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DENEL GROUP

PRESENTATION TO THE PORTFOLIO COMMITTEE

Messrs Riaz Saloojee, Fikile Mhlontlo and Ms Natasha Davies12 March 2013

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BACKGROUND

• Denel had a positive presentation of its annual report to the Portfolio Committee in October 2012;

• Significant matters raised by the committee were the status of the R700m recap, the development of the group ‘s funding model, status of major local opportunities, certain HR and transformation matters as well as the strategic nature of Denel;

• Denel responded in writing in respect of the HR and transformation matters in November 2012;

• This presentation will address:

o Status of the recap and sustainable funding model

o Status of major local opportunities

o HR and Transformation matters including:

Retention of black males;

Employment Equity; and

Youth Development Programs.

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STATUS OF RECAP AND FUNDING MODEL

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• Received R400m from the Shareholder in December 2012, expecting the balance of R300m to flow by end of March 2013.

• Received a five year R1.85bn guarantee from Government replacing the historical 12 and 18 month guarantees.

• Restructured the debt into three year and five year bonds, thereby mitigating liquidity risk on debt renewal.

• Denel has embarked on fairly positive discussions with National Treasury and DPE regarding what is termed a "sustainable funding model".

• The corporate plan for the next five years shows that the business will improve its financial performance to a sustainable profit.

STATUS OF RECAP AND FUNDING MODEL

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MAJOR LOCAL OPPORTUNITIES

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The following major local opportunities are in process:

•Hoefyster production

oGood progress made to date.

•GBADS

oProposal in respect of phase 2 submitted. Definition is being refined.

oGBADS I handed over to SANDF in March 2012.

•A-Darter

oThe phase 1 project is substantially on track and funding is committed.

oSchedule aligned with updated A-Darter development schedule and related projects are in the process of being activated.

MAJOR LOCAL OPPORTUNITIES

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HR AND TRANSFORMATION

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RETENTION

• Denel’s labour turnover rate for the past financial year was 6.7% which is within our target range of 5% to 7%;

• An in-depth exit interview is conducted for all employees upon termination;

• Whilst salary surveys have indicated that Denel pays well within the market range, some respondents still indicate economic reasons for their departure;

• Generational theory suggests that younger employees change jobs and careers more frequently, which has an impact on our retention rate;

• Our current projected labour turnover figures reflect an increase in our turnover to about 8.4% which could be attributed to the recent retrenchments.

RETENTION IN PARTICULAR OF YOUNG BLACK ENGINEERS & TECHNICIANS IS A MANAGEMENT FOCUS AREA.

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EMPLOYMENT EQUITY

• Denel has developed a 5-year EE Plan following a DG Review by the Department of Labour conducted in 2011.

• In order to improve employment equity within the organisation, the following key interventions have been embarked upon:

o Appointment of Deputy CEO’s at each of the Denel Divisions;

o All appointments are based on a 70/30 principle;

o Specific focus on appointment of women & people with disabilities;

o Succession planning & skills development to fast track the development of ACI’s.

DENEL IS COMMITTED TO CREATING A DIVERSE WORKFORCE

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YOUTH DEVELOPMENT

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YOUTH DEVELOPMENT INTERVENTIONS – 2 Pronged approach

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CREATING AWARENESS

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CAREER EXPOS

•The aim is to showcase and attract learners to the industry;

•We exhibit in Gauteng, KZN, North West, Port Elizabeth, Western Cape and will be expanding to other provinces;

•Denel will be hosting 100 learners from the Free State in June 2013. This is in collaboration with DPE, DoD and other SOC’s.

Other Initiatives:

•Learners are taken to airshows to showcase our products and services;

•Denel participates in youth development activities such as “take a girl child to work”;

•Denel encourages local schools to visit it’s campuses with the aim of encouraging learners to take up careers in our industry.

•During AAD (Africa Aerospace & Defence) show, Denel exhibited at the Youth Development stand.

