Reunert warns of tough times ahead

Despite a good performance in its ICT segment, Reunert experienced challenging trading conditions in the first half of its 2020 financial year, to 31 March, with its Electrical Engineering segment adversely impacted.

It has raised a number of impairments and warned, too, that conditions are likely to be tough for the foreseeable future.

In a trading statement on Thursday, the JSE-listed technology group said it expects to report a headline loss per share of between 72c and 80c (from headline earnings a year ago of R2.53/share).

Reunert said that although the ICT segment “delivered real growth in operating profit” and the Applied Electronics business “performed in line with expectations”, the Electrical Engineering segment was hit hard due to:

• A seven-week labour disruption at the power cable business, resulting in limited production in the first quarter of the financial year;
• Foreign exchange losses at the Zambian cable operation; and
• Low cable infrastructure investment across Southern Africa.

The group’s operating profit for the six-month period is expected to be between R357-million and R394-million, a decline of between 36% and 42% compared to the same period a year ago.

However, the generation of free cash flow during the period was in line with the group’s historic conversion ratios, notwithstanding the difficult trading environment, it said.

The group’s results for the six months were impacted by impairments arising from the predicted future impact of the Covid-19 pandemic. The results were also impacted by an external fraud that constituted an abnormal item.

“The abnormal item arose from an external whistle-blower report. Thus far, the ongoing investigation has revealed prima facie evidence that an external party, unrelated to the Reunert group of companies, has defrauded one of Reunert’s subsidiaries, Quince Capital. An independent, comprehensive forensic audit is in process. However, from the evidence extracted to date, a material impairment is considered necessary and has been raised accordingly.”

Reunert warned that even when the Covid-19 pandemic is over, its infrastructure companies are likely to continue to face volume pressures due to government budgets being reallocated to fight the effect of the virus; the timing and scale of funding for the government’s infrastructure plans being uncertain; and private industry remaining cautious about their investment plans.  — © 2020 NewsCentral Media