armscor annual report 2010/11 presentation to...

ARMSCOR ANNUAL REPORT 2010/11

PRESENTATION TO THE PARLIAMENTARY PORTFOLIO COMMITTEE ON DEFENCE AND MILITARY VETERANS

MR SIPHO MKWANAZI –

ACTING CEO

DATE: 19 October 2011

1111

SCOPE

1.

Introduction1)

Mandate2)

Reporting Structure3)

Corporate Profile4)

Highlights and Challenges for the 2010 / 2011 Financial Year

2.

Strategic Focus1)

Funding and Growth2)

People / Capabilities3)

Broad Based Black Economic Empowerment (BBBEE)4)

Stakeholder Relationships5)

Support Local Industry6)

Operational Efficiencies

3.

Review of Operations 1)

Acquisition2)

Armscor Defence Institutes3)

Dockyard

Scope

4.

Corporate Performance1)

Finance2)

Corporate Performance against Goals

5.

Questions and Discussions

1. Introduction

Aim

Mandate

To present an overview of the ARMSCOR 2010/ 2010 Annual Report

Mandated by the Armaments Corporation of South Africa , Limited Act, 2003 (Act 51 of 2003):

to acquire defence materiel for the Department of Defence and any organ of State that may require such services, such as the South African Police Service.

Reporting Structure

Minister ofDefence and Military Veterans

Chairman of Armscor

Armscor

Board of Directors

Armaments Corporationof South Africa

(ARMSCOR)

Corporate Profile: Board

Dr PS Molefe Mrs R Msiza Mr EL Borole Mr SA Msibi Mr RP Meyer

Mr LV Mosiako

Adv V September Mr S Mkwanazi Mr JG Grobler

Corporate Profile: Management Board

•BOARD SECRETARIAT& LEGAL SERVICES

•(Vacant)

•CHIEF EXECUTIVEOFFICER (ACTING)•JS (Sipho) Mkwanazi

•CHIEF EXECUTIVEOFFICER (ACTING)•JS (Sipho) Mkwanazi

•ACQUISITION •D ( Dawie) Griesel•(Act General Manager)

•ACQUISITION •D ( Dawie) Griesel•(Act General Manager)

•DOCKYARD•TT (Themba) Goduka•(General Manager)

•DOCKYARD•TT (Themba) Goduka•(General Manager)

•LOGISTICS AND MATÉRIEL SUPPORT

• Ms NRM (Ntahli) Borotho•(General Manager)

•LOGISTICS AND MATÉRIEL SUPPORT

• Ms NRM (Ntahli) Borotho•(General Manager)

•HUMAN RESOURCES •SP (Solomzi) Mbada•(General Manager)

••QUALITY AND ITQUALITY AND IT••MM (Mike) MatibeMM (Mike) Matibe•(Acting General Manager)

•ARMSCOR DEFENCE INSTITUTES (PTY) LTD

•KP (Kevin) Hanafey•(Acting General Manager)

•FINANCE AND INFRASTRUCTURE

•JG (Gerhard) Grobler•(General Manager)

Highlights and Challenges

Corporate Governance -

Achieved clean audit –

no qualifications and matters of emphasis

Performance –

Most of the Corporate Goals were achieved or exceeded

Finance: The Group realised a surplus of R 17 million

Operations highlights:

The Strategic Defence Package (SDP’s) was accomplished

SDP’s formed a significant part of ARMSCOR’s acquisition portfolio and included acquisition of :

Four frigates

Three submarines and four maritime helicopters

24 Hawk lead –in-

fighter aircraft

30 Light utility helicopters

26 Gripens

Except for 11 of the single seat advanced light fighter aircraft (Gripen) all product systems acquired under the SDP’s have been delivered to the South African Navy (SAN) and the South African Air Force (SAAF)

For the period under review, the focus was on the support, maintenance and repair of the systems

Highlights and Challenges…

continued

Future Focus: Acquisition of the Landward Systems

Other programmes: Development of the A – Darter (joint programme with the Brazilian Air Force) - progressing well

ARMSCOR Defence Institutes’ Protechnik and IMT provided support to the DOD during the 2010 FIFA Soccer World Cup.

