JSE-listed electronics company Reunert says its revenue and profitability declined in the first half of the year, mostly due to its CBI-electric and Nashua segments.
Reunert says it will plan for and pursue earnings growth. However, because of tough trading conditions, it will continue to "focus on rigorous cost control, effective cash management and extracting efficiencies from its businesses".
The group yesterday reported financial results for the six months to March and said revenue dropped 8%, to R5.3 billion, while profit after tax declined 15%, to R425.1 million. Operating profit fell 21%, to R583 million, which it says was due to the "prevailing difficult business environment".
Basic earnings reduced 14%, to R421 million, while headline earnings per share decreased 15%, to 258c. It ended the period with cash resources of R593 million, an increase of R329 million year-on-year.
Its share closed slightly higher yesterday - gaining 0.95% - to R69.30.
Margin pressure
Revenue from its Nashua segment dropped 9%, to R3.3 billion, while operating profit decreased 23%, to R311 million. Reunert says revenue from office automation was largely "static" and the number of units sold dropped year-on-year.
Nashua is its largest unit, accounting for 63% of revenue.
In addition, the weak rand - which has recently dropped to a four-year low against the US dollar - led to lower margins as price increases could not be passed on to customers in a difficult and competitive market, says Reunert.
Nashua Mobile reflected a 12% decrease in revenue, which was partially expected as least-cost routing (LCR) revenue continued to drop due to interconnect rates coming down.
In 2010, the Independent Communications Authority of SA decreed that cellular interconnect costs had to drop to 73c at peak and 65c during off-peak times, from March 2011. Last year, rates dropped to 56c and 52c, respectively. This March, wholesale mobile termination rates dropped to 40c, regardless of the time the call is made.
"The reduction in interconnect rates also resulted in enhanced hybrid packages from the networks, which negatively affected airtime revenue within this business," says Reunert. It added 57 684 net subscribers, but at lower subscription rates.
Coupled with less revenue from LCR, there was a further margin decline year-on-year, it says. Nashua has been moving customers off its legacy LCR platform onto a new offering.
Nashua ECN and Nashua Communications, which were merged into a single operation from October, had a challenging first half due to difficult market conditions. "We are confident that the combined business is well-positioned with our converged communication offering."
At year-end, Reunert said incorporating ECN into its Nashua stable was paying off, as ECN delivered a "pleasing result" in both revenue growth and operating profit. The units are expected to have a combined turnover of more than R1 billion a year.
CBI-electric experienced delays in product rollout and the strike within the port and transport sector affected production at African Cables, in October 2012. Reunert says the telecommunications cables operation again experienced a disappointing first six months.
This was mostly due to low demand for copper cable from Telkom. Revenue was flat with strong demand for optical fibre cable supporting turnover. Margins remained under pressure in the fibre market.
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