REUNERT 1H2020 RESULTS PRESENTATION For the six months ended 31 - - PowerPoint PPT Presentation

REUNERT 1H2020 RESULTS PRESENTATION

For the six months ended 31 March 2020

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AGENDA

02

Covid-19 update

03

Financial performance Business outlook

05 01

Salient features

04

Segmental performance

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3

SALIENT FEATURES| OPERATIONAL PERFORMANCE

Significant challenges experienced at cable companies Good strategy execution supported a positive financial performance in ICT and Applied Electronics

• ICT diversified revenue

streams augment good sales activity

• Complementary revenues

grow by double digits in Office Automation

• Strong growth of last mile

broadband connectivity and cloud-based solutions in Communications cluster

• Applied Electronics’ export

drive continues to yield good performance

• Record sales of tactical

communication systems

• Radar sales significantly

exceed prior year

• Material

underperformance at the cable companies

• 7-week labour disruption

at African Cables in 1Q2020

• Zambia’s liquidity

challenges resulted in forex losses on Zamefa’s USD borrowings

• Low cable infrastructure

investment continues across all key Southern African markets

Interim results impacted by cable performance and level 5 lockdown

• Moderate Covid-19 impact
• Delayed sales due to

early month-end in March

• Export sales in Applied

Electronics

• Mark-to-market losses on

export hedging instruments

• Adjusted headline

earnings per share down 36%

Positive cash generation remained in line with historic norms

• R355 million free cash flow

generated in 1H2020

• 95% of operating profit

converts to free cash flow

• Resulting in ungeared

balance sheet on a net basis

Reunert unaudited results for the six months ended 31 March 2020

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SALIENT FEATURES| POST COVID ADJUSTMENTS

IFRS forward-looking statements

• Impairment of goodwill and

property, plant and equipment at the cable companies

• Increased expected credit

loss (ECL) impairments at Quince

Abnormal item at Quince

• Whistle blower identified activities

at an external, arms-length company

• Comprehensive, independent

forensic investigations in process

• Initial report completed
• Prima facie evidence indicating

Quince defrauded

• Completed Prevention and

Combatting of Corrupt Activities Act submissions

• Impairments created for potential

loss

• Board and management

commitment to a full legal process

Interim results

• Loss after tax of

R277 million

• Headline loss per share of

76 cents

• Dividend of 65 cents per

share declared

Reunert unaudited results for the six months ended 31 March 2020

COVID-19 IMPACT

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OUR RESPONSES TO COVID-19

Catering for uncertain market activity

• Increased debt capacity
• Committed facilities of R1 billion
• Total debt capacity of R2,1 billion
• Cost structures being reviewed, including:
• Freeze on all new hires
• Hold on expansionary capex
• Protected cash flow by tight management

across the working capital cycle

6 Increased our resilience in preparation for predicted economic conditions Adapting quickly as circumstances evolve Partnering with stakeholders to ensure

• ur sustainability

Responding to emerging challenges

• Rigorous return to work and business

continuity plans implemented at all companies, enabling a return to work

• n 1 May
• Companies steadily increasing output
• May: 60% of normal trading
• June expected to be: 98% of normal

trading

• Early indications reflect:
• Good debtor receipts
• Supply chain intact
• Reduced new order placement

Sharing collective responsibilities to respond to the pandemic

• Salary reduction across all white collar

workers, ensuring salaries for those unable to work

• Directors donations to Solidarity Fund
• Aligned our requirements with key

stakeholders including customers, employees, unions and banks

• Prioritised safety of all employees with

rigorous implementation of health and safety regimes

• Provided essential services throughout

lockdown levels 5 and 4

7 7

FINANCIAL PERFORMANCE

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GROUP STATEMENT OF PROFIT OR LOSS

* Earnings before net interest, taxation, depreciation and amortisation, impairment of goodwill and property, plant and equipment, expected credit losses, loss on remeasurement of subsidiary

held for sale, profit and loss on disposal of businesses and empowerment transactions.

R million Six months ended 31 March

% change 2020 (Unaudited) 2019 (Unaudited)

Revenue 4 144 5 288 (22) EBITDA* 493 698 (29) Depreciation and amortisation (119) (83) 43 Operating profit 374 615 (39) Net interest expense (19) (4) 375 Impairment of financial assets Expected credit losses (529)

• Impairment of non-financial assets

Impairment of goodwill and property, plant and equipment (79)

• Loss on remeasurement of subsidiary held for sale

(22)

• Loss on disposal of subsidiary
• (44)

(Loss)/profit before taxation (275) 567 (149) Taxation 31 (195) (116) (Loss)/profit after taxation (244) 372 (166) Share of joint ventures' and associate's (loss)/profit (82) 5 (Loss)/profit for the period (326) 377 (186) Non-controlling interests 49 (11) (545) (Loss)/profit attributable to equity holders of Reunert (277) 366 (176)

