Although South African State-owned defence industrial group Denel made a profit of R41-million in the financial year ending March 2012, the government is thinking of providing the business with further support.
In the 2012 Budget, the State allocated R700-million to assist the group's struggling subsidiary company, Denel Aerostructures, or DAe, (this money will be disbursed during the 2012/2013 financial year), in addition to previous financial assistance provided to the group to fund its turnaround strategy.
"The company is in the midst of a turnaround process and no turnaround is smooth," Public Enterprises Minister Malusi Gigaba told journalists at Denel on Thursday. "As the shareholder representative, we are committed to the turnaround of Denel. Additional support is being considered carefully."
He explained that the intent was to ensure there was a long-term programme to make Denel a self-funding and a self-sustaining business. "There are discussions taking place with National Treasury about future assistance for Denel. At the time we have concluded the necessary negotiations, we will make the announcement. We're looking at other programmes, which would not necessarily be additional cash injections. They could be other types of packages. We can't continue to rely on short-term packages."
Although the profit for the 2011/2012 financial year was lower than that for the previous financial year (2010/2011), the latter figure had been boosted by a large one-off accounting gain from the restructuring of a pension fund.
"These [2011/2012] profits were from operations," pointed out Denel board chairperson Zoli Kunene at the same media conference.
"This is the fifth straight year of improved results. We're hoping that going forward, the quality of the earnings will improve."
Only one of Denel's businesses did not return a profit – DAe. But DAe did cut its losses by 67%. Moreover, a good portent for the future is that giant European aviation group Airbus has noted DAe as one of its best-performing suppliers.
The group's total revenues increased by 10% to R3 568-million. But it still suffers from a high debt level of about R1.85-billion.
On the other hand, prospects are looking better, Kunene highlighted. "Exports are increasing, the size of the orders, the size of the contracts, is increasing. We have a long way to go yet. But at least the projectile is on the up and up. And we believe we'll be able to return another positive profit next year."
"It is my view that Denel will remain a State-owned company," stated Gigaba. "I am happy with the performance of the company so far. But there's clearly still a lot of work to be done."