Overview

Reunert comprises a diverse group of companies both in terms of size and business activity. Broadly speaking, the group is strategically linked through its electrical, electronic and ICT engineering capabilities in either their core competencies and/or the markets they serve.

Group Strategy

Strategy development

Reunert's key strengths
  • Strong market positions in all of our South African businesses
  • Well-known and respected brands.
  • Strong operational philosophy and well-managed operations.
  • Proven ability to integrate systems (convergence)
  • Sustainable margins.
  • A healthy balance sheet
  • Healthy balance sheet.
  • Robust risk management, internal control processes and systems
  • Electronic and engineering expertise
Strategy development

Reunert’s group strategy was developed taking the operating environment, material matters, identified risks and opportunities into account and input from all the material business units was considered. The strategy was built around our key strengths.

The Board approved the strategy in May 2015, and reviewed it in April 2016. While Reunert’s group strategy remains valid, the challenges posed by the local economic and political environment increased in the intervening year, substantiating the key risks identified and the strategy employed. Our goals and strategic pillars are consistent throughout the group, and this provides cohesion and alignment.

The business units converted their strategy into appropriate execution plans. The execution plans are rolled out through project management activities and monitored through a range of KPIs. These business-specific KPIs are integrated into monthly management reports through which feedback is received and, where necessary, corrective action is implemented.

Reunert goals

The following overarching goals create alignment across the different segments and business units:

  1. Being a leading player in the South African electrical and electronics industry. This will be evidenced by Reunert achieving and maintaining cumulative growth in NHEPS and having a TSR within the top three issuers in the electrical and electronics sector of the JSE.
  2. Operating a customer-centric business.
  1. Operating as a responsible corporate citizen with a strong set of values.
  2. Fostering a culture of high-performance and employee engagement.
  3. Moving up the value chain (including evolving from a product focus to a solution focus) to deliver value-added services and solutions.

Our salient features

Material Matters

Key themes that influence our ability to create value over the short, medium and long term.

 

POLITICAL & REGULATORY ENVIRONMENT

  • Concentration risk and the macro-economic environment
    > 76% of the group’s earnings are directly linked to the South African economy and currency.
  • Diversification
    Acquisitions with earnings derived outside of South Africa through focusing on niche export markets
    > Circuit breakers.
    > Radars (civilian and military applications).
    > Other Applied Electronics products.

    Expanding African markets and making regional acquisitions
    > Infrastructure (Power and Telecommunications).
    > Information Communication Technologies (ICT) (Managed office solutions).
 

ECONOMY AND MARKETS

  • Slow top-line growth
    > A proportion of Reunert’s products are in the latter stage of their business life cycle.
    > Increased competition and commoditisation of products contribute to slow growth.
    > Margin pressure results from a combination of inflation, competitors’ activities and low macro-economic growth.
  • Efficiency
    > Efficiency improvements through technology and streamlined processes.
    > Margin management through cost optimisation.
    > Digitalisation of the workplace.
 

PEOPLE

  • People
    > Effective management of all our employees
    > Retention of senior executives and critical skills are key requirements for success.
  • Talent development
    > Investing in employee development through properly structured individual development plans.
    > Managing talent and developing succession plans to ensure continuity and appropriate employee development to meet business requirements.
 

TECHNOLOGY

  • Transformation and diversity
    > EE remains an imperative.
    > Embracing Broad-Based Black Economic Empowerment Codes of Good Practice (BBBEE Codes) and achieving appropriate BBBEE scores are prerequisites for doing business in South Africa.
  • Position to participate
    > Transform and reposition Reunert in alignment with South Africa’s transformation objectives.
    > Transform business models to adapt to the evolving customer and business requirements brought about by the implementation of the Reunert strategy.

Strategic Pillars
  • Growth through diversification (develop, acquire or partner)
    >> Diversify and increase earnings through a combination of:
    geographic expansion;
    new products and services; and
    improved solutions offerings.
  • >> Change in revenue mix:
    Increase in non-ZAR1 revenue (%);
    Geographical split in revenues (%); and
    Customer segmentation (%) (public vs private sector).
  • >> 46% increase in non-ZAR revenue.
    >> 24% non-ZAR revenue earned.
    >> 66% private sector revenue.
  • Ensure best-in-class operational efficiency and improved capital efficiency
    >> Continuous improvement
  • >> Total shareholder return (TSR).
    >> NHEPS.
    >> Return on equity (ROE).
    >> Operating profit margins (%).
  • >> 7% TSR.
    >> 17% improvement in NHEPS.
    >> 16% ROE.
    >> 1,4% improvement in operating profit margin.
  • Provide customer-centred products, services and solutions
  • >> Due to the group’s diverse nature, a variety of customer-related KPIs are used at business unit level, measuring:
    customer loyalty;
    customer service levels;
    customer retention; and
    market share.
  • >> Performance against customer-related metrics is covered in the various segment performance reviews
  • Develop a high-performance organisation focusing on effective employee engagement
  • >> Succession plans for critical roles.
    >> Retention of critical skills
    >> Zero fatalities.
  • >> 84% of identified successors on development plans.
    >> 26% succession plans for critical roles identified.
    >> One fatality.
  • Transform our businesses to effectively participate in the markets we serve
  • >> EE at top and senior management (%).
    >> BBBEE Code level per business unit.
  • >> 18% improvement in EE representation at top and senior management.
    >> BBBEE Code levels achieved are reported in the transformation section.

