APPLIED ELECTRONICS
Reunert Investors’ Day
1
11 April 2017
AGENDA
10h00-10h10 Welcome and update on Reunert strategy Alan Dickson
10h10-10h20 Applied Electronics
10h20-10h40 Secure Communications Cluster
10h40-11h00 Reutech Communications Martin de Beer
11h00-11h20 Omnigo Rieel Schonfeldt
11h20-11h40 Nanoteq Gerrie Venter
11h40-12h00 Questions and answers
12h00-13h15 Factory visit
13h30-14h30 Light finger lunch
14h30 Shuttle departure back to airport
2
REUNERT OVERVIEWAlan Dickson, Group CEO
3
01
4
Revenue
R8,5bn
6 492Employees
Operating
profit
R1,3bn
Market
cap
R13bn*
*10 April 2017
All other numbers based on 30 Sep 2016
REUNERT OVERVIEW
Key Facts
• Established in 1888.
• Listed on the JSE on 1 January 1948.
• Included in the electronic and electrical
equipment sector.
• Corporate headquarters in Woodmead,
Sandton, South Africa.
• International operations in Australia,
Lesotho, Sweden, USA, Zambia and
Zimbabwe.
• Financial year-end 30 September.
7 Testing laboratories
9 Innovation centres
4 Data centres
14 Manufacturing plants
37 Nashua franchises
269Independent ECN
channel partners
5
37%
46%
17%
% Revenue
contribution 2016
ELECTRICAL ENGINEERING
CBI-electric: African Cables
CBI-electric: Zamefa
CBI-electric: Telecom Cables
CBI-electric: Low Voltage
New
SECURE COMMUNICATIONS
CLUSTER
APPLIED ELECTRONICS
Fuchs Electronics
Reutech Radar Systems
Reutech SolutionsReutech
Communications
Omnigo
Nanoteq
Terra Firma Solutions
Ryonic Robotics
New
New
New
New
ICT
Nashua
ECN
Quince Capital
Nashua Communications
PanSolutions
STRATEGY EXECUTION
84% of revenue*
Growing competition
Late life-cycle products
Margin pressures
Concentration
risk
Slow top-line
growth
* Based on FY-2014 reported revenue
OPTIMISATION OPTIMISATION
REUNERT FINANCIAL PERFORMANCE
7
8 5118 3007 774
7 247
20162013 20152014
Reunert revenue (Rm)
17%
60% 59%43% 37%
31% 32%45% 46%
12%9%9%
2016
100%
2014 20152013
Segmental revenue contribution (%)
Operating profit (Rm)
15% 14% 15% 23%
49% 53% 47%41%
38% 36% 42% 45%
-4%-3%-2% -9%
2013 20162014
100%
2015
ICT
Other
EE
AE
Segmental operating profit contribution (%)
1 315
1 167
1 0171 102
20152014 20162013
APPLIED ELECTRONICS
8
APPLIED ELECTRONICS’ STRATEGIC PRIORITIES
① Geographic diversification
─ 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.
② Earnings diversification
─ Continue developing commercial applications using Reutech’s defence technologies, thereby
broadening its customer base.
③ Transformation
─ Continue driving improvement in transformation objectives to ensure that Reutech is aligned
with government’s objectives in this regard.
9
PROGRESS AGAINST THE STRATEGIC PRIORITIES
① Acquisition activity─ Omnigo: December 2015
─ Nanoteq: October 2016
─ Terra Firma Solutions (51%): March 2017
─ Ryonic Robotics (75%): March 2017
② Transformation─ Phase 1 of Reutech (Pty) Ltd BEE equity ownership transaction concluded in 2016.
─ SA Defence Industry Charter in process where after final equity position will be evaluated.
─ Improved BBBEE ratings
• Communications Level 1
• Radar Systems Level 2
• Solutions Level 2
• Omnigo Level 2
• Nanoteq Level 5
─ Good progress made on the appointment of employment equity candidates at senior level.
10
PROGRESS AGAINST THE STRATEGIC PRIORITIES
③ Earnings diversification
• Increased sustainability of the segment and establishing a
higher base
─ Doubled the production capacity for production of
new generation tactical radios.
─ Entering new export markets.
─ Commercialising radar technologies (mining
surveillance and sub-surface profiler).
