Presented by: Mr KPE Wakeford CHIEF EXECUTIVE OFFICER 9 ...pmg-assets.s3-website-eu-west-1.amazonaws.com/180509Armscor.pdfpresentation of the corporate plan 2018 to the parliamentary

PRESENTATION OF THE CORPORATE PLAN 2018 TO THE PARLIAMENTARYPORTFOLIO COMMITTEE ON DEFENCE & MILITARY VETERANS

Presented by: Mr KPE WakefordCHIEF EXECUTIVE OFFICER

9 May 2017

1

SCOPE

Ø PART A: STRATEGIC OVERVIEW

Ø PART B: PROGRAMME AND SUB-PROGRAMME PLANS

Ø PART C: LINKS TO OTHER PLANS

2

Part A: Strategic Overview

3

AIMTo present the concise corporate overview of Armscor’s Corporate Plan

2018 to the Portfolio Committee on Defence and Military Veterans

(PCD & MV) as tabled on 12 March 2018.

Ø This is the fourth year that all Public Entities tabled in Parliamentwhich means full compliance by the department with NationalRegulatory Framework.

Ø The Presidency has selected the Department of Defence &Military Veterans (DoD & MV) and the Public Entities (Armscor)within this department as the benchmark for Strategic Planningfor all Government Departments and Public Entities.

4

5

STRATEGIC OVERVIEW

STRUCTURE: IN RELATION TO DOD & MV

Minister of Defence and MilitaryVeterans

Armscor

Chairman ofArmscor

ArmscorBoard ofDirectors

ArmamentsCorporation ofSouth Africa

Secretary forDefence

Chief of theSANDF

Services and Divisions

Director-General

Divisions

7

ARMSCOR’S ORGANISATIONAL ANDREPORTING STRUCTURE (Cont.)

8

EVOLUTION OF ARMSCOR

§ 1963: Voluntary UNArms embargo.

§ 1967: UNSC embargoresolution mandatory -military maintenance andtech supportcompromised.

§ 1968: Armaments Boardand Armscorestablished.§ Indigenous

production begins.§ 1992: Denel

established.

§ 1994: SADemocracy - declinein defence spending.§ Slow and partial

acquisition.§ 1998: SA PKO

starts.§ 2003: Capability

Based Planning§ Systems of

systemsapproach.

§ 2015: Approval ofDefence Review.

§ 2015/16- ArmscorTurnaround Strategy“On Time In Time –Towards a SustainableFuture” approved.

Concept Development

Production

PHASING

OUT

OPERATIONALPRODUCTIONINDUSTRIA-LISATION

DEVELOPMENTDEFINITIONCONCEPTDESIGN

Quality Assurance, Configuration Management, Freight andForwarding

ASSESSING THENEED

DEFINING THE SOLUTION CONTRACTING THE RIGHT CONTRACTOR &MANAGING THE CONTRACT

PRODUCTSUPPORT

ASSESSINGTHE NEED

STOCKSALES

DESTROY

USERREQUIREMENT

UPGRADE

ACQUISITION MANAGEMENT LIFECYCLE OF THE PRODUCT

§ Armscor process provides for the complexacquisition for the DOD – Army, Airforce, Navy,SAMHS and Special Forces

Note:Interfacewith DODTLCMProject

EXPERTISE IN COMPLEX ACQUISITION

10

Rooivalk

§ Acquisition management is a key enabler inservice delivery - same key principles ofdelivering service within specifications, cost andtimescales apply

§ Armscor has the mandate to provide servicesto other organs of State

§ Currently offer Acquisition, R & D and QualityAssurance services to other countries

§ Armscor executes on average R10bn ofacquisition on behalf of the DoD

§ Achieved year-on-year clean Audit from itsoperations

§ Armscor presents an opportunity for partnershipwith other organs of State

Armscor: The only Acquisition Agent on the African Continent

ALGERIACentralised

procurement

NAMIBIACentralised

procurement

SOUTH AFRICAArmscor:

Acquisitionagent of theSANDF/DOD

Complexity of products andacquisition process unparalleled

Military acquisition is the managementand procurement process dealing with anation’s investments in the technologies,programs, and product support necessaryto achieve its national security strategyand support its armed forces.Its objective is to acquire products thatsatisfy specified needs and providemeasurable improvement to missioncapability effectively, efficiently andeconomically.

EXPERTISE IN COMPLEX ACQUISITION

Rooivalk Hoefyster

§ Acquisition management is a key enabler inservice delivery - same key principles ofdelivering service within specifications, cost andtimescales apply

§ Armscor has the mandate to provide servicesto other organs of State

§ Currently offer Acquisition, R & D and QualityAssurance services to other countries

§ Armscor executes on average R10bn ofacquisition on behalf of the DoD

§ Achieved year-on-year clean Audit from itsoperations

§ Armscor presents an opportunity for partnershipwith other organs of State

DISPOSAL SERVICES

12

• Disposal ServicesØ Disposal Services are Mandated by the Armscor Act 51 of 2003.

• Section 4.2 (f) ….. “dispose of defence matériel in consultation with the person whooriginally manufactured the matériel”

Ø Disposal is carried with strict adherence to the National Conventional Arms Control ActNo.41 of 2002.

