A N N U A L   R E P O R T   –   2 0 0 3
Content
Highlights Accounting policies
Letter to shareholders Income statements
Board and governance structure Balance sheets
Group overview Cash flow statements
Building and developing people Notes to the cash flow statements
Corporate governance Statement of changes in equity
Value added statement Notes to the annual financial statements
Segmental analysis Principal subsidiaries
Five-year financial review Share ownership analysis
Summary of statistics Shareholders' diary
Definitions Corporate administration and information
Directors' responsibility Notice of annual general meeting
Report of the independent auditors Currency conversion table
Secretaries' certification Proxy form
Statutory information  

Notes to the annual financial statements
For the year ended 30 September 2003
GROUP COMPANY
2003 2002 2003 2002
Rm Rm Rm Rm

1. REVENUE
Revenue excludes revenue of associate companies
and includes export revenue of R519,2 million
(2002: R323,9 million) and interest received by
RC&C Finance Company (Pty) Limited of R196,8 million
(2002: R150,8 million).

2. OPERATING PROFIT IS STATED AFTER:
Administration, management and other fees 14,6 9,5 10,6 6,7

Auditors’ remuneration:
Audit fees 5,4 4,7 2,6 2,5
Other fees 1,5 0,6 0,1 0,2
Expenses 0,1 0,1

7,0 5,4 2,7 2,7

Depreciation:
Land and buildings 3,0 1,6 0,8 2,2
Plant and equipment 52,6 42,1 14,0 15,5
Vehicles 2,8 2,5 1,5 1,3

58,4 46,2 16,3 19,0

Rental income from investment properties
(included in revenue)
(1,3) (1,4)

Direct operating expenses arising from investment
properties that generated rental income
1,5 0,5
Direct operating expenses arising from investment
properties that did not generate rental income
0,8 0,4
0,1

Goodwill amortised 46,2 41,4 5,1 4,7

Net realised (losses)/gains on currency
exchange differences
(111,5) 6,2 (72,3)
3,3
Net unrealised gains on currency
exchange differences
8,8 4,9 11,0
3,2
Net realised (losses)/gains on fair value adjustments
to derivative instruments
(65,5) 4,2
Net unrealised losses on fair value adjustments
to derivative instruments
(49,5) (26,4)

(217,7) 11,1 (83,5) 6,5

Income from subsidiaries:
Fees 3,0 0,8
Rental (included in revenue) 4,2 4,6

7,2 5,4

Operating lease charges:
Land and buildings 19,7 15,8 10,8 8,8
Vehicles and other 0,6 1,7 1,1 1,6

20,3 17,5 11,9 10,4

Research and development expenditure:
Financed by revenue from customers 34,6 57,3 0,3
Not financed by revenue from customers 39,0 38,2 28,1 27,0

73,6 95,5 28,1 27,3

Net surplus on disposal of property,
plant and equipment
0,2 2,1 0,3 0,1

Staff costs:
Salaries and wages 582,5 462,6 113,0 97,8
Pension and provident fund contributions 52,6 41,8 6,8 5,5
Other staff costs 61,7 57,0 19,6 17,9

696,8 561,4 139,4 121,2

Number of employees 4 918 4 318 1 412 1 336

3. INTEREST AND DIVIDENDS RECEIVED
Dividends received:
– unlisted associate companies 108,4
– unlisted subsidiaries 253,1 42,7
– other 0,2 3,4

0,2 3,4 253,1 151,1
Interest received:
– subsidiaries 17,9 1,6
– associate companies 6,0 6,3
– RC&C Finance Company (Pty) Limited 51,8 23,0 0,5
– other 37,3 26,5 8,2 11,9

95,3 59,2 279,2 165,1

4. INTEREST PAID
Long-term liabilities 0,3 0,9
RC&C Finance Company (Pty) Limited 0,2
Short-term loans and bank overdrafts 49,8 21,8 11,2 13,7

50,1 22,7 11,4 13,7

Interest paid by RC&C Finance Company (Pty) Limited
included in cost of sales
147,6 89,9

5. ABNORMAL ITEMS
(Raising)/reversal of provision for losses in subsidiaries (9,7) 10,1
Group’s attributable share of the impairment
of fixed assets in an equity accounted associate
(18,7)

Gross abnormal items (18,7) (9,7) 10,1
Taxation

Net abnormal items (18,7) (9,7) 10,1

6. TAXATION
South African normal taxation:
Current 216,9 154,5 77,6 66,0
Deferred (2,7) 8,8 (0,6) (4,1)
Secondary tax on companies 23,5 15,2 5,1 12,0
Adjustment for prior years – current (24,0) (6,0) (22,3) 1,1
– STC 0,2
– deferred 10,4 4,6 (0,4) (0,1)

224,3 177,1 59,4 74,9

Reconciliation of rate of taxation % % % %

Apparent rate of taxation excluding abnormal items 34,4 34,9 11,8 21,5
Applicable to dividends received 0,2 15,1 13,0

Effective rate of taxation: 34,4 35,1 26,9 34,5
Movement in rate of taxation due to
– disallowable charges (1,9) (2,4) (0,3) (0,8)
– secondary tax on companies (3,6) (3,0) (1,0) (3,4)
– adjustments from prior year 2,1 0,3 4,4 (0,3)
– tax losses not recognised (1,0)

South African normal tax rate 30,0 30,0 30,0 30,0

7. DIVIDENDS DECLARED DURING THE YEAR
Ordinary:
Final 2002 – 88,0 cents per share (2001: 67,0 cents) 181,1 136,7 181,1 136,7
Interim 2003 – 32,0 cents per share (2002: 30,0 cents) 65,8 61,4 65,8 61,4
Attributable to Reunert shares held by a subsidiary (20,7) (16,7)

226,2 181,4 246,9 198,1

Final ordinary dividend proposed
88,0 cents per share (2002: 88,0 cents) 181,3 179,9 181,3 179,9
Attributable to Reunert shares held by a subsidiary (15,1) (15,1)

166,2 164,8 181,3 179,9

8. ACCOUNTING POLICY CHANGES

Reunert has adopted South African Statements of Generally Accepted Accounting Practice (SA GAAP) which became effective during the current financial year. This has resulted in changes to accounting policies.

