DENEL GROUP
Presentation to Select Committee on Labour and Public Enterprises
Denel Turnaround Strategy
26 February 2014
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CONTENTS
OVERVIEW OF DENEL
STRATEGY OVERVIEW
FINANCIAL PERFORMANCE
HUMAN RESOURCES AND TRANSFORMATION
CONCLUSION
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OVERVIEW OF DENEL
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STRATEGY OVERVIEW
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STRATEGIC INTENT AND PURPOSE
The strategic intent of Denel is aligned to the mandate given by the Shareholder and is
articulated in the purpose below:
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STRATEGY FIRMLY IN PLACE
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KEY ACTIONS TOWARDS TURNAROUND
• Restructured the business, integrating eleven businesses into six, streamlining
and sharing support services across the group, leading to cost optimisation and
savings
• Improved business development model - Achieved optimal mix between local and
foreign sales - exports account for close to 50%. Overall revenue improving yearon-year
• Reduced net borrowing position and re-finance risk by restructuring the R1.85bn
short-term debt to short-term commercial paper and medium-term bonds
• Concluded key transactions:
o Joint venture with a UAE government-owned Tawazun Holdings in the
missiles domain
o Acquired LMT, a strategic supplier of military vehicles to enhance our landward
vehicle capability
o Signed an agreement to be the preferred provider of MRO services with
Russian Helicopters and Irkut Corporation, as well as Ukraine-based Antonov
• Improving stakeholder relationship and support towards Denel, MOC in process
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KEY ACTIONS TOWARDS TURNAROUND (cont.)
• Denel continued to execute its major projects:
o A-Darter 5th generation air-to-air missile qualification in process in close
collaboration with Brazil, a strategic IBSA and BRICS partner nation
o Delivered the final Rooivalk helicopter, the first combat support helicopter to be
designed, built, qualified and certified on the African continent
o Continued to deliver on Hoefyster development contract. Production contract
awarded in September 2013, R8.4bn
o Achieved scheduled milestones on the export turret contract to a customer in
Southeast Asia
• Recognised for excellence in corporate reporting in June 2012 and received
award for the best governed state-owned enterprise in October 2012
• Appointment of business unit deputy CEOs in July 2012 - two of these
deputies have subsequently assumed business unit chief executive roles
• Achieved 79% ACI ratio on all new appointments against a target of 70%
• Continued to contribute to National interests through skills development, SED
initiatives and R&D
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Great
2018
Vision
Corporate Plan
Good
2013
Ailing
2006
• Working towards a revised Denel business culture optimal for
the next phase of growth.
• Improving operational performance and programme
execution.
• Improving intensity to conclude orders in the pipeline, but
also when to cut our losses and move on.
• Interventions to enable management to accelerate
Employment Equity (EE) in the engineering, scientist and
technician categories in the group.
• Creating an environment where Denel can participate in, and
support other SOC and national technological programmes.
• Increasing the focus on research, development and
innovation to ensure our future products will have the
required technological edge or unique selling point in the
market.
EXTERNAL
• Strategic Stakeholder Partnership DoD/Armscor & DPE/Denel anchors the
sovereign/strategic capabilities, ensures joint long-term planning, enables multi-year
orders, enables single source main contracting & facilitates MOD-MOD marketing
support
• Industry Leadership: Denel acts as the mature national defence main contractor
towards other RSA defence industries (both established & emerging)
Denel in 2013
A “Good”
Company
• Transformation: Denel champions EE & SD internal & wider defence industry
Denel in 2018
STRONG & COLLECTIVE LEADERSHIP
• New Group Business Culture : New commitment to broad group Vision and Goals not
only narrow divisional perspectives. Mobility of people, sharing resources & ideas, working
towards a common vision. Change management incl. targeted leadership interventions
A “Great”
Company
• BD & Sales drive: Develop this function (shared roles between corporate and divisions to
achieve the potential we know is possible
• Operations: Denel deliver on new programs. Grow capacity through interventions
• Cash and profitability: Continued increase in GP% and reduction in Opex %
• Respected SA company: Value adding partner to fellow SOEs & SOCs, skills development
INTERNAL
The Denel of 2018 will be renowned for:
The Denel of 2013 – Promising Progress:
The Denel of 2013 - Remaining Challenges:
• New future orientated, group focussed
business culture well established
• Solid opportunity pipeline
• Quicker conversion of opportunities from the
strong opportunity pipeline into long-term orders
• Revenue has grown to more than R7bn
• All business areas (except aerostructures)
profitable
• Cost base has improved but more needed
• EBIT on group level more than 7% after major
investments in R&D and Transformation
• Improved programme execution performance
• Aerostructures requires > R150m pa to break even
• Sufficiently funded balance sheet
• Improved customer confidence, and a
commitment to a strategic partnership
between DoD/Armscor and DPE/Denel
• Sub-optimal R&D investment in context of our
high-technology industry priorities. Specific areas
eg. ammunition and artillery under threat.
