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Denel Annual Report 2003/4

This annual report provides a comprehensive overview of Denel's financial performance, reasons for losses, restructuring measures, and regulatory issues. It includes information on revenues, sales by region, operating expenses, investments, and turnaround strategies. Key actions to complete the turnaround are highlighted, along with regulatory issues and strategies to address them.

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Denel Annual Report 2003/4

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  1. Denel Annual Report 2003/4

  2. Agenda • Financial Overview • Reasons for Losses • Restructuring Measures • Six-month YTD trends • Additional Turnaround Measures • Regulatory Issues

  3. Consolidated Results

  4. Financial Overview • Revenues • Per product market • Per region • Sales • Operating Expense • Production materials • Labour • Support functions • Financial Ratios

  5. Revenues

  6. Gross Revenue Composition

  7. Sales Composition per region

  8. North America R113m - 3% Europe R702m - 15% RSA Local R1 855m - 42% Middle East R872m - 20% Africa R158m - 4% Asia R464m - 11% South America R211m - 5% Sales by region

  9. Operating Expenses

  10. Investments

  11. Revenues vs Capex / Opex / R&D

  12. Foreign Exchange Losses

  13. Reasons for current financial situation • Decline in orders from the SANDF • Decline in R&D funding • Investment in and losses from the Rooivalk Programme (R2,0 billion plus over 9 years) • Unsuccessful commercial diversification strategy (R900 million) • Staff Reduction (over 5000) • Writing down the values of obsolete equipment (Declining SANDF orders)

  14. Reasons for current financialsituation (2) • Low margin/loss incurring Countertrade (DIP) contracts • High overhead costs • Operational inefficiencies • Strengthening of the SA rand against the US dollar • Losses at certain non-core businesses.

  15. Turnaround Interventions

  16. Exit non-core businesses(Commercial) • Some have been disposed of • Some were closed down • Some still in the disposal process

  17. Businesses / Investments to be disposed of

  18. Vektor & Denel Aviation • Restructuring • Rationalisation • Vektor integrated into LIW

  19. Key turnaround strategies • Operational efficiency (implemented 1/4/2004) • Centralisation of support services • Restructuring the businesses of Aerospace and Land Systems • Cost cutting, rightsizing, business process re-engineering and contract re-negotiation • Aggressive marketing (new sales contracts) • Product rationalisation • Zero-tolerance: Fraud/Corruption/Mismanagement • Alignment of skills • Performance management

  20. Six-month YTD Trends • Revenues • Operating Expense • Inventories • Cash Flow • Employees • BEE

  21. Six month YTD Trends

  22. Sales YTD vs 2003

  23. Employee trends

  24. Employee trends

  25. BEE year-to-date Comparison

  26. Strategies/Actions to complete turnaround Executives/Board • Completion of disposal of non-core businesses • Finalisation of turnaround of Denel Aviation • Continued restructuring for efficiency • Continued cost reductions • Joint ventures at business unit or product level • Positioning for future major SANDF & global projects • Incentivise and modernise the workforce

  27. Regulatory Issues

  28. Additional Strategies/Actions to complete turnaround Shareholder / Government • Review Armscor preferential procurement policy to benefit local industry & secure a base load on consumable products • Increased R&D funding to benefit Denel & local defence industry • Recapitalisation of Denel • Remove balance sheet risks • Position Denel for future growth • Divestiture and recapitalisation to renew certain critical plant • Fund Rooivalk programme to frozen baseline and required deployment status • Review Armscor’s requirements to assure bank guarantees on major Denel contracts

  29. Income Statement(Projection)

  30. Flight International Magazine(4 October 2004) Europe delays new rules to open defence markets “New rules designed to open up Europe’s defence market have been delayed after eleventh-hour wrangling over the extent of the reform. All military products are excluded from EU competition rules, allowing countries to favour national suppliers. EADS is pushing for a change in the rules to enable it to compete for Contracts in countries such as Italy, where projects are often defined as being military to avoid open competition.”

  31. Denel Annual Report 2003/4

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