PRESENTATION TO PORTFOLIO COMMITTEE ON PUBLIC ENTERPRISES by sdsdfqw21

VIEWS: 13 PAGES: 37

									                                                                   DENEL GROUP




PRESENTATION TO PORTFOLIO COMMITTEE
ON PUBLIC ENTERPRISES
17 JUNE 200
Mr. Fikile Mhlontlo, Group Financial Director
Mr. Zwelakhe Ntshepe, Group Executive: Business Development and Corporate Affairs
 DENEL GROUP
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                               Company Confidential
AGENDA

• Denel today

• Financial summary

• Denel’s business environment
     – Domestic
     – International

• Denel’s strategy
     Phase 1: Restructuring strategy pillars and progress made
     Phase 2: Growth drivers and implementation

• Denel’s value-add

•Denel priorities




DENEL GROUP
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                           Company Confidential
DENEL GROUP STRUCTURE




DENEL GROUP
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               Company Confidential
 DENEL LEADING PRODUCTS

   LANDWARDS                AIR FORCE               NAVAL PRODUCTS      OTHER PRODUCTS
    DEFENCE                 PRODUCTS
• Artillery systems     • UAV systems              • Umkhonto missile   • Mine clearing
• Infantry weapons      • Missiles & stand-off     • DGP35 naval guns   • Contraband
• Combat vehicle          weapons                  • Medium calibre       detection
  system integration    • Medium calibre             ammunition         • Training school
• Combat turrets          ammunition               • Naval ammunition   • Mining industry
• Missiles              • Aircraft MRO             • Periscopes           products
• Small & Medium        • Rooivalk helicopter                           • Sporting & hunting
  calibre ammunition    • Aircraft                                        ammunition
• Laser range finders     components and
• Heavy calibre           assembly
  ammunition            • GBADS
• Pyrotechnics          • OTB test facilities
                        • Helicopter turbine
                          engines –
                          manufacture &
                          MRO


  DENEL GROUP
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                                   Company Confidential
BUSINESS DEVELOPMENT
DENEL’S GLOBAL MARKETPLACE




              Current Markets             No Go Markets   New Markets
DENEL GROUP
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                                Company Confidential
     DENEL AVIATION
    Provision of Maintenance, Repair and Overhaul (MRO) services for rotary and fixed wing
    aircraft. Rooivalk helicopter qualification & MRO
Key customers:       SAAF (92%) and selected international customers (8%)
Order cover 2009/10: R584m (72%);         Total order book: R758m (as at end May 2009)
                                                         07/08        08/09        09/10         10/11       11/12
                               Annual sales:             R721m        R911m        R818m         R839m       R856m
                               Profit / (Loss):           R31m         R57m         R35m          R32m        R41m

                               Employees:                1 270 (Direct: 79% Indirect: 21%)
                               Achievements
                               Climate survey:                          43% (2006) 53% (2008)
                               BBBEE rating:                            Level 4 (Verified)
                               Transformation Score:                    78% (2008) 87% (2009)
                               Significant improvements in internal and external audit reports
                               Challenges:
                               Denel Aviation is on track with its Growth and Business Development Strategy in terms of:
                               •   Fixing the Business - The focus going forward shifts to improving operational
                                   efficiencies and reducing costs through LEAN and Supply Chain optimisation.
                               •   Partnering with SAAF and SAPS – Facility consolidation at Waterkloof Air Base, CAV
                                   relocation and finalising the new Single Source/Cooperation agreement are key
                                   priorities.
                               •   Grow New Markets - Sub-Saharan & North Africa and the Middle East are targets.
                                   OEM Strategic Alliances and Equity Partnerships will provide market access.
                               •   Rooivalk - has made a significant turnaround with respect to delivery and solving
                                   challenging developmental issues. Integration with DA on track.