• Long-term orders book more than 5x turnover,
including new orders from SOEs
• Solid conventional technology base (though in a
maturing industry sector)
• Asymmetrical warfare technology base weak
though improving in certain areas example the LMT
acquisition, new missile technologies.
• B-BBEE Level 3
• Strengthened human capital base, with
improved age and EE profile, and improved
attraction and retention trends
• Though overall ACI representivity now 50%, EE in
senior management & engineering still
unacceptable
• Modernised product offerings in most
capability areas provides competitive edge
• Challenged product areas incl. artillery, UAVS,
ammunition & aircraft MRO re-positioned
• Marked improvement in EE levels for
Engineers and Senior Managers, and
improvement in average age of workforce
THE STRATEGIC ROADMAP IS UNDERPINNED BY
Revenue and
growth
Organisational
management
• Multi-year order
book >20bn
• Organisation
streamlined to 6
business entities
• Unified and
effective group
Exco and board
• Modest increase
in opex and
improving EBIT
• Good corporate
governance and
financial discipline
• New opportunities
>40bn
• Leveraging of
significant
contracts e.g.
Mbarc, Al-Tariq,
A400M and
Hoefyster
• Focussed
business
development and
support from
stakeholders
• Modernising
technology and
establishing new
capabilities
People and
transformation
• Interventions to
improve
transformation
• Development of
small and
strategic supplier
base
• Increased
spending on
training and SED
initiatives
• Strong and
collective
leadership
• High performance
culture
Technology
• Increased own R&D
and investment
spending to ±5% of
turnover
• Specific
investments e.g.
artillery, space, new
missiles technology,
command and
control, etc.
• Constant review
and focus on the
technology
roadmap
• Plant renewal,
specifically at PMP
Strategic
relationships
• Support by financial
institutions for
facilities
• MOC with DoD, DPE
and Armscor
• Smart partnerships
with key business
partners e.g. Brazil,
UAE, Malaysia, etc.
• Leverage country
bilateral relationships
e.g. BRICS
• SOC to SOC
relations e.g. in
UAVs, railway rolling
stock, SKA, space,
etc.
• Key customer
relationships
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DENEL CAPABILITIES
KEY DENEL CAPABILITIES
CAPABILITY DEVELOPMENT
• Model, simulate, design, develop, qualify & certify
complex systems
• Ammunition, munitions, propellant and pyrotechnics
• Broad advanced specialised manufacturing capability
• Manage turn-key system acquisition, commissioning
and support guided missile
• MRO capability for transport aircraft & helicopters
• Landward mobility, ballistic- and mine protection
technologies
• MRO capability for landward defence systems
• Armoured vehicle systems capability
• Combat helicopter & utility helicopter
• Electro-optics, optronics & photonics
• Missile radar technology capability
• Scientific test range capability
• Ballistic- and mine protection
LAND
• Rapid firing cannon & gun
MRO
• Ground based air defence
Air defence Artillery
• UAV systems capability
systems Mortar
• Satellite technologies
systems
• Canine technologies
Combat vehicles
• Artillery system
Soldier
modernisation
Ballistic & mine
protection
AIR
MRO
Surveillance
Radar guided air
missiles
Precision ground
attack weapons
Combat support
helicopter
NAVAL
Maritime MRO
New Maritime
systems &
weapons
Naval upgrades
Maritime
surveillance
• C4ISR systems capability (land, sea, air,
joint ops) to act as prime contractor for
future programs
• Military, paramilitary & homeland security
capability (incl. border control, law
enforcement and disaster management.)
