DISCUSSION POINTS

1. DISCUSSION POINTS • Review of strategy implementation progress • Human resources: Overview and achievements • Transformation: Overview and achievements • Programme management 4.1 A-Darter Programme • Business development • Financial performance • Impact of Denel in South Africa

2. DENEL GROUP STRUCTURE

3. DENEL GROUP Denel Group Certification & Training Defence Security Aero- structures Denel Aviation & DPS Denel Land Systems Turbomeca Africa PMP Denel Dynamics Missiles Rheinmetall Denel Munition

4. REVIEW OF STRATEGY IMPLEMENTATION PROGRESS

5. BUILD-UP TO DENEL’S STRATEGY FINANCIAL SUMMARY – PRE 2005/06 Losses Cash utilised Solvency

6. DENEL IN 2005 Key issues in 2005 • Centralised conglomerate – lack of accountability and performance • Major losses posted • Subsidy mindset • Salaries below market levels - high attrition rate • Poor programme performance • Diversification into non-core businesses and assets - R1bn negative impact • Significant decrease in domestic defence spend • Global market access constraints • Unfocussed export approach – no clear strategy to integrate into global supply chains

7. SA DEFENCE SPEND • Budget Burdens: • High salary costs • Facility maintenance priority • Operations outside borders higher than budget • Military Veterans added to DoD • Border control added Defence Budget as % of GDP 5.1% 4.5% • Expected DoD priorities: • Border protection (surveillance, vehicles, ammunition, cyber, Command & Control) • Landward defence renewal (vehicles, artillery, ammunition) • Air Force (Maritime patrol, C-130 replacement, heavy lift, UAV’s) • Navy 4.0% 1.5% 1.3% 1974 1981 1989 1994 2010 World bank recommendation: Defence should not be less than 2% of GDP Source: Beeld, 5 May 2010 The domestic defence budget has constricted considerably over the last two decades - need to leverage future opportunities

8. DENEL IN 2005 Key issues in 2005 Strategy to “Fix” Denel • Centralised conglomerate – lack of accountability and performance • Major losses posted • Subsidy mindset • Salaries below market levels - high attrition rate • Poor programme performance • Diversification into non-core businesses and assets - R1bn negative impact • Significant decrease in domestic defence spend • Global market access constraints • Unfocussed export approach – no clear strategy to integrate into global supply chains • Becoming a profitable, commercially viable and dynamic entity • Overhauling governance • Attracting, developing, retaining and appropriately rewarding world class skills • Achieving world class productivity • Focusing on the areas where we can compete credibly • Partnering with state agencies to meet the defence needs of the country • Developing partnerships/alliance ventures with global OEM’s to add true value and access markets

9. 2006 STRATEGY PILLARS Denel Corporate Office – managing 11 created Entities Denel Corporate Governance Privileged Access Partner with State Agencies Strategic Equity Partners Grow Commercially Viable Businesses Capabilities and Productivity People and Transformation Denel Corporate Office Purpose – “The Role of the Centre” Focus on growing the commercially viable businesses where Denel has real technological leadership.  Denel’s other businesses will be ring-fenced, operated under management contracts or exited Secure privileged access to a minimum portion of South Africa’s defence development and procurement spend Raise capabilities and productivity to world-class levels Partner with State Agencies to do joint business planning and to establish export marketing responsibilities.  These two factors translate into the ‘captive market’ and ‘political support’ that make international major defence prime contractors successful Secure equity business partnerships with major global players

10. DENEL’S JOURNEY TO SUSTAINABILITY 4 years to 2010 Denel 2007-2010 steps taken Denel operations decentralised Restructuring Governance policies implemented, internal control systems and processes improved Denel 2010 Defence – Profit before interest R200m Aerostructures – Loss before interest R283m Performance management Equity partnerships providing investment and access to markets Business development initiatives Denel 2005/6 Challenges - Workforce 8,000 - Export orientated company - Centralised organisation - Poor stakeholder alignment - Governance challenges - Poor programme management - Ageing plant and equipment - Poor human capital development and transformation - Market access constraints Disposal of non-core entities Leadership development Entity boards, audit and risk committees, risk management and financial discipline Defence – Loss R1.3bn Aerostructures – Loss R300m Transformation initiatives Improved programme performance Local client relationship and stakeholder alignment improvements, 61% of revenue 10

11. ACHIEVEMENTS BY DENEL’S ASSOCIATE COMPANIES 1 Golden Share Agreements in place to ensure security of supply and retention of technology and business activity in SA 2 Since inception of the partnership 3 Self-funded R&D spend as a percentage of total revenue per annum