─ Increase commercial portfolio through recent
acquisitions of Terra Firma Solutions and Ryonic
Robotics.
11
38%51% 50% 41%
62%49% 50% 59%
1 000 1 081100%
2016
1 505
2014 20152013
1 020
LocalExports
Revenue (Rm) split (%)
0
1
2
3
4
5
6
7
8
9
R&D as % of revenue
12
AE │RESEARCH AND DEVELOPMENT
59
79%
2012
+22%
21%
20%
86
54%
2014
74
2016
127
46%
80%
2015
64%
2013
70
36%
76%
49
2011
58%
24% 42%
Self-funded Externally funded
Total R&D spend
in Rm
APPLIED ELECTRONICS │FINANCIAL PERFORMANCE
13
1 505
1 0811 0001 020
0
200
400
600
800
1 000
1 200
1 400
1 600
201620142013 2015
Revenue (Rm)
305
181170207
0
50
100
150
200
250
300
350
2014 20152013 2016
Operating Profit (Rm)
Sustainability improved and less
lumpy earnings over the longer term
• Geographic diversification.
• Product diversification
─ Earlier life cycle products and services.
─ Increase commercial portfolio.
• Focused effort on progressing transformation.
• Continued investment into R&D.
OUTLOOK AND TRENDS
14
MINING SECTOR TRENDS
• Miners are adapting to an environment where reduced demand will lead to lower commodity prices for the foreseeable future.
• Increasing percentage of reduced capex budget allocated towards technologies that will enable greater efficiencies:
─ Automation (e.g. continuous mining, autonomous vehicles).
─ Productivity (e.g. Sensors to assess geotechnical environment, usage of equipment and location of work-force).
─ Digitisation of operations (e.g. remote monitoring centres; robotics and drones).
─ Perimeter protection and monitoring.
• Technologies deployed need to operate in remote, harsh environments, integrated into a single view of the environment.
15
Globally, 69% of mining companies
are looking at remote operation and
monitoring centres, 29% at robotics
and 27% at unmanned drones.
Source: Deloitte, Tracking the Trends 2017
0
10
20
30
40
50
60
70
80
50
55
60
65
70
75
80
85
90
95
100
105
2015 20162013 20142012
% Operating cash flow (RHS)SA mining capex
South African Mining Industry
Capital Expenditure (Rbn)
CHANGING DEFENCE MARKETS
• The defence market is becoming increasingly global.
• Defence spending is shifting from USA and European dominance to new
regions.
• Asia-Pacific and Middle East-North Africa regions are expected to become the
largest, most attractive and enduring markets growing at an annual rate of 5%
for next decade.
• Opportunities exist for niche, smaller enterprises to enter into partnerships and
collaborate with large players.
• Technology and knowledge transfer are opening up new markets.
16
ARMS IMPORTER MARKETS
17
• Major arms export
markets located in the
so-called “Golden
Crescent” from Middle
East to South East
Asia.
• Reutech companies
are already active in
many of the large
arms-importer
territories.
• Opportunities exist to
expand regionally to
adjacent countries.
SECURE COMMUNICATIONS CLUSTER
18
CREATING A SECURE COMMUNICATIONS CLUSTER
• The Omnigo and Nanoteq acquisitions have created a vertically integrated
provider of next generation tactical communication products.
• The cluster is well positioned to supply into existing long-term contracts and
complementary offshore geographies.
• These acquisitions should double earnings from this cluster in FY2017.
• R90+ million investment into a new state-of-the-art facility doubling the
capacity to supply into the multi-year Radiate contract and international
markets.
THE STRATEGIC RATIONALE
① Geographic diversification
─ Omnigo: long-term, hard currency contracts.
─ Nanoteq: world class encryption technology in demand by non-aligned states.
─ All the companies operate in complementary geographies which open new sales opportunities
and offer sales synergies.
② Complete secure communications system
─ High specification electronic sub systems.
─ Vertical integration through both Omnigo and Nanoteq.
─ Complete suite of products
• Military specification tactical communications for land, sea and air.
• Encryption technology.
20
REUTECH COMMUNICATIONS
Martin de Beer
21
02
COMPANY OVERVIEW
• A South African OEM company, established 1968 to support the need for military radio communications within the SANDF.
