“Unusual items” have dealt a blow to the full-year earnings of JSE-listed Jasco Electronics as the group navigates a particularly tough environment.
The group on Wednesday reported a 61% decline in both headline earnings and headline earnings a share to a respective R5.6-million and 2.5c apiece during the year ended June 30.
Earnings for the period under review decreased by 43% to R8.1-million, along with earnings a share, which fell from 6.3c in 2016 to to 3.6c in 2017.
Earnings and headline earnings were impacted by a number of unusual factors, excluding which, earnings for the year under review would have been up 3% on the R14.2-million reported last year, explained Jasco CEO Pete da Silva.
Jasco attributed the negative impacts on earnings to the exit of unprofitable security customer contracts and the resultant retrenchment process costing R4.3-million; further business development costs of R3-million in East Africa; unused foreign tax credits of R2.3-million in Kenya; the R2.2-million transaction costs of two acquisitions - mostly the unsuccessful Cross Fire acquisition; and investments in the newly-established Middle East operation, which shaved R1.8-million from earnings.
Further, Jasco absorbed a R1.1-million knock from fraudulent transactions perpetrated by a senior employee in the enterprise business and the related costs to investigate the transactions and the R900 000 skills development costs owing to “more onerous requirements” from the new broad-based black economic empowerment codes.
“We continued to operate in tough market conditions in our home market of South Africa. Against these conditions, we further progressed our strategy and maintained the quality of our margins,” Da Silva commented.
However, Jasco maintained its profitability and margins during the year under review, with revenue registering a marginal 3% decrease to just over R1-billion, owing to lower volumes, and operating profit remaining stable at R41.9-million.
The net operating margin of 4% in 2017 was similar to last year’s 3.9%.
Da Silva highlighted one-off cost savings of R4.7-million, the R2.6-million profit from the disposal of security technical services to an enterprise development partner and the first-time contribution of R1.7-million from Reflex Solutions, in which Jasco acquired 51% in May, had positively impacted earnings during the year to June 30.
Meanwhile, Jasco also continued to progress its strategy, with the group narrowing focus to four key areas in the financial year under review, including the creation of scale through bolt-on acquisitions; geographic diversification; customer diversification in electrical manufacturers; and improving working capital management and financial gearing.
“The current economic climate is expected to prevail throughout 2018, which will continue to impact results.
“Our key focus areas will be to maintain our focus on costs and ensure a return to acceptable and sustainable profitability levels in the enterprise business, further expand into the rest of Africa by leveraging off the established base in Kenya and the recently established base in the Middle East and to evaluate acquisitions to ensure that smaller businesses achieve the required critical mass, as well as continue to investigate the exiting of noncore manufacturing,” Da Silva concluded.