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SCOPE

ARMSCOR ANNUAL REPORT 2011/12 PRESENTATION TO THE PARLIAMENTARY PORTFOLIO COMMITTEE ON DEFENCE AND MILITARY VETERANS MR SIPHO MKWANAZI – ACTING CEO DATE: 24 October 2012. 1. SCOPE. Aim 2. Introduction 2.1 Corporate Profile 2.2 Objectives & Functions 2.3 Reporting Structure

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SCOPE

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  1. ARMSCOR ANNUAL REPORT 2011/12 PRESENTATION TO THE PARLIAMENTARY PORTFOLIO COMMITTEE ON DEFENCE AND MILITARY VETERANS MR SIPHO MKWANAZI – ACTING CEO DATE: 24 October 2012 1

  2. SCOPE Aim 2. Introduction 2.1 Corporate Profile 2.2 Objectives & Functions 2.3 Reporting Structure 2.4 Overall Organisational Performance for the 2011 / 2012 Financial Year 3. Review of Operations 3.1 Acquisition 3.2 Research and Development 3.3 Dockyard 3.4 Armscor Finances 4. Corporate Performance 4.1 Corporate Performance against Goals 4.2 Challenges 5. Questions and Discussions 2

  3. 1. AIM To present an overview of the ARMSCOR 2011/ 2012 Annual Report 3

  4. 2. INTRODUCTION 4

  5. 2.1 Corporate Profile • 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 of Defence and Military Veterans is representing the Shareholder for Armscor 5

  6. 2.2 Objectives and Functions of the Corporation Objectives of the Corporation: • To meet the defence materiel requirements of the Department effectively, efficiently and economically • To meet the defence technology, research, development, analysis, test and evaluation requirements of the Department effectively, efficiently and economically Functions of the Corporation: The Corporation must: a. Acquire such defence materiel on behalf of the Department may require b. Manage such technology projects as may be required by the Department c. Establish a programme management system in support of the acquisition and technology projects contemplated in (a) and (b) 6

  7. 2.2 Functions of the Corporation … continued d. Provide for a quality assurance capability in support of: • the acquisition and technology projects in (a) and (b) • any other service contemplated and required by the Department e. Establish a system for tender and contract management in respect of defence materiel and, if, required in a service level agreement or if requested in writing by the Secretary for Defence, the procurement of such commercial material f. Dispose of defence materiel in consultation with the person who originally manufactured the materiel g. Establish a compliance administration system for the Department as required by applicable international law, the National Conventions Arms Control Act, 2002 and the non – proliferation of Weapons of Mass Destruction Act, 1993 7

  8. 2.2 Functions of the Corporation … continued h. Support and maintain such strategic and essential defence industrial capabilities, resources and technologies as may be identified by the Department • Provide defence operational research • Establish a defence industrial participation programme management system • Provide marketing support to defence industries in respect of defence materiel, in consultation with the Department and the defence industries in question • Manage facilities identified as strategic by the Department in a service level agreement, and • Maintain such special capabilities and facilities as are regarded by the Corporation not to be commercially viable, but which may be required by the Department for security or strategic reasons 8

  9. 2.2 Objectives and Functions of the Corporation … continued 2. (a) The Corporation may, with the approval of the Minister – • Exploit such commercial opportunities as may arise out of the Corporation’s duty to acquire defence materiel or to manage technology projects • procure commercial material on behalf of any organ of state at the request of the organ of state in question • Subject to National Conventional Arms Control Act. 2002, the Regulations of Foreign Military Assistance Act, 1998, and the Non – Proliferation of Weapons of Mass Destruction Act, 1993, perform any function which the Corporation may perform for or on behalf of the Department in terms of this Act or on behalf of any sovereign State b. The Minister may impose such conditions in respect of the performance of a function contemplated in paragraph (a) (iii) as may be necessary in the national interest 9

  10. 2.3 Reporting Structure Minister of Defence and Military Veterans ARMSCOR’S REPORTING STRUCTURE TO THE MINISTRY OF DEFENCE AND MILITARY VETERANS Chairman of Armscor ArmscorBoard of Directors Armaments Corporation of South Africa (ARMSCOR) 10

  11. THE BOARD Mrs R Mokoena Deputy Chairperson of the Board Lt. General (ret) M M Motau Chairperson of the Board Dr J L Job Chairman: Finance, Business Development & Investment Committee of the Board Mr EL Borole Chairman: Audit and Risk Committee of the Board Mr SA Msibi Chairman: Human Resources and Ethics Committee of the Board Mr LV Mosiako Chairperson: Research and Development Committee of the Board Dr P P Dyantyi Mr S Mkwanazi Acting Chief Executive Officer: Armscor Mr JG Grobler Chief Financial Officer: Armscor Adv V September Chairperson: Marketing and Industry Support Committee of the Board Dr. R R Mgijima Chairman: Acquisition Committee of the Board 11