• Nigerian businessØ 2015/16: Armscor sold 20 units of the 30mm Defa Cannons to the Nigerian Air Force

(NAF) and ammunition (41 000). DDS sold 19 000 units of 68mm Snep rockets to the NAF.(revenue received: R4m)

Ø 2016/17: Armscor sold 2000 units of the 250Kg Aircraft Bombs (Mk-82) to the NAF.(revenue received: R24.9)

Ø 2017/18: Armscor sold 50 000 units of the 68mm Snep rockets to the NAF. (reconciliationin process)

• DESAØ Armscor hosted head of the UK MOD DESA (Defence Equipment Sales Authority),

Commodore Clive Walker on 26-28 March 2018.Ø Armscor’s Disposal Value Proposition on the provision of services and expertise for the

sale of UK MOD surplus stock on the African continent was presented.Ø The proposed business model should allow Armscor to realise a profit after a sale of

each system.Ø Armscor and DESA are currently developing a Cooperation Agreement that will clearly

stipulate each parties responsibilities and collaboration.

Armscor manages strategic facilities that offer research & development services in these:.

STRATEGIC FACILITIES:RESEARCH & DEVELOPMENT

HAZMAT: manufactures & suppliesrespiratory filtering masks forprotection against majority ofrespiratory health hazards

ERGOTECH: provides forergonomics research as well asergonomics evaluation andtesting services PROTECHNIK: specialises in

chemical and biologicalresearch.The facility houses a state of thearts forensics lab with capacityfor DNA testing

14

STRATEGIC FACILITIES – RESEARCH& DEVELOPMENT (Cont.)

GEROTEK: testing vehiclefacility§ Mobility§ Endurance & reliability§ Performance§ Homologationand also provides:§ Advanced driver training§ Corporate events servicesPAARDEFONTEIN AntennaeTesting Range

ALKANTPAN Artillery TestingRange§ Ballistic test for medium tolarge calibre weapons &ammunition

R & D (Cont.)

15

STRATEGIC FACILITIES - RESEARCH &DEVELOPMENT: TEST & EVALUATIONSTRATEGIC FACILITIES - RESEARCH &DEVELOPMENT:Operational & Scientific ResearchInstitute for Maritime Technology (IMT)specialise in defence research, development,testing and evaluation of maritime systems§ Techno-military support§ Development and testing of sensors –

under and above water§ Surveillance products and services§ Commercialisation of products & services

Defence Decision Support Institutedelivers decision support to the DOD.Armour Development conducts research &development to maintain and advancearmour protection technology.

Flamengro providecomputer based simulationand failure analysis support

FLAGSHIP PROGRAMME BEING COMMERCIALISEDULTRASONIC BROKEN RAIL DETECTOR (UBRD)SYSTEM

16

q The Ultrasonic Broken Rail Detector (UBRD) system isan autonomous system which detects breaks in railwaylines, report it to an alarm terminal and in so-doingprevents costly derailments of trains.

q The UBRD system has been developed by Armscor. Ithas been installed on the iron-ore line (846km) ofTransnet running from Sishen to Saldanha in 2014.

q Many rail breaks have been detected on this railwayline since installation, saving the country millions inpotential damage costs.

q The Ultrasonic Broken Rail Detector (UBRD) system isan autonomous system which detects breaks in railwaylines, report it to an alarm terminal and in so-doingprevents costly derailments of trains.

q The UBRD system has been developed by Armscor. Ithas been installed on the iron-ore line (846km) ofTransnet running from Sishen to Saldanha in 2014.

q Many rail breaks have been detected on this railwayline since installation, saving the country millions inpotential damage costs.

q Armscor is developing a new generation UBRD that will even be morecost-effective and efficient. Strong interest has been shown in UBRDby the international rail market.

q Armscor has recently completed a test installation in India. The testinstallation is currently being evaluated by Indian Railways. Indicationsare that Indian Railways will make a decision on large scaledeployment of UBRD on their rail network before end of 2018.

q It is estimated that the installation of the technology will cover railtracks of 2000 – 3000 km railway once approved, with the potential ofbringing of about R300 million to South Africa.

DOCKYARD

17

STRATEGIC FACILITIES - DOCKYARD

Dockyard delivers an effective andefficient maintenance service to theSA Navy comprising of:§ Planned preventative

maintenance§ Corrective maintenance§ Reconstruction and repairs§ Upgrades and modernisation of

ships & submarines

18

STRATEGIC FACILITIES: DOCKYARD

DOCKYARD TRANSFER UPDATE

The COD resolved in 2015 that the Dockyard be transferred to a new managementmodel whereby SA Navy will have sovereign control, Armscor will be becomeContracting Authority, whilst Denel manage and operate the DockyardTransfer agreements signed by all parties in August 2016 with suspensive conditionswhich Denel had to satisfy within six month from date of signature – February 2017DeadlineDenel couldn’t procure fulfillment of suspensive conditions as per the agreementTwo extensions granted to Denel which they could not achieve (i.e. August 2017 &28 February 2018)Denel subsequently requested further extension to 31 March 2019Minister determined that no further extensions be granted

19

BUSINESS ASSURANCE

LITIGATION MATTERS: BEVERLY SECURITIESBACKGROUND§ Claim for payment of commission instituted in the Civil Court of Lisbon against Armscor to the value

of Euro 192 million.§ Alleged that services were rendered by Plaintiffs (Beverly Securities Ltd and Beverly Securities Inc.),

represented by one Jorge Pinhol as agent in establishing a clandestine Portuguese channel duringthe 1980’s for transportation of 50 Oryx helicopters in kit form.