      DENEL GROUP
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                                          Company Confidential
    DENEL SAAB AEROSTRUCTURES

An aerostructures facility which designs, manufactures, and assembles composites and
metallic aircraft subsystem structures. in cooperation with aircraft OEMs.
Key customers:             SAAB, Airbus, Agusta, etc.
Order cover 2009/10 : R421m (138%) Total order book: R1 173m (as at end April 2009)

                                                   07/08     08/09     09/10     10/11   11/12
                           Annual sales:           R487m R598m R304m R335m               R369m
                           Profit / (Loss):        (R143m) (R321m) (R179m) (R39m)          -
                           Employees:              835 (Direct: 57% Indirect: 43%)
                           Climate survey:         Not included in survey
                           BBBEE rating:           Level 9 (Self-assessed)

                           Main Achievements:
                           Completion of wing-to-fuselage fairings for A400M
                           Completion of manufacturing of structures for Hawk aircraft
                           First NADCAP accreditations for composites and surface treatment
                           Challenges:
                           Achieve financial turnaround


     DENEL GROUP
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                                    Company Confidential
    DENEL DYNAMICS

   A niche global competitor and local technology provider in the areas of Missiles &
   Guided Weapons, and Unmanned Aerial Vehicle (UAV) systems.
Key customers:     SANDF (all services) plus Algeria, Brazil, Finland, Pakistan, Saudi, UAE
Order cover 2009/10 : R641m (80%) Total order book: R1 635m (as at end April 2009)

                                                     07/08     08/09       09/10   10/11    11/12
                           Annual sales:             R604m R716m R801m R841m R1 020m
                           Profit / (Loss):           R69m      (R23m) (R53m)         (R8m)   R81m
                           Employees:                791 (Direct: 62% Indirect: 38%)
                           Climate survey:           50% (2006)            54% (2008)
                           BBBEE rating:             Level 6 (Officially assessed)
                           Main Achievements & Challenges:
                           •   Attract & retain top technical talent: Dynamics remains one of few companies that
                               successfully provide young talent with design engineer career opportunities in RSA, but
                               targeted for recruitment by most other hi-tech companies.) 54 engineering students on
                               Dynamics’ bursary program, with internship for more than 20 engineers in the company.
                           •   Technical & operational capabilities are truly world-class (confirmed by numerous
                               international audits) but turnover remains sub-critical due to limited access to too few
                               stable export markets.
                           •   Excellent long-term relationships with core customers (SANDF & exports) resulting
                               in continued follow-on orders. Particularly well-positioned in developing markets where
                               USA & Europe are less welcome. More Denel / RSA Government collaboration in
                               export campaigns is critical.
      DENEL GROUP
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                                        Company Confidential
    DENEL INTEGRATED SYSTEMS SOLUTIONS

   DISS is the sovereign entity within Denel dedicated to the delivery of Level 5
   Ground Based Air Defence solutions to the SA National Defence Force.
Key customers:             SANDF
Order cover 2009/10 : R70m (36%)     Total order book: R77m (as at end April 2009)

                                                  07/08      08/09    09/10     10/11   11/12
                         Annual sales:            R78m       R79m     R138m R107m       R45m
                         Profit / (Loss):         (R4m)      (R15m) (R22m) (R13m)       (R23m)
                         Employees:               47 (Direct: 79% Indirect: 21%)
                         Climate survey:          Was rated as part of Denel Dynamics
                         BBBEE rating:            Not yet assessed

                         Main Achievements & Challenges:
                         • Re-established confidence of the DoD in the DISS team.
                         • Acknowledged expertises as a Level 5 systems capability.
                         • Recognised by the DoD as sovereign capability.
                         • Established DISS as an independent operating division (1 Apr 09)
                            – currently establishing governance structures.
                         • Awaiting final approval of single source status for GBADS by the
                            MoD – approved and supported by Sec for Def.
     DENEL GROUP
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                                   Company Confidential
     DENEL OTB (OVERBERG TEST RANGE)

    Multi-purpose Test Range specialising in in-flight systems performance measurements for the
    local and international aerospace industries - the premier facility of its kind in Southern Africa.

Key customers:        RSA DoD, German Navy and Air Force, Spanish and Singapore Air Force, Denel Entities
Order cover 2009/10 : R41m (58%)        Total order book: R79m (as at end April 2009)

                                                        07/08     08/09     09/10     10/11      11/12
                                Annual sales:           R72m      R64m      R71m      R63m       R68m
                                Profit / (Loss):        R6m       (R4m)     R0m       (R2m)      (R4m)
                                Employees:              172 (Direct: 61% Indirect: 39%)
                                Climate survey:         47% (2006)          56% (2008)
                                BBBEE rating:           Level 5 (Self-assessed)

