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Renaissance Corporation, Paul Johnston

By Jenny Ruth

Tuesday 31st May 2005

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 Jenny Ruth
Renaissance Corporation reported a 72% rise to $2.3 million in annual net profit in 2004 and it told the annual shareholders meeting in April that its first quarter pre-tax profit was "comfortably in excess" of the $1.2 million it reported for the six months ended June, 2004.

Sharechat: What is the outlook for Itas in terms of profitability?

Renaissance managing director Paul Johnston: I said at the annual meeting we secured quite a few new contracts last year on the education front. We had to invest in that. The benefits of that should come through later this year, along with the stuff we're working on now. The size of the investment we made last year has positioned us to significantly increase the installed business without having to make a similar level of investment. We will have to invest, but not to the extent we did last year. We see the outlook as being really excellent. There are four main parts to the Itas business. A lot of people don't quite understand that. We've obviously got the SMS (Student Management Software) part, the Integris stuff. That's what the certification has been based on. On top of that is a software product, SmartTools, which allows a very complete schools network with all the windows to do administration which is greatly simplified. We can remotely manage a complete network for a school. We can often diagnose a problem on the network before a school actually notices. The up time for schools on the network is greatly improved. It gets the teachers out from looking after the network to actually teaching. We sell hardware to the schools. And then there's the e-learning side of things which is all about the content that's delivered to the schools. There's some upside to that in the coming year. It's pretty well positioned at this point in time. The outlook in terms of profitability is looking very good.


SC: Have other suppliers gained Ministry of Education certification?

PJ: Yes. Six other vendors have received certification. Of that, four are New Zealand-based and two are Australian-based. If you look at the total number of schools in New Zealand now using certified vendors now, it's up to about 600. Two of them (vendors) I don't believe have any installed business in New Zealand. They have software which has just received certification. We've got the lions share of just over 200. We're the number one vendor. It changes every day so I can't give you an exact amount but it's certainly over the 200 mark. The good news is there's about 2,000 schools which will be looking at moving to a certified vendor over the next couple of years so there's a great opportunity there.


SC: Why buy out the Conduit minority shareholder?

PJ: We were having discussions with DBS (Bank of Singapore). It seemed a bit more relevant for them to have a shareholding in the group rather than in a subsidiary. It simplifies our structure. The purchase involved the issuing of shares in the Renaissance group. They've done pretty well. It seems to have been the right move for everybody.


SC: Will Conduit continue to be profitable?

PJ: Absolutely. I said at our annual meeting that I believe the best is yet to come from this company. I don't want to put the kybosh on it, but we've stopped noting the months that it's been profitable. We were setting targets on a monthly basis but we don't need to do that any more. We've stopped celebrating the monthly thing. We're certainly looking at growing profitability in the coming year.


SC: Why is Insite managing to buck industry trends and how much does Itas have to do with that?

PJ: We're following a strategy. We set out a strategy some years ago to stay out of what we call the crazy end of the PC market - any idiot can give things away. We've concentrated on the quality side of the market and tried to be innovative. We've had really good success on the high performance computing side. The last one we did was a cluster of computers at Massey University. They all run together and make up what's called a super-computer. On a worldwide basis, that computer is rated in the top 500. Everybody who was involved in that installation was exceptionally pleased. They rate our product and the service we provided very highly. We're innovative. We've just introduced a unique PC into New Zealand in conjunction with our partners in the UK, RM. It's called the R1 as in Renaissance. We have an exclusive license deal for the product here in New Zealand and it is being built by Insite.

It's an all in one computer, the monitor and computer put together. It's got special qualities that make it ideal for the education market. It can be bolted to a desk and it can be swivelled so more than one person can see it. It has a specially hardened cover for the screen. There's a whole raft of things specially designed for schools.

We've completely sold out the first shipment and it looks like the second shipment will be sold out before it arrives. That's the type of things we're doing as a company. Itas is a very successful retailer for Insite but it has a number of successful retailers.


SC: Have you added any new products this year?

PJ: In our brands division we've introduced several products in the telecommunications and in the networking space, as opposed to new products from the brands we currently carry which is ongoing. I could probably give you a list of about 50. We've brought about four or five new companies on board. They're in the development stages at this point in time from the brand point of view, but it's starting to puck up nicely. I'm expecting to announce some more before the end of this quarter.


SC: Is the trend in profit growth likely to be sustained over the long term?

PJ: The reason we said that (that first quarter profit would be comfortably ahead of last year's first-half result) is because some had taken the view that the last quarter of last year was just a blip and it was over and done with. We said sales are likely to continue at, if not at that level, at least close to it. As far as the long term viewpoint is concerned, provided market conditions are relatively stable, I've got no reason to believe that won't continue. We may not see growth at the 79% level. Certainly, I'm looking for sustainable growth over the next few years as far as I can see out.


