Wrap Text
Audited preliminary summarised consolidated results & cash dividend declaration for the year ended 30 September 2018
REUNERT LIMITED
Incorporated in the Republic of South Africa
Reg. No 1913/004355/06
Ordinary share Code: RLO ISIN code: ZAE000057428
("Reunert", "the group" or "the company")
AUDITED PRELIMINARY SUMMARISED CONSOLIDATED RESULTS 2018
and cash dividend declaration for the year ended 30 September 2018
OVERVIEW
Reunert achieved positive growth in the 2018 financial year with group revenue increasing by 7% to R10 492 million (2017: R9 773 million). Pleasingly, in a volatile Rand environment,
operating profit grew by 3% from R1 497 million to R1 542 million. This was achieved despite a sharp decline in Electrical Engineering's profitability, driven by improved earnings in both the ICT and
Applied Electronics segments.
Electrical Engineering's decline in profitability resulted from the recessionary pressures in the key infrastructure markets serviced, reflecting as reduced demand from key state
institutions, and the poor results of Zamefa (the Zambian power cable manufacturer). Zamefa was adversely impacted by Zambia's liquidity constraints and the 27% devaluation in the Zambian
currency to the US Dollar.
The ICT and Applied Electronics segments performed well, particularly in the second half of the year. The ICT segment improved sales in high category multi-functional printers and had good
growth in new total workspace solution sets. Applied Electronics growth was driven by record export sales, the benefit of a weakening Rand in the second half and the rapid expansion of the
renewable energy business.
This improvement in profitability, combined with the reduction in the number of shares in issue (due to the continuation of the share buyback programme) resulted in headline earnings per
share growing by 4%.
FINANCIAL PERFORMANCE
Group results
Key earnings metrics
Units 2018 2017 % Change
Revenue Rm 10 492 9 773 7
Operating profit (before net interest income, dividends and empowerment transactions) Rm 1 542 1 497 3
Profit for the year Rm 1 152 1 142 1
Earnings per share cents 717 680 5
Headline earnings per share cents 703 679 4
Normalised headline earnings per share cents 687 697 (1)
Total cash dividend per share for the year cents 493 474 4
SEGMENTAL RESULTS
Electrical Engineering
Following a record financial year in 2017, Electrical Engineering encountered strong headwinds in the year under review. The segment's revenue was down 2% at R5 139 million. Operating
profit decreased by 37% to R440 million.
The local cable factories experienced a significant reduction in demand from Eskom, municipalities and Telkom. The power cable factory secured alternative orders, but the change in product
mix led to reduced margins. The reduction in Telkom volumes led to a reduction in capacity utilisation at the CBi Telecoms joint venture which returned a loss for the year.
Zamefa experienced serious challenges as liquidity in Zambia came under further pressure. Key state institutions materially extended the time to settle amounts due to Zamefa which put its
available credit facilities under pressure. The Zamefa Board accordingly took a decision to reduce throughput to address this working capital burden. This reduction in activity, together
with foreign exchange losses due to the rapid 27% devaluation of the Zambian Kwacha against the US Dollar, caused a substantial loss at this business unit.
We are pleased to note that the Zambian government will replace value added tax (VAT) with general sales tax (GST) on 1 April 2019. This should allow Zamefa to substantially increase its
throughput, returning the company to profitability once the new GST legislation is enacted.
All three cable business units completed restructuring exercises during the year that have aligned their cost bases to expected medium-term volumes.
Our circuit breaker business exported similar product volumes as in the prior financial year. The stronger Rand in the first half of the year negatively impacted both export revenue and
profit. The local market remained under pressure due to the general economic environment with fewer projects being executed.
We made significant progress in our transformation strategy. We are especially pleased that a second empowerment transaction at our local power cable business unit has grown our direct
black ownership above 51%, including the flow through from Reunert Limited. This development is in keeping with the requirements of the segment's key customers and should enable a
continuation of our market access as the government's infrastructure expenditure increases. The non-cash IFRS: 2 (Share-Based Payments) charge resulting from this transaction was R32
million.
ICT
The ICT segment had another pleasing year as it continues to implement its strategy. Revenue increased by 4% to R3 443 million and operating profit increased by 25% to R792 million,
including a fair value gain of R77 million as a result of the remeasurement of the SkyWire contingent purchase consideration. Excluding the fair value remeasurement, the operating profit
increased by 13% to R715 million. The remeasurement arose from the finalisation of the probable achievement of the earn-out threshold in the SkyWire purchase agreement.
The office automation cluster continued to produce strong product sales. Revenue from products and services grew by 7% and this year generated 13% (2017: 13%) of total revenue. The
franchise channel performed strongly and the adoption rate of the new total workspace products and services continues to increase.
