June 25, 2019 / 7:21 AM / 20 days ago

South Africa's state defence firm Denel struggling to pay wages

JOHANNESBURG, June 25 (Reuters) - South Africa’s state-owned defence group will only pay employees 85 percent of their salaries this month because of liquidity problems, a memo to staff seen by Reuters showed on Tuesday.

The cut to wages highlights the severity of the financial crisis at Denel, which makes ammunition, missiles and armoured vehicles for the South African armed forces and customers in Africa, the Gulf and Europe.

The company has been working on a turnaround plan with the government, but it has so far failed to secure the significant cash injection it wanted.

South Africa’s public finances are stretched by the need to rescue ailing state power company Eskom and South African Airways, which is heavily loss-making.

“Regrettably, employees will receive 85% of the salary obligation for June,” the memo signed by Chief Executive Danie du Toit said. “Management are working tirelessly to ensure that the delayed portion of the salaries will be reimbursed as soon as possible.”

Denel confirmed in a statement that it had decided to only pay 85% of June salaries for now.

Denel struggled to pay salaries to some staff in September last year, but it since resumed full payment.

It has offered severance packages to staff and is trying to renegotiate onerous contracts and exit parts of its business to cut costs and return to profitability. (Reporting by Alexander Winning, editing by Louise Heavens)

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