Embattled Denel can’t pay full salaries for June

In a statement on Tuesday, the company said it had no alternative but to cut back on salaries.

In a statement on Tuesday, the company said it had no alternative but to cut back on salaries.

Employees at financially embattled state-owned arms manufacturer Denel will only receive 85% of their salaries for June.

In a statement on Tuesday, group chief executive Danie du Toit said the company had no alternative but to cut back on salaries.

“Due to ongoing liquidity challenges we are now faced with the unfortunate reality that the company is not in a position to fulfil the 100% salary obligation for June 2019,” he said.

According to the arms manufacturer, government is “cognisant of the fact that Denel is highly leveraged and in need of additional liquidity to rebuild the business” but did not provide further details.

READ MORE: SA defence in ‘critical decline’

Du Toit — who was appointed in January — said management would “strive to meet the company’s obligations to them in line with their employment contracts”.

At the time of his appointment, Du Toit was expected to build on the turnaround strategy that was introduced at Denel last year. According to a statement announcing his new role, the company said Du Toit has a wealth of experience and “will be critical in strengthening the executive management capacity of the company”.

Denel, which admitted to experiencing liquidity problems in 2017, came under scrutiny in 2018 when former North West Premier Supra Mahumapelo’s son, Oarabile, was awarded a R1.1-million bursary after his uncle, Tau Mahumapelo, was brought on to the board in July 2015 by then public enterprises minister Lynne Brown as part of a “rotation” board.

Oarabile Mahumapelo’s bursary was subsequently cancelled.

Last year, Denel told Parliament’s portfolio committee on public enterprises that it had made a loss of R1.7-billion in 2018.

This saw the company’s revenue fall from R88.4-billion in 2016/17 to barely over R8-billion in 2017-18, and the company forecasts revenue will fall to just R4.9-billion for the 2018/19 financial year.

Denel bore the brunt of a major financial fallout due to mismanagement, as well as a deal it was tied into by previous leadership that exposed it to risks through companies like Denel Asia and VR Laser.

Trade union Solidarity said it is ‘shocked’ to hear the news.

According to Johan Botha, Solidarity’s deputy general secretary, Denel had undertaken last year to indicate by the 15th of every month whether it was able to pay salaries.

“We are concerned that this tendency has now started again because there was an expectation that the non-payment of salaries was something of the past,” Botha said, adding that the uncertainty for staff in relation to salaries led to “unnecessary pressure and stress”.

The Liberated Metalworkers Union of South Africa (Limusa) attributed the salary issue to Denel’s executives, saying it was ‘highly concerned’ by the ‘self-inflicted’ crisis.

“It is our considered view that this crisis, self-inflicted by Denel Board and Senior Management, as it is alleged that Group CEO Mr Du Toit to date, besides his monthly salary, has received R600 000 relocation fee, R1.5 Million (R750 000 in Mid-February and R750 000 in Mid-April) and it is also alleged that he is expecting approximately 50% (= approximately R 2.5 Million) of his Annual Income in June as per his KPAs, set by the Denel Board.”

The union further demanded that Denel take “responsibility for any cost implications to workers as a result of irresponsible and unprofessional last minute notification”, adding that because of his ‘dismal performance’, Du Toit should tender his resignation with immediate effect.

Kiri Rupiah

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