Commentary

Reunert, with its strong brands, diversified customer bases and quality value offerings, delivered a solid performance in the financial year, despite the challenges in the current South African macro-economic environment. The economic growth rates achieved by the South African economy have slowed materially from those forecast for 2015 and are not expected to improve in the medium term.

Revenue and operating profit as well as earnings per share metrics are presented in the
table below.

Measure

Units

2015

2014

%

Revenue

R million

8 300

7 774

7

Operating profit

R million

1 167

1 017

15

Continuing operations

Basic earnings per share

cents

579

235

146

Headline earnings per share

cents

576

391

47

Normalised headline earnings per share

cents

568

439

29

All operations

Basic earnings per share*

cents

604

1 202

(50)

Headline earnings per share

cents

588

506

16

Normalised headline earnings per share

cents

580

553

5

*

As a consequence of the disposal of Nashua Mobile and the non-recurring nature of the 2014 profit on the sale of its subscriber bases, basic earnings per share from all operations decreased by 50% to 604 cents.

Review of operations

Electrical engineering – CBI-electric

The CBI-electric segment delivered a substantially improved performance, with revenue increasing by 14% to R4,1 billion (2014: R3,6 billion) and operating profit by 21% from R428 million to R520 million. This strong performance was driven primarily by the energy and telecommunication cables business units, which maintained strong cost control while benefiting from improved factory utilisation. These drivers resulted in improved profit margins, which further underpinned the financial performance of this segment.

In addition, the cable business units improved their respective market shares. Crucial long-term contracts were secured primarily in the industrial, state-owned entities and mining sectors. These successes position the businesses well for the future when the general market conditions are expected to tighten.

The circuit breaker business unit had a challenging year. Product sales performed well but the contribution from the solutions business unit was disappointing. Product volumes into South Africa were strong, while export volumes remained in line with the previous year.

Cost management and asset utilisation across the spectrum of these business units continued strongly in the year under review.

Information communications technology – Nashua

The Nashua segment delivered solid progress with some significant improvements primarily in the voice businesses. Although revenue was flat, operating profit net of the discontinued operation increased by 17% from R453 million to R533 million. This was achieved through a careful evaluation of the whole supply chain and realising savings in our distribution and general overhead costs.

The sale of Nashua Mobile (telecommunication operation) was successfully concluded in the first quarter of the financial year and the management team at Office Automation was strengthened by the deployment of key Mobile team members. This provided stability and accelerated the implementation of key deliverables during the year.

In line with the improved office automation market share, the asset finance business, Quince Capital, delivered another sound performance. Credit losses remain well below industry standards and the company re-secured its A+ (ZA) long-term and A1 (ZA) short-term national credit rating for 2016.

The segment’s voice businesses had a successful year with ECN breaking through the one billion voice minutes per year mark and entrenching its position as the largest independent Voice over Internet Protocol solution provider in the country. Nashua Communications, now managed by Reutech, delivered a positive performance underpinned by strong service revenues.

Applied electronics – Reutech

This segment is characterised by large contracts which take several years to conclude, with delivery extending over future years. The results of the Reutech segment are therefore largely dependent on where in the cycle its various existing and expected contracts are. Against this backdrop, this segment has increased its revenue by 8% to R1,1 billion (2014: R1,0 billion) and operating profit by 6% to R181 million (2014: R170 million). Reutech delivered a good result despite a slowdown in the communications and radar business units.

The timing of new contracts received by this segment did not fully compensate for contracts completed in the 2014 financial year. However, contracts secured during 2015 provide a strong revenue base for the year ahead. The radar business’ mining surveillance radar performance remains strong. Communications secured the long-term South African National Defence Force (SANDF) tactical communications contract and products from the new factory will commence delivery in the next financial year. A large fuze order was received and resulted in full factory capacity utilisation during the second six months of the financial year, and the weaker rand supported the segmental result.

Human capital

Reunert has re-energised its investment into employees and in meeting transformation objectives. As a direct result, the top management employment equity demographic increased by more than 50% and showed significant improvement in all management classifications. The new B-BBEE codes present additional challenges, but the work to retain appropriate ratings is well advanced.

Prospects

The business drivers of the group’s performance continue to be challenged by Reunert’s strong concentration in the South African market. Accordingly, the future growth prospects of the group are likely to be constrained by the domestic macro-economic environment. The group’s future prospects are augmented by recently secured long-term contracts, specifically in applied electronics. These revenues, with a strong, hard currency exposure, are expected to bolster operational performance. Reunert’s strengthened financial position and significant capacity to leverage its balance sheet, positions it well to execute its growth strategy.

The financial information on which the above prospects is based has not been reviewed or reported on by the company’s external auditors.

Directorate

Ms Mohini Moodley and Mr Nick Thomson, were appointed to the board as executive directors on 31 March 2015 and 15 June 2015, respectively. Mohini was appointed in the portfolio of human resources and transformation and Nick as chief financial officer.

Ms Phuti Mahanyele was appointed to the board as an independent non-executive director on 1 October 2015.

Ms Manuela Krog retired from the board as chief financial officer on 31 March 2015. The board and the executive committee thank her for the valuable and extensive contribution she made to Reunert during her tenure.

Cash dividend

Notice is hereby given that a gross final cash dividend No 179 of 302 cents per ordinary share (2014: 275 cents per share) has been declared by the directors for the year ended 30 September 2015.

The dividend has been declared from income reserves.

A dividend withholding tax of 15% will be applicable to all shareholders who are not exempt from, or who do not qualify for, a reduced rate of withholding tax. The net dividend payable to shareholders subject to withholding tax at a rate of 15% thus amounts to 256,70 cents per share.

The issued share capital at the declaration date is 183 531 596 ordinary shares. Reunert’s income taxation reference number is 9100/101/71/7P.

In compliance with the requirements of Strate, the following dates are applicable:

Last date to trade (cum dividend) Friday, 8 January 2016
First date of trading (ex dividend) Monday, 11 January 2016
Record date Friday, 15 January 2016
Payment date Monday, 18 January 2016

 

Shareholders may not dematerialise or rematerialise their share certificates between Monday, 11 January 2016 and Friday, 15 January 2016, both days inclusive.

On behalf of the board

Trevor Munday
Alan Dickson
Nick Thomson

Chairman

Chief Executive

Chief Financial Officer

 

Sandton
20 November 2015