A N N U A L   R E P O R T   –   2 0 0 3 Content Highlights Accounting policies Letter to shareholders Income statements Board and governance structure Balance sheets Group overview Cash flow statements Building and developing people Notes to the cash flow statements Corporate governance Statement of changes in equity Value added statement Notes to the annual financial statements Segmental analysis Principal subsidiaries Five-year financial review Share ownership analysis Summary of statistics Shareholders' diary Definitions Corporate administration and information Directors' responsibility Notice of annual general meeting Report of the independent auditors Currency conversion table Secretaries' certification Proxy form Statutory information   Notes to the annual financial statements For the year ended 30 September 2003 GROUP COMPANY 2003 2002 2003 2002 Rm Rm Rm Rm 1. REVENUE Revenue excludes revenue of associate companies and includes export revenue of R519,2 million (2002: R323,9 million) and interest received by RC&C Finance Company (Pty) Limited of R196,8 million (2002: R150,8 million). 2. OPERATING PROFIT IS STATED AFTER: Administration, management and other fees 14,6 9,5 10,6 6,7 Auditors’ remuneration: Audit fees 5,4 4,7 2,6 2,5 Other fees 1,5 0,6 0,1 0,2 Expenses 0,1 0,1 – – 7,0 5,4 2,7 2,7 Depreciation: Land and buildings 3,0 1,6 0,8 2,2 Plant and equipment 52,6 42,1 14,0 15,5 Vehicles 2,8 2,5 1,5 1,3 58,4 46,2 16,3 19,0 Rental income from investment properties (included in revenue) (1,3) (1,4) – – Direct operating expenses arising from investment properties that generated rental income 1,5 0,5 – – Direct operating expenses arising from investment properties that did not generate rental income 0,8 0,4 – 0,1 Goodwill amortised 46,2 41,4 5,1 4,7 Net realised (losses)/gains on currency exchange differences (111,5) 6,2 (72,3) 3,3 Net unrealised gains on currency exchange differences 8,8 4,9 11,0 3,2 Net realised (losses)/gains on fair value adjustments to derivative instruments (65,5) – 4,2 – Net unrealised losses on fair value adjustments to derivative instruments (49,5) – (26,4) – (217,7) 11,1 (83,5) 6,5 Income from subsidiaries: Fees 3,0 0,8 Rental (included in revenue) 4,2 4,6 7,2 5,4 Operating lease charges: Land and buildings 19,7 15,8 10,8 8,8 Vehicles and other 0,6 1,7 1,1 1,6 20,3 17,5 11,9 10,4 Research and development expenditure: Financed by revenue from customers 34,6 57,3 – 0,3 Not financed by revenue from customers 39,0 38,2 28,1 27,0 73,6 95,5 28,1 27,3 Net surplus on disposal of property, plant and equipment 0,2 2,1 0,3 0,1 Staff costs: Salaries and wages 582,5 462,6 113,0 97,8 Pension and provident fund contributions 52,6 41,8 6,8 5,5 Other staff costs 61,7 57,0 19,6 17,9 696,8 561,4 139,4 121,2 Number of employees 4 918 4 318 1 412 1 336 3. INTEREST AND DIVIDENDS RECEIVED Dividends received: – unlisted associate companies – 108,4 – unlisted subsidiaries 253,1 42,7 – other 0,2 3,4 – – 0,2 3,4 253,1 151,1 Interest received: – subsidiaries 17,9 1,6 – associate companies 6,0 6,3 – RC&C Finance Company (Pty) Limited 51,8 23,0 – 0,5 – other 37,3 26,5 8,2 11,9 95,3 59,2 279,2 165,1 4. INTEREST PAID Long-term liabilities 0,3 0,9 – – RC&C Finance Company (Pty) Limited 0,2 – Short-term loans and bank overdrafts 49,8 21,8 11,2 13,7 50,1 22,7 11,4 13,7 Interest paid by RC&C Finance Company (Pty) Limited included in cost of sales 147,6 89,9 5. ABNORMAL ITEMS (Raising)/reversal of provision for losses in subsidiaries (9,7) 10,1 Group’s attributable share of the impairment of fixed assets in an equity accounted associate – (18,7) Gross abnormal items – (18,7) (9,7) 10,1 Taxation – – – – Net abnormal items – (18,7) (9,7) 10,1 6. TAXATION South African normal taxation: Current 216,9 154,5 77,6 66,0 Deferred (2,7) 8,8 (0,6) (4,1) Secondary tax on companies 23,5 15,2 5,1 12,0 Adjustment for prior years – current (24,0) (6,0) (22,3) 1,1 – STC 0,2 – – – – deferred 10,4 4,6 (0,4) (0,1) 224,3 177,1 59,4 74,9 Reconciliation of rate of taxation % % % % Apparent rate of taxation excluding abnormal items 34,4 34,9 11,8 21,5 Applicable to dividends received – 0,2 15,1 13,0 Effective rate of taxation: 34,4 35,1 26,9 34,5 Movement in rate of taxation due to – disallowable charges (1,9) (2,4) (0,3) (0,8) – secondary tax on companies (3,6) (3,0) (1,0) (3,4) – adjustments from prior year 2,1 0,3 4,4 (0,3) – tax losses not recognised (1,0) South African normal tax rate 30,0 30,0 30,0 30,0 7. DIVIDENDS DECLARED DURING THE YEAR Ordinary: Final 2002 – 88,0 cents per share (2001: 67,0 cents) 181,1 136,7 181,1 136,7 Interim 2003 – 32,0 cents per share (2002: 30,0 cents) 65,8 61,4 65,8 61,4 Attributable to Reunert shares held by a subsidiary (20,7) (16,7) 226,2 181,4 246,9 198,1 Final ordinary dividend proposed 88,0 cents per share (2002: 88,0 cents) 181,3 179,9 181,3 179,9 Attributable to Reunert shares held by a subsidiary (15,1) (15,1) 166,2 164,8 181,3 179,9 8. ACCOUNTING POLICY CHANGES Reunert has adopted South African Statements of Generally Accepted Accounting Practice (SA GAAP) which became effective during the current financial year. This has resulted in changes to accounting policies. The main change involves the adoption of AC133 on financial instruments. In terms of the transitional provisions of this statement the comparative figures do not need to be restated. The statement, however, does require the balances at the end of the previous financial year to be valued in terms of the statement. This has resulted in an increase in the group’s accumulated profit on 1 October 2002 of R6,7 million (see statement of changes in equity). The effect in the current year has been to reduce operating profit by R44,5 million, the tax charge by R13,3 million and earnings attributable to ordinary shareholders by R31,2 million. The group’s accounting policies are in accordance with SA GAAP and, except for the above changes, are consistent with those of the prior period. 