Jasco continues to improve results following restructuring and implementation of new strategy

Scale benefits of Jasco and Spescom starting to flow

September 19, 2012
  • Completed first year of a three-year strategy
  • Scale benefits of Jasco and Spescom starting to flow
  • New key account structure increasing order flow (Q4)
  • Majority of businesses up, except Lighting & Telecom Structures in H2
  • Results were impacted by restructuring costs across the group
  • Improvement in associate M-TEC and increase in equity from 34% to 51%

Jasco Electronics Holdings (Jasco) today announced strong results for the year to June 2012 following completion of the first year of its three-year strategy implementation.

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

“My first year at the helm of Jasco has come and gone. The opportunities that initially drew me to the group still remain valid today. It has indeed proven to be a group with strong growth prospects, a solid foundation and a dedicated team. The new group structure we implemented allowed for further efficiencies in terms of removing several management positions and de-registering certain legal entities that have become superfluous.

“We have achieved what we set out to do in the first year of our three-year strategy implementation process. The benefits of operating as an inte­grated group, with clear verticals focused on targeted customer seg­ments, have already started to kick in. The group’s sales have improved through a focused performance and delivery culture and the start of cross-selling initiatives. For example, we have already seen R25 million in new orders from four businesses working together during the year. We have also seen our aannuity base revenue increase from R0,4 million to R2,1 million per month.”

Commenting on the outlook, he said:

“Following on the savings made last year, the cost base at the head office has been further reduced by almost 20% this year, with more savings to come. The group has a strong medium and longer term outlook and several strategic opportunities in the short term.

“The group’s focus on M-TEC over the last 12 months resulted in a significant improvement. Management will focus on working towards operational control and continued improved performance in the coming year.

“The simplification of the Jasco group, with the associated cost reduction, will continue. The second phase of our strategy roll out is well underway, which will increase customer centricity and best-in-class business processes to ensure continued improvement in results going forward.”

Financial overview 

  • Group consolidated revenueincreased by 28% to R990 million (2011: R773 million)
    • The scale benefits of Jasco and Spescom started to flow
  • Group operating profitincreased by 8% to R31,2 million (2011: R28,8 million), mainly due to the growth in turnover
    • The majority of businesses were up, except Lighting and Telecom Structures in the second half of the year
    • Operating profit was impacted by restructuring costs, such as .the repositioning of the Jasco brand and structure to ensure increased customer penetration, as well as once-off retrenchment costs in the ICT Solutions vertical during the second half
  • Earnings per share (EPS) was 101% up to 15,6 cents per share (2011: 7,8 cents per share) and headline earnings per share(HEPS) was 20% up to 16,8 cents per share (2011: 14,0 cents per share)
    • This was largely due to an improvement in the M-TEC contribution despite more shares in issue due to the Spescom acquisition and significant once-off costs in F2011
  • Working capital managementremained within target and a pleasing improvement was seen since December following intense focus by the group’s business units
    • Although net working capital days increased from 30 June 2011, they decreased from 35.4 days at December 2011 to 31.7 days at 30 June 2012. Inventory days increased from 30 to 32 days and accounts receivable’ days increased from 75 days to 81 days from June last year. Accounts payable days increased similarly from 79 to 82 days. The terms from Jasco’s key trade suppliers will be an area of continued focus in coming months, as additional support will be sought to meet anticipated organic growth requirements
  • The statement of cash flows reflects an improvement in the cash generated from operations from R3,0 million last year to R24,5 million in 2012. This is a pleasing return to historic trends
  • A final dividend of 3 cents per share has been declared, which is a 20% increase from the 2,5 cents per share at June 2011

Operational summary

To ensure a more integrated business development focus, the group was restructured last year under one Jasco brand into three verticals:

  • Information and Communications Technology (ICT) Solutions
  • Industry Solutions
  • Energy Solutions

ICT Solutions contains the telecommunications and information technology businesses of Jasco, Spescom, the newly-acquired ARC Telecoms, as well as the telecommunications arm of associate M-TEC. Industry Solutions contains the Security business and the recently acquired FerroTech, with Energy Solutions containing Electrical Manufacturers and Lighting Structures, as well as the energy arm of M-TEC.

