Strong order book, growing profit, diversified product offering confirm Denel as Africa’s hi-tech powerhouse

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Denel is consolidating on the gains of a number of 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.

In addition, Denel is pursuing a number of significant opportunities totalling R37 billion. The company is quite confident that 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 it with a stable platform for future growth, expansion and sustainability.

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 the company to move rapidly into areas that are of strategic importance for South Africa’s future security.

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 that are 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 under way at ammunition manufacturer Denel PMP will improve Denel’s competitiveness in the export environment, grow its 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 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 the growth in export revenue and the effective management of operating costs.

Investing in innovation

Denel’s future growth will be built on its ability to innovate, integrate systems and technologies and remain at the leading edge of the global hi-tech environment. For this reason, its focus is on investing in future capabilities and technology, the rapid expansion of its products and offerings, and its ability to integrate systems in a comprehensive manner.

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 peace-keeping 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 that are currently not accessible for existing passenger planes. On this groundbreaking project, Denel is collaborating with academics and post-graduate students at local universities to develop a technology demonstrator. Through this process, the company is creating new horizons for young engineers and artisans who are entering the industry.

People and transformation

As a proudly state-owned company, Denel takes its contribution to the transformation agenda of the South African economy seriously, as SA enters the third decade of its 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. There is no doubt that 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.

Denel’s investment in training and skills development amounting to R65 million will produce the next generation of highly skilled engineers, artisans and technicians. Its 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 its bursaries and internship programmes, which it offers to deserving students.

The company has put in place a strong leadership succession plan, and as a result, it was able to appoint, for the first time, two women as deputy CEOs at two of its 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. Denel is 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 in 2014/15

The past year has been a remarkable period for Denel, looking at revenue growth and the performance against key aspects of its shareholder compact. It has outperformed the 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, Denel 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 the production rates on the manufacturing of key components on the A400M military airlifter 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 of 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 programme. We look forward to the start of the production phase.
* Successfully completing the development of the A-Darter 5th 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 various 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 which is now a subsidiary of Denel.
* In addition, there has been good progress with regard to the future roadmap for the Rooivalk Combat support helicopter.

Future perspective

As the leadership collective, we are quite 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 that are 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 the country’s manufacturing sector.

Denel’s vision is to turn itself into a valuable, sustainable national asset.

Denel is extremely positive about its future 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 the country.

Appreciation

Denel wishes to acknowledge its shareholder and thank the minister and deputy minister of public enterprises for their visionary leadership; the Parliamentary committees for guidance in exercising their oversight function; and the acting director-general of the DPE for continuous guidance and support, as well as the officials in the department.

The company extends its appreciation to the minister and deputy minister of defence and military veterans, the secretary of defence, SANDF, Armscor, organised labour and industry partners for their support. Denel’s gratitude goes out to the outgoing board and chairman for their leadership, valuable contribution and support in a year where the company made some important strategic decisions and good progress.



The company also thanks its executive management team and each and every employee of the Denel Group for their continued support and commitment!