Denel reports growth in profit and a strong order book

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Denel is consolidating on the gains of certain strategic decisions, including the turnaround the company embarked on over three years ago.

The company’s future is positive, with an order book of more than R35 billion, triple the value of secured orders of a few years ago and a six-fold annual revenue cover the state-owned defence industry conglomerate said today when releasing its annual financial results.
“In addition, we are pursuing a number of significant opportunities totalling R37 billion. We are quite confident more than half of these opportunities will be concluded in the short-to medium-term. This is the highest order book in Denel’s history and provides us with a stable platform for future growth, expansion and sustainability,” a statement said.

The existing order book is largely focused on Denel’s traditional strengths within the missile, artillery, military vehicles, ammunition and aerostructures capabilities. The company has deliberately strengthened its leadership position in landward defence systems and mobile infantry with the acquisition of BAE Systems’ Land Systems South Africa (LSSA), subsequently renamed Denel Vehicle Systems.

For Denel to continue to grow into the future, the company must keep up with modern defence trends and requirements, while at the same time providing a wide spectrum of capabilities to customers.

The 2014 Defence Review calls for Denel to be the custodian of critical strategic and sovereign capabilities, especially in command and control and the maritime environment. “The recent establishment of a Denel Integrated Systems and Maritime (DISM) division enables us to move rapidly into areas that are of strategic importance for South Africa’s future security,” the statement said.

The maritime division of the business has given Denel a strong initial foothold in the naval defence environment and the company is confident it will become a catalyst in a number of maritime defence acquisition programmes currently in the pipeline. Denel is in the process of acquiring a stake in a defence command-and-control business in line with its strategic intent.

A plant renewal process is underway at ammunition manufacturer Denel PMP, to improve competitiveness in the export environment, grow the revenue base and enable the company to continue meeting strategic national objectives. The renewal will be undertaken within the next five years and will assist Denel in further growing its revenue base.

Improved financial results

Denel’s revenue has grown by 28% to R5.85 billion in 2014/15. This is attributed to a 34% surge in exports which now account for 52% of total revenue. Relationships with foreign clients are stable with long-term partnerships in place on key projects such as the supply of turrets for infantry combat vehicles, the development of a fifth generation air-to-air missile and the ongoing contract to manufacture advanced aerostructures for the Airbus A400M airlifter.

The company has achieved a net profit of R270 million, which shows an increase of R76 million on the previous financial year results. Denel’s debt to equity ratio has remained steady at 1:1 and the earnings before interest and tax improved by 41% to R399 million. This can largely be attributed to growth in export revenue and effective management of operating costs.

Investing in innovation
“Our future growth will be built on our ability to innovate, integrate systems and technologies and remain at the leading edge of the global high-tech environment. For this reason, our focus is on investing in future capabilities and technology, the rapid expansion of our products and offerings, and our ability to integrate systems in a comprehensive manner,” chief executive Riaz Saloojee said.
“Through this approach Denel has increased its value to the South African defence and security sectors while simultaneously growing South Africa’s ability to play a leadership role in peacekeeping operations on the African continent.
“In the financial year under review, Denel invested R467 million in research and development and expanded its partnerships with research organisations, the academic community and the defence and manufacturing sectors.
“Denel is developing a new Small African Regional Aircraft – SARA – to serve regional destinations currently not accessible for existing passenger aircraft. On this ground breaking project, we are collaborating with academics and post-graduate students at local universities to develop a technology demonstrator. Through this process we are creating new horizons for young engineers and artisans who are entering the industry.

Denel people and transformation
“As a proudly state owned company, Denel takes its contribution to the transformation agenda of the South African economy seriously as we enter the third decade of our democracy. A transformation focus in HR has led to the company ensuring 87% of new appointments this year were from the African, Coloured and Indian communities, in addition to other designated groups. I have no doubt Denel is emerging as a leader in transformation within the defence industry, in particular with regards to employee representivity in terms of race and gender.
“Our investment in training and skills development amounting to R65 million will produce the next generation of highly skilled engineers, artisans and technicians. Our Schools Outreach Programme (SOP) which provides maths and science tuition to learners in historically disadvantaged areas feeds directly into the national skills development programmes. This is further complemented by bursaries and internship programmes for deserving students.
“The company has put in place a strong leadership succession plan and as a result, we were able to appoint, for the first time, two women as deputy CEOs at two of our divisions: Denel Dynamics and Denel Overberg Test Range.
“About 70% of the supply chain budget was spent on local suppliers, with a 22% allocation to black-owned companies in the financial year under review. Spend on black women-owned companies grew from 2.8% to 8.1%, while the number of enterprise development beneficiaries in the same period grew from 67 companies to 114. We are determined to grow these numbers in the years to come with a sharpened focus on black youth-owned companies and enterprises owned by individuals with disabilities.”

Achievements

The past year has been a remarkable period for Denel Saloojee said looking at revenue growth and performance against key aspects of our shareholder compact.
“We have outperformed contracted targets in most areas, most notably in the fields of revenue, profitability and order cover.
“Among major business achievements over the past 12 months we can highlight:
“The establishment of Denel Integrated Systems and Maritime (DISM) to specifically focus on the design, development, installation and upkeep of integrated systems, command and control, and maritime technologies.
“The company’s leadership role in landward defence systems and mobilised infantry was strengthened in recent months with the strategic acquisition of the BAE Systems LSSA business, now renamed Denel Vehicle Systems.
“Increasing production rates on manufacturing of key components for the A400M from 16 ship sets to 24 ship sets per year. Denel Aerostructures’ reputation for on-time and in-quality delivery has led to the company winning more tenders from Airbus Military.
“Securing an order to manufacture luggage racks and internal structures for passenger coaches as part of the revitalisation of SA’s strategic rail infrastructure. This 10-year programme will strengthen Denel’s capacity to diversify its business outside the traditional defence environment.
“Developing a modern version of the iconic G6-52 artillery system at Denel Land Systems (DLS). The new self-propelled gun boasts an auto-laying and auto-ammunition handling capability, driven by a modern V8 engine, offering improved mobility, a higher rate of fire and increased accuracy. In addition, DLS is also nearing the completion of the development phase of the Infantry Combat Vehicle program. We look forward to the start of the production phase.
“Successfully completing the development of the A-Darter fifth generation air-to-air missile and progressing towards the qualification phase.
“Completion of the performance flight testing of the Seeker 400 unmanned aerial vehicle system and commencing with the certification process.
“Successfully completing numerous demining projects in various African countries and expanding Mechem’s camp management services to international agencies on the continent.
“Providing telemetry support to the European Space Agency and hosting an international defence day at the Denel Overberg Test Range.
“Fully integrating the commercial satellite programme into Spaceteq, now a subsidiary of Denel and there has been good progress with regard to the future roadmap for the Rooivalk combat support helicopter.”



Looking ahead Salojee said: “As a leadership collective, we are positive about the future growth prospects of Denel despite the slower than expected global recovery. The bulk of Denel’s business is conducted with emerging economies, specifically those growing at a steady rate.
“Exports constitute 52% of revenue which not only earns valuable foreign exchange for South Africa but also strengthens the international reputation of Denel and creates greater awareness about the qualities and capabilities of our country’s manufacturing sector.
“Our vision is to turn Denel into a valuable, sustainable national asset. I am extremely positive about the future of Denel in terms of financial performance, transformation and growing into a high-achieving advanced technology company aligned to the developmental, defence and security imperatives of the Government and our country. ”