Simon’s Town Naval Dockyard – Despite its challenges of insufficient funding Dockyard registered many successes in its core functions - by completing most of its maintenance work on various SAN vessels in time for the 2010 Soccer World Cup event.

Human Capital - The organisation has achieved most of its set goals in this area, however the organisation is still faced with the challenges of gender balance and retention of skills and talent

The organisation will continue to transform itself in accordance with the employment equity requirements to reflect the demographics of the country

2. Strategic Focus

Strategic Initiative 1: Funding and Growth

1.

Challenge: Insufficient funds to execute mandate

2.

Progress with the development of the ARMSCOR Cost Model & implementing the model

Cost model completed, however the refinement of cost allocation within the model is to be done

Positive net results achieved – however it was mainly achieved through cost reduction on personnel cost as only critical vacancies were filled. Therefore the Group remains under considerable pressure as this is not a sustainable solution

3.

Dockyard

Insufficient funding - not only precluded the critical renewal and expansion of ageing infrastructure, but has also resulted in the loss of critical skills and knowledge in critical areas.

ACTIVITIES TO ADDRESS FUNDING

Efficiency savings exercise

Reviewing expenditure and processes to ensure available funding is spend on service delivery

Funding model

Costing of functions to substantiate funding required to perform mandated functions

Update and review of Service Level Agreement

Strategic Initiative 2: People / Capabilities

Challenges:

Loss / Erosion of Skills (Retirement, resignation & lack of talent attraction)

Progress:

The organisation has achieved its set goals in this area, however, it will still continue to transform in accordance wit the employment equity requirements, to reflect the demographics of the country.

The organisation is still faced with the challenges of gender balance and retention of skills and talent

Strategic Initiative 3: Broad Based Black Economic Empowerment (BBBEE)

Challenge:

Insufficient transformation in ARMSCOR & Defence industry (BBBEE Compliance)

Progress:

Implementation and roll out of the approved ARMSCOR Broad Based Black Economic Empowerment [BBBEE] Strategy in line with the DOD policy is done

Implementation of the BBBEE strategy & monitoring system which is aimed at improving management information on the transformation status of :

o ARMSCOR BEE (Internal compliance)

o Transform Defence Industry BEE (External compliance, suppliers)

is completed

Intervention yielded positive results

Challenge:

o Less active participation of Black female owned enterprises in the technical environment

Strategic Initiative 4: Stakeholder Relationships

Challenge:

Improve relationships with key stakeholders and overcome negative perceptions about ARMSCOR.

Progress:

The Stakeholder engagements strategy was reviewed to better manage relationships/ improve reputation and ensure compliance.

The year under review afforded ARMSCOR an opportunity to forge close and cordial relationships with the DOD .

Relationship with DOD paved a way to establish and maintain positive relationships with other key stakeholders relationships, such as Parliamentary Committee on Defence and Military Veterans, other government departments, the defence

industry and the general public.

Corporate Social Investment –

Adopted a school in Attridgeville –

to assist in improving Maths and Science. Intervention paid off: School obtained 88.6 % pass rate -

up from 38% in 2009. Armscor participated in other programmes e.g.: Nelson Mandela day, Cell C “Take a girl child to work, was also involved in Kalafong Hospital through the implementation of the Integrated Service Excellence Model to support the hospital’s management team to strive towards service excellence.

Future Plans

To be involved in a number of Corporate Social Investment programmes.

