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LETTER to shareholders   cont.  
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Margins remain good and should stay that way. Limited imports are entering South Africa and, provided severe overcapacity does not develop in the world, should remain at these levels. Our policy of providing value-added services further entrenches our position in the local market.

The Nashua brand represents the majority of our electronics businesses, comprising office automation, a cellular service provider and a distributor of consumer electronics and professional systems. Nashua had a challenging year. Revenues for the total Nashua group increased by 9% while operating profits showed a marginal decline of 2%.

The original Nashua office automation business, maintained volumes compared to the previous year. Margins came under pressure from the rapid weakening of the rand against the euro in the first half and our inability to pass increases on to customers in the short term. That situation has corrected itself and trading is back to normal.

In certain segments of the market, our products are not at the cutting edge. New product launches over the next 18 months will enhance our competitive position. This rebalancing of competitive positions is quite normal and to be expected from time-to-time.

During the year, we acquired controlling stakes in two major franchises. This process is ongoing and we hope to add at least two more franchises in 2008. This is in line with our stated intention to move closer to the end customer yet retaining individual entrepreneurial spirit.

Our objective remains simple: to increase total document volume. Over the past year, total document volume grew by 10%. The benefit of this approach was evident in the level of consumable sales. Consumables represented 21% of total revenue, an increase of 22% from a year ago.

Although still modest in size, Acuo increased revenues marginally. More importantly, this software integration business enabled Nashua to undertake projects and offer services it would not have been able to do without such a facility.

Nashua Electronics, the distributor of the Matsushita range of products in southern Africa, had a difficult year. Consumer electronics is a fiercely competitive business and Chinese and Korean products continue to flood the market.

Brand premium is limited to the upper end of the market. Acknowledged as the best, Panasonic products dominate the top end of the spectrum where we can still demand a small premium. Sales of digital still cameras have increased by more than 10%. Plasma and LCD television sales grew by 100%.

Despite constituting 63% of revenue, consumer items contributed less than 6% to profits. Our direct e-sales channel,, is up and running and we opened three Nashua Electronics specialist shops in Gauteng to facilitate this initiative. We recognised this as a long-term venture, firmly believing patience and diligence will be rewarded.

The systems side of the business made good progress in establishing itself as a recognised supplier of office and telecommunications equipment. Sales increased by 30% at acceptable margins.

We are one of a few select suppliers in South Africa that can almost fully equip an office building from air-conditioning to the telecommunications switch to the boardroom. This is an opportunity we have not fully exploited to date and certainly worthy of pursuit.

Nashua Mobile, the telecommunications services provider, had a strong year. The distribution system comprising direct corporate sales, the Nashua franchise channel, retail stores and direct outlets in major shopping malls proved its mettle. On average, 14 900 new customers were connected monthly.

Churn (customers switching networks) and bad debt go hand-in-hand. In keeping with the economic environment, both have increased. Churn levels were 10,7% compared to 10,5% a year ago. Overall, bad debts are still a low 0,7% of sales compared to 0,6% at the same time last year. Credit-vetting criteria have been tightened in anticipation of the scenario worsening.

The product offering is reviewed and expanded regularly. We are gradually transforming the traditional voice-based business into a one-stop-shop business that can satisfy all of our customers’ telecommunications requirements. As such, voice (including voice over internet protocol), broadband (ADSL and wireless) and satellite-based products are available from Nashua Mobile.

The entry of more network operators into the South African market should ensure ongoing demand for least-cost routers. As long as price differences exist, which should be a given in a normal competitive environment, least-cost routers will be in demand. We are in the favourable position of being one of two independent licensed network providers of least-cost routing for all networks.

Recognising the value of the Nashua brand and the value of our high net-worth customer base, we launched Nashua Insure with Auto & General to offer short-term insurance products to our customers. Initial progress has been slow, but momentum is increasing as the campaign is rolled out.

As levels of saturation in the handset business increase, the fight for customers intensifies. Customer retention remains our top priority. Customers have become more demanding and their insistence on more value places pressure on margins.

Providing data services is still relatively new and offers reasonable scope for growth. Unlike the voice business, data has been the subject of severe price competition among operators, which makes it less attractive. Nevertheless, there are opportunities to grow the non-voice side of the business.

September 07
September 06
Growth %
past year
  Contract connections for year 151 285 194 832 (22%)  
  3G/HSDPA connections 27 534 11 095 148%  
  Total connections 178 819 205 927 (13%)  
  Closing contract base 693 432 576 820 20%  
  ARPU (average for period) R443 R485 (8,6%)  
  Churn % 10,67% 10,51% 1,5%  
  Net bad debts as % of turnover 0,73% 0,58% 26%  
  Number of retail outlets 142 90 58%  
LETTER to shareholders   cont.  
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