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| NOTES TO THE INCOME
STATEMENT AND BALANCE SHEET |
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2007
R million
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2006
R million
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30
Sept
2006
R million
(Audited) |
| Note 1 |
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| Operating
profit |
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| Operating profit
is stated after: |
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| – Cost of
sales |
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3
355,5 |
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2
684,4 |
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5
647,9 |
| – Other expenses
excluding depreciation and amortisation |
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640,8 |
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688,1 |
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1
401,6 |
| – Other income |
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(26,4) |
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(4,9) |
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(15,7) |
| – Realised
loss/(profit) on foreign exchange
and derivative instruments |
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50,7 |
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(21,2) |
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(65,6) |
| – Unrealised
(profit)/loss on foreign exchange
and derivative instruments |
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(9,5) |
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13,5 |
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(67,7) |
| Note 2 |
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| Net interest
and dividend income |
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| Interest received |
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40,0 |
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43,4 |
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92,9 |
| – From RC&C
Finance Company |
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25,4 |
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25,5 |
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57,2 |
| – External |
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14,6 |
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17,9 |
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35,7 |
| Interest paid |
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(16,6) |
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(13,5) |
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(34,9) |
| Dividend income
other than from associate company |
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3,7 |
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3,3 |
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6,9 |
| Total |
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27,1 |
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33,2 |
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|
64,9 |
| Dividend income
from associate company included in
share of associate company's profit |
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—
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48,0 |
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56,0 |
| Note 3 |
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| Abnormal
Items |
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| Black Economic Empowerment
(BEE) charge – share-based payment |
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(556,6) |
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—
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—
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| Employee shares
charge |
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(50,3) |
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—
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—
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| Surplus on sale
of property, plant & equipment
and intangible assets |
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34,5 |
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—
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—
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| Surplus on sale
of investments |
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—
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3,3 |
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5,0 |
| Impairment of
goodwill |
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—
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—
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(3,4) |
| Total before taxation |
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(572,4) |
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3,3 |
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1,6 |
| Taxation |
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15,9 |
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(0,5) |
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—
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| Total |
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(556,5) |
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2,8 |
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1,6 |
|
The BEE deal of
Reunert Limited (Reunert) was approved
by shareholders on 6 February 2007.
Due to the sale of Bargenel Investments
Limited (Bargenel), which holds 18,5
million shares in Reunert, to the
BEE partners, Peotona Group Holdings
(Pty) Ltd (Peotona) and the Rebatona
Educational Trust, at a 10% discount
on the Reunert share price, a share-based
payment expense (IFRS 2) of R557 million
has been recognised. This expense
differs from the amount disclosed
in the circular to shareholders issued
on 13 December 2006 largely as a result
of the movement in the Reunert share
price up to the date of the approval
of this transaction. IFRS requires
that this transaction is not accounted
for as a sale, since the preference
shares issued by Bargenel to Reunert,
financing the purchase of Bargenel,
have not been fully repaid and conditions
are attached to the unpaid portion,
notwithstanding that the reality of
this transaction is in fact a sale.
All employees in the Reunert group
who currently do not participate in
any other share incentive scheme will
be awarded 100 Reunert shares
which will be held in a trust for
a period of 5 years. The employees
will only be able to sell the shares
after 5 years, but have full rights
to receive all dividends declared
during the 5 year period. The resultant
charge to the Reunert group and related
deferred tax asset have been raised
on the difference between the fair
value of a Reunert share on 6 February 2007
(R83,90) and its cost price of 10
cents each. |
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| Note 4 |
| Taxation |
| The tax charge for
the year ended 30 September 2006 includes
Secondary Tax on Companies in respect
of the special dividend amounting
to R43,7 million (nil for six months
to 31 March 2007 and 31 March 2006). |
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| Note 5 |
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| Number of
shares used to calculate earnings
per share |
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| Weighted average
number of shares in issue used to
determine basic earnings per share,
headline earnings per share, normalised
basic earnings per share and normalised
headline earnings per share (millions
of shares) |
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176,5 |
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174,6 |
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175,1 |
| Adjusted by the
dilutive effect of: |
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| – Unexercised
share options granted (millions of
shares) |
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2,1 |
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2,4 |
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1,5 |
| – The notional
unemcumbered Reunert shares held by |
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| Bargenel (millions
of shares)* |
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4,5 |
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—
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—
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| Weighted average
number of shares used to determine
diluted basic, normalised diluted
basic, diluted headline and normalised
diluted headline earnings per share
(millions of shares) |
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183,1 |
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177,0 |
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176,6 |
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| * |
The notional
unemcumbered Reunert shares
represent the number (based
on the period end share price)
of the 18,5 million treasury
shares held by Bargenel that
could be settled out of the
period end equity value of Bargenel
(note 3). |
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| Note 6.1 |
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| Headline
earnings |
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| Headline earnings
are determined by eliminating the
effect of the following items in attributable
earnings: |
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| (Loss)/Profit attributable
to equity holders of Reunert Limited |
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(77,2) |
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408,8 |
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922,8 |
