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Supply Chain Management 86 Occupational Health and Safety 88 INTEGRATED REPORT TWENTY 13/14 RELIABLE DEFENCE SECURITY AND TECHNOLOGY SOLUTIONS PARTNER This report takes cognisance of the integrated reporting requirements of the King III Report on Corporate Governance and the International Integrated Reporting Framework. The sustainability information included throughout the report is based on the requirements of one of the globally recognised best reporting practices framework, the Global Reporting Initiative (GRI). Denel has declared a C application level in terms of GRI 3.1. The GRI content index is provided on pages 194 to 197, and indicates Denel’s reporting against core indicators. Where data measurement techniques are not in place, descriptions of the activities taking place are provided. The external auditors were engaged to assure financial information, whilst most of the non-financial information presented in the integrated report was assured by a number of service providers through various processes i.e. B-BBEE verification, board evaluation, ISO certification, organisational climate assessment, etc. This integrated report is available on Denel’s website (www.denel.co.za). In line with Denel’s inclusive approach, corporate contact details are provided on page 200. Key acronyms used in this report are listed below. A complete list of abbreviations and acronyms is provided on pages 198 to 199. ACRONYM FULL DESCRIPTION ACRONYM FULL DESCRIPTION ACI African, Coloured and Indian MoU Memorandum of Understanding AGM Annual general meeting MRO Maintenance, repair and overhaul B-BBEE Broad-based black economic empowerment OEM Original equipment manufacturer DAe Denel Aerostructures SOC Ltd OTR Denel Overberg Test Range DAv Denel Aviation PMP Pretoria Metal Pressings DD Denel Dynamics R&D Research and development DLS Denel Land Systems RDM Rheinmetall Denel Munition (Pty) Ltd DoD Department of Defence SA South Africa(n) DoD&MV Department of Defence and Military Veterans SAAF South African Air Force DPE Department of Public Enterprises SANDF South African National Defence Force DTA Denel Technical Academy SANSA South African National Space Agency dti Department of Trade and Industry SED Socio-economic development EBIT Earnings before interest and taxation SOC State-owned company EE Employment equity SOE State-owned entity Government South African Government Tawazun Tawazun Dynamics LLC Dynamics HR Human resources TMA Turbomeca Africa (Pty) Ltd ISO International Standards Organisation UAV Unmanned aerial vehicle LMT LMT Holdings SOC Ltd (RF) UAVS Unmanned aerial vehicle system MEDDS Mechem explosives and drug detection system ABOUT THIS REPORT This integrated report presents a transparent, comprehensive and comparable view of financial, operating, social and sustainability performance of Denel SOC Ltd for the year ended 31 March 2014 to a broad range of stakeholders. This report outlines the group’s outlook and further aims to highlight opportunities and challenges faced by the group, as well as planned actions to address the same. The planned actions take into account business priorities, risks and recommendations made by stakeholders. Denel is committed to sustainable development, and responds to the economic, social and natural environmental imperatives where it conducts business. These principles are embedded in the group’s corporate strategy and values, and reflected in the financial and economic decisions that are made by the group. Denel actively identifies material matters through engagements with both internal and external stakeholders, and considers the group’s risk management processes and feedback from sustainability indices. This process ensures that the group’s corporate responsibility programmes remain relevant and meaningful to the group’s stakeholders, and reflects the changing landscape of corporate responsibility. The board of directors, through the audit and risk, and social and ethics committees, understands, oversees and reports on the key strategies, risks and sustainability matters of the group. The group’s most significant and material issues are discussed throughout the integrated report, as well as in the directors’ report on pages 105 to 107. Non-financial information presented in the report relates to Denel, its operating divisions and subsidiaries. Financial information includes information regarding associated companies. DENEL INTEGRATED REPORT 2013/14 01 PART TWO DIRECTORS’ STATEMENTS 02 DENEL INTEGRATED REPORT 2013/14 CONTENTS GROUP OVERVIEW PART ONE THE ROLE WE PLAY 06 OUR VISION AND STRATEGIC DRIVERS 08 HOW WE OPERATE 09 ORGANISATIONAL STRUCTURE 10 DIRECTORS’ STATEMENTS PART TWO CHAIRMAN’S STATEMENT 14 GROUP CHIEF EXECUTIVE OFFICER’S REPORT 18 PERFORMANCE REVIEW PART THREE FINANCIAL RESULTS 24 OPERATIONS 31 TECHNOLOGY