- State-owned defence technology company Denel plans to streamline its operations over the next five years.
- Interim CEO William Hlakoane says the sale of non-core or non-profit making assets is estimated to help Denel realise about R1.5 billion over the next five years.
- The company has been struggling to pay staff’s salaries on time.
State-owned defence technology company Denel plans to streamline its operations over the next five years, which will involve the reduction of six of its operating divisions to two and the sale of non-core and non-profit making assets.
The company on Wednesday issued a statement on its plans to ensure sustainability and profitability within five years.
It has been struggling to pay staff salaries on time, due to its financial challenges. Denel employs just over 2 800 people, Fin24 previously reported.
Interim CEO William Hlakoane noted that the employees were facing hardships due to the company’s inability to pay full salaries.
“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,” Hlakoane said. Denel has suffered the loss of critical skills over the past year due to struggles with paying salaries, it said.
Hlakoane said that the company had received support from its shareholder, the Department of Public Enterprises (DPE), which acknowledged its need for financial assistance. “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,” he said.
According to Denel, its five-year plan has the DPE’s backing. Its previous CEO Danie Du Toit had resigned in July 2020Â and left in August that year. At the time ratings agency Fitch downgraded the company further into junk, raising concerns over the implementation of the turnaround plan amid leadership instability.
In its statement, Denel outlined that the plan includes reducing its current operating divisions from six to two. One division will specifically focus on engineering, and the other on manufacturing and maintenance. The latter will be the core business.
The plan also includes further reductions in the cost structure, and the implementation of a shared services model for supply chain management, human capital, IT and finance. According to Hlakoane, conservative estimates indicate the sale of non-core and non-profit assets, will realise value of about R1.5 billion over the next five years.
In the interim, there is an “immediate need for significant cash injections”, Denel said. This is to support current operations and to implement the new operating model.
It will take time to sell off assets, but the liquidity requirements and payment of legacy debt are immediate, said Hlakoane.
“It is imperative for Denel to continue executing programmes in order generate cash to pay salaries and other operational requirements whilst driving these strategic actions,” the statement read.
The company received a R1.8 billion cash injection from government in 2019 to support its turnaround plan.