Unaudited Interim Financial Report and Cash Dividend Declaration for the 6 months ended 31 March 2016

Notes

1.

Basis of preparation

These preliminary summarised consolidated financial statements were prepared in accordance with the framework concepts and the recognition and measurement criteria of IFRS and its interpretations adopted by the International Accounting Standards Boards (IASB) in issue and effective for the group at 30 September 2016 and the SAICA Financial Reporting Guides, as issued by the Accounting Practices Committee and Financial Reporting pronouncements as issued by the Financial Reporting Standards Council. This summarised consolidated information was prepared using, at a minimum, the information as required by IAS 34 – Interim Financial Reporting, and complies with the Listings Requirements of the JSE Limited and the requirements of the Companies Act, 71 of 2008, of South Africa. This report was compiled under the supervision of N A Thomson CA(SA) (chief financial officer).


The group’s accounting policies, as per the audited financial statements for the year ended 30 September 2016, were consistently applied with those used in the prior year financial statements. These accounting policies comply with IFRS.

Audited
R million 2016 2015

2.

Operating profit

Operating profit includes:
– Cost of sales 5 402 5 416
– Other expenses excluding depreciation and amortisation 1 731 1 652
– Other income 45 31
– Realised gain/(loss) on foreign exchange and derivative instruments 26 (13)
– Unrealised (loss)/gain on foreign exchange and derivative instruments (16) 34

3.

Net interest income and dividends

Interest income and dividends* 164 150
Interest expense (27) (16)
Other 1
Total 137 135

4.

Empowerment transactions

Share-based payment charges** 113
Taxation thereon
Net empowerment transactions after taxation 113

* Includes dividends of R8 million (2015: Rnil).

** This represents IFRS 2 (Share-based Payment) charges as a result of the introduction of empowerment partners in the Electrical Engineering and Applied Electronics segment.

5.

Number of shares used to calculate earnings per share

Weighted average number of shares in issue used to determine basic earnings, headline earnings and normalised headline earnings per share (millions of shares) 165 165
Adjusted by the dilutive effect of unexercised share options granted (millions of shares) 2 2
Weighted average number of shares used to determine diluted basic, headline and normalised headline earnings per share (millions of shares) 167 167

6.

Headline earnings

6.1

Profit attributable to equity holders of Reunert from continuing operations

954 952
Headline earnings are determined by eliminating the effect of the following items from attributable earnings:
Net gain on disposal of property, plant and equipment (after a tax charge of R2 million and non-controlling interest (NCI) portion of Rnil) (2015: R1 million) (20) (4)
Impairment of intangible asset (after a tax credit of R3 million and NCI portion of R2 million) (2015: after tax charge and NCI of Rnil) 8
Headline earnings from continuing operations 942 948
Headline earnings from discontinued operation 20

Headline earnings

942 968

6.2

Normalised headline earnings#

Headline earnings from continuing operations 942 948
Normalised headline earnings are determined by eliminating the effect of the following items from attributable headline earnings:
Recurring IFRS 2 charges on BBBEE deals undertaken in the current year (after tax charge and NCI portion of Rnil) 113
Merger and acquisition costs relating to current transactions (after tax charge and NCI portion of Rnil) 39
Net economic interest in profit attributable to non-controlling interests with outstanding equity-related loan accounts. These are not recognised as significant risks and rewards of ownership have not passed to the non-controlling shareholders. –* (13)
Normalised headline earnings from continuing operations 1 094 935
Headline earnings attributable to equity holders of Reunert from discontinued operation 20
Normalised headline earnings 1 094 955

# The pro forma financial information above has been prepared for illustrative purposes only to provide information on how the normalised earnings adjustments might have impacted the financial results of the group. Because of its nature, the pro forma financial information may not be a fair reflection of the group’s results of operation, financial position, changes in equity or cash flows.

The summarised pro forma financial effects have been prepared in a manner consistent in all respects with IFRS, the accounting policies adopted by Reunert Limited as at 30 September 2016, the revised SAICA guide on pro forma financial information, and the Listings Requirements of the JSE.

There are no post balance sheet events which require adjustment to the pro forma financial information.

The directors are responsible for compiling the pro forma financial information on the basis of the applicable criteria specified in the JSE Listings Requirements.

The pro forma financial information should be read in conjunction with the unmodified Deloitte & Touche independent reporting accountants’ reasonable assurance report thereon, which is available for inspection at the company’s registered office.

* This adjustment is not required in 2016 as Reunert bought back the non-controlling interests during the year.

7.

Goodwill

Carrying value at the beginning of the year 653 649
Acquisition of businesses1 90 13
Disposals of businesses and subsidiaries (6)
Exchange differences on consolidation of foreign subsidiaries (6) (3)
Carrying value at the end of the year 737 653

8.

Investments and loans

Loans – at cost 37 81
Investment in insurance cells – at fair value 16 14
Carrying value at the end of the year 53 95

9.

Fair value classification and measurement

At the balance sheet date, the only financial instruments that the group held at fair value were:
Derivative assets 15 22
Derivative liabilities 6 7
These were classified as Level 2 instruments in the fair value hierarchy and comprise forward exchange contracts and interest rate swaps. The fair value of these derivative financial instruments is calculated using a discounted cash flow model, with the major variables being the discount rate, the spot exchange rate and prevailing interest rates.
The calculations were performed by major financial institutions.    

