► Streamlined Denel sets eyes on market growth and improved revenue
11 August 2022 – A future Denel will be a streamlined and sustainable company with the ability to significantly grow its order pipeline and access new revenue streams.
The state-owned company today unpacked a comprehensive strategy for the stabilisation and restructuring of Denel with the aim to rebuild the reputation and capabilities of the company.
“There is now a clear and sustainable business case to underpin Denel’s future,” says Riaz Saloojee the Chief Restructuring Officer of Denel. It can be self-sustaining with a R12bn order book over the next business plan cycle – which is six times its current annual revenues. If the turnaround of the business is successful there is a potential to grow the order book to R30bn.
Denel was a stable SOC between 2010 and 2015, but by 2016/17 the SOC was beginning to show signs of decline through a combination of state capture together with weaknesses in management, leadership, project execution and contract management. This position was exacerbated by the Covid-19 pandemic which created the dire position that Denel finds itself in today. Revenue fell from a peak of R8.2bn in R2015/16 to under R2bn in 2021/22.
The new strategic direction enjoys the support of Denel’s shareholder, the Department of Public Enterprises, and the Denel Board and will be strengthened through a formalised Memorandum of Cooperation with the Department of Defence and Armscor to ensure alignment on sovereign and strategic capabilities.
Government’s commitment to recapitalise a restructured Denel will provide a solid base for the immediate future. “The strategic intent is to reduce dependence on the fiscus for the maintenance of critical strategic and sovereign capabilities,” he says.
The rationalised Denel will focus on its proven capabilities in the fields of guided weapons, land defence systems, aircraft engineering and maintenance and the delivery of complex integrated systems for the security and cyber environments.
“The current problem remains that the fixed cost of the business is far in excess of the revenue and executable business,” says Saloojee. “The only way for Denel to support itself is through a deep restructuring and reduction of the cost base to affordable levels.”
Higher levels of efficiency will be achieved through the restructuring by adopting a smaller geographic footprint and streamlining of policies and processes inclusive of the engineering, manufacturing and the support environment.
Financial viability will also be achieved through a range of strategic actions including the sale of non-core assets, the appointment and retention of able skills and leadership, and the normalisation of relationships with employees, suppliers and key stakeholders. This will be done to sustain sovereign and strategic capabilities in the national interest.
“We intend to grow long-term strategic partnerships with the local defence and technology sectors and entrench our position in the local and international markets. The value of these partnerships is threefold namely to access to markets, new technology and financial support” says Saloojee.
Denel will establish “smart partnerships” with the local defence industry to ensure jobs are created within the wider sector. The planned growth path is projected to result in an estimated 1 000 high-quality direct jobs in the industry within the next three years and some 5 000 jobs by 2027.
Saloojee says Denel continues to be a critical supplier of sovereign and strategic capabilities which provides vital leadership to the local defence industry that exports some R7bn of mostly advanced manufactured products per year.
Moreover, there remains a significant interest in Denel’s battle-proven intellectual property and the rapidly changing global defence environment will create opportunities to market the company’s products and form deeper strategic relationships.
Once Denel has been stabilised and the reputational image restored, the company will build long-term strategic partnerships in all its businesses. This will entrench its position in local and international markets and maximise the value of intellectual property and capabilities within Denel, says Saloojee.