Good morning, ladies and gentlemen, and welcome to Reunert's interim results presentation for the period ended 31 March 2025. I'm Alan Dickson, the Group Chief Executive, and joining me today for the first time is Mark Catheron, who was appointed as Reunert's Group CFO with effect from 1 April. Mark replaces Nick Thomson, who reaches retirement age this year and will retire on 30 September. Nick remains a director of Reunert and is actively working with Mark to ensure a smooth and efficient transition. We welcome Mark and look forward to his contribution, and extend a sincere thanks to Nick for his significant contribution to Reunert through his almost 10 years as Group CFO. Mark and I will be presenting our results today via this pre-recorded webcast, with a live Q&A session immediately after the webcast, where we will be taking your questions.
In the prospect statement, which we presented as part of the 2024 results in November last year, we predicted a challenging first half for Reunert. This has turned out to be true and, in hindsight, has actually been somewhat tougher than we had envisaged in November when we gave that statement. The South African macroeconomic conditions we were facing at the time continued throughout the first half and became even more challenging as the global uncertainty increased as we entered the second quarter of the financial year. The result of this local weakness has been that the key local drivers of growth for Reunert, being GDP and business confidence for our ICT and renewable energy companies, and GDFI for our infrastructure-facing businesses, have all either remained at multi-year low levels or weakened during the period under review.
On the back of these tough local conditions, our electrical engineering and ICT segments delivered effectively flat period-on-period revenue and operating profit performances, while the solar energy business had a good growth in profitability, all of which we believe are solid outcomes in this environment. The applied electronics segment's performance, however, lagged the prior year and contributed to a decrease in the group's results. Overall, the group's performance can be ascribed to three clearly defined factors: two that influence the segment performances and one that impacts only the group's results. The first and most significant impact was the deferment of a large fuse order in the applied electronics defence cluster into the second half of the year. The delivery was originally expected in the first half but will now occur in the second half, where the full revenue and operating profit will be booked.
The second key factor has been the continued very weak conditions in the battery storage market. Our view is that load shedding is likely to remain at current levels for the foreseeable future, and that the commoditisation, oversupply, and margin degradation that has occurred in the traditional residential and small commercial battery market is unlikely to materially improve. In addition, the lack of local preference for large-scale South African storage manufacturers, the entrance of large international OEMs directly into our customer space, and the slow demand makes it unlikely for the company to be able to sustain its early-mover competitive advantage in this market. For these reasons, the group has sold BlueNova Energy, and the business is held for sale and has been accounted for as a discontinued operation in these interim financial results. The impact of this discontinued operation will be addressed by Mark in his presentation.
Finally, in the first half of last financial year, the group received a non-recurring ZAR 78 million settlement payment for COVID-19 insurance, which was included in the prior year's operating profit, while the final payment of ZAR 9 million was included in this period, leading to a net ZAR 69 million difference between the two periods for this non-recurring item. These three factors have led to the half year's continuing operations revenue decreasing by 5% to ZAR 6.2 billion, while profit after tax decreased by 19% to ZAR 401 million. Whilst we've had an extremely challenging six months, which in our view has probably been the toughest since the COVID-19 pandemic back in 2020, the group has been both decisive in taking the required actions and remains resilient to deliver a much improved second half of the financial year and beyond.
Specifically, the battery storage company sale has been concluded and is only subject to conditions precedent typical for a disposal of this nature, of which the most substantial is the Competition Commission approval, which we expect to be received by the end of July, thereby fully concluding this matter. The group continues its prudent capital allocation and cost control to preserve cash and ensure that the deployment of capital is aligned to an actual increase in economic activity. Importantly, the defence cluster's growth projections continue to strengthen, as our international strategic positioning improved and the order book has increased.
Finally, the cash generation capacity of the group remains fully intact, and the strong, largely ungeared balance sheet enables the execution of both our operational and strategic imperatives and for Reunert to continue to deliver returns to shareholders through dividends, which we have held constant at the prior year's amount at the half year of ZAR 90 per share, which represents a rolling 12-month dividend yield of 6%. I'll now hand over to Mark, who will take us through the detailed financial results.
Thanks, Alan. Good morning to everyone on the webcast. Firstly, I would like to say that it has been an honor to officially join the Reunert family as Group CFO on 1 April this year. I've been warmly welcomed by Alan, my fellow Group Executive, and the Reunert board. I would also like to take this opportunity to thank my predecessor, Nick Thomson, for investing the time in an efficient handover process. It's wonderful joining one of South Africa's trailblazer companies that has stood the test of time and demonstrated resilience through a dynamically changing global macro environment. To provide some context to our financial performance, I would like to talk through some of the key performance drivers, starting with GDP.
The most recent forecast from the World Economic Forum has revised global GDP downwards from 3.3% to 2.8%, and consequently, South Africa has been revised downwards from 1.5% to 1%. Moreover, the gross domestic fixed investment (GDFI) in South Africa remains below 15%, while some emerging markets like India and Indonesia are closer to 30%. GDFI demonstrates the extent governments are investing in infrastructure and thereby creating the productive assets necessary to support the growth of their fiscus. Significant drivers of cost for Reunert include commodity prices like copper and aluminium that are used in the manufacturing process for power cables. Copper has remained at ZAR 182,200 per tonne, which is 7% higher than the same period last year, while aluminium has increased by 9% to ZAR 60,300 per tonne. The global and local political or geopolitical landscape have added their own flavor to the already fragile global macroeconomic environment.