CREATING AWARENESS

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Denel is involved in a number of programmes that seek to attract and encourage potential learners to take studies that are related to its business. These programmes target students from various institutions. WOMEN IN ENGINEERING

•Denel is partnering with the SA Women in Engineering, spearheaded by a group of young female engineers who have a passion of encouraging female learners to enter the field of engineering, science and technology. Denel funds this programme along with other organisations who are also plagued by skills shortages.

ARMSCOR LEDGER FUND

•Denel sponsors postgraduate studies through the Armscor Ledger Fund. Often, recipients of this funding have opportunities to present their academic papers overseas.

ATTRACTING YOUTH INTO THE INDUSTRY

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ATTRACTING YOUTH INTO THE INDUSTRY (cont.)

THRIP

•Denel in collaboration with the University of the North West is sponsoring Post Graduate students to achieve Master’s Degrees.

TECHNOLOGY OLYMPIAD

•Denel sponsors the South African Institute of Mechanical Engineers (SAIMechE) Technology Olympiad, which aims to bring technology awareness to many young people.

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COLLABORATION WITH TERTIARY INSTITUTIONS

•Denel Dynamics was recently rated No. 3 by SAGRA (SA Graduate Recruiters Association) after Murray and Roberts and Hatch which rates attractiveness of employers by university engineering students.

•Magnet Communications conducts surveys among university students in their second or final year of study and professionals to determine who their ideal employers are. Denel is working closely with Magnet to improve Denel’s attractiveness as a Group.

•Denel in collaboration with a local FET (Further education & training) college assists learners in obtaining technical qualifications i.e. N1-N3.

ATTRACTING YOUTH INTO THE INDUSTRY (cont.)

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YOUTH DEVELOPMENT

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YOUTH DEVELOPMENT INTERVENTIONS

YOUTH DEVELOPME

NT PROGRAMME

S

Bursaries

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SCHOOLS OUTREACH PROGRAMME

• Denel is involved in the upgrading of mathematics and science teaching to improve the standards of teaching at schools especially in underprivileged communities.

  • The programme is currently running in the Gauteng and North-West

provinces with over 1200 learners from grade 8 to 12 participating.

• Engineers employed at various Denel business divisions are involved in tutoring these learners on Saturdays without expectation of a reward.

• We plan on expanding the programme to Mpumalanga, Limpopo and Free State.

• Denel donated 3 000 Mathematics textbooks to various schools.

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ARTISAN TRAINING

Denel trains over 300 artisans per annum

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BURSARIES

• The purpose of the Bursary scheme is to have a readily available pipeline of qualified engineering students in the following disciplines:

o Electronic;

o Mechanical;

o Industrial;

o Software/ Computer;

o Mechatronic.

• Denel has offered over 80 bursaries to students towards these qualifications.

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• Engineering students are required to undergo practical training during the year. This is a compulsory requirement from the University in order to graduate.

• Denel divisions offer students vacation work over the December and January period for 6 weeks where each student is assigned to meaningful project related work.

• Denel Dynamics has an Engineering Academy of Learning which offers

20 graduate engineers an internship opportunity for a year which includes formal courses, on the job training and a development project to ensure that they are productive in the shortest possible time after qualification.

• Denel Land Systems offers internship opportunities to other fields of studies such as HR and Marketing.

• Denel Aviation & Aerostructures offers over 80 apprentices the opportunity for on the job training and qualification as Aircraft technicians.

VACATION WORK & INTERNSHIPS

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• Denel is committed to Transformation including Employment Equity.

• Specific management focus will be given to Retention of young black employees.

• Appointment of women and people with disabilities remains key.

• Skills Development will remain a priority and Denel will continue to train for its own consumption & for industry.

• Youth Development activities currently in Gauteng; North-West; KZN; Western Cape & Port Elizabeth will expand to include Mpumalanga, Limpopo & Free State.

IN CONCLUSION

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THANK YOU