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Notice of annual general meeting - PDF 106kb
Martin Shaw, Chairman   Gerrit Pretorius, Chief executive
Operating profit increased by 39% to almost R1,3 billion. A further improvement in
the EBITDA margin to 16,2% was achieved largely as a result of revenue increasing
by 17% to R8,2 billion, while increases in fixed costs were contained.
Dear Shareholder

Reunert performed well during the year to 30 September 2006 , exceeding R900 million in attributable earnings and being recognised as one of the top 40 shares on the JSE Limited after being included in the ALSI 40 Index. This milestone achievement reflects the increase in market capitalisation from R7,4 billion a year ago to R12,0 billion at 30 September 2006 .

Operating profit increased by 39% to almost R1,3 billion. A further improvement in the EBITDA margin to 16,2% was achieved largely as a result of revenue increasing by 17% to R8,2 billion, while increases in fixed costs were contained. Revenue grew despite deflationary pressures brought on by the stronger rand and a continuing decline of prices of electronic goods during the period.

For the past few years Reunert has consistently produced strong cash flows. A final dividend of 210 cents per share has been declared, resulting in a total dividend of 273 cents for the year – up 23% from 222 cents per share last year. In addition, a special dividend of R2 per share will be paid to shareholders on 18 December 2006 . Since 1999 your company has returned over R1,6 billion to shareholders by way of special dividends and share buybacks. It is our policy to return all capital deemed surplus to foreseeable requirements to shareholders. Return on equity in 2006 was 57% and 54% in 2005.

Capital expenditure grew from R60 million last year to R194 million this year, while the level of capital commitment for next year also increased. Significant capacity was added to CBi-electric, enabling us to meet the anticipated increase in demand for products produced by our electrical engineering division. State-of-the-art equipment is being installed at the low-voltage plant in Elandsfontein and at the power cable factory in Vereeniging, leading to much-improved efficiencies. In some instances, lines are running at four times their previous speeds.

The consolidation of our electrical businesses under one brand, CBi-electric, was completed during the review period and successfully launched during six customer events countrywide in June. A final step in that process is the promotion of Helmuth Fischer, currently managing director of CBi-electric: low voltage, to divisional chief executive effective 1 January 2007 , with overall responsibility for electrical engineering. Chris Oliver will take over as managing director of the low-voltage division. We are pleased Reunert has the necessary depth in management to fill vacancies internally.

CBi-electric: telecom cables (ATC) made an offer to acquire the assets of Aberdare’s telecom cable business in exchange for half the shares in a new company to be named CBi-electric Aberdare-ATC telecom cables. The new entity will be a 50/50 joint venture between Reunert and the Altron group and is subject to Competition Commission approval. Located at Brits in North-West province, the new company will be run by the existing management team headed by managing director, Koos Vorster. The to-be- acquired Aberdare capacity will enable us to meet anticipated strong demand for both copper and fibre optic telecommunication cables in Africa .

On the black economic empowerment front, agreement was reached, subject to shareholder approval, to introduce a strategic BEE shareholding at holding company level. Treasury shares held by Reunert investment company, Bargenel, will be used to facilitate the BEE partners’ transaction.

Our intention is to create a broad-based, sustainable empowerment transaction through which a large group of previously disadvantaged individuals can benefit. Peotona founding members Cheryl Carolus, Dolly Mokgatle, Thandi Orleyn and Wendy Lucas-Bull, will receive 30% of the shares, while the Rebatona Educational Trust will hold 70% of the shares. The Trust will provide further education and training to black youth in Mathematics, Science, English and Accountancy and will build on the success of the Reunert College .

The Bargenel shares were acquired between 1999 and 2004 at an average price of R14,79. Peotona and the Rebatona Educational Trust will pay R60,13 per share for 18,5 million shares (representing approximately 9,5% of Reunert’s share capital), amounting to a transaction value of R1,112 million. Preference shares, yielding 71% of the prime overdraft rate, will be issued to Reunert to fund the transaction. Full details are disclosed in a circular distributed with this annual report.

Peotona is highly regarded and we are confident this relationship will be mutually beneficial. Thandi Orleyn will, subject to shareholder approval, be appointed to the board of Reunert and we look forward to her contribution.

As part of the empowerment transaction, we are proposing to grant 100 Reunert shares to every employee, excluding existing option holders. These shares will vest after five years, after which employees will be free to deal with their shares as they wish. This token of appreciation recognises the contributions made to Reunert’s success by our employees at all levels.
Peotona is highly regarded and we are confident this relationship will be mutually
The formation of a new finance business, Quince Capital, in which Reunert will hold 49,9% and the PSG Group 39,9%, was announced just after year-end. This transaction is still subject to the fulfilment of a suspensive condition.

Quince Capital should begin business early in 2007 once the suspensive condition has been met. The new company will have an initial capital base of R500 million. Michiel le Roux, co-founder of listed Capitec Bank, subscribed for 6,7% of the share capital and will be the first chairman. The remaining shares will be held by individuals involved in the business. Johan du Preez has been appointed chief executive officer.

We are continually alert to potential acquisitions. Our criteria, however, are stringent. Our existing operations present good growth opportunities and we will capitalise on these by spending on systems, capacity and people. An entrepreneurial spirit is encouraged and rewarded via our short-term and long-term incentive schemes.

Our attributable earnings are now close to the R1 billion mark – a significant base from which to continue growing at the rate we have done over the past few years. Management, however, is confident it will continue to deliver acceptable levels of sustainable growth.

The economic outlook for Reunert remains favourable despite increasing interest rates and a weakening currency. Although the consumer electronic business of Panasonic will, in all likelihood, be the business most affected by these factors, Reunert’s dependence on consumer electronics is relatively small. We do not believe any of our other businesses will suffer as a result of rising interest rates. A weakening rand is good for exports and should stand us in good stead.

Finally, we express our gratitude to our board, management and employees. Collectively, they form a cohesive unit that makes business at Reunert a pleasure.
G Pretorius   M J Shaw
Chief executive   Chairman
6 December 2006
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