The communications cluster performed well as ECN's increased voice traffic translated into improved operating profit. SkyWire should underpin continued growth in the cluster despite
further regulated interconnect rate decreases and increased pressure on voice minute volumes being expected in the 2019 financial year.
The group's finance book increased in line with the improved sales of office automation equipment. The loan book closed at R2 811 million (2017: R2 428 million) and delivered another good
performance as bad debt remained at low levels.
Applied Electronics
Revenue in Applied Electronics increased 28% to R2 198 million while operating profit increased by 38% to R380 million, inclusive of the capital profit of R28 million generated on the sale
of a property no longer required by the segment. Excluding this capital profit, the segment's operating profit grew by 28% to R352 million.
Full year revenue and operating profit increased considerably at the export-orientated fuze factory and at our renewable energy solution provider. The balance of the business units in this
segment generally had results in line with the prior year.
Our pipeline of contracts remains positive. The fuze factory has a near-full production order book for 2019, albeit at lower margins than in the 2018 financial year. In August 2018, our
secure communication cluster successfully concluded contracts for the next multi-year rollout of digital tactical communication systems into the South African National Defence Force. This
will ensure a strong baseload over the next 18 months. We foresee good export orders as our new digital platforms continue to gain acceptance in export markets.
The pipeline for local and export defence radars is considerably stronger than the last few years, supported by the recent conclusion of a combined radar, communications and self-levelling
(Rogue) platform order for the Navy's new frigates.
GROUP CASH RESOURCES
At year-end the group had combined money market deposits and other liquid resources totalling R572 million (2017: R1 455 million). This, together with existing short-term facilities,
provides the funds required to continue executing our strategy.
As our current banking facilities generally have a tenure of one year (before requiring renewal) we have started the process of arranging a longer-term syndicated loan facility for R2 500
million, comprising facilities with a blend of 3-5 and 7-year tenures.
The substantial reduction in cash on hand reflects both the working capital increase resulting from the extremely high revenue generation in the last quarter which will convert into cash
during the first half of 2019, and the continued implementation of our strategy.
SHARE BUYBACK PROGRAMME
The share buyback programme continued, increasing the number of shares purchased from 3,4 million in 2017 to a total of 5 million shares by the end of September 2018. This process
returned a further R115 million to shareholders.
Group empowerment structure
Reunert exercised its option to extend the tenure of the Bargenel empowerment arrangement (18,5 million Reunert shares which are eliminated on consolidation) for a further four years. No
IFRS: 2 charge resulted from this extension, as the option value was incorporated in the initial value of the IFRS: 2 charge provided for at the inception of the arrangement 10 years ago.
TAXATION
Reunert was successful in a tax appeal heard at the Supreme Court of Appeal in Bloemfontein. The favourable ruling allowed the group to release a provision for normal taxation of R42
million, which together with non-taxable fair value gains, resulted in the effective rate of tax incurred for the year of 24%.
CAPITAL EXPENDITURE
Capital expenditure on replacement assets across the group amounted to R56 million (2017: R45 million) and on expansionary capital R106 million (2017: R98 million). This expenditure was
funded from internal cash resources and represented 23% (2017:12%) of free cash flow before capital expenditure.
NEW ACCOUNTING STANDARDS
We undertook a significant exercise to evaluate the impact of and to prepare for the introduction of two new accounting standards being IFRS 9: Financial Instruments and IFRS 15: Revenue
from Contracts with Customers. Both of these standards will be effective for the group from the 2019 financial year and will be applied from 1 October 2018. The cumulative impact will be
reflected as an adjustment to opening retained income in the 2019 financial year.
The table below reflects the maximum expected potential transitional adjustment.
Gross Impact Tax Effect Effect on
opening
retained
income
Rm Rm Rm
Increase in impairment provision for uncollectable receivables (IFRS 9) 35 (10) 25
Difference arising from applying different revenue recognition criteria (IFRS 15) 105 (30) 75
Total reduction in opening retained income 140 (40) 100
DIRECTORATE
With effect from 1 July 2018 John Hulley was appointed to the Board as an independent non-executive director. John will also serve on the Risk and Remuneration Committees.
There were no other changes in the Directorate since our last report issued on 25 May 2018.
PROSPECTS
The recent government commitments to increase infrastructure investment bode well for a recovery in the Electrical Engineering segment although uncertainty as to the timing and extent
prevails.
The Applied Electronics segment has solid order books in most business units and we continue to anticipate good growth in our renewable energy business. However, the fuze factory's
profitability will reduce in the coming financial year due to the product mix in its export contracts. The ICT segment is anticipated to continue to deliver a good performance as its
strategy execution continues and the SkyWire acquisition bolsters the growth of the segment.
Subject to no significant changes in local socio-economic conditions, the implementation of GST, as planned, in Zambia and moderate currency volatility, the group should deliver another
solid performance in the 2019 financial year.
