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H I E F E X E C U T I
V E ' S R E P O R T |
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Gerrit
Pretorius – chief executive
"Considerable progress
was achieved
in implementing our long-term
strategy
to grow all existing businesses
and to
focus specifically on our core
activities
in the Nashua grouping and in
Circuit
Breaker Industries."
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Reunert's
results for the 2001 financial year were
in line with expectations, despite our
various businesses producing mixed
results. Certain operations performed
notably well, while others experienced
tough times.
More
important, however, has been the
considerable progress achieved in
implementing our long-term strategy to
grow all existing businesses and to
focus specifically on our core
activities in the Nashua grouping and in
Circuit Breaker Industries (CBI).
BUILDING
THE NASHUA BRAND
The
group's cellular telephony service
provider, Nashua Mobile, came of age
during the year under review and
established itself as the leading
independent contract service provider to
corporate South Africa. Management is
commended for the way in which different
cultures were blended into a single,
strong cohesive force.
Systems
were upgraded to offer customers from
both founding companies, Nashua Cellular
and NedTel, the best possible service.
Market
share grew by more than 15%, thereby
vindicating our approach of focusing on
the upper end of the contract market.
New products were added to clearly
differentiate Nashua Mobile from its
competitors. Product innovation will
continue to drive the company forward.
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The
37,3% equity held by Nedcor in Nashua
Mobile was acquired by Reunert in a deal
which valued the company at R630
million. This transaction is effective
from 1 December 2001. The elimination of
a significant minority interest is of
strategic importance to the group since
the cellular telephony business is
closely aligned with that of Nashua. The
acquisition is earnings enhancing. |
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Nashua
office automation had a notably strong
year with earnings growing by 50%.
Ongoing investment in the brand, coupled
to excellent products and service,
justify Nashua's premium rating. |
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Nashua's
acquisition in March 2001 of Royce
Imaging Industries, the manufacturer of
consumables used in the office
environment, was successful. Strong
management, competitive products and
access to the Nashua customer base and
distribution system augur well for the
future. The full benefit of the Royce
Imaging acquisition will start to
materialise in the 2002 financial year. |
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In
RC&C Finance Company, which provides
financial services to Nashua and
Panasonic customers, deal flow improved
and the value of the rental book
increased. Bad debts remain within
acceptable levels. Investments were made
in software systems enabling credit
vetting to occur effectively in real
time, thus improving turnaround time.
Enhanced levels of service resulting
from these investments are expected to
ensure growth in the future. |
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The
group is consolidating the finance
company for the first time with the
effect being clearly visible on
Reunert's balance sheet. Long-term
facilities are in place with major
financial institutions to enable us to
finance the book. Our current cash
position is such that only a portion of
the facilities was used during the year.
Interest-rate swap contracts are in
place to protect the finance company
against adverse movements in interest
rates. |
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Panasonic
improved its overall performance once
more and increased operating income by
28%. Emphasis is now being focused on
positioning business systems products
for sustainable growth. Several direct
business customer outlets have either
been acquired or opened to facilitate
Panasonic's growth. The benefits of
these initiatives are expected to start
materialising in the 2002 financial
year. |
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ACQUISITIONS
INCREASE PRODUCT RANGE |
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CBI
achieved excellent progress in
broadening its product offering by
acquiring the businesses of Mitsubishi
South Africa and L&T Surge. CBI is
well positioned for ongoing growth and
remains a core asset. Its strong base in
the local market provides it with a
solid foundation from which to launch
its international expansion programme. |
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CBI's
exports grew by more than 48% and
account for about 17% of total company
sales. We are confident that this trend
will continue. Investments into both
product and market development will be
increased. Penetration of the North
American market remains a priority,
despite the recent downturn in demand.
Our products are frequently specified
for new designs, thereby positioning us
well for any upturn in the world
economy. New applications are being
encouraged and promotional efforts are
being accelerated. |
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TELECOMMUNICATIONS |
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Siemens
Telecommunications (Sietel) had an
excellent year. Of particular
significance was the selection of Sietel
to supply the entire Cell C network
infrastructure. The Cell C contract was
valued at
US$221 million, now more than R1,8
billion. Recently, Eskom Enterprises
announced Sietel to be the technology
partner for the rollout of a national
fibre optic backbone for the second
fixed-line telecommunications network
operator. |
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Sietel's
position as the leading network supplier
in southern Africa is undisputed. Order
books are at a high level and are
expected to increase. |
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Much
of the business of this company is based
on a huge installed base, providing a
high level of annuity income that
underpins the earnings. As with all high
bases, achieving better levels of growth
are the future challenge. |
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We
increased our stake in Sietel from 27,5%
to 49% by acquiring Marconi's 21,5%
share at a cost of R279,5 million,
effective 23 November 2001.
