| Tue 25 Nov 2008, 7:30 | | RLO - Reunert Limited - Reviewed results for the year ended 30 September 2008 |
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RLO
RLO
RLO - Reunert Limited - Reviewed results for the year ended 30 September 2008
and cash dividend declaration
REUNERT LIMITED
Incorporated in the Republic of South Africa
Registration number 1913/004355/06
Share Code: RLO
ISIN Code: ZAE000057428
- REVENUE UP 14%
- NORMALISED HEADLINE EARNINGS PER SHARE UP 10%
- FINAL DIVIDEND MAINTAINED AT 241 CENTS PER SHARE
CONDENSED GROUP INCOME STATEMENT
For the year ended 30 September
2008 2007
R million R million %
Notes (Reviewed) (Audited) change
Revenue 10 921,1 9 574,4 14
Earnings before interest, 1 487,2 1 340,6 11
tax, depreciation,
amortisation, other income
and dividends
Other income 1 172,0 52,4 228
Earnings before interest, 1 1 659,2 1 393,0 19
tax, depreciation and
amortisation and dividends
(EBITDA)
Depreciation and 86,6 74,3 17
amortisation
Operating profit 1 572,6 1 318,7 19
Net interest and dividend 2 60,3 54,8 10
income
Abnormal items 3 1,5 (447,6)
Profit before taxation 1 634,4 925,9 77
Taxation 486,8 427,4 14
Profit after taxation 1 147,6 498,5 130
Share of associate 1 & 2 16,1 148,4 (89)
companies` profits
Profit for the year 1 163,7 646,9 80
Profit for the year
attributable to:
Minority interests 7,1 7,6 (7)
Equity holders of Reunert 1 156,6 639,3
Limited
1 163,7 646,9
Basic earnings per share 4 650,1 361,7 80
(cents)
Diluted basic earnings per 4 646,9 356,5 81
share (cents)
Headline earnings per 4 & 5 651,9 272,4 139
share (cents)
Diluted headline earnings 4 & 5 648,7 268,4 142
per share (cents)
Normalised headline 4 & 5 630,1 570,3 10
earnings per share (cents)
Normalised diluted 4 & 5 626,9 562,0 12
headline earnings per
share (cents)
Cash dividend per ordinary 319.0 314,0 2
share declared in respect
of the year (cents)
Taxation rate excluding 29,8 32,2 7
abnormal items (%)
EBITDA as a % of revenue 15,2 14,5 4
CONDENSED GROUP CASH FLOW STATEMENT
For the year ended 30 September
2008 2007
R million R million
(Reviewed) (Audited)
EBITDA 1 659,2 1 393,0
Increase in net working capital (327,7) (739,7)
Increase in net working capital (excluding RC&C (295,2) (439,0)
Finance Company (Pty) Ltd (RCCF))
Increase in RCCF accounts receivable while a (32,5) (300,7)
consolidated subsidiary (refer to note 12)
Cash generated from operations 1 331,5 653,3
Net interest and dividend income (including 147,2 200,8
from associates)
Taxation paid (410,8) (568,6)
Dividends paid (including to minorities) (569,0) (879,3)
Other (net) 19,4 23,7
Net cash flows from operating activities 518,3 (570,1)
Net cash flows from investing activities (921,3) 1 008,6
Net cash flows from financing activities (380,3) 274,5
(Decrease)/increase in net cash resources (783,3) 713,0
Net cash resources/(borrowings) at the 482,8 (230,2)
beginning of the year
Net (borrowings)/cash resources at the end of (300,5) 482,8
the year
Cash and cash equivalents 794,6 530,6
Bank overdrafts (12,7) (47,8)
Net cash resources excluding RCCF 781,9 482,8
(1 082,4) -
RCCF bank balances and cash 82,0 -
RCCF short-term borrowings (1 164,4) -
Net (borrowings)/cash resources including RCCF (300,5) 482,8
net bank borrowings at the end of the year
CONDENSED SEGMENTAL ANALYSIS
For the year ended 30 September
2008 2007
R million % R million % %
(Reviewed) (Audited) change
Revenue*
CBI-electric** 3 951,9 36 3 315,1 29 19
Nashua 6 445,2 58 5 816,3 52 11
NSN*** - - 1 712,9 15
Reutech 622,3 6 490,5 4 27
Total operations 11 019,4 100 11 334,8 100 (3)
Less: Reunert`s (98,3) (1 760,4)
attributable portion of
associate companies`
revenue
Revenue as reported 10 921,1 9 574,4 14
*Inter-segment revenue is immaterial and has not been disclosed.