Surprisingly, through all of this, the South African Rand strengthened on average from the reporting period to ZAR 18.19 from ZAR 18.80 against the US dollar, oil declined to just north of $60 per barrel, and South African inflation dropped to 2.7% at the end of March 2025. How did all of this impact the group's results? Firstly, before I go into the results, I would like to say that the results presented in these slides are summarised extracts from the unaudited and unreviewed condensed consolidated interim results, which are available in full on Reunert's website under the Investor Centre tab. As per Alan's presentation, I will be focusing on continuing operations for the results slides. Let's go on into the statement of profit and loss, and let's focus on revenue. The overall revenue declined by 5% for the period. How did the segments contribute to this decline?
Pleasingly, in a tough trading environment, the electrical engineering segment grew by 2%. There was growth in the circuit breaker volumes, particularly outside South Africa. The growth was, however, curtailed by a slow start to the promised infrastructure investment in South Africa, which had a negative impact on the power cable volumes. The ICT segment, although constrained by low GDP, CPI, and business confidence, revenue increased marginally. The improvements at the ports ensured that Nashua's revenue was not negatively impacted as it was in the prior year. The applied electronics segment, on the other hand, reflected a significant revenue decline, and that was primarily due to the deferment of a key fuse contract to the second half of this year.
Despite the strengthened Rand against the US dollar, the current exchange rate continues to be positive for both revenue and margins as a substantial portion of this segment's products are exported. Going forward to the next slide, focusing on operating profit. The group's lower revenue impacted the overall operating profit from continuing operations, which declined by 16% from ZAR 697 million to ZAR 585 million. The key contributors to the lower profitability were the electrical engineering segment, where operating profit declined by 6%, and the applied electronics segment, where operating profit declined by 58%. The decline in operating profit was offset by effective cost management. The increase in operating costs was more or less in line with inflation at about 3%. When analysing operating profit, we must bear in mind that in the prior year we received a non-recurring in nature insurance receipt in respect of the COVID-19 business interruption claim.
The net impact of this claim was ZAR 69 million. The reversal of a portion of the impairment made in previous years to certain production plants at Zamefa, our Zambian operation. Zamefa has remained as a key cash generating unit to operate sustainably in the current period. Quince's ECL provision reduced in line with the lower loan book. If we go on to the next slide, focusing on profit before tax, good cash management has kept finance costs in line with the prior reporting period. Overall finance costs were impacted by the lower interest rates as interest rates were lowered by National Treasury in the financial period. The group's effective tax rate has more or less remained consistent with prior years at or about 27%.
If we go on to the next slide, looking at HEPS and EPS, when analysing the headline earnings per share and earnings per share performance, HEPS and EPS from continuing operations declined by 20% and 18% respectively. The once off COVID-19 insurance proceeds referred to previously accounted for ZAR 32 per share of the ZAR 53 per share decrease. That is more than a 50% impact, with the majority of the remainder being attributable to the reduction in profit resulting from the deferment of the fuse order. We have included a waterfall graph analysing the total group HEPS. Let's decipher the discontinued operation BlueNova. Firstly, the net loss recorded from the asset held for sale and discontinued operation for the period was ZAR 112 million net of tax. The group owned 51% of the share capital of BlueNova Energy, and the remaining 49% was held by a minority shareholder.
The sale process commenced prior to the reporting date of 31 March 2025, and all criteria were met to classify the asset, number one, as an asset held for sale, number two, as a discontinued operation in terms of IFRS 5. We have presented a full income statement of the discontinued operation, and as a result, the group's consolidated accounts have been adjusted to reflect continuing operations only for the current and prior financial years. The sale of shares and cession of loan agreement were signed with the purchaser on 15 May, with the main condition precedent being a merger approved by the competition authorities. What is remaining for the second half in respect of BlueNova? Firstly, on conclusion of the disposal of BlueNova, the group will account for any further trading losses up to the effective date of sale.
It will de-recognize the final carrying amount of the non-controlling interest. The full impact of the disposal will be presented in the year-end results for 30 September 2025. The overall impact in respect of HEPS of the BlueNova disposal on the group's performance for this period is ZAR 11 per share. Now, shifting our attention to the statement of financial position, the group has continued to maintain a healthy balance sheet that has largely remained in line when compared to the closing balance sheet of September 2024. Some key movements that can be highlighted are: number one, assets and liabilities held for sale refers to the BlueNova disposal that was ZAR 40 million. The decline in borrowings relates to the net settlement of external debt of about ZAR 300 million. The movement in cash and cash equivalents from ZAR 1.8 billion to ZAR 1.1 billion will be discussed in the cash flow slide.
The put option liability that has moved from ZAR 26 million to ZAR 115 million relates to a put in favour of a minority BE shareholder resulting from the merger of Plus One X and IQ Business effective from 1 October 2024. How did we manage our cash through this period? The cash generated through the period continues to support the operational and strategic objectives of the group, as well as the dividends declared, despite being lower than the prior year. Overall, cash and cash equivalents has decreased by ZAR 753 million. Analyzing the ZAR 753 million, ZAR 442 million was utilised to settle the final dividend from 2024, with the remaining ZAR 311 million used for business operations. The ZAR 311 million comprises working capital of ZAR 126 million. The additional working capital was used to build inventory in the defence cluster in preparation of the contract delivery in the second half year.