CASH DIVIDEND
Notice is hereby given that a gross final cash dividend No 185 of 368,0 cents per ordinary share (2017: 354,0 cents per share) has been declared by the directors for the year ended 30
September 2018.
The dividend has been declared from retained earnings, bringing the total dividends declared out of 2018 profit for the year to 493,0 cents per share.
A dividend withholding tax of 20% will be applicable to all shareholders who are not exempt from, or who do not qualify for a reduced rate of withholding tax.
Accordingly for those shareholders subject to withholding tax, the net dividend amounts to 294,40 cents per share.
The issued share capital at the declaration date is 184 585 396 ordinary shares.
In compliance with the requirements of Strate Proprietary Limited and the Listings Requirements of the JSE, the following dates are applicable:
Last date to trade (cum dividend) Tuesday, 15 January 2019
First date of trading (ex dividend) Wednesday, 16 January 2019
Record date Friday, 18 January 2019
Payment date Monday, 21 January 2019
Shareholders may not dematerialise or rematerialise their shares between Wednesday, 16 January 2019 and Friday, 18 January 2019, both days inclusive.
On behalf of the board
Trevor Munday Alan Dickson Nick Thomson
Chairman Chief Executive Officer Chief Financial Officer
Sandton, 19 November 2018
SUMMARISED CONSOLIDATED STATEMENT OF PROFIT OR LOSS
for the year ended 30 September 2018
R million Notes Audited Audited %
2018 2017 change
Revenue 10 492 9 773 7
EBITDA* 1 699 1 635 4
Depreciation and amortisation (157) (138) 14
Operating profit (before net interest income and dividends, and empowerment transactions) 2 1 542 1 497 3
Net interest income and dividends 3 11 65 (83)
Profit (before empowerment transactions) 1 553 1 562 (1)
Empowerment transactions 4 (42) (20)
Profit before taxation 1 511 1 542 (2)
Taxation (358) (437) (18)
Profit after taxation 1 153 1 105 4
Share of joint ventures' and associate's profit (1) 37
Profit for the year 1 152 1 142 1
Profit attributable to:
Non-controlling interests (6) 30
Equity holders of Reunert 1 158 1 112 4
Cents
Basic earnings per share 5, 6 717 680 5
Diluted earnings per share 5, 6 705 670 5
Other measures of earnings per share
Cents Notes Audited Audited %
2018 2017 change
Headline earnings per share 5, 6 703 679 4
Diluted headline earnings per share 5, 6 691 670 3
Normalised headline earnings per share 5, 6 687 697 (1)
Diluted normalised headline earnings per share 5, 6 675 687 (2)
Total cash dividend per share for the year 493 474 4
* Earnings before net interest income and dividends; taxation; depreciation and amortisation; and empowerment transactions
SUMMARISED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 September 2018
R million Audited Audited
2018 2017
Profit for the year 1 152 1 142
Other comprehensive income, net of taxation:
Items that may be reclassified subsequently to profit or loss (65) 8
(Losses)/gains arising from translating the financial results of foreign subsidiaries (23) 8
Translation loss on net investment in subsidiary* (42) -
Total comprehensive income 1 087 1 150
Total comprehensive income attributable to:
Non-controlling interests (9) 34
Share of profit for the year (6) 30
Share of other comprehensive income (3) 4
Equity holders of Reunert 1 096 1 116
Share of profit for the year 1 158 1 112
Share of other comprehensive income (62) 4
* Translation loss arising on the loan component of the group's net investment in a foreign subsidiary.