** Revenue for the year ended 30 September 2007 included an amount of
R96,3 million for inventory sold at book value by ATC (Pty) Limited to
CBI-electric Aberdare ATC Telecom Cables (Pty) Limited.
*** Revenue excludes commission received from Nokia Siemens Networks
South Africa (Pty) Limited (NSN) (refer to note 1). Revenue of NSN in
2008 is not included due to the change in the nature of the investment
and the resultant accounting treatment of the investment in NSN (refer to
note 7).
Operating profit
CBI-electric 675,3 42 553,9 36 22
Nashua 652,8 41 674,7 44 (3)
NSN* 139,0 9 211,2 13 (34)
Reutech 136,9 8 109,2 7 25
Total operations 1 604,0 100 1 549,0 100 4
Less: Reunert`s
attributable portion of
associate companies`
net operating profit (31,4) (230,3)
Operating profit as 1 572,6 1 318,7 19
reported
*Operating profit in 2008 represents commission received, whereas the 2007
figures represent 40% of the NSN operating profit (refer to notes 1 and 7).
CONDENSED GROUP STATEMENT OF CHANGES IN EQUITY
For the year ended 30 September
2008 2007
R million R million
Notes (Reviewed) (Audited)
Share capital and premium
Balance at the beginning of the year 90,8 76,9
Issue of shares 16,1 14,0
Shares cancelled in terms of buy-back - (0,1)
of treasury shares - capital portion
Balance at the end of the year 106,9 90,8
Share-based payment reserve
Balance at the beginning of the year 649,9 40,4
Share-based payment expense 14,4 607,4
Contribution by Reunert to employees - 2,1
of joint venture and associate in
terms of broad-based scheme
Balance at the end of the year 664,3 649,9
Fair value adjustment reserve*
Balance at the beginning of the year - -
Arising on fair valuation of 7 660,3 -
financial instruments
Deferred taxation on fair value gain (39,2) -
Balance at the end of the year 621,1 -
Equity transaction with BEE partner
Balance at the beginning of the year - -
Purchase of a portion of BEE 8 (35,3) -
partner`s interest in a subsidiary
not previously recognised as a
minority
Balance at the end of the year (35,3) -
Treasury shares
Balance at the beginning of the year 9 (276,1) (282,0)
Shares cancelled in terms of buy-back - 0,1
of treasury shares - capital portion
Shares cancelled in terms of buy-back - 5,8
of treasury shares - dividend portion
Balance at the end of the year (276,1) (276,1)
Non-distributable reserves
Balance at the beginning of the year 7,3 3,7
- restated**
Balance at the beginning of the year - 104,8
- as previously reported
Share of associate company`s retained - (101,1)
earnings at the beginning of the year
transferred to retained earnings
Translation reserve 0,7 (0,3)
Reunert`s share of previously equity- (3,9) 3,9
accounted associate`s actuarially
valued surplus of medical aid
provision***
Balance at the end of the year 4,1 7,3
Retained earnings
Balance at the beginning of the year 1 997,1 1 841,9
- restated**
Balance at the beginning of the year 1 997,1 1 740,8
- as previously reported
Share of associate company`s retained
earnings at the beginning of the year
transferred from non-distributable
reserves - 101,1
Profit for the year 1 156,6 639,3
Reunert`s share of previously equity-
accounted associate`s actuarially
valued surplus of medical aid
provision transferred from non- 3,9 -
distributable reserves***
Cash dividends declared and paid (567,2) (478,3)
Shares cancelled in terms of buy-back - (5,8)
of treasury shares - dividend portion
Balance at the end of the year 2 590,4 1 997,1
Equity attributable to equity holders 3 675,4 2 469,0
of Reunert Limited
Minority interest
Balance at the beginning of the year 14,4 38,2
Profit for the year 7,1 7,6
Dividends declared and paid (1,8) (4,5)
Net movement in minorities 1,0 (26,9)
Balance at the end of the year 20,7 14,4
Total equity at the end of the year 3 696,1 2 483,4
* This reserve relates to fair value adjustments on financial assets designated
as "available-for-sale" financial assets in terms of IAS 39.
