Liquidity constraints hurting Denel Vehicle Systems


Denel Vehicle Systems struggled with production in 2018/19 due to the liquidity crisis at Denel and posted a R217 million loss for the year.

Revenue in 2018/19 was down to R350 million, less than half the R794 million recorded in 2017/18. The loss of R217 million was substantially higher than the R47 million loss the year before.

“Deepening liquidity constraints during the financial year impacted on project execution and significantly contributed to the losses incurred for the year. The liquidity crisis is further contributing to under-recoveries as labour cannot be fully utilised due to material shortages,” Denel said in its annual report for 2018/19.

The liquidity crisis affected multiple projects, including the N35 contract with the Middle East. “The last ten N35 vehicles, on the current contract, have not yet been sold, due to the impact of the liquidity crisis. This is also holding back the sale of the material and work-in-progress of the last thirty N35 vehicles.

“The completion of the RG12 Mk 6 prototype vehicle for a UAE customer has been severely delayed by the liquidity crisis and the customer is threatening contract cancellation further jeopardising any follow-on contract opportunities.

“The product support business, which has historically been the better contributor to profitability, has reduced on the back of customers cancelling orders and loss of market share on because of our inability to execute against orders. The most significant negative impact on spares sales came from the cancellation of orders by a major long-standing international customer.

“Denel Gear Ratio has seen a reduction in spares and repair sales and this contributed to poor delivery performance to critical customers.”

It was not all bad news, with Denel Mechatronics’ Remote Camgun 30 mm (RCG30) successfully demonstrated in the UAE and an invitation to the official UAE Summer Trial is expected.

Denel Vehicle Systems was invited to partake in the 2019 Kingdom of Saudi Arabia Summer Trials with the RG31. The RG31 will be one of five or six vehicles contesting for a 1 000+ vehicle opportunity in the Kingdom.

An upgrade package was developed for the current Samil fleet, which could extend the life of the fleet in case Project Palama (the replacement of all Samil trucks) does not realise in the short to medium term.

A follow-on order was received for Self-Defence Remotely Operated Weapon Systems (SD-ROWs) on the back of a successful delivery of ten units in the 2018/19 financial year.

Denel Gear Ratio was successfully qualified to be a supplier of pinions through a First Article Inspection process for the Transnet’s 1 064 locomotives project. The business unit is in process to qualify for the gear wheel rims.

Denel Vehicle Systems also assisted in the completion of the first phase of Denel Aeronautics’ Rooivalk cannon reliability improvement study in conjunction with Denel Land Systems.

Denel Vehicle Systems has three divisions, i.e. Denel OMC, Denel Gear Ratio and Denel Mechatronics. DVS has close relationships with the SANDF, especially the SA Army, Armscor and the SAPS, as well as with the NIMR and IGG companies in the UAE and several other local and international customers, suppliers and collaborators.

In the 2018/19 financial year, Denel Vehicle Systems secured a loan from Nedbank for the amount of R250 million for a four year period expiring on 23 November 2020. Interest is payable every quarter.