AUGUST 2006 1

ARMSCOR’S PERFORMANCE REPORT

FIRST QUARTER: 2006 / 2007 FINANCIAL YEAR

PRESENTED TO THE

PORTFOLIO COMMITTEE ON DEFENCE

ON 29 AUGUST 2006

AUGUST 2006 2

1. ARMSCOR GROUP CONSOLIDATED INCOME STATEMENT FOR THE PERIOD 1 APRIL 2006 TO 30 JUNE 2006

2. ACQUISITION ACTIVITIES: DEPARTMENT OF DEFENCE

3. ARMSCOR’S QUARTERLY PERFORMANCE REPORT FOR THE PERIOD 1 APRIL 2006 TO 30 JUNE 2006

4. ARMSCOR BUSINESS QUARTERLY PERFORMANCE REPORT FOR THE PERIOD 1 APRIL 2006 TO 30 JUNE 2006

5. CONCLUSION

CONTENTS

AUGUST 2006 3

1. GROUP FINANCIAL STATEMENTS FOR THE PERIOD1 APRIL 2006 TO 30 JUNE 2006

ARMSCOR GROUP CONSOLIDATED INCOME STATEMENTFOR THE PERIOD 1 APRIL 2006 TO 30 JUNE 2006

RMYEAR TO DATE YEAR END

Estimate Actual Variance Budget Estimate Variance

63.2 61.0 (2.2) Transfer Payment 347.6 347.6 - 269.0 384.5 115.5 Turnover 998.8 927.7 (71.1)

5.1 5.5 0.4 Interest Received 16.9 20.7 3.8

7.3 7.3 - Rent and Services 24.7 24.7 - 8.4 8.9 0.5 Other Income 53.7 50.8 (2.9)

353.0 467.2 114.2 TOTAL INCOME 1,441.7 1,371.5 (70.2) 365.1 473.6 (108.5) Less: Expenditure 1,453.4 1,390.9 62.5 72.7 71.2 1.5 Armscor 407.9 406.3 1.6

292.4 402.4 (110.0) Armscor Business 1,045.5 984.6 60.9 (12.1) (6.4) 5.7 NET INCOME/(LOSS) (11.7) (19.4) (7.7)

DESCRIPTION

AUGUST 2006 4

2. ACQUISITION ACTIVITIES: DEPARTMENT OF DEFENCE

0

2000

4000

6000

8000

10000

12000

14000

Payments year to date Revised Baseline

Planned cash flow Orders already placed

First Revision (5 year planning) Original Projected Cash Flow

12 245 Revised Baseline

8 736 Revised PlannedCash Flow

7 897 Orders placed

1 755 Cumulative paid

9 002 First Revision

8 352 Original Projected Cash Flow

Funds allocated to Armscor are R12 245m. Planned cash flow as at the end of June 2006 is R8 736m. The difference of R3 509m relates to requirements not yet received from the DOD. Armscor Acquisition Department together with DOD review the funds allocated to Armscor regularly.

AUGUST 2006 5

3. ARMSCOR’S PERFORMANCE REPORT FOR THE PERIOD 1 APRIL 2006 TO 30 JUNE 2006

AUGUST 2006 6

MEASUREMENTMEASUREMENT

DATEGOAL % ACHIEVED % REMARKS

1 BASELINE (B/L) AMOUNT FOR YEAR (SDA FUNDS)

29 MARCH 06 R 3.76 BILLION

- N/A

2 INPUT REQUIREMENTS TO BE PROVIDED BY DOD (RAND VALUE)

29 MARCH 06 R 2.63 BILLION

70% R 2.47 BILLION

65.7% DUE TO REPRIORITISATION EXERCISE IN THE DOD, INPUTS ARE PROVIDED LATE

3 CONTRACTS TO BE PLACED BY ARMSCOR

(RAND VALUE)

