Market Report

Envirotronics Year End Report

Chief Executives Statement

The challenges of being a small company, trying to compete with the titans of international trade, can never be fully explained but our company has made it through the ups and downs and the future appears prosperous. Envirotronics is a young ambitious company made up of talented energetic employees who’ve been able to turn a small start up company in to a national production with global sales capacity. The diverse pool of skills within Envirotronics produces a working environment rich in innovation but the difference these differences in the staff does sometimes result in conflict. The challenge is to extract and encourage the ambition and drive within the employees whilst making executive decisions which may conflict with the personal opinions of certain staff. In order to maintain an open and free working environment the management approach is flexible and all decisions are made in consultation with the staff. This type of decision making is exercised in all aspects including decisions on salaries. However the final verdict on all matters must be taken at the executive level in order to ensure a level of conformity within the company. This year's key driving product, the Batbox 3000 was a prime example of the company's abilities. The team managed to produce a product which exceeded all expectations and successfully completed the project under budget and a week ahead of schedule. The outstanding work ethic of the team was noted and management has and will continue to reward the employees for there outstanding service. The marketing team remains the innovation centre of the company. The team attacked the difficult task of promoting a product which had a seemingly limited market head on. There original and often eccentric methodologies has 3 resulted in a significant increase in the companies bottom line. The team successfully created a huge market for the product as well as improved the image of the company in the consumer environment.

Envirotronics continues to be the sole South African engineering providing products which are dedicated to environmental needs. The conservation of the world's natural resources is becoming a major issue which governments around the world are beginning

to

take seriously.

Sustainable

development

projects are

being

implemented around the world and the service capabilities of Envirotronics are becoming widely sought after, as we gain increased publicity. We envision a bright future for our company on a global as well as local level. Expansion is just around the corner as the interest in our new products reach new heights on the international market. I would just like to congratulate all members of this company in contributing to such a successful year and I must say that I wait in anticipation to see what my team has in store for next year.

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Management Team

Muhammed Simjee

Chief Executive Officer BScEng; MBA

Dr. Muhammed Simjee was appointed as Chief Executive Officer of Electronics in late 2005. Educated at the prestigious University of KwaZulu Natal, he graduated with a Batchelor’s degree in Electronic Engineering. Mr. Simjee spent 3 years as a junior engineer with Sasol. He had wide experience within South Africa, before being recruited by Envirotronics as Engineering Manager. He has spent 4 years at Envirotronics, and has worked his way to Chief Executive.

Mark Joseph

Financial Manager BScEng; B.Bus.Sc(Finance)

Mark Joseph graduated from the University of KwaZulu Natal as an Electronic Engineer. After 2 years at Conlog, Mr. Joseph found himself plunged into the world of commerce when he accepted a post at FirstRand Bank. He joined Envirotronics as a Senior Accountant in 2004, which preceded his appointment as Financial Manager.

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Nicol Naidoo

Engineering Manager MScEng; PhD

Nicol Naidoo spent 5 years after his graduation from the University of KwaZulu Natal as a Junior Engineer at Mondi. Dr. Naidoo spent a further 5 years at the Massachusetts Institute of Technology as a post-graduate student. Upon completing his Doctoral research, he took up his position as Engineering Manager at Envirotronics in 2005.

Seeralin Nayager

Production Manager MScEng.

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Mr. Nayager has had extensive experience in the engineering field. He was first appointed as Junior Engineer at Siemens AG in Germany. After 4 yours at Siemens, he returned to South Africa as a

X Irisa Govender

Public Relations Officer BA; B.Comm(Marketing)

Following her graduation from the University of KwaZulu Natal, Ms Govender spent 2 years as a Publicity Officer for Sasol. She proceeded to work as a Public Relations Officer for a number of companies in Europe, including Nokia, Ford and Texas Instruments. She returned to South Africa in January 2006, when the opportunity to join the Public Relations team of Envirotronics was presented to her.