  12. MANAGEMENT BOARD • CHIEF EXECUTIVE • OFFICER (ACTING) • JS Mkwanazi • ACQUISITION • D Griesel • (Act General Manager) • DOCKYARD • TT Goduka • (General Manager) • HUMAN RESOURCES • SP Mbada • (General Manager) • LOGISTICS AND • MATÉRIEL SUPPORT • Ms. NRM Borotho • (General Manager) • ARMSCOR DEFENCE • INSTITUTES (PTY) LTD • KP Hanafey • (Acting General Manager) • QUALITY AND IT • R Ramgolam (Acting General Manager) • FINANCE AND • INFRASTRUCTURE • JG Grobler • (General Manager) • COMPANY SECRETARY • Adv. NB Senne 12

  13. 2.4 Overall Organisational Performance for the 2011/12 Financial Year Corporate Governance: • Achieved clean audit – no qualifications. Performance against Corporate Goals: - Most of the Corporate Goals were achieved or exceeded, however, there are areas that still need continuous improvement Finance: - The Group realised a profit of R73,3 million which is an improvement from the previous financial year as well as from the initial budgeted position Acquisition Programmes Highlights: • The Strategic Defence Package (SDP’s) is winding down and the focus is on support and maintenance • Major capital programmes performed reasonably well even those that were delayed have improved 13

  14. Overall Organisational Performance Human Resources (HR) • Human Capital - The organisation has achieved most of its set goals in this area, however it is still faced with the challenges of gender balance and retention of skills and talent • Transformation - The organisation continues to transform itself in accordance with the employment equity requirements to reflect the demographics of the country • Armscor managed to retain critical skills by achieving a staff turn over of 2,4% in technical positions, excluding retirements • Employee satisfaction – The Employee satisfaction survey indicated a slight improvement compared to the previous financial year. 14

  15. Overall Organisational Performance Compliance • Two ISO 9001: 2008 Surveillance audits were conducted by SABS and certification was confirmed Social Investment • Armscor is involved in a School Learner Enhancement Programme for nine schools in Pretoria ( eight in Atteridgeville and one in Olievenhoutbosch). The impact in terms of the academic performance will be available in the next reporting period. • Armscor has donated 75 computers and related software to three schools in Prieska for learning purposes 15

  16. 3. REVIEW OF OPERATIONS 16

  17. 3.1 Review of Operations - Acquisition MARITIME SYSTEMS • Valour Class MEKO A – 200 Frigates: The present activities focused on the completion of the systems integration and performance acceptance of the 35/ 76mm Double Purpose Gun (DPG) system • For the three commissioned Type 209 Submarines, during the period under review, the focus was on implementing required engineering changes that were a result of operational test and evaluation – to be completed during 2012 17

  18. 3.1 Review of Operations – Acquisition… continued AIRBORNE SYSTEMS • Light Utility Helicopter (LUH) - All 30 Helicopters are updated to the final production standard. • Airbus A400 Strategic Heavy Lift Transport Aircraft - Airbus Military (ASML) has reimbursed Armscor with all the advanced payments plus interest and escalation. All the project orders have been closed. • Gripen– Out of the 26, 22 have been delivered. The last four aircraft will be updated to the final functionality standard in Sweden and delivered to South Africa in August 2012. The integration of the A-Darter Missile has been completed • Hawk – The fleet has been into full operational use by the SAAF and achieved the 1650 flying training hours during the financial year. • Rooivalk– Out of the 11 aircraft, 6 were upgraded and delivered. Upgrade of the five MK1 Rooivalk was completed during the year under review. The 5 will be delivered during April 2012 18

  19. 3.1 Review of Operations – Acquisition… continued • 39 Oryx Medium Transport Helicopter (MTH’s) are being upgraded by DENEL Aviation with a new navigation system. The project was scheduled to be completed by July 2012 however, due to some delays the completion date is set for November 2014 • A-Darter Missile development – Jointly funded by Brazilian Air Force. Programme is progressing well, but some delays have been experienced due to technical risks materializing. 19

  20. 3.1 Review of Operations – Acquisition … continued LANDWARD SYSTEMS • Ground Based Air Defence System – Subsequent to the delays as a result of technical problems, the programme is back on track. The development and delivery of the of the new Local Warning Segment of the Ground Based Air Defence System has been successfully completed and qualified for delivery to the SA Army. • New Generation Infantry Combat Vehicle – The locally developed 30mm Camgun is undergoing final environmental test and evaluation . Assembly of the two Section Variant Turrets are completed. The Design Test and Evaluation of the Section Variant is planned to start mid-2012. 20

  21. 3.2 Review of Operations – Research and Development RESEARCH AND DEVELOPMENT PROGRAMMES Aerospace Technology - The technology demonstrator of the Precision Bomb Guidance Kit attached to existing bombs was successfully tested in June 2011. The Technology has matured enough to implement. This technology demonstrator has established the technology base for the manufacture of low cost precision guidance bomb kits in local industry. Support Technology - the BIO-CHEM (Biological and Chemical) Laboratory technology demonstrator for field experimentation was completed. The technology is handed over to and used by SAMHS 21