SUMMARISED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at 30 September 2018
R million Notes Audited Audited
2018 2017
Non-current assets
Property, plant and equipment, investment properties and intangible assets 1 297 1 095
Goodwill 7 1 053 921
Investments and loans 56 55
Investment in joint ventures and associate 158 159
Rental and finance lease receivables 1 990 1 682
Deferred taxation 151 105
4 705 4 017
Current assets
Inventory 1 461 1 439
Rental and finance lease receivables 821 747
Accounts receivable and taxation 2 694 2 222
Derivative assets 7 12
Money market instruments - 130
Cash and cash equivalents 765 1 522
5 748 6 072
Total assets 10 453 10 089
Equity attributable to equity holders of Reunert 7 438 7 138
Non-controlling interests 88 105
Total equity 7 526 7 243
Non-current liabilities
Deferred taxation 156 112
Long-term borrowings 8 82 73
Put option liability 9 120 121
Share-based payment liability 23 -
381 306
Current liabilities
Accounts payable, provisions and taxation 2 270 2 304
Derivative liabilities 65 28
Bank overdrafts and short-term loans 193 197
Current portion of long-term borrowings 8 18 11
2 546 2 540
Total equity and liabilities 10 453 10 089
SUMMARISED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 September 2018
R million Audited Audited
2018 2017
Share capital 374 359
Balance at the beginning of the year 359 343
Issue of shares 15 16
Share-based payment reserves 256 176
Balance at the beginning of the year 176 136
Equity-settled share-based payments 79 40
Transfer to retained earnings 1 -
Equity transactions/put option with non-controlling shareholders (108) (116)
Balance at the beginning of the year (116) -
Put option - (116)
Acquisition of businesses1 (3) -
Transfer to retained earnings1 11 -
Empowerment shares2 (276) (276)
Treasury shares3 (342) (227)
Balance at the beginning of the year (227) (28)
Shares bought back during the year (115) (203)
Shares used for incentive scheme - 4
Foreign currency translation reserves (23) (3)
Balance at the beginning of the year (3) (7)
Other comprehensive income (20) 4
Translation loss on net investment in foreign subsidiary (42) -
Balance at the beginning of the year - -
Current period loss (42) -
Retained earnings 7 599 7 225
Balance at the beginning of the year 7 225 6 843
Profit for the year attributable to equity holders of Reunert 1 158 1 112
Cash dividends declared and paid (772) (730)
Transfer from reserves (12) -
Equity attributable to equity holders of Reunert 7 438 7 138
Non-controlling interests 88 105
Balance at the beginning of the year 105 81
Share of total comprehensive income (9) 34
Dividends declared and paid (9) (15)
Net changes in non-controlling interests 1 5
Total equity at end of the year 7 526 7 243
1 In respect of the acquisition of further interests in Terra Firma Solutions (3,38%). Refer to note 10 - other transactions. R3 million of the transfer to retained earnings relates
to the Terra Firma acquisition and R8 million relates to the finalisation of the put option in Ryonic Robotics.
2 These are the cost of Reunert Limited shares held by Bargenel Investments Proprietary Limited (Bargenel), a company sold by Reunert to its empowerment partner in 2007.
Until the amount owing by the empowerment partner is repaid to Reunert, Bargenel is consolidated by the group as the significant risks and rewards of ownership of the equity have not
passed to the empowerment partner.
3 Reunert shares bought back in the market and held by a subsidiary: 4 997 698 (2017: 3 392 422).
SUMMARISED CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 30 September 2018
R million Notes Audited Audited
2018 2017
EBITDA 1 699 1 635
Increase in net working capital (498) (225)
Other net non-cash movements (79) 60
Cash generated from operations 1 122 1 470
Net cash interest income and dividends 20 70
Taxation paid (445) (375)
Dividends paid (including to non-controlling interests) (781) (745)
Net (outflow)/inflow from operating activities (84) 420
Net outflow from investing activities (597) (21)
Capital expenditure (162) (143)
Net inflow arising from disposal of businesses - 15
Gross cash flows on acquisition of businesses 10 (228) (241)
Increase in total rental and finance lease receivables (375) (231)
Net other investments and loans (granted)/repaid (3) (2)
Dividends received from joint venture - 30
Investments net of other capital proceeds1 171 551
Net outflow from financing activities (85) (386)
Shares issued 15 16
Investment in treasury shares (115) (203)
Net long-term borrowings raised/(repaid) 20 (199)
Shares acquired in terms of retention scheme (2) -
Net transactions with non-controlling interests (2) -
Exercise of Ryonic put option (1) -
(Decrease)/increase in net cash resources (766) 13
Net cash resources at the beginning of the year 1 325 1 312
Net cash resources at the end of the year 559 1 325
Cash and cash equivalents 765 1 522
Foreign exchange translation adjustments on cash and cash equivalents2 11 -
Bank overdrafts (126) (138)
Foreign exchange translation adjustments on bank overdrafts2 (24) -
Short-term borrowings (67) (59)
Net cash resources at the end of the year 559 1 325
1 This includes R130 million withdrawal from investments in long-dated money market instruments (2017: R540 million).
2 In the prior year, these effects were insignificant.
SUMMARISED SEGEMENTAL ANALYSIS
at 30 September 2018
R million Audited % Audited % %
2018 of total 2017 of total change
Revenue1
Electrical Engineering 5 139 48 5 247 51 (2)
ICT 3 443 32 3 307 32 4
Applied Electronics 2 198 20 1 720 17 28
Other 15 - 14 - 7
Total segment revenue 10 795 100 10 288 100 5
Revenue from equity accounted joint venture in Electrical Engineering segment (271) (489) -
Revenue from equity accounted associate in ICT segment (29) (26)
Revenue from equity accounted joint venture in Other segment (3) -
Revenue as reported 10 492 9 773 7
Operating profit
Electrical Engineering 440 29 696 45 (37)
ICT2 792 51 635 41 25
Applied Electronics 380 25 276 18 38
Other (73) (5) (59) (4) (24)
Total segment operating profit 1 539 100 1 548 100 (1)
Operating loss/(profit) from equity accounted joint venture in Electrical Engineering segment 9 (48)
Operating profit from equity accounted associate in ICT segment (3) (3)
Operating profit from equity accounted joint venture in Other segment (3) -
Operating profit as reported 1 542 1 497 3
1 Inter-segment revenue is immaterial and has not been separately disclosed.
2 Net interest charged on group funding provided to the group's in-house finance operation has been eliminated in line with the consolidation principles of IFRS. This elimination
amounted to R146 million (2017: R125 million).