§ The project was known as the MTH project (Medium Transport Helicopter). The existence of anagency agreement in terms whereof Armscor appointed Plaintiffs to assist as intermediary inestablishing a clandestine Portuguese channel is in dispute. Armscor denies that Plaintiffs had amandate to act as intermediary, or that the transportation of 50 Oryx helicopters in kit form wasever transported through such a channel

PROGRESS TO DATE§ Plea filed during June 2008§ Armscor attempted in 2010 to persuade the Plaintiffs to agree to an alternative dispute resolution

process§ Various applications between the parties ensued during 2011 to 2014§ Preliminary hearing in April 2014 and Commission appointed to preserve evidence:§ April 2015 - Pretoria§ July 2015 - Lisbon§ March 2016 - Pretoria§ Nov 2017 – Dublin§ Plaintiffs filed an application to obtain documents from Auditor-General RSA in January 2018§ Matter proceeds in normal course ; awaiting trial date

20

CORPORATE SUPPORT

ITCHALLENGES§ Underestimation of effort by supplier combined with:§ Long lead times in reaching agreements with business on User Requirements Specifications§ Lack of capacity from the supplier – so far the supplier is operating with 3 less resources; one other

resource is both project management and developer§ The supplier is also experiencing financial difficulties that were not declared –

§ SARS has appointed Armscor to pay any invoice due to the supplier directly to SARS (+R700k)§ Supplier cannot get financial assistance from Financial Institutions§ As recent as Feb 2018, the supplier indicated that they need about R500k per month for a

period of three monthsWAY FORWARD§ Amendments to Contract and ensure more stringent controls

§ Milestone payments to assist Contractor with cash-flow§ Agree on new delivery timelines, and fix dates for key deliverables e.g. HR, Finance (Correct

contracting short-coming)§ Avail 3 full time Armscor IT technical staff to be more involved in the project to address capacity

issues – spin off would be Enterprise & Supplier Development (ESD) benefit for Armscor§ Already strengthened project performance monitoring through weekly reviews.

§ Reviews attended by the Key business representatives, representatives of the ICT, Qualityrepresentative, nTier Project Manager, and Armscor Project Manager.

§ Increase involvement of other Armscor technical resources§ Service provider engaging other Companies to get involved in the future modules to meet delivery

dates and further address capacity issues

STRATEGIC OBJECTIVES

21

STRATEGIC OBJECTIVES

Ø Strategies are aimed at improving the following aspects:

§ Accountability in the execution of the mandate.§ Customer satisfaction through service delivery standards.§ Financial responsibility and responsible utilisation of scarce

financial resources.§ Efficiency, effectiveness and economical service delivery.§ Utilisation of the human resources of Armscor to provide

services requires from Armscor, as defined:§ Armscor Act§ Shareholder’s compact between Board of Directors and the

Minister of Defence & Military Veterans§ Service Level Agreement between Armscor and the DOD

22

STRATEGIC OBJECTIVES (Cont.)

Ø Strategic objectives are based on identified challenges:

§ Insufficient funds to execute mandate.§ Skills attraction and retention.§ Operational inefficiencies and effectiveness.§ Local industry support for sustainability.§ Armscor brand positioning.

23


24

TARGET:Increase in net realisable revenue to ensure thatArmscor generates sufficient income to meet itsfunding needs in the short-to-medium term

RevenueGeneration

GOALS:

q Generate additional realisable revenue

TARGET:Strategic capability maintenance, while reducingcosts, to ensure that Armscor remains stable to meetits funding needs in the near-to-medium term

CostManagement

GOALS:

q Strategic maintenance and reduction of capitaland operating costs


25

GOALS:

q Customer Engagementq Stakeholder Engagement Strategyq Transformation of Corporation

TARGET:Reducing the turnaround time of core customer-facing and internal processes, thereby strengtheningstakeholder relationships

Efficient &EffectiveDelivery

GOALS:q Reduce turnaround times of core processesq Establish baseline turnaround timesq Effective Technology and IP Managementq Support the development of local industry and industry

transformationq Infrastructure Renewal

StakeholderManagement

relationships with key stakeholders

TARGET:

Developing and maintaining long-lasting, strategicrelationships with key stakeholders

TURNAROUND OBJECTIVES

Businessdevelopment andCommercialisation

Efficient,effective and

relevantorganisation

Organisationaltransformation

26

TURNAROUND

New Armscor Strategy“On Time, In Time, towards a Sustainable Future”

Phase 1As-Is & Planning

Phase 2Implementation

FY 2016/17

FY 2017/18 – FY 2019/2020

• Armscor embarked on a Turnaround process in June 2016 to meet the objectives setout in the Armscor Strategy.

• The project was undertaken in two phases. Phase 1: As-Is Assessment and Planningand Phase 2: Implementation.

• Phase 1 was concluded on 30 April 2017.• Phase 2 was approved by the Board of Directors, on 12 July 2017.

PHASE 1: ACHIEVEMENTS TO DATE

Defence SOEcollaboration

§ Identified and prioritised opportunities for SOE collaboration (Transnet, CSIR, Denel)§ Modelled an operating partnership framework and contract between Armscor and SOEs§ Developed a Framework for localization, indigenization and defence SEZ participation

Selected Outcomes

Drive Revenue byLeveraging Core

Strengths

§ To leverage our core (traditional) strengths 16 opportunities were identified … with 4 prioritised inthe Acquisition service line

§ Identified 3 non Acquisition related opportunities (Gerotek Testing Center, AB Logistics & Disposalof Defence Equipment )

Commercialisationof technologies &

patents

§ 62 commercialisation opportunities were identified which may be considered for commercialisationof IP and Technology in the civil Sector 5 with a framework and approach to commercialisationrecommended

ChampioningInnovation(Business

Development)

§ Developed a set of Business Development Framework for Armscor’s participation in revenueearning initiatives

§ Developed a framework for the potential Products and Services offering that Armscor can take tothe market on a revenue earning basis

§ Developed a life cycle process for Higher Order Solutions sales§ Developed a framework for the potential business models and structures related to the Products and

Services categories

AcquisitionAcquisition

&

SCM

§ Developed a framework for the introduction of an Acquisition Standards and ProcessesKnowledgebase that will streamline the programme specific tailoring of acquisition processes toenable more efficient acquisition programmes without compromising Armscor’s service deliveryaccountability.

