Denel's Revival and Strategic Intent

The resurgence and return of Denel through its cash injection and new business strategy William Hlakoane Denel SOC

SHAREHOLDER STRATEGIC INTENT STATEMENT Supporting and maintaining the DOD s sovereign and strategic industrial defence capabilities in a commercially viable manner, while cooperating and collaborating with Armscor in accordance with the Separation Agreement of 1992. Drive operational excellence and revenue generation across all divisions in accordance with global best practice that is driven by a performance culture and consequence management. Growing the order book and strategic partnerships opportunities considering the stagnant local defence budget. This in collaboration with local research agencies and academic institutions to broaden the R&D base. Ensure strong and credible internal controls by ensuring that there are proper governance structures and that policies are updated to deal with current challenges. Compliance to policies, laws and treaties that regulate the defence industry. This applies to the local policies frameworks as well as international treaties, conventions, rules and regulations of the jurisdictions where Denel conducts business.

THE ROLE OF DENEL DEFENCE REVIEW 2015 Denel SOC Ltd is a state-owned commercially-driven company and strategic partner for innovative defence, security and related technology solutions. It groups together several defence and aerospace divisions and associated companies with the primary purpose of designing, developing, manufacturing and supporting defence materi l that remains critical for the local defence force to execute its constitutional mandate to safeguard the citizen of South Africa. DEFENCE REVIEW 2015 Introduction Paragraph 12 states: The policy principle of preventing armed conflict is achieved by taking all political, diplomatic, informational, societal and military measures to deter potential aggressors. South Africa s international stature and balanced suite of defence capabilities contribute to overall deterrent capability and posture. This is characterised by credible combat forces, operational prowess, rapid force generation through trained Reserves, demonstrated ability in field training, technological and doctrinal competence, and the visible morale of personnel. Section 15 Paragraph 95 states: Denel is a national security asset, with the primary purpose of designing, developing, manufacturing and supporting defence mat riel. In addition thereto, Denel is charged with: a. The custodianship of assigned sovereign or strategic defence capabilities, technologies and abilities, inclusive of those that may be at risk, the loss of which would threaten South Africa s required defence capability. b. The design, development, manufacture and support of important capabilities which may not be commercially viable. From a Geopolitical perspective, the SANDF is dependent on a significant level of effort and capability from Denel to support their preparation and readiness for deployment both Internally (such as during July 2021 unrest and recent KZN floods) and Externally (such as in the DRC and Mozambique) to South Africa. 3

DENEL FOOTPRINT

RESTRUCTURED & CONSOLIDATED DENEL

TURNAROUND STATUS

RECOVERY OF OPERATIONS Return of Operations: Denel has stabilised, secured critical skills, brought operations on-line and deliver on key programmes. Completion of the Malaysian AV8 Programme, initial deliveries in November 2023 for G5 & G6 Upgrade Programmes, the ramping-up of supply of barrels, spares and product support into the market, the restarting of the A-Darter Air-to-Air Missile programme, successful demonstration of the upgrades to the Umkhonto systems to foreign clients, support of the Seeker UAV Systems in the market, ongoing Aerospace testing at OTR, Airworthiness support and availability of the Aeronautics MRO facilities, the approach to completion of the current phase Air Defence Programme, and the start-up of the next phase, are all positive signs of Denel s recovery of operations. Orders & Opportunities: Denel has gone back into the market and rebuilt the order pipeline back to previous levels in a very short period, with numerous high probability opportunities at the RFI, RFP or Negotiation stage of acquisition with a value of more than R26bn. The overall order pipelines far greater but Denel has opted to focus its limited resources on the high probability initiatives. Several live firings demonstrations of the Truck-mounted T5 155mm 52 Calibre Howitzer and G6 were held with users, industry and officials of eleven countries at Alkantpan between August and October 2023, as well as in client countries in 2024. R3.9bn of new orders contributing to Denel s sustainability have been secured over the last year, with some additional major export orders in final stages of negotiation. Technology Development: A technology roadmap is being developed for implementation when growth phase is being delivered. The roadmap defines the technologies required for the rejuvenation of Denel s core product lines, as well as the emerging technologies that will be instrumental in Denel s rejuvenation and diversification. Denel will rely on alignment with the CSIR and Armscor to ensure that the technologies required by, and available to, the SANDF and other National stakeholders are incorporated in planning.

SHORT TERM PRIORITIES Conclude the remaining turnaround actions dependent on the release of ringfenced appropriation to settle legacy debt and trade creditors, implement critical capex and infrastructure / ICT optimisation. Continue to fill leadership and critical technical vacancies. Expedite and strive for successful execution of programmes to improve revenue and cash-flow. Continue developing alternate initiatives and partnerships to fund the Growth Phase in the medium-term. Implement dedicated PMP Recovery Plan initial critical capex and skills, and consider a partner to rejuvenate. Continue to secure new business and develop opportunities for growth Develop, with support from the NT, a more sustainable / efficient solution to the bank guarantee requirement to meet the growing Order Pipeline needs going forward. As Denel embarks on its Growth Phase, secure external investment for initiating R&D for the evolution of product lines and new technologies to benefit of Denel, the local client and the local industry.

A CASE FOR R&D AND PRODUCT EVOLUTION Generation of skills Defence High Tech Sector Development of Technology including Parts Creation of IP Industry Support (vertical integration) SUSTAINABILITY AND SECURITY OF SUPPLY Creation of Centres' of Excellence Products in Support of the SANDF Cross Utilisation of Subsystems Support of the Constitutional Mandate Utilisation of underlying technology base Global Reach for ROI ROI FROM EXTERNAL INVESTMENT TO THE BENEFIT OF INVESTOR, DENEL & SANDF Skills Creation Reduction in Unemployment Job Creation Growth of the Economy Socio Economic Development Innovation (Future war fare)

VISION OF A DENEL RESTORED 1. Profitable and financially sustainable through: Sustainability Phase 2. Restored reputation in industry and in customer base. Sustainability Phase 3. Performance excellence through competency, with aligned and engaged employees Sustainability Phase 4. Increased and diversified customer base through: Growth Phase a) Restoring existing customer base; b) Development of new non-military business and technologies; and c) Commercial exploitation of IP & strategic capabilities; d) Smart Partnering to access funding, new technologies and markets. 5. Industry leader in R&D, innovation and technology development. Growth Phase

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