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Denel widens its net losses to reach R1.96 billion during last year

Denel reported that its revenue declined 19.95 percent to R2.73 billion from R3.41bn the prior year. Photo: Siphiwe Sibeko/Reuters

Denel reported that its revenue declined 19.95 percent to R2.73 billion from R3.41bn the prior year. Photo: Siphiwe Sibeko/Reuters

Published Feb 2, 2021

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DURBAN - DENEL operations continued to extend its losses despite massive bailouts from the state.

The state arms-manufacturer reported that its revenue declined 19.95 percent to R2.73 billion from R3.41bn the prior year, as liquidity constraints forced it to battle with low funds to meet all its operational requirements.

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Denel received R1.8bn in recapitalisation from its shareholder in August 2019, which it utilised to repay long-overdue creditors, settle debt and kickstart operations that had slowed down significantly due to suppliers requesting upfront payments under certain circumstances. However, its cash flows from operations remained negative at R811 million despite the recapitalisation, as a result of delayed deliveries to customers due to poor contract and working capital management.

Denel said that its earnings before interest and tax more than doubled to a loss of R2.23bn compared to a loss of R1.10bn reported a year earlier. It said its net loss rose to R1.96bn from R1.47bn last year. The group said the net losses were primarily as a result of a delay in sales. “Denel has further been negatively impacted by the reduced margins due to under-recoveries as a result of lower operational activities and reduced margins on contracts due to liquidity shortfalls delaying payments to suppliers,” the group said.

Denel has a domestic medium-term note programme of R4bn that allows for short and medium-term debt issuance. The group said R3.43bn of the amount was government guaranteed and the guarantee matures on September 30, 2023. “The majority of the debt issued is short term for a period of 12 months, and is likely to remain as such under current economic conditions,” it said.

Interim chief executive Talib Sadik said despite the challenges facing the defence and technology industries locally, the group remained committed to its efforts to transform the organisation into a sustainable defence and advanced manufacturing company.

“As part of Denel’s turnaround strategy approved by the board in 2018, the company embarked on a process to exit unprofitable, non-core businesses. This created the opportunity to acquire strategic equity partners, which will enable Denel to secure market access and generate cash, thereby restoring its financial sustainability,” Sadik said. Looking ahead, the group expects the global defence industry to decline as the world economy deals with the impact of the Covid-19 pandemic. “The full impact is not yet fully appreciated, however, we expect a further decline in the defence budget as some countries realign their available resources,” the group said.

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