Denel in severe financial trouble - UASA

Union says workers have not been paid (self-funded) 13th cheque due at end of November

Denel workers’ self-funded bonuses withheld

UASA requests urgent forensic audit

State-owned company (SOC) Denel employees are incensed because the company did not pay out their self-funded bonuses at the end of November. Workers now want to know what happened to their bonus savings.

The workers’ so-called “13th cheques” come from a self-funded employee savings initiative. Workers forgo a part of their salary every month, which must then be paid out to them at the end of November to serve as a bonus for December each year.

When UASA raised concerns about the non-payment with Denel Corporate regarding their one-sided action, we demanded the workers be paid their self-funded bonuses before close of business on 30 November 2017, the reply from Felane Mahlangu, Transformation Manager at Denel Corporate, was simply: “I am still awaiting a comprehensive response from Finance; but indications from Treasury are that payments will not happen today or tomorrow as per your deadlines”.

UASA interprets this statement, from a technical perspective, as Denel committing fraud by “withholding” of “stealing” the workers’ own money. Noting the serious financial difficulty within Denel, one has to ask the question if there will be funds available for salary payments at the end of December 2017.

It is our understanding that instruction from Denel Corporate to its divisions was to ensure they “do the best they can”, with the finances allocated to them for the November salary payment, as to ensure employees at least receive their normal salaries.

This is also the second consecutive year that Denel indicated to employees that performance bonus payments have to be postponed. After much deliberation and a mandate from labour union members, Denel Corporate made a decision to make such payment over a six month period – that is to make funds available, on a monthly basis, to the divisions as to make payment to selected individuals within the divisions. The last bonus payment is to take place by end March 2018 which obviously indicates a worse scenario than that 2016/17 financial year bonus payment, where final bonus payment was made on 23 December 2016.

Denel may currently have problems with its obviously poor financial status, but it must be noted that the said bonus system is self-funding. The question then is what happened to the bonus funds? Such funds are to be safeguarded for the intended purpose, and even more so since the funds belongs to the employees.

Denel must take responsibility for the situation and what lies ahead for the 2017/18 financial year, ending end March 2018.

Given Denel’s financial difficulties and inability to pay employees their bonus payment on time, the following is important to note:

- Payment to suppliers is a serious problem in the SOC, which contributes to the non-delivery of equipment, spares, etc. Such non-payment/part payment to suppliers, adding up to millions, is obviously adding to the insecurity and finalisation of contracts for Denel. Do suppliers and new business opportunity companies lost their trust in Denel?

- Less than 60% of the Denel target for available cash has been secured, which should question the ability to secure and finalise current contracts.

- Although it is known that some divisions, including LMT and Dynamics, are not performing well, it is fact that PMP’s underperformance is mostly because of the continued breakage of antiquated machinery. Due to the cash flow shortage within Denel any replacement with updated machinery does not look promising.

Denel Corporate management, including its Group CEO and Group CFO must do everything in their power to manage their financial problems, including the availability of cash. Some of these problems include:

- New appointments at Denel Corporate at an increase in the salary bill;

- That the CEO and CFO are to receive 50% of their annual salary as a performance bonus.

Serious concerns related to the current management of the business, loyal clients and suppliers losing trust in Denel due to short or no payment, late delivery dates, and their alleged links with the Gupta family, led to an outcry for action by Denel employees.

This further led to trade unions affiliated to Fedusa initiating the Section 77 Notice at Nedlac earlier this year. Fedusa lodged the application under the provisions of the Labour Relations Act to protest against Government’s failure to appoint competent, ethical, accountable, responsive and responsible management to SOCs, including Denel. 

Fedusa General Secretary Dennis George said that in this respect government’s failure has seen Denel progressively fall into a state of dysfunction, maladministration and becoming a huge financial drain on the fiscus in the form of continuous multi-billion rand bailouts and government guarantees that help them secure overdraft facilities at commercial banks. It is common knowledge that this has a serious impact on the broader civil society and all the employees and their families.

It further negatively affects the term and conditions of employment, safety in the workplace, and the job security of employees. The key features of the Section 77 Notice include Fedusa’s proposal to appoint independent forensic auditors and that the Fedusa affiliated unions, Nedlac and all other recognised unions at the SOCs be allowed full and unhindered access to their internal and external reports of the past three years.

To prevent further damage and disruption to Denel’s public and international image, UASA requests urgent intervention to ensure a full forensic audit regarding Denel’s financial position.

Although there are regulated forums within Denel (RTCC and Labour Forum) to ensure regular interaction between Denel and its workers, it has become evident that there is no communication between Denel corporate and its workers regarding any concerns, and neither is there an opportunity to get insight to Denel’s strategy, concerns and understanding of the way forward.

It is imperative that Denel focus on transparency and make sure all its workers understand the company’s position to prevent uncertainty or disruption within the company.

Statement issued by Andre Venter, spokesperson of the trade union UASA, 4 December 2017