Unaudited condensed consolidated interim financial statements and cash dividend declaration for the six months ended 31 March 2021

Notes

For the six months ended 31 March 2021

1. Basis of preparation

These unaudited condensed consolidated interim financial statements have been prepared in compliance with the:

These unaudited condensed consolidated interim financial statements were compiled under the supervision of NA Thomson CA(SA), Chief Financial Officer.

The Group’s accounting policies applied for the period ended 31 March 2021 are consistent with those applied in the prior year’s audited consolidated Annual Financial Statements. These accounting policies are in terms of International Financial Reporting Standards (IFRS). These condensed consolidated interim financial statements have not been audited or reviewed by the Group’s external auditors.

    Six months ended 31 March
      Year ended
      30 September
Rm 2021
Unaudited
2020
Unaudited
2020
Audited

2. Revenue

     
Revenue from contracts with customers:
   
Category of revenue
   
Products 3 450 3 392 6 014
Services 971 499 1 581
  4 421 3 891 7 595
Timing of revenue recognition:
   
Revenue recognised at a point in time 3 790 3 115 6 215
Revenue recognised over time 631 776 1 380
Total revenue from contracts with customers
4 421 3 891 7 595
Other revenue:
   
Interest received on leases and loans receivable 173 227 412
Rental revenue 20 26 39
Total
4 614 4 144 8 046

Refer to the segmental analysis, for a disaggregation of the total revenue contribution by each segment.

    Six months ended 31 March
      Year ended
      30 September
Rm 2021
Unaudited
2020
Unaudited
2020
Audited

3. Operating profit/(loss)1

 

Included in operating profit are the following: Cost of sales 3 263 2 722 5 377
Less: depreciation and amortisation included in cost of sales2 (31) (26) (58)
Cost of sales before depreciation and amortisation 3 232 2 696 5 319
Other income 18 22 35
Fair value remeasurement on contingent consideration 2 2
Total operating expenses 925 1 036 1 813
Impairment of financial assets    
Credit write-off (refer to note 7) 5 298 298
Expected credit losses (refer to note 7) 3 267 288
Less: depreciation and amortisation included in operating expenses2 (95) (93) (182)
Total operating expenses before depreciation and amortisation 838 1 508 2 217
Included in cost of sales, other income or expenses:    
Profit on disposal of property, plant and equipment 3 4 4
Auditors remuneration    
– Audit fees 13 12 28
– Other fees 1 1 1
Total auditors remuneration 14 13 29
Realised forex losses3 1 23 42
Unrealised forex losses3 28 67 48
Net forex losses 29 90 90
Research and development expenditure: Externally funded (via revenue received) 52 62 153
Internally funded 18 19 19
  70 81 172
Employee costs (included in cost of sales and other operating expenses): Salaries and wages 850 857 1 600
Pension and provident fund contributions4 83 86 192
Other staff costs 33 43 81
  966 986 1 873
Share-based payment expense5 15 16 7
Write-down of inventory 1 5
1 Additional disclosures have been incorporated to ensure alignment between this note and the 2020 Annual Financial Statements. There have been no changes to actual numbers disclosed in the comparative period information.
2 Depreciation and amortisation of property, plant and equipment and intangible assets that are considered to be part of cost of sales amounts to R27 million (March 2020: R22 million, September 2020: R50 million). Depreciation of right-of-use assets considered to be part of cost of sales is R4 million (March 2020: R4 million, September 2020: R8 million).
Depreciation and amortisation of property, plant and equipment and intangible assets included in other expenses is R62 million (March 2020: R60 million, September 2020: R119 million). Depreciation of right-of-use assets included in other expenses is R33 million (March 2020: R33 million, September 2020: R63 million).
3 Transactions denominated in a foreign currency are initially recorded at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the exchange rates prevailing at that date and the resulting exchange differences are recognised in the statement of profit or loss in the period in which they arise. Derivative instruments are initially measured at fair value at the date the derivative contract is entered into and are subsequently remeasured to fair value at each reporting date. The resulting gains or losses are recognised in the statement of profit or loss.
4 Payments to defined contribution retirement plans are charged as an expense as they fall due.
5 The Deferred Bonus Plan was fully settled in 2020 which resulted in a release of R3 million recognised in the 2020 Annual Financial Statements.