Should this operation be externally funded, this would result in a reduction of ICT's operating profit by the quantum of the external interest paid.
R million Audited % Audited %
2018 of total 2017 of total
Total assets
Electrical Engineering 2 978 28 3 115 31
ICT 4 662 45 3 952 39
Applied Electronics 2 443 23 1 854 18
Other3 370 4 1 168 12
Total assets as reported 10 453 100 10 089 100
Total liabilities
Electrical Engineering 1 105 38 1 153 41
ICT 845 29 740 26
Applied Electronics 807 27 744 26
Other 170 6 209 7
Total liabilities as reported 2 927 100 2 846 100
3 This mainly comprises properties and in the prior year mainly comprised properties and group treasury cash balances.
1 Basis of preparation
These preliminary summarised consolidated financial statements have been prepared in compliance with the framework concepts and the recognition and measurement requirements
of International Financial Reporting Standards (IFRS) in effect for the group at 30 September 2018, and further comply with the SAICA Financial Reporting Guides, as issued by the
Accounting Practices Committee and the Financial Reporting pronouncements as issued by the Financial Reporting Standards Council. These summarised consolidated financial statements contain
the minimum information as required by IAS 34 - Interim Financial Reporting, and comply with the Listings Requirements of the JSE Limited and the requirements of the Companies Act, No 71
of 2008, of South Africa. This report was compiled under the supervision of NA Thomson CA(SA) (chief financial officer).
The group's accounting policies applied for the year ended 30 September 2018, were consistent with those applied in the prior year's audited consolidated annual financial statements.
These accounting policies comply with IFRS.
R million Audited Audited
2018 2017
2 Operating profit
Operating profit includes:
- Cost of sales (excluding depreciation and amortisation) 6 999 6 309
- Other expenses (expenses excluding depreciation and amortisation) 1 976 1 859
- Other income 82 30
- Fair value gain on contingent purchase consideration 100* -
- Depreciation and amortisation 157** 138**
- Included in other expenses above are:
- Realised loss on foreign exchange and derivative instruments (99) (20)
- Unrealised gain on foreign exchange and derivative instruments 21 1
- Auditors' remuneration 25 24
3 Net interest income and dividends
Interest income and dividends 60 113
Interest expense (40) (43)
Interest on unwinding of put option liability (9) (5)
Total 11 65
* Includes routine movements of R23 million and a non routine movement of R77 million arising from the SkyWire fair value remeasurement.
** Depreciation and amortisation allocated to cost of sales in gross margin calculations is R 51 million (2017: R57 milion). Depreciation and amortisation allocated to other expenses is
R106 million (2017: R81 million).
R million Audited Audited
2018 2017
4 Empowerment transactions
IFRS 2 share-based payment cost of BBBEE transactions** 32 20
Professional costs related to BBBEE transactions 10 -
Taxation thereon - -
Net empowerment transactions after taxation 42 20
5 Number of shares and earnings used to calculate earnings^ per share
Weighted average number of shares in issue, net of treasury and empowerment shares,
used to determine basic earnings, headline earnings and normalised headline earnings per share
(millions of shares) 161 164
Adjusted by the dilutive effect of unexercised share options granted (millions of shares) 3 2
Weighted average number of shares used to determine diluted basic, headline and
normalised headline earnings per share (millions of shares) 164 166
6 Headline earnings
6.1Profit attributable to equity holders of Reunert 1 158 1 112
Headline earnings are determined by eliminating the effect of the following
items from attributable earnings:
Net gain on disposal of assets (after a tax charge of R5 million and non-controlling
interest (NCI) portion of Rnil) (2017: tax and NCI of Rnil) (23) (1)
Headline earnings 1 135 1 111
** Included in the prior year charge is a donation to an empowerment structure for R1 million.
^ The earnings used to determine earnings per share and diluted earnings per share are the profit for the year attributable to equity holders of Reunert of R1 158 million
(2017: R1 112 million). (Refer to the statement of profit or loss.)
