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Nov 25, 2008

Reunert focuses on cash preservation as slowdown bites

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JSE-listed technology group Reunert would focus on cash preservation as economic conditions deteriorated, but CEO Gerrit 'Boel' Pretorius was convinced that some of its business units were still positioned for growth.

Speaking at the company's year-end results presentation in Johannesburg on Tuesday, Pretorius acknowledged that demand would decline in the near term and that exchange-rate uncertainty would linger.

The group was responding by scaling back capital expenditure and raising its dividend cover from 1,8 to two times - this cover could be revised upwards again should conditions deteriorate further.

Pretorius said that it was "good management" to preserve cash, as trading conditions become more difficult.

However, he said the company would still consider acquisition opportunities given its strong balance-sheet position. But there was no immediate prospect of corporate activity.

The group's CBI-Electrical division was expected to benefit from strong demand for high-tension cable and fibre cable, although demand from the general market would be weaker owing to the economic climate.

The energy cables business had in the year ended September 30, 2008, secured a significant contract to supply aluminium conductor steel reinforced cable for Eskom's five-year contract. It also had a strong order book for the supply of high-voltage cable.

Further, Pretorius noted that while the high copper price had previously been of great concern for the energy cables business, the price had since softened from about $8 800/t to about $3 000/t. He expected the price to decline even further to about $2 200/t.

Demand for its telecommunications cables from Telkom had declined, but fibre-optic cable demand was increasing.

Pretorius expected this demand to increase even further with a number of telecommunications players, such as Altech Autopage Cellular, were now permitted to self-provide.

On the low-voltage products side, Reunert had grown its exports of circuit-breaker equipment and had countered Chinese imports in the local market. Its exports to Australia had also increased.

The company also planned to start manufacturing a number of medium-voltage products and was already supplying some products to this market, where substantial contracts were on offer.

Meanwhile, Pretorius asserted that the group's Reutech division would benefit from receiving a dollar-based income in the short term, while local demand would ensure demand for its products in the longer term.

The radar systems business had already seen an adoption of its slope stability radar equipment by a number of the large mining houses, where there was a big requirement. It had already started exporting systems to Australia and South America, and was optimistic of entry into the North American market.

Further, the company had facilities in place to ensure it could produce about 500 000 set-top boxes a year, as part of government's digital migration programme.

Pretorius said this market was valued about R7-billion over a four to five year period.

Meanwhile, the RDL Solutions business had received its first terrestrial trunked radio (Tetra) order from a large industrial South African group, in a contract worth R52-million.

It would provide 4 000 tetra-safe handsets and install 11 tetra sites, including towers and civil works.

Further, the company had submitted two large tenders, which Pretorius hoped would come through, as larger Tetra contracts could generate about R1-billion each.

Edited by: Mariaan Webb
Creamer Media Senior Researcher and Deputy Editor Online
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