ZAR 548 million was used to settle the Quince medium term facility from external funders, and then we offset the settlement with ZAR 250 million from the group's revolving credit facility. There were also settlements relating to the 2024 conditional share plan of ZAR 149 million. Capital expenditure: the group invested ZAR 103 million in CapEx, of which ZAR 53 million related to expansionary CapEx and the balance of ZAR 50 million to sustenance or replacement CapEx. The group has continued to invest in its asset base in line with the strategic objectives that includes investments in: number one, the business communications cluster's last mile broadband connectivity infrastructure network, cybersecurity and ERP systems, and then the development of new technologies in the defence cluster to support growth. The CapEx spend is well controlled and remains below the depreciation and amortization charges.
In conclusion, the group's strong balance sheet, the significant banking facilities, and the continued positive cash generation capacity, we believe that Reunert is well positioned to execute on its strategy and to continue generating positive cash returns for shareholders. With that, I would like to hand back to Alan to take us through the remainder of the presentation. Alan? Thanks, Mark. Prior to going into the segment results, it's worthwhile to re-articulate the environment that Reunert finds itself in and the relevance of both our strategic and operational positioning. This should provide shareholders with confidence in Reunert's expectations of a much improved second half of 2025 and that the long-term growth trajectory remains intact. Reunert currently faces two key challenges.
Firstly, the weak local conditions where, despite much optimism, the Government of National Unity has struggled to implement the key structural changes at the pace that is required to improve the macroeconomic growth levels. Secondly, the increased global uncertainty caused by the increase in tariffs, primarily initiated by the U.S.A., and the negative impact this is likely to have on decreasing global growth and the anticipated knock-on effects of higher inflation and interest rates. Our view is that South Africa's growth will improve off the present lows, as there is much evidence of progress on implementing the legislative and regulatory environment required to accelerate infrastructure projects.
Despite it being frustratingly slower than had been committed to and what we had expected, we believe that the participation of the private sector in these projects will occur and that a notable increase in infrastructure projects in the transmission grid, ports, rail, and water will soon occur. Additionally, there already appears to be some reduction in global volatility, although we do not expect a full resumption to pre-Trump tariff growth conditions. Reunert, both historically and currently, is resilient in such challenging and volatile environments and has a track record of generating growth and consistent cash generation through these cycles. Reunert's diversified portfolio of high-quality assets across electrical engineering, ICT, defence, and renewable energy provides consistent growth through the business cycle. The group's prudent capital allocation and strong cash generation has resulted in a very strong balance sheet today.
The group has the capacity and flexibility to invest in our companies to achieve both their strategic and operational objectives whilst delivering sustainable returns to shareholders via steady dividends at a healthy dividend yield. Through this results period, we have continued to optimize our portfolio, firstly through the successful merge of Plus One X and IQ Business to create a leading South African digital integration company that will benefit strongly from digital investments both locally and internationally. Secondly, we have also concluded the sale of the battery storage company, which removes a drag on earnings and leaves our renewable energy assets well positioned for the growing solar energy and energy trading markets.
Very importantly, our defence revenues are largely unaffected by the global trade instability, as our customers in our key targeted geographies of Europe, the Middle East, and Southeast Asia have increased their actions to ensure their defence self-reliance, which enhances our position and has further increased demand. The group has focused its key strategic growth initiatives on renewable energy, digital integration, international defence, and infrastructure investment in South Africa. All four of these initiatives have predicted growth trajectories that greatly exceed South Africa's general macroeconomic outlook and provide a strong growth potential for the group's earnings. Finally, Reunert's values-driven leadership, well-established governance and risk management processes, and management teams with proven execution credentials create confidence in the resilience of the group, the strategic growth trajectory that Reunert is following, and the expectation of much improved results going forward.
I'll now review the segment performances and provide some insight into our expectations for the second half of our financial year. In the first half, our electrical engineering segment delivered a solid performance given the contraction in local electrical infrastructure investment, as revenue increased by 2% to ZAR 3.4 billion and segment operating profit decreased by 6% to ZAR 229 million. The weak local market was augmented by strong non-South African revenues, which grew pleasingly at both the circuit breaker and the power cable businesses. In the rest of Africa business, both the circuit breakers and the power cables businesses performed well. Improved circuit breaker volumes were coupled with higher mining activity in Central Africa, which led to increased infrastructure spend, which was combined with an improved product mix at the Zambian cable factory.
Internationally, the healthy circuit breaker order book at the start of the year was executed well, leading to a good export performance specifically into the US. These good non-South African performances led to an improved period-on-period financial performance at both the circuit breaker and the Zambian power cable companies. They were not, however, sufficient to offset the decreased volume at the South African cable company, where the municipal market specifically led to lower orders and to fewer high-voltage contracts being placed. Infrastructure projects in South Africa are growing many green shoots, and we can see the progress being made across the renewable energy, water, rail, ports, and the transmission grid projects. These projects require significant electrical investment, and we remain strongly of the view that this is a matter of when and not if these will take place.
