Future of Denel Saab Aerostructures: Portfolio Committee Meeting

1. PORTFOLIO COMMITTEE MEETING FUTURE OF DENEL SAAB AEROSTRUCTURES (PTY) LTD 24 MAY 2011

2. DENEL SAAB AEROSTRUCTURES (PTY) LTD (DSA) • Vision: The reliable African link in the global aerostructures supply chain Mission: DSA shall design and produce complex metal and composite aerostructures, supplying to OEM’s and Tier 1’s suppliers DSA Vision, Mission and Milestones Background Background Atlas Aircraft Cooperation (1964) Background Background April 1992 Denel (Pty) Ltd established April 1992 April 1992 April 1992 April 2006 Ring-fenced Aerostructures unit from Denel Aviation April 2006 April 2006 April 2006 June 2006 MOU on Aerostructures JV between Denel and Saab AB June 2006 June 2006 June 2006 Feb 2007 Feb 2007 Denel Saab Aerostructures (Pty) Ltd formed Feb 2007 July 2007 July 2007 Saab AB entering as 20% shareholder July 2007 Sept 2009 Sept 2009 Delivery of the 100th Saab Gripen Pylon 3 MK1 Oct 2009 Delivery completion of assembled Agusta 109 LUHs to the SAAF Aug 2010 A400M WFF completed 500 hours of incident free flight testing April 2011 Delivered the first WFF production unit to Airbus SAAB exit as Shareholder - Denel is 100% Shareholder 2

3. DSA is situated across OR Tambo International Airport Shares facilities with Denel Aviation and Turbomeca Africa DDSAdDSADSA is situated across OR TaShare facilities with Denel Aviation and TMA O.R. Tambo Int Airport Denel Aviation Composites Assembly Engineering Machining, Sheetmetal, Treatments, Stores, Planning TMA • South African Aerostructures Cluster: DSA, Denel Aviation and TMA 3

4. DSA specializes in Advanced Engineering and Manufacturing of aerostructures A400M Rollout June 2008 – DSA Wing Fuselage Fairing (WFF) DSA are concurrently designing and producing the A400M WFF Hail & ice damage, walk & snow weight loads, thermal loads, lightning protection, rapid decompression & under pressure doors, maintenance panels Max Dimensions Length 15.5m Width 7m Height 2m Surface Area ≈ 80 m² 80 different composite panels supported by an optimised 5-axis HSM machined and sheet metal sub structure 4

5. DSA Revenue and Profit/Loss Performance Note: 2010/11 financials still subject to audit

6. Current Status Current Status • Status: • DSA remains loss-making and a key strategic challenge to Denel • (EBIT Feb 2011 – (R259m); March 2010 – (R283m) and March 2009 – (R444m) • SAAB has exited the business in April 2011. SAAB owned 20% of the business since 2007. • Improved performance for 2010/2011 expected – Audit is in progress • Restructuring: • During the year under review, DSA exceeded Sales, Cash and EBIT performance targets through restructuring of the business including: • Significantly reducing labour costs. • Significant improvement in financial management and governance. • Reducing rental costs through space optimisation. • Implementing shared services with Denel Aviation and outsourcing non-core activities. • Transferring the steel-heat treatment facility to TMA. • Audited improvement in climate survey from 65% to 74%. • Operations: • The operational turnaround of the business continues with a marked improvement in delivery and quality. Airbus in particular has expressed satisfaction with DSA’s performance against key milestones on the A400M programme. Margins on all contracts however remain under pressure and are currently unacceptable. 6

7. DSA Highlights (1) - Achievements during 2010/11: Achievements during 2010/11 • Improved Governance • Established new Inventory Policy: Stock turn, Cycle counting and Buffer Stock. • Improved procurement management: Reduced annual net additional provisions for stock from more than R20m per annum over the previous 3 years to below R1m for stock procured during 2011. • Completed internal audit plan implementation. • Improved Asset Management process. • Complied with A400M contractual commitments • Passed WFF Final Design Acceptance and Bird-strike certification tests – first external supplier to achieve this status. • Maintained Green status on Programme Review Meetings with excellent performance rating by customer. • Delivered first WFF new design baseline unit and met Airbus delivery dates on both WFF and TS. 7

