Overview

Reunert comprises a diverse group of companies both in terms of size and business activity. Broadly speaking, the group is strategically linked through its electrical, electronic and ICT engineering capabilities in either their core competencies and/or the markets they serve.

Group Strategy

Reunert’s core competencies are its electrical and electronic engineering capabilities, coupled with service skills in information communication technologies.

Strategy development

Reunert's key strengths
  • Strong market positions in our major South African businesses.
  • Well-known and respected brands.
  • Strong operational capability and well-managed operations.
  • Proven ability to integrate systems.
  • A strong balance sheet.
  • Robust risk management, internal control processes and systems
  • Electronic, information communication technology and engineering expertise

The group strategy was formulated to address our material matters. It was designed to leverage Reunert’s key strengths, and was based on an analysis of the group’s operating environment, key business drivers, emerging trends, material matters, identified risks and opportunities, and input from all the material business units. Our strategy was developed to achieve the following strategic objectives:

  • Accelerating top-line growth
  • Growing the innovative and early life cycle business portfolio
  • Geographic diversification
  • Improving efficiencies through vertical integration and optimising processes and costs

Referencing the 2015 strategic plans, each business unit reviewed its progress, and presented this to the Board in March 2017. The Board reassessed the validity of the strategy in context of the current local economic and political environment.

Reunert goals

The following overarching goals create alignment across the different segments and business units:

  1. Being a leading player in the South African electrical and electronics industry. This will be evidenced by Reunert achieving and maintaining cumulative growth in NHEPS and having a TSR within the top three issuers in the electrical and electronics sector of the JSE.
  2. Operating a customer-centric business.
  1. Operating as a responsible corporate citizen with a strong set of values.
  2. Fostering a culture of high-performance and employee engagement.
  3. Moving up the value chain (including evolving from a product focus to a solution focus) to deliver value-added services and solutions.

2017 STRATEGIC REVIEW

Reunert’s core strategy was refreshed with four key group initiatives emerging from the 2017 strategic review. These support the group’s goals and strategic pillars and are critical to the success of the strategy.

Our salient features

Material Matters

Key themes that influence our ability to create value over the short, medium and long term.

 

POLITICAL & REGULATORY ENVIRONMENT

  • The South African business environment is increasingly being shaped by growing political, policy, regulatory, labour and societal uncertainties.
  • Concentration risk
    > 72% of the group’s earnings are directly linked to the South African economy and currency
  • Diversification
    Increasing foreign revenue (non-ZAR) through acquisitions of businesses with access to niche export markets and increasing exports of:
    > Circuit breakers.
    > Radars (commercial and military applications).
    > Other Applied Electronics products.

    Expanding African markets and making regional acquisitions
    > Infrastructure (Power and Telecommunications).
    > Information communication technologies (managed office solutions).
 

ECONOMY AND MARKETS

  • Our target export and local markets contain significant growth opportunities, and our products are also in demand in niche markets.
  • Slow top-line growth
    > Certain of Reunert’s businesses are in the mature stage of product life cycles.
    > Increased competition and commoditisation of products contribute to slow growth.
    > Inflation, competitors’ activities and low macro-economic growth lead to margin pressure.
  • Efficiency
    > Efficiency improvements through technology and streamlined processes including workplace digitalisation.
    > Margin management through cost optimisation.
 

TECHNOLOGY

  • The dynamic nature of technology is disrupting the way in which business is conducted and creating opportunities.
  • Technology
    > Escalation in large-scale cyberattacks and data fraud.
    > Disruption and changing business models.
  • Innovative product and solutions offerings through technology
    > Secure communications.
    > Robotics.
    > Renewable energy.
    > Mining safety.
    > Connectivity.
 

PEOPLE

  • Talented, skilled and experienced employees foster a culture that encourages innovation, diversity and high performance.
  • People
    > Retaining skilled and experienced technical employees.
    Diversity and transformation
    > Not achieving appropriate BBBEE scores jeopardises Reunert’s South African income.
  • Talent development
    > Investing in employee development through structured individual development plans.
    > Managing talent and developing succession plans to ensure continuity and appropriate employee development to meet business requirements.
    Position to participate
    > Transform and reposition Reunert in alignment with South Africa’s transformation objectives.
    > Transform business models to adapt to the evolving customer and business requirements.

