Denel’s fresh management team presented a strong “rise of the phoenix” 18-month turnaround plan with an eye on creating jobs and stabilising the loss-making state arms manufacturer.
It aims to rake in revenue and fill up a R35 billion order book by securing deals from local state-owned entities and secure deals in Africa and distant geographies of East Asia and Latin America.
Denel has new blood in chief restructuring officer Riaz Saloojee, interim CEO Michael Kgobe and interim chief financial officer Nothando Sabela.
The executives urged the Committee on Public Enterprises yesterday to facilitate quick access to the R3.4 billion recap pledged last month by Minister of Finance Enoch Godongwana in his medium-term budget policy statement, which is critical to implementing the six-point turnaround plan.
The plans main objectives are cost reductions against revenue increase, motivation of staff demoralised by years of mismanagement, increasing the customer base, greasing the now creaky supply chain, working on budget and avoiding penalties.
“The money has got to flow from the recap as we require it. We have to pay suppliers. We have to clear legacy debts,” he said.
Denel itself has raised R992 million of the R2bn that is its obligation in the R5.2bn recap plan agreed on with Treasury.
Saloojee said the plan aspired to create 1 000 jobs over the next three years with a further 4 000 indirect jobs as well as to create 16 000 indirect multiplier jobs in five years.
Saloojee punted Denel’s resources such as the Rooivalk, the Oryx Helicopter, saying the SOE was a one-stop shop and could offer full spectrum of weapons in land capability.
“We have to reduce dependency on the fiscus and government. There are significant export revenue streams available. There are different geographical areas in which we can present a business case,” he said.
He said Denel was wary of losing business like it had with an R8bn order from Egypt earlier this year because it did not have the financial capacity to execute.
He said a number of Denel's former employees were waiting on the sidelines to return to the organisation provided income was guaranteed from projects with independent revenue streams.
Sabela said the entity had disposed of its non-core assets, including land parcels in Cape Town and at a Pretoria campus.
On the sales block were also some engineering assets, which Saloojee assured would not affect the execution of operations, but boost the balance sheet.
Saloojee said an internal shakeup of Denel had resulted in the streamlining of the six divisions, but had come at a hefty price.
“We have had to stop the bleeding, stabilise the business and create a platform to sustain business. We only have the next 18 to 24 months to show our capabilities. We do not have the luxury of time …. We have a bloated footprint, a lot of fat in the business and so we need a clear strategy and clear leadership,” Saloojee said.
He said the entity, which had now cleared its more than R90 million outstanding salary bill and embarked on a retrenchment exercise, had presented a case for business with the Department of Defence, Armscor, the SA Police as well as SOEs plagued by extensive theft and vandalism of infrastructure.
“It is not a five-year extended process. By 18 months we should be able to show sustainability and growth. Denel has partnered with Armscor to form a joint steering committee chaired by executives from both organisations, which is aimed at channelling funds and capabilities to create sovereign capabilities," Saloojee said.
Sabela said Denel had essentially made a loss in the current year and was saved blushes by the sale of the non-core assets in the form of property.
Denel’s revenue was up 5% to R486 million, but had a 77% decline in gross profit, which tanked to R18m. Operating expenditure at R382m contributed 241% to over expenditure against the budgeted R112m.
“This is a loss year. We have to focus on next year. hopefully next year we will have a forward-looking budget,“ she said.