Denel will receive a R576 million allocation for the 2020/21 fiscal year, nearly half the R1 billion requested, according to South Africa’s latest budget vote. Denel received R1.8 billion in 2019.
Finance Minister Tito Mboweni, in his budget vote last week, stated that the R576 million “is allocated with conditions that emphasise the need for Denel to speedily implement its turnaround plan. The plan includes exploring private-sector participation, optimising its property and plant, and developing an appropriate funding model. It’s critical for government to define Denel’s role in a modern defence industry.”
Denel is already winding up its aerostructures business, exiting the A400M Atlas contract with Airbus. However, Denel said some core capabilities will be retained and the exiting of the aerostructures business will not affect maintenance, repair and overhaul activity, allowing Denel to continue to support the South African Air Force and its C-130, Rooivalk and Oryx fleets.
Denel made a R1.7 billion loss in 2017/18 amidst a major liquidity crisis brought on largely by state capture. However, this year Fitch Ratings improved Denel’s outlook and predicted a profit from the 2023 financial year, praising the company’s turnaround strategy whilst at the same time warning that a number of challenges remain at the state-owned defence conglomerate.
Meanwhile, Denel on 28 February said it is preparing an Audit Fix Plan following a disclaimer opinion from the Auditor General for the 2018/19 financial year. “The main issues that led to the Disclaimer…are currently being addressed and resolved…Denel has put in place the Audit Fix Plan to focus on key issues of the 2018/2019 audit, with a further focus area being People, Processes and Systems across the Denel group.”
The disclaimer opinion meant the Auditor General was not given sufficient audit evidence to provide a basis for assessment.
Denel said new accounting standards have been implemented throughout the Group and is updating all financial records to ensure adherence to the new standards. “A specialist in financial disclosures has been tasked with ensuring that there is correct and complete disclosure in accordance with the standards. This is improving consistency and alignment across the Group.”
Denel added that Ernst and Young have commenced with their Internal Audit Plan. The first progress report is expected to be submitted to management and the Audit Committee in March 2020.
A new Group Supply Chain Manager has been appointed and since joining Denel has commenced with a review of the material issues relating to internal controls.