New Injection in Denel will Revitalise the Business
Denel is ready to move on to the next step of its strategic plan to improve its business and build a long-term, stable future based on growth and better business efficiency.
The Finance Minister, Enoch Godongwana, announced in his medium-term budget policy statement (MTBPS) that R3.4 billion would be used to recapitalise the state-owned aerospace and defence company, Denel. This is an important step in rebuilding Denel, which is led by the Chief Restructuring Officer (CRO), Riaz Saloojee, who plays a key role in making sure Denel turns around successfully.
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 R3.4 billion given to Denel with strict conditions outlined in the MTBPS and to be monitored by the National Treasury, the Department of Public Enterprises, and the Denel Board of Directors is a crucial lifeline that will allow the company to take priority measures to keep the business going.
The immediate actions by management, with oversight of the Board, are 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 plan to turn things around, Denel is taking steps to make sure that the costs of running the business are in line with its current income while keeping its core capabilities for growth.
“The focus is now shifting to a critical stage in which we need to sustain the new business model that 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 that the shareholder's recapitalisation will help speed up these processes and make it possible for 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 for 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 find new ways to make money and look for more market opportunities for its wide range of existing products and in the advanced technology fields of systems integration, command and control, and cybersecurity.
A stronger and more stable Denel will be able to keep the skills it already has and bring in some of the best new minds 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.