State-owned arms manufacturer Denel, which has not produced a profit since 2016/17, generated earnings before interest and tax of R390m in the year to end-March 2023.
In the previous year, the group made a loss of R747m.
Acting CFO Thandeka Sabela told parliament’s standing committee on public accounts (Scopa) that the positive result was mainly a result of the R992m in surplus funds received in August through the unbundling of the Denel Medical Benefit Trust.
Revenue came in at R1.5bn compared to the previous R1.4bn.
Sabela assured MPs the assets of the company, which has remained insolvent for several years, exceeded its liabilities at end-March and that based on projections, it would be able to meet its liabilities for the next 12 months.
Denel board member and member of the group’s audit and risk committee Tryphosa Ramano said the R3.4bn recapitalisation by the state had resolved the group’s solvency and liquidity problems.
But MPs raised concern about the instability of the organisation, which has had an interim chair, Gloria Serobe, since February 2021, a series of interim group CEOs and an interim CFO since March 2021.
The present interim CEO, Michael Kgobe, took office in September 2022, after the contract of the previous interim CEO William Hlakoane, who was appointed in February 2021, had come to an end. Hlakoane replaced the previous interim CEO Talib Sadik who was appointed in August 2020 to replace CEO Danie du Toit who left after serving only 18 months.
Serobe gave the assurance that the board process of appointing a permanent CEO and CFO could begin now that Denel had the funds to pay their salaries. Denel only received the R3.4bn bailout announced in the October 2022 medium-term budget policy statement towards the end of March. It was envisaged that the permanent CEO and CFO positions would be filled by October.
Serobe said the responsibilities of the chair remained the same whether the position was an interim one or permanent. The board was talking to the shareholder — the department of public enterprises — to get two more board members to supplement the six-member board.
Deputy public enterprises minister Obed Bapela assured that the current board members were permanent appointments.
Kgobe told MPs that at end-March, Denel had a headcount of 1,670 employees including 170 contract workers, and targeted a number of 1306. In 2021, the headcount was 2,587.
Denel’s turnaround plan rests on the R3.4bn recapitalisation and the R1.8bn it expects to receive from the sale of noncore assets. It plans to complete its restructuring within the next six months.
Kgobe said that in terms of the new operating model, Denel would focus on the four areas of guided weapons, integrated systems solutions, landwards and air.
The introduction of a shared-services model allowed for the rationalisation of resources and costs in support functions such as human resources, business development, supply chain management and information and communication technology (ICT) services.
Kgobe said Denel was ready to enter a growth phase through the unlocking of the opportunity pipeline and improved efficiencies and productivity.
Denel was confident it could secure new orders by March 2024 and that the company would be fully back on a growth trajectory by the middle of 2024, Kgobe said.
The Special Investigating Unit (SIU), lead by its chief Andy Mothibi, briefed the committee on the investigations undertaken at Denel into alleged irregularities that occurred between 2015 and 2019, in terms of a 2019 proclamation.
He said the investigations were largely complete. Civil litigation would follow and could result in applications for the declaration of former board members as delinquent directors.
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