Denel remains positive about its future as the issues raised by Fitch Ratings will be resolved through the successful implementation of the company’s recently approved strategy. Fitch Ratings recently down-graded the company’s national long-term rating from ‘AA-(zaf)’ to ‘B(zaf)’.
“We know that Government is cognisant of the fact that Denel is in need of additional liquidity to rebuild its business,” says recently appointed Denel Group Chief Executive Officer, Danie du Toit.
During the Minister of Finance budget speech in February, Minister Mboweni announced a contingency reserve of R13 billion for 2019/20 which Denel is preparing to submit a funding application.
Denel has undertaken a strategic review of its business to establish the extent and timing of the required government support, taking into account the benefits to be realized as implementation of the company’s strategic plan gains traction.
A lot of headway has been made by the current Board in support of the turnaround and growth of the business.
“The Board has taken far-reaching steps to restore good corporate governance. We have a new experienced management team, with a number of executive positions currently being filled as we speak. We have a new strategy and a management structure that has recently been approved to stabilise Denel and achieve long-term growth”, says Du Toit.
As part of the company’s new strategy, Denel will dispose of non-core assets, including under-utilized properties and enter into strategic equity partnerships in some of its businesses to strengthen market access and enable the development of new technology, whilst ensuring the protection and growth of strategic defence capabilities.
Part of the turnaround has seen the company put systems and processes in place to strengthen governance, improve programme management, drive efficiencies and grow revenues.
“We are confident that the outlook for Denel will be further improved once the implementation of the new strategy and operational plan are in place and all corporate governance issues have been successfully dealt with,” says Du Toit.
Denel has established a team to investigate all cases of possible irregular expenditure and recommend corrective action. “There will be consequences for those executives implicated in irregularities including disciplinary and legal action taken against the individuals” says Du Toit. The company is also cooperating with the judicial commission into state capture – Zondo Commission of Inquiry – and investigations by the Special Investigating Unit (SIU) and other applicable state agencies.
Key issues identified by the Auditor General in the last assessment of Denel’s financial statements are being addressed. An independent audit firm was appointed to bridge the IFRS technical skills gap within the organizations and Denel’s supply chain management policies are currently being reviewed.
Du Toit says the Board together with management are committed to not only strengthening corporate governance within Denel, but are further working on rebuilding the loss of public trust in the company.