Denel seeks more equity partnerships
September 12, 2008
By Roy Cokayne
Pretoria - Denel is in negotiations with local and international defence firms to conclude equity partnerships for some of the defence parastatal's other businesses.
Talib Sadik, Denel's acting group chief executive, said the company was looking for an equity partnership for its missiles business and the broader Denel Dynamics entity.
"We are in discussions with an interested party. Those discussions are at an exploratory stage," he said this week at a presentation of Denel's latest financial results.
Denel was looking extensively at local defence industry consolidation opportunities, Sadik said. There were some Denel businesses that the company believed could be "tied up" with other local players to build them into viable sustainable businesses.
These discussions form part of the turnaround strategy that was launched in 2005, aimed at making Denel financially self-sustainable.
The strategy is based on five pillars:
Privileged access to state institutions such as the treasury;
Securing of state agency support;
Assessing of the commercial viability of each business and developing a turnaround strategy or exiting the business;
Securing equity and strategic alliances; and
Raising Denel's capability and productivity to world-class standards.
The equity-based partnership pillar involved unbundling Denel into a 100 percent state-owned investment holding company with a number of focused technological companies in specific fields of defence products and solutions.
In the year to March, Denel concluded equity partnership deals with Germany-based Carl Zeiss and Sweden-based Saab.
Last week the company concluded an equity agreement involving Rheinmetall Waffe Munition of Germany and Denel Munition.
Sadik said that three of Denel's eight business units were now profitable.
He expected the rest to become profitable and have a positive effect on Denel's financial results within the next two to three years.
Denel this week reported an improved financial performance, reducing its net loss by almost 39 percent to R347 million in the year to March from a loss of R549 million in the previous year. This happened on almost 18 percent growth in gross revenue to R3.9 billion from R3.3 billion.
Sadik said Denel had managed to improve the loss for the past year by focusing on its core businesses, phasing out of legacy contracts, saving on operating costs and profiting on the sale of non-core assets.
All of Denel's non-core businesses had been disposed of, including SPP, CoSource and various non-core properties, in line with the turnaround strategy.
The future challenge Denel faced was how to unlock further value in its core business.
One of the areas it was examining was its land holdings, including its head office in Irene, which it owned but did not fully occupy, said Sadik.
Some of the remaining businesses were profitable but would face challenges in the future, he said.
Denel would like to bring in an equity partner to make these businesses sustainable in the long term.
"As we do these equity transactions, we will hopefully see significant cash coming into Denel out of concluding these equity partnerships," he said.
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