The main change involves the adoption of AC133 on financial instruments. In terms of the transitional provisions of this statement the comparative figures do not need to be restated. The statement, however, does require the balances at the end of the previous financial year to be valued in terms of the statement. This has resulted in an increase in the group’s accumulated profit on 1 October 2002 of R6,7 million (see statement of changes in equity). The effect in the current year has been to reduce operating profit by R44,5 million, the tax charge by R13,3 million and earnings attributable to ordinary shareholders by R31,2 million.

The group’s accounting policies are in accordance with SA GAAP and, except for the above changes, are consistent with those of the prior period.

9. NUMBER OF SHARES USED TO CALCULATE
EARNINGS PER SHARE
Weighted average number of shares in issue
used to determine basic earnings per share and
headline earnings per share (millions of shares)
188,3 187,0
Adjusted by the dilutive effect of unexercised share
options available to executives employed in the group
(millions of shares)
2,6 3,4

Weighted average number of shares used to
determine diluted earnings per share and diluted
headline earnings per share (millions of shares)
190,9 190,4

10. HEADLINE EARNINGS
Headline earnings are determined by eliminating the
effect of the following items in attributable earnings:
Earnings attributable to Reunert Limited shareholders 295,4 370,6
Adjusted for: 50,1 58,0
Surplus on sale of fixed assets (0,2) (2,1)
Goodwill 50,3 41,4
Attributable portion of impairment (note 5) 18,7
Tax 0,1 0,6
Outside shareholders’ portion 0,1

Headline earnings attributable to
Reunert Limited shareholders
345,6 429,3

Cost GROUP
Accum-
ulated
depre-
ciation
Book
value
Cost COMPANY
Accum-
ulated
depre-
ciation
Book
value
Rm Rm Rm Rm Rm Rm

11. PROPERTY, PLANT AND EQUIPMENT
2003
Freehold land and buildings
– investment 24,0 8,6 15,4
– owner occupied 100,4 33,7 66,7 47,0 12,7 34,3
Leasehold land and buildings
– owner occupied 2,0 1,1 0,9 0,3 0,3
Plant and equipment 629,1 503,0 126,1 202,7 172,9 29,8
Vehicles 17,9 13,3 4,6 8,0 5,9 2,1

773,4 559,7 213,7 258,0 191,8 66,2

2002
Freehold land and buildings
– investment 15,1 5,3 9,8
– owner occupied 80,6 27,1 53,5 47,2 12,3 34,9
Leasehold land and buildings
– owner occupied 2,2 0,8 1,4 0,3 0,1 0,2
Plant and equipment 409,7 322,5 87,2 189,2 163,6 25,6
Vehicles 15,0 9,8 5,2 7,2 4,5 2,7

522,6 365,5 157,1 243,9 180,5 63,4

Land and buildings
Investment Owner
occupied
Plant
and
equipment
Vehicles 2003 2002
Rm Rm Rm Rm Rm Rm

MOVEMENT IN PROPERTY,
PLANT AND EQUIPMENT
Group
Net book value at beginning of the year 9,8 54,9 87,2 5,2 157,1 161,8
Acquisition of businesses 5,0 15,2 51,9 0,2 72,3 1,3
Additions 0,3 2,1 39,7 2,5 44,6 42,0
Disposals (1,3) (0,1) (0,5) (1,9) (1,8)

15,1 70,9 178,7 7,4 272,1 203,3
Depreciation 0,3 (3,3) (52,6) (2,8) (58,4) (46,2)

15,4 67,6 126,1 4,6 213,7 157,1

Company
Net book value at beginning of the year 35,1 25,6 2,7 63,4 70,7
Acquisition of businesses 3,2 3,2 1,3
Additions 15,0 1,0 16,0 10,6
Disposals (0,1) (0,1) (0,2)

35,1 43,8 3,6 82,5 82,4
Depreciation (0,8) (14,0) (1,5) (16,3) (19,0)

34,3 29,8 2,1 66,2 63,4

NOTES:
  1. A register of group property may be inspected at the registered office of the company.
  2. The open market value of investment properties amounts to R23,3 million (2002: R11,8 million). Six of the group’s properties are investment properties. The open market values were obtained as follows: One was sold in October 2003 for a net R9,7 million. Four (R9,7 million) were valued by reference to market evidence of transaction prices for similar properties. One (R3,9 million) was valued by an independent valuer who holds a recognised and relevant qualification and who has recent experience in the location and category of the investment property being valued.
  3. Property, plant and equipment depreciation rates are used for the following categories:
    Buildings 3 to 20%
    Plant 10 to 20%
    Office equipment 10 to 20%
    Computer equipment 33 to 50%
    Furniture 15 to 20%
    Vehicles 20 to 25%
  4. The insurable value of the group’s fixed assets as at 30 September 2003 amounted to R2,8 billion (2002: R1,8 billion). This is based on the cost of replacement of such assets, except for motor vehicles and certain selected assets which are included at market value.

GROUP COMPANY
2003 2002 2003 2002
Rm Rm Rm Rm

12. GOODWILL
Carrying value at the beginning of the year 360,0 10,9 21,5 1,0
Add: Acquisition of businesses, associates
and subsidiaries
6,4 390,5 12,9 25,2
Less: Adjustments to the purchase price of a business
acquired in the prior year
(9,2) (9,2)
Less: Amortisation for the year (46,2) (41,4) (5,1) (4,7)
Attributable to losses in associate (4,1)

Carrying value at the end of the year 306,9 360,0 20,1 21,5

Goodwill at cost 396,8 403,7 30,9 27,2
Accumulated amortisation (89,9) (43,7) (10,8) (5,7)

306,9 360,0 20,1 21,5

Carrying value attributable to:
– associates 108,4 126,3
– subsidiaries and other 198,5 233,7 20,1 21,5

306,9 360,0 20,1 21,5

Goodwill is amortised over periods varying
between one and ten years.