30 JUNE 06 R 4.46 BILLION

70% R 2.72 BILLION

61% DEVIATION MOSTLY DUE TO LATE RECEIVAL OF REQUIREMENTS

4 CASH FLOW 30 JUNE 06 R4.46 BILLION

10% R 403 MILLION

9% DEVIATION MOSTLY DUE TO LATE RECEIVAL OF REQUIREMENTS

GOAL 1 ACQUISITION OF CAT 1 DEFENCE MATÉRIELEXLUDING STRATEGIC DEFENCE ACQUISITION

MEASUREMENTMEASUREMENT

DATEGOAL ACHIEVED REMARKS

1 BUDGET FOR YEAR 1 APRIL 06 R 221.8 N/A DEVIATION FROM GOAL MOSTLY DUE TO APPOINTMENTS NOT MADE AS PLANNED

2 EXPENDITURE:

1ST QUARTER

30 JUNE 06 R 36.5 R 35.7

ARMSCOR FUNDING FOR GOAL 1

ALLOCATION OF ARMSCOR RESOURCES REGARDING ACQUISITION, PROCUREMENT AND PRODUCT SYSTEM MANAGEMENT ARE CONTINUOUSLY REVIEWED TO BEST MEET THE NEEDS OF THE DOD

AUGUST 2006 7

MEASUREMENTMEASUREMENT

DATEGOAL % ACHIEVED % REMARKS

1 BASE LINE (B/L) AMOUNT FOR YAR

29 MARCH 06 R 6.4 BILLION

N/A CASH FLOW IS GOOD IN LIGHT OF ROE UNCERTAINTY

2 INPUT REQUIREMENTS TO BE PROVIDED BY DOD (RAND VALUE)

29 MARCH 06 R 4.5 BILLION

70% R 6.0 BILLION

93.4%

3 CONTRACTS TO BE PLACED BY ARMSCOR

30 JUNE 06 R 6.41 BILLION

70% R 4.27 BILLION

66.6%

4 CASH FLOW 30 JUNE 06 R 6.41 BILLION

10% R 1.17 BILLION

18.3%

GOAL 2 ACQUISITION OF PRODUCT SYSTEMS UNDER GOVERNMENT STRATEGIC DEFENCE PACKAGE PROGRAMME

MEASUREMENTMEASUREMENT

DATEGOAL ACHIEVED REMARKS

1 BUDGET FOR YEAR 1 APRIL 06 R 14.2 MILLION N/A DEVIATION ON EXPENDITURE VERSUS BUDGET IS SMALL2 EXPENDITURE:

1 ST QUARTER

30 JUNE 06 R 2.3 MILLION R 2.2 MILLION

ARMSCOR FUNDING FOR GOAL 2

AUGUST 2006 8

MEASUREMENTMEASUREMENT

DATEGOAL % ACHIEVED % REMARKS

1 BASE LINE (B/L) AMOUNT FOR YEAR

29 MARCH 06 R1.367 BILLION

N/A 1 BASE LINE FOR YEAR WAS ADJUSTED BY DOD FROM R1.4 BILLION TO R1.367 BILLION

2 DEVIATIONS ARE MAINLY DUE TO LATE INPUT REQUIREMENTS BY DOD

2 INPUT REQUIREMENTS TO BE PROVIDED BY THE DOD

29 MARCH 06 R 956 MILLION

70% R720 MILLION

52.7%

3 CONTRACTS TO BE PLACED BY ARMSCOR

30 JUNE 06 R 1.37 BILLION

70% R 910 MILLION

66.5%

4 CASH FLOW 30 JUNE 06 R 1.37 BILLION

10% R 179 MILLION

13.1%

GOAL 3 PROCUREMENT AND PRODUCT SYSTEM MANAGEMENT / SUPPORT

MEASUREMENTMEASUREMENT

DATEGOAL ACHIEVED REMARKS

1 BUDGET FOR YEAR 1 APRIL 06 R 101.1 MILLION

N/A DEVIATION FROM GOAL IS MAINLY DUE TO APPOINTMENTS NOT MADE AS PLANNED

2 EXPENDITURE:

1ST QUARTER

30 JUNE 06 R 16.6 MILLION R 16.3 MILLION