• Secure tactical communications is a strategic capability.
─ World class technology is sustained through continued investment in technology and product enhancement by DOD.
• Export success is derived from long-term acquisition and support to SANDF (30yrs) and established partnerships with DOD and International OEMs.
• Capabilities include design, development, manufacture and support of new technologies and products.
• Product range offers solutions for
─ Airborne, naval and land based environments.
─ Secure interoperability across all armed forces with backwards compatibility with legacy equipment.
─ Tactical, mobile and static secure radio communication systems.
• Level 1 BBBEE scorecard rating.
Regions
Southern Africa
North Africa
West/Central Africa
Northern Asia
South-Central Asia
South East Asia
Middle East
South America
MARKET PENETRATION
PRODUCT TIMELINE – 50 YEARS
• Licensed
Manufacture & ToT
of Radios
• A52, A53;A55
Manpack & B56
Appliqué
• A72 & B76 Gnd – Air
• Local development,
production and support of
ground /airborne comms
• A42 handheld, A43
Manpack, B46 vehicle
• Artillery Comms System
• ToT of MRV3,4 for
SAAF
• Dev ACR430 for
local Mirage III
• Dev, production of
ACR500 / TR2800
for SDP’s
• ACR510 new
generation
• Technology
establishment
• Product
development
• CNR system
production
1st Gen 2nd Gen 3rd Gen Airborne
1960 / 70s 1980 / 90s 2000 to date 1985 to date
CNR PRODUCT OFFERING
NEW GENERATION CNR FEATURES
Common HMI
─ Ease of operation
─ Ease of training
Common Interfaces
─ H/W & S/W
─ Ease of system integration
Common Battery pack
─ HF/VHF/UHF Manpacks
─ Built-in charger
─ Ease of support
Common Maintenance Philosophy
─ Ease of support
Software Defined Radios
─ Ease of upgrade
Built-in Link-ZA functionality
─ Ease of data integration
Customisable cryptographic module (QCMR)
─ Tamper resistant, compact flash II with total autonomy
BBBEE SCORES : 2012 – 2016
2012 Level 4
2013 Level 3
2014 Level 3
2015 Level 2
2016 Level 1
Our progress in transforming the business in South Africa is measured against the BBBEE
codes of Good Practice
• Going beyond compliance
• Committed leadership
• Partnership with all key stakeholders
• 145 Direct production staff
• 6 disabled learners
• 24 unemployed leaners, all have been absorbed
TRANSFORMATION – RADIATE Workforce
Diversity
72%
28%
MaleFemale
63%
36%
1%Black
White
Foreign
Workforce split
EMPLOYMENT EQUITY
Operators, Testers and Technicians
37%
Trainee Operator
31%
Trainee Technicians
10%
Technicians trained14%
Trained Semi-skilled Operators
8%
SUBCONTRACTING TO SMMES
BLACK OWNED SUBCONTRACTORS
11%
SUPPLIER DEVELOPMENT TO
CREATE B/F OWNED SUBCONTRACTOR
5%
REUTECH OWNED SUBCONTRACTORS
7%
OTHER SUBCONTRACTORS
13%
SPLIT OF 36% SUBCONTRACTING
TRANSFORMATION – ED ENTERPRISE DEVELOPMENT
• ED agreement with start up Black owned company
Commercial Editt.
• Provide portable network & training solution to assist teachers
and learners in rural schools.
• Reutech Communications engineers assisted in the design
development of charging trolley for these tablet PCs.
• Commercial Editt is finalising agreements with Department of
Education to do roll out in 50 x rural schools.
• Initiative between Philangethemba Trust and RC in the
Molweni valley (~ 6km from Reutech).
• It is situated at the Tholulwazi High School and has
been in operation since 2013.
• Dramatic improvement in Matric results.
• Assist learners on maths and science studies.
• Additional Centre opened at Lamula Primary School in
September 2016.
TRANSFORMATION – SED SOCIAL ECONOMIC DEVELOPMENT
OMNIGORieel Schonfeldt
32
04
BACKGROUND
• We started out as a micro enterprise (Factum Electronics) in the 1980’s.
Omnigo was founded in 1999 as a joint venture between Grintek and Factum.
• Omnigo is now a wholly owned Reutech company.