9. NUMBER OF SHARES USED TO CALCULATE EARNINGS PER SHARE Weighted average number of shares in issue used to determine basic earnings per share and headline earnings per share (millions of shares) 188,3 187,0 Adjusted by the dilutive effect of unexercised share options available to executives employed in the group (millions of shares) 2,6 3,4 Weighted average number of shares used to determine diluted earnings per share and diluted headline earnings per share (millions of shares) 190,9 190,4 10. HEADLINE EARNINGS Headline earnings are determined by eliminating the effect of the following items in attributable earnings: Earnings attributable to Reunert Limited shareholders 295,4 370,6 Adjusted for: 50,1 58,0 Surplus on sale of fixed assets (0,2) (2,1) Goodwill 50,3 41,4 Attributable portion of impairment (note 5) 18,7 Tax 0,1 0,6 Outside shareholders’ portion – 0,1 Headline earnings attributable to Reunert Limited shareholders 345,6 429,3 Cost GROUP Accum- ulated depre- ciation Book value Cost COMPANY Accum- ulated depre- ciation Book value Rm Rm Rm Rm Rm Rm 11. PROPERTY, PLANT AND EQUIPMENT 2003 Freehold land and buildings – investment 24,0 8,6 15,4 – – – – owner occupied 100,4 33,7 66,7 47,0 12,7 34,3 Leasehold land and buildings – owner occupied 2,0 1,1 0,9 0,3 0,3 – Plant and equipment 629,1 503,0 126,1 202,7 172,9 29,8 Vehicles 17,9 13,3 4,6 8,0 5,9 2,1 773,4 559,7 213,7 258,0 191,8 66,2 2002 Freehold land and buildings – investment 15,1 5,3 9,8 – – – – owner occupied 80,6 27,1 53,5 47,2 12,3 34,9 Leasehold land and buildings – owner occupied 2,2 0,8 1,4 0,3 0,1 0,2 Plant and equipment 409,7 322,5 87,2 189,2 163,6 25,6 Vehicles 15,0 9,8 5,2 7,2 4,5 2,7 522,6 365,5 157,1 243,9 180,5 63,4 Land and buildings Investment Owner occupied Plant and equipment Vehicles 2003 2002 Rm Rm Rm Rm Rm Rm MOVEMENT IN PROPERTY, PLANT AND EQUIPMENT Group Net book value at beginning of the year 9,8 54,9 87,2 5,2 157,1 161,8 Acquisition of businesses 5,0 15,2 51,9 0,2 72,3 1,3 Additions 0,3 2,1 39,7 2,5 44,6 42,0 Disposals – (1,3) (0,1) (0,5) (1,9) (1,8) 15,1 70,9 178,7 7,4 272,1 203,3 Depreciation 0,3 (3,3) (52,6) (2,8) (58,4) (46,2) 15,4 67,6 126,1 4,6 213,7 157,1 Company Net book value at beginning of the year – 35,1 25,6 2,7 63,4 70,7 Acquisition of businesses – – 3,2 – 3,2 1,3 Additions – – 15,0 1,0 16,0 10,6 Disposals – – – (0,1) (0,1) (0,2) – 35,1 43,8 3,6 82,5 82,4 Depreciation – (0,8) (14,0) (1,5) (16,3) (19,0) – 34,3 29,8 2,1 66,2 63,4 NOTES: A register of group property may be inspected at the registered office of the company. The open market value of investment properties amounts to R23,3 million (2002: R11,8 million). Six of the group’s properties are investment properties. The open market values were obtained as follows: One was sold in October 2003 for a net R9,7 million. Four (R9,7 million) were valued by reference to market evidence of transaction prices for similar properties. One (R3,9 million) was valued by an independent valuer who holds a recognised and relevant qualification and who has recent experience in the location and category of the investment property being valued. Property, plant and equipment depreciation rates are used for the following categories: Buildings 3 to 20% Plant 10 to 20% Office equipment 10 to 20% Computer equipment 33 to 50% Furniture 15 to 20% Vehicles 20 to 25% The insurable value of the group’s fixed assets as at 30 September 2003 amounted to R2,8 billion (2002: R1,8 billion). This is based on the cost of replacement of such assets, except for motor vehicles and certain selected assets which are included at market value. GROUP COMPANY 2003 2002 2003 2002 Rm Rm Rm Rm 12. GOODWILL Carrying value at the beginning of the year 360,0 10,9 21,5 1,0 Add: Acquisition of businesses, associates and subsidiaries 6,4 390,5 12,9 25,2 Less: Adjustments to the purchase price of a business acquired in the prior year (9,2) – (9,2) – Less: Amortisation for the year (46,2) (41,4) (5,1) (4,7) Attributable to losses in associate (4,1) Carrying value at the end of the year 306,9 360,0 20,1 21,5 Goodwill at cost 396,8 403,7 30,9 27,2 Accumulated amortisation (89,9) (43,7) (10,8) (5,7) 306,9 360,0 20,1 21,5 Carrying value attributable to: – associates 108,4 126,3 – – – subsidiaries and other 198,5 233,7 20,1 21,5 306,9 360,0 20,1 21,5 Goodwill is amortised over periods varying between one and ten years. 