Global lockdowns see Denel burn through its cash flow
The state arms manufacturer failed to pay staff pensions, tax and UIF for April, and the next few months aren’t looking good for salaries
Embattled state arms manufacturer Denel says the global lockdowns, implemented to to curb the rapid spread of the coronavirus, are the primary reason it failed to pay staff pensions, tax and unemployment insurance fund (UIF) monies for April.
It also said that paying salaries in the next few months would prove difficult. While staff received their net salaries for April, Denel said on Wednesday that pensions and UIF payments had not been made.
Responding to questions from Business Day, CEO Danie du Toit said: “The pandemic will have significant negative impacts for the entire local defence and technology sectors and will be felt by Denel for some time.”
He said the government, its main shareholder, will remain cash-strapped. “Both Covid-19 and SA’s investment downgrade to junk status will not disappear soon, and public-sector finances will be under strain for a lengthy period.”
He said lockdowns around the world led to delays in Denel’s supply chain and slowed down its exports, negatively affecting its cash flows. Its various division are not running at full capacity during the prevailing level 4 lockdown restrictions.
Denel, a pillar of the country’s defence industry, is part of a long line of state-owned enterprises that are either in dire financial straits or on the verge of collapse after years of mismanagement and corruption due to state capture.
In 2019, it could not pay salaries or its suppliers on time, asking the government for a R2.8bn bailout. It received R1.8bn instead. Denel, a missile and armoured vehicle manufacturer, also sold R50m worth of two-year bonds last August in a bid to raise cash. It made a R1.7bn loss in the 2017/2018 financial year.
Du Toit said the arms utility is trying to collect outstanding debts, cutting capital expenditure, and has placed a moratorium on appointments and salary increases.
He said management is working with organised labour in ensuring the cost containment measures are successful.
Denel also plans to sell various units, such as its 30% stake in Hensoldt Optronics, a high-end, laser optic manufacturer, in a bid to raise R160m. It is also looking to sell its 51% stake in LMT, an armoured vehicle business, and exit PMP, a manufacturer of ammunition.
Du Toit said that due to the global slowdown, other investors have “put a temporary halt on their mergers and acquisitions activities”, which affected its sale of the various units.