X Shivan R. Singh

Marketing Manager B.Bus.Sc(Marketing)

Mr. Singh has been at Envirotronics since his graduation from the University of KwaZulu-Natal. He has spent three years at Envirotronics since his start as an apprentice on the advertising team.

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The Engineering Approach

In order to develop any product our design team employs a top down approach. Working with the given specifications we seek to build on and fine tune these product requirements. This involves several meetings with clients in order to ascertain whether or not the project is headed in the right direction. We believe that understanding the problem is a fundamental key to facilitate the speedy development of a design that fulfils all client requirements. Once we have a clear understanding of the problems to be solved our team brainstorms and puts together possible solutions; we then investigate the feasibility of each. This would generally involve an estimated costing of the final product as well looking at whether the design is actually environmentally friendly, non-invasive and actually meets user requirements. Each feasibility study is then analyzed and our team of engineers decides ranks the solutions. The best proposed solution is then pitched to the clients and if it is accepted it is developed further and finally prototyped. The prototype then undergoes rigorous testing and if it succeeds the product it taken to the client to allow for independent field tests. Once the client is satisfied the device is put into production. We also service our products through their life cycle, ensuring the optimum functioning of our devices.

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The Batbox 3000 The Batbox 3000 was created to service a need within the Bat conservation community. There is a growing want for an autonomous, cheap device that is capable of acquiring data pertaining to the environmental conditions that bats would find appealing. This would imply that the device must be rugged, robust and yet portable, as conditions for use could vary from household ceilings to humid caves. Our product is quite elementary in design and yet offers field researchers with an optimal solution to their data capturing nightmares. The Batbox 3000 uses a low power temperature/humidity sensor to take measurements of the environmental conditions. These readings are taken once every hour; however, only readings that significantly differ from the previous ones are actually stored; with a minimum of four readings being saved per day. This method of data capturing ensures that only salient information is accumulated hence reducing the amount of memory needed. All data is also time and date stamped to enable researchers to accurately archive all information. The highlight of the device is that the only human interaction required is to switch it on, at the bat habitat, and finally when data is to be downloaded. The different methods of downloading data gave rise to 3 versions of the device, ranging from USB 2.0, SD cards and even bluetooth. The device can store up to six months of data and is guaranteed to last for up to 2 years before requiring battery replacements.

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We at Envirotronics worked hard to develop this cost effective product that can survive in environments of high humidity levels and temperatures. In an independent study conducted our product ranked first in overall design, when compared to leading electronic companies, due its functionality, compactness as well as its cost effectiveness. We are so confident in out product that we have offered all our clients a lifetime guarantee on the functionality, unfortunately though batteries are not included. We strive to take care of our clients and one way in which try to achieve this is by remaining answerable to our customers for the lifetime of our products.

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Marketing and Advertising Objective For the year just past, the objectives of the Marketing Department were well defined to raise the profile of Envirotronics and attract a larger audience to the company's client base. Through constant communication with existing clients and analysis of non-clients, the reputation of Envirotronics as one of South Africa's leading environmental engineering firms is maintained and reinforced. Overview Environmental issues affect the Earth in its entirety. As such, the objective of companies dealing with environmental issues is to bring those issues to as large an audience as possible. Envirotronics primarily serves environmental conservation groups, and strives to maintain a productive working relationship with such organisations. As such, any request for the production of electronic equipment for use by conservation organisations is dealt with promptly. Great attention to detail is paid whilst conducting the necessary feasibility studies and research and development for each new product for any customer. This attitude towards our clients is practised by all employees, starting with the Chief Executive and serves to A Case Study: The Batbox 3000 Marketing of the Batbox 3000 The clientele of Envirotronics has, in the past, been restricted to environmental conservation organisations. At the request of Bat Conservation International a data logger called the Batbox 3000 was developed. Market research conducted with South African bat conservation groups, especially the Bat Interest Group in Durban, 4