13. INTEREST IN SUBSIDIARIES (See Annexure A) Shares at cost less amounts written off 543,0 543,3 Amounts owing by subsidiaries 338,4 158,8 Provision for goodwill write-off (45,9) (45,9) 835,5 656,2 Provision for losses (47,9) (38,2) 787,6 618,0 Amounts owing to subsidiaries (103,4) (313,5) 684,2 304,5 14. INTEREST IN ASSOCIATES UNLISTED ASSOCIATE COMPANIES: Shares at cost 158,5 202,8 158,5 163,6 Less: Transfer to goodwill on consolidation (133,6) (137,7) Adjustment to carrying value – 2,7 Attributable interest in accumulated profit (24,9) 58,6 Accumulated profit at beginning of year 58,6 96,1 Profit after tax and abnormal items – audited (82,6) 115,8 – unaudited – (44,9) Retained income of associates that became subsidiaries during the year (0,9) – Dividends – (108,4) Attributable to outside shareholders in subsidiaries – 4,7 Total of unlisted associate companies – 131,1 158,5 163,6 Directors’ valuation – unlisted associate companies 520,0 586,9 520,0 163,6 Attributable earnings from unlisted associate companies (82,6) 70,9 GROUP Number of shares held Percentage interest 2003 2002 2003 2002 Details of share investments Rm Rm Rm Rm ASSOCIATE COMPANIES ATC (Pty) Limited (became a subsidiary with effect from 1 January 2003) – 123 418 – 39 Electric Products International (Pty) Limited 2 400 2 400 24 24 Siemens Telecommunications (Pty) Limited 56 000 56 000 40 40 Nashua Connect (Pty) Limited (previously IQ Works (Pty) Limited) (became a subsidiary with effect from 1 December 2002) – 501 – 50 Carrying value Details of share investments Year-end 2003 2002 ASSOCIATE COMPANIES ATC (Pty) Limited – 59,1 Electric Products International (Pty) Limited 30 September – – Siemens Telecommunications (Pty) Limited 30 September – 72,0 Nashua Connect (Pty) Limited – – – 131,1 GROUP COMPANY 2003 2002 2003 2002 Rm Rm Rm Rm 15. OTHER INVESTMENTS Reunert 1988 Share Purchase Trust Loan 9,0 6,4 9,0 6,4 Other loans and investments 11,8 14,1 11,5 13,8 Total investments 20,8 20,5 20,5 20,2 Directors’ valuation – other investments 20,8 20,5 20,5 20,2 16. RC&C FINANCE COMPANY ACCOUNTS RECEIVABLE Discounted deals: Collectable within one year 388,0 296,3 Collectable after one year 761,1 582,1 1 149,1 878,4 Accounts receivable: Collectable within one year 46,2 41,9 Collectable after one year 24,7 33,6 70,9 75,5 1 220,0 953,9 The discounted deals comprise the present value of discounted rental agreements which are repayable over varying periods up to a maximum of five years from balance sheet date. 17. DEFERRED TAXATION ASSETS/(LIABILITIES) MOVEMENT OF GROUP DEFERRED TAXATION Balance at beginning of year (20,0) (6,6) 24,7 20,5 Restatement of balance at beginning of year due to first time compliance with AC133 (3,0) (2,1) Current tax charge/(reversal) 2,7 (8,8) 0,6 4,1 Adjustment for prior years (10,4) (4,6) 0,4 0,1 (30,7) (20,0) 23,6 24,7 Deferred taxation liabilities 63,8 45,9 – – Deferred taxation assets 33,1 25,9 23,6 24,7 ANALYSIS OF DEFERRED TAXATION Capital allowances (41,3) (32,8) (0,8) (1,2) Provisions and accruals 11,7 11,3 23,7 23,6 Advance income offset by allowed future expenditure 3,6 4,1 0,5 0,2 Other (net) (4,7) (2,6) 0,2 2,1 (30,7) (20,0) 23,6 24,7 18. INVENTORY AND CONTRACTS IN PROGRESS Raw materials and components 120,7 98,9 63,1 54,8 Finished goods 110,9 115,7 44,7 53,7 Merchandise 242,6 373,5 242,1 373,4 Consumable stores 2,2 1,4 0,5 0,6 Contracts and other work in progress 55,4 70,3 1,0 (1,1) 531,8 659,8 351,4 481,4 The value of inventory has been determined on the following bases: First-in first-out 405,1 525,4 347,6 476,5 Average 34,6 28,1 2,6 2,6 Net realisable value 45,3 35,4 1,2 2,3 Other 46,8 70,9 – – 531,8 659,8 351,4 481,4 19. ACCOUNTS RECEIVABLE Trade receivables 602,4 516,2 232,3 191,1 Claims, prepayments and other receivables 224,2 196,7 33,9 40,1 826,6 712,9 266,2 231,2 20. CASH AND CASH EQUIVALENTS Bank balances and cash 484,8 283,5 37,7 80,1 21. SHARE CAPITAL AND PREMIUM AUTHORISED SHARE CAPITAL 235 000 000 (2002: 235 000 000) ordinary shares of 10 cents each 23,5 23,5 23,5 23,5 350 000 (2002: 350 000) 5,5% cumulative preference shares of R2 each 0,7 0,7 0,7 0,7 31 057 729 (2002: 31 057 729) redeemable preference shares of 1 cent each 0,3 0,3 0,3 0,3 24,5 24,5 24,5 24,5 ISSUED SHARE CAPITAL 206 015 764 (2002: 204 425 264) ordinary shares of 10 cents each 20,6 20,4 20,6 20,4 350 000 (2002: 350 000) 5,5% cumulative preference shares of R2 each 0,7 0,7 0,7 0,7 21,3 21,1 21,3 21,1 SHARE PREMIUM At beginning of year 251,3 248,5 251,3 248,5 Arising on the issue of ordinary shares 10,8 2,8 10,8 2,8 At end of year 262,1 251,3 262,1 251,3 Reunert Limited shares bought back by a subsidiary 17 168 058 (2002: 17 168 058) (234,6) (234,6) Total issued share capital and premium 48,8 37,8 283,4 272,4 COMPANY Number of shares 2003 2002 UNISSUED ORDINARY SHARES Total shares reserved to meet the requirements of the Reunert 1985 Share Option Scheme and the Reunert 1988 Share Purchase Scheme 12 000 000 12 000 000 Ordinary shares under the general authority of the directors until the forthcoming annual general meeting 16 984 236 18 574 736 28 984 236 30 574 736 21. SHARE CAPITAL AND PREMIUM THE REUNERT 1985 SHARE OPTION SCHEME Options to take up Reunert Limited ordinary shares are granted to executives in terms of the Reunert 1985 Share Option Scheme. The terms of the scheme allow the recipient of the options to exercise them after three years, one third each in years four to six. Any options unexercised lapse after ten years from the date of initial issue or the moment an option holder leaves the group. Should the option price exceed the market price, the option holder may decline to exercise their right to have Reunert Limited shares issued to them. Exercise price Number of options unexercised at the beginning of year Thousands Options granted during the year Thousands Options exercised during the year Thousands Options that lapsed during the year Thousands Number of options unexercised at the end of year Thousands Amount received for options exercised R thousands 2003 R14,90 10 – – – 