13. INTEREST IN SUBSIDIARIES
(See Annexure A)
Shares at cost less amounts written off 543,0 543,3
Amounts owing by subsidiaries 338,4 158,8
Provision for goodwill write-off (45,9) (45,9)

835,5 656,2
Provision for losses (47,9) (38,2)

787,6 618,0
Amounts owing to subsidiaries (103,4) (313,5)

684,2 304,5

14. INTEREST IN ASSOCIATES
UNLISTED ASSOCIATE COMPANIES:
Shares at cost 158,5 202,8 158,5 163,6
Less: Transfer to goodwill on consolidation (133,6) (137,7)
Adjustment to carrying value 2,7
Attributable interest in accumulated profit (24,9) 58,6
Accumulated profit at beginning of year 58,6 96,1
Profit after tax and abnormal items
– audited (82,6) 115,8
– unaudited (44,9)
Retained income of associates that became
subsidiaries during the year
(0,9)
Dividends (108,4)
Attributable to outside shareholders in subsidiaries 4,7

Total of unlisted associate companies 131,1 158,5 163,6

Directors’ valuation – unlisted associate companies 520,0 586,9 520,0 163,6

Attributable earnings from unlisted associate companies (82,6) 70,9

GROUP
Number of
shares held
Percentage
interest
2003 2002 2003 2002
Details of share investments Rm Rm Rm Rm

ASSOCIATE COMPANIES
ATC (Pty) Limited
(became a subsidiary with effect from 1 January 2003)
123 418 39
Electric Products International (Pty) Limited 2 400 2 400 24 24
Siemens Telecommunications (Pty) Limited 56 000 56 000 40 40
Nashua Connect (Pty) Limited
(previously IQ Works (Pty) Limited)
(became a subsidiary with effect from 1 December 2002)
501 50

Carrying value
Details of share investments Year-end 2003 2002

ASSOCIATE COMPANIES
ATC (Pty) Limited 59,1
Electric Products International (Pty) Limited 30 September
Siemens Telecommunications (Pty) Limited 30 September 72,0
Nashua Connect (Pty) Limited

131,1

GROUP COMPANY
2003 2002 2003 2002
Rm Rm Rm Rm

15. OTHER INVESTMENTS
Reunert 1988 Share Purchase Trust Loan 9,0 6,4 9,0 6,4
Other loans and investments 11,8 14,1 11,5 13,8

Total investments 20,8 20,5 20,5 20,2

Directors’ valuation – other investments 20,8 20,5 20,5 20,2

16. RC&C FINANCE COMPANY ACCOUNTS RECEIVABLE
Discounted deals:
Collectable within one year 388,0 296,3
Collectable after one year 761,1 582,1

1 149,1 878,4
Accounts receivable:
Collectable within one year 46,2 41,9
Collectable after one year 24,7 33,6

70,9 75,5

1 220,0 953,9

The discounted deals comprise the present value of
discounted rental agreements which are repayable
over varying periods up to a maximum of five years
from balance sheet date.

17. DEFERRED TAXATION ASSETS/(LIABILITIES)
MOVEMENT OF GROUP DEFERRED TAXATION
Balance at beginning of year (20,0) (6,6) 24,7 20,5
Restatement of balance at beginning of year due
to first time compliance with AC133
(3,0) (2,1)
Current tax charge/(reversal) 2,7 (8,8) 0,6 4,1
Adjustment for prior years (10,4) (4,6) 0,4 0,1

(30,7) (20,0) 23,6 24,7
Deferred taxation liabilities 63,8 45,9

Deferred taxation assets 33,1 25,9 23,6 24,7

ANALYSIS OF DEFERRED TAXATION
Capital allowances (41,3) (32,8) (0,8) (1,2)
Provisions and accruals 11,7 11,3 23,7 23,6
Advance income offset by allowed future expenditure 3,6 4,1 0,5 0,2
Other (net) (4,7) (2,6) 0,2 2,1

(30,7) (20,0) 23,6 24,7

18. INVENTORY AND CONTRACTS IN PROGRESS
Raw materials and components 120,7 98,9 63,1 54,8
Finished goods 110,9 115,7 44,7 53,7
Merchandise 242,6 373,5 242,1 373,4
Consumable stores 2,2 1,4 0,5 0,6
Contracts and other work in progress 55,4 70,3 1,0 (1,1)

531,8 659,8 351,4 481,4

The value of inventory has been determined
on the following bases:
First-in first-out 405,1 525,4 347,6 476,5
Average 34,6 28,1 2,6 2,6
Net realisable value 45,3 35,4 1,2 2,3
Other 46,8 70,9

531,8 659,8 351,4 481,4

19. ACCOUNTS RECEIVABLE
Trade receivables 602,4 516,2 232,3 191,1
Claims, prepayments and other receivables 224,2 196,7 33,9 40,1

826,6 712,9 266,2 231,2

20. CASH AND CASH EQUIVALENTS
Bank balances and cash 484,8 283,5 37,7 80,1

21. SHARE CAPITAL AND PREMIUM
AUTHORISED SHARE CAPITAL
235 000 000 (2002: 235 000 000) ordinary shares
of 10 cents each
23,5 23,5 23,5 23,5
350 000 (2002: 350 000) 5,5% cumulative preference
shares of R2 each
0,7 0,7 0,7 0,7
31 057 729 (2002: 31 057 729) redeemable preference
shares of 1 cent each
0,3 0,3

0,3 0,3

24,5 24,5 24,5 24,5

ISSUED SHARE CAPITAL
206 015 764 (2002: 204 425 264) ordinary shares
of 10 cents each
20,6 20,4 20,6 20,4
350 000 (2002: 350 000) 5,5% cumulative preference
shares of R2 each
0,7 0,7 0,7 0,7

21,3 21,1 21,3 21,1

SHARE PREMIUM
At beginning of year 251,3 248,5 251,3 248,5
Arising on the issue of ordinary shares 10,8 2,8 10,8 2,8

At end of year 262,1 251,3 262,1 251,3

Reunert Limited shares bought back by a subsidiary
17 168 058 (2002: 17 168 058)
(234,6) (234,6)

Total issued share capital and premium 48,8 37,8 283,4 272,4

COMPANY Number of shares
2003 2002

UNISSUED ORDINARY SHARES
Total shares reserved to meet the requirements of the Reunert 1985
Share Option Scheme and the Reunert 1988 Share Purchase Scheme
12 000 000 12 000 000
Ordinary shares under the general authority of the directors until the
forthcoming annual general meeting
16 984 236 18 574 736

28 984 236 30 574 736

21. SHARE CAPITAL AND PREMIUM
THE REUNERT 1985 SHARE OPTION SCHEME
Options to take up Reunert Limited ordinary shares are granted to executives in terms of the Reunert 1985 Share Option Scheme.

