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Annual Report OUR VISION AND MISSION WHO WE ARE The Armaments Corporation of South Africa SOC Limited (Armscor) was established in terms of the Armaments Corporation of South Africa, Limited Act (Act 51 of 2003), as amended (called the Armscor Act). It is therefore a state-owned company (SOC) as contemplated in the Companies Act, 2008. Furthermore, it is listed as a schedule 2 Public Entity in terms of the Public Finance Management Act (Act 1 of 1999), as amended (the PFMA). It is further regulated by the Regulations issued in terms of the PFMA and those of the Companies Act, 2008. The Minister of Defence and Military Veterans is the executive authority responsible for Armscor. VISION Armcor’s vision is to become the premier defence technology and acquisition service provider for the South African Government and our allies on the African continent and the world. MISSION Armscor’s mission is to meet the defence matériel requirements, defence technology, research, development, analysis, test and evaluation requirements of the Department of Defence and other organs of state effectively, efficiently, economically and holistically. VALUES Armscor’s values are the building blocks of the manner in which it conducts its business. Armscor believes in the highest standards and is committed to transformation, transparency and accountability. We, members of Armscor, pledge commitment to the following values: • Leading by example • Results driven • Customer focus • Care and respect for others • Excellence • Teamwork • Integrity OUR OBJECTIVES The objectives of the Corporation are: a. to meet the defence matériel requirements of the Department effectively, efficiently and economically; and b. to meet the defence technology, research, development, analysis, test and evaluation requirements of the Department effectively, efficiently and economically. The Corporation must adhere to accepted corporate governance principles, best business practices and generally accepted accounting practices within a framework of established norms and standards that reflect fairness, equity, transparency, economy, efficiency, accountability and lawfulness. ARMSCOR ANNUAL REPORT 2015 | 2016 1 CONTENTS CORPORATE 01 PROFILE Highlights 03 Corporate Profile 06 Governance 06 Organisational Reporting Structure 07 The Board of Directors 08 Executive Management 11 FROM OUR LEADERSHIP 02 Chairman’s report 16 CEO’s report 18 OPERATIONAL REVIEWS 03 Acquisition 28 Research and Development 34 Armscor Dockyard 42 Support Functions: - Quality 44 - Corporate Compliance 45 - Human Resources 48 - Information Technology 54 - Marketing and Business Development 56 - AB Logistics 64 GROUP ANNUAL FINANCIAL 04 STATEMENTS Report of the Audit and Risk Committee 66 Report of the Auditor-General 67 Directors’ Approval of the Annual Report 69 Directors’ Report 70 Performance Against Goals 75 Armscor Strategic Objectives 79 Group Four-Year Review 88 Group Value-Added Statement 89 Group Financial Results 90 Statements of Financial Position 91 Statements of Changes in Equity 93 Statements of Cash Flows 94 Accounting Policies 95 Notes to the Annual Financial Statements 104 ACRONYMS AND ABBREVIATIONS 05 List of acronyms and abbreviations 137 2 ARMSCOR ANNUAL REPORT 2015 | 2016 HIGHLIGHTS Received a clean audit with no qualification from the Auditor-General. Armscor maintained a level 2 B-BBEE status. Armscor has set aside R350 000 to support Military Veterans. The Group reflects a surplus of R200,1 million compared to R84,2 million in the previous financial year. ARMSCOR ANNUAL REPORT 2015 | 2016 3 4 ARMSCOR ANNUAL REPORT 2015 | 2016 CORPORATE PROFILE 01 ARMSCOR ANNUAL REPORT 2015 | 2016 5 01 CORPORATE PROFILE WHAT WE DO b. procure commercial matériel on behalf of any organ of state at the request of the organ of state in question; The Armscor Act provides that – and (1) The Corporation must: c. subject to the National Conventional Arms Control a. acquire such defence matériel on behalf of the Act, 2002 (Act 41 of 2002), the Regulation of Foreign Department of Defence as the Department may Military Assistance Act, 1998 (Act 15 of 1998), and require; the Non-Proliferation of Weapons of Mass Destruction b. manage such technology projects as may be required Act, 1993 (Act 87 of 1993), perform any function by the Department of Defence; which the Corporation may perform for or on behalf c. establish a programme management system in of the Department of Defence in terms of this Act or support of the acquisition and technology projects on behalf of any sovereign State. contemplated in paragraphs (a) and (b); d. provide for a quality assurance capability in support (3) The Minister may: of – a. impose such conditions in respect of the performance I. the acquisition and technology projects of a function