Equity transaction bolsters SA munitions capability

Three years ago Denel Munitions faced significant challenges due to declining market share and a lack of new product development.
Guided by the Denel Group`s turnaround strategy, the company is however now en route to recovery, acting Rheinmetall Denel Munitions CE Milan Bohacek says.
Adopted in 2006, the strategy ensured the creation of viable and sustainable businesses by partnering with reputable companies where appropriate.
Talks were subsequently initiated between Denel Munitions and German munitions manufacturer Rheinmetall Waffe Munitions GmbH (RWM) to establish a possible equity partnership, with this coming into effect on September 1 last year.
The new entity is 51% owned by RWM and 49% by Denel.
With the combined entity already displaying signs of operational efficiency, its continued operation as a highly technical business will ensure that technologies are built and retained within the country, Bohacek says.
“Through the equity partnership, market access, technology, products, engineering and management skills have all been merged,” he explains.
“In this way, the company has been transformed into a world-class organisation that not only supports the South African National Defence Force (SANDF), but will simultaneously act as a springboard for growth in the broader local manufacturing industry.”
Changes are evident within the new organisation.
Immediately after entering into the joint partnership all RDM sites were inspected so as to identify positive elements and challenges requiring attention.
RWM managers additionally made a number of recommendations. These have resulted in the introduction of new systems and processes that are aligned with the requirements and best practices of the partnership.
The response from global markets has been equally encouraging, with the Rheinmetall worldwide marketing structure having created selling opportunities. Interest in products has increased in Europe, India and the Middle East (through an alliance with Burkhan Munition Systems) as a result.
Capital injections are also being utilised for the purpose of upgrading plants to improve productivity, quality and safety.
Due to the measures in place and market response seen thus far, Bohacek is confident that the projected 10% in real growth in sales per annum is achievable this year.
 ”We are well on track and the organisation`s objective of achieving earnings before interest and tax (EBIT) of 5%, 8% and 10% in coming years starting in 2009 looks promising.” 
The establishment of RDM as a strategic partnership has ensured that the company gains the critical market recognition and access needed for it to project profitability in the medium to long-term future.
By harnessing the collective strengths of both organisations, Rheinmetall Denel Munition will additionally impact on the local economy through its technology focus and make a significant contribution to South Africa`s manufacturing industry.

Pic: Denel logo