ICT SOLUTIONS 67% OF GROUP CONSOLIDATED REVENUE

The group outlines consolidated numbers, as well as aggregated numbers where applicable. The consolidated revenue includes the full-year contribution from Spescom, six month contribution from Ferrotech and three month contribution from ARC Telecoms. The only difference in F2012 between aggregated results and the consolidated results is M-TEC’s contribution. 

ICT Carrier Solutions

  • The aggregated revenue increased by 31% to R558,7 million (2011: R426,7 million), mainly due to the inclusion of the former Spescom business units for a full 12 month period and the improved market share gained from major telecommunications operators
  • The majority of businesses performed well and aggregated operating profit increased by 40% to R32,6 million (2011: R23,2 million) despite a poor performance from Telecoms Structures. Operating margin increased to 5.8% (2011: 5.4%)

ICT Enterprise Solutions

  • The growth in volume was largely attributable to the 12-month contribution from the former Spescom business units, supported by the contribution of small bolt-on acquisitions in the second half, such as ARC Telecoms
  • The corporate market was subdued for most of the year, with signs of some improvement appearing towards the end of the last quarter. The consolidated revenue for the year increased by 85% to R224,8 million (2011: R121,6 million)
  • The consolidated operating profit increased by 46% to R16,2 million (2011: R11,2 million) in spite of poor performance in Enterprise Applications (previous Spescom Datavoice), which dragged the operating margin down from 9,2% to 7.3%. Aggressive action was taken. This resulted in additional once-off retrenchment costs of R1,1 million on a 50% reduction in headcount. The lease costs were also substantially reduced in Gauteng and the Western Cape. 

INDUSTRY SOLUTIONS 13% OF GROUP CONSOLIDATED REVENUE

  • The Industry Solutions vertical experienced an improvement in top line, with the new fire solutions contributing pleasingly. This was supported in the second half by the first-time contribution from Ferrotech (Power Solutions)
  • Although the slow recovery from the corporate customer base continued, the environment remained fiercely competitive. Revenue increased by 21% to R130,1 million (2011: R107,4 million)
  • Operating profit decreased by 16% to R6,6 million (2011: R7,9 million) on the expected lower profit contribution from the group’s long term rental receivable that is approaching full term
  • Although margin was under pressure in this environment, declining from 7,4% to 5,1%, the cost reductions during last year protected the result to some degree. Cost control remains a key area of focus. 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 – 20% OF CONSOIDATED GROUP REVENUE

This division includes the Electrical Manufacturers and Lighting Structures business units on a consolidated basis. On an aggregated basis, M-TEC’s Electrical division is included, which results in the Energy vertical becoming the largest in the group

  • Consolidated revenue decreased by 8% to R199,7 million (2011: R218,1 million) due to a sharp decline in volumes in Lighting Structures on lower municipal spend. This continued from the second half of the previous financial year
  • The aggregated revenue of R1,1 billion (2011: R1,1 billion) clearly shows the significant contribution made by M-TEC. M-TEC’s contribution increased by 4% to R939,6 million (2011: R899,8 million)
  • The consolidated operating profit declined sharply by 46% from R29,5 million to R15,9 million, mainly due to the volume drop in Lighting Structures and once-off factory move costs in Electrical Manufacturers. This was exacerbated by strike action in the sector, as well as steel shortages in the first half which resulted in the volumes lost in these manufacturing operations never being recovered
  • The aggregated operating profit of R50,2 million declined by 10% from R55,5 million for the same reasons. However, M-TEC’s operating profit of R34,4 million increased by 32% (2011: R26,0 million) due to a good performance in the Aluminium and Copper products divisions on steady metal prices during the period
  • Management has engaged in extensive negotiations with M-TEC’s fellow shareholder Taihan Electric Wire Company Limited (Taihan) since April 2012, with the objective of clarifying the rights of the respective shareholders in the ownership structure of the business, including M-TEC’s debenture instruments. As these negotiations were ongoing at year end, legal opinions were obtained that confirm that the debentures be treated as debt instruments with effect from the day following their anniversary date of 31 August 2011. Jasco is accordingly now a de facto 51% shareholder in M-TEC. However, in terms of the original shareholders’ agreement, this change has not resulted in a change in control of the company from Taihan to Jasco. The group continues to believe that a non-controlling stake in this investment is not ideal. This therefore continues to be the subject of negotiation between the parties. Management plans to conclude this in the first half of the new financial year