Denel says it is making progress with its turnaround strategy

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Denel is forging partnerships with the UAE, Turkey, and Saudi Arabia, selling assets and restarting production as it continues to implement its turnaround strategy.

Interim Denel Group CEO Mike Kgobe on 13 September updated the Portfolio Committee on Public Enterprises about progress at the state-owned defence conglomerate. He explained the nearly R1 billion received from the Denel Medical Benefit Trust (DMBT) last year allowed Denel to pay its salary backlog and pay suppliers in order to resume production.

He said Denel is by and large being stabilised through the DMBT funds, and that the additional recent R3.4 billion Treasury recapitalisation has also gone a long way towards stabilising the company (55% of the latter, or R1.8 billion has been received so far with the remainder to be released once certain conditions are met). These capital injections have enabled Denel to restructure, right-size and reposition towards its new business model that will, amongst others, take it from six divisions to four operating units (Guided Weapons, Land, Air, and Integrated Systems).

Denel requires R2.29 billion to complete its turnaround plan, and the cash required will come from the sale of non-core assets and the remainder of recapitalisation funds from National Treasury.

The turnaround plan aims to secure the existing customer base, Kgobe said, adding that over the last several months Denel has had discussions to restart key programmes such as Hoefyster, which has been ‘on pause’ for the past five years. Denel has also been able to restructure activities around the A-Darter missile for the South African Air Force (SAAF) following engagement with Armscor and the SAAF. The Dynamics division, which covers unmanned aerial vehicles and guided weapons, was hit hard by critical skills losses but Kgobe said the guided weapons capability is being restored, and progress has been seen in the last few months.

“We are now moving into the growth phase, and chasing new revenue streams around the world as well as identifying numerous opportunities. There have been requests for proposals internationally and we are busy responding to that,” Kgobe said.

Sale of non-core assets

With regard to the sale of non-core assets, Kgobe explained that Denel is in the process of selling the Denel-owned properties being used by Rheinmetall Denel Munition (RDM) and Hensoldt South Africa back to those companies and these sales are expected to be concluded by October this year.

Denel has a 49% stake in RDM and it will retain this stake, but it will sell its 30% share in Hensoldt South Africa. A Public Finance Management Act (PFMA) application has been submitted for the Hensoldt sale, but it is still with the Department of Public Enterprises and National Treasury for final approval.

In December 2022, Denel received approval to sell its Gear Ratio division, but as the buyer did not meet all the contractual obligations, Denel has gone back to market to find another buyer.

Partnerships and joint ventures

With regard to normalising existing partnerships and developing new ones, Kgobe said Denel is restoring productive relationships it has established. In the United Arab Emirates (UAE), the company is normalising the relationship with the Edge Group through its partnership with Barij Dynamics (Denel owns 49% of Barij Dynamics, and Edge the remainder). “We recently had a board meeting on partnerships. The Edge group plays a vital role in the UAE defence environment,” Kgobe said.

Denel is also pursuing the activation of the joint venture with the International Golden Group/Pioneer Land Systems in the UAE to access work in the vehicles and artillery domains where IGG is strong.

New partnerships are being developed in Turkey with Aselsan and Turkish Aerospace Industries for access to technology and markets. This includes on the Rooivalk attack helicopter and how Denel can position the Rooivalk into the future.

After the 2022 state visit to Saudi Arabia, Kgobe said Denel has revitalised its relationship with the Saudi defence sector, engaging with Saudi Arabia Military Industries (SAMI) and the General Authority for Military Industries (GAMI).

In July, Denel management supported and accompanied the Deputy Minister of Public Enterprises Obed Bapela as part of his visit to Brazil. Kgobe said Brazil has a requirement for some of the products Denel has.

With regard to the Seeker 400 unmanned aerial vehicle, Denel has been able to fly the system – notably at its mid-August Alkantpan demonstration – and in July met with the Chief of South African National Defence Force (SANDF) Defence Intelligence to align and move forward with operationalising the Defence Intelligence Seeker 400s at Air Force Base Waterkloof.

With regard to artillery systems, Kgobe highlighted a successful trial of the T5-52 self-propelled howitzer at Alkantpan last month, where nearly a dozen international participants came to witness the demonstration. He said there are big requirements around the world on such guns due to changing geopolitics. He said the successful Alkantpan trial, which saw 155 mm rounds fired over 60 km, “sparked a lot of interest internationally.”

Kgobe told the Public Enterprises committee that Denel is “making significant progress regarding export opportunities,” with a R30 billion opportunity pipeline locally and internationally. The company’s current annual order book is standing on R1.9 billion, with half of that secured.

For the SA National Defence Force, Denel is focussing on several critical issues in the short term, including C-130, Oryx and Rooivalk support; concluding phase 1 development of the Badger infantry fighting vehicle; restarting Project Kamas for A-Darter missiles; and delivering G5 and G6 artillery upgrades for the SA Army.