Strategic Initiative 5: Local Industry Support

Challenge:

Sustainability of local capability, and lack of local industry support (Support Government Initiatives: Economic development, Job creation & Transformation)

Achievements: Integrated Local Industry Support Strategy developed

Armscor coordinated a number of international defence exhibitions on behalf of the SA government

Aims for International Exhibition Shows:

To promote local industry to international markets

Forge relationships with similar organisations (FMV, etc )

Meeting with suppliers to further discuss contractual issues and relationships

Exposure to technology available and the world trends and direction in technology development

9 Shows were approved by the Dti. Of the 9, Armscor coordinated 7, 2 (IDEAS & Defentory) were cancelled by the Show organisers as a result of natural disasters and economic recession respectively

Highlights

The AAD Show in Cape Town in September 2010 in terms of size and number of exhibitors and attendees

Potential business realised by local industry and contracts signed

Strategic Initiative 6: Operational Efficiencies

Challenge:

Operational Inefficiencies (Outdated IT application systems, lack of alignment, integration and efficiency measurements)

How the objective seeks to address the strategic gap

Improve Productivity, Efficiencies and Integration

ICT

o Due to lack of funding, only the short term strategy approved by

the Board –

Strategy included hybrid of outsourcing and in sourcing with a view to ultimately focus on in sourcing

o Benchmarking exercise with similar organisation undertaken to guide how ICT should be run and funded

Productivity

o Continuous improvement process and systems in order to fully meet the requirements of the client

o Productivity management system is being developed

Armscor obtained an unqualified audit from the Auditor – General

o This was as a result of ARMSCOR’s commitment to best management practices, good governance and continuous improvements

3. Review of Operations

Review of Operations -

Acquisition

MARITIME SYSTEMS

All four Valour Class MEKO A – 200 Frigates have been delivered and are actively deployed in local and international waters. Present activities focused on the completion of the systems integration and performance acceptance of the 35/76mm DPG gun system

Three Type 209 Submarines have been delivered and commissioned. Focus is presently on implementing required engineering changes – to be completed during 2012.

AIRBORNE SYSTEMS

LUH - All 30 Helicopters have been delivered to the SAAF and updated to the final production standard.

Gripen - All nine dual seat aircraft and six single seat aircraft have been delivered to the SAAF – bringing the total to 15. Eleven aircraft were utilised by the SAAF during the 2010 FIFA World Cup event. Completion of delivery of remaining 11 single seat aircraft will be completed during 2012

Hawk – Aircraft have been successfully deployed and a total of 1989 hours were flown during the reporting period, 203 of them during the 2010 FIFA Soccer World Cup event.

Rooivalk - Upgrade of first five MK1 Rooivalk was completed during the year under review. Retrofit of remaining six helicopters - planned to be completed in March 2012


Acquisition

A-Darter Missile development – Jointly funded by Brazilian Air Force. Program is progressing well, and has been successfully integrated on the Gripen aircraft.

LANDWARD SYSTEMS

Ground Based Air Defence System - Technical challenges have been resolved -Integration of all elements commenced in February 2011 and delivery of completed project is expected in May 2012.

New Generation Infantry Combat Vehicle – development is progressing well, and first major development Milestone (Section Variant Product Baseline) was achieved during September 2010.

New Generation Tactical Communication System – Allocated baselines of 7 subsystems have been established and development and industrialisation phase will be completed by February 2013.


ADI (Pty) Ltd

Highlights:

ARMSCOR Defence Institutes’ Protechnik and IMT provided support to the DOD during the 2010 FIFA Soccer World Cup.

All ADI facilities have maintained their accreditation and certification status.

In the period under review ADI facilities have increased their business portfolio.


Dockyard

Highlights:

Despite its challenges of insufficient funding Dockyard registered many successes in its core functions - by completing most of its maintenance work on various SAN vessels in time for the 2010 Soccer World Cup event.

