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Denel: A Comprehensive Overview of the Defence Industry

This presentation gives a detailed overview of Denel, a state-owned enterprise in the defence industry. It covers topics such as the company's business overview, financial highlights, human resources, affirmative procurement, and challenges facing Denel.

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Denel: A Comprehensive Overview of the Defence Industry

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  1. Denel Presentation to The Public Enterprise Portfolio Committee8 September 2004

  2. Agenda • Welcome and Introductions • Denel Business Overview • The Defence Industry • Financial Highlights • Human Resources • BEE / Affirmative Procurement • Challenges facing Denel • Discussion

  3. Denel created in 1992 LTD • Product Development • Manufacturing • Procurement ARMSCOR In April 1992 Amscor’s manufacturing abilities were commercialised Complete split in organisations and management objectives • Companies Act • Commercialise Manufacturing • Maintain Technologies • Economic Growth • Armscor Act • Procurement

  4. Denel (Pty) Limited • State-owned Enterprise reporting to DPE • Government is sole shareholder • No subsidies from Government • Works with DoF, DoD, DTI, DFA, DoI, DST • Commercial and Profit driven

  5. Regulatory Regime Denel is regulated by (among others): • SA Companies Act • PFMA • Firearms Control Act • Explosives Act • NCACC Act • International agreements / conventions, eg. • Nuclear Non-proliferation • Missile Technology Control Regime (MTCR) • Biological & Chemical Weapons convention

  6. The Defence Industry

  7. SA Defence Industry MINISTER OF PUBLIC ENTERPRISES MINISTER OF DEFENCE • DEFENCE RELATED • INDUSTRY • AEROSUD • AFRICAN DEFENCE • SYSTEMS (ADS) • ALTECH • AMS • ATE • ALVIS OMC • GRINTEK • IST • M-TEK • LOG-TEK • PLESSEY • REUNERT • Service providers NATIONAL DEFENCE FORCE • DESIGN • DEVELOP • MANUFACTURE • SUPPORT • MARKETING • ARMY • NAVY • AIR FORCE • MEDICAL SECRETARY OF DEFENCE • POLICY • BUDGETS • CONTROL ARMSCOR • PROCUREMENT • MARKETINGSUPPORT

  8. Estimated Share of Defence Turnover 10% Alvis OMC 4.4% Others ADS 4.2% Grintek 8.5% Denel 55% Reutech 8.8% ATE 9.2%

  9. Acquisition / Supply Process & Controls • RSA strategic position • Foreign Policy posture • Formal Treaties / Agreements • Absence of conflict / Threat to peace • Needs determination • Design and Development • Proofing, Testing, Qualification • Bid permit system / NCACC

  10. Global Defence Industry • Dynamic and politically challenging • Strong, protected domestic industries • Highly competitive • Domination by major powers • Little reliance on foreign arms acquisitions • Mergers & Acquisitions

  11. Top 10 Defence Budgetsplus RSA (2002) US$ Billions Logrithmic scale

  12. Global Defence Sales

  13. Business Overview

  14. Sandile Zungu Chairman (Jun 2001) Executive Directors Non-executive Directors Lt Gen Lambert Moloi (Jun 1998) Victor Moche (May 2003) Zodwa Manase (Jun 1998) Dr Sibusiso Sibisi (Jun 1998) Pottie Potgieter (Jan 1997) Dr Danisa Baloyi (Oct 1995) Ian Deetlefs (Oct 1995) Thami Mazwai (Jun 2001) Alan Mukoki (Jun 1998) Dr Chris Saunders (Jun 1998) Dr Khotso Mokhele (Jun 2001) Denel Structure: Board of Directors

  15. CEO Victor Moche Company Secretary Dr Tommy van Reenen Chief Technical Officer (Vacant) Chief Legal Counsel Tanya Swiegelaar Chief of Staff Cassandra Gabriel GED: Land Systems (Acting) Tony Simon GED: Aerospace Knox Msebenzi GED: Commercial & Acting FD Pottie Potgieter Group Director: Marketing Zwelakhe Ntshepe GED: Finance (Vacant) Group Director: HR Eugene Martin Group Director: Procurement & IT Malesela James Sekhasimbe Executive Committee

  16. Operating Structure

  17. Denel Plants and Facilities

  18. Aerospace Products & Services Helmet sighting systems UAVs / observation systems Missiles & guided weapons Aircraft parts manufacture / maintenance / refurbishment Rooivalk attack helicopter OTB multi-purpose test range Target drones

