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Denel Presentation to The Public Enterprise Portfolio Committee
8 September 2004
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Agenda
• Welcome and Introductions
• Denel Business Overview– The Defence Industry– Financial Highlights– Human Resources– BEE / Affirmative Procurement– Challenges facing Denel
• Discussion
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• Product Development • Manufacturing • Procurement
LTD
In April 1992 Amscor’s manufacturing abilities were commercialised
Complete split in organisations and management objectives
•Companies Act
•Commercialise Manufacturing
•Maintain Technologies
•Economic Growth
•Armscor Act•Procurement
Denel created in 1992
ARMSCOR
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Denel (Pty) Limited
• State-owned Enterprise reporting to DPE
• Government is sole shareholder
• No subsidies from Government
• Works with DoF, DoD, DTI, DFA, DoI, DST
• Commercial and Profit driven
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Regulatory Regime
Denel is regulated by (among others): SA Companies Act PFMA Firearms Control Act Explosives Act NCACC Act International agreements / conventions, eg.
Nuclear Non-proliferation Missile Technology Control Regime (MTCR) Biological & Chemical Weapons convention
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The Defence Industry
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SA Defence Industry
MINISTER OF DEFENCE
ARMSCOR
• PROCUREMENT• MARKETING SUPPORT
SECRETARY OF DEFENCE
• POLICY• BUDGETS• CONTROL
NATIONAL DEFENCE FORCE
• ARMY• NAVY• AIR FORCE• MEDICAL
DEFENCE RELATED INDUSTRY
• AEROSUD • AFRICAN DEFENCE SYSTEMS (ADS)• ALTECH• AMS• ATE• ALVIS OMC• GRINTEK• IST• M-TEK• LOG-TEK• PLESSEY• REUNERT
• Service providers
MINISTER OFPUBLIC
ENTERPRISES
• DESIGN• DEVELOP• MANUFACTURE• SUPPORT• MARKETING
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ADS4.2%
Alvis OMC 4.4%
Grintek8.5%
Reutech8.8%
ATE 9.2%
Denel 55%
10%Others
Estimated Share of Defence Turnover
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Acquisition / Supply Process & Controls
• RSA strategic position• Foreign Policy posture• Formal Treaties / Agreements• Absence of conflict / Threat to peace• Needs determination• Design and Development• Proofing, Testing, Qualification• Bid permit system / NCACC
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Global Defence Industry
•Dynamic and politically challenging
•Strong, protected domestic industries
•Highly competitive
•Domination by major powers
•Little reliance on foreign arms acquisitions
•Mergers & Acquisitions
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Top 10 Defence Budgetsplus RSA (2002) US$ Billions
335.7
46.736 33.6 31.1 27.7
21.6 21.1 17.513.5
2.2
1
10
100
1000
USA
Japan U.K
.
France
China
Ger
man
y
Saudi A
rabia
Italy
Iran
South K
orea
South A
frica
Logrithmic scale
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Global Defence Sales
Arms Transfers to Developing Nations2002
USA48%
Russia28%
China2%
Others10%
Major Western
Europe - 12%
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Business Overview
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Board of Directors
Sandile ZunguChairman(Jun 2001)
Victor Moche(May 2003)
Pottie Potgieter(Jan 1997)
Executive Directors Non-executive Directors
Zodwa Manase(Jun 1998)
Ian Deetlefs(Oct 1995)
Lt GenLambert Moloi
(Jun 1998)
Dr Danisa Baloyi(Oct 1995)
Dr Sibusiso Sibisi(Jun 1998)
Alan Mukoki(Jun 1998)
Dr Chris Saunders(Jun 1998)
Thami Mazwai(Jun 2001)
Dr Khotso Mokhele(Jun 2001)
Denel Structure:
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Executive Committee
CEOVictor Moche
Group Director: MarketingZwelakhe Ntshepe
GED: Finance(Vacant)
Group Director: HREugene Martin
Group Director: Procurement & ITMalesela James Sekhasimbe
GED: Land Systems(Acting) Tony Simon GED: Aerospace
Knox MsebenziGED: Commercial & Acting FD
Pottie Potgieter
Chief of StaffCassandra Gabriel
Company SecretaryDr Tommy van Reenen
Chief Legal Counsel
Tanya Swiegelaar
Chief Technical Officer(Vacant)
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Operating 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
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Denel Plants and Facilities
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Aerospace Products & Services
Missiles & guided weapons
OTB multi-purpose test range
Aircraft parts manufacture / maintenance / refurbishment
Helmet sighting systemsUAVs / observation systems
Target drones
Rooivalk attack helicopter
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Land Systems Products & Services
Aerospace
Artillery systems: 155mm & 105mm long range
Artillery propellant charges & projectiles Infantry weapons
Small / medium calibre ammunition
Plant manufacture
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Commercial & IT
• Denel Properties Group• Dendustri – Components Manufacturing• Irenco – Electronic & Plastic injection-moulding products• SPP – Soy-based protein-rich foodstuffs• IT Shareholdings – Cosource, Arrivia.kom, Sybase SA• Densecure – Captive Insurance company for the Denel
Group
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Financial Overview
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Financial 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%)
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Sales Composition per region
0
10
20
30
40
50
60
2001 2002 2003 2004
Per
cen
tag
e
South Africa Africa South America
Asia Pacific Middle East Europe
North America
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Group Sales: Defence /Non Defence
0
500
1000
1500
2000
2500
3000
3500
4000
1998 1999 2000 2001 2002 2003 2004
Defence Non-Defence
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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
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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
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Investments
Description2003/04
Rm
Research and Development 239,8
Capital Investment 161,5
Social Investment 12,0
Investment in associates 16,5
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Business environment: Exchange Rate, CPI and salary increases
01020304050607080
1999 2000 2001 2002 2003 2004
Per
cen
tag
e
Rate of exchange CPI Salary increases
CPI Cum Salary Incr Cum
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Human Resources
