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Unaudited interim financial statements and cash dividend declaration for the six months ended 31 March 2018
REUNERT LIMITED
Incorporated in the Republic of South Africa
Reg. No 1913/004355/06
Ordinary share Code: RLO ISIN code: ZAE000057428
("Reunert" or "the group" or "the company")
UNAUDITED INTERIM FINANCIAL STATEMENTS 2018
and cash dividend declaration for the six months ended 31 March 2018
Group profile
Reunert manages a diversified portfolio of businesses in the fields of Electrical Engineering, Information Communication Technologies (ICT) and Applied Electronics.
The group was established in 1888, by Theodore Reunert and Otto Lenz, and has contributed to the South African economy in numerous ways. Reunert was listed on the
JSE in 1948 and is included in the industrial goods and services (electronic and electrical equipment) sector of the JSE. The group operates mainly in South Africa
with minor operations in Australia, Lesotho, Sweden, the USA, Zambia and Zimbabwe. Reunert's registered offices are located in Woodmead, Johannesburg, South Africa.
COMMENTARY
Overview
Reunert welcomes the new political administration appointed at the ruling party's elective conference in December 2017. Reunert recognises the commitment, and
subsequent action taken towards ethical leadership, inclusive growth and improved economic growth. We believe this will translate into improved economic conditions
for all South Africans.
Reunert provided FY2018 guidance (as part of its 2017 results overview published in November 2017) on the political and economic changes that may have an impact on
the environment in which the group operates. Several adverse changes in the operating environment occurred in the period under review. Reunert's half year results
to 31st March 2018 reflect a 10% increase in revenue and an 8% decline in operating profit (before interest, dividends and empowerment transactions) ("operating
profit"). The decrease in profitability is largely due to:
1. The significant strengthening of the Rand against the US dollar ("USD") experienced since December 2017 which has impacted the group's profitability on 30% of
its revenue which is foreign currency denominated;
2. An unprecedented reduction in demand from State-Owned Enterprises ("SOEs") and municipalities which materially impacted the Electrical Engineering segment's
profitability; and
3. The country liquidity constraints in Zambia.
Measure Units Six months Six months %
to 31 March to 31 March
2018 2017
Group revenue R million 4 841 4 421 10
Group operating profit (before interest, dividends and empowerment transactions) R million 567 616 (8)
Operating margin % 11,7 13,9 (16)
Profit for the period R million 448 469 (4)
Headline earnings per share Cents 275 275 0
Normalised headline earnings per share Cents 276 292 (5)
Q1: Average exchange rate Rand:1 USD 13,61 13,90 (2)
Q2: Average exchange rate Rand:1 USD 11,95 13,22 (10)
Period end exchange rate Rand:1 USD 11,84 13,14 (10)
FINANCIAL PERFORMANCE
Group revenue
Group revenue increased by 10% from R4 421 million to R4 841 million. This was primarily driven by a 25% increase in revenue from the Applied Electronics segment
arising from our new segment subsidiaries and our large export order book. Revenue in the Electrical Engineering segment increased marginally due to higher metal
prices, offset by a substantial reduction in revenue in our telecom cable joint venture and the impact of the stronger Rand. Revenue in the ICT segment increased in
line with inflation, despite the deflationary pressure of the stronger Rand, driven by positive sales volumes.
GROUP OPERATING PROFIT
Group operating profit declined by 8% from R616 million to R567 million. The primary drivers of this decrease were:
1. The lower margin achieved on export sales and lower earnings from our foreign operations due to the appreciation in the average USD:Rand exchange rate achieved
in the period, which directly impacted profitability;
2. The material reduction in demand from SOEs and municipalities which adversely impacted capacity utilisation and margins in the Electrical Engineering segment; and
3. The reduced manufacturing activities in Zamefa because of Zambia's ongoing liquidity constraints.
These factors resulted in the operating profit in the Electrical Engineering segment declining significantly and the Applied Electronics segment's operating profit
remaining flat despite a 25% increase in revenue.
