Denel records a R1.7 billion loss in the last financial year

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Ailing state-owned defence firm Denel made a R1.7 billion loss in the 2019/20 financial year, the Department of Public Enterprises (DPE) said in a presentation to parliament on Wednesday.

Denel has not yet presented its results for the financial year that ended in March. It made a R1.75 billion loss for the year ending March 2019, after revenue fell 36%, and recorded a loss of R1.053 billion in 2017/18.

The DPE said the most recent loss was due to a significant decline in revenues. “This is directly attributable to the current liquidity challenges. Denel’s equity has been significantly below the levels (R4 billion) required by investors. This is mainly due to low profits and losses recorded over the years.”

Denel’s equity level has decreased substantially despite the equity injection of R1.8 billion that was disbursed in the 2019/20 financial year, the Department said, with nearly -R1.5 billion in equity in the 2019/20 financial year. Furthermore, R576 million has been allocated for the 2020/21 financial year, but has not been disbursed.

It added that Denel’s assets are predominantly funded by debt and that the projections for the 2020/21 financial year are expected to be revised due to the impact of COVID-19. The presentation predicted Denel’s 2021 performance to see revenues of nearly R4 billion and a R500 million profit.

A Denel spokeswoman told Reuters the company’s financial audit process was under way and would be finalized at the end of October.

Denel has struggled to pay salaries and needs to find funds soon to honour a court ruling that it must pay outstanding salaries and meet statutory obligations, such as paying into its employee pension fund.

Its former chief executive Danie du Toit, who left office on 15 August, told Reuters last month that Denel may not survive the next few months unless the government lets it use some promised bailout funds to generate revenue rather than repay debt.

But the finance ministry says it cannot amend Denel’s bailout terms before the October budget. If such an amendment is made, funds could only flow early next year, it said in a statement to Reuters earlier this week.