8. DSA Highlights (2) • Implemented Restructuring to Reduce Cost and Sustainable Transformation Enhancement Programme (STEP): • Implement LRA Sec 189 process – reduced headcount with more than 300 since March 2010. • Reduced Rental footprint by 32%. • Implemented shared services with Denel Aviation on Human Resource Management, payroll and IT. • Implemented outsourcing of non core activities including conventional machining, chemical stores, NC programming, Level 3 Inspection, plain sheet metal and tool manufacturing (convert fixed cost to variable cost). • Improved cost center management. • Removed/sold obsolete stock to reduce material management cost and stores efficiency. • Improved production flow: Improved on time full kitting point achievement from around 70% to 85% and deliveries to TMA from 30% to around 90% - steel heat treatment plant sales transaction with TMA completed. • Reduced scrap: Reduced workmanship related scrap (labour and material cost) to 1.7% of total sales. • Improved Long Term Procurement Agreement coverage to > 70% with around 12% reduction in material cost. 8

9. Employee Analysis No of people 9

10. DSA Highlights (3) • Stock accuracy: Improved from 65% in 2008 to better than 96% accuracy in 2011 • Completed in-depth WFF profitability review and initiated production ramp up as a focus area within STEP • Quality • Maintained NADCAP accreditations within Composites, Heat Treatment, Non Destructive Testing, Surface Treatment/Paint and Shot Peening. • Business Development: • DSA was down selected by Business Jet OEM to supply Business Jet Winglets (Negotiations ongoing) 10

11. Strategic Scenarios Strategic Scenarios • Domestic Transfer to Aerosud • Aerosud submitted an unsolicited conditional proposal to acquire DSA in December 2010. • Discussions are on-going. • Further announcements can be made once the discussions have been finalised. • Revised Business Plan (in Process) The latest DSA revised business plan includes the following key interventions: • Building a robust revenue pipeline. International OEM’s targeted: • Spirit Aerosystems • Hondajet • Gulfstream • Lockheed Martin • Contract negotiations with key customers • Cash flow management • Improving balance sheet solvency • A further reduction in the rental footprint from 52 000m2 to 25 000m2 through consolidating all activities into the A2 building including the composites facility. • Further outsourcing of non core activities to reduce fix costs to variable costs. 11

12. Rental Space Optimisation B10 and D4 Composite Facility Reduce rental footprint from 52 000 sqm to 25 000 sqm TMA D4 B10 B2 + B3 A5 A2 and A1 Facility A2 B1 A7 Denel Aviation B9 A6 A1 12 12 12

13. DSA Revised Business Plan Value • DSA’s operations in a high technology- and advanced manufacturing sector such as Aerospace strongly supports the transition to a knowledge based economy and the national objectives stipulated in above policies

14. Revised Business Plan: End State Organogram Indirects: 24 Directs: 234 Total: 258 CEO (1) HR (Outsourced) Marketing & Comms (3) 258 CFO (1) COO (1) Quality (22) Engineering (24) Industrialization (24) Sourcing & Supply (26) Production/Planning (138) IT (2) Legal (1) Finance (9) Business Control (6) • Based on steady state production of 24 A400M WFF Ship Sets per year • Outsourcing of non core activities

15. A40 DSA Economic Impact • DSA’s total economic impact is conservatively estimated to be: • Around 3000 jobs • R760 million consumer revenue • R180 million in taxes • Around R400 million of future export revenue per annum. • IPAP 2 2011/12 – 13/14 released by the DTI in April 2011 has identified Advanced materials and Aerospace under Cluster 3 – Sectors with Potential for Long-Term Advanced Capabilities: • Aerospace and Defence sector profile is a critical and pervasive generator of new technologies and is crucial to future innovation in South Africa. • Significant progress has been achieved in developing recognition by and confidence from global original equipment manufacturers (OEM’s) in aerospace. • With DSA’ operating in a high technology- and advanced manufacturing sector such as Aerospace, falls within the ambit of IPAP 2 long term advanced manufacturing capabilities 15

16. Way Forward • Discussions with Aerosud continuing • Implementation of revised business plan • Funding for DSA remains a critical issue 16

17. THANK YOU