The terms of the scheme allow the recipient of the options to exercise them after three years, one third each in years four to six. Any options unexercised lapse after ten years from the date of initial issue or the moment an option holder leaves the group. Should the option price exceed the market price, the option holder may decline to exercise their right to have Reunert Limited shares issued to them.

Exercise price Number
of options
unexercised
at the
beginning
of year
Thousands
Options
granted
during
the year
Thousands
Options
exercised
during
the year
Thousands
Options
that
lapsed
during
the year
Thousands
Number
of options
unexercised
at the end
of year
Thousands
Amount
received
for options
exercised
R thousands

2003
R14,90 10 10
R14,00 30 30
R5,45 4 085 (1 351) (133) 2 601 7 360
R14,10 2 375 (25) (150) 2 200 353
R15,80 1 445 (90) (65) 1 290 1 422
R17,70 290 (40) 250
R15,99 1 940 (125) (10) 1 805 1 999
R17,30 200 200

8 235 2 140 (1 591) (398) 8 386 11 134

2002
R14,90 85 (75) 10 1 110
R14,00 30 30
R5,45 4 415 (300) (30) 4 085 1 605
R14,10 2 425 (50) 2 375
R15,80 1 470 (25) 1 445
R17,70 290 290

8 425 290 (375) (105) 8 235 2 715

Period options exercisable
Exercise price Number
of options
exercisable
per annum
Thousands
Dates Expiry date Options
vested
at the
beginning
of the year
Thousands
Options
vested
at the
end of
the year
Thousands

R14,90 Immediately 27 June 2004 10 10
R14,00 Immediately 5 May 2007 30 30
R5,45 1 221 22 October 2003
to 22 October 2004
22 October 2009 100
R14,10 708 1 February 2004
to 1 February 2006
1 February 2011 75
R15,80 427 26 September 2004
to 26 September 2006
26 September 2011 10
R17,70 47 19 November 2004
to 19 November 2006
19 November 2011 110
R15,99 602 13 May 2006
to 13 May 2008
13 May 2013
R17,30 67 27 July 2006
to 27 July 2008
27 July 2013

40 335

LOANS GRANTED BY REUNERT LIMITED IN RESPECT OF THE SHARE OPTION SCHEME
Option holders are obliged to pay 1 cent per share for shares purchased under the option scheme. Thereafter, Reunert Limited may lend the shareholder the remainder of the funds required to purchase the shares at the option price. The loan is granted for a maximum of seven years. The interest rate applicable to the loan is determined in March and September each year for the following six months, based on a formula which takes the last dividend declared prior to granting the option divided by the option price, subject to a maximum of the official interest rate as set by South African Revenue Services from time to time.
2003
Rm
2002
Rm

Amount of loans granted during the year 5,1

GROUP COMPANY
2003 2002 2003 2002
Rm Rm Rm Rm

22. NON-DISTRIBUTABLE RESERVES
On acquisition of subsidiaries, being excess of
net assets over cost of shares at dates of acquisition
0,1
Statutory and other reserves
– at beginning of year 1,4 0,8
– movement (1,4) 0,6

1,4

Capital redemption reserve 2,9 2,9 0,3 0,3

Share of associate companies’ accumulated profits
– at beginning of year 63,7 96,0
– associate earnings transferred this year (63,7) (32,3)

63,7

2,9 68,1 0,3 0,3

Description of nature of obligation Carrying
amount
at
beginning
of year
Rm
Additional
provisions
created
in the year
Rm
Amounts
used
during
the year
Rm
Unused
amounts
reversed
during
the year
Rm
Carrying
amount
at end
of the year
Rm

23. PROVISIONS
GROUP
Contract completion 4,4 5,0 (2,7) (1,2) 5,5
Debtor recourse guarantee 48,0 (10,3) 37,7
Unfunded pension obligations 1,5 0,8 2,3
Warranty 45,8 8,3 (1,4) (3,6) 49,1
Other 14,4 1,4 (3,2) (1,7) 10,9

114,1 15,5 (7,3) (16,8) 105,5

COMPANY
Contract completion 0,9 0,9
Debtor recourse guarantee 10,3 (10,3)
Warranty 0,8 (0,4) 0,4
Other 7,6 2,2 (1,2) (1,7) 6,9

19,6 2,2 (1,2) (12,4) 8,2

GROUP COMPANY
2003 2002 2003 2002
Rm Rm Rm Rm

24. COMMITMENTS
Expenditure on property, plant and equipment
Contracted
Authorised not yet contracted


16,2
0,4


9,4
9,5


12,7
0,1


5,3
8,6

16,6 18,9 12,8 13,9

The above expenditure, to occur in 2004 and 2005,
will be financed from existing group resources.

Operating lease commitments in respect of
land and buildings, motor vehicles and other assets
– one year
– two to five years
– greater than five years


23,6
48,8
9,0


17,5
44,5
3,2


14,4
13,4


13,3
27,4

81,4 65,2 27,8 40,7

Land and buildings
Motor vehicles
Other
75,0
0,1
6,3
63,2
0,5
1,5
27,7
0,1
39,6
0,3
0,8

Total operating lease commitments 81,4 65,2 27,8 40,7

25. CONTINGENT LIABILITIES
Guarantees on behalf of third parties
Guarantees on behalf of group subsidiary companies
Sureties for staff loans

3,6

0,1



0,3


59,4


50,0

Total contingent liabilities 3,7 0,3 59,4 50,0

Salary
R thousands
Bonus
and
performance
related
payments
R thousands
Other
benefits
R thousands
Retirement
and
medical
contributions
R thousands
Total
R thousands

26. DIRECTORS’ REMUNERATION
AND INTERESTS

Payable to the directors of the company
by the company and its subsidiaries:

EXECUTIVE DIRECTORS
The directors’ remuneration for the
year ended 30 September 2003