ARMSCOR FUNDING FOR GOAL 3

AUGUST 2006 9

MEASUREMENTMEASUREMENT

DATEGOAL % ACHIEVED % REMARKS

1 VALUE OF DIP CREDITS GRANTED TO OVERSEAS SUPPLIERS

30 MARCH 07 R 1.57 BILLION

R 375 MILLION

23.9% THE GOAL OF R 1.57 BILLION IS CONSIDERED REASONABLE IN LIGHT OF NEGOTIATIONS WHICH ARE IN PROCESS WITH LOCAL COMPANIES

GOAL 4 MANAGE DEFENCE INDUSTRIAL PARTICIPATION (DIP)

MEASUREMENTMEASUREMENT

DATEGOAL ACHIEVED REMARKS

1 BUDGET FOR YEAR 1 APRIL 06 R 2.2 MILLION N/A SLIGHT UNDERSPENDING DUE TO OVERSEAS VISITS WHICH MUST STILL TAKE PLACE

2 EXPENDITURE:

1ST QUARTER

30 JUNE 06 R 0.7 MILLION R 0.6 MILLION

ARMSCOR FUNDING FOR GOAL 4

AUGUST 2006 10

SERVICE

PERFORMANCE

FOR 1ST QUARTER 2006/2007

ARMSCOR FUNDING FOR 2006/07

Millions

REMARKSApproved

Budget

Estimate1ST

Quarter

Actual 1ST

Quarter

MANAGEMENT, MAINTENANCE AND FUNDING OF STRATEGIC FACILITIES

1. INCOME

2. EXPENDITURE

3. NET INCOME/LOSS

R1,048.5

R1,045.5

R3.0

R280.3

R292.4

(R12.1)

R395.8

R402.4

(R6.4)

SDP late deliveries from last year.

Funding of DOD orders not received. Stock Sales expenditure without corresponding revenue. NCACC approvals on hold

GOAL 5: The management, maintenance and funding of the defence technology, research, development, analysis, test and evaluation requirements of the Department of Defence effectively, efficiently and economically

AUGUST 2006 11

5. CONCLUSION

1. ARMSCOR’S EXPENDITURE FOR THE FIRST QUARTER OF THE 2006 / 2007 FINANCIAL YEAR IS WITHIN THE PROJECTED CASH FLOW AND THE OPERATIONAL BUDGET AS APPROVED BY THE ARMSCOR BOARD OF DIRECTORS

2. SERVICES ARE DELIVERED AS REQUIRED BY THE DOD, HOWEVER A SHORTAGE OF OPERATIONAL FUNDING IS IMPACTING ON ARMSCOR’S CAPACITY TO PERFORM ITS ACQUISITION AND SUPPORT FUNCTIONS TO THE DEPTH AS DICTATED BY THE DOD’s ACQUISITION POLICY

3. ARMSCOR’S SYSTEMS ARE CONSIDERED ROBUST, EFFECTIVE AND EFFICIENT AS INDICATED BY THE AUDITOR GENERAL’S REPORT WHICH ONLY RECORDED ONE MATTER OF EMPHASIS FOR THE PAST FINANCIAL YEAR

4. ARMSCOR BUSINESS INCOME IS NOT ACCORDING TO PLAN / ESTIMATE DUE TO EXTERNAL FACTORS SUCH AS:

SDP LOGISTIC SERVICES REQUIRED LATER THAN PLANNED

LATE CONTRACTING OF DOD SERVICE REQUIREMENTS

DELAY IN APPROVAL OF NCACC PERMITS ON STOCK SALES

DELAYS IN TRANSFER OF REDUNDANT EQUIPMENT TO ARMSCOR BUSINESS FOR DISPOSAL