REUNERT 2018 RESULTS PRESENTATION For the period ending 30 September 2018
AGENDA 01 Salient features 02 Strategy execution 03 Financial performance 04 Segmental performance 05 Business outlook and prospects REUNER NERT T GROUP P
SALIENT FEATURES Electrical Strong profit growth Engineering Continued positive in ICT and impacted by low returns for infrastructure Applied Electronics shareholders spend and Zambia segments liquidity crisis ► Share buyback programme ► Macro-economic challenges had a ► ICT segment delivered double-digit organic profit growth materially negative impact on the ► 1,6 million shares repurchased Electrical Engineering segment at R115 million in 2018 ► Continued progress in ICT segment ► Total of 2,71% (5 million) shares bought strategy execution through growth in ► Significant reduction in orders back since 2016, at an average cost of complementary service revenue streams ► Disappointing African growth R68 per share SkyWire acquisition provides national ► Zambia’s liquidity crisis curtailed ► ► Total dividend up 4% to 493 cents broadband connectivity operations ► 20% total shareholder return ► Record export revenue from Applied ► The rapid depreciation of ZMW against Electronics segment drives excellent profit US$ led to a large, unrealised, forex loss ► Reunert remains well positioned for of ZMW80 million performance improved South African economic growth REUNER NERT T GROUP P
EXTERNAL ENVIRONMENT RATE OF EXCHANGE ZAMBIA LIQUIDITY CUSTOMER CONSTRAINTS 2% stronger weighted average for FY2018 Zambia’s liquidity challenges negatively Fiscal constraints within state entities, including ► ► ► impacted payment capacity of Zesco and ZRA Eskom and Denel, and key municipalities ► 7% stronger ZAR:US$ 1H2018 EVENTS Exhaustion of Zamefa’s funding capacity by end ► Materially lower order placement ► 3% weaker ZAR:US$ in 2H2018 ► December 2017 Telkom’s destocking resulted in low fibre and ► ZMW depreciated rapidly in September 2018 copper cable orders in 1H2018 ► Net impact of R67 million on financial results ► Limited Zamefa’s output to 50% of capacity to African Cables changed product mix, to offset Hedges taken to reduce Rand exchange rate ► ► ► prioritise cash flow and reduce hard currency reduced orders, resulted in capacity utilisation risk on large export contracts at ACTIVITES borrowings but at lower margins ► Fuchs Electronics ► Working capital investment Both cable companies restructured ► Reutech Communications ► ► Cost bases now reflect volume expectations ► Reduction of running costs in the medium term Conditional group support is in place ► Telecom Cables returned to profitability in ► 4Q2018 Zambia plans to replace VAT with GST from New leadership and recapitalisation of key state Rand:US Dollar volatility expected to continue ► ► ► April 2019 entities in progress over the medium term OUTLOOK This should reduce Zamefa’s working capital R400 billion infrastructure commitment Cash flow returns on FY2019 large export ► ► ► requirements, allowing for expanded production contracts largely secured through hedging 2018 Integrated Resource Plan reflects ► and normalised exports improved capacity mix that enhances Potential of non-cash mark-to-market ► renewable energy projects revaluations at 1H2019 REUNER NERT T GROUP P
FINANCIAL PERFORMANCE 4% 4% 3% 3% 4% 4% 20% 20% Total dividend Operating profit HEPS per share ROCE R1 542m 703 cents ts 493 cents ts 2017: 20% 2017: R1 497m 2017: 679 cents 2017: 474 cents (1% 1%) NHEPS 687 cents ts 2017: 697 cents REUNER NERT T GROUP P 5
GEOGRAPHIC EXPANSION Export revenues continue to grow 2016 2017 2018 ► 30% of revenue is now derived from outside South Africa Total revenue R million 8 511 9 773 10 492 ► Electrical Engineering 29% (2017: 28%) Non-ZAR revenue as a % 24 28 30 % of total revenue ► Applied Electronics 56% (2017: 49%) ► Strong geographic expansion in Applied Electronics due Non-ZAR growth (Rm) +13% to exports 3 141 ► Segment implemented significant steps entrenching expansion into South and Southeast Asia 2 769 - Established local presence - Developed in-country supply chain 2 076 - Achieved local indigenisation targets ► Submitted tenders for significant long-term export contracts 1 422 1 186 ► Dopptech acquisition provides access into two new Americas geographies Europe ► Africa growth inhibited by Zambia liquidity constraints Australia Middle East & Asia Africa 2014 2015 2016 2017 2018 REUNER NERT T GROUP P
