Denel Group CE Riaz Saloojee has welcomes the announcement by Minister of Finance Pravin Gordhan that R700 million is being allocated to recapitalise Denel Aerostructures.
“This comes at the back of an application for a significant recapitalisation for the Group,” Denel says in a statement. “It is our understanding that there are fiscus challenges and as a result the Group will not be recapitalised in full in the short term. The recapitalisation of Denel Aerostructures (DAe) is, no doubt, attributed to the significance of some of our industries to Government’s industrial programme (IPAP 2). This is complemented by the achievements in restructuring the business as well as the successful conclusion of a renegotiated agreement with Airbus on work packages done on the A400M projects. It further reflects confidence that Denel will be able to turn the business around in the medium term.”
Denel Aerostructures CE Ismail Dockrat says “The recapitalisation is a vital strategic investment in a company that is at the forefront of high-tech manufacturing and advanced technology in South Africa. The skills and experience accumulated in DAe can be the basis for the future growth of the local aerospace and aviation sectors. This decision supports governments industrial policy objectives of deepening aerospace advanced manufacturing capability in South Africa.
Denel Aerostructures is one of a select few companies outside of Europe that designs and manufactures vital parts for the A400M, the world’s most advanced military airlifter.”
The detailed Budget documents that are published together with the Minister’s speech highlighted the fact that the company has posted a profit of R111 million in the 2010/2011 financial year. “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 Budget statement notes the progress Denel has made since embarking on a turnaround strategy in 2005, but adds “… its solvency position continues to pose serious challenges.”
“We concur with the minister’s observation and believe that we will address the challenges noted and critical to reposition Denel specifically with regards to its order revenue stream to ensure its medium to long-term sustainability and profitability,” Denel says. “That is our core strategic intervention for the short-term, says Saloojee”. The Group in the short term projects a loss of less than R200 million for the current financial year – an improvement from the prior year’s normalised loss of R246 million.
The minister made important announcements with regards to future infrastructure spending by government. He added flesh to the announcements made by President Jacob Zuma in his State of the Nation Address by stating that R3.2 trillion will be allocated to infrastructure projects over the next three years.
Public entities will be at the forefront of this infrastructure drive which is also designed to create jobs and stimulate the growth of South Africa’s manufacturing sector, says Saloojee.”We must be able to identify and pursue opportunities for Denel in this massive national effort that will transform the South African economic landscape.”
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.