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Reunert H1 earnings rise on Electrical Engineering, Applied Electronics segments

23rd May 2024

By: Natasha Odendaal

Creamer Media Senior Deputy Editor

     

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JSE-listed Reunert reported a rise in earnings during the six months ended March 31, 2024, driven by good performance in its Electrical Engineering and the Applied Electronics’ defence cluster segments.

Its Information and Communications Technology (ICT) segment, however, posted a muted performance.

In a challenging macroeconomic environment, the group was impacted by national port and logistics disruptions, which developed rapidly and persisted throughout the half-year under review, and caused a major disruption to the group’s operations, requiring the incurrence of additional costs and an investment into working capital to mitigate this.

“The direct impact of the logistics challenges on the company was the incurrence of increased costs to secure and deliver the raw materials and equipment that we needed to meet customers’ requirements and an increased investment in working capital to protect the businesses against future unforeseen delays at the ports,” explained Reunert Group CEO Alan Dickson.

Despite these challenges, the group reported a 9% increase in operating profit to R674-million and a 13% increase in profit to R475-million, with attributable profit increasing 11% to R459-million, during the half-year under review.

Headline earnings per share and earnings per share increased 8% and 12% respectively to 289c.

The earnings growth was driven by the Electrical Engineering and the Applied Electronics segment’s defence cluster, with strong operational performances on the back of improved demand for their products and services, he said.

Reunert achieved revenue growth of 7% to R6.6-billion, primarily driven by improved revenues in the Electrical Engineering segment, as well as the inclusion of IQbusiness and its subsidiaries’ revenue, following the effective date of the IQbusiness acquisition on July 1, 2023.

In the Electrical Engineering segment, the power cable businesses in Zambia and South Africa performed well, leveraging increased volumes to generate operational efficiencies, which together with a better product mix in Zambia and lower foreign exchange rate losses, yielded improved margins and a higher operating profit.

The circuit breaker business also delivered steady product volumes and increased its exports to the US, which offset weaker economic growth in Australia.

The Applied Electronics segment also achieved good performances in its solar energy business, where the build rates, margins and solar energy assets under ownership (build-own-operate) and related performance all improved, and in its battery storage business, Blue Nova Energy, which secured several large battery storage contracts that are expected to translate into an improved performance in the second half of the financial year.

This was impacted by a saturation in the residential and small commercial battery market, which resulted in volume and margin compression in the battery storage business and necessitated the business being restructured and refocused to take advantage of the improved large battery market.

This, in turn, resulted in a marked reduction in this business’ contribution to revenue and operating profit in the Applied Electronics segment.

“The defence cluster delivered well against the large order book. The increased volumes resulted in improved factory throughput and efficiencies, which together with a good product mix and stable rand-dollar foreign exchange rates, yielded improved operating profit margins,” said Dickson.

Further, the Fuzes, Radar, Secure Communications, Logistics businesses and Etion Create all delivered strong performances.

“Pleasingly, the cluster maintained its order book levels since September 30, 2023, which provides encouraging visibility on the expected positive financial performance for the remainder of the 2024 financial year and into the 2025 financial year.”

However, the ICT segment was negatively impacted by macroeconomic conditions, particularly the port congestion and disruptions in national ports’ logistics.

“Unfortunately, our Total Workspace Provider business, under the Nashua brand, was unable to resolve the logistics challenges during the first half of the 2024 financial year, which resulted in a noteworthy shortfall of imported product and led to a large reduction in sales and operating profit in the period, which negatively impacted the ICT segment’s and the group’s results.”

The negative impact of the port congestion on Nashua weakened an otherwise solid performance by the segment as SkyWire, Plus 1X Solutions and Quince Capital all delivered improved results, Dickson pointed out.

“Reunert’s investment case, including the three key strategic growth initiatives, namely expanding our ICT segment’s capabilities, investing into our renewable-energy ecosystem and increasing non-South African revenue streams, produced steady growth in the first half of 2024,” he added.

In the ICT segment, Reunert intends forming a leading digital integration solutions provider by merging +OneX and IQbusiness, which is expected to grow the solutions and systems integration cluster’s local and international footprint and deliver solutions that will contribute to the advancement of South Africa’s business and technology services sector.

“The renewable-energy market is expected to continue to grow as increased private investment in the generation and transmission markets continue. Our internationalisation strategy, underpinned by defence and electrical engineering revenues, provides a significant income stream to augment our South African revenues.”

Supported by its solid core businesses, these growth initiatives position Reunert for an improved financial performance in the 2024 financial year.

For the six months ended March 31, 2024, Reunert declared a dividend of 90c, an 8% increase on the prior comparative period last year.

“The group’s positive cash generation, which is expected to continue through the second half of the 2024 financial year, together with the unused banking facilities available to the group plus the cash on hand, provides the necessary financial resources to meet the group’s operational and strategic initiatives’ requirements and support the dividend,” said Reunert Group CFO Nick Thomson.

Edited by Creamer Media Reporter

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