• Maritime systems integration capability
• Niche Unmanned Systems solutions
(incl. armed, ship launched and
civilian UAV Satellite surveillance &
communications systems capability
• New generation artillery systems
• New generation missile systems
• Cyber security & encryption
capability to support national
programs
• MRO capability for maritime
OTHER
systems
Cyber security &
• MRO capability and fleet
management of the BSecure
communications
vehicle fleet
Paramilitary and
• MRO capability for
homeland security
combat and non-EC
Intelligent buying
helicopters
capability
Emerging requirements
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DENEL OF THE FUTURE WILL BE CHARACTERISED BY THE
FOLLOWING:
Mutually beneficial strategic relationship between DoD, Armscor and Denel
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Collaboration with BRICS and other developing countries, e.g. UAE, Saudi and Malaysia
Successfully diversified into the C4ISR, space and maritime domains
Collaborative and rewarding business relationship with other SOCs and state entities
Modernised technology and infrastructure as a result of improved investment in R&D
Transformed representative workforce and equitable supply chain
Profitable business, adequately funded with a balanced debt/equity ratio
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FINANCIAL PERFORMANCE
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DENEL CONTINUES TO SHOW PROGRESS TOWARDS SELFSUSTAINABILITY
Net (loss)/ profit
200
Rm
(400)
(1 000)
(1 600)
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
The group has
continued to improve
financial performance
through restructuring
and turnaround
interventions
Cash from operations
Rm
300
(200)
(700)
(1 200)
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2007
2008
2009
2010
2011
2012
2013
Solvency
1 500
The strategic focus is
on significantly
growing revenue by
aggressively driving
business development,
as well as enhancing
technology and
capabilities, whilst
continuing
transformation and
efficiency imperatives.
Rm
1 000
500
2004
2005
2006
Denel turnaround
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KEY FINANCIAL HIGHLIGHTS FOR 2012/13
Net profit R71m improves R30m
• Significant R&D spend of R528m (internally funded
R142m)
• Skills development spend of R46m
• Share of profit from associates R72m improves 118%
• Operating profit R117m improves 17%
• Net loss posted by DAe R51m improves 35%
Revenue per region
4 000
Rm
3 000
2 000
1 000
2009
Africa, excl North
2010
Middle East
200
2013
South Africa
111
100
0
(100)
71
41
2009
2010
2011
2012
2013
2012
2013
(200)
(300)
Debt and equity improve
• Equity position R1 472m improves by R777m
• Borrowings marginally reduce by R51m
(400)
(500)
(600)
(246)
(533)
3 000
Debt and Equity
2 000
Rm
Strategic interventions
• Focus on improving sales
• Cost containment and programme efficiency drive
• Improved stakeholder relationship and shareholder
support
• Focused leadership
2011
2012
Europe Asia Pacific Other
Net profit/(loss)
Rm
Revenue R3 918m improves 10%
• Local revenue R2 135m remains fairly stagnant
• Export revenue R1 783m improves by 34%
1 000
2009
2010
2011
Equity
Debt
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ENTITY PERFORMANCE AS AT 31 MARCH 2013
Revenue
1 200
1 000
Rm
800
600
2013
400
200
DAv
DLS
60
DAe
Denel Dynamics
OTR
PMP
Net profit/ (loss)
40
DAv
20
Rm
DLS
DAe
DAv
DLS
DAe
Denel Dynamics
OTR
PMP
Denel Dynamics
OTR
( 20)
PMP
( 40)
( 60)
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TEN-YEAR OUTLOOK
Equity and Borrowings
Sales and Net Profit
14,000
7,000
12,000
6,000
10,000
5,000
8,000
4,000
6,000
3,000
4,000
2,000
2,000
1,000
Sales
Net Profit
Equity
2021/22
2021/22
2020/21
2019/20
2018/19
2017/18
2016/17
2015/16
2014/15
2013/14
2021/22
2021/22
2020/21
2019/20
2018/19
2017/18
2016/17
2015/16
2014/15
-
2013/14
-
Borrowings
• Positive financial performance including sales growth over the next 10 years
• Stronger balance sheet with improvement in solvency position and stability in borrowings
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HR AND TRANSFORMATION
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HUMAN CAPITAL DEVELOPMENT AND TRANSFORMATION
Creating a high technology environment and competencies - attracting, developing and
retaining scarce talent to achieve our goals. The HR strategy focus:
• Talent acquisition and attraction:
Repositioning Denel as an Employer
of Choice.
• Learning and development:
On-going interventions to up-skill and
develop technical skills.
