REUNERT LIMITED - Operational update and trading statement

Operational update and trading statement

REUNERT LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1913/004355/06)
ISIN: ZAE000057428
Share code: RLO
(“Reunert” or the “Company” or the “Group”)

OPERATIONAL UPDATE AND TRADING STATEMENT

Reunert is in the process of finalising its financial results for the year ended 30 September 2020
(“Results”). The board of directors of Reunert (“Board”) will consider and is expected to
approve the Results on 23 November 2020 for publication on SENS on 24 November 2020.

Accordingly, shareholders of Reunert (“Shareholders”) are provided herein with:

     -    an operational update, including an overview of the trading performance of the Company
          during the fourth quarter of the 2020 financial year, as the economy emerged from the
          lockdown associated with the COVID-19 pandemic; and
     -    the resulting trading statement.

OPERATIONAL UPDATE

Group’s 2020 Financial Performance

Reunert’s 2020 financial performance has been negatively impacted due to three distinct events
which are the drivers of the Group’s lower financial performance when compared to the prior year.

The primary event is the COVID-19 pandemic. COVID-19 disrupted the Company’s operations
during the national lockdown and this, together with the predicted future impact of COVID-19 on
the Group’s businesses, gave rise to the need to raise provisions for impairments and expected
credit losses in terms of the forward-looking requirements of International Financial Reporting
Standards (IFRS).

In addition, the Electrical Engineering segment underperformed primarily as a result of a seven
week labour disruption at African Cables in the first quarter of the 2020 financial year, significant
foreign exchange losses at Zamefa in Zambia due to the deterioration in the exchange rate of the
Kwacha against the US Dollar, and weak infrastructure investment demand across the Group’s key
Southern African markets. There was a once off abnormal credit write-off due to an external fraud
perpetrated against Quince, the Group’s in-house rental finance provider.

Pleasingly, the generation of free cash flow during the period under review was in line with the
Group’s historic conversion ratios notwithstanding the difficult trading environment.

The Group’s core operating profit* is expected to be between R824million and R910 million (2019:
R1 376 million), being a decline of between 33,9% and 40,1% in the core operating profit
compared to that of the prior year, with this reduction in core operating profit attributable to the
difficult trading conditions as outlined above.

*Core operating profit is a management estimation of the operating profit of the Group excluding the 
impact of items considered to be
once-off in nature. In the 2020 financial year the core operating profit represents the segment operating profit, 
before the impact of the credit write-off, expected credit losses, impairments and the loss on the sale of a subsidiary.

Fourth Quarter Trading Update

The operational and financial performance of the Group for the fourth quarter of the 2020 financial
year, after the COVID-19 lockdown allowed Reunert to re-commence actions to normalise
operations, has been more positive than originally anticipated. In the fourth quarter, the Group
achieved 90% of the core operating profit earned in the comparative quarter of the 2019 financial
year. Free cash flow generation, measured as a percentage of earnings before interest, taxation,
depreciation and amortisation (EBITDA), has also returned to pre-COVID-19 levels.

All three of the Group’s segments performed well during the fourth quarter and were profitable.
Electrical Engineering and Applied Electronics delivered strong quarterly results while ICT
continues to improve steadily as more segments of the economy return to normality.

The Group delivered a core operating profit of R463 million (2019: R515 million) for the fourth
quarter, which is 90% of the prior year’s performance. This performance reflects the strength of the
Group’s businesses and the resilience and responsiveness they have demonstrated since the
lockdown restrictions were lifted.

The Group’s cash flow was strong and free cash flow of R837 million (2019: R798 million) was
generated through strict cash and cost management since the COVID-19 lockdown was declared.

COVID-19

The full long-term impact of COVID-19 on the South African economy and on the key international
geographies Reunert serves, remains uncertain. However, Reunert recognises that socio-
economic shifts in the economy are predicted.

Accordingly, Reunert has pro-actively strengthened its resilience towards the post COVID-19
economy by increasing its committed debt facilities to R1,0 billion and total debt facilities to
R2,1 billion. This has been coupled with a comprehensive review of its operations and significant
cost reductions across the Group to ensure that its response to uncertain market activity is
sustainable.

Reunert’s businesses resumed operations on 1 May 2020, in strict compliance with the South
African Government regulations and have fully embraced the realities of operating effectively under
the constraints of COVID-19. At year end Reunert had experienced 129 positive COVID-19 cases
with a recovery rate of 96% and no fatalities.

The Group’s businesses have adapted quickly and increased their resilience as they met their
customer and market demands whilst ensuring its employees were managed with empathy in safe
and healthy working environments. Pleasingly, our companies have operated largely uninterrupted
since returning to work. This is testament to the successful implementation of our COVID-19
planning and robustness of the Company’s Business Continuity Plans and Reunert believe them to
be adequate should a second wave of COVID-19 infections impact the country. The Company’s
employees have responded positively and continue to act in a responsible and committed manner.

TRADING STATEMENT

In terms of paragraph 3.4(b) of the JSE Limited Listings Requirements, companies are required
to publish a trading statement as soon as they are satisfied that with a reasonable degree of
certainty, the financial results for the current reporting period will differ by at least 20% from the
financial results of the previous comparative period.

Noting the trading performance outlined above, the impact of the COVID-19 pandemic on
operations, the consequential significant increase in expected credit losses and impairments
made and the credit write-off, Shareholders are accordingly advised that the Company has
reasonable certainty that it will report:
   o earnings per share of between 27 cents and 31 cents (2019: earnings per share of 490
     cents), being a decline of between 94,5% and 93,7% compared to the previous year’s
     results; and
   o headline earnings per share of between 107 cents and 123 cents (2019: headline
     earnings per share of 573 cents), being a decline of between 81,3% and 78,5%
     compared to the previous year’s results.

The information contained in this announcement does not constitute an earnings forecast. The
financial information on which this announcement is based has not been reviewed nor reported
on by the Group’s external auditors and is the responsibility of the Board.



Johannesburg
18 November 2020

Sponsor
One Capital

Date: 18-11-2020 07:05:00
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