Though state-owned arms manufacturer Denel has been struggling for years, its ammunition manufacturing joint venture with German-owned arms maker Rheinmetall is shooting the lights out.
Rheinmetall Denel Munition, which is based in Somerset West, east of Cape Town, saw net income for the year to end-December 2022 surge to €22.4m from €2.7m the previous year.
Though net income fell to €7.3m for the 2023 period, Rheinmetall CFO Dagmar Steinert pointed out on a conference call in March this year that the joint venture had “extraordinarily high earnings in 2022”.
Steinert had a point. Though net income was down on the 2022 period, it was still a notable improvement on its results for 2021 and the loss it incurred in 2020.
The improved performance in 2022 that led to an income rise of about 730% was not, as many would have thought, a direct result of the war in Ukraine, which broke out in 2022 when Russia launched a full-scale invasion of that country. The high-intensity conflict forced Ukraine to go through vast quantities of ammunition supplied to it by members of Nato.
Rheinmetall — which holds 51% of the joint venture — said at the time that the rise in the venture’s income was “thanks to additional sales” to Australia and in the Middle East and North Africa.
Rheinmetall Denel Munition’s performance marks a turnaround from the problems it was dealing with. An explosion at its Somerset West facility in 2018 killed eight people and resulted in production restrictions being imposed for several months.
The joint venture also went through restructuring, reducing its headcount by 150 people in 2020.
The war in Ukraine has changed Rheinmetall Denel Munition’s prospects because Nato members need to replenish their ammunition supplies, especially artillery, having shipped vast amounts of their stocks to Ukraine.
Rheinmetall has expected strong demand for arms and ammunition in Europe for some time.
“For Europe, IHS Jane’s [a provider of defence and security intelligence and analysis] is forecasting spending of $442bn in 2024. Germany’s defence spending is projected to rise to a record high of roughly €74bn in the current year. Of this amount, €51.8bn originates from the regular defence budget and a further €19.2bn stems from the German armed forces’ special fund for military procurement,” it said in its 2023 annual report.
Rheinmetall has expected strong demand for arms and ammunition in Europe for some time
The rearming trend is paying off for Rheinmetall Denel Munition. It announced in February 2023 that it had closed a €17m deal with an undisclosed Nato member for its Assegai 155mm artillery ammunition and a €40m deal with an “international customer” for propellant charges.
But the surge in the demand for ammunition does not mean Rheinmetall Denel Munition shareholders will be getting handsome dividends any time soon, as the group plans to use its earnings to expand its facilities in South Africa.
The 155mm Assegai ammunition can be fired from any standard Nato artillery system, including armoured self-propelled howitzers, according to DefenceWeb. The Panzerhaubitze 2000 howitzer (PzH 2000) was developed by Krauss-Maffei Wegmann and Rheinmetall in the 1980s and 1990s for the German army. The PzH 2000 was supplied to Ukraine, among other countries. In tests during 2019, it fired shells distances of about 67km. As of 2020, a prototype L52 gun with a new charge was tested for a range of at least 75km. Germany has supplied a number of PzH 2000s to Ukraine, which is using them against Russian forces.
South Africa’s experience of developing 155mm ammunition dates back to its development of the G5 artillery piece, a gun ahead of its time in 1983 when it was used with great success in the Angolan war.
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