South Africa’s Denel to seek investment partners

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The Chief Executive Officer of Denel, Daniel du Toit said the state-owned defence group could sell stakes in some divisions as part of a new strategy to return to profitability within two years.

In an interview with Reuters, Du Toit noted that the company has also asked the government for financial support to help underpin a strategy its board approved last week. The strategy includes seeking equity partners in some of its core divisions, but it was noted that a stake in the group is not for sale. It could also sell manufacturing and technology licences.

At the IDEX military exhibition in Abu Dhabi, Du Toit said “we are the custodians of a sovereign and a strategic capability on behalf of the government and we will not dilute it or let it go”.

Denel, a cornerstone of South Africa’s once-mighty defence industry, has been plagued by years of mismanagement. Du Toit was named as new chief executive in December as the government tries to turn around the cash-strapped company.

The new strategy will also see Denel shutter some operations where there is duplication or it is cheaper to buy the service from a third party. Affected employees would be retrained so they could move to other parts of the company. Du Toit said “I don’t think we will retrench anybody. That’s not the plan”.

Du Toit noted that a cut in the manufacturing of ammunition cartridges could save the company 40-50 million rand. The company also believes it could win 21 billion rand ($1.5 billion) in contracts in the next six months and another 19 billion rand in the following 6-9 months, mostly in the Middle East and North Africa.

Based on the new strategy, Denel’s CEO said the company could be generating 8 billion rand in revenue in three to four years time, up from around 3 billion rand today.

Denel has also started talks with existing customers to cancel or renegotiate “onerous” contracts. However, the CEO did not disclose the contracts being considered. He said “I am trying to clean up as soon as possible. I don’t want to take any of these things into the future”.

Denel expects to find out whether the government will give it a capital injection and access to additional facilities when the budget is announced.

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