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.
The following overarching goals create alignment across the different segments and business units:
Key themes that influence our ability to create value over the short, medium and long term.
POLITICAL & REGULATORY ENVIRONMENT
|>||76% of the group’s earnings are directly linked to the South African economy and currency.|
|>||Radars (civilian and military applications).|
|>||Other Applied Electronics products.|
|>||Infrastructure (Power and Telecommunications).|
|>||Information Communication Technologies (ICT) (Managed office solutions).|
ECONOMY AND MARKETS
|>||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 improvements through technology and streamlined processes.|
|>||Margin management through cost optimisation.|
|>||Digitalisation of the workplace.|
|>||Effective management of all our employees|
|>||Retention of senior executives and critical skills are key requirements for success.|
|>||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.|
|>||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.|
|>||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.|
|>>||Diversify and increase earnings through a combination of:|
|–||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.|
|>>||Total shareholder return (TSR).|
|>>||Return on equity (ROE).|
|>>||Operating profit margins (%).|
|>>||17% improvement in NHEPS.|
|>>||1,4% improvement in operating profit margin.|
|>>||Develop new products and services and reduce costs through innovation, research and development.|
|>>||The revenue from new products released per year.|
|>>||Major new product innovations are covered in segment performance reviews.|
|>>||Due to the group’s diverse nature, a variety of customer-related KPIs are used at business unit level, measuring:|
|–||customer service levels;|
|–||customer retention; and|
|>>||Performance against customer-related metrics is covered in the various segment performance reviews|
|>>||Succession plans for critical roles.||>>||Retention of critical skills|
|>>||84% of identified successors on development plans.||>>||26% succession plans for critical roles identified.|
|>>||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.|
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.
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.
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 is centred on:
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.
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.
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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Regular management oversight is in place to drive progress, identify risks and apply mitigation actions.
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.
The transformation strategy is delivering results under the oversight of the Group Transformation Committee (GTC):
The segmental execution plans and how they support the group strategy are set out below.