Denel’s Pretoria Metal Pressings under pressure

Company looking to exit business.

Denel’s Chief Financial Officer is cautiously optimistic that the defence conglomerate is turning around and headed for financial sustainability, with major restructuring underway at the group.

Carmen Le Grange was speaking at the sixth annual Aerospace, Maritime and Defence (AMD) Conference.

Le Grange told the hundreds of delegates assembled at the CSIR International Convention Centre that Denel was still facing a number of challenges. In the 2018/19 financial year the company’s revenue was down 38% to R3.8 billion, compared to R5.8 billion the year before. Similarly, cash in 2018/19 was R575 million (from R1.3 billion the year before), and research and development funding R108 million (down from R769 million). Denel made a R1.749 billion loss in 2018/19 compared to R1.053 million the year before. It last made a profit in 2016.

A number of factors are making it difficult to turn things around more quickly, including low production activity, labour under-recoveries despite headcount reductions, high interest expense, cost to exit loss-making divisions and onerous contracts, and continued liquidity challenges.

PMP’s melting platform

However, Le Grange was confident of improvements in future years due to the R1.8 billion capital injection from the state as well as better leadership from the new board appointed in May 2018. Denel is cooperating with the state capture enquiry and Special Investigating Unit (SIU) in pursuing criminal litigation to recoup and claw back financial losses emanating from state capture.

“The future can’t not have a Denel in it,” Le Grange said. “It would not be a good thing if Denel is liquidated as we play a critical part in industry. We plan to improve in future years and in the next budget we will get a charge from the shareholder.”

To transition to the future, Denel plans to exit some areas and keep other core products and systems, namely artillery, missiles, infantry systems, the Overberg Test Range, systems integration division, cyber capabilities and Rheinmetall Denel Munition.

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

More than 50 different types of cartridge case and bullet cups have been developed and are being produced at PMP

In terms of loss-making divisions, the Group will exit the aerostructures business (it came out of the A400M contract at the beginning of this year), exit the foundry (this was built for PMP in 1970s and requires investment); exit the “huge” property portfolio; exit the Gear Ration division of Denel Vehicle Systems, as well as Denel Sovereign Security Solutions, the canine unit of Denel Land Systems, Spaceteq and insurance company Densecure. Subsidiary LMT went into business rescue this year and is now controlled by new management. Changes are also planned for the optronics side of the business.

Speaking about Denel’s Pretoria Metal Pressings (PMP) business towards the end of last year, CEO Danie du Toit told the Portfolio Committee on Public Enterprises in Parliament that the company’s executives were under no illusion about the challenges that lay ahead in getting its various operations to break even.

PMP is an integrated manufacturer of small and medium calibre ammunition, brass products, detonics, power cartridges and mining drill-bits. Based in Pretoria West, Denel PMP employs about 1 000 people.

“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,” du Toit said.