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Reunert's five-year winning streak
Wednesday, 14 December 2011

Posted: 2002/11/19 Tue 16:15 | - TMTweb 1997-2002

By: Belinda Anderson 

Electronics and electrical engineering group Reunert has continued its five-year winning streak since starting its restructuring in 1997, reporting 31% earnings growth for the 2002 year.
At one stage, Reunert generated about 80% of sales from its defense business, but these only contributed 7% of turnover in 2002 after a focused effort to diversify into higher margin areas of electronics and engineering. But, there have been some significant orders placed that could see the contribution from defense doubling to around 14% next year and in 2004. Reutech showed a 6% decrease in turnover to R375.3m and a 4% decline in operating profit to R38.5m for the year.

Group EBITDA (earnings before interest, tax, depreciation and amortisation) margins improved from 10% to 11.1% during the year.

Executive director Pat Gallagher said Reunert expected growth from all of its businesses in the year to come, with the exception of cabling business ATC. During the year, ATC's fibre optic plant was mothballed due to a global oversupply that meant it could buy the cable for less than it can currently manufacture. The intention is to get the factory up and running again as soon as demand returns, which is dependant on a turnaround in the telecoms markets in the US and Europe.

Nevertheless, Reunert recently increased its stake in ATC to 89.5%, buying Marconi's 51% stake. Gallagher said it had to impair assets, in particular the fibre optic plant and found that it could up the stake at virtually net asset value. ATC also manufactures copper cable, for which demand was also down during the year. Reunert says the business should at least break even in 2003 after its restructuring efforts. In 2002, the cabling businesses showed a 4% increase in turnover to R629.9m, but a 61% fall in operating profit to R27.6m. The turnover number doesn't show the full picture, with African Cables growing strongly but ATC countering that with its poor performance.

Reunert's telecommunications interests, consisting mainly of the 40% stake in Siemens Telecommunications, were the strongest in terms of revenue growth, increasing by 112% to almost R2bn. The division turned R209m in operating profit, a 104% increase. But, the increase does not compare apples with apples as Reunert bought Marconi's 21% stake in Sietel and then Siemens exercised its option to buy 9% of that during the year, increasing its holding by a net 12.5% at a total cost of R161.3m.

CEO Boel Pretorius said Sietel stood to benefit immensely from growth on the continent, which was a largely untapped market with its low teledensity, but that would take some time. The group is also the preferred equipment supplier for Eskom Telecommunications, one of the two parastatal groups along with Transnet that will have a 30% stake of the second national operator (SNO), Telkom's soon to be licensed landline competitor. Pretorius says if the SNO rolls out its network properly, it will have to spend a significant amount of cash in the coming years - R10bn to R20bn, he estimates.

The largest contributors to group sales were the consumer products and services businesses, which include Nashua Mobile, RC&C (the Panasonic business) and Saco Systems. During the year, Reunert bought the remaining 42% of Nashua Nedtel Communications that it did not already own for R261.6m and it was subsequently renamed Nashua Mobile. The division reported a 19% increase in turnover to R2.8bn, with an operating profit of R175.2m, a 42% increase for the year.

Reunert also recently started two new businesses, IQ Works and software development company Acuo Technologies. It is in the process of buying out joint venture partner the IQ Business Group in IQ Works.

Overall, Reunert grew headline earnings by 31% to 229.5c a share from 174.8c for the year to September - making it the fifth consecutive year the group has grown its HEPS by more than 25%. The group declared a 118c dividend for the year, a 30% increase on last year's 91c a share. Including a special dividend of 250c a share paid out in 1999, Reunert has distributed more than R1.2bn to shareholders by way of dividends in the last five years.

Reunert's biggest shareholders are Old Mutual and Rand Merchant Bank (RMB), each with about 20%. But, RMB's stake consists mostly of the Public Investment Commission (PIC)''s shareholding, which the institution manages on its behalf. Roughly 10% of the shares are held offshore and Reunert executives are off to London next week to woo more foreign investors. Pretorius said the foreign ownership percentage had increased to about 14%, but this had dipped after the rand's nosedive late last year.

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