http://www.engineeringnews.co.za
  SEARCH
Login
R/€ = 14.01Change: 0.00
R/$ = 10.67Change: -0.04
Au 1287.51 $/ozChange: 0.01
Pt 1424.50 $/ozChange: -1.50
 
 
Note: Search is limited to the most recent 250 articles. Set date range to access earlier articles.
Where? With... When?








Start
 
End
 
 
And must exclude these words...
Close Main Search
Close Main Login
My Profile News Alerts Newsletters Logout Close Main Profile
 
Agriculture   Automotive   Chemicals   Competition Policy   Construction   Defence   Economy   Electricity   Energy   Environment   ICT   Metals   Mining   Science and Technology   Services   Trade   Transport & Logistics   Water  
What's On Press Office Tenders Suppliers Directory Research Jobs Announcements Contact Us
 
 
 
RSS Feed
Article   Comments   Other News   Research   Magazine  
 
 
Aug 24, 2012

Denel adjusts strategy and structure as turnaround continues

Back
Aviation|Pretoria|SECURITY|Africa|Carl Zeiss Optronics|Cassidian|Copper|Defence|Denel|Denel Integrated Systems Solutions|Denel Land Systems|EADS Cassidian|Flow|Industrial|OTB|PMP|Projects|RDM|Safran Group|Security|System|Systems|Turbomeca Africa|Zeiss|Africa|Europe|North America|France|Germany|South Africa|Irene Campus|Security|Appropriate And Effective Communications Systems|Artillery Systems|Defence|Equipment|Flow|Guided Missiles|Industrial|Land Systems Solutions|Land-based Air Defence Systems|Mining|Optronic Imaging Devices|Products|Secure Communications|Security|Security Critical Systems|Systems|Western Cape|Malusi Gigaba|Riaz Saloojee|Security|Shaun Liebenberg|Talib Sadik|Latin America|Middle East|South Africa|South East Asia|Certain Key Defence Technologies
Aviation|SECURITY|Africa|Copper|Defence|Denel|Flow|Industrial|Projects|Security|System|Systems||Africa|||Security|Equipment|Flow|Mining|Products|Security|Systems||Security|||
aviation|pretoria|security|africa-company|carl-zeiss-optronics|cassidian|copper|defence|denel|denel-integrated-systems-solutions|denel-land-systems|eads-cassidian|flow-company|industrial|otb|pmp|projects|rdm|safran-group|security-company|system|systems-company|turbomeca-africa|zeiss|africa|europe|north-america|france|germany|south-africa|irene-campus|security-facility|appropriate-and-effective-communications-systems|artillery-systems|defence-industry-term|equipment|flow-industry-term|guided-missiles|industrial-industry-term|land-systems-solutions|land-based-air-defence-systems|mining|optronic-imaging-devices|products|secure-communications|security-industry-term|security-critical-systems|systems|western-cape|malusi-gigaba|riaz-saloojee|security-person|shaun-liebenberg|talib-sadik|latin-america-region|middle-east|south-africa-region|south-east-asia-region|certain-key-defence-technologies
© Reuse this



In July, South Africa’s State-owned defence industrial group Denel announced it had made a small profit of R41-million during the 2011/2012 financial year (FY – which ended on March 31). This was the second year in which the group reported a profit, but, encouragingly for the group’s management, although this profit was lower than the previous year’s, it was achieved entirely by operations, whereas the FY 2010/2011 profit had been boosted by a large, one-off, accounting gain from the restructuring of a pension fund. Furthermore, all but one of Denel’s businesses made a profit. And the exception, Denel Aerostructures, cut its losses by 67%.

Course adjustments

Since mid-January, the Group CEO of Denel has been retired Brigadier-General Riaz Saloojee, who succeeded Talib Sadik. (Following his retirement from the South African National Defence Force – SANDF – in 2000, Saloojee spent ten years in the defence industry, rising to become head of Saab South Africa, before his appointment to lead Denel.) Saloojee is the Denel group’s third CEO since its turnaround was launched under Sadik’s predecessor, Shaun Liebenberg, some six years ago.

Liebenberg reorganised Denel into ten “business entities” and three “associated companies”, as the group designated them. The business entities were Denel Aerostructures (DAe), Denel Aviation, Denel Dynamics, Denel Integrated Systems Solutions (DISS), Denel Land Systems (DLS), Denel Overberg Test Range (OTR, previously known as OTB – its initials in Afrikaans), Denel PMP, Denel Industrial Properties, Denel Training Academy and Mechem.

