Denel operating at 30% capacity


Troubled state-owned defence conglomerate Denel is only operating at 30% of its capacity, impacting on revenues as all operating business units are consequently not meeting their budgets.

This is according to a Department of Public Enterprises presentation on 3 February to parliament on progress in addressing challenges facing state-owned companies.

The presentation states that Denel is unable to honour contractual obligations due to lack of working capital.

Employees have last been paid full salaries in April 2020 and this has led to unions taking the state-owned company to court with directors cited in their personal capacity. The matter was heard on 27 January 2021 and the Court has reserved judgement on the matter.

“Further, the business is burdened with high cost of capital with annual interest payments – R240 million interest payment is projected for 2021 financial year.”

The forecast for the 2021 financial year is that revenues will be 26% behind 2020 financial year performance.

“The low level of operations not only erodes the balance sheet, but also erodes reputation and capabilities,” the presentation said. “Denel has lost over approximately 200 employees and majority of those are individuals with the critical skills.”

Attempts are being made to resolve Denel’s challenges, including discussions with National Treasury – an application for recapitalisation has been made, and a majority of state-guaranteed debt has been rolled over to September 2021.

The recruitment of a permanent Chief Executive Officer is underway and an advert was issued in December 2020.

National Conventional Arms Control Committee (NCACC) process turnarounds on export permits, end user certificates, and other authorisation has improved. “However, there is a need for additional resources to improve on the responsiveness of the regulatory structures.”

The presentation notes that Denel is mainly challenged by its liquidity crisis, with operations struggling to catch up as a result, while morale issues and the resignation of key personnel are putting more risk to the sustainability of operations.

The finalisation of the Defence and Aerospace Masterplan is also expected to help the growth of the sector and Denel as a whole.

Denel reported a R1.9 billion loss for the 2019/20 financial year.