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CEO PRESENTS ANNUAL REPORT TO PARLIAMENT

Denel’s current modus operandi is that of becoming a profitable, commercially viable and dynamic entity. Addressing the Parliamentary committee on Denel’s Annual Report, Shaun Liebenberg, Chief Executive Officer (CEO), said a lack of a captive domestic market and limited access to international defence contracts adversely affected Denel’s financial performance in the year to 31 March 2005.

Despite huge losses as reported, R850 million (not final), Denel is still active in its key markets and services its customers. Admittedly the balance sheet is still very weak and will have to be rebuilt.

Liebenberg has initiated changes to Denel’s strategic direction by implementing the macro strategy, which is built around the global defence environment and the changing nature of customer needs. He was frank about Denel lacking the basic prerequisites to be viable under the current model, but said the company’s capabilities are attractive to global prime contractors for partnering.

The new strategy is intended to redefine Denel’s business to adapt to the changing defence environment where increased consolidation is taking place. This involves:

• Long-term formal business partnerships, locally and internationally, so that Denel can become more sustainable in sales and revenue, share in R&D, gain experience from global best practice methodologies etc.
• Focusing on the businesses that are commercially viable and exiting those that are not, or cannot be made viable.
• Review processes, systems, efficiencies and skills, and placing the right resources where required.
• Improved collaboration with defence-related public and private sector stakeholders, like Armscor, the Department of Defence, as well as local and international suppliers.
• Assess and review the changing nature of the global and local defence industry and ensuring that Denel remains in touch with current defence requirements.

Further, Liebenberg said, "Changes in the defence industry have forced consolidation and the forming of alliances worldwide. Although Denel has an enviable range of products, we no longer have a captive domestic market or the scale to succeed as an independent systems integrator and exporter of such a broad range of products."

…/more Annual Report

page two of Annual Report

Despite a recent increase in local defence spending, this had a negligible impact on Denel’s fortunes. Much of the domestic spend occurred in areas falling outside Denel’s product range, eg. acquisition of naval systems. Denel’s involvement was limited to sub-contracts on the SA Navy’s corvette weapons suite and some workshare on the Gripen, Hawk and Agusta helicopter programmes.

However, Liebenberg intends to pursue a strategy that would focus the Denel business on being a domestic prime contractor whilst becoming a specialised contractor or sub-supplier to other international defence contractors.

He was frank that Denel may have to exit certain business units if it did not secure contracts within the next 6 to 12 months. However, as part of his macro-strategy, he has set up a change management project office to support him in the process of implementation. The office is to supply him with a turnaround and operational draft budget by November 2005. Further the 2006/7 budget and recapitalisation will also be released.

Liebenberg emphasised that equity business partnerships must be pursed over teaming arrangements wherever possible. His reasoning is simple, an equity partner will have a shared destiny with Denel and will focus on making Denel a success. Further, the equity partner will forge deep, permanent synergies i.e restructure businesses to focus on complementary capabilities.

End

Contact details: Priya Pillay

Group Manager: Media Relations

Tel.: (012) 428-0764

Mobile: 082-8888 966

Email: [email protected]