Our local cable company is well positioned for the significant investment associated with the transmission grid expansion, and the first orders have already been received, albeit for moderate volumes. The first bid for a public-private partnership transmission grid project will close in quarter four of this year and is another important step in unlocking the full investment expected for the new transmission grid. Our international circuit breaker order book has remained strong, although the tariffs into the U.S. are currently impacting margins, and management is in the process of navigating this complexity with key customers. It is, however, expected to be a tough second six months for the segment, as the investment into the local infrastructure in South Africa is expected to remain similar to the first half, and the U.S. tariffs pose export risks to circuit breaker volumes and margins.
This environment is to be compared against the very strong electrical engineering segment performance in the second half of last year, and the segment is more likely to deliver a result in line with the 2023 financial year. The ICT segment delivered a solid set of results in the first half of the year, with revenue increasing slightly to ZAR 1.9 billion, while segment operating profit increased to ZAR 318 million. The merge of Plus One X and IQ Business in the solutions and systems integration cluster, which was launched on 1 October, has progressed well, as the teams have integrated successfully, the leadership team being well settled, and the organization fully motivated. The identified synergies of the merge have improved the market access, and a wider set of offerings are now being presented to our clients.
The decrease in South African business confidence has, however, lengthened sales cycles and delayed decision-making, and resulted in limited growth for this period for the solutions and systems integration cluster. In the total workspace provider cluster under the Nashua brand, they delivered a much improved financial performance in the period. The supply chain challenges of the prior year were not repeated, and the company had improved volumes both in large tenders and run rate volumes that were back to historic norms. Nashua's complementary products and services revenue also increased, leading to a pleasing all-round performance. The rental finance book commenced the financial year with a slightly lower loan and lease receivable book than the prior year, and this, coupled to the decrease in interest rates, reduced revenues.
Management's ongoing investment into credit control efficiencies and processes continued to yield improvements, and collections improved despite the challenging economy that many of the company's customers faced. The book remains appropriately provisioned for the economic environment that the rental finance company operates in. The business communications cluster delivered a solid period-on-period growth, as both the voice and the last mile broadband connectivity businesses performed well. At the voice business, minutes remained stable, and their complementary offerings grew strongly, while the last mile broadband connectivity business once again delivered double-digit growth in the first half. As we look forward to the second half of the year, the ICT segment's operating is also not expected to change materially, continuing some of the pressure on the sales cycle that we experienced in the first half.
All of the businesses are well positioned, though, and the solutions and systems integration cluster is expected to hold its market share position, while the remaining clusters of total workspace provision, rental finance, and business communications should all continue their first half performance trajectory and enable the segment to deliver an improved financial performance over the prior year. The applied electronics segment's reduction in both revenue and operating profit, as discussed, was predominantly due to the deferment of the fuse contract and resulted in revenue decreasing by 31% to ZAR 938 million and segment operating profit reducing by 58% to ZAR 78 million. Importantly, this fuse order will be delivered in the second half, and both the revenue and the operating profit associated with this order will flow into the second half financial numbers. The rest of the defence cluster performed well in the first half.
At the radar company, their multi-year strategic IP co-development project progressed well, and the company delivered a strong growth on the prior year. The Etion Create and Roy Tech Communications businesses maintained operational momentum and financial performances in the first half. The factories across the cluster remain full, with good capacity utilisation and cost recoveries. The strategic positioning of the cluster also strengthened. As discussed earlier, the cluster's strategic positioning has been enhanced because the U.S.A. actions have resulted in our key customers acting decisively to enhance their defence independence and self-reliance. This has resulted in the demand for our IP development and our product offerings to remain strong across all of our key markets. In addition, the strategic investment into the fuse factories expansion is complete, which enables increased volumes to be manufactured.
Importantly, the fuse company has the cluster's largest order book, which bodes well for multi-year financial performances. The strong strategic position of the cluster is reflected in the order book, which again grew in the first half to ZAR 2.8 billion, of which over 80% is for export markets. The defence cluster is expected to deliver a strong second half and full year financial performance. The order gap between forecasted revenue and the orders on hand is small, which largely places the success of the year in our own hands. Importantly, the required export permits and long lead items have been secured. In addition, the current foreign exchange rates are beneficial for the segment, and all the key contracts that will convert into revenue in the second half of the year have been hedged at rates that support the cluster's margins.
The longer-term expectation for this cluster continues to look healthy, and strong performances into subsequent financial years are anticipated. In the renewable energy cluster, the solar energy business had a good half. New build rates are not accelerating at the same rate as prior years, but efficient project execution and cost control led to improved margins and a higher period-on-period profit contribution. The strategic growth of our owned assets, or BOOs as we call them, continued and remains the primary focus of the business development efforts. The BOO build increased by 10% over the prior period, and now 90 megawatts of solar energy assets are under ownership, in construction, or near financial close. The EBITDA from these BOO plants continued to grow pleasingly and increased by 75% over the prior year.