10 – R14,00 30 – – – 30 – R5,45 4 085 – (1 351) (133) 2 601 7 360 R14,10 2 375 – (25) (150) 2 200 353 R15,80 1 445 – (90) (65) 1 290 1 422 R17,70 290 – – (40) 250 – R15,99 – 1 940 (125) (10) 1 805 1 999 R17,30 – 200 – – 200 – 8 235 2 140 (1 591) (398) 8 386 11 134 2002 R14,90 85 – (75) – 10 1 110 R14,00 30 – – – 30 – R5,45 4 415 – (300) (30) 4 085 1 605 R14,10 2 425 – – (50) 2 375 – R15,80 1 470 – – (25) 1 445 – R17,70 – 290 – – 290 – 8 425 290 (375) (105) 8 235 2 715 Period options exercisable Exercise price Number of options exercisable per annum Thousands Dates Expiry date Options vested at the beginning of the year Thousands Options vested at the end of the year Thousands R14,90 – Immediately 27 June 2004 10 10 R14,00 – Immediately 5 May 2007 30 30 R5,45 1 221 22 October 2003 to 22 October 2004 22 October 2009 – 100 R14,10 708 1 February 2004 to 1 February 2006 1 February 2011 – 75 R15,80 427 26 September 2004 to 26 September 2006 26 September 2011 – 10 R17,70 47 19 November 2004 to 19 November 2006 19 November 2011 – 110 R15,99 602 13 May 2006 to 13 May 2008 13 May 2013 – – R17,30 67 27 July 2006 to 27 July 2008 27 July 2013 – – 40 335 LOANS GRANTED BY REUNERT LIMITED IN RESPECT OF THE SHARE OPTION SCHEME Option holders are obliged to pay 1 cent per share for shares purchased under the option scheme. Thereafter, Reunert Limited may lend the shareholder the remainder of the funds required to purchase the shares at the option price. The loan is granted for a maximum of seven years. The interest rate applicable to the loan is determined in March and September each year for the following six months, based on a formula which takes the last dividend declared prior to granting the option divided by the option price, subject to a maximum of the official interest rate as set by South African Revenue Services from time to time. 2003 Rm 2002 Rm Amount of loans granted during the year 5,1 – GROUP COMPANY 2003 2002 2003 2002 Rm Rm Rm Rm 22. NON-DISTRIBUTABLE RESERVES On acquisition of subsidiaries, being excess of net assets over cost of shares at dates of acquisition – 0,1 Statutory and other reserves – at beginning of year 1,4 0,8 – – – movement (1,4) 0,6 – – – 1,4 – – Capital redemption reserve 2,9 2,9 0,3 0,3 Share of associate companies’ accumulated profits – at beginning of year 63,7 96,0 – associate earnings transferred this year (63,7) (32,3) – 63,7 2,9 68,1 0,3 0,3 Description of nature of obligation Carrying amount at beginning of year Rm Additional provisions created in the year Rm Amounts used during the year Rm Unused amounts reversed during the year Rm Carrying amount at end of the year Rm 23. PROVISIONS GROUP Contract completion 4,4 5,0 (2,7) (1,2) 5,5 Debtor recourse guarantee 48,0 – – (10,3) 37,7 Unfunded pension obligations 1,5 0,8 – – 2,3 Warranty 45,8 8,3 (1,4) (3,6) 49,1 Other 14,4 1,4 (3,2) (1,7) 10,9 114,1 15,5 (7,3) (16,8) 105,5 COMPANY Contract completion 0,9 – – – 0,9 Debtor recourse guarantee 10,3 – – (10,3) – Warranty 0,8 – – (0,4) 0,4 Other 7,6 2,2 (1,2) (1,7) 6,9 19,6 2,2 (1,2) (12,4) 8,2 GROUP COMPANY 2003 2002 2003 2002 Rm Rm Rm Rm 24. COMMITMENTS Expenditure on property, plant and equipment Contracted Authorised not yet contracted 16,2 0,4 9,4 9,5 12,7 0,1 5,3 8,6 16,6 18,9 12,8 13,9 The above expenditure, to occur in 2004 and 2005, will be financed from existing group resources. Operating lease commitments in respect of land and buildings, motor vehicles and other assets – one year – two to five years – greater than five years 23,6 48,8 9,0 17,5 44,5 3,2 14,4 13,4 – 13,3 27,4 – 81,4 65,2 27,8 40,7 Land and buildings Motor vehicles Other 75,0 0,1 6,3 63,2 0,5 1,5 27,7 0,1 – 39,6 0,3 0,8 Total operating lease commitments 81,4 65,2 27,8 40,7 25. CONTINGENT LIABILITIES Guarantees on behalf of third parties Guarantees on behalf of group subsidiary companies Sureties for staff loans 3,6 – 0,1 – – 0,3 – 59,4 – – 50,0 – Total contingent liabilities 3,7 0,3 59,4 50,0 Salary R thousands Bonus and performance related payments R thousands Other benefits R thousands Retirement and medical contributions R thousands Total R thousands 26. DIRECTORS’ REMUNERATION AND INTERESTS Payable to the directors of the company by the company and its subsidiaries: EXECUTIVE DIRECTORS The directors’ remuneration for the year ended 30 September 2003 G Pretorius BP Gallagher GJ Oosthuizen DJ Rawlinson 1 743 891 811 878 783 429 377 416 169 168 125 245 386 238 194 228 3 081 1 726 1 507 1 767 4 323 2 005 707 1 046 8 081 The directors’ remuneration for the year ended 30 September 2002 G Pretorius BP Gallagher GJ Oosthuizen DJ Rawlinson 1 514 763 718 757 1 165 640 570 600 193 207 141 186 347 220 175 196 3 219 1 830 1 604 1 739 3 752 2 975 727 938 8 392 Total paid for the year (all directors’ fees) 2003 R thousands 2002 R thousands NON-EXECUTIVE DIRECTORS The directors’ remuneration for the year ended 30 September DE Cooper BP Connellan PTW Curtis SD Jagoe KJ Makwetla MJ Shaw JC van der Horst CL Valkin 300 80 – 100 60 90 60 60 250 50 29 60 40 60 40 40 750 569 26. DIRECTORS’ REMUNERATION AND INTERESTS SHARE OPTIONS Executive directors Balance of unexercised share options as at 1 October 2002 Number of share options allocated during the year Number of options exercised during the year Balance of unexercised share options as at 30 September 2003 Option price R Date of allocation Date from which exercisable G Pretorius 165 000 – 55 000 110 000 5,45 26 October 1999 26 October 2002   100 