Denel PMP assets up for sale

Government pushes for Denel reform as PMP operations put up for sale.

A joint meeting of the South African Parliament’s Standing Committee on Finance and Select Committee on Finance, held on 3 July 2020, has heard how the country’s bleak financial outlook as a result of the COVID-19 pandemic is requiring significant action to reduce the economic effect of the disease and associated lockdown, including major reform within state-owned enterprises such as local defence company Denel.

Examining public submissions on the country’s proposed supplementary budget for 2020, representatives from the Treasury noted that South Africa had entered the COVID-19 pandemic at a time when it was already in a weak fiscal position. The result of this had meant that the country was needing to identify pathways out of the forthcoming economic crisis, which ranged from stimulus packages to austerity measures, as the potential threat of a 50% unemployment rate looms.

Denel PMP has put its casting and rolling plant and cutting and cupping plant up for sale as part of its turnaround strategy. In a tender published on 30 June, PMP invited bids to buy its Casting and Rolling Plant and Cutting and Cupping Plant in Pretoria West, which it described as a going concern. Closing date for bids was the 3 August 2020.

In 2019, Denel announced it was going to dispose of equity stakes and exit loss-making businesses as part of its turnaround strategy, including Land Mobility Technologies (LMT) and PMP. In June this year, Denel said it also intends to exit or dispose of Denel S3, Gear Ratio, its properties division, the PMP Foundry, the aerostructures business, Mechem, Spaceteq, Densecure and Optronics.

In the presentation to parliament discussing the 2020 supplementary budget, National Treasury announced planned reforms for state-owned companies, including Denel. It specifically mentioned the disposal of non-core assets like Hensoldt and LMT, obtaining strategic equity partnerships for Denel Dynamics, Denel Land Systems and Denel PMP, and consolidating Denel Properties with Eskom and Transnet Properties.

Denel PMP has been struggling financially for some time. According to the latest Denel annual report, the division made a loss of R213 million for the 2018/19 financial year, up from a loss of R154 million in 2017/18 and R44 million the year before. Revenue has also been declining, going from R444 million in 2017/18 to R225 million in 2018/19. Revenue was R583 million in 2016/17.

“PMP will be very difficult to break even in its current form within the next few years. So we may have to do something drastic there,” Denel Group CEO Danie du Toit said in November last year. Du Toit has subsequently resigned after only 18 months at the helm.

PMP, which employs nearly 900 people, develops and manufactures a wide range of small-calibre ammunition (5.56 to 12.7mm), including the 27mm cannon of the Saab Gripen, the 30mm cannon of the BAE Systems Hawk, 20mm cannon of the Rooivalk and 30mm CamGun – the latter’s ammunition is interchangeable with the Mk 44 Bushmaster II, allowing customers of this weapon to use it. PMP manufactures Russian calibre ammunition (7.6 x 39mm and 23 x152mm) and is working with Norway’s Nammo on marketing their small arms and cannon ammunition range. PMP also manufactures the 20×42mm Inkunzi and Inkunzi strike weapons.

PMP also produces power cartridges, rocket motors and canopy fragilisation systems for the safe ejection of pilots from aircraft; Probit rock drill bits for the mining industry and primary explosives and explosive products for commercial use in the private sector.