** This information has been restated to reflect the change in accounting policy
that took place in the prior year whereby the group`s share of the associate
Company`s retained earnings were previously transferred to a non-distributable
reserve.
*** Since Reunert`s investment in NSN is no longer equity-accounted this reserve
has been transferred to retained earnings (refer to note 7).
SUPPLEMENTARY INFORMATION
For the year ended 30 September
2008 2007
R million (unless otherwise stated) Note (Reviewed) (Audited)
Net worth per share (cents) 2 060 1 390
Current ratio (including RCCF) (:1) 1,5 1,7
Current ratio (excluding RCCF) (:1) 2,0 1,7
Net number of ordinary shares in 178,4 177,7
issue (million)
Number of ordinary shares in issue 196,9 196,2
(million)
Less: Held by Bargenel Investments 9 (18,5) (18,5)
Limited (Bargenel)(million)
Capital expenditure 117,1 149,0
- expansion 72,8 86,9
- replacement 44,3 62,1
Capital commitments in respect of 74,2 80,2
property, plant and equipment
- contracted 9,0 54,5
- authorised not yet contracted 65,2 25,7
Commitments in respect of operating 90,9 97,1
leases
CONDENSED GROUP BALANCE SHEET
As at 30 September
2008 2007
R million R million
Notes (Reviewed) (Audited)
Non-current assets
Property, plant and equipment and 591,3 578,7
intangible assets
Goodwill 6 415,3 372,8
Investments and loans 7 865,3 727,9
RCCF accounts receivable 1 274,8 -
Deferred taxation 32,0 37,9
3 178,7 1 717,3
Current assets
Inventory and contracts in progress 979,7 915,1
Accounts receivable and derivative 1 935,3 1 716,1
assets
RCCF accounts receivable 682,2 -
Non-current assets held for sale 23,1 -
Cash and cash equivalents 794,6 530,6
RCCF bank balances and cash 82,0 -
4 496,9 3 161,8
Total assets 7 675,6 4 879,1
Equity attributable to equity holders
of Reunert Limited
Ordinary 3 674,7 2 468,3
Preference 0,7 0,7
3 675,4 2 469,0
Minority interest 20,7 14,4
Total equity 3 696,1 2 483,4
Non-current liabilities
Deferred taxation 208,2 115,8
Long-term borrowings 8 12,8 278,8
RCCF long-term borrowings 8 699,9 -
920,9 394,6
Current liabilities
Accounts payable, derivative 1 880,6 1 822,9
liabilities, provisions and taxation
RCCF bank borrowings 8 1 164,4 -
Bank overdrafts and short-term 13,6 178,2
portion of long-term borrowings
3 058,6 2 001,1
Total equity and liabilities 7 675,6 4 879,1
NOTES
2008 2007
R million R million
(Reviewed) (Audited)
NOTE 1
Other income and EBITDA
EBITDA is stated after:
- Cost of sales 7 915,4 6 763,1
- Other expenses excluding depreciation and 1 561,3 1 369,8
amortisation
- Other income 172,0 52,4
Commission income 139,0 -
Other 33,0 52,4
- Realised (profit)/loss on foreign exchange (20,6) 106,9
and derivative instruments
- Unrealised profit on foreign exchange and (22,2) (6,0)
derivative instruments
The commission income is in respect of commission earned from the Nokia
Siemens Networks Group (NSN group) based on the sales revenue for the sub-
region of which South Africa forms part. The commission is related to
Reunert`s investment in NSN. The current year`s share of associate
companies` profit does not include any income in respect of NSN due to
the change in the nature of the investment (refer to notes 2 and 7).
