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The Select Committee on Public Enterprises and Communication heard that Denel is structurally and operationally inefficient, revenue generation and programme and cash management need to be reformed, while costs must be reduced. Denel appeared before the committee yesterday to brief it on the entity’s financial and legal challenges relating a court order to pay employees’ salaries. The delegation was led by the Deputy Minister of Public Enterprises, Mr Phumulo Masualle.
 
Briefing the committee, Denel’s Acting Chief Executive Officer, Mr Talib Sadik, told the committee that, despite the turnaround strategy, Denel has a liquidity crisis and its order book is exposed to significant risk. Furthermore, ratings agency Fitch downgraded Denel to a CC(zaf) rating, because of delay and insufficient support from the stakeholder, resulting in a weakened standalone credit profile.
 
Denel’s debt profile has worsened, Mr Sadik said, and while the government guarantee is extended to September 2023, lenders have invested short-term. Audited financial loss of R1.9 billion in the 2019/20 financial year due to significant decline in revenue has contributed to the current liquidity challenges.
 
Denel has been unable to manufacture world-class products and systems, and Covid-19 has exacerbated its problems, according to Mr Sadik. From May to July 2020, Denel was unable to pay full salaries and statutory obligations due to a decline to productivity.
 
The Chairperson of the committee, Mr Tshitereke Matibe, told Denel’s delegation that management must also experience the pain of salary interruptions and cuts. “It can’t be just the general employees who feel the consequences of the decline of productivity at Denel in the form of salary cuts or no salaries. The management must also feel the crisis,” he said.
 
The committee told Denel it must return to brief the committee on the turnaround strategy’s performance, and plans to restore its reputation and workers’ morale.

Issued by The Chairperson of the Select Committee on Public Enterprises And Communication, Tshitereke Matibe