Strategic objectives

Our customers

Provide customer-centred products, services and solutions.

Customer-centricity is a core focus area to enhance the value offering for customers and incorporates customer loyalty and retention as key objectives. In turn, this maximises our participation in the customer’s spend.

Our people

Develop a high-performance organisation focusing on effective employee engagement.

Reunert promotes a high-performance culture to support its growth strategy. We actively engage with all employees in a meaningful manner and motivate and recognise execution excellence. While actively investing in our people, employees are responsible for ensuring that they adopt a high-performance culture. Engagement is built on honesty, transparency, teamwork and open communication. Innovation is an important skill-set in many of our businesses and the retention of key employees, including scarce and critical skills, is vital.

Efficiency

Ensure best-in-class operational efficiency and improved capital efficiency.

The efficiency pillar focuses on the management of existing assets. These assets are expected to deliver growth, in line with the growth in fixed domestic investment, and generate the free cash flows necessary to implement the diversification and innovation strategies of the group. Cost control and the continued drive for business efficiencies remain key contributors to good financial returns. Considerable attention is paid to working capital management and optimising capital expenditure to maximise the cash generation from existing businesses. Enhancing distribution and warehousing solutions to reduce costs is another focus area.

Diversification

Diversification is centred on:

• Geography:
Expanding the existing value offerings into carefully selected new geographic areas where the group has business experience and where we have real competitive advantages. This expansion is derived from a combination of acquisitive and organic growth. Our choice of markets and the speed of geographical diversification are determined by international developments and opportunities that arise.

• New products and services:
Reunert’s strong brands are leveraged to offer additional products and services to customers within South Africa. Cross-selling opportunities are considered to provide organic growth opportunities, whereas acquisitions are the preferred method to access these market prospects

• Improved solution offering:
Solutions that drive margin enhancement and customer retention are introduced continually. The move up the value chain is pursued through acquisitions to accelerate this focus area.

Innovation

Develop new products and services and reduce costs through innovation, research and development.

Innovation is supported throughout the group to drive the product, service and solution pipeline required to support sustainable growth. Harnessing technology creates opportunities for efficiency improvements and increasing revenue growth through innovation and new products.

Transformation

Transform our businesses to effectively participate in the markets we serve.

Transforming Reunert focuses on people as well as business models.

Through transformation, we are maximising our opportunity to participate in South African revenue streams by aligning our transformation objectives to those of the South African government.

We are transforming our business models, as required, to evolve from a historical focus on products to deliver value-added services and solutions, strengthening our position in the value chain. This business transformation is interlinked with our diversification, innovation and efficiency strategies.

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Group oversight

Regular management oversight is in place to drive progress, identify risks and apply mitigation actions.

Strategy execution
  • All segments’ and business units’ strategies are reviewed annually.
  • KPIs are identified during the budget process, entrenched in the variable remuneration system and driven through the strategic project management process.
  • Strategic projects are reviewed at monthly management meetings.
Mergers and acquisitions

A permanent merger and acquisition capability was introduced at group level to accelerate the acquisition activities within Reunert.

An acquisition process, as approved by the Investment Committee, was fully adopted and positive results are starting to materialise.

Transformation

The transformation strategy is delivering results under the oversight of the Group Transformation Committee (GTC):

  • Significant improvement in EE at the top three management levels.
  • BEE ownership transaction was completed in the Electrical Engineering segment and another transaction is nearing completion in the Applied Electronics segment with the second phase subject to finalisation of the South African Defence Industry (SADI) Charter.
  • All business units either achieved higher BBBEE levels or maintained their current BBBEE levels.

Segment priorities

The segmental execution plans and how they support the group strategy are set out below.

Electrical engineering
  • Secure bolt-on acquisitions and further develop channels to expand the group’s footprint outside of South Africa..
  • Enhance solutions offerings by incorporating current products and services.
  • Acquire and/or develop complementary technologies that can be distributed through existing channels.
  • Advance transformation to secure and develop additional market share.
  • Continue optimising manufacturing efficiencies.
ICT
  • Acquire/ develop complementary technologies in ICT to evolve the business to a holistic document management and managed office provider.
  • Continue seeking new areas, products and services for delivery through the franchise model and expanding the franchise model into neighbouring territories.
  • Expand and improve the value offering and services to attract more customers and become a single port of call.
  • Continue building on customer engagements to enhance the level of service provided and to ensure clustered service offerings meet their needs.
  • Improve operational efficiencies to enhance margins.
Applied electronics
  • Increase the group's focus on export markets and securing long-term contracts.
  • Build and strengthen partnerships with OEMs and other defence companies to gain access to new markets.
  • Continue developing commercial applications using Reutech defence technologies, thereby broadening its customer base.
  • Continue driving improvement in transformation objectives to ensure that Reutech is aligned with government's objectives in this regard.