NOTE 2
Net interest and dividend income
Interest received 99,3 104,3
- From RCCF while a consolidated subsidiary 20,7 43,5
(refer to note 12)
- External 78,6 60,8
Interest paid (43,2) (57,2)
Dividend income other than from associate 4,2 7,7
companies
Total 60,3 54,8
Dividend income from associate companies - 146,0
included in share of associate companies`
profits
NOTE 3
Abnormal items
Net surplus on dilution in and disposal of 1,5 118,1
business
Surplus on sale of non-current assets to CBI- - 34,5
electric Aberdare ATC Telecom Cables (Pty)
Limited
Black Economic Empowerment (BEE) expense - - (556,6)
share-based payment (refer to note 9)
Share-based payment expense in terms of broad- - (42,2)
based scheme to group employees (refer to note
9)
Net impairments - (1,4)
Total before taxation 1,5 (447,6)
Taxation - 14,7
Minority interest - 0,2
Total 1,5 (432,7)
NOTE 4
Number of shares used to calculate earnings
per share
Weighted average number of shares in issue 177,9 176,7
used to determine basic earnings, headline
earnings and normalised headline earnings per
share (millions of shares)
Adjusted by the dilutive effect of:
- Unexercised share options granted (millions 0,9 1,5
of shares)
- The notional unencumbered Reunert Limited - 1,1
(Reunert) shares held by Bargenel (millions of
shares)*
Weighted average number of shares used to 178,8 179,3
determine diluted basic, diluted headline, and
normalised diluted headline earnings per share
(millions of shares)
*The notional unencumbered Reunert shares represent the number (based on
the year`s average share price) of the 18,5 million treasury shares held
by Bargenel that could be settled out of the year end equity value of
Bargenel.
NOTE 5.1
Headline earnings
Profit attributable to equity holders of 1 156,6 639,3
Reunert - IAS 33 basic earnings
Headline earnings are determined by
eliminating the effect of the following items
from attributable earnings:
Net surplus on dilution in and disposal of (1,5) (118,1)
business
Loss/(surplus) on disposal of property, plant 5,2 (35,2)
and equipment and intangible assets
Net impairments - 1,4
Taxation effect of adjustments (0,5) (6,1)
Headline earnings 1 159,8 481,3
NOTE 5.2
Normalised headline earnings
Headline earnings (refer to note 5.1) 1 159,8 481,3
Normalised headline earnings are determined by
eliminating the effect of the following items
from attributable headline earnings:
BEE share of headline and normalised headline (0,4) 8,2
earnings adjustments
BEE expense - share-based payment - 556,6
Share-based payment expense in terms of - 42,2
broad-based scheme to group employees
Contribution by Reunert to employees of joint - 2,1
venture and associate
Minority effect of adjustments - (0,1)
Taxation effect of adjustments - (9,1)
1 159,4 1 081,2
Net economic interest in profit that is (38,5) (73,5)
attributable to BEE partners (refer to note 9)
Normalised headline earnings (basic and 1 120,9 1 007,7
diluted)
NOTE 6
Goodwill
Carrying value at the beginning of the year 372,8 326,8
Acquisitions of businesses and minority 137,1 45,7
interests
Unamortised goodwill arising in a previous (94,6) -
period on a further acquisition of NSN now
transferred to investment in NSN (refer to
note 7)
Negative goodwill taken to profit in terms of - 1,1
IFRS 3
Impairments - (0,8)
Carrying value at the end of the year 415,3 372,8
NOTE 7
Investments and loans
Unlisted associate companies - at cost plus - 400,3
equity accounted earnings excluding goodwill
- NSN* - 119,7
- Quince Capital Holdings (Pty) Limited - 280,6
(Quince)(refer to note 12)
Other unlisted investments - at cost 7,0 7,0
Loans - at cost 52,3 54,5
Long-term accounts receivable (refer to note - 266,1
8)
Financial instrument - investment in NSN - at 806,0 -
fair value*
Carrying value of NSN at 1 October 2007, 119,7 -
previously an unlisted associate company, now
a financial instrument
Unamortised goodwill arising on a further 94,6 -
acquisition in a previous period (refer to
note 6)
Pre- acquisition dividend received from NSN (68,6) -
Fair value adjustment 660,3 -
Total carrying value 865,3 727,9
Directors` valuation of unlisted investments
- Unlisted associate companies (2007: NSN and - 908,0
Quince)
- Other unlisted investments (2008 includes 813,0 7,0
NSN at R806,0 million)
*Following the post merger restructuring within the NSN group, with effect from
1 October 2007, the nature of the investment in NSN and the income received
(refer to note 1) has changed. Significant influence ceased as Reunert no longer
has representation on the board of directors, even though Reunert retained a 40%
legal ownership. The investment in NSN has consequently been reclassified as a
financial instrument, and designated as "available-for-sale", as defined in IAS
39 - Financial Instruments: Recognition and Measurement.
