Reunert warns of sharp losses as Covid-19 fallout mounts

Reunert says it has experienced challenging trading conditions in the first half of its 2020 financial year as a result of reduced economic activity, while credit losses are anticipated to arise from the impact of the Covid-19 pandemic.

The group said that despite these conditions, its ICT segment which includes Nashua, ECN and Skywire, delivered real growth in operating profit while the applied electronics segment performed in line with expectations, despite being negatively impacted by the disruption caused by the national state of disaster and lockdown.

However, the results have been adversely impacted by the underperformance of its electrical engineering segment because of a seven-week labour disruption at the power cable business, resulting in limited production in the first quarter of the financial year; foreign exchange losses at its Zambian cable operation; and low cable infrastructure investment across the Southern African markets.

Reunert said that for the six months ended  March 2020, it expects that it will report a loss per share of between 162 cents and 180 cents (2019: earnings per share of 227 cents), being a decline of between 171% and 179% compared to the previous results; and – headline loss per share of between 72 cents and 80 cents (2019: headline earnings per share of 253 cents), being a decline of between 128% and 132% compared to the previous results.

Reunert said that operating profit is expected to be between R357 million and R394 million (2019: R615 million), being a decline of between 36% to 42% in the operating profit of the prior comparative period.

The group also flagged “an external fraud that constitutes an abnormal item”. “The abnormal item arose from an external whistle blower report. Thus far, the ongoing investigation has revealed prima facie evidence that an external party, unrelated to the Reunert group of companies, has defrauded one of Reunert’s subsidiaries, Quince Capital,” it said.

Reunert said that an independent, comprehensive forensic audit is in process. “However, from the evidence extracted to date, a material impairment is considered necessary and has been raised accordingly.”

The group said that the full impact of the Covid-19 pandemic on the South African economy and on the key international geographies it serves is uncertain. However, it said it recognises that long-term socio-economic shifts in the economy are predicted.

As a result it said it has increased its committed debt facilities to R1.0 billion and total debt capacity to R2.1 billion.

Post the Covid-19 pandemic, the group said its infrastructure companies are likely to continue to face volume pressures as:

  • Government budgets are reallocated to fight the effect of the virus;
  • the timing and scale of funding for the Government’s infrastructure plans remain uncertain; and
  • private industry remains cautious about their investment plans.

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Reunert warns of sharp losses as Covid-19 fallout mounts