000 – – 100 000 14,10 1 February 2001 1 February 2004   150 000 – – 150 000 15,80 26 September 2001 26 September 2004     200 000 – 200 000 15,99 13 May 2003 13 May 2006 BP Gallagher 200 000 – *66 600 133 400 5,45 26 October 1999 26 October 2003   50 000 – – 50 000 14,10 1 February 2001 1 February 2004   70 000 – – 70 000 15,80 26 September 2001 26 September 2004     100 000 – 100 000 15,99 13 May 2003 13 May 2006 GJ Oosthuizen 200 000 – *66 600 133 400 5,45 26 October 1999 26 October 2003   50 000 – – 50 000 14,10 1 February 2001 1 February 2004   90 000 – – 90 000 15,80 26 September 2001 26 September 2004     100 000 – 100 000 15,99 13 May 2003 13 May 2006 DJ Rawlinson 200 000 – 66 600 133 400 5,45 26 October 1999 26 October 2003   50 000 – – 50 000 14,10 1 February 2001 1 February 2004   30 000 – – 30 000 15,80 26 September 2001 26 September 2004     100 000 – 100 000 15,99 13 May 2003 13 May 2006 1 355 000 500 000 254 800 1 600 200 * The loans granted on the exercise of these options were not fully repaid by the year-end. The shares may only be released when the loans have been fully repaid. None of the directors’ service contracts expressly provides for a notice period, and in the circumstances such service contracts are terminable on reasonable notice, which period will be less than one year. Predetermined compensation on termination of service will be payable to the executive directors, but in all instances, the notice periods are less than one year. 27. RETIREMENT BENEFIT INFORMATION In line with the group’s policy to provide retirement benefits for its employees, 99% (2002: 94%) of the group’s employees belong to various retirement schemes. Industrial legislation requires that certain employees be members of designated industrial schemes. At year end 34% (2002: 25%) of the group’s employees were members of such schemes, most notably the Engineering Industries Pension Fund and Metal Industries Provident Fund. The total employer contributions for the year to these funds amounted to R5,7 million (2002: R4,0 million). 32% (2002: 29%) of the group’s total employees, are members of the Lincoln Wood Provident Fund or the Reunert Retirement Fund, which consists of both the Reunert Pension Fund and Reunert Provident Fund. The Reunert Retirement Fund is a defined contribution plan, apart from death benefits that are paid by the Pension Fund, which is registered in terms of the Pension Funds Act, 1956. The fund was last reviewed by the actuary at 29 February 2000 and found to be in a sound financial position. The employer’s contribution rate to the provident fund remained at 10% of the employees’ pensionable earnings, whilst the employees’ contribution to the pension fund remained at 6%. The total employer contribution to this fund amounted to R17,1 million (2002: R13,7 million). The Lincoln Wood Provident Fund is a defined benefit plan registered in terms of the Pension Funds Act, 1956. The employer’s contribution rate is 14,5% (2002: 14,5%) of employees’ pensionable earnings, with the employees’ contributions remaining at 6%. The total employer contribution to this fund amounted to R1,7 million (2002: R1,6 million). The Lincoln Wood Provident Fund was actuarially valued in terms of the Pension Funds Second Amendment Act, 2001, at 28 February 2002, at which date the fund was found to be in deficit. An investigation is currently under way to determine whether there was improper use of past surplus and whether this would be relevant in the case of a fund that is in deficit. This review, which will take place under the guidance of the fund’s actuary, is expected to be completed during 2004. The remaining 33% (2002: 40%) of the group’s total employees, who are not members of the abovementioned schemes, participate in other benefit plans, which consist of four defined contribution plans. All are subject to the Pension Funds Act, 1956. The total employer contributions to these funds amounted to R22,8 million (2002: R14,0 million). 3% of the group’s employees belong to defined benefit funds, with 2% belonging to the Engineering Industries Pension Fund, which is currently in surplus. The rules of this fund do not allow the group access to this surplus. Details relating to the group’s defined benefit fund, which is not a designated industrial scheme are as follows: DEFINED BENEFIT PLAN Under the scheme the employees are entitled to retirement benefits equal to their number of years’ service multiplied by 2%, multiplied by their final year’s salary on attainment of a retirement age of 63. No other post-retirement benefits are provided. Year ended 30 September 2003 Rm Year ended September 2002 Rm 27. RETIREMENT BENEFIT INFORMATION (continued) Amounts recognised in income in respect of that scheme are as follows: Current service cost Interest costs Expected return on plan assets 3,1 7,9 (7,5) 2,8 6,6 (5,8) 3,5 3,6 The charge for the year has been included in other expenses. Actual return on plan assets The amount included in the balance sheet arising from the group’s obligation in respect of defined benefit retirement plans is as follows: (8,0) 14,4 2003 Rm 2002 Rm Present value of funded obligations Unrecognised actuarial (losses)/gains Fair value of plan assets 72,9 (11,0) (59,6) 63,8 5,6 (67,9) Unfunded pension obligations 2,3 1,5 At the beginning of year Prior year provision released Amounts charged to income Contributions 1,5 – 3,5 (2,7) 7,1 (6,5) 3,6 (2,7) At the end of year 2,3 1,5 2003 % 2002 % Key assumptions used: Discount rate Inflation rate Expected return on plan assets Expected rate of salary increases Future pension increases 12 7 11 8,5 6,67 11 6 10 7,5 5,7 The next statutory valuation will be performed as at 28 February 2005. 