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Notwithstanding a sluggish domestic economy, the adverse impact of load shedding and delays in the commencement of various national infrastructure projects, trading results for the past six months reflect a pleasing improvement over the prior year. This improvement is due to moderate, real growth in operating profit from continuing operations, additional proceeds on the sale of the Nashua Mobile subscriber bases and interest earned on the Nashua Mobile disposal proceeds.
Revenue from continuing operations increased by 7% to R3,9 billion, whilst operating profit increased by 5% to R502,8 million. Normalised headline earnings per share for the group, from all operations, increased by 10% to 261,4 cents, compared to the prior period. Basic earnings per share for the group, on the same basis, increased by 20% to 286,5 cents, whilst headline earnings per share for the group increased by 11% to 264,8 cents.
A gross interim cash dividend of 105,0 cents per share (2014: 95,0 cents per share) has been declared from income reserves.
REVIEW OF OPERATIONS
CBI-electric
Revenue from the segment, including the group's share from the telecoms joint venture, increased by 11% to R2,0 billion. On the back of the increase in sales volumes and improved efficiencies, operating profit increased by a pleasing 20% to R257,3 million.
African Cables experienced higher demand for cable resulting in better factory capacity utilisation, with associated improved margins. The demand was driven mainly by the municipal, mining and project business customers. This increase in volume was offset, in part, by a sharp reduction in offtake by Eskom, reduced sales of renewable energy cables due to delays in project commencement and tough conditions in the general market.
The Low Voltage business continued to deliver a positive local market performance. However, business activity has slowed from the start of the 2015 calendar year. Competition remains intense in the local market and margin protection remains a key operational objective. The disappointing South African market conditions have been partially offset by improved sales into Africa. Export volumes into the rest of the world remain in line with expectation and overall export volumes are slightly ahead of the prior period. The Solutions' business remained under pressure and was rightsized, resulting in a small restructuring cost.
Telecom Cables reduced its cost base in the prior year and returned to profitability.
Nashua
Segmental revenue from continuing operations (excluding Nashua Mobile) increased by 8% to R1,7 billion. Operating profit increased by 19% to R243,7 million driven by increased volumes in ECN, a larger rental asset book in Quince and the return to profit of Nashua Communications and Prodoc.
The office automation industry continues to be characterised by strong competition resulting in ongoing margin pressure. The impact of reduced margins has been partially offset by cost reductions and improved sales across all product ranges.
The voice component of Nashua's business has delivered very pleasing results. Nashua Communications, which offers unified communication solutions, has been successful in acquiring and executing several large corporate contracts. ECN, our VoIP business, has had another successful period and has grown its customer base and minutes routed over their network. Eskom's load shedding has had an impact on sales volumes but the improved volumes and margin led to a significantly improved trading performance.
Quince Capital's first half operating results were positive, mainly due to the higher average loan book of R2,0 billion, which is a 9% increase on the prior period. Despite the challenging economic conditions, credit losses continue to be contained.
Reutech
Revenue reduced by 13% to R423,7 million and operating profit decreased to R35,3 million. Reutech still has a material project component and delays in the receipt of certain significant project orders adversely affected the first half. Revenue from solar tracker manufacture did not recur following the successful completion of the Touwsriver project in the prior year. Traditional sales and annuity income from maintenance contracts were in line with expectation and continue to provide the platform to support the project business.
PROSPECTS
The economic conditions in South Africa are not expected to improve significantly in the near future. However, the receipt of large, medium-term base load orders by Reutech and improved trading positions in most of the group's existing businesses position Reunert well to deliver real growth in the financial year.
The group's strong balance sheet and cash position will enable the group to focus on and prioritise strategically compatible growth opportunities.
The financial information on which the prospects are based has not been reviewed or reported on by the group's external auditors.
DIRECTORATE
Ms Manuela Krog resigned from the board, risk committee and as Chief Financial Officer on 31 March 2015. The board extends its sincere appreciation to Manuela for her services over the past four years and wishes her and her family all the best.
Mr Nick Thomson has been appointed to succeed Manuela on the board as Chief Financial Officer of Reunert on 15 June 2015. Mr Lood de Jager, the Reunert group finance executive, will serve as the acting Chief Financial Officer, from 31 March 2015 until Mr Thomson takes up his office at Reunert.
With effect from 31 March 2015 Ms Mohini Moodley was appointed to the board as Executive Director: Transformation and Human Resources as well as to the social, ethics and transformation committee. Mohini joined Reunert on 1 September 2013 in the position of group human resources and transformation executive.
