Denel owes staff and suppliers R1.5 billion

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Denel is technically insolvent and owes staff R636 million and suppliers R900 million, the embattled state-owned company has told Parliament’s Standing Committee on Public Accounts (SCOPA), as it pins its hopes on a new turnaround plan.

Denel on Tuesday morning briefed SCOPA on the progress of Special Investigating Unit (SIU) investigations into the company. In explaining its current state, Acting Group CEO William Hlakoane noted that the year to date balance sheet shows Denel is technically insolvent and available cash is insufficient to meet operational requirements, including the payment of salaries and suppliers.

Denel currently owes R636 million to employees and related costs and approximately R900 million to suppliers. The latest cash flow projections for the 2021/22 financial year indicate a negative R600 million, if no mitigation action is taken.

“The uncertainty on Denel’s future state has impacted the current customers who are concerned about Denel’s ability to deliver on contracts on hand leading to a possible call on prepayment and performance guarantees (circa R1.4 billion),” Denel’s presentation stated.

The company’s troubles have caused it to receive a below investment grade rating from Fitch Ratings – Denel’s National Long and Short-Term Ratings are ‘CC(zaf)’ and ‘C(zaf)’, respectively. Reasons cited for the poor rating are the group’s severely constrained liquidity and a lack of visibility on future additional government support.

Another issue with Denel’s finances is that it does not have tax clearance status due to the non-payments of PAYE, VAT etc. Any entity conducting business with the state must be tax compliant, meaning Denel will struggle to do business without tax clearance. Denel has been engaging with the South African Revenue Service (SARS), which yesterday stated it was willing to give Denel tax clearance as long as it had paid PAYE and VAT by the end of this month.

Denel’s financial problems have attracted legal action and Denel is currently defending an application for liquidation by Saab. The matter is still in court whilst parties continue to find an amicable resolution, Denel said.

Due to the non-payment of salaries, this has led to applications in court by unions. The matter has been postponed to December 2021 allowing Denel time to comply with an August 2021 court order on salary payment. “Some employees in their individual capacity have submitted court application for the amounts owed to them. This poses a threat to Denel’s assets as execution orders to attach assets have been granted by the courts,” Denel stated.

“The threat of other supplier[s] making a similar application persists as increased letters of demand are delivered to Denel.”

Salary non-payment has seen hundreds of staff leave Denel, with only 2 529 people employed at the company at present – 138 people left Denel between April and June, with many of these being technical workers. The business continues to lose skills, and operational activity is at low levels.

Denel is implementing a turnaround plan but the 2019 plan “is untenable as the time frames to implement are too long and [the 2019 turnaround plan] does not solve the current liquidity issues.” Finalisation of the tasks identified in the plan to generate the required funding, i.e. disposal of assets and engaging in equity partnerships, have been difficult to implement due to non-alignment of stakeholders.

The February 2019 turnaround plan has “so far proven to be insufficient to deliver a profitable Denel in the short term” and has been replaced by the Denel 5.Y Strategy to improve and accelerate the 2019 plan through restructuring into a lean operating model, repurposed for profitability and sustainability.

Under a new operating model, Denel will be split into Engineering and Maintenance & Manufacturing divisions while intellectual property will be exploited and unprofitable divisions and entities exited or transferred. Exiting joint ventures like Barij and Hensoldt Optronics will generate immediate capital.



Hlakoane presented to SCOPA a ten-year roadmap to sustainability. This requires R335 million in funding in the next five months to unbundle, amalgamate and relocate the business and right-size resources. Combining and structuring the new divisions will take around eight months. Denel estimates it will take a year to stabilise, focus and repurpose the company and five years to develop new technologies to further new business.