Denel Dynamics has warned its employees that it is unlikely to pay salaries for April due to the company’s poor financial situation. This follows a similar notice from Denel Land Systems last week.
In a memo dated 20 April, Denel Dynamics CEO Sello Ntsihlele stated: “We wish to report that the company’s financial situation remains constrained and as a result, we are unable to pay outstanding salaries. This is due mainly to the continued financial difficulties that the company finds itself in.”
Ntsihlele explained that “the failure to honour our commitment for March salaries and the delay in providing updates on April salaries is due to the delay in realising a milestone with an overseas client. Progress has been made in this regard and we expect to receive the payment soon. Our ability to pay the salaries in time for the end of April 2021 remains at risk as things stand. The team is also working hard to complete the next milestone with this client.”
Denel Dynamics promised staff an update as soon as it gets feedback from the client. “As indicated in our earlier communications, we need all employees to focus on executions of programmes to be able to invoice and thus meet our commitments.”
Ntsihlele thanked employees, “who are continuing to make every effort to stabilise the business despite the challenges we are facing.”
Darren Olivier, defence expert and Director at African Defence Review, stated that it’s grossly unfair to keep staff hanging in the balance, especially as senior executives still earn full salaries and feel no pain.
“The long term situation is caused by the corruption and mismanagement from the previous administration, which wrecked the company’s cash flow. The current situation is poor management within the group and ridiculous delays along with a general lack of urgency from DPE [Department of Public Enterprises].”
Denel has been struggling to pay salaries for months and last week Denel Land Systems (DLS) said it is unable to pay salaries for April as the division is under extreme financial and liquidity pressure.
In a notice to all employees dated 15 April, Denel Land Systems said, “revenues have been extremely low resulting in a weak outlook for total sales for the current month. Thus, April has proven to be an even more challenging month and as a result, our liquidity position remains unchanged if not worse.
“It is with great regret to inform you that we will not be able to honour our contractual obligations with regards to the payment of salaries on the 25 April 2021. We will continue engaging all relevant stakeholders to try and avert this unfortunate reality.”
Many Denel divisions are struggling to pay salaries and keep production going, with production standing at around 30-40% of capacity. Between May and July 2020 Denel was unable to pay full salaries and statutory obligations due to a significant decline in productivity, Denel said in a presentation to the Select Committee on Public Enterprises in February. Employees were instead paid a portion of their salaries on a sliding scale.
Denel explained the root cause of its salary woes relate to the inability to industrialise products and systems and that problems began to arise from 2016 amidst allegations of corruption and mismanagement, a decline in performance and solvency. Denel started losing customer and supplier confidence, staff morale bottomed and labour costs remained high despite significant reductions in revenue.