2003 2002 Total Rm Reunert share Rm Total Rm Reunert share Rm 28. SUMMARISED FINANCIAL INFORMATION OF PRINCIPAL ASSOCIATE COMPANIES INCOME STATEMENT Revenue Profit after tax Dividends BALANCE SHEET Interest of shareholders Long-term liabilities Property, plant and equipment Deferred taxation asset Net current assets 3 598,1 (206,6) – (10,3) 74,3 145,5 92,8 (174,3) 1 438,6 (82,6) – – 29,7 58,2 37,1 (69,7) 5 526,7 236,1 271,0 300,6 95,7 260,2 45,7 96,3 2 115,7 70,9 108,4 118,5 38,4 103,4 18,3 37,4 29. RELATED PARTY TRANSACTIONS The following related party transactions took place during the year: TRADING WITH SHAREHOLDERS Counterparty Relationship Sales Rm Purchases Rm Accounts payable Rm Accounts receivable Rm Royalties Rm Pirelli Cable Holding NV (Pirelli) BICC CAFCA Limited (Cafca) EADS Deutschland GmbH (EADS) Pirelli is joint owner of Afcab Holdings which owns African Cables African Cables owns 73% of Cafca EADS owns 33% of Reutech Radar Systems – 2,6 14,2 7,0 3,8 – (0,3) – – – 1,5 0,2 2,6 – – All prices are determined on an arm’s length basis. Counterparty Relationship Interest earned by Reunert Rm Interest paid by Reunert Rm Balance at year-end Rm 29. RELATED PARTY TRANSACTIONS (continued) FINANCING TRANSACTIONS WITH ASSOCIATE COMPANIES Siemens Telecommunications (Pty) Limited (Siemens) Siemens are equity accounted in the group results. Reunert owns 40,0% of Siemens 6,0 – – Siemens are equity accounted in the group results. Siemens borrows money from RFCL with the full knowledge and approval of all its shareholders. The interest rates used are the daily money market call rates. 30. FINANCIAL INSTRUMENTS RISK MANAGEMENT The group is exposed to various risks at all times. These risks are managed in the following ways: TREASURY RISK All of the group’s short-term borrowings or excess cash are directed through Reunert Finance Company Limited (RFCL), a wholly-owned subsidiary of Reunert Limited, which is run from the head office of the group. The overnight call market is mainly used for short term borrowings, with three to six-month borrowings used when deemed appropriate. Excess cash is deposited with RC&C Finance Company (Pty) Limited (RCCF) or with reputable financial institutions. Derivative contracts are entered into to hedge interest rate risk only in RCCF. Foreign currency commitments and receivables are covered by forward exchange contracts when there is a risk that the rand will weaken or revalue respectively. Derivative contracts, other than forward exchange contracts, are not entered into to hedge currency risks. The contract amounts of forward exchange contracts outstanding at the balance sheet date were: 2003 Rm 2002 Rm To pay To receive 355,5 – 527,2 – 30. FINANCIAL INSTRUMENTS (continued) Forward exchange contracts at 30 September 2003 and 2002 are summarised below: Foreign amount m Fair value Rm Contract value Rm Gains/ (losses) Rm 2003 Imports – trade USD Euro GBP Yen CHF SEK 19,4 16,9 0,4 646,0 0,7 0,2 137,5 139,6 4,7 41,4 0,6 0,9 158,1 146,8 4,9 44,2 0,6 0,9 (20,6) (7,2) (0,2) (2,8) – – Total 324,7 355,5 (30,8) Rm Accounts receivable in foreign currencies Of which covered by forward exchange contracts Accounts payable in foreign currencies Of which covered by forward exchange contracts 10,9 – 330,2 324,7 Foreign amount m Fair value Rm Contract value Rm Gains/ (losses) Rm 2002 Imports – trade USD Euro GBP Yen CHF 28,9 9,7 0,6 1 073,9 2,4 312,7 102,8 10,1 95,7 4,4 315,3 102,3 9,9 95,4 4,3 (2,6) 0,5 0,2 0,3 0,1 Total 525,7 527,2 (1,5) Rm Accounts receivable in foreign currencies Of which covered by forward exchange contracts Accounts payable in foreign currencies Of which covered by forward exchange contracts 23,0 – 532,2 525,7 30. FINANCIAL INSTRUMENTS (continued) CREDIT RISK Credit risk relates to the group’s accounts receivable and RCCF accounts receivable. The risk relating to the group’s accounts receivable is managed by the performance of ongoing credit evaluations of the financial condition of all customers. The granting of credit is controlled by application and credit vetting procedures which are reviewed and updated on an ongoing basis. Where considered necessary, exports are covered by letters of credit. Use is also made of credit insurance where it is considered appropriate. Where the recoverability of accounts receivable is considered doubtful, these are provided for. For RCCF, the financial assets which potentially subject the company to concentrations of credit risk consist principally of discounted deals and accounts receivable. Credit risk with respect to accounts receivables and discounted deals is limited due to the large number of corporate customers comprising the company’s customer base and their distribution across different geographical areas. Accounts receivables are presented net of all the allowances for doubtful receivables. The company also maintains a loan guarantee contingency provision as a general provision against discounted deals and accounts receivable. Details of total cash and cash equivalents, investments, accounts receivable and derivative instruments (net market value of these contracts), by geographic region exposed to: 2003 % 2002 % South Africa Rest of Africa