Denel needs R1.7bn to survive

Thu, 17 Apr 2008

Arms manufacturer Denel still needs R1.7-billion promised by the government to complete its turnaround, outgoing chief executive Shaun Liebenberg said on Wednesday.

"When Denel reached technical insolvency in June 2005, the shareholder faced three options: to close Denel at a cost of R18-billion; to retain it on a subsidy basis; or to turn it into a commercially viable business," Liebenberg told a media briefing in Johannesburg.

"The Government opted for the latter, premised on us as board of directors and executive management to successfully roll out a multi-pronged turnaround strategy.

"The turnaround plan announced in August 2005 included a request of R5.2-billion for the recapitalisation of Denel, of which R3.5-billion was to be utilised for the 'sins of the past', notably debts and cleaning up of the balance sheet," Liebenberg said.

The remaining R1.7-billion in capital and cash was to have been invested in new plant and equipment, restructuring of the businesses and processes, technology upgrades and skills development.

"To date Denel has received R3.5-billion, leaving a shortfall of R1.7-billion to conclude the turnaround,

"We are simply alerting Denel's stakeholders that the full turnaround requires of the shareholder to contribute its full portion of the strategy in order for the business to become sustainable and profitable in the next couple of years," Liebenberg said.

The projected balance sheet confirmed that the R1.7-billion was still required to conclude the process.

Liebenberg said that Denel had adequately met the Department of Defence's requirements but that long-term contracting and procurement practices were required to balance cash flow, supply chain and resources.

Local industry still had little participation in DoD's long-term planning which hampered the industry's ability to plan accordingly and to adequately meet the DoD's requirements.

Liebenberg also noted that despite Denel's successful alignment on a vertical axis (Minister and Department of Public Enterprises) it still had a long way to go to align its horizontal stakeholders, notably the DoD, National Treasury, Trade and Industry and Foreign Affairs.

He said the Denel Group had successfully decentralised and unbundled into a state-owned holding company, Denel Ltd, with equity in several incorporated businesses. Non-core assets were also disposed of, raising funds of around R1-billion.

Additionally, several equity partnerships were concluded, of which most are still loss-making but progressing well to recovery. A further two equity transactions were in the final stages of being concluded.

The subsidy mindset that existed previously — and contributed to Denel's financial woes — had been replaced with financial discipline and good governance.

"Our mandate from Government was to turn the business and at this juncture, we can report significant progress," Liebenberg said.

"We remain confident that the shareholders, notably the Department of Public Enterprises and the Board and Executive Management, agree on the way forward."