Defence manufacturer, Denel, has initiated a realignment of companies in the group that will lead to savings, increased efficiencies and more effective corporate governance.
“Our objective is for Denel to be managed and perceived as one, integrated business,” says the Group Financial Director, Fikile Mhlontlo.
Mr Mhlontlo says an integrated Denel will strengthen the company’s ability to retain its position as South Africa’s premier manufacturer of strategic defence and aerospace products and solutions and a growing player in African and global defence markets.
“Denel is a strategic national asset for South Africa and as a state-owned company we will play a growing role to contribute to national objectives in terms skills development, research and the growth of a viable high-tech manufacturing industry,” he says.
The changes to Denel follow the appointment of Riaz Saloojee as new Group Chief Executive Officer in November 2011. The state-owned company has reported a profit of R41 million for the 2011/12 financial year and generated cash of R210 million.
Mr Mhlontlo says the improved performance of Denel over the past two years can be attributed to improved revenue due to new business combined with rigorous cash management and financial controls, improved efficiencies and on-going cost containment measures across the operations.
“This is an on-going priority within the group and there is still room for further optimisation and increased efficiencies in the coming year,” he says. Management in each division in Denel have been given specific targets for further reductions in operating costs.
Mr Mhlontlo says although Denel is pursuing a number of new business opportunities in both the local and international markets the prospects in the defence industry require time to be converted into firm orders.
Thus, the company will have to continue with “robust cash management interventions” to ensure positive cash flows and the continuation of the financial turnaround of the company after it has been loss-making for more than a decade.
Corporate governance in the group has been streamlined and a number of new senior appointments have been made to ensure succession planning and promote diversity and employment equity. The Executive Committee was strengthened to ensure a higher degree of integration between the various entities.
The restructuring will see the 11 companies in the group clustered together according to similarity of business and geographical location. The new structure was approved by the Board of Denel in June and the process is expected to be completed by the end of the year, says Mr Mhlontlo.
The new structure will result in a sharing of non-core and support services and a better utilisation of office space and manufacturing facilities.
In terms of the new structure the company’s landward defence businesses in Lyttelton, Denel Land Systems and Mechem will be integrated into a single entity. At the group’s headquarters in Irene, Denel Dynamics will incorporate the division responsible for the design and manufacturing of unmanned aerial vehicles (UAVS) as well as Denel Integrated Systems Solutions.
Denel Aviation will incorporate Denel Technical Academy and Denel Personnel Solutions. Denel Aerostructures will remain as stand-alone company at the Kempton Park campus but will, in future, share certain management functions and support services with Denel Aviation.
Ammunition manufacturer PMP in Pretoria and the Denel Overberg Test Range in the southern Cape will remain unchanged.
“Denel is of vital importance to the broader South African economy because of our role as a custodian of key strategic defence capabilities and a contribution we can make to meet national developmental goals,” he says.