| Surplus on sale
of investments |
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—
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(3,3) |
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(5,0) |
| (Surplus)/loss on
disposal of property, plant and equipment |
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(36,1) |
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0,3 |
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(2,6) |
| Impairment of goodwill |
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—
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—
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3,4 |
| Taxation |
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(4,1) |
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0,5 |
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—
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| Headline (loss)/earnings |
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(117,4) |
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406,3 |
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918,6 |
| Note 6.2 |
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| Normalised
earnings |
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| Normalised earnings
are determined by deducting from attributable
earnings the interest in profit that
is economically attributable to BEE
partners (note 11),
the costs associated with the BEE
deal (note 3) and
the issue of Reunert shares to group
employees (note 3): |
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| (Loss)/Profit attributable
to equity holders of Reunert Limited |
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(77,2) |
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408,8 |
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922,8 |
| Interest in profit
that is economically attributable
to BEE partners |
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(32,0) |
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(18,4) |
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(51,4) |
| BEE shares charge |
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556,6 |
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—
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—
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| Employee shares
charge |
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50,3 |
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—
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—
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| Deferred tax on
employee shares charge |
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(11,4) |
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—
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—
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| Normalised earnings
(basic and diluted) |
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486,3 |
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390,4 |
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871,4 |
| Normalised headline
earnings are determined by deducting
from headline earnings the interest
in profit that is economically attributable
to BEE partners (note
11), the costs associated with
the BEE deal (note 3)
and the issue of Reunert shares to
group employees (note
3): |
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| Headline (loss)/earnings |
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(117,4) |
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406,3 |
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918,6 |
| Interest in profit
that is economically attributable
to BEE partners |
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(22,2) |
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(18,4) |
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(51,4) |
| BEE shares charge |
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556,6 |
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—
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—
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| Employee shares
charge |
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50,3 |
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—
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—
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| Deferred tax on
employee shares charge |
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(11,4) |
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—
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—
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| Normalised headline
earnings (basic and diluted) |
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455,9 |
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387,9 |
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867,2 |
| Note 7 |
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| Goodwill |
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| Carrying value at
the beginning of the period |
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326,8 |
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329,0 |
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329,0 |
| Acquisitions of
businesses, associates and subsidiaries |
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10,1 |
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0,8 |
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1,2 |
| Impairments |
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—
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—
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(3,4) |
| Carrying value
at the end of the period |
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336,9 |
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329,8 |
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326,8 |
| Note 8 |
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| Investments
and loans |
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|
Unlisted associate
company – at cost excluding
goodwill plus equity
accounted earnings |
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190,4 |
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92,1 |
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126,0 |
| Other unlisted investments
– at cost |
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7,1 |
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0,7 |
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0,3 |
| Loans –
at cost |
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13,8 |
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14,0 |
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22,5 |
| Total carrying
values |
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211,3 |
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106,8 |
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148,8 |
| Directors' valuation
of unlisted investments |
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| – Unlisted
associate company |
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520,0 |
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520,0 |
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520,0 |
| – Other
unlisted investments |
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7,1 |
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0,7 |
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0,3 |
| Note 9 |
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| Long-term
borrowings |
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| Total long-term
borrowing |
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107,7 |
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122,9 |
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115,5 |
| Less: Short-term
portion |
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(15,8) |
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(14,9) |
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(15,2) |
| |
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91,9 |
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108,0 |
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100,3 |
| Loan repaid by BEE
partner |
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22,3 |
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7,1 |
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14,5 |
| Total finance leases |
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0,4 |
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1,0 |
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0,4 |
| Less: Short-term
portion |
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(0,2) |
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(0,7) |
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(0,2) |
| |
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114,4 |
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115,4 |
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115,0 |
|
The group entered
into an agreement with Powerhouse
Utilities (Pty) Ltd (Powerhouse) whereby,
on 1 December 2004, 25,1% of
the shares of ATC (Pty) Ltd (ATC)
were sold to Powerhouse at a cost
of R130 million. IFRS requires that
this transaction is not accounted
for as a sale, since the bank loan
has not been fully paid by Powerhouse
and conditions are attached to the
unpaid portion, notwithstanding that
the economic reality of this transaction
is in fact a sale. The long-term borrowing
relates to funding provided by Nedbank
Limited (Nedbank) to Powerhouse for
their purchase of 25,1% of ATC. The
loan is guaranteed by Reunert and,
in terms of current accounting practices
for this transaction, is recognised
on the balance sheet.
