PRESENTATION For the period ending 30 September 2018 AGENDA 01 - - PowerPoint PPT Presentation

REUNERT 2018 RESULTS PRESENTATION

For the period ending 30 September 2018

REUNER NERT T GROUP P

AGENDA

02

Strategy execution

03

Financial performance Business outlook and prospects

05 01

Salient features

04

Segmental performance

REUNER NERT T GROUP P

SALIENT FEATURES

► ICT segment delivered double-digit

• rganic profit growth

► Continued progress in ICT segment

strategy execution through growth in complementary service revenue streams

►

SkyWire acquisition provides national broadband connectivity

► Record export revenue from Applied

Electronics segment drives excellent profit performance

► Macro-economic challenges had a

materially negative impact on the Electrical Engineering segment

► Significant reduction in orders

► Disappointing African growth

► Zambia’s liquidity crisis curtailed

• perations

► The rapid depreciation of ZMW against

US$ led to a large, unrealised, forex loss

• f ZMW80 million

► Share buyback programme

► 1,6 million shares repurchased

at R115 million in 2018

► Total of 2,71% (5 million) shares bought

back since 2016, at an average cost of R68 per share

► Total dividend up 4% to 493 cents ► 20% total shareholder return ► Reunert remains well positioned for

improved South African economic growth

Continued positive returns for shareholders Electrical Engineering impacted by low infrastructure spend and Zambia liquidity crisis Strong profit growth in ICT and Applied Electronics segments

REUNER NERT T GROUP P

EXTERNAL ENVIRONMENT

EVENTS RATE OF EXCHANGE

►

2% stronger weighted average for FY2018

► 7% stronger ZAR:US$ 1H2018 ► 3% weaker ZAR:US$ in 2H2018

ACTIVITES ZAMBIA LIQUIDITY

►

Zambia’s liquidity challenges negatively impacted payment capacity of Zesco and ZRA

►

Exhaustion of Zamefa’s funding capacity by end December 2017

►

ZMW depreciated rapidly in September 2018

►

Net impact of R67 million on financial results

►

Limited Zamefa’s output to 50% of capacity to prioritise cash flow and reduce hard currency borrowings

► Working capital investment ► Reduction of running costs ►

Conditional group support is in place

CUSTOMER CONSTRAINTS

►

Fiscal constraints within state entities, including Eskom and Denel, and key municipalities

► Materially lower order placement ►

Telkom’s destocking resulted in low fibre and copper cable orders in 1H2018

►

African Cables changed product mix, to offset reduced orders, resulted in capacity utilisation but at lower margins

►

Both cable companies restructured

► Cost bases now reflect volume expectations

in the medium term

►

Telecom Cables returned to profitability in 4Q2018

OUTLOOK

►

New leadership and recapitalisation of key state entities in progress

►

R400 billion infrastructure commitment

►

2018 Integrated Resource Plan reflects improved capacity mix that enhances renewable energy projects

►

Zambia plans to replace VAT with GST from April 2019

►

This should reduce Zamefa’s working capital requirements, allowing for expanded production and normalised exports

►

Hedges taken to reduce Rand exchange rate risk on large export contracts at

► Fuchs Electronics ► Reutech Communications ►

Rand:US Dollar volatility expected to continue

• ver the medium term

►

Cash flow returns on FY2019 large export contracts largely secured through hedging

►

Potential of non-cash mark-to-market revaluations at 1H2019

REUNER NERT T GROUP P

5

FINANCIAL PERFORMANCE

3% 3%

Operating profit

R1 542m

2017: R1 497m

4% 4%

HEPS

703 cents ts

2017: 679 cents

4% 4%

Total dividend per share

493 cents ts

2017: 474 cents

(1% 1%)

NHEPS

687 cents ts

2017: 697 cents

20% 20%

ROCE 2017: 20%

REUNER NERT T GROUP P

GEOGRAPHIC EXPANSION

Export revenues continue to grow

► 30% of revenue is now derived from outside South Africa

► Electrical Engineering 29% (2017: 28%) ► Applied Electronics 56% (2017: 49%)

► Strong geographic expansion in Applied Electronics due

to exports

► Segment implemented significant steps entrenching

expansion into South and Southeast Asia

• Established local presence
• Developed in-country supply chain
• Achieved local indigenisation targets

► Submitted tenders for significant long-term export contracts ► Dopptech acquisition provides access into two new

geographies

► Africa growth inhibited by Zambia liquidity constraints

Non-ZAR growth (Rm)

2016 2017 2018 Total revenue R million 8 511 9 773 10 492 Non-ZAR revenue as a % of total revenue % 24 28 30 2015 2018 2014 2016 2017 1 186 1 422 2 076 2 769 3 141 +13%

Americas Europe Australia Middle East & Asia Africa

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

► SkyWire provides access to rapidly growing broadband connectivity market ► Provides access point for voice, data and future total workspace solutions

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

► Secured a strong pipeline of projects for commercial rooftop solar PV ► Secured strong Africa partnerships and secured first contracts

Wireless internet market (unlicensed spectrum) expected to grow at 13% per year over the next four years

