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Scope

PRESENTATION OF THE ARMSCOR ANNUAL REPORT TO THE PORTFOLIO COMMITTEE ON DEFENCE AND MILITARY VETERANS MR SIPHO MKWANAZI – ACTING CEO DATE: 10 th OCTOBER 2013. Scope. 1 . Introduction 2 . Performance of Operational Functions Acquisition Research and Development Dockyard 3. Human Resources

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Scope

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  1. PRESENTATION OF THE ARMSCOR ANNUAL REPORTTO THE PORTFOLIO COMMITTEE ON DEFENCE AND MILITARY VETERANS MR SIPHO MKWANAZI – ACTING CEO DATE: 10th OCTOBER 2013

  2. Scope 1. Introduction 2. Performance of Operational Functions Acquisition Research and Development Dockyard 3. Human Resources 4. Corporate Performance versus Goals / Objectives 5. Financial Performance 6. Challenges 7. Questions & Answers 2

  3. Introduction • Armaments Corporation of South Africa SOC Limited (Armscor) established in terms of the Armaments Corporation of South Africa, Limited Act (Act 51 of 2003) • State – owned entity as contemplated in the Companies Act, 2008 • Listed as a Schedule 2 Public Entity in terms of the PFMA • Further regulated by the Regulations issued in the terms of the PFMA and the Companies Act • The Minister responsible for Armscor is the Minister of Defence & Military Veterans (MOD&MV) • The Board of Directors is the Executive Authority of Armscor 3

  4. Introduction (Cont.) • Within its mandate, Armscor’s objectives are to meet the following requirements of the DoD: • defence matériel needs • technology development • research & development • analysis • test & evaluation effectively, efficiently and economically • Adhere to accepted principles of corporate governance and lawfulness • Highlights: • Clean Audit • Achieved level 3 BBBEE rating from level 7 • Dockyard obtained ISO 9001: 2008 accreditation • Achieved a surplus of R84.6m (2012/13) against R70.2m in 2011/12 • 51% improvement on results of Corporate Social Investment (CSI) Flagship programme – Learner Enhancement Programme 4

  5. Performance of Operational Functions - Acquisition MARITIME SYSTEMS • Following the delivery and commissioning of three submarines, engineering changes were made to meet: • operational • safety • support related requirements • These were initially omitted due to financial constraints • Changes are almost completed, awaiting • Department of Public Works to complete escape training facility by end Sept 2013 • Availability of submarine to carry out final on-board qualification by April 2013 5

  6. Performance of Operational Functions - Acquisition (Cont.) AIRBORNE SYSTEMS • LUH- All 30 Helicopters have been delivered to SAAF & updated with latest production standards • Gripen - 9 x dual seat aircraft -17 x single seat aircraft delivered to SAAF Aircrafts in full functionality, electronic warfare and datalink capability completed in Sept 2013 Integration of the A-Darter Missile was completed and delivered in November 2012 • Hawk– Operational flight trainer has been upgraded to the same standard as the fleet The fleet exceeded 10 000 flying training hours in October 2012 • Rooivalk-Rooivalk fleet was upgraded to the MK1 deployment baseline A depot level support was also established 6

  7. Performance of Operational Functions - Acquisition (Cont.) • 39 Oryx Medium Transport Helicopter (MTH’s) • Development of avionics upgrade was completed • The modification on the first four helicopters is progressing well • A-Darter Missile development • Jointly funded with the Brazilian Air Force • Programme is progressing well despite some technical delays experienced • Seeker head has reached an acceptable level of technology maturity 7

  8. Performance of Operational Functions - Acquisition (Cont.) LANDWARD SYSTEMS • Ground Based Air Defence System • New Local Warning Segment of the Ground Based Air Defence System has been completed • Phase two of the GBADS programme which entails upgrading of fire-control system of the 35 mm anti – aircraft guns has commenced • New Generation Infantry Combat Vehicle • Locally developed 30mm Camgun is undergoing final environmental test and evaluation • Advanced development was completed in December 2012 and testing commenced in February 2013 • Development of an insensitive munition-compliant missile will be further explored in the next two years 8

  9. Performance of Operational Functions - Research & Development (Cont.) TEST & EVALUATION FACILITIES aims to maintain the capability • Gerotek • 28% funded from DoD transfer payment • Relying on commercial business to fund shortfall • Alkantpan • 33% funded from DoD transfer payment • 67% operations funded from local and foreign business 9

  10. Performance of Operational Functions - Research & Development (Cont.) DEFENCE SCIENCE AND TECHNOLOGY INSTITUTE • Armour Development • DoD transfer payment funds basic capability – 95% • Relying on commercial business to fund shortfall • Defence Decision Support Institute (DDSI) • 100% funded from DoD transfer payment • Ergonomics Technologies (Ergotech) • 95% funded from DoD transfer payment • 5% funded from commercial contracts • Flamengro • 75% funded from DoD transfer payment • Funded 25% of operations from local business contracts 10

