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Unaudited interim financial statements and cash dividend declaration for the six months ended 31 March 2020
REUNERT LIMITED
Incorporated in the Republic of South Africa
Registration number 1913/004355/06
Ordinary share code: RLO
ISIN code: ZAE000057428
(Reunert, the Group or the Company)
UNAUDITED INTERIM FINANCIAL RESULTS(1)
and cash dividend declaration for the six months ended 31 March 2020
The contents of this short form announcement are the responsibility of the Board of directors of the Company (the Board).
Shareholders are advised that this short form announcement does not contain full or complete details and represents a summary of the information contained
in the full announcement, which is accessible via the JSE link at https://senspdf.jse.co.za/documents/2020/JSE/ISSE/RLO/interim_20.pdf and on Reunert's
website (www.reunert.com) on 18 June 2020.
Shareholders and investors are advised to review the full announcement before making any investment decisions.
The full announcement is also available for inspection at no charge at the registered offices of the Company and its sponsor, One Capital Sponsor Services
Proprietary Limited, 17 Fricker Road, Illovo, during normal business hours.
1 Extracted financial information from the Unaudited Interim Financial Statements for the six months ended 31 March 2020, excluding free cash flow, which
has not been disclosed.
SALIENT FEATURES
22% down
Group revenue
R4 144m
2019: R5 288m
29% down
EBITDA(2)
R493m
2019: R698m
39% down
Operating profit
R374m
2019: R615m
43% down
Free cash flow(3)
R355m
2019: R619m
50% down
Dividend per share
65 cents
2019: 130 cents
2 Earnings before net interest, taxation, depreciation and amortisation, impairment of goodwill and property, plant and equipment, expected credit
losses, remeasurement loss on subsidiary held for sale, loss on disposal of subsidiary and empowerment transactions.
3 Cash from operations +/- interest received/(paid) - tax paid - replacement capital expenditure.
Six months ended
31 March 31 March %
2020 2019 Change
(H1FY20) (H1FY19)
(Loss)/profit for the period (Rm) (326) 377 (186)
(Loss)/earnings per share (cents) (172) 227 (176)
Headline (loss)/earnings per share (cents) (76) 253 (130)
OVERVIEW
Reunert experienced challenging trading conditions in the H1FY20 period. Despite these conditions, the Information, Communication and Technology (ICT)
segment delivered real growth in operating profit while the Applied Electronics (AE) segment performed in line with expectations.
However, the Electrical Engineering (EE) segment suffered material underperformance primarily as a result of a seven-week labour disruption at African
Cables, significant foreign exchange losses at Zamefa in Zambia, and weak cable infrastructure investment demand across our key Southern African markets.
The EE segment's performance over-shadowed and negatively affected the overall performance of the Group.
The Group's financial results were also adversely affected by impairments, arising from the predicted impact of the COVID-19 pandemic and the resulting
highly uncertain future economic conditions. These impairments were raised in terms of the forward-looking requirements encapsulated in International
Financial Reporting Standards (IFRS). The Group also suffered an abnormal item in the form of an external fraud.
Pleasingly, the generation of free cash flow during the period under review was in line with the Group's historic conversion ratios and R355 million was
generated notwithstanding the difficult trading environment.
In compliance with the forward-looking requirements of IFRS, Reunert has considered the potential impact of the COVID-19 pandemic on its businesses. Our
assumptions were developed after referring to the views of leading economists and other expert opinions and also incorporate our views of markets served by
our reporting segments. We believe our forecasts are realistic based on these assumptions, and perhaps are conservative in some instances.
The economic conditions outlined in these predictions are expected to have a direct impact, notably on the future collection of rentals in the Quince
Capital finance book and on the future operating performance of our cable businesses. As a result, a significant increase in the impairment allowance for
expected credit losses at Quince Capital and impairments at the cable businesses, are required.
The abnormal item, being an incurred credit loss, arose from an external whistle blower's report on alleged fraudulent activity perpetrated against Quince
Capital. A comprehensive external forensic audit is consequently now in process. However, from the evidence extracted to date, an incurred credit loss
impairment of R298 million before taxation (R215 million after taxation) has been raised.
SEGMENTAL RESULTS
Electrical Engineering
The segment faced significant challenges during the reporting period as cable infrastructure demand remained weak across the region, the liquidity
challenges in Zambia continued, and our South African power cable company experienced a seven-week labour disruption. This resulted in the segment's
revenue decreasing by 37% to R1 738 million (H1FY19: R2 775 million) and an operating loss of R42 million (H1FY19: profit of R225 million).
In Zambia the liquidity position remained constrained. The government removed input value added tax (VAT) on copper cathode with effect on 1 January 2020,
resulting in government receivables no longer increasing. The historical build up of these government receivables has resulted in the external, hard
currency, borrowings of the company remaining at inflated levels and the company suffered material foreign exchange losses.
The weak infrastructure cable demand in South Africa negatively impacted both the power and telecoms cable plants as production volumes decreased to below
the levels required to fully recover fixed costs.
The circuit breaker factory continued its positive performance as export volumes continued to grow despite weaker volumes in the local market. The
performance in Australia was excellent and the export development efforts over the past few years have yielded sustainable growth opportunities. On a
like-for-like trading weeks basis, the company exceeded the performance of the prior reporting period.
ICT Segment
The ICT segment's strong operational performance continued in H1FY20, despite the challenging macro-economic environment in South Africa. The segment's
operating profit rose by 6% to R371 million (H1FY19: R351 million) despite revenue decreasing by 13% to R1 494 million (H1FY19: R1 722 million).
