Denel can turn a profit, but needs cash — interim CEO

SA’s state defence firm Denel hopes to return to profitability within the next five years via a restructuring plan, but will require significant cash injections to make it happen, it said on Wednesday.

The company, which makes military equipment for SA’s armed forces and for export, faces liquidity problems, is reliant on government bailouts and has so far struggled to implement its turnaround strategy.

Its problems worsened over the past year amid the coronavirus crisis and a series of board exits that were related to its budget woes, according to a senior official at the department of public enterprises (DPE).

On Wednesday, Denel’s interim CEO William Hlakoane said while a comprehensive restructuring plan would “revitalise” Denel and restore it to profitability within five years, significant cash injections would be required.

He said Denel was encouraged by the support of the DPE, which acknowledged there is a need to assist the company with its finances.

“I am positive the discussions with other government departments that have a keen interest in Denel’s survival, such as the National Treasury, will soon bear positive results,” he said.

Denel’s restructuring plan will see it cut its operating divisions from six to two, with one focused on engineering and the other on manufacturing and maintenance.

Hopes of asset sales by Denel, which made a R2bn loss in the year to March 2020, have yet to materialise. Hlakoane said the company could realise R1.5bn from these over the next five years.

However, he said, significant immediate cash injections were necessary to continue current operations, implement its plan and pay salaries, which he apologised for failing to honour in full.

Reuters