§ Developed a framework for the introduction of an Acquisition Programme Tracking andManagement Reporting System that will enable the gathering of acquisition programme relatedinformation supporting the further optimisation of processes and issue resolution processes withclients and industry.

§ Developed an architecture for a more efficient Armscor Procurement Management service§ Developed a model for the extension of Armscor’s Procurement Management (SCM) services

into a marketable revenue generating function

§ Developed a concept for the introduction of an e-Procurement ICT platform supporting the aboveBusiness Development initiatives

TechnologyManagement

andAdministration

§ Developed a framework for the introduction of a Technology Portfolio Management function that willaddress the Client expectations.

§ Developed a framework for participation of the TMA function in future Armscor BusinessDevelopment related programmes.

Selected Outcomes

PHASE 1: ACHIEVEMENTS TO DATE (Cont.)

OrganisationalImplementation

SCM & AcquisitionsExcellence

Change & EPMOOperationalisation

R&D Business Re-orientation

Automated &IntegratedTechnology

RevenueGeneration

Cost Reduction andSavings Delivery

Phase 2 ThemesOrganisational implementationof new operating model up tolevel 4

Realisation of new incomestreams

Setup and operation of newSCM and e-market place

Refocus and turnaround ofkey business units

Support of the organisationthrough the change &stakeholder engagement

Delivery of the identified costreduction and savings

Stabilisation and re-design ofthe IT function

1

2

3

4

5

6

7

PHASE 2: IS STRUCTURED INTO THEMES

Articulating a New Vision(New Vision, operatingModel and Structure)

New Revenue DrivenStrategies

(Leveraging Strengths,Sweating Assets,

Commercialisation of IP)

Enhancing and improvingCore Functions

(TMA, Acquisition reform)

Communication,Stakeholder Engagement,

Change Management

A New Governance Model(Delegations Regime)

Phase 1 Work streams

Driving Greater Efficiencies

11

22

33

44

55

66

30

OrganisationalImplementation

SCM & AcquisitionsExcellence

Change &EPMOOperationalisation

R&D Business Re-orientation

Automated &IntegratedTechnology

RevenueGeneration

Cost Reduction andSavings Delivery

Phase 2 ThemesOrganisational implementationof new operating model up tolevel 4

Realisation of new incomestreams

Setup and operation of newSCM and e-market place

Refocus and turnaround of keybusiness units

Support of the organisationthrough the change &stakeholder engagement

Delivery of the identified costreduction and savings

Stabilisation and re-design ofthe IT function

1

2

3

4

5

6

7

PHASE 2: THEMES WILL BE REALISED THROUGH THEFOUR STRATEGIC GOALS

RevenueGeneration

CostManagement

Efficient andEffectiveDelivery


Phase 2 Strategic Goals

31

CostManagement

Efficient &Effective Delivery


RevenueGeneration

BusinessAssurance

BusinessEnablement

Acq. &SCM

R&D Dockyard CorporateSupport

Office ofthe CEO

Business Unit Strategic Initiatives

Finance

9

5

11

12

6

4

47

11

1

2 2

4

9

11

4

11

3

2

4

7

2

2

3

13

3

37 58 13 26 20 15 192Total

1 1

THUS FAR 190 STRATEGIC INITIATIVES HAVE BEEN IDENTIFIEDACROSS BUSINESS UNITS TO SUPPORT ACHIEVEMENT OF EACHOF THE FOUR STRATEGIC OBJECTIVES

• Armscor is pursuing the followingrevenue generation initiatives:

ØOffering its services/products toLocal GovernmentØOffering its services/products and

pursuing collaboration with AfricanDefence ForcesØSweating its land parcels

33

ARMSCOR’S REVENUE GENERATION INITIATIVES

• Value PropositionsØServices§ Requirements Definition§ Specification Development§ Design Reviews§ Procurement ( Complex and Non-complex goods e.g. Uniforms)§ Acquisition ( for complex equipment/technology) Project

Management ( Technology and Construction)§ Quality Assurance (Procurement processes and Engineering

activities)

34

OFFERINGS TO LOCAL GOVERNMENT

Above the line work!!!Not in competition with Industry,unless security sensitive client

• Products/Services§ Mobile Laboratories§ Weapon testing facilities§ Rail sonic- rail breakage signaling§ Automobile track testing- High speed§ Centralized Uniform and protective clothing§ design and procurement§ Ergonomics Technologies§ Detection and identification of trace amounts of§ hazardous chemicals;

§ Decontamination of hazardous chemicals;

35

OTHER SERVICES/PRODUCTS

MISA•Memorandum of Agreement (MoA) being established for collaboration with MISA to provide pipedwater to communities.•Armscor to assist MISA with requirements writing, tender process oversight, program managementand quality assurance to establish water provision to distressed municipalities. Funding using CSI isbeing explored.

