State arms manufacturer Denel is scheduled to revise its pre-tax loss for the 2004/05 financial year to R1,6bn, some three times the R500m originally forecast, CEO Shaun Liebenberg told MPs today.

He also divulged that a R700m loss for the arms parastatal for the current financial year ending in March 2006 was provisionally projected.

Speaking to members of the public enterprises parliamentary portfolio committee, Liebenberg said included in this figure for 2004/05 were "exceptional costs" of over R600m.

Liebenberg, who took over as CEO in April, said that the final figures were scheduled to be released in November this year after the new management and audit team carried out investigations.

The figures he presented today were not the final figures and had not been signed off by the auditors but he had been given permission "to reflect" some figures to MPs.

He said that included in the exceptional losses were various impairments of investments in associated companies, impairment of plant, equipment and property and impairment of inventories.

Labour disputes and retrenchments had amounted to R50m in the last financial year. Financial instrument adjustments had cost R37m and certain performance guarantee provisions called back by India had cost R64m.

Legal costs had amounted to R25m and pension fund costs had amounted to R54m in exceptional costs, he said.

Liebenberg said it was "clearly not acceptable" that the projected figures of projected losses had at first been put at R500m and had then risen to R850m - and now to R1,6bn.

"We need to know where we stand ... and have integrity in our figures," said the chief executive officer, who was appointed on the recommendation of Public Enterprises Minister Alec Erwin.

Liebenberg said that Denel "may have to exit certain business units if it did not secure contracts within the next six to 12 months".

However, he said as part of his macro-strategy, he had set up a change management project office to support him in the process of implementation of a turn-around strategy.

He acknowledged that Denel was facing "a funding crisis" going forward and there was "significant risk associated with the current financial projections".

He warned further that Denel was "not viable under the current model".

Compared to its international competitors it should have a staff of about 3,500 people but instead it had 10,000.

He said Denel had had a declining share of the local market - despite an upturn in spending - and the road forward would focus on seeking equity business partnerships "with major global players" and restructuring the business, which was too broad ranging at present, on "complementary capabilities" and niche markets.

"To succeed, Denel should pursue a strategy based on prime contracting in the domestic market and the export of systems and components through selective equity partnerships and alliances with global prime contractors," he said.

Denel had to achieve privileged access to a guaranteed minimum proportion of SA’s defence development and procurement spend, he said. It also had to partner with state agencies to underpin export marketing responsibilities.

With acknowledgements to I-Net Bridge and the Business Day.