Zwelakhe Ntshepe, acting group chief executive of Denel.

JOHANNESBURG - The controversial Gupta family suffered a huge blow on Friday when state manufacturer Denel said it would exit its partnership with VR Laser Asia.

Acting Denel chief executive Zwelakhe Ntshepe said the manufacturer wanted out of the deal because it had attracted negative publicity. Ntshepe said VR Laser had also not traded because of continued differences with the national Treasury. “The Denel Asia JV became the focus of negative attention from the media to the detriment of the Denel brand, both locally and internationally,” Ntshepe said.

The planned cancellation of the deal comes nearly 18 months after Denel said it wanted to partner with the Asian-based business of VR Laser as a vehicle to penetrate Asia-Pacific, as the market had seen year-on-year increases in spending, in excess of 20percent, making it one of the top-spending regions on defence equipment in the world.

“This therefore brings us to a point where we can officially report that Denel SOC has ended its involvement in the Denel Asia JV,” Ntshepe said. “We have exited the JV.” Reporting on the company’s performance for the year end to June, Ntshepe said Denel continued to maintain revenue levels above the R8 billion mark despite its turnover declining by 2.5percent.

He said the global defence industry had seen cutbacks in budgets making the year difficult for it to remain profitable in an ever-increasingly cost-sensitive and competitive market. He said the industry also had to make cost-cutting decisions to maintain acceptable financial performance.

Exports had increased 5percent during the period, accounting for 63percent of the group’s total revenue, while profitability had exceeded set targets by 9percent, posting a total of R333m NPAT. Return on sales decreased by 8percent and was now at 4 percent, in line with the previous year’s 4.8percent. Denel would embark on a strategic drive to reduce operating expenses percentage to sales, currently at 18percent, towards the 14percent range, he said.

“With the tough and volatile international trading conditions, Denel returned profitability in spite of a forex loss of R232m booked for the year.” The current debt to equity ratio of 1.2:1 is still not at acceptable levels. “Plans are already in place to bring it down to even more acceptable levels,” Ntshepe said.

“An important key lever towards developing the Denel business into long-term sustainability is in optimising the cost structure through operational excellence.” He said Denel was able to maintain, expand and build on a broad scope of sovereign and strategic technologies that would not have been possible.

“Credit must go to the Ministry of Defence and Veterans, Armscor and the SANDF, which remain our anchor clients, and we are indebted to them for much of our product portfolio and technology funding.”

With more than 75 percent of both local and export work localised, the industry had benefited substantially from the partnership. He said the group’s relationships with foreign clients would continue to grow with long-term partnerships secured on their strategic projects.

“The Middle East and Asia-Pacific regions are key export targets for the company,” he said.“We are making great progress in extending our footprint in these markets.”