Necsa

REPORT TO MINERALS AND ENERGY PORTFOLIO COMMITTEE

4 NOVEMBER 2005

Presented by:

Schalk de Waal: Interim CEO

Ms Nomfuyo Galeni: CFO

ACKNOWLEDGEMENT – ANNUAL REPORT 2004/05

• Mr Senti Thobejane was the Chief Executive Officer during the reporting period. He resigned on 31 March 2005.

• The CFO of Necsa, Ms Nomfuyo Galeni was the Acting CEO from 1 April 2005 until 24 October 2005.

• [PMG note: graphic not included, please info@pmg.org.za]

Vision and Mission• Necsa’s long term growth strategy, Vision 2010,

seeks “to pursue nuclear technology excellence for sustained social and economic development”.

• Its mission is to develop, utilize and manage nuclear technology for national and regional socio-economic development.

• Values that are strived for:- Partnership- Life enhancement- Entrepreneurship- Excellence- Leadership; and- responsibility

NECSA’s INTERIM ORGANISATIONAL STRUCTURE

S de Waal Interim Chief

ExecutiveOfficer

NuclearServices & Technology(NS & NT)

Corporate Services

(CS)

Financial Services

(FS)

FacilitiesManagement

(FM)

High Technology

Products(HTP)

NuclearTechnology

Products(NTP)

Nuclear Security

Internal Audit

Corporate Planning

SHEQ

Nuclear Safeguards

CHAIRMAN’S REPORT

• Necsa has to position itself to be a serious player in nuclear matters in terms of:

- active involvement in the international nuclear arena.

- establishing Necsa as a recognized centre of excellence in nuclear technology and related fields.

- becoming a major contributor towards the national agenda of developing people of South Africa.

CHAIRMAN’S REPORTHIGHLIGHTS AND CHALLENGES

• SAFARI-1 reactor achieved 40 years of safe and successful operation.

• Necsa continued to experience a negative impact from the strengthening of the rand which resulted in net operating loss of R29m

• To reverse the financial challenge, a Recovery Plan was launched in consultation with labour.

• Reduced discretionary spending through the implementation of strict austerity measures.

• Necsa experts continued to play a pivotal role in the International Atomic Energy Agency/African Regional Co-operative Agreement for Research, Development and Training Related to Nuclear Science and Technology collaborative research, development and training programmes.

CHAIRMAN’S REPORT: LOOKING AHEAD

• Need to empower and re-organize Board of Directors

• Board intends to take SA’s nuclear science and technology to new highs of development and invention

• Necsa to be established as a centre of excellence

• Necsa needs additional funding support to:- remove balance sheet encumbarances- recapitalise and turn Necsa around

MANAGEMENT REPORT: HIGHLIGHTS

• Necsa experienced a turbulent time during 2004/05 but maintained its positive image and remained balanced.

• Management and staff remained committed to safe and secured nuclear operations.

• Group revenue increased by 2,2% from previous year.

• Made good progress to curb the escalating cost of post-retirement medical aid liability.

• Success in improving gender equity quota

- woman now 23% in 3 critical categoriesContinue

MANAGEMENT REPORT: HIGHLIGHTS

• A woman was appointed as CFO of Necsa and acted as CEO from April to October 2005.

• Target that 40% of workforce will be women by 2010.

• Provide products regularly and reliably to 50 countries mainly through NTP Radioisotopes (Pty) Ltd (a fully Necsa owned subsidiary).

• Implemented a staff retention strategy to protect core skills.

• Necsa has numerous collaborative research projects with the high education sector including universities and research institutions.

• Necsa engaged in various awareness and public relations programmes to educate stakeholders on nuclear matters.

SAFARI-1 1965-2005

SAFARI-1(SA FUNDAMENTAL ATOMIC REACTOR INSTALLATION)

• SAFARI-1 is the mainstay of Necsa’s nuclear programme and will render at least a further 20 years service to the country.

