State-owned defence conglomerate Denel remains solvent despite challenges in its operations, but is constrained by liquidity challenges that are exacerbated by the reluctance of traditional finance houses to support the company.
This is according to a presentation delivered to the Portfolio Committee on Defence and Military Veterans (PCDMV) on Wednesday 18 March. Denel informed the committee that cost rationalisation, layoffs, debt reduction, the sale of non-core assets and recapitalisation have led to cost savings – operating cost was contained from R1.324 billion in 2023 to R649 million in 2025. However, Denel expects to make a loss this year and next before posting a profit again in 2029, and warned that operating costs have gone up “mainly through the retention and employment of non-productive human resources.” As a result, projected operating costs will increase to R912 million or 55% of revenue.
Denel made a profit of R223 million in the 2024/25 financial year, after a R532 million loss the year before. The company has maintained an average of R1.27 billion in annual revenue over the last three years, primarily driven by maintenance contracts at its Aerospace, Landward and PMP divisions.
With regard to its turnaround strategy, Denel said it has spent R3.522 billion on legacy and current obligations compared to a planned spending of R3.326 billion. “The overspending is partially due to operating losses for the last two years, largely driven by stagnant revenue as set out above, but also due to a cost base that requires further restructuring to account for lower than anticipated revenue.”
Denel requested R5.4 billion for its turnaround, but was only advanced R3.4 billion by National Treasury, with the shortfall to be recovered by the disposal of Denel non-core assets, which was, however, not supported by the Department of Defence. A funding shortfall has led to legacy debt being funded from cash generated from operations, which is not sustainable, the company said.
One component of Denel’s turnaround strategy is to secure its existing customer base and revenue, but revenue growth is not at ideal levels, and order book conversion is still low. Revenue has lagged the approved turnaround plan goals, with 2024/2025 targets not met.
However, some good news comes in the form of international contracts being signed by the Landward and Denel Dynamics divisions, and Denel is working with National Treasury to secure guarantees for Dynamics. Furthermore, new agreements have been signed with Embraer, Airbus and Safran covering African markets.
Looking forward, Denel aims to complete the turnaround plan, complete the recovery of PMP, and execute the recovery of Landward and Dynamics as well as restore skills, core capabilities and the Denel brand, amongst others. It will upgrade facilities such as PMP, Houwteq and the Overberg Test Range; explore alternative funding models including non-banking institutions; expand its product portfolio (including the Denel Space division and AI-driven solutions); and collaborate with the Council for Scientific and Industrial Research, South African defence industry, and other entities.
However, it faces a number of challenges, including a weak balance sheet that leads to dependence on government for funding; difficulty in cash generation from operations (particularly through legacy loss making contracts such as Hoefyster and Kamas); difficulty in establishing strategic partnerships; loss of critical skills; delays in executing secured orders; lack of investments into people, technology and the product portfolio; and ageing infrastructure.
Project updates
Provided in Wednesday’s presentation was an update on Denel’s key strategic legacy projects. The company plans to complete Project Hoefyster development (Phase 1) at the end of the 2026/27 financial year and “re-plan” the commencement of Phase 2 (production) of Badger infantry fighting vehicles for the SA Army.
Project Kamas, covering the delivery of A-Darter air-to-air missiles to the South African Air Force, is progressing slowly, with four missiles delivered in 2025/26 and a plan to deliver 10 operational missiles in 2026/27.
Denel said it will deliver the EO-Sat1 earth observation satellite to South Africa in 2027, and start Project Fellowship (for the design and development of a mobile air defence system) production in the first quarter of the 2026/27 financial year.
Restructuring ‘encouraging’
In a statement on 18 March, Denel said its restructuring is showing “encouraging results” and the company is “quite confident that it is well on its way to recovery.”
Group CEO Tsepo Monaheng said restructuring continues and will enable Denel to optimise operations, bolster delivery capacity and rebuild trust among industry partners, suppliers and end-users within the defence sector.
“In this we are receiving significant support from our new Shareholder Representative and the Department of Defence, which enables Denel to integrate more fully into the broader defence community and benefit from stronger backing to better support the SANDF and grow our footprint internationally.”
“The 2025 Annual Report reflects the progress we are making on our journey to full recovery. We are establishing the foundation for sustainable growth and operational excellence. We are ensuring that all business areas are sustainable on their own for the group to be successful. We are stabilising our core business strengths and repositioning Denel as a trusted provider of vital defence capabilities,” said Monaheng.
Denel said it is upgrading its ICT infrastructure and strengthening controls to deliver accurate and credible financial statements and is taking an active role in the management of associate companies to derive value out of Denel’s investments in these companies. “We are intervening in all legacy programmes, reactivating them to ensure that they are delivered to the satisfaction of the customers.”
Furthermore, all senior management positions have now been filled. Monaheng said these strategic initiatives have fortified Denel’s position, ensuring its relevance and sustainability in a competitive and rapidly changing global defence and technology environment. “Denel’s vital role in the safeguarding of South Africa’s sovereign defence capabilities cannot be overstated. It remains a cornerstone of national security, providing the country with control over advanced technologies, systems and platforms necessary for operational readiness and strategic independence,” the company concluded.