Due to a change in the shareholders agreement, Reunert now earns commission on
sales of NSN products. Future commissions are expected to replace dividend
flows.
Previously income relating to the investment in NSN was recognised in terms of
the equity method and included in share of associate companies` profits in the
income statement.
The fair value of the investment is the discounted cash flow of the minimum
amount specified in the shareholders` agreement in the event of a sale to NSN
group, together with an estimation of future commissions. The first time a sale
may take place in terms of the agreement is 31 December 2010.
NOTE 8
Long-term borrowings
Total long-term borrowings (including finance 13,7 386,9
leases)
Less: Short-term portion (including finance (0,9) (130,4)
leases)
12,8 256,5
Loan repaid by BEE partner* - 22,3
12,8 278,8
*Loan repaid by BEE partner represented a portion of the dividends paid by ATC
to Powerhouse, which were used to repay a portion of the loan. In terms of
current accounting practice, this was reflected as a long-term liability on the
Reunert balance sheet.
The long-term borrowings in the previous year was an obligation to RCCF, which
is now a consolidated subsidiary (refer to note 12). Various operations in the
group dealing in office equipment discounted debtors with RCCF on the basis that
the risk of bad debts was carried by the Reunert group operations. In terms of
current accounting practice, these debtors could not be derecognised by the
Reunert group operations, accordingly the long-term portion of the debtors were
included in long-term accounts receivable, the short-term portion in accounts
receivable and the outstanding balance of cash received from RCCF in long-term
borrowings.
The increase in borrowings arose due to Quince becoming a consolidated
subsidiary (refer note 12). Previously it was an equity accounted associate. It
is difficult to quantify the exact effect on earnings per share and headline
earnings per share, however, since Quince became a subsidiary it has made a
positive contribution to earnings.
The group entered into an agreement with Powerhouse Utilities (Pty) Limited
(Powerhouse), whereby on 1 December 2004, 25,1% of the A shares of ATC (Pty) Ltd
(ATC) were sold to Powerhouse at a cost of R130 million. IFRS requires that this
transaction is not accounted for as a sale, since the loan has not been fully
paid by Powerhouse and conditions are attached to the unpaid portion,
notwithstanding that the economic reality of this transaction is, in fact, a
sale.
With effect 1 April 2008, Reunert bought back 15,0% of ATC`s A shares from
Powerhouse for R117 million leaving Powerhouse with a 10,1% shareholding (refer
to statement of changes in equity).
NOTE 9
BEE transactions
Reunert`s BEE deal was approved by shareholders on 6 February 2007. Due to the
sale of Bargenel to the BEE partners, the shareholders of Peotona Group Holdings
(Pty) Limited (Peotona) and the Rebatona Educational Trust, a share-based
payment expense (in terms of IFRS 2) of R556,6 million was recognised in the
previous financial year. The sale by Bargenel, which holds 18,5 million shares
in Reunert was done at a 10% discount to the Reunert share price. IFRS requires
that this disposal not be accounted for as a sale, since the preference shares
issued by Bargenel to Reunert, financing the purchase of Bargenel have not been
fully repaid and conditions are attached to the unpaid portion, notwithstanding
that the economic reality of this transaction is, in fact a sale.