• Research reactor also utilized for production of medical radioisotopes mainly during last 10 years.

• Annually ~60 000 SA and 2,3 million patients across the world benefit from isotopes originating from SAFARI-1.

• Experimental beam line facilities are used extensively for research and training.

• ISO9001 and ISO14001 accredited (this is an exceptional achievement which only a few reactors in the world received)

• SAFARI-1 currently one of most efficiently operated and best utilized reactors in the world.

• The Government has approved that the reactor be converted to utilize low enriched uranium together with dedicated funding for this purpose (R12m/a for 3 years).

PRODUCTS AND SERVICESMajor products and services:

• Radiopharmaceuticals used in nuclear medicine• Radiochemicals used for medical and agricultural purposes• Radioactive sources used in industry• Irradiation services and radiation technology products• Fluorine-based chemical products and services• Specialised engineering products and services• Operation of SAFARI-1 nuclear reactor• Management of the institutional obligations on behalf of the State such as

decommissioning, decontamination, storage and disposal of radioactive waste• Management of the State’s programme of safeguarding nuclear material to prevent

proliferation of nuclear weapons• Provision of a support structure for African Regional Co-operative Agreement for

Research, Development and Training• Development of nuclear fuel production technology for PBMR• Radiation and reactor theory; research and services to Necsa and the PBMR

Programme• Radiochemistry and radioanalytical services for Necsa• Utilisation of existing infrastructure and buildings• Research collaboration with SA and international universities and research

institutions

ECONOMIC PERFORMANCE INDICATORS

• Approximately 14,8 per cent suppliers listed as black suppliers

• 33% of Necsa’s budget was spent on black suppliers

• 42% of Necsa’s expenditure comprised personnel expenses

• 69,6% of our workforce comprises designated employees

• Due to a moratorium on appointments, we lost 235 employees who was replaced with 168 new appointees

SKILLS DEVELOPMENT

• Strong alliance with the Chemical Industries’ Education and Training Authority SETA.

• About 70 learnerships were trained in various occupations such as engineering, chemistry, apprenticeships.

• Though the Necsa bursary scheme, 24 previous disadvantaged students are being sponsored for their studies in science and technology.

• A total of 1409 employees received training, some of whom attend more than one course in various disciplines, including leadership development, health and safety and technical training.

• ARECSA is a joint venture between five SA companies, namely, Eskom, Necsa, PBMR, NNR, Koeberg and Areva (France) for the training of especially previously disadvantaged individuals in the much sought-after nuclear and related skills.

Necsa: CURRENT SITUATION

Salient issues• Deficit recorded for 2004/05 – R29,8m - cumulative R95,6m• Vacancy of key personnel - 183• Austerity measures due to cash constraints• HSE & security risk profile deteriorated• Management systems inadequate

Contributing factors• Declining market conditions• Economy of scale problems and operational inefficiencies• Volatility of exchange rates• Limited funding of institutional obligations by shareholder

LOOKING TO THE FUTURE

• Necsa received an additional allocation of R56m for the current year to implement urgent HSE-related projects and to meet its commitments.

• Possible DST financial support for specific R&D projects.

• Additional funding envisaged from 2006/07 financial year onwards.

• Turnaround Plan submitted to Government.

TURNAROUND PLAN

Projects to focus on:

Nuclear technology R&D expansion and upgrading.

Restructuring and recapitalisation of commercial activities.

Human capital development programmes. Infrastructure and HSE upgrading. High Temperature Reactor/PBMR Advance Fuel

Development.

Continue

Necsa TURNAROUND PROGRAMME

• The Turnaround Plan to run over 5 years.• Necsa will prioritise projects within available funding

allocations.• The plan will be aimed at the renewal of Necsa to take

advantage of the re-emerging nuclear market.• The plan will require significant commitment from

Necsa, the Board and Government.

• Necsa is confident that the implementation of the plan will yield the desired results to ensure that Necsa could fulfill its mandate and be looked upon as a centre of excellence for the nuclear industry.