Reutech increasingly profitable in an unhealthy defence industry


Reutech, the defence arm of the electronics and services group Reunert, is optimistic about the future, having increased its operating profit in what Chief Operating Officer Peter van der Bijl calls an unhealthy local defence industry.

Van der Bijl told defenceWeb that Reutech has “good prospects next year,” after having posted good half-year results – in its interim results for the six months to the end of March, Reutech said it increased operating profit to R69 million. “We start next year with a reasonable amount of orders in hand,” van der Bijl said.

He noted that the defence industry is in a downward cycle, with the worst still to come as the main economies of the world heading for another recession. Already defence spending has been cut drastically in Europe, as well as military strength. As the European defence industry is in decline, there has been a focus shift in markets, with more attention being paid to the Middle East and Asia. Reutech has traditionally focused on these areas, especially Asia. Van der Bijl said that North Africa was a good market for the company, but that further south most countries cannot afford to procure equipment, with only small orders coming through. “Africa is a fragmented and small market,” he said. In particular, “The South African defence industry is not very healthy,” as it has suffered a number of reductions that have eroded its capacity.

Van der Bijl said that in South Africa, there are many defence projects in the pipeline, including Project Chutney (replacing South African Air Force radars), Project Vistula (trucks for the Army) Project Biro (offshore patrol vessels for the Navy) and Operation Corona (border safeguarding). However, the state procurement process takes time, as projects must go through a whole daisy chain of events before industry receives an order.

As a result, van der Bijl said that Reutech lives off exports when there is no local demand, especially as the South African National Defence Force is modestly sized. “We have to export to survive,” he told defenceWeb and, “our exports are going fine.” Reutech gets around half of its revenue from civil work and exports – for instance, Reutech exports electronic fuses, including time and proximity fuses for mortars, artillery and rockets. Reutech Communications exports airborne and tactical radios while Reutech Radar exports three differing types of radars, including those used in the mining industry.

One of Reutech Radar’s products is the StealthRad homeland security radar, which is a frequency modulated continuous wave low probability of intercept set that can detect small targets. These have been exported to the Middle East. “We look forward to supplying some of our radars for our own borders,” van der Bijl said. The company has also received state investment regarding the radar for the Ground Based Air Defence System phase 2.

Reutech was contracted to supply helicopter control radars to Norway for its Fridtjof Nansen-class frigates, as the bad weather conditions in that region of the world necessitate such equipment. “It’s working very well,” van der Bijl said. “We’re happy with that.” The project has almost been concluded, with just one system still to be delivered.

Reutech has been working on Project Radiate for quite some time and has built a new factory in Durban to supply tactical radios to the SANDF. “We look forward to the Project Radiate production phase coming in,” van der Bijl said.

Other work is coming from Malaysia – Denel’s recent order for turrets from that country includes some Rogue turret systems. The Rogue has also been sold to Benin and is operational on board its Ocea vessels and Reutech has participated in a number of bids for the export of the system and expects a steady stream of orders. In addition to the Rogue range, Reutech Solutions also exports civil telecommunications systems.

Apart from exports, Reutech is using is technical base to look at civil sectors to keep the company healthy until defence orders come through and will be bidding to supply set-top boxes – several days ago the Department of Communications issued the tender for the manufacture of subsidised set-top boxes for about five million poor South Africans. There is also activity in the renewable energy sector and Reutech manufactures solar panels.

In an industry with tight competition, van der Bijl said that Reutech’s approach is to focus on niche areas. “Reutech’s projects are not generalised. We aim to supply niche products to general markets, such as airborne communications.” This focus is paying off – earlier this year Reunert said it was anticipating continued growth in Reutech.

Reutech Communications is in the process of acquiring Saab Grintek, which would enable Reutech to offer a whole range of VHF/HF/UFH radio equipment to customers. “We are happy to bring the Saab entity to a nice home and support exports,” van der Bijl said. He noted that there was quite a lot of consolidation in the defence industry as “business is tight” and tough if a company is not exporting. “If you don’t have commercial spinoffs and exports it’s a very hard period.”

All of Reutech’s equipment will be on show during the Africa Aerospace and Defence (AAD) exhibition at Air Force Base Waterkloof between September 19 and 23. The company will be “putting in a big effort at AAD,” with an internal stand and external exhibits showcasing equipment like Rogue turrets, Project Radiate radios and others.