R million Audited Audited
2018 2017
6.2Normalised headline earnings*
Headline earnings 1 135 1 111
Normalised headline earnings are determined by eliminating the effect of the following items from headline earnings:
Empowerment transactions 42 20
Once-off IFRS 2 share-based payment cost of BBBEE transactions (tax and NCI of Rnil) (2017: tax and NCI of Rnil) 32 19
Professional fees for BBBEE transactions (tax and NCI of Rnil) (2017: tax and NCI of Rnil) 10 -
Once-off donation to empowerment structure (2017: tax and NCI of Rnil) - 1
Acquisition transactions (68) 9
Recurring professional fees for acquisitions (tax and NCI of Rnil) (2017: tax and NCI of Rnil) 9 9
Once-off contingent consideration fair value remeasurement (tax and NCI of Rnil) (2017: tax and NCI of Rnil)^ (77) -
Normalised headline earnings 1 109 1 140
* The pro forma financial information above has been prepared for illustrative purposes only to provide information on how the normalised earnings adjustments might have impacted on
the financial results of the group. Because of its nature, the pro forma financial information may not be a fair reflection of the group's results of operation, financial position, changes
in equity or cash flows.
The pro forma financial effects have been prepared in a manner consistent in all respects with IFRS, the accounting policies adopted by Reunert Limited as at 30 September 2018, the
revised SAICA guide on pro forma financial information and the Listings Requirements of the JSE Limited.
There are no post-balance sheet events that necessitate adjustment to the pro forma financial information.
The directors are responsible for compiling the pro forma financial information on the basis of the applicable criteria specified in the JSE Listings Requirements.
The pro forma financial information should be read in conjunction with the unmodified Deloitte & Touche independent reporting accountants' reasonable assurance report thereon, which is
available for inspection at the Company's registered office.
^ In respect of SkyWire (refer to note 10). At year end the contingent purchase consideration was adjusted to R16 million, resulting in a fair value remeasurement gain of R77
million. This is disclosed in EBITDA in the statement of profit or loss.
R million Audited Audited
2018 2017
7 Goodwill
Carrying value at the beginning of the year 921 737
Acquisition of businesses* (Note 10) 146 171
Adjustment to goodwill on finalisation of acquisition made in prior financial year - 33
Disposal of a controlling interest in a subsidiary - (12)
Disposal of businesses - (9)
Exchange differences on consolidation of foreign subsidiaries (14) 1
Carrying value at the end of the year 1 053 921
8 Long-term borrowings
Total long-term borrowings (including finance leases) 100 84
Less: short-term portion (including finance leases) (18) (11)
82 73
* At 30 September 2018, the purchase price allocation of the acquisitions made in 2018 have not been finalised and therefore the amounts reported are provisional and subject to
change.
R million Audited Audited
2018 2017
9 Put option liability
As part of the Terra Firma and Ryonic acquisitions, the group granted put options
in favour of the non-controlling shareholders for 25% of the issued share capital. During the current
year the Ryonic put obligation was re-negotiated and settled.
A reconciliation of the closing balance is as below:
Balance at the beginning of the year 121 -
Raised at acquisition at fair value - 116
Fair value remeasurements (9) -
Payment to option holder (Ryonic) (1) -
Unwinding of discount 9 5
Balance at the end of the year 120 121
The obligations were classified as level 3 instruments in the fair value hierarchy.
For Terra Firma, the fair value of the put option liability has been determined using a discounted cash flow valuation technique and is based on the multiples stipulated in the sales and
purchase agreement. Significant unobservable inputs include:
- The 2020 forecast revenue and net profit after tax (NPAT) have been used. These forecasts are based on management's best estimate of the revenue and NPAT likely to be achieved in 2020.
- The earnings multiples are as stipulated in the sales and purchase agreement.
- The discount rate applied was 8%, being the average cost of borrowing.
If the key unobservable inputs to the valuation model being estimated were 1% higher/lower while all the other variables were held constant, the carrying amount of the put option
liabilities would decrease/increase by R2 million respectively.
R million Audited
2018
10 Acquisition of businesses
During the current period the group made the following acquisitions:
- SkyWire Proprietary Limited: With effect from 1 March 2018, the group acquired
100% of the business and related assets of SkyWire, a provider of broad band connectivity, in an asset
transaction. The R146 million in goodwill arising from the acquisition is attributable
to the expected high growth in this business and the ability to harvest significant synergies through
the ICT segment's distribution network. As the ICT segment in the Reunert group is seeking
to diversify its product offerings, and its existing services depend on reliable high-speed data
connections, SkyWire data-access products provide a natural extension of the segment's service
offering. Synergies will also be obtained from the vertical integration with the group's
other businesses in the ICT Segment. A contingent purchase consideration amounting to R93 million
was raised on acquisition*. This is disclosed in note 13. 205
- Dopptech Proprietary Limited: With effect from 1 March 2018, the group acquired 100% of the share
capital of Dopptech Proprietary Limited. An intangible asset of R51 million was valued on
acquisition attributable mainly to the customer relationships in key geographic regions not accessible
to the group as well as patents currently in use. The company has a well-developed
R&D capability in electro-mechanical engineering that will assist with product development within the
Applied Electronics segment. A contingent purchase consideration amounting to R17
million was also raised on acquisition. This is disclosed in note 13. 20
- Other transactions: 4
During the current year the group increased its holding in Terra Firma Solutions Proprietary Limited from 51% to 54,38%.