                                Main Achievements & Challenges:
                                   Transforming organisation with excellent track record, respected
                                   in the domestic and international market.
                                   Able to maintain and enhance facility to satisfy market needs.
                                   To increase revenue to cater for high maintenance and
                                   technology renewal cost and to bridge the salary gap between
                                   personnel and the market.
                                   To attract and retain qualified young staff members to allow for
                                   skills transfer and succession implementation.
      DENEL GROUP
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                                         Company Confidential
    DENEL LAND SYSTEMS

   DLS is a design, development, integration and maintenance house for Gun Systems,
   including Artillery & Infantry systems, combat turrets, mortars, small & medium arms.
Key customers: SANDF, UAE, Malaysia, Saudi Arabia, Indonesia, Colombia
Order cover 2009/10 : R401m (70%) Total order book: R1 030m (as at end April 2009)

                                                  07/08     08/09    09/10      10/11   11/12
                           Annual sales:          R327m R425m R571m R717m               R875m
                           Profit / (Loss):       (R25m) R1m         R17m       R37m    R64m
                           Employees:             431 (Direct: 55% Indirect: 45%)
                           Climate survey:        43% (2006)         49% (2008)
                           BBBEE rating:          Level 7

                           Main Achievements:
                           • Business was refocused & right sized and is now profitable
                           • Good progress on Hoefyster with spin-offs to local Industry
                           • Various Local & International orders; growing turnover
                           • MoU with Rheinmetall to exploit Artillery opportunity
                           Challenges:
                           • Timely multi year orders, specifically Hoefyster production order
                           • Position DLS as preferred supplier of Landward Def Solutions
     DENEL GROUP
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                                   Company Confidential
    DENEL PMP
   PMP manufacturers small and medium calibre ammunition for the SANDF, SAPS and overseas
   markets as well as niche products like power cartridges for the SANDF and other commercial
   products used in the Local industry
Key customers:             SANDF, SAPS, UK, UAE, various others
Order cover 2009/10 : R414m (61%) Total order book: R530m (as at end April 2009)

                                                  07/08     08/09       09/10       10/11       11/12
                          Annual sales:           R522m      R600m      R679m       R701m       R710m
                          Profit/(Loss):          (R14m)      (R25m)      R28m       R29m        R33m
                          Employees:              1 218 (Direct: 69% Indirect: 31%)
                          Climate survey:         35% (2006)            41% (2008)
                          BBBEE rating:           Level 8 (Verified)


                           Main Achievements & Challenges:
                           •   The company has continued the turnaround process of the last two years.
                               With good purchases from the S A Police and the resumption of small
                               calibre sales to the S A National Defence Force, a healthy local baseload is
                               anticipated which will enhance the sustainability of PMP.
                           •   Good delivery and quality performance on the largest contract in PMP’s 68
                               year history, i.e. The supply of brass cups to BAE Systems worth over
                               R350 million during the 2007 – 2009 period.
                           •   Installation of a third melting furnace for R8 million at the Brass Foundry.

     DENEL GROUP
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                                     Company Confidential
     MECHEM

    MECHEM a world leader in creating a safer environment through providing: mine action
   services; battle area clearance solutions; contraband detection services; mine protected
   vehicles and ancillary equipment.
Key customers:                   United Nations
Order cover 2009/10: R47M                  Total order book: R47M

                                                        07/08       08/09       09/10     10/11   11/12
                             Annual sales:              R176m       R267m       R263m     R205m   R210m
                             Profit / (Loss):            R16m        R31m        R25m      R15m    R15m
                             Employees:                 54 (Direct: 0% Indirect: 100%)
                             Climate survey:            43% (2006)              66% (2008)
                             BBBEE rating:              Assessment in process

                             Main Achievements & Challenges:
                             -      Maintenance of share of UN mine action and BAC work.
                             -      Sale of 60 remanufactured CASSPIR vehicles for AU/UN Hybrid Force in
                                    Darfur.
                             -      Expansion of existing client base and global footprint.
                             -      Acceptance and use of the MECHEM Explosive and Drug Detection
                                    System by local law enforcement agencies.
                             -      Closer cooperation with Gov Departments to ensure access to local
                                    markets (range clearance, etc) and international exposure.

