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Buy, Sell, Hold: It really is a renaissance

By Jenny Ruth

Friday 1st April 2005

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 Jenny Ruth
These days, Renaissance concentrates on gaining exclusive distributing rights in New Zealand to electronic equipment, with its Apple division being its biggest earner. It also has a specialist education software provider, Itas, which imports the British RM brand, a local assembler of PCs and server systems. Another division is Insite Technology, which targets the upmarket end of the PC assembly market and counts Weta Workshop as a customer. Its sales grew 7% in 2004 while most of the local industry struggled.

Renaissance also has another division called Conduit, which provides web hosting services, including all the back office support for business-to-business transactions such as stock control and financial systems. Conduit used to have ambitions to list on the Singapore Stock Exchange during the dotcom days. These days it's a shadow of its former self but it's no longer losing money and is cashflow positive.

THE NUMBERS: The company suffered two years of losses in 2001 and 2002 after it recognised that although it had rapidly built up its distribution business (with sales jumping from $122.8 million in 1999 to $192 million in 2001), much of it was unprofitable. It decided to drop many of its high-profile brands, including Microsoft, Toshiba, Hewlett-Packard and Compaq, and halved its sales in the process. After a 42% decline in 2002, sales in 2003 were down 12% to $97.6 million. However, Renaissance earned a net $1.3 million in 2003 and profit jumped 72% to $2.3 million in 2004. Sales have also started growing again, up 22.8% to $119.9 million in 2004 while operating costs grew only 13%.

MANAGEMENT: Managing director Paul Johnston has been with the company seven years and just over two in his current position. His previous position had been heading the problem distribution division.

STRATEGY: While the company still distributes brands for which it isn't the sole agent, such as when the products are complementary to its sole brands, it prefers to concentrate on sole agency business. It also concentrates on manufacturers for whom the size of the New Zealand market is too small to warrant them opening a branch office here.

RECENT PERFORMANCE: The company attributes the strong growth in profitability in 2004 to significant sales growth in its core businesses, strong cash generation - cashflows from operations rose from $4.1 million in 2003 to $11.5 million in 2004 - and a continued emphasis on shareholder returns.

While the worldwide success of Apple's iPod product helped boost sales, Johnston says that even without iPod, Apple's sales were its best ever in New Zealand last year. The launch of the new generation iMac product was also one of Apple's better efforts, with product arriving as promised to boost Renaissance's fourth quarter sales. In early December, sales were going so well that the company told the market to expect a significantly better second half result than the 10.6% increase in net profit to $775,000 it reported in the first half.

The company's Itas division lost money last year, but that was a function of its success in selling to schools - Renaissance bears the costs up front and collects the profits later. So far, 300 schools have signed up with Itas, and while each of New Zealand's 2,700 schools makes its own decision on which IT systems it will buy, Itas is the only vendor of school management systems to have gained Ministry of Education certification. By about 2008, the ministry is aiming to provide funding only for certified products. Johnston says one of the reasons its other divisions did well in 2004 was because Itas helped sell their products into schools. The profits Itas is already set to generate this year is one reason the company says it's "well positioned to show further growth, increased profitability and positive shareholder returns" in 2005.

Bond Offer: Infratil Ltd, 7.2 year & 10.2 year unsecured unsubordinated bond


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