Notes

for the six months ended 31 March 2023

1. Basis of preparation

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

The Group’s accounting policies applied for the period ended 31 March 2023 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 2023
Unaudited
2022
Unaudited
Year ended
30 September
2022
Audited
Revenue from contracts with customers:
Category of revenue
Products 4 960 4 018 9 262
Services 1 057 920 1 504
6 017 4 938 10 766
Timing of revenue recognition:
Revenue recognised at a point in time 5 266 4 258 9 333
Revenue recognised over time 751 680 1 433
Total revenue from contracts with customers 6 017 4 938 10 766
Other revenue:
Interest received on lease and loan receivables 169 162 332
Rental revenue 17 14 31
Total 6 203 5 114 11 129

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

3. Operating profit

Six months ended
31 March
Rm 2023
Unaudited
2022
Unaudited
Year ended
30 September
2022
Audited
Operating profit is arrived at as follows:
Revenue 6 203 5 114 11 129
Items included in operating profit
Changes in inventory (3 867) (3 224) (7 147)
Employee costs (1 153) (999) (2 061)
Salaries and wages (1 015) (880) (1 816)
Pension and provident fund contributions1 (55) (63) (126)
Other staff costs2 (41) (41) (96)
Employee related share-based payment expense3 (42) (15) (23)
Fair value remeasurements 27 7 85
Gain on investment at fair value through profit or loss 4 6
(Loss)/gain on contingent consideration (1) 3 3
Gain/(loss) on put option derivative asset 8 (9) 16
Gain on call option derivative liability 20 8 59
Gain on put option liability 1 1
Auditors remuneration (17) (14) (29)
Audit fees (16) (14) (28)
Other fees (1) (1)
(Impairment)/reversal of impairment of financial assets (53) 8 5
Credit write-off (4) (6) (13)
Expected credit losses (49) 14 18
Net forex (losses)/gains (78) (21) 63
Net realised forex (losses)/gains4 (58) 32
Net unrealised forex (losses)/gains4 (20) (21) 31
 

Six months ended
31 March
Rm 2023
Unaudited
2022
Unaudited
Year ended
30 September
2022
Audited
Other income 26 30 74
Insurance income5 44
Lease modification 18 20 48
Profit on disposal of property, plant and equipment
and intangible assets
2 2 1
Interest incurred to finance the lease and loan receivables (1) (8) (9)
Operating lease charges (14) (14) (29)
Research and development expenditure (49) (70) (137)
Financial guarantee (5) (4)
Other operating expenses (290) (227) (499)
EBITDA6 798 599 1 490
The following additional disclosable items have been included in arriving at operating profit:
Depreciation and amortisation (161) (128) (253)
Impairment of intangible assets (17)
Expenses arising from share-based payment transactions7 (6) (6)
Operating profit as per the statement of profit or loss 620 465 1 231
1 Payments to defined contribution retirement plans are charged as an expense as they fall due.
2 Includes staff training, staff welfare, skills development levy, commissions and incentives and other staff related costs.
3 The following items are included in the employee related share-based payment expense:
a charge of R4 million (March 2022: Rnil, September 2022: R7 million) relating to the employee share ownership plan. This is classified as a cash-settled share-based payment with the equivalent amount included in liabilities.
a charge of R23 million (March 2022: Rnil, September 2022: Rnil) relating to Group's Retention scheme. This is classified as a cash-settled share-based payment with the equivalent amount included in liabilities.
a charge of R15 million (March 2022: R15 million, September 2022: R16 million) relating to the CSP share scheme.
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 Proceeds arising from the Group's COVID-19 claim in terms of an interim agreement of loss.
6 Earnings before net interest, tax, depreciation and amortisation (EBITDA), impairment of intangible assets and expenses arising from share-based payment transactions. EBITDA includes interest income received on lease and loan receivables in the ICT Segment.
7 In the prior financial year the minority interests’ shares in Bargenel 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.

