Thursday, July 25, 2013

■ SOUTH AFRICA: Denel SOC posts strong $7.3million net profit for 2012/13 Financial Year as revenue grows 10%.

DenelSouth African state owned aerospace and defence technology conglomerate, Denel SOC Ltd, has posted a net profit of USD7.33million (ZAR71million) for its most recent 2012/13 financial year, buoyed by a 10% increase in revenue - thanks in part to an increase in demand for its products in Africa, the Middle East, Asia-Pacific and South America - a restructuring of its debt and a reduction in its expenditure.

In its report Denel, whose divisions include Denel Aviation, Denel Dynamics, Denel Land Systems, Denel Personnel Solutions, Denel PMP, Denel Aerostructures, Integrated Systems Solutions, Mechem and the Overberg Test Range, said the net profit for the year has grown to ZAR71million as a result of the increase in revenue, the restructuring of the company and a wide range of cost-saving initiatives. During the financial year, the company has integrated 11 businesses into six divisions, introduced measures to support the streamlining of operations and the sharing of support services across the group. Operating expenditure has decreased from 27% to 24% of revenue, but its results continue to be affected by the interest on external borrowings and the financial losses posted by Denel Aerostructures, a designer and manufacturer of complex metallic and composite aerostructures for the military and commercial aviation sector.

It noted that the changing nature of the global defence environment had driven demand for new technologies and as a result, the conglomerate had seen a rise in demand for its products leading to a 10% rise in revenue to USD398million (ZAR3.9billion) during the 2012/13 financial year. Exports grew 34% growth – from ZAR1.329billion to ZAR1.783billion – particularly within the company’s missile and landward defence businesses. Export revenue has grown in all of the company’s key target markets, most notably in Africa, the Middle East, Asia-Pacific and South America, with locally-sourced revenue contributing 55% (ZAR2.135billion) of total revenue.

Operational savings and new contracts signed with Airbus Military on the A400M strategic airlifter have jointly contributed to a significant reduction in the losses incurred. The contract, signed in June, is estimated to be worth USD15.7million (ZAR157million) spanned out over eight years and covers the manufacture of the ribs, spars and 'sword' of the A400M vertical stabiliser. It invested ZAR528million in Research & Development in 2012/13, including ZAR142million from its own funds.

However, after the South African Air Force did not renew an MRO contract earlier this year, over 500 skilled employees at Denel Aviation's MRO wing, Aero Manpower Group, and Denel Personnel Solutions, were made redundant.

In terms of its debt, Denel stated it had successfully restructured its short-term debt of ZAR1.185billion to a combination of short-term debt, three-year and five-year bonds to mitigate liquidity risks.

Denel’s financial performance and our prospects for growth were recognised in the financial markets through an over-subscription on the Denel bond issuance. During the year, Fitch Ratings revised the Denel long-term rating from negative to stable; a notable achievement for the company considering the downgrades experienced by other companies and institutions during this period.

Among the key aeronautical projects that Denel was responsible for during the 2012/13 financial year, are the:
  • Successful UAV surveillance service to SANPARKS in the Kruger national Park in support of anti-rhino poaching activities
  • Progressing the final development and qualification of the A-Darter, 5th generation air-to-air missile in collaboration with our industry partners in Brazil and locally. The success of this project provides the benchmark and foundation for future technology collaboration among the BRICS nations.
  • Initiating the development of the future-orientated Marlin missile project, aimed at establishing a common platform for long-range all weather air-to-air and surface-to-air defence capabilities. Denel is extremely appreciative of the close and strategic collaboration between Denel, the SANDF, Department of Defence and Armscor on programs like this.
  • We delivered the final Rooivalk combat support helicopter to the SA Air Force, reaching a major milestone in a project which bears testimony to the capability, skills and innovation that South Africa can offer to the world.
  • Opened a Centre of Excellence at Denel Aviation during the recent BRICS Summit, which will provide extensive maintenance, repair and overhaul services to aircraft manufactured by Russian Helicopters. This initiative has been singled out as one of the first tangible results flowing from South Africa’s participation in the BRICS alliance.
Denel believes that in accordance to its five year budget cycle, there will be significant revenue growth over the medium term, backed by expected growth in our traditional markets, strong government support and strategic partnerships, and that the company will continue to be profitable and sustainable into the foreseeable future.