Reunert grows interim revenues by 9% and normalised headline earnings by 7%
Wednesday, 14 May 2008
Normalised headline earnings per share increased by 7% to 277,5 cents per share and an interim cash dividend of 78 cents per share, 7% up on last year, was declared. Cash on hand was R294 million at the end of March.
The electrical engineering division, CBI-electric, improved revenue by 8% to R1,8 billion and operating profit by 9% to R289 million despite Reunert’s interest in the telecom cable business reducing from 100% to 50% from 1 February 2007.
Reunert CEO Boel Pretorius said the low-voltage business had a good start to the new financial year -- even with moving the assembly operations from Qwa-Qwa to Lesotho which led to a disruption in supply of products. The costs associated with the move were fully absorbed in the review period. Low voltage improved revenue by 7% and grew operating profit by 30%. Prospects going forward look good with local and international demand remaining strong.
CBI-electric enhanced its product range with the acquisition of Moeller Electric South Africa. The acquisition was effective 1 April 2008 and it is expected to add 10% to revenue of the low-voltage business on a full year basis.
Energy cables benefited from buoyant market conditions with revenue improving by29% and operating profit up by 15%. “Our results could have been better. We had some disruptions in manufacturing due to the ongoing upgrading of capacity as well as drawn out labour unrest which was finally resolved in February, Pretorius said. “We are giving close attention to bringing efficiencies to the desired levels and working capital should reduce as efficiencies improve.” Reunert has spend R66 million the past six months on upgrading and replacing equipment in the group.
The telecommunications cable joint venture with Altron suffered from a collapse in demand for copper cable from Telkom. , resulting in a 44% decline in revenue. To a certain extent this was offset by strong demand for the instrumentation/data and fibre cable from other customers. Neotel and the cellular operators, in particular MTN, are beginning to buy significant quantities of fibre cable.
Going forward, CBI-electric is well positioned to benefit from expected continued strong demand for its products. “We have addressed the problem areas we have experienced the past year and operations have been stabilised. We will invest further capital to ensure adequate capacity,” said Pretorius.
Revenue in the Nashua group of businesses increased by 10%to R3,1 billion. On a like-for-like basis, eliminating R48 million of operating profit earned in 2007, operating income increased by 12%.
The office systems business experienced good growth in both revenue (11%) and operating profit (5%). “Nearly half of office systems’ revenue is now generated by our majority owned franchise outlets which positions us better to deal with competitive issues. The increase in revenue can, in the main, be attributed to that strategy,” explained Pretorius.
Nashua Mobile went from strength to strength improving revenue by 16% and revenue by 17%. A wide footprint, giving access to customers, resulted in 5% growth in subscriber numbers to 671 579 at the end of March. The sales of data products in particular were good and increased by 26%. Pretorius, however, cautioned that bad debts are rising and the tighter credit criteria being imposed as a result thereof will slow future growth in subscriber numbers.
Nashua Electronics, the distributor of Panasonic products in Southern Africa, held its own in a very difficult market with the consumer products division remaining marginally profitable. Business systems, on the other hand, grew at an acceptable rate from both revenue and operating profit perspective.
On a like-for-like basis, Nashua Finance and Quince, soon to be wholly owned by Reunert again, managed to achieve good growth of 41% in revenue and 24% in profit. Funding is a challenge and receives ongoing attention. The debtors book, approaching R2 billion, is of good quality and partly (R700 million) securitised. It is expected that final funding arrangements will be in place by calendar year end. Quince Asset Rentals contributed 24% of Nashua Finance revenue in its first year.
Increased export sales and healthy margins led to a very pleasing result from our defence businesses. Reutech’s revenue increased by 40% to R282 million, whilst operating profit grew by 396% to R65 million.
Ongoing investment in new products should ensure a higher level of contribution from these businesses than in the past. Local sales are expected to increase steadily providing a welcome base which should reduce volatility in earnings from Reutech.
Reunert holds a 40% interest in NSN South Africa which is the dominant supplier of telecommunication infrastructure equipment in South Africa. Demand from key customers, Vodacom and Telkom, is strong with Neotel beginning to add significant volumes, Pretorius said.
The South African economy and sentiment have been adversely affected by a decline in consumer demand, higher inflation, Eskom power outages and interest rate and fuel price increases. The sub-prime crisis has affected markets internationally which have impacted local markets negatively. On the other hand the continued high commodity prices and a weaker rand have improved export prospects. Spend on infrastructure, particularly from government and parastatals, have benefited a number of Reunert’s market sectors.
“Reunert should achieve real earnings growth for the full year,” Pretorius stated.