4. Interest and dividend income


Six months ended
31 March
Rm 2023
Unaudited
2022
Unaudited
Year ended
30 September
2022
Audited
Dividend income 2 1
Unwinding of present value discount 4 3
Interest earned on financial assets analysed by category of asset:
Bank deposits 15 12 19
Other assets 5 5 12
Interest and dividend income as per the statement of profit or loss 26 20 32
Interest earned on finance lease and loan receivables included in revenue 169 162 332
Total interest and dividend income 195 182 364

5. Interest expense

Loans, bank overdrafts and other short-term borrowings (64) (29) (66)
Lease liabilities (10) (7) (15)
Interest expense as per the statement of cash flows (74) (36) (81)
Unwinding of present value discount (3)
Interest expense as per the statement of profit or loss (74) (36) (84)
Interest incurred to finance the lease and loan receivables (included in Group operating expenses as this relates to the Group's finance business) (1) (8) (9)
Total interest expense (75) (44) (93)

6. Impairment of financial assets

Credit write-off 4 6 13
Expected credit losses (ECL) 49 (14) (18)
53 (8) (5)

 

Analysis of movement in the ECL

Rm
31 March 2023
Carrying amount as at the beginning of the period Raised during the period through the statement of profit or loss Utilised Foreign exchange movement Carrying amount as at the end of the period
Lease and loan receivables 101 25 (2) 124
Trade and other receivables 165 24 (12) 177
Credit write-off for trade
and other receivables
4
Impairment of financial assets per the statement of profit or loss 53

Rm
31 March 2022
Carrying amount as at the beginning of the period (Released)/ raised during the period through the statement of profit or loss Utilised Foreign exchange movement Carrying amount as at the end of the period
Lease and loan receivables 152 (9) (4) 139
Trade and other receivables 167 (5) (1) (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)
30 September 2022
Lease and loan receivables 152 (11) (40) 101
Trade and other receivables 167 (7) (6) 11 165
Credit write-off for trade and other receivables 13
Reversal of impairment of financial assets per the statement of profit or loss (5)

Lease and loan receivables

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

This is 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, as at the reporting date, by applying historic write-offs to the profile of the population as at that date.

The resulting ECL is then adjusted for forward-looking information to determine the final ECL required 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 (when the amount owing by a customer is unlikely to be settled with the initial indicator being the amount is past due by 90 days) 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 and qualitative 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 used the following key assumptions in estimating the ECL as at 31 March 2023:

Six months ended
31 March
2023
Unaudited
2022
Unaudited
Year ended
30 September
2022
Audited
Probability of default (PD) 6,2% 5,5% 3,6%
Loss given default (LGD) 65,8% 63,0% 63,2%
Exposure at default (EAD) Exposure of receivables at 31 March 2023 Exposure of receivables at 31 March 2022 Exposure of receivables at 30 September 2022

The forward-looking information was derived from a detailed assessment of the lease and loan receivables. This assessment used Experian's (a South African credit bureau) quarterly risk report identifying industry sectors showing a trend of increasing distress. This exercise determined the industry classification of each rental customer and which industries were considered to be likely to experience future adverse credit risk.

The LGD rate used was obtained from the quoted recovery rate of the World Bank for South African debt of 34%. This remains the best independent and credible information available to estimate the expected LGD and results in an LGD of 65,8%.

Categorisation of stages

Expected credit losses
Rm Carrying amount before ECL Stage 1 Stage 2 Stage 3 Net carrying amount after ECL
31 March 2023 2 375 (21) (33) (70) 2 251
Lease receivables 599 (6) (7) (7) 579
Loan receivables 1 776 (15) (26) (63) 1 672
31 March 2022 2 537 (17) (24) (98) 2 398
Lease receivables 672 (3) (7) (11) 651
Loan receivables 1 865 (14) (17) (87) 1 747
30 September 2022 2 372 (20) (24) (57) 2 271
Lease receivables 625 (6) (6) (7) 606
Loan receivables 1 747 (14) (18) (50) 1 665

Trade and other receivables

The Group has consistently applied IFRS 9 Financial Instruments' simplified approach to measuring the 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 receivables 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. Goodwill

Impairment of goodwill and cash generating units

The Group considered and evaluated whether there were any indicators of impairment for its cash generating units (CGU's) at 31 March 2023.

Both internal and external factors, including local and global economic conditions (predominantly the impact of lower expected growth, higher inflation and higher interest rates), were considered to determine whether there were any indicators of impairment.

Sensitivities

In accordance with IAS 36: Impairment of Assets, management conducted a sensitivity analysis on CGU's where there were indicators of impairment. This sensitivity included the potential impact of a 5% reduction in forecast revenue on the cash flow forecasts without factoring in any management actions required from the decrease in revenue. As a result of this sensitivity analysis, an impairment of R69 million would be required for Reutech Communications if the current year revenue forecast is not met by 5% i.e. a 95% achievement.

A 1% increase in pre-tax discount rates would result in an impairment of goodwill in Reutech Communications of R35 million.

