South Africa’s State-owned Denel defence industrial group has exited the Denel Asia joint venture (JV) company. This was announced by Denel acting group CEO Zwelakhe Ntshepe, when he addressed the recent media briefing on the company’s financial results, at the group’s head office in Centurion, south of Pretoria.

“Since its establishment, Denel Asia has not traded due to differences of opinion with the National Treasury, which have been widely covered in the media, at times based on perceptions and not fact,” he stated. “The Denel Asia JV became the focus of negative attention from the media to the detriment of the Denel brand . . . both locally and internationally.

“Denel also conducted continuous assessments of the untenable atmosphere caused by the establishment of this JV and took a resolution to exit the Denel Asia JV and explore alternative marketing approaches to access the Asia-Pacific market,” he reported. “This therefore brings us to a point where we can officially report that Denel SOC (State-owned company) has ended its involvement in the Denel Asia JV. We have exited the JV.”

Answering questions from journalists afterwards, Ntshepe affirmed that the JV had not been working, that it had been causing reputational damage to Denel and that he had “no qualms” about ending it. “It was a business decision.” Denel group FD Odwa Mhlwana clarified that the court case brought by Denel against the National Treasury over the Denel Asia JV was being withdrawn.

In his statement, Ntshepe pointed out that the group had identified international markets as key to its growth. One of theses markets was Asia-Pacific. This region is one of the areas with the highest levels of defence spending, with year-on-year increases exceeding 20%.

“It was therefore in search of opportunities in this market that Denel established a JV company with VR Laser Asia in 2016,” he explained. “It is our view that this business case was done in compliance with all legislative governance processes. “The business case that was submitted in 2015 to both departments – Public Enterprises and the National Treasury – remains valid and relevant.”

He highlighted that Asia-Pacific remains “a focus area” for the group. In response to a question, Ntshepe stressed that “[w]e need to get into [Asia-Pacific] market. We need to grow this company.” Mhlwana observed that the group had lost a year in its marketing activities in Asia-Pacific, as a result of the failure of Denel Asia.

uring the 2016/17 financial years, the group accrued revenues of R8-billion (down slightly from R8.2-billion during 2015/16) and achieved a net profit of R333-million (a decrease from the R395-million for 2015/16). However, the percentage export earnings in the group’s figures rose from 58% in 2015/16 to 63% during 2016/17. Denel’s borrowing declined from R3.717-billion (2015/16) to R3.265-billion (2016/17).

“The group is embarking on a strategic drive to further reduce the operational expenditure percentage to sales, currently at 18%, towards a 14% range,” observed Ntshepe in his statement on the group’s results. “With the tough and volatile international trading conditions, Denel returned to profitability in spite of a forex loss of R232-million 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. An important key lever for developing the Denel business into long-term sustainability is in optimising the cost structure through operational excellence.”