Annual Report 2016/17 Annual Report 2016/17 GATEWAY TO DEFENCE SOLUTIONS C GATEWAY TO DEFENCE SOLUTIONS D Annual Report 2016/17 WHO WE ARE The Armaments Corporation of South Africa SOC Limited Management Act (Act 1 of 1999), as amended (the PFMA). (Armscor) is established in terms of the Armaments It is further regulated by the Regulations issued in terms Corporation of South Africa Limited Act (Act 51 of 2003), of the PFMA and those of the Companies Act of 2008. as amended (called the Armscor Act). It is therefore a state-owned company (SOC) as contemplated in the The Minister of Defence and Military Veterans is the Companies Act of 2008. Furthermore, it is listed as a executive authority responsible for Armscor. Schedule 2 Public Entity in terms of the Public Finance Armscor’s MISSION is to meet the defence matériel VISION requirements, defence Armcor’s VISION is to technology, research, become the premier development, defence technology analysis, and test and acquisition service MISSION and evaluation provider for the South requirements of African Government and the Department of our allies on the African Defence and other continent and the world. organs of state effectively, efficiently, economically and VALUES holistically. 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 Results Customer Care and Excellence Teamwork Integrity example driven focus respect for others Annual Report 2016/17 i CONTENTS GENERAL FROM OUR OPERATIONAL 01 INFORMATION 02 LEADERSHIP 03 REVIEW 02 Corporate Profile 12 Chairman’s report 22 Acquisition 03 Governance 13 CEO’s report 30 Research and Development 04 Organisational Reporting Structure 43 Armscor Dockyard 05 The Board of Directors 46 Support Functions 08 Executive Management 46 • Quality 47 • Corporate Compliance 54 • Human Resources 59 • Information Technology 60 • Marketing and Business Development ii Annual Report 2016/17 GROUP ANNUAL ACRONYMS AND 04 FINANCIAL 05 ABBREVIATIONS STATEMENTS 78 Report of the Audit and 158 List of acronyms and Risk Committee abbreviations 80 Report of the Auditor- General 84 Director’s approval of the Annual Report 85 Director’s Report 94 Perfomance against Goals 99 Performance against Group Corporate Objectives 109 Group Five-Year Review 110 Group Value-Added Statement 111 Group Financial Results 112 Statements of Financial Position 113 Statement of Comprehensive Income 114 Statements of Changes in Equity 115 Statements of Cash Flows 116 Accounting Policies 127 Notes to the Annual Financial Statements 156 Annexure A: Total value of acquisition activities Annual Report 2016/17 iii Annual Report 2016/17 GENERAL 01 INFORMATION ArmscorAnnual | Annual Report Report 2016/17 2016/17 01 CORPORATE PROFILE WHAT WE DO m) maintain such special capabilities and facilities that are regarded by the Corporation as not The Armscor Act provides that commercially viable, but which may be required by the Department of Defence for security or (1) The Corporation must: strategic reasons. a) acquire such defence matériel on behalf of the Department of Defence as the Department may (2) a). The Corporation may, with the approval of the require; Minister – b) manage such technology projects as may be (i) exploit such commercial opportunities required by the Department of Defence; that may arise from the Corporation’s duty c) establish a programme management system to acquire defence materiel or to manage in support of the acquisition and technology technology projects; projects contemplated in (a) and (b); d) provide for a quality assurance capability in (ii) procure commercial materiel on behalf of any support of – organ of state, at the request of the organ of (i) the acquisition and technology projects state in question, and contemplated in (a) and (b); and (iii) subject to the National Conventional Arms (ii) any other service contemplated in this section Control Act of 2002 (Act 41 of 2002), the required by the Department of Defence; Regulation of Foreign Military Assistance Act, 1998 (Act 15 of 1998), and the Non-Proliferation e) maintain a system for tender and contract of Weapons of Mass Destruction Act, 1993 (Act management regarding defence materiel, and 87 of 1993), perform any function which the if required, in a service level agreement or if Corporation may perform for or on behalf of requested in writing by the Secretary for Defence, the Department of Defence in terms of this Act the procurement of commercial matériel; or on behalf of any sovereign State. f) dispose of defence matériel in consultation with the person who originally manufactured the b) The Minister may impose such conditions in matériel; respect of the performance of a function as may g) establish a compliance administration system be necessary in the national interest. for the Department of Defence as required OUR OBJECTIVES by applicable international law, the National Convention Arms Control Act, 2002 (Act 41 of The objectives of the Corporation are: 2002), and the Non-Proliferation of Weapons of Mass Destruction Act, 1993 (Act 87 of 1993); a) to meet the defence matériel requirements of the h) support and maintain such strategic and essential Department effectively, efficiently and economically; defence industrial capabilities, resources and and technologies as may be identified by the b) to meet the defence technology, research, Department of Defence; development, analysis, test and evaluation i) provide defence operational research; requirements of the Department effectively, j) establish a defence industrial participation efficiently and economically. programme management system; The Corporation must adhere to accepted corporate k) provide marketing support to defence-related governance principles, best business practices and industries in respect of defence matériel, in generally accepted accounting practices within a consultation with the Department of Defence and framework of established norms and standards that the defence-related industries in question; reflect fairness, equity, transparency, economy, efficiency, l) manage facilities identified as strategic by accountability and lawfulness. the Department of Defence in a service level agreement; and Armscor adheres to the principles of good corporate 02 Annual Report 2016/17 GOVERNANCE governance enshrined in the Public Finance lead role in the combined assurance model to coordinate Management Act (Act 1 of 1999) as amended (the the assurance efforts, so as to ensure adequate coverage PFMA). The observance of these principles ensures that of key strategic risks facing the organisation. Armscor maintains the integrity of its operations, thus The objective of the internal auditing function is gaining credibility from and confidence of its important to provide independent, objective assurance and stakeholders. consulting services, designed to add value and improve Good corporate governance and stakeholder confidence the organisation’s operations. It helps the organisation are fundamental elements in determining the nature accomplish its objectives by bringing a systematic and of the relationship between Armscor, its shareholder disciplined approach to evaluating and improving represented by the Minister of Defence and Military the effectiveness of risk management, control and Veterans, the defence industry, and the South African governance processes. In this regard, Internal Audit public as a whole. reports functionally to the Audit and Risk Committee of the Board of Directors, and administratively to the CEO. To ensure proper governance, there are structures that provide the lead and serve as a link between the Board and Management. These structures are the Company Secretariat, Internal Audit and Corporate Compliance. Internal Audit, as a critical pillar of governance, is taking a Annual Report 2016/17 03 ORGANISATIONAL REPORTING STRUCTURE (AS AT 31 MARCH 2017) MINISTER OF DEFENCE AND MILITARY VETERANS ARMSCOR DEPARTMENT OF DEFENCE DEPARTMENT OF MILITARY VETERANS Chairman of Secretary for Chief of the Director - ARMSCOR Defence SANDF General THE BOARD – Appointed by the Minister of Defence and Military Veterans The management and Armscor Board Services and Divisions control resides with the of Directors Divisions Board of Directors, led by a non-executive Chairman and the Deputy. To execute its responsibilities effectively and maintain accountability, the Board established the following CEO committees: • Acquisition Committee • Audit and Risk Committee Company Internal Audit Corporate Strategy and • Technology and Secretariat Business Performance Industry Support Committee EXECUTING FUNCTIONS • Human Resources, Social and Ethics Committee Acquisition Research and Dockyard Development SUPPORT FUNCