Notes

for the six months ended 31 March 2022

1. Basis of preparation

The unaudited condensed consolidated interim financial statements (condensed financial statements) have been prepared in accordance with and contain the information required by the:

The condensed financial statements were compiled under the supervision of NA Thomson CA(SA), the Group’s Chief Financial Officer and authorised for issue on 24 May 2022.

The Group’s accounting policies applied for the period ended 31 March 2022 are consistent with those applied in the prior year’s audited consolidated Annual Financial Statements. These accounting policies comply with IFRS.

These condensed financial statements have not been audited or reviewed by the Group’s external auditors.

2. Revenue

Six months ended
31 March
Rm 2022
Unaudited

2021
Unaudited
Year ended
30 September
2021
Audited
Revenue from contracts with customers:
Category of revenue
Products 4 018 3 450 7 632
Services 920 971 1 575
4 938 4 421 9 207
Timing of revenue recognition:
Revenue recognised at a point in time 4 258 3 790 7 911
Revenue recognised over time 680 631 1 296
Total revenue from contracts with customers 4 938 4 421 9 207
Other revenue:
Interest received on leases and loans receivable 162 173 340
Rental revenue 14 20 28
Total 5 114 4 614 9 575

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

3. Operating profit

Six months ended
31 March
Rm 2022
Unaudited
Restated1
2021 
Unaudited 
Year ended
30 September
2021
Audited
Operating profit is arrived at as follows:
Revenue 5 114 4 614 9 575
Items included in operating profit
Changes in inventory (3 224) (2 758) (5 852)
Employee costs (984) (972) (1 967)
Salaries and wages (880) (875) (1 776)
Pension and provident fund contributions2 (63) (64) (126)
Other staff costs3 (41) (33) (65)
Fair value remeasurements 7 17 65
Gain on investment at fair value through profit or loss 4 17 103
Gain on contingent consideration 3 13
Gain on option contract 8 41
Loss on option contract (9) (92)
Gain on put option liability 1
Reversal of impairment/(impairment) of financial assets 8 (8) (1)
Credit write-off (6) (5) (20)
Expected credit losses 14 (3) 19
Net forex (losses)/gains (21) (29) 24
Net realised forex (losses)/gains4 (1) 40
Net unrealised forex losses4 (21) (28) (16)
Other income 30 15 47
Lease modification 20 16 49
Profit on disposal of property, plant and equipment and intangible assets 2 3 12
Share-based payment expense5 (15) (15) (17)
Interest paid to finance lease and loan receivables (8) (16) (24)
Operating lease charges (14) (14) (27)
Research and development (70) (70) (150)
Financial guarantee cost (5)
Other operating expenses (241) (204) (423)
EBITDA6 599 579 1 311
The following additional disclosable items have been included in arriving at operating profit:
Depreciation and amortisation (128) (126) (253)
Impairment of property, plant and equipment (1)
Profit on disposal of associate 1
Loss on disposal of subsidiary (1)
Expenses arising from share-based payment transactions7 (6) (5) (7)
Operating profit as per the statement of profit or loss 465 448 1 050
1 The operating profit note has been restated to provide more detail, which change was first applied in the 30 September 2021 audited results. Refer to note 15.
2 Payments to defined contribution retirement plans are charged as an expense as they fall due.
3 Includes staff training, staff welfare, skills development levy, commissions and incentives and other staff related costs.
4 Transactions denominated in a foreign currency are initially recognised at the ruling rates of exchange at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated to the exchange rates prevailing at that date. Exchange differences on monetary items 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.
5 Included in share-based payment expense is a charge of Rnil million (March and September 2021: a charge of R1 million) relating to the Deferred Bonus Plan. This is classified as a cash-settled share-based payment with the equivalent amount included in liabilities.
6 Earnings before net interest, tax, depreciation and amortisation, impairment of goodwill and property, plant and equipment, profit on disposal of associate, loss on disposal of subsidiary and expenses arising from share-based payment transactions. EBITDA includes interest income received on leases and loans receivable in the ICT Segment.
7 During the period under review certain of the minority shareholders’ shares in Bargenel (the Group’s empowerment vehicle) were repurchased for a total consideration of R9,6 million. Of this, R3,3 million was charged to equity and R6,3 million was included as a charge to profit or loss. (March 2021: an empowerment charge in the ICT Segment of R5 million, September 2021 an empowerment charge in the ICT Segment of R6 million and in the AE Segment of R1 million).

4. Interest and dividend income

Six months ended
31 March
Rm 2022
Unaudited

2021
Unaudited
Year ended
30 September
2021
Audited
Dividend income 2
Unwinding of present value discount 3
Interest earned on financial assets analysed by category
of asset:
Bank deposits 12 10 16
Other assets 5 3 10
Total interest and dividend income 20 13 28

5. Interest expense

Loans, bank overdrafts and short-term facilities (29) (19) (47)
Lease liabilities (7) (10) (19)
Unwinding of present value discount (1) (4)
Interest expense as per the statements of profit or loss (36) (30) (70)
Interest paid to finance lease and loan receivables (included in Group operating expenses as this relates to the Group’s finance business) (8) (16) (24)
Total interest expense (44) (46) (94)

6. Impairment of financial assets

Credit write-off 6 5 20
Expected credit losses (ECL) (14) 3 (19)
(8) 8 1

Analysis of movement in the ECL

Rm
31 March 2022
ECL as at
the
beginning
of the
period
Released)/
raised
during the
period
through the
statement of
profit or loss
Utilised
during the
period
Foreign
exchange
movement
ECL
as at
the end
of the
period
Lease and loan receivables 152 (9) (4) 139
Trade and other receivables 168 (5) (2) (6) 155
Credit write-off for trade and
other receivables
6
Reversal of impairment of financial assets per the statement of profit or loss (8)

31 March 2021          
Lease and loan receivables 210 (27) 183
Trade and other receivables 192 3 (20) (13) 162
Credit write-off for trade and other receivables 5
Impairment of financial assets per the statement of profit or loss 8

30 September 2021

Rm ECL as at
beginning
of the
year
(Released)/
raised
during the
year
through the
statement of
profit or loss
Utilised
during the
year
Disposal
of
subsidiary
Foreign
exchange
movement
ECL as at
the end of
the year
Lease and loan receivables 210 (29) (29) 152
Trade and other receivables 192 10 (39) (2) 6 167
Credit write-off for trade and other receivables 20
Impairment of financial assets per the statement of profit or loss 1


Impact of Covid-19 and the Russia-Ukraine war

Subsequent to the easing of lockdown conditions and reducing levels of serious Covid-19 infections, economic activity has generally improved since the outbreak of the pandemic in early 2020 and the credit environment has correspondingly improved.

The Group has also assessed the potential impact of the Russia-Ukraine war and the impact of this is expected to be mainly on input costs, rising inflation and interest rates.

The Group considers the impact of Covid-19 and the Russia-Ukraine war in their assessment of the ECL.

Lease and loan receivables

The Group applies the IFRS 9 general approach to measuring the ECL required in respect of lease and loan receivables.

This is first calculated by applying a historical loss ratio to the lease and loan receivables at each reporting date. The loss ratio for the lease and loan receivables is calculated according to the ageing/payment profile by applying historic write-offs to the payment profile of the population.

The ECL resulting from the historic loss ratio is then adjusted for forward-looking information to determine the required ECL at the reporting date.

In assessing whether the credit risk of a lease and loan receivable has increased significantly since initial recognition, the Group compares the risk of a default occurring as at the reporting date with the risk of a default occurring 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. In assessing the stage categorisation, receivables that include balances which are 30 days overdue are classified as stage 2 and receivables that include balances that are 90 days overdue are classified as stage 3.

Key assumptions

The Group has considered these factors above and also used the following key assumptions in estimating the ECL as at 31 March 2022:

Six months ended 31 March
Rm 2022
Unaudited

2021
Unaudited
Year ended
30 September
2021
Audited
Probability of default (PD) 5,49% 6,3% 5,6%
Loss given default (LGD) 63,0% 63,0% 63,0%
Exposure of
receivables at
31 March 2022
Exposure of
receivables at
31 March 2021
Exposure of
receivables at
30 September 2021

In estimating the PD, which requires a high degree of judgement, the following rate was applied:

The LGD rate used was obtained from the quoted recovery rate of the World Bank for South African debt of 37%. This was corroborated against the Moody’s recovery rate for emerging markets. Due to the uncertainty of the impact of, inter alia, COVID-19 and the Russia-Ukraine war on South Africa and limited credit information, this remains the best independent and credible information available to estimate the expected LGD and this results in an LGD of 63%.

Management previously applied both Moody’s PD and their experience as to which industry segments of the book were experiencing credit stress. In the current period as management has developed greater insight into the South African credit risk associated with its loan and receivable book through both technical analysis and through the assessment of actual credit losses, management has instead of applying the Moody’s Global PD, used the forward looking information derived from an assessment undertaken in conjunction with a South African credit bureau, Experian, on the Group’s lease and loan receivables. This exercise determined the industry classification of each rental customer and which industries were considered to be likely to experience future adverse credit risk.

Categorisation of stages

The following is a categorisation of the different stages in accordance with IFRS 9:

Expected credit losses
Rm Carrying
amount
before ECL
Stage 1 Stage 2 Stage 3 Net
carrying
amount
after ECL
31 March 2022 2 537 (17) (24) (98) 2 398
Leases receivable 672 (3) (7) (11) 651
Loans receivable 1 865 (14) (17) (87) 1 747
31 March 2021 2 753 (79) (41) (63) 2 570
Leases receivable 879 (5) (11) (11) 852
Loans receivable 1 874 (74) (30) (52) 1 718
30 September 2021 2 628 (41) (13) (98) 2 476
Leases receivable 707 (9) (6) (9) 683
Loans receivable 1 921 (32) (7) (89) 1 793

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 the age analysis of trade receivables and contract assets of each entity in the Group. 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.

7. Impairment of goodwill and property, plant and equipment

Goodwill

The Group considered and evaluated whether there were any indicators of impairment for its cash generating units (CGU) at 31 March 2022.

Both internal and external factors to the Group were considered to determine whether there were indicators of impairment. This included the residual impacts of the COVID-19 pandemic and the Russia-Ukraine war.

Indicators of impairment were noted for the following CGUs: Skywire, Omnigo, Nanoteq and Reutech Communications. The Group performed an impairment assessment using cash flow forecasts over a five-year period. Based on this assessment no impairments were required at 31 March 2022.

Sensitivities

In terms of IAS 36, management conducted sensitivity analyses, the sensitivity analyses included a consequence of a 5% reduction in forecast revenue on the cash flow forecasts without factoring in any management actions required from the decrease in revenue. The results of the sensitivity analyses were that additional impairments would be required for Nanoteq (R18 million), Omnigo (R67 million) and Skywire (R73 million) if revenue forecasts are not met by 5% i.e. a 95% achievement.

Pre-tax discount rates ranging from 15,8% to 19,6% and a terminal value growth rate of 4% were used in these assessments.

A 1% increase in pre-tax discount rates would result in an impairment of goodwill of R6 million for both Nanoteq and Omnigo.

A 1% decrease in terminal value growth rate would result in an impairment of goodwill of R1 million for both Nanoteq and Omnigo.

Six months ended
31 March
Rm 2022
Unaudited

2021
Unaudited
Year ended
30 September
2021
Audited
Carrying amount at the beginning of the period 934 924 924
Disposal of subsidiary (4)
Acquisition of businesses 26 14
Carrying amount at the end of the period 960 924 934


8. Investment at fair value through other comprehensive income

CBI-Electric Telecom Cables (Pty) Ltd (CBI Telecoms)

Due to the reduced factory throughput leading to under recoveries of fixed costs and reduced cash flow as a consequence of lower sales, CBI Telecoms was placed into business rescue on 2 March 2022. Consequently, the Group has lost significant influence over its investment in CBI Telecoms and has therefore changed the classification of the investment from equity accounting under IAS 28 to a financial asset under IFRS9. In addition to the equity investment, the group has made both a funding loan and operating loans to CBI Telecoms which continue to be recognised as receivables measured at amortised cost. The Group has made an election to recognise any subsequent changes in fair value of the investment under IFRS 9 through other comprehensive income.

9. Investment at fair value through profit or loss

In terms of IAS 28 Investments in Associates and Joint Ventures, the Group is presumed to have significant influence over CAFCA as it owns more than 20% of CAFCA’s share capital.

However, as the Group has less than 20% representation on the board of directors of CAFCA and as it does not have the right to appoint additional directors, the Group does not equity account its investment in CAFCA. This is due to the Group not having significant influence over CAFCA resulting from its inability to influence the financial and operating policy of CAFCA. Therefore, the Group’s interest is measured at fair value through profit or loss. Although CAFCA is listed on the Zimbabwean Stock Exchange, there is limited trading in the share. Historically as Reunert could not receive dividends due to Zimbabwean exchange controls and as there was no market for the shares, the investment was held at a value of Rnil.

During the prior financial year the Group received and accepted two unsolicited offers for a portion of its investment in CAFCA for R27 million. These transactions resulted in the Group remeasuring the fair value of its investment in CAFCA. The fair value was determined using an appropriate price/net asset value multiple of comparable companies to the historical net asset value of the share. The selling price per share of the sale transactions was also considered as a key factor in assessing the reasonability of the fair value. This valuation has been reperformed in the period under review on the same basis.

This is a level 3 instrument in the fair value hierarchy.

Six months ended
31 March
Rm 2022
Unaudited

2021
Unaudited
Year ended
30 September
2021
Audited
Fair value remeasurement of investment in CAFCA 4 17 103
Realised gain on remeasurement of investment 17 27
Unrealised gain on remeasurement of investment 4 76


During the current financial period the Group sold a further 5 200 245 CAFCA shares for R29 million and subsequent to this sale the Group holds a residual interest in CAFCA of 28,65%.

10. Non-current derivative financial assets and liabilities

As at 31 March
Rm 2022
Unaudited

2021
Unaudited
Year ended
30 September
2021
Audited
Put option derivative financial asset 32 41
Call option derivative financial liability 84 92
Cumulative fair value remeasurement loss on
option contract
52 51
Fair value remeasurement loss recognised in the statement of profit or loss 1 51

 

In the 2021 financial year the Group concluded an agreement with AP Moller Capital through AIF I Africa C&I Renewable Energy LLP (AIF I) to establish a joint venture, Lumika Renewables (Pty) Ltd (Lumika). The Group subscribed for a 50,1% interest in Lumika. Although the Group holds a 50,1% interest, due to the contractual arrangement with AP Moller Capital, the Group exercises joint control over the venture.

The Group sold an effective 25% interest in Terra Firma Solutions (Pty) Ltd (TFS) (the Group’s Solar PV business) to Lumika and concluded a put and a call option for the sale of its residual 65% interest in TFS. The put and call options are both exercisable after the third anniversary of the establishment of Lumika which date is 30 September 2023.

In terms of these arrangements, the Group has the right to put its remaining interest in TFS to Lumika in exchange for the strike price in US dollars (US$) and Lumika has the right to call the remaining interest in TFS from the Group at the same price. The put and call options have both been recognised as a non-current derivative asset and liability respectively at their fair values through profit or loss, although they are for a fixed number of shares, they are for a variable Rand consideration as the consideration is priced in US$.

Valuation technique

The equity value of TFS was determined at the reporting date. This equity value, the strike price in US dollars and other inputs (see below) were then inserted into a Black Scholes valuation model to determine the value of the put and call.

The following significant unobservable inputs were used in the determination of the value of the put and call and the resulting net fair value loss:

The put and call options are both considered to be a level 3 instrument in the fair value hierarchy.

