1. Denel Annual Report PRESENTATION TO THE PORTFOLIO COMMITTEE ON DEFENCE ON THE 2 NOVEMBER 2004

2. Agenda  SA Defence Industry  Annual Report  Issues & Challenges  Strategic repositioning

3. SA Defence Industry  Defence Review  White Paper on Defence  White Paper on Defence Related Industry

4. ADS 4.2% ALVIS OMC 4.4% GRINTEK 8.5% REUTECH 8.8% ATE 9.2% DENEL 55% 10% OTHERS Share of SA Defence Industry Turnover

5. Denel Products: Aerospace Missiles & guided weapons OTB multi-purpose test range Aircraft parts manufacture / maintenance / refurbishment Helmet sighting systems UAVs / observation systems Target drones Rooivalk attack helicopter

6. Denel Products: Land Systems Aerospace Artillery systems: 155mm & 105mm long range Artillery propellant charges & projectiles Infantry weapons Small / medium calibre ammunition Plant manufacture

7. Denel Markets RSA Local R1 855m - 42% Africa R158m - 4% South America R211m - 5% Asia R464m - 11% Middle East R872m - 20% Europe R702m - 15% North America R113m - 3%

8. Denel People (25,6%) 49,7% 18% 7,2% 1% 4,5% 5,6% 0,8% 13,2%

9. Denel Structure

10. Denel Plants and Facilities

11. Denel Finances: Highlights

12. Gross Revenue Composition

13. Sales Composition per region

14. Revenues vs Capex / Opex / R&D

15. Denel Investments Description 2003/04 Rm Research and Development239,8 Capital Investment161,5 Social Investment12,0 Investment in associates16,5

16. Current Operating Situation Decline in orders from the SANDF Decline in R&D funding Losses from the Rooivalk (R2,0 billion plus) Unsuccessful commercial diversification strategy (R900 million) Staff Reduction (over 5000 since founding) Writing down the values of excess assets

17. Current Operating 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. Balance sheet over-borrowed / uncapitalised

18. Current Operating Environment (3) Unfair global competitive environment Unfair local competitive environment Armscor acquisition policy NCACC

19. Denel turnaround (1) Focus on core Restructure business & processes Aggressive cost-cutting / rightsizing Product & skills rationalisation Development of new markets

20. Denel turnaround (2) Recapitalisation Increased R&D funding Review of defence acquisition policy New SANDF programmes Effective programme funding

21. Conclusion Denel central to SANDF defence capability Denel is key to SA technology capabilities Incubator of expert science & engineering skills Denel is a strategic foreign policy instrument State-owned and supported defence industry Proudly South African acquisition policy required

22. Thank you