denel group
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DENEL GROUP. Presentation to Select Committee on Labour and Public Enterprises Denel Turnaround Strategy 26 February 2014. CONTENTS. OVERVIEW OF DENEL STRATEGY OVERVIEW FINANCIAL PERFORMANCE HUMAN RESOURCES AND TRANSFORMATION CONCLUSION. OVERVIEW OF DENEL. STRATEGY OVERVIEW. - PowerPoint PPT PresentationTRANSCRIPT
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DENEL GROUP
Presentation to Select Committee on Labour and Public
Enterprises Denel Turnaround Strategy
26 February 2014
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CONTENTS
OVERVIEW OF DENEL
STRATEGY OVERVIEW
FINANCIAL PERFORMANCE
HUMAN RESOURCES AND TRANSFORMATION
CONCLUSION
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OVERVIEW OF DENEL
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STRATEGY OVERVIEW
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STRATEGIC INTENT AND PURPOSE
The strategic intent of Denel is aligned to the mandate given by the Shareholder and is articulated in the purpose below:
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STRATEGY FIRMLY IN PLACE
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KEY ACTIONS TOWARDS TURNAROUND
• Restructured the business, integrating eleven businesses into six, streamlining and sharing support services across the group, leading to cost optimisation and savings
• Improved business development model - Achieved optimal mix between local and foreign sales - exports account for close to 50%. Overall revenue improving year-on-year
• Reduced net borrowing position and re-finance risk by restructuring the R1.85bn short-term debt to short-term commercial paper and medium-term bonds
• Concluded key transactions: o Joint venture with a UAE government-owned Tawazun Holdings in the
missiles domaino Acquired LMT, a strategic supplier of military vehicles to enhance our
landward vehicle capabilityo Signed an agreement to be the preferred provider of MRO services with
Russian Helicopters and Irkut Corporation, as well as Ukraine-based Antonov
• Improving stakeholder relationship and support towards Denel, MOC in process
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KEY ACTIONS TOWARDS TURNAROUND (cont.)
• Denel continued to execute its major projects: o A-Darter 5th generation air-to-air missile qualification in process in close
collaboration with Brazil, a strategic IBSA and BRICS partner nationo Delivered the final Rooivalk helicopter, the first combat support helicopter
to be designed, built, qualified and certified on the African continento Continued to deliver on Hoefyster development contract. Production
contract awarded in September 2013, R8.4bn o Achieved scheduled milestones on the export turret contract to a
customer in Southeast Asia
• Recognised for excellence in corporate reporting in June 2012 and received award for the best governed state-owned enterprise in October 2012
• Appointment of business unit deputy CEOs in July 2012 - two of these deputies have subsequently assumed business unit chief executive roles
• Achieved 79% ACI ratio on all new appointments against a target of 70%
• Continued to contribute to National interests through skills development, SED initiatives and R&D
2018
2006
Good
Great
Ailing • Working towards a revised Denel business culture optimal for
the next phase of growth.• Improving operational performance and programme
execution.• Improving intensity to conclude orders in the pipeline, but
also when to cut our losses and move on.• Interventions to enable management to accelerate
Employment Equity (EE) in the engineering, scientist and technician categories in the group.
• Creating an environment where Denel can participate in, and support other SOC and national technological programmes.
• Increasing the focus on research, development and innovation to ensure our future products will have the required technological edge or unique selling point in the market.
Corporate Plan
Vision
2013
Denel in 2013
A “Good”
Company
STRONG & COLLECTIVE LEADERSHIPDenel in 2018
A “Great”
Company
• Strategic Stakeholder Partnership DoD/Armscor & DPE/Denel anchors the sovereign/strategic capabilities, ensures joint long-term planning, enables multi-year orders, enables single source main contracting & facilitates MOD-MOD marketing support
• Industry Leadership: Denel acts as the mature national defence main contractor towards other RSA defence industries (both established & emerging)
• Transformation: Denel champions EE & SD internal & wider defence industry
• New Group Business Culture : New commitment to broad group Vision and Goals not only narrow divisional perspectives. Mobility of people, sharing resources & ideas, working towards a common vision. Change management incl. targeted leadership interventions
• BD & Sales drive: Develop this function (shared roles between corporate and divisions to achieve the potential we know is possible
• Operations: Denel deliver on new programs. Grow capacity through interventions
• Cash and profitability: Continued increase in GP% and reduction in Opex %
• Respected SA company: Value adding partner to fellow SOEs & SOCs, skills development
The Denel of 2013 - Remaining Challenges:
•Quicker conversion of opportunities from the strong opportunity pipeline into long-term orders
•Cost base has improved but more needed
•Aerostructures requires > R150m pa to break even
•Sub-optimal R&D investment in context of our high-technology industry priorities. Specific areas eg. ammunition and artillery under threat.
