Letter to shareholders  
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  Nashua Mobile had a very successful year in terms of business volume,
growing revenue by 15%. Operating profit increased by 8%. Churn, however,
is becoming a major concern especially since it is mostly debt-related.

The product offering in the middle range of multifunction machines was not ideal. Sourcing in euro further affected our competitive position. Recent relative yen strength should improve our position significantly. Total document volume, driving consumable sales, continues to grow. Printing, as opposed to copying, is gaining and receiving our full attention.

RCCF, trading as Nashua Finance and Quince Asset Rentals, had an eventful year. Following the subprime crisis and the subsequent curtailment of securitisation, the venture we had with PSG had to be undone. This became effective on 31 May 2008. Limited funds of R700 million was raised securitising a portion of the book and Reunert used its balance sheet to provide the additional funding to finance the balance of the book which totalled R2 billion at year-end. This is a temporary measure and action is under way to obtain external funding in due course. The business is sound and provides a valuable service to our operations. Bad debts, though higher than in the past, are still within acceptable levels.

Nashua Mobile had a very successful year in terms of business volume, growing revenue by 15%. Operating profit increased by 8%. Churn, however, is becoming a major concern especially since it is mostly debt-related. The risk of signing up marginal customers could increase because the market is saturated at the higher-end. We are guarding against the tendency to convert prepaid customers to contract customers as this approach could turn out to be very costly.

Sustainable service levels are a concern. High-spending subscribers are entitled to the best service. We are aware of that and every effort is being made to correct service levels and return the focus to our deserving clientele.

Average monthly revenue per user is still at an industry high and remained more or less constant, increasing from R443 to R472 per user. We will increasingly focus on retaining quality customers.

Nashua Electronics, distributing mainly Panasonic products, had a tough year. The range of consumer electronic products is not price competitive in the South African market – especially with consumers tightening their belts. Firm management ensured a breakeven position which is a commendable performance in that industry. However, the business model needs to be improved.

Reutech lived up to our expectations, contributing in excess of R130 million to operating profit. Precision products, with its range of Fuchs fuses, did particularly well and secured orders stretching well into the 2010 financial year.

The communications business, with its VHF/UHF radios, continues to benefit from long-standing local and international relationships. Exports are brisk and will continue to grow.

  NASHUA MOBILE   September  
  Growth %  
past year  
  Contract connections for year   132 210     151 285     (13) 
  3G/HSDPA connections   28 782     27 534     5  
  Total connections   160 992     178 819     (10) 
  Closing contract base   663 787     693 432     (4) 
  ARPU (average for period)   472     443     7  
  Churn %   12,8     10,7     20  
  Net bad debts as % of turnover   1,34     0,73     84  
  Number of retail outlets   152     142     7  

The Department of Communication is in the process of converting the country’s analogue television to digital format. The radar systems business in Stellenbosch developed a set-top-box product that hopefully will add to meaningful participation in the migration to digital television broadcasting. This market is conservatively valued at R7 billion spread over a four- to five-year period.

Our mining surveillance radar systems gained a strong foothold in most of the major mining groups, locally as well as overseas. The market is big; our product superior and positive results should drive higher sales.

Our defence arm is strong, well positioned in focused areas and engaged in long-term funded development programmes that will ensure future revenue streams. The percentage contribution from this division to Reunert is expected to grow.

NSN is beginning to see the benefit of the Nokia Siemens merger in telecommunications. Revenue in the business remained more or less the same and is not expected to change dramatically in the medium term because of the high market share NSN already enjoys. Sales are expected to remain high as Telkom, Vodacom and Neotel upgrade or expand their networks.

Acknowledgements >

We are pleased to welcome Messrs Thabang Motsohi and Trevor Munday who joined the board as independent non-executive directors on 1 June 2008. They both bring a wealth of experience from which we can benefit.

Thank you to our shareholders and customers for their continued support, to our directors; senior executives and staff for their dedication and effort, and our suppliers and all other related parties for services rendered.

Prospects >

The global financial crisis has placed a premium on strong cash flows and liquidity. Lower levels of economic activity are expected in a deteriorating global and domestic macroeconomic environment. Although South Africa has so far been relatively sheltered from the worldwide turmoil, inflation is well above government targets, whilst interest rates are at a level last seen in the nineties.

Given this environment, it is difficult to predict with any certainty what the impact will be in the 2009 financial year. The dividend cover has been increased to two and may well have to be further increased in the future given the uncertain economic and liquidity landscape.

Martin Shaw

5 December 2008

Gerrit Pretorius
Chief executive

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