      DENEL GROUP
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                                         Company Confidential
    CARL ZEISS OPTRONICS (PTY) LTD

   Carl Zeiss Optronics is a global supplier of a wide range of optronics (optical-
   electronics) products.
Key customers:             FLIR (USA) BaE Systems (UK) SA Police, SAAF, etc
Order cover 2008/09 :      R480m (100%)              Total order book: R680m (April 2009)
                                                  07/08     08/09     09/10     10/11   11/12
                           Annual sales:          R264m R480m R450m R500m               R550m
                           Profit / (Loss):       (R80m) R50m          R45m      R50m    R55m
                           Employees:             283 (Direct: 77% Indirect: 23%)
                           Climate survey:        Was not included in survey
                           BBBEE rating:          Level 7
                           Main Achievements & Challenges:
                           Achievements :
                               – Company returns to profitability in 08/09
                           Challenges :
                               – To become a world class company in terms of products,
                                  quality and efficiency.
                               – Long term orders

      DENEL GROUP
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                                   Company Confidential
    RHEINMETALL DENEL MUNITION (PTY) LTD

   RDM is an integrated supplier of munitions (artillery ammunition, mortars, bombs,
   large calibre ammunition, pyrotechnics, missile motors and warheads)
Key customers:
Order cover 2009/10: R733m (65%)     Total order book: R866m (as at end April 2009)

                                                  07/08     08/09     09/10     10/11
                          Annual sales:           R773m R1 124m R1 259m R1 449m
                          Profit / (Loss):        (R35m)        R70m     R83m R124m
                          Employees:              1 575 (Direct: 63% Indirect: 37%)
                          Climate survey:         43% (2006)          47% (2008)
                          BBBEE rating:           Level 9 (Self-assessed)

                          Main Achievements & Challenges:
                          RDM laid a solid foundation for turnaround
                          Successful integration of activities with Rheinmetall Waffe Munition
                          GmbH’s strategies, policies, procedures and reporting.
                          Consolidation of manufacturing facilities well underway




     DENEL GROUP
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                                   Company Confidential
      FINANCIAL SUMMARY

 Losses                                                                    • Denel was set-up in 1992 with a capital
       500                                                                   of R2 billion.
         0
                                                                           • The company posted significant losses
Rm




      -500
     -1000                                                                   year on year since 1998, except in 2001
     -1500                                                                   when it posted R40 million profit owing
     -2000
               2001   2002   2003   2004   2005    2006      2007   2008
                                                                             to a once off pension fund holiday.
                                                                             Losses from 2005 to 2008 caused by:
 Cash utilised                                                                  • Loss of export markets
      200                                                                       • Inadequate orders resulting in
                                                                                   under-utilisation of labour and
      -300                                                                         facilities.
Rm




      -800                                                                      • High interest cost resulting from
                                                                                   loans.
     -1300
                                                                                • Loss making contracts –
               2001   2002   2003   2004   2005    2006      2007   2008           Umkhonto, Raptor, UAV’s, Airbus,
                                                                                   Agusta & Rooivalk.
 Solvency                                                                       • Equity partnership restructuring
                                                                                   starting to have effect from 2007.
     2000
     1500                                                                  • The reserves and capital had been
     1000                                                                    significantly eroded due to these loses
Rm




      500                                                                    by 2004, necessitating a review and
        0                                                                    change of the strategy in 2005/06.
     -500
              2001    2002   2003   2004   2005    2006     2007    2008

       DENEL GROUP
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                                           Company Confidential
              DEFENCE SPEND

RSA DEFENCE SPEND                                                                                                                                 DEF SPEND % GDP

                                                                                                                                                  COUNTRY     AVERAGE
                                                                                                                                                  US              4.50%
YEAR                    00/01 01/02 02/03     03/04      04/05     05/06      06/07      07/08      08/09       09/10      10/11      11/12       BRAZIL          1.50%
DEFENCE                 14.37 15.80   17.11      17.32     22.06      23.41       23.8       25.1       27.75      32.01      32.39       34.42   TURKEY          5.00%
                                                                                                                                                  MALAYSIA        2.50%
GDP                     897.9 987.2 1,069.3 1,154.9 1,575.8 1,585.9 1,810.6 2,067.8                  2,304.1 2,474.2 2,686.2 2,952.9              JORDAN          5.00%
                                                                                                                                                  INDONESIA       1.50%
DEFENCE AS % GDP        1.60% 1.60% 1.60%        1.50%     1.40%     1.48% 1.31%           1.21%       1.20%      1.29%      1.21%       1.17%    EGYPT           3.00%


