Denel unable to pay full salaries this month

25 June 2019 - 06:51
By Nico Gous
Denel employees will receive 85% of their salaries in June.
Image: Gallo Images/Thinkstock Denel employees will receive 85% of their salaries in June.

State-owned arms manufacturer Denel is unable to pay its employees their full salaries this month.

“Due to the ongoing liquidity challenges, we are now faced with the unfortunate reality that the company is not in a position to fulfill the 100% salary obligation for June 2019,” Denel group CEO Daniel du Toit said in a signed letter on Monday.

“Employees will receive 85% of the salary obligation for June 2019,” said the letter, which TimesLIVE has seen.

Du Toit said management was working “tirelessly” to pay the rest of the salaries soon.

“We acknowledge the inconvenience caused by this, in particular the late communication to you. However, at the time this decision was made, the company had no alternative but to go this route.”

BusinessLIVE reported in March that ratings agency Fitch had downgraded Denel’s long-term credit rating.

“Denel continues to benefit from sovereign support through the government’s irrevocable and unconditional guarantee for R3.4bn of Denel’s R4bn domestic medium-term notes. While this guarantee framework has now been extended to 29 September 2023, it has clearly not been sufficient to address operational requirements and debt funding remains overwhelmingly short-term in nature. However, the rating reflects the expectation of continuing timely government support in some form,” Fitch said in a statement in March.

Denel recorded a loss of nearly R2bn in the past financial year. In the 2017-2018 financial year it suffered a net loss of R1.8bn on a 38% decline in revenue to R5bn from R8bn the previous year.

In a statement on Tuesday, Denel management said staff members who banked with First National Bank would receive their 85% salaries on Tuesday (June 25) and other employees on Wednesday (June 26).

The company said in the statement: "The Shareholder, the Board and management are continuously working to find sustainable solutions to the liquidity crisis facing Denel. Government is cognisant of the fact that Denel is highly leveraged and in need of additional liquidity to rebuild the business."

Du Toit assured Denel employees that "management will always strive to meet the company’s obligations to them in line with their employment contracts".