On Friday an agreement was signed by Armin Papperger, the president of Rheinmetall Waffe Munition, and Denel group executive Lana Kinley. The transaction is subject to various suspensive conditions as well as approval by the competition authorities.

Denel Munitions, which specialises in artillery and mortar systems, comprises seven entities located in the Western Cape and Potchefstroom. It has about 2 000 employees and annual sales of about R900 million.

Kinley said the agreement with Rheinmetall was a significant milestone in Denel's road to sustainability. But the parastatal was still making a loss and it would be another two to three years before it broke even.

Equity partnerships are one of the pillars of Denel's turnaround strategy.

It has concluded two other equity deals. They involved Saab of Sweden and Denel Aviation's aerostructures unit, and German-based Carl Zeiss Optronics and Denel's optronics unit.

Kinley said another equity transaction involving a Denel business unit was pending.

The value of the transaction with Rheinmetall was essentially the amount that both shareholders would contribute in line with their shareholding to the restructuring of Denel Munitions, which was almost technically insolvent, Kinley said. "It operates off seven sites with very high fixed costs, and we need to significantly restructure it to make the business operationally efficient."

Monwabisi Kalawe, the chief executive of Denel Munitions, said the business lacked sufficient revenue to succeed on its own.

With acknowledgements to Roy Cokayne and Business Report.