ARMSCOR DOCKYARD

AN ANALYSIS OF ARMSCOR 2013/14 ANNUAL
REPORT
15 October 2014
Calvin Manganyi
Researcher, Portfolio Committee on Defence and Military
Veterans
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SCOPE
• New Board of Directors.
• Acquisitions.
• Defence Industrial Participation.
• Armscor Dockyard.
• HR Management and Transformation.
• Performance Overview: Under achievements and Challenges.
• Financial Statements and Report of the AGSA.
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NEW BOARD OF DIRECTORS (P. 1)
• With effect from 1 May 2014, Armscor has a new Board of Directors. The board
membership include: Vice Admiral (ret) R.J. Mudimu, Chairperson, Ambassador T.
Skweyiya, Mr M.B.F. Mobu, Dr. M. Khanyile, Adv. VL de la Hunt, Mr R.M. Vokwana, Adv.
S. Baloyi, Mr N.M. Tyibilika, Mr. J.S. Mkhwanazi, Acting Chief Executive Officer (CEO);
and Mr. J.G. Grobler, Chief Financial Officer.
• The Board is assisted by the Executive Management Team including Mr Griesel, Acting
General Manager for Acquisition; Mr. T.C. Raman, General Manager for Research and
Development; Mr. T.T. Goduka, General Manager for Dockyard; Ms. R.H. Ramgolam,
Acting General Manager for Quality; Adv. C.V.V. Ramphele, General Manager for
Corporate Compliance; Mr. S. Mbada, General Manager for Human Resources; Mr L.
Keyise, Chief Information Officer; and Ms. J.L. Mzili, General Manager for Marketing
and Business Development.
• NB: Appointment of Chairperson may aid in addressing problems in the Dockyard.
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ACQUISITIONS (P. 1-3)
• Contracts relating to capital equipment acquisition: R4.776 billion.
• 18.6 % decrease compared to R5.869 billion for 2012/13.
• Armscor has been successful in terms of acquisition of several
maritime, airborne, landward and common weapon systems, as well
as research and development programmes.
• Challenges noted:
o Class 209 Mod 1400 Submarines.
o Agusta helicopter upgrades.
o Lead-In Fighter Trainer Aircraft
o A-Darter Missile and Recognition pod.
o The Ground-based Air Defence
System.
o Delays in the Tactical
Communications Systems.
o Defence Industrial Participation.
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ACQUISITIONS
Questions
o Has the submarine escape training facility been completed before the end of July
as per the Annual Report? If not, what are the reasons for the delay?
o How far is the delivery of the maintenance capability for Lead-In Fighter Trainer
Aircraft?
o What progress has been made on phase two of the Ground-based Air Defence
System?
o How far is the progress on the New Generation Tactical Communication System?
Will the first few systems be produced in 2014/15 as stated in the Annual Report?
o How far is MBDA from discharging its obligations and delivering the missiles?
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DEFENCE INDUSTRIAL PARTICIPATION (P. 3-4)
• No new DIP agreements were entered into in 2013/14.
• One DIP agreement, with MBDA (A European based missile
developer and manufacturer), related to the SDP remains under
the management of Armscor.
• For 2013/14, the outstanding obligation remained at R933 million.
• The MBDA DIP has been on ongoing concern in recent years.
Remark and Question
The Committee should enquire a comprehensive explanation of the
MBDA DIP agreement and reasons for the fact that obligations are
not met. What steps will be taken to remedy the situation?
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ARMSCOR DOCKYARD (P. 5-6)
• 2013/14 financial year was marred by a lack of funding, insufficient
capacity and capabilities for the Dockyard.
• Dockyard needs a major transformation programme, hence a study
was conducted.
• Challenges led to the Dockyard not achieving the set target of 90 per
cent. Instead it achieved 75.5 per cent against the set target.
• Projects experiencing challenges: Frigates and Submarines.
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ARMSCOR DOCKYARD (Cont.)
Questions
o What is being done to address problems related to the funding model and to
ensure an effective Dockyard?
o In terms of the study, what are the (a) main findings, (b) plans to address the
problems, and (c) timeline for addressing the challenges observed?
o What measures have been put in place to address the Human Resources
challenges in the short-term?
o What was the impact of delays/incapacity on the side of the Dockyard on the SA
Navy’s ability to partake in Operation COPPER, naval exercises or other naval
operations? (Note that the DOD’s Maritime programme only achieved 11,080 of
22,000 planned sea hours)
o Have all the challenges regarding the frigates and submarine problems
undertaken in 2013/14 been addressed?
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HR MANAGEMENT AND TRANSFORMATION (P. 6-8)
• Staff complement: 1 425 (increased by 84 from 1 341 for 2012/13).
• Gender: 66.67 % Male (slight decrease from 68.35 % in 2012/13).
• Racial Composition: African (39.92 %), White (32.35 %), Coloured
(24.35 %), and Indian (3.80 %).
• Most significant shifts: 4.13 % increase in African employees; and 3.82
% decrease in White employees.
• Addressing Skills shortage: Group of engineers sent abroad for training
in various fields; 48 Artisans for training; 36 SA Navy students for
practical training; and 23 candidates for Talent Development
Programme.
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HR MANAGEMENT AND TRANSFORMATION (Cont.)
