State arsenal Denel will announce its financial results for the year to March 31, 2012 on Thursday.
Last year, the state enterprise posted a net profit of R111 million for the year to March 31, 2011 and generated cash of R178 million from its operations. It is the first time since 2001, when it banked R24.1 million that the group is in the black. A look at the detail, however, show the profit can be attributed to a R463 million accounting gain from the restructuring of the closed Denel Pension Fund.
It is not yet known whether the figures will be red or black, as Denel’s biggest ever deal, a R3.5 billion contract to sell Malaysia vehicle turrets and associated equipment was signed after the reporting period.
It is known that the Denel Group’s perennial millstone, Denel Aerostructures will now only break even in 2016/2017, two years later than hoped. The new breakeven date was revealed by Department of Public Enterprises Minister Malusi Gigaba, who was responding to a parliamentary question posed by H B Groenewald of the Democratic Alliance. The Denel subsidiary that has been making a loss for at least the past five years and is currently implementing a major turnaround strategy.
The only other profit recorded since Denel's formation in 1992 was in 1997, when it reported R81.5 million. Its worst loss was in 2006 when it posted a deficit of some R1.6 billion. A turn-around strategy was put in place that included government guarantees for debt raised commercially.
Former Denel chairman Sibusiso Sibisi in June last year last month wrote an open letter to Business Day noting that Denel’s turnaround strategy of 2005, whose main pillar was these international equity partnerships, “is effectively on hold, with no coherent alternative, save the suggestion for Denel to 'include civilian products in its product offering'. … There can be no consensus on Denel’s business model until there is shareholder consensus on the primary objective. This must be complemented by coherent identification of the oft-cited 'sovereign assets" that are off-limits in any foreign equity negotiations. In the meantime, it is disingenuous to blame losses on the board.
“Denel’s woes are compounded by shareholder obsession with the products of engineering rather than the engineers themselves. There is much indignant thumping of the table regarding loss of family silver (through foreign equity partnerships) rather than concern with nurturing and replenishing the craft of making silverware in the first place,” he said.
The state-owned enterprise, in releasing its results, noted its strategic importance to South Africa, “not only for its role in national security, but also for its contribution towards developing SA’s advanced manufacturing capability including its role as a technology incubator and global supplier of engineering, product development, as well as wider industrial capabilities and services”.
In a statement the company notes its products have been diversified into civilian applications such as civil security, crime prevention, protection of assets, improving workplace safety and productivity, as well as rendering support to the mining and electronic sectors. “During the 2010 World Cup, South African Police Service (SAPS) and South African Air Force (SAAF) used the Carl Zeiss Optronics observation systems for surveillance purposes.”
Denel’s products are also assisting in countering rhino poaching, through the deployment of its 2nd generation unmanned aerial vehicle (UAV) system and its patented Mechem Explosive and Drug Detection Systems (MEDDS) system. “Denel products were also used in humanitarian activities such as clearance of remnants of war explosives, most notably this year in countries like Sudan and Angola.”
Denel continues to contribute to both economic and social developments and has attained a level 3 Broad-Based Black Economic Empowerment (B-BBEE) status. The group employs about 6500 staff (including those in associated companies) and it is estimated that in addition to these, Denel’s activities contribute to the creation and sustainment of over 30 000 skilled, technical jobs in the broader economy. In the financial year to March 2011, Denel bought materials and services worth over R2 billion from local suppliers including spending R789 million on research and development. The company earned R1.2 billion in foreign currency, “giving a boost to the South African economy.”
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