 

    Six months ended 31 March
      Year ended
      30 September
Rm 2021
Unaudited
2020
Unaudited
2020
Audited

4. Interest and dividend income1

     
Dividend income 3
Interest earned on financial assets analysed by category of asset:      
Bank deposits 10 23 31
Other assets 3 3 7
Total interest and dividend income
13 26 41

5. Interest expense1

     
Loans, bank overdrafts and short-term facilities (19) (28) (53)
Lease liability interest (10) (12) (22)
Unwinding of discount related to equity forward contract (1) –    –
Unwinding of discount related to put option liability (5) (8)
Interest expense as per the statement of profit or loss
(30)
(45) (83)
External interest expense in Quince (included in Group cost of sales as
Quince is a finance business)
(16) (11) (28)
Total interest expense using the effective interest rate method
(46) (56) (111)

6. Gain on disposal of investment

     
During February 2021, Reunert Limited accepted an unsolicited offer for 6 231 174 shares which represented an 18,8% interest in CAFCA for an amount of R16,6 million.
Accordingly, the Group recognised a gain on the disposal of the shares of R16,6 million.
17
   
Proceeds from disposal
Net carrying amount of investment disposed of
   
Gain on disposal of investment (net of tax of Rnil) 17    
Subsequent to the disposal, Reunert Limited has a remaining interest of 50,5% in CAFCA.
1 Additional disclosures have been incorporated to ensure alignment between this note and the 2020 Annual Financial Statements. There have been no changes to actual numbers disclosed in the comparative period information.

 

    Six months ended 31 March
      Year ended
      30 September
Rm 2021
Unaudited
2020
Unaudited
2020
Audited

7. Impairment of financial assets1

     
Credit write-off 5 298 298
Expected credit losses (ECL) 3 267 288
  8 565 586

 

Analysis of the movements in the ECL
31 March 2021

Rm ECL
opening
balance
Raised during
the period
through the
statement of
profit or loss
Utilised
during the
period
Foreign
exchange
movement
ECL
closing
balance
Leases and loans receivable 210 (27) 183
Trade and other receivables 192 3 (20) (13) 162
Credit write-off for trade and other receivables   5      
Total impairment of financial assets per the statement of profit or loss
  8      

 

31 March 2020
Rm ECL
opening
balance
Raised during
the period
through the
statement of
profit or loss
Utilised
during the
period
Foreign
exchange
movement
ECL
closing balance
Leases and loans receivables 41 224 (2) 263
Trade and other receivables 150 43 (14) (1) 178
Credit write-off for lease and loans receivable1   298      
Total impairment of financial assets per the statement of profit or loss
  565      
           
30 September 2020
         
Rm ECL
opening
balance
Raised during
the year
through the
statement of
profit or loss
Utilised
during the
year
Foreign
exchange
movement
ECL
closing balance
Leases and loans receivables 41 219 (50) 210
Trade and other receivables 150 69 (14) (13) 192
Credit write-off for lease and loans receivable1   298      
Total impairment of financial assets per the statement of profit or loss
  586      
1 The credit write-off in the 2020 financial year resulted from an external fraud perpetrated against Quince Capital (Quince) by a non-connected independent third party dealer.

Leases and loans receivable

The Group applies the IFRS 9 general approach to measuring the ECL for leases and loans receivable.

This is calculated by applying a historical loss ratio to the balance of leases and loans receivable at each reporting date. The loss ratio for the leases and loans receivable is calculated according to the ageing/payment profile by applying historic write-offs to the payment profile of the population.

The historic loss ratio is then adjusted for forward-looking information to determine the ECL at the reporting date, to the extent that there is a strong correlation between the forward-looking information and the ECL.

Impact of COVID-19

In the 2020 financial year, the Group recorded a significant increase in the expected credit losses as a result of expected future customer defaults due to the COVID-19 pandemic. The impact of the national lockdown and the related significant reduction in economic activity and consequential predicted increase in business failures made the estimation of these expected future credit losses complex.

