IT component company, Rectron (Pty) Ltd, will be listing on the Industrial "Electronics and Electrical" sector of the JSE on 11 November 1998.
The company, which was established in 1995, has grown from an R87 million per year distributor of CPUs and memory products to a major component supplier with projected turnover of R260 million and pre-tax profit of R18 million. To fund future growth and development, up to 12 million ordinary shares at 100c per share will be placed privately - 60% to 70% with institutions and the balance with brokers, suppliers and customers.
"The IT industry in South Africa is still a growing market and will remain that way well into the next century," says Mark Lu, managing director for Rectron. "The Year 2000 holds the key for success for computer companies in this country and not just in terms of the Millennium Bug, but also in terms of the need to upgrade hardware, the introduction of new technologies and the quest for the sub-$500 PC."
Rectron is a leading distributor of PC components, representing some of the leading international manufacturers including Epson, 3Com US Robotics, MAG, Quantum, Genius, Acer, Microtek and Gigabyte. Its products range from motherboards, monitors, CD-ROM and DVD drives to modems, graphics cards, multimedia products, printers etc.
Commenting on the company`s listing on the Johannesburg Stock Exchange, Lu says, "The recent turmoil on the JSE, and the resulting plunge of a number of newly listed IT stocks, has scared a number of IT companies into delaying their listings. While one cannot predict the markets, I feel that Rectron has more to offer potential investors than some of our competition. We have experienced solid growth since we opened our doors in 1995."
"In response to requests from a number of our dealers to expand our product range, we decided to get into component and peripheral distribution. This proved to be a smart one. Our turnover hit R132 million by the end of the second year. This enabled us to expand out operations into Cape Town, and 3 months ago, we opened a Durban branch."
"We have been able to maintain a high profitability in an industry that is used to narrow margins. By keeping our overheads low and strictly managing our operating costs, we have been able to avoid the usual pains often associated with high growth. By listing, we seek to take advantage of both organic as well acquisitive growth. Organically, we aim to increase our turnover from R192 million to R260 million while at the same time doubling our profitability. We are also looking at acquiring a number of overseas component manufacturing facilities in the Far East. This would not only give us a competitive edge, but also enable us to compete globally in hard currencies. The depreciation of a number of Asian currencies will make this a viable opportunity."
Lu maintains that strong relationships with suppliers and dealers is essential to ensure success. "We are the vital link in the distribution chain. We make sure that the products we offer our dealers are high quality and back them with strong, customer-oriented service. If there is a problem, we make sure we sort it out. Historically, South African companies have had an aversion to providing good service, and this is very apparent in the IT industry. We see it as one of our strong points and the way to maintain long-term relationships."
"The year 2000 is a challenge to the IT industry and one that will make or break many of its players. The problems with the Millennium Bug will force corporates and consumers alike to upgrade their systems. In many cases, all that is needed is a components upgrade such as a new motherboard while in other cases, it may mean a new system. At the same time we will be seeing the general acceptance of new technologies for multimedia such as DVD drives which will ultimately replace the CD-ROM."
The period from 1999 to 2002 will be a boom time for the South African IT industry. The trend in the USA has been the quest for the sub-$500 PC and this trend will reach our shores soon. The PC is not an asset since it becomes obsolete within a year of its purchase. Instead, it is a consumable and the cheaper it becomes, the more it will be consumed. However, with low costs comes low margins and only those companies with low overheads and a strong commitment to service will be able to survive. Rectron will be one of those companies."
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