Reunert reels from persistent chip supply shortages
The global chip shortage crisis has negatively impacted the financial performance of JSE-listed Reunert.
Reunert is an industrial group with a portfolio of businesses in the electrical engineering, ICT and applied electronics segments.
The company today released its preliminary reviewed condensed consolidated results and cash dividend for the year ended 30 September.
It says the group suffered from the global electronic chip supply shortages and complex supply chain dynamics.
Reunert notes the situation worsened in the second half of 2022 and resulted in a loss of sales and operating profit at its Nanoteq, Omnigo and Nashua subsidiaries.
Its cash position was negatively impacted by this, as additional investment had to be made in raw material stock holdings to mitigate stock shortages.
“This was compounded by work in progress and trade receivable balances increasing at year-end, as either sales were achieved later than planned, or the underlying production commenced later in the year than anticipated,” Reunert tells shareholders.
“However, there are early signs of an improvement in supply in the electronic component market and supply chains are showing signs of recovery.”
Market research firm Gartner believes the global semiconductor shortages will persist through 2023.
The research firm notes the ramifications of the COVID-19 crisis resulted in chip shortages, starting primarily with devices, such as power management, display devices and microcontrollers, fabricated on legacy nodes at 8-inch foundry fabs, which have a global limited supply.
The shortage has now extended to other devices, and there are capacity constraints and shortages of substrates, wire bonding, passives, materials and testing – all of which are parts of the supply chain beyond chip fabs, notes the research firm.
Reunert adds the 2022 results reflect the positive impact of the ongoing financial recovery in both the applied electronics and electrical engineering segments, coupled with an above inflationary increase in the ICT segment’s performance.
It says the group increased revenue by 16% to R11.1 billion (2021: R9.5 billion), while operating profit increased by 17% to R1.2 billion (2021: R1.05 billion).
Profit for the year increased by 10% to R844 million (2021: R767 million) and headline earnings improved by 9%, increasing to 519c per share (2021: 478c per share).
Basic earnings per share improved by 8% to 520c per share (2021: 483c per share).
The group ended the year with net cash resources of R359 million (2021: R291 million). This cash, together with the ongoing cash generation capability, maintains the ability to continue to honour both its commitment to appropriate dividend returns to shareholders, as well as its operational requirements, says the firm.
It notes it has adequate headroom in its bank funding capacity to provide the financial resources to roll out strategic initiatives.
Reunert says South African economic conditions remained challenging for the ICT segment, as sustained load-shedding had a negative impact on the core SME customer base.
“Importantly, despite the challenging environment, the segment grew revenue by 4% to R2.6 billion (2021: R2.5 billion) and delivered a segment operating profit increase of 6% to R644 million (2021: R608 million).”
The firm explains the applied electronics segment recovered strongly, as the large defence export order book enabled a much-improved level of sales and the demand for renewable energy continued to increase.
“The global electronic chip shortages were a major challenge throughout the year and, although it dampened performance, the segment still grew strongly, as revenue increased by 27% to R2.3 billion (2021: R1.8 billion) and segment operating profit grew by 64% to R164 million (2021: R100 million).”
On the up
Reunert says during the year, business unit +OneX expanded its service offering through the acquisition of application and software development and end-user computing capabilities.
“This increased service offering enabled increased engagement with the business’s enterprise customer base. Pleasingly, their new-age ICT offering has continued to provide value and there has been a positive increase in the number of clients serviced by +OneX,” it explains.
“The increase in service offering and client base led to growth in both revenue and profitability in the year. +OneX’s revenue now constitutes 16% of the ICT segment (2021: 13%), a 37% increase year-on-year, reflecting the competitive relevance of its value offering in assisting its clients with their digital transformation.
“The group retains its focus on the continued expansion of the ICT segment’s new-age ICT offerings in the solutions and systems integration cluster, primarily through further acquisitions.”
On cash dividend, the firm points out that while cognisant of the economic uncertainty going forward, free cash flow generating capacity remains intact.
“Notice is hereby given that a gross final cash dividend number 193 of 224c per ordinary share (2021: 207c per ordinary share) has been declared by the directors for the year ended 30 September 2022.”