In just on two months new Denel group chief executive Danie du Toit has overseen a strategic review of the business and made headway in support of turning around the defence and technology group’s fortunes.
The strategic review of business includes establishing the extent and timing of “required government support” according to a Denel statement. The government support is in the form of a R13 billion contingency reserve announced by Finance Minister Tito Mboweni during his budget speech last month. Denel is preparing a funding application for submission to National Treasury.
Part of the strategic review has taken Denel has taken into account benefits to be realised as implementation of the company’s strategic plan “gains traction” along with the “required government support”.
Headway has been made by the current Denel board in support of both the turnaround and growth of the business, Denel said in a statement on 6 March.
“The board has taken far-reaching steps to restore good corporate governance. We have a new and experienced management team with executive positions currently being filled. We have a new strategy and a management structure approved to stabilise Denel and achieve long-term growth,” the statement quotes du Toit as saying.
Part of the new Denel strategy will see the disposal of non-core assets, including under-utilised properties. As previously reported by defenceWeb, Denel will seek strategic equity partnerships to strengthen market access and enable the development of new technology. This is will be done in tandem with ensuring protection and growth of strategic defence capabilities residing in the State-owned defence and technology conglomerate.
To date the turnaround has seen Denel put processes and systems in place to strengthen governance, improve programme management and grow revenue.
“We are confident the outlook for Denel will further improve once implementation of the new strategy and operational plan is in place and all corporate governance issues are successfully dealt with,” the statement said.
Irregular expenditure is also under the microscope at the Irene corporate headquarters and other Denel sites with a team investigating “all cases of possible irregular expenditure and recommending corrective action”.
According to Du Toit there will be “consequences, including disciplinary and legal action”. Denel is also co-operating with the Zondo Commission of Inquiry and the Special Investigating unit (SIU) as far as “irregular expenditure” is concerned.
Attention is also being given to issues identified by the Auditor General in his assessment of Denel’s last financial statements. An independent firm of auditors is currently working on bridging the IFRS (International Financial Reporting Standards) technical skills gaps in the Denel organisation. At the same time supply chain management policies are being reviewed.
In addition to strengthening corporate governance, du Toit and his management team are also working on rebuilding “the loss of public trust” in Denel.
Denel said it remains positive about its future in spite of Fitch Ratings on Monday downgrading the company’s national long-term rating from ‘AA-(zaf)’ to ‘B(zaf)’.
Fitch Ratings downgraded Denel’s national long-term rating to ‘B(zaf)’ from ‘AA-(zaf)’ and national short-term rating to ‘B(zaf)’ from ‘F1+(zaf)’.
“Fitch has placed the ratings on rating watch negative,” the agency said in a statement. It added Denel’s downgrade was a result of evaluation of much weaker government support. “This has been exacerbated by the short-term nature of the capital structure, which has restricted liquidity and in turn has negatively impacted divisional abilities to deliver on operational projects.
“Denel continues to benefit from sovereign support through the government’s irrevocable and unconditional guarantee for R3.4 billion of Denel’s R4 billion domestic medium-term notes. While this guarantee framework has been extended to 29 September 2023, it has clearly not been sufficient to address operational requirements and debt funding remains overwhelmingly short-term in nature. However, the rating reflects the expectation of continuing timely government support in some form,” Fitch said.
One reason for the downgrade was Denel’s deteriorating operational performance.