The ICT segment achieved a 14% increase in operating profit from increased volumes, improved margins and accelerated new customer deals as the segment continued to
successfully implement its Total Office Provider strategy.
Capital allocation
During the six months under review, the group concluded two acquisitions:
- The business of SkyWire, which provides Broad Band Connectivity and is an essential component of the "Total Office Provider" solution set in the ICT segment; and
- Dopptech Proprietary Limited, which provides leading edge and complementary technology to our Applied Electronics fuze business.
These acquisitions are fully aligned with the group's strategic intent of investing into early life cycle and innovative businesses.
In addition to the two acquisitions, the group continued to re-purchase its own shares under its general authority from shareholders. In the six months, the group
purchased a further 1,2 million shares at a total consideration of R85,3 million.
CASH RESOURCES
The reduction in the group's cash resources mainly resulted from the two acquisitions (R227 million), the share buy-back programme (R85 million), investment in
working capital (R269 million) and the increase in the Quince rental book (R195 million). The group's cash resources are expected to improve in the second half of
the financial year.
Taxation
During the period under review, the company was successful with a tax appeal in the Supreme Court of Appeal in Bloemfontein. The favourable ruling resulted in the
group releasing a provision for normal taxation of R40 million resulting in a 21% effective rate of tax incurred for the six month period.
SEGMENTAL RESULTS
Electrical Engineering
The segment's revenue increased by 2% from R2 381 million to R2 431 million.
The power cable revenue was positively impacted, and operating margins negatively impacted, by the pass through of increased metal prices as part of the standard
contract pricing formulae. The adverse liquidity environment in Zambia resulted in Zamefa reducing its manufacturing output to curtail its ongoing funding
requirements caused by the build-up of trade receivables. This development substantially reduced Zamefa's contribution to the group.
Our telecom cable joint venture's key customer substantially reduced its demand for both copper and fibre communication cable as it sought to improve its working
capital management by reducing its stock holdings. This resulted in this business returning a loss to the group of R9 million for the period under review as against
a profit of R23 million in the prior period.
Our circuit breaker business suffered the impact of reduced revenue and operating profit due to the impact of the strengthening of the Rand on its hard currency
revenues and a weakening in local demand particularly in the building sector.
The segment's operating profit declined by 33% from R327 million to R219 million.
Information Communication Technologies
The positive momentum built through the successful execution of the total office provider strategy, together with the firmer exchange rate continues to benefit the
office automation business. The business was able to provide better pricing into the franchise channel leading to a further increase in both its market share and
the number of higher capacity/higher margin units sold which contributed to a substantial increase in profitability.
The segment's voice over internet business continued to attract a significant number of new customers and thereby grow its annuity business although this was
partially offset by a reduction in minutes utilised per customer due to the weak economic climate. Good progress was also made in preparing this business for the
provision of data connectivity to its customers.
The Quince book increased to R2,6 billion due to the strong sales in Office Automation and the quality of the book remains excellent.
The ICT segment's revenue accordingly increased by 4% from R1 602 million to R1 670 million with another strong improvement in its operating profit which increased
by 14% from R278 million to R317 million.
Applied Electronics
The segment's revenue increased by 25% from R693 million to R863 million on the back of positive export sales and the impact of the acquisitions made in this
segment. However, due mainly to the stronger average exchange rate experienced, margins were reduced in the segment resulting in operating profit being flat for the
period at R61 million.
The sales of mining radars was well under expectations in the first half of the financial year but are expected to recover to normal levels in the second half.
Reutech Communications has made good progress in the negotiation of the next phase of the order for tactical radios from the local customer, as well as in securing
good export orders, some of which will be executed in the second half of the financial year.
Although the fuze factory operated at full capacity, the exchange rate and mix of products delivered in the first half of the financial year tempered the results
from this business.
Terra Firma continues to make good progress in concluding and executing Engineering, Procurement, Construction and Management contracts for the installation of
large scale industrial and commercial solar solutions.