• Omnigo currently employs 200+ people.
• Based in Pretoria in a 4 500m2 facility.
• Our focus is on the manufacturing of Printed Circuit board assemblies and sub-
assemblies for the Aerospace & Defence and industrial industries.
PRODUCTS AND SERVICES
• Omnigo provides a complete Turnkey Electronic Manufacturing service to
Customer’s design, which entails:
─ Procurement of components, the manufacture / population, test, stress screening of PCA’s and
sub-assemblies.
• Other services include product industrialisation and environmental
qualification.
PRODUCT APPLICATION
• We allow Customers to focus on their core business
• Our assemblies form a core part of the electronics of a variety of different
products.
OUR TECHNOLOGY
• Surface-Mount Technology (SMT) lines.
• Selective Solder and Wave Solder lines.
• AOI and X-ray Inspection.
• Refined production process with over 30 years of experience.
CAPABILITIES
• Placements as small as 1 005 packages.
• Total capacity of 236 000 components per hour.
• Average of 50 000 PCB assemblies per month.
• Value added capabilities
─ Test Facility.
─ Industrialisation.
─ Coil Winding.
─ Reworks.
MARKETS AND CAPACITY
• Business operates within the Low Volume-High Mix environment ideally suited for Aerospace and Defence sector.
• Turnover 50% direct export, with 30% of local sales indirectly destined for export.
• EMS industry resolves around a trust relationship with customers.
• New markets and strong growth in local defence exporters contributed to strong growth over past 2 years which is expected to continue into the foreseeable future.
MARKETS AND CAPACITY
• Growth opportunities exists in non-traditional developed world regions and the
developed world through SA counterparts.
• Untapped potential in SA (new customers & expanded service offering).
• Significant investment in capacity and throughput speed has been made to
ensure business can capitalise on these opportunities.
ACCREDITATIONS
• IPC Manufacturing standards USA
• Armscor
• ISO 9001: 2008 Dekra
• BBBEE Level 2 Compliant
NANOTEQGerrie Venter
41
05
Welcome to the World of
Strategic Crypto Products
and Technologies
NANOTEQ THEN...
• Established in 1988.
• Private company focused on cryptographic product development.
• Initial major technology projects:
─ World-first remote control code hopping solution (Keeloq).
─ Secure pay-television solution designed (MNET).
NANOTEQ TODAY…
• Part of the JSE listed Reunert group.
• 100% South African company.
• 28 years in Strategic Information Security.
• Focused on development of cryptographic products and
solutions.
• Strategic partner to the SANDF.
• Has a product range that;
─ Offers true high-grade cryptographic solutions.
─ Allows the client to achieve full cryptographic autonomy with the least
effort.
WHAT DO WE DO?
Voice
Fax
GSM
Wi Fi
Radio
Satellite
Stored data Information in transit
HDD
Laptop
File server
Tablet
Prevent rather than investigate
“Provide products that ensure secrets remain secret!”
PRODUCT SUITES
Voice (GSM, VoIP)
Voice/Fax (PSTN)
Links (Layer 2)
Desktop
Network (Layer 3)
Tactical Level
• State of the art Cryptographic
module suite.
• Common architecture for Central
On-line management.
• Cryptographic autonomy compliant.
• FIPS 140-2 Level C compliant.
SUPPORT OFFERING
• Cryptographic component Management System (MS)
The MS is used for the management of the various cryptographic products.
• Custom development
Through propagation of our cryptographic autonomy principal, Nanoteq is geared to engage in custom development projects our willingness to be involved in knowledge transfer and joint development projects.
• Consultation
Ensure our client’s requirements and expectations are met through seamless integration of technical architecture and solutions with operational requirements and constraints.
• Compliancy monitoring
Using a standards-based methodology, Nanoteq provides services addressing the complete security management lifecycle.
47
IN CONCLUSION: WHY NANOTEQ?
• Achievable Crypto autonomy offering
─ Solution driven based on Crypto autonomy friendly products
• Trust
─ RSA politically neutral in target markets
• Agile
─ Quick response to market changes
• Track record
─ Long-term relationship establishment
• Workforce
─ Battle proven and driven to be the best!
QUESTIONS
49
01
02
03
04
05
06
07
6
FACTORY TOUR
50