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Retrenchments are on the cards for workers at Denel says CEO.
The leadership of Denel appeared in front of the joint standing committee on defence. Picture: Reuters
Workers at the state arms company Denel could be retrenched as part of the company’s latest turnaround strategy.
Denel CEO Tsepo Monaheng appeared before parliament on Friday to present his plans to save the ailing company.
Since 2019, Denel has received around R10 billion in bailouts from the government.
“We are looking at restructuring the business so that we get cash into the business and one of those areas is to make sure that we go through the Section 189s and have the right people in the business,” he said.
Despite Denel’s ongoing battles with unions over wages, Monaheng said the company is forced to prioritise paying off its debt. Some of the debt goes as far back as 2019.
“Denel still has a lot of debt even when we make money the creditors take the money and the banks want their money so it makes it difficult for us to execute our turnaround strategy,” he said.
He said the company had even considered selling some of its non-core assets to replenish its cash reserves.
He said another part of the revenue-generating strategy is to ensure that the company secures more international contracts.
“The countries that are placing orders with us they have trust that Denel has turned a corner and we cannot disappoint by nonperformance, so performance is critical for us.”
Monaheng said it is critical for the business to spend money in a justifiable manner as part of the turnaround strategy.
“Denel has incurred a lot of costs and in many cases, it is costs that we cannot even justify. If we had managed our money better at least we would be a break-even business.”
He said the company hopes to derive more than 60% of its revenue from international contracts.
“Most of the export contracts if we execute them well the profits are good,” he said.
He said another turnaround move is to ensure that customers all over the world trust the products that have been produced by Denel.
When was the last time Denel made profit?
Monaheng said the last time Denel was profitable was around 2016.
“The problem with loss making is that you are not generating cash so this means you are getting deeper and deeper into trouble because we do not have cash to fund our operations so that is why we had to go ask for money.”
Monaheng blamed the Covid pandemic and internal problems for its poor performance over the years.
He said the company depends on its foreign contracts which were difficult to obtain during the pandemic.
He also pointed out that staffing problems in senior management positions had made accountability difficult.
“The other reason besides Covid that contributed to Denel’s collapse in the past few years is the collapse of internal controls.
“So we are fixing that to make sure that there are no leakages in the business and we are doing what we are supposed to be doing at all times,” he said.
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MP’s reaction to Denel’s presentation
Meanwhile, some parliamentarians demanded clarity on when Denel started failing since Monaheng had listed Covid as one of the factors.
“The first presenter said Denel started taking a nose dive in 2020 with Covid and that they have not been able to recover from Covid but it was also said the last time Denel was profitable was the 2015/16 financial year.
“But Covid happened in 2020 not in 2015 so what was the reason for the initial five years of Denel not being profitable?” said the parliamentarian.
Wage increases
This week workers at the company affiliated to the National Union of Metalworkers of South Africa (Numsa) protested outside the company’s offices in Pretoria over the implementation of a past wage agreement
They are demanding a 7% salary increase.
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