Denel presents its turnaround strategy to parliament, blames Covid-19 for poor performance
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.
ALSO READ: Adequate emergency reserves in place for occasional system constraints – Eskom
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.
NOW READ: Victory for Transnet: more cash incoming, union accepts salary increase
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Denel's turnaround strategy shows promise as it seeks foreign contracts
Denel told Parliament it is looking to secure new revenue streams, improve management, commercial skills, and governance, as well as to source other funding sources. Image: Siphiwe Sibeko / Reuters State-owned manufacturing company Denel told Parliament on Friday that it was making good progress in revenue generation. Briefing the Joint Standing Committee on Defence, CEO Tsepo Monaheng said they were concluding contracts amounting to billions. 'We hope this trend continues. The countries that place orders with us have trust in that Denel has turned the corner. We can't disappoint in terms of non-performance, so performance is critical for us,' Monaheng said. Speaking on the entity's turnaround plan, Monaheng said they have looked at restructuring the business to get cash. 'One of those areas was to ensure we go through Section 189 and have the right people in the business,' he said. Video Player is loading. 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Advertisement Next Stay Close ✕ Although he did not go into detail on the retrenchments, the presentation to the committee indicated that Denel has completed the initial Section 189 process and filed critical vacancies. 'Further Section 189 process is going to be initialised,' reads the presentation. Monaheng told the MPs that Denel has lots of debtors and that debt was still a challenge. 'Even when we make money, the creditors take the money, while the banks demand their payments. It makes it difficult for us to execute the turnaround strategy,' he said, adding that their debts were four to five years old. 'When they threaten us with liquidation, we prioritise them. It hampers our progress.' In its presentation, Denel said it was looking to secure new revenue streams, improve management, commercial skills, and governance, as well as to source other funding sources, including the collection of outstanding debtors such as Armscor. Monaheng said they were looking for partnerships in new markets and develop innovative products. 'We are careful who we partner with.' He told the MPs that the sale of non-core assets and shares in associate companies did not materialise. 'We were not able to sell non-core assets, but we have started a process to make sure they are value-creating,' he said, adding that they planned to achieve shareholder control at Rheinmetall Denel Munition and Hensoldt. Monaheng stated that they were reviewing the cost of sales and operating costs as well as implementing cost containment measures. 'We have to spend better and spend on value creation.' On Denel's business performance, Monaheng said in 2015/16, Denel posted R8.4 billion in revenue, but this went down to R1.3 billion in 2021/22. In 2023/24, they were sitting at R1.3 billion with R223 million in profit. Monaheng said their target was to reach the R8 billion and that was possible if they could get more contracts. 'We have to make sure at operational level, the business is profitable. We want to make sure we move to sustainable profitability.' He reported that during the 2023/24 financial year, R1.4 billion orders were placed with Denel, and this increased to R4.3 billion in 2024/25. 'If we continue on this trajectory, we should realise the Denel we want. This is dependent on the happiness of the customers. We are ready to get more orders. We hope to continue on this trend.' Earlier, Monaheng observed that Denel had asked for bailouts, but things have changed. 'If it operates well, it should fund its operations, and that can be achieved through foreign businesses we get because the margins are better.' He also said one of the reasons that Denel collapsed in the past was due to the weak internal controls. 'We are building to make sure that there are no leakages in the business. We do want to make sure we do what we are supposed to do and we are compliant all the times.' Monaheng stated that Denel had operated without leadership, resulting in instability at the entity. 'We have a full team except the CEO of Denel Dynamics.' While MPs welcomed the presentation by Denel, they were concerned about the scant detail in the presentation. ANC MP Tidimalo Legwase wanted to know about its plan to reach the planned revenue targets. Freedom Front Plus' Tammy Breedt said the presentation was of a high level and filled with lots of fluff and a to-do list. 'We don't see how you will address internal control issues that have been an issue,' Breedt said. She also said Monaheng had, in his presentation, stated that Denel started taking a nose dive in 2020 during Covid-19, but the entity was last profitable in 2015/16. 'What was the reason for the initial five years of Denel not being profitable?' Breedt asked. Defence Minister Angie Motshekga said the term of office for the current board of directors was due to expire. 'We are consulting in government structures and the department in a strong Denel board,' Motshekga said. She also said the board chairperson, Gloria Serobe, has handed a letter asking to be released from the company.
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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. ALSO READ: Adequate emergency reserves in place for occasional system constraints – Eskom 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. NOW READ: Victory for Transnet: more cash incoming, union accepts salary increase
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