Commodity prices temper Reunert growth

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Rising copper prices have tempered real growth in its electronics division during the six months to 31 March, says Reunert.Rising copper prices have tempered real growth in Reunert`s electronics division and, while there is a lot of talk about improving telecommunications and electrical infrastructure, little is being done, says the company.

Reunert CEO Gerrit Pretorius says while the buoyant local economy helped the group to increase headline earnings per share by 29%, to 232.6c, during the six months ended 31 March, much must still be done to get infrastructure projects off the ground.

Overall turnover increased by 19% from R3.276 billion a year ago to R3.911 billion, resulting in operating profit improving by 23%, to R524 million.

“There is still a lot of talk, rather than direct action,” he says.

Reunert says the demand for products from its electrical engineering division increased turnover there by 31% to R1.149 billion. Operating profit went from R166.7 million a year ago to R222.5 million, an improvement of 33%.

Pretorius says copper prices increased during the past year to $8 000 per ton from $3 000 per ton and this had to be borne in mind when doing a segmental analysis of the group`s results.

“Stripping out that factor and then adding in price increases for inflation means our real growth in the electrical engineering side only rose by 17% compared to the stated 31% rise in turnover to R1.149 billion,” he says.

Pretorius says the start of Telkom`s R30 billion capital expenditure programme was beginning to have an effect, but that it was still at the early stages.

“A lot more needs to be done on infrastructure, Eskom`s power lines are old and Telkom needs to modernise its network,” he says.

Doubling cable

ATC, the telecommunications cable manufacturer, doubled revenues. Increased demand came from operators installing much-needed bandwidth, Pretorius says. ATC is also planning to increase its activities into Africa.

“Circuit Breaker Industries [CBI] is reaping the rewards of building an export business over many years,” Pretorius says.

Exports grew by 40% in the comparable period, now representing 27% of CBI`s total revenues. Locally, CBI`s performance is underpinned by the ongoing drive by government to provide housing for all. Sales to the residential market grew by 7%.

Reunert`s electronics division improved operating profits by 24% from R311 million to R386 million as revenue increased by 17% to R3 466 million.

Office automation company, Nashua, and the related cellular business, Nashua Mobile, had strong growth in volumes. The related finance company`s debtor book is now in excess of R1.2 billion.

Strong consumer spending

The consumer electronics business, supplier of Panasonic, Akai and Futronic, grew sales despite price deflation in this sector.

“Consumers seem to have a lot of money to spend and the strong rand has also helped sales. The performance of this sector was a pleasant surprise to us,” Pretorius says.

Activities at Siemens Telecommunications, in which Reunert holds a 40% stake, was at an all time high. Operating profits attributable to Reunert improved by 64% from R52.3 million to R85.8 million.

Pretorius ascribes this to the expansion of mobile and fixed-line networks by Siemens` customers Telkom and Vodacom, but warned this is not likely to be matched in the second half.

“A lot of this expenditure had to do with the mobile networks upgrading their networks. This is a great sector to do business in because they say what they want to do, then they do it and spend the money to achieve their goals,” he says.

After defence business, Reutech, made a small loss last year it improved operating profit to R3.8 million. Pretorius expects profitability to improve in the second half of this year.

“We are still involved, for instance, in the maintenance of the SA Navy`s new corvettes even though the installation of the equipment has come to an end,” he says.

Reunert`s shares were down 121c this morning, at R69.65, in quiet trade.



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