Denel Group CEO Danie du Toit has resigned after less than two years at the helm of the defence conglomerate and his resignation has been accepted by the Denel Board.
In a statement on 20 July, Denel said du Toit will continue to render his services until 15 August 2020.
Denel will appoint an interim Group CEO shortly.
In December 2018 Cabinet announced it had approved du Toit’s appointment. The Department of Public Enterprises (DPE) at the time said du Toit would bring “a wealth of experience in the defence and manufacturing sectors” as well as a solid career track record that “will be of value” to Denel.
Du Toit started in his new position at the beginning of 2019, and spent much of his time trying to turn around the ailing company.
However, he has faced mounting challenges to returning the loss-making state owned company to financial health. Earlier this month, du Toit told Reuters that Denel may not survive the next few months unless the government lets it use some promised bailout funds to generate revenues rather than to repay debt.
“I am a positive guy, but I’m gravely concerned that we are not going to make it in the next two to three months. We cannot trade out of this situation, it’s impossible,” he said, adding that the management was in talks with union representatives about temporary salary cuts.
Denel has been struggling to pay salaries for a long time especially as bailout money is earmarked mainly for debt and cannot be used for salaries. Workers struggled to get paid several times in 2019 and for a few months this year and there is no sign the situation will improve anytime soon. Denel’s wage bill amounts to about R150 million a month.
Denel received R1.8 billion from the state in 2019 (it requested R2.8 billion) and, in this year’s budget, was promised another R576 million. But it has only received R72 million of the latest funds, which are earmarked to help clear debt.
Du Toit said Denel was asking the government to let it use some funds to restart operations after the easing of the national lockdown, helping to generate revenues from a R14 billion order backlog.
He said the orders offered a lifeline, but the company might have to pay penalties or repay customer advances if orders were delayed or not fulfilled.
“If some of these major programmes are cancelled, it has the potential to completely break the organisation,” he said.
The coronavirus pandemic has not helped matters, and has delayed around R400 million worth of contracts.
The government has said Denel must sell assets and find equity partners for some divisions. The firm is selling stakes in Hensoldt Optronics and LMT, and finding a partner for its Land Systems division, amongst others.
Turnaround plans include exiting onerous contracts, restructuring, exiting loss-making divisions and chasing fresh orders. Exiting onerous contracts will pay off in the long term but in the short term it has cost Denel hundreds of millions of rands (Chad: R104 million; DRC: R54 million; Venezuela: R18 million, A400M: R121 million). Denel has saved R1 billion since April 2018, largely due to a reduction of employee numbers by 27%. Exiting the aerostructures business will generate an annualised benefit of R260 million from mid-2020. Other successes are having its credit rating improved and closing loss making subsidiaries.
Denel on Monday said its turnaround plan is focusing on protecting promising business lines, disposing of non-core assets, and seeking strategic partners to increase access to international markets, contribute skills and funding to a profitable Denel.
“The Board has taken far-reaching steps to stabilise the business and prepare the ground for Denel’s long-term sustainability. Denel remains an innovative defence, security and related technology solutions company, providing solutions of defence, security and related technologies, to clients both domestic and international,” the company said.
Darren Olivier, defence expert and Director at African Defence Review, said du Toit’s resignation was only becuase he felt that turning around Denel is no longer feasible given the lack of support from government to provide pre-agreed funding. “Denel is now leaderless at the most crucial point in its history. A collapse will be immensely damaging.”
“It’s a case of déjà vu, as the circumstances under which du Toit are resigning are eerily similar to those which forced [Shaun] Liebenberg to resign in 2007. 1. Govt approves a turnaround plan and associated financing 2. Splits the payment into 2 tranches 3. Forgets to pay the 2nd tranche.
“Denel’s future is now very very bleak,” Olivier concluded.