Denel has secured R5 billion export order book over the last year

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State owned aerospace and defence company Denel has secured R5 billion worth of export orders during the 2011/2012 financial year and will execute these over the next five to seven years. It is also pursuing tens of billions of rands worth of future projects.

Denel has numerous domestic and foreign contracts in the works, the group announced during its presentation of its financial results last week. Denel made a R41 million profit during the 2011/2012 financial year ending March 31.

In its annual general meeting report, Denel outlined its cardinal campaigns that require stakeholder support in 2012 and 2013. These campaigns are valued at over R10 billion in 2012 and R15 billion in 2013.

In South Africa, Denel is working on several major projects, including the Hoefyster production contract, which is being undertaken by Denel Land Systems (DLS) – this campaign is valued at R8.4 billion. It will see the South African National Defence Force acquire 264 Badger infantry combat vehicles.

In its synopsis report of Denel’s financial results, auditing firm Ernst & Young noted that Hoefyster is 73% complete and on track, but 6% behind on contractual deliveries, although no penalties have been incurred. “Management is confident that the second phase of the contract will be finalised in 2012/2013.”

Denel Land Systems is also working on the GI-30 CamGun for the Badger and turrets for the Malaysian armed forces. Denel in the last financial year received an advance payment of R448 million for this 348 million euro contract, which will see it supply 69 two-man turrets fitted with the GI-30 30 mm main gun, 54 missile turrets equipped with the GI-30 and Denel Dynamics Ingwe anti-tank missile system, 216 laser-guided Ingwe missiles and 54 remote control weapons systems.

Denel Dynamics is responsible for the A-Darter missile production contract, and values this work at R700 million in 2013. The A-Darter project is 81% complete. In its report, Denel mentioned an A-Darter production contract with Pakistan, valued at R2.6 billion in 2013.

Some of the primary campaigns identified for Denel Integrated Systems Solutions (DISS) include the upgrading of 35 mm guns (worth R350 million in 2012) and the upgrading of the 35 mm air defence system (worth R1 billion in 2013).

Denel Aerostructures, currently producing components for the Airbus A400M, Gulfstream business jet and other aircraft, will be involved in the production of maritime patrol aircraft under Project Saucepan, according to Denel. It will also have a role in the replacement of the South African Air Force’s CASA fleet (under Project Kiepie). Denel noted that the campaign for aerostructures work from Brazil’s Embraer has a value of R170 million for 2012.

The CEO of Denel Aerostructures, Ismail Dockrat, said that good progress was being made on the A400M renegotiations and there would be further opportunities emerging from the confidence Airbus has shown in the company. He said Denel was engaging with other manufactuers, such as Embraer and Bombardier, for more work. “There are quite exciting opportunities we are pursuing,” he said.”We hope to be able to take advantage of commercial sector growth.”

Other domestic work includes a campaign to supply R100 million worth of small and medium calibre ammunition to the South African National Defence Force in 2012 and R200 million worth of ammunition in 2013.

Elsewhere in Africa, Denel aims to supply missiles for Algeria’s recently ordered Meko class frigates (valued at R700 million this year) and upgrade Algerian Mi-171 helicopters (value: R3.3 billion in 2013).

Denel is eying several contracts in the Middle East, including an order for Umbani precision guided bomb kits from the United Arab Emirates (valued at R250 million in 2012). In addition, one of Denel’s campaigns is a R450 million deal in 2013 to supply Seeker 400 unmanned aerial vehicles to the United Arab Emirates, which is believed to be the launch customer for the type. Development of the Seeker 400 is expected to be completed by FY2013 at a cost of R114 million.

Elsewhere in the Middle East, Denel lists Saudi Arabia as the source of a G6 artillery supply contract worth R6 billion in 2013. Meanwhile, Denel Land Systems is gunning for an artillery upgrade in Oman, worth R250 million in 2013.

Other campaigns identified by Denel include mine clearing in Turkey undertaken by Mechem, valued at R30 million this year. Additional Cheetah aircraft and missiles for Ecuador could be worth R180 million in 2013.

In a presentation to the select committee on labour and public enterprises in May this year, Denel identified several orders that it deemed critical to secure, including the Hoefyster project, A-Darter missile and ammunition orders from South Africa, Umbani and A-Darter exports and the second phase of the Ground Based Air Defence System (GBADS). Ernst & Young noted that the GBADS contract is 97% complete.

Denel Aviation is busy with the Rooivalk upgrade programme, which was allocated R78 million for 2012, and R116 million in 2011, according to Ernst & Young. The company noted that Denel Aviaton’s contract regarding Ecuador’s Cheetahs is profitable – it has a five year maintenance supply contract for the aircraft.

Under Project Drummer 2, Denel Aviation is upgrading the communications and navigation systems of the South African Air Force’s Oryx helicopters. Ernst & Young noted that this is an ‘onerous contract,’ with a remaining provision of R35 million. Denel is in ‘ongoing discussions with Armscor’ over the project.

In its May presentation document, Denel revealed that for 2010/2011, 56% of its sales came from South Africa while 19% came from the Middle East, 13% from Europe, 6% from North America, 2% from Africa, 1% from South America and 3% from the Asia-Pacific. The company’s Corporate Office is hoping to develop Venezuela, Vietnam and Africa into sustainable markets.

Public Enterprises Minister Malusi Gigaba said that last year the global defence industry was in trouble due to the global economic and financial crisis. Last week whilst briefing the media on Denel’s annual results, he said that the situation had not changed and the industry would be in this situation for the foreseeable future.

Gigaba said that declining defence spending in the United States and Europe is being offset by rising defence expenditure in China, India and the Middle East. The minister added that most Denel business is projected to come from the East and Africa. “Denel will position itself to penetrate the African market. This will require strong and active shareholder support.”