Historical methods used prior to 2020 were modified to incorporate the forecast changes in the macro-economic conditions and the inter-relationship between key economic variables.

In 2021, expected credit losses continue to be influenced by the impact of COVID-19.

In South Africa, the recovery to pre-COVID-19 levels of economic activity is forecast to take until 2024. This slow recovery is expected to continue to have an adverse impact on future credit losses incurred.

For interim reporting purposes, the Group considered the factors outlined above and used the following key variables in estimating the ECL as at 31 March 2021. These key variables are consistent with those applied throughout the prior year:

The following estimates and judgements were applied:

Significant increase in credit risk

In assessing whether the credit risk on a financial asset has increased significantly since initial recognition, the Group compares the risk of a default occurring on the financial asset as at the reporting date with the risk of a default occurring on the financial asset as at the date of initial recognition. In making this assessment, the Group considers quantitative information that is reasonable and supportable, including historical experience and forward-looking information that is available without undue cost or effort. As part of this assessment, as required by IFRS 9, the Group’s loans and leases receivable are aged into stages. In assessing the stage categorisation, receivables that are 30 days overdue are classified as stage 2 and receivables that are 90 days overdue are classified as stage 3.

Due to the impact of COVID-19 and the resulting increase in credit risk as well as other known events, the following is the analysis of the different stages in accordance with IFRS 9.

   
Expected credit loss
Rm Gross carrying
amount before
ECL
Stage 1 Stage 2 Stage 3 Net carrying
amount after
ECL
31 March 2021  2 753 (79) (41) (63) 2 570
31 March 2020 2 878 (95) (149) (18) 2 616
30 September 2020  2 783 (68) (92) (50) 2 573

Trade and other receivables

The Group has consistently applied the IFRS 9 simplified approach to measuring ECL for trade receivables which uses a lifetime expected loss model. ECLs are calculated by using a provision matrix and applying a loss ratio to each entity in the Group’s age analysis of trade receivables and contract assets. These have been aggregated into groupings that represent, to a large degree, major risk types and how the Group manages its receivables and contract assets. This also illustrates the spread of credit risk at each reporting date. The loss ratio is calculated according to the ageing/ payment profile of sales by applying historic write-offs to the payment profile of the sales population. Similarly, the sales population selected to determine the ageing/payment profile of the sales is representative of the entire population and in line with future payment expectations.

8. Transaction-related share-based payments

Plus 1X Solutions Proprietary Limited (+OneX) is the Group’s new venture to establish a new age end-to-end ICT solutions provider, established to take advantage of the growth opportunities that the fourth industrial revolution offers.

The Group has partnered with certain key individuals who are highly experienced in building, acquiring and developing IT businesses, and in addition other new shareholders who provide empowerment credentials. These new shareholders have subscribed for a minority interest in +OneX at a price below its market value due to their industry knowledge, intellectual property and empowerment credentials that they are contributing to the establishment of +OneX.

The subscription of +OneX shares by the empowerment shareholders was financed by a loan provided by Reunert Finance Company Limited, under favourable terms.

As a consequence of the above the Group raised an IFRS 2 share-based payment charge for the period amounting to R5 million.

9. Impairment of goodwill and property, plant and equipment

Goodwill

Due to the current economic conditions prevailing as a result of the COVID-19 pandemic, the Group considered and evaluated whether there were any indicators of impairment for its various cash generating units (CGUs) at 31 March 2021. Various factors both internal and external to the Group were considered in this evaluation. With the exception of Blue Nova (the Group’s energy storage business), no other CGUs had any indicators of impairment.

Blue Nova

At 31 March 2021 Blue Nova has a goodwill balance of R53 million. Due to an indicator of impairment at Blue Nova, management performed an impairment assessment using cash flow forecasts over a five-year period, a pre-tax discount rate of 20% and a terminal value of 6%. Management further applied a sensitivity to the impairment assessment using a 1% increase in the discount rate and a 1% decrease in the terminal value. Based on this assessment, no impairment of the goodwill balance at Blue Nova was required at 31 March 2021.