• Transformation
relations:
and
employee
Diversifying workforce focusing on
new appointments (75% ACI and
50% women)
Creating sustainable jobs and
advancing transformation as we win
new contracts
• Performance management
Performance driven organisation
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TALENT ACQUISITION AND ATTRACTION
• Denel is repositioning itself as an Employer of Choice in the market through
innovative branding and recruitment strategies
• Denel targets specific sources to attract its pool of talent and create its skills
pipeline
• Employment Equity remains a key strategic objective which has improved
significantly
2013 overall representivity
BLACK
2012 overall representivity
WHITE
BLACK
45%
49%
51%
WHITE
55%
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LEARNING AND DEVELOPMENT
External
External & Internal
Denel Creates awareness
amongst youth regarding
the importance of Maths &
Science & Defence related
careers
Denel sponsors learners by
offering:
Engineering Bursaries;
Career Expo’s
Apprenticeships are
offered in both Aviation &
Generic Trades
Schools Outreach
Programmes
Other Youth Development
Programmes such as;
Open Days
Denel offers Experiential
Learning Programmes
through:
Vacation Work;
Internships;
Mentoring of Engineers
Denel has spent about R10m on
youth development initiatives
Internal
Denel spends 3% of it’s
payroll cost on skills
development;
Denel has an extensive
Leadership and
Management Programme
Denel ensures
continuous learning
through mentorships &
succession planning
Denel has spent R46m on
skills development
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YOUTH DEVELOPMENT PROGRAMMES
Schools outreach programme
• The Schools Outreach Programme (SOP) is a programme where learners from
Grade 11 to Grade 12 are offered extra classes on Saturdays and holidays by
qualified teachers from the local community
• The programme has been running in Gauteng and the North-West Province and
has been expanded to include Limpopo; Mpumalanga and Free State
Bursaries
• Denel has offered over 80 bursaries to students towards qualifications in the
following engineering fields: Electronic, Mechanical, Industrial, Software/
Computer and Mechatronic
Vacation Work and Internship
• Engineering students are required to undergo practical training during the year.
This is a compulsory requirement from the University in order to graduate
• Denel divisions offer students vacation work over the December and January
period for 6 weeks where each student is assigned to meaningful project related
work
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DENEL TECHNICAL ACADEMY: ARTISAN TRAINING
AVIATION
RELATED
TRADES
GENERIC
TRADES
Aircraft Avionician
Fitter and Turner
Aircraft Electrician
Electrician
Instrument Mechanic
Machine Tool Millwright
Mechanic
Tool & Jig Maker
Radiotrician
Turner Machinist
Structural Worker
Welder
OTHER
Advanced Aircraft
Training Courses
Aircraft Type specific
Training Courses
Trade Test Preparation
Test Testing
Denel trains over 250 artisans per annum
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EMPLOYEE SKILLS DEVELOPMENT INITIATIVES
Leadership and
Management
Development
Programme
Group Succession
Plan
Workplace Skills
Plans
Engineering
Academy Of
Learning
SKILLS
DEVELOPMENT
Employee Study
Assistance
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DENEL CONTRIBUTING TO THE DEVELOPMENTAL STATE
Denel hosted the DPE Free State Youth Camp at its Kempton Park hostel. A
hundred of the best performing learners in Grade 10 and 11 in Free State schools
were invited to the youth camp during which they were exposed to the various
careers at state-owned enterprises
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DENEL CONTRIBUTING TO THE DEVELOPMENTAL STATE (cont.)
Denel helped out at the Via Nova School by painting a dormitory, providing food
hampers and donating sports kits in commemoration of Youth month. Via Nova
School is a school that admits pupils with special educational needs from
throughout Gauteng and other provinces in certain cases
Denel was involved in a project to introduce the
‘Mini-Chess Programme’ to Philena Primary
School in Olievenhoutbosch. This programme
uses chess to teach learners about maths and
science
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DENEL CONTRIBUTING TO THE DEVELOPMENTAL STATE (cont.)
Denel implemented a number of CSI interventions within the Ingquza Hill
municipality in the Eastern Cape during October 2013 including:
• Installation of the Telematics Learner
Support System
• Hosting a career expo in collaboration
with other SOCs and the Department of
Higher Education and Training
• Provided over 400 maths dictionaries to
the 4 local high schools and library
• Creating a source of clean drinking
water for local communities by funding
four boreholes
• Denel will be donating computers to the
best performing primary schools in
Maths and Science
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CONCLUSION
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CONCLUSION
Denel’s capabilities are world-class and include:
• Strategic missile technology
• UAV technology
• Aerostructures design and manufacturing
• Ammunition manufacturing
• Landward (vehicles/artillery/support/turrets/weapons)
• Military MRO facility (most developed in Africa)
Support is critical in Denel’s strategic journey including:
• Stakeholder support in converting new business opportunities
• Ongoing support for the SOC to SOC relationship building and new business
• Limited acquisitions as part of bringing new capabilities
• Investment in plant renewal, as well as investment in technology upgrade in close
cooperation with CSIR
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THANK YOU
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