All employees in the Reunert group who did not participate in any other share
incentive scheme were awarded 100 Reunert shares each which are held in trust
for a period of five years. The employees will only be able to sell the shares
after five years, but have full rights to receive all dividends declared during
the five-year period. The resultant expense to the Reunert group has been raised
on the difference between the fair value of a Reunert share on 6 February 2007
(R83,90) and its cost price of 10 cents each. A deferred tax asset has been
raised as a result of the tax deduction, which occurs in the future.
As referred to in note 8 certain BEE transactions involving the disposal of
equity interests are not recognised because the significant risk and rewards of
ownership of the equity have been deemed not to have passed to the BEE partners,
until the shares have been fully paid for. Accordingly, the equity interests in
the affected subsidiaries have not been recognised in the group income statement
and balance sheet.
2008 2007
R million R million
(Reviewed) (Audited)
The effect of this has been to not recognise
the following:
- Net economic interest in current year profit 38,5 73,5
that is attributable to BEE partners
- Balance sheet interest that is economically 95,3 161,8
attributable to BEE partners
NOTE 10
Basis of preparation
These condensed group financial statements have been prepared in terms of IAS 34
- Interim Financial Reporting as well as in compliance with the Companies Act of
South Africa, Act 61 of 1973, as amended, and the Listings Requirements of the
JSE Limited.
The group`s accounting policies, as set out in the audited annual financial
statements for the year ended 30 September 2007, which comply with IFRS, have
been consistently applied. IFRS 7 - Financial Instruments: Disclosures was
adopted during the current year.
NOTE 11
Unconsolidated subsidiary
The financial results of Cafca Limited (Cafca), a subsidiary incorporated in
Zimbabwe, have not been consolidated in the group results as the directors
believe there is a lack of control as defined in IAS 27 - Consolidated and
Separate Financial Statements, and the amounts involved are not material to the
group`s results.
NOTE 12
Major corporate activity
Acquisition of Nashua franchise
With effect from 1 November 2007 Nashua Holdings (Pty) Limited (Nashua)
purchased 51% of Zevoli 151 (Pty) Limited (Nashua West Rand franchise). Nashua
provided R20,4 million of loan finance to the other shareholders. The minority
shareholders provided R1,0 million of equity.
Acquisition of Moeller
With effect from 1 April 2008 the business and net assets of Moeller Electric
(Pty) Limited (Moeller) were purchased by CBI-electric: low voltage division of
Reunert Limited for R25,6 million.
Acquisition of Quince
With affect from 1 June 2008 Reunert bought the 53% of Quince`s share capital
not previously owned by it. Simultaneously, Quince sold its investments in ZS
Rational and Scripfin to PSG Group Limited (PSG). Quince retained its 100%
ownership of RCCF. The values placed on the respective businesses were the same
as those used when the businesses were sold to Quince in 2007. Reunert paid cash
of R218,9 million to the previous shareholders and took over a loan obligation
of R219,0 million from PSG.
Nashua
Franchise Moeller Quince Total
R million R million R million R million
Net assets acquired:
Property, plant and 2,2 6,2 3,1 11,5
equipment
Intangible assets - 6,0 4,0 10,0
Goodwill 12,7 - 124,4 137,1
Inventory 4,9 11,1 - 16,0
Accounts receivable 5,0 12,8 227,8 245,6
RCCF accounts - - 1 924,5 1 924,5
receivable
Net cash - - 73,7 73,7
Payables and (4,2) (10,3) (25,5) (40,0)
provisions
Amounts due to bankers - - (858,4) (858,4)
and short-term loans
Long-term loans (0,2) (0,2) (700,3) (700,7)
Taxation - - (4,9) (4,9)
Deferred tax - - (50,6) (50,6)
Attributable share of - - (279,9) (279,9)
net assets at date of
acquisition (decrease
in investment in
associate)
Cost of investment 20,4 25,6 437,9 483,9
(Loss)/profit since (1,3) 1,5 16,5 16,7
acquisition
Revenue for the full 58,7 80,4 295,6 434,7
year ended 30
September 2008 as
though the acquisition
date had been 1
October 2007
(Loss)/profit for the (1,3) 1,4 39,5 39,6
full year ended 30
September 2008 as
though the acquisition
date had been 1
October 2007
COMMENTARY
Despite turbulent markets and growing economic uncertainty, Reunert has
increased revenue and operating profit for the eighth year in a row. Revenue
increased by 14% to R10,92 billion. On a like-for-like basis, operating profit
increased by 9%. The reported number of R1,57 billion, an increase of 19%,
includes R139 million commission earned on our investment in NSN. Previously,
Reunert`s share of NSN`s net income was disclosed as income from associates.