Directorate
Tumeka Ramuedzisi was appointed to the Board as an independent non-executive director and as a member of the Audit Committee and the Social Ethics and
Transformation Committee with effect from 1 April 2018.
Thabang Motsohi, an independent non-executive director who was a member of the Risk Committee and Social, Ethics and Transformation Committee, retired at the
conclusion of the Annual General Meeting ("AGM") held on the 12th of February 2018 on reaching the prescribed retirement age of 70.
The Board welcomes Tumeka to the Board and thanks Thabang for his input and contribution over the period of his tenure.
There were no other changes to the composition of either the Board or the Board Committees during the period under review.
Prospects
The group expects an improved performance in the second half of the financial year, subject to there being no material changes to the macro economic conditions. The
expectation is supported by the strong export order books of the Applied Electronics segment, our anticipation of some improvement in volumes and product mix in the
Electrical Engineering segment and the contribution of the ICT segment's performance reinforced by the contribution from the acquisition of SkyWire.
Business risk to Reunert remains in terms of the Rand's strength, exchange rate volatility and from the fiscal and organisational capacity of key state and
municipal customers to place orders at a normal rate.
Post FY18, recent political changes position both the country and the general business environment on a positive trajectory which should result in improved economic
activity. The group remains well positioned to capitalise on the expected improvements in South Africa's economic activity and increase in infrastructure spend.
CASH DIVIDEND
Notice is hereby given that an inflation related increase has been considered in the declaration of a gross interim cash dividend No 184 of 125,0 cents per ordinary
share (2017: 120,0 cents per share) for the six months ended 31 March 2018.
The dividend has been declared from retained earnings.
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 100,0 cents per share.
The issued share capital at the declaration date is 184 439 996 ordinary shares.
In compliance with the requirements of Strate Proprietary Limited and the Listing Requirements of the JSE Limited the following dates are applicable:
Last date to trade (cum dividend) Tuesday, 19 June 2018
First date of trading (ex dividend) Wednesday, 20 June 2018
Record date Friday, 22 June 2018
Payment date Monday, 25 June 2018
Shareholders may not dematerialise or rematerialise their shares between Wednesday, 20 June 2018 and Friday, 22 June 2018, both days inclusive.
On behalf of the board
Trevor Munday Alan Dickson Nick Thomson
Chairman Chief Executive Officer Chief Financial Officer
Sandton, 25 May 2018
CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS
for the six months ended 31 March 2018
Six months ended 31 March
R million Year ended
30 September
2018 2017 2017
Notes (Unaudited) (Unaudited) % change (Audited)
Revenue 4 841 4 421 10 9 773
EBITDA* 636 681 (7) 1 635
Depreciation and amortisation (69) (65) 6 (138)
Operating profit before net interest income and dividends, and
empowerment transactions 2 567 616 (8) 1 497
Net interest income and dividends 3 8 44 (82) 65
Profit before empowerment transactions 575 660 (13) 1 562
Empowerment transactions 4 (2) (20) (20)
Profit before taxation 573 640 (10) 1 542
Taxation (119) (188) (37) (437)
Profit after taxation 454 452 - 1 105
Share of joint ventures' and associate's profit (6) 17 37
Profit for the period 448 469 (4) 1 142
Profit attributable to:
Non-controlling interests 3 17 (82) 30
Equity holders of Reunert 445 452 (2) 1 112
Cents
Basic earnings per share 5,6 275 276 - 680
Diluted earnings per share 5,6 270 273 (1) 670
* Earnings before net interest income and dividends; taxation; depreciation and amortisation; and empowerment transactions.
