Denel on its 2013/14 Annual Report

Meeting report

The Chairperson welcomed everyone present. She acknowledged the DENEL Group and hoped that their interaction with the Committee over the next five years would produce positive outcomes. She handed over to the Acting Chairperson of the DENEL GROUP for their presentation.

Opening Remarks by Acting Chairperson of Denel

Ms Martie Jansen van Rensburg, the Acting Chairperson of the Denel Group, appreciated and acknowledged the Chairperson and members of the Committee, the team that came from DENEL, the media and others present. She gave an opening speech to precede the presentation. This meeting would be the first opportunity for Denel to meet with the Portfolio Committee on Public Enterprises since the election of the 5th Parliament of the Republic of South Africa and the Board and Executive Management of Denel were looking forward to a very constructive engagement with the members of the Committee.

In the Annual Report that had been tabled in Parliament, Denel had provided the Committee with a comprehensive overview of the activities, achievements and challenges experienced by the Organisation. One of the achievements highlighted was that Denel recorded a profit for the fourth successive year. The board was satisfied that Denel was on a sustainable long-term growth trajectory with a strong operational and financial performance and an enhanced balance sheet. She said that the presentation would provide the Committee with details about the strong order book that was in place and a number of new prospects that were at an advanced stage of being concluded. Denel shared the views of the Minister of Public Enterprise, Ms Lynne Brown, which clearly spelt out the Government’s expectations about the role that state-owned companies should play in the South African economy. Denel believed that state-owned companies must be effective strategic levers within the framework provided by the National Development Plan and the industrialisation objectives defined in the Industrial Policy Action Plan.

Denel delivered sustainable positive returns, entered a period of long-term growth and delivered effectively against the Shareholder’s targets. Denel welcomed the Government’s acceptance of the 2014 Defence Review and would follow its passage through Parliament with great interest. The Review recognised the contribution made by the local defence industry, especially Denel, which had been identified as a strategic national asset. The envisaged establishment of the National Defence Industry Council would result in higher levels of coordination between the defence sector, the SANDF and Armscor and lead to increased local participation in defence acquisition programmes and even stronger support for our export programmes. At the end of September, Denel participated in the biennial African Aerospace and Defence Exhibition held at the Air Force Base Waterkloof and there was a global appreciation for the quality of Denel’s products, services, systems and people. This was made evident by Denel’s hosting of more than 35 international delegations during the two-day period. Denel was also recognised that it did not sell single products to its clients, especially in Africa, but built long-term partnerships with the ability to develop and deliver on products that were suitable to the requirement of its clients and supported by long-term maintenance, spares and support.

Ms Jansen van Rensburg mentioned the contribution that Denel made towards skills development, educational initiatives and job creation in the downstream manufacturing industry. During the past financial year, Denel had invested more than R64 million in skills development which covered a broad spectrum - from support for educational initiatives, to bursaries, internships and internal leadership and management development programmes. Denel strongly supported the national efforts to create a greater interest in, and improve the outcomes of, mathematics and science education. A very successful schools outreach programme was conducted through which Denel employees were giving of their time over weekends and school holidays to teach at Denel’s enrichment programmes in four provinces. A former pupil at Vaal Reefs Technical High School who hailed from Kanana in the Dr Kenneth Kaunda District had participated in the programme in the North West and scored an astonishing 100% for Physics and 99% in Mathematics in the 2013 end of year examinations. This student was currently studying actuarial sciences at the University of the Witwatersrand. The Denel Technical Academy in Kempton Park was one of the country’s best-rated institutions for the training of apprentices who would later become fully accredited artisans and technicians. The Academy was known for its ability to support the South African aviation sector through its training in various trades. The Academy had branched out into other technical disciplines in support of the country’s objectives to meet South Africa’s demands for more skilled and qualified human resources. Furthermore, high-performing learners who excelled in mathematics and science were offered Denel bursaries to study engineering at various universities in the country. Denel currently supported 82 bursary students in various years of study and also offered them vacation work, which helped to familiarise them with a real workplace environment.

