South African company Reunert’s defence business is flourishing amid escalating geopolitical tensions across the globe.
So said Alan Dickson, CEO of Reunert, last week in an interview with ITWeb, after the company released its financial results for the year ended 30 September, in which its revenue increased by 5% to R14.5 billion.
Reunert is a South African firm that manages a diversified portfolio of businesses in the fields of electrical engineering, information and communication technologies, as well as defence and allied technologies.
According to Dickson, the defence cluster was one of the standout performers during the reporting period, due to tensions in Europe, the Middle East and South East Asia.
In Europe, the war between Russia and Ukraine resulted in regional countries increasing their spend on defence; in the Middle East, nations are spending on defence in order to diversify their revenue streams from oil; and in South-East Asia, territorial tensions have seen countries pour more money into defence, Dickson said.
The biggest demand is for radars and military radio communications systems, he noted.
Leading subsidiaries
Reunert’s business unit Reutech Communications specialises in secure communication systems for tactical airborne, land and naval-based platforms, as well as secure network-centric solutions for command and control, blue force tracking, forward observation link and messaging services.
It provides tactical, mobile and static secure radio communication systems, data tracking and information management solutions.
Reutech Radar Systems develops and manufactures search and tracking radar systems and subsystems for local and export markets. Its technology includes radar sensor systems used globally at mining operations.
Etion Create also forms part of the defence cluster. It is an original design manufacturer that specialises in the design, manufacture, integration and support of advanced technology systems.
The unit provides product development, manufacturing and integration services to electronics equipment companies and system integrators.
Reunert bought Etion Create from Etion Group in 2022 for R202 million.
Dickson pointed out that the defence cluster brought in revenue of R2.6 billion, and is sitting with an order book of R2.7 billion heading into the next financial year.
“The radar business, historically, used to be 70% commercial and 30% defence. Now, it’s the other way round. We do military radios, and these are radios for air, sea and land applications.
“For both these companies, [Reutech Communications and Reutech Radar Systems] we hold the sovereign IP [intellectual property] for SA’s capability for radios and radars. Etion Create does electronics for mining. It also does defence navigation as the third key cluster that we have.
“We develop the IP ourselves in most of the cases, and the business is quite engineering-rich. We manufacture the products in SA and we either sell them locally or export them.
In the defence business, 75% of the sales are exports and 25% of the products are sold in SA, said Dickson.
Although Reunert gets big orders, it experiences some gaps in how it receives the orders. “We are now going into new geographies where we are getting multiple orders.”
Three geopolitical events are driving the business at the moment, he pointed out.
“The first is Europe. We sell products into Europe because there is huge demand – they are funding the war on the one side, NATO [North Atlantic Treaty Organisation] is supplying products to Ukraine in the war with Russia.”
On the other side, he said, European countries have realised they are not well set up in the eventuality that this war spreads.
“If you look at the European data points, they have all increased their GDP spending on defence from below 1% up to about 2%. So, the first driver is the instability in Europe, and because of that increase, indications are that even if the war stops today, the European countries are going to continue to re-arm themselves and reposition themselves in this new environment.”
Chinese attitude
Dynamic number two is China to Southern Asia, said Dickson, explaining there is a lot of contesting of territorial waters and land in that region.
“Some of the countries have land borders with India, which is quite a tense space. We do not see China changing its attitude, and we sell radars, radios and lots of equipment into South-East Asia.”
The third geopolitical driver is the Middle East, not necessarily the Israeli and Gaza war, he noted.
“The Israelis have a very big defence capability, with the support largely coming from the US and NATO. However, in the Middle East, in both the UAE and Saudi Arabia, they are looking to diversify their income streams away from oil.
“They now have programmes to build defence industries in each of the geographies, so that they can reduce their imports and do not need to rely on the West.
“Because we have some sovereign capability on some of the technologies, they are looking for partners that can assist them to build and develop that capability, especially for radars. We are also sending navigation equipment to those countries and, hopefully, we will get our radios there soon.”
These are, however, research contracts which are non-recurrent, Dickson stressed. “We are following strategic co-operation where our engineers build and develop the IP for the countries’ capabilities on radar.
“We have never seen geopolitical uncertainty in three major areas like this – the uncertainty is long-term and well-funded.”
Dickson said Reunert has strict protocols when making defence exports.
“South Africa is a signatory of the United Nations. We are fully compliant and every single product that we export, we declare who it is going to and it’s very well-regulated. From that point of view, we work with government, and we are completely transparent.
“Because of that, we make sure we are not going to export to an entity or country that is not acceptable. Politically, as SA, we are not aligned. However, we are now getting more sensible in our foreign policy and hopefully we will continue to remain non-aligned.”
In regards to implications of the election of Donald Trump as the incoming president of the US, Dickson said: “I don’t have a fixed position about it yet.”
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