• Major investment in new plant, equipment and skills development - DTI Industrial Strategy

• Access to new markets (NATO) and capital- Increased export earnings for SA (fiscus, local suppliers etc.)

• Significant increase in self-funded R&D/technology development

• Centres of excellence established:- Specialised steel and alloy gear manufacturing – TMA- Engine & gearbox manufacturing and MRO - TMA- Hand held optical systems – CZO- New optical manufacturing facility established in September 2010 –

CZO- New generation 105mm & 155mm ammunition – RDM- All forging work carried out in SA (discontinued in Germany) - RDM

• Security of supply to the SANDF

SUSTAINABLE INVESTMENTS BY STRATEGIC EQUITY PARTNERS

4 years to 2010 18 months to 2012

2

Denel 2005/6 Challenges

- Workforce 10,000

- 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 and retrenchments

Defence – Loss R1.3bnAerostructures – Loss R300m

Denel 2010Defence – Profit R200mAerostructures – Loss 283m

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

Restructure DSA

Denel Future State

Cost-cutting - Supply Chain

King III

Business development

Funding and recapitalisation

DENEL’S JOURNEY TO SUSTAINABILITY

Vision:To be the respected South African provider of innovative Defence, Security and related technologies

DENEL FUTURE STATE • Stakeholder alignment

– Joint DPE/DoD with NT participation

• Key capabilities required by the SANDF

• Equity partnerships:– Missiles– DLS

• Consolidation of Denel Aviation and SAAF MRO to avoid duplication

• Minimum multi-year orders and smoothened cash flows: DLS, PMP, Aviation, Dynamics, OTB

2009 STRATEGIC DRIVERS - IN RESPONSE TO MARKET CONDITIONS

Towards a Respected South African Company

Transformation, BBBEE, Employment Equity, CSI, Branding

Deepen Relationships with Defence Community and State Agencies

Joint Planning, International Marketing Support, Technology and IP Development, Skills Transfer,

Programme Delivery

Improved Access to Sustainable Markets

Equity Partnerships (Existing and New), Export Growth,

Local Spend (Home Market Support)

Operational Excellence

Performance, People, Skills Development, Outsourcing, Supplier Development

Strengthen Governance and Financial Management

Sustainability, Risk Management, Compliance, Cash Flow Management and Contracting

ACHIEVEMENTS: 2009 – 2010 (SHAREHOLDER’S COMPACT)

Strategic intent Key performance area

Key performance indicator Achieved Contracted

Strategic role in the provision of defence capabilities

Retention of capabilities in areas required by the DoD

Retained strategic capabilities in support of the DoD

No core capabilities were discontinued or established

Maintain all or 100% of key strategic capabilities required

Maximise access to local markets

Local sales as a % of turnover

61% 59%

Contracted SANDF/MoD and MV programmes

Invoiced sales as a % of SANDF/DoD orders placed (roll-overs)

91.5% 85%

Strategic economic role in promoting advanced manufacturing

Promote advanced manufacturing goals of the country

Development work as a % of turnover (customer-funded)

22.0% 10%

Investment in R&D Self-funded R&D as a % of turnover

0.9% 0.5%

Business sustainability

Profitability management

EBIT as a % of turnover (2.3%) (10%)

Debt and gearing Debt/equity ratio 2.9:1 1:1 long term

Cash management Cash flow from operations as a % of turnover

(9.5%) (21%)

Healthy sales pipeline

Orders concluded in respect of the coming year as a % of sales budget

52% 50%

Business efficiency Productivity improvement

Turnover per employee R687k R774k

Operating expenditure (OPEX)

Operating costs as a % of revenue

23% 30%

Developmental contribution

Contribution to economic transformation

B-BBEE contributor level Level 4 Level 5

HUMAN RESOURCES

Overview and Achievements

2006 – 2010

TOTAL GROUP WORKFORCE PROFILE 2006 – TO DATE

8120

76347276 7198

7460

38543651 3670

33753753

42663983

36063823 3707

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

2006 2007 2008 2009 2010

Total Strength

African, Coloured & Indian

White

EMPLOYMENT EQUITY - STEADY PROGRESS

48% 47.80%

50%

47%

44%

23%22%

23%24%

21%19% 20%

20%

21%22%

0%

10%

20%

30%

40%

50%

60%

2006 2007 2008 2009 2010

ACI Employees

ACI Managers

Female

8120 7634 7276 7198 7460

TOTAL WORKFORCE PROFILE

• Programmes: Talent Management Programme; System Engineer

Development Programme; Mentorships; Bursaries and study loans

• Denel Technical Academy (DTA): Currently 352 apprentices in training

• Denel Youth Foundation Training Programme (DYFTP): Circa 50 learners

enrolled p.a. for Maths and Science Bridging Programme

• Pre-employment Programmes:

– Schools Outreach Programmes (SOP’s)

• Maths and Science improvement programmes

• Supports Dinaledi Programme (175 learners from 2007 to date)

– SA Women in Engineering (SAWOMENG)

– Bursaries (440 bursaries since 2006 to date)

SKILLS DEVELOPMENT PROGRAMMES

HUMAN RESOURCES ACHIEVEMENTS – 2006 to date

• Succession planning:

– Framework introduced during 2009. Potential Successors identified. Personal Development Plans (PDP’s) currently being developed .

• Leadership Development:

– Competency Framework designed in 2009. A Development Programme is being implemented . UNISA SBL has been retained for executive development from 2011.

• 3rd Annual Senior Leadership Symposium (Top 100 leaders):

– This year’s theme is – “Business Development”.

• Group Skills Development Strategy:

– Being developed to mitigate the effects of skills scarcity and an ageing workforce

• Employee Attrition Rate:

– The total attrition in the group has reduced to 4,5% compared to 13,8% in 2006. Target is to remain between 4,5%-7% p.a.