THE ARMSCOR ANNUAL REPORT 2005/06

THE ARMSCOR ANNUAL REPORT 2005/06 PRESENTATION TO THE PORTFOLIO COMMITTEE ON DEFENCE 12 SEPTEMBER 2006 AUGUST 2006

INTRODUCTION Armscor budget situation Acquisition management SANDF logistics support DoD strategic facilities management Defence Industry support Employment equity support AUGUST 2006

1. THE ARMSCOR BUDGET SITUATION • OPERATIONAL BUDGET • SPECIAL DEFENCE BUDGET • GENERAL DEFENCE BUDGET AUGUST 2006

1.1 ARMSCOR GROUP OPERATIONAL BUDGET 2005 / 2006 AUGUST 2006

1.2 ARMSCOR GROUP OPERATIONAL BUDGET 2005/2006 AUGUST 2006

1.3 ACQUISITION BUDGET FOR 2005/06 AUGUST 2006

1.4 ACQUISITION ACTIVITIES 2005 / 2006 NOTES ON VARIATIONS – SPECIAL DEFENCE ACCOUNT AUGUST 2006

2. ACQUISITION MANAGEMTN GOALS • SPECIAL DEFENCE ACCOUNT BUDGET • GENERAL DEFENCE ACCOUNT BUDGET AUGUST 2006

PERFORMANCE AGAINST ACQUISITION GOALS AUGUST 2006

3.0 DEFENCE INDUSTRIAL PARTICIPATION MANAGEMENT BACKGROUND • Armscor is responsible for the management of the Government’s DIP Policy. • Defence purchases are used as a leverage to oblige foreign sellers of defence materiel or services to benefit South Africa’s defence-related industry. • The objective of DIP is to ensure the advancement of South Africa’s military strategic and defence-related industrial imperatives. • All defence-related purchases with a foreign content in excess of USD 2 million are therefore subject to a DIP obligation of at least 50% of the contract value. AUGUST 2006

DEFENCE INDUSTRIAL PARTICIPATION (DIP) MANAGEMENT • 3.1. DIP Credits approved - Objectives vs Performance 2005/06 • Nature of credits awarded on SDP to date (cumulative): • Sales and exports R 6 080 million • Technology transfer R 2 976 million • Investments R 227 million Total R 9 283 million • Approximately 5 000 man-years have been contracted to the defence related industry to date. • 3.2. Operational budget vs Performance 2005/06 AUGUST 2006

4. SANDF OPERATIONAL SUPPORT 4.1 DISPOSAL OF SANDF SURPLUS STOCK BACKGROUND Assist the DOD in the identification of stock for disposal. Manage the disposal warehouses to secure DOD assets transferred for disposal. Sell excess and obsolete stock as transferred to Armscor by the DOD. AUGUST 2006

4. SANDF OPERATIONAL SUPPORT 4.2 SPECIALISED SHIPPING AND TRANSPORT BACKGROUND Advise the DOD and local Industry on freight forwarding and customs clearance requirements Shipping of military sensitive and hazardous equipment and commodities Assist industry with the management of a customs bonded warehouse for tax planning AUGUST 2006

4. SANDF OPERATIONAL SUPPORT 4.3 ARMSCOR DEFENCE ASSET MANAGEMENT CENTRE (ADAC) BACKGROUND • Manage and audit DOD assets currently in use by industry. • Configuration management of Armscor documentation, plans and drawings on projects on behalf of the DOD • Marking of all ammunition according to military specifications. AUGUST 2006

5. MANAGE DOD STRATEGIC FACILITIES 5.1Background on Research, Development and Test and Evaluation facilities BACKGROUND • IMT - A multi-disciplinary defence research division specialising in, testing and evaluation of maritime systems. • Protechnik - A chemical and biological research and development division specialising in defence and non-proliferation of chemical weapons. • Hazmat Protective Systems - A manufacturer of carbon impregnated products like of canisters and masks. • Ergonomics Technologies - A division providing ergonomics and occupational health services to the SANDF. • Defence Institute - A division assisting the SANDF in developing insightful solutions to problems over the full life cycle of defence capabilities. • Flamengro - The fluid and mechanical engineering specialists division that study the dynamic behaviour of fluid flow and structures and the processing of data to serve as inputs for improved simulations . • Armour Development - Specialists division that provide armour protection solutions to the South African Armaments industry • Gerotek Test Facilities – A division rendering an independent and objective consultation, training, test and evaluation service to the South African Armaments industry and automotive industry locally and abroad. • Alkantpan Test Range - Is an all purpose ballistic test range with a comprehensive instrumentation and professional support capability. AUGUST 2006

5. MANAGE DOD STRATEGIC FACILITIES AUGUST 2006

6.0 HUMAN RESOURCES • PERSONNEL VETTING • TRANSFORMATION September 2006 AUGUST 2006

6.1 PERSONNEL VETTING BACKGROUND • Armscor takes responsibility for the protection of its clients’ security classified defence information and all materiel that result in the protection of the national interests of the RSA and its allies. • To maintain that condition of security, Armscor ensures that all its personnel have security clearances. • The SANDF – Defence Intelligence (DI) has the mandate to conduct security clearance investigations and issue clearances for defence personnel. • As a result of its inability to cope with the demand for clearances, the SANDF-DI gave Armscor the mandate to conduct security investigations for Armscor personnel and personnel of the Defence-Related Industry (DRI) who are involved in Defence projects. The SANDF - DI retains the right to issue, refuse or limit clearances. • Armscor does the initial investigations and then forwards the completed fieldwork to DI for issue or refusal. AUGUST 2006 September 2006

