9 July 2001
Chair of the Denel Board, Sandile Zungu
CEO Flip Botha,
Members of the Board and Senior Denel Management present,
Members of the Media,
Ladies and Gentlemen
Let me take this opportunity of thanking you all for the opportunity to make some remarks on this rather welcome occasion. When we released Denel's audited financial results last year, I said that the company had made significant strides in the previous year and appeared to be moving in the right direction towards financial recovery and stabilisation.
Denel operates in a difficult environment. Domestically, its primary client, the SANDF has undergone significant reorganization that has resulted in a substantial decrease in the procurement of materiel from Denel. The strategic defence packages revolved around major products supplied by Original Equipment Manufacturers [OEMs] that were based overseas. Denel has benefited from these packages but they do not make up for the downturn in domestic purchases. Globally, the international trade in arms and weaponry was affected by decreases in expenditure generally, and also a shift in the nature of purchases. Whilst consumables have continued to be viable, systems sales have been redirected and reprioritized in a number of important markets.
Despite recent indications that suggest an improved financial market globally, Denel's performance last year as a small competitor has been quite outstanding, increasing its export sales from 37% to some 46% of its total output. The CEO and Group Executive Director: Finance have given you details of the financial results, and I will not repeat them here. Let me just say that government has noticed with satisfaction the positive results that have flowed from Denel's internal reorganization, the implementation of improved financial and marketing controls and strategies, and improved corporate governance between the stakeholders. What we see today is the establishment of a very firm foundation upon which the Company can and must build in the forthcoming year. This return to positive figures in the balance sheet, after a drought of some years, is worthy of congratulations to everyone in Denel, including those who staff the factory floors, the engineers, the scientists, the marketing department both here and abroad, management across the divisions and at corporate office, and the Board of Denel.
Challenges, of course, remain. Before turning to these allow me just to remind you of the strategic perspective government has with regard to Denel, and by extension the defence-related industries in South Africa. This sector absorbs significant human and research and development capacity in South Africa. It does this in support of critically important technologies that span our electronics, engineering, avionics, aerospace, munitions, optics, laser, gyro and other spheres. Within the context of South Africa's technological competitiveness internationally, these are areas that require substantial support and growth to take us into the next generation of technological requirement and expertise.
Secondly, the maintenance of such expertise and its growth requires a solid foundation in education, particularly in science, engineering and mathematics. That foundation is built at school, and built upon later. Increasingly, we have seen the defence industry sector in South Africa, and Denel in particular, implementing programmes in support of these initiatives. Again, the emphasis has to be in the manner in which these skills are integrated into South African development generally.
Thirdly, whilst Denel remains absolutely committed to be an efficient, cost effective, and innovative supplier to the SANDF and the security sector in South Africa as a whole, it is also clear that its growth depends on its ability to carry these qualities into international markets. Thus, it is imperative that Denel not only retains its current market access and share in critical areas, but that it expands that access and market share vigorously. It must do this despite the vagaries of the international arena where some actors seek to undermine and/or bully prospective clients through dishonesty, or grandstanding. Government stands full- square behind Denel and our industry's efforts to expand their role internationally within the context of our NCACC prescriptions and government policy generally that stress responsibility, the rights of self defence of all nations, and the pursuit of peace and security globally.
As a high-technology industry, and a broad-based one to boot, Denel occupies a special place in Government's initiatives for public enterprises. Earlier this year, for instance, Denel's IT capabilities were consolidated with those of Eskom and Transnet, to form a consolidated Information Technology company, called Arivia.kom, which is set to become a very competent IT force in the local and foreign markets. Although Denel retains only some 23 per cent shareholding in the new entity, it will impact positively on its profitability.
In order to streamline its business activities, Denel managed to exit some of its non-core and non-profitable businesses during the year under the review. One of the most recent, is the R&D capabilities of Mechem, sold to the CSIR, although Mechem's landmine clearance capabilities are retained within Denel for Government contracts of humanitarian nature. Denel continues to support humanitarian aid initiatives, as they did during the Mozambique disaster and in other areas.
On the question of restructuring programmes involving Denel, you are all aware that Government has announced the preferred Strategic Equity Partners. In the case of Denel's Aerospace and Ordnance Groups, we have signed Letters of Intent with BAE Systems and Snecma/Turbomeca of France, the latter expected to take a majority stake in Denel's Airmotive division.
As the negotiations are currently still under way, in which details are being worked out, we expect the process to reach a conclusion later this year. But I would like to emphasise that the negotiations are aimed at bringing in partners who will be able to add substantially to our strategic vision for the company and industry. Thus, instead of losing markets, our partners must assist us to expand. Instead of seeing technology flows out of SA, there will be positive inflows. Instead of widespread retrenchment, there must be industrial development and increased workloads to ensure greater employment.
Denel has made great strides in transformation and corporate social investment programmes. I was pleased to learn of the number of technicians and engineers from the historically disadvantaged communities being trained in the aviation environment. Some long-term training is also offered by BAE/Saab in Sweden (on the Gripen fighter) and by AgustaWestland in Italy (for the Agusta A109 helicopter). This is indicative of the spin-offs from South Africa's defence acquisitions through the DIP and NIP programmes.
In addition, Denel itself has spent a substantial amount on skills and technology training, bursaries, and bridging programmes. These are aimed at retaining technology for our country and contributing to the human resource development of all our people.
On top of Denel's good results this year, one has to take account of increased spending on Research and Development. This is to ensure that we stay abreast of the increasingly sophisticated technologies in the aerospace and defence environment. Denel's investment in this area is meant to dovetail with that of our existing and new partners, as it becomes more difficult to fund such development individually.
Still, our indigenously developed systems have had impressive success during the year. Here I refer to items like the G5 artillery guns recently ordered by Malaysia, the Mokopa anti-armour missiles test launched successfully from the Rooivalk, the Ingwe missile, Seeker UAV and Skua high speed target drone sold abroad, as well as the modular artillery charges bought by a second NATO country, namely Denmark. During the year we also launched on the market the new Assegai series of artillery ammunition. Not to mention the commercial market, where our PMP division's hunting ammunition found success in the USA and the SPP soya protein manufacturing facility in Potchefstroom was commissioned to full production.
These are but a sample of Denel's successes this year.
Whereas our local defence-related industry in the past operated in a secretive fashion, our new democratic Government has put in place the necessary systems and counter-balances to ensure that it now operates in a transparent and responsible manner.
Denel's success in achieving export orders whilst tightening controls and building an efficient, streamlined business, is to be lauded. We in Government wish to commend its efforts, and we will give all necessary political and moral support to its marketing efforts worldwide.
Once again, my thanks to everyone who contributed in whatever measure to the success of Denel and by extension South Africa itself. I want to express a word of special thanks to past Board members and immediate past Chairman, Ian Deetlefs, under whose directorship this report is still published. Your work is appreciated. Finally, allow me a moment to wish the incoming Board members under Chairman Sandile Zungu all the best in their new - and challenges - positions.
Thank you