Gordhan admits no quick fix for Denel


Democratic Alliance (DA) parliamentarian Michele Clarke is a dogged seeker after the truth with specific reference to beleaguered Denel with questions ranging from the number of disciplinary hearings through to the number of Rooivalk helicopters built, profitability and ability to build missiles.

By and large responses to the deputy shadow public enterprises minister from the “keeper” of State-owned companies (SOCs) Pravin Gordhan are couched in bureaucratic-speak. She did, however, elicit a response from Minister Gordhan to the effect there is no “quick fix” to Denel’s problems in the aftermath of State Capture.

He told Clarke a Denel “success” was cumulative cost savings of over a billion Rand between April 2018 and September last week. On the negative side, this saving, the DA parliamentarian heard, was mainly the result of a 27% reduction in employee numbers.

She also heard the overall Denel order book currently showed an amount owing of R11.7 billion.

This outstanding revenue is a contributor to at least some Denel divisions and associate companies not being able to fully meet salary and employee contractual obligations.

Gordhan told Clarke in a written response that Denel’s liquidity constraints could be ascribed to six issues. They are: insufficient working capital; inability to raise new performance and advance guarantees; non-payment of full salaries to employees impacting on execution; aging plant infrastructure and inability to service and maintain with increased failure leading to increased downtime; a hostile supplier environment due to non-payment of legacy debt and the loss of skills and capabilities.

Additionally what Gordhan terms the “hostile supplier environment” leads to more time spent negotiating with suppliers on payment terms as well as “plans eating into critical delivery times”.  Most Denel suppliers demand payment before orders are executed, further exacerbating production.

In response to questions on the SOC’s failure to pay salaries, the company said it “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”.

“Denel is dealing with the root causes of the challenges faced by the entity includiing the impact and consequences of state capture. The process to rebuild Denel is underway. This includes adopting a new business model responsive to changing market conditions to ensure sustainability. Management is in constant engagement with employees to find solutions. The Department (of Public Enterprises) is looking at options of improving liquidity solutions in the short term and  strengthening the balance sheet for long term sustainability.”

Denel is  implementing its new 5.Y (five year) turnaround strategy, which envisages a leaner organistion with only two operating divisions – Denel Maintenance & Manufacturing and Denel Engineering. In accordance with this model, the number of chief executives and executives will reduce significantly.

Denel made “significant inroads in restructuring the key business initiatives”. Successes include exiting LMT (generating expected annualised savings of R48 million); exiting Denel Aerostructures (with expected annualised savings of R260 million); exiting “onerous contracts”; reducing operating expenditure by 43% from FY2019/20 to FY20/21 (mainly due to employee attrition and ‘subdued business activity’); and pursuing corruption through the Commission of Inquiry into State Capture and the Special Investigating Unit (SIU).

“Much still needs to be done to reposition Denel and return it to functionality and profitability. A challenging road will have to be traversed to get to this point. Recovery from the huge damage done to institutions by state capture is a challenging task. There is no quick fix in this regard,” according to Gordhan.