CURRENT ENGAGEMENTS WITH COGTA,GOVERNMENT DEPARTMENTS AND MUNICIPALITIES

36

Other Government Departments• SAPS: Drafted technical specification for Armored vehicle specifically for cash-in-transit operations• Directorate of Correctional Services: procurement of security equipment, IT, surveillance

equipment, etc. MoA approval pending• South African Reserve Bank: Discussion pending with South African Reserve Bank regarding

acquisition of security sensitive, technical equipment, including maintenance and support ofvehicles

• Robin Island Museum: Contract placed for the disposal of ferries

COGTA and Municipalities• Support plan analysis on 35 distressed municipalities to identify performance issues, produce a diagnostic

report, compliance list and a framework to strengthen governance and capacitation• Assistance with distressed Municipality Mafube (Free State) on various needs including disaster

management• Support on the Information Technology Policy and implementation• City of Tshwane: Assistance with establishment and equipping of training center for emergency services• Expanded requirements including accreditation of the airport

37

• Armscor can partner with City of Cape Town, DWSand Municipalities to accelerate water andsanitation service delivery by§ technical specification writing,§ tender process execution§ program management of interim or

permanent water solutions§ quality assurance during acceptance of

technical systems• Defence WPS can be employed to supplementmunicipality water and tie into existinginfrastructure. Note production of WPS only laterthis year

• Facilitate the establishment of boreholes andsweating of aquifers to ensure safe and compliantdrinking water to communities

• Partnership to accelerate service delivery andperformance

Benefits for Users/ClientsSUPPORT ON THE WATER ISSUE

• Proposal submitted, upon their request, to AngolanDefence Force for the establishment of their ownAcquisition Agency

• Engagement with Zimbabwe Defence Force forimprovement of their defence capability

• Several high-value procurement requests in processfor foreign Defence Forces where South AfricanDefence Industry products being promoted wherepossible. Service provided includes decision support

• Logistics services on offer for the transport of militarygoods

38ARRESTING THE DECLINE OF THE SANDF

OFFERINGS TO AFRICAN DEFENCE FORCES

STRATEGIC PRIORITIES

39

ARMSCOR’S STRATEGIC PRIORITIES

National Development Plan (NDP) 2030.

The NDP vision 2030 and its related policies provide a national framework thatwill inform the contribution by national departments. Armscor is, as alldepartments must, directing its planning towards the NDP Vision 2030. Armscorsupports government’s goals as expressed in the NDP and will contribute to thefollowing initiatives:

§ Sharpening South Africa’s innovative edge by continuing its contribution to globalscientific and technological advancement.

§ Greater investment in research and development and better use of existing resources.§ Facilitating innovation and enhanced cooperation between public service and

technology institutions and the private sector in areas of potential dual use (militaryand civilian application).

§ Committing to procurement approaches that stimulate domestic industry and jobcreation.

§ Procuring from and supporting small to medium enterprises, black-owned and black-managed enterprises, and female-led enterprises, the youth, and military veterans.

40

ARMSCOR’S STRATEGIC PRIORITIES (Cont.)

Furthermore, Armscor fully supports the MOD&MV Priorities being:

§ Defence Strategic Direction.

§ Strategic Resourcing Direction.

§ Capability Sustainment Direction.

§ Organisational Renewal Direction.

§ Human Resources (HR) Renewal Direction.

§ Ordered Defence Commitments Direction.

41

SITUATIONAL ANALYSIS

42

UPDATED 2018 SITUATIONAL ANALYSIS

The South African Defence Review 2015, approved by Parliament in June 2017, expresses particularguidance relating to Armscor’s role in meeting the requirements of the SANDF, as well asimplementation actions to be pursued.

• Internally, Armscor will improve its operational capacity, expand its sources of funding, and improve itsfacilities, ICT, infrastructure and business processes.

• Externally, Armscor will assist the defence industry, as necessary, to develop opportunities and will facilitateprocesses and schemes necessary to rejuvenate and reposition the industry for this purpose.

In order to ensure efficiency and effectiveness in the operational area, Armscor has to adapt its acquisitionprocesses in order to enable quick and legally compliant acquisition (i.e. expedited acquisition).

Armscor will in terms of the SLA with the DOD play a supporting role in contributing to the following MOD&MVpriorities namely:

§ Defence Strategic Direction: Strategic direction provided to guide the implementation of the SA DefenceReview 2015 (Milestone 1).

§ Strategic Resourcing Direction: Direction provided to guide the development of a Defence Funding andCosting Model.

43

SA DEFENCE REVIEW 2015

44

ARMSCOR’S PLEDGE OF SUPPORT TO THE DEFENCE PLAN TO ARREST THE DECLINEINCLUDE:ØSTRATEGIC GUIDANCE• Defence Plan to Arrest the Decline consulted with DPME and National Treasury to develop a

Defence Funding Trajectory• Strategic Communication Intervention Plan submitted for approval• National Defence Industry Strategy submitted for approval• Promulgated Defence Secretariat Strategy• Border Safeguarding Strategy to be promulgated• Joint Force Employment Strategy to be developedØSUPPORT• DAP 1000 Policy on Acquisition of Armaments in the DOD implemented (i.e. expedited

acquisition)• Revised DAP 5000 Policy on Defence Technology submitted for approval• Comprehensive studies, strategies and plans to establish the Defence Academy developed• Costing Tool – becoming a decision support tool when the SANDF consider future options• Defence Funding Model – partially adopted by the DRIPT• Establish Cyber Warfare Capability in SANDF• Promulgated Defence Industry Policy• Costed Defence Force Establishment Tables

ARMSCOR SUPPORT TO THE DEFENCE REVIEW (Cont.)

45GATEWAY TO DEFENCE SOLUTIONS

• Armscor is a permanent member of the Defence Review ImplementationTeam (DRIPT).

• It supported the DRIPT in aspects such as the following:• The conversion of the Defence Review into tangible and costed

requirements.• Armscor concepts for Sweating the Assets were continuously refined.• Specialist consultants were supported over more than half a year in the

investigation and quantification of innovative funding or increasedefficiency approaches for the SANDF.