•Asymmetrical warfare technology base weak though improving in certain areas example the LMT acquisition, new missile technologies.
•Though overall ACI representivity now 50%, EE in senior management & engineering still unacceptable
The Denel of 2013 – Promising Progress:
•Solid opportunity pipeline
•All business areas (except aerostructures) profitable
•Improved programme execution performance
•Improved customer confidence, and a commitment to a strategic partnership between DoD/Armscor and DPE/Denel
•Solid conventional technology base (though in a maturing industry sector)
•B-BBEE Level 3
•Strengthened human capital base, with improved age and EE profile, and improved attraction and retention trends
The Denel of 2018 will be renowned for:
•New future orientated, group focussed business culture well established
•Revenue has grown to more than R7bn
•EBIT on group level more than 7% after major investments in R&D and Transformation
•Sufficiently funded balance sheet
•Long-term orders book more than 5x turnover, including new orders from SOEs
•Modernised product offerings in most capability areas provides competitive edge
•Challenged product areas incl. artillery, UAVS, ammunition & aircraft MRO re-positioned
•Marked improvement in EE levels for Engineers and Senior Managers, and improvement in average age of workforce
EXTERNAL
INTERNAL
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THE STRATEGIC ROADMAP IS UNDERPINNED BY
• Multi-year order book >20bn
• New opportunities >40bn
• Leveraging of significant contracts e.g. Mbarc, Al-Tariq, A400M and Hoefyster
• Focussed business development and support from stakeholders
• Modernising technology and establishing new capabilities
• Interventions to improve transformation
• Development of small and strategic supplier base
• Increased spending on training and SED initiatives
• Strong and collective leadership
• High performance culture
• Increased own R&D and investment spending to ±5% of turnover
• Specific investments e.g. artillery, space, new missiles technology, command and control, etc.
• Constant review and focus on the technology roadmap
• Plant renewal, specifically at PMP
• Support by financial institutions for facilities
• MOC with DoD, DPE and Armscor
• Smart partnerships with key business partners e.g. Brazil, UAE, Malaysia, etc.
• Leverage country bilateral relationships e.g. BRICS
• SOC to SOC relations e.g. in UAVs, railway rolling stock, SKA, space, etc.
• Key customer relationships
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KEY DENEL CAPABILITIES•Model, simulate, design, develop, qualify & certify complex systems•Ammunition, munitions, propellant and pyrotechnics•Broad advanced specialised manufacturing capability •Manage turn-key system acquisition, commissioning and support guided missile•MRO capability for transport aircraft & helicopters •Landward mobility, ballistic- and mine protection technologies •MRO capability for landward defence systems•Armoured vehicle systems capability•Combat helicopter & utility helicopter •Electro-optics, optronics & photonics•Missile radar technology capability•Scientific test range capability•Ballistic- and mine protection•Rapid firing cannon & gun•Ground based air defence•UAV systems capability •Satellite technologies•Canine technologies•Artillery system
Emerging requirements
CAPABILITY DEVELOPMENT
•C4ISR systems capability (land, sea, air, joint ops) to act as prime contractor for future
programs•Military, paramilitary & homeland security
capability (incl. border control, law enforcement and disaster management.)
•Maritime systems integration capability • Niche Unmanned Systems solutions
(incl. armed, ship launched and civilian UAV Satellite surveillance &
communications systems capability • New generation artillery systems • New generation missile systems
• Cyber security & encryption capability to support national
programs• MRO capability for maritime
systems • MRO capability and fleet
management of the B-vehicle fleet
• MRO capability for combat and non-EC
helicopters
DENEL CAPABILITIES
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DENEL OF THE FUTURE WILL BE CHARACTERISED BY THE FOLLOWING:
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FINANCIAL PERFORMANCE
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DENEL CONTINUES TO SHOW PROGRESS TOWARDS SELF-SUSTAINABILITY
(1 200)
(700)
(200)
300
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Rm
-
500
1 000
1 500
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Rm
Net (loss)/ profit
Cash from operations
Solvency
(1 600)
(1 000)
(400)
200
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Rm
Denel turnaround
The group has continued to improve financial performance through restructuring and turnaround interventions
The strategic focus is on significantly growing revenue by aggressively driving business development, as well as enhancing technology and capabilities, whilst continuing transformation and efficiency imperatives.