In support of its transformation goals, Denel was actively involved in initiatives to increase the representivity of its workforce, through succession planning, leadership development and strategies that enabled it to retain its skilled human resources. There was a steady growth in the percentage of ACI employees over the past three years and a dedicated focus to attract young black women and people with disabilities into Denel. She paid tribute to the outgoing Chairperson, Mr Zoli Kunene, who retired at the Annual General Meeting in August having served for eight years on the Board and the last three years as Chairman. Denel would miss his wisdom and thorough understanding of the defence industry and the business environment.

Denel had been fortunate to host the previous Portfolio Committee during oversight visits at its various facilities across the country and extended a standing invitation to the new Committee to continue with such visits

Briefing by Denel on its Annual Report and Financial Statements for the 2013/14 Financial Year

A 10-minute video clip on the purpose and achievements of Denel was played to the Committee.

The Chairperson commented on the interesting and impressive video clip. In a few minutes, the magnitude and quality of work being undertaken by Denel had been effectively communicated to the Committee.

Mr Riaz Saloojee, Chief Executive Officer of Denel, gave the first part of the presentation. From a global context, not so many developing or developed countries had these kind of defence and industrial capabilities which were state owned and Denel was proud of the fact that South Africa had those capabilities in the defence of the country. To summarise the spectrum of Denel’s strategic products, technologies and capabilities were the high weapon systems like artilleries to the naval systems, to the Aerospace, trainings and other capabilities in the human resource environment. That was to ensure that Denel had the kind of people that would maintain the kind of skills and human capital needed. The presentation slides showed pictures of the Core Product Portfolio, which displayed the designed South African products which were maintained by Denel for the South African Air force. He reminded the Committee that recently, one of these systems were deployed in the Democratic Republic of Congo against the rebels of the United Nations forces where South Africa was a contingent. Hopefully, that technology would be a new technology in South Africa going forward. Denel had successful financial performance for the past four years in a row. Denel supplied the South African defence and security environment with the strategic technology capability, products, services and support. In addition, to bringing about sustainability, Denel leveraged on indigenous capabilities to access selected export markets. Denel also contributed to socio-economic imperatives of government such as job creation, skills development and social investment, enhancing the local technology and manufacturing base, supplier development, exploiting commercial use of technology and foreign policy and regional security objectives. All these initiatives were introduced so that Denel could extend its capabilities into different sectors of the country.

Denel desired to become the credible state-owned South African strategic partner for innovative defence, security and related technology solutions. For Denel to realise this vision, there were five fundamentally strategic objectives that it embarked upon. These were:
- to grow revenue so as not to depend on the Government,
- to improve customer and stakeholders relationships,
- to increase productivity, efficiency and profitability so as to curb poor financial performance and losses,
- to enhance capabilities and invest money in new technology and capabilities so as to keep in touch with new global trends and not become obsolete, and
- to invest in and foster innovation and to create a dynamic and vibrant organisation so that the end state could be a dynamic, vibrant, financially sustainable, transformed and profitable organisation that would not be dependent on the state.

A few years ago Denel was an ailing organisation; it therefore aimed that in a few years time it would have transformed from being a good company that it was now to a great company. To achieve that goal, Denel would have to look at the environment and a number of interventions within the environment.

The progress experienced by Denel by 2013, entailed a solid opportunity pipeline, profitable business areas except Aerostructures, improved programme execution, improved customer confidence, a commitment to a strategic partnership between DoD/Armscor and DPE/Denel, a solid conventional technology base, the achievement of a BBBWW level 3 and strengthened human capital base with improved age and Employment Equity (EE) profile and improved attraction and retention trends. Challenges still encountered by Denel were:

- quicker conversion of opportunities from the strong opportunity pipeline into long term orders,
- improvement of the cost base but much more still needed,
- Aerostructures which required R100 million to break even,
- the sub-optimal R&D investment in context of our high-technology industry priorities,
- asymmetrical warfare technology weak base through improvement in certain areas, and
- an overall African Coloured Indian (ACI) representativity which had moved up to 50%, and
- EE in senior management & engineering sector still unacceptable.