DAe designs and manufactures major structures for aircraft airframes; Denel Aviation undertakes the maintenance, repair and overhaul of aircraft (both fixed wing and helicopters); Denel Dynamics designs and manufactures guided missiles and unmanned air vehicles (UAVs); DISS specialises in the integration of complex land-based air defence systems; DLS designs and manufactures artillery systems, armoured vehicle turrets, small arms and related systems and subsystems; OTR is an aircraft and missile test and evaluation complex; Denel PMP (PMP – which is by far the oldest entity within Denel and far predates the creation of the group itself, having been founded in 1931) manufactures small and medium calibre ammunition, brass and copper strip and drill-bits for mining; and Mechem specialises in demining and antismuggling technologies and operations. The Denel Training Academy is the group’s independently accredited instructional institution while Denel Industrial Properties owns and manages the group’s various properties.

The three associated companies are businesses which Denel shares with foreign strategic equity partners. They are Carl Zeiss Optronics (30% held by Denel, with the other 70% belonging to Germany’s Carl Zeiss group; however, Zeiss is selling its defence business, which includes its South African operation, to EADS Cassidian), Rheinmetall Denel Munitions (RDM – 49% held by Denel, 51% by Germany’s Rheinmetall) and Turbomeca Africa (also held 49% by Denel and 51% by France’s Turbomeca, itself part of the Safran group). It should be noted that Turbomeca Africa was created ten years ago, before the turnaround was started. Carl Zeiss Optronics designs and makes optronic imaging devices; RDM produces artillery shells, propellants and pyrotechnics and Turbomeca Africa manufactures parts for, and undertakes the maintenance, repair and overhaul (MRO) of aeroengines.

The turnaround strategy has evolved and adapted since then. Under Sadik, the entities and associated companies were grouped into four clusters – defence (Denel Aviation, Denel Dynamics missiles business, DISS, DLS, PMP and RDM), security (Carl Zeiss Optronics, Denel Dynamics UAV business and Mechem), certification and training (Denel Training Academy and OTB) and, on its own, DAe.

And, under the new CEO, further changes have been made. “We’ve gone through a very logical process. Your strategy predicts your structure,” explains Saloojee. “Originally, the ‘unbundling’ [creation of the business entities] was based on a concept of getting international partners [which resulted in the associated companies]. But there was a debate about whether that is in the interest of the country. There is a recognition that we can’t live in isolation from the world. But it is also recognised that certain capabilities should be sovereign. So certain capabilities should be in South African hands.” Moreover, international partnerships do not have to be equity partnerships.

The defence industrial and technological capabilities that should be sovereign have been identified by the draft Defence Review. They are the ability to develop and manufacture certain secure communications and electronic warfare (EW) equipment and other national security critical systems, to integrate and support secure communications and EW and other critical systems and equipment and to develop and support the necessary algorithms and software for such systems. In addition, the domestic industry must be able to manufacture critical munitions and batteries, manufacture high rate-of-use spares that cannot be stockpiled or obtained from multiple overseas sources, and support, repair and maintain critical systems and equipment.

Moreover, it needs to be able to provide equipment and systems optimised for most African (and especially Southern African) operating environments and the SANDF’s operational style and tempo. Such systems include long-range artillery, wheeled armoured vehicles, tough logistical vehicles and appropriate and effective communications systems.

It was this emerging consensus on the role of the local defence industry that led Denel – the country’s largest defence group – to further adjust its turnaround strategy, which, in turn, has affected its group structure. The loose clusters created under Sadik have now been reorganised and tightened into six divisions (the new structure came into effect on July 1).

