Denel told Parliament’s Portfolio Committee on Defence and Military Veterans (PCDMV) that general corruption “as seen in the case of State Capture” was one of nine areas responsible for the liquidity crisis at the State-owned defence and technology conglomerate.
Public Enterprises Minister Pravin Gordhan earlier this year told Members of Parliament Denel was a “case study in damage visited on a State-owned enterprise by state capture-driven corruption and thievery”.
Other problem areas tackled by the new board, under the leadership of chief executive Danie du Toit are unprofitable sales; loss making contracts (including onerous contracts); higher costs with declining revenues; poor inventory and cash management; high dependency on “a large and complex contract which did not proceed as planned”; lack of basic financial discipline and internal controls; poor governance; mismanagement; and over-zealous and expensive acquisitions.
He told the committee the core pillar of the Denel turnaround plan was improving corporate governance and oversight. This has seen, among others, a new executive committee appointed with a new delegation of authority to “enable effective management and accountability” in the organisation.
Denel is co-operating with the Zondo Commission of Inquiry into State Capture and the Special Investigation Unit (SIU). In this regard fruitless and wasteful expenditure is being investigated and civil and criminal litigation “to recoup and claw back financial losses” will follow.
The committee was informed Denel’s to date order book is R7.8 billion for the 2019/20 financial year and what Denel management terms a “winnable order pipeline of R30 billion in a 24 month window” as well as a “solid order backlog (R17.4 billion) covering roughly four years of sales revenue” are markers to improved financial health.
Implementation of the turnaround strategy to date has seen a R500 million reduction in operating costs and a R15 million cut in head office costs.
Divesting non-core Denel assets is expected to generate up to R1.56 billion with the first results expected in a three to six month window.
Another initiative to generate cash is by strategic equity partnerships (SEPs) which Denel sees adding up to R2 billion to its coffers.
The Denel staff complement includes 620 development engineers and technicians with 15 years average experience. The State-owned defence and technology conglomerate also employs 1 740 technicians and operators in its various manufacturing and support operations.