SC: Renaissance is a beneficiary of the high New Zealand dollar?

PJ: It really doesn't have an awful lot of effect on us as a company. It makes the products more affordable for the end user. In that regard, it's very, very good and products have never been more affordable.


SC: Is there any risk that Apple might decide to operate in New Zealand in its own right?

PJ: There's always a risk. That's been a risk since the day we signed the agreement. We've represented Apple in New Zealand for over 20 years now. We work closely with them. Their business model continues to evolve. If there was a change in their position and they decided to have some representation in New Zealand, I would hope that, with all the expertise and commitment we've showed, we would be part of it. You could also see it might be something that's beneficial. We work with Apple in whatever way they need to go forward. At this point in time, it's foot on the accelerator and full steam ahead. We don't have control over events - we've had a venture with Micromedia and that's just been bought by Adobe. We have to wait and see how it works out and adjust accordingly.


SC: What would be the impact on Renaissance if that happened?

PJ: If they came into New Zealand in their own right, we would work alongside them. It could be positive, it could be negative. We don't speculate. We would make adjustments as was appropriate.


SC: Is it the board's intention to keep the company debt free?

PJ: I'm a scotsman. With the cash position we've got and we do have a debt facility if we need it, I can't be more specific, but if there was anything that came along, either an acquisition or a growth strategy, we're fairly comfortable with where we are just now.


SC: Will Renaissance open an 'Apple Store' in New Zealand?

PJ: If it's an online store, we've already got a store on our Apple website which we've been operating for about a year now. If you're talking about a physical store, only Apple can open an Apple store. I have no knowledge of any plans for one in New Zealand.


SC: Will Renaissance open an 'iTunes' web site in New Zealand?

PJ: Apple operates an iTunes website. It doesn't operate in New Zealand. I have no idea of any plans to operate in New Zealand. That's Apple's proprietary system. It's operated out of the US.


SC: How has Renaissance protected itself from the 'iBook' fall out. Please define the difference between motherboard replacement and computer replacement? Your policy does not appear to be consistent.

PJ: There's a bit of clarification needed to be done. All the servicing done for Apple in New Zealand is controlled by Apple's service organisation in Australia. We have a service department, as re-sellers do, but we have a service department of our own for product we sell. We also service products other re-sellers sell. All the service providers operating have strict guidelines set out by Apple. The only thing we do differently is that we do the consolidation of spare parts. Say a re-seller has repaired a part. The faulty part, instead of shipping it back to Australia, they ship it back to us. We consolidate them and then ship them to Australia. We also do some financial transactions as far as payment of the service fee that Apple offers providers. There can be a bit of frustration for people with iBooks where the motherboards were consistently failing and Apple's said no. Where someone's had a bad time, we've sometimes replaced the boards free of charge. We've done it off our own back. We've felt we've got a responsibility. That's where we've deviated from the policy.


SC: How does the company name Palm, PalmOne and palmsource amalgamation effect your distributorship?

PJ: PALM split it into two, the hardware side was PalmOne and the software side was palmsource. What's happened is that PalmOne has signed a new three-year agreement with palmsource and, as part of that, has the right to the Palm brand. It looks like they're going back to calling the hardware and software just Palm. The impact as far as our distribution goes is absolutely zero. There hasn't been an amalgamation.


SC:Renaissance has a poor reputation in regard to product support and the supply of spare parts for Apple computers. Has Renaissance any plans to upgrade this area of concern?

PJ: Apple has a scorecard that they keep called a service excellence program whereby every single service provider right throughout Australia and New Zealand and most parts of the world are measured on, A, the time to move a product and, B, the quality of service. Renaissance consistently finishes in absolutely the top tier of that. We're certainly in the top three on average. The issue comes back to the supply of spare parts. We don't do the supply of spare parts. We order the parts from Apple. Apple is the company that supplies the parts. There's one pipe and it controls the on/off switch. The average turn-around we have on a product is under four days. Clearly, you will get parts that aren't available for a period of time and one product will billow out. There's not a lot we can do about it. It comes back to Apple's ability to supply spare parts. We've just expanded the size of our service operation. We consistently feed back information to Apple about the supply of spare parts. If they've got stock, we get it. If they haven't, it doesn't happen.


SC: Why have you and Mal Thompson been selling shares?

PJ: Because I've got a new house. I've got the same amount of shares I've had for the last couple of years, about 65,000 shares. With the share option scheme, I've been selling shares to pay for exercising them. There's a debate about whether managing directors should be significant shareholders or not. I take the view that I'm quite happy with the level I've got. Mal is a significant shareholder (with 53%). He buys and sells shares on a regular basis. If you look at the level of shares he has, I don't think you could say he's not made a commitment to the company whatsoever.

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