Drop in Eskom infrastructure spend and Zambia changes hit Reunert
Strong export performance to the US and Australia of its low-voltage products counteracted decline
Lower electrical infrastructure spend by Eskom and municipalities, with regulatory changes in Zambia resulted in listed technology group Reunert reporting a big drop in headline earnings per share (heps) for the year to September.
The group said operating profit declined 12% to R1.361bn, against the backdrop of a 2% rise in group revenue to R10.7bn, due to one-off items in the prior financial year and the decline in the electrical engineering business.
Heps dropped 19% to 573c per share from 703c in the previous year.
The electrical engineering business suffered from low demand of its electrical cables normally supplied to customers such as power utility Eskom. There was a drop in fixed-line operator Telkom’s demand for copper and fibreoptic cables.
This resulted in core operating profit contracting 27% to R323m from R440m in the previous financial year.
The segment was however propped up by strong export performance to the US and Australia of its low-voltage products.
Reunert’s information, communication and technology (ICT) segment fared better, reporting core operating profit of R748m, a 5% increase from 2018’s R715m.
Reunert said its fixed-line voice-over-internet-protocol service provider, ECN, “achieved record new customer sales though the weak economy resulted in overall minutes remaining largely stable”.
The group also completed the integration of SkyWire, a wireless last-mile broadband connectivity business, into the communications cluster of the ICT unit.
The applied electronics unit experienced a 1% rise in core operating profit to R356m for the year, driven by strong export performance in the Reutech businesses, which provides communications and radar systems, among a host of services.
Policy changes in Zambia that have affected its subsidiary Zamefa, which designs and manufactures low-voltage electrical energy cables and insulated wires, resulted in the group impairing R97m of its investment in the business.
The Zambian government announced various amendments to legislation regarding its VAT rating on copper and export duty in September. They are set to take effect in January 2020, the company said.
The group said its ICT and applied electronics segments continue to perform well as their strategic execution translates into good financial performance.
“We expect this to continue into the new financial year. There remains uncertainty on the timing, rate and quantum of any EE (electrical engineering) recovery. Current industrial action is likely to negatively impact the first half of 2020,” Reunert said.
“Reunert remains positively positioned for a material improvement in performance when economic activity in SA improves,” it said.