The Denel Group proposed that by 2018 it would be renowned for new future orientated, group focused business culture that was well established, Revenue would have grown to more than R7 billion, EBIT on group level would be more than 7% after major investments in R&D and transformation, sufficiently funded balance sheet, long-term order book more than five times turnover including new order from SOEs, modernised product offerings in most capability areas provides competitive edge, challenged product areas including artillery, UAVs, ammunitions & aircraft MRO re-positioned and marked improvement in EE levels for Engineering and Senior managers, and improvement in the average age of workforce.

The strategic roadmap into the future entailed improving intensity to conclude orders in the pipeline, increasing the focus on research, development and innovation to ensure that its future products would have the required technological edge or unique selling point in the market, creating an environment where Denel could participate in and support other SOEs and national technological programmes, accelerate and entrench transformation including interventions to enable management to accelerate Employment Equity (EE) in the engineering, scientist  and technician categories in the group, working towards a revised Denel business culture optimal for the next phase of growth and improving operational performance and programme execution.

Key developments achieved by Denel were: the significant progress achieved in Revenue growth, Cost Optimisation, enhancing capabilities through Innovation, Leadership Development and Transformation, the Order book in excess of R32bn - the highest order cover in Denel’s history. The Order book for the group at R32bn was to be executed over the next 5 to 10 years. Order cover for 2014/15 is at 91% compared to 79% at this time in the prior year. Progress in strategic business development markets: Middle East, Africa, South America and the Far East, Denel exploring acquisition opportunities in the landward, command & control and cyber security. Denel established a Maritime capability – South African Defence Review, Memorandum of Cooperation (MOC) with the SecDef (Secretary of Defence), the respective Chiefs of Services, DPE and Armscor, AAD (Africa Aerospace & Defence Show) - showcased Denel products and capabilities and hosted various delegations. Denel hosted inaugural Aerospace, Maritime and Defence Conference – which was the future of local industry, extensive resource planning to facilitate envisaged growth including infrastructure (e.g. plant renewal and human resource development) and a 5-year corporate plan the strongest in the history of Denel; including improved financial performance, increased equity and reduced levels of debt.

Mr Fikile Mhloutlo, Group Chief Financial Officer, Denel, presented the financial performance of the Company. The group continued to improve on historic results through restructuring and turnaround interventions and had posted profits for the past four consecutive years. The strategic focus was on significantly growing revenue by aggressively driving business development, as well as enhancing technology and capabilities, whilst continuing transformation and efficiency imperatives. Denel contributed to national security and peacekeeping by supporting military independence through security of supply of sovereign and strategic military capabilities. The Operational successes of Denel were: the completion of development and validation of the Oryx upgrade programme, the successful first flights of the Seeker-400 UAVS, the test and validation of operational features of Al-Tariq precision guided munitions, excellent progress on Airbus A400M production packages, a record number of successful test campaigns at OTR, positive media coverage regarding performance of the Rooivalk combat support helicopter during deployment as part of peace support operations in Africa and Research and development investment of R507 million during the year. Denel contributed towards addressing South Africa’s national developmental priorities, such as skills and supplier development, growing the strategic technology base and creating skilled jobs that brought downstream benefits to the broader society. Denel also aimed at employment and skills development – providing quality employment opportunities in high tech environment, as well as artisan competency development, spending of R64 million towards skills development within the financial year, the employment of 6 555 employees including associated companies and supporting in excess of 20 000 indirect jobs and Schools outreach programmes. The Revenue was R4 588 million, which improved by 17%, Local revenue - R2 313 million remained fairly constant, Export revenue - R2 275 million improved by 28% - now 50% of total revenue, the Operating profit - R224 million improved by 91%, Nett profit - R194 million improved by R123m, Balance sheet - Debt equity ratio improved from 1.3 to 1.1, Equity position  - R1 664m which improved by R192 million, borrowings reduced marginally by R38 million whilst there was a significant R&D spend of R507 million and Skills development spend of R64 million.