Europe Asia USA 97,6 0,6 1,2 0,2 0,4 96,3 0,5 1,4 0,9 0,9 Total 100,0 100,0 30. FINANCIAL INSTRUMENTS (continued) INTEREST RATE RISK: RC&C FINANCE COMPANY LIMITED Most of the company’s debtors are subject to variable rates. The company borrows at variable interest rates therefore the margin built into the various loans and debtors tend to remain constant as the market moves up and down. Most of the company’s discounted deals are sold on a fixed interest rate basis. The company’s policy is to lock in at least 75% of such exposure by way of taking out fixed loans or by using interest rate swaps to achieve this objective. Contracts with open portions of R571 million (2002: R497 million) for periods up until 4 April 2007 (2002: 21 August 2006) have been entered into. The average fixed rate of the in-the-market swap is 10,98% (2002: 12,70%) and 10,15% (2002: 13,90%) for the out-of-the-market swaps. The group’s exposure to interest rate risk and the effective interest rates on financial instruments at balance sheet date are: 2003 Weighted average effective interest rate % Floating interest rate Rm Fixed interest rate Rm Non interest bearing Rm Total Rm ASSETS Cash and cash equivalents Accounts receivable (non-RCCF) Accounts receivable (RCCF) Other investments 9,3 14,5 8,6 484,8 257,0 16,9 960,0 802,4 3,0 3,9 484,8 802,4 1 220,0 20,8 Total financial assets 758,7 960,0 809,3 2 528,0 LIABILITIES Trade and other payables Bank overdrafts RCCF Borrowings 11,7 12,2 (3,4) (900,7) (1 030,4) (1 030,4) (3,4) (900,7) TOTAL FINANCIAL LIABILITIES (904,1) (1 030,4) (1 934,5) NET FINANCIAL ASSETS/(LIABILITIES) (145,4) 960,0 (221,1) 593,5 RCCF utilises fixed interest loans or interest rate swaps to fix at least 75% of its fixed interest discounted debtors book. Details of the interest rate swaps are: Contracts expiring in: <1 year Rm 1 – 5 years Rm Total Rm R million Average fixed interest rate (%) (206,0) 11,0 (365,0) 11,0 (571,0) 11,0 2002 Weighted average effective interest rate % Floating interest rate Rm Fixed interest rate Rm Non interest bearing Rm Total Rm ASSETS Cash and cash equivalents Accounts receivable (non-RCCF) Accounts receivable (RCCF) Other investments 11,5 18,0 9,1 283,5 171,1 14,3 774,9 670,7 7,9 6,2 283,5 670,7 953,9 20,5 TOTAL FINANCIAL ASSETS 468,9 774,9 684,8 1 928,6 LIABILITIES Trade and other payables Bank overdrafts RCCF borrowings 13,2 13,7 (2,8) (838,0) (969,9) (969,9) (2,8) (838,0) TOTAL FINANCIAL LIABILITIES (840,8) (969,9) (1 810,7) NET FINANCIAL ASSETS/(LIABILITIES) (371,9) 774,9 (285,1) 117,9 MATURITY PROFILE OF FINANCIAL INSTRUMENTS The maturity profile of financial instruments at 30 September 2003 are summarised below:   2003 < 1 year Rm 1 – 5 years Rm > 5 years Rm Total Rm Cash and cash equivalents Accounts receivable (non-RCCF) Accounts receivable (RCCF) Other financial assets Trade and other payables Bank overdrafts RCCF borrowings Derivative instruments     Recognised transactions     FECs     – Buy     Interest rate swaps     Other derivative instruments 484,8 802,4 405,0 11,9 (1 030,4) (3,4) (900,7) (30,8) (14,9) (3,8) 663,0 5,6 152,0 3,3 484,8 802,4 1 220,0 20,8 (1 030,4) (3,4) (900,7) (30,8) (14,9) (3,8) The maturity profile of financial instruments at 30 September 2002 are summarised below:   2002 < 1 year Rm 1 – 5 years Rm > 5 years Rm Total Rm Cash and cash equivalents Accounts receivable (non-RCCF) Accounts receivable (RCCF) Other financial assets Trade and other payables Bank overdrafts RCCF borrowings 283,5 670,7 306,6 14,3 (969,9) (2,8) (838,0) 636,9 10,4 6,2 283,5 670,7 953,9 20,5 (969,9) (2,8) (838,0) LIQUIDITY RISK Adequate reserves, banking facilities and reserve borrowing facilities are maintained by continuously monitoring forecast and actual cash flows. GROUP 2003 2002 Maximum permissible Rm Actual Rm Maximum permissible Rm Actual Rm 30. FINANCIAL INSTRUMENTS (continued) BORROWING CAPACITY THE BORROWINGS OF THE GROUP ARE LIMITED IN TERMS OF THE COMPANY’S ARTICLES OF ASSOCIATION Long-term liabilities Short-term loans and bank overdrafts RC&C Finance Company debtors guarantee given by Reunert Limited Contingent liabilities (see note 26) – 3,4 60,4 3,7 – 2,8 31,8 0,3 1 142,2 67,5 1 029,8 34,9 2003 2003 Carrying amount Rm Fair value Rm Carrying amount Rm Fair value Rm FAIR VALUE OF FINANCIAL INSTRUMENTS Cash and cash equivalents Accounts receivable RCCF accounts receivable Other investments Accounts payable RCCF short-term borrowings Derivative instruments Forward exchange contracts Interest rate swaps* Other 484,8 802,4 1 220,0 20,8 (1 030,4) (900,7) (30,8) (14,9) (3,8) 484,8 802,4 1 220,0 19,4 (1 030,4) (900,7) (30,8) (14,9) (3,8) 280,7 670,7 953,9 20,5 (969,9) (838,0) 280,7 670,7 953,9 19,2 (969,9) (838,0) (1,5) 13,5 * The market value of in-the-market swap is R14,9 million (2002: R13,7 million) and the market value of out-of the market swaps is R– (2002: R0,2 million). The following methods and assumptions were used to determine fair values: CASH AND CASH EQUIVALENTS The carrying amounts approximate fair value because of the short-term nature of these instruments. ACCOUNTS RECEIVABLE The carrying amounts of rand denominated receivables approximate fair value because of the short-term nature of these instruments. The carrying amounts of foreign denominated receivables have been converted at the rate of exchange ruling on the last day of the financial year. These amounts approximate fair value because of the short-term nature of these