Having received the latest R1.8 billion bailout payment from National Treasury and settling outstanding salaries, Denel is restarting production at its facilities as it implements its latest turnaround strategy.
On 12 May, recently appointed Deputy Minister of Public Enterprises, Obed Bapela, toured Denel facilities as part of his oversight visits to operations of State-Owned Enterprises (SOE) in the Department’s portfolio. Denel at the end of March received R1.8 billion from Treasury (another R1.5 billion is being withheld while Denel proceeds with the sale of remaining non-core assets as part of its turnaround plan). The company is putting the capital injection towards getting operations up and running again, having already settled outstanding salaries with nearly R1 billion from the Denel Medical Benefit Trust.
Bapela was accompanied by Michael Kgobe, Interim Group CEO, Interim Denel Land Systems CEO, William Hlakoane as well as Denel Chief Restructuring Officer Riaz Saloojee on his tour, which started at the company’s Lyttelton facilities. There Denel Land Systems showcased a range of Denel products, including machineguns, mortars and vehicles: RG12, RG31, RG41 and RG21 vehicles were on display along with Badger infantry fighting vehicles, Casspirs and G6 self-propelled howitzers.
Officials said there remains strong interest in Denel products, with countries around the world for example looking at acquiring a hundred RG31s, hundreds of Casspirs, and thousands of SS77 machineguns. There remains solid interest in the combat-proven Casspir although Denel needs to resolve the issue of getting the Casspir data pack back from VR Laser.
Whilst at Denel Land Systems, Bapela saw how the company is currently manufacturing G5/G6 howitzer barrels for the South African Army and the United Arab Emirates. It is also doing some small arms work, mainly on assault rifle maintenance and support. Vehicle manufacturing, however, is quiet, although Denel is confident it can get its vehicle production back on track, especially the Badger infantry fighting vehicle for the SA Army.
After visiting Denel Land Systems, Bapela toured Denel PMP outside Pretoria, where he saw factories humming with the production of 9 mm, 5.56 mm and 7.62 mm ammunition. PMP is currently manufacturing hundreds of thousands of rounds of small arms ammunition, mostly for the SA National Defence Force and SA Police Service – it is also doing some Inkunzi 20 mm production, and cannon rounds for the SA Air Force as well as some 35 mm shells.
Production is not at full levels, but is ramping up at PMP. A shortage of personnel means that they are rotated through the different production. “With money coming in Denel can bring back the engineers who left or were laid off,” Bapela said during his tour.
The Deputy Minister said the government bailout money approved in 2022 is beginning to give life to Denel so it can supply the National Defence Force and Police with weapons and ammunition. “Denel is back on its feet and able to supply and service the Army,” he said, noting that he has now seen the progress at Denel first hand, not just on paper.
“I saw production resume,” he said, adding that as Denel can now fulfil its orders, the company will not have to pay penalties for late or non-delivery.
“The capabilities and skills that are here are being revived. This is the beginning of the road,” he affirmed, cautioning that it will be a long journey, with the turnaround to be completed in around three years or so. The aim is to return Denel to its glory days. “We want to make South Africa proud again.”
It was announced during the 2022/23 Medium-Term Budget Policy Statement (MTBPS) that Denel will be allocated R3.378 billion as part of its latest turnaround plan. This includes disposing of non-core assets, consolidating core capabilities, and achieving growth through collaboration, amongst others.
The turnaround plan has a funding requirement of R5.203 billion, of which Denel committed to raise R1.8 billion through the disposal of non-core assets. The sale of the Denel Gear Ratio division has received Public Finance Management Act (PFMA) approvals and awaits the receipt of R94 million. The disposal of Denel’s share in Hensoldt is awaiting Ministerial PFMA approvals to unlock R175 million. The property disposals have received offers from potential buyers and promises to unlock R650 million for the company.
Before the 31 March 2023 funds transfer, Denel managed to catch up on its salary payments last year by using R992 million received from the Denel Medical Benefit Trust (DMBT). Denel forecasts reduced net losses (-R267 million against a budget of -R991 million) due to the DMBT proceeds.
“The recapitalisation allows Denel to fully implement its turnaround plan to ensure support to the Department of Defence (DOD) and specifically the South African National Defence Force in order to secure our country’s strategic defence and security of supply of defence capabilities,” the Department of Public Enterprises said last month.
The DPE noted that Denel has a ‘robust’ order book, which stands at R18.37 billion for 2023/24, while planned total sales are projected to be R2.08 billion, compared with R1.08 billion in the 2022/23 financial year.