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South Africa decided to re-capitalize Denel, the state-owned aerospace and defence company

South Africa decided to re-capitalize Denel, the state-owned aerospace and defence company

Denel is ready to move into the next phase of its strategic drive to strengthen its business and create a long-term, sustainable future based on improved business efficiencies and growth.

The decision to re-capitalise the state-owned aerospace and defence company with R3.4bn, announced by the Finance Minister, Enoch Godongwana in his medium-term budget policy statement (MTBPS) is a critical step in the rebuilding of Denel which is led by the Chief Restructuring Officer (CRO) Riaz Saloojee who plays a critical role in ensuring the successful turnaround of Denel.

Mike Kgobe the Interim Group CEO of Denel says “this will enable us to proceed with the streamlining of the business and establish a base from which we can significantly grow our order book and access new revenue streams.”

Kgobe states that the decision to recapitalise Denel is a vote of confidence in a credible process to stabilise the company as it emerged from a sharp downturn, caused by mismanagement, state capture and governance failures. Minister Godongwana noted that this will enable Denel to implement its turnaround plan and attain long-term financial viability.

He referred to Denel as an “important enabler of economic growth” which faces near-term challenges that require immediate injections of funds.

“Government, as sole Shareholder, clearly recognises the strategic importance of Denel as a commercially-driven aerospace and defence company and the immense value we can add to the economy in terms of innovation, creation of intellectual property and export revenue generation to contribute to the balance of payments,” says Kgobe.

The R3.4bn allocated to Denel with strict conditions as mentioned in the MTBPS and to be monitored by National Treasury, the Department of Public Enterprises and the Denel Board of Directors is a vital lifeline to enable the company to implement priority measures to sustain the business. The immediate actions by management with oversight of the Board is to exit non-core assets and realise cash inflows towards the R1.8bn that Denel will contribute towards its turnaround plan additional to the R3.4bn allocation. In line with its turnaround plan, Denel is proceeding with actions to align costs of running the business with the current revenue base whilst retaining core capabilities for growth.

“The focus is now shifting to a critical stage in which we need to sustain the new business model which is emerging,” says Kgobe. In this phase, Denel will implement deliberate steps to restructure the company and to reduce the current operating divisions from six to four to continue to deliver world-class products across the spectrum of aerospace, defence and related technologies – within the traditional domains of the battle space of land, sea and air, to new domains of cyber and civil security.

Kgobe says it became quite clear that the previous business structure of Denel was not sustainable. It required a fundamental restructuring and a reduction of the cost base to affordable levels.

Thus, the company will now begin to reduce its geographic footprint, rationalise its facilities and implement a shared services model in areas such as supply chain management, human capital and development, information and communication technology as well as finance and public affairs.

The company remains confident that the sale of non-core assets will realise the R1.8bn cash injection in the short to medium term whilst exit of non-profit-making operations will improve efficiencies and profitability. Kgobe says the recapitalisation by the shareholder will help to accelerate these processes and enable Denel to achieve stability and sustainability.

“I am confident that a sustainable business model will enable us to focus on growth,” says Kgobe. “There is still significant global interest in our battle-proven products in the fields of artillery systems, infantry weapons, small to medium ammunition and infantry systems as well as aeronautical solutions of manned and unmanned aircraft and landward combat vehicles with armoured protection.

“Our reputation for excellence and quality has not been dented, and there is still an appetite for partnerships with local and global companies in the aerospace, defence and technology sectors, he says.

In the coming months, Denel will identify new revenue streams and explore further market opportunities for its strong range of existing products as well as in the advanced technology sectors of systems integration, command and control and cybersecurity.

A strengthened and sustainable Denel will be able to retain existing skills and attract some of the best brains that are emerging in the country. “We are going to prove that Denel remains a valuable asset of which all South Africans can be proud of,” says Kgobe.



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