REUNERT ICT INVESTORS DAY...8% growth in units sold including higher capacity MFPs Growth in number of voice customers Lower average usage per customer 3 000 new customers added YOY

REUNERT ICT INVESTORS DAY6 June 2018

AGENDA

Reunert ICT Investors Day June 2018 2

01

05

04

02

03

06

10:00-10:30

10:30-11:00

11:30-12:00

11:00-11:30

12:00-12:45: lunch break

12:45-13:30

13:30-14:00

07

Welcome and Overview [Alan Dickson]

Office Automation cluster [Mark Taylor]

Walk-about [Andy Openshaw]

ICT strategy execution [Mark Taylor]

Communications cluster [Andy Openshaw]

Finance cluster [Zahir Mahomed]

Conclusion [Alan Dickson] 14:00-14:20

OVERVIEWAlan Dickson

3

4

R9,8bn

6 315Employees

R1,5bnR14,8bn

*4 June 2018

All other numbers based on 30 Sep 2017

KEY FACTS

► Established in 1888

► 70 years listed on the JSE

► 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

► Three segments

► Electrical Engineering

► Information Communication Technologies (ICT)

► Applied Electronics

Reunert ICT Investors Day June 2018

REUNERT OVERVIEW

10 Testing laboratories

12 Innovation centres

4 Data centres

14 Manufacturing plants

37 Nashua franchises

320+Independent ECN

channel partners

Market

Cap*Revenue Operating

profit


ELECTRICAL ENGINEERING

CBI-electric: African Cables

CBI-electric: Zamefa

CBI-electric: Telecom Cables

CBI-electric: Low Voltage

2016

APPLIED ELECTRONICS

Fuchs Electronics

Reutech Radar Systems

Reutech Solutions

Terra Firma Solutions

RyonicRobotics

2017

2017

ICT

Reutech Communications

Omnigo

Nanoteq2016

2015

SECURE COMMS

Nashua ECN

ProdocNashua

Communications

PanSolutions SkyWire 2018

OFFICE AUTOMATION COMMUNICATIONS

Quince Capital

FINANCE

20yy Acquisitions: Funded mainly from Nashua Mobile proceeds

REVIEW │ WHAT WE SET OUT TO DO

2014:

84% revenue

generated in South Africa (R1,2 billion non-ZAR)

Growing competition

Late life cycle products

Margin pressures

Concentration

risk

Slow

top-line

growth


7

► 31% CAGR in non-ZAR revenue to R2,8 billion (2014: R1,2 billion)

► Electrical Engineering

► 28% of revenue from non-ZAR (FY2017)

► Applied Electronics

► Export revenues increased by 72% since 2014 (2014: R490 million to 2017: R843 million)

► Export order books at record levels at year-end

► 2018 non-ZAR revenue expected to increase further, subject to the

Rand exchange rate

DIVERSIFICATION │GEOGRAPHIC

0

500

1 000

1 500

2 000

2 500

3 000

2014 2015 2016 2017

Africa Middle East and Asia

Australia Europe

Americas

+31%

NON-ZAR REVENUE GROWTH (Rm)


8

ICT SEGMENT

► The segment’s customer base creates a strong opportunity for both scale and new

revenue streams

► 55 000 customers with only a 20% cross sell

► Successful strategy execution is resulting in financial performance gaining momentum

COMMUNICATIONS

► The cluster now provides vertically integrated communications and connectivity

solutions to the ICT segment

► Voice: ECN is the largest independent VoIP provider in the country. The customer base

grew by 500 customers per month

► Data/Internet: The ECN network upgrade now allows for the provision of broadband

internet connectivity over fibre, wireless and copper

► Broadband connectivity: SkyWire acquisition now provides a national footprint with an

excellent overlap with our 300+ dealers and 37 franchise partners

► Microwave licensed and unlicensed spectrum: provides a backhaul for integrated

voice and data offerings

OFFICE AUTOMATION

► Material improvement in evolving to a total office provider

► New annuity revenue streams launched over the last 24 months now comprise

13% of Office Automation’s revenue

DIVERSIFICATION │ICT SEGMENT

ICT SEGMENT REVENUE SPLIT (%)

OFFICE AUTOMATION

REVENUE COMPOSITION (%)