Points of clarity
o Armscor staff per age group.
o Amount allocated for international training of personnel, Number of people
making use of this opportunity, Number of people who successfully completed
the programmes.
o Duration of practical training for SA Navy students in the Dockyard, and how they
will contribute in addressing the medium-term concerns related to the Dockyard.
o Detailed explanation on the Talent Development Programme. Information should
include payment for all studies, contract obligations after completing their studies
and, the percentage of students leaving Armscor prior to the termination of their
contracts.
o Reasons for decreasing the number of candidates to 23 instead of 34 as reported in
2012/13.
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PERFORMANCE OVERVIEW: UNDER ACHIEVEMENTS AND
CHALLENGES (P. 8-12)
KPI
Goal
Achieved
• 29 of the KPIs have been achieved.
Project status reporting: Dockyard
90%
75.4%
•Review
13 ofofABthe
KPIs (31 per cent) have not been achieved
Logistics Travel
31 August 2013
30 Sept 2013
Finalise
three-year SLA with Secdef
31 July 2013
15 Oct 2013
•
Identification of opportunities to
exploit military technologies and IP
30 June 2013
30 Oct 2013
Employee satisfaction measurement
70%
64,54%
Skills development contribution to
BBBEE scorecard:
70%
44,1%
Renew Storage Area Network
30 June 2013
17 Nov 2013
Replace end of life processing area network
30 June 2013
18 April 2014
ERP:
Finalise implementation partner
31 March 2014
In process
Develop a Disaster Recovery Plan for the organisation
31 March 2014
15 May 2014
BBBEE policy – transformation and preference for local industry.
30 June 2013
14 Aug 2013
Develop an integrated industry support strategy.
31 Aug 2013
5 March 2014
External client satisfaction survey.
98%
81,3%
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PERFORMANCE OVERVIEW: UNDER ACHIEVEMENTS AND
CHALLENGES (Cont.)
Questions
• The Key Performance Indicator (KPI) for Project Status reporting: Dockyard to
ensure adherence to project contractual milestones as per project plan, was not
achieved. What caused these delays, and what measures are in place to prevent
the reoccurrence of such delays?
• The KPI for Review of AB Logistics Travel, Review all business options and
implement was also not achieved in 2012/13. What are the reasons for not
achieving the KPI on 31 August 2013 as per goal?
• The KPI for three-year Service Level Agreement (SLA) with the Secretary for
Defence not achieved and the reason indicated is that final agreement could not
be reached on the proposed funding model. What is the solution for this
challenge, and what is the time-line for the completion of this agreement?
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PERFORMANCE OVERVIEW: UNDER ACHIEVEMENTS AND
CHALLENGES (Cont.)
• The KPI for Employee satisfaction measurement was not achieved. In actual fact,
it is a regress from the previous year achievement of 66.48 per cent. What are
the reasons for the under achievement?
• The KPI for BBBEE policy – transformation and preference for local industry was
not achieved. The same goal was also not achieved in 2012/13. How far is the
process on the policy?
• What measures are in place to ensure that the KPIs indicated as partially
achieved are achieved for 2014/15, and beyond? And why are some KPIs
indicated as achieved later than planned instead of not achieved as in the case at
the end of the financial year?
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FINANCIAL STATEMENTS AND REPORT OF THE AUDITORGENERAL
Financial statements:
• Group net value increased from R1.804 billion in 2012/13 to R1.908 billion.
• Group’s total comprehensive income decreased significantly from R1.193 billion in
2012/13, to R103.3 million in 2013/14 (R1.08 billion for property revaluation
contributed to 2012/13 profit).
• Profit for 2013/14 was influenced by the inclusion of the results of the Armscor
Medical Benefit Fund which, if excluded, the net result is R76.9 million.
• Increase in expenditure on employees’ salaries, wages and other benefits to R836.8
million.
• Other Financial Matters: Fruitless and wasteful expenditure (R393 892), Decrease in
Armscor Revenue (from R9.2 million in 2012/13 to R6.8 million in 2013/14), and
Irregular expenditure (R68.5 million) related to a 25 per cent Black equity selection
criterion as requirement.
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FINANCIAL STATEMENTS AND REPORT OF THE AUDITORGENERAL (Cont.)
Financial statements:
•
•
•
•
Questions
The filling of vacancies has been an ongoing concern in recent years. In order to avoid
underspending, why is the budget for personnel costs not aligned to a realistic figure
for the filling of vacant posts?
What are the reasons for the decrease in revenue by the Armscor Dockyard?
What were the reasons for late deliveries (fruitless and wasteful expenditure) resulting
in penalties of R393 455?
Will Armscor still apply its 25 per cent Black equity selection criterion without the
exemption from National Treasury?
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FINANCIAL STATEMENTS AND REPORT OF THE AUDITORGENERAL (Cont.)
Report of the AGSA:
• Unqualified audit opinion.
• Concerns by AGSA:
o Expenditure Management: Lack of effective steps to prevent irregular expenditure.
o Annual Financial Statement: Submitted statements not prepared in accordance with
sections of the PFMA and the Companies Act.
• Leadership: Inadequate oversight wrt compliance and related internal controls; Policies
and procedures were not, in all respects, aligned with applicable legislation.
Questions
• Are measures in place to prevent irregular expenditure?
• Are there adequate oversight measures to ensure compliance with applicable
legislation?
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•Thank you
•~
•Questions
Calvin Manganyi
Researcher: PC on Defence and Military Veterans
cmanganyi@parliament.gov.za
021 403 8100
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