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Revenue R3 918m improves 10% •Local revenue R2 135m remains fairly stagnant •Export revenue R1 783m improves by 34% Net profit R71m improves R30m•Significant R&D spend of R528m (internally funded R142m)•Skills development spend of R46m•Share of profit from associates R72m improves 118%•Operating profit R117m improves 17%•Net loss posted by DAe R51m improves 35% Debt and equity improve•Equity position R1 472m improves by R777m•Borrowings marginally reduce by R51m
Strategic interventions•Focus on improving sales•Cost containment and programme efficiency drive•Improved stakeholder relationship and shareholder support•Focused leadership
KEY FINANCIAL HIGHLIGHTS FOR 2012/13
-
1 000
2 000
3 000
4 000
2009 2010 2011 2012 2013
Rm
Revenue per region
Africa, excl North Middle East Europe Asia Pacific Other South Africa
-
1 000
2 000
3 000
2009 2010 2011 2012 2013Rm
Debt and Equity
Equity Debt
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ENTITY PERFORMANCE AS AT 31 MARCH 2013
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TEN-YEAR OUTLOOK
• Positive financial performance including sales growth over the next 10 years
• Stronger balance sheet with improvement in solvency position and stability in borrowings
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HR AND TRANSFORMATION
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HUMAN CAPITAL DEVELOPMENT AND TRANSFORMATION
Creating a high technology environment and competencies - attracting, developing and retaining scarce talent to achieve our goals. The HR strategy focus:• Talent acquisition and
attraction:
Repositioning Denel as an Employer of Choice.
• Learning and development:
On-going interventions to up-skill and develop technical skills.
• Transformation and employee relations:
Diversifying workforce focusing on new appointments (75% ACI and 50% women)
Creating sustainable jobs and advancing transformation as we win new contracts
• Performance management
Performance driven organisation
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TALENT ACQUISITION AND ATTRACTION
• Denel is repositioning itself as an Employer of Choice in the market through innovative branding and recruitment strategies
• Denel targets specific sources to attract its pool of talent and create its skills pipeline
• Employment Equity remains a key strategic objective which has improved significantly
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Denel has spent R46m on skills development
Denel has spent about R10m on youth development initiatives
LEARNING AND DEVELOPMENT
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YOUTH DEVELOPMENT PROGRAMMES
Schools outreach programme
•The Schools Outreach Programme (SOP) is a programme where learners from Grade 11 to Grade 12 are offered extra classes on Saturdays and holidays by qualified teachers from the local community
•The programme has been running in Gauteng and the North-West Province and has been expanded to include Limpopo; Mpumalanga and Free State
Bursaries
•Denel has offered over 80 bursaries to students towards qualifications in the following engineering fields: Electronic, Mechanical, Industrial, Software/ Computer and Mechatronic
Vacation Work and Internship
•Engineering students are required to undergo practical training during the year. This is a compulsory requirement from the University in order to graduate
•Denel divisions offer students vacation work over the December and January period for 6 weeks where each student is assigned to meaningful project related work
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DENEL TECHNICAL ACADEMY: ARTISAN TRAINING
Denel trains over 250 artisans per annum
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Leadership and Management Development Programme
Workplace Skills Plans
Engineering Academy Of
Learning
Employee Study Assistance
Group Succession Plan
SKILLS DEVELOPMEN
T
EMPLOYEE SKILLS DEVELOPMENT INITIATIVES
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DENEL CONTRIBUTING TO THE DEVELOPMENTAL STATE
Denel hosted the DPE Free State Youth Camp at its Kempton Park hostel. A hundred of the best performing learners in Grade 10 and 11 in Free State schools were invited to the youth camp during which they were exposed to the various careers at state-owned enterprises
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DENEL CONTRIBUTING TO THE DEVELOPMENTAL STATE (cont.)
Denel helped out at the Via Nova School by painting a dormitory, providing food hampers and donating sports kits in commemoration of Youth month. Via Nova School is a school that admits pupils with special educational needs from throughout Gauteng and other provinces in certain cases
Denel was involved in a project to introduce the ‘Mini-Chess Programme’ to Philena Primary School in Olievenhoutbosch. This programme uses chess to teach learners about maths and science
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DENEL CONTRIBUTING TO THE DEVELOPMENTAL STATE (cont.)
Denel implemented a number of CSI interventions within the Ingquza Hill municipality in the Eastern Cape during October 2013 including:
• Installation of the Telematics Learner Support System
• Hosting a career expo in collaboration with other SOCs and the Department of Higher Education and Training
• Provided over 400 maths dictionaries to the 4 local high schools and library
• Creating a source of clean drinking water for local communities by funding four boreholes
• Denel will be donating computers to the best performing primary schools in Maths and Science
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CONCLUSION
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CONCLUSION
Denel’s capabilities are world-class and include:
•Strategic missile technology
•UAV technology
•Aerostructures design and manufacturing
•Ammunition manufacturing
•Landward (vehicles/artillery/support/turrets/weapons)
•Military MRO facility (most developed in Africa)
Support is critical in Denel’s strategic journey including:
•Stakeholder support in converting new business opportunities
•Ongoing support for the SOC to SOC relationship building and new business
•Limited acquisitions as part of bringing new capabilities
•Investment in plant renewal, as well as investment in technology upgrade in close cooperation with CSIR
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THANK YOU