/ 11 August 2021

Denel aims to be sustainable within five years, but needs a bigger cash injection

Safrica Defence Air Aerospace
A Denel Rooivalk attack helicopter manifactured by South African Denel flies by during the Africa Aerospace and Defence 2016 fair at the South African air force Waterkloof base on September 15, 2016 IN Pretoria, South Africa. / AFP / GIANLUIGI GUERCIA (Photo credit should read GIANLUIGI GUERCIA/AFP via Getty Images)

South African arms and defence-technology manufacturing company Denel has unveiled a five-year profitability turnaround plan that its interim chief executive William Hlakoane said on Wednesday would include the sale of non-core or non-profit-making assets.

“We are determined to turn Denel around and repurpose it, while retaining the core capabilities required to meet South Africa’s strategic security requirements. We have put together a comprehensive five-year plan to revitalise Denel, which the shareholder is fully behind. Part of this plan includes reducing Denel’s current operating divisions (plus one subsidiary) from six to two,” Denel said in a statement.

The parastatal has struggled with financial constraints for some time, blamed in part on  wasteful expenditure and the inability to create revenue. It suffered an annual loss of R1.96-billion for the 2019-20 financial year, leaving it unable to pay employees their full salaries.

In May this year, the National Union of Mineworkers (NUM) lambasted Denel for failing to give its 400 workers their full pay. 

In 2019, Denel received a R1.9-billion injection from the government. On Wednesday, the company said it would need more significant cash injections to support its operational costs and for its recovery model to work.  

“There is a need to assist Denel with regards to its financial situation. I am positive that the discussions with other government departments that have keen interest in Denel’s survival, such as the department of defence and the treasury, will soon bear positive results,” Hlakoane said.

Earlier this year Denel was hit by several resignations from its board of directors after the treasury did not allocate the company any new bailout money in the 2021 budget in February.

On Wednesday the arms maker said it would do everything in its power to meet its obligations in line with employee contracts.

“Notwithstanding the much-needed critical skills that we have lost over the past year as we struggled with payment of employees’ salaries, the priority will be to rebuild these skill sets over time while maintaining the current skills we have,” it said.

“It is critical that we are able to attract the next generation of engineers, designers, scientists and technicians,” added Hlakoane.

He said the five-year plan would result in one division focusing on engineering and a second on manufacturing and maintenance.

The engineering division will merge Denel’s capabilities in artillery, infantry and vehicle systems, and its missile and precision-guided munitions business, as well as its management of complex integrated systems.

The interim chief executive said the merger would drive the company’s diversification of technology into existing and new markets in fields such as command and control, cybersecurity and communications, while researching and developing technologies of the future.

The five-year plan includes reductions in the executive cost structure and the implementation of a shared services model in areas such as supply-chain management, human capital, IT and finance. 
Hlakoane indicated that Denel’s conservative estimates showed the sale of non-core or non-profit-making assets would realise about R1.5-billion over the next five years.