Other measures of earnings per share
Six months ended 31 March
Cents Notes 2018 2017 % change Year ended
(Unaudited) (Unaudited) 30 September
2017
(Audited)
Headline earnings per share 5, 6 275 275 - 679
Diluted headline earnings per share 5, 6 270 272 (1) 670
Normalised headline earnings per share 5, 6 276 292 (5) 697
Diluted normalised headline earnings per share 5, 6 271 289 (6) 687
Interim/total cash dividend per share 125 120 4 474
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the six months ended 31 March 2018
Six months ended 31 March
R million Notes 2018 2017 Year ended
(Unaudited) (Unaudited) 30 September
2017
(Audited)
Profit for the period 448 469 1 142
Other comprehensive income, net of taxation:
Items that may be reclassified subsequently to profit or loss (62) (3) 8
(Losses)/gains arising from translating the financial
results of foreign subsidiaries (40) (3) 8
Translation loss on net investment in subsidiary* (22) - -
Total comprehensive income 386 466 1 150
Total comprehensive income attributable to:
Non-controlling interests (2) 19 34
- Share of profit for the period 3 17 30
- Share of other comprehensive income (5) 2 4
Equity holders of Reunert 388 447 1 116
- Share of profit for the period 445 452 1 112
- Share of other comprehensive income (57) (5) 4
* Translation loss arising on the loan component of the group's net investment in a foreign subsidiary.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 31 March 2018
R million Notes 2018 2017 30 September
(Unaudited) (Unaudited) 2017
(Audited)
Non-current assets
Property, plant, equipment, investment properties and intangible assets 1 246 1 066 1 095
Goodwill 7 1 088 925 921
Investments and loans 61 49 55
Investment in joint ventures and associate 153 169 159
Rental and finance lease receivables 1 851 1 578 1 682
Deferred taxation 111 83 105
4 510 3 870 4 017
Current assets
Inventory 1 372 1 430 1 439
Rental and finance lease receivables 773 656 747
Accounts receivable and taxation 2 256 2 016 2 222
Derivative assets 16 5 12
Money market instruments - 270 130
Cash and cash equivalents 1 055 1 562 1 522
5 472 5 939 6 072
Total assets 9 982 9 809 10 089
Equity attributable to equity holders of Reunert Limited 6 896 6 858 7 138
Non-controlling interests 97 98 105
Total equity 6 993 6 956 7 243
Non-current liabilities
Deferred taxation 112 96 112
Put option liability 8 125 - 121
Long-term borrowings 9 69 42 73
306 138 306
Current liabilities
Accounts payable, provisions and taxation 2 095 2 112 2 304
Derivative liabilities 26 1 28
Bank overdrafts and short-term loans 551 399 197
Current portion of long-term borrowings 9 11 203 11
2 683 2 715 2 540
Total equity and liabilities 9 982 9 809 10 089
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the six months ended 31 March 2018
Six months ended 31 March
R million Notes 2018 2017 Year ended
(Unaudited) (Unaudited) 30 September
2017
(Audited)
Share capital 365 356 359
Balance at the beginning of the period 359 343 343
Issue of shares 6 13 16
Share-based payment reserves 198 165 176
Balance at the beginning of the period 176 136 136
Equity-settled share-based payments 24 29 40
Shares acquired for incentive scheme (2) - -
Equity transactions/put option with non-controlling shareholders (118) - (116)
Balance at the beginning of the period (116) - -
Put option - - (116)
Equity transaction with non-controlling interests (2) - -
Empowerment shares* (276) (276) (276)
Treasury shares** (312) (136) (227)
Balance at the beginning of the period (227) (28) (28)
Shares bought back during the period (85) (112) (203)
Shares used for incentive scheme - 4 4
Foreign currency translation reserves (38) (12) (3)
Balance at the beginning of the period (3) (7) (7)
Other comprehensive income (35) (5) 4
Translation loss on net investment in foreign subsidiary (22) - -
Balance at the beginning of the period - - -
Current period loss (22) - -
Retained earnings 7 099 6 761 7 225
Balance at the beginning of the period 7 225 6 843 6 843
Profit for the period attributable to equity holders of Reunert 445 452 1 112
Cash dividends declared and paid (571) (534) (730)
Equity attributable to equity holders of Reunert 6 896 6 858 7 138
Non-controlling interests 97 98 105
Balance at the beginning of the period 105 81 81
Share of total comprehensive income (2) 19 34
Dividends declared and paid (5) (6) (15)
Net changes in non-controlling interests (1) 4 5
Total equity at end of the period 6 993 6 956 7 243
* These are 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.
