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Send  Share  RSS  Twitter  13 Feb 2012

VENTURES: Jasco Delivers Strong Results on the Back Of Restructure

 





Recent Gauteng Business News

Jasco Electronics Holdings (Jasco) has announced strong results for the six months to December 2011, as well as progress on its new strategy and restructuring, which was outlined to the market in September 2011.

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

“We are very satisfied with our results, which indicate the successful initial integration of Spescom, the benefits of our restructure and a renewed focus on driving performance. During the last few months, we reinvigorated the organisation by creating a unified brand with a dedicated customer focus, putting aggressive sales and performance measurements in place, flattening the organisational structure and reducing our cost base by R8 million per annum. Although not the end of the road, we have delivered on our objectives so far, with very positive feedback from customers, a stronger brand recognition and cross-selling across the group gaining traction.”

Commenting on the outlook, he said:

“As outlined at the last reporting period, management has taken strong action in terms of ensuring strategic delivery. The focus over the next six months will continue to be on ensuring a sustainable performance at M-TEC and addressing under-performance at Enterprise Applications, extracting further cost savings and improving working capital management.

“The benefits of operating as an integrated group, with clear verticals focused on targeted customer segments, have only started to kick in, with the medium and longer term outlook positive and several strategic opportunities in the short term. Further cost savings are set to be extracted from the business, such as the benefits from rightsizing and the impact of merged businesses and lower compliance and other costs. The group’s sales initiatives have already improved through a focused performance and delivery culture and the start of cross-selling initiatives.

“The group’s bolt-on acquisition plan is on schedule, without sacrificing focus on organic growth and addressing problem areas in the business. The newly restructured Jasco has laid the foundation for future growth and we remain committed to ensuring earnings enhancement through both organic and acquisitive growth, whilst improving the return on equity on a sustainable basis.”

Jasco – Financial Overview


• Group revenue increased by 55% to R493,9 million (2010: R313,4 million) following the combination of Jasco and Spescom

• Group operating profit increased by 30% to R20,6 million (2010: R15,9 million)

o This was mainly due to the improvement in the group’s largest consolidated contributor, the ICT Solutions vertical, as well as lower once-off costs (down to R1,2 million from R4,2 million in the comparative period)

• Headline earnings per share (HEPS) was up 96% to 6,9 cents per share (2010: 3,5 cents per share), with earnings per share (EPS) up 130% to 6,4 cents per share (2010: 2,8 cents per share). The weighted average number of shares in issue increased from 116,5 million to 140,8 million shares

• The net working capital days of 35 days improved from the 42 days reported for December 2010. This was mainly due to the improvement in stock days from 35 days to 31 days and the extension of creditor days to 75 days from 53 days. However, the deterioration in debtors’ days from 61 days to 80 days is less than satisfactory and is receiving stringent focus. The increase is mainly as a result of the short term funding required for a major mobile network rollout in South Africa

• Although Jasco’s net short term borrowings increased from R16,9 million at the start of the period to R38,4 million at the period end, cash generated from operations continued to be higher than operating profit

Jasco – 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 and Spescom, as well as the telecommunications arm of associate M-TEC. Industry Solutions contains Jasco’s previous Security business and the recently acquired FerroTech, and Energy Solutions contains Jasco’s previous Domestic Products division, Lighting Structures and associate M-TEC’s electrical arm.

ICT SOLUTIONS – 66% OF GROUP CONSOLIDATED REVENUE

ICT Carrier Solutions

Period under review

• Revenue increased by 50% to R286,9 million (2010: R191,0 million) due to the successful integration of the Jasco and Spescom Carrier businesses

• The group saw extensions to contracts from its fixed-line customers and initial success from Broadcast Solutions. Spend by the major mobile operators was slow, with only a few actively increasing their networks in South Africa. M-TEC’s telecommunications arm saw a pleasing improvement in its contribution