                                                  DEFENCE SPEND AS % GDP

              1.70%
              1.60%
              1.50%
       %G P
         D




              1.40%
              1.30%
              1.20%
              1.10%
              1.00%
                            00/01     01/02           02/03        03/04       04/05         05/06          06/07          07/08         08/09     09/10   10/11   11/12

                                                                                                 YEARS


              DENEL GROUP
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                                                                      Company Confidential
DEFENCE SPEND

                         DEFENCE SPEND ALLOCATION

              35,000.0


              30,000.0


              25,000.0


              20,000.0
   Rm
              15,000.0


              10,000.0


               5,000.0


                  -
                         05/06     06/07          07/08       08/09     09/10      10/11      11/12

      Capital            412.6     434.3          497.7       585.9     660.7      555.1      713.4
      Spec Def Acc       9,715.9   8,882.8       8,926.9     8,787.8   11,114.5   10,061.6   9,725.6
      Operational        5,085.6   5,444.9       5,987.4     7,467.2   8,497.4    9,463.2    10,833.8
      Salaries           8,196.4   9,037.6       9,735.9    10,908.1   11,751.9   12,309.4   13,145.9




DENEL GROUP
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                                             Company Confidential
DEFENCE SPEND

                           DEFENCE SPEND ALLOCATION
                                   SPECIAL DEFENCE ACC


                 100%

                  80%

                  60%

                  40%

                  20%

                      0%
                           05/06    06/07    07/08     08/09   09/10   10/11   11/12

              Other        944.7   1,202.6 1,374.9 1,589.9 1,674.1 1,867.7 1,879.6
              Navy         1,804.7 1,306.9   948.2    255.5    272.1   268.3   188.5
              Air Force 5,427.9 4,729.6 4,537.9 4,924.1 6,886.4 5,252.8 5,172.2
              Army         1,538.6 1,643.7 2,065.9 2,018.3 2,281.9 2,672.8 2,485.3


DENEL GROUP
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                                      Company Confidential
DOMESTIC MARKET: PROCUREMENT SOURCES

              ORDERS PLACED BY ARMSCOR 2007/08:




                   Other SA                     Foreign
                     36%                          45%
                   R4,173m
                                                R5,064m



                             Denel
                              19%
                               R2,218m



DENEL GROUP
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                         Company Confidential
DENEL PHASE I STRATEGY FOR TURNAROUND




DENEL GROUP
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               Company Confidential
DENEL PHASE I STRATEGY: PROGRESS MADE


1. PRIVILEGED ACCESS TO LOCAL DEFENCE SPEND
    – The principle of “buy South African” established with RSA DoD
    – Joint planning forums established with DoD
    – 50% to 60% of DoD spend now directed to domestic suppliers
    – Progress being made in terms of placing multi-year orders
    – Denel local / export sales mix changed from 40/60% to 60/40%
    – Limitation: currently 1.2% of GDP ( recent MTEF cut of R1.9bn)



2. PARTNER WITH STATE AGENCIES
    – Good cooperation established with all RSA State Agencies and
      more being done to further improve situation
    – Visible support by Government for Denel marketing efforts locally
      and abroad


DENEL GROUP
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                           Company Confidential
DENEL PHASE I STRATEGY: PROGRESS MADE


3. COMMERCIAL VIABILITY
• Non-core businesses sold
    – Disposal of properties and non defence related businesses
    – Cash proceeds R1bn (Repaid corporate bonds - R815m)

•      Significant and steady decrease in bottom line losses
        – 2005:      (R1,560.7m)
        – 2006:      (R1,363.4m)
        – 2007:        (R549.1m)
        – 2008:        (R347.2m)
        – 2009:      Figures to be released by August 2009



Note: Denel financial year-end: 31 March



DENEL GROUP
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                                   Company Confidential
DENEL PHASE I STRATEGY: PROGRESS MADE


•      Revenue increased
        – 2006:    R3 035m *
        – 2009:    R5 553m * (2009: Provisional figures)

•      Revenue per employee increased
        – 2006:    R361 595 / employee *
        – 2009:    R7466 134 / employee *

