Harsh blow for Gup­tas as arms firm Denel drops its VR Laser part­ner­ship

The Sunday Independent - - BUSINESS REPORT - Ziyanda Mbolekwa

THE CON­TRO­VER­SIAL Gupta fam­ily suf­fered a huge blow on Fri­day when state man­u­fac­turer Denel said it would exit its part­ner­ship with VR Laser Asia.

Act­ing Denel chief ex­ec­u­tive Zwe­lakhe Nt­shepe said the man­u­fac­turer wanted out of the deal be­cause it had at­tracted neg­a­tive pub­lic­ity.

Nt­shepe said VR Laser had also not traded be­cause of con­tin­ued dif­fer­ences with the na­tional Trea­sury.

“The Denel Asia JV be­came the fo­cus of neg­a­tive at­ten­tion from the me­dia to the detri­ment of the Denel brand, both lo­cally and in­ter­na­tion­ally,” Nt­shepe said.

The planned can­cel­la­tion of the deal comes nearly 18 months af­ter Denel said it wanted to part­ner with the Asian-based busi­ness of VR Laser as a ve­hi­cle to pen­e­trate Asia-Pa­cific, as the mar­ket had seen year-on-year in­creases in spend­ing, in ex­cess of 20 per­cent, mak­ing it one of the top-spend­ing re­gions on de­fence equip­ment in the world.

“This there­fore brings us to a point where we can of­fi­cially re­port that Denel SOC has ended its in­volve­ment in the Denel Asia JV,” Nt­shepe said. “We have ex­ited the JV.”

Re­port­ing on the com­pany’s per­for­mance for the year end to June, Nt­shepe said Denel con­tin­ued to main­tain rev­enue lev­els above the R8 bil­lion mark de­spite its turnover de­clin­ing by 2.5 per­cent.

He said the global de­fence in­dus­try had seen cut­backs in bud­gets mak­ing the year dif­fi­cult for it to re­main prof­itable in an ever-in­creas­ingly cost-sen­si­tive and com­pet­i­tive mar­ket.

He said the in­dus­try also had

The Denel Asia JV be­came the fo­cus of neg­a­tive at­ten­tion from the me­dia to the detri­ment of the Denel brand.

to make cost-cut­ting de­ci­sions to main­tain ac­cept­able fi­nan­cial per­for­mance.

Ex­ports had in­creased 5 per­cent dur­ing the pe­riod, accounting for 63 per­cent of the group’s to­tal rev­enue, while prof­itabil­ity had ex­ceeded set tar­gets by 9 per­cent, post­ing a to­tal of R333m NPAT.

Re­turn on sales de­creased by 8 per­cent and was now at 4 per­cent, in line with the pre­vi­ous year’s 4.8 per­cent. Denel would em­bark on a strate­gic drive to re­duce op­er­at­ing ex­penses per­cent­age to sales, cur­rently at 18 per­cent, to­wards the 14 per­cent range, he said.

“With the tough and volatile in­ter­na­tional trad­ing con­di­tions, Denel re­turned prof­itabil­ity in spite of a forex loss of R232m booked for the year.”

The cur­rent debt to eq­uity ra­tio of 1.2:1 is still not at ac­cept­able lev­els.

“Plans are al­ready in place to bring it down to even more ac­cept­able lev­els,” Nt­shepe said.

“An im­por­tant key lever to­wards devel­op­ing the Denel busi­ness into long-term sus­tain­abil­ity is in op­ti­mis­ing the cost struc­ture through op­er­a­tional ex­cel­lence.”

He said Denel was able to main­tain, ex­pand and build on a broad scope of sovereign and strate­gic tech­nolo­gies that would not have been pos­si­ble.

“Credit must go to the Min­istry of De­fence and Veterans, Arm­scor and the SANDF, which re­main our an­chor clients, and we are in­debted to them for much of our prod­uct port­fo­lio and tech­nol­ogy fund­ing.”

With more than 75 per­cent of both lo­cal and export work lo­calised, the in­dus­try had ben­e­fited sub­stan­tially from the part­ner­ship.

He said the group’s re­la­tion­ships with for­eign clients would con­tinue to grow with long-term part­ner­ships se­cured on their strate­gic projects

“The Mid­dle East and Asi­aPa­cific re­gions are key export tar­gets for the com­pany,” he said.“We are mak­ing great progress i n ex­tend­ing our foot­print in these mar­kets.”

Zwe­lakhe Nt­shepe, act­ing group chief ex­ec­u­tive of Denel.

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