Progress at Denel can be rewarded by access to National Treasury funding – Godongwana

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The new man at the helm of the State-owned defence and technology conglomerate Denel – Tsepo Monaheng – knows there will be no additional financial assistance from National Treasury (NT) in the coming financial year.

On the other hand Finance Minister Enoch Godongwana, during his national budget last week, indicated progress could be rewarded by access to the remaining R1.2 billion of a R3.4 billion Special Appropriation Act package.

The latest estimates of national expenditure (ENEs) have it government in 2021/22 helped Denel settle R3.2 billion of guaranteed debt, relieving it of annual interest payments amounting to R250 million.

“The following financial year, government allocated an additional R3.4 billion through the Special Appropriation Act (2022) to help implement the company’s turnaround plan. Following these interventions, Denel has experienced growth in its order pipeline, which is estimated at more than R25 billion. The company’s immediate focus is to stabilise its operations and deliver on existing contracts to improve cash flow and continue to build trust with customers and partners.

“However, since 2021/22, the company has lost a significant number of experienced personnel with critical skills due to decreased business activity and poor financial position, threatening its capacity to maintain strategic defence industrial capabilities,” the ENE document read. Denel currently has 1 800 employees.

“Since the improvement in the company’s financial position from mid-2022/23, Denel has stabilised its employee turnover rate and has been able to attract leadership and other critical skills to fulfil contracts.

“Expenditure is expected to increase at an average annual rate of 10%, from R2.4 billion in 2023/24 to R3.2 billion in 2026/27. This increase is attributed to the expected improvement in business activity and intensifying implementation of the turnaround plan. Spending on goods and services, mainly for material supplies, accounts for 50.8% (R4.5 billion) of total expenditure.

“Revenue is projected to increase at an average annual rate of 19.1%, from R2.1 billion in 2023/24 to R3.5 billion in 2026/27, due to the turnaround strategy having been implemented by the board in June 2022.

“Denel derives 95.7% (R9 billion) of its revenue through sales of defence and security equipment and the services that it provides,” according to the ENEs which add the Auditor-General is in the process of auditing three outstanding financial statements (2020/21, 2021/22 and 2022/23).”

On Denel’s financial position, National Treasury has it the Centurion headquartered SOE was allocated R3.4 billion through the Special Appropriation Act in 2022 and has drawn R2.2 billion to settle statutory and legacy debt obligations as well as fund working capital requirements.

The remaining R1.2 billion is ring-fenced and will be accessible when Denel can show progress on, among others, consolidating operations; disposing of non-core assets and finalising strategic equity partnerships.