ANSYS INTEGRATED REPORT 2016

DEFENCE AND INFORMATION SECURITY SECTOR OVERVIEW

Petrus Pelser

Positioned for sustained growth

Ansys is well positioned to take advantage of the opportunities for sustained growth that exist in the
defence and information security sectors, both locally and internationally

The acquisition of Parsec Limited was finalised on 1 June 2015, and its amalgamation with Ansys
Defence had an immediate and significant effect on our defence and information security division.
Revenue increased by 753% from R9.9 million to R85.2 million during the 2016 financial year, and
profit increased by 630% from R2.7 million to R19.8 million from R2.7 million.

We have completed the amalgamation of the defence and information security divisions of both
companies within Parsec, which retains its brand identity and will be our avenue for sales and
contracts in this sector. Centralising product lines, personnel, contracts and services has not only
increased our capacity, but has also allowed us to offer comprehensive integrated solutions that
incorporate the unique skills and capabilities of both companies. This, in turn, has enabled us to
appeal to a broader section of the market, which neither company was able to do on its own.

Our products and services now range from the custom design and manufacture of electronic sub-
systems through to standardised commercial off-the-shelf (COTS) computer modules and mission
computers in the open VPX-based VF36X family. It also includes launcher electronic units for the
interfacing of weapons launchers to aircraft systems and avionics, and is supported by vast expertise
in systems integration and engineering.

In the South African context, the formal adoption of the 2014 South African Defence Review in June
2015 was a welcome development, as it represented the most significant changes in defence policy,
planning and organisation of the past 20 years.

The review covers five separate milestones, which are to be achieved over the period of a decade.

The first milestone, Arresting the Decline, focuses on a number of interventions to reverse the loss of
skills within the SANDF and fill the most urgent gaps in capabilities and equipment. The second
milestone, Rebalancing the Force will build on this by improving the ratio of personnel costs to the
rest of the budget and by acquiring additional capabilities to enhance the SANDF’s joint operations
and expeditionary capabilities.

The third milestone, Capacitate the Force will provide for further enhancement of capabilities, while
the fourth milestone, Respond to Challenges, will take this process further by creating a larger and
more capable SANDF that is capable of handling most of the anticipated scenarios predicted to occur
over the next three decades. The fifth milestone, Limited War, is the most ambitious in its level of
capability, but it remains optional and dependent on economic circumstances.

The anticipated increase in funding for Milestone 1 has not yet occurred due to other near-term
priorities for state spending. However, we note with interest the efforts of the Defence Review
Implementation Project Team (DRIPT) to identify alternate sources of revenue, such as selling non-
core property and licencing certain technologies, in order to meet the Milestone 1 funding
requirements.

The review has, however, already resulted in two very positive developments for the local industry.

The first has been the development of a new acquisition strategy by Armscor, the state’s
procurement arm, which prioritises quicker procurement cycles and a larger reliance on
standardised COTS components and systems supplied by local implementation teams. This approach
suits Ansys well, as our locally developed VF36X range of COTS computing modules are highly
configurable and suited for a wide range of applications. Our extensive systems development,
engineering and implementation experience also means we can provide effective custom solutions
with long-term support in addition to COTS hardware.

The second development has been the establishment of the National Defence Industry Council
(NDIC), which has a mandate to support the local defence industry by identifying and preserving
strategic intellectual property (IP) and technologies, aligning industry capabilities with the long-term
needs of the SANDF and providing assistance with export opportunities. As part of this effort, the
local industry has been segmented into those companies and technologies which are locally owned
and those which are locally based but have foreign ownership.

Ansys is 51% owned by black South African shareholders, holds Level 2 BEE status and owns all of its
IP outright, allowing it to take full advantage of the benefits the NDIC is predicted to offer.

While local sales and opportunities remain positive and we see continued growth, we are not totally
dependent on the local market as we have a thriving export business in both product sales and
custom services. Our biggest region remains the Middle East, where we have a number of long-
standing partnerships and client relationships that have continued to grow steadily over the past
year.

In the information security space, the escalation in the international threat environment, the
adoption of stricter regulatory measures around personal information and the increasing reliance on
networked services are driving government departments and state-owned enterprises to place
much higher emphasis on the security of their networks and on personnel authentication and
authorisation.

In addition, the SANDF has established a Cyber Warfare Strategy, which will culminate in the
establishment of a Cyber Warfare Centre with responsibilities for both offensive capabilities and
security assurance for the rest of the force, especially as more of the force becomes reliant on
network-centric tools and platforms.
Our high-speed network equipment (HSNE) VPN gateways and HID5000 portable cryptographic
tokens are ideally suited to the challenges facing the SANDF, state-owned enterprises and
government departments, as they are entirely local solutions with high performance, long-term
support. They are also certified to FIPS 140-3 Level 3 and we permit the inspection of their source
code. We are engaged in active marketing of these solutions and we anticipate that these
developments will present excellent sales opportunities for our information security products over
the next few years.

We have already achieved export success with the HSNE range of products.

Over the coming year we anticipate steady growth in both our defence and information security
product and service lines, with excellent opportunities from both our local and export partners and
customers.

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