Employees at Denel Land Systems (DLS) will once again have to dig into their own pockets to make ends meet as the company cannot afford to pay outstanding June or July salaries.
In a memo to DLS employees dated 27 July, and with the subject line ‘June and July 2021 salaries,’ Interim CEO Phaladi Petje said “Since the last communication, we explored and exhausted all possible cash generating projects in the immediate term. Regrettably we were unable to realize any cash to pay overdue salaries for June and July. Employees in need of individual and personalized letters to communicate this reality to creditors are welcome to forward their requests to the relevant HRBP [human resources business partner].”
Petje continued that Denel Land Systems is monitoring all cash collection efforts on a regular basis “and remain positive that the situation will improve in the next few months.”
In spite of the lack of salaries, DLS called on employees to “stand together, help each other where possible and remain united as a division; these are trying times for Denel Land Systems and only unity, and commitment can take us out of this.”
“We urge all employees who can, to avail themselves and help as much as possible with the execution of available orders so we can invoice and generate cash. We further call upon all employees, with the means (no matter how limited) to help and support fellow employees with basics (This can be done by contacting the wellness office or fellow employees directly),” the memo read.
Petje concluded the memo by thanking staff for their patience and support “throughout this difficult period of uncertainties.”
He added that “We need all the required hands on deck as we endeavour to unlock sales in the short term.”
Petje, who was head of Denel PMP, joined the DLS team in early July. In an earlier memo to staff, he said the company was in a ‘dire state’ and there is no ‘quick fix’ for its problems. Cash collected has been barely enough to cover critical expenses never mind salaries, but Petje told staff that “greater focus with a minimum three-month horizon will heal an increase in sales delivery.”
Many staff at Denel’s divisions, like Land Systems and Dynamics, haven’t had a proper salary in more than a year, prompting many to leave.
Employees are paid according to revenue earned – and paid to – the various divisions and associated companies. As an example, this saw Denel Land Systems employees paid a fifth of their monthly salary in May.
Land Systems is not the only Denel division struggling financially – last week it emerged that Denel Dynamics would not be paying staff for July mainly because of “the client not honouring promises to make payment”. Denel Dynamics staff only received 30% of their salaries at the end of June.
The issue of unpaid salaries saw trade union UASA take legal action against Denel last year after it did not comply with a court order to deal with outstanding salaries and payments for May, June and July. However, the matter has been postponed to December this year to give Denel more time to comply with the Labour Court order to pay outstanding dues.
A Denel employee said the company initially blamed COVID-19 disruptions for lack of salary payments, but “we all know it is due to corruption and mismanagement of finances. Some employees even lost their houses due to this. Some employees are living out of their vehicles. Some even took a more severe root by committing suicide. For some the only option is to resign.”
The anonymous employee added that, “When all of this started a majority of employees had a perfect credit record, now some of them can’t even get assistance from the bank due to a bad credit record. Denel is to blame for this.
“What surprises me the most is that nobody is doing anything. We keep on hearing about Solidarity that’s going to court. They must realise court action takes time; in some cases it can take months. Some employees can’t afford to wait for months. Try and explain that to SA Home loans for example.”
Earlier this year, Denel management briefed the parliamentary committee on Public Enterprises and Communication on its financial and legal challenges regarding outstanding employee salaries, saying it has been impacted severely by COVID-19 and that due to its challenges that led to structural and operational inefficiencies, there is a high probability of the entity not meeting its contractual performance obligations. Despite turnaround strategies, Denel remains rooted in a liquidity crisis with an order book that is significantly exposed to risk.
Denel board chair Monhla Hlahla, who subsequently resigned, told parliament Denel’s liquidity problems were compounded by the shrinking Department of Defence budget; problems with the multi-billion Rand Hoefyster project for the SA Army; the expensive acquisition of BAE Land Systems (at R855 million a cost ‘larger than what Denel could afford’); using project funds to support corporate challenges; onerous debt; and lack of willingness from banks to deal with Denel.
The loss-making company has initiated a turnaround strategy and has made some progress, such as exiting loss-making divisions, allowing divisions to manage their own finances, seeking equity partners, selling properties, and prosecuting staff for state capture-related offences. However, it appears these efforts are far too little to turn the company around and at the least pay staff their salaries.