Material procurement was more than R3 billion and Denel’s supply chain strategy included:  maximising local content in programmes and better support to local defence industry, equitable sharing of supply chain spend, ensuring adequate participation by black-owned businesses and exploiting purchasing power to drive down costs and create value. The systems of internal control initiated by Denel were: Strong governance structure and culture, sound functioning Board and Board Sub-committees, risk governance processes in place, fraud prevention and anti-corruption including fraud hotline, ethics policy, compliance processes, compliance with local and international codes, laws and regulations, compliance with King III Code of Corporate Governance, Stakeholder management, IT governance and sustainability reporting. As recognition for excellence in Corporate Governance and Reporting, Denel was rated by Nkonki Incorporated in the Annual Report disclosures for ethical leadership and corporate citizenship, board and directors, audit committee, governance of risk, internal audit and internal control and governing stakeholder relationships. The Centre for Corporate Governance in Africa Stellenbosch University rated Denel a leading and well-governed SOC among 21 Schedule 2 companies.

Ms Natasha Davies, the Executive Head, HR and Transformation, presented the activities of the Human Resources & Transformation unit for the period under review. Progress in representivity within Denel increased by 7% in the past two years. As at 2012, the percentage of Blacks was 45% whilst Whites were 55%,  by 2013, Blacks increased to 49% while Whites reduced to 51% and by 2014, Blacks had risen to 52% and Whites were 48%. Blacks referred to African, Coloured and Indian (ACI). In the past two years, 626 new employees were appointed, 85% were ACIs, 26% were females and 99 jobs were created, and People with disabilities employed were 1.4%.

The labour environment was considered to be stable with no incidents of industrial action at any of Denel’s campuses during the year under review.

The detailed demographics of employees excluding associates were depicted in the presentation.  In order to improve representation of females within Denel the following interventions were being implemented: Schools outreach programme targeted 70% female, Bursaries for engineers & artisans targeted 70% female and collaboration with organisations that spearheaded female representation in engineering disciplines i.e. GirlEng, SAWomEng and Technogirl were initiated. Denel employed mainly Scientists, Engineers and Technical employees whose capabilities constituted scarce skills. Denel now had a robust learning and skills development initiative including mentorship and succession planning. The talent pipeline model of the company was depicted in the presentation slides. Regarding learning and development, 3% of payroll was spent on employee training.

Initiatives to improve the representivity of women were: various programmes targeting female learners from school to university graduates to broaden the talent pool and to appoint female employees from were introduced and additional programmes run internally to develop and retain female employees. With regard to Youth Development: more than 80 bursaries were offered to students for Electronic, Mechanical, Industrial, Software / Computer and Mechatronic Engineering ,Vacation Work, engineering students were offered compulsory practical training during the year – a requirement towards graduation, Denel divisions provided 6-weeks’ vacation work over December-January; each student assigned to meaningful project related work Learnerships, CAD (Computer Assisted Drawing) Learnership One year programme with theoretical and practical components. Learners were employed permanently after successful completion and Administration Learnership (for People With Disabilities), A 1-year programme to improve representation of PWD’s. Learners were employed permanently after successful completion. Denel was also involved in Schools Outreach Programme (SOP), Denel’s youth development flagship programme, Grade 11 to Grade 12 Learners were offered extra Maths, Science, English and Life Science classes on Saturdays and holidays by qualified teachers from the local community with programmes currently in Gauteng, North-West Province Limpopo, Mpumalanga and Free State. Since inception in North West in 2005, the programme had achieved a 100% matric pass rate with university acceptance. Denel’s SOP yielded excellent matric results with 20 students from North West receiving university acceptance with a total of 44 distinctions. One learner achieved an aggregate of 90% and three others an average over 80%, Gauteng Springs Etwatwa programme (120 learners) achieved 100% matric pass rate with 86% of learners qualifying for university entrance - Top learner achieved 7 distinctions, a further 15 learners achieved 6 distinctions; and Reigerpark programme (45 learners) achieved an average pass rate of 92% in mathematics and 62% in science. The Engineering Academy of Learning (EAL) exposed Engineers to all aspects of high technology development - from design through to development, construction and qualification of a system. This simulated product development environment and also enhanced their project management capacity by ensuring products were delivered within the required time lines and within budget. The interns of 2013 were tasked to design and build a smart grenade and launcher that would launch a 40mm grenade into a window off-set from the original launch direction. On Denel’s Internship Programme, Graduates employed were allowed to acquire critical workplace skills, whilst Denel assessed the graduates’ employability. One of Denel’s interns, an aeronautical engineer travelled to the Antarctica for three months to assist with Science and Weather research and was been selected on a volunteer basis to participate in the South African Antarctic Expedition summer relief voyage.