The group purchased the remaining 25,1% of Ryonic Robotics Proprietary Limited from the existing non-controlling shareholder. 1
Direct cash cost 230
Net borrowings acquired on acquisition 3
Net cash flows on acquisition of businesses^ 233
Contingent purchase considerations 110
Total purchase consideration 343
* This contingent purchase consideration was finalised and remeasured to R16 million at the financial year end (refer to note 6).
^ Reflected in the statement of cash flows in the following lines:
- gross cash flows on acquisition of business R228 million
- incorporated as part of net transactions with non-controlling interests R4 million
- exercise of Ryonic put option R1 million
Gross assets acquired and liabilities taken over:
Property, plant and equipment and intangible assets 235
Inventory 2
Receivables 2
Payables (1)
Deferred taxation (46)
Goodwill 146
Non-controlling interests 1
Transactions with non-controlling interests 3
Put option liability 1
Net assets acquired 343
Revenue since acquisition 71
Profit after taxation since acquisition* 1
Revenue for the 12 months ended 30 September 2018 as though the acquisition dates had been 1 October 2017 119
Profit after taxation for the 12 months ended 30 September 2018 as though the acquisition dates had been 1 October 2017^ 2
The value of uncollectible accounts receivable at acquisition was negligible.
2017
Refer to 2017 published results.
* Includes the after tax effect of R13 million of additional depreciation and amortisation since acquisition. The additional depreciation and amortisation relate to the revalued
plant and equipment and intangible assets on acquisition.
^ Includes the after tax effect of R22 million of depreciation and amortisation as noted in 1 above had the acquisition been 1 October 2017.
11 Unconsolidated subsidiary
The financial results of Cafca Limited (Cafca), a 70%-owned subsidiary of the company, incorporated in Zimbabwe, have not been consolidated into the group results as the group does not
exercise management control because it does not have the ability to affect its variable returns through its powers over Cafca.
This is supported by:
- Reunert having not appointed a majority of the directors to the board of directors of Cafca and therefore does not control the board; and
- The difficult economic circumstances in Zimbabwe have resulted in an ongoing liquidity constraint which impairs Reunert's ability to repatriate the economic benefits from Cafca
(e.g. dividends).
The amounts involved are not material to the group's results.
At 30 September 2018, Cafca's share capital and reserves amounted to USD16 million (2017: USD15 million) after the declaration in 2018 of a dividend of USD3.5 million. Reunert has applied
for the repatriation of its portion of the dividend, but permission has not yet been received. If permission is not received, the cash proceeds will be re-advanced to the company as a
shareholder loan.
12 Related party transactions
R million Relationship Sales Purchases Lease Treasury
Counterparty payments shares
All related-party transactions, trading account and loan balances are on the same
terms and conditions as those with non-related parties.
September 2018
CBI-electric Telecom Cables Proprietary Limited A joint venture 2 5 - -
Oxirostax Proprietary Limited (Nashua Winelands) An associate 16 2 - -
Bargenel Investments Proprietary Limited Owns 18,5m Reunert shares - - - 276
Lexshell 661 Investment Proprietary Limited A joint venture - - 5 -
September 2017
CBI-electric Telecom Cables Proprietary Limited A joint venture 3 35 - -
Oxirostax Proprietary Limited (Nashua Winelands) An associate 2 22 - -
Bargenel Investments Proprietary Limited Owns 18,5m Reunert shares - - - 276
Lexshell 661 Investment Proprietary Limited A joint venture - - 1 -
R million Audited Audited
2018 2017
13 Contingent purchase considerations
As part of the acquisitions of SkyWire and Dopptech (note 10), the group recognised
contingent purchase considerations on these acquisitions as follows:
Balance at the beginning of the year - -
Transfer from provisions* 27 -
Raised at acquisition at fair value (SkyWire and Dopptech) 110 -
Fair value remeasurements (100) -
Balance at the end of the year^ 37 -
* In 2018, the Omnigo purchase consideration was transferred to the contingent consideration category under trade and other payables. The acquisition of SkyWire and Dopptech in 2018
resulted in additional contingent consideration for the current year. Refer to note 10. Due to the materiality of the amounts on acquisition of these businesses, all contingent
considerations have been separately disclosed.
^ The balance of the contingent purchase consideration have been included in 'Accounts payable, provisions and taxation' on the balance sheet.
These were classified as level 3 instruments in the fair value hierarchy based on the following unobservable inputs:
For Omnigo, the fair value of the contingent purchase consideration is determined using a cash flow valuation technique and is based on earnings multiples stipulated in the purchase
agreement.