  22. 3.3 Review of Operations - Dockyard • The Dockyard - Despite its challenges of insufficient funding, the Dockyard achieved 88% compliance against agreed performance target of 90% • A decision was taken to conduct a feasibility study to fully assess the state of the Dockyard and the requirements to turn it into a world – class facility capable of meeting all requirements of the SA Navy as well as those of commercial business. 22

  23. 3.4 Armscor Finances Armscor Group – 2011/12Financial Overview • Net asset value (Shareholder’s interest) increased with 13.2% to R627.1 million due to surplus for the period • Total revenue increased by 6.1% to R1,07 billion. • FACTORS THAT INFLUENCED THE FINANCIAL POSITION POSITIVELY • Increase in allocation for operating expenditure as a result of payment for services rendered due to scope increase • Reduced spending on other expenses as a result of continuous effort to reduce costs and increase efficiency, e.g. personnel costs as only some critical positions were filled • Strategic decision to delay IT related expenditure • Increase in investment revenue generated • Actuarial gain recognised from post-retirement medical benefit 23

  24. 4. CORPORATE PERFORMANCE 24

  25. 4.1 Corporate Performance against Goals 25

  26. Strategic Objectives in terms of the SLA 4 out of the 6 objectives have been achieved, 2 slightly underperformed 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 Category 1materiel where slightly underperformed OBJECTIVES MEASURING FUNCTIONS IN TERMS OF SLA Objective 4: Management of Defence Industrial Participation: • Execution of DIP obligations • Objective 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 not fully achieved, 88% vs 90% 26

  27. Strategic Objectives 1- 3 Most objectives were achieved. The areas of EE and BEE will focus more on gender Strategic objective 1 – Funding & Growth Measure the expenditure compliance and effort to secure sufficient funding to sustain the organisation. Objective achieved ACHIEVEMENT OF STRATEGIC GOALS Strategic objective 2 – People & Capabilities Measuring Armscor’s ability to attract and retain employees through a positive organizational environment. Areas of improvement still required Areas of improvement still required Strategic objective 3 – Broad Based Black Economic EmpowermentMeasure the spending in compliance with the BBBEE Act & Armscor’s BBBEE certification status Most areas achieved although areas such as spending on women owned entities still needs improvement 27

  28. Strategic Objectives 4 - 6 2 Objectives were achieved, and 1 not achieved . Strategic objective 4 – Stakeholder Relationships Measure the relationships with stakeholders & Armscor’s compliance to good governance Objective relating to unqualified annual report achieved ACHIEVEMENT OF STRATEGIC GOALS Strategic objective 5 – Local Industry Measure the support to the local industry Objectives not achieved as spending on local industry was affected by large foreign payments Strategic objective 6 – Operational EfficiencyMeasure the operational efficiency of Armscor. Objectives achieved 28

  29. 4.2 Challenges 29

  30. Challenges • Financing the Corporation Current funding model – remain limitation as transfer payment for operating expenditure increase based on fixed percentage irrespective of increase in cost base (consisting mainly of personnel cost increasing at higher rate) This has influence on : • Ability to rejuvenate workforce • Renewal of infrastructure (IT application systems) • Maintaining technical capabilities required New funding model developed based on levying charges for services rendered 30

  31. Challenges 2. Dockyard Insufficient funding of the Dockyard remains a challenge. This has led to challenges of insufficient capacity and capability. A due diligence study is undertaken 3. Management of DIP obligations • The focus was more on sales than on technology transfer/ investment This made it difficult to show impact on economy. 4. Transformation of defence sector • Foreign majority share ownership in SA Defence companies • Reluctance by industry to implement employment equity • Reluctance by industry to implement BBBEE 31

  32. THANK YOU QUESTIONS? 32

  33. STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2012ASSETS 33

  34. STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2012EQUITY AND LIABILITIES 34

  35. STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARENDED 31 MARCH 2012 35

  36. ARMSCOR GROUP 36

  37. ARMSCOR GROUP 37

  38. 4.2 Corporate Performance against Goals 38

  39. Measurement of Performanceagainst Armscor Group Corporate Objectives 39

  40. Measurement of Performanceagainst Armscor Group Corporate Objectives 40

  41. Measurement of Performanceagainst Armscor Group Corporate Objectives 41

  42. Measurement of Performanceagainst Armscor Group Corporate Objectives 42

  43. Measurement of Performanceagainst Armscor Group Corporate Objectives 43

  44. Measurement of Performanceagainst Armscor Group Corporate Objectives 44

  45. Measurement of Performanceagainst Armscor Group Corporate Objectives 45

  46. Measurement of Performanceagainst Armscor Group Corporate Objectives 46

  47. Measurement of Performanceagainst Armscor Group Corporate Objectives 47

  48. Measurement of Performanceagainst Armscor Group Corporate Objectives 48

  49. Measurement of Performanceagainst Armscor Group Corporate Objectives 49

  50. Measurement of Performanceagainst Armscor Group Corporate Objectives 50

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