  19. Land Systems Products & Services Plant manufacture Artillery systems: 155mm & 105mm long range Aerospace Small / medium calibre ammunition Artillery propellant charges & projectiles Infantry weapons

  20. Commercial & IT • Denel Properties Group • Dendustri – Components Manufacturing • Irenco – Electronic & Plastic injection-moulding products • SPP – Soy-based protein-rich foodstuffs • IT Shareholdings – Cosource, Arrivia.kom, Sybase SA • Densecure – Captive Insurance company for the Denel Group

  21. Financial Overview

  22. Financial Highlights

  23. Sales Composition per region

  24. Group Sales: Defence /Non Defence

  25. Gross Revenue Composition

  26. Revenues vs Capex / Opex / R&D

  27. Investments

  28. Business environment: Exchange Rate, CPI and salary increases

  29. Human Resources

  30. People of Denel • Employee headcount: 10925 • 70% technical, engineers and scientists • Insufficient engineers and technicians • Ageing skills base • Lack of employment equity

  31. Employee Distribution 1% 7,2% 4,5% 5,6% 0,8% 18% 13,2% (25,6%) 49,7%

  32. (39,1%) (21,8%) (12,2%) (9,3%) (8,7%) (7,1%) (1,3%) (0,5%) Demographics

  33. (74,4%) (25,6%) Gender

  34. Employee Wellness (EWP) A National Employee and Family Counselling telephone service • Emergency Care Centre • Face-to-face Counselling Service • Health Information and Advice • HIV/Aids – Voluntary Counselling and Testing • Medical Aid • Retirement Fund & Financial Advice

  35. Social Plan • Personal Counseling • Financial Counseling • Job Search • Denel SMME Funding and Incubator • Denel Business Opportunities

  36. Training & Skills Development Denel Centre for Learning and Development: • The School of Business Leadership • The School of Aerospace • The School of Land Systems • The Denel Youth Foundation Training Programme Skills Development Projects: • Through eight sector education and training authorities • Focus on Engineers, Scientists and Technicians • External training within South Africa & Abroad • External training in Nepad countries

  37. Corporate Social Investment • GET SET Programme • Schools’ Outreach Programme & Science Popularisation • SEDIBA Teacher Development Project • Apprentice Training • Bursaries

  38. BEE / Affirmative Procurement

  39. BEE % of Total Spend BEE as a percentage of total spend: R1,073,372,798 • BEE categories: • Black Influenced (>5.1% Shareholding) 8% = R 81,876,258 • Black Empowered (>25.1% Shareholding) 3% = R 30,173,669 • Black Owned (>50.1% Shareholding) 2% = R 24,464,164 • Non-Empowered Companies (<5.1% Shareholding) 87% = R936,858,707

  40. BEE: Women Spend Spend Awarded to Woman Owned Enterprises • Male Owned 98.14% (R1,053,356,023) • 1 – 25.1% Woman Owned 0.58% (R 6,247,580) • 25.2 – 51% Woman Owned 1.02% (R 10,903,153) • 52 – 100 % Woman Owned 0.27% (R 2,866,041)

  41. BEE Achievements • Training for BEE entrepreneurs • Verification of BEE credentials • Publicising the opportunities in Denel • Punishment of fronting - withholding of Denel business

  42. Strategic Interventions

  43. SA Defence Industry Issues • Decreased defence budget & local purchases • Declining R&D funding, reliance on highly competitive export markets • No direct capital injection • Denel at a competitive disadvantage • Unfair competition / protected markets

  44. Technology Issues • Denel develops high technology systems • World class products and systems • 60% of revenue from exports • Immense development costs • Under-funding in R&D • Technology edge under threat

  45. Policy and Regulatory Issues • Defence Review • White Paper on Defence Related Industries • Armscor Act & Procurement Policy • BEE Charter • NCACC Processes • Fragmented governing legislation

  46. Strategic Interventions • Aggressive programme of cost cutting and financial control • Zero-tolerance: Fraud/Corruption/Mismanagement • Hi-tech integrated skills development programme • Alignment of skills • Performance management culture / system

  47. Strategic Interventions (2) • Disposal of non-core businesses and investments • Business process re-engineering • Consolidation of support functions • Product rationalisation • New markets for higher-margin systems • Strategic alliance and partnerships • Review of all contracts

  48. Strategic Interventions (3) • Review of Defence procurement policy • Higher R&D spend • Investment in training and development • Need for recapitalisation

  49. Strategic Objectives • Revitalised balance sheet • Restoration of national defence capability • Sustainable and growing export business • High level skills incubator for national economy • Leading technology house • Global partner in niche markets

  50. Thank you

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