Tough trading conditions, which do not appear ready to improve yet, hit infrastructure company Reunert hard for the first half of its current financial year.
CEO Gerrit Pretorius is pessimistic about the year ahead.
For the six months ended 31 March, Reunert posted a marginal increase in revenue of 1%, to R5.1 billion, while operating profit tumbled 27%, to R531 million, and earnings per share ditched 16%, to 235c.
In its results statement, the company says: “The radical deterioration of market conditions since the end of last year had a negative impact on the interim results of infrastructure company Reunert.”
Pretorius says that, due to the difficult trading conditions, preserving capital is essential. “The era of the balance sheet has arrived.”
A breakdown of the group's operations shows CBI-electric, the telecommunications cable operation, was hit hard in the fall in the copper price from R67 000 per ton to R37 000, leading to a once-off charge of R52 million.
Revenue for CBI-electric decreased by 8%, to R1.6 billion, while operating profit dropped by 38%, to R179 million.
Volume declines are attributable to fewer building plans approved, the slowdown in mining activities and destocking by customers.
The telecommunication cable operation performed better than in the comparable period. Copper telecommunication cable was in healthy demand, while orders for fibre were subdued. Requirements for fibre cable are positive, based on the announced roll-outs of fibre networks for MTN, Vodacom and Neotel.
Reunert's cellular operation, Nashua, saw its revenue edge up 1%, to R3.1 billion, while operating profit declined 13%, to R269 million. Increased bad debts and lack of consumer financing had a negative impact on results.
“Our decision to exit the consumer electronics business at the end of last year was prudent and timeous. Exiting the business did not come without cost, but will enhance profitability in future,” Pretorius says.
From 1 April, Panasonic Japan will distribute consumer products directly to the South African consumer market. “Our cooperation with Panasonic will continue as we will be the sole representative of all business systems products. Building this business to acceptable levels is a priority.”
Despite an increase in bad debt, Nashua Mobile maintained profitability, while increasing revenue marginally. Additional care is being taken to connect only credit-worthy customers. At the end of March, Nashua Mobile had 683 580 subscribers.
“It will be difficult to achieve growth going forward, with subscribers cutting back on airtime spend and a saturated market,” Pretorius comments.
Commission income received from Reunert's 40% interest in Nokia Siemens Networks decreased from R86 million to R65 million on a comparable basis. The market is expected to remain subdued while competition is on the increase. Full year results are thus expected to be down compared to those of a year ago.
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