11. Number of shares used to calculate earnings per share1

Six months ended
31 March
Rm 2022
Unaudited

2021
Unaudited
Year ended
30 September
2021
Audited
Weighted average number of shares in issue,
net of empowerment and treasury shares, for
basic earnings and headline earnings per share (millions of shares) 1612 1612 1612
Adjusted for the dilutive effect of unexercised share
options granted (millions of shares)
– 
Weighted average number of shares for diluted basic
and diluted headline earnings per share (millions of shares)
162  162  161 
1 The earnings used to determine earnings per share and diluted earnings per share is the profit for the period attributable to equity holders of Reunert of R316 million (March 2021: R313 million, September 2021: R777 million).
2 The Group has elected to treat the shares under the equity forward contract as issued shares for purposes of calculating the earnings per share.

12. Headline earnings

Profit attributable to equity holders of Reunert 316 313 777 
Headline earnings are determined by eliminating the effect
of the following items from attributable earnings:
Impairment of non-financial assets in a joint venture (after a tax credit of Rnil (March 2021 and September 2021: Rnil))
Net loss on disposal of subsidiary and associate
(September 2021: after a tax charge of R1 million)
Profit on disposal of property, plant and equipment and intangible assets (after a tax charge of Rnil and non-controlling interest (NCI) portion of Rnil) (March 2021: after a tax charge of R1 million and NCI portion of Rnil) (September 2021: after a tax charge of R3 million and NCI portion of Rnil) (2) (2) (11)1
Headline earnings 314 311 768 
Headline earnings per share (cents) 195 193 478 
Diluted headline earnings per share (cents) 194 192 476 
1 Includes R2 million profit on disposal of property, plant and equipment arising from an investment in joint venture.


13. Contingent consideration

Six months ended
31 March
Rm 2022
Unaudited

2021
Unaudited
Year ended
30 September
2021
Audited
Carrying amount at the beginning of the period 28   24 24
Raised on acquisitions at fair value 28   18
Raised on acquisition of NCI –   61
Fair value remeasurement (3)3 (13)2
Settlement (2)   (7)
Carrying amount at the end of the period 51   24 28
Less: current portion 18   24 18
Non-current portion 33   10
1 This relates to a contingent consideration that arose during the prior financial year on the acquisition of the non-controlling interest in Kopano Solutions Company (Pty) Ltd.
2 Includes a remeasurement gain of R11 million for Blue Nova arising from the related targets not being achieved.
3 Reduction in contingent consideration due to Dopptech (Pty) Ltd not achieving related targets.

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

14. Put Option Liability

As part of the original acquisition of TFS in 2017, the Group granted put options in favour of the non-controlling shareholders. The final elements of the put options were exercised in the period under review.

Carrying amount at the beginning of the period 25
Raised 25
Fair value remeasurement (1)
Settlement (24)
Carrying amount at the end of the period 25

The obligation was classified as a level 3 instrument in the fair value hierarchy.

Valuation technique

The fair value of the put option liability was determined using an agreed formula in the shareholders agreement. This formula applied a multiple to revenue and an adjusted profit after tax and incorporated the investment in build-own-operate plants.

Significant unobservable inputs included:

15. Reconciliation of restated operating profit

Rm March 2021
Unaudited
Operating profit as reported in March 2021 436
Gain on disposal of investment 17
Expenses arising from share-based payment transactions (5)
Operating profit as now reported 448

 

16. Acquisition of Business

2022

1. The Code Maven Group of companies (MAVEN)

With effect from 1 October 2021, the Group, through +OneX, acquired 100% of the business and related net assets of MAVEN. MAVEN is a group of three companies (Moov Innovation (Pty) Ltd, Maven Agency (Pty) Ltd and Mavin Agency India Pvt. Ltd) focused on the development of bespoke software and applications. The existing workforce is appropriately skilled and resourced to service the existing client base and future clients that should arise as part of the synergistic benefits of its incorporation into the Reunert ICT Segment.