̶ DIVERSIFICATION ICT ► ICT segment continued its progress in transitioning towards a modern ICT, annuity based, services business Increased new services revenue by 7% to R251 million ► Contribution from Communication cluster grew to 24% (2017: 22%) of ICT segment revenue ► Acquired SkyWire effective 1 March 2019 Wireless internet market (unlicensed ► SkyWire provides access to rapidly growing broadband connectivity market spectrum) expected to grow at 13% per ► Provides access point for voice, data and future total workspace solutions year over the next four years Renewable energy ► Integrated Resource Plan 2018 enables further acceleration of solar energy market ► Terra Firma enters build-own-operate market, selling energy to key customers 2,6 GW solar embedded generation ► Secured a strong pipeline of projects for commercial rooftop solar PV capacity planned in the IRP2018 ► Secured strong Africa partnerships and secured first contracts REUNER NERT T GROUP P
EMPOWERMENT Continued progress made on our transformation strategy ► Extended Reunert black empowerment ownership transaction with Bargenel by four years ► 18,5 million treasury shares are held in this structure ► No IFRS2 charge as option value was incorporated in the initial valuation in 2007 ► Concluded second empowerment transaction at local cable businesses growing black ownership to above 51% ► Structure retains Reunert control ► R32 million non-cash IFRS 2: Share Based Payments charge before professional costs ► Enhances the businesses’ competitive positions for expected increase in infrastructure investment REUNER NERT T GROUP P
ORGANIC AND ACQUISITIVE GROWTH Revenue contribution (Rm) Operating profit contribution (Rm) 1 542 10 492 19 367 1 497 9 773 352 1 718 176 (131) 150 1 366 8 511 1 315 299 44 1 523 8 774 8 212 8 407 1 347 1 271 2016 2017 Acquisition Organic 2018 2016 2017 Acquisition Organic 2018 growth growth growth growth Acquisition Organic REUNER NERT T GROUP P
FINANCIAL PERFORMANCE Nick Thomson REUNER NERT T GROUP P
FINANCIAL OVERVIEW Year ended 30 September 2018 2018 2017 2016 Revenue R million 10 492 9 773 8 511 7% 7% 15% 15% Operating profit R million 1 542 1 497 1 315 14% 14% 3% 3% Basic earnings per share Cents 717 717 680 577 18% 18% 5% 5% Headline earnings per share Cents 703 703 679 570 19% 19% 4% 4% Normalised headline earnings per share Cents 687 687 1% 1% 697 662 5% 5% Total dividend per share Cents 493 493 474 439 8% 8% 4% 4% REUNER NERT T GROUP P
GROUP INCOME STATEMENT 2018 18 2017 17 Change Rm Rm Rm Rm % ► Capex in line with depreciation R162 million vs Reven enue ue 10 492 9 773 7 R157 million (2017: R143 million vs R138 million) EBITDA 1 699 1 635 4 ► Net interest earned is lower due to the following major cash outflows: Depreciation and amortisation (157 57) (138) 14 ► Acquisitions: R233 million Oper erat ating ing profit rofit before re intere rest 1 542 1 497 3 ► Share buyback programme: R115 million (83) Net interest income and dividends received 11 11 65 ► Increased working capital investment in Zamefa and in Applied Electronics Prof ofit it before re empo powerm erment nt tran ansaction ions 1 553 1 562 (1) ► Growth in finance operations receivables book of R375 million Empowerment transactions (42) 2) (20) ► IFRS 2 Empowerment transaction R32 million Prof ofit it before re tax ax 1 511 1 542 (2) Tax (358 58) (437) (18) ► Tax rate impacted by ► Non-taxable fair value gain (SkyWire R77 million) Prof ofit it after er tax ax 1 153 1 105 4 ► Release of NSN provision (R42 million) Share of joint ventures’ and associate’s profit (1) 37 Prof ofit it for r the he year ear 1 152 1 142 1 REUNER NERT T GROUP P
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