Denel briefs Parliament on its restructuring progress 

17th June 2020

By: Rebecca Campbell

Creamer Media Senior Deputy Editor

     

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In a presentation released by Parliament on June 17, financially-embattled State-owned defence industrial group Denel reported on its progress and plans regarding its turnaround strategy. The group pointed out that it had been classified as a national security asset, with a main role of designing, developing, manufacturing and supporting defence materiel.

The group was currently suffering from a lack of financial liquidity. It cited the National Defence Industry Council as warning that Denel’s problems threatened to compromise the country’s national security, to cause the irretrievable collapse of the entire national defence industry, to result in the loss of essential national defence capabilities, and to lead to a mass exodus of skilled defence industrial personnel, seeking work in other countries.

The group reported to Parliament how it had spent the R1.8-billion in recapitalisation funds it had received from the government. Legacy costs had absorbed R48-million, investigations into wrongdoing had consumed R24-million, interest and loans had taken R528-million, overdue taxes totalling R225-million had been paid, and R133-million had been used for sustainability investments. The restarting of operations and the payment of creditors due had required R842-million. The result had been the generation of R2.21-billion in funds, of which R1.188-billion had been used to cover employee costs, and R1.022-billion had been reinvested in operations and used to pay creditors.

Denel had succeeded in exiting from onerous contracts, but this had cost it money. It had had to refund Chad a prepayment of R104-million, the Democratic Republic of Congo a prepayment of R54-million and Venezuela a prepayment of R18-million. Withdrawing from its A400M aerostructures manufacturing contract with Airbus had cost Denel another R121-million.

The group had achieved more than R1-billion in cost savings since April 2018. This was mainly the result of cutting its staff count by 27%. The ending of its aerostructures business would produce a future annualised benefit of R260-million with effect from June 30 this year. The imminent closure of the loss-making LMT Products (a subsidiary of LMT) would save another annualised R48-million. A transaction with Hensoldt had been concluded, but its implementation had been delayed by the Covid-19 pandemic. 

Denel reaffirmed its intentions to grow some of its businesses, retain and maintain some, seek partnerships for others, and dispose of yet others. The group aimed to grow artillery systems, cyber systems, infantry systems, missiles and precision-guided munitions and systems integration. The Overberg Test Range, small and medium calibre munitions (produced by PMP) and large calibre munitions (made by Rheinmetall Denel Munition) were to be retained and maintained. Strategic partners were to be sought for aircraft and engine maintenance, repair and overhaul (MRO), armoured vehicles, infantry weapons, maritime MRO, mechatronics, the Rooivalk combat support helicopter, and unmanned aerial vehicles. Those businesses which have been, or would be, disposed of were aerostructures, Densecure, Gear Ratio, LMT, Mechem, optronics, the PMP Foundry, properties, S3, and Spaceteq.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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