The cluster's energy trading license was awarded to Apollo in late October, and a strong generator and customer pipeline of power purchase agreements, or PPAs, has been developed, with the orders being expected to be concluded before year-end. The solar energy and energy trading businesses are both well positioned for longer-term growth, although the solar energy business is likely to grow at lower annual growth rates than have been experienced over the past three years, given the higher base that they have now achieved. The C&I market vertical in which both businesses solely trade is robust and remains healthy, as electricity inflation, failing municipal infrastructure, and load curtailment all generate solid rationale for businesses to continue to invest into renewable energy assets.
Going forward, there will be a propensity for a greater portion of solar energy projects to come from off-site embedded generation, and this will continue to support both Terra Firma and Apollo's business cases. Despite the significant progress being made to increase private participation and unlock the major investments planned in rail, ports, water, and the transmission grid, Reunert now only expects the material increase in these infrastructure projects to materialize in next financial year. As such, the broad South African macroeconomic environment experienced in the first half of the 2025 financial year is expected to continue for the remainder of the year. In this environment, the electrical engineering segment is likely to continue to experience similar factory loadings as the first half before increased volumes are experienced later in the calendar year, and the segment is unlikely to repeat the very strong second half performance of last year.
The ICT segment is expected to deliver year-on-year financial growth, while the defence cluster specifically should have a strong performance and ensure a much improved year-on-year applied electronics segment performance. As a result of these segment performances, Reunert expects to deliver a significantly improved second half financial performance when compared to these interim results, and together with these strong profit results, should have free cash flows that are in line with our historic norms. Ladies and gentlemen, thank you for your interest and attention this morning. We'll now move into the live Q&A session.
Good morning, ladies and gentlemen, and thank you all for joining the interim results presentation for Reunert today. We appreciate your attention and trust you found the presentation useful. There are a number of questions that have come in.
I will read the question out, and then either myself or Mark will answer the question depending on who's best suited to answer it, with Mark dealing with most of the financial questions, and I'll deal with most of the remaining questions to it. The first question comes from Vire Krapiso from Prescient. He's requesting whether we could provide clarity on the transmission grid and infrastructure projects and the confidence that they would commence in 2026. It's a slightly long question, so I'm going to take just a minute or two to talk through it, and I'm going to start out with the power, which is power cables, which is in the transmission grid side, and talk around the position that that is now in and our confidence around 2026. I'll start, first of all, about the enabling environment that enables us to take place.
There has been significant legislative and regulatory improvements that have been made that entrench the requirement and enable the transmission grid to be rolled out. In my mind, those are largely completed. I think there is little more work that needs to be done in creating that legislative and regulatory environment. The second key point has been the separation of transmission from the rest of Eskom through the creation of the National Transmission Company of South Africa, NTCSA, which has been established, and that is the entity that will drive the transmission grid projects and the rollout of that, and that has been in place. In our mind, it has a good board, it has good management, and the systems that they have underneath it enable the projects to start. In our mind, in terms of those enabling things, those are all in place.
In terms of what is going to happen on the transmission grid, there are two legs to it. There is that that, call it Eskom or the NTCSA, will do, and there are those that public-private participation will take place, or the private will drive. I am going to talk to each of those independently. On the Eskom side, there are bids that have been issued or tenders that have been issued for all of the key components of the transmission line, whether that be the steel pylons, the cables that we manufacture, the substations, the transformers, and the like, have all been issued. In many cases, preferred suppliers have been identified and named in the public domain by the NTCSA. Those are largely complete. Our cable bids have been issued, and we have got some contracts already in place for that.
As I shared in the presentation, first orders have been received, although of a relatively small quantum relative to what we expect over the fullness of time. In our mind, it is purely about the capacity of Eskom and how much they're able to rollout, and they will rollout within that framework that I have just described. Therefore, from a confidence point of view, we have high confidence that we will continue to get orders for those power lines. The question is, at what rate do they come, and when do they ramp up to kind of full capacity? On the public-private participation side, that is more complex because these are not projects that have been done before, and the mechanisms around it will take some time to finalize. Those projects I expect to be slightly slower than the ones rolled out by Eskom.
Importantly, the first PPP power line is indicated that it will be issued for bid later this year, in the next three to six months. That will be the pilot project for this, and that will underpin what rolls on the PPP after that. That then will accelerate that second leg of private participation in the grids. In the power domain, our view is we have high expectation that there will be orders received in 2026 that we will manufacture. The only question in my mind is how big those orders will be. If you look out over the medium term, all that happens is that those volumes get higher over the time, and we have high confidence that that will play out.
The second infrastructure project side, which really in our world, which are high energy consuming projects, are the ports, the rail, and water. We have seen significant improvement, particularly in the ports around private projects that have been issued or elements that have been issued to that in several of the ports, and a clear indication that there will be more of those. We can see the movement in rail, and we can see the movement in water as well. Just yesterday or earlier this week, we had Reunert taking over one of the municipal water environments, and we think that would be a key trigger for the upgrades that will take place in that. Our view is that across all of those areas, we will see increased activity. We will see increased infrastructure investment into those areas.
All of those areas need power, and we think that will be a build-up from where we are now. Our view is that 2026 will be a better year than 2025, and our only question is, how fast does that ramp up, and how big does that become? The second question relates to from David Fraser. It's got two questions one after the other, so I'll read both of them out from Peregrine Capital and then answer them. The first of those relates to the performance of the IQ Group and whether it has met our pre-acquisition expectations, and do we have further acquisitions as one of our core objectives? The IQ Group has progressed very well and in line with our hurdle rates that we'd set up for the investment, so it is in line with those.