“There are two key drivers which influence the new structure we’re putting in place.” says Saloojee. “One, to make sure we optimise our cost base and do away with the duplication that was creating huge overhead costs and which came from the previous [Liebenberg] model. Second, to cluster certain capabilities. On the one campus [in Kempton Park] we’ve now clustered Denel Aviation, our Training Academy and our solutions provider. We’ve also optimised DAe and consolidated support structures. At Irene [south of Pretoria] we’re integrating our UAV capability and our integrated systems solutions capabilities into Denel Dynamics, which gives us high-end solutions for technologies and systems. You can consider our Irene campus as our systems integration facility. We’ve integrated our land systems solutions at Lyttelton [southwest of Pretoria] – DLS and Mechem. It made sense to cluster all our landward capabilities into one facility. PMP will be a standalone company because of its unique site [west of Pretoria].” OTR is also standalone, again because of its unique site near Bredasdorp on the southern coast of the Western Cape province. “All these are divisions of Denel, much more integrated, with lines of responsibility flowing throughout the organisation.” To sum up, these divisions will use the names Denel Aerostructures, Denel Aviation, Denel Dynamics, Denel Land Systems, Denel OTR and Denel PMP.

The associated companies, in which Denel is a minority shareholder, are naturally outside of this structure and will develop autonomously. The takeover of Carl Zeiss Optronics by EADS Cassidian does not faze Saloojee. “Denel has certain pre-emptive rights,” he points out. (This also applies to the other associated companies). “Any changes in strategy, structure and so on will require our approval. Moreover, Cassidian is very focused on the defence and security business. The Carl Zeiss group was not. The defence business was small for them. So the Cassidian takeover could be an opportunity for us. It could give us greater access to more markets,”

Facing the future

The Denel group now has two main areas of effort. One is to ensure that potential orders are converted into actual contracts. The other is to optimise its cost base, to a level appropriate for a company of its size. “These are the main focuses for the next 18 months,” he affirms.

In addition, Denel must look to the future, in technological terms. It must rejuvenate its current products and make sure it invests adequately into research and development and into “new integrated solutions”.

The group also has to explore new market segments. For example, using its system integration capabilities to move into the decision-making support sector, by developing decision support systems and command and control systems, for both military and civilian missions.

Marketing must also be improved and targetted on the most promising markets. “Denel has a good brand name,” highlights Saloojee. “It is well known throughout the world. And some divisions, like Denel Dynamics, Mechem and PMP, are even better branded than the Denel group. The clustering of our entities will allow a much more dynamic branding initiative, but there will be no fundamental change in branding.”

With North America and Europe still mired in recession, the group is seeking to target those parts of the world that are still economically dynamic – or, at least, less affected by the downturn. These include the Middle East, South East Asia and Latin America, where Denel already has a presence. And, of course, Africa. “We’ve got to have a much more robust African strategy,” he asserts.

South Africa’s and Africa’s leading aerospace and defence exposition, Africa Aerospace and Defence (AAD) 2012, which will take place next month, is going to be put to good use by Denel. “We’re very excited at the moment, leading up to AAD. We see it as an opportunity to showcase Denel and launch the new strategic perspective for the company,” he enthuses. “Hopefully, at the show we’ll be announcing new strategic relationships that we’ve managed to secure over the past six months.”

Rare capabilities

“For a country that is a developing country, we have certain key defence technologies here which not many other countries have,” stresses Saloojee. “Also, not many companies in South Africa – or in the developing world – have the technological skills that Denel has. We need to develop and defend the capabilities that support the SANDF and develop skills in South Africa. We also contribute significantly to enhance foreign policy and regional and international security, by working with [South Africa’s] strategic partners.”

However, the company has not been very good in explaining to South Africans its value to the country. “It’s very critical that we position Denel within civil society so that people can understand the value that we bring to the country,” he argues. “South Africans should be proud of Denel. It’s a national asset that needs to be looked after and developed. A defence industry by its very nature is a strategic industry. You’ve got to deal with it as a strategic industry. There is no defence industry that doesn’t enjoy significant support from its government. It’s during difficult times that you need support from government. There needs to be clear recognition of the relationship between Denel, the DoD [Department of Defence] and the SANDF. It’s almost a tripartite alliance!”

At last month’s Denel results presentation, Public Enterprises Minister Malusi Gigaba observed that the government was “committed to the turnaround of Denel. Additional support is being considered carefully. ... It is my view that Denel will remain a State-owned company. I am happy with the performance of the company so far. But there’s clearly a lot of work to be done.”

From the point of view of Denel, on the domestic front there is a need for better planning of defence expenditure and clarity on the funding flow, as well as better understanding of key projects. Ad hoc planning and funding is completely inadequate. There needs to be certainty and integrity in the business plan. There is now an understanding in the DoD and SANDF that such a long-term business model is needed and that it should be allowed time to consolidate.