Embarked on a management exercise for the development of its business processes: Business Strategy, Value chain and business plans were approved

Successfully implemented all of its core functions and major projects, despite the critical financial shortfalls

Embarked on joint planning efforts with the SAN - to streamline planning efforts and feedback sessions between stakeholders

Performance Management Agreement signed - related to all collaboration and cooperation between ARMSCOR and SAN

Commercial Projects: Conducted a number of commercial dry- docking and maintenance work at the Simon’s Town Dockyard

Major Challenge:

Insufficient funding

This not only precluded the critical renewal and expansion of ageing infrastructure , but also resulted in loss of critical skills

3. Corporate Performance

Measurement of Performance

against Armscor Group Corporate Objectives

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

Objective 4: Management of Defence Industrial Participation: •Execution of DIP obligations

OBJECTIVES MEASURING

FUNCTIONS IN TERMS OF SLA

Objective 5 : Management & Execution of Defence Technology, Test and Evaluation requirements for DOD:•Execution by Armscor Defence Institutes of contractual milestones/ deliveries



25

ACHIEVEMENT OF STRATEGIC GOALS

Strategic objective 1 –

Human Resources TargetsMeasure the achievement of targets set to transform Armscor to reflect the demographic profile of the country and to assist Armscor in having access to manpower to execute its mandated activities


People & CapabilitiesMeasuring Armscor’s ability to attract and retain

employees through a positive organizational environment


Broad Based Black Economic Empowerment

Measure the spending in compliance with the BBBEE Act & Armscor’s BBBEE certification status


Funding & GrowthMeasure the expenditure compliance and effort to secure sufficient funding to sustain the organisation



26


Stakeholder RelationshipsMeasure the relationships with stakeholders & Armscor’s compliance to good governance


Operational Efficiency

Measure the operational efficiency of Armscor


Local IndustryMeasure the support to the local industry

ACHIEVEMENT OF STRATEGIC GOALS

Objective 1: Capital defence materiel acquisition excl. strategic defence acquisition but incl. technology acquisition (projects)

Key performance indicator Goal Achieved Performance against Goal

Contracts placed by Armscor

Armscor’s target of 90% of commitment of funds to be measured against the formally planned value of commitment which is

based on requirements received and

confirmed as valid requirements from theDOD.

90% 96.1% DOD requirements to the value of R444 979 million were received.

Armscor committed R427 673 million of the above mentioned funds resulting in an achievement of 96.1% against the set target of 90%.

Objective exceeded

Cash flow

Armscor’s target of 90% cash flow would be measured against the formally planned cash flow in terms of achieved commitments for the financial year. (Cash flow is updated on ongoing basis with commitments during year and for changes beyond Armscor’s control).

90% 101.9% The agreed planned cash flow for the financial year in order to execute the orders placed

amounted to R2 115 295 million.

Armscor managed to realise cash flow to the value of R2 156 222 million resulting in an achievement of 101.9% against the set target of 90%.

Objective exceeded



Objective 2: Strategic defence acquisition


Contracts placed by Armscor

Armscor’s target of 90% of commitment of funds to be measured against the formally planned value of commitment which is

based on requirements received and

confirmed as valid requirements from the DOD.

90% 99.89% DOD requirements to the value of R33 326

million were received.

Armscor committed R33 291 million of the above mentioned funds resulting in an achievement of 99.89% against the set target of 90%.

Objective exceeded

Cash flow

Armscor’s target of 90% cash flow would be measured against the formally planned cash flow in terms of achieved

commitments for the financial year. (Cash flow is updated on ongoing basis with commitments during year and for changes beyond Armscor’s control).

90% 100.76% Formally planned cash flow for the financial

year amounted to R1 114 614 million.

Armscor managed to realise cash flow to the value of R1 123 126 million resulting in an achievement of 100.76% against the set target of 90%.

Objective exceeded



Objective 3: System support: Acquisition & procurement (Operational funds)


Contracts to be placed

Armscor’s target of 90% of commitment of funds to be measured against the formally planned value of commitment which is based on requirements received and confirmed as valid requirements from the

DOD.

90% 87.92% DOD requirements received to the value of R1 067 190 million.