Six months ended
31 March
Rm 2023
Unaudited
2022
Unaudited
Year ended
30 September
2022
Audited
Carrying amount at the beginning of the period 960 934 934
Acquisition of businesses 31 26 26
Carrying amount at the end of the period 991 960 960

8. Put and call option derivative financial asset and liability

Six months ended
31 March
Rm 2023
Unaudited
2022
Unaudited
Year ended
30 September
2022
Audited
Put option derivative financial asset1 65 32 57
Call option derivative financial liability1 13 84 33
Net carrying amount at the end of the period 52 (52) 24
Reconciliation of the carrying amount
Net carrying amount at the beginning of the period 24 (51) (51)
Fair value remeasurement 28 (1) 75
Gain/(loss) on put option derivative asset 8 (9) 16
Gain on call option derivative liability 20 8 59
Net carrying amount at the end of the period 52 (52) 24
1 In the current financial period, the put and the call option will be realised within 12 months of the period ended 31 March 2023 and therefore has been reclassified to current derivative financial assets and current derivative financial liabilities, respectively, on the statement of financial position.

In 2021, the Group sold an effective 25% interest in Terra Firma Solutions (Pty) Ltd (TFS) (the Group’s Solar PV business) to Lumika Renewables (Pty) Ltd (Lumika) (the Group's renewable energy joint venture with AP Moller Capital through AIF I Africa C&I Renewable Energy LLP (AIF I)) and concluded a put and a call option for the sale of its residual 72,2% interest in TFS (the residual interest increased by a further 7,2% from the prior financial year due to the Group acquiring the remaining non-controlling interests in TFS). The put option is exercisable from 1 April 2023 until 30 June 2023 and the call option is exercisable from 1 July 2023 until 30 September 2023, however, the effective date of the transaction will be 1 October 2023.

In terms of these arrangements, the Group has the right to put its remaining interest in TFS to Lumika in exchange for a strike price in US dollars (US$) and Lumika has the right to call the remaining interest in TFS from the Group at the same price. The put and call options have both been recognised at March 2023 as a current derivative asset and liability respectively at their fair values through profit or loss. The put and call are considered to be derivatives as, although they are for a fixed number of shares, they are for a variable Rand consideration as the consideration is priced in US$.

Valuation technique

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

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

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

Sensitivities

The following details the Group's sensitivity to a change in the strike price, average revenue growth rate, and post-tax discount rate against the current derivatives.

If the forward exchange rate had been 10% higher or lower and all other variables remained constant, the Group's profit after tax for the period ended 31 March 2023 would increase/decrease by R25 million respectively (March 2022: R19 million increase and R18 million decrease respectively, September 2022: increase/decrease R24 million respectively). If the average revenue growth rate had been 5% higher or lower and all other variables remained constant, the Group's profit after tax for the period ended 31 March 2023 would decrease by R96 million and increase by R98 million respectively (March 2022: R34 million decrease and R36 million increase respectively, September 2022: R65 million decrease and R69 million increase respectively). If the post-tax discount rate had been 1% higher or lower and all other variables remained constant, the Group's profit after tax for the period ended 31 March 2023 would increase by R42 million and decrease by R53 million respectively (March 2022: R27 million increase and R29 million decrease respectively, September 2022: R36 million increase and R40 million decrease respectively).

9. Number of shares used to calculate earnings per share

Six months ended
31 March
Rm 2023
Unaudited
2022
Unaudited
Year ended
30 September
2022
Audited
Weighted average number of shares in issue, net of empowerment and treasury shares1, for basic earnings and headline earnings per share (millions of shares) 1592 1612 1592
Adjusted by the dilutive effect of unexercised share options granted (millions of shares) 1 1 1
Weighted average number of shares for diluted basic and diluted headline earnings per share (millions of shares) 160 162 160
Profit attributable to equity holders of Reunert (earnings used to determine earnings per ordinary share and diluted earnings per share) 412 316 827
1 The empowerment shares relate to Reunert Limited shares held by Bargenel. The treasury shares relate to shares held by the Group's treasury company Julopro (Pty) Ltd. These entities are consolidated by the Group.
2 The Group has elected to treat the shares under the equity forward contract as issued shares, not treasury shares, for purposes of calculating the earnings per share. This amounts to 2 346 930 shares (March and September 2022: 2 346 930).