The Office Automation cluster secured strong hardware sales as the company improved its market share. The Total Workspace Provider strategy continues to
accelerate with the addition of Energy Solutions and PC-a-a-S revenues for the first time, which augmented existing revenue streams and resulted in an
increase of 22% in complementary revenues over the corresponding period.
The Communications Cluster delivered a positive performance. New fixed line voice sales continued to grow strongly with record new sales concluded in
H1FY20. ECN's diversified revenue streams of the cloud based Virtual PBX (VBX) and last mile broadband connectivity sales both continued to accelerate and
augment the company's core fixed-line voice income. Skywire's last mile broadband connectivity sales continued to grow strongly as the investment into the
network extended to 19 new urban geographies.
The finance cluster's rental book grew to R3 062 million (H1FY19: R2 766 million) on the back of the improved hardware and complementary product sales in
the Office Automation channel but was impacted by the abnormal item being the incurred credit loss of R298 million and the increased impairment allowance
for expected credit losses of R219 million.
Applied Electronics Segment
The AE segment performed in line with expectations as revenue increased by 4% to R1 038 million (H1FY19: R999 million) while profit decreased by 9% to R77
million (H1FY19: R85 million).
This segment was negatively impacted due to large export orders being unable to be delivered from both Reutech Communications and Reutech Radar Systems
before the reporting date as a result of the lockdown. However, both Reutech Communications and Reutech Radar Systems both delivered an excellent year-on-
year improvement in their financial performances, as they continue to execute their strong export order books.
Fuchs' performance reduced, as expected, due to the large export order that did not repeat in the period under review. Terra Firma had a slower than
anticipated first half as the expected awards of solar projects only materialised too late to be completed during the reporting period.
Further post-COVID-19 commentary
The potential effect of COVID-19 on the future of the financial performance of the Group directly impacted the interim results in two key aspects:
1) the increase in the impairment allowance for expected credit losses on the Quince Capital book, due to the predicted weakness in the economic
activity of our customer base; and
2) the impairments raised in the cable businesses in the EE segment. The joint venture telecoms business impaired the full value of its property,
plant and equipment due to the expected structural decline in investment into the country's copper telecoms infrastructure. The power cable business
impaired R61 million of goodwill due to the predicted weakening of power cable infrastructure investment caused by the reallocation of state budgets, the
constrained government balance sheet, and weak private business confidence.
The full impact of COVID-19 on the South African economy and our key international export geographies remains uncertain but Reunert recognises that long-
term socio-economic shifts to economies are likely. Reunert has pro-actively strengthened its resilience in the post COVID-19 economy by increasing its
committed debt facilities to R1,0 billion and total debt capacity to R2,1 billion. This has been coupled with a comprehensive review of our operations and
cost structures across the Group to ensure that our response to these uncertain market conditions is sustainable.
The rest of the Group's businesses have robust business models and are serving markets that are anticipated to offer good structural growth and
opportunities. They include:
Our renewable energy businesses;
Our strong exports businesses in the AE segment and at CBI electric: Low Voltage; and
Our ICT businesses, specifically the Communications Cluster, the Total Workspace Provider offerings, and our 4th Cluster, all of which focus on the
provision of business-to-business solutions that support the future of work in our country.
The Group will continue to focus on, and fund, the execution of our strategic initiatives, specifically targeting the businesses with the greatest
potential to emerge strongly from the current COVID-19 crisis.
CASH DIVIDEND
Whilst cognisant of the economic uncertainty going forward, the Group's free cash flow generating capacity remains intact. The actions taken by the company
to increase its resilience enables Reunert to declare an interim dividend, albeit at a reduced level.
Therefore, notice is hereby given that a gross interim cash dividend No. 188 of 65,0 cents per ordinary share (2019: 130,0 cents per ordinary share) has
been declared by the directors for the period ended 31 March 2020.
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 52,0 cents per ordinary share (March 2019: 104,0 cents per
ordinary share).
The issued share capital at the declaration date is 184 969 196 ordinary shares.
Income tax reference number: 9100/101/71/7P.
In compliance with the requirements of Strate Proprietary Limited and the Listings Requirements of the JSE Limited, the following dates are applicable:
Last date to trade (cum dividend) Tuesday, 7 July 2020
First date of trading (ex dividend) Wednesday, 8 July 2020
Record date Friday, 10 July 2020
Payment date Monday, 13 July 2020
Shareholders may not dematerialise or rematerialise their shares between Wednesday, 8 July 2020 and Friday, 10 July 2020, both days inclusive.
On behalf of the Board
Trevor Munday Alan Dickson Nick Thomson
Chair Chief Executive Officer Chief Financial Officer
Sandton
17 June 2020
Registered office
Nashua Building, Woodmead North Office Park, 54 Maxwell Drive, Woodmead, Sandton
PO Box 784391, Sandton, 2146
Telephone +27 11 517 9000
Sponsor
One Capital
Investor enquiries
Karen Smith +27 11 517 9000 or email invest@reunert.co.za.
For more information log on to the Reunert website at www.reunert.com.
Directors: TS Munday (Chair)*,T Abdool-Samad*, AB Darko*, AE Dickson (Chief Executive Officer), LP Fourie (Chair of the Audit Committee)*, JP Hulley*, SD
Jagoe*, S Martin*, MT Matshoba-Ramuedzisi*, M Moodley, Adv NDB Orleyn**, (SG Pretorius* (retired: 10 February 2020)), NA Thomson (Chief Financial
Officer), (R Van Rooyen* (retired: 10 February 2020))
* Independent non-executive; ** Non-executive
Date: 18-06-2020 01:00:00
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