2,6 GW solar embedded generation

capacity planned in the IRP2018

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

299 1 366 352 367 1 718 8 212 2016 8 407 2017 Acquisition growth Organic growth 8 774 2018 8 511 9 773 10 492 44 150 (131) 176 2016 1 271 1 523 1 347 2017 Acquisition growth Organic growth 2018 1 315 1 497 1 542 19

Revenue contribution (Rm) Operating profit contribution (Rm)

Organic Acquisition

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 Operating profit R million 1 542 1 497 1 315 Basic earnings per share Cents 717 717 680 577 Headline earnings per share Cents 703 703 679 570 Normalised headline earnings per share Cents 687 687 697 662 Total dividend per share Cents 493 493 474 439

7% 7% 3% 3% 5% 5% 4% 4% 15% 15% 14% 14% 8% 8% 18% 18% 4% 4% 19% 19% 5% 5% 1% 1%

REUNER NERT T GROUP P

GROUP INCOME STATEMENT

► Capex in line with depreciation R162 million vs

R157 million (2017: R143 million vs R138 million)

► Net interest earned is lower due to the following major

cash outflows:

► Acquisitions: R233 million ► Share buyback programme: R115 million ► Increased working capital investment in Zamefa and

in Applied Electronics

► Growth in finance operations receivables book of

R375 million

► IFRS 2 Empowerment transaction R32 million ► Tax rate impacted by ► Non-taxable fair value gain (SkyWire R77 million) ► Release of NSN provision (R42 million)

2018 18 Rm Rm 2017 17 Rm Rm Change % Reven enue ue 10 492 9 773 7 EBITDA 1 699 1 635 4 Depreciation and amortisation (157 57) (138) 14 Oper erat ating ing profit rofit before re intere rest 1 542 1 497 3 Net interest income and dividends received 11 11 65 (83) Prof

• fit

it before re empo powerm erment nt tran ansaction ions 1 553 1 562 (1) Empowerment transactions (42) 2) (20) Prof

• fit

it before re tax ax 1 511 1 542 (2) Tax (358 58) (437) (18) Prof

• fit

it after er tax ax 1 153 1 105 4 Share of joint ventures’ and associate’s profit (1) 37 Prof

• fit

it for r the he year ear 1 152 1 142 1

REUNER NERT T GROUP P

CONDENSED FINANCIAL POSITION

2018 18 Rm Rm 2017 Rm

Property, plant and equipment, investment properties & intangible assets 1 2 297 1 095 Goodwill 1 0 053 921 Other long term assets 2 3 355 2 001 Non Non-curr urren ent t assets 4 7 705 4 017 Inventory 1 4 461 1 439 Receivables 3 5 522 2 981 Cash and cash equivalents including money market instruments 765 765 1 652 Current nt assets ts 5 7 748 6 072 Accounts payable 2 3 335 2 332 Bank overdraft 211 211 208 Current nt liabilitie bilities 2 5 546 2 540 Net current nt assets ts 3 2 202 3 532 Net assets ts 7 9 907 7 549 Equity and put options 7 7 669 669 7 364 Deferred tax 156 156 112 Long-term borrowings 82 82 73 Equity ty and long-term erm funding ng 7 9 907 7 549

MAJOR MOVEMENT IN BALANCE SHEET DUE TO ACQUISITIONS

2018 18 Rm Rm

PPE and intangible assets 235 235 Goodwill 146 146 Inventory 2 Accounts receivable 2 Deferred taxation (46) Payables and provisions (1)

Contingent Purchase consideration

(110)

Other

5 233 233 Cash paid 230 230 Borrowings assumed 3 233 233

REUNER NERT T GROUP P

CASH FLOW

MOVEMENT IN CASH FLOW (Rm)

►

Investing activities – Mainly related to acquisitions of SkyWire and Dopptech (R228m) and increase in Quince loan book (R375 million)

►

Financing activities – Mainly share buyback programme (R115 million)

572 (781) (115) Dividends paid 1 455 Opening balance FX effect

• n cash

13 Total cash utilised Closing balance 1 620 641 (498) (445) (56) (106) Net interest Financing activities 20 Tax paid Capex expansion Cash generated from operations before working capital movements Free cash flow Working capital Capex replacement (565) Investing activities (85) ( 115 ) Total cash utilised

2018 2017 Cash and cash equivalents 765 1 522 Long dated (> 3 Months) 130 Sub-total 765 1 652 Bank overdrafts (193) (197) Tota tal 572 1 455

REUNER NERT T GROUP P

CALCULATION OF HEPS AND NHEPS

2018 18 Rm Rm 2017 17 Rm Rm Change % Prof

• fit

it for r the he year ear 1 152 1 142 1 Non-controlling interests 6 (30) Attribu ibutable ble prof

• fit

it 1 158 1 112 4 Headline earnings adjustment Net gain on disposal of assets (23) 3) (1) Headline adline earning arnings 1 135 1 111 2 Normalised headline earnings adjustment Empowerment transactions 42 42 20 Contingent consideration fair value re- measurement (77) 7) Acquisitions costs 9 9 Norm rmalis alised ed head adline line earning arnings 1 109 109 1 140 (3) Weigh ghted ed numbe ber r of shar ares es 161, 1,4 163,6 HEPS 703 703 679 4 NHEPS 687 687 697 (1) Ordin dinar ary shar ares es of no par r value lue Number ber

