State-owned arms manufacturer Denel continued to make losses in the past financial year, but according to chief executive Shaun Liebenberg, the losses have dropped to a mere R500-million from R1,3-billion a year ago. Nevertheless, the group’s auditors cast doubt on the company’s ability to continue as a going concern.
Denel’s annual report was tabled in Parliament on Monday and referred to the select committee on labour and public enterprises.
The reduction in losses, Liebenberg says in the report, has been achieved “through aggressive financial management disciplines, including focused working-capital management and firmly transforming the business from a subsidy culture to a commercial culture”.
Revenue generation, he says, has been a high focus area for the group and he reports an overall improvement of sales order cover from 45% in the year under review for 75% as at April 30 2007 for the new year.
The high point of the year, he reckons, was the coveted Hoefyster (Horseshoe) programme, which came, in fact, after the financial year ended. The contract for 264 infantry combat vehicles was three years in the making and is the largest contract in Denel’s history.
The low point was the failure to win a contract for the Rooivalk helicopter from Turkey.
“Having met the technical specifications, and made the final shortlist of two suppliers, the Rooivalk lost out to the competitor mainly on price,” Liebenberg said on Monday, adding: “The loss of this contract has brought Rooivalk to a crossroads, in a life cycle where respective stakeholders will not need to create direction for the future of this product.”
Uncertainties
Auditing firm Ernst and Young, which went over the company’s financial statements, noted that the reported loss of R549-million (which compares with the loss of R1,363-million in the previous year), together with other matters set out in the directors’ report, indicates the existence of material uncertainties that may cast significant doubt about the group’s ability to continue as a going concern.
Thinking about that problem, the directors considered that the shareholder (the government) had provided financial support to the group by means of a recapitalisation of R2,567-million over the past two years with a further commitment of R933-million for the 2007/08 year, making R3,5-billion in total.
The shareholder had likewise considered the company as a strategic asset, deserving of help to keep on as a going concern.
The group has positive cash reserves at year-end, and the sale of certain non-core assets that were not taken into account in the cash-flow forecast is at an advanced stage, which will bring in another R606-million.
The directors concluded that they are satisfied that Denel has adequate reserves and cash resources to continue operating as a going concern for the 12-month period from the year-end. A business strategy is being implemented that will unlock value in the business as well as return the group to profitability on a sustainable basis.
The annual report notes that as part of Denel’s restructuring, unavoidable down-scaling of the work force had to be made during the year, reducing staff by 6% from 8 120 employees to 7 634.
A climate survey was commissioned that showed low morale, loss of critical skills, low remuneration levels and various other employee concerns. The directors said this was not surprising, but reflected an organisation in dire need of positive change and rejuvenation.
Liebenberg himself received R7,397-million, including a performance bonus of R3,25-million. He is also entitled to a further performance bonus that will span his whole term of office. — I-Net Bridge