The acquisition of MAVEN complements the ICT Segment’s expansion strategy and increases the geographical presence of +OneX.

The acquisition also provides +OneX with additional service offerings such as software development and will strengthen +OneX’s position as an end-to-end business transformation partner.

Rm 2022 Unaudited
Cash paid 16
Contingent considerations 28
Working capital offset against the purchase price (4)
Total purchase consideration 40
Represented by:
Property, plant and equipment 1
Goodwill 26
Intangible assets 24
Deferred tax liabilities (7)
Trade and other payables (4)
Net assets acquired (fair value at acquisition date) 40
Revenue since acquisition – effective 1 October 2021 52
Profit after tax since acquisition – effective 1 October 2021 4


17. Litigation

There is no material litigation against the Group and the Group continues to pursue recovery of the losses from the Quince fraud through legal action.

18. Update on the restructuring of the Group’s BEE transaction

In December 2021, shareholders received a circular setting out the mechanism and terms by which the Group’s primary share ownership BEE structure was to be amended. At the AGM, held in February 2022, the shareholders resolutions required to put the transaction into effect were approved.

As set out in the circular, the main participants in the new BEE structure are the Rebatona Educational Trust (Rebatona Trust), being the Group’s educational trust and the Group’s newly created Employee Share Ownership Plan (ESOP) (for qualifying employees, which excludes, among others, any director or senior management together with any employee participating in any of the Group’s short- or long-term incentive schemes).

The Rebatona Trust’s (65%) and ESOP’s (35%) interests will be held indirectly through Bargenel Investments Proprietary Limited (Bargenel), a wholly-owned subsidiary of Rebatona Investment Holdings Proprietary Limited. Bargenel will on conclusion of the transaction hold approximately 13% of Reunert’s shares in issue (Reunert shares).

Bargenel’s 13% holding in Reunert will be funded by Reunert through preference shares, the extent of which, is based on a Reunert share price of R50,13 per share and the number of Reunert shares held.

Qualifying employees, as defined above, will benefit in the ESOP’s proportional share of the growth in respect of Bargenel’s 13% interest in Reunert shares as determined at the end of the five-year vesting period (which period may be extended by one year up to a maximum of three years) should there not be any growth above the base value of R50,13 per Reunert share.

On vesting, the ESOP will not distribute any Reunert shares to the remaining beneficiaries of the ESOP but will settle any value created in terms of the BEE structure in cash, which has the effect that such benefit will constitute a cash settled share plan and the cost will be accounted for as an annual employee cost under IFRS 2 spread over the vesting period.

As all of the companies/entities comprising the underlying BEE structure are considered to be controlled by Reunert, primarily due to a combination of its funding thereof and the control mechanisms in the various agreements, this BEE transaction will have no impact on the consolidated results of Reunert Limited with the exception of:

19. Events after reporting date

BBBEE transaction in TFS

Subsequent to the reporting date, the Group has concluded a repurchase of shares agreement with SIBU Private Equity (Pty) Ltd (SIBU Private Equity) the BBBEE partner in TFS, whereby TFS will repurchase all of the shares held by SIBU Private Equity in TFS, being 59 883 shares, for a consideration of R20,9 million. The repurchase of shares transaction is subject to the fulfilment of certain conditions. Following the repurchase by TFS of the shares of SIBU Private Equity the Group will effectively hold 86,13% in TFS.

Acquisition of Etion Create Proprietary Limited (Etion Create)

Subsequent to the reporting date, the Group has concluded a sale of shares agreement with Etion Limited (Etion). In terms of this agreement, Reunert Applied Electronics Holdings Proprietary Limited (RAEH), will acquire 100% of the issued share capital of Etion Create from Etion for a purchase consideration of R168 million, being the agreed value of Etion Create, on the effective date, on a cash-free and debt-free basis to be adjusted by certain adjustments as agreed between Etion and RAEH, provided that such purchase consideration shall be subject to an absolute maximum of R210 million. The implementation of the transaction is subject to certain conditions precedent.

20. 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.