Financial director’s report


Financial director: David Rawlinson    
  The ongoing spend by Eskom at the Medupi and Khusile power stations, together with municipalities spending on electrical network upgrades, will benefit the group over the next few years.

Revenue and operating profit increased despite the effects of the economic downturn. Revenue rose by 4% to R10,7 billion, while operating profits increased by 7% to R1,2 billion.

Normalised headline earnings

The group has disclosed normalised headline earnings per share for a number of years to provide shareholders and other users of these financial statements with the group’s sustainable earnings. These numbers are comparable with prior years.

Adjustments made to normalised earnings in 2009 reduced headline earnings by R271,5 million. These reductions included the value of the NSN put option of R299 million and the BEE minority interest of R10 million, adjusted for tax.

In 2010, the adjustments made increased headline earnings by R18,2 million. The R34 million non-cash charge for the Reutech empowerment deal was reversed. The other side of this charge is a credit to equity, leaving shareholders’ funds intact. The BEE minority interest charge was also taken into account in calculating normalised headline earnings.



Given the strong cash-generating ability of Reunert, the progressive and generous dividend policy has continued. Dividend cover is based on normalised earnings, to preclude dividends being paid on non-cash accounting income.

Cash flow

Cash flow excluding dividends and share buybacks

Reunert’s profit is underpinned by strong cash flow. This year, cash flow was less than in prior years due to the acquisition of the remaining 60% of Nashua Communications and buyback of Reunert shares.

The cash flow for Quince (formerly RC&C Finance Company) has been excluded from cash flow figures as finance is raised on the rental debtors’ book. Currently the cash accumulated in the group is deposited with Quince for most of the financial year. This policy results in the group achieving retail interest rates for its cash. The group’s exposure to Quince in the past has been limited, but the global financial crisis has resulted in providers of capital requiring Reunert to underwrite certain borrowings.

Quince accounts receivable   1 468,0   1 703,3  
Quince long-term borrowings   (699,9)  (699,9) 
Quince short-term borrowings   (691,5)  (1 012,3) 
Cash   72,5   97,6  
Total Quince borrowings   (1 318,9)  (1 614,6) 

A conscious decision was taken to improve the quality and reduce the size of the rental book.

Cash accumulation

Despite the acquisition of Nashua Communications and the share buyback, cash is being accumulated. The share buyback programme will continue after the release of Reunert’s results in November.

Risk review

Global economy

The challenging economic conditions are expected to continue. The strength of the rand is impacting negatively on margins we are able to achieve in export markets. We anticipate rand strength remaining an issue while global markets continue to be stimulated by monetary interventions. The rise in commodity prices and lower interest rates will  have a positive impact on the economy.

Exchange rates

Our financial year began in October 2009 at a dollar exchange rate of R7,55. The rand then weakened to around R7,95 and ended the year at R6,94 – a spread of more than 14%.

All imports are covered with foreign exchange contracts. Significant exports are covered on an individual basis.


The local economy has benefited from the large number of infrastructure projects. A significant number of these were completed for the 2010 FIFA Soccer World Cup™. The ongoing spend by Eskom at the Medupi and Khusile power stations, together with municipalities spending on electrical network upgrades, will benefit the group over the next few years.

Corporate activity

Reunert acquisitions in the financial year totalled R180 million to purchase the remaining 60% of Nashua Communications to expand its capability in the telecommuni-cations industry.


The following capital expenditure was incurred for property, plant and equipment:

Expansion   111,0   34,7  
Replacement   37,9   52,4  
  148,9   87,1  

Shareholders’ statistics

Reunert shares continued to trade actively on the JSE in the past year. The total value of shares traded was R7,6 billion, resulting in 69% of the market capitalisation of the company being traded during the year. Some 134,4 million shares were traded in over 85 000 transactions.

Fund managers and investors have an active interest in the group, mainly due to its exposure to infrastructure spending through its electrical operations.

The majority of shares are held by pension funds, unit trusts and mutual funds. On 30 September 2010, the offshore shareholding was 16,%, with USA, the UK and European shareholders accounting for 12,5%.

In summary

Reunert has large market shares in the segments in which it operates. Growth in recent years has mostly been organic, with smaller bolt-on acquisitions adding products and services to existing operations.

Reunert has improved its cost structure and will continue to control these costs and improve working capital in the next financial period.

David Rawlinson

Financial director

16 November 2010