
Unreleased funding and the non-sale of assets and properties are some of the challenges threatening Denel’s turnaround strategy.
In a recent presentation to Parliament’s Portfolio Committee on Planning, Monitoring and Evaluation, Denel provided an update on its turnaround, which is aimed at making the company more efficient, reducing debt, providing working capital, improving morale, regaining market share, and regaining strategic capabilities, amongst others.
Achievements include Section 189 retrenchments as part of restructuring, appointing new leadership, reducing ICT and infrastructure costs (R112 million per annum), reducing staff costs (R433 million per annum), and partially settling legacy debt.
Still on the to do list is settling remaining legacy debt; improving skills, leadership, and employee morale; upgrading equipment, including ICT infrastructure; and improving on programme delivery.
Turnaround has been hampered by a number of issues, including R900 million of recapitalization funds being held back due to certain turnaround conditions not being met, and the sale of non-core assets not being approved. This includes resistance from the Department of Defence (DoD) to selling shares in Hensoldt South Africa.
Denel’s latest turnaround was supposed to raise R5.2 billion to achieve sustainability, with Denel raising R1.8 billion by exiting/selling non-core assets, and government providing the remaining R3.3 billion. This was boosted by R1 billion coming from the Denel Medical Benefit Trust, allowing production to restart and salaries to be paid.
The R3.3 billion from government was only made partially available from the end of March 2023, with the balance conditional on the sale of non-core assets. “The sale of non-core assets has met with resistance from the DoD and so far not been realised, with the balance of legacy debt, trade creditors and critical capex funding still ring-fenced and not released by the National Treasury,” Denel stated. This leaves it “in a cash constrained vulnerable position.”
Denel is meeting with National Treasury and the Department of Defence on releasing ringfenced funding.
On the positive side, Denel told the committee that it has stabilised and secured some critical skills as well as brought operations online and is delivering on key programmes: for the South African Army’s G5 and G6 upgrade programmes (Projects Muhali and Topstar), initial deliveries were made in November 2023. Progress was also reported on development of the Badger infantry fighting vehicle for the South African Army under Project Hoefyster, and the completion of the Malaysian AV8 programme, for which Denel supplied turrets and missiles.
Denel has also restarted the supply of barrels, spares and product support, and restarted the A-Darter air-to-air missile programme: trainer missiles are due for delivery to the SA Air Force this month, and production missiles next year.
Upgrades to Umkhonto surface-to-air missiles for Finland were demonstrated, and Denel is supporting Seeker unmanned aerial vehicle (UAV) systems of the South African National Defence Force and the United Arab Emirates (UAE). Also for the SANDF, Denel is working on the next phase of the SA Army’s Ground-Based Air Defence System (GBADS).
On the negative side, Denel Pretoria Metal Pressings (PMP) “continues to battle with production constraints by equipment and infrastructure failures and requires immediate critical capex to continue operating, but substantial external investment, technology and leadership to take a step-up to true sustainability. A strategic partner that can provide funding as well as leadership knowledge is to be considered to exploit the opportunity to grow PMP again,” the company said in its presentation.
Denel said it is pursuing business worth R26 billion and to this end between August and October 2023 carried out live firing demonstrations of its truck-mounted T5 155 mm 52 calibre howitzer and G6 155 mm self-propelled howitzersat the Alkantpan test range. Representatives from eleven countries attended.
“R3.9bn of new orders contributing to Denel’s sustainability have been secured over the last year. The SANDF being the greater share,” the company reported. Denel hopes to achieve R3.5 billion revenue in 2026/27 and operating profit of R342 million. It recorded an operating loss of R500 million before interest and tax for March 2024.