65 6855

26 2236

9 10 9

2014 2017 Target

Office Automation Communications Finance

213

2846

33

26

52 54 46

2014 2017 Target

Services Hardware Annuity

► Operating profit increased by 14%

► Increased volumes due to improved market share

► 8% growth in units sold including higher capacity MFPs

► Growth in number of voice customers

─ Lower average usage per customer

─ 3 000 new customers added YOY

► Good uptake on cloud PBX

─ Doubled during period to 8 000 ports

► Improved margins

► Stronger ZAR benefited office automation

► Quince finance book increased to R2,6 billion on back

of strong sales in the franchise channel

► Quality of book remains excellent

ICT: 1H2018 RESULTSREVENUE (Rm)

OPERATING PROFIT (Rm)

1 8671 698 1 689 1 602 1 670

1 572 1 733 1 643 1 705

2014* 2015 2016 2017 2018

1H 2H

204244 250 278

317

249

289 299

35713

16 16

19

0

5

10

15

20

2014* 2015 2016 2017 2018

% margin

1H 2H FY Operating profit margin %

* Continuing operationsReunert ICT Investors Day June 2018

9

VIDEO

ICT STRATEGY EXECUTIONMark Taylor

► We aim to be a preferred partner to our customers, enabling their purpose by offering integrated information and

communication business solutions

► Our vertically integrated strategy is executed through

► The Office Automation cluster providing total office solutions designed to make businesses efficient

► The Communications cluster offering unified communications, connectivity and cloud solutions meeting the needs of a broadening ICT customer base

► The Finance cluster arranging customised financial services that further strengthens our value proposition

► Our goal is to

► Provide a full spectrum of office business solutions to existing and new customers, fulfilling their needs as technologies evolve

► Build a strong targeted annuity base and increase our service revenue

► Maximise margins through our vertically integrated segment structure

► We have

► A legacy of trusted brands on which we can build: Nashua, ECN, Nashua Communications and Quince

► A strong customer base which allows for cross selling of products

► Suppliers relationships running deep

► Skilled and caring employees

► An extensive network of channel partners throughout Southern Africa

► Business models that are scalable


THE ICT SEGMENT IN A NUTSHELL

12

Diversify office automation and voice revenues

► Nashua product offering expanded

► Repositioning Nashua brand from printer supplier to total office provider (TOP)

► Nashua franchises now ECN’s largest channel to market

► Strong growth in annuity revenues

Offer connectivity (last mile and internet access)

► ECN network upgraded to carry high volume data services

► ECN data and last mile connectivity launched

► SkyWire acquisition will speed up rollout of data wireless services to customers

Maximise free cash flow

► Focused effort on reducing working capital and increasing cash-flows

► Specific attention paid to PanSolutions and Nashua Communications

► Digitise workflow to maximise efficiency and ensure uniform customer experience


TRANSFORMATION OF THE ICT SEGMENT

13

GO-TO-MARKET STRATEGY


Government SOE SME/SMMEMid-SizedEnterprise

Nashua FranchisesDirect DealersWholesalers

Holdings Independent

Customer Layer

Distribution Layer

Factory Layer

Supplier Layer

Shar

ed

Se

rvic

es

OEMs Software Vendors Telco’sOther Vendors

COMMUNICATIONS CLUSTERAndy Openshaw

Expand the Communications cluster to provide unified

communications, connectivity and cloud solutions,

meeting the needs of a broadening ICT customer base.

connect.communicate.content

Increasing the products offered through the existing segment

businesses and actively searching for additional complementary

businesses either through acquisition or partnership


► The completion of the interconnect glide-path led to relatively stable pricing in the market

► Disruptive technologies (e.g. WhatsApp Calling, FaceTime etc.) and a tendency for users to call from mobile instead

of desk-phone

► Physical PBX to Cloud PBX

► Growing demand for faster business broadband products, however the roll-out of fixed infrastructure not keeping

pace

► Broadband usage (fixed and wireless) continues to accelerate, adding new revenue streams to telecoms providers.

► Emergence of new players, Fibre and Wireless

► Potential impact of regulatory proposals such as WOAN

► IOT development from buzz word to revenue

► New BBBEE ICT codes, higher costs of compliance and increased levels of complexity. ICASA reviewing licence

requirements

THE COMMUNICATIONS, CONNECTIVITY ENVIRONMENT

17Reunert ICT Investors Day June 2018

COMMUNICATIONS CLUSTER

19

► Founded in 2005 and acquired by Reunert in 2011

► The fastest growing telecommunications network in SA servicing any size

business customers covering all towns in South Africa

► Has ECS and ECNS licences

► Interconnected with all major operators

► Head office and NOC in Midrand with branches in Durban and Cape Town

► 190 employees, very low churn since


HISTORY

Voice

► Pure VoIP business taking advantage of the interconnect asymmetry

► VoIP a new home for Mobile least cost routing

► Voice an additional service to the Panasonic PABX customer base

► LTE VoIP, taking savings to the SMME

Data / Internet access

► ECN network upgraded to high capacity data capable network

► ECN data or broadband internet services available over copper Fibre and Wireless connectivity

