Letter to shareholders

Dear Shareholder

The past year has been exceptional for Reunert. Aided by strong domestic economic growth and the share buyback, headline earnings per share increased by 46% from 278 cents to 406 cents. Total dividends increased by 39% to 222 cents per share and a final dividend of 170 cents per share has been declared.

Low interest rates and subdued inflation contributed to a consumer boom which in turn encouraged business spending. Increased building activity together with continued investment in infrastructure created healthy demand for our products.

Export volumes grew, but showed little or no growth in monetary terms as a result of the continued strength of the rand. Exports represented 4% of total revenue. The strong currency made imported products more affordable benefiting the consumer which in turn led to higher volumes being sold.

Group revenue increased by 13% while operating profit was up by 29%. Participation by minorities decreased following the purchase of Pirelli’s 50% share in African Cables at the end of last year. In December last year, 25,1% of ATC which includes African Cables was sold to empowerment company, Powerhouse Utilities.

Income from associates, reflecting the performance of Siemens Telecommunications showed a small improvement when compared to last year.

A lower tax rate and a reduced number of shares in issue helped towards achieving growth in headline earnings per share of 46%.

Black economic empowerment

Reunert is committed towards empowering previously disadvantaged groups. A balanced approach has been adopted and all aspects of empowerment are being addressed.

OPERATIONAL REVIEW Electrical engineering

The electrical engineering division’s revenue grew by 36% to R2 billion and operating profit increased by 49% to R324 million.

2 Reunert Annual Report 2005

CBI and African Cables experienced a period of outstanding growth in demand for product. Residential construction grew by over 20% and the associated expansion in infrastructure stretched our capacity.

CBI erected a fourth assembly plant in Lesotho focused on assembling products geared for the export market. This new factory, coupled with a programme of automating certain processes, at all facilities, should provide CBI with sufficient capacity for the foreseeable future.

The investment made in Australia last year has proved successful with Heinemann Australia performing above expectations. More products are being introduced into that market with positive results. We would like to expand the business in Australia through acquisitions to increase our market exposure.

African Cables invested R7 million to add capacity with a further R31 million committed. The new year should see the benefit of that investment. We will continue to make further investments as and when appropriate. We fully expect demand, particularly from local councils and the platinum mines, to continue. The general market is buoyant with no sign of a slowdown.

The situation in Zimbabwe is at an all time low. Although Cafca, the Zimbabwean cable manufacturer in which we hold an effective 54% share, could relieve some of the capacity constraints at African Cables, current Zimbabwean government policies make that impossible.

Telecommunications manufacturer ATC finally turned the corner, showing a modest profit on low revenues. Towards the end of the year volumes picked up and should this trend continue, we anticipate ATC will do well in the coming year.




The electronic division’s revenue increased by 4% to R6 billion, while operating profit grew 9% to R714 million.

Office systems

The office automation business goes from strength to strength. Nashua’s volumes grew by 22% in the multi-function machine market. Its aggressive entry into the colour laser printer market resulted in the rapid gain of significant market share in little over a year. Total document volume benefited and now exceeds 300 million copies per month.

Discounting at Nashua Finance continued at a brisk pace and the accounts receivable book now exceeds R1 billion. Facilities provided by our three bankers were increased from R900 million to R1,2 billion. Bad debts are less than 1% and margins are reasonable. It is our intention to grow this business going forward.

Consumer products and services

The consumer businesses, Nashua Mobile and Reunert Consumer & Commercial Holdings, experienced strong demand for product and revenue improved by 11% to R3,8 billion. With a comprehensive range of products and services, we were able to satisfy most segments of the market and operating profit increased by 29% to R324 million.

At the top end of the consumer electronics’ market the Matsushita product range is unrivalled. We are proud of our role in positioning Matsushita, and its associated brand Panasonic, as the leading consumer electronics brand in South Africa. The product offering is excellent and will continue to command a premium.

Futronic, at the more affordable end of the spectrum, made big inroads in the local market. Sales exceeded expectations demonstrating the wisdom of our strategy to address all segments of the market. The Akai brand was launched during the year and will focus on the middle range of the market.

Cellular service provider Nashua Mobile continued delivering quality service to more than 415 000 contract customers. Subsequent to year-end the longevity of Nashua Mobile was secured when we entered into a five-year agreement with Vodacom. Our aim is to continue as an independent service provider offering all the networks, all the tariffs, all the time.

Although the market for cellular phone services continues to surprise on the upside, simple calculations show that it cannot continue much longer. The South African population can only absorb so many phones before churn and serious price competition will set in. We believe that customer retention will become paramount. Margins in the telecommunications industry may well come under pressure and might result in severe competition and lower prices. Initiatives are in place to ensure we maintain our market position in the future.


Siemens Telecommunications (Sietel), in which we hold a 40% stake, experienced good order intake. Revenue on an attributable basis increased by 7% to R993 million while operating profits remained flat and contributed R132 million.

On the infrastructure side Vodacom, Telkom and Cell C continue to invest providing a solid base for Sietel. The enterprise market is hugely competitive. The roll out of third generation (3G GSM) systems continues and the long awaited second network operator should come into being. We are confident that Sietel will increase the gap between itself and its nearest competitor.




Reutech, representing the defence companies in the group, experienced a difficult year. Revenue was down 33% resulting in an operating profit of R2 million, down by 96%.

The under performance of Reutech was largely due to lack of government support for the local defence industry.

The South African government has to deal with its defence industry policies. Currently, foreign companies are benefiting and no policy exists for developing the local industry. It is a pity, because the capability exists domestically to counter any conceivable threat against South Africa.

We endeavour to contain the situation but are not overly optimistic. The government needs to decide what it wants. Without a local base a viable industry is not feasible.


Derek Cooper resigned as chairman at the end of May 2005 after many years of dedicated service. For his support, guidance and significant contribution, we thank him and wish him many years of health and happiness.

Kingsley Fuller joined the board on 1 June and was appointed chairman of the audit and risk committee.

To our loyal employees who achieved so much, we express our sincere gratitude. Without you it would not have been possible.


It remains our aim to grow headline earnings per share at a rate higher than inflation in a sustainable way. However, it is unlikely that this year’s growth rate will be achieved in the coming financial year.



Martin Shaw Gerrit Pretorius

Chairman Chief executive


14 November 2005

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