Normalised headline earnings improved by 11% to R1,12 billion. Strong cash
generation led to net cash resources at the end of the year, excluding RCCF
borrowing, being R782 million.
CBI-ELECTRIC
The electrical group had a good year. Revenue increased by 19% to R3,95 billion,
while operating profit grew from R554 million to R675 million, an increase of
22%. Both energy cables and the low-voltage businesses experienced buoyant
market conditions.
The low voltage business in particular benefited from strong exports and
operating profit improved by 45%. The acquisition of the Moeller business
strengthened our position in the motor control market.
The energy cable business had a record breaking performance, improving revenue
by 43%. In select cases where capacity was stretched, cables were sourced from
other manufacturers. We believe our cautious approach to increasing capacity
will, in the light of recent economic developments, prove to be appropriate.
Towards the latter part of the year demand softened noticeably while the
international copper price collapsed in line with most other commodities.
However, the weakening of the rand has kept the rand copper price more stable.
Telecommunications cables, our joint venture company with Aberdare, had a
subdued year mainly due to Telkom buying less copper cable than previously.
Revenue was down 19%, leading to a decline in operating profit of 18%. Sales of
fibre cable picked up and this trend is expected to continue. Capital is being
invested to increase capacity for instrumentation cable, which is experiencing
strong domestic and foreign demand. Exports of instrumentation and optic fibre
cable are expected to continue growing, offsetting the decline in demand from
Telkom.
At this stage, it is difficult to gauge what impact global economic conditions
will have on infrastructure development in South Africa, although, early signs
indicate that revenue in CBI-electric may decline.
NASHUA
The Nashua group of companies, being more directly exposed to the consumer had a
tough year. Bad debts have become an issue emphasising the need to concentrate
on quality rather than the quantity of deals.
Office automation, which once again includes RCCF, experienced good revenue
growth of 12%. However, operating profit declined by 12%, partly as a result of
a more competitive environment as well as a significant increase in bad debts.
The relationship between the rand/euro versus the rand/yen negatively affected
product offering, rendering us non-competitive in many instances. Recent
exchange rate developments may improve that situation going forward.
On the financing side, rates have been adjusted upward to reflect the increased
risk associated with lending.
Following the subprime crisis and the curtailment of securitisation, the joint
venture in Quince Capital with PSG was reversed on 31 May 2008. Limited funds of
R700 million were raised by securitising a portion of the book and Reunert used
its balance sheet to provide the additional funding to finance the balance of
the book. This is a temporary measure and action is under way to obtain external
funding in due course.
Nashua Mobile had a strong year in business volume with revenue up by 15%, while
operating increased by 8%. The increase in churn is a major concern, especially
since it is mostly debt related. Average revenue per user is still at an
industry high increasing from R443 to R472 per user per month. Going forward the
focus is on retaining quality customers.
Nashua Electronics, distributing mainly Panasonic products, had a tough year.
The range of consumer electronic products is not price competitive in the South
African market especially when compounded by a tightening in consumer spending.
Firm management ensured a breakeven position which is a commendable performance
in that industry. However, the business model needs to be improved.
REUTECH
Reutech met expectations contributing R137 million to operating profits.
Precision products, with its range of Fuchs fuses, in particular did well and
secured orders stretching well into the 2010 financial year. The communications
business with its VHF/UHF radios continues to benefit from long standing local
and international relationships. Exports are brisk and will continue to grow.
