Insight: Turnaround at Denel Land Systems


Stephan Burger, managing director of Denel Land Systems, says the critical turning point for the business was the integration of what were previously three distinct companies intone.

Restructuring the company into the sustainable landward defence capability it represents today involved revisiting the strategic capabilities each of these entities, and refocusing as a result.

Burger maintains that this approach has added more than financial value alone; it enhanced the business model and lay the foundation to rekindle international opportunities that were pursued a number of years ago.

In 2005 Denel Land Systems was a company “in anticipation”.

Inheriting an overdraft of R400m and a loss of R180m year-on-year, DLS was insolvent for all intensive purposes.

Despite this however, the strategic and technical value of the company remained evident.

Not only was DLS critical in terms of supplying and supporting the SANDF (South African National Defence Force) with a commercially viable framework to grow and maintain its landward defence capability, but the company had a history as a successful exporter, enhancing government to government strategic capability.

Most importantly however, DLS had a range of battle-proven products, the ability to continue to manufacture these and the long-term potential to develop new world-class defence merchandise.

Having technical expertise and an artillery capability among the best in the world does not automatically equate to sustainability however.

To charter a profitable course in what has become a highly competitive defence industry, it is imperative that one continuously evaluates long-term demand and requirements of the market, and plans accordingly: the rationale behind DLS`s aggressive turnaround plan.

What immediately became evident as a result of this evaluation was the clear need to define our raison d`être, and refocus.

All product lines manufactured by DLS were reviewed as a result, with non-core products such as hunting rifles immediately being exited.

We simultaneously applied for recapitalisation funding, which was used to repay an overdraft and give DLS a “clean start”.

Despite this however, DLS needed a catalyst for growth and sustainability. With over 70% of its business coming from the local market and notably from the SANDF, it was critical that DLS secured a sizable defence contract.

Having previously engaged with international markets including Saudi Arabia, Kuwait and India, we were conscious of the business and strategic value this type of contract would enable – not only catalysing growth but also enabling us to put our new entity`s stamp on the international map.

The Hoefyster project has provided just the required impetus. With a total contract value of R8.3bn and the demand phase in activation already worth R1bn, the contract`s full effects are not confined to DLS, but also being felt by 60 local contractors – a glimpse of the scale of impact the company can have on the local economy.

While Hoefyster proved a critical element in ensuring DLS broke even during the financial year 2008/09, our strategic focus extends well beyond this in right-sizing the business.

In restructuring the company as we have, we have enabled capacity – meaning that we can now redefine and position DLS in the global market. To this end, we have started visiting previously interested international parties and looking for new ones in the Middle East, Far East, South America and Africa.

To step into these international markets however, strategic partners will be critical in ensuring access. As such, our focus has seen us already engage with a number of key players so as to establish supplier contract relationships.

Even though the strategic and business value of DLS was never in question, it is extremely rewarding to see what the refocused company has already enabled in South Africa.

By consistently driving strategic objectives and working to take its rightful place in the global defence industry, Denel Land Systems is sure to continue to grow from strength to strength, boosting the local economy and enhancing the country`s defence capabilities.