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Denel wants R2.8bn govt bailout

Jul 05 2019 15:21
Carin Smith

Denel wants the SA government to give it a R2.8bn financial boost, a spokesperson for the state-owned arms manufacturer told Fin24 on Friday.

The spokesperson confirmed what CEO Danie du Toit had told news agency Reuters earlier, namely that there has been progress with a turnaround strategy for Denel and that a R2.8bn cash injection from government would be used to obtain potential export deals that could be worth up to R30bn.

Du Toit was appointed CEO in December last year to try to turn Denel around. He is a former managing director at SAAB Medav Technologies in Germany.

Denel is facing financial challenges and it hopes to obtain the cash injection from government within the next two to three months.

The spokesperson confirmed that Denel does not intend to sell any stakes in any of its divisions to the Saudi Arabia state defence company SAMI.

In December last year, Denel told Parliament's portfolio committee on public enterprises that it had made a loss of R1.7bn in 2018. The company's revenue fell from R88.4bn in the 2016/17 financial year to barely over R8bn in 2017/18.

At the time, Denel forecasted that its revenue would fall to just R4.9bn for the 2018/19 financial year.

Fin24 reported at the time that Denel bore the brunt of a major financial fallout due to mismanagement, as well as a deal it was tied into by previous leadership that exposed it to risks through companies like Denel Asia and VR Laser.

In June this year, Denel had to scramble to get enough money to pay staff salaries for that month. At the time, Du Toit said it was due to "ongoing liquidity challenges".

At the last minute, Public Enterprises Minister Pravin Gordhan announced a lender had come to the assistance of the state-owned company, and that full salaries would be paid to all its employees.

Gordhan said at the time that there was no clearer example of the damaging effects of state capture than the financial strain and uncertainty the 3 500 Denel employees and their families could face each month if Denel's liquidity problems continued.

He said Denel had implemented several turnaround measures, including renegotiating existing contracts, reviewing its supply chain and procurement processes to reduce costs, as well as reducing employee costs through voluntary severance packages.

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