G Pretorius
BP Gallagher
GJ Oosthuizen
DJ Rawlinson









1 743
891
811
878









783
429
377
416









169
168
125
245









386
238
194
228









3 081
1 726
1 507
1 767

4 323 2 005 707 1 046 8 081

The directors’ remuneration for the
year ended 30 September 2002

G Pretorius
BP Gallagher
GJ Oosthuizen
DJ Rawlinson



1 514
763
718
757



1 165
640
570
600



193
207
141
186



347
220
175
196



3 219
1 830
1 604
1 739

3 752 2 975 727 938 8 392

Total paid
for the year
(all directors’ fees)
2003
R thousands
2002
R thousands

NON-EXECUTIVE DIRECTORS
The directors’ remuneration for the
year ended 30 September

DE Cooper
BP Connellan
PTW Curtis
SD Jagoe
KJ Makwetla
MJ Shaw
JC van der Horst
CL Valkin




300
80

100
60
90
60
60




250
50
29
60
40
60
40
40

750 569

26. DIRECTORS’ REMUNERATION AND INTERESTS
SHARE OPTIONS
Executive directors
Balance of
unexercised
share options
as at
1 October
2002
Number of
share options
allocated
during
the year
Number of
options
exercised
during
the year
Balance of
unexercised
share options
as at
30 September
2003
Option
price
R
Date of
allocation
Date from which
exercisable

G Pretorius 165 000 55 000 110 000 5,45 26 October 1999 26 October 2002
  100 000 100 000 14,10 1 February 2001 1 February 2004
  150 000 150 000 15,80 26 September 2001 26 September 2004
    200 000 200 000 15,99 13 May 2003 13 May 2006
BP Gallagher 200 000 *66 600 133 400 5,45 26 October 1999 26 October 2003
  50 000 50 000 14,10 1 February 2001 1 February 2004
  70 000 70 000 15,80 26 September 2001 26 September 2004
    100 000 100 000 15,99 13 May 2003 13 May 2006
GJ Oosthuizen 200 000 *66 600 133 400 5,45 26 October 1999 26 October 2003
  50 000 50 000 14,10 1 February 2001 1 February 2004
  90 000 90 000 15,80 26 September 2001 26 September 2004
    100 000 100 000 15,99 13 May 2003 13 May 2006
DJ Rawlinson 200 000 66 600 133 400 5,45 26 October 1999 26 October 2003
  50 000 50 000 14,10 1 February 2001 1 February 2004
  30 000 30 000 15,80 26 September 2001 26 September 2004
    100 000 100 000 15,99 13 May 2003 13 May 2006

1 355 000 500 000 254 800 1 600 200

* The loans granted on the exercise of these options were not fully repaid by the year-end. The shares may only be released when the loans have been fully repaid.

None of the directors’ service contracts expressly provides for a notice period, and in the circumstances such service contracts are terminable on reasonable notice, which period will be less than one year.

Predetermined compensation on termination of service will be payable to the executive directors, but in all instances, the notice periods are less than one year.

27. RETIREMENT BENEFIT INFORMATION

In line with the group’s policy to provide retirement benefits for its employees, 99% (2002: 94%) of the group’s employees belong to various retirement schemes.

Industrial legislation requires that certain employees be members of designated industrial schemes. At year end 34% (2002: 25%) of the group’s employees were members of such schemes, most notably the Engineering Industries Pension Fund and Metal Industries Provident Fund. The total employer contributions for the year to these funds amounted to R5,7 million (2002: R4,0 million).

32% (2002: 29%) of the group’s total employees, are members of the Lincoln Wood Provident Fund or the Reunert Retirement Fund, which consists of both the Reunert Pension Fund and Reunert Provident Fund.

The Reunert Retirement Fund is a defined contribution plan, apart from death benefits that are paid by the Pension Fund, which is registered in terms of the Pension Funds Act, 1956. The fund was last reviewed by the actuary at 29 February 2000 and found to be in a sound financial position. The employer’s contribution rate to the provident fund remained at 10% of the employees’ pensionable earnings, whilst the employees’ contribution to the pension fund remained at 6%. The total employer contribution to this fund amounted to R17,1 million (2002: R13,7 million).

The Lincoln Wood Provident Fund is a defined benefit plan registered in terms of the Pension Funds Act, 1956. The employer’s contribution rate is 14,5% (2002: 14,5%) of employees’ pensionable earnings, with the employees’ contributions remaining at 6%. The total employer contribution to this fund amounted to R1,7 million (2002: R1,6 million).

The Lincoln Wood Provident Fund was actuarially valued in terms of the Pension Funds Second Amendment Act, 2001, at 28 February 2002, at which date the fund was found to be in deficit. An investigation is currently under way to determine whether there was improper use of past surplus and whether this would be relevant in the case of a fund that is in deficit. This review, which will take place under the guidance of the fund’s actuary, is expected to be completed during 2004.

The remaining 33% (2002: 40%) of the group’s total employees, who are not members of the abovementioned schemes, participate in other benefit plans, which consist of four defined contribution plans. All are subject to the Pension Funds Act, 1956. The total employer contributions to these funds amounted to R22,8 million (2002: R14,0 million).

3% of the group’s employees belong to defined benefit funds, with 2% belonging to the Engineering Industries Pension Fund, which is currently in surplus. The rules of this fund do not allow the group access to this surplus. Details relating to the group’s defined benefit fund, which is not a designated industrial scheme are as follows:

DEFINED BENEFIT PLAN

Under the scheme the employees are entitled to retirement benefits equal to their number of years’ service multiplied by 2%, multiplied by their final year’s salary on attainment of a retirement age of 63. No other post-retirement benefits are provided.
Year
ended
30 September
2003
Rm
Year
ended
September
2002
Rm

27. RETIREMENT BENEFIT INFORMATION (continued)
Amounts recognised in income in respect of that scheme
are as follows:
Current service cost
Interest costs
Expected return on plan assets



3,1
7,9
(7,5)



2,8
6,6
(5,8)

3,5 3,6

The charge for the year has been included in other expenses.