► Bundled Voice and Data offerings

Cloud

► Voice call recording as a service

► VBX, cloud based PABX sold per extension

► Migration of onsite PABX base to cloud based annuity VBX offering

► Data back up / storage

EVOLUTION


21

► Routed over 1,2 billion minutes in FY2017

► ECN has 1,6 million of its own numbers and has

over 140 000 ported numbers on its network

► Over 300 channel partners selling ECN products

and services

► A distributor of Panasonic PABX including

ancillary devices

► Successful roll-out of VBX and currently has over

8 000 ports installed at customer sites

► ECN has a competitive Business Internet Access

product over any mechanism (ADSL, Fibre and

Wireless)


PRODUCTS

2

4

6

8

10

12

14

2014 2015 2016 2017 1H2018

Thousands

0

2

4

6

8

2015 2016 2017 1H2018

Hundre

ds

0

2

4

6

8

2014 2015 2016 2017 1H2018

Thousands

NUMBER OF VOICE CUSTOMERS

NUMBER OF VBX PORTS

NUMBER OF BIA CUSTOMERS

► Upgraded its network in FY2017 with a capex investment

of R12 million

► Fully redundant network, hosted in carrier neutral Data

Centres. Midrand DR site

► Maintains a core network uptime of over 99,9%

► Customer satisfaction levels are network quality are in

line with international carrier standards

► An in-house development team developed our own

routing, customer management and billing software as

well as the VBX

NETWORK



PABX

► 2009 Reunert purchased the balance of Siemens Telecommunications

► Branded Nashua Communications

► Large enterprise customer PABX base

► Siemens globally sold and rebranded as Unify

Systems Integrator

► Risk of dependence on single brand identified

► Skill set and customer base allowed for shift to a trusted full service systems integrator

► Channel model changed to enterprise service focus

► Digital media and control centre capability added

Physical to Cloud

► Microsoft Skype for business identified as next step in unified communications in the enterprise space

► Investment in skills and development to IP capable entity

► Leading the space in this highly complex migration process

EVOLUTION



NETWORK COVERAGE


History

► 2004: 1st ADSL customer for data back up

► 2005: 1st wireless customer

► 2009/10: ICASA License and first Telkom co-location

► 2015: Presence in all nine provinces

► 2018: Acquired by Reunert

Services and Infrastructure

► Licenced and unlicensed spectrum capability

► Voice, Data and Cloud PBX

► Services hosted in all three Teraco data centers

► Hosting within our own containers on Telkom sites

► Co-location and own tower infrastructure

Synergies/opportunities

► Owned last mile connectivity

► Capital to grow direct customer connectivity

► National coverage of Reunert ICT dealer and franchise areas and customer bases

► African expansion, negotiations underway in Botswana, eSwatini, Lesotho, Zambia

EVOLUTION


► Licensed & unlicensed spectrum options

► Tailored speeds (1Meg to 1 Gig)

► High availability, guaranteed 99,5% uptime

per calendar month

► Synchronous lines, low latency

► The NNOC is the heart of our business, 22 000+

end points monitored to ensure service, uptime

► 24/7/365 Network Management and Monitoring

(Client, Tower and Backhaul)

► Support, Ticket Logging (SysAid) and WebPortal

EQUIPMENT AND SUPPORT


ECN NOC TOUR & LUNCH

29

OFFICE AUTOMATION CLUSTERMark Taylor

NASHUA HISTORY


► Significant pressure on OEMs in the international market

► Consolidation and mergers of many players

─ Xerox and Fuji

─ Samsung printers and HP

─ OCE and Canon

► Concern that some of this pressure may be transferred to distributors in terms of higher pricing

► As these changes unfold in the local market could provide an opportunity for Nashua to benefit

► Strengthening of Rand has decreased customer pricing as most products are imported

► Reduction in turnover per unit sale

► Margins will be maintained in absolute terms

► Will allow opportunities to cross-sell/up-sell customers to higher specifications

