September 6, 2019 / 12:44 PM / 14 days ago

South Africa's Denel to exit some businesses within months

JOHANNESBURG (Reuters) - South Africa’s struggling state-owned defense company Denelaims to begin disposing of equity stakes and exiting loss-making businesses within months as part of its turnaround strategy, it told a parliamentary committee.

FILE PHOTO: Denel company logo is seen at the entrance of their business divisions in Pretoria, South Africa, December 4, 2018 REUTERS/Siphiwe Sibeko

Denel, which makes ammunition, missiles and armored vehicles for South Africa and customers elsewhere in Africa, the Gulf and Europe, received a 1.8 billion rand ($122 million) cash injection from the government at the end of last month after struggling to pay salaries and suppliers.

Denel is one of a handful of state-run companies that has needed to be bailed out by the government in recent months. A pillar of the country’s once-mighty defense industry, the company recorded a 1.76 billion rand loss in 2018.

Denel has not yet released financial results for the 2018/19 fiscal year, but was projected to be insolvent, according to a presentation to parliament’s portfolio committee on public enterprises on Wednesday.

It expects to raise 160 million rand in the third quarter of the 2019/20 financial year via the disposal of equity in Hensoldt Optronics, a producer of high-tech optics such as sensors and radars, in which it owns a 30 percent stake. The fiscal year runs from April 1 to March 31 with an October-to-December third quarter.

Denel CEO Danie du Toit said any deals were subject to government approval but negotiations over Hensoldt were in progress.

“We’re on plan,” he wrote in a text message on Friday.

Exiting its loss making LMT, an armored vehicle business in which it holds a 51% stake, and its small caliber ammunition unit PMP should save it 70 million rand in the same quarter.

Equity sales and partnerships involving core businesses like Denel Land Systems, missile unit Denel Dynamics and Denel Aeronautics should help raise another 4.4 billion rand through 2022.

Streamlining supply chains, reducing staff costs and exiting other businesses, including Denel Aerostructures, could reap 862 million rand in further savings.

In a statement on Thursday, Denel said it foresaw some 30 billion rand in deals over the next two years, including the largest export contract in the company’s history.

Denel has not publicly named the customer. But the presentation to parliament says the contract, which includes a 1.5 billion rand advance, focused on Egypt’s navy and ThyssenKrupp Marine Systems vessels.

Reporting by Joe Bavier; Editing by Elaine Hardcastle

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