The Department of Communication is in the process of converting the country`s
analogue television broadcasting to the digital format. The radar systems
business in Stellenbosch has developed a set-top-box product and production has
started. We are confident that we will participate in the migration to digital
television broadcasting with its set-top-box with the market conservatively
valued at R7 billion spread over a four to five year period. The mining
surveillance radar systems gained a strong foothold in most of the major mining
groups - locally as well as overseas.
Our defence arm is strong, well positioned in focused areas and engaged in long-
term development programs that will ensure future revenue streams. The
percentage contribution from this division to Reunert is expected to grow.
INVESTMENTS
NSN remains the dominant supplier of telecommunications network infrastructure
in southern Africa. Revenue was flat in line with the previous year. Market
shares remained high and unchanged. Commission income derived from revenue is
included in operating profit.
Sales are expected to remain high as Vodacom, Telkom and Neotel upgrade or
expand their networks. NSN products are world class and in demand, boding well
for future revenue streams.
DIRECTORATE
We are pleased to welcome Messrs Thabang Motsohi and Trevor Munday who joined
the board as independent non-executive directors on 1 June 2008.
PROSPECTS
The global financial crisis has placed a premium on strong cash flows and
liquidity. Lower levels of economic activity are expected in a deteriorating
global and domestic macro-economic environment. Although South Africa has so far
been relatively sheltered from the worldwide turmoil, inflation is well above
target levels, and interest rates are at a level last seen in the nineties.
Given this environment, it is difficult to predict with any certainty what the
impact will be in the 2009 financial year. Dividend cover has been increased and
may well have to be further increased in the future given the uncertain economic
and liquidity landscape.
REVIEWED RESULTS
The above results have been reviewed by the group auditors, Deloitte & Touche,
and a copy of their unmodified review report is available for inspection at the
company`s registered office.
CASH DIVIDEND
Notice is hereby given that a final cash dividend, number 165, of 241 cents per
share (2007: 241 cents per share) has been declared by the directors for the
year ended 30 September 2008. In compliance with the requirements of Strate, the
following dates are applicable:
Last date to trade (cum dividend) Friday, 9 January 2009
First date of trading (ex dividend) Monday, 12 January 2009
Record date Friday, 16 January 2009
Payment date Monday, 19 January 2009
Shareholders may not dematerialise or rematerialise their share certificates
between Monday, 12 January 2009 and Friday, 16 January 2009, both days
inclusive.
On behalf of the board
Martin Shaw Gerrit Pretorius Sandton
Chairman Chief Executive 24 November 2008
Directors: M J Shaw (Chairman) *, G Pretorius (Chief Executive), B P Connellan
*, K S Fuller *, B P Gallagher, S D Jagoe*, K J Makwetla*,T J Motsohi*, T S
Munday*, G J Oosthuizen, N D Orleyn**, D J Rawlinson, Dr J C van der Horst*
*Independent non-executive **Non-executive
Registered office: Lincoln Wood Office Park, 6 - 10 Woodlands Drive, Woodmead,
Sandton. PO Box 784391, Sandton, 2146. Telephone +27 11 517 9000
Transfer secretaries: Computershare Investor Services (Pty) Limited, 70 Marshall
Street, Johannesburg, 2001. P O Box 61051, Marshalltown, 2107
Sponsor: Rand Merchant Bank (A division of FirstRand Bank Limited),
Secretaries` certification: In terms of Section 268 G(d) of the Companies Act,
61 of 1973, as amended, I certify that, to the best of my knowledge and belief,
the company has lodged with the Registrar of Companies for the year ended 30
September 2008 all such returns as are required by a public company in terms of
the Companies Act and that all such returns are true, correct and up to date.
J A F Simmonds
For Reunert Management Services Limited
Company Secretaries
Enquiries: Carina de Klerk +27 11 517 9000 or e-mail invest@reunert.co.za.
For more information log on to the Reunert website www.reunert.com
Date: 25/11/2008 07:30:08 Produced by the JSE SENS Department.
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