More money for Denel Aerostructures

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Denel Aerostructures is to receive another bail-out from the National Treasury. Minister of Finance Pravin Gordhan made the announcement this afternoon. “The budget includes R700 million in 2012/13 to recapitalise Denel Aerostructures,” he said.

Treasury notes Denel received R1.2 billion in the 2007/08 financial year to support that turnaround, including R221 million to pay a claim for an indemnity granted to Denel and R933 million as a “final capital investment”. Additional transfers of R257.6 million followed in 2008/09 as further payment for indemnity claims, as well as R191.9 million in 2009/10 and R181.3 million in 2010/11 for the same purpose.



The Estimates of National Expenditure (ENE) document (Vote 11 Public Enterprises) states “Denel’s aerostructures business remains a challenge to the entire Denel group as it continues to be the major contributor to Denel’s losses. This is largely as a result of the A400M contract concluded with Airbus Military which is not commercially viable. A framework for the resolution of Denel Aerostructure has been developed and is underway. The framework included internal restructuring and renegotiation of the Airbus A400M work package contracts. The 2% improvement in the performance of the Aerostructure business in the previous year was an encouraging sign that the company is beginning to turn around, mainly due to ongoing restructuring in the business. A more robust turnaround plan, with confirmation of orders from the Department of Defence and Military Veterans, and improvements in its operational and financial performance, needs to be developed to secure Denel’s viability.”
“Although Denel has made some progress since the company embarked on a turnaround strategy in 2005, its solvency position continues to pose serious challenges. Denel’s main challenge is to grow its revenue with sufficient gross profit margins to cover its high operating costs, and improve its liquidity and solvency,” the ENE says.
“The company has posted a profit of R111 million in 2010/2011. This is a significant improvement on the prior year’s result, but is as a result of a once-off R463 million for the restructuring gain of the pension fund. The reduction in revenue of 10.3%, coupled with the increase in operating expenses of 6% has resulted in a decline in both earnings before interest, tax, depreciation and amortisation, and earnings before net interest and tax margins. The net loss for 2010/11 is attributable mainly to Denel … Aerostructures, which posted a net loss of R237 million in 2010/11, and interest expense of R118 million on external loans. These losses are offset by profits of R130 million posted by other Denel entities. The gearing ratio is 75% as a result of funds raised on the back of 2 government guarantees obtained in 2008 and subsequently rolled over to expire on September 30 2012, and an additional guarantee of R550 million issued in 2009/10. This additional guarantee has also been rolled over to expire on September 30 2012.”