Reunert Annual Report 2004
  Over the last five years, headline earnings per share have grown at compound rate of 19% a year.
  Derek Cooper Gerrit Pretorius
  – Chairman – Chief executive
  We are pleased to report that the 12 months to 30 September 2004 has been another good period for Reunert. Headline earnings per share increased by 51% from 184 cents to
278 cents. This significant improvement reflects good performances for all Reunert subsidiaries and a pleasing return to profitability by Siemens Telecommunications which incurred a loss last year. Compared to the group’s 2002 results, headline earnings per share grew by 21%.
  Exceptionally strong cash generation during the year enabled us to propose to shareholders a buy-back of 10% of the issued shares of the company. In that way,we have returned R477 million to our shareholders who will enjoy the ongoing benefit of higher future earnings per share as the number of ordinary shares in issue has been reduced by 19,1 million. Total dividends of 160 cents for the year have been declared, a 33% increase on the previous year.
  Over the last five years, headline earnings per share have grown at a compound rate of 19% a year. In calculating this rate, the effect of interest lost due to the special dividend of R500 million in 1999 was not taken into account. Over the same period, R2 billion has been returned to shareholders by way of normal and special dividends plus the recent share buy-back.
  Group turnover grew by a marginal 2,4% to R6,2 billion, restricted by the stronger rand. Interest received increased significantly, mainly due to continued strong internal cash flow and the sale of the finance book in December 2003. This sale improved the structure of Reunert’s balance sheet.The finance book is building up again and, if necessary,we can repeat the process.
  Since 1997, Reunert has evolved from a diversified business to one focused on its chosen core areas of electronics and electrical engineering. Investment in these areas will continue to expand the group’s capacity and improve efficiency. Capital expenditure is broadly in line with depreciation. Organic growth has been encouraging and, in addition, several strategically significant acquisitions have been made. We intend to follow this dual strategy of supplementing organic growth with selected focused investments.
  Given the dominant position of all the group’s businesses in the South African market, the board is conscious that future growth will be limited unless we enter new markets and add products to our portfolio. Accordingly,Circuit Breaker Industries (CBI) acquired the business of Heinemann Electric in Australia. This acquisition broadens CBI’s reach in the Australasian markets, augmenting the presence it already has in North America and Europe.
  It is our stated intention that we would prefer all subsidiaries to be wholly owned. By acquiring Pirelli NV’s 50% stake in African Cables with effect 30 September 2004, that objective has been achieved.
  The introduction of empowerment partners in subsidiary companies is both a social and economic requisite. Most of our empowerment agreements concluded to date make provision for converting equity holdings in subsidiary companies into shareholding at the Reunert Limited level if considered necessary.
  Effective 1 December 2004 a 25,1% interest of our cable businesses ATC and African Cables has been sold to Powerhouse Utilities, a black-owned company. Prior to this transaction Powerhouse has had a close working relationship with African Cables which has now been converted into an equity stake.
  The electrical engineering division’s turnover grew by 7% to R1,5 billion and operating profit by 11% to R217 million.
  CBI has had another successful year, increasing both volumes and profits. Exports continue to rise. The recent acquisition of Heinemann Electric should provide the necessary base for growth in Australasia. CBI’s export sales grew by 38% and it is aiming to increase its export sales to 50% of total sales over the next few years.
  In world market terms, CBI has an insignificant market share.This presents major international growth opportunities. To increase capacity, a fourth assembly plant has been opened in Lesotho. This factory is dedicated to manufacturing specialised circuit breakers for equipment protection for the export market.
  Although telecommunications cable manufacturer, ATC, continues to operate in a subdued market, operating results improved considerably during the year due to significant restructuring. The company was awarded part of the Telkom optical fibre contract and, as costs are largely fixed, any increase in volume will boost profitability.
  African Cables benefited from strong demand for energy cables.We expect this situation to continue at least until 2010. The housing boom has increased the demand on South Africa’s electrical distribution infrastructure. In large parts of the country, the power cable network has to be replaced.New equipment is being installed at African Cables’ operations at Vereeniging to increase capacity to satisfy robust demand. In addition, Cafca, the Zimbabwean operation in which African Cables holds a 72% stake, has started supplying cable to South Africa to partly satisfy demand.
  The electronics division’s turnover remained flat. Operating profit improved by 71% to R656 million.
  Office systems continued its strong performance and reported a 44% increase in operating profit. Nashua, our office automation business and its associated finance company, enjoyed pleasing volume growth. Inroads have been made into the competitive laser colour-printer market. Nashua’s aim is to increase its total document volume and penetration of the colour market, supported by strong product offerings and distribution channels.
  The consumer products and services division increased turnover by 6% to R3,4 billion with a 44% increase in operating profit.This improvement was mainly due to Reunert Consumer and Commercial Holdings (RC&C) being able to adjust to the strong rand. Trading in Panasonic products has been good and margins have been more acceptable. Improved asset management has greatly reduced the risks associated with currency fluctuation.
  The multibrand strategy adopted two years ago has enabled RC&C to address the entire consumer electronics market. In the past, RC&C concentrated on the upper end of the market by offering only Matsushita premium products. The introduction of the Futronic brand as a lower-priced alternative is proving successful.The development of the business systems division has met expectations. Its direct presence in the market is having a positive effect on sales and profits and the division has solid growth opportunities.
  Nashua Mobile’s success is mainly attributable to the quality of its customer base. Although the number of customers increased, it was more the low churn and high spending patterns of existing customers that yielded the good results. At year-end,Nashua Mobile had 361 000 contract subscribers and 30 000 prepaid customers.
  The longevity of independent service providers is topical at the moment. Reunert is in discussions with all operators. We are confident the matter will be dealt with responsibly and in the interests of stakeholders.
  In the telecommunications division, increased volumes offset the negative effects of the strong rand. Siemens Telecommunications returned to profitability. Order intake remains high and prospects for both the fixed-line and wireless businesses are encouraging. Siemens Telecommunications has been selected to roll out Africa’s first third-generation network. The project has commenced and switch-on is expected in December 2004. Coupled with increased activity in the fixed-line business and expected market share growth in enterprise systems, the outlook for 2005 is positive.
  The defence division’s performance has been disappointing. Operating profit dropped from R118 million to R49 million over the same period last year, constituting 5% of the group’s operating profit. Reutech’s order intake this year did not meet expectations. Exports and profits were negatively affected by the strong rand and consequently Reutech’s competitive position weakened. Management remains focused on ensuring the desired long-term positioning and strength of Reutech.
  We are confident earnings growth will continue in the next financial year. Our focus remains on ensuring sustainable longer term growth in headline earnings per share.
  Without the support and advice of our board of directors and our loyal employees, Reunert would not have been able to achieve what it has during the past year. Our heartfelt thanks to all of you.
  Earlier this year, Mr Charles Valkin retired from the Reunert board. His much-valued input over the years is deeply appreciated and we wish him well for the future. We welcome Ms Khumo Radebe to the board and look forward to a mutually beneficial relationship.
  We are confident earnings growth will continue in the next financial year.
  Derek Cooper Gerrit Pretorius
  Chairman Chief executive
  15 November 2004