showed a great interest in such a product based on specific functionalities of the product. Following the communication with the conservation groups, the Batbox 3000 was found to be a product which would be of use to bat conservation groups. However as the product is a data logger, with temperature and humidity sensing capabilities, it may also be used in other fields of conservation. Bat conservationists wished to monitor the conditions in which bats live in roofs of houses and lofts so ideally the product would have to be compact and power efficient. A study of competitors' products showed that customers felt that bat data loggers were typically bulky and expensive. Thus in the design of our product we strived to eliminate these customer concerns. Even though our product retails much cheaper than most of our competitor's, in must be noted that there is no compromise on the quality of our product. The Batbox is packed with easy-to-use technology, like Bluetooth, designed to make data acquisition and transfer as easy as possible.

100 80 60

Temperature Sensing

40

Humidity Sensing Motion Sensing

20 0 Bat Groups

Weather Groups

Other Groups

Overall

The above graph shows exactly what features were preferred by our regular customers. It is noted that the overall want for temperature and humidity sensing capabilities far out-weighed that for motion sensing. It was thus decided to exclude motion sensing from the cheaper versions of the Batbox, but include it in the top-ofthe-range BK133 version.

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90 80 70 60 50 40 30 20 10 0

Size Weight Bluetooth SD Card USB

Bat Groups

Weather Groups

Other Groups

Overall

The above graph shows more about the user-friendliness features that the clients wish for. The most important factors were size, weight and a USB port for data transfer. All three products in the Batbox range were thus made compact and light. Furthermore, all three include a USB port for data downloads. The lesser factors, such as SD Card and Bluetooth were incorporated on certain models only. Bat conservation organisations felt that they would be best suited with a device that had both Bluetooth and motion sensing. As a result, the top-of-the-range Batbox 3000 BK133 has both of these features. Advertising of the Batbox 3000 Envirotronics' customers are those individuals and groups that are actively involved in conservation efforts. The Envirotronics marketing campaign is centred on encouraging more and more people to join conservation groups or to participate in environmental upliftment events. To attract more individuals, the public perception of conservation has to be changed. In order to achieve this, Envirotronics launched a vibrant and humorous advertising campaign. The advertising campaign for our flagship product, the Batbox 3000, featured a series of short video advertisements alluding to the presence of a new and exciting product. A new advertisement was broadcasted every week until the launch date, when a longer, more in-depth advertisement detailing exactly what the Batbox 3000 does was shown. The advertisement gave rise to our mascot, "Johnny the Bat". In order to ensure the retention of current customers, printed advertisements were 4

placed in magazines and newspapers.

Due to the popularity of the Johnny the Bat, it made advertising sense to use him as an advertising tool, and so he was sent out and around the campuses of Durban's tertiary education institutions to raise the profile of the product.

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Finance Key Figures Envirotronics has achieved sustainable success on a global scale. At present, our innovation local industry comprises of approximately 50 employees (full-time), hundreds of customers and a number of international partners and suppliers.

Financial Highlights In South African Rands

2004

New orders Sales

1 760 105 1 730 804

Net income Excluding a gain on sales of shares

1 200 125

1 100 250

Gain on sales of shares Total net income Net cash provided by operating activities Net cash used in investing activities Research and development expenses Shareholders' equity (September 30) Employees (September 30) Fiscal year: October 1 - September 30

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2005 1 640 040 1 620 558

-

9 220

1 200 125 1 050 321 (680 939) 1 158 946 17 858 953 286

1 109 470 1 250 198 (712 410) 2 765 235 17 714 882 501

Sales by Region Adjusted for currency effects and portfolio activities, sales declined 3.8% in fiscal 2005. They totaled R 1.2 million in South Africa, R 1.4 million in the U.S. and R 0.8 million in Asia-Pacific. At R 0.68 million, sales in North America were below the prioryear figure of R 1.9 million, primarily as a result of currency effects.