The growth is slightly behind what we would have liked to have had in our buyers' expectations for that, but that would have been based on a slightly different macroeconomic expectation at the time that we made the acquisition. That fact that it's not growing quite as fast as we would have aspired for it to be is not related to a performance issue at all. It's merely related to the macroeconomic environment in South Africa, which is somewhat lower and more challenging than it was a couple of years ago when the acquisition was made. Importantly, the merge between IQ Business and Plus One X has been successful. The leadership are well entrenched and completely stable. The organization is really well motivated and is performing very nicely in the environment that they are faced with at the moment. We are certainly happy with the acquisition.
We're very pleased with the progress that they've made so far, and we believe they are well positioned. As the economy picks up, as business confidence gets a little bit better, they will, and we are very confident they will deliver the full aspirations that we have for the acquisition. David's second question related to the U.S. tariffs that we made mention of on the CVI business, our circuit breaker business. Again, I'm just going to expand a little bit on what the dynamic around that is. Pre the tariffs coming in, we exported our circuit breakers duty-free under AGOA. We're currently facing a 10% import duty on those circuit breakers that we export from South Africa to America.
Clearly, the risk is that in July, when the review on the tariffs takes place, that it goes back to the 30% that was originally in place for a short period of time when that was first issued. There is a dynamic around the export. We have a 100% owned subsidiary in America. We export to that subsidiary, and that subsidiary then sells to our American clients. The duties are applicable on the sales that we make from South Africa to our subsidiary. Sales made internal from that subsidiary onwards are not covered by the duty. The situation today is on those sales that we make from South Africa to America, we are incurring a 10% duty, and that has a negative margin impact on those exports.
In terms of short-term actions, we are engaging with our customers to pass on those costs currently, and we also have launched a set of cost mitigation actions on our own side to drive our own costs down to manage as much of that 10% impact as possible. What's important to note at this stage is that it had no impact on value. We are continuing to sell at normal volumes into America, and certainly over the short period of time, I do not think that will have much of an impact. It will only be a margin impact that we may deal with. In terms of our ultimate concern, if we look then out past more medium term, the concern is that the duties go up to 30%.
It would be very hard for us to manage a 30% duty, and that would have an impact both on volume and margin for us. We are also a little bit concerned that if the talk around tariffs continues and global volatility continues, it may have an impact on volume, although we have not seen that just yet. The next question comes from Rowan Geller from Kronax Research. He asks a question around the demand being seen from municipalities for high and medium voltage cables. Are they liquid enough to do the necessary maintenance? The municipalities have been a challenge for some years, and it is not getting much better. We get decent demand on medium voltage cables, so that demand both in the private sector and in our utility customers is not too bad. The high voltage cables, whilst the pipeline for them is very strong, have been somewhat delayed.
We got some smaller tenders in the first half of this year, but the more important ones are still coming, and that test around the liquidity is an important one. These projects, when they do come, are fully funded, so we never have a problem getting paid. It's just getting them funded so that they can roll out. There are not as many high voltage cables as we would like them to be at the moment. The next question comes from Warren Riley from Batilea. He makes mention of the fact that Hensoldt is exploring the sale of their South African optronics units. Not units, but strategically would Reunert really have any interest in this sale and bulking up its defense cluster. We're a holding company.
We think we are well positioned from a defense point of view, and the type of acquisitions that we like are acquisitions that are complementary to our defense product portfolio. Businesses that are in South Africa and have a high export and a good export market access and add to what we sell into our export market. To the extent that Hensoldt's optronics business meets those criteria, we would be interested in doing it. To the extent that we would be invited to participate in that, we would consider evaluating against those types of criteria. If it makes sense from that point of view, had good growth projections and met our hurdle rates, we would consider it. The next question comes from Rowan Geller from Kronax. What is the potential availability of Starlink, and will it have any impact on our ICT business?
I think this is an evolving market or evolving threat. Starlink typically has been more of a B2C player rather than a B2B, and we are only a B2B player. The potential risk to us is in our last mile broadband connectivity business. We have a very strong business there. It has grown very well, and we are well entrenched. We have large corporate customers, so we will carefully evaluate that. My view at this stage is that we have a strong position, we have a strong offering, and it is a high-quality, 100% uptime B2B corporate type connection that we provide, and that is not so easy for Starlink to match. Like I say, we will watch the space carefully, but we believe we have a very strong position in terms of our last mile broadband offering. The next question comes from Morang Marudu from Northstar Asset Management.
The question is, what utilisation rates are you sitting at within the South African cables business? The question being, at these levels, can we expect similar margins, or is there a further step down in margins? We have highlighted what the percentage is in the actual slide presentation. You will see it in the webcast. You can pick it up and have a look at it there. I do not have the number right off the top of my head. We can perhaps drop you an email with the number, but you will have seen that it did decline this year over last year. At these types of, if the volumes stay where you are at the moment, I would expect the margins to remain the same. There should not be a step down on consistent volumes.