• Aggregated operating profit (including M-TEC’s contribution) of R23,1 million was up 80% (2010: R12,9 million) and the operating margin improved from 6,8% to 8,1%. Excluding M-TEC, operating profit was up 49% to R21,8 million with operating margin down to 9,6% from 10,4% on a change in sales mix and business development investments

Prospects

• The group will continue to focus on growing market share in the mature Carrier space. The vertical has already experienced increased orders from current and new clients due to a more focused sales offering

ICT Enterprise Solutions

Period under review

• Revenue increased to R102,6 million (2010: R2,8 million) following the inclusion of the majority of Spescom’s businesses to this part of Jasco

• Spend by most of the corporate customers was subdued, although the defensive nature of the large annuity revenue base in Enterprise Communications cushioned the slowdown in spend

• Operating profit for the period was R5,4 million (2010: R1,9 million loss)

o As expected, Enterprise Applications continued to underperform, with operating profit marginally better than break-even. In response to this, the business and management teams were right-sized and the business was integrated into Enterprise Communications. The group is anticipating improved customer order flows into the second half. The operating profit of this division was therefore impacted by once-off restructuring costs of R1,2 million, which resulted in the margin of 5,3%

Prospects

• In the Enterprise business, the benefits of a lower cost base due to rightsizing in a tough market will flow through in the second half, with the aim to extract value from those customers where spend is taking place. The high level of annuity income in Enterprise Communications through ongoing service level agreements will continue to provide some protection in the medium term

INDUSTRY SOLUTIONS – 12% OF GROUP CONSOLIDATED REVENUE

Period under review

• The Industry Solutions vertical delivered an improved performance in a difficult market where major projects continued to be occasional. Revenue increased by 4% to R60,4 million (2010: R57,9 million) and operating profit increased by 19% to R4,6 million (2010: R3,9 million). The entry into fire solutions contributed to the revenue growth in this period

• Margins remained under pressure in a competitive environment, although it did improve from 6,7% to 7,6% on the back of cost savings

Prospects

• This vertical has an established annuity income base to ensure stability. The focus in the near future will be on completing the group’s entry into the fire solutions market and to expand the Jasco offering nationally

• The group’s diversification into other sectors outside of financial services has had some success, with the mining sector being a short term focus due to some spend taking place in this area. The entry into the power optimisation market through the acquisition of FerroTech will complement Jasco’s offering, while Industry Solutions will continue to expand its offering in building management

ENERGY SOLUTIONS – 22% OF CONSOLIDATED GROUP REVENUE

Period under review

• Revenue increased by 25% to R665,5 million (2010: R531,1 million) due to an improvement by M-TEC

• Although Energy Solutions’ operating profit increased by 20% to R28,8 million (2010: R24,1 million), the operating margin was impacted by labour strikes during July at all production facilities and the factory move at Electrical Manufacturers. The operating margin at the end of the period was 4,3% (2010: 4,5%)

• The overall improved performance of M-TEC was mainly due to strong volumes in the Aluminium plant, combined with Jasco and the new management team’s focus on increased efficiencies. This was somewhat offset by continued production and product issues at M-TEC’s Power Cable plant

• Consolidated revenue (excluding M-TEC) of R108,1 million was 10% down on the R120,6 million in the comparative period. The consolidated operating profit of R10,9 million was 25% down and operating margin was down to 10,1% from 12,1% due to the lower production which impacted sales volumes

Prospects

• The Energy Solutions vertical will continue to drive its strategy of bolt-on acquisitions to position Jasco as a Tier 2 solutions provider in transmission, distribution and balance of plant business

• In the next six months, the focus within M-TEC will be on ensuring that remaining problems are addressed in the Power Cable plant and to grow market share aggressively

• Lighting Structures will target municipalities through transmission and distribution contractors, as well as actively driving supplier agreements with renewable independent power producers (IPPs)

• The relocation and integration of the factories within Electrical Manufacturers will allow for increased production capacity, reliable power supply and improved operational efficiencies over the next six months


 
 
 
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