DENEL GROUP State-owned Denel - a leading catalyst for industrialisation in the high-technology aerospace & defence sector through RSA industry collaboration

SETTING THE SCENE:

Fully owned by SA Government Reports to Minister of Public Enterprises Company established in 1992 Some facilities exist > 50 years 6 900 employees 4 600 employees at core business units 2 300 employees at Associates Engineers, scientists and technicians Annual turnover ± R5.8bn Exports around 52% 12 Plants throughout South Africa Largest manufacturer of defence equipment in SA Experienced in supplying and supporting of equipment around the globe

CORE PRODUCT PORTFOLIO Humanitarian demining services and products Maintenance repair and overhaul Unmanned Aerial vehicles Technical Training Aerostructures Munitions and sub components Engineering services Mine Protected Vehicles Land based systems ( Artillery, Infantry and Armour systems) Command and Control Missiles

WHAT THE SHAREHOLDER HOLDS DENEL ACCOUNTABLE FOR!! THE MANDATE OF DENEL: WHAT THE SHAREHOLDER HOLDS DENEL ACCOUNTABLE FOR!! Support and maintain the RSA DoD’s sovereign and strategic industrial defence capabilities in an efficient and sustainable manner Contribute to industrial development towards the building of a dynamic defence related industrial cluster and to act as a catalyst for advanced manufacturing in the RSA Long term growth strategy aimed at increasing sales, product portfolio and service offerings Pursue financial stability based on achieving profitability targets by increasing market share and achieving its revenue targets, as well as reducing costs Ensure on‑time and on‑cost deliveries on major programmes Contribute to socio-economic objectives including skills development and transformation Compliance with local and international policies, regulations and treaties as well as regulations and laws of the jurisdictions of where Denel conducts business

INTRODUCTION TO DENEL LSI & C2 Cluster DENEL WHOLLY OWNED DENEL SUBSIDIARIES >50% DENEL ASSOCIATES <50% Aerospace Cluster TURBOMECA AFRICA DENEL AVIATION DENEL AEROSTRUCTURES Guided Weapon Cluster DENEL DYNAMICS Munitions Cluster DENEL PMP TAWAZUN DYNAMICS GROUP FD GROUP BUSINESS DEV GROUP HR & TX RHEINMETALL DENEL MUNITION (RDM) GROUP COO Jan Wessels DENEL GROUP CEO Riaz Saloojee GROUP SUPPLY CHAIN DENEL INTEGRATED SYSTEMS & MARITIME GROUP LEGAL GRP RISK & COMPLIANCE GROUP COMMS DENEL C2 Denel Corporate Functions AIRBUS DENEL OPTRONICS LSI & C2 Cluster DENEL OTR TEST RANGE DENEL LMT DENEL VEHICLE SYSTEMS DENEL LAND SYSTEMS Landwards Cluster 8 July 2015

DENEL FACILITIES Denel Aviation Denel Aerostructures (DAe) Airbus Optronics Denel Dynamics Turbomeca Africa PMP Denel Land Systems (DLS) Mechem Rheinmetall Denel Munition (Western Cape) Denel Vehicle Systems (DVS) Rheinmetall Denel Munition (North) Overberg Test Range (OTR)

10 YEAR OVERVIEW: SUSTAINABLE GROWTH NO “GRANTS & SUBSIDIES” > 55% EXPORT Priorities 2015/16 Contract execution Positive cash flows Meet revenue targets Cost optimisation Improve margins

Denel’s R&D Investment during 2014/15: DENEL INVESTS SIGNFICANTLY IN R&D TO SECURE THE FUTURE EXPAND THE MARKET OF EXISTING PRODUCTLINES: Investment to modernise/expand existing lines through incremental investments. Selected examples where Denel internal & client funding is used:: Modernised Artillery G6 offerings for the export market Medium calibre ammunition 27mm for Gripen to replace imports Seeker-200 & -400 UAVS to modernise the UAV market offering Rooivalk Mk 1 (upgrade) of the existing SAAF fleet Denel’s R&D Investment during 2014/15: R468m RESEARCH & DEVELOPING NEW PRODUCTS FOR THE FUTURE: Investment to develop tomorrow's products & systems. Selected examples: Badger (Hoefyster) infantry fighting vehicle family A-Darter (short range missile) to protect during close-range combat Marlin (long range missile) to protect against long-range air attacks Rooivalk Mk 2 (new baseline) for expanding the existing fleet EOSat-1 satellite for earth observation & photography RG35 military vehicle for defence in the Middle East & global LM13 paramilitary vehicle border security in the Middle East & global INVESTING IN THE CORE TECHNICAL FOUNDATION: Investment in core new technologies, new processes, new skills for example: New navigation algorithms to be used on all missiles & UAVS New software design tools to be used on land vehicle programs New telemetry technology to be used at test ranges

MOVING FORWARD:

THE DENEL VALUE PROPOSITION ON ONE PAGE INTEGRATED SYSTEMS (Level 5) COMPLEX Highly Integrated, Technically-difficult Systems and/or Based on Sovereign/strategic Technologies (Denel as SOE) (**) Non-COMPLEX Lightly- Integrated, Technically-Easy Systems and based on non-critical Technologies (Private Defence Industry) Armscor/DOD (Acquisition Decisions for the SANDF) PRODUCTS , SUBSYSTEMS & COMPONENTS (Level 4-3-2-1) COMPLEX & DIFFICULT TO SUSTAIN products/subsystems/components and/or Based on Sovereign/strategic Technologies (Denel as SOE) Non-COMPLEX & READILY SUSTAINABLE products/subsystems/components and based on non-critical Technologies (Private Defence Industry)) << Higher Risk Profile Lower Higher Risk Profile >> Note (**): SMME/BEE supplier development may be further motivation to contract Denel as SOE on system level to provide a basket of local industry solutions (recent example UTILITY -> EU OEM -> Denel Aerostructures-> multiple SMMEs)

SUPPLY CHAIN MANAGEMENT

DENEL INVITES THE MANUFACTURING INDUSTRY TO PARTICIPATE 1. Denel is primarily a designer & systems-integrator of very complex technically advanced systems. We design the complex systems but mostly subcontract manufacturing of elements to the private industry before doing final integration, test and commissioning. It is one of our KPAs to develop local industry. It is not a afterthought or a buzzword – it is core to our success! 2. Denel is not a “utility company” like many other SOEs …. More than 55% of income is from exports and even locally there are NO subsidies, grants or regulated prices. We have to compete for orders in a very tough global market where most countries have high entry barriers for strategic defence equipment. (Example the USA, France, China, etc). Meaning our supply base needs to be world-class ito technology, efficiency & pricing. 3. Like most companies Denel developed & matured through the past decades from being technologically dependent (on foreign technology in the 1970s) to becoming independent in the 1980s till 1993 (embargo & sanction years), then after 1994 maturing (grow up!) and becoming inter-dependent with partners (both suppliers & customers) 4. Denel is a small player (<1% of global market) and has developed a niche strategy (highly agile boutique approach) to compete effectively with big global players dominating our industry. We are not willing to be overwhelmed by the competitive forces …. And we invite local industry sharing this positive vision to join forces with us & become supply partners!

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