Denel’s efforts to restructure its business and implement a comprehensive turnaround plan are increasingly being recognised by analysts and rating agencies.

Danie du Toit, the Group Chief Executive of Denel says the decision by Fitch Ratings in London to affirm its long-term rating and to assign a “stable outlook” to the business is encouraging and will give further momentum to the efforts to restore the company’s credibility after a period of state capture.

“We note the many concerns about aspects of the business that are still raised by Fitch and continue to implement measures to mitigate these factors,” says Du Toit. “But we are also heartened by the positive aspects of our turnaround plan that are highlighted in the rating report.

In its report Fitch affirms Denel’s National Long-Term Rating at ‘B(zaf)’ and the National Short-Term Rating at ‘B(zaf)’. In addition, it has removed the previously assigned Rating Watch Negative and replaced it with a Stable Outlook.

Du Toit says the Fitch decision provides Denel “breathing space” to continue with its efforts to restructure the business, exit from non-core entities and find new markets for its advanced defence and high-technology products and services.

It also recognises that the ongoing efforts by the Board and management to restore good corporate governance are producing results and affirms the wisdom of government’s decision to provide a R1.8bn recapitalisation to the business.

Fitch describes this as “a significant capital injection” which is likely sufficient to restart operation processes but is unlikely to contribute to any meaningful deleveraging in the short-term.

It also notes that this is evidence of the government’s “ability and willingness to support Denel” and is supportive of Fitch’s National Long-Term Rating given to the company.

“We are confident that we will receive further support from our shareholder and that we will meet all the expectations of government, our clients and the South African public to turn Denel into a viable business again,” says Du Toit.

Fitch also emphasises the implementation of Denel’s turnaround plan with a focus on operational cost reduction, exiting onerous contracts, divestment of non-core assets and realising value through strategic equity partnerships.

Despite recent trade disruptions, Denel “continues to display a solid order backlog and the effective implementation of the turnaround strategy will stand the group in good stead to benefit from these orders.”

In explaining its decision, Fitch notes that is making the assumptions that Denel’s revenue will continue to decline but “return to solid growth” after the 2022 financial year. Operating losses will be reduced, and the group is expected to return to profitability from the 2023 financial year.

Du Toit says Denel is taking note of concerns about liquidity constraints and poor operating performance of the underlying business units, which have an impact on its short-term risks.

“We are addressing all these issues in a structured manner and with the support of our stakeholders in government. It is, however, clear that the turnaround is gathering momentum and I am confident that this will be increasingly reflected in the views of analysts and the broader business community,” he says.

Ends

For further information, contact:

Pam Malinda

Cell: +27 (0) 82 686 2198
Tel: +27 (0) 12 671 2662
email: pamm@denel.co.za

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