** Reunert shares bought back and held by a subsidiary: 4 604 380 (2017: 2 107 979) (September 2017: 3 392 422).
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
for the six months ended 31 March 2018
Six months ended 31 March
R million Notes 2018 2017 Year ended
(Unaudited) (Unaudited) 30 September
2017
(Audited)
EBITDA 636 681 1 635
Increase in net working capital (269) (55) (225)
Other net non-cash movements 25 11 60
Cash generated from operations 392 637 1 470
Net interest income and dividends 12 44 70
Taxation paid (210) (206) (375)
Dividends paid (including to non-controlling interests) (576) (540) (745)
Net (outflow)/inflow from operating activities (382) (65) 420
Net (outflow)/inflow from investing activities (351) 49 (21)
Capital expenditure (54) (49) (143)
Net inflow arising from disposal of businesses - - 15
Gross cashflows on acquisition of businesses 10 (227) (242) (241)
Increase in total rental and finance lease receivables (195) (77) (231)
Net other investments and loans (granted)/repaid (6) 4 (2)
Dividends received from joint venture - - 30
Investments net of other capital proceeds* 131 413 551
Net outflow from financing activities (88) (133) (386)
Shares issued 6 13 16
Investment in treasury shares (85) (112) (203)
Net long-term borrowings repaid (4) (34) (199)
Shares acquired for incentive scheme (2) - -
Equity transactions with non-controlling interests (3) - -
(Decrease)/increase in net cash resources (821) (149) 13
Net cash resources at the beginning of the period 1 325 1 312 1 312
Net cash resources at the end of the period 504 1 163 1 325
Cash and cash equivalents 1 055 1 562 1 522
Bank overdrafts (344) (325) (138)
Short-term borrowings (207) (74) (59)
Net cash resources at the end of the period 504 1 163 1 325
* This includes R130 million withdrawal from investments in long-dated money market instruments (2017: R400 million) (September 2017: R540 million).
CONDENSED SEGMENTAL ANALYSIS
at 31 March 2018
Six months ended 31 March
R million 2018 % 2017 % of total % change Year ended % of total
(Unaudited) of total (Unaudited) 30 Sept
Restated3 2017
(Audited)
Revenue1
Electrical Engineering 2 431 49 2 381 51 2 5 247 51
ICT 1 670 34 1 602 34 4 3 307 32
Applied Electronics 863 17 693 15 25 1 720 17
Other 5 - 8 - (38) 14 -
Total segment revenue 4 969 100 4 684 100 6 10 288 100
Revenue from equity- accounted joint venture in Electrical Engineering segment (114) (251) (489)
Revenue from equity- accounted associate in ICT segment (14) (12) (26)
Revenue as reported 4 841 4 421 10 9 773
Operating profit
Electrical Engineering 219 39 327 51 (33) 696 45
ICT2 317 57 278 43 14 635 41
Applied Electronics 61 11 61 10 - 276 18
Other (38) (7) (26) (4) 46 (59) (4)
Total segment operating profit 559 100 640 100 (13) 1 548 100
Operating loss/(profit) from equity-accounted joint venture in Electrical Engineering segment 9 (23) (48)
Operating profit from equity-accounted associate in ICT segment (1) (1) (3)
Operating profit as reported 567 616 (8) 1 497
1 Inter-segment revenue is immaterial and has not been separately disclosed.
2 Net interest charged on group funding provided to Quince has been eliminated in line with the consolidation principles of IFRS. This elimination amounted to
R70 million (2017:R56 million, September 2017: R125 million).
