South African State-owned defence industrial group Denel unveiled significantly improved annual results at a recent media briefing. Revenues in the financial year 2015/16 jumped by 41% to R8.228-billion. Net profit increased by R125-million, compared with the R395-million the previous financial year. Earnings before interest and taxes shot up by 59% to R637-million. Exports increased by 6% and are now responsible for 58% of the group’s total revenues.
“We think we have improved the performance of Denel,” affirmed acting Group CEO Zwelakhe Ntshepe. “In fact, as far as we know, Denel has never performed as [well as it has] with these figures.” He made a point of praising the group’s employees. “Denel is on a sustainable growth trajectory. The future of the company looks positive and I’m extremely proud of the performance of the company.”
Operating expenditure also improved, but only slightly, from 16% of sales in 2014/15 to 15% in 2015/16. He expressed the view that the group could do much better and added that plans were being implemented to achieve such an improvement.
Unfortunately, “our current debt to equity ratio is still not at acceptable levels,” he noted. “We have, however, developed plans to bring it down to acceptable levels.” The current debt:equity ratio is 1.6. Acting group CFO Odwa Mhlwana affirmed that the company would have to start reducing its debt within the next two years. The group was looking at the profitability and efficiency levels within the business, looking to increase profitability and reduce the debt:equity ratio.
Mhlwana pointed out that Denel had a very healthy order book. Current orders cover four years of production and new deals are expected in the next year or so.
“The essence of our growth strategy lies in maintaining a continuous increase in the order book, which we will achieve by strengthening relationships with customers and other key stakeholders,” stated Ntshepe. “In addition, we will leverage on existing global partnerships to secure future business. We are currently working on a number of initiatives to grow and diversify our business offerings.”
The group has identified challenges to its future growth. But, Mhlwana assured, its strategy was very clear on addressing these. There were two main challenges. Firstly, the days in which Denel could just sell products made in its South African home base to overseas customers were coming to an end. Increasingly, customers were demanding technology transfer and local manufacture. “We have strategies in place which are already yielding results,” he said. These are focused on the Middle East and Asia-Pacific regions.
The second challenge was a good challenge to have, he observed. It was the need to find the cash resources to continue to fund Denel’s rapid year-on-year growth. Again, the group had a strategy to achieve this.
In terms of the company’s local socioeconomic impact, Ntshepe highlighted that 68% of the supply chain budget went to companies in South Africa. Orders worth more than R872-million had been placed with black-owned businesses. The share awarded to companies owned by black women had increased from 2.8% to 9%. The number of beneficiaries of Denel’s enterprise development initiative had risen from 67 to 120. The group is determined to increase these figures in the coming years.
In terms of education and training, the group invested R63-million in developing the skills of engineers, technicians and artisans. More than R5-million was spent on its Schools Outreach Programme, which is its flagship corporate social responsibility initiative. This provides maths and science education for learners in historically disadvantaged areas.
“South Africa will witness heightened levels of broad transformation throughout the entity and across all disciplines,” assured Ntshepe. “It is not by accident that Denel is the leader in transformation within the defence industry.”