denel annual report presentation to the portfolio committee on defence on the 2 november 2004
TRANSCRIPT
Denel Annual Report
PRESENTATION TO THE PORTFOLIOCOMMITTEE ON DEFENCE ON THE 2 NOVEMBER2004
Agenda
SA Defence Industry Annual Report Issues & Challenges Strategic repositioning
SA Defence Industry
Defence Review White Paper on Defence White Paper on Defence Related
Industry
ADS4.2%
ALVIS OMC 4.4%
GRINTEK8.5%
REUTECH8.8%
ATE 9.2%
DENEL 55%
10%OTHERS
Share of SA Defence Industry Turnover
Denel Products: Aerospace
Missiles & guided weapons
OTB multi-purpose test range
Aircraft parts manufacture / maintenance / refurbishment
Helmet sighting systems
UAVs / observation systems
Target drones
Rooivalk attack helicopter
Denel Products: Land Systems
Aerospace
Artillery systems: 155mm & 105mm long range
Artillery propellant charges & projectiles
Infantry weapons
Small / medium calibre ammunition
Plant manufacture
Denel Markets
RSA Local R1 855m - 42%
Africa R158m - 4%
South America R211m - 5%
Asia R464m - 11%
Middle East R872m - 20%
EuropeR702m - 15%
North AmericaR113m - 3%
Denel People
(25,6%)
1 4.5 5.6 0.8
13.2
49.7
18
7.2
Senior Management Management Engineers ScientistsTechnicians Artisans Support Services Operational Support
49,7%
18%
7,2% 1% 4,5% 5,6%0,8%
13,2%
Denel Structure
Support Functions: Chief of Staff
Aerospace Systems
Engineering
Denel Optronics
Aircraft Logistics
M anufacturing
OTB: Test Range
DENEL AEROSPACE
Systems
Am m o: Sm all / M ed
Am m o: Large
Pyrotec / Expl.
M ine Action
DENEL LAND SYSTEMS
Properties
SPP: Soybean Pr
Irenco: E lectr / P las
Dendustri
IT Interest
COM M ERCIAL & IT
CEO
Denel Plants and Facilities
Denel Finances: Highlights
2004 2003 % Change ITEM
Rm Rm Rm Gross revenue 4 442,2 4 372,4 1,6% Gross revenue – continuing operations 4 442,2 4 163,2 6,7% Gross profit 1 287,3 1 276,3 0,9% Loss before taxation (357,6) (43,6) (720,2%) Net loss (377,5) (72,6) (420,0%) Cash outflow before financing activities (200,8) (229,0) 8,8% Capital and reserves 834,5 1 368,3 (39,0%) Non-current borrowings 832,1 840,9 1,0% Total borrowings 907,8 849,6 (6,9%) Total assets 4 091,8 4 254,0 (3,8%)
Gross Revenue Composition
0
10
20
30
40
50
60
70
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
Per
cen
tag
e
RSA Security forces Commercial-local Exports Other
Sales Composition per region
0
10
20
30
40
50
60
2001 2002 2003 2004
Per
cent
age
South Africa Africa South America Asia Pacific
Middle East Europe North America
Revenues vs Capex / Opex / R&D
0
10
20
30
40
1998 1999 2000 2001 2002 2003 2004
Percentage of Revenues
Capital Expenditure R & D (Own funds)
Operating Expenses
Denel Investments
Description2003/04
Rm
Research and Development 239,8
Capital Investment 161,5
Social Investment 12,0
Investment in associates 16,5
Current Operating Situation
• Decline in orders from the SANDF
• Decline in R&D funding
• Losses from the Rooivalk (R2,0 billion plus)
• Unsuccessful commercial diversification strategy
(R900 million)
• Staff Reduction (over 5000 since founding)
• Writing down the values of excess assets
Current Operating Situation (2)
• Low margin/loss incurring Countertrade (DIP)
contracts
• High overhead costs
• Operational inefficiencies
• Strengthening of the SA Rand against the US dollar
• Losses at certain non-core businesses.
• Balance sheet over-borrowed / uncapitalised
Current Operating Environment (3)
• Unfair global competitive environment
• Unfair local competitive environment
• Armscor acquisition policy
• NCACC
Denel turnaround (1)
• Focus on core
• Restructure business & processes
• Aggressive cost-cutting / rightsizing
• Product & skills rationalisation
• Development of new markets
Denel turnaround (2)
• Recapitalisation
• Increased R&D funding
• Review of defence acquisition policy
• New SANDF programmes
• Effective programme funding
Conclusion
• Denel central to SANDF defence capability• Denel is key to SA technology capabilities • Incubator of expert science & engineering skills• Denel is a strategic foreign policy instrument• State-owned and supported defence industry• Proudly South African acquisition policy required
Thank you