Production at around 30-40% of capacity and major liquidity challenges are the main reasons why Denel has struggled to pay its staff their salaries, Denel Group Interim CEO Talib Sadik has said.
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 on Wednesday. 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.
In 2015/16, following the appointment of a new board and the ejection of CEO Riaz Saloojee, some Denel divisions began to struggle with liquidity and so Denel implemented a centralised salary payment and cash management system to support ailing divisions using client’s project-specific funds.
In August 2020 this process was reversed and divisions became responsible for their own finances, meaning profitable divisions could keep producing, meeting the needs of paying customers and not support loss-making divisions. Some divisions managed to restart operations and meet obligations while others were challenged due to insufficient workload. Currently, productivity ranges on average between 30-40% across the group. This has not been helped by the COVID-19 pandemic over the last year.
Denel’s presentation stated that since the devolvement to divisions, divisions with contracted productive workload have been able to recover, meet obligations and begin to repay outstanding employee salaries and statutory payments. Some divisions, such as Denel Land Systems, Denel Dynamics and Denel Vehicle Systems continue to experience severe constraints, however.
Staff dissatisfaction at Denel Dynamics has seen a 34% turnover since April last year, which threatens the ability of the division to manufacture, Sadik said. On average, staff turnover at Denel was 16% since April and there are currently around 3 000 people employed at the Group, down from the norm of around 4 000.
Salary woes saw Denel under the scrutiny of the Labour Court in August 2020, following an application brought by trade unions UASA and Solidarity in June. The court instructed Denel to pay members outstanding contractual and statutory obligations in full or be held personally liable. In December PMP became the first division to meet its obligations in terms of the Court Order.
In January this year, UASA and Solidarity brought a Contempt of Court case to the Labour Court against Denel and its Board of Directors for failure to honour the Labour Court’s judgement of 4 August 2020. Judgement has been reserved and will be communicated once received. Denel added that medical aid arrear contributions for April to September 2020 have been settled save for Discovery and for which a final settlement payment will be made by March 2021.
UASA on Thursday said the crisis at Denel is causing employee distress but there is still no game plan to rectify the situation. “That the dire situation at Denel is still not getting the attention it deserves from either government or the company’s board of directors is disheartening, particularly against the background of the directors being paid in full while neglecting to pay their employees,” said Abigail Moyo, UASA spokesperson.
“Denel is in breach of contract with its workers. The company is simply looking on while its employees are struggling to pay their bills and taking care of their families in the most stressful financial circumstances. The COVID-19 pandemic already placed families under pressure and now, with children going back to school this week, many parents employed at Denel will be unable to provide in their children’s back-to-school needs,” the union said.
These circumstances lead to mental and emotional distress that resulted in two workers seeing no other option than to take their own lives earlier this week, according to the union.