Actual return on plan assets

The amount included in the balance sheet arising from the
group’s obligation in respect of defined benefit retirement
plans is as follows:


(8,0)


14,4
2003
Rm
2002
Rm

Present value of funded obligations
Unrecognised actuarial (losses)/gains
Fair value of plan assets
72,9
(11,0)
(59,6)
63,8
5,6
(67,9)

Unfunded pension obligations 2,3 1,5

At the beginning of year
Prior year provision released
Amounts charged to income
Contributions
1,5

3,5
(2,7)
7,1
(6,5)
3,6
(2,7)

At the end of year 2,3 1,5

2003
%
2002
%

Key assumptions used:
Discount rate
Inflation rate
Expected return on plan assets
Expected rate of salary increases
Future pension increases

12
7
11
8,5
6,67

11
6
10
7,5
5,7

The next statutory valuation will be performed as at 28 February 2005.

2003 2002
Total
Rm
Reunert
share
Rm
Total
Rm
Reunert
share
Rm

28. SUMMARISED FINANCIAL INFORMATION
OF PRINCIPAL ASSOCIATE COMPANIES

INCOME STATEMENT
Revenue
Profit after tax
Dividends
BALANCE SHEET
Interest of shareholders
Long-term liabilities
Property, plant and equipment
Deferred taxation asset
Net current assets



3 598,1
(206,6)


(10,3)
74,3
145,5
92,8
(174,3)



1 438,6
(82,6)



29,7
58,2
37,1
(69,7)



5 526,7
236,1
271,0

300,6
95,7
260,2
45,7
96,3



2 115,7
70,9
108,4

118,5
38,4
103,4
18,3
37,4

29. RELATED PARTY TRANSACTIONS
The following related party transactions took place during the year:

TRADING WITH SHAREHOLDERS
Counterparty Relationship Sales
Rm
Purchases
Rm
Accounts
payable
Rm
Accounts
receivable
Rm
Royalties
Rm

Pirelli Cable Holding NV (Pirelli)




BICC CAFCA Limited (Cafca)


EADS Deutschland
GmbH (EADS)
Pirelli is joint
owner of
Afcab Holdings
which owns
African Cables
African Cables
owns 73%
of Cafca
EADS owns
33% of Reutech
Radar Systems







2,6


14,2




7,0


3,8






(0,3)












1,5


0,2




2,6





All prices are determined on an arm’s length basis.
Counterparty Relationship Interest
earned by
Reunert
Rm
Interest
paid by
Reunert
Rm
Balance
at year-end
Rm

29. RELATED PARTY TRANSACTIONS (continued)
FINANCING TRANSACTIONS WITH
ASSOCIATE COMPANIES

Siemens Telecommunications (Pty) Limited
(Siemens)
Siemens are equity accounted in the group results.



Reunert owns
40,0% of Siemens




6,0








Siemens are equity accounted in the group results.
Siemens borrows money from RFCL with the full knowledge and approval of all its shareholders.
The interest rates used are the daily money market call rates.
30. FINANCIAL INSTRUMENTS

RISK MANAGEMENT
The group is exposed to various risks at all times. These risks are managed in the following ways:

TREASURY RISK
All of the group’s short-term borrowings or excess cash are directed through Reunert Finance Company Limited (RFCL), a wholly-owned subsidiary of Reunert Limited, which is run from the head office of the group.

The overnight call market is mainly used for short term borrowings, with three to six-month borrowings used when deemed appropriate. Excess cash is deposited with RC&C Finance Company (Pty) Limited (RCCF) or with reputable financial institutions.

Derivative contracts are entered into to hedge interest rate risk only in RCCF.

Foreign currency commitments and receivables are covered by forward exchange contracts when there is a risk that the rand will weaken or revalue respectively. Derivative contracts, other than forward exchange contracts, are not entered into to hedge currency risks.

The contract amounts of forward exchange contracts outstanding at the balance sheet date were:
2003
Rm
2002
Rm

To pay
To receive
355,5
527,2
30. FINANCIAL INSTRUMENTS (continued)
Forward exchange contracts at 30 September 2003 and 2002 are summarised below:
Foreign
amount
m
Fair
value
Rm
Contract
value
Rm
Gains/
(losses)
Rm

2003
Imports – trade
USD
Euro
GBP
Yen
CHF
SEK


19,4
16,9
0,4
646,0
0,7
0,2


137,5
139,6
4,7
41,4
0,6
0,9


158,1
146,8
4,9
44,2
0,6
0,9


(20,6)
(7,2)
(0,2)
(2,8)


Total 324,7 355,5 (30,8)

Rm

Accounts receivable in foreign currencies
Of which covered by forward exchange contracts
Accounts payable in foreign currencies
Of which covered by forward exchange contracts
10,9

330,2
324,7

Foreign
amount
m
Fair
value
Rm
Contract
value
Rm
Gains/
(losses)
Rm

2002
Imports – trade
USD
Euro
GBP
Yen
CHF

28,9
9,7
0,6
1 073,9
2,4

312,7
102,8
10,1
95,7
4,4

315,3
102,3
9,9
95,4
4,3

(2,6)
0,5
0,2
0,3
0,1

Total 525,7 527,2 (1,5)

Rm

Accounts receivable in foreign currencies
Of which covered by forward exchange contracts
Accounts payable in foreign currencies
Of which covered by forward exchange contracts
23,0

532,2
525,7
30. FINANCIAL INSTRUMENTS (continued)
CREDIT RISK
Credit risk relates to the group’s accounts receivable and RCCF accounts receivable. The risk relating to the group’s accounts receivable is managed by the performance of ongoing credit evaluations of the financial condition of all customers. The granting of credit is controlled by application and credit vetting procedures which are reviewed and updated on an ongoing basis. Where considered necessary, exports are covered by letters of credit. Use is also made of credit insurance where it is considered appropriate.

Where the recoverability of accounts receivable is considered doubtful, these are provided for.

For RCCF, the financial assets which potentially subject the company to concentrations of credit risk consist principally of discounted deals and accounts receivable. Credit risk with respect to accounts receivables and discounted deals is limited due to the large number of corporate customers comprising the company’s customer base and their distribution across different geographical areas. Accounts receivables are presented net of all the allowances for doubtful receivables. The company also maintains a loan guarantee contingency provision as a general provision against discounted deals and accounts receivable.

