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



Reunert achieved positive growth in the 2018 financial year with group revenue increasing by 7% to R10 492 million (2017: R9 773 million). Pleasingly, in a volatile Rand environment, operating profit grew by 3% from R1 497 million to R1 542 million. This was achieved despite a sharp decline in Electrical Engineering’s profitability, driven by improved earnings in both the ICT and Applied Electronics segments.

Electrical Engineering’s decline in profitability resulted from the recessionary pressures in the key infrastructure markets serviced, reflecting as reduced demand from key state institutions, and the poor results of Zamefa (the Zambian power cable manufacturer). Zamefa was adversely impacted by Zambia’s liquidity constraints and the 27% devaluation in the Zambian currency to the US Dollar.

The ICT and Applied Electronics segments performed well, particularly in the second half of the year. The ICT segment improved sales in high category multi-functional printers and had good growth in new total workspace solution sets. Applied Electronics growth was driven by record export sales, the benefit of a weakening Rand in the second half and the rapid expansion of the renewable energy business.

This improvement in profitability, combined with the reduction in the number of shares in issue (due to the continuation of the share buyback programme) resulted in headline earnings per share growing by 4%.


Group results

Key earnings metrics

  Units  2018  2017 % Change
Revenue Rm 10 492 9 773 7
Operating profit (before net interest income, dividends and empowerment transactions) Rm 1 542 1 497 3
Profit for the year Rm 1 152 1 142 1
Earnings per share cents 717 680 5
Headline earnings per share cents 703 679 4
Normalised headline earnings per share cents 687 697 (1)
Total cash dividend per share for the year cents 493 474 4



Electrical Engineering

Following a record financial year in 2017, Electrical Engineering encountered strong headwinds in the year under review. The segment’s revenue was down 2% at R5 139 million. Operating profit decreased by 37% to R440 million.

The local cable factories experienced a significant reduction in demand from Eskom, municipalities and Telkom. The power cable factory secured alternative orders, but the change in product mix led to reduced margins. The reduction in Telkom volumes led to a reduction in capacity utilisation at the CBi Telecoms joint venture which returned a loss for the year.

Zamefa experienced serious challenges as liquidity in Zambia came under further pressure. Key state institutions materially extended the time to settle amounts due to Zamefa which put its available credit facilities under pressure. The Zamefa Board accordingly took a decision to reduce throughput to address this working capital burden. This reduction in activity, together with foreign exchange losses due to the rapid 27% devaluation of the Zambian Kwacha against the US Dollar, caused a substantial loss at this business unit.

We are pleased to note that the Zambian government will replace value added tax (VAT) with general sales tax (GST) on 1 April 2019. This should allow Zamefa to substantially increase its throughput, returning the company to profitability once the new GST legislation is enacted.

All three cable business units completed restructuring exercises during the year that have aligned their cost bases to expected medium-term volumes.

Our circuit breaker business exported similar product volumes as in the prior financial year. The stronger Rand in the first half of the year negatively impacted both export revenue and profit. The local market remained under pressure due to the general economic environment with fewer projects being executed.

We made significant progress in our transformation strategy. We are especially pleased that a second empowerment transaction at our local power cable business unit has grown our direct black ownership above 51%, including the flow through from Reunert Limited. This development is in keeping with the requirements of the segment’s key customers and should enable a continuation of our market access as the government’s infrastructure expenditure increases. The non-cash IFRS: 2 (Share-Based Payments) charge resulting from this transaction was R32 million.


The ICT segment had another pleasing year as it continues to implement its strategy. Revenue increased by4% to R3 443 million and operating profit increased by 25% to R792 million, including a fair value gain of R77 million asa result of the remeasurement of the SkyWire contingent purchase consideration. Excluding the fair value remeasurement, the operating profit increased by 13% to R715 million. The remeasurement arose from the finalisation of the probable achievement of the earn-out threshold in the SkyWire purchase agreement.

The office automation cluster continued to produce strong product sales. Revenue from products and services grew by 7% and this year generated 13% (2017: 13%) of total revenue. The franchise channel performed strongly and the adoption rate of the new total workspace products and services continues to increase.

The communications cluster performed well as ECN’s increased voice traffic translated into improved operating profit. SkyWire should underpin continued growth in the cluster despite further regulated interconnect rate decreases and increased pressure on voice minute volumes being expected in the 2019financial year.

The group’s finance book increased in line with the improved sales of office automation equipment. The loan book closed at R2 811 million (2017: R2 428 million) and delivered another good performance as bad debt remained at low levels.

Applied Electronics

Revenue in Applied Electronics increased 28% to R2 198 million while operating profit increased by 38% toR380 million, inclusive of the capital profit of R28 million generated on the sale of a property no longer required by the segment. Excluding this capital profit, the segment’s operating profit grew by 28% to R352 million.

Full year revenue and operating profit increased considerably at the export-orientated fuze factory and at our renewable energy solution provider. The balance of the business units in this segment generally had results in line with the prior year.