10. Headline earnings

Six months ended
31 March
Rm 2023
Unaudited
2022
Unaudited
Year ended
30 September
2022
Audited
Profit attributable to equity holders of Reunert 412 316 827
Headline earnings are determined by eliminating the effect of the following items from attributable earnings:
Impairment of intangible assets
(after a tax charge of R3 million and NCI portion of Rnil) 14
Profit on disposal of property, plant and equipment and intangible assets
(after a tax charge of Rnil and NCI portion of Rnil) (2) (2) (1)
Headline earnings 424 314 826
Headline earnings per share (cents) 267 195 519
Diluted headline earnings per share (cents) 265 194 516

11. Contingent consideration

Carrying amount at the beginning of the period 42 28 28
Raised on acquisitions at fair value 7 28 28
Fair value remeasurement 1 (3) (3)
Settlement (5) (2) (11)
Carrying amount at the end of the period 45 51 42
Less: current portion (included in trade and
other payables)
22 18 17
Non-current portion 23 33 25

12. Acquisition of business

2023

1. Etion Create (Pty) Ltd (Etion Create)

With effect from 1 October 2022, the Group acquired 100% of the issued share capital of Etion Create from Etion Limited for a purchase consideration of R202 million.

Etion Create is an original design manufacturer designing products for the industrial, defence and the rail sectors. The company has a significant local and Middle East market presence with opportunities in South East Asia.

The acquisition will unlock synergies with other Applied Electronic business units, specifically due to Etion Create’s enhanced design and manufacturing capabilities. Etion Create will also increase the breadth of the segment’s product portfolio and improve access to key export markets.

Rm 2023
Unaudited
Cash paid 202
Net cash acquired on acquisition (27)
Total purchase consideration 175
Represented by:
Property, plant and equipment 40
Goodwill 18
Intangible assets 79
Inventory 99
Trade and other receivables 123
Long-term loans (4)
Lease liabilities (32)
Deferred tax liabilities (13)
Tax liability (13)
Contract liabilities (63)
Trade and other payables (59)
Net assets acquired (fair value at acquisition date) 175
Revenue since acquisition 262
Profit after tax since acquisition 32

2. Other acquisitions

Rm 2023
Unaudited
Cash paid 12
Contingent consideration 7
Total purchase consideration 19
Represented by:
Goodwill 13
Intangible assets 8
Deferred tax liabilities (2)
Net assets acquired (fair value at acquisition date) 19
Revenue since acquisition – effective 1 October 2022 22
Loss after tax since acquisition – effective 1 October 2022 (1)

The table above relates to the acquisition of EUC Africa (Pty) Ltd and CBi Apollo Africa (Pty) Ltd.

The amounts disclosed under 12.1 and 12.2 represent the provisional identifiable net assets and liabilities relating to the acquisitions in the current financial period. These values will be adjusted (if required) on finalisation of the purchase accounting before 30 September 2023.

13. Litigation

There is no material litigation against the Group.

14. Events after reporting date

Subsequent to the reporting date, the following transactions have taken place:

IQ Business

On 8 March 2023 Reunert ICT Holdings (Pty) Ltd concluded a sale and purchase agreement for 74,2% of IQ Business Proprietary Limited (IQbusiness), subject to the fulfilment or waiver of certain suspensive conditions.

The purchase consideration for 74,2% of IQbusiness will be calculated based on the enterprise value of IQbusiness of R740 million (on a cash-free, debt-free basis), adjusted for certain net debt, minority interest, contingent consideration obligations relating to historic IQbusiness acquisitions, net working capital and other adjustments as at the effective date. The purchase consideration is subject to a cap of R550 million.

The suspensive conditions include, among others, approval of the relevant competition authorities in terms of the Competition Act, No. 89 of 1998.

Following the implementation of the acquisition, IQbusiness will form part of the Solutions and Systems Integration cluster of Reunert ICT. The combination of IQbusiness and Reunert ICT aligns with Reunert’s strategic intent to create capabilities in business optimisation, systems integration and solutions with a focus on digital business transformation through data science, cloud adoption, artificial intelligence, cyber security and the internet of things. This will enable Reunert ICT to deliver end to end technology solutions to its clients across key verticals through improved routes-to-market utilising direct and channel marketing partnerships.

+OneX Acquisition

During March 2023, +OneX Solutions entered into a sale of business agreement with Multi-Media Computers (Pty) Ltd (MMC) to acquire 100% of the business and related assets.

The acquisition of MMC strengthens +OneX’s ability to offer its clients cybersecurity and compliance-as-a-service solutions as part of its comprehensive cloud and digital transformation portfolio.

MMC has a team of Microsoft specialists that assist companies of all sizes in defending and protecting their data and people from the continual threat of cyberattacks. The company also offers data privacy and compliance services to allow companies to evaluate and monitor their alignment with regulatory requirements.

15. Going concern

The directors assessed that the Group has sufficient expected cash flows and resources to continue as a going concern for at least the next 12 months from the date of the approval of these annual financial statements.