Repayment of the loan by the BEE partner
represents a portion of dividends
paid by ATC to Powerhouse, which have
been used to repay part of the loan
from Nedbank to Powerhouse. In terms
of current accounting practice for
this transaction, this is to be reflected
as a long-term liability on the balance
sheet. When the significant risks
and rewards of ownership in the equity
of ATC are deemed to have passed to
the BEE partner, then this portion
of the loan repaid by Powerhouse will
be transferred to minority interest. |
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| Note 10 |
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| Group cash
resources/borrowings |
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| Total RC&C Finance
Company borrowings at end of the period |
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1
469,0 |
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1
096,0 |
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1
254,3 |
| Less: Funded out
of other Reunert cash resources (see
below) |
|
(271,0) |
|
|
—
|
|
|
(66,4) |
| RC&C Finance
Company bank borrowings at end of
the period |
|
1
198,0 |
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1
096,0 |
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|
1
187,9 |
| Total Reunert net
cash resources at end of the period |
|
343,5 |
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676,4 |
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|
1
024,1 |
| Less: Utilised
to fund RC&C Finance Company (see
above) |
|
(271,0) |
|
|
—
|
|
|
(66,4) |
| |
|
72,5 |
|
|
676,4 |
|
|
957,7 |
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| Note 11 |
| BEE transactions |
| As referred to in
note 9 certain BEE
transactions involving the disposal
of equity interests have not been
recognised because the significant
risks and rewards of ownership of
the equity has been deemed not to
have passed to the BEE partners. Accordingly, the
equity interests in subsidiaries have
not been recognised in the group income
statement and balance sheet. |
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| The effect of this
has been to not recognise the following: |
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– Interest
in current period profit that is economically
attributable to
BEE partners |
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|
32,0 |
|
|
18,4 |
|
|
51,4 |
| – Balance
sheet interest that is economically
attributable to BEE partners |
|
|
122,7 |
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|
88,7 |
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|
106,3 |
|
| Note 12 |
| Basis of
preparation |
These condensed
interim group financial statements
have been prepared in terms of IAS
34 "Interim Financial Reporting"
as well as in compliance with International
Financial Reporting Standards (IFRS)
and International Financial Reporting
Interpretations Committee (IFRIC)
Interpretations, the Companies Act
of South Africa, Act 61 of 1973, as
amended and the Listing Requirements
of the JSE Limited.
The group's accounting policies as
set out in the audited annual financial
statements for the year ended 30 September
2006 have been consistently applied.
These condensed interim financial
statements have not been reviewed
or audited by the group's auditors. |
| Note 13 |
| Unconsolidated
subsidiary |
| The financial
results of Cafca Limited, a subsidiary
incorporated in Zimbabwe, have not
been consolidated in the group results
as the directors believe there is
a lack of control as defined in IAS
27 "Consolidated and Separate
Financial Statements", and the
amounts involved are not material. |
| Note 14 |
| Corporate
activity |
A new joint venture,
CBI-Electric Aberdare ATC Telecom
Cables (Pty) Ltd, was started between
the telecom cable divisions of ATC
and Aberdare Cables (Pty) Ltd (Aberdare),
each holding a 50% share in the joint
venture. ATC contributed all its property,
plant and equipment (PPE) (R114 million)
and intangible assets (R9 million)
to the value of R123 million. Aberdare
has also contributed PPE (R106,2 million),
intangible assets (R3,3 million) and
cash (R13,5 million) to the value
of R123 million. The balance sheet
and income statement of the joint
venture have been proportionately
consolidated from the effective date
(1 February 2007). |
| Note 15 |
| Subsequent
event |
| Reunert has entered
into an agreement, with an effective
date of 1 May 2007, whereby RC&C
Finance Company (Pty) Ltd (RC&C)
has been sold to Quince Capital Holdings
Ltd (Quince Capital) at a value of
R375 million in exchange for a 49,9%
share in Quince Capital. The consortium
led by PSG Group Limited (PSG) will
subscribe for the balance of the shares
in Quince Capital by contributing
cash to the value of R379 million.
This transaction will result in Reunert
recognising a profit on sale of RC&C
of approximately R226 million. Quince
Capital will be regarded as an associate
company and its results will be equity
accounted in Reunert's group results.
Quince Capital has been granted a
bridging bank loan facility amounting
to R1,4billion and a securitisation
facility of R5 billion. The bridging
facility will lapse once the securitisation
has been completed. Reunert has provided
a guarantee to the bank for the bridging
finance. |
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