Shaun Liebenberg is the turnaround guy. He’s in charge of spearheading Denel’s restructuring and consolidation. If he pulls it off, he’ll have led one of local business’s biggest success stories. Problem is, that’s a big if.
Denel made a R549-million loss this year, which is a significant improvement over last year’s loss of R1,36-billion, but it’s far from turning a profit. Liebenberg, its CE, says that although the group is ahead of schedule, it will take another two financial years to get close to breaking even. “We achieved the budgets set by the board, and improved 60% on our net profit. We’re going in the right direction.”
The group received a boost with its largest contract to date: the R8,3-billion “Hoefyster” contract to supply 264 infantry combat vehicles to the defence force. It also recorded a R1-billion A-Darter air-to-air missile contract and two smaller deals, worth R200-million and R300-Âmillion, which industry experts said were offsets from the government’s arms deal.
Many would like to see the arms manufacturer shut down. DA spokesperson Manie van Dyk launched a blistering attack on Denel earlier this week when the group’s financial results were released. Denel, he pointed out, had lost almost R3,9-billion over the past four financial years. “Denel [has] also been awarded R3,5-billion in recapitalisation funds at the beginning of 2006, of which the last R533-billion will be paid out in tranches this year,” he said in a press release.
“In view of the deficient explanations received … from Public Enterprises Minister Alec Erwin, the [Hoefyster] contract remains under suspicion for having been manipulated in order to keep the ailing state-owned enterprise afloat. Potentially, the above instances represent almost R16-billion in taxpayers’ funds that could have remained in the fiscus, had Denel been disposed of timeously,” Van Dyk continued.
Probably wisely, Liebenberg refuses to discuss politics. But he does argue that since government has decided to fix Denel, there is no point in calling for it to be shut down, especially as money has already been invested. “It’s not Denel’s call to comment on government policy issues. We’ve been asked by Cabinet to do a particular job. Our job is to execute [the turnaround]. We can’t take responsibility for the past. We can only comment on the last two years.”
There’s no doubt that Liebenberg’s job is difficult. He joined the group in 2005, after a short stint at defence and telecoms group Grintek as its CEO, and immediately started restructuring the manufacturer. Denel is now an investment holding company with 10 separate subsidiaries, and is actively seeking international partners.
Denel Optronics is now majority-owned by German firm Carl Zeiss Optronics, while Denel Saab Aerostructures is 20% owned by Saab AB.
Another aviation company is now 51% owned by French firm Turbomech. The Rooivalk helicopter programme was discontinued earlier this year, after a hoped-for deal with Turkey fell through. “We are not expecting any more government support,” he says. “We have raised another R1-billion from the sale of non-core businesses, which leaves a shortfall of R1,5-billion.” But more sales are in the pipeline.
Denel also has legacy issues resulting from existing contracts. “The typical contract length is between four and 15 years. We signed many contracts under difficult conditions. If you’ve got bad contracts, it takes a long time to get out. It takes three to seven years to negotiate major new contracts, so it’s a very long-term business.”
The department of public enterprises insists that Denel is a strategic asset. Liebenberg agrees. Apart from the defence equipment it produces, Denel directly employs 8 000 people and has between 5 000 and 7Â 000 subcontractors. It also contributes R2,5-billion in export sales. “We provide an embryonic environment for high-level engineering skills, and a skills feeder to other industries. A lot of our work is research-oriented. Everything we produce, we’ve developed ourselves.”
Is Denel competitive? “Locally, yes. Internationally, we have to decide which products and companies can be competitive. We will look for partners where we can’t be competitive on our own, for example Carl Zeiss Optronics, and others we will walk away from.”
He admits that the group is simply too diverse for its own good. When asked which companies Denel considered its peers, Liebenberg says it has none. Other arms companies have already consolidated their operations, while Denel is involved in everyÂthing from helicopters to combat vehicles, missiles and ammunition. “We do everything, and that’s part of the problem,” he said.
But he is adamant that South Africa does need some arms manufacturing capability. “All countries buy armaments. In many instances, they are not easy to source if you don’t have your own capabilities.” South Africa, for example, doesn’t have its own submarines and fighter jets. “You need to decide, which do you need to own yourself and have strategic value, and which can you buy elsewhere. But the bottom line is you need defence equipment.”