Ms Vuyelwa Qinga, the Group Communication Executive, Denel, highlighted the key environmental objectives of Denel, which were: the protection of species and habitats, and the conservation of biodiversity and natural resources, the protection of the environment against disturbance, deterioration, contamination and/or destruction as a result of human activity and structures, the provision of a remediation plan for all business units and a provision for a healthy working environment for its personnel.  Energy consumption and related expenditure were monitored against predetermined objectives. The total expenditure for the group was R93 million with a total consumption of 100 GWh. Denel achieved 10.3% versus the targeted 10% savings against the baseline in contributing to a developmental state.

Denel hosted the DPE Free State Youth Camp at its Kempton Park hostel. 100 of the best performing learners in Grade 10 and 11 in Free State schools were invited to the youth camp during which they were exposed to various careers within state-owned companies. Denel implemented a number of CSI interventions within the Ingquza Hill municipality in the Eastern Cape during October 2013 which included the installation of the Telematics Learner Support System, the hosting of a career expo in collaboration with other SOCs and the Department of Higher Education and Training, the provision of over 400 maths dictionaries to the 4 local high schools and library and the creation of a source of clean drinking water for local communities by funding four boreholes. During Youth Month, Denel painted a dormitory, provided food hampers and donated sports kits at Via Nova School in Gauteng. Via Nova School was a school for learners with special educational needs from throughout Gauteng and other provinces. Denel also introduced the ‘Mini- Chess Programme’ to Philena Primary School in Olievenhoutbosch. The programme used chess to teach learners about Maths and Science.

Discussion

Mr E Marais (DA) congratulated Denel for the great work being done. There was a lot of improvement from what Denel used to be and what it was now. He emphasised that Denel was one of the success stories of the Department of Public Enterprises. He was interested in the invitation from Denel to visit Aerostructures because the Portfolio Committee could not make oversight visits to the Aerospace, he hoped that before the end of November the Committee would be able to take up the invitation. He commended Denel for achieving a 1.4% employment rate for people with disabilities and hoped that it would keep that up and motivate more in that area. The organisation should up the employment rate of females in Denel, which were presently 22% and the number of females in the board as he noted that the ratio of females to males was 1:11. Was it true that Denel was diversifying into the railway industry as was published in the media? He was pleased with Denel and its achievements, especially its profit making capacity, as it did not have to depend on the government to sustain itself.

Mr R Tseli (ANC) re-echoed the same sentiments and appreciated the presentation and the achievements of Denel. He was happy to be associated with Denel; and was impressed with their story. He noted the gender imbalance in the executive and asked what measures were being put in place to rectify the gender imbalance? The 1.4% employment rate of people with disabilities was impressive and hoped that soon they would reach the 2% required level. What led to the retrenchment of 83 employees as that negated the job creation point of view and one of the purposes of the organisation?  Denel did a great job with regard to school and educational outreaches but he believed that they could do more in reaching the communities.  What necessitated the large increase of R21million of Earnings before interest and tax to R142 million in 2014?     

Ms D Rantho (ANC) also commended the efforts of Denel. She raised concerns on the Outreach programmes of Denel. She noted that Denel may never reach all provinces and maybe her constituency in the five years that she would be a member of the Committee. Denel’s outreach efforts should be directed more to the real rural areas where rural development was a real priority, where issues such as no electricity, teachers to teach in schools or dilapidated schools were of main concern to the community. Did Denel absorb the individuals it trained or assist the people to get jobs in relevant organisations? What was Denel’s relationship with the Department of Higher Education? She asked that Denel provide the Committee with the amount spent on local procurement and Corporate Social Investments (CSI)? What was the impact of CSI on communities? Could Denel share its debt reduction strategy as it may assist other ailing state owned organisations or departments.

