The South African company that hasn’t published financial statements in five years

State arms manufacturer Denel has not published financial statements since the 2019/20 financial year, when it was technically insolvent and reported a loss of R1.96 billion.

Denel’s liabilities exceeded its assets by nearly R2.3 billion, rendering it technically insolvent. This means it could not cover its debts even if it sold all its assets, collected all outstanding accounts payable, and used all its available cash.

Intertwined with Denel’s financial crisis was a mass skills exodus to the United Arab Emirates and allegations of intellectual property theft — by the United Arab Emirates (UAE).

Denel is one of the state-owned companies that the Zondo Commission of Inquiry found suffered severely under state capture.

Corruption and mismanagement gutted the once-proud arms manufacturer, which developed great products like the Rooivalk attack helicopter and the G6 self-propelled howitzer.

Its revenue plummeted from R8.2 billion in 2015/6 to R2.4 billion in 2019/2020. It also had irregular expenditure of R3.2 billion during its last recorded financial year.

Due to its financial distress and lack of skills, Denel was unable to pay salaries or issue employee tax certificates in 2022.

As a result, trade union Solidarity obtained a court order to seize some of Denel’s assets and auction them off to pay R90 million in outstanding salaries.

Solidarity also revealed at the time that most Denel divisions had not paid employees’ income tax to SARS, despite deducting it from their salaries.

Denel’s inability to pay salaries accelerated the staff exodus and deepened its skills crisis.

To get Denel back on its feet, the late former public enterprises minister Pravin Gordhan approved a R9-billion bailout over five years for the state-owned company.

Last February, Denel board chair Gloria Serobe told Parliament’s standing committee on public accounts (Scopa) that the company’s realised net loss amounted to R463 million as at 31 December 2023.

This was 37% worse than the projected R339 million in losses the company had expected to make that year.

In the year that followed, the Auditor-General of South Africa issued a disclaimer of opinion on Denel’s financial report. By February 2025, Denel had still not presented updated financial statements to Scopa.

Denel’s skills and financial crisis

Serobe told Scopa that Denel’s financial distress and lack of skills were why the company had been unable to deliver its updated and fully audited financial statements.

She said the initial delay in submitting the audit report on the consolidated financial statements was mainly due to Covid-19 and staff resignations.

Pressed about Denel’s failure to produce financial reports for several years in a row, Serobe called on chief financial officer Matodzi Mukwevho to provide context.

When he joined Denel, Mukwevho said he found a finance department where people were generally in acting positions and often out of their depth.

Mukwevho said many of the roles people were required to act in demanded a higher level of experience and skill than they had at the time.

Mukwevho said the company “found itself in a situation” where no financials had been prepared three years.

As a result of the skills crisis, he said the Auditor-General ended up disclaiming the financial report Denel submitted for the 2020/21, 2021/22, and 2022/23 financial years.

It should be noted that the 2019/20 results were also disclaimed. A disclaimer of opinion occurs when the entity cannot provide sufficient evidence in the form of documentation on which to base an audit opinion.

To address the Auditor-General’s concerns, Mukwevho said consultants had to be hired to prepare financials for the disclaimed years.

According to Serobe, the financial statements have been completed and resubmitted for audit on 20 December 2024.

Mukwevho said that after they received the disclaimed audit opinion, Denel’s management and the board agreed to pause and take two months to bring everything in order before preparing the next set of financials.

In February, Denel was still busy finalising its annual report for the 2023/24 financial year. Its 2024/25 financial year has since also ended and those financial statements are now also pending.