Should Quince be externally funded, this would result in a reduction of ICT's operating profit by the quantum of the external interest paid.
3 The segment analysis for March 2017 has been restated in order to eliminate the effect of head office administration costs from the operating segments.
Reconciliation of segment operating profit:
R million 2017 Elimination of 2017
Operating head office Operating
profit as administration profit as
previously costs reported now
reported
Electrical Engineering 309 8 327
ICT 263 15 278
Applied Electronics 54 7 61
Other 14 (40) (26)
Total segment operating profit 640 - 640
At 31 March
R million At
30 Sept
2018 % 2017 2017
(Unaudited) of total (Unaudited) % of total (Audited) % of total
Total assets
Electrical Engineering 2 869 29 2 758 28 3 115 31
ICT 4 490 45 3 777 39 3 952 39
Applied Electronics 1 970 20 1 853 19 1 854 18
Other4 653 6 1 421 14 1 168 12
Total assets as reported 9 982 100 9 809 100 10 089 100
4 Other consists mainly of group treasury cash balances.
NOTES
1 Basis of preparation
This unaudited interim financial report has been prepared in accordance with the framework concepts and the recognition and measurement requirements of
International Financial Reporting Standards (IFRS) in effect for the group at 1 October 2017, and further complies with the SAICA Financial Reporting Guides, as
issued by the Accounting Practices Committees and the Financial Reporting pronouncements as issued by the Financial Reporting Standards Council. This interim
financial report was prepared using the information as required by IAS 34 - Interim Financial Reporting, and complies 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 period ended 31 March 2018, were consistent with those applied in the prior financial year's audited consolidated
annual financial statements. These accounting policies comply with IFRS.
Six months ended 31 March
R million Year ended
30 September
2018 2017 2017
(Unaudited) (Unaudited) (Audited)
2 Operating profit
Operating profit includes:
- Cost of sales 3 350 2 931 6 366
- Other expenses excluding depreciation and amortisation 855 828 1 783
- Other income 21 11 30
- Realised (loss)/gain on foreign exchange and derivative instruments (10) 19 (20)
- Unrealised (loss)/gain on foreign exchange and derivative instruments (11) (11) 1
3 Net interest income and dividends
Interest income and dividends 31 64 113
Interest expense (19) (20) (43)
Put option liability: unwinding of discount (4) - (5)
Total 8 44 65
4 Empowerment transactions
BBBEE costs 2 20 20
Taxation thereon - - -
Net empowerment transactions after taxation* 2 20 20
* Included in March and September 2017 is a donation to create an empowerment structure for R1 million.
Six months ended 31 March
R million/millions of shares granted Year ended
30 September
2018 2017 2017
(Unaudited) (Unaudited) (Audited)
5 Number of shares and earnings used to calculate earnings per share
Weighted average number of shares in issue used to determine basic earnings,
headline earnings and normalised headline earnings per share (millions
of shares) 162 164 164
Adjusted by the dilutive effect of unexercised share options granted (millions of shares) 3 2 2
Weighted average number of shares used to determine diluted basic,
headline and normalised headline earnings per share (millions of shares) 165 166 166
6 Headline earnings
6.1 Profit attributable to equity holders of Reunert 445 452 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 Rnil and non-controlling
interest (NCI) portion of Rnil) (March and September 2017:tax and NCI of Rnil) - (2) (1)
Headline earnings 445 450 1 111
Six months ended 31 March
R million Year ended
30 September
2018 2017 2017
(Unaudited) (Unaudited) (Audited)
6.2 Normalised headline earnings*
Headline earnings 445 450 1 111
Normalised headline earnings are determined by eliminating
the effect of the following items from headline earnings:
Empowerment transactions 2 20 20
Once-off IFRS 2 share based payment cost of BBBEE transactions
(tax and NCI of Rnil) (March and September 2017: tax and NCI of Rnil) - 19 19
Once-off donation to create empowerment structure (tax and NCI of Rnil) - 1 1
Once-off other BBBEE costs 2 - -
Recurring merger and acquisition costs (tax and NCI of Rnil)
(March and September 2017: tax and NCI of Rnil) - 9 9
Normalised headline earnings 447 479 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 2017, the revised SAICA guide on pro forma financial information and the Listings Requirements of the JSE Limited.