as may be necessary in the national contemplated in paragraphs (a) and (b); interest. and II. any other service contemplated in this section required by the Department of GOVERNANCE Defence; Armscor adheres to the principles of good corporate e. maintain a system for tender and contract governance enshrined in the Public Finance Management management in respect of defence matériel and, if Act (Act 1 of 1999) as amended (the PFMA). The required in a service level agreement or if requested in observance of these principles ensures that Armscor writing by the Secretary for Defence, the procurement maintains the integrity of its operations, thus credibility of commercial matériel; is gained from its important stakeholders and their f. dispose of defence matériel in consultation with the confidence. person who originally manufactured the matériel; g. establish a compliance administration system for the Good corporate governance and stakeholder confidence Department of Defence as required by applicable are fundamental elements in determining the nature international law, the National Convention Arms of the relationship between Armscor, its shareholder Control Act, 2002 (Act 41 of 2002), and the (represented by the Minister of Defence and Military Non-Proliferation of Weapons of Mass Destruction Veterans), the defence industry, and the South African Act, 1993 (Act 87 of 1993); public as a whole. h. support and maintain such strategic and essential defence industrial capabilities, resources and To ensure proper governance, there are structures technologies as may be identified by the Department that provide the lead and serve as a link between the of Defence; Board and Management. These structures are Company i. provide defence operational research; Secretariat, Internal Audit and Corporate Compliance. j. establish a defence industrial participation programme management system; Internal Audit as a critical pillar of governance is taking a k. provide marketing support to defence-related lead role in the combined assurance model to coordinate industries in respect of defence matériel, in the assurance efforts and guarantee adequate coverage consultation with the Department of Defence and the of key strategic risks facing the organisation. defence-related industries in question; l. manage facilities identified as strategic by the The objective of the internal auditing function is to provide Department of Defence in a service level agreement; independent, objective assurance and consulting services and designed to add value and improve the organisation’s m. maintain such special capabilities and facilities as are operations. It helps the organisation accomplish its regarded by the Corporation not to be commercially objectives by bringing a systematic and disciplined viable, but which may be required by the Department approach to evaluate and improve the effectiveness of of Defence for security or strategic reasons. risk management, control and governance processes. In this regard, Internal Audit reports functionally to the (2) The Corporation may, with the approval of the Audit and Risk Committee of the Board of Directors and Minister: administratively to the CEO. a. exploit such commercial opportunities as may arise out of the Corporation’s duty to acquire defence matériel or to manage technology projects; 6 ARMSCOR ANNUAL REPORT 2015 | 2016 THE BOARD - Appointed by the Minister of Defence and Military Veterans. The management and control resides with the Board of Directors, led by a non-executive Chairman and the Deputy. To execute its responsibilities effectively and maintain accountability, the Board established a number of committees: • Acquisition Committee • Audit and Risk Committee • Technology and Industry Support Committee • Human Resources, Social and Ethics Committee ARMSCOR ANNUAL REPORT 2015 | 2016 7 THE BOARD OF DIRECTORS CHAIRMAN OF THE ARMSCOR BOARD | VICE ADMIRAL (RET) J MUDIMU Vice Admiral Mudimu is a former Chief of the South African Navy. Prior to this he was the Chief of Naval Staff and he has also served as an Inspector General of the Navy. He served in Umkhonto we Sizwe (MK) High Command until intergration of the armed forces to form the South African National Defence Force (SANDF). He was appointed MK Chief of Staff Personnel and Training and was later made Director – Integration of the Non-Statutory Forces. He holds a Master’s Degree in Military Science, Honours Degree in Public Management and Governance, Associate Degree in Safety and Security, Executive Course in Defence Development, Diploma in Human Resource Management, Diploma in Personnel and Training, and a Certificate in Journalism. He also received the singular honour of being conferred with a Doctorate of Technology in Applied Sciences (honoris
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