ICT │KEY TRENDS IN OFFICE AUTOMATION


Print

► Basic print services the core

► Managed print services with strong governance

► Managed document solutions enabling the digital office

8 Lines of business introduced

► Customers use Nashua for the Voice solutions

► Nashua now largest reseller of PABX in the SME space

► Bundled voice and data offerings over copper, fibre and wireless connectivity

► Provide access and surveillance solutions

Total Office Provider

► Offer all the IP based services that our customers use

► All IP office services provided on a single bill

► Very strong relationshipthrough local presence for sales, services and support

EVOLUTION


PROGRESSION TO TOP (OAAS)


Traditional 8 Lines Full ICT Service OaaS

Office Space Office Space Office Space Office Space

ISP Cloud Services ISP Cloud Services ISP Cloud Services ISP Cloud Services

PC & Server PC & Server PC & Server PC & Server

Connectivity Connectivity Connectivity Connectivity

Access Control Access Control Access Control Access Control

Surveillance Surveillance Surveillance Surveillance

PBX, Voice PBX, Voice PBX, Voice PBX, Voice

MDS, MPS MDS, MPS MDS, MPS MDS, MPS

Print, Copy, Scan Print, Copy, Scan Print, Copy, Scan Print, Copy, Scan

Nashua Other Provider

► Add products used in the office that

use IP connections

► Rolled-out

► voice services totalling 130 million

minutes

► data services

► cloud and physical PABX services

to 2 700 customers

► Smart office solutions like

conference call and collaboration

service

► surveillance services

► Next to roll out will be desk-top

solutions, planned during 2018

SUSTAINABLE GROWTH

► New cloud GL system for all

franchises

► New cloud-based stock forecasting

system to improve working capital and

reduce wastage

► New web-based front end for ease of

use and training

► New cloud-based service desk for

existing and new services

► Enhance technical staff skills to

implement and support new products

and improve efficiency for more

volume

► Add complementary services and

products to existing services

► Single bill and point of contact for all

services in the office

► Constant development of all franchise

staff to take advantage of the new

services and improved productivity


► A well-known brand with a solid footprint across Southern Africa that will be difficult and expensive to replicate

► More that 28 000 customers

► Customer-centric model – based on personal relationships

► Substantial focus on customers in the SME market

► A strong service ethic

► 650+ technical staff and 180 service controllers

► On average 15 years service experience per technician

► Continued training and development of technical staff as we add new service offerings

► Expanding our sales force

► Over 530 sales staff

► Initial focus was to improve efficiency in all areas of the business and we achieved close to flat expense growth

► Office print is at the heart of what we do

► We print over 5 billion prints per year on over 91 000 machines

► This allows us to offer more products and services to existing and new customers and to get a bigger share of the wallet

► We offer products and services in the office that the customer already has or needs to secure the bigger spend with us

► There are many new types of print services evolving and not just paper. Mass customisation of 1 is a big part of the future

print services and offerings. Customised wall papers is just one example.

THE NASHUA ADVANTAGE


CUSTOMERS MAPPING


STREET VIEW


PRODUCT LINES


PRODUCTS


SERVICE THROUGH PERSONAL RELATIONSHIPS

42Reunert ICT Investors Day June 2018

THE TOTAL OFFICE


OUR STRATEGIC INTENT 2019 - 2023

ABOUT US

► Enabling people, places and

spaces to work smarter with

scalable and adaptable solutions

VISION

► A leading provider of total office

solutions designed to make

businesses work better

MISSION

► Ensuring customers are at the

core of innovative ideas and

technology that drive business

change

Scalable and adaptable solutions to future-proof your business


► The office print industry is estimated at about R12 billion per annum

► The PC market is estimated to be over R25 billion per annum

► The IT services, software and hardware markets are estimated to be over

R100 billion per annum. There are a lot of components to this area

► The IT connectivity and associated services are around R28 billion per annum

► The voice market still have about 9 billion minutes to migrate to VoIP

► The surveillance systems market is currently at about R1,8 billion growing at an

estimated 20% per year


SOUTH AFRICAN MARKET SIZE OF THE TOTAL OFFICE

45


► Nashua acquired a 60% stake in Prodoc in 2014

► Prodoc has direct sales offices in Stockholm, Malmö,

Helsingborg and Gothenburg

► It is an independent reseller of office systems with a strong

sales and services culture as well as extensive IT

background

► Investments has been made in new technologies/products

► Prodoc provides its suite of products and services through

selected dealers and IT outsourcing partners in Scandinavia

and the Baltics

► The business was recently restructured, focusing on two

new business lines

► Documentation

► Communication and Collaboration

► Further diversification incorporates higher margin business

and potential expansion into Norway and Finland

PRODOC


FINANCE CLUSTER

Zahir Mahomed

► Quince provides asset-based financial solutions to the Reunert ICT segment

► Strong distribution channel: 37 franchises and 192 dealers

► Access to over 35 000 customers

► Trades as Quince Capital and Nashua Finance

► Major competitors: Sasfin, Mercantile Bank

► GCR Rating (August 2017): National A (ZA) (Long term)

► Affirms quality of the business and the finance book

► Financing products offered in the ICT segment

► Examples of approved products

► MFP, printers, software solutions, PABX, CCTV, displays etc.

