Denel upbeat on 2014 results

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The Seeker II is an unmanned aircraft built by Denel Dynamics and can fly for 10 hours, carrying 50kg. Denel says it is used for real-time reconnaissance, target location and artillery fire control. Photo: Supplied

Johannesburg - State ammunition manufacturer Denel was expecting better-than-envisaged results for the 2014 financial year.

The breaking point for its troubled aerostructures designing and manufacturing division, Denel Aerostructures (DAe), was “clearly on the horizon”, the group’s financial director, Fikile Mhlontlo, told Business Report yesterday.

“We are a lot more upbeat than we have ever been as a business. The admirable story of Denel has continued… DAe has improved quite significantly.”

DAe, the division that was mostly responsible for the losses reported by Denel in the past decade, renegotiated its A400M contract with Airbus for a more favourable pricing. Airbus has now allocated two additional supply packages to Denel to the value of R500 million.

More orders came in to other Denel divisions when the company went onto international roadshows this year. It concluded more than R30 billion worth of contracts which would be executed over the next 10 years.

The bigger portion, about R12bn, related to orders for the combat vehicles. There were also orders for the manufacturing of aircraft composites, the Unmanned Aerial Vehicles (UAVs), as well as across all divisions.

Mhlontlo said Denel tested its new version of its prototype unmanned vehicle about three months ago.

“A lot more customers expressed interest and it has already been bought while we developing it. We have also been successful in concluding some orders for UAVs, in general. In future, this [will be] an area where we will do a lot better,” he said.

The UAVs are computerised small aircraft used for surveillance purposes. They fly for eight hours without the need to be refuelled and Denel’s new generation model is targeted to fly for about 16 hours.

Unmanned vehicles are not the only new area of growth Denel is looking at. Earlier this week, it announced that its ammunitions manufacturing division, Denel PMP, would embark on a plant-renewal programme to modernise its machinery and production processes.

This process would enable Denel PMP to increase its plant output by a couple of folds and double its turnover to more than R1bn within the next five years.

The additional capacity this programme would create would present an opportunity for the group to look at manufacturing other types of ammunitions.

“Once we put in the updated equipment, one also has to be cognisant of what the market wants and provide sufficient business cases. For instance, we do not do ammunition for the AK47 and, depending on the requirement, it is something that we are looking into.”

Denel embarked on a restructuring journey four years ago and, in 2011, it posted an operating profit for the first time in more than a decade. At the end of 2013 financial year, Denel generated close to 50 percent of its revenue from exports.

“That trend has continued into the period ending this March. What we are also seeing is very positive engagements with our global clients where they demonstrated a tremendous respect for what Denel has to offer. There is a lot more positivity in terms of how our offering is viewed.”

Mhlontlo said while the group did not expect this upbeat trend and increased exports to continue perpetually, what the firm had witnessed was that despite the subdued state of the world economy, the markets in which its products were deployed had continued to grow. He said the cyclical nature of the defence business, which depended on the world economy, had not affected Denel.


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