Armscor committed R1 045 041 million of the above mentioned funds resulting in an achievement of 97.92% against the set target of 90%.

Objective exceeded

Cash Flow

Armscor’s target of 90% cash flow would be measured against the formally planned cash flow in terms of achieved commitments for the financial year. (Cash flow is updated on ongoing basis with commitments during year and for changes beyond Armscor’s

control).

90% 99.89% Formally planned cash flow for the financial year amounted to R2 682 705 million.

Armscor managed to realise cash flow to the value of R2 679 624 million resulting in an

achievement of 99.89% against the set target of 90%.

Objective exceeded



Objective 4: Management of Defence Industrial Participation (DIP)


Value of DIP credits to be granted overseas suppliers

R511m credits to be approved by2011-03-31

R511m R1 583m DIP credits to the value of R1 583 million

(309.69%) have been awarded during the 2010/2011 financial year.

The overachievement is due to the Gripen obligation being fully discharged 18 months ahead of schedule.

Objective exceeded

Objective 5: Management & Execution of defence technology, research, test and evaluation requirements of DOD


Armscor Defence Institutes to achieve contractual milestones / deliveries as per orders received from Armscor as per financial year. 90% completion of contractual milestones / deliveries at end of financial year.

90% 95.97% Armscor Defence Institutes managed to deliver / render services to the value of R82 970 337 against the contractual milestones / deliveries of the orders received from Armscor with a value of R86 454 745. This results in an achievement of 95.97% against the set target of 90%.

Objective exceeded



Strategic Objective 1: Human Resource Targets

Key performance indicator Goal Achieve

dPerformance against Goal

Staff turnover in technical positions (excluding retirements)

<4,5% 2.21% 15 resignations from technical positions for the year to date.3 AS; 6 STS; 5 MP and 1 SU broad band level.

Objective exceeded

Improve the demographic profile of Armscor to reflect the national and regional demographic profile

At least 82% of external appointees to be Black

100% 100% of all external appointees were black. (36 appointments)

Objective exceeded

At least 22% of external appointments in the technical functional groups to be

women

20% 20% of all external appointees in the technical functional groups were women.(20 appointments: 4 females -

2 MP; 2 STS)

Objective not achieved






Improve the demographic profile of Armscor to reflect the national and regional demographic profile(continued)

At least 65% of external appointments in the non-

technical functional groups to be women.

56.25% 56.25% of all external appointees in the non-

technical functional groups were women.(16 appointments: 9 female –

1 SU; 1 STS; 6 AS; 1 OS)


At least 30% of employees in the supervisory levels and above to be women.

28.93% 28.93% of all employees in the supervisory levels and above were women.(764 STS and above: 221 females –

156 STS; 56 MP;

8 SU; 1 EX)







Bursaries Grant bursaries to 6 tertiary level students in line with Armscor’s

strategic manpower plans.

8 8 tertiary students were granted bursaries.

Objective exceeded

Talent Development Programme Have 12 trainees under the scheme

17 A total of 17 people went through the Talent Development Programme for the 2010/2011 financial year.

Objective exceeded





Strategic Objective 2: Funding and Growth


No over-expenditure on Armscor approved operational budget.

0% over expenditure

6.6% underexpenditure

Total operating expenditure budgeted: Planned: R870.7mTotal operating expenditure incurred: Achieved: R813.3m

Objective exceeded

Reduction of budgeted deficit through additional funding / cost reduction / efficiency improvements (2010/2011 baseline –

R61.6million)

5% reduction in

approved 2010/11 baseline

79.8% Approved budget:Planned: R61.6m deficitAchieved R12.4million deficit (excluding positive contribution from medical continuation fund)

Objective exceeded

Strategic Objective 3: People and Capabilities


Employee satisfaction measurement Determinebaseline

61.87% Baseline determined as 61.87%.

Objective achieved



Strategic Objective 3: People and Capabilities


Compliance with plan to align preferred corporate culture with current corporate culture

90% 95.82% 95.82% compliance as on 31 March 2011.

