South African State-owned defence industrial group Denel announced on the Stock Exchange News Service on Friday that it had released its annual report for the 2018/19 financial year (FY). By just about every metric, the group’s position deteriorated from FY 2017/18 to FY 2018/19.

In FY 2018/19, revenues were R3.8-billion, down from R5.8-billion in FY 2017/18. But borrowings went up, to R3.4-billion in FY 2018/19 from R3.3-billion in FY 2017/18. Note how close the FY 2018/19 figure for borrowings is to the number for the revenues for that same year. The debt equity ratio was -2.05:1 in FY 2018/19, as against 7.39:1 in FY 2017/18.

The group’s losses worsened, to R1 749-million in FY 2018/19 (from R1 053-million in FY 2017/18). Cash fell dramatically to R575-million in FY 2018/19 from R1.3-billion in FY 2017/18. Research and Development (R&D) spending collapsed to R108-million in FY 2018/19 from R769-million in FY 2017/18. (R&D spending for FY 2018/19 was actually budgeted at more than R454-million, but this could not be achieved because of “liquidity constraints”.)

In FY 2018/19, spending on skills development also fell, to R32-million (from R52-million in FY 2017/18), while corporate social investment saw a huge decline, to R593 000 (from R9.4-million in FY 2017/18). And the work force was reduced to 3 968 (from 4 629 in FY 2017/18).

Denel’s business divisions are Denel Aeronautics, Denel Dynamics, Denel Land Systems (DLS), Denel Overberg Test Range (OTR), Denel Pretoria Metal Pressings (PMP), Denel Sovereign Security Solutions (Denel S3), Denel Vehicle Systems (DVS) and LMT. In FY 2018/19, in comparison with FY 2017/18, Denel Aeronautics’ revenues fell by 25% and its export revenues by 55%; Denel Dynamics’ revenues came down by 57% and its export revenues by 62%; DLS revenues declined by 25% and its export revenues by 32%; OTR’s revenues decreased slightly, by 3%, while its export revenues fell by 34%; PMP’s revenues dropped 49% and its export revenues by 67%; DVS revenues fell by 56% and export revenues by 62%; LMT revenues were down by 11% but it accrued export revenues of R137-million in FY 2018/19 in comparison to zero in FY 2017/18. No figures were provided for Denel S3.

“After eighteen months of walking in the dark, the Board [appointed in May 2018] is confident to announce that Denel has core products, basic systems and skills which form the critical and required base for an effective business turnaround,” assured Board chairperson Monhla Hlahla in her introduction to the report. “However, the journey to a positive outlook requires very tough choices by the Board and in particular the policy maker (Department of Defence) and the Shareholder (Minister of Public Enterprises), to craft a smaller, focused, responsive, value adding and standalone business with limited to zero dependency on the fiscus, in the long term.”