• f shar

ares es Million lions Shares in issue 184,6 Less: Bargenel shares (18,5) Sharesbought back (5,0) Closing number of shares 161,1 Weighted average number of shares used to calculate HEPS and NHEPS (‘000) 161 479

REUNER NERT T GROUP P

CORE SEGMENTAL OPERATING PROFIT ANALYSIS

256 79 76 12

Electrical Engineering 2017 ICT Applied Electronics Other 2018 1 443 1 556

(7%)

(1) 9 Profit on sale of assets Segment profit Re-measurement gain Acquisition costs 1 556 Core segment profit 2017 1 548 (28) (77) 9 1 539 Segment profit Profit on sale of assets Re-measurement gain Acquisition costs Core segment profit 2018 1 443

(37%) 13% 28% (24%)

Earnings adjustments impacting operating profit

SEGMENTAL PERFORMANCE

Alan Dickson

ELECTRICAL CTRICAL ENGINEER NEERING ING

ELECTRICAL ENGINEERING

Cables

► Lower volume for power cables from state entities and

municipalities was offset by more sales to general market

► Liquidity constraints in Zambia continued ► Reduced demand from Telkom demand for copper

telecom and fibre optic cables as they rightsized their inventory holding

Circuit breakers

► Local market under pressure ► Improved sales into export markets assisted in delivering

a solid performance

Key matters

► Improved investor confidence and increased government

infrastructure expenditure should improve cable volumes

► Outlook for international circuit breaker sales remains

positive

► Africa may not return to 2017 contribution levels

CORE OPERATING PROFIT (Rm) 520 610 696 440 2015 2016 2017 2018

(37%) 7%) 13% 13% 15% 15% 13% 13% 9% 9%

2015 2016 2017 2018

Low voltage (circuit breakers) African Cables Zamefa Copper telecom cables Fibre telecom cables

% FACTORY CAPACITY UTILISATION

ICT

533 549 635 715 2015 2016 2017 2018

ICT

Office automation

► Improved product mix supported solid product revenue ► Continued cost efficiency and stronger ZAR:€ in H1 delivered improved margins ► New services revenue increased by 7% to R251 million

Communications

► Growth in number of voice customers

̶

New customer acquisition offset pricing pressure and lower minutes used per customer: 14 735 customers (2017: 11 854)

̶

Total voice minutes increased by 2% to 1,3 billion minutes

Finance

► Quince loan book increased to R2,7 billion on the back of strong sales in the

ICT channels

► Quality of the book remains excellent

Key matters

► Service revenue will continue to accelerate as broadband connectivity

• ffering and new service releases gain traction

► SkyWire should generate strong free cash flow and offset pressure in the

voice revenue

► New interconnect rates will not have a material impact

CORE OPERATING PROFIT (Rm)

16% 16% 16% 16% 19% 19% 21% 21% 13% 13%

ICT SEGMENT REVENUE SPLIT (%) 67 67 68 65 25 24 22 24 8 9 10 11 2015 2016 2017 2018 Office Automation Communications Finance

APPLIED ED ELECTRO CTRONICS NICS

181 305 276 352 2015 2016 2017 2018

APPLIED ELECTRONICS

Strong execution of the segment’s order books

► Fuchs delivered record volume and benefitted from weaker Rand and higher

margin product mix in H2

► Reutech Communications had strong production output for export and Radiate

sales

► Terra Firma delivered strongly into commercial renewable energy solutions,

although margins are under pressure

► Most other companies delivered results similar to FY2017

Segment’s order books remain positive

► Reutech Solutions has secured the new local customer five year-contract ► Communications received next multi-year production tranche Radiate order ► Fuchs has multi-year fuze orders

Key matters

► New local presence enhances long-term Southeast Asia supply opportunities ► Multi-year order books are in place in all defence businesses but tighter margins ► Renewable energy market will continue strong growth ► Unlikely that FY2018 growth will be repeated

CORE OPERATING PROFIT (Rm)

17% 17% 20% 20% 16% 16% 16% 16%

50 59 49 56 50 41 51 44 2015 2016 2017 2018 Exports Local REVENUE DISTRIBUTION (%)

+28% 8%

PROSPECTS

REUNER NERT T GROUP P

The group remains well positioned for

► An expected improvement in the South African economy

̶ Increased infrastructure investment bodes well for a recovery in Electrical Engineering ̶ Scale and timing of the infrastructure investments inject some uncertainty to the extent of the short-term recovery of Electrical Engineering ̶ Anticipate continued good performance from ICT

► Continued robust export activity

̶ Applied Electronics has good order books in most business units ̶ Fuze factory’s profitability will reduce in FY2019 due to the product mix of the export contracts

► Good growth in our renewable energy business

Subject to

► no significant changes in local socio-economic conditions ► the implementation of GST, as planned, in Zambia ► moderate currency volatility

the group should deliver another solid performance in 2019

PROSPECTS