PROFILE: New Denel CEO Danie du Toit’s turnaround plans
Denel’s new boss outlines the problems facing the state-owned arms manufacturer and how he plans to fix them
One thing Danie du Toit has an appetite for is a daunting challenge. This is what he faces as he takes up the position of Denel group CEO: rescuing the state-owned arms manufacturer that has been battling over the past year to generate sufficient cash to stay afloat.
Asked what made him take on the challenge, he says: "It’s an enormous opportunity to make a difference to the country."
Du Toit, 52, has had a long career in the defence industry, mostly with Swedish aerospace and defence group Saab.
Being a white man, his appointment came as something of a surprise — it was justified by the Denel board on the grounds that he was the best candidate.
Since taking over the job in mid-January, the former MD of Saab Medav Technologies in Germany has been analysing the business, having strategic meetings with management teams in the various divisions and meeting staff.
His most immediate challenge is to get cash. Denel’s severe liquidity crunch has made it difficult to pay suppliers and employees. Du Toit concedes that the group is "way behind in the payment of suppliers", which are owed about R1.3bn. This has affected deliveries to clients as suppliers have found it difficult to deliver the required components. The group is pinning its hopes on a cash injection from the government in the February budget. It has asked for R2.8bn, much of which will be used to pay suppliers. If a cash injection is not forthcoming, alternative plans might require retrenchments in areas of overcapacity, and possibly the sale of noncore assets.
The group has about R3.4bn in government guarantees, not all of which has been utilised yet. Du Toit says the remaining amount will be sufficient to cover the payment of salaries and some suppliers over the next month. Bankers are still supportive, he says, but want to be assured that the group is taking action to win new orders and cut costs.
Du Toit stresses that Denel’s most pressing priority is improved profitability and operational sustainability. In the 2017/2018 financial year Denel made a net loss of R1.8bn on a 38% decline in revenue to R5bn from R8bn the previous year. This was after seven years of modest profits, which Denel chair Monhla Hlahla attributed to poor contract negotiation and management, inconsistency of the order book, poor productivity, high levels of inefficiency, overinvestment in working capital, loss of credibility with key stakeholders and debt.
Cost and execution efficiencies will be required, Du Toit says. This will involve bringing back in-house a lot of work previously outsourced to other players in the industry. "I believe we can very effectively utilise our own capacity and capability to expedite those programmes. Our aim is to do most of the work in-house." The ambition is for Denel to break even in the next financial year.
Du Toit has redesigned the structure of the executive team to substantially reduce their number and has advertised for a group CFO and group HR officer. New positions will be advertised where jobs have been combined.
Another key initiative is to find export opportunities in markets worth about R40bn to improve the order book, currently at a modest R15bn over the next five years. The distribution of the orders over this period is a key concern.
Denel, which makes weapons and armoured vehicles for SA’s armed forces and clients in Africa, the Middle East and Europe, employs about 4,600 people. About 45% of its revenue in the past financial year came from the domestic market and 27% from the Middle East. But the domestic market is shrinking, so the emphasis has to be on exports. The recent deal clinched by President Cyril Ramaphosa with Indian Prime Minister Narendra Modi to lift the Indian government’s ban on Denel exports could help to grow the company’s export market.
Turning Denel around will also involve cleaning up its reputation, tainted by allegations of corrupt dealings with Gupta associates. Good progress has been made, Du Toit says.
Du Toit says he tries to maintain a good work-life balance, and when not occupied with business matters can be found on the squash court, his mountain bike or the golf course.