The contingent purchase consideration for Omnigo was determined as 40% of the expected excess of profit before interest and tax (PBIT) exceeding a 25% return on expected average capital
employed during the year.
The amount is assessed on an annual basis using forecasted average capital employed and PBIT. The discount rate used is 9,1% (Jibar plus 2%).
For SkyWire, the contingent consideration is based on a defined business plan according to which the company has to achieve certain predefined strategic tasks and objectives within 12
months of the acquisition date. The discount rate used is 9,1% (Jibar plus 2%).
For Dopptech, the contingent consideration is fixed and stipulated within the purchase agreement.
14 Litigation
There is no material litigation being undertaken against or by the group. The group has made adequate provision against any cases where the group considers there are reasonable prospects
for the litigation to succeed. The group has adequate resources and good grounds to defend any litigation it is aware of.
15 Events after reporting date
No events have occurred after the reporting date that require additional disclosure or adjustment to the results presented.
16 Audit opinion
These summarised consolidated financial statements were derived from the consolidated financial statements and are consistent in all material respects with the group's consolidated
financial statements. The directors take full responsibility for the preparation of the summarised consolidated financial statements. The auditors, Deloitte & Touche, have issued
unmodified audit opinions on the consolidated financial statements and on these summarised consolidated financial statements for the year ended 30 September 2018 and the audit opinions and
consolidated financial statements are available for inspection at Reunert's registered office. The audit was conducted in accordance with the International Standards on Auditing. The
auditor's report does not necessarily report on all information contained in this announcement. Shareholders are, therefore, advised that in order to obtain a full understanding of the
nature of the auditor's engagement they should obtain a copy of that report together with the accompanying financial information from Reunert's registered office. Any reference to future
performance included in this announcement has not been reviewed or reported on by the auditors.
additional information
R million (unless otherwise stated) Audited Audited
2018 2017
Current ratio (:1) 2,3 2,4
Quick ratio (:1) 1,7 1,8
Dividend yield (%)* 6,5 7,0
Return on capital employed (%) 19,5 19,8
Net number of ordinary shares in issue (million) 161 162
Number of ordinary shares in issue (million) 185 185
Less: Empowerment shares (million) (19) (19)
Less: Treasury shares (million) (5) (4)
Capital expenditure 162 143
expansion 106 98
replacement 56 45
Capital commitments in respect of property, plant and equipment 83 39
contracted 35 20
authorised not yet contracted 48 19
Commitments in respect of operating leases 252 126
Contingent liabilities** - -
* Calculated as the total dividend out of 2018 profits (interim 125 cents per share and final 368 cents per share) (2017: 120 cents per share and 354 cents respectively) divided by a
Reunert share price of 7 600 cents (2017: 6 772 cents), being the closing market price on 28 September 2018.
** The directors are confident that Reunert Limited and its subsidiaries have no exposure arising from the guarantees and sureties in issue, beyond the liabilities recognised in the
summarised consolidated statement of financial position at the financial year end.
Definitions of ratios and other financial terms are incorporated in the Integrated Report.
ADMINISTRATION
Directors: TS Munday (chairman) *,T Abdool-Samad*, AE Dickson (chief executive officer), JP Hulley*, SD Jagoe*, S Martin*, M Moodley, Adv NDB Orleyn**, SG Pretorius*, T Matshoba-
Ramuedzisi*, MAR Taylor, NA Thomson (chief financial officer), R Van Rooyen*
* Independent non-executive ** Non-executive
Registered office
Nashua Building
Woodmead North Office Park
54 Maxwell Drive
Woodmead, Sandton
PO Box 784391
Sandton, 2146
Telephone +27 11 517 9000
Income taxation reference number 9100/101/71/7P
Transfer secretaries
Computershare Investor Services Proprietary Limited
Rosebank Towers
15 Biermann Avenue
Rosebank, 2196
PO Box 61051
Marshalltown, 2107
Sponsor
One Capital Sponsor Services Proprietary Limited
Registered auditors
Deloitte & Touche
Secretaries' certification
In terms of section 88(2)(e) of the Companies Act, 71 of 2008, I, Karen Louw, duly authorised on behalf of the company secretary, Reunert Management Services Proprietary Limited
(Registration number 1980/007949/07) certify that, to the best of my knowledge and belief, the company has lodged with the Companies and Intellectual Property Commission for the financial
year ended 30 September 2018 all such returns and notices as are required in terms of the aforesaid Act and that all such returns and notices are true and correct.
Karen Louw
for Reunert Management Services Proprietary Limited
Group Company Secretaries
Investor enquiries
Carina de Klerk +27 11 517 9000 or e-mail invest@reunert.co.za.
For additional information log on to the Reunert website at http://www.reunert.com.
20 November 2018 (publication date)
Date: 20/11/2018 02:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.