Details of total cash and cash equivalents, investments, accounts receivable and derivative instruments (net market value of these contracts), by geographic region exposed to:
2003
%
2002
%

South Africa
Rest of Africa
Europe
Asia
USA
97,6
0,6
1,2
0,2
0,4
96,3
0,5
1,4
0,9
0,9

Total 100,0 100,0

30. FINANCIAL INSTRUMENTS (continued)
INTEREST RATE RISK: RC&C FINANCE COMPANY LIMITED

Most of the company’s debtors are subject to variable rates. The company borrows at variable interest rates therefore the margin built into the various loans and debtors tend to remain constant as the market moves up and down.

Most of the company’s discounted deals are sold on a fixed interest rate basis. The company’s policy is to lock in at least 75% of such exposure by way of taking out fixed loans or by using interest rate swaps to achieve this objective. Contracts with open portions of R571 million (2002: R497 million) for periods up until 4 April 2007 (2002: 21 August 2006) have been entered into. The average fixed rate of the in-the-market swap is 10,98% (2002: 12,70%) and 10,15% (2002: 13,90%) for the out-of-the-market swaps.

The group’s exposure to interest rate risk and the effective interest rates on financial instruments at balance sheet date are:
2003
Weighted
average
effective
interest
rate
%
Floating
interest
rate
Rm
Fixed
interest
rate
Rm
Non
interest
bearing
Rm
Total
Rm

ASSETS
Cash and cash equivalents
Accounts receivable
(non-RCCF)
Accounts receivable
(RCCF)
Other investments

9,3



14,5
8,6

484,8



257,0
16,9





960,0



802,4

3,0
3,9

484,8

802,4

1 220,0
20,8

Total financial assets 758,7 960,0 809,3 2 528,0

LIABILITIES
Trade and other payables
Bank overdrafts
RCCF Borrowings


11,7
12,2


(3,4)
(900,7)

(1 030,4)

(1 030,4)
(3,4)
(900,7)

TOTAL FINANCIAL
LIABILITIES

(904,1)

(1 030,4)

(1 934,5)

NET FINANCIAL
ASSETS/(LIABILITIES)

(145,4)

960,0

(221,1)

593,5

RCCF utilises fixed interest loans or interest rate swaps to fix at least 75% of its fixed interest discounted debtors book.
Details of the interest rate swaps are:
Contracts expiring in:
<1 year
Rm
1 – 5 years
Rm
Total
Rm

R million
Average fixed interest rate (%)
(206,0)
11,0
(365,0)
11,0
(571,0)
11,0

2002
Weighted
average
effective
interest
rate
%
Floating
interest
rate
Rm
Fixed
interest
rate
Rm
Non
interest
bearing
Rm
Total
Rm

ASSETS
Cash and cash equivalents
Accounts receivable (non-RCCF)
Accounts receivable (RCCF)
Other investments

11,5

18,0
9,1

283,5

171,1
14,3



774,9


670,7
7,9
6,2

283,5
670,7
953,9
20,5

TOTAL FINANCIAL ASSETS 468,9 774,9 684,8 1 928,6

LIABILITIES
Trade and other payables
Bank overdrafts
RCCF borrowings


13,2
13,7


(2,8)
(838,0)

(969,9)

(969,9)
(2,8)
(838,0)

TOTAL FINANCIAL LIABILITIES (840,8) (969,9) (1 810,7)

NET FINANCIAL ASSETS/(LIABILITIES) (371,9) 774,9 (285,1) 117,9

MATURITY PROFILE OF FINANCIAL INSTRUMENTS
The maturity profile of financial instruments at 30 September 2003 are summarised below:
  2003
< 1 year
Rm
1 – 5 years
Rm
> 5 years
Rm
Total
Rm

Cash and cash equivalents
Accounts receivable (non-RCCF)
Accounts receivable (RCCF)
Other financial assets
Trade and other payables
Bank overdrafts
RCCF borrowings
Derivative instruments
    Recognised transactions
    FECs
    – Buy
    Interest rate swaps
    Other derivative instruments
484,8
802,4
405,0
11,9
(1 030,4)
(3,4)
(900,7)



(30,8)
(14,9)
(3,8)


663,0
5,6


152,0
3,3
484,8
802,4
1 220,0
20,8
(1 030,4)
(3,4)
(900,7)



(30,8)
(14,9)
(3,8)

The maturity profile of financial instruments at 30 September 2002 are summarised below:
  2002
< 1 year
Rm
1 – 5 years
Rm
> 5 years
Rm
Total
Rm

Cash and cash equivalents
Accounts receivable (non-RCCF)
Accounts receivable (RCCF)
Other financial assets
Trade and other payables
Bank overdrafts
RCCF borrowings
283,5
670,7
306,6
14,3
(969,9)
(2,8)
(838,0)


636,9


10,4
6,2
283,5
670,7
953,9
20,5
(969,9)
(2,8)
(838,0)

LIQUIDITY RISK
Adequate reserves, banking facilities and reserve borrowing facilities are maintained by continuously monitoring forecast and actual cash flows.
GROUP
2003 2002
Maximum
permissible
Rm
Actual
Rm
Maximum
permissible
Rm
Actual
Rm

30. FINANCIAL INSTRUMENTS (continued)
BORROWING CAPACITY
THE BORROWINGS OF THE GROUP ARE LIMITED
IN TERMS OF THE COMPANY’S ARTICLES OF
ASSOCIATION

Long-term liabilities
Short-term loans and bank overdrafts
RC&C Finance Company debtors guarantee given
by Reunert Limited
Contingent liabilities (see note 26)






3,4
60,4

3,7






2,8
31,8

0,3

1 142,2 67,5 1 029,8 34,9

2003 2003
Carrying
amount
Rm
Fair
value
Rm
Carrying
amount
Rm
Fair
value
Rm

FAIR VALUE OF FINANCIAL INSTRUMENTS
Cash and cash equivalents
Accounts receivable
RCCF accounts receivable
Other investments
Accounts payable
RCCF short-term borrowings
Derivative instruments
Forward exchange contracts
Interest rate swaps*
Other

484,8
802,4
1 220,0
20,8
(1 030,4)
(900,7)

(30,8)
(14,9)
(3,8)

484,8
802,4
1 220,0
19,4
(1 030,4)
(900,7)

(30,8)
(14,9)
(3,8)

280,7
670,7
953,9
20,5
(969,9)
(838,0)

280,7
670,7
953,9
19,2
(969,9)
(838,0)

(1,5)
13,5

* The market value of in-the-market swap is R14,9 million (2002: R13,7 million) and the market value of out-of the market swaps is R– (2002: R0,2 million).
The following methods and assumptions were used to determine fair values:

CASH AND CASH EQUIVALENTS
The carrying amounts approximate fair value because of the short-term nature of these instruments.

