After nearly a decade of loss-making, state-owned arms and aerospace manufacturer Denel has posted an unaudited R223m after-tax profit for its 2024/25 financial year, swinging from a loss of R550m the previous year.
The return to profitability was earlier than expected, group CEO Tsepo Monaheng told parliament’s joint standing committee on defence.
The group has consistently made losses since 2015/16, with state capture opening the way to widespread corruption and mismanagement. This resulted in irregular contracts, loss of business and a reduced capacity to operate. Denel’s reputation suffered and it lost invaluable engineering skills.
Former Denel chair Daniel Mantsha andformer CEO Zwelakhe Ntshepe are facing charges of fraud and corruption for their alleged dealings with Gupta-linked companies.
The government has had to step in to salvage the ailing company, providing a total of nearly R9bn in bailouts that were intended to help fund its turnaround strategy.
Covid-19 also had a huge impact on Denel’s business as countries cut their defence spending and foreign orders — an essential part of its business — dried up. Its inability to raise guarantees also crippled the business.
Revenue, which has also been going downhill since 2015/16 when it was R8.4bn, is projected at R1.3bn for 2024/25.
The company continues to make losses at operating level, posting after-tax profits in the latest year only thanks to other income.
Monaheng told MPs that operating profit was the most important measure and the group expected to return to profitability only in 2028, when it projected an operating profit of R29m on revenue of R3bn.
It expects the operating loss to narrow to R330m in 2025/26, from R649m in 2024/25 and R1.1bn in 2023/24. But net investment income of R208m and a R401m share of profit from associated companies will offset the 2025/26 loss.
The company is still burdened with high levels of debt, which Monaheng said made it difficult for Denel to turn around as it had to prioritise payment to creditors.
However, good progress was being made in generating revenue by winning contracts, he said, which meant the countries placing orders with Denel were gaining confidence that it had turned the corner. It was critical to win back the trust of customers that the group performed as agreed on contracts, he noted. Orders of R1.4bn were concluded in 2023/24, rising to R4.3bn in 2024/25 and Monaheng said the pipeline of “highly likely” orders stood at R45.7bn.
Defence minister Angie Motshekga said the lack of guarantees for contracts was a huge problem for Denel, which experienced difficulty in getting them as the banks were not supportive given its problematic history.
Securing these guarantees is vital for Denel to secure contracts as its customers require this form of insurance to know it can meet its contractual obligations and to mitigate the risk of default.
The strategy to sell noncore and associated businesses did not materialise, Monaheng said. The aim now was to make them value-creating and self-sustaining. It was also looking at taking control of associated companies.
He said internal controls were being strengthened “as we can’t go back to where we come from in terms of how we run the business”.
The group had also embarked on a culture shift. Another priority this year would be to invest in a new ICT system within the group to replace the current fragmented one.
Monaheng was confident that Denel had an internationally competitive product portfolio and was exploring international technology partnerships. It aimed to have foreign contracts representing 60% of its revenue with the remainder coming from Armscor.
Rheinmetall Denel Munition, a joint venture with German group Rheinmetall Waffe Munition, which owns 51% of the company, had delivered about R100m in dividends to Denel in the past financial year.
Meanwhile, Motshekga told MPs that Denel chair Gloria Serobe had submitted her resignation on June 19. The appointment of a new board would be finalised soon. Denel had “amazing” capabilities and assets and was a valuable national asset that had to be protected.
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