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SUMMARISED FINANCIAL POSITION

R million

As at 31 March As at 2020 (Unaudited) 2019 (Unaudited) 30 Sep 2019 (Audited) Property, plant and equipment, investment property and intangible assets 1 256 1 270 1 292 Right-of-use assets 200

• Goodwill

924 991 999 Investments and loans 65 55 60 Investments in joint ventures and associates 69 169 154 Finance leases and loans receivable 1 766 1 995 2 082 Deferred taxation 242 137 143 Non-current assets 4 522 4 617 4 730 Inventory 1 643 1 567 1 376 Finance leases and loans receivable 850 854 893 Trade and other receivables and taxation 2 306 2 401 2 356 Derivative assets 16 4 10 Cash and cash equivalents 793 894 939 Current assets 5 608 5 720 5 574 Total assets 10 130 10 337 10 304 Equity 6 422 7 200 7 431 Deferred taxation 101 141 138 Put option liability

• 125
• Long-term loans

40 66 57 Lease liabilities 169

• Share-based payment liability
• 11

14 Non-current liabilities 310 343 209 Put option liability 125

• 120

Current portion of long-term loans

• 1

3 Lease liabilities 55

• Share-based payment liability

9

• 18

Derivative liabilities 38 11 16 Trade and other payables, provisions and taxation 2 450 2 314 2 184 Bank overdrafts and short-term facilities 721 468 323 Current liabilities 3 398 2 794 2 664 Total equity and liabilities 10 130 10 337 10 304

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CASH FLOW| AS AT 31 MARCH 2020

OB CB Cash and cash equivalents 939 793 Bank overdrafts (323) (721) Total 616 72 1H2020 Rm EBITDA 493 DBP settlement (22) Non-cash items 100 Cash generated from operations 571

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CASH FLOW MOVEMENTS

Investing activities (Rm) 1H2020 Movement in rentals and finance leases (169) Other 4 (165) Financing activities (Rm) 1H2020 Settlement of 2015 CSP scheme (54) IFRS 16 lease payment (26) Other 1 (79)

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CAPITAL EXPENDITURE

► Capital expenditure amounted to R66 million

(1H2019: R59 million) divided between:

• replacement capital R10 million (1H2019: R23 million)
• expansion capital R56 million (1H2019: R36 million)

► All capital expenditure was funded from internal

resources

9 4 9 23 24 33 11 16 16 11 15 8 54 59 66 1H2018 1H2019 1H2020 Electrical Engineering ICT Applied Electronics Other +9% +12% CAPITAL EXPENDITURE (Rm)

1H2020 Rm Plant and equipment 26 Intangibles (including software) 18 Capital work in proress 21 Other 1 Total 66

SEGMENTAL PERFORMANCE

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►

Office Automation

• Good sales performance despite tough economic conditions
• Hardware market share increase supported the positive results
• Acceleration of Complementary product and service revenues

continued with additions of new offering

• Launch of PCs and Services with Remote Monitoring and

Management Systems yielded positive results and creates new business opportunities

►

Communications

• Voice customer base grew strongly, with record sales, although

voice minutes remain under pressure

• VBX growth, 20% in 1H2020, continues to be a significant

contributor

• Skywire’s network expansion to key geographies accelerated the

segment’s broadband connections, delivering strong growth of 82% over the prior period

►

Finance

• The Quince book showed a consistent performance prior to

IFRS and abnormal item impairments

ICT

278 317 351 371 1H2017 1H2018 1H2019 1H2020

17% 19% 20% 25% +6%

OPERATING PROFIT (Rm)

Reunert unaudited results for the six months ended 31 March 2020

10 097 13 343 15 786 18 972 2 225 6 638 12 782 19 414

• 5 000

10 000 15 000 20 000 25 000

1H2017 1H2018 1H2019 1H2020 NUMBER OF VBX PORTS AND VOICE CUSTOMER SITES Voice VBX

15

ICT

► Key strategic focus areas

• Further cross-sell and addition of Complementary products and

services, to support the Total Workspace Provider Strategy, to address the evolving market demands

• Office Automation addressing the B2B work-from-home

requirements by launching solutions that enable remote working

• Investing into network expansion to accelerate last mile broadband

connectivity allowing for the rapid growth of our diversified cloud- based solutions

