Picture: REUTERS/SIPHIWE SIBEKO
Picture: REUTERS/SIPHIWE SIBEKO

Denel, the cash-strapped state-owned arms manufacturer that has been struggling to pay staff salaries, says its future is bright and that it is poised to return to financial sustainability soon.

It said its medium-term projection showed moderate growth in revenue from R3.86bn in 2020 to R5.4bn in 2021 and R7.14bn in 2024.

“Denel has secured a solid order backlog of R18bn, which covers roughly four years of sales revenue. In addition, it is pursuing a winnable order pipeline of R30bn over the next 24 months,” the company said on Friday.

“Should these contracts be realised, they will provide the company with a solid base to implement its corporate plan and return to long-term sustainability.” It said the business would focus in future on the continued implementation of the turnaround strategy to improve its balance sheet.

Denel said the process to establish new partnerships, dispose of noncore assets and restructure the business would gather momentum over the next 12 months. This, it said, would take place in close co-operation with its shareholder, the department of public enterprises, the department of defence and other stakeholders.

In August, Denel received R1.8bn from the government to help it stay afloat while it develops a long-term survival strategy. It had asked for R2.8bn.

The company is one of several state-owned enterprises in financial distress after years of mismanagement and corruption, putting the country’s last remaining investment-grade rating at risk. The other R1bn will be considered during the process of preparing the 2020/2021 national budget.

On Friday, Denel said the prospects of further recapitalisation from the government will address most of its liquidity issues while a “winnable order pipeline of R30bn over the next two years will contribute greatly to long-term sustainability”.

“The 2018/2019 results reflect another very difficult year with revenue, as can be expected, based on liquidity challenges that affected all operations. However, both the board and management are of the opinion that the company’s future prospects are bright and that it will return to financial sustainability.”

In September, Denel appointed seasoned chartered accountant Carmen le Grange as its group CFO, 10 months after firing Odwa Mhlwana, who was found guilty of all charges in a disciplinary process relating to irregular expenditure.

The company conceded on Friday that it had limited financial resources to implement the required changes identified by management, adding: “Far-reaching steps are being taken to restructure the business, reduce costs and exit from onerous contracts, which placed severe pressure on the company’s balance sheet.

“The measures taken to improve corporate governance and take firm action against individuals involved in irregularities will further strengthen the reputation of Denel and lead to greater confidence in the company.”

mkentanel@businesslive.co.za