Staff at Denel Land Systems will once again go without salaries but the Department of Public Enterprises maintains plans are afoot to provide financial support to Denel to overcome its current financial challenges.
In an internal memo to Denel Land Systems (DLS) employees dated 25 October, Interim CEO Phaladi Petje told staff that the company was unable to collect enough cash to be able to pay any amount towards salaries.
“The amounts collected thus far is too little to be divided among employees and will therefore be used towards other cash generating efforts such as transporting a few employees who are able to come to work.
“DLS has orders, ready to be executed and invoiced,” Petje told staff. “We urge all employees who can, to avail themselves and help as much as possible with the execution of available orders so we can invoice to generate cash…The reality is that without project execution, existing orders cannot be delivered and thus no invoicing is possible to ensure the future and continued existence of DLS.”
As with many other Denel divisions, staff at Denel Land Systems have not been paid for much of the past year.
The Minister of Public Enterprises, Pravin Gordhan, told the Economic Freedom Fighters’ Rosina Ntshetsana Komane in August that Denel’s failure to pay employees since May 2020 “is as a result of the company’s liquidity challenges, which started as far back as 2017. Denel is a case study on what corruption and state capture in particular can do to a once successful business that was a benchmark on governance and performance. This pandemic has made the situation worse with closure of facilities in response to lockdown requirements.”
Gordhan, in response to a parliamentary question, said “Denel is dealing with the root causes of the challenges faced by the entity which include the impact and consequences of state capture. The process to rebuild Denel is underway. This includes adopting a new business model that is responsive to changing market conditions to ensure sustainability. Management is in constant engagement with employees to find solutions. The Department is looking at various options of improving the liquidity solutions in the short term and options to strengthen the balance sheet for long term sustainability.”
The minister stated that most of Denel’s operating divisions are steadily addressing the outstanding salary payments owed since May 2020. “However, this is dependent on how quickly the divisions are able to turn sales into cash. This is ongoing as Denel is dependent on sales in order to create its own liquidity.”
Potential relief in sight
In response to another parliamentary question, this time by the Inkatha Freedom Party’s Elphas Buthelezi, Gordhan said plans are afoot to provide financial support to Denel to overcome its current financial challenges.
“A solution for the guaranteed debt (>80%) will be addressed between August 2021 and December 2021. Further funding request has been made in the 2022/23 Medium Term Expenditure Framework.”
The Public Enterprises minister added that the Department and the National Treasury have agreed on the process to be followed to address the guaranteed debt which is maturing in September 2021 and December 2021. “A joint task team consisting of the DPE, National Treasury, Department of Defence and Denel is exploring further funding options to support the operations resumption.”
In repositioning Denel for sustainability and profitability, the state-owned company has developed a new operating model which will result in fundamental reorientation of its business structure. In terms of the new business model, Denel will reduce the number of business units from the current six to two. The SOC will, in terms of the new operating model, rationalise its asset base and plans to dispose non-core assets. Gordhan warned that the process will not be easy and there will be no “quick fix” for Denel.