Sipho Mabena
Premium Journalist
2 minute read
22 Nov 2019
6:15 am

‘Success in sight’ for Denel after record orders

Sipho Mabena

Another positive was exiting onerous contracts that should save R250 million a year and the reduction of operating costs by R500 million.

A Badger infantry combat vehicle gives a demonstration of the vehicle's mobility on 19 November at the launch of the Badger at Denel Land Systems in Pretoria. Picture: Christine Vermooten

With a record multibillion-rand deal in the bag, a R7.8 billion order intake compared to R509 million the previous year as well as a cost reduction of half a billion rands, the beleaguered state defence manufacturer Denel seems to be on the way out of the doldrums.

The R1.8 billion lifeline from the state and better leadership from the new board appointed in May last year is beginning to bear fruit for the state-owned entity that was so broke that there were uncertainties over salaries just a few months ago.

Denel’s revenue slumped 38% to R3.8 billion in the 2018-19 financial year compared to R5.8 billion the year before, cash in 2018-19 was R575 million, from R1.3 billion the year before, and research and development were at R108 million, down from R769 million.

Denel made a R1.749 billion loss in 2018- 19 compared to R1.053 million the year before and the last time it made a profit was in 2016, but Denel’s chief financial officer Carmen Le Grange said the future looked bright, but she was cautiously optimistic.

She noted some progress in the parastatal’s financial health, including the signing of a R6.3 billion export order, the largest deal to date and a solid order backlog of R17.4 billion covering four years of sales revenue.

“We have made significant strides in the turnaround. We have competent leadership in place and a viable turnaround plan … We continue to find cost savings and efficiencies,” she said.

Le Grange also said another positive was exiting onerous contracts that should save R250 million a year and the reduction of operating costs by R500 million, including R15 million at head office level.

“Divesting from non-core assets can generate cash of R1.56 billion, with the first results in a three- to six-month window. Further operating cost reduction has the potential to save R500 million through the supply chain,” she said.

Employee numbers have been reduced, partly through voluntary severance packages, with 3,968 employees at present, down by 900 over the last 16 months.

Le Grange said Denel planned to discontinue some of its core business products and keep other core products and systems, such as artillery, missiles, infantry systems, the Overberg Test Range, systems integration division, cyber capabilities and Rheinmetall Denel Munition.

Denel would shed its aerostructures business, foundry, property portfolio, Gear Ration division of Denel Vehicle Systems, Denel Sovereign Security Solutions, canine unit, Denel Land Systems, Spaceteq and insurance company Densecure.

Strategic partnerships would be developed regarding aircraft and engine maintenance, repair and overhaul (MRO), the Rooivalk attack helicopter, unmanned aerial vehicles, maritime MRO and armoured vehicles.

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