ACCOUNTS RECEIVABLE
The carrying amounts of rand denominated receivables approximate fair value because of the short-term nature of these instruments.

The carrying amounts of foreign denominated receivables have been converted at the rate of exchange ruling on the last day of the financial year. These amounts approximate fair value because of the short-term nature of these instruments. The carrying amount of the RCCF long-term accounts receivable and discounted deals approximate fair value because the rates inherent in the deals are market related, and are the same rates used to discount back to present values.

OTHER INVESTMENTS

The fair value of the interest-bearing loans has been determined by discounting the future cash flows of these loans back to present values using current market related interest rates. The remainder of the investments are non-interest bearing. The fair value of these loans and minor unlisted share investments can not be determined as the loans have no repayment terms, in which case it is assumed that the carrying value approximate fair value.

ACCOUNTS PAYABLE

The carrying amounts of accounts payable denominated in rand approximate fair value because of the short-term nature of these instruments. The carrying value of accounts payable denominated in foreign currencies have been converted at the rate of exchange ruling on the last day of the financial year. These amounts approximate fair value because of the short-term nature of these instruments.

The RCCF short-term borrowings approximate fair value because of their short-term nature.

The carrying value of the long-term RCCF borrowings approximate fair value because the interest rates inherent in the deals are at market related rates and these rates are used to discount the borrowings back to present values.

FORWARD EXCHANGE CONTRACTS

Fair value represents the foreign value of the exchange contracts converted at the forward rate that could have been obtained at the year-end on a similar contract to the same maturity date.

INTEREST RATE SWAPS

Fair value represents the net market value of equivalent instruments at balance sheet date.

31. UNCONSOLIDATED SUBSIDIARY

BICC CAFCA LIMITED (CAFCA)
The financial statements of Cafca, a company incorporated in Zimbabwe have not been consolidated in the group financial statements as the directors consider this prudent in the light of the fact that there are restrictions on the remittability of funds from Zimbabwe.
%
Effective holding (held via African Cables Limited)
Attributable Reunert group holding
72,4
36,2
R million
Shares at cost
Less: Amount written off
Carrying value of investment
7,3
(7,3)
The abridged hyperinflationary accounted income statement for the year to June 2003 and the balance sheet as at 30 June 2003 are reflected below:
2003
Z$m
2002*
Z$m

INCOME STATEMENT
Revenue

23 957

19 342

Profit before interest and tax
Interest paid
6 170
4 137
1 051
(491)

Profit before tax
Income tax expense
2 033
1 132
1 542
721

Net profit 901 821

BALANCE SHEET
ASSETS

Non-current assets
Property, plant and equipment



4 460



4 861

4 460 4 861

Current assets
Inventory
Accounts receivable

2 199
5 181

2 221
7 612

7 380 9 833

TOTAL ASSETS 11 840 14 694

EQUITY AND LIABILITIES
Share capital and reserves
Non-current liabilities
Deferred tax liabilities

7 182

1 182

6 270

1 633

1 182 1 633

Current liabilities
Payables
Net debt

3 332
144

4 592
2 199

3 476 6 791

TOTAL EQUITY AND LIABILITIES 11 840 14 694

The official exchange rate at 30 June 2003 was R1: Z$115 (30 June 2002: R1: Z$5,47)
The approximate parallel rate at 30 June 2003 was R1: Z$865 (30 June 2002: R1: Z$73)
The Zimbabwean inflation rate used to inflate the 2002 information to compare with 2003 is 365%.

* The 2002 information has been restated in terms of AC124 on Financial Reporting in Hyperinflationary Economies.

32. ACQUISITION OF SUBSIDIARIES AND OTHER BUSINESSES

In January 2003 the group acquired Marconi Plc’s 51% shareholding in ATC (Pty) Limited at a cost of R43,4 million. This brought the group’s total effective shareholding in ATC to 89,5%. In July 2003 the group acquired the remaining 10,5% of the ATC shares previously held by Pirelli, by Reutech Engineering Services (Pty) Limited (RES), a wholly-owned subsidiary of Reunert Limited, purchasing African Cables’ (a consolidated subsidiary effectively held 50% by Reunert, with Pirelli being the other shareholder) 21% stake in ATC for R19,3 million. At this point RES owned 100% of ATC. In August 2003 Reunert sold to Kgorong Investment Holdings (Pty) Limited, a black-owned group, an effective 25,1% of ATC for R22,8 million. This reduced the Reunert group’s holding in ATC to 74,9%. Negative goodwill of R8,4 million arose on these transactions. The group views all of these as one transaction, necessary to allow Kgorong to acquire its effective investment in 25,1% of ATC.

In November 2002 the group acquired the remaining 50% of the share capital of IQ Works (Pty) Limited (now called Nashua Connect) not previously held by it from the IQ Business Group for R4,4 million, including goodwill of R1,9 million. In February 2003 the group acquired the assets of the Cape Town Panasonic franchise, including estimated goodwill of R12,9 million for R19,7 million.
ATC
Rm
Nashua
Connect
Rm
Cape
Town
Panasonic
franchise
Rm
Total
Rm

NET ASSETS ACQUIRED
Property, plant and equipment
Inventory
Accounts receivable
Amounts owing by the South African
Revenue Services
Payables and provisions
Net cash/(overdraft)
Long-term borrowings
Loan taken over by purchaser
Attributable share of net assets at
date of acquisition
(Negative goodwill)/goodwill on acquisition

67,3
38,4
45,6

8,0
(31,7)
4,6
(26,4)
(21,8)

(55,0)
(8,4)

1,8

7,3


(2,8)
(4,6)



0,8
1,9

3,2
3,6









12,9

72,3
42,0
52,9

8,0
(34,5)

(26,4)
(21,8)

(54,2)
6,4

4,4 19,7 44,7


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