Electronic and electrical engineering company Reunert issued a profit warning after the market closed on Friday, saying headline earnings a share for the financial year ending September 30 would be significantly lower than in the previous year.

This puts an end to five years of consistent earnings growth in excess of 25% a year for the group.

The sole business driving the loss is Siemens Telecommunications (Sietel), which is a 40%-owned associate company.

Reunert says the other businesses in the group continue to perform well.

It is still experiencing strong cash flows from its wholly owned businesses and cash on hand at the end of the financial year will show a further marked improvement.

When interim results were released in May, Reunert said Sietel had performed poorly in the first half of the year but was expected to perform better in the second half.

This did not materialise. Cost overruns on a major contract as well as a significantly lower revenue stream on the back of a strong rand will lead to substantial losses in Sietel for the financial year.

The loss revolves around a single contract but Boel Pretorius, chief executive of Reunert, would not disclose which one. "It's got to be big, it's not trivial."

Pretorius adds: "If the rand had stayed where it was when we took the contract Sietel would have been profitable.

"A year ago everyone was delighted we had dollar-based contracts. We got caught."

The company said in the update that steps were being taken to return Sietel to profitability in 2004.

But Pretorius says the company has already returned to profitability.

"This is contract accounting in terms of which we have now absorbed all the anticipated losses to come.

"In effect, although we still have to perform in terms of a contract, there are hopefully no more losses to come. Going forward we are profitable. We have hopefully provided for the worst possible situation."

An analyst said it was a concern for the company but the rest of the business was in good shape and the dividend would be fine for the full year.

Last year Sietel contributed between 15% and 20% to Reunert's profits.

Reunert says it is looking to renewed growth in headline earnings a share in 2004 compared with September 2002.

The company will release its results for the financial year on November 27.

With acknowledgements to Adele Shevel and the Sunday Times.