• Preparation for interaction with Treasury to indicate the socio-economicand peace dividend value of the DOD for the RSA economy.

• Armscor continues to be a member of the steering committee who isdeveloping the Defence Industry Strategy Implementation Framework.

• It is the custodian for setting up the Defence Industry Fund.• It stays involved in refining the Defence Industry Charter.• Armscor’s Africa and United Nations objectives are aimed at unlocking

opportunities for especially the smaller players in the defence andrelated industries.

ARMSCOR SUPPORT TO THE DEFENCE REVIEW (Cont.)

46

• Quantifying the value of defence for the RSA economy in terms of thesocio-economic value of the peace dividend, the return on investment indefence technology and the defence industry as well as the value ofborder safeguarding operations.

• Using the above defence economics analysis Armscor then supportedthe Secretary of Defence in the drafting of arguments for engagingTreasury.

• The main argument: ‘Defence is close to a breakeven investment ifvalue unlocked outside Defence is taken into account. Reducing thedefence allocation has important long term socio-economic and regionalimplications.’

• Since the reduction in the defence allocation Armscor was requested toprovide analytical support to the DOD to optimise the value of the allocation.

ARMSCOR SUPPORT TO THE NATIONAL DEFENCE INDUSTRY COUNCIL (NDIC)

47

• Armscor continues to be a member of the NDIC steeringcommittee who is developing the Defence IndustryStrategy Implementation Framework.

• It is the custodian for setting up the Defence IndustryFund.

• It stays involved in refining the Defence Industry Charter.• Armscor’s Africa and United Nations objectives are aimed

at unlocking opportunities for especially the smallerplayers in the defence and related industries.

TRANSFORMATION OFINDUSTRY

48

49

TRANSFORMATION OF INDUSTRY

The Defence Transformative EnterprisesDevelopment Programme (DEFTED) is aspecial technology developmentprogramme that seeks to improveparticipation of previously disadvantagedSMMEs in the defence sector, especiallyin the development of sovereigntechnologies.

The Defence Transformative EnterprisesDevelopment Programme (DEFTED) is aspecial technology developmentprogramme that seeks to improveparticipation of previously disadvantagedSMMEs in the defence sector, especiallyin the development of sovereigntechnologies.

This has further improved the DODssupport to previously disadvantagedSMMEs whilst maintaining criticaldefence capability. This feeds intoNDIC’s goals of working towards aninclusive and transformed defenceIndustry.

This has further improved the DODssupport to previously disadvantagedSMMEs whilst maintaining criticaldefence capability. This feeds intoNDIC’s goals of working towards aninclusive and transformed defenceIndustry.

50


Legal Framework Agreements thatseek to manage the IntellectualProperty that is developed from DODfunds and ensure participation ofpreviously disadvantaged SMMEs inthe defence sector have beenconcluded between Armscor andsome partners in the defenceindustry.

Legal Framework Agreements thatseek to manage the IntellectualProperty that is developed from DODfunds and ensure participation ofpreviously disadvantaged SMMEs inthe defence sector have beenconcluded between Armscor andsome partners in the defenceindustry.

This pioneered a way forwardwhere collaboration betweenSMMEs and established defenceindustry partners will be fostered.


To accelerate economic transformation of the Defence Industry Armscorhas:

§ Spearheaded the process of development of Defence Sector Charter,with NDIC partners

§ The dti Minister approved and published the Public Proclamation togive notice of the intention to develop a Defence Sector Charter

§ Stakeholder consultation process has been successfully completed

§ The Charter is currently at a stage where it was adopted by the CharterSteering Committee, approved by the Minister of Defence & MilitaryVeterans, and submitted to the Minister of the dti

§ It is envisaged that the Charter will take legal effect from 1 July 2017

51

DEFENCE SECTOR CHARTER

New elements that the Charter introduces to promote inclusive participation inthe economy are, amongst others:§ Distinctive recognition of Military Veterans as a designated group

§ Promotion of local content beyond the designated areas by the dti

§ Provision of set asides

§ Recognition of black equity ownership at a higher level

§ Setting up of a Defence Charter Council

§ Establishment ESD Fund for purposes of development

§ Establishment of a Skills Development Fund for purposes of drivingdevelopment of technical skills required in the Defence Industry

52

MILITARY VETERANS

Ø CONTRACTS AWARDED TO MILITARY VETERANS

§ Acquisition – R50.6 Million - Five (5) Companies§ Operating Budget - R 1.2 Million – Four (4) Companies

Ø CONTRACTS PENDING APPROVAL OF VALUE ADJUSTMENT

§ Acquisition (Sub-Contracting) - R 47 Million – Five (5) Companies

Ø Enterprise Development Initiatives

§ A Military Veterans beneficiaries’ cooperative comprised of six (6) young black females hasbeen adopted by Armscor as its own Military Veterans Enterprise Development Incubator fora period of three (3) years. They have been allocated a monthly stipend, a vehicle, officespace, office equipment and entrepreneurship training.

§ Together with another Military Veterans entity and a 25% Black Equity Owned ScrapDisposal Company, this incubator has been allocated the Armscor scrap at Alkantpan as afree issue (Enterprise Development (ED) which is applied only to companies that have neverdone work with Armscor) valued at around R3 Million.

§ The Disposal Company will transfer skills to the Incubator on scrap disposal.