instruments. The carrying amount of the RCCF long-term accounts receivable and discounted deals approximate fair value because the rates inherent in the deals are market related, and are the same rates used to discount back to present values. OTHER INVESTMENTS The fair value of the interest-bearing loans has been determined by discounting the future cash flows of these loans back to present values using current market related interest rates. The remainder of the investments are non-interest bearing. The fair value of these loans and minor unlisted share investments can not be determined as the loans have no repayment terms, in which case it is assumed that the carrying value approximate fair value. ACCOUNTS PAYABLE The carrying amounts of accounts payable denominated in rand approximate fair value because of the short-term nature of these instruments. The carrying value of accounts payable denominated in foreign currencies have been converted at the rate of exchange ruling on the last day of the financial year. These amounts approximate fair value because of the short-term nature of these instruments. The RCCF short-term borrowings approximate fair value because of their short-term nature. The carrying value of the long-term RCCF borrowings approximate fair value because the interest rates inherent in the deals are at market related rates and these rates are used to discount the borrowings back to present values. FORWARD EXCHANGE CONTRACTS Fair value represents the foreign value of the exchange contracts converted at the forward rate that could have been obtained at the year-end on a similar contract to the same maturity date. INTEREST RATE SWAPS Fair value represents the net market value of equivalent instruments at balance sheet date. 31. UNCONSOLIDATED SUBSIDIARY BICC CAFCA LIMITED (CAFCA) The financial statements of Cafca, a company incorporated in Zimbabwe have not been consolidated in the group financial statements as the directors consider this prudent in the light of the fact that there are restrictions on the remittability of funds from Zimbabwe. % Effective holding (held via African Cables Limited) Attributable Reunert group holding 72,4 36,2 R million Shares at cost Less: Amount written off Carrying value of investment 7,3 (7,3) – The abridged hyperinflationary accounted income statement for the year to June 2003 and the balance sheet as at 30 June 2003 are reflected below: 2003 Z$m 2002* Z$m INCOME STATEMENT Revenue 23 957 19 342 Profit before interest and tax Interest paid 6 170 4 137 1 051 (491) Profit before tax Income tax expense 2 033 1 132 1 542 721 Net profit 901 821 BALANCE SHEET ASSETS Non-current assets Property, plant and equipment 4 460 4 861 4 460 4 861 Current assets Inventory Accounts receivable 2 199 5 181 2 221 7 612 7 380 9 833 TOTAL ASSETS 11 840 14 694 EQUITY AND LIABILITIES Share capital and reserves Non-current liabilities Deferred tax liabilities 7 182 1 182 6 270 1 633 1 182 1 633 Current liabilities Payables Net debt 3 332 144 4 592 2 199 3 476 6 791 TOTAL EQUITY AND LIABILITIES 11 840 14 694 The official exchange rate at 30 June 2003 was R1: Z$115 (30 June 2002: R1: Z$5,47) The approximate parallel rate at 30 June 2003 was R1: Z$865 (30 June 2002: R1: Z$73) The Zimbabwean inflation rate used to inflate the 2002 information to compare with 2003 is 365%. * The 2002 information has been restated in terms of AC124 on Financial Reporting in Hyperinflationary Economies. 32. ACQUISITION OF SUBSIDIARIES AND OTHER BUSINESSES In January 2003 the group acquired Marconi Plc’s 51% shareholding in ATC (Pty) Limited at a cost of R43,4 million. This brought the group’s total effective shareholding in ATC to 89,5%. In July 2003 the group acquired the remaining 10,5% of the ATC shares previously held by Pirelli, by Reutech Engineering Services (Pty) Limited (RES), a wholly-owned subsidiary of Reunert Limited, purchasing African Cables’ (a consolidated subsidiary effectively held 50% by Reunert, with Pirelli being the other shareholder) 21% stake in ATC for R19,3 million. At this point RES owned 100% of ATC. In August 2003 Reunert sold to Kgorong Investment Holdings (Pty) Limited, a black-owned group, an effective 25,1% of ATC for R22,8 million. This reduced the Reunert group’s holding in ATC to 74,9%. Negative goodwill of R8,4 million arose on these transactions. The group views all of these as one transaction, necessary to allow Kgorong to acquire its effective investment in 25,1% of ATC. In November 2002 the group acquired the remaining 50% of the share capital of IQ Works (Pty) Limited (now called Nashua Connect) not previously held by it from the IQ Business Group for R4,4 million, including goodwill of R1,9 million. In February 2003 the group acquired the assets of the Cape Town Panasonic franchise, including estimated goodwill of R12,9 million for R19,7 million. ATC Rm Nashua Connect Rm Cape Town Panasonic franchise Rm Total Rm NET ASSETS ACQUIRED Property, plant and equipment Inventory Accounts receivable Amounts owing by the South African Revenue Services Payables and provisions Net cash/(overdraft) Long-term borrowings Loan taken over by purchaser Attributable share of net assets at date of acquisition (Negative goodwill)/goodwill on acquisition 67,3 38,4 45,6 8,0 (31,7) 4,6 (26,4) (21,8) (55,0) (8,4) 1,8 7,3 (2,8) (4,6) 0,8 1,9 3,2 3,6 12,9 72,3 42,0 52,9 8,0 (34,5) – (26,4) (21,8) (54,2) 6,4 4,4 19,7 44,7 < Prev Next > © Copyright - Reunert - 2003