Looking to return to profitability, state-owned enterprise (SOE) Denel, is actively pursuing a winnable order pipeline of R30bn ($2bn) in the next two years, which will greatly contribute to the financial turnaround and long-term sustainability of the company.
Danie du Toit, group CEO at Denel, briefed the South African Parliament’s Portfolio Committee on Public Enterprises recently and said there is a solid order backlog of R18bn ($1.2bn) which covers roughly four years of sales revenue.
According to Du Toit, this includes an imminent export contract – the largest in Denel’s history. “This contract, which includes an advance payment of R1.5bn ($100m), has the potential to grow Denel’s order stock by 32%.
Du Toit said the defence and technology company has made major progress in the implementation of its turnaround strategy in the past six months. There have been huge improvements in governance and the organisation has been stabilised in the wake of the devastating revelations about state capture that surrounded Denel.
“The new focus of the Board and management is to improve performance, improve liquidity and restore our reputation among stakeholders, partners, suppliers and our own employees.”
“The Denel brand is still well-respected. Our products are wanted in the market and we have excellent potential to grow our business in our target markets based on the quality of our products and our reputation for quality,” he said.
In the past 12 months, the company has reduced operating costs by R500m ($33.6m) and slashed head office costs by R15m ($1m). Denel also renegotiated and will exit onerous contracts to the value of R250m ($16.8m) a year. The company has the potential to generate a further R2bn ($134.4m) in cash from its strategic equity partnerships.
He explained that an additional R1.6bn ($107.5m) in cash can be generated from divestments of non-core assets. “Denel has already received more than 40 expressions of interest from local and international companies to either partner with the defence company or acquire parts of its business,” he added.
Du Toit said Denel’s liquidity position is fast improving. Government’s decision to recapitalise the business through a R1.8bn ($121m) injection, the first in 10 years, will bring further stability to the organisation and improve relationships with suppliers and customers. It however remains critical to receive the applied for further R1bn ($67m) financial support.
He expected further phases of the recapitalisation to become effective in the next financial year. The company’s debt profile further increased with government’s decision to increase its guarantees to five years.
“Morale among employees is improving and the company management team has been strengthened in recent weeks with appointments in senior executive positions,” he said. “It can still count on the skills and expertise of development engineers, technicians and professionals with an average work experience of 15 years.” Denel has through its Board recently commissioned several forensic investigations into allegations of corruption and state capture and civil claims will be instituted against former Denel executives to recover losses that were incurred.
