1. DISCUSSION POINTS 1.Review of strategy implementation progress 2.Human resources: Overview and achievements 3.Transformation: Overview and achievements 4.Programme management 4.1 A-Darter Programme 5.Business development 6.Financial performance 7.Impact of Denel in South Africa

2. DENEL GROUP STRUCTURE

3. Denel Group Denel Integrated System Solutions Mechem Denel Dynamics UAV’s Carl Zeiss Optronics Denel Aviation & DPS Denel Land Systems Turbomeca Africa PMP Denel Dynamics Missiles Rheinmetall Denel Munition DENEL GROUP Denel Technical Academy OTB Denel Saab Aerostructures

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 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 Key issues in 2005

7. Budget Burdens: High salary costs Facility maintenance priority Operations outside borders higher than budget Military Veterans added to DoD Border control added 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% 4.0% 1.5% 1.3% 1981 1974 198919942010 Source: Beeld, 5 May 2010 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 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 The domestic defence budget has constricted considerably over the last two decades - need to leverage future opportunities World bank recommendation: Defence should not be less than 2% of GDP Country% GDP Malaysia2.3% China1.5% Saudi Arabia9.3% Brazil2.6% Country% GDP Turkey4% Pakistan4.5% India2.6 Russia3.9% SA DEFENCE SPEND

8. DENEL 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 Key issues in 2005 Strategy to “Fix” Denel 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 Privileged Access Partner with State Agencies Strategic Equity Partners Grow Commercially Viable Businesses Capabilities and Productivity Denel Corporate Governance Denel Corporate Office – managing 11 created Entities People and Transformation Denel Corporate Office Purpose – “The Role of the Centre” Secure privileged access to a minimum portion of South Africa’s defence development and procurement spend Partner with State Agencies to do joint business planning and to establish export marketing responsibilities. Th ese 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 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 Raise capabilities and productivity to world- class levels

10. 4 years to 2010 10 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 Denel 2007-2010 steps taken Performance management Denel operations decentralised Entity boards, audit and risk committees, risk management and financial discipline Restructuring Defence – Loss R1.3bn Aerostructures – Loss R300m Denel 2010 Defence – Profit before interest R200m Aerostructures – Loss before interest R283m Equity partnerships providing investment and access to markets Disposal of non-core entities Governance policies implemented, internal control systems and processes improved Local client relationship and stakeholder alignment improvements, 61% of revenue Business development initiatives Improved programme performance Leadership development Transformation initiatives DENEL’S JOURNEY TO SUSTAINABILITY

11. ENTITY 1 DENEL SHARE MAJOR CLIENTS INDUSTRIAL UPGRADING REVENUE GROWTH 2 NET PROFIT R&D SPEND 3 ORDER BOOK Turbomeca Africa (Pty) Ltd. (2003) (TMA) 49%RSA Botswana Kenya Malawi UK France Major overhaul of plant and efficiencies created 123%11.2% vs. (55.6%) in 2002 N/AR320m Carl Zeiss Optronics (Pty) Ltd (2007) (CZO) 30%UK US Germany Italy Turkey New world class production facilities established 122%16.8% vs. (50%) in 2007 9%R795m Rheinmetall Denel Munition (Pty) Ltd (2008) (RDM) 49%RSA USA UAE Columbia Germany Turkey 3 Year CAPEX programme: R250m 28%8.2% vs. (3.3%) in 2007 5.2%R2,2bn 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 ACHIEVEMENTS BY DENEL’S ASSOCIATE COMPANIES