Unaudited Interim Financial Report and Cash Dividend Declaration for the 6 months ended 31 March 2016

Notes

1

Basis of preparation

This interim financial report was prepared in accordance with the framework concepts and the recognition and measurement criteria of IFRS and its interpretations adopted by the International Accounting Standards Boards (IASB) in issue and effective for the group at 1 October 2016 and the SAICA Financial Reporting Guides, as issued by the Accounting Practices Committees and Financial Reporting pronouncements as issued by the Financial Reporting Standards Council. This interim 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 in this interim report were consistently applied with those used in the group annual financial statements for the year ending 30 September 2016. These accounting policies comply with IFRS.

   
Six months ended 31 March
Year ended
30 September
 
R million
2017
(Unaudited)
2016
(Unaudited)
2016
(Audited)

2.

Operating profit

     
  Operating profit includes:      
  – Cost of sales 2 931 2 566 5 402
  – Other expenses excluding depreciation and amortisation 828 887 1 731
  – Other income 11 22 45
  – Realised gain on foreign exchange and derivative instruments 19 30 26
  – Unrealised (loss)/gain on foreign exchange and derivative instruments (11) 1 (16)

3

Net interest income and dividends

     
  Interest income and dividends* 64 76 164
  Interest expense (20) (6) (27)
 

Total

44 70 137

4

Empowerment transactions

     
  Share based payment charges# 19 113
  Donation to an empowerment partner 1
  Taxation thereon
  Net empowerment transactions after taxation 20 113
 
* Includes dividends of Rnil (2016: Rnil) (September 2016: R8 million).
# This represents IFRS 2 (Share-based Payment) charges as a result of the introduction of empowerment partners in the Electrical Engineering and Applied Electronics segments.
   
Six months ended 31 March
Year ended
30 September
 
R million
2017
(Unaudited)
2016
(Unaudited)
2016
(Audited)

5

Number of shares 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) 164 165 165
  Adjusted by the dilutive effect of unexercised share options granted (millions of shares) 2 2 2
  Weighted average number of shares used to determine diluted basic, headline and normalised headline earnings per share (millions of shares) 166 167 167

6

Headline earnings

     
6.1
Profit attributable to equity holders of Reunert
452 450 954
  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) (2016: tax charge R2 million, NCI Rnil) (September 2016: tax charge R2 million, NCI Rnil) (2) (10) (20)
  Impairment of intangible asset (tax and NCI Rnil) (March and September 2016: tax credit R3 million, NCI R2 million) 7 8
 
Headline earnings
450 447 942
         
     
Restated
 
   
Six months ended 31 March
Year ended
30 September
 
R million
2017
(Unaudited)
2016
(Unaudited)
2016
(Audited)
6.2
Normalised headline earnings*
     
  Headline earnings 450 447 942
  Normalised headline earnings are determined by eliminating the effect of the following items from attributable headline earnings:      
  IFRS 2 charges on BBBEE transactions undertaken in the current year and prior year (tax and NCI Rnil) (September 2016: Rnil) 19 113
  Donation to empowerment partner (tax and NCI Rnil) (September 2016: Rnil) 1
  Merger and acquisition costs (tax and NCI Rnil) (September 2016: tax and NCI Rnil) 9 23 # 39
  Net economic interest in profit attributable to non-controlling interests with outstanding equity- related loan accounts. These were not recognised as the significant risks and rewards of ownership had not passed to the non-controlling shareholders. (5)
  Normalised headline earnings 479 465 1 094
 
*

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 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 summarised 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 2016, 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 require 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.

# This amount has been restated as disclosed in the other measures of earnings per share.
   
      As reported
previously
Effect of
restatement
Restated
    Merger and acquisition costs (R million) 23 23
    Normalised headline earnings (R million) 442 23 465
  This adjustment was not required in September 2016 as Reunert bought back the non-controlling interests during 2016.
   