Group

Management continues to evaluate the impact of COVID-19 and the resulting economic impact on the value of the Group’s property, plant and equipment, intangible assets, right-of-use assets and goodwill. At 31 March 2021 no impairments of these categories of assets were required in the Group.

    Six months ended 31 March
      Year ended
      30 September
Rm 2021
Unaudited
2020
Unaudited
2020
Audited
Carrying amount at the beginning of the period 924 999 999
Impairment of goodwill (75) (75)
Carrying amount at the end of the period
924 924 924

 

2020

In March 2020, the impact of COVID-19 resulted in the Group impairing goodwill which arose on acquisition of two of its subsidiaries: African Cables (R61 million) and Dynateq International (Dynateq) (R14 million) and R4 million of property, plant and equipment in Polybox.

African Cables

Although the business had secured framework tenders at Eskom and various municipalities, the impact of the reprioritisation of Government’s expenditure on infrastructure due to the impact of COVID-19 remained uncertain. Management was of the view that this business was likely to continue to experience pressure on volumes over the medium term and accordingly used forecasts taking this uncertainty into consideration in assessing the need for the impairment made.

Dynateq

Dynateq’s revenue is largely driven by securing contracts in the global defence sector. The business is dependent on the export market in various economies including the Middle East and Europe. Although a portion of the short-term order book had been secured, management’s view was that this business was likely to experience volume pressure over the medium term and the forecasts used to assess impairment took this uncertainty into account.

Management continues to evaluate the impact of COVID-19 and the resulting economic impact on the value of the Group’s property, plant and equipment, intangible assets, right-of-use assets and goodwill. At 31 March 2021 no impairments of the categories of assets was required in the Group as a result of COVID-19.

Investment in joint venture

In the 2020 financial year, the outlook for CBi Telecoms was uncertain due to the company having a limited order book combined with significant margin degradation due to competition. The low volumes resulted in weak cash flow forecasts for the short to medium term. These factors together with the substantial loss incurred to 31 March 2020 resulted in the management of CBi Telecoms impairing the carrying amount of its property, plant and equipment, intangible assets and right-of-use assets by R147 million. The impact of the impairment is included in the equity-accounted earnings from joint ventures. For the six-month period ended 31 March 2020 this amounted to R55 million (after tax) (September 2020: R42 million (after tax)).

    Six months ended 31 March
      Year ended
      30 September
Rm 2021
Unaudited
2020
Unaudited
2020
Audited

10. Number of shares used to calculate earnings per share1

     
Weighted average number of shares in issue, net of empowerment and treasury shares, for basic earnings and headline earnings per share (millions of shares) Adjusted by the dilutive effect of unexercised share options granted 161 161 161
(millions of shares) 1 3 1
Weighted average number of shares for diluted basic and diluted
headline earnings per share (millions of shares)
162 164 162
1 The earnings used to determine earnings per share and diluted earnings per share is the profit/(loss) for the period attributable to equity holders of Reunert of R313 million (March 2020: (R277) million, September 2020: R47 million).

 

    Six months ended 31 March
      Year ended
      30 September
Rm 2021
Unaudited
2020
Unaudited
2020
Audited

11. Headline earnings

     
Profit/(loss) attributable to equity holders of Reunert
313 (277) 47
Headline earnings are determined by eliminating the effect of the
following items from attributable earnings:
     
Goodwill impairment 75 75
Impairment of non-financial assets in a joint venture (after a tax
credit of March 2020: R13 million, September 2020: R14 million)
55 42
Loss on remeasurement of subsidiary held for sale 22
Loss on disposal of subsidiary
20
Impairment of property, plant and equipment 4 4
Net gain on disposal of assets (after a tax charge of R1 million and non-controlling interests (NCI) portion of Rnil) (March 2020: tax charge R1 million, NCI R1 million, September 2020: tax charge R1 million, NCI R1 million) (2) (2) (2)
Headline earnings/(loss)
311 (123) 186

 

    Six months ended 31 March
      Year ended
      30 September
Rm 2021
Unaudited
2020
Unaudited
2020
Audited