ADVANCEMENT 32 BUSINESS UNITS 34 ASSOCIATED COMPANIES 42 CORPORATE GOVERNANCE PART FOUR DENEL BOARD OF DIRECTORS 46 DENEL EXECUTIVES 50 HOW WE ARE GOVERNED 54 REMUNERATION REPORT 62 RISK GOVERNANCE 65 STAKEHOLDER ENGAGEMENT 70 SOCIAL RESPONSIBILITY PART FIVE PEOPLE MANAGEMENT 76 CONTRIBUTION TO OUR COMMUNITIES 82 SUPPLY CHAIN MANAGEMENT 86 OCCUPATIONAL HEALTH AND SAFETY 88 ENVIRONMENTAL RESPONSIBILITY PART SIX ENVIRONMENTAL RESPONSIBILITY 92 CONSOLIDATED ANNUAL FINANCIAL STATEMENTS PART SEVEN REPORT OF THE AUDIT AND RISK COMMITTEE 100 INDEPENDENT AUDITORS’ REPORT TO PARLIAMENT 102 STATEMENTS OF RESPONSIBILITY 104 DIRECTORS’ REPORT 105 CONSOLIDATED STATEMENTS OF FINANCIAL POSITION 108 CONSOLIDATED INCOME STATEMENTS AND STATEMENTS OF COMPREHENSIVE INCOME 109 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY 110 CONSOLIDATED STATEMENTS OF CASH FLOWS 111 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 112 INFORMATION PART EIGHT GRI CONTENT INDEX 194 GLOSSARY 198 CORPORATE CONTACT DETAILS 200 DENEL INTEGRATED REPORT 2013/14 03 PART TWO DIRECTORS’ STATEMENTS 04 DENEL INTEGRATED REPORT 2013/14 DIRECTORS’ STATEMENTS PART TWO GROUP OVERVIEW PART ONE DENEL INTEGRATED REPORT 2013/14 05 PART ONE GROUP OVERVIEW THE ROLE WE PLAY MAIN ACTIVITIES, INCLUDING KEY PRODUCTS AND SERVICES Denel’s product offering includes combat turrets, artillery and vehicle systems, missiles, command and control, MRO of aircraft, avionics upgrades, testing of airborne systems, munitions, design and manufacturing of aerostructure components, satellite development, as well as humanitarian services including demining. These solutions are designed to meet unique user requirements and provide full lifecycle support, which reduce the cost of ownership. Denel plays a significant role in industrial development through its active R&D programmes, manufacturing and maintenance activities, infrastructure and strong human capital base. The research, design, development, integration, qualification, certification and industrialisation are done primarily in-house, with significant elements of production outsourced to the broader SA manufacturing and defence industries. 2014 2013 Many innovative applications have been leveraged from the defence technology base, amongst others to improve rail safety, crime prevention, surveillance, protection of assets, mining drill bits and EXPORT REVENUE AS commercial brass strip. Further details of Denel’s activities, products 50% % OF TOTAL 46% and services are provided in the performance review section on pages REVENUE 31 to 43. Denel plays a significant role in 2014 2013 industrial development through Rm Rm % Revenue 4 588 3 918 17 its active R&D programmes, Export revenue 2 275 1 783 28 manufacturing and maintenance EBIT 282 189 49 activities, well-defined infrastructure and strong human capital base. 6 555 EMPLOYEES 2014 2013 2012 3 3 3 B-BBEE LEVEL STATUS The Denel group consists of a number of business units and its organisational structure is provided on page 10. 06 DENEL INTEGRATED REPORT 2013/14 THE ROLE WE PLAY GROUP OVERVIEW PART ONE CONTRIBUTION TO NATIONAL INTERESTS • National security and peacekeeping: - Denel supplies 50% of its annual activities to the local Denel contributes towards SA’s national developmental priorities, defence and security cluster; and such as skills and supplier development, growing the strategic - Contributes to SA’s strategic military independence and technology base and creating skilled jobs that bring downstream defence stature. benefits to the broader society. Specific focus areas in support of • Global competitiveness: national objectives are: - Largest defence company in Africa with global presence; • Industrial development strategy – Industrial Policy Action Plan - Earn foreign currency through export revenue; and (IPAP) and Defence Review: - Positively impacting foreign relations. - R&D investment of R507m during the year; • Employment and skills development – providing quality - Contribution through programmes like Rooivalk in employment opportunities in a high-tech environment, as well peacekeeping initiatives as per recent media reports; as artisan competency development: - Rejuvenating our space capability through the newly- - Spending R64m towards skills development within the formed Spaceteq; and financial year under review; - Advanced high technology manufacturing, for example - Denel, including associated companies, employs 6 555 the contribution to the success of the A400M, the world’s employees; most advanced military airlifter, as mentioned by Airbus - Supports an estimated 20 000 indirect jobs; and Defence and Space during its media conferences in - Schools outreach programme. Seville. • Countertrade and offset - good progress in delivering offset • Commerce and industry – defence and civilian application
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