PRESENTATION TO THE PORTFOLIO ON PUBLIC ENTERPRISES Broad-Based BEE 31 AUGUST 2005

Table of Contents Overview Actual/Plan Preferential Procurement Challenges Summary and way forward Questions

Overview Denel (Pty) Ltd - Global supplier of world-class Aerospace and Defense Systems Turnover 2003/4 R4,4b with a procurement budget of R2,4b

Overview - Abbreviations BEE - Black Economic Empowerment BBBEE - Broad Based Black Economic Empowerment DIP – Defence Industrial Participation NIP – National Industrial Participation PPPFA - Preferential Procurement Policy Framework Act R&D – Research And Development SOEPF – State Owned Enterprise Procurement Forum

Actual / Plan

Actual / Plan Discretionary spend represents Total Procurement less the following: Imports, Capex (OEM), Intergroup Procurement , Telkom & Municipal Services Total BEE Spend in Financial year 2004/2005 represented more than 10% (R138m) of the discretionary spend The target is to achieve the BEE spend on direct materials of 15% (R138m) and then 20% (R210m) for the 2005/2006 and 2006/2007 respectively The target is to achieve the BEE spend on indirect materials of 70% (R236m) and 90% (R326m) for the 2005/2006 and 2006/2007 respectively

Actual / Plan

Actual / Plan “Direct Materials spend” relates to materials used in Denel’s core products. Of the total 2004/2005 direct spend (R765m), Denel awarded 13,8% (R105m) to BEE suppliers

Actual / Plan

Actual / Plan “Indirect Materials spend” relates to materials/services used in Denel to support production of core products. Of the total 2004/2005 indirect spend (R435m), Denel awarded 7,68% (R33m) to BEE suppliers

Actual / Plan

Actual / Plan The previous slide displays the spread of the BEE spend among the Black Enterprises, Black Empowered and Black Influenced suppliers The majority of total BEE spend is awarded to black empowered suppliers

Actual / Plan The status of all the suppliers that claim to be BEE is in the process of being verified The verification process was conducted by Denel’s own resources as well as external verification agencies Currently 5% (418) of the total supplier base of 7845 is BEE and has been verified

Actual / Plan

Actual / Plan

Actual / Plan

Actual / Plan In the year 2004/2005 women spend represented 3% (R40m) of total discretionary spend. The plan is to achieve spend 6% (R75m) and 9% (R127m) for the years 2005/2006 and 2006/2007 respectively

Actual / Plan

Actual / Plan 72% (R29m) of total spend on women was awarded to white women while black women were awarded 28% (R11m) With the focus on indirect materials allocated to BEE companies, women owned companies will be the major beneficiaries It is noted that the majority of “white woman” owned companies are controlled by white males previously employed by Denel

Preferential Procurement The target is to achieve the BEE spend on indirect materials of 70% (R236m) and 90% (R326m) for the 2005/2006 and 2006/2007 respectively Set aside opportunities for all employees who are facing retrenchments in accordance with the Denel Development Agency’s objectives

Challenges Common Information Technology system in Denel Changing mindset towards BEE suppliers Reaching BEE suppliers in the direct material spend Spreading Denel’s spend to rural suppliers. Currently Denel business are mainly in Gauteng and Western Cape and North West. Limited financial resources for supplier development activities Denel’s cash flow and timeous payment of BEE suppliers

Challenges International Companies dictate suppliers from overseas Airbus (Hexcel, UTi, etc.) SAAB (Customer furnished materials etc.) Local Agents appointed by our clients Decentralization / Centralization Pre April 2004 – Resistance to change Post April 2005 -Instability in Denel Lag of DIP and NIP by international companies Lack of awareness/support for the Denel Social Office

Summary and way forward To improve the Broad Based BEE performance, the following is envisaged: Supplier development activities will be resourced adequately Involve BEE suppliers in the supplier day forums Involve BEE suppliers in the conceptual stages of different programmes/products, R&D Continue with verification to remove fronting Roll out of BBBEE scorecard approach and PPPFA in the tender adjudication process in the various business units of Denel Networking via other SOE’s to share information and best practices - SOEPF Defense Related Industries Charter underway

Thank You