Denel aims for R44 billion worth of orders

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Denel says it is pursuing prospective orders to the value of R44 billion, and has confirmed R21 billion worth of contracts, including one for the South African National Defence Force’s Hoefyster infantry combat vehicle.

Zwelakhe Ntshepe, Group Chief Executive Business Development and Corporate Affairs at Denel said yesterday that the firm prospects in the pipeline will significantly strengthen Denel’s turnover and contribute to the turnaround process at the country’s largest manufacturer of defence, security and aerostructure products.

Earlier this month the state-owned company released its results showing a net profit of R111 million – returning to the black for the first time since 2001. However, the profit can be attributed to a R463 million accounting gain from the restructuring of the closed Denel Pension Fund.

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. This project has been mostly successful with the state arsenal in August posting an operating profit of R200 million for the year to March 31, 2010.

Denel describes its results as “encouraging”, given the challenging local and global environment.

Further encouragement for the group came shortly after year end when contracts of about R5 billion were concluded. Ntshepe said these included the largest export order ever secured in Denel’s history, but he did not say what the order was for.

Denel intends to push ahead with its turnaround and growth strategy and plans to grow opportunities to R70 billion and ensure the conversion of at least R21 billion of this into confirmed orders over the next three years. In the coming year alone contracts to the value of R14 billion will be confirmed, the company said.

Denel’s primary mandate is to provide strategic defence technology, products and services to the South African National Defence Force (SANDF). There has been a more concerted focus on export markets and 79% of the new business prospects are coming from international clients, the company said.

It added that it is focusing its marketing activities primarily in the Middle East and the Asia-Pacific region while Africa is regarded as an area with significant growth potential.

Ntshepe said the prospects being pursued cut across all Denel’s divisions and products ranges. This include Denel Dynamics (missiles, precision-guided weapons and unmanned aerial vehicles); Denel Land Systems (artillery, combat vehicles and turrets); and Pretoria Metal Pressings (small and medium calibre ammunition).

Project Hoefyster involves the development and production of the Badger-family of infantry combat vehicles to meet the requirements of the SA Army and replace its fleet of Ratels. 264 Badger vehicles will be delivered to the SANDF over an eight year period. Denel Land System is responsible for the development of five modular combat turret variants armed with the home-grown 30mm CamGun, 60mm long-range mortar systems and Denel Dynamics’ Ingwe anti-tank missile system. This turret is integrated into the Patria 8X8 vehicle platforms.

In addition Denel Aviation is growing its business to provide maintenance, repair and overhaul (MRO) services to a growing number of clients operating in South Africa and on the rest of the continent.

Denel Aviation has reached a couple of milestones recently, with the upgraded Rooivalk combat support helicopter delivered to the South African Air Force in April while 12 ex-SA Air Force Cheetah C fighters were sold to the Ecuadorian air force late last year.

Denel said that its Denel Mechem demining and battle-clearance arm has done recent unexploded ordnance work, clearing explosives in countries like Sudan and Angola this year.

Ntshepe said Denel’s recent marketing successes can be attributed to a number of factors, including a more focused and aggressive marketing strategy; a highly visible presence at major international defence exhibitions in the Middle East, Asia and Africa; strong support from the South African government; the high quality of products developed and manufactured by Denel; and after-sales maintenance and support.

However, the company noted that the international defence market remains highly competitive and was adversely affected by the global economic downturn. “Converting opportunities to order is going to require significant investment and time, including the on-going support of government,” said Ntshepe.
“We are, however, optimistic that we can build on our recent successes and meet our targets to grow our order cover and turn opportunities in the pipeline into confirmed orders that will grow Denel’s business and contribute to the company’s profits”.

Although the group returned to profitability for the first time in a decade, Denel’s performance continues to be negatively influenced by Denel Saab Aerostructures (DSA), which incurred a loss of R237 million for the year to March 31, a 28% reduction compared to last year. DSA’s cash utilisation improved to R104 million, compared to last year’s R263 million, driven by the successful implementation of the turnaround plan, which commenced in 2009. The plan included improving manufacturing efficiencies and right-sizing the business towards global benchmarks. Had DSA achieved break-even, Denel would have posted a net profit of R348 million this year.