Chief financial officer’s report


This report is intended to provide further insight into the financial performance of the Reunert group, while not repeating matters already comprehensively dealt with elsewhere in the integrated report.



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This report should be read in conjunction with the abridged audited consolidated financial statements, as well as the annual financial statements.


The financial year under review has been a difficult one for the Reunert group. The continued volatility and uncertainties within both the global and local economies has resulted in sluggish sales demand, sales price pressure and increased input costs across much of our portfolio.

Revenue decreased by 3% from R11,7 billion to R11,4 billion, while operating profit declined by a larger margin resulting in a 12% decrease in normalised headline earning per share to 569,1 cents per share.

As is consistent with prior periods, an adjustment is made to reduce headline earnings to arrive at normalised headline earnings. The adjustment takes into account the imputed minority share of profits earned by minority shareholders that have unpaid equity related loans. In terms of IFRS the risks and rewards of ownership related to these shares has not been transferred, as there are outstanding loans, resulting in a full consolidation of profits by the Reunert group.


One of Reunert’s strengths and a key component of its ongoing development is the group’s financial health and its disciplines around the allocation of capital. The group’s balance sheet remains robust with a net asset value per share of R29,80 versus R27,32 in the prior year. The group has equity of R4,9 billion, and negligible levels of debt. We are therefore in an excellent financial position to consider acquisitions and to support our operations in executing their growth strategies.

Investment in future capacity for our businesses comprised the acquisition of Nashua North, a significant Nashua franchise, with a purchase price of R248,5 million, capital expenditure of R176,4 million and research and development of R72,2 million. Of the total spent on research and development, R16,8 million was funded by the Reunert group.


Reunert places emphasis on maintaining its efficient asset base and this, combined with its performance-oriented operations, results in reported operating profits being underpinned by strong cash flows. Cash generated from operations amounted to R1,3 billion, which approximates reported operating profit. Closing cash of R330 million is presented after the use of internal cash resources to fund the Quince asset rental book.


Under conventional models, the Quince asset rental book would be financed by external long-term borrowings. However, given that the group currently has cash balances in excess of its working capital requirements, the investment of this surplus in the Quince book provides a favourable return on the cash balances at the present time.

It is not Reunert’s long-term intention to fund the book internally and, in the current year, Quince obtained an A+ rating from Global Credit Rating Co in preparation for potential funding off its own balance sheet. At the financial year-end R1,7 billion (2011: R1,2 billion) of the group’s cash was used by Quince to fund its book, while external funding of R100 million was also in place.

The group continues to assess acquisitions that are complementary to existing businesses, which could result in the utilisation of a portion of the available cash.


Reunert continues to benefit from strong operating cash flows and, accordingly, the group is able to continue with its progressive dividend cover.



We believe that economic conditions will continue to be challenging in the short to medium term. As such, our businesses are expected to remain under pressure in terms of their sales cycles and profitability. However, our operations remain cash generative and sound.


Volatility with regard to commodity prices and currency are two financial risks that are continually managed by the group. Although the rand has depreciated significantly in the current year, the decline in the US dollar prices of copper and aluminium have provided for fairly stable commodity pricing for the CBI-electric business in rand terms.

The group actively monitors its exchange risk and commodity price risk on an ongoing basis. Forward cover is taken on foreign exchange exposures while factoring in the impact of natural hedges that exist within the operations. Overall, the management of the exposure is based on price sensitivity, competitor practices, trading terms with customers, volatility and timing.

Potential exposures arising from exports are actively managed on a day-to-day basis. Advance payments are utilised to purchase materials, where contractually required, for export orders and the balance is held in customer foreign currency bank accounts. Cover is taken in the form of forward exchange contracts, zero-cost collars, or currency options, where such cover is deemed appropriate.

The weakening rand provided the group with a net foreign exchange gain of R38,5 million (2012: R14,2 million); predominantly from export sales within the Reutech segment.


The difficult market conditions have increased the risk of bad debts across our portfolio of companies. Bad debts written off have remained constant at R71 million, however, there was an increase in the level of doubtful debt provisions at year-end. This is mainly attributable to Nashua Mobile, which has a significant exposure to the consumer market. Credit-vetting systems and processes continue to be enhanced and the updating of scorecards and monitoring of ageing of debtors is a priority.


Reunert’s success has historically been founded in the specific management focus on earnings growth and cash flow generation. Although this remains a priority, we, as a group, also need to focus on the investments required to sustain our leadership in technology, skills and market share.


The current year saw a slight improvement in the Reunert share price, which traded at R72,66 at year-end versus R68,95 at 30 September 2012. Trading activity increased with 102,4 million shares being traded (2012: 89,6 million), while market capitalisation, net of treasury shares, rose to R11,9 billion (2012: R11,2 billion).

Fund managers and investors have an active interest in the group due to its exposure to infrastructure spending through its electrical operations, its strong balance sheet and attractive dividend yield.

View the full share ownership analysis.


The board has formally considered the going concern assumption for the Reunert group and is of the opinion that it is appropriate for the forthcoming year.


The year under review has been a challenging one and it is disappointing to report a decrease in earnings. However, I am confident that the strategic initiatives in place and available opportunities, combined with the resilience of our current businesses, will stand the group in good stead in the forthcoming year.
20 November 2013, Sandton