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Reunert’s cash windfall
Tuesday, 18 May 2004

Posted: 2004/05/18 Tue 08:00 | © Moneyweb 1997-2004

Telecoms, electronics and defence group Reunert generated five and a half times more cash from operations in the first six months of its 2004 financial year than the comparable period and reported good earnings and dividend growth as previous loss-makers turned positive.

Speaking at the results presentation, CEO Boel Pretorius said the 25% increase in the dividend to 40c a share “should tell you we are rather confident about the rest of the year”.

Reunert generated R1,46-bn in cash from operations (R1,09-bn after tax and dividends), compared to R257,5-m in the same six months last year and just over R653-m for the full 2003 financial year. Reunert now has R644,3-m in cash on the balance sheet. Pretorius said it was rather “astonishing” to see the amount of cash all the subsidiaries were generating, and there was no reason this should not continue.

Well-known brands in the Reunert stable include Siemens Telecommunications (Sietel), Nashua and Nashua Mobile, as well as Panasonic.

Unaudited interim headline earnings (fully diluted) grew by 21% to 136,9c a share, compared to 113,6c in the same six months last year.

Reunert had ‘warned’ in an earlier trading update that it would report earnings that would be better by 30% or more than the comparable period.

The reversal of fortune comes from turnarounds in profitability at Siemens Telecommunications (Sietel), of which it owns a 40% stake, as well as better results from electrical goods business Panasonic and cable business ATC. Nashua and Nashua Mobile also contributed strongly, Reunert said. The group also managed to sell "a large portion" of the Nashua finance book at a profit in December. This contributed 16,1c to headline earnings.

Nashua Mobile, a large independent service provider to all three mobile operators, saw some growth in subscribers, but a slightly lower ARPU (average revenue per user) as a result of a different mix of tariff packages, according to managing director Mark Taylor. Altech, the parent company of Nashua Mobile competitor Autopage Cellular, recently bragged having signed longer-term 2-5 year contracts with the cellular operators to lock in a gross margin on airtime. Asked if it had done the same or if not why not, Pretorius joked: “We’re clearly not as smart as them”. Then he said: “Everyone got the same deal.”

The earnings rise came despite flat sales growth – revenue declined by 1% to R3,01-bn from R3,05-bn – which Reunert said reflected the strength of the rand.

The only division that it said had not performed satisfactorily was defense business Reutech. Its performance negatively impacted headline earnings to the tune of 14,9c a share.

Reunert said it had not yet raised an impairment on CS Holdings, the embattled technology company of which is owns 31,7% and had indicated its intention to make an offer to minorities at 35c a share (it paid 55c a share, or R42,9-m in total). Reunert pulled out of the possible bid on Tuesday but said it planned to keep the stake. It said any impairment amount in relation to CS could not yet be determined, but the matter “should crystalise” by year-end and any impairment would be taken into account at that stage.

Group headline earnings a share were likely to grow by a bigger percentage in the second half than the 20% of the first half, Reunert said – which bodes well for the full year results. Reacting to a question from one analyst about how it would continue to grow, Pretorius said there were a number of growth drivers in the group such as Nashua and CBI (Circuit Breaker Industries): “I am confident they are anything but mature”.