We have never not paid salaries - Denel CEO | Fin24
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We have never not paid salaries - Denel CEO

Jan 31 2018 06:43
Lameez Omarjee

Cape Town – State defence manufacturer Denel managed to pay its employees salaries in December, said CEO Zwelakhe Ntshepe.

He was speaking at a briefing about the governance at state-owned companies, alongside Public Enterprise Minister Lynne Brown on Tuesday. The department was giving the portfolio committee on public enterprises an update on the status of entities Denel, Eskom and Transnet, among others.

Responding to a question about its ability to pay staff salaries after reports emerged in December that it was facing challenges with its liquidity.

“You have to understand Denel’s expenditure a month is more than R600m,” Ntshepe told the committee. The expenditure goes towards paying banks for loans, as well a suppliers and salaries. “We have to prioritise how we pay these monies,” he said.

Failing to pay banks means that Denel would default on its debt and this would trigger consequences for the company and government. “We will make sure we will never ever default.”

“Secondly, we have never not paid salaries at Denel,” he assured. There was a challenge to pay employees their 13th cheques in December, the unions had escalated the matter which is why it ended up in the papers, said Ntshepe.

“I am happy to say we paid all salaries, we do not owe anyone any salaries from this point. We will continue paying salaries. We did not have a problem paying salaries in January, we will not have a problem paying in February or in March.”

But Ntshepe explained that Denel’s expenses are not small.

“The issue of liquidity at Denel is a serious matter, it didn’t start now,” he explained. “Denel has never really made serious money.” The company managed to make sales over R400bn. He explained that the industry is not one where you could simply buy and sell to make a profit.

CFO Odwa Mhlwana also expanded on the nature of the group’s operations. He explained that Denel’s competitors source their business locally. “Their local defence force are the primary and the biggest buyers of the products they make,” said Mhlwana. This means they have leverage to negotiate better terms to sustain themselves.

“Only 20% to 25% of our business is local, 75% of our business is international. It reduces our ability to leverage and get the terms beneficial for sustainability.”

Speaking on the liquidity crisis, Mhlwana said that between 2001 and 2012, the business collected in excess of R46bn, but the net cash in the bank was -R4bn. “Throughout the period the business made no cash.

He explained that five years ago the turnover was in excess of R6.5bn, currently the turnover was round R8bn and that there was a constraint of cash generation in the business. For this reason there is no surprise that Denel is facing a liquidity crunch.

“As far as salaries and creditors are concerned, we had some relief in December in taking care of the issues but that does not give a lasting solution to the problem and we are working on it,” he said.

Incorrect reports

Responding to a question about the tabling of incorrect financial reports, Ntshepe said that the financial reports were not incorrect.

Last year Fin24 reported that the office of the auditor general instructed auditing firm SizweNtsalubaGobodo (SNG) to change its clean audit opinion on Denel after irregular expenditure had surfaced.

Denel responded soon after saying that there was nothing wrong with its audit, as it did include details of irregular expenditure as the office of the auditor general has asked for.

Ntshepe reiterated this on Tuesday. “Suffice to say, to me at this point in time, we have had discussions with ourselves, with our executive authority and with the auditors and I think we have moved very positively.”

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