The Ministry of Public Enterprises says government has extended three existing guarantees totalling R1.85 billion (R880 million, R420 million and R550 million) until September next year “to ensure that Denel is able to continue as a going concern.”
Minister of Public Enterprises Malusi Gigaba last month said the Denel Group had suffered a loss of R246 million for the year to March 2010. Outgoing CE Talib Sadik will next week formally announce the state arsenal’s financial results.
Denel last posted a net profit in 2001 when it banked R24.1 million. The only other profit recorded since its formation in 1992 was in 1997, when it reported R81.5 million. Its worst loss was in 2006 when it posted a deficit of some R1.6 billion. A turn-around strategy was put in place that included government guarantees for debt raised commercially. This project has been mostly successful with the state arsenal in August posting an operating profit of R200 million for the year to March 31, 2010. But CE Talib Sadik last November complained of the debt and interest burden, when announcing the numbers.
At the end of March last year, debt stood at R1.9 billion and interest payments stood at R130 million.
Gigaba in a written answer to a question by Congress of the People MP NS Nhanha that Denel “is required to develop a strategy to return the business to sustainability, gradually reducing its reliance on government support in the form of guarantees and recapitalisation. … This plan must be agreed to by the Department of Public Enterprises, the National Treasury, the Department of Defence and the Department of Trade and Industry. Denel will be monitored against this implementation plan.”
Gigaba last month added Denel had made “some progress” since the company embarked on a turnaround strategy in 2005. But he added its solvency position continues to pose serious challenges, with Denel Saab Aerostructures (DSA) being the major contributor to the entity’s losses. “Clearly, the business is not sustainable in its current model. A more robust turnaround plan that pursues financial recovery and stability through improvements in its operational and financial performance needs to be developed to secure the company’s long term viability.”
Outgoing Denel chairman Sibusiso Sibisi last month wrote an open letter to Business Day noting his displeasure this. “This is too clever by half,” Sibisi fumed. “Given that Denel’s turnaround strategy of 2005, whose main pillar was international equity partnerships to enter global markets, is effectively on hold, with no coherent alternative, save the suggestion for Denel to “include civilian products in its product offering”, the apparent tough talk amounts to little more than weasel words.
“Ironically, an exemplar of defence and civilian outcomes is in the product suite of Carl Zeiss Optronics SA, an equity partnership between Denel and Carl Zeiss (an international brand), that is a commendable outcome of the 2005 turnaround strategy. There can be no consensus on Denel’s business model until there is shareholder consensus on the primary objective. This must be complemented by coherent identification of the oft-cited ‘sovereign assets” that are off-limits in any foreign equity negotiations. In the meantime, it is disingenuous to blame losses on the board.
“Denel’s woes are compounded by shareholder obsession with the products of engineering rather than the engineers themselves. There is much indignant thumping of the table regarding loss of family silver (through foreign equity partnerships) rather than concern with nurturing and replenishing the craft of making silverware in the first place,” he said. Sibisi is CE of the CSIR.