6.1 PERSONNEL VETTING (CONT.) Although 87.8% was achieved, a further 5.7%, which Armscor had completed work on, was in process at the SANDF-DI. September 2006 AUGUST 2006

6.2 TRANSFORMATION • EMPLOYMENT EQUITY • - Black Appointments • - Staff Profile Changes : March 2005 vs March 2006. • - Staff profile changes by broad band: • - Trend in race and gender representation : • March 1996 - March 2006. • TRANSFORMATION CHALLENGES • RISKS September 2006 AUGUST 2006

APPOINTMENTS 2005/2006 September 2006 AUGUST 2006

STAFF PROFILE MOVEMENT SUMMARY BY BROADBAND EX= Executive; SU= Strategic Execution/Unique Authority; MP=Managing/Professional Contribution; STS=Supervision/Technical/Specialist Contribution; AS=Advanced Operation/Support; OS=Operation/Support * Every effort is being made to fill the vacancy of the General Manager: Board Secretariat & Legal Services with a woman. September 2006 AUGUST 2006

PERMANENT EMPLOYEES BY RACE AUGUST 2006 September 2006

PERMANENT EMPLOYEE TOTAL PER GENDER AUGUST 2006 September 2006

TRANSFORMATION CHALLENGES • The most cited reason for resignation which the company could partly manage is “salary”. • The second (by far) most cited reason for resignation is “limited growth career opportunities”. This is largely due to the broad band system which offers limited opportunities for movement between broad bands. • The relatively low labour turnover limits the opportunities to appoint people from designated groups. • Cannot afford an exit strategy for employees from the non-designated group. This is also not a preferred approach because it could lead to loss of capabilities. • Shortage of people from designated groups, especially women in the market, for the specialised technical capability functional areas, the core of Armscor’s work. AUGUST 2006 September 2006

RISKS DUE TO INSUFFICIENT FUNDING OF ARMSCOR • Execution of Armscor’s responsibilities relating to the acquisition function to the extent and depth as dictated by the DOD Acquisition Policy is being increasingly hampered by lack of capacity and specialist capabilities in a number of critical areas. • Technical expertise has been lost in several critical areas • Insufficient capacity to execute current large acquisition programmes has resulted in severe risks regarding: • Proper technical management of acquisition programs to be executed in order to ensure technical integrity of such programs. • Negotiation of contracts to the best advantage of the State. • Meeting its responsibilities in terms of the Service Level Agreement with the DOD. • Properly defining and managing programs to best meet stated users requirements. September 2006 AUGUST 2006

RISKS DUE TO INSUFFICIENT FUNDING OF ARMSCOR • Severe lack of capacity to perform systems and logistics engineering tasks on all programs, is resulting in increased reliance on contracted in personnel with the following effect: -Loss of continuity - Increased burden on program budgets • Inability to appoint new trainee Program Managers contributes towards the inability to meet transformation objectives • Absence of or limited rejuvenation of ageing workforce will exacerbate the capacity problem in the near future • High Risk of brain-drain due to non-military capital projects that demand technical management skills (e.g. Gautrain, 2010 Soccer Cup related infrastructure projects) September 2006 AUGUST 2006

RISKS DUE TO INSUFFICIENT FUNDING OF ARMSCOR • Risk Abatement Strategy • Ten additional technical posts approved for 2006/07. • Increased transfer payment requested from DOD to facilitate appointment of additional personnel. • The Talent Development Programme was established to employ and train newly graduated engineers, scientist & technicians. • The IMT Cadet Scheme and the Talent Development Programme concentrate on newly graduates and inexperienced individuals. Since the inception of this programme in 1997, 45 candidates were appointed to this scheme. After completion of the programme, 43 of these trainees were appointed into permanent positions within the organisation. September 2006 AUGUST 2006

RISKS DUE TO INSUFFICIENT FUNDING OF ARMSCOR • Armscor Bursary Scheme • Armscor adopts an integrated approach to managing new talent, utilising tools such as the bursary scheme, manpower planning and the Talent Development Programme. Based on future capability needs the number of bursaries per study field & qualification are identified and allocated. • Upon graduation these candidates are appointed to the Talent Development Programme and assigned to departments where they receive structured on-the-job training. • The current bursar composition is as follows: • 1 White male, 1 Coloured female, 3 African males & 1 Indian male. • The intention is that these candidates will be appointed on the Talent Development Programme after completion of their studies. September 2006 AUGUST 2006

7.1 DEFENCE INDUSTRY SUPPORT INTERNATIONAL EXHIBITIONS AND EVENTS • Cost effective vehicle to promote South African Defence-Related Industries (SADRI) products thereby increasing exports. • Co-ordination role to avoid a fragmented SADRI participation. • Facilitated R4,7m funding from DTI on behalf of SADRI. BACKGROUND Performance for 2005/06 AUGUST 2006

7.2 DEFENCE INDUSTRY SUPPORT BLACK ECONOMIC EMPOWERMENT (BEE) • Increase BEE participation in SDA, GDA and operating budgets • Implement BBBEE in Defence Procurement. • Encourage and facilitate joint ventures with BEEs. BACKGROUND AUGUST 2006

7.2 DEFENCE INDUSTRY SUPPORT (cont.) EXPORT SUPPORT • SADRI demand driven function. • Develop and implement export support services in partnership with the DOD & AMD. • Facilitate requests from the South African Defence-Related Industry (SADRI) for use & loan of equipment, materiel, facilities & secondment of SANDF personnel to SADRI. BACKGROUND AUGUST 2006

7.2 DEFENCE INDUSTRY SUPPORT (cont.) AUGUST 2006

THE ARMSCOR ANNUAL REPORT 2005/06 THANK YOU AUGUST 2006

THE ARMSCOR ANNUAL REPORT 2005/06