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Denel hopeful that it can pay 30% of June salaries

State arms manufacturer’s missile and UAV systems house, Denel Dynamics, is hopeful it will be able to pay 30 percent of salaries for this month as it struggles with a liquidity crisis. Picture. Supplied

State arms manufacturer’s missile and UAV systems house, Denel Dynamics, is hopeful it will be able to pay 30 percent of salaries for this month as it struggles with a liquidity crisis. Picture. Supplied

Published Jun 25, 2021

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STATE arms manufacturer’s missile and UAV systems house, Denel Dynamics, is hopeful it will be able to pay 30 percent of salaries for this month as it struggles with a liquidity crisis.

This comes shortly after Denel Land Systems (DLS) issued a communiqué to staff that it would be unable to meet salary obligations for the month.

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“Although the financial situation remains highly constrained, management has received some money from a foreign client and will make every effort to pay 30 percent of the June 2021 salaries this week,” Denel Dynamics chief executive Sello Ntsihlele said this week.

“Our efforts to support the programmes and secure funds for the outstanding salaries are ongoing, and we will keep you updated with further developments. With the other expected monies, we will endeavour to pay the outstanding salaries for April, May and the remainder of June 2021.”

Earlier this week, Business Report reported that Denel’s inability to pay employees for June was due to “a dire liquidity position, competing priorities and declining sales”.

In an internal memo to staff, DLS said it “did not foresee being able to honour financial obligations for the month of June”. This included “employee salaries, related statutory and third party payments”. Positive developments were anticipated in between three and six months.

Denel’s divisions and associated companies have to date a 12-month history of not meeting employee financial obligations and owe staff in excess of R500 million.

Staff from different divisions within the Denel group can be paid different percentages depending on each division’s revenue for that month.

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Darren Olivier, a defence expert and director at African Defence Review, at the time stated that it was grossly unfair to keep staff hanging in the balance, particularly as senior executives still earned full salaries.

“The long-term situation is caused by the corruption and mismanagement from the previous administration, which wrecked the company’s cash flow. The current situation is poor management within the group and ridiculous delays, along with a general lack of urgency from the DPE (Department of Public Enterprises).”

Last month, Public Enterprises Minister Pravin Gordhan said: “It is highly regrettable that Denel last paid full salaries in May 2020. The current amount owing to employees is about R500m. The business has subsequently experienced a loss of critical skills to both domestic and foreign companies. The board continues to make efforts to secure funding to pay salaries and implement its turnaround strategy and restructure Denel into a far more effective organisation.”

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Many Denel divisions are struggling to keep production going, with production standing at about 30 to 40 percent of capacity.

The United Associations of South Africa (Uasa) said this week the non-payment or short paying of salaries at state-owned enterprises had become a “new normal”.

Uasa’s national co-ordinator, Rick Grobler, confirmed to Business Report that the union, which represents most Denel workers, had engaged with the South African Revenue Service (Sars) about IRP5 returns for workers.

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Grobler said it had emerged that Sars was still taxing workers on full salary receipts when most had not been properly paid for over a year now.

“We sent a letter to Sars just last week to give clarity to our members. We want Sars to consider the plight of our members and treat their returns accordingly, these things differ from member to member. We are just bringing to the attention of Sars, giving assistance to our members. We are not dictating anything,” Grobler said.

Sars was not available to comment, and Denel was not able to clarify which other divisions were unable to pay salaries once again.

Denel has a court appointment later this month to clarify its liquidity position against the attachment orders obtained by Uasa and other creditors.

Uasa also has a writ to attach Denel equipment in respect of more than R500m adding up monthly, for salaries and other benefits owed to staff.

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BUSINESS REPORT

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Denel

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