Reunert increases normalised HEPS by 15%

By Reunert
Johannesburg, 22 Nov 2007

Electrical engineering and electronics company Reunert increased normalised headline earnings per share by 15%, to 570.3 cents for the year to 30 September 2007.

Revenue grew by 16% to R9.6 billion, but operating profit showed a modest increase of 4% to R1.3 billion. The contribution from associates rose by 56% to R148 million.

Net cash at the end of the year was R483 million, despite having paid out R879 million to shareholders by way of special (R353 million) and normal (R526 million) dividends during the year.

A final dividend of 241 cents per share has been declared, bringing the total cash dividend for the year to 314 cents per share. This is a 15% increase and 1.8 times cover based on normalised headline earnings.

Capital expenditure of R149 million has been incurred mostly to improve efficiencies and to add new product lines - especially on businesses supplying infrastructural developments. Working capital changes absorbed R439 million to fund the higher level of activity in the group.

The Electrical Engineering division, CBI-Electric, increased revenue by a pleasing 29% to R3.3 billion. However, operating profit of R554 million (2006: R552 million) was similar to that achieved a year ago.

"We have successfully merged our ATC telecommunications cables business with that of Altron," said Gerrit Pretorius, Reunert chief executive. The result of the joint venture has been proportionately consolidated and is effective 1 February.

The merger increased capacity and gave the business an economy of scale and an expanded order book. Demand increased from existing wire line operators and the second network operator, Neotel, started to add volume to the business. "We are also seeing bigger demand for fibre optic cable from Vodacom and MTN, which is in the process of rolling out fibre optic transmission networks on an experimental scale."

The programme initiated two years ago to modernise the energy cable facility in Vereeniging is nearing completion. Two new product lines were added and we have secured a five year, R1 billion contract, to supply aluminium conductor steel reinforced overhead cables to Eskom, Pretorius said.

The low-voltage business of CBI-Electric took strain during the year. Revenue increased by 8%, but operating margins was under pressure mainly because of increases in material cost and more competition in the marketplace.

To address this, we are increasing efficiency in the manufacturing process, said Pretorius. "The number of products and variations are being streamlined. We stepped up marketing efforts to reclaim some of the market share lost on the residential side to Chinese imports."


In the Electronics division, revenue increased by 15% to R8 billion, which includes associate revenue of R1.8 billion. Operating profit increased by 15% to R995 million.

Nashua (office systems) maintained volumes, but margins declined. The rapid decline of the rand against the euro, up to 18%, and our inability in the short-term, to increase prices to customers, affected our bottom-line negatively, Pretorius commented.

Reunert has acquired majority interests in the Nashua franchises in Tshwane and Eastern Cape. This process is ongoing and we hope to acquire interests in at least two more major franchises during 2008, said Pretorius.

Revenue in the Consumer Products and Services segment, which includes Nashua Mobile and Nashua Electronics, increased by 12% to R4.6 billion, however operating profit declined marginally to R368 million.

Nashua Mobile had an excellent year, increasing sales by 18%. However, the consumer electronics business, which distributes Panasonic and Futronic products, struggled to grow sales in a fiercely competitive market. Although trading profitably, operating profit was substantially lower. "We expect Nashua Electronics and in particular its consumer electronics business will face another tough year. Nashua Mobile on the other hand, is well positioned to produce another year of good results.

"Customer retention is top priority. We have seen an increase in churn levels from 10.5% to 10.7%," Pretorius pointed out. Nashua Mobile closed the year with nearly 700 000 contract subscribers, up 20% from last year.

Reutech, the defence business, had an excellent year, contributing 7% (R109 million) (2006: R30 million) to Reunert`s operating profit. Revenue increased by 55% to R490 million.

"A year ago, we placed Reutech on the market, but terminated our disposal efforts after receiving pedestrian offers." Indications are that future demand from the South African National Defence Force will ensure Reutech remains viable. Products developed over the past five years are now nearing the production phase and should contribute meaningfully.

"Exports of airborne radios and electronic fuses remained brisk and we are confident that existing markets will provide a reasonable base going forward. Our Stellenbosch radar business, Reutech Radar Systems, developed a product that detects moving slope walls in open-pit mining. Given a premium on safety in mining we are excited about prospects for this product. Systems have been sold to mining operations in South Africa, Australia and South America."


Siemens Telecommunications had its best year ever, contributing meaningfully to group profits. Effective 1 April 2007, Siemens merged its telecommunications business with the network operations of Nokia to form Nokia Siemens Networks. Reunert continues to own 40% of Nokia Siemens Networks South Africa.

Quince, of which Reunert owns 48%, became effective on 1 May 2007. As foreseen, the contribution from Quince was dilutive compared to the wholly-owned finance company. This may continue for as long as Quince has excess capital. "We anticipate that position will reverse during the next year," Pretorius said.

Looking at prospects, Pretorius said: "We are well positioned to benefit from infrastructural developments. In particular our low-voltage and cable businesses are well entrenched as suppliers and our electrical businesses have the products and capacity to meet increased demand.

"On balance, we believe infrastructural investments will more than offset the slower consumer spending, helping Reunert to achieve real earnings growth."


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