Commentary

Overview

Reunert’s 2020 financial performance, as set out in the provisional condensed reviewed consolidated financial statements, has been negatively impacted by three distinct issues:

• the primary issue was the COVID-19 pandemic, which disrupted the Group’s operations during the national lockdown. 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 (ECL) in terms of the forward-looking requirements of International Financial Reporting Standards (IFRS);
• underperformance in the Electrical Engineering segment; and
• a once off abnormal credit write-off at Quince Capital (Pty) Ltd (Quince), the Group’s in-house rental finance provider.

These three issues were the drivers of the Group’s lower financial performance when compared to the prior year.

Importantly, the operational and financial performance of the Group, subsequent to re-commencing operations under COVID-19 regulations after the national lockdown levels 5 and 4, have been more positive than originally anticipated. In the fourth quarter of the 2020 financial year, the Group achieved 90% of the core operating profit¹ earned in the comparative quarter of the 2019 financial year. Free cash flow (FCF)² generation, measured as a percentage of earnings before interest, tax, depreciation and amortisation (EBITDA), has also returned to pre-COVID-19 levels. Whilst recognising that there remains much economic uncertainty ahead, management is of the view that the fourth quarter performance represents the strength of Reunert’s underlying businesses in the economic conditions our key markets are likely to face.

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