  11. Performance of Operational Functions - Research & Development (Cont.) DEFENCE SCIENCE AND TECHNOLOGY INSTITUTES • Hazmat • 100% of income generated from local commercial contract • Institute of Maritime Technology (IMT) • 88% funded from DoD transfer payment • 12% from local commercial work • Protechnik • 98% funded from DoD transfer payment • 2% from commercial contracts 11

  12. Performance of Operational Functions - Dockyard • Obtained ISO 9001:2008 accreditation • Current financial year focus is on SHE matters • Funding based on a fixed transfer payment to deliver predetermined capabilities • Current capacity insufficient to deliver full requirements • Received R30.6m additional funding • Capacity rejuvenation (skilled labour & equipment) • Insufficient & sustainable funding remains • Re-modernisation study completed in July 2013 • Despite challenges, overall achievement 92% versus 90% target 12

  13. Performance of Operational Functions - Dockyard(Cont.) Planned and unplanned maintenance projects • Frigates: SAS Spioenkopexperience challenges, eventually completed in March 2013 • Patrol Vessels: SAS ISSAC Dyobastarted maintenance in March 2013 for collision damage repairs which was successfully completed SAS Umhloti, unscheduled maintenance and repairs completed on time SAS Umzimkulu, successfully completed unplanned maintenance • Tugs: Tug Indlovu Tug Demist All work successfully completed on time Tug Tshukudu Tug Umalusi , unscheduled maintenance planned for completion in April 2013 13

  14. Performance of Operational Functions - Dockyard(Cont.) Planned and unplanned maintenance projects (cont.) • Submarines: SAS ManthatisiOEM executing refit at Dockyard, to be completed in July 2014 SAS Charlotte Maxekecompleted within revised date due to unforeseen damage SAS Queen Mojaji, activities completed within planned schedule • Independent Vessels: SAS Proteacompleted in Feb 2013 vs. planned October 2012 due to unanticipated damage of valves to be removed, repaired and replaced SAS Drankensbergcompleted within revised date 14

  15. Human Resources • Improvement in overall transformation, esp. from mid management to top management • Improvement in employee satisfaction survey – 66.5% (2012/13) from 62.9% (2011/12) • 90 young engineers and scientist were identified for succession planning • Skills Development Programmes • Armscor Senior Management Leadership Programme • Functional training • Dockyard training centre • Adult Basic Education and Training (ABET) • Talent Development Programme • CSI Flagship programme – “Learner Enhancement Programme” in support of Maths and Science in schools resulted to an average of 51% improvement in these subjects 15

  16. Corporate Performance vs. Goals Objectives 1 – 3 : Measure effectiveness of acquisition function in terms of: • Contracts to be placed: commitment of funds • Achieved cash flow against formally planned cash flow i.t.o. of commitments Achieved goals except for System support: Acquisition and Procurement (operational funds) OBJECTIVES MEASURING FUNCTIONS IN TERMS OF SLA Objective 4: Management of Defence Industrial Participation: • Execution of DIP obligations • Objective not achieved Objective 5 : Management & Execution of Defence Technology, Test and Evaluation requirements for DOD: • Execution by Armscor Defence Institutes of contractual milestones/ deliveries • Objective achieved Objective 6 : DOCKYARD • Management and performance against Dockyard Mandate • Objective achieved 16

  17. Corporate Performance vs. Objectives (Cont.) Strategic objective 1 – Funding & Growth Measure the expenditure compliance and effort to secure sufficient funding to sustain the organisation • Objective not achieved ACHIEVEMENT OF STRATEGIC OBJECTIVES Strategic objective 2 – People & Capabilities Measuring Armscor’s ability to attract and retain employees through a positive organizational environment x Objective partly achieved Strategic objective 3 – Organisational Effectiveness & EfficienciesMeasure the operational efficiency of Armscor x Objective partly achieved Strategic objective 4 – Stakeholder Relationships Measure the relationships with stakeholders & Armscor’s compliance to good governance x Objective partly achieved 17

  18. Financial Overview • Armscor received an unqualified Audit Report • Net asset value (Shareholder’s interest) increased by 187% to R1 792m million due to revaluation of land and buildings • Profit of R84.6m realised against R70.2m in 2012 • Total revenue increased by 1% to R308.2 million • Personnel costs remains main contributor at 74.4% of total operating cost 18

  19. Financial Position as at 31 March 2013Assets 19

  20. Financial Position as at 31 March 2013Equity and Liabilities 20

  21. Statements of Comprehensive Income for the yearended 31 March 2013 21

  22. Armscor Challenges 22

  23. Questions & Answers 23

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