Reunert operating profit slides on weak SOEs and infrastructure project cuts
Loss on the sale of Swedish unit Prodoc Svenska and policy changes in Zambia that have affected its subsidiary Zamefa also hit electronics group
A decrease in electrical infrastructure development and weak financial position of state-owned enterprises (SOEs), dragged down electronics group Reunert’s performance in the year to September resulting in a decrease in operating profit, the group said on Friday.
The group expects core operating profit to decline 4%-8%.
“The South African power and telecom cable businesses in our electrical engineering segment continued to be negatively impacted by the ongoing decrease in the country’s infrastructure development,” the company said.
The weak financial position of state-owned entities and municipalities, as well as the lack of confidence in the private sector, led to a reduction in gross domestic fixed investment, Reunert said.
The group said its profit after tax has been affected by the loss on the sale of Swedish unit Prodoc Svenska in the first half of the financial year and policy changes in Zambia that have affected its subsidiary Zamefa, which designs and manufactures low-voltage electrical energy cables and insulated wires.
The Zambian government announced various amendments to legislation regarding VAT rating on copper and export duty in September. They are set to take effect in January 2020, the company said.
“As a result of the amendments, Zamefa’s cash flow will be positively impacted by the zero VAT rating of copper cathode but adversely impacted by amendments to the duty regime on exports,” Reunert said.
Due to these amendments it has impaired the plant, equipment and goodwill associated with Zamefa.
“The company will continue with its discussions with the Zambian minister of finance and other key members of his team, to explain the impact of this latest decision on Zamefa and to try to retain the existing duty regime,” it said.
Reunert said headline earnings per share are expected to be 602c-544c per share, a decline of 14%-23% compared to 703c in 2018. This includes one-off items such as the loss on the disposal of Prodoc and the impairment of goodwill, plant and equipment at Zamefa.
For the six months to March, the group reported a 16% decline in profit after tax to R377m because of a R42m tax provision and a R44m loss from the disposal of its controlling stake in Prodoc.
Shares in Reunert declined 5.99% on Friday, the biggest drop in 10 years, to close at R69.58.