53

HUMAN RESOURCES

54

HUMAN RESOURCES

55

§ Transformation goal set to have 70% black employees was achieved.§ A slight increase in employee satisfaction survey – from 67.62% (2017) to

67.97 ( 2018 )§ Succession planning: 75 successors identified vs. 64 key positions.§ Skills Development Programmes:

Ø Armscor Management and Leadership Programme§ 4 Delegates completed the programme at Wits, UP & USB Business School§ 4 Delegates are continuing with studies at Wits, UP & USB Business School

Ø International Training Programmes§ 3 completed studies; and§ 5 employees are continuing with studying in the UK and France

Ø Adult Education and Training Programmes§ 61 Employees were enrolled on AET programmes.

Ø Armscor Talent development programme§ 123 undergraduate bursaries were awarded to students in various local

universities§ 46 candidates were appointed on the graduate programme§ 47 learners were enrolled on apprenticeship programme

ARMSCOR EMPLOYMENT FIGURES

ARMSCOR EMPLOYMENT FIGURES (cont.)

0

50

100

150

200

250

300

350

Diplomas B Degree Masters CA

287324

110

2

Armscor Qualifications per category


0

20

40

60

80

100

120

140

BEng NDipl Eng BSc MSc BTech Eng Phd (Eng orScience)

131

110 109

76

45

10

BEng, NDip Eng, BSc, MSc, BTech Eng & PhD (Eng or Science)


APPOINTMENTS FROM1 APRIL 2017 TO 31 MARCH 2018 (Cont.)

Technical Non Technical18.78 81.22

60


Black group White Group97.24% 2.76%

61


AfricanMales20.44

AfricanFemales

21.55

ColouredMales44.75

ColouredFemales

9.95

IndianMales0.55

IndianFemales

0

WhiteMales2.21

WhiteFemales

0.55

62


Males Females

67.96% 32.04%

63

PROFILE FOR PERSON WITHDISABILITIES

64

Total Target

21 22

Percentage of workforce 1.3%

65

DESUPDefence Engineering Science University Programme (DESUP) is for the HumanCapital Development (HCD) and Basic Research work that can feed into the SouthAfrican National Defence Force (SANDF), ARMSCOR and the South African DefenceIndustry (SADI). The objective is to create and maintain the Defence R&D capability forSANDF that is inclusive and transformed.

Conduct basic R&D in Defence Engineering and Science

Pipeline•Undergrad studentsà feeder for postgrad•Outreach programmeà raise awareness of Mathematics and Science in Higher Education Institutes

University projects defined and aligned with SANDF requirements

Marketing and brand awareness campaign of the DESUP

SMME Capacity Development•Human Capital Development for SMME

TALENT INITIATIVES

ARTISAN PROGRAMME

Race Split African – 88% Indian – 6% White – 5% Coloured – 1%

ARTISAN PROGRAMME§Provides the Dockyard with the artisans to support theservice and maintenance of the ships and marine§Contributes towards the rejuvenation of the shipbuildingindustry

BURSARY PROGRAMMES (ARMSCOR & DESUP)§ Provides a talent pool for Armscor, DOD and the rest

of SADI§ Focused on STEM careers and scarce skills required

by the defence industry

EDUCATION OUTREACH ROGRAMME

KWAZULU NATALUmgungundlovu district: 14schoolsGingindlovu district: 11schoolsUthungulu district: 24 teachers

EASTERN CAPEAlice & Bisho: 40 schoolsFort Beaufort & King William’sTown: 40 schoolsQueenstown & Mount Freredistricts: 8 schools

WESTERN CAPEKhayelitsha, Nyanga &Langa townships:10 schools

KIMBERLEY:Francis Baard & Pixley kaSeme districts:5 schools

MPUMALANGALekwa district:3 schools

133 schools were reached through this programme.900 Maths & Science learners were reached excluding those reached through CareerExhibitions.

LIMPOPOLetaba district:1 science school

Part B:Programme and sub-programme

plans

68

SERVICE LEVEL AGREEMENT WITH DOD

The following performance measurements are agreed to:

Goal TargetContracts to be placed by Armscor:§ Capital Defence Matériel Acquisition§ System Support Acquisition and Procurement

95% compliance95% compliance

Contractual payments made:§ Capital Defence Matériel Acquisition§ System Support Acquisition and Procurement


Scheduled Order Placement 60 days for shortened process COTS items90 days for standard acquisition/ procurement200 days for identified complex programs

Management of Defence Industrial Participation(DIP)

R51.7m

Management and execution of DefenceTechnology, Research, Test & Evaluation

95% compliance

Armscor Dockyard performance against Navy SLA• Percentage of ancillary services executed


69

SERVICE LEVEL AGREEMENT WITH DOD (Cont.)

70

Contracts to be placed byArmscor:§ Capital Defence

Matériel Acquisition§ System Support

Acquisition andProcurement

Contracts to be placed byArmscor:§ Capital Defence



99.90% 100.00%98.04%

100.00%

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

2013/14 2014/15 2015/16 2016/17 2017/18 2018/19

Contracts to be placed by Armscor

Achievement Target

118.10%

99.78% 99.16% 99.90%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

Goal 2: System Support Acquisition and ProcurementContracts to be place by Armscor


71

Contractual paymentsmade:§ Capital Defence



Contractual paymentsmade:§ Capital Defence



108.63% 108.77%

98.77% 98.93%

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

2013/14 2014/15 2015/16 2016/17 2017/18 2018/19

Cashflow (contractual payments made)

Achievement Target

100.00%

109.68%

94.51%

101.77%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

Goal 2: System Support Acquisition and ProcurementCashflow (contractual payments made)

SERVICE LEVEL AGREEMENTWITH DOD

72

Average time taken from receiptof requirement to placement oforder not to exceed 90 days

Average time taken from receiptof requirement to placement oforder not to exceed 90 days

