Media Releases

Reunert results for year ended 30 september 2008
Tuesday, 25 November 2008

Despite turbulent markets and growing economic uncertainty, Reunert has increased revenue and operating profit for the eighth year in a row. Revenue increased by 14% to R10,92 billion. On a like-for-like basis, operating profit increased by 9%.

“The reported number of R1,57 billion, which is an increase of 19%, includes R139 million commission earned on our 40% investment in Nokia Siemens Network South Africa (NSN),” Reunert chief executive Gerrit Pretorius, pointed out. Reunert’s share of NSN’s net income was previously disclosed as income from associates.

Normalised headline earnings improved by 11% to R1,12 billion. On a per share basis, normalised headline earnings increased by 10% to 630,1 cents. “Reunert’s profit was underpinned by strong cash flows,” Pretorius said. Excluding borrowings associated with its finance activity, the group had R782 million of cash at year end.

Given the uncertain economic and liquidity landscape the board has decided to increase the dividend cover to two times from 1,8 times. A final dividend of 241 cents per share has been declared, which together with the interim dividend of 78 cents per share, makes a total distribution of 319 cents per share (2007: 314 cents).

The electrical engineering division, CBI-electric, had a good year. Revenue increased by 19 % to R3,95 billion, while operating profit grew from R554 million to R675 million, an increase of 22%. Both energy cables and the low-voltage businesses experienced buoyant market conditions.

The low- voltage business in particular benefited from strong exports resulting in growth in revenues of 19%.

The energy cable business had a record breaking performance, improving revenue by 43%. In select cases where capacity was stretched, cables were sourced from other manufacturers. “We believe our cautious approach to increasing capacity will, in the light of recent economic developments, prove to be appropriate. Towards the latter part of the year demand softened noticeably while the copper price collapsed in line with most other commodities. However, the weakening of the rand has kept the rand copper price more stable,” Pretorius said.

“Telecommunications cables, our joint venture company with Aberdare Cables, had a subdued year mainly due to Telkom buying less copper cable than previously. Revenue was down 19%.” Capital is being invested to increase capacity for instrumentation cable, which is experiencing strong domestic and foreign demand. Exports of instrumentation and fibre cable are expected to continue growing, offsetting the decline in demand from Telkom.

At this stage, it is difficult to gauge what impact global economic conditions will have on infrastructure development in South Africa, although, early signs indicate that revenue in CBI-electric may decline.

NASHUA

Nashua, the electronics arm of Reunert, being more directly exposed to the consumer, had a tough year.

Office automation, which, once again, included the Reunert Finance Company after the joint venture in Quince Capital with PSG was reversed, experienced good revenue growth of 12%. “A more competitive environment led to a decline in operating profits of 12%,” Pretorius said.

The relationship between the rand/euro versus the rand/yen negatively affected product pricing, rendering Nashua non-competitive in many instances. However, recent exchange rate developments may improve that situation going forward.

Following the subprime crisis and the curtailment of securitisation, the joint venture in Quince Capital with PSG was reversed on 31 May 2008. Limited funds of R700 million were raised by securitising a portion of the book and Reunert used its balance sheet to provide the additional funding to finance the balance of the book. This is a temporary measure and action is under way to obtain external funding in due course.

Nashua Mobile had a strong year with revenue up by 15%, while operating profit increased by 8%. Increased churn is a major concern, especially since it is mostly debt related. Average revenue per user is still at an industry high increasing from R443 to R472 per user per month. Going forward the focus will be retaining customers.

Nashua Electronics, distributing mainly Panasonic products, had a tough year. “Our range of consumer electronic products is not price competitive in the South African market – especially when compounded by a tightening in consumer spending,” Pretorius said. “Firm management ensured that we broke even which is a commendable performance in that industry. But, we still need to improve the business model.”

REUTECH

The defence business, Reutech met expectations contributing R137 million to operating profits. Precision products, with its range of Fuchs fuzes, in particular did well and secured orders stretching into the 2010 financial year. The communications business with its VHF/UHF radios continues to benefit from long standing local and international relationships. Exports are brisk and will continue to grow.

The Department of Communication is in the process of converting the country’s terrestrial analogue television broadcasting to a digital format. The radar systems business in Stellenbosch has developed a set-top-box product and limited deliveries have started. We are confident that we will participate in the migration to digital television broadcasting with the market conservatively valued at R7 billion spread over a four to five year period. The mining surveillance radar systems gained a strong foothold in most of the major mining groups – locally as well as overseas.

“Our defence arm is strong, well positioned in focused areas and engaged in long-term development programs that will ensure future revenue streams. We expect Reutech to contribute strongly in the new year,” Pretorius said.

INVESTMENTS

NSN remains the dominant supplier of telecommunications network infrastructure in southern Africa. Revenue was in line with the previous year. Market shares remained high and unchanged. Sales are expected to remain high as Vodacom, Telkom and Neotel upgrade or expand their networks. NSN products are world class and in demand, boding well for future revenue streams.