You do just need to make and take into your calculations the reality that raw materials are a pass-through. The upward and downward movement on copper and aluminium specifically does have an impact on the % margin that we make in that power cable business. At these utilisation rates, there should not be a material change in margins if raw materials stay the same. A second follow-on question from Morang relates to ICT, and the question is, is there some seasonality in ICT margins to be aware of, and that the EBIT margin looks a little bit soft given that natural supply chain issues are solved?
The only real seasonality in Morang is the natural South African Christmas period, where December and January are very much quieter months from a sales point of view, and hence our typical balance broadly in Rowan and also in ICT, somewhere between 40-45% of our operating profit is delivered in the first half typically, and the rest is being delivered in the second half. The impact of that on margins is that you carry your full costs in ICT throughout that period. Typically, we would have thinner margins in the first half based on that seasonality that we would see or the nature of that seasonality, and it tends then to pick up a little bit more in the second half of it.
Any weakness that you see at the moment is more related to the fact that we carry the full fixed cost despite the fact that we normally have a month's worth of reduced sales through that period in the first half. The next question is from Simon Silvester from Resco. The question is, in the defense segmental commentary, it's stated that we expect to deliver a much improved full year performance when compared to the prior year. Is this guidance for year-on-year profit growth versus the base of 414 for the segment? Can you also provide some color on the capacity utilization rates in the Fuse business? There are two parts to the question. We have been very clear that the second half of Rowan will be better than the first half.
In that defense cluster, we expect that their full year performance will be better than last year's full year performance. Your question is confirmed. The Fuse business and the utilisation there, as we've shared with you, we have put some new CapEx into that. That business has production lines for different products. Some of those products are running at full capacity, but we have other and spare capacity on some of the other production lines. Overall, the factory is not at 100% utilisation, so there is greater utilisation that we can get through that. Some of them, however, are at full capacity. We are actively looking for orders for those lines that are not at full capacity, and overall, the business can still produce more volume through it, although it is a heavily loaded business.
The next question comes from Anton from Optimum Investment Group. The question is, how large is the total workspace provider cluster? In the previous H1, it lost three months' worth of operating profit, but recovered in H2. However, in the current period, the ICT segment did not follow the same recovery trajectory. What explains divergence in this segment? Just first of all, Anton, we do not give business unit level profit indicators, but I can guide you on the total workspace provider. It is close to being the largest part of the cluster, but the clusters are more or less equal in size. They are all relatively material in terms of that, but we do not provide profit guidance on individual clusters.
Probably one of the key deltas between last year and this year in terms of the ICT segment, the opening loan book that we had in our rental finance business was a little bit lower than it was last year, and we had decreased interest rates that took place during the course of the year, which has an impact on revenue at that business. That's probably one of the primary deltas that we see in the ICT space between the two periods that is different in why the full impact of Nashua's recovery hasn't played through. He has a follow-up question, which is, what is the size of the deferred Fuse contract in terms of both revenue and EBIT? Again, we cannot provide that type of guidance. It's even more specific.
I think what you can take guidance from is the fact that it's material enough for us to make mention of it throughout our report. That would give you an indication that it is decent in size, both in revenue and EBIT impact, but I can't provide more guidance in terms of that. A third question from Anton, what is the current production capacity utilisation in the electrical engineering segment and the cable segment post-period, and how does it compare to the utilisation rate at the previous financial year? The utilisation rates are largely stable. We haven't seen a material pickup or decrease since the half year. Those utilisation rates that we've given you in the info presentation, you can use as a fair reflection of where we find ourselves at the moment. Next question comes from Sibele Ndulu from Matrix Fund Managers.
He asks, do you have enough capacity to supply into the transmission lines? What is your current utilisation rate? We have a dedicated production line that manufactures the cables consumed in the transmission line. We have had that from the last big rollout in the transmission grid in the mid-2000s. We are able and have all of the capacity that we need in order to supply into that without any material increase in new CapEx that we need to do. We need to bring some more people in. We need to run a fourth shift if it gets up to full capacity. All of that is well within the manufacturing capability and capacity that we already have installed in our cable plants. The utilisation of that transmission line line at the moment is low. I do not have the exact number on me, but it is low.
The orders that we're getting are there, but they're certainly not at all putting that production line under pressure or close concerns on it. Charles Kost from Batilea Capital has asked, how should we view your headline earnings per share guidance of a much improved result versus the first half? Again, I think we've—I can't give that type of guidance in terms of where we would end up on that. That's a little bit too granular, Charles. I can't help you much more with that one. We then have another question on the US tariffs. The question being, could we provide color on which countries' competing imports come from? Is there domestic production in the US that competes with your product? What price elasticity are we looking for on your products should tariff prices push up?
Just a couple of our primary competitors into the U.S. come from China and Mexico. Those are the people that we're competing with. I think that China is probably in a worse position than we are at the moment. Mexico, we're trying to understand exactly what the implications on tariffs are on them. It's part of the investigation that's going on at the moment. There isn't, however, material domestic U.S. production for the circuit breakers that we export. Our primary export competitors are going to be other countries that also face tariffs, and primarily from China and Mexico will be it. Price elasticity will be largely dependent. We can compete comfortably today. In that, if everybody's duty-free, it's not an issue. The price elasticity is largely going to be as relative to those competitors.