•      Improved Group order book
        – 2006:     R3 749m *
        – 2009:    R16 048m * (Including confirmed contracts)



* Figures of associated companies included



DENEL GROUP
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                                   Company Confidential
DENEL PHASE I STRATEGY: PROGRESS MADE

4. EQUITY BUSINESS PARTNERSHIPS

•      Four equity partnerships entered into
        – Turbomeca Africa             (51%)
        – Denel SAAB Aerostructures (20%)
        – Carl Zeiss Optronics          (70%)
        – Rheinmetall Denel Munition (51%)
•      Three of the four companies are already turning around
•      Denel SAAB Aerostructures
        – Aggressive turnaround plan
        – Major capital investment program
        – Legacy contracts being managed out
        – Board and management team strengthened
        – Exploring collaboration with industry
        – Leveraging capability to increase exports


DENEL GROUP
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                               Company Confidential
DENEL PHASE I STRATEGY: PROGRESS MADE


5. RAISE CAPABILITIES AND PERFORMANCE

•      Proactive technical and risk management approach
•      Programme level successes include
        – A-Darter air-to-air missile joint development programme with Brazil
        – Lockheed Martin OEM accreditation
        – Badger combat vehicle contract
        – 6 Rooivalk aircraft delivered to SAAF after upgrades with
           unrestricted interim qualification
        – SAAF contracts to upgrade Oryx helicopters

•      Operating level successes
        – Performance in most Business Entities improved
        – Programme management improved
        – Customer focused culture established


DENEL GROUP
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                               Company Confidential
DENEL PHASE I STRATEGY: PROGRESS MADE

6. PEOPLE AND TRANSFORMATION

•      Improved company organisation climate
        – 2006 survey: overall index 43
        – 2008 survey: overall index 50
            (Industry norm is 50)

•      Transformation programme started in 2007

•      Implemented a performance management system in 2007

•      Strong focus and increased spend on skills development and retention

•      Inculcation of a culture that fosters:
        – performance
        – commercial mindset
        – understanding and celebration of diversity
DENEL GROUP
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                               Company Confidential
  PEOPLE AND TRANSFORMATION: SKILLS PROFILE
  (INCLUDING ASSOCIATED COMPANIES)

                  WHITE            AFRICAN              COLOURED            INDIAN
                   53%               30%                   16%                1%
                  M      F          M         F         M       F       M        F        TOTAL


MANAGEMENT        383    35           43       18        20         2   17           3      521

ENGINEERS         377    20           21          1         3       0   24           3      449

SCIENTISTS         39        7          2         4         2       0       0        0       54

TECHNOLOGISTS     742    61           93       22        66     21      17           2     1 024

ARTISANS         1187    64         756      179         152    88      14           2     2 442

OTHER             414    494        730      264         505    277     15           9     2 708

TOTAL            3 142   681      1 645      488         748    388     87           19    7 198


   DENEL GROUP
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                                 Company Confidential
 DENEL PHASE II STRATEGY: DRIVERS FOR GROWTH

        Improved Access to Sustainable Markets
           Equity Partnerships: Existing and New
             Local Spend: Home Market Support


                 Operational Excellence
                                                                     CUSTOMER FOCUS
 Performance, People, Skills Development, Outsourcing,
                Supplier Development


  Deepen Relationship with DoD and State Agencies                      EFFICIENCY
Joint planning, International Marketing Support, Technology
 and IP Development, Skills Transfer, Programme Delivery

                                                                        GROWTH
  Strengthen Governance and Financial Management
 Risk Management, Compliance, Cash Flow Management
                   and Contracting


    Towards a Respected South African Company
Transformation, BBBEE, Employment Equity, CSI, Branding




   DENEL GROUP
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                                              Company Confidential
 DENEL PHASE II STRATEGY: IMPLEMENTATION

                Driver                                Desired Future State
Improved Access to
                         Complete key outstanding equity partnership transactions
sustainable Access
                         Consolidation of local landward defence capabilities and foreign equity
                         partnership