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People of Denel
• Employee headcount: 10925• 70% technical, engineers and scientists• Insufficient engineers and technicians • Ageing skills base• Lack of employment equity
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Employee Distribution
(25,6%)
1 4.5 5.6 0.8
13.2
49.7
18
7.2
Senior Management Management Engineers Scientists
Technicians Artisans Support Services Operational Support
49,7%
18%
7,2% 1% 4,5% 5,6%0,8%
13,2%
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996
2341
764
1310
934
14557
4199
0
400
800
1200
1600
2000
2400
2800
3200
3600
4000
4400
WHITE MALE WHITEFEMALE
AFRICANMALE
AFRICANFEMALE
COL MALE COL FEMALE ASIAN MALE ASIANFEMALE
(39,1%)
(9,3%)
(21,8%)
(7,1%)
(12,2%)
(1,3%) (0,5%)
(8,7%)
Demographics
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7995
2751
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
5500
6000
6500
7000
7500
8000
MALE FEMALE
(74,4%)
(25,6%)
Gender
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Employee Wellness (EWP)
A National Employee and Family Counselling telephone service
Emergency Care Centre Face-to-face Counselling Service Health Information and Advice HIV/Aids – Voluntary Counselling and Testing Medical Aid Retirement Fund & Financial Advice
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Social Plan
• Personal Counseling
• Financial Counseling
• Job Search
• Denel SMME Funding and Incubator
• Denel Business Opportunities
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Training & Skills Development
Denel Centre for Learning and Development: The School of Business Leadership The School of Aerospace The School of Land Systems The Denel Youth Foundation Training Programme
Skills Development Projects: Through eight sector education and training authorities Focus on Engineers, Scientists and Technicians External training within South Africa & Abroad External training in Nepad countries
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Corporate Social Investment
• GET SET Programme
• Schools’ Outreach Programme &
Science Popularisation
• SEDIBA Teacher Development Project
• Apprentice Training
• Bursaries
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BEE / Affirmative Procurement
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BEE categories:
• Black Influenced (>5.1% Shareholding) 8% = R 81,876,258
• Black Empowered (>25.1% Shareholding) 3% = R 30,173,669
• Black Owned (>50.1% Shareholding) 2% = R 24,464,164
• Non-Empowered Companies (<5.1% Shareholding) 87% = R936,858,707
BEE as a percentage of total spend: R1,073,372,798
BEE % of Total Spend
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BEE: Women Spend
• Male Owned 98.14% (R1,053,356,023)• 1 – 25.1% Woman Owned 0.58% (R 6,247,580)• 25.2 – 51% Woman Owned 1.02% (R 10,903,153)• 52 – 100 % Woman Owned 0.27% (R 2,866,041)
Spend Awarded to Woman Owned Enterprises
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BEE Achievements
• Training for BEE entrepreneurs• Verification of BEE credentials• Publicising the opportunities in Denel• Punishment of fronting - withholding of Denel business
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Strategic Interventions
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SA Defence Industry Issues
• Decreased defence budget & local purchases • Declining R&D funding, reliance on highly
competitive export markets• No direct capital injection • Denel at a competitive disadvantage • Unfair competition / protected markets
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Technology Issues
• Denel develops high technology systems• World class products and systems• 60% of revenue from exports• Immense development costs• Under-funding in R&D• Technology edge under threat
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Policy and Regulatory Issues
• Defence Review• White Paper on Defence Related Industries• Armscor Act & Procurement Policy• BEE Charter• NCACC Processes• Fragmented governing legislation
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Strategic Interventions
• Aggressive programme of cost cutting and financial control
• Zero-tolerance: Fraud/Corruption/Mismanagement• Hi-tech integrated skills development programme• Alignment of skills• Performance management culture / system
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Strategic Interventions (2)
• Disposal of non-core businesses and investments• Business process re-engineering• Consolidation of support functions• Product rationalisation • New markets for higher-margin systems • Strategic alliance and partnerships• Review of all contracts
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Strategic Interventions (3)
• Review of Defence procurement policy• Higher R&D spend• Investment in training and development• Need for recapitalisation
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Strategic Objectives
• Revitalised balance sheet• Restoration of national defence capability• Sustainable and growing export business• High level skills incubator for national economy• Leading technology house • Global partner in niche markets
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Thank you
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BEE: Direct & Indirect Material Spend
BEE Share % Direct Indirect• Non-Empowered Companies (<5.1% Shareholding) 90.48% 88.70%
• Black Owned Companies (>50.1% Shareholding) 0.94% 0.95%
• Black Empowered Companies (>25.1% Shareholding) 2.25% 0.55%
• Black Influenced Companies (>5.1% Shareholding) 6.33% 9.80%
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BEE Suppliers
• Non-Empowered Companies (<5.1% Shareholding) 94% (8977)
• Black Owned Companies (>50.1% Shareholding) 4% (334)
• Black Empowered Companies (>25.1% Shareholding) 1% (56)
• Black Influenced Companies (>5.1% Shareholding) 1% (142)
Number of Suppliers by BEE Category
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BEE Challenges
• Continue to verify BEE credentials• Reward achievement of BEE targets• Focus on developing current and potential BEE companies
• Strengthen the supplier development function• Increase the BEE spend on direct/production materials
• Educate employees on the important role BEE initiatives play in the economy
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BEE: Next Steps
• Strengthen and grow the State Owned Enterprises Forum (SOEPF)
• Finalise the Defense BEE Charter led by AMD• Target all indirect materials and services for BEE and woman owned companies