Denel Annual Report 2006/7:briefing
Meeting Summary
A summary of this committee meeting is not yet available.
Meeting report
PUBLIC ENTERPRISES PORTFOLIO COMMITTEE
29 October 2007
DENEL ANNUAL REPORT 2006/7: BRIEFING
Chairperson: Ms F Chohan (ANC)
Documents handed out:
Denel
Annual Report presentation
Denel Annual
Report 2006/7
Audio recording of
meeting
SUMMARY
Members met with Denel in order to discuss the annual report. Denel’s presentation outlined the company’s
performance during the financial year, and focused on the achievements and
challenges that had been faced during the financial year. It was stated that
Denel planned to be financially viable on a sustainable basis within 24 to 36
months. However this could only be possible if all plans, some of which were outside
Denel’s plans, were implemented.
Members raised several issues with regard to Denel’s human resource management
and its financial performance. They questioned whether the many directorships
held by the board members of Denel’s board to State Owned Enterprise’s (SOE’s)
poor performance. Members also seeked clarity on Denel’s new incentive programme, and whether employees would loose their fixed
salary. Denel was also questioned on why the presentation made no reference to
the disciplinary actions taken against managers, and the steps that had been
taken to boost the low staff morale at the organisation. The Chairperson asked
comment on whether the army was a sufficient client base and also whether it
was possible for Denel to compile a report, which detailed the legacy issues at
the organization.
MINUTES
Denel Annual Report presentation
Mr Shaun Libenberg, Group CEO, and Mr Hugo M Ivy, Group Executive: Human Resources, provided a detailed presentation which outlined
Denel’s performance during the financial year. Denel was faced by many
challenges, many of which stemmed from the fact that Denel had a fixed cost
problem as a result of insufficient local sales and high sales costs. It
however planned on forming partnerships with various agencies in order to
stabalise the balance sheet. Some of the achievements during the financial year
include the progressive unbundling of the organization into separate entities
and the completion of the software acceptance programme. Denel planned to be
financially viable on a sustainable basis within 24 to 36 months. However this
could only be possible if all plans some of which were outside Denel’s plans
were implemented.
Discussion
Dr M Van Dyk (DA) stated that Denel board consisted of 13 directors who
together served on 111 different boards. Denel should state whether the many directorships
contributed to the state-owned enterprises’ (SOE) poor performance. Clarity
should also be provided on why senior managers received performance bonuses increase
of between R50 000 to R80 000.
Mr Libenberg replied that he could not answer for the board. However it had not
found that any of the board members were lacking in contribution. The Board
members meet regularly, and members were briefed regularly.
Mr Talib Sadik, Group Financial Director, replied that the numbers provided by
Mr Van Dyk could not be commented on, however there was an interim incentive
method paid to the executives, before the new system was implemented.
Mr C Gololo (ANC) asked for comment with regard to criteria used for youth
development programmes, and also comment on how the
youth could get in touch with the development programme.
Mr Sadik replied that the youth development programme was done in conjunction
with the Department of Defence. Students came from all areas within the
country. The programme was of great success; however Denel felt that whenever a
particular request was made, Denel was open to looking into it.
Mr P Hendrikse (ANC) asked for clarity on whether the 25% quartile listed in
the presentation was meant to address the top 25% or bottom 25%. The Committee
was concerned with the amount of directorships in which the board members sat
on and Denel should other boards they served on.
Mr Libenberg replied that the amount listed represented 25% at the bottom
quartile.
Mr R Nogumla (ANC) stated that the presentation made no reference to the disciplinary
actions taken against managers. Clarity should be provided on what caused the
low staff morale at Denel, and what remedy programmes have been implemented to
address the situation.
Mr Sadik replied that Denel did take disciplinary action against its staff and
it was reported to the audit committee.
The Chairperson asked for an analysis on how many cases there were
Mr Sadik replied that at the moment there were no disciplinary cases pending,
and Denel was tightening up its systems and processes
Mr Libenberg replied that there was a huge improvement with regard to the low
morale of staff. The staff at Denel had belief and faith in what was happening
to the company, despite the huge losses. It should be noted that in some of Denel’s
businesses morale was very high.
Mr Z Kotwal (ANC) asked for clarity on whether there were any programmes in
place for pilot training.
Mr Sadik replied that Denel had a number of students on youth and development
programmes, and when they left Denel some would join the airforce, as Denel did
not offer pilot training.
Ms Kondlo asked whether the incentive bonus made to all employees, applied to
all employees. With regard to the Board of directors, it was pleasing to see
that one member has 100 percent board attendance.
Chairperson also asked for elaboration on how the incentive bonus system worked.
Mr Sadik replied that the incentive bonus system operated on a pay at risk
system. If an individual was on a fixed pay Denel would increase the amount
paid to the individual and then incentivize the increase. Therefore amount
incentivized would be the one at risk. The higher the employee was at the organization,
the higher the amount of incentive at risk. The system was introduced in April
2007, and each employee received a letter notifying them of the increase.
The Chairperson stated that Denel’s next annual report should provide information
on whether the incentives were achieved.
Mr C Gololo stated that if Denel continued to incur huge loses, would that mean
that salaries would have to be cut down.
Mr Sadik replied that the whole reward programme was based on Denel achieving. Since
Denel had been decentralized, the incentive system was easy to implement in
that individuals would receive incentives for areas in which they had control
over
Ms N Kondlo (ANC) stated that the presentation indicated that Denel was selling
off some of its non core assets, and clarity should be provided as to whether
the sale affected employees.
Mr Libenberg replied that the non core assets were in most cases property. No
employees were involved in most of the selling process, as some of the companies
sold were sold as a going concern, with the employees.
Dr Van Dyk asked Denel to explain the fact that R3.5 million was issued to the
CEO as a performance bonus, despite the huge losses.
Mr Libenberg replied that the issue was an issue of principles. If one was
tasked with fixing a company then they should at least be some sort of
incentive for his efforts if there was an improvement.
Mr John Morris, Chief Director: Defence Strategy, added that it was not fair to discuss individual
packages. The package was discussed and determined by the Department and the
individual.
Dr van Dyk stated that Denel claimed that no company in the world could do what
it did, yet at the same time it perfromed poorly. Reasons should be provided
for Denel’s poor performance.
Mr Libenberg replied that Denel undertook a recapitilisation project of R3.5
billion. The money was used to pay off past debts. The total recapitalization
projects were divided into two. It should be noted that all debts and loans had
been paid off. The reason why Denel ran at a loss was because it had a fixed
cost base. The recapitalization project was implemented in order to put the
balance sheet into place. Denel still urgently needed to raise sales, because
the sales were still not at the correct level. Denel was also looking into proposing
equity partnerships in order to help the company run at a profitable level.
The Chairperson asked Denel to provide a report to the Committee which outlined
all the legacy issues. Denel should also provide clarity on how much it spent
on research and development and also provide clarity on the once off costs.
Mr Ivy replied that spending on research and development was between 1 and 2%
of the budget. Research and development meant decentralizing all of the
entities and aligning them with the market needs of the
Audio
No related
Documents
No related documents
Present
- We don't have attendance info for this committee meeting
Download as PDF
You can download this page as a PDF using your browser's print functionality. Click on the "Print" button below and select the "PDF" option under destinations/printers.
See detailed instructions for your browser here.