► Backed up by service contracts for duration of rental agreement


QUINCE AT A GLANCE

49

50

► Primary customer relationship vests with the distribution channel

► Reduced bad debts (local presence, redeploy equipment)

► Single invoice seen by customer: major competitive advantage

► Providing convenience to the customer

► Channel has the option to discount with Quince

► Quince discounts ±90% of available Nashua franchise business

► Channel signs customers up on own agreements (designed and

approved by Quince)

► Factor sheets (pricing is partly risk based)

► Channel acts as collection agents on behalf of Quince

► Quince leverages national collections infrastructure of channel

PRODUCT CHARACTERISTICS

► Operating leases, i.e. rentals

► Maximum contract terms of 60 months

► Averaging 36-39 months

► Rental and service agreements are separate and a rental cannot be withheld based on service

► Lessees contractually responsible for insurance

► No balloon-, residual- or bullet payments


PRODUCT OFFERING

► Providing segment access to annuity

income

► Adapting to rapidly changing ICT

landscape

► Digitalisation of processes

► Paperless environment

► End–to-end workflow

► Investment in IT platforms

► Credit vetting

► Customer experience

► Privacy

STRATEGY ALIGNMENT

► Our people, our asset

► Making our people act with

integrity and take ownership for

actions and decisions

► Working as a team to achieve

excellence

► Training and development of staff

► Building strong and trusted

relationships with channel partners

► Leading to low credit losses

► Satisfied customers

► Best in industry turnaround time

► Credit decisions within 3 to 4

hours

► Cost to income ratio 20%-25%

► High quality book evidenced by low

levels of credit losses

► Make the most of each Rand earned


52

VISION

To offer niche financial solutions to

enable sales in the ICT segment, by

providing specialised capabilities,

allowing and supporting growth at

customer level


OUR COMPETITIVE ADVANTAGE

Risk

Mitigator

Quince

Capital

Efficiency Funding

BUSINESS MODEL

53

► Advances book of R2,6bn (1H2018)

► Key financial metrics:

► Five year CAGRs

─ Interest income: 11%

─ Operating Profit: 13%

► Five year averages

─ Credit loss ratio: 60bps

─ Cost to income ratio: 25%


BUSINESS SNAPSHOT

5-year CAGR: 6.7%

-

500 000

1 000 000

1 500 000

2 000 000

2 500 000

3 000 000

2013 2014 2015 2016 2017 1H2018

RENTAL BOOK (Rm)

► Objective

► Credit decisions through a matrix model scoring selected variables to determine risk of failure

► Sources of information

► Existing user reference

► Audited financial statements (grading tool)

► TransUnion SME scorecard and Dynamic Rating

► Experian score

► Industry and legal entity type (CIPC)

► Years trading

► Bank code

CREDIT VETTING


BOOK ANALYSIS


70 73 71 70 70

2013 2014 2015 2016 2017

57

81

38

79

46

2013 2014 2015 2016 2017

11

20

26

Top 10 Top20 Top 100

CREDIT LOSSES (BPS)

CUSTOMER CONCENTRATION (% OF BOOK) APPROVAL RATIO (%)

► Current funding a blend of Reunert cash and banks

► R2,2 billion Reunert

► Remainder from external sources

► Long-term strategy

► To reduce reliance on Reunert for funding

► Reunert’s current excess cash position

─ limited opportunity to implement long-term funding plans

► Work in progress: exploration of alternative sources of funding, including capital markets

► Alternative sources of funding

► Available approved overnight facilities: just over R1,0 billion

FUNDING


► One-stop solution: Gives ICT segment companies a considerable competitive advantage

► Base protection

► Flat decision making structure: allows quick decisions

► Ease of use and industry leading service

► Reliability and consistency

► Competitive offerings

► Online credit application: moving into paperless environment

VALUE PROPOSITION


WRAP-UPAlan Dickson

Documents

REUNERT ICT INVESTORS DAY...8% growth in units sold including higher capacity MFPs Growth in number of voice customers Lower average usage per customer 3 000 new customers added YOY