Objective exceeded

Execution of development plans for

identified successors for accelerated development in technical and critical

skills areas

80% conformance

to plans

93% 93% compliance as on 31 March 2011.

Objective exceeded

Strategic Objective 4: Broad Based Black Economic Empowerment


Increase spending on BEE companies in terms of BBBEE Codes of Good Conduct as specified per category(based on recognition levels):

Armscor

Operating budget >70% 107.16% Spending on the operating budget achieved 107.16% against a target of 70%.(Total purchases excluding parastatals is R18 126 367. The total spent on BBBEE companies was R19 424 714).

Objective exceeded






Armscor (continued)

Spend on QSE’s >10% 29.91% Total spend: R18 126 367Total BBBEE spend on QSE companies: R4 156 136

Objective exceeded

Spend on EME’s >10% 37.58% Total spend: R18 126 367Total BBBEE spend on EME companies: R6 344 575

Objective exceeded

Spend on entities in which black designated groups have more than 50% of economic interest

>9% 49.18% Total spend: R18 126 367Total BBBEE spend on companies in which black designated groups have more than 50% economic interest: R8 417 479

Objective exceeded






Armscor (continued)

Spend on entities in which black women hold more than 30% of economic interest.

>6% 35.01% Total spend: R18 126 367Total BBBEE spend on companies in which black women hold more than 30% economic interest: R6 318 875

Objective exceeded

Armscor Defence Institutes

Operating budget >55% 68.40% Spending on cost of sales, operating expenses and capital achieved 73.61%. The target was based on cost of sales, operating expenses and capital which amounted to R97 534 962 calculated on the ground rules for BBBEE spending. The

total spent on BBBEE companies was R66 710 386.

Objective exceeded






Armscor Defence Institutes (continued)

Spend on QSE’s >10% 15.98% Total spend: R97 534 962Total BBBEE spend on QSE companies: R13 686 894.

Objective exceeded

Spend on EME’s >10% 19% Total spend: R97 534 962Total BBBEE spend on EME companies: R19 078 161.

Objective exceeded







Spend on entities in which black designated groups have more than 50% of economic interest

>9% 8.12% Total spend: R97 534 962Total BBBEE spend on companies in which black designated groups have more than 50% economic interest: R7 924 154.There are not many entities in which black designated groups have more than 50% of economic interest able to deliver the specialised required services and products to Armscor Defence Institutes.This has been elevated as a corporate risk.








Spend on entities in which Black womenhold more than 30% of economic interest.

>6% 1.3% Total spend: R97 543 962Total BBBEE spend on entities in which Black women hold more than 30% of economic interest. R1 271 744There are not many entities in which black woman hold more than 30% of economic interest able to deliver the specialised

required services and products to Armscor Defence Institutes. This has also been elevated as a corporate risk.







Dockyard

Operating budget >55% 69.48% Spending by Armscor Dockyard achieved 69.48% against a target of 55%. Total expenditure of R45 849 319. The total spent on BBBEE companies was R31 856 052.

Objective exceeded

Spend on QSE’s >10% 54.4% Total spend: R45 849 319Total BBBEE spend on QSE companies: R20 578 224

Objective exceeded

Spend on EME’s >10% 7.09% Total spend: R45 849 319Total BBBEE spend on EME companies: R3 548 004







Dockyard (continued)

Spend on entities in which black designated groups have more than 50% of economic interest.

>9% 8.55% Total spend: R45 849 319Total BBBEE spend on companies in which black designated groups have more than 50% economic interest: R3 609 779


Spend on entities in which black women hold more than 30% of economic interest

>6% 1.69% Total spend: R45 849 319Total BBBEE spend on companies in which black women hold more than 30% economic interest: R685 058







SDA & GDA Accounts

Special Defence Account and General

Defence Account.

