Financial director's report



This report is intended to provide additional insight on matters of a financial nature that are not dealt with comprehensively elsewhere in the integrated report.

Effective tax rate reduced by 5,2 percentage points to
Operating profit increased by 10% from R1 264 million to
R1 391m
Operating cash flows of
Normalised headline earnings per share increased by 14% from 516cps to


Financial performance

The prolonged tough economic environment has proved to be challenging, with revenue increasing modestly to R10,9 billion from R10,7 billion. However, a focus on efficiencies and certain cost reductions have allowed for a respectable increase in operating profit from R1,3 billion to R1,4 billion.

Normalised headline earnings

Normalised headline earnings are used by the group as an indicator of its sustainable earnings. The basis for computation thereof is consistent from year to year.

The adjustment made to headline earnings to arrive at normalised headline earnings was R13,8 million. This adjustment relates to the imputed minority share of profits earned by our BEE minority shareholders, where, in terms of IFRS the risks and rewards of ownership related to these shares has not been transferred, resulting in a full consolidation of profits by the Reunert group.


Reunert exhibits strong cash generating abilities and, as a result, the group is able to continue with its progressive and generous dividend policy. As is consistent with prior years, dividend cover is based on normalised earnings.


Cash flow

Reunert’s efficient asset base, combined with strong operations, result in reported profits being underpinned by strong cash flows.

Our closing cash balance is reduced in the current year due to the R1,1 billion used to repurchase shares through a voluntary share buyback, as well as the fact that internal cash resources were used to fund the Quince asset rental book. In the main, this is reflected through the R700 million repayment of securitised borrowings.

Furthermore, net cash of R214 million was utilised for acquisitions.

Investment of surplus cash in Quince asset rental book

Under conventional models, the Quince asset rental book would be financed by external long-term borrowings. However, given that the group currently has cash balances surplus to its working capital requirements, the investment of this surplus in the Quince Capital book provides the most favourable return on the cash balances at the present time.

It is not our long-term intention to fund the book internally and the group executive is currently evaluating various options that would result in the effective utilisation of the available cash. At the financial year-end R1 126,9 million has been utilised by Quince Capital to fund its book.

Corporate activity

The group engaged in a fair level of corporate activity this year, with the acquisitions made being in line with the 2011 strategy. All acquisitions were funded using cash resources within the group.

Acquisition of Nashua franchises

With effect from 1 November 2010 Nashua Holdings purchased 51% of the Nashua Tygerberg and Nashua Paarl and West Coast franchises for R10,6 million and R7,1 million, respectively.

With effect from 1 May 2011 the business and net assets of Nashua Durban were purchased by Nashua Holdings for R48,9 million. In terms of the purchase agreement the vendor will be paid the balance of R47,8 million six months after the acquisition date.

With effect from 1 June 2011 the business and net assets of Nashua Cape Town were purchased by Nashua Holdings for R67,0 million. In terms of the purchase agreement with the vendor, the balance of R41,1 million is payable six months after the acquisition date.

Acquisition of ECN

With effect from 1 June 2011 Reunert purchased the business and net assets of ECN for R171,9 million.

Key financial risks

Global economy

We expect that the economic conditions will continue to be challenging in the short to medium term. As such, our businesses are expected to remain under pressure in terms of their levels of activity and profitability.

Exchange rates and commodity price movements

Commodity price volatility and currency risks are two of the most significant financial risks that are faced by the group. In the current year we have seen continued buoyancy in commodity prices and then a significant weakening in the rand against all major currencies towards the end of the financial year.

To this end, the group actively monitors its exchange risk and commodity price risk on an on-going basis. Forward cover is taken on foreign exchange exposures by factoring in the impact of natural hedges that exist within the operations. Overall, the management of the exposure is based on price sensitivity, competitor practices, rand parity estimates, volatility and timing.

Potential exposures arising from exports are actively managed on a day-to-day basis. Advance payments are utilised to purchase materials for export orders and the balance is held in CFC accounts. Cover is taken in the form of forward exchange contracts, zero cost collars, or currency options, where such cover is deemed appropriate.

Our largest exposure to commodity price risk exists within African Cables, where copper is a significant input cost. Supply contracts with customers in the formal sector, such as Eskom and the municipalities provide for the cost of copper to be passed onto the customer. However, in respect of other customers, the group is exposed to movements in the commodity price. In certain instances, where the supply contract stipulates a fixed price, commodity futures are purchased to match the terms of the contract.

Shareholders’ statistics

Reunert shares continued to trade actively on the JSE in the past year. The total value of shares traded was R6,6 billion, resulting in 53,4% of the market capitalisation of the company being traded during the year. Some 106,5 million shares were traded in over 99 000 transactions.

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

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Adequacy of the finance function

The group performs a financial review of the adequacy of the finance function each year. From this review we are confident that the finance function is adequately staffed with an appropriate level of experience. No key weaknesses were identified in the current year, but those housekeeping items that require attention will be resolved.

Going concern assumption

The board has formally considered the going concern assumption for the Reunert group and is of the opinion that it is appropriate for the forthcoming year.

Manuela Krog
Financial director
14 November 2011