4 million restructuring costs
H1 2013: R1,8 million net write-offs, consisting of:
• R8,8 million profit from the disposal of group’s head office property
• R4,5 million loss on disposal of Lighting Structures
• R6,0 million restructuring costs
• Headline earnings and headline earnings per share increased by 6% to R7,5 million (Dec 2012: R7,1 million) and 5,3 cents per share (Dec 2012: 5,0 cents per share) respectively
• Due to once-off impacts and restructuring costs in the prior year and this period, earnings per share (EPS) was down 51% to 4,9 cents per share (Dec 2012: 10,1 cents per share)
• Net working capital days improved and is back at the group’s target of 30 days due to strong effort to improve collections
• The statement of cash flows reflects an inflow in cash generated from operations before working capital changes of R23,6 million compared to R19,5 million in December 2012.
During the last six months to 31 December 2013, the majority of the group’s operational businesses, with the exception of the Security business, performed solidly.
In line with the group’s strategy during the final year of the three-year restructuring programme and following the divestment of a number of businesses, the group was structured from three verticals into two with effect from F2014.
The ICT Solutions vertical contains the telecommunications and information technology businesses of ICT-Carrier, ICT-Enterprise and ICT-Networks.
The separate verticals of Industry Solutions and Energy Solutions have been combined to create the E&I Solutions vertical. This contains Electrical Manufacturers, Security and Power.
The group has a 51% shareholding in its associate M-TEC, with Taihan Electric Wire Co. Limited (“Taihan”) of Korea holding the remaining 49% interest. As advised at the June 2013 year-end, the group has decided to exit this investment and it is therefore categorised as “held-for-sale” for IFRS reporting purposes. Accordingly, Jasco has stopped equity accounting this investment in its consolidated results. The performance from M-TEC has therefore had no impact on the earnings reported for the current interim period.
ICT SOLUTIONS - 67% OF CONSOLIDATED REVENUE
Period under review
ICT Carrier – 41% of consolidated revenue
• Revenue was flat at R218,2 million (Dec 2012: R218,8 million), mainly due to the exit from Telecommunications Structures in the prior period. Market share was maintained in the core business in a mature market
• All businesses outside of the smallest business Broadcast Solutions grew operating profit
o This resulted in operating profit decreasing by 2% to R21,7 million (Dec 2012: R22,2 million) at a steady operating margin of 10,0% (Dec 2012: 10,1%).
o In line with the group’s restructure, senior management overhead costs in this business were moved to head office at the end of F2013. The Carrier RF and Carrier Solutions business units were combined in the same premises under one management team during the first quarter of this year. Savings from reduced management costs and more effective Key Account Management are expected to offset once-off moving costs incurred
ICT Enterprise – 19% of consolidated revenue
• Revenue for the year increased by 6% to R102,0 million (Dec 2012: R96,7 million) as market share was maintained despite the continued slow corporate spend on technology upgrades. The annuity base was maintained at 50%
• The operating profit increased by 25% to R9,2 million (Dec 2012: R7,3 million) and the operating margin improved from 7,6% to 9,0% on a higher-margin product mix and the completion of the restructure, with the resultant productivity improvements
ICT Networks – 7% of consolidated revenue
• Revenue decreased by 45% to R40,5 million (Dec 2012: R73,6 million), mainly due to the high base in the previous comparative period that included a R55,0 million once-off equipment installation for an African telecommunications operator project
o However, this contract will add R7,2 million in annuity revenue per year for the next five years
o In line with the growth strategy in this start-up business, the annuity revenue in the total Networks grew by 118% off a low base
• The operating loss of R3,1 million (Dec 2012: R1,2 million profit) is in line with the volume decrease, with no large projects in this half
o The growth in the annuity revenue, combined with tight cost control, has put Networks on track with the planned growth strategy for this business.
ICT Solutions outlook
In the ICT Solutions vertical the group will focus on increasing cross-selling with large customers through Key Account Management and leveraging its new shareholder base. It will continue to grow its annuity income base through Property Technology Management (PTM), which includes rooftop management and in-building solutions. Joint ventures are planned to further assist with growth, particularly in the areas of international voice and data connectivity and IT solutions. ICT Solutions will also continue to build on its African presence by focusing on expanding the Enterprise footprint and building on its success achieved in Namibia and Zimbabwe.
E&I SOLUTIONS - 33% OF CONSOLIDATED REVENUE
Period under review
ENERGY SOLUTIONS – 19% OF CONSOLIDATED REVENUE
• Electrical Manufacturers grew revenue by 40% to R99,8 million (Dec 2012: R71,5 million) on very strong volume growth at one of the business’ large customers
• The operating profit of R12,1 million increased by 41% from R8,6 million in line with higher volumes as the investment made in the white goods manufacturing facility during the last financial year is now paying off
• The operating margin of 12,1% was unchanged (Dec 2012: 12,0%) and reflects the seasonal nature of this business, with Christmas volumes in the second quarter
This business sold its Automotive business unit post the interim period end at an estimated profit of R7 million, depending on the net asset value of the effective date. The Lighting Structures’ business unit was sold in December 2012 and did not impact the current period.
INDUSTRY SOLUTIONS – 14% OF CONSOLIDATED REVENUE
• The Industry Solutions business experienced a decline in revenue of 5% to R77,0 million (Dec 2012: R81,2 million)
o Although Security’s revenue volumes to its main financial institution clients were acceptable and its annuity base remains on target, a lack of major projects impacted negatively
• The operating profit decreased significantly to a loss of R2,0 million (Dec 2012: R5,6 million profit) due to this lack of major projects and on the restructure of Security and the alignment of the overhead costs to the revenue base
o Power Solutions was profitable for the period and in line with expectations.
E& I Solutions Outlook
In the E&I Solutions vertical, the core growth focus will be on the Power business while the performance of Security is being addressed. In Security, cost control remains a key focus area and the Security business will be relocated to the group’s head office in February 2014, with associated costs to be incurred in the third quarter of F2014.
This vertical aims to grow its market share in Power through mining its customer and shareholder base and further diversifying its customers. It aims to expand new offerings through off-grid solutions (PV) for industrial applications, energy optimisation to create annuity growth and a focus on cross-selling with the ICT Solutions vertical.
HG Strategic Communications (011) 465 0484
Heidi Geldenhuys 083 325 8924
Jasco 011 266 1500