                         • Grow existing markets
                         • Enter focused new markets


                Driver                                Desired Future State
Operational excellence   •   Operational excellence achieved across Denel:
                         •   Contracts delivered consistently to specification,
                         •   on time and within contracted costs
                         •   Sustainable long-term order book secured
                         •   Correct contracting models within product lifecycle
                         •   Appropriate investment in R&D
                         •   Integrated skills development
                         •   Sound succession planning
                         •   Optimised utilisation of BBBEE/SMME and wider RSA supply chain
                         •   Appropriate alliances established with OEM’s


  DENEL GROUP
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                               Company Confidential
  DENEL PHASE II STRATEGY: IMPLEMENTATION

                  Driver                                       Desired Future State
Deepening relationship with DoD   •Home market support: Increase intake of local orders to form sustainable baseline
and State Agencies                •70% of total order intake from local client
                                  •Joint DoD/industry planning forum
                                  •Monthly programme reviews
                                  •Quarterly strategic meetings
                                  •Regular meetings with Chiefs of Armed Services



                  Driver                                       Desired Future State

Strengthen Governance and         • New financial reporting system to:
Financial Management                  – Improve real time reporting to management and stakeholders
                                      – Ensure continued robustness of reports


                                  • On-going centralisation of the Treasury function to:
                                      – Pool financial resources
                                      – Optimise cash holding
                                      – Interest rate and forex management
                                  • Corporate policies and risk management to ensure:
                                      – Sound risk management systems
                                      – Sound corporate governance


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  DENEL PHASE II STRATEGY: IMPLEMENTATION

                  Driver                                Desired Future State

Towards a Respected South   A commercially, self-sustainable entity
African Company             • All entities are profitable and self-sustainable
                            • Creator and custodian of proprietary IP


                            A transformed organisation
                            • B-BBEE
                            • Positive Organisational Climate
                            • Substantial investor in employee training and development




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    DENEL’S VALUE ADD (1)

Effective contribution to National Security
•   Security of supply in an environment where the major Western players limit access to advanced
    defensive weapons by non-NATO developing countries
•   Integrity of SA’s defence stature, particularly in the G20 environment where it elevates Africa’s stature
•   Optimised acquisition and cost of ownership - able to service weapons procured offshore in-country
•   Extensive manufacturing and support base
•   Sustainable technology base to enable DoD to acquire products uniquely suited to the African theatre
    of peacekeeping


Contribution to the economic and manufacturing base
•   Skill intensity: opportunity for deep, applied scientific and engineering base in contrast to an academic
    approach in most developing countries without an indigenous defence industry
•   High-end skills development and retention
      –     Denel Centre for Learning and Development (DCLD)
      –     Denel Youth Foundation Training Program launched focusing on upgrading mathematics and
            science skills.
      –     Engineering bursary & internship programmes




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    DENEL’S VALUE ADD (2)

Contribution to the economic and manufacturing base (contd.)
•   IP creation and cross-leveraging in other industries. Internationally confirmed
    that defence industry remains the number one incubator for industry at large.
•   Denel skills infusion across SA industries (examples include the electric car
    programme of DST and the PBMR programme)
•   Supports an extensive local supplier base: 70%+ local procurement
•   Employment multiplier: X6 (6 jobs in the supplier base for every engineer
    employed)
•   Major forex savings in acquisition and earnings through exports


But everywhere in the world, the incumbent government (through its DoD or
    DST) has to assume ultimate responsibility for:
•   Funding the core technology & capability base in its own country

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    DENEL’S VALUE ADD (3)

Denel collective 2009 R&D Investment – R1,095 billion


Key technologies and human capital supported by this investment:
•     Sovereign missile capability
•     Security of supply of world-leading munitions range and strategic material
      supply
•     Independence in brass/pure copper extrusions
•     Advanced gearbox and composite structures manufacture
•     World-leading landmine protection/clearance technologies
•     Certified local Maintenance, Repair and Overhaul capabilities
•     State of the art photonics capabilities
•     Development of an expanded local supply chain



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DENEL PRIORITIES


•      Interventions in areas where turnaround has not yet been achieved
        – Denel SAAB Aerostructures

•      Conclude missile equity transaction

•      Finalise outstanding recapitalisation package / funding guarantees

•      Build order cover and secure multi-year orders (Local and international

•      Embed new strategic drivers across Denel

•      Achieve transformation goals

•      Define impact and mitigate potential risks associated with the A400M
       cargo aircraft project


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                                Company Confidential
              Thank You




              www.denel.co.za
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