Depending on what those competitors face is what we're likely to see from our customers in terms of what we can pass on. Obviously, the customers themselves have their own cost implications in terms of their rollouts, and that will be a normal price negotiation with them that we'll have to try and manage. This is very much an emerging situation at the moment because there's so much volatility and uncertainty about what happens in July when the revision on these tariffs takes place. The next question comes from Franka D. Silvestro from Titanium Capital, which talks about why we've exited the acquisition. I tried to quite carefully articulate that in the presentation. The reality is in the smaller battery space, what we call the residential and small commercial, that market is completely flooded, commoditised, and it's under significant price pressure.
Whilst there are markets outside of South Africa, they are neither of the volume nor present the margin opportunity that makes it attractive to us. I describe the large battery space and the challenges there, which primarily center around the fact that we have large international OEMs who historically only supplied components into this market, now are supplying finished product and bidding those directly to the end customer base, which again has put significant margin pressure into that space. Really, in both of the key markets where BlueNova plays, there is some pressure. Our view is that on the back of that, that was a rationale to exit and it presented the best opportunity for shareholders' value in terms of it. Rob Stanya asks the relative duty position with respect to the circuit breaker business for competitors.
I think I've shared that already with the two key ones being China and Mexico. Charles Kost and Batilea Capital, given the material expected increase in European defense spend, what kind of conversations are happening with your defense clients in relation to 2026 and 2027? We're having very healthy discussions with all of our clients, whether it be in Europe, Middle East, or Southeast Asia. All three of our key export markets, we are having very healthy conversations. We have seen our order book steadily increase over the last number of years despite our revenue also increasing, that our order book has got bigger. That is supportive certainly of 2026 already.
The conversations that we're having put us in a position that I'm comfortable to say that we expect multiple years of improving performance out of our defense cluster on the back of the demand that we expect to see. We believe it is broad. It's across multiple jurisdictions. The line of sight we have has improved. We believe this is an area that is probably a medium-term to longer-term growth area, much more than any type of short-term blip that we've seen just at the moment. Rowan Geller asks what portion of defense or Fuse orders are ongoing orders versus once-off orders. All of our orders are in theory once-off orders. We get an order, we execute it, and we deliver it. We don't have these; these are not framework agreements against which there's a drawdown over, call it, a five-year period.
Typically, our defense orders are large in nature. Whilst they are, call it contained to a single order that we have to go and find new orders each year in theory, they are typically large and they operate over or take more than one financial period to execute on. That gives us a good line of sight around it, which I think is probably the base behind that question, that our orders are large, we have a good line of sight in terms of them, and it takes us quite some time to execute them typically. Simon Silvester has asked, can you give some color on the demand outlook outside of South Africa for cables? A lot of talk about the Lobito corridor.
We're finding the African demand to be quite positive, both in Zambia itself and in the areas around Zambia that we're supplying both from our Zambian factory and our South African. My understanding is that the Lobito corridor has been concluded and they've now moved into execution phase. That will be something that will bolster us. In the shorter term, the investment that's going into copper infrastructure in Zambia and in the countries around Zambia is a very healthy driver of growth for both of our factories. We are seeing healthy demand. It's probably the best demand we've seen in that Central African region over the last five years. That looks like it's also the investment into copper. The copper mines is ongoing and again, is medium-term in nature. We feel relatively positive around that demand for cables outside of South Africa.
The big pickup and the big infrastructure still remains in South Africa, which is what we're looking for despite having quite good environments out in Central Africa. View A has asked what areas for capital allocation will be focused on. What is your thinking about buybacks? Our capital allocation, it's quite a broad question, but we will look at it. We look at it first of all in what does our business need to keep going? So investment into our existing assets, our investment into our strategy, and our strategy is three key areas: renewable energy, internationalisation primarily around defence and electrical engineering, and into our ICT businesses, into digital integration. We will continue to allocate capital to those areas provided it hits our hurdles and it meets our strategic rationale. The next big capital allocation is dividends for shareholders.
We do look at buybacks, but only once we've completed our evaluations around our organic investment that's required, our strategic investment, and our dividends around that. We continue and regularly think about it. It's not very front of mind just at the moment given the volatility that we see. It's probably unlikely that we're going to commence with a buyback right now. Timothy Owles has got the last question, which relates to Reutech Solutions lists Rheinmetall as a client. Have you seen any uptick in demand from Rheinmetall and other European defence players? I think it's probably it may well be Reutech Solutions, but Reutech broadly, our defence companies, Rheinmetall is a client. And similar to what we've seen in.
The best indicator of that is that order book that we've shown you there, which is now close to ZAR 3 billion, of which 80%+ is into the export market. I think that's indicative of the uptick that we're seeing not only from Rheinmetall, but the defence clients that we have broadly around the globe. Gents, that's it. Those are all the questions we've got now. We've run a little bit over time as well. I trust that you've got value out of those questions. If there's anything that I haven't answered or any questions that I've missed, if I could please ask if you could just drop Karen Smith an email and we'll get back to those to you.
Again, I'm sure we're going to see many of you on our roadshow over the next sort of 10 days or so as we go around the country and engage with our shareholders. Ladies and gents, again, thank you for your attention. We appreciate your interest and look forward to seeing you again soon. Thank you.