1. Denel Annual Report 2003/4

2. Agenda Financial Overview Reasons for Losses Restructuring Measures
Six-month YTD trends
Additional Turnaround Measures
Regulatory Issues

3. Consolidated Results

4. Financial Overview Revenues Sales Operating Expense Financial Ratios
Per product market
Per region
Sales
Operating Expense
Production materials
Labour
Support functions
Financial Ratios

5. Revenues REVENUE 2003 (R millions) 2004 (R millions) Sales 4 292,4
4 321,0
Rental on investment properties
35,8
77,6
Interest income on advance contract payments
44,2
43,6
4 372,4
4 442,2

6. Gross Revenue Composition

7. Sales Composition per region

8. Sales by region North America R113m - 3% Europe R702m - 15% RSA Local
Africa
R158m - 4%
South America
R211m - 5%
Asia
R464m - 11%
Middle East
R872m - 20%
Europe
R702m - 15%
North America
R113m - 3%

9. Operating Expenses 2003 (R million) 2004 (R million) By Nature
Materials
1 649,9
1 442,7
Consumables
63,6
54,7
Staff Costs
1 713,3
1 901,6
R & D
186,1
214,0
Depreciation
107,2
121,0
Other expenses & charges
431,2
611,5
Movement in inventories
63,1
(36,4)
4 214,4
4 309,1
By Function
Cost of sales
3 096,1
3 154,9
Operating expenses
1 118,3
1 154,2

10. Investments Description 2003/04 Rm Research and Development 239,8
Capital Investment
161,5
Social Investment
12,0
Investment in associates
16,5

11. Revenues vs Capex / Opex / R&D

12. Foreign Exchange Losses
2003 (R millions)
2004 (R millions)
Losses on settled transactions
203,8
97,9
Gains on settled transactions
(120,0)
(294,0)
Losses on revaluation
113,4
629,5
Gains on revaluation
(45,3)
(178,9)
Net foreign exchange loss
151,9
254,5

13. Reasons for current financial situation
Decline in orders from the SANDF
Decline in R&D funding
Investment in and losses from the Rooivalk Programme (R2,0 billion plus over 9 years)
Unsuccessful commercial diversification strategy (R900 million)
Staff Reduction (over 5000)
Writing down the values of obsolete equipment (Declining SANDF orders)

14. Reasons for current financial situation (2)
Low margin/loss incurring Countertrade (DIP) contracts
High overhead costs
Operational inefficiencies
Strengthening of the SA rand against the US dollar
Losses at certain non-core businesses.

15. Turnaround
Interventions

16. Exit non-core businesses (Commercial)
Some have been disposed of
Some were closed down
Some still in the disposal process

17. Businesses / Investments to be disposed of
Business/Investment
Status
Completion Date
Share in Ariviakom (22,98%)
Ministers approval requested
31/10/04
SPP (Pty) Ltd
Offers are being considered
30/11/04
Irenco (Pty) Ltd
- Plastics
- Electronics
J/V with Usabco currently neg.
Currently being valued
31/03/05
Sybase (SA) (Pty) Ltd (51%)
Waiting for offer
Voltco
Process to be initiated
Bonearo Park (Pty) Ltd
Vacant Land
30/09/05
Cosource (Pty) Ltd
(51%)
Dendustri

18. Vektor & Denel Aviation
Restructuring
Rationalisation
Vektor integrated into LIW

19. Key turnaround strategies
Operational efficiency (implemented 1/4/2004)
Centralisation of support services
Restructuring the businesses of Aerospace and Land
Systems
Cost cutting, rightsizing, business process re-engineering and contract re-negotiation
Aggressive marketing (new sales contracts)
Product rationalisation
Zero-tolerance: Fraud/Corruption/Mismanagement
Alignment of skills
Performance management

20. Six-month YTD Trends Revenues Operating Expense Inventories Cash Flow
Employees
BEE

21. Six month YTD Trends Items Target (R millions) Actual (R millions)
Achieved
Revenues
1 743
1 477 
Order coverage (2004/05)
80 %
82 % 
Operating Expenses
560
467
Cash outflow
(556)
(487)
Inventories
1 452
1 495
Trade Debtors
522
733

22. Sales YTD vs 2003 Sales 2003 (R million) 2004 (R million) Land Systems
2 330,705
2 577,410
Aerospace
2 290,573
2 105,839
Commercial
264,809
316,279

23. Employee trends

24. Employee trends Employees 2003 2004 White 48,4 % 49,9 % Black 51,6 %
48,4 %
49,9 %
Black
51,6 %
50,1 %
Women
25,6 %
24,3 %
Total
10 925
9 742

25. BEE year-to-date Comparison

26. Strategies/Actions to complete turnaround
Executives/Board
Completion of disposal of non-core businesses
Finalisation of turnaround of Denel Aviation
Continued restructuring for efficiency
Continued cost reductions
Joint ventures at business unit or product level
Positioning for future major SANDF & global projects
Incentivise and modernise the workforce

27. Regulatory
Issues

28. Additional Strategies/Actions to complete turnaround
Shareholder / Government
Review Armscor preferential procurement policy to benefit local industry & secure a base load on consumable products
Increased R&D funding to benefit Denel & local defence industry
Recapitalisation of Denel
Remove balance sheet risks
Position Denel for future growth
Divestiture and recapitalisation to renew certain critical plant
Fund Rooivalk programme to frozen baseline and required deployment status
Review Armscor’s requirements to assure bank guarantees on major Denel contracts

29. Income Statement (Projection)

30. Flight International Magazine (4 October 2004)
Europe delays new rules to open defence markets
“New rules designed to open up Europe’s defence market have been
delayed after eleventh-hour wrangling over the extent of the reform.
All military products are excluded from EU competition rules, allowing
countries to favour national suppliers.
EADS is pushing for a change in the rules to enable it to compete for
Contracts in countries such as Italy, where projects are often defined as
being military to avoid open competition.”

31. Denel Annual Report 2003/4