62.56

78.6775.20

93.00

0

20

40

60

80

100

2013/14 2014/15 2015/16 2016/17

Goal 3: Scheduled PlacementStandard Acquisition / Procurement

Achievement (days) Target (days)

This goal was refined for the2016/17 financial year goingforward as depicted on the followingslide

SERVICE LEVEL AGREEMENTWITH DOD

73

Scheduled Order Placement:q Shortened Process COTS

items not to exceed 60 daysq Standard acquisition /

procurement not to exceed90 days

q Identified complex programsnot to exceed 270 days

Scheduled Order Placement:q Shortened Process COTS

items not to exceed 60 daysq Standard acquisition /

procurement not to exceed90 days

q Identified complex programsnot to exceed 270 days

60.00

40

50

60

70

2016/17 2017/18 2018/19 2019/20

Goal 3: Scheduled PlacementShortened Process – COTS items


93.00

50

60

70

80

90

100

2016/17 2017/18 2018/19 2019/20

Goal 3: Scheduled PlacementStandard Acquisition / Procurement


111.58

150

200

250

Goal 3: Scheduled PlacementIdentified Complex Programs


74

Management of DefenceIndustrial Participation (DIP)Management of DefenceIndustrial Participation (DIP)

196.00

696.00

103.80135.50

0

100

200

300

400

500

600

700

800

2013/14 2014/15 2015/16 2016/17 2017/18 2018/19

Value of DIP credits granted to overseas suppliers

Achievement Target

Management and execution ofDefence Technology, Research,Test & Evaluation

Management and execution ofDefence Technology, Research,Test & Evaluation

99.84% 98.66% 99.60%96.67%

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

Goal 5: Management and Execution of Defence Technology, Research, Test and Evaluation requirementsAchieve contractual milestones / deliveries


75

Armscor Dockyard performanceagainst Navy SLAArmscor Dockyard performanceagainst Navy SLA

88.62%

98.81% 99.20% 98.46%

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

2013/14 2014/15 2015/16 2016/17 2017/18 2018/19

Goal 6: Management and Performance against Dockyard Mandate(Five separate goals – reporting on averages)

Achievement Target

Part C: Links to Other plans

76

ARMSCOR’S FINANCIAL OVERVIEW

Ø Financing of Armscor is mainly through income received via the defence budget which consist ofa transfer payment and payment for services rendered to the Department of Defence (73%). As thefunding is not sufficient to sustain the capability required, income is supplemented by incomefrom commercial services rendered (14%), investment income (3%) and other income (10%).

Ø The main expenditure as a service organisation remains personnel and related expenditure (82.4%)

Ø 2017/18 is the first year following a 3 year period whereby the financial performance of Armscorhas been influenced by the baseline reductions implemented by National Treasury. During theperiod Armscor had to implement various cost containment measures. However, the group figuresstill reflect a negative financial performance for the next three years due to the funding constraintsexperienced at the Dockyard.

Ø The permanent appointment of fixed term contractors at the Dockyard contributed to the negativefinancial performance for the group. Armscor is in discussion with the DOD to address this matter.

Ø Armscor also went through turnaround process during which further cost saving initiatives as wellas revenue generating possibilities were identified.

Ø Armscor will implement these identified initiatives during 2017/18 financial year in order to improvethe net financial position

77

ARMSCOR’S FINANCIAL OVERVIEW (Cont.)

REQUIREMENT OF THE GROUP FOR THE FINANCIAL YEAR 2017/18

78

ArmscorCorporate

Research &Development

ArmscorDockyard AB Logistics

ArmscorGroup

ArmscorGroupTotal

INCOME 951.4 369.8 238.7 33.0 1,592.9 100%Transfer Payment 760.3 157.7 224.8 19.7 1,162.5 73.0%SLA 12.5 ( 12.5) - - - 0%Gross Contribution from Sales - 206.1 9.0 13.3 228.4 14%Other Income 123.7 9.2 - - 132.9 8%Recoveries 18.5 - - - 18.5 1%Interest income 36.4 9.3 4.9 - 50.6 3.2%

LESS: OPERATING EXPENSES 861.9 340.1 262.9 29.7 1,494.6 100%Personnel Cost 674.6 283.3 249.9 23.6 1,231.4 82.4%Subsistence and Travel 28.7 9.0 2.3 0.4 40.4 2.7%Maintenance 2.4 10.0 0.2 - 12.6 0.8%External Services 74.6 6.4 0.8 2.3 84.1 5.6%Advertising, computer and otherexpenses 81.6 31.4 9.7 3.4 126.1 8.4%PROFIT / (LOSS) BEFORE NONCASH FLOW ITEMS 89.5 29.7 -24.2 3.3 98.3

LESS: NON CASH FLOW ITEMS 80.3 28.1 15.4 - 123.8PROFIT / (LOSS) FOR THE GROUP 9.2 1.6 ( 39.6) 3.3 ( 25.5)

Rm

Note: DOD and DPW Outstanding Office Rental not included

SUMMARY

Ø Armscor’s future environment is threatening its viability. The strategic

premise of reducing defence allocations is becoming reality.

Ø The Armscor Vision is in the process of being realised.

Ø Armscor’s Mandate will have to be applied differently than in the past to

achieve the desired results.

Ø The new strategy engages this reality and can reposition Armscor to emerge

as a much stronger and nationally more relevant State Owned Enterprise.

79

THANK YOU

QUESTIONS

A-TEMP-009 -1 ISSUE 002

80

Documents

Presented by: Mr KPE Wakeford CHIEF EXECUTIVE OFFICER 9 ...pmg-assets.s3-website-eu-west-1.amazonaws.com/180509Armscor.pdfpresentation of the corporate plan 2018 to the parliamentary