Since he left Denel nine years ago the State-owned defence and technology conglomerate faced tough times and has seen three chief executives come and go with current interim Talib Sadik no stranger to its problems, referred to as “challenges” by those favouring politically correct language.
In the Denel 2011 annual report the man in the hot seat since the sudden departure of Danie du Toit last month wrote: “As a result of focus, discipline and dedication of every employee, Denel is firmly on the path to self-sufficiency, prosperity and sustainability and becoming a respected South African company with a global footprint”.
That financial period saw Denel post as profit of R111 million, the first such achievement in 10 years.
Against this the ensuing years saw firstly Riaz Saloojee come and go, followed by Zwelakhe Ntshepe before the head-hunted Danie Du Toit jumped ship. This was pointed out by Public Enterprises Minister Pravin Gordhan, representing government – the sole shareholder in Denel. He is on record as saying Denel is a prime example of the ill-effects of State Capture.
Sadik’s statement in 2011 made mention of a turnaround strategy “already delivering results and positioning the business well for a changed environment”.
“The main emphasis of the turnaround strategy is on increasing access to sustainable markets, operational excellence, deepening relationships with the defence community and state agencies, governance and financial management and being a respected South African company,” is how the man now albeit temporarily back in the hot seat, saw Denel going forward.
Even then, all was not rosy on the financial side with Sadik noting “Denel improved its solvency position during the past financial year, ending with shareholder equity of R654 million (2010: R609 million). We are pleased government guarantees totalling R1.85 billion in support of Denel loans were rolled over for 18 months, with an expiry date 30 September 2012. However, the group’s statement of financial position continues to be weak due to high gearing, with interest charges on external borrowings of R118 million per annum”.
At present, the Irene, Centurion-headquartered conglomerate faces legal challenges and warrants of execution for failure to pay salaries and personnel entitlements including medical and pension, with around R500 million apparently still to come from government as the final tranche in a financial aid package. Sadik is on record as saying Denel will not go the government bailout route as SAA and Eskom, among other SOEs have done, but will engage Minister Nosiviwe Mapisa-Nqakula’s Department of Defence and Military Veterans. No specifics have yet been made public.
The current and apparently worsening state of Denel is a worry for African Defence Review (ADR) director, Darren Olivier, a keen defence and military watcher and analyst.
“Denel is a huge concern, but I don’t see government stepping in to save it. It really should because it’s home to strategic technologies and capabilities and of huge importance to the SA National Defence Force (SANDF). I would argue government should be actively subsidising key technology areas, whether through direct funding or a constant stream of guaranteed orders.
“The CSIR’s defence research and development side and Armscor are also in bad shape and may not continue for much longer, thanks again to sharp cuts in defence spending.
“As regards state capture, we’re still seeing the impacts everywhere. To be fair to the current Denel group leadership team, none were part of the company during that period or were implicated in what was done. They’ve built up material showing corruption done by their predecessors and implemented far stricter financial controls. Perhaps, too little, too late.
“Unfortunately the South African state is dysfunctional in so many ways, especially when it comes to policy and execution across more than one department. Both National Treasury and Public Enterprises are clearly overwhelmed by the many fires they have to put out. I’m not certain where to go from here,” he is reported as saying.