Our pipeline of contracts remains positive. The fuze factory has a near-full production order book for 2019, albeit at lower margins than in the 2018 financial year. In August 2018, our secure communication cluster successfully concluded contracts for the next multi-year rollout of digital tactical communication systems into the South African National Defence Force. This will ensure a strong baseload over the next 18 months. We foresee good export orders as our new digital platforms continue to gain acceptance in export markets.

The pipeline for local and export defence radars is considerably stronger than the last few years, supported by the recent conclusion of a combined radar, communications and self-levelling (Rogue) platform order for the Navy’s new frigates.

Group cash resources

At year-end the group had combined money market deposits and other liquid resources totalling R572 million (2017: R1 455 million). This, together with existing short-term facilities, provides the funds required tocontinue executing our strategy.

As our current banking facilities generally have a tenure of one year (before requiring renewal) we have started the process of arranging a longer-term syndicated loan facility for R2 500 million, comprising facilities with a blend of 3-5 and 7-year tenures.

The substantial reduction in cash on hand reflects both the working capital increase resulting from the extremely high revenue generation in the last quarter which will convert into cash during the first half of 2019, and the continued implementation of our strategy.

Share buyback programme

The share buyback programme continued, increasing the number of shares purchased from 3,4 million in 2017 to a total of 5 million shares by the end of September 2018. This process returned afurther R115 million to shareholders.

Group empowerment structure

Reunert exercised its option to extend the tenure of the Bargenel empowerment arrangement (18,5 million Reunert shares which are eliminated on consolidation) for a further four years. No IFRS: 2 charge resulted from this extension, as the option value was incorporated in the initial value of the IFRS: 2 charge provided for at the inception of the arrangement 10 years ago.


Reunert was successful in a tax appeal heard at the Supreme Court of Appeal in Bloemfontein. The favourable ruling allowed the group to release a provision for normal taxation of R42 million, which together with non-taxable fair value gains, resulted in the effective rate of tax incurred for the year of 24%.

Capital expenditure

Capital expenditure on replacement assets across the group amounted to R56 million (2017: R45 million) and on expansionary capital R106 million (2017: R98 million). This expenditure was funded from internal cash resources and represented 23% (2017:12%) of free cash flow before capital expenditure.


We undertook a significant exercise to evaluate the impact of and to prepare for the introduction of two new accounting standards being IFRS 9: Financial Instruments and IFRS 15: Revenue from Contracts with Customers. Both of these standards will be effective for the group from the 2019 financial year and will be applied from 1 October 2018. The cumulative impact will be reflected as an adjustment to opening retained income in the 2019 financial year.

The table below reflects the maximum expected potential transitional adjustment.

  Gross Impact Rm Tax Effect Rm Effect on
opening retained
income Rm
Increase in impairment provision for uncollectable receivables (IFRS 9) 35 (10) 25
Difference arising from applying different revenue recognition criteria (IFRS 15) 105 (30) 75
Total reduction in opening retained income 140 (40) 100


With effect from 1 July 2018 John Hulley was appointed to the Board as an independent non-executive director. John will also serve on the Risk and Remuneration Committees.

There were no other changes in the Directorate since our last report issued on 25 May 2018.


The recent government commitments to increase infrastructure investment bode well for a recovery in the Electrical Engineering segment although uncertainty as to the timing and extent prevails.

The Applied Electronics segment has solid order books in most business units and we continue to anticipate good growth in our renewable energy business. However, the fuze factory’s profitability will reduce in the coming financial year due to the product mix in its export contracts. The ICT segment is anticipated to continue to deliver a good performance as its strategy execution continues and the SkyWire acquisition bolsters the growth of the segment.

Subject to no significant changes in local socio-economic conditions, the implementation of GST, as planned, in Zambia and moderate currency volatility, the group should deliver another solid performance inthe 2019 financial year.


Notice is hereby given that a gross final cash dividend No 185 of 368,0 cents per ordinary share (2017:354,0 cents per share) has been declared by the directors for the year ended 30 September 2018.

The dividend has been declared from retained earnings, bringing the total dividends declared out of 2018 profit for the year to 493,0 cents per share.

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 294,40 cents per share.

The issued share capital at the declaration date is 184 585 396 ordinary shares.

In compliance with the requirements of Strate Proprietary Limited and the Listings Requirements of the JSE, the following dates are applicable:

Last date to trade (cum dividend) Tuesday, 15 January 2019
First date of trading (ex dividend) Wednesday, 16 January 2019
Record date Friday, 18 January 2019
Payment date Monday, 21 January 2019

Shareholders may not dematerialise or rematerialise their shares between Wednesday, 16 January 2019 and Friday, 18 January 2019, both days inclusive.

On behalf of the board


Trevor Munday
Alan Dickson
Chief executive officer
Nick Thomson
Chief financial officer

Sandton, 19 November 2018