Ms P Van Damme (DA) also congratulated the Denel group as it stirred the organisation’s “ship towards calm waters”. She believed that some of the State-owned Enterprises (SOEs) could learn from Denel and hoped that there was an adequate information-sharing pattern within the SOEs. What were strategies were being introduced to the Aerostructures to curb its persistent loss making?  Who were the international clients of Denel since she noticed that the Order book doubled over the last four years? How could the Committee be assured that Denel was not selling arms to dictators or human rights abusers?

The Chairperson inquired on the Research and Development (R&D) budget which was R507 million vis-à-vis the Skills Development budget which was only R64 million. What informed the difference in the budgets? The Committee was interested in knowing what aggressive communication drives had been put in place by Denel? What were the strategies initiated by Denel to identify talents that were being trained or awarded bursaries?  What method did Denel use to encourage students to study mathematics and science subjects which most students dislike?  

Responding, Mr Saloojee said that Denel would try and fit the oversight visit of the Committee into its programme before the end of November as it would be good for the Committee to make a visit to Aerostructures, Aviation and the Training Academy of Denel since they were in the same location. He acknowledged that Denel could do more regarding the employment of people with disabilities and the HR Department would work on that. To contribute more significantly to the development of South Africa, Denel believed that it could use its capabilities to see how it could intervene in other sectors of the economy. Since Denel had a magnificent manufacturing capability, there would be no reason why it could not assist other infrastructure development programmes in the country. For example, Denel had the most engineers in the country and that skills and knowledge base could be used to contribute more to the Country. He agreed that the outreach programmes of Denel would have to increase so as to reach out to more provinces and rural areas. Denel was optimistic about a sharing information forum with other SOCs but the initiative may have to be channelled through the Department of Public Enterprises. The turnaround of Aerostructures – a programme that had been losing about R400 million a year- was achieved purely by making certain key strategic interventions such as renegotiating its contract, reducing its overhead costs and creating more revenue streams instead of being dependent on one customer. Denel is currently busy with diversification programmes so as to add more revenue streams to the already existing revenue streams. Denel complied with the National Terms Control Commission and would not work in any country or region where it was not allowed to work. Denel was busy in the Far East, Middle East, Latin America, certain African countries and certain European countries and they all strictly fell under the compliance regulations protocols of the Government and International Agencies. Denel had a strong regulatory framework that it adhered to. R& D required more funding because it was technologically intensive and took a number of years to achieve, therefore the difference in budgets between it and skills development. He agreed that communication strategies needed to be more robust to make better impact in the communities.

Ms van Rensburg replied regarding gender imbalance that the organisation, especially in the technical areas, was male dominated with more men venturing into the sector than females. However, several interventions were being put in place to increase the rate of females employed over a period of time but it may not be a quick fix.  

Ms Natasha Davies said that the Board had been on a management drive to rectify the gender imbalance, through the Personnel Remuneration & Transformation Committee, which was a subcommittee of the Board. Denel developed a specific programme to create awareness among young women and also to try to retain the current female employees of Denel. In the previous Financial Year, Denel had a big contract with the South African Air Force, where it had to unfortunately retrench 500 workers and the 83 were just the last set that were affected by the retrenchment process. Denel had a training college based in Kempton Park where specific technical training was acquired, so Denel liaised with FETs to make sure that some of the entry learners had the required skills to embark on the Denel training. Some of the students on Denel’s bursary programmes which were sponsored in the universities to complete their engineering degrees were absorbed by Denel and in the technical academy where the artisans were trained, quite a lot of them were also absorbed by Denel, but Denel also trained students for the industry.          

Mr Mhloutlo replied that the significant increase on the Earnings before Interest and Tax (EBIT) was from the prior year and would in the long run build up to the profit of R194 million. That significant increase was as a result of three different reasons, which were that: revenue or sales for the year were 17% better, there were reduced overhead costs and also because Denel operated in the foreign territory its returns appreciated as a result of foreign exchange. Those three points put together assisted Denel to produce a better performance. Denel had a debt of R1.85 million which was raised from the capital market: banks and other institutions that managed assets, and the time for repayments were between three to five years. Denel strongly managed its relationships with other institutions; therefore the issue of the debt strategy was not only about debt reduction but also to initiate a strategy that would ensure that the organisation had its own positive cash reserves and maintained a level of transparency. Quarterly reports went to the Portfolio Committee to ensure better oversight from the Committee. He agreed that there should be a better sharing procedure with other SOCs. 

