Moneyweb interview 16-Nov-04
Tuesday, 16 November 2004
Boel Pretorius: CEO, Reunert
By: Byron Kennedy
MONEYWEB: We move away from financials to the technology sector. After last year’s decline in earnings, Reunert’s year-end results confirm what the interims suggested – that the Siemens Telecommunications blip is out of the system. We’re joined now by Boel Pretorius. He’s the chief executive officer of Reunert. Headline earnings per share up 20%, compared with two years ago – and 51% year-on-year. Just how far back to normal is Sietel?
BOEL PRETORIUS: I think it''s where we want it to be. I think all the abnormalities have been worked out of the system, it''s back to normal, business is good – and I expect this sort of performance to continue going forward.
MONEYWEB: The glitch there did have to do with the rand strength. Clearly you’re managing that risk a lot better these days. What exactly did you change on that front?
BOEL PRETORIUS: Well, first of all we were caught off-guard. You know it was a sudden and very sharp appreciation of the rand that caused havoc two years ago. What we are doing now, we’re richer, we’re a lot more awake, we are very careful if we have rand-denominated liabilities, we make sure those are covered, and if we have euro- or dollar-denominated liabilities, likewise.
MONEYWEB: Just looking at your cash position, that has fallen by close on R200m over the past year. What do you put that down to?
BOEL PRETORIUS: Well, actually the cash generation has been exceptionally strong in the past year. You should bear in mind that we’ve made acquisitions to the amount of close to R250m, and on top of that, by way of a compulsory share buy-back we returned, if you add back the STC we paid on dividends, in excess of R500m to shareholders. So overall R750m either returned or reinvested.
MONEYWEB: Exactly the answer I was looking for. Much has been made about Vodacom’s 3G network, the imminent rollout of that . Reunert’s going to execute it. You’ve been appointed. Has the benefit of that already dropped onto your bottom line?
BOEL PRETORIUS: No, the bulk of it will come in this year. You know, we started very late, I think something like latish September, early October with the rollout. The first phase will be completed early December. I’m also very happy to say that that’s on schedule.
MONEYWEB: And just how significant is a project like that in the makeup of your business?
BOEL PRETORIUS: Look, those are big projects, because Vodacom is a very big player in the mobile market in South Africa, and I think ultimately they probably will replace all their base stations with 3G base stations already close to it. It''s just one of those things. If you have customers with 3G handsets, there’s no use if they can only use them in parts of the country.
MONEYWEB: Take us through the defence side of the business. It used to be the bulk of your company, now it''s only 6% of turnover, and it does seem to be rather problematic. Why not just sell your way out of that problem?
BOEL PRETORIUS: Well, first of all, it''s not really problematic. If you look at the money that we make and the returns that we generate on the investment, it''s absolutely fantastic. We employ very few assets in those businesses, and it''s still very profitable. So, as far as defence businesses are concerned, especially in South Africa, that’s the cream of the crop. It''s worth a lot of money. It''s maybe not performing at a level where we would like it to be, but the potential is there and hopefully we will realise that in the short term.
MONEYWEB: Also interesting to see that Vodacom is snapping up its service providers. Where does it leave your play in that environment – National Mobile? What’s the future of that business?
BOEL PRETORIUS: I think we’ve got a very valuable asset, and an asset that Vodacom, MTN and all those guys would very much like to have. And I think at the end of the day those are commercial issues that will be dealt with.
MONEYWEB: You’ve quantified the loss on your investments in CS Holdings at R31m, on condition that the Bytes offer does in fact become unconditional. Why did you elect to accept the Bytes offer, instead of perhaps taking CS Holdings on yourselves?
BOEL PRETORIUS: Well, the damage was too great. It was too late. When we made the offer at 35c a share we could have done something with the business. More than half a year later we weren’t convinced.
MONEYWEB: Looking ahead, Boel, which part of your business are you expecting to see an improved performance from this time around?
BOEL PRETORIUS: Especially ATC, the telecommunications cable manufacturer. I think they will become a lot better in the new year. I think Siemens Telecommunications has got upside. African Cables, CBI, all of the businesses, with the exception of the defence businesses. I think it will be rather a mundane year for those again.
MONEYWEB: That’s Boel Pretorius, the chief executive officer of Reunert. Fantastic numbers coming out today. Headline earnings per share improving 51%, but there was a little blip in the system. They did have to put out a profit warning last year. Quite unfortunate, but back on track. And even if you look at the numbers that they’ve produced two years ago, they’ve managed to improve on those by 20%.