Armscor, the state arms procurement agency, had a successful financial year to March in spite of an investigation into the controversial R43 million arms deal, it said yesterday.

The government was criticised for spending so much money on weapons in the face of mass poverty and starvation. But plans for acquiring new weapons were steaming ahead and delivery of the first submarines was expected by 2006.

Turnover increased by 28.5 percent to R629.4 million. The bulk of the revenue consisted of the R194.9 million Armscor received from the government in the form of transfer payment.

Sipho Thomo, the chief executive of Armscor, said: "Of this amount R192.4 million was used to defray operating expenditure and R2.5 million for the acquisition of assets."

He added that the operational expenditure included an extraordinary provision of R5.8 million for post-retirement medical liabilities. This would be spread over five years.

The core function of Armscor is to acquire defence related products, mainly for the national defence force but also for security services like the Correctional Services and SA Police Service (SAPS).

The agency spent R7 billion on the acquisition of new equipment for the year under review. This included two helicopters for the SAPS, the Boeing Business Jet for the SA air force and an upgrade programme of the Rooikat armoured car.

The state-owned company has a total of 25 defence industrial participation agreements to the value of R20 billion. Of these, 13 have been completed.

The offset agreements make it obligatory for countries from which South Africa buys its weapons to make direct investment in the country.

Operating profit before working capital changes increased by 68.3 percent to R13.8 million from a loss of R8.2 million last year.

Net surplus from operations shot up 857 percent to R13.4 million compared with a loss of R1.4 million.

Group net income grew from R200 000 to R14.8 million.

The company attributed this increase to the strong performance of its subsidiaries, which altogether contributed R25.7 million to the group's coffers.

With acknowledgements to Khulu Phasiwe and Business Report.