Reunert interim results for 6 months ended 31 March 2009
Wednesday, 13 May 2009
The radical deterioration of market conditions since the end of last year had a negative impact on the interim results of infrastructure company Reunert Limited. Revenue increased by 1% to R5,1 billion compared to a year ago. The steep decline in volumes, particularly in the electrical engineering operations, resulted in operating profit decreasing by 27% to R531 million.
The lower levels of activity and prudent cash management resulted in working capital decreasing with a corresponding increase in cash and cash equivalents to R962 million at the end of March. Strong growth of 69% in net interest and dividend income coupled with a lower tax rate, limited the decline in normalised headline earnings per share to 16% at 232 cents per share.
The interim dividend declared decreased in line with normalised headline earnings per share to 65 cents per share (2008: 78 cents per share.
Reunert chief executive Gerrit Pretorius said in difficult trading conditions preserving capital is essential. "The era of the balance sheet has arrived."
CBI-electric, excluding the telecommunication cables operation, suffered significant volume declines. The collapse in the copper price from over R67000 per ton to R37000 per ton led to a once-off charge of R52 million.
Revenue for CBI-electric decreased by 8% to R1,6 billion whilst operating profit dropped by 38% to R179 million. The depreciation of the rand prevented revenue from slipping more. "Margins and cash flows held up remarkably well and we will maintain our capital expenditure programmes," Pretorius said.
Volume declines are attributable to fewer building plans approved, the slowdown in mining activities and destocking by customers. "However, demand for supertension cable is robust and a second production line has been commissioned. Unfortunately this will not be sufficient to compensate for the drop off in general demand for power cable."
The export of specialised circuit breakers remained strong despite the global economic downturn. Margins increased as a result of the weakening rand and bolstered the results.
The telecommunication cable operation performed better than in the comparable period. Copper telecommunication cable was in healthy demand while orders for fibre were subdued. Requirements for fibre cable are positive based on the announced roll-outs of fibre networks for MTN, Vodacom and Neotel.
Revenue was up 1% to R3,1 billion while operating profit was declined 13% to R269 million. Increased bad debts and lack of consumer financing had a negative impact on results.
"Our decision to exit the consumer electronics business at the end of last year was prudent and timeous. Exiting the business did not come without cost, but will enhance profitability in future."
From 1 April 2009, Panasonic Japan will distribute consumer products directly to the South African consumer market. "Our cooperation with Panasonic will continue as we will be the sole representative of all business systems products. Building this business to acceptable levels is a priority."
Despite an increase in bad debts Nashua Mobile maintained profitability while increasing revenue marginally. Additional care is being taken to connect only credit worthy customers. At the end of March Nashua Mobile had 683 580 subscribers. "It will be difficult to achieve growth going forward with subscribers cutting back on airtime spend and a saturated market", Pretorius commented.
The office systems business performed satisfactorily in an environment where customers found it very difficult to obtain finance. “The relative change in the rand/yen versus the rand/euro exchange rate will enhance our competitive position in this business. We are confident that unit sales will increase going forward,” Pretorius said.
The finance company, in line with the difficulty of obtaining capital, tightened its credit vetting criteria and upped margins to reflect increased risk. A conscious decision was taken to reduce the book in an orderly way.
Revenue for the defence group Reutech remained flat in the first half at R281 million with operating profit down 23% to R50 million. Pretorius is upbeat on Reutech's prospects for the full year and described the first six months as a period of preparation. Deliveries of significant contracts commenced in the second quarter and are now in full swing. Favourable exchange rates have been locked in for the remainder of the financial year. Reutech is expected to perform well ahead of last year.
NOKIA SIEMENS NETWORKS
Commission income received from Reunert's 40% interest in Nokia Siemens Networks decreased from R86 million to R65 million on a comparable basis. The market is expected to remain subdued whilst competition is on the increase. Full year results are thus expected to be down compared to those of a year ago.
It is unlikely that the South African economy will turn positive in the short term. Recovery in South Africa will follow a global recovery.
Previously Reunert indicated that it is hopeful of achieving a result similar to that of the past financial year. The severity of the downturn will cause that to be challenging.
For more information contact
Carina de Klerk
Reunert Investor Relations
083 631 5743