Six months ended 31 March
Year ended
30 September
 
R million
2017
(Unaudited)
2016
(Unaudited)
2016
(Audited)

7

Goodwill

     
  Carrying value at the beginning of the period 737 653 653
  Acquisition of businesses* 172 12 90
  Derecognition of a subsidiary due to reduction of investment (12)
  Adjustment to goodwill on finalisation of acquisition made in the prior year 33
  Exchange differences on consolidation of foreign subsidiaries (5) 6 (6)
  Carrying value at the end of the period 925 671 737

8

Investments and loans

     
  Loans – at cost 35 75 37
  Investment in insurance cell – at fair value 14 15 16
  Carrying value at the end of the period 49 90 53

9

Fair value classification and measurement

     
  At the balance sheet date the only financial instruments that the group held at fair value were:      
  Derivative assets 5 3 15
  Derivative liabilities 1 6 6
  These were classified as Level 2 instruments in the fair value hierarchy and comprise forward exchange contracts and interest rate swaps. The fair value of these derivative financial instruments is calculated using a discounted cash flow model with the major variables being the discount rate, the spot exchange rate and prevailing interest rates.      
  The valuations were performed by major financial institutions.      

10

Long-term borrowings

     
  Total long-term borrowings (including finance leases)# 245 448 272
  Less: short-term portion (including finance leases) (203) (201) (229)
    42 247 43
 
* At 31 March 2017, the purchase price allocation of the acquisitions made in 2017 and the second half of 2016 have not been finalised and therefore the amounts reported are provisional and subject to change.
# These borrowings include R200 million (2016: R400 million) (September 2016: R200 million) in respect of the Quince rental book, which is repayable in May 2017 (2016: R200 million was repayable in May 2016) (September 2016: R200 million).
 
   
Six months ended
31 March
 
R million

2017
(Unaudited)

11

Acquisition of businesses

 
  During the current period the following entities were acquired by the group and will form part of the Applied Electronics segment:  
  – Nanoteq Proprietary Limited: With effect from 1 October 2016, the group acquired 100% of the share capital of Nanoteq Proprietary Limited. The R69 million in goodwill arising from the acquisition is attributable to the synergies from the vertical integration with the group’s other businesses in the Applied Electronics Segment.

95
  – Terra Firma Solutions Proprietary Limited: With effect from 1 March 2017, the group acquired 51% of the share capital of Terra Firma Solutions Proprietary Limited. The R87 million in goodwill arising from the acquisition is attributable to the high growth in this business and the ability for the group to diversify into new products and geographical areas. The following options exist: callable for a further 9% (September 2018) and a put for a further 25% (September 2019/2020), which if exercised, will increase the group’s holding of Terra Firma’s share capital to 85%. At the reporting date it is estimated that the fair value of these options is nil. 102
  – Ryonic Robotics Proprietary Limited: With effect from 1 March 2017, the group acquired 74,9% of the share capital of Ryonic Robotics Proprietary Limited. The R16 million in goodwill arising from the acquisition is attributable to the high growth in this business, unique product offering and the ability for the group to diversify into new products and geographical areas. 21
  Cost of investments 218
  Net borrowings at time of acquisition 24
  Net cash flows on acquisition of businesses 242
  Non-controlling interest 15
    257
  Gross assets acquired and liabilities taken over:  
  Deferred taxation (7)
  Property, plant and equipment and intangible assets 72
  Non-current receivables 2
  Inventory 5
  Accounts receivable and taxation 80
  Short-term borrowings (7)
  Accounts payable, provisions and taxation (60)
  Goodwill 172
 

Net assets acquired

257
  Revenue since acquisition 48
  Profit after taxation since acquisition 8
  Revenue for the six months ended 31 March 2017 as though the acquisition dates had been 1 October 2016 151
  Profit after taxation for the six months ended 31 March 2017 as though the acquisition dates had been 1 October 2016 19
 

2016

 
  Refer to 2016 published results  

12

Unconsolidated subsidiary

 
 

The financial results of Cafca Limited (Cafca), a 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 2017 Cafca’s share capital and reserves amounted to US$15 million.

13

Related-party transactions

 

       
 
Counterparty R million
Relationship
Sales
Purchases
Treasury shares
  All related-party transactions, trading account and loan balances are on the same terms and conditions as those with non-related parties.        
 

March 2017

       
  CBI-electric Telecom Cables
Proprietary Limited
A joint venture 3 1
  Nashua Winelands An associate 7 5
  Bargenel Investments
Proprietary Limited
Owns 18,5m Reunert shares 276
 

March 2016

       
  CBI-electric Telecom Cables
Proprietary Limited
A joint venture
  Bargenel Investments
Proprietary Limited
Owns 18,5m Reunert shares 276
 

September 2016

       
  CBI-electric Telecom Cables 
Proprietary Limited
A joint venture 1
  Bargenel Investments
Proprietary Limited
Owns 18,5m Reunert shares 276

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.