Parliament’s Select Committee on Public Enterprises and Communication has been briefed by Public Enterprises Deputy Minister Phumulo Masualle and Denel acting CEO Talib Sadik about the State-owned defence industrial group’s financial and legal problems. They told the parliamentarians that Denel was inefficient, both operationally and structurally, that it needed to cut its costs, and that its programme management, cash management and revenue generation all required reform.

Denel had failed to pay, or underpaid, its employees since May 2020, despite a court order that it should do so. According to the trade union Uasa, Denel directors had, however, been receiving their full salaries.

“It can’t just be the general employees who feel the consequences of the decline of productivity at Denel in the form of salary cuts or no salaries,” asserted committee chairperson Tshitereke Matibe. “The management must also feel the crisis.”

Addressing the committee, Sadik admitted that, although the group had a turnaround strategy, it was in a liquidity crisis and its order book was under threat. Ratings agency Fitch had downgraded the company to CC(zaf), weakening Denel’s own credit profile. This was the result of delayed and inadequate support from the shareholder (the government).

Although the government guarantee to the group had been extended to September 2023, Denel had only been able to obtain short-term loans. Consequently, its debt profile had deteriorated. 

He further reported that the company’s audited financial loss of R1.9-billion in the 2019/20 financial year had been the result of a serious decline in revenue. This, in turn, had added to its current liquidity crisis. And Denel had been unable to manufacture its world-class products and systems. The Covid-19 pandemic had only made things worse. 

The committee told Sadik that the company had to return and give a further briefing on the progress of the turnaround strategy. Denel would also have to present its plans to restore the morale of its employees and re-establish its reputation.