Denel outlines its new restructuring plans amid salary payment crisis

Denel’s Head of Restructuring, Riaz Saloojee, says the organisation’s new restructuring plan will place the embattled state-owned arms company at the centre of defence industrial capability and excellence.

Saloojee together with the entity’s board chair Gloria Serobe held a media briefing earlier on Thursday. They outlined the company’s current financial position and gave an update on the situation around unpaid staff salaries.

Saloojee says they have been working tirelessly to get the company back where it was before it was brought to its knees by State Capture.

Denel’s new leadership says they are looking at six elements that will turn the company around in the next 15 to 18 months. It is strategising on reducing costs and increasing revenue, formulating partnerships that will give them access to markets, and improving technologies and funding mechanisms.

“So, this turnaround plan has been socialised and it has been shared with the very key strategic stakeholders of Denel, obviously, with the board of Denel, with the management of Denel, with the shareholder, of course, our primary customer and the reason for existence, the South African National Defence Force in the Department of Defence. And to a large extent, I would say that there has been a lot of alignment and support for this turnaround plan. And we are now in the process of institutionalising it, and bedding it and operationalising it,” says Saloojee.

Financial distress

Saloojee says the state-owned arms manufacturer remains in serious financial distress. He says the organisation which was once profitable, now only has revenue of under R2 billion, down from R8. 2 billion in 2015/16.

Saloojee says their liquidity challenges were made worse by the coronavirus and State Capture to the point where they were unable to pay salaries.

Denel has been bailed out numerous times by the government.

Saloojee says its mandate and its existence remain important as they have a responsibility to the National Defence Force and to support civilian authorities during specific contingencies.

“If you saw what happened with the unrest last year. And you saw with the natural disasters that took place this year, the defence played a significant role in assisting the law enforcement agencies, National Natural Disaster Management Systems, local government, provincial government, and national government to help to address those issues that we were confronting the country.”

 Denel briefing on challenges it has been facing: 
[embedded content]

Defence force

Denel’s primary purpose is to serve the local defence force. It is also an equipment manufacturer and maintenance repair organisation for numerous critical systems.

The South African Defence budget has been declining quite significantly in recent years. It currently accounts for 0.7% of defence spending as a percentage of Gross Domestic Product.

This has also had a direct effect on the defence force and its ability to rejuvenate itself with capital equipment and support.

South Africa is one of the few countries in the world outside of the developed nations, which has developed a defence industrial capability.

“If we lose this industrial capability, which has been led by us for so long, we will lose the strategic independence that it provides to government. You can imagine if you’re relying on third parties for our defence equipment and capabilities, if that country or countries that are supplying South Africa decide for whatever it is and geopolitically, and otherwise to cut the supply of defence capabilities to South Africa, it leaves us without the ability to determine our own future from a defence and security perspective.”

Denel contributes almost R10.7 billion to the country’s economy each year.  The company says it has also suffered a huge brain drain in terms of skills leaving the organisation.

Saloojee says while they have seen a surge in inquiries for defence capabilities from third parties, they are unable to supply the equipment and systems because of the current situation.