>40% 69.76% Spending on the SDA and GDA accounts achieved 69.76% against a target of 40%.(The target refers to BBBEE expenditure as a percentage of total acquisition project expenditure. R5 583 020 920 is the net figure excluding exemptions for the year and the figure and the BBBEE expenditure was R3 894 847 998.)

Objective exceeded

BEE Certification Status

Improve Armscor’s BBBEE certification status.

Level 6 Level 7 Armscor’s certification status is on level 7.




Strategic Objective 5: Stakeholder Relationship


Stakeholder survey involving

stakeholders (reputation index).

Determine baseline

No baseline determined

Baseline can only be determined after completion of Stakeholder Strategy in

July 2011.


Armscor to obtain unqualified audit report and not to receive negative audit report matters.

Unqualified report

with not morethan 3 audit

report matters

after final audit

by the Auditor-General

Unqualified audit

opinion

Unqualified audit report with no audit report matters.

Objective achieved



Strategic Objective 6: Local Industry


Satisfaction survey Determine baseline

Results ofDefence IndustrySatisfactionSurvey:

Exhibitions:89.85%

DefenceEquipmentandPersonnelSupport:92.50%

A Defence Export Support Strategy was approved by the BOD on 2 February

2011. The Defence Industry Satisfaction Survey questionnaire was informed by

the contents of this strategy. The

satisfaction survey was concluded in September 2010 and results released by Quality Department in March 2011.Results obtained from this survey will

form a basis of the proposal for a

baseline still to be considered by

Management Board for approval by BOD.


Increase % of local industry spent in respect of Special Defence Account and General Defence Account managed by Armscor (increase based on previous year spending).

5% 12% Local spending was 82% (2010 –

70%) of total spending. Local amount of R5.06bn (2010 –

R4.9bn)2010/11 Spending:82% on local suppliers –

R5.06bn18% on foreign suppliers -

R1.08bnFigures include Dockyard orders / local orders and overseas orders.

Objective exceeded


against Armscor

Group Corporate Objectives

Strategic Objective 7: Operational Efficiency


Increase operational efficiency in terms of model developed.

Determine baseline

Model developed

Model measuring specific cost

s developed and approved by Management Board, still to be approved by Board of Directors.


Finance

Armscor

Group –

2010/11

Financial Overview

The Armscor Group received an unqualified Audit Report for the period under review with no audit report matters raised

Total revenue increased with 9.9% to R1 202.2 million

Net asset value (Shareholder’s interest) increased with 3.2% to R553.7 million due to surplus for the period

Capital investment (including transfer of Dockyard assets) amounting of R44.7 million to maintain operations consisting of computer equipment, machinery and facilities

Employee related costs remains highest cost driver – 75%

Armscor

Group –

2010/11

Financial Overview

FACTORS THAT INFLUENCED FINANCIAL POSITION

Positive

Increase in government grant as result from payment for services rendered due to scope increase

Short term cost reduction on personnel costs as only some critical positions were filled due to financial impact on following financial year – however, it is not a sustainable solution

Actions to manage increase in operational expenditure that resulted in increase of 3.8% although some expenditure increased significantly (e.g.. Water and electricity)

Actuarial gain recognised from post-retirement medical benefit

Negative

Lower gross margin realised on revenue generated

Decrease in investment revenue generated

Funding Challenges

Funding challenges of the Group

The following funding challenges remains:

1.

Acquisition function: Insufficient funding of required capability

Current funding model –

remain limitation as government grant amount 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

Funding challenges of the Corporation

2.

Dockyard

Require critical additional funding for the

Renewal of facilities

Increase of human resources to supply required capabilities in terms of Capability Analysis completed

3.