Strategic Pillars
  • Diversify and increase earnings through a combination of:
    > geographic expansion;
    > new products and services; and
    > improved service offerings.
  • > Change in revenue mix:
    Non-ZAR revenues (%)
    Geographical split in revenues (%)
    Customer segmentation (%) (public vs private sector)
  • > 33% increase in non-ZAR revenue
    > 9% increase in ZAR revenue
    > 2% increase in private sector revenue
  • > Reduced concentration risk by improving geographic diversification and improved product and service offerings
    > 31% CAGR increase in non-ZAR revenue to R2,8 billion (2014: R1,2 billion)
    > 28% of Electrical Engineering’s revenue (2014: 12%) is from non-ZAR revenue driven by:
    Zamefa acquisition
    Increased circuit breaker exports to solar and rail industries in the USA since 2014
    Real growth in operating profit in Australia and the USA
    > Applied Electronics:
    Export revenues increased by 72% to R843 million (2014: R490 million)
    Export order books at record levels at September 2017
    Multi-year contracts secured in Fuchs Electronics, Reutech Radar Systems and Omnigo
    Concerted effort on Southeast Asian and Middle Eastern markets
  • Ensure best-in-class operational efficiency and improved capital efficiency
  • > Total shareholder returns (TSR)
    > NHEPS growth
    > Return on equity (ROE)
    > Operating profit margins (%).
  • > 19% TSR
    > 5% improvement in NHEPS
    > 16% ROE
    > 1% decrease in operating profit margin
  • > ROCE improved from 14% in 2014 to 20% in 2017
    > Improved key efficiency ratios at power and telecommunications business units, but not yet to desired levels
    > ICT focus on efficiency contributed to an improved operating profit margin of 19% (2014: 13%)
    > Improved cash flows in all business units
  • Develop new products and services, and reduce costs through innovation, research and development
  • > The revenue from new products released per year
  • > Major new product innovations and cost reduction programmes are covered in segmental performance reviews.
  • > Increased focus on innovation and bringing new products and service offerings to the market
    > CBI-electric: Low Voltage in the Electrical Engineering segment focuses its product development on green technologies in specialised niche markets:
    2016: NanoView provides local households and commercial consumers a snapshot of electricity and water usage
    2017: Electronic meters for application in solar industry
    2017: DC product range for telecommunication and renewable energy applications
    > Material progress made on refocusing ICT as total office services provider with traditional office automation now less than 50% of the segment contribution:
    2015: Nashua incorporated ECN Voice into its offering
    2016: Nashua launched Smart Solutions
    2016: ECN launched Virtual PBX, followed by business-internet-access product suite
    2017: Nashua launched access control and connectivity
    > Applied Electronics continues investing in product development
    New generation MSRs
    SSP launched for use in underground mining safety
    RSR 904 radar deployed in Kruger National Park as part of the Postcode Meerkat system
    New generation combat net radios industrialised
    Qmunicate H10 addresses cybersecurity
    Ryonic Armadillo robot is being designed to operate in rugged terrain
  • Provide customer-centred products, services and solutions
  • > A variety of customer-related KPIs are used at business unit level, measuring:
    customer loyalty;
    customer service levels;
    customer retention; and
    market share.
  • > Performance against customer-related metrics is covered in the various segmental performance reviews.
  • > Electrical Engineering continues to hold strong South African market positions
    > ICT
    The 37 000 Nashua and ECN customers present a key competitive advantage
    Nashua improved its market share to 15,8%1 (2014: 14,5%)
    ECN is South Africa’s largest independent VoIP provider
    > Applied Electronics operates in niche markets and receives repeat orders from long-standing customers
  • Develop a high-performance organisation focusing on effective employee engagement
  • > Succession plans for critical roles.
    > Retention of critical skills
    > Zero fatalities.
  • > 36% of identified successors on development plans
    > 39% succession plans for critical roles identified
    > Zero fatalities.
  • > Developed a set of group values to strengthen a high-performance value-based culture
    > Successfully implemented the human resource strategy including:
    a talent management programme focusing on succession planning and a talent development programme aligned with Reunert’s business needs; and
    increased equity representation at all levels of management.
  • Transform our businesses to effectively participate in the markets we serve
  • > Employment equity for South African management (%)
    > BBBEE Code level per business unit
  • > 11% improvement in employment equity representation at top and senior management.
    > The majority of business units achieved their BBBEE Code level targets.
  • > Electrical Engineering’s black ownership increased to over 40% in South African cable businesses
    > Applied Electronics concluded two direct BEE ownership transactions of 10% each in Reutech
    > Business units maintained or improved the underlying pillars supporting the B-BBEE requirements on the new Codes since 2014
    > Consistent focus on transformation improved EE on management levels as follows:

    EE management
    representation
    2017
    %
    2014
    %
    %
    improvement
    Top 34 22 55
    Senior 47 26 81
    Middle 36 22 64
    Junior 61 55 11

Strategic objectives

Our customers

Provide customer-centred products, services and solutions.

Customer-centricity focuses on enhancing the customer value offering. Its key objectives include customer loyalty and retention. In turn, it maximises our share of a customer’s overall spend.

Our people

Develop a high-performance organisation focusing on effective employee engagement.

Reunert promotes a high-performance, values-based culture to support our growth strategy. We actively engage with all employees in a meaningful manner, and motivate and recognise execution excellence. While we actively invest in our people, employees are responsible for ensuring they adopt a high-performance culture. Innovation is an important skill in many of our businesses and the retention of key employees, including scarce and critical skills, is vital.

Efficiency

Ensure best-in-class operational efficiency and improved capital efficiency.

Focus areas

To optimise our existing efficiencies, deliver strong cash flows and moderate operating growth

The efficiency strategic pillar focuses on managing existing assets. These assets are expected to deliver organic growth, in line with GDP and GDFI, and generate sufficient free cash flows to implement the group’s diversification and innovation strategies. Cost control and the continued drive for business efficiencies are key contributors to good financial returns.

We pay considerable attention to working capital management and optimising capital expenditure to maximise the cash generation from existing businesses. Enhancing supply chain efficiency to reduce costs is another focus area.

Diversification

Diversify and increase earnings through a combination of:

> geographic expansion;
> new products and services; and
> improved solution offerings.

Focus areas

Geographic diversification: To leverage our strong South African market share positions through expansion in non-South African regions:

> Africa
> Australia
> Middle East
> Southeast Asia
> USA

Diversification is centred on:

> Geography: Through acquisitive and organic growth, the group can expand the existing value offerings into carefully selected growth geographies where it has business experience, and where there are significant competitive advantages. Our choice of markets and the speed of geographical diversification will be determined by international developments and opportunities.

> New products and services: Reunert leverages its strong brands to offer additional products and services to customers within South Africa. Cross-selling opportunities can provide further organic growth opportunities.

> Improved solutions offering: We continuously introduce solutions that improve margins and help retain customers. We pursue the move up the value chain through acquisitions.

Innovation

Develop new products and services, and reduce costs through innovation, research and development.

Focus areas

>Product innovation and services diversification
>Using our existing brands to introduce new products and services

Through a group-wide culture of innovation, we drive the product, service and solution pipeline that supports sustainable growth. By harnessing technology, we become more efficient in our products and services, thereby growing our revenue.

Transformation

Transform our businesses to effectively participate in the markets we serve.

Focus areas

To maximise our participation in South African opportunities by ensuring our businesses are aligned to the government’s transformation objectives

Transforming Reunert focuses on our human resources and business models.

> Through transformation, we capitalise on our opportunity to participate in South African revenue streams by aligning our transformation objectives to those of the South African government, including SOEs, the Department of Defence and municipalities.

> We are transforming our business models, as required, to deliver value-added services and solutions, strengthening our position in the value chain. This business transformation is interlinked with our diversification, innovation and efficiency strategies.

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