Internationally, there is huge pressure in markets due to the global recession. But defence expenditure is still increasing, as a percentage of gross domestic product, in many developing and emerging countries. In Africa in particular, there is a realisation that peace and stability are essential for economic development, which is an imperative for the continent. African countries need technologies and systems that will allow them to create safer environments.

“One mustn’t be naïve,” cautions Saloojee. “There will be difficulties in the future. There are long-lead times. Projects will move to the right [be delayed]. There will be defence cuts. We need to be able to deal with the eccentricities of this business. It needs strong leadership and a clear idea of strategy. But I’m quite optimistic about the future of Denel.”

There is a recognition that certain defence industrial capabilities should remain in South African hands
 

Edited by: Creamer Media Reporter
© Reuse this Comment Guidelines (150 word limit)
 
 
 
 
 
 
 
 
 
Latest News
The pump prices of both grades of petrol and wholesale diesel, as well as the maximum retail prices of illuminating paraffin and liquefied petroleum gas (LPG), are set to decrease from September 3, the Department of Energy said on Friday. Petrol would drop by 67c/l,...
The amount owed to municipalities for services has continued to rise, reaching R94-billion by June, compared with the R93.3-billion recorded in December. Households still accounted for the bulk of the aggregate municipal consumer debts; however, this had declined...
More
 
 
Recent Research Reports
Road and Rail 2014: A review of South Africa's road and rail infrastructure (PDF report)
Creamer Media’s Road and Rail 2014 report examines South Africa’s road and rail transport system, with particular focus on the size and state of the country’s road and rail network, the funding and maintenance of these respective networks, and the push to move...
Real Economy Year Book 2014 (PDF Report)
This edition drills down into the performance and outlook for a variety of sectors, including automotive, construction, electricity, transport, steel, water, coal, gold, iron-ore and platinum.
Real Economy Insight: Automotive 2014 (PDF Report)
This four-page brief covers key developments in the automotive industry over the past 12 months, including an overview of South Africa’s automotive market, trade figures, production and the policies influencing the sector.
Real Economy Insight: Construction 2014 (PDF Report)
This five-page brief covers key developments in the construction industry over the past 12 months. It provides an overview of the sector and includes details of employment in the sector, infrastructure and municipal spending, as well as insight into companies’...
Real Economy Insight: Electricity 2014 (PDF Report)
This five-page brief covers key developments in the electricity industry over the past 12 months, including details of State-owned power utility Eskom’s generation activities, funding and tariffs, independent power producers and prospects for the sector.
Real Economy Insight: Road and Rail 2014 (PDF Report)
This six-page brief covers key developments in the road and rail industries over the past 12 months, including details of South Africa’s road and rail network and prospects for both sectors.
 
 
 
 
 
This Week's Magazine
South African State-owned defence industrial group Denel has announced its fourth consecutive year of profits. The group's results for the financial year 2013/2014 were recently announced at its head office in Centurion, south of Pretoria. Revenues grew by 17%, net...
There is little opportunity for JSE-listed infrastructure company Group Five to grow shareholder value in the domestic market, says CEO Mike Upton. He says value can still be found in the private sector, in the renewable and industrial power sector, as well as in...
The National Association of Automobile Manufacturers of South Africa (Naamsa) has announced the event dates of the 2015 Johannesburg International Motor Show (JIMS). The event will take place from October 14 to October 25, 2015, at the Johannesburg Expo Centre, Nasrec.
UK engineering support services provider Babcock is set to deliver the largest order of global truck manufacturer DAF’s truck tractors in Southern Africa to bulk carrier road-based logistics company Ngululu Bulk Carriers (NBC), with 133 trucks to be delivered in...
Digital radio communications in the African local government space can open up the world, but have many challenges to overcome, notes integration and migration of legacy radio communications infrastructure with digital mobile radio company Emcom Wireless head of...
 
 
 
 
 
 
 
 
 
Alert Close
Embed Code Close
content
Research Reports Close
Research Reports are a product of the
Research Channel Africa. Reports can be bought individually or you can gain full access to all reports as part of a Research Channel Africa subscription.
Find Out More Buy Report
 
 
Close
Engineering News
Completely Re-Engineered
Experience it now. Click here
*website to launch in a few weeks