Denel to report revenue of R5.6 billion

Denel, the state arsenal, is provisionally expected to report revenue of R5.6 billion for the financial year ended March 31, Members of Parliament sitting on the Portfolio Committee on Public Enterprises heard yesterday.  

The company and other state-owned enterprises made their first appearance in the Fourth Parliament yesterday to brief MPs on their financial wellbeing.

It was not clear from reports whether the company expected to post a profit or another loss.  

Denel CEO Talib Sadik last month told journalists Denel was succeeded in improving its financial performance and had significantly minimised its losses from approximately R1.5 billion in the 2004/05 financial year to R347 million last year.

Denel last posted a net profit in 2001 when it recorded R24.1 million. The only other profit recorded in recent times was in 1997 when it banked R81.5 million.

Sadik last month said Denel`s preliminary financial results indicatde that the group will perform “better than budget”.

Business Day newspaper further reported that Denel along with state airline SAA still needed recapitalisation.

The paper adds SAA is expected to make an operational profit of R1.1 billion before interest and tax, “versus a slight loss last year, although the bottom line would suffer from ‘legacy` issues”.

Business Report newspaper in its telling put the operating profit at “nearly” R2 billion in the year to March, compared with a loss of R1 billion in the previous financial year. He also reported the company has shed 2000 jobs during a re-organisation.

SA Express

SA Express, a regional state-owned airline, is due to report a rise in revenue to over R1.8 billion from last year`s R1.6 billion.

SA Express MD Siza Mzimela said the previously technically insolvent regional airline had managed to turn itself around without capital injections by the state.

Operating profit had grown by more than R300 million over the past five years, with about R360 million expected in the year-to-March.

SA Express is on target to increase its total assets by more than 30% compared with last year, and to reduce liabilities by more than 50%. The airline had achieved a sound gearing of 48%, Mzimela says.

Short-term goals were to consolidate SA Express`s presence in domestic secondary markets and to extend its services in the Democratic Republic of Congo.

For the year-to-March 2010, SA Express forecast a turnover rise of 15% and profit up by 6%.


SAA acting CEO Chris Smyth, meanwhile, told the portfolio committee the airline had turned itself around operationally from the “mess” it was in last year, but still needed capital as its capital base was thin and gearing was 100%.

“The current allocation from national treasury of R1.5 billion will all be utilised to pay off the subordinated loans and thus not help SAA`s cash resources directly,” Smyth said.

In addition to this the airline suffered a R1 billion loss hedging against fuel price volatility and faced a potentially liability of at least R1.5 billion in connection with the bungled cancellation of an order to buy 15 Airbus A320 aircraft.

Business Report added that the airline remains “very thinly capitalised” after making losses of about R8 billion on a hedging contract against a rising oil price four years ago and the cost of getting out of that contract, which was betting against the market.

In addition, the leases on its regional and domestic fleet of Boeing 737-800s will expire next year and SAS has not been recapitalised to replace them.

Smyth told MPs SAA is in negotiations with Airbus regarding the A320 debacle and could have an agreement that satisfied both parties in two weeks time.

This could include short-term leases for a new domestic and regional fleet, Smyth said, which would result in the risk of having to pay the fine fall away.

An “informed source” told Business Report “these negotiations could include an order for Airbus’s newest aircraft, the fuel-efficient A350, which is still in development but expected to come into service in 2013.”

Listing SAA’s advantages, Smyth said it had been named the best airline in Africa for the seventh year in a row at the annual Skytrax awards. Its service levels and on-time performance had improved and it had an outstanding safety performance.

Pilfering from checked-in baggage while in the care of handlers had dropped steeply. Last January there had been an average of 1.2 claims for pilfering for each 1 000 passengers. The figure was now about 0.5 claims per 1 000 passengers, Business report added.

Smyth said hedging against rising fuel costs would have to continue in today’s circumstances. But the extent of SAA’s losses as a result of these higher costs had been “nothing like” those suffered by some other airlines, particularly Cathay Pacific and Air Mauritius.

The SA Press Association notes government has repeatedly injected cash into SAA, with former Finance Minister Trevor Manuel allocating it a further R1.6-billion as recently as February to support its turnaround strategy.

Public Enterprises minister Barbara Hogan last week suggested selling off loss making businesses but was rebuked by trade unions and her own party.

Pic: AgustaWestland A109 light utility helcopters on a Denel assemby line, January 1998.