The results we are presenting today reflect the resilience and hard work of Denel employees without whom, none of these results would have been possible. Denel is on a sustainable growth trajectory. The company is consolidating on the gains of a number of strategic decisions the leadership collective has taken to move the company another level up in its growth. The future looks positive, and I am extremely proud of the company’s performance during the year we are reporting on. As the second largest defence company in the southern hemisphere, Denel’s performance in the markets serves to create a greater awareness of the qualities and capabilities of South Africa’s defence manufacturing sector, and opens up new opportunities.
Our strategy remains focused on building a self-sustaining business and includes:
Growing the business by increasing the order book;
Leveraging strategic partnerships;
Increasing productivity, efficiency and profitability;
Optimizing our cost structure through operational excellence;
Enhancing capabilities and fostering innovation; and
Creating a dynamic and vibrant organisation.
Improved Financial Results for long-term sustainability
The essence of our growth strategy lies in maintaining a continuous increase in the order book, which we will achieve by strengthening relationships with customers and other key stakeholders. In addition, we will leverage on the existing global partnerships to secure future business. We are currently working on a number of initiatives to grow and diversify our business offerings.
The results we are presenting to you today support the view that Denel is on a sustainable growth trajectory. In the financial year 2015-16, Denel’s revenue has grown by 41% to R8.228-billion. This is attributed to a 6% surge in exports which now account for 58% of total revenue. Relationships with foreign clients are stable and continue to grow with long-term partnerships in place on key projects.
The company has achieved a net profit of R395-million, which shows an increase of R125-million on the previous financial year. The Group’s earnings before interest and tax have improved by 59% to R637-million. This can largely be attributed to the growth in the Group’s export revenue In spite of the massive improvement in profitability; our current debt to equity ratio is still not at acceptable levels. We have however developed plans to bring it down to acceptable levels. An important key lever towards developing the Denel business into long-term sustainability is in optimizing the cost structure through operational excellence.
In the 2015-16 financial years, we achieved 15% OPEX as a percentage of sales as compared to 16% in 2015. Although this shows an improvement, we believe we can still do much better. We have therefore initiated plans to improve this status.
Investing in Innovation and Enhancing Capabilities
Denel has spent R550m on R&D and intellectual property development, through a combination of self- and client-funded investments. We have progressed well on the Small African Regional Aircraft (SARA) concept, and have developed a full scale mock-up as part of the R&D process. This is a national flagship project Denel is honoured to be involved in. The Small African Regional Aircraft provides us with an opportunity to collaborate with academics and post-graduate students at local universities to develop a technology demonstrator. Through this collaboration, we are creating exciting new possibilities for young engineers and artisans entering the industry.
The 2015 Defence Review calls for Denel to be the custodian of critical strategic and sovereign capabilities, especially in command and control and the maritime environment. Denel Integrated Systems & Maritime (DISM) is set to assume the role of strategic partner to the SA Navy, as well as the broader SA shipbuilding and repair industry. The maritime division of the business has given Denel a strong foothold in the naval environment and the company is confident that it will become a catalyst in a number of maritime defence acquisition programmes that are currently in the pipeline. We are considering a number of options to enhance our current expertise in the sovereign capability areas as envisioned by the Defence Review. We may achieve this through possible collaborations with third parties, internal investment or even strategic acquisitions.
In the area of artillery requirements, Denel continues to invest a significant amount in the wheeled self-propelled 155mm 52-calibre G6 gun-howitzer. Other initiatives include working on extending the range and accuracy of some of our missiles, as well as enhancements to our vehicle product offering.
Commercial Aviation Opportunities
Within the aviation space, South Africans should be proud of the home-grown capability that resides in Denel. We have extensive capabilities in the aviation-related maintenance, repairs and overhaul (MRO) space. This is another area where we are looking for strategic partnerships to strengthen our position as a global player of note. Currently, our specific focus is on the sub-Saharan region. In addition, we are exploring opportunities for creating a baseload with MRO work from fellow state owned companies (SOC’s) operating civil aviation aircraft.
Our people are our future
The Denel Group values and prioritises its contribution to the national socio-economic imperatives including skills development and transformation. We have spent in excess of R5-million in our Corporate Social Investment flagship project, the Schools Outreach Programme (SOP).
The SOP provides maths and science tuition to learners in historically disadvantaged areas. Beneficiaries of this programme feed directly into the national skills development programmes.
Our investment in training and skills development amounted to R63 million, and will produce the next generation of highly-skilled engineers, artisans and technicians. In partnering with Government to transform the South African economy, we continue to make significant strides in transforming the Group’s supply chain through procurement and enterprise development. About 68% of the supply chain budget was spent on local suppliers, with over R872-million allocation to black-owned companies. Spend on black women-owned companies grew from 2.8% to 9%, while the number of enterprise development beneficiaries in the same period grew from 67 companies to 120. We are determined to grow these numbers in the years to come with a sharpened focus on black youth-owned companies, military veterans and enterprises owned by individuals with disabilities.
Our interventions on the national socio-economic objectives, which include job creation, transformation, enterprise development, the youth, military veterans and people living with disabilities enjoy as much of a priority status as the group’s financial and operational performance. Our board has challenged us to do even more with regards to employment equity and supply chain transformation. South Africans will witness heightened levels of broad transformation throughout the entity and across all disciplines. It is not by accident that Denel is the leader in transformation within the defence industry
We expect that defence spending in Africa will increase in response to genuine security needs arising from insurgent and rebel groups, the rise of piracy, economic growth, and an emerging regional arms-race.
In conclusion, allow me to thank Minister Lynne Brown as the Shareholder representative, Deputy Minister Bulelani Magwanishe, the Chairpersons of our Parliamentary Committees and the Director-General of the Department of Public Enterprises for ongoing guidance and support. Let me extend our appreciation also to the Minister and Deputy Minister of Defence &Military Veterans, the Secretary of Defence, and the Chief of the SANDF, Armscor as well as organised labour and industry partners for their support.
I further thank our Board of Directors for the confidence and support they have extended to me and the executive team during this period. Last but now least; allow me to thank each and every one of our employees. We could not have achieved these results without their efforts and dedication.