Armscor

Defence Institutes

Sustainable funding required for:

Rejuvenation of workforce

Funding of strategic capabilities required

THANK YOU

STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2011 ASSETS

2010 2011 2011 2010

Rm Rm Rm Rm

ASSETS

NON-CURRENT ASSETS

37.4 57.0 Property, plant and equipment 235.8 216.4

- - Intangible assets 0.5 0.5

8.3 - Other non-current financial assets - 8.3

80.1 99.2 Post retirement medical benefit asset 124.1 94.7

125.8 156.2 360.4 319.9

CURRENT ASSETS

1.4 4.7 Inventories 6.5 2.8

118.6 143.1 Trade and other receivables 178.8 153.1

345.6 376.7 Cash and short term deposits 374.8 341.1

180.0 180.0 Investment in subsidiaries - -

645.6 704.5 560.1 497.0

771.4 860.7 TOTAL ASSETS 920.5 816.9

GROUPCORPORATION

STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2011 EQUITY AND LIABILITIES

2010 2011 2011 2010

Rm Rm Rm Rm

EQUITY AND LIABILITIES

CAPITAL AND RESERVES

75.0 75.0 Ordinary share capital 75.0 75.0

412.3 421.1 Non-distributable reserves 478.7 461.7

487.3 496.1 ORDINARY SHAREHOLDERS INTEREST 553.7 536.7

LIABILITIES

NON-CURRENT LIABILITIES

6.6 - Other non-current financial liabilities - 6.6

16.2 17.6 Post retirement medical benefit liability 17.6 16.2

- 12.9 Deferred income 12.9 -

22.8 30.5 30.5 22.8

CURRENT LIABILITIES

56.2 51.5 Loans from subsidiaries - -

139.7 195.9 Trade and other payables 224.8 169.7

65.4 74.9 Provisions 99.7 87.7

- 11.8 Deferred income 11.8 -

261.3 334.1 336.3 257.4

284.1 364.6 TOTAL LIABILITIES 366.8 280.2

771.4 860.7 TOTAL EQUITY AND LIABILITIES 920.5 816.9

STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 MARCH 2011

2010 2011 2011 2010

Rm Rm Rm Rm

888.3 970.7 Revenue 1,202.2 1,094.4

(856.1) (944.0) Cost of sales (1,054.8) (932.8)

32.2 26.7 GROSS SURPLUS 147.4 161.6

51.4 60.5 Other operating revenue 63.3 48.0

528.9 594.8 Government grants 594.8 528.9

(650.2) (694.0) Operating expenses (813.3) (783.3)

(37.7) (12.0) OPERATING SURPLUS/(DEFICIT) (7.8) (44.8)

30.2 27.9 Investment revenue 27.9 30.3

(5.6) (7.1) Finance costs (3.1) (1.3)

(13.1) 8.8 TOTAL COMPREHENSIVE SURPLUS/(DEFICIT) 17.0 (15.8)

GROUPCORPORATION

ARMSCOR GROUP

2011 2010

Rm Rm

REVENUE

Sale of goods - Defence Matériel Disposal 44.8 52.7

Sale of goods - Subsidiaries 6.9 6.5

Services revenue - Armscor Corporation 893.3 827.1

Services revenue - Armscor Dockyard 32.6 8.5

Services revenue - Subsidiaries 224.6 199.6

1,202.2 1,094.4

GROUP

ARMSCOR GROUP

2011 2010

Rm Rm

SURPLUS/(DEFICIT) FROM OPERATIONS

Armscor Corporation (22.9) (26.4)

Armscor Dockyard 0.6 (21.4)

Defence Matérial Disposal 2.0 2.1

Subsidiaries 12.5 0.9

(7.8) (44.8)

GROUP

ARMSCOR GROUP

2011 2010

Rm Rm

TOTAL COMPREHENSIVE SURPLUS/(DEFICIT)

After elimination of inter-group transactions

Armscor Corporation (0.4) 0.4

Armscor Dockyard 2.2 (19.6)

Defence Matériel Disposal 2.8 2.4

Subsidiaries 12.4 1.0

17.0 (15.8)

GROUP

armscor annual report 2010/11 presentation to...

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