There are no post balance sheet events which 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.
Six months ended 31 March
R million Year ended
30 September
2018 2017 2017
(Unaudited) (Unaudited) (Audited)
7 Goodwill
Carrying value at the beginning of the period 921 737 737
Acquisition of businesses1 (Note 10) 183 172 171
Adjustment to goodwill on finalisation of acquisition made in prior financial year - 33 33
Disposal of a controlling interest in a subsidiary - (12) (12)
Disposal of businesses - - (9)
Exchange differences on consolidation of foreign subsidiaries (16) (5) 1
Carrying value at the end of the period 1 088 925 921
1 At 31 March 2018, the purchase price allocation of the acquisitions made in the 2018 financial year have not been finalised and therefore the amounts
reported are provisional and subject to change.
Six months ended 31 March
R million Year ended
30 September
2018 2017 2017
(Unaudited) (Unaudited) (Audited)
8 Put Option Liability
As part of the Terra Firma and Ryonic acquisitions, the group has granted put
options in favour of the non-controlling shareholders for 25% of the issued share
capital, in both cases.
A reconciliation of the closing balance is as below:
Balance at the beginning of the period 121 - -
Raised at acquisition at fair value - - 116
Fair value remeasurements - - -
Unwinding of discount 4 - 5
Balance at the end of the period 125 - 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 earnings 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 stipulated in the sales and purchase agreement.
- The discount rate of 8%, being the average cost of borrowing.
The put option for Ryonic is immaterial.
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 R3 million respectively.
9 Long-term borrowings
Total long-term borrowings (including finance leases) 80 245 84
Less: short-term portion (including finance leases) (11) (203) (11)
69 42 73
R million 2018
(Unaudited)
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. 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 group is seeking to diversify their product offerings, and their 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. The R37 million in
goodwill arising from the acquisition is attributable to the business's core product
offerings; customer relationships in key geographic regions not currently
accessible to the group; and 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
R17,5 million was raised on acquisition. This is disclosed in note 13. 20
Cost of investments 225
Net borrowings acquired on acquisition 2
Net cashflows on acquisition of businesses 227
Contingent purchase considerations 111
Total purchase price 338
Gross assets acquired and liabilities taken over:
Property, plant and equipment and intangible assets 183
Inventory 3
Deferred taxation (31)
Goodwill 183
Net assets acquired 338
Revenue since acquisition 10
Loss after taxation since acquisition (2)
Revenue for the 6 months ended 31 March 2018
as though the acquisition dates had been 1 October 2017 50
Profit after taxation for the 6 months ended 31 March 2018
as though the acquisition dates had been 1 October 2017 12
2017
Refer to 2017 published results
11 Unconsolidated subsidiary
The financial results of Cafca Limited (Cafca), a 70% held subsidiary
incorporated in Zimbabwe, have not been consolidated into the group results as the group does
not exercise management control:
- Reunert has 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
a major liquidity crisis which renders Reunert's access to economic
benefits from Cafca (eg. dividends) such that it does not have the ability to affect its variable
returns through its powers over Cafca.
The amounts involved are not material to the group's results.
At 31 March 2018, Cafca's share capital and reserves amounted to USD17 million.
Counterparty R million Relationship Sales Purchases Lease Treasury
payments shares
12 Related party transactions
All related-party transactions, trading account and loan balances
are on the same terms and conditions as those with non-related parties.