Ms Vuyo Tiale, Chief Director, Department of Public Enterprises (DPE), replied that that the Department currently had a forum where the SOCs could exchange information but there needed to be another forum where lessons learnt in terms of the financial aspect of the organisation must be exchanged. That would definitely be looked into.

Ms Vuyelwa Qinga, reiterated that because Denel had a history of being an ailing company which just accomplished a turnaround, it had been prioritising its resources and how they were allocated. Denel had been more involved in “below the line” advertisement, but herself, the Financial Officer and CEO had recently agreed that going forward there was a need to put more into advertising the Denel brand. Consequently, in the next few months, Denel would increase and embark on a more aggressive and robust communication that would reach all our communities.

Ms van Rensburg, on behalf of the Board of Denel, appreciated the Portfolio Committee and their interest shown in the activities of Denel. She reiterated the open invitation for an oversight to the Denel Group by the Committee. 

The Chairperson welcomed the invitation made by Denel. The Committee would try and insert the oversight visit into its programme before the end of November. She wanted to know whether the missiles produced by Denel were of International standard as reflected in the presentation.

Mr Saloojee responded and assured the Chairperson that in certain categories of missiles, Denel was world class. For example, Denel’s G6 artillery programmes and the weapon system were considered as one of the best in the world. 

The Chairperson welcomed Mr D Maynier, a member of the Parliament who is in another Committee who came into the meeting whilst the discussion was going on.

Mr D Maynier (DA) appealed to the Chairperson to allow him to pose some questions to the Denel Group.

The Chairperson accepted on the basis that though Mr Maynier was not a member of the Committee, inputs and questions were welcomed from any member of Parliament.   

Mr Maynier asked what the total cost overrun of developing the Adot missile was. Why was the programme being delayed? What were the current development programmes for Space Tech. Was Space Tech involved in a project with a Russian Company to develop a Satellite and a ground station?  Since Denel had an historical capability of producing UAVs, was there a current programme to sell the UAV capability to the Department of Defence. He noted that there was a line item in the budget of the Department of Defence in respect of spending on UAVs and he himself was in support of the programme. Was it true that Denel was in the process of acquiring a BAE land system? If so, why was it so and what were the costs involved?

Mr Saloojee replied that the Adot programme was a joint development and joint funding programme between South Africa and Brazil. The delay had been caused due to the developmental nature of the programme and the specifics and technical requirement that kept changing with regard to the operational requirements of the programme. Those issues caused the cost overrun and delay of the programme. The amount spent so far was over a billion Rand but the programme was going extremely well and may even go into a production phase soon. Hopefully, there would be an operational test of the programme towards the end of the year and if successful, the production phase would commence based on the agreement of Brazil and other stakeholders involved. On Space Tech, a decision was taken by Cabinet and Samson Technologies to migrate Space Tech and transfer it to Denel because Denel had the necessary expertise and capabilities to create a road map for it and Denel took Space Tech over in July this year. Discussions were ongoing with Samson Technologies to determine the requirements for this programme and hopefully between the next three to six months, a new business plan would be set in motion. He stated categorically that Denel was not involved with any Russian company with regard to satellites.  He confirmed that Denel had a strong UAV capability; however, one of the challenges was that Denel had not invested enough money in the UAV programme so it had lagged behind in International trends regarding new UAVs capabilities. Denel was presently engaged in a discussion with the Department of Defence, especially the Air force, to see whether they could find the funding to re-establish that capability. He confirmed that Denel was in the process of acquiring a BAE land system but was still going through some regulatory framework issues that needed to be resolved. Hopefully Denel would finalise the acquisition within the next few months.

The Chairperson assured Denel that the Committee would make their oversight visit and interact with the organisation as requested. She thanked Denel for the presentation and believed that oversight would be much easier with all the information received.

The Chairperson thanked all in attendance. The meeting was adjourned.