12. Put option liability

     
As part of the Terra Firma Solutions acquisition in 2017, the Group granted put options in favour of the non-controlling shareholders for 25% of the issued share capital. The majority of this put option was exercised in the 2020 financial year. The amount remaining is carried at fair value and amounts to R307 428. This is displayed as nil in the statement of financial position due to rounding.      
A reconciliation of the closing balance is as below:      
Balance at the beginning of the period 120 120
Fair value remeasurements 3
Unwinding of discount 5 8
Settlement
(131)
Balance at the end of the period 125
Less: current portion (125)
Non-current portion
(123) 186

 

    Six months ended 31 March
      Year ended
      30 September
Rm 2021
Unaudited
2020
Unaudited
2020
Audited

13. Contingent considerations

     
Reconciliation of carrying amount of contingent consideration
financial liability
     
Balance at the beginning of the period 24 41 41
Settlement (3) (15)
Fair value remeasurements (2) (2)
Balance at the end of the period1 24 36 24
1 The balance of the contingent consideration has been included as part of ‘Trade and other payables,’ in the statement of financial position.

 

These were classified as level 3 instruments in the fair value hierarchy.

Contingent considerations still in effect

Dopptech

The remaining contingent consideration for this business of R12 million is based on the achievement of specific key performance indicators as stipulated in the purchase agreement.

Blue Nova Energy

A contingent consideration payable up to R12 million is based on the achievement of a future EBITDA target and key performance indicators stipulated in the purchase agreement.

14. Reconciliation of re-presented EBITDA before impairment of financial assets

Due to the significance of the credit write-off and expected credit losses in the comparative period, the Group has provided additional disclosure by separately disclosing these items.

Rm 31 March
2020
Unaudited
Expected credit losses as reported in March 2020 529
Less: credit write-off (298)
COVID-19 related expected credit losses 231
Plus: other expected credit losses included in EBITDA in March 2020 36
Total expected credit loss as now reported 267
EBITDA as reported in March 2020 493
Plus: expected credit losses now separately disclosed 36
EBITDA before impairment of financial assets as now reported 529

15. Litigation

There is no material litigation being undertaken against or by the Group.

16. Events after reporting date

AE Segment

Lumika Renewables (“Lumika”)

Subsequent to 31 March 2021, the Group has concluded an agreement with AP Moller Capital, to establish a joint venture, Lumika to develop and invest into a portfolio of cost efficient, renewable energy solutions in the form of solar and hybrid build-own-operate projects for commercial and industrial off-takers in Africa. The Group will have a 50,1% interest in Lumika, however, both parties will exercise joint control over Lumika.

As part of the establishment of Lumika, the Group has agreed to sell an effective 25% interest in Terra Firma (the Group’s Solar PV business) to Lumika. The Group has also concluded a put and a call option for the sale of its residual 65% interest in Terra Firma that may be exercised after the third anniversary of the establishment of Lumika.

The establishment of Lumika and the arrangements concerning Terra Firma are both subject to regulatory approvals, including the required Competition Commission approvals, to form the joint venture and implement the Terra Firma transactions.

ICT Segment

In the Solutions and Systems Integration Cluster, good progress continues to be made in building out the capabilities of +OneX, with one acquisition being concluded, and a further acquisition in its final stages.

DataCoremedia

With effect from 1 May 2021, +OneX acquired 100% of the business and related assets of DataCoremedia Proprietary Limited. DataCoremedia is a digital media and data consultancy business and will strengthen +OneX’s position as an end-to-end business transformation partner.

TripleH Cloud Services

During May 2021, +OneX entered into a sale of business agreement with TripleH Cloud Services Proprietary Limited to acquire 100% of the business and related assets, subject to certain conditions precedent.

TripleH Cloud Services is a hosted private cloud provider. The service offerings of the business include multi-cloud management, infrastructure as a service, disaster recovery as a service and backup as a service.

As +OneX is a cloud systems integrator, the TripleH Cloud Services business will be core to its cloud service offering.

Nashua Kopano

Subsequent to 31 March 2021, the Group acquired all of the minority shareholder’s interest in Nashua Kopano, a Group-owned Nashua franchise in the ICT Segment.

17. Going concern

The directors have reviewed the Group’s financial position, existing credit facilities and available cash resources and are satisfied that the Group will continue as a going concern.