March 2018
CBI-electric Telecom Cables Proprietary Limited A joint venture - 1 - -
Oxirostax Proprietary Limited (Nashua Winelands) An associate 8 5 - -
Bargenel Investments Proprietary Limited Owns 18,5m Reunert shares - - - 276
Lexshell 661 Investment Proprietary Limited A joint venture - - - -
March 2017
CBI-electric Telecom Cables Proprietary Limited A joint venture 3 1 - -
Oxirostax Proprietary Limited (Nashua Winelands) An associate 7 5 - -
Bargenel Investments Proprietary Limited Owns 18,5m Reunert shares - - - 276
Lexshell 661 Investment Proprietary Limited A joint venture - - - -
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 -
Six months ended 31 March
R million Year ended
30 September
2018 2017 2017
(Unaudited) (Unaudited) (Audited)
13 Contingent purchase considerations
As part of the acquisitions of SkyWire and Dopptech (note 10),
the group recognised further additional contingent purchase considerations as follows:
Balance at the beginning of the period1 27 40 40
Raised at acquisition at fair value (SkyWire and Dopptech) 111 - -
Fair value re-measurements and other profit/loss adjustments (11) (7) (13)
Balance at the end of the period2 127 33 27
These were classified as level 3 instruments in the fair value hierarchy based on the following unobservable inputs:
For SkyWire and Omnigo, the fair value of the contingent payable is determined using a cash flow valuation technique and is based
on earning multiples stipulated in the purchase agreement
SkyWire has two payments due within a one year period:
- R70 million based on the expected profit after tax (PAT) at 31 March 2019 at an agreed earnings multiple.
- R25 million 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%).
The purchase consideration for Omnigo was determined by deducting, from profit before interest and tax (PBIT), 25% of the average capital (total assets less
current liabilities) employed in the business. 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 Dopptech, R17,5 million was classified as a level 1 instrument in the fair value hierarchy as the amounts are fixed and stipulated within the purchase
agreement.
1 This relates to the acquisition of Omnigo in the 2016 period
2 The balance of the contingent purchase considerations have been included in 'Accounts payable, provisions and taxation' on the balance sheet
14 Litigation
There is no material litigation being undertaken against 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.
ADDITIONAL INFORMATION
Six months ended 31 March
R million (unless otherwise stated) Year ended
30 September
2018 2017 2017
(Unaudited) (Unaudited) (Audited)
Current ratio (:1) 2,0 2,2 2,4
Quick ratio (:1) 1,5 1,7 1,8
Dividend yield (%)* 6,4 6,2 7,0
Return on capital employed (%) 15,5 17,4 19,8
Net number of ordinary shares in issue (million) 161 163 162
Number of ordinary shares in issue (million) 185 184 185
Less: Empowerment shares (million) (19) (19) (19)
Less: Treasury shares (million) (5) (2) (4)
Capital expenditure 54 49 143
- expansion 32 29 98
- replacement 22 20 45
Capital commitments in respect of property, plant and equipment 64 83 39
- contracted 43 46 20
- authorised not yet contracted 21 37 19
Commitments in respect of operating leases 231 62 126
Contingent liabilities** - - -
* Calculated as the total dividend (interim 125 cents per share and prior financial year final dividend per share 354 cents) (2017: 120 cents per share and
326 cents per share respectively) divided by the closing Reunert share price of 7 448 cents (2017: 7 200 cents).
** 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 condensed consolidated statement of financial position at 31 March 2018. Definitions of ratios and other financial terms are the same as those
incorporated in the 2017 Integrated Report.
ADMINISTRATION
Directors: TS Munday (chairman) *,T Abdool-Samad*, AE Dickson (chief executive officer), SD Jagoe*, S Martin*, M Moodley, NDB Orleyn**, SG Pretorius*,
T 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 period ended 31 March 2018 all such returns and notices as are required in terms of the aforesaid Act and that
all such returns and notices appear to be true and correct.
Karen Louw
for Reunert Management Services Proprietary Limited
Group Company Secretary
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.
28 May 2018 (publication date)
http://WWW.REUNERT.CO.ZA
Date: 28/05/2018 11:00:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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