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Jasco earnings take a hit

Jasco CEO Pete da Silva.

Jasco CEO Pete da Silva.

Jasco Electronics continued to experience tough economic conditions in 2017, with the second half seeing a particularly sharp downturn in the South African economy due to the socio-political environment.

This as it reported a drop in earnings of 43% to R8.1 million, while headline earnings fell by 61% to R5.6 million in the past financial year.

The group's results for the year ending 30 June showed a revenue drop of 3% to R1.04 billion, while operating profit was up 1% to R41.9 million. Headline earnings per share (HEPS) decreased by 61% to 2.5cps and earnings per share (EPS) dropped 43% to 3.6cps.

Jasco says it continues to progress its strategy of offering services across the ICT, power, water management, broadcast and building management sectors. It operates across the entire value chain, from engineering, solutions development, procurement, construction and integration, to maintenance.

The group says earnings were impacted by a number of "unusual factors", excluding which earnings would have increased by 3%. One negative impact, of R4.3 million, came from the group exiting unprofitable security customer contracts and the resultant associated retrenchments. There was also a R2.2 million impact from transaction costs on two acquisitions, mainly from the unsuccessful Cross Fire acquisition.

The group saw further business development costs in East Africa, of R3 million, and spent R1.8 million on investments in its newly-established Middle East operation. There was a R1.1 million impact from "fraudulent transactions perpetrated by a senior employee in the enterprise business, as well as related costs to investigate".

There were some positive impacts to earnings, however; with R4.7 million in once-off costs savings and R2.6 million profit from the disposal of security technical services to an enterprise development partner. There was also a first-time contribution from Reflex Solutions of R1.7 million.

The group acquired 51% of Reflex Solutions for R39.8 million on 1 May, which enabled Jasco's entry into the fibre-to-the-home growth-market and expanded its IT infrastructure and management service offering. Reflex contributed revenue of R28.3 million, profit before tax of R 4.5 million and earnings of R1.7 million in the first two months.

The Competition Commission, however, did not approve the group's acquisition of Cross Fire Management during the year, which was set to provide additional scale to Jasco's Fire business.

"Although the Fire division delivered a good performance, the rejection of the proposed Cross Fire acquisition by the Competition Commission was a major disappointment," it says.

A year ago, things were looking up for Jasco when it announced it had swung to a profit of R14 million, from a loss of R83 million the year before. At the time, the JSE-listed company declared a dividend for the first time in four years, giving investors 2cps.

This year, the Jasco board declared a dividend of 1cps.

Strategic focus

Jasco says a key area of strategic focus during the year was international diversification, and the business in East Africa experienced volume growth of 58% off a low base. The company's Middle East presence was also established during the year, with a focus on securing its first contracts.

The group is further diversifying its manufacturing business and during the year successfully secured four new large customers. It says management made good progress to reduce long-term debt following the accelerated receipt of the remainder of the M-TEC sale proceeds.

"The priority is to continue to reduce the corporate bond obligation over the next financial year from the cash generation going forward due to expected continued profitability levels from the business units," Jasco says.

The group's carrier business unit delivers products and services across the telecommunications value chain and made up 36% of group revenue in the past financial year. However, Jasco says during the year, telecommunications network operators continued to focus on cost reductions and orders for the unit remained flat year-on-year. This resulted in revenue for the carrier business being 7% down at R385.9 million, compared to last year's R414.2 million.

"The delayed sale of Neotel and the extended time taken to re-capitalise Cell C resulted in significant reduction in network capex spend, negatively impacting both Jasco's order book and revenue.

"This was somewhat offset by increased spending from Telkom on additional optical network infrastructure, as they further cater for the increase in demand for data services. The group continued to diversify its portfolio to meet the higher demand for products and solutions, such as fibre-to-the-home and business," Jasco says.

The group's enterprise unit made up 30% of group revenue, while electrical manufacturers added 18% and intelligent technologies the remaining 16% of group revenue.

The group expects the tough economic climate to prevail throughout 2018, which it says will continue to impact results. Despite this, Jasco says it will continue to execute its strategy over the next six to 18 months, including maintaining its focus on costs and ensuring a return to acceptable and sustainable profitability levels in the enterprise business.

It is still looking to further expand into the rest of Africa by leveraging off the established base in Kenya and the recently-established base in the Middle East. It will "evaluate acquisitions to ensure smaller businesses achieve the required critical mass, as well as continue to investigate the exiting of non-core manufacturing".

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