Simultaneously we granted Siemens
Limited a call on 9% of the 49% for a
180 day period. If exercised our
interest will reduce to 40%. |
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DEFENCE |
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Reutech,
the group's electronic defence
businesses, had a difficult year. Sales
declined by 5% and operating profits
dropped by 44% due to a higher than
anticipated decline in customer orders. |
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Prospects,
however, remain good. We are confident
that the order books will be restored to
acceptable levels. Timing may be such
that an improvement in the performance
of Reutech will only be seen in the 2003
financial year. Despite this temporary
setback, we continue to invest in core
technologies. |
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In
its chosen fields of activity, Reutech
offers the most comprehensive range of
products compared with similar companies
elsewhere in the world. With exports
accounting for about 50% of sales, the
rand's continuing weakness ensures that
Reutech's potential earnings capacity
remains attractive. |
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CABLES |
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ATC,
the telecommunications cable
manufacturer, experienced difficult
conditions. It did not benefit from the
international shortage of fibre to the
extent expected previously. Annual
production capacity is being increased
from 350 000 fibre kilometres to one
million fibre kilometres. This increase
will come on stream during 2002. The
timing, however, coincides with a slump
in international demand. |
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The
slump is expected to be temporary and
ATC will be well positioned to benefit
from the expected upturn in demand
forecast for 2003. Local demand amounts
to approximately 10% of future capacity
and therefore future growth
opportunities lie in marketing and
supplying fibre beyond South Africa. |
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African
Cables had an excellent year in what was
generally a tough climate for electrical
cables. Sales grew by 38% to R406
million, while an operating margin of
more than 9% was achieved. The
successful integration of Rosslyn Cables
contributed to this improvement. The
company is expected to improve further
during the 2002 financial year. |
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Cafca,
the Zimbabwean cable operation acquired
by African Cables in the previous
financial year, performed extremely
well. Unfortunately, current dividends
can only be remitted at the penalising
parallel exchange rate. An ongoing
shortage of foreign currency in Zimbabwe
exerts a severe damper on future growth
prospects. Further investments in
working capital and plant will be
self-funded by the Zimbabwean operation. |
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EXPORTS |
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Total
export revenue, including the exports of
associate companies, increased by 9% to
R614 million. Revenue, excluding
associate companies, from non-defence
exports increased by 38% to R190
million; while defence exports dropped
by 26%. |
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Focused
investments in market development and
product promotion will continue. It is
our belief that much of Reunert's future
growth must stem from potentially
lucrative export markets, because of an
already saturated local market share. |
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RESEARCH
AND DEVELOPMENT |
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The
group invested R104,5 million in
research and development during the
year. We believe that the ownership of
intellectual property is essential for
any business to be sustainable in a
global marketplace. Our ability to
control our own destiny is evident from
our success in exporting to many
countries around the world. |
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MANAGEMENT
INCENTIVES |
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For
the first time, the group's management
has been incentivised on economic
value-added performance criteria.
Three-year targets were set at the
beginning of the 2001 financial year to
encourage long-term decision-making. I
believe the group will benefit greatly
in the future from empowering and
compensating management based on agreed
and quantifiable objectives aligned with
our strategic road map. |
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SHARE
BUYBACKS |
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The
share buyback programme resulted in 17,2
million shares being bought at an
average price of R13,67 a share. This
represents 8,4% of Reunert's share
capital. The share buyback contributed
positively to the improvement in
headline earnings per share. |
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CONCLUSION |
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I
would like to thank my fellow directors
and everyone who contributed to the
group's success during the year. |
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I
am confident that we will continue to
produce real growth in the 2002
financial year, even if this growth
might be lower than that achieved during
the year under review. |
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Gerrit
Pretorius
Chief Executive
Sandton
19
November 2001 |