• 4th cluster positioned to deliver digital consulting, cloud and data

services, security and managed services

13% 21% 24% 27%

0% 10% 20% 30%

1H2017 1H2018 1H2019 1H2020 PERCENTAGE OF CUSTOMERS WITH MORE THAN ONE PRODUCT

• 20

40 60 80 100 120 140 160 180

1H2017 1H2018 1H2019 1H2020 COMPLEMENTARY REVENUES TO END CUSTOMERS

38% 24% 22%

16

693 863 999 1 038 1H2017 1H2018 1H2019 1H2020

Applied Electronics

► Operational performance

• Both Reutech Radar and Reutech Communications

performed significantly better than in the previous year due to strong local and export order execution

• Fuchs, as expected, contributed lower earnings year-on-

year as we await the new long-term fuze order

• After a slow start to the year, TerraFirma Solutions are

executing on their order book at an above average monthly build rate

• Segment operating profit impacted by R25 million due to

lockdown delayed export sales and mark-to-market losses on forex hedge instruments

Reunert unaudited results for the six months ended 31 March 2020

REVENUE (Rm) OPERATING PROFIT (Rm) 61 61 85 77 1H2017 1H2018 1H2019 1H2020

+4%

• 9%

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APPLIED ELECTRONICS

► Segment’s order book

• Nanoteq and Omnigo have secured multi-year export order books

with execution commencing in 2H2020

• Fuchs secured various production orders in new markets for

execution in 2H2020 and beyond

• The segment is poised to finish the year with a healthy order book

► Key strategic focus areas

• Building the export order book continues to yield positive results
• Blue Nova successfully launched the “Megaboy”, a grid-scale

intelligent Energy Storage System (iESS) produced in South Africa

• Developing our renewable energy assets by expanding the

build-own-operate asset build programme

• Optimising cost structures to ensure robustness during the

economic uncertainty

• Increasing the utilisation of our diversified and lower-cost global

supply chain

222 423 350 426 1H2017 1H2018 1H2019 1H2020

24%

2018FY 2019FY 2020Forecast

COMPOUND ANNUAL EXPORT REVENUE GROWTH (Rm) BUILD-OWN-OPERATE ASSET BUILD UP

Reunert unaudited results for the six months ended 31 March 2020

60%

18

2 381 2 431 2 775 1 738 1H2017 1H2018 1H2019 1H2020

• 37%

327 219 225

• 42

1H2017 1H2018 1H2019 1H2020

ELECTRICAL ENGINEERING

Operational performance Cables operations

► Zambia

• Removal of input VAT on copper cathode on 1 January 2020
• Collection of government receivables remained slow, resulting in

inflated hard currency borrowings

• Kwacha depreciated against the USD by 38% causing significant

forex losses of R82 million

• Zamefa’s

shareholder loans from Reunert restructured to strengthen balance sheet and mitigate against future forex risk

► South Africa

• Weak cable infrastructure investment in key Southern African

markets

• 7-week labour disruption at African Cables in response to the

2019 restructuring resulting in a loss in the period

• Actions implemented to stabilise labour relations

Circuit breakers

• Excellent export volumes continue
• Weaker local demand
• Improved operational performance year-on-year

REVENUE (Rm) OPERATING PROFIT/(LOSS) (Rm)

20 40 60 80 100

1H2018 1H2019 1H2020

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

% FACTORY CAPACITY UTILISATION

18

• 119%

Reunert unaudited results for the six months ended 31 March 2020

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ELECTRICAL ENGINEERING

► Key strategic focus areas

• Circuit breakers will continue to expand into new

export markets

• Raising factory efficiencies and improve cost controls

throughout the segment

• Maintaining a safe working environment during

Covid-19 to minimise factory output interruption

Reunert unaudited results for the six months ended 31 March 2020

522 884 1520

200 400 600 800 1000 1200 1400 1600

1H2018 1H2019 1H2020 EXPORT ORDERS OF MILLIONS OF POLES

72% 69%

• 31%

BUSINESS OUTLOOK

REUNERT GROUP

► Challenging to provide guidance on prospects due to economic uncertainty ► Reunert’s higher growth companies exhibit good structural growth and opportunities

• Strong export capability
• Fuzes, tactical communication systems and radars
• Circuit breakers, specifically in the rail and telecommunication sectors
• Renewable energy
• Invest into build-own-operate solutions
• Integrated solar and storage solutions
• ICT
• Total Workspace Provider
• 4th Cluster
• Communications solutions
• Last mile broadband connectivity
• Vertically integrated communications solutions

► Quince funding strategy review in process and likely to evolve from the current philosophy ► Capacity to invest in strategy execution and M&A opportunities

TARGETING OUR ACTIONS TO OPTIMISE OPPORTUNITIES

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► Please type your questions on the webcast

portal

► Kindly email Karen Smith at

investor@reunert.co.za should you wish to have a one-on-one call with the management team

► Financial year end

30 September

► Full year results

24 November

► Integrated Report

17 December

Q&A KEY UPCOMING DATES