Irascible trade unions, portions and non-payment of salaries, possible legal action seeking liquidation and creditors not meeting their obligations will not deter Denel interim chief executive William Hlakoane from streamlining and refocusing the State-owned defence and technology conglomerate.
A statement issued today (Wednesday, 11 August) is the first from Hlakoane since he was named interim chief executive replacing another interim at Denel corporate offices in Irene, Centurion, has it Denel will be a sustainable business and return to profitability in the next five years.
This is going to happen by way of a comprehensive restructuring.
“We are determined to turn Denel around and repurpose it while retaining the core capabilities required to meet South Africa’s strategic security requirements,” the statement has Hlakoane saying.
“We are also encouraged by unwavering support from our shareholder, the Department of Public Enterprises. This is underlined by its acknowledgement of a need to assist Denel as regard its financial situation. I am positive discussions with other government departments with an interest in Denel’s survival such as the Department of Defence (DoD) and National Treasury will bear positive results.”
Denel’s executive management and board put together a comprehensive five-year plan to revitalise Denel, “which the shareholder is fully behind”.
Part of the plan includes reducing Denel’s current operating divisions including one subsidiary from six to two. One division will focus on engineering with manufacturing and maintenance, Denel’s core business, taking centre stage in the other.
The engineering division will merge Denel capabilities in artillery, infantry and vehicle systems, its missile and precision-guided munitions business as well as complex integrated systems management. It will, according to the statement, drive diversification of technology into existing and new markets in fields such as command and control, cyber security and communications, while researching and developing new technologies.
The maintenance and manufacturing division will build on Denel’s reputation in aeronautics, unmanned aerial vehicle (UAV) systems and production of small and medium calibre ammunition as well as combat vehicle production.
Denel’s campuses will be optimised to contain costs. This will be supplemented by reductions in the executive cost structure and implementation of a shared services model in areas such as supply chain management, human capital, IT and finance.
Hlakoane sees conservative estimates indicating the sale of non-core or non-profit making assets will realise about R1.5 billion over the next five years.
This apart there is an immediate need for “significant cash injections” to support current operations and implement the new operating model.
“Some activities are at an advanced stage it will take time to sell assets while the payment of legacy debt and liquidity requirements are immediate,” Hlakoane said. “It is imperative Denel continues executing programmes to generate cash for salaries and other operational requirements.”
Accepting the loss of much needed critical skills as Denel struggles with employee salaries, a priority will be to rebuild these skillsets over time and maintain those still in-house.
“Denel of the future has to be globally competitive and it is critical we attract the next generation of engineers, designers, scientists and technicians,” he said.
“Denel’s board and management are not oblivious to the plight of colleagues who face hardship as a result of our inability to pay full salaries and we continue to work tirelessly to address this issue. We apologise for stress and anxieties caused to employees and again give the assurance we will do everything in our power to meet our obligations in line with employee contracts.”