10.

Long-term borrowings

Total long-term borrowings (including finance leases)2 272 440
Less: short-term portion (including finance leases) (229) (201)
  43 239

1At 30 September 2016, the purchase price allocation of the acquisitions made in 2016 were not yet finalised and therefore the amounts reported are provisional and subject to change.

2These borrowings include R200 million (2015: R400 million) in respect of the Quince rental book, which is repayable in May 2017 (2015: R200 million).

11.

Acquisition of businesses

During the current year, the following entities were acquired by the group:
– Metal Fabricators of Zambia Plc: With effect from 26 August 2016, 74,39% of the share capital of Metal Fabricators of Zambia Plc (Zamefa) was purchased by Reunert International Investments (Mauritius) Limited. The R40 million goodwill arising from this acquisition consists mostly of synergies expected to be realised with the group’s existing energy cable businesses and through the facilitation of Zambian copper procurement which is utilised extensively in cable production. 153
– Omnigo Proprietary Limited: With effect from 1 December 2015, 100% of the share capital of Omnigo Proprietary Limited was purchased by Reutech Proprietary Limited. In addition to the base purchase price, there is a further contingent purchase consideration estimated at a net present value of R51 million payable over three years subject to the achievement of pre-defined threshold targets. The R40 million in goodwill arising from the acquisition is attributable to the synergies from the vertical integration with the group’s other businesses in the Applied Electronics segment. 22
– Polybox Proprietary Limited: With effect from 1 October 2015, 51,12% of the share capital of Polybox Proprietary Limited was purchased by CBI Proprietary Limited. The R10 million in goodwill is attributable to the combination of the Polybox product in conjunction with CBI Low Voltage’s circuit breakers to provide a weather-proof solution to customers. 5
Cost of investment 180
Net borrowings at time of acquisition 282
Net cash flows on acquisition of businesses 462
Minority interest 32
  494
Gross assets acquired:
Deferred taxation 19
Property, plant and equipment and intangible assets 201
Inventory 151
Current accounts receivable 443
Non-current payables (12)
Payables and provisions (398)
Goodwill 90

Net assets acquired

494
Revenue since acquisition 439
Profit after taxation since acquisition 24
Revenue for the 12 months ended 30 September 2016, as though the acquisition dates had been 1 October 2015 1 881
Profit after taxation for the 12 months ended 30 September 2016 as though the acquisition dates had been 1 October 2015 111

12.

Unconsolidated subsidiary

The financial results of Cafca Limited (Cafca), a subsidiary incorporated in Zimbabwe, have not been consolidated into the group results, as the group does not exercise management control:
– Reunert has not appointed a majority of the directors to the board of directors of Cafca and therefore does not control the board; and
– The difficult economic circumstances in Zimbabwe have resulted in a major liquidity crisis, which renders Reunert’s access to economic benefits from Cafca (e.g. dividends) such that it does not have the ability to affect its variable returns through its powers over Cafca.
The amounts involved are not material to the group’s results. At 30 September 2016 Cafca’s share capital and reserves amounted to US$15 million.
 

13.

Related party transactions

Counterparty Rm
Relationship
Sales
Purchases
Treasury shares
All related-party transactions, trading accounts and loan balances are on the same terms and conditions as those with non-related parties.

September 2016

       
CBI-electric: Telecom Cables Proprietary Limited A joint venture 1
Bargenel Investments Proprietary Limited Owns 18,5m Reunert shares 276

September 2015

       
CBI-electric: Telecom Cables Proprietary Limited A joint venture 2
Bargenel Investments Proprietary Limited Owns 18,5m Reunert shares 276

14.

Litigation

There is no material litigation being undertaken against the group. The group has made adequate provision against any cases where the group considers there are reasonable prospects for the litigation to succeed. The group has adequate resources and good grounds to defend any litigation of which it is aware.

15.

Events after reporting date

Effective from 1 October 2016, the group acquired all the issued share capital and shareholder loans in Nanoteq Proprietary Limited, a company specialising in military grade encryption. The company was purchased for a total cash consideration of R130 million and will form part of the Applied Electronics segment.

16.

Audit opinion

These summarised consolidated financial statements were derived from the consolidated financial statements and are consistent in all material respects with the group’s consolidated financial statements. The directors take full responsibility for the preparation of the summarised consolidated financial statements. The auditors, Deloitte & Touche, have issued unmodified audit opinions on the consolidated financial statements and on these summarised consolidated financial statements for the year ended 30 September 2016, and the audit opinions and consolidated financial statements are available for inspection at Reunert’s registered office. The audit was conducted in accordance with the International Standards on Auditing. The auditor’s report does not necessarily report on all information contained in this announcement. Shareholders are, therefore, advised that in order to obtain a full understanding of the nature of the auditor’s engagement, they should obtain a copy of that report together with the accompanying financial information from Reunert’s registered office. Any reference to future performance included in this announcement has not been reviewed or reported on by the auditors.