Denel bounces back with Solidarity union in its corner

TRADE Union Solidarity claimed it had smoked the peace pipe with State arms manufacturer Denel and would suspend auction efforts to recover R318 million in outstanding worker salaries after the former committed to honouring its obligations.

Denel said yesterday it would waive its rights in compliance with the partnership after Denel’s board and corporate executives yesterday pledged to resuscitate the entity that has a more than R12 billion order book to regain its feet. “We have had assets sold off to meet the obligations of our workers, but now close to R318 million in outstanding salaries have been paid, we are patient toward for the organisation to regain its feet,” said Morne Malan, Solidarity’s spokesperson.

The State-owned company unpacked a comprehensive strategy for the stabilisation and restructuring with the aim to rebuild the reputation and capabilities of the company.

“There is now a clear and sustainable business case to underpin Denel’s future,” said Riaz Saloojee, the chief restructuring officer of Denel.

Saloojee said Denel could be self-sustaining with a R12bn order book over the next business plan cycle, which is six times its current annual revenues. If the turnaround of the business is successful there is a potential to grow the order book to R30bn.

Denel was a stable State-owned company between 2010 and 2015, but by 2016/17 showed signs of decline through a combination of state capture together with weaknesses in management, leadership, project execution and contract management.

The position was exacerbated by the Covid-19 pandemic which created the dire position that Denel finds itself in today. Revenue fell from a peak of R8.2bn in R2015/16 to under R2bn in 2021/22.

The new strategic direction enjoys the support of Denel’s shareholder, the Department of Public Enterprises and the Denel board. It would be strengthened through a formalised Memorandum of Co-operation with the Department of Defence and Armscor to ensure alignment on sovereign and strategic capabilities.

The government’s commitment to recapitalise a restructured Denel will provide a solid base for the immediate future.

Solidarity said it was happy that its workers had been paid close to the equivalent of the outstanding R318m and that they were committed to the turnaround of the entity.

“There is now a clear and sustainable business case to underpin Denel’s future,” said Saloojee. “Denel can be fixed. We are happy with the plan put forward,” he said.

“The current problem remains that the fixed cost of the business is far in excess of the revenue and executable business,” says Saloojee. “The only way for Denel to support itself is through a deep restructuring and reduction of the cost base to affordable levels.”

Higher levels of efficiency will be achieved through the restructuring by adopting a smaller geographic footprint and streamlining of policies and processes inclusive of the engineering, manufacturing and the support environment.

Financial viability will also be achieved through a range of strategic actions including the sale of non-core assets, the appointment and retention of able skills and leadership, and the normalisation of relationships with employees, suppliers and key stakeholders.

“We intend to grow long-term strategic partnerships with the local defence and technology sectors and entrench our position in the local and international markets,” said Saloojee.