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Investments in Research and Development In fiscal 2005, Envirotronics invested R 3.5 million in research and development. We have nearly 100 R&D employees across Southern Africa. Their activities focus on all major markets

that

are undergoing dynamic

economic

and technological

development.

Most of our R&D output flow into environmental projects, information & communications, and certain control technologies. Embedded software is becoming an increasingly vital role in our products and systems, performing a growing range of functions. Our R&D activities generate customer value by serving as an access point for innovative products, systems and services. We aim to set the bar in as many sectors as possible. Critical success factors include leadership in key strategic technologies, systematic innovation planning, a strong patent portfolio and optimized innovation processes.

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Our innovative strength derives from the knowledge, commitment and creativity of our researchers and employees around the world, who are the backbone of our GLOBAL NETWORK OF INNOVATION.

Upcoming Developments With Environmental-related projects being the major focus of our developments, the main design that was given the highest priority for fiscal 2006 is: The BATBOX 3000, which will be launched in March in the South African market. The proposed budget for The BATBOX 3000 is as follows: Budget Proposal – BATBOX 3000 In South African Rands

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Orders Sales (excluding gain in shares)

100 000 65 000

Net income

80 000

Net cash provided by operating activities Net cash provided by investing activities Research and development expenses

30 000 50 000 45 000

Economic Growth

The Envirotronics economic policy aims to create the preconditions under which economic growth and employment will start to rise. In 2005 the crucial challenge was safeguarding the preconditions for economic growth in the longer term and thus the financial base of the organization. The reform to company and capital taxation that was introduced at the beginning of 2005 produced the following results:


Reduced the corporate income tax rate by three percentage points




Stimulated investment and growth




Increased the scope for improving employment

The growth in employment was promoted by private investment in the research and development unit. The growth in technology funding was strengthened by creating new skills and improving business skills along the entire innovation chain. The Company had used the set budget of

R500 000 for the year to obtain new

equipment, advertising and extension to the current building which is used for research. In November 2005, Envirotronics became a division of Schneider Electronics. Schneider Electronics in an international electronic company which combines its distinctive qualities and innovative thinking and technological perfection. The merge resulted in the construction of a second Envirotronics branch in Cape Town. In February 2006, the new branch officially opened and created jobs for 20 people.

Giving Back to the Community

Our company believes that it is our duty as part of this country to contribute to the uplifting of its society. We have initiated many projects that focus mainly on the development of youth of the country. The main project launched this year was the awarding of scholarships to 10 scholars. These students come from various disadvantaged communities and they each displayed a desire to gain further tertiary education, after high school. We plan to support these students even in their pursuit of a degree. One of the compulsory requirements made for the awarding of the scholarships, though, was that every holiday the students would have to work at a nature reserve, prescribed by us. Naturally, we would pay for accommodation, transport etc but the objective being to expose children to the abundance of wildlife and the need to conserve. We plan to expand this project and take on more students every year. The objective of this project is to give children the opportunity the better their lives as well as cultivate an appreciation and respect for the environment. Envirotronics also held a competition for schools with the prize being 30 brand new computers. The schools were required to create a sculpture reflecting a problem threatening the environment. The sculpture was to be made out of waste materials and could be as large as the school desired. The competition was won by New West Secondary whose innovation surpassed all our expectations. Within the entire Newlands and Kwa Mashu area we also started a major recycling drive in which members of our company personally went around to various schools and presented the need to recycle. We then had recycle bins installed at these schools to give the schools a start on how to recycle. Three bins were provided to each school; one for paper, one for glass and finally one for plastic. The schools in general took well to this idea and we are monitoring the progress of this project closely. We hope to be able to reach more schools in this manner and later move on to educating the adults in the disadvantaged communities.

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These are only a few of the numerous projects that we have but these have both been the major drives for the year. We are proud to report that all our students are doing excellently at school with two out of four matriculating in the top 10% of the country will all four heading on to university.

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