Denel overloaded with debt: DPE

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Denel is overloaded with debt and is not generating enough gross profit to secure its survival, the Department of Public Enterprises (DPE) says. The department was answering a Parliamentary question by Democratic Alliance Manie van Dyk.

The DPE added that “although net equity is in the black” the business has been relying, to a large extent, on debt financing with the help of government guarantees. “The use of guarantees to finance the business is not sustainable.”

The department continued that “more sustainable support mechanisms are currently being assessed. Appropriate support mechanisms will be developed based on a robust turnaround plan to be developed by Denel that pursues financial recovery and stability through improvements in its operational and financial performance to secure its long term viability.” Further detail was not provided.

Denel last posted a net profit in 2001 when it recorded 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 ostly 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 again complained of the debt and interest burden.

At the end of March, debt stood at R1.9 billion and interest payments stood at R130 million. Sadik lamented Denel would have posted a R200 million profit but for a R328 million loss at Denel Saab Aerostructures (DSA) caused by delays with the Airbus A400M project and the interest payments due “in the absence of recapitalisation requested from the National Treasury.”
“Without the losses incurred at DSA, Denel would have returned to profitability,” Sadik said. The stronger financial performance reflects progress in line with its turnaround strategy instituted some four years ago, the Denel chief added. “That strategy has been refined to ensure continued turnaround aimed at improving market access and better operational performance and relationships with key clients and suppliers.”

As a result Denel posted an overall net loss to R246 million, down from R533 million for the previous financial period.



Pic: Assembling the Ingwe precision-guided missile at Denel Dynamics