Financially-beleaguered State-owned defence industrial group Denel announced on Wednesday a radical reorganisation, in an attempt to turn the business around. The plan also implied a significant downsizing of the group. Even so, Denel management only expected the group to return to profitability within five years.
Under the turnaround plan, Denel’s current six divisions (there is also a subsidiary company) would be collapsed into just two. These would be the engineering division and the manufacturing and maintenance division, with the latter as Denel’s core business.
“We are determined to turn Denel around and repurpose it while retaining the core capabilities required to meet South Africa’s strategic security requirements,” assured interim Group CE William Hlakoane. ”Furthermore, we are encouraged by the unwavering support that we have been receiving from our shareholder, the Department of Public Enterprises. This is underlined by its acknowledgment that there is a need to assist Denel with regards to its financial situation. Thus, I am positive that the discussions with other government departments that have keen interest in Denel’s survival such as the Department of Defence and the National Treasury will soon bear positive results.”
Denel’s campuses would be ‘optimised’, including reductions in their footprints, to ‘contain’ costs. Activities such as finance, human capital, information technology and supply chain management would be reorganised into a ‘shared services’ model.
In addition, noncore assets and assets that cannot generate profits would be sold. Denel management estimates – conservatively, the company’s statement affirms – that the sale of these assets would raise some R1.5-billion over the next five years.
“However, there is an immediate need for significant cash injections to support current operations and implement the new operating model,” he warned. “Although some of these activities are at an advanced stage, we do acknowledge that it will take some time to sell these assets while the payment of legacy debt and the requirements for liquidity are immediate.”
In terms of its current operations, all the group’s artillery, infantry, missiles and precision-guided munitions, vehicle and complex integrated systems management capabilities would be merged into the new engineering division. This would also lead the group’s planned diversification of its technologies into other and new markets, including command and control, and cyber security and communications. Further, the engineering division would research and develop new technologies for future use. The manufacturing and maintenance division would be responsible for aeronautics, uncrewed aerial vehicles, and the production of small and medium calibre ammunition and of combat vehicles.
In its statement, Denel admitted that, over the past year, it had lost “much-needed critical skills” because it had “struggled with payment of employees salaries”. The group would seek to “rebuild” these skills, while retaining those it currently possessed. It said that the Board and management were “not oblivious to the plight of our colleagues who continue to face hardship as a result of our inability to pay full salaries” and assured that they were working “tirelessly” to “address” the “issue”.
“Denel of the future will have to be globally competitive, therefore it is critical that we are able to attract the next generation of engineers, designers, scientists and technicians,” affirmed Hlakoane. “We apologise for the stress and anxieties caused to employees and again give the assurance that we will do everything in our power to meet our obligations in line with employee contracts.”