Jasco posts sharp fall in interim earnings

Listed ICT group, Jasco on Monday reported a big drop in headline earnings per share for the six months ended December 2017, despite an increase in revenue.

Headline earnings and headline earnings per share decreased by 81% to R2.7 million (December 2016: R14.2 million) and 81% to 1.2 cents per share (December 2016: 6.3 cents per share) respectively.

Revenue of R557.2 million was 7% higher than R521.1 million before, mainly due to a six-month revenue contribution of R84 million from Reflex Solutions, Jasco said; however, operating profit declined 1% to R29.9 million.

Jasco said that the main reasons for lower headline earnings are:

  • Higher interest paid;
  • Equity accounted losses from International start-ups;
  • Ineffective tax rate due to non-deductibility of corporate bond interest; and
  • Increase in minorities share of profits, mainly Reflex Solutions.

“Although the results for the six months to December 2017 were weaker than the comparative period to December 2016, the group met its market commitment of improving its operational performance compared to the preceding six months ended June 2017. This was due to a particular focus on maintaining margins and volumes against continued tough market conditions,” Jasco said.

It said its carrier business – representing 32% of group revenue – was slightly down at the revenue level as the major telecommunications operators continued to cut costs. “It remains the biggest profit contributor to the group, with operating profit performance up marginally.”

The group said that its enterprise division – representing 37% of group revenue – made good progress in improving its profitability with communications and security reversing the prior loss position to a breakeven for the first half, and the recently-acquired Reflex Solutions making a strong top- and bottom-line contribution for a full six-month period.

Intelligent technologies – representing 12% of group revenue – “delivered a disappointing performance, with a drop in revenue and operating profit. This was mainly in the energy sector due to difficult market conditions”.

Electrical manufacturers – representing 19% of group revenue – “delivered steady top-line growth mainly due to its diversification strategy. New customers added to volumes and led to a pleasing operating profit growth”.

Jasco said its business in Kenya did not deliver on volume expectations due to the socio-political situation, which resulted in curtailed customer demand in 2017. “These results continue to be included in enterprise for this reporting period and are comparable to the prior period, it said. This company falls within Jasco’s start-up international businesses division.

“The business in the Middle East did not gain the traction expected in the last six months due to the group declining to accept three new projects due to commercial terms not being acceptable. Due to the lack of business, substantial cost cutting was undertaken late in the period, Jasco said.

Looking ahead, Jasco said it continues to operate against difficult economic and market conditions in all its markets.

“The extreme exchange rate volatility in South Africa also made trading more difficult. The risk of a credit ratings downgrade of South Africa’s sovereign debt by the major credit ratings agencies is high and the International Monetary Fund has reduced the forecast economic growth rates for the country to less than one percent.”

To counter this, Jasco said it will continue to execute its strategy and concentrate on the following additional key areas:

  • Maintain its focus on costs and ensure a continued improvement in sustainable profitability levels in all business units, as well as review the head office cost base;
  • Maintain the financial gearing at less than 50% from the cash generated by Jasco’s operations;
  • Ongoing expansion into East Africa by leveraging off the base established in Kenya. Reassess the viability of the base in the United Arab Emirates and the markets in the Middle East and North Africa;
  • Add new products and services to Jasco’s portfolio, with an emphasis on Managed Solutions as a fast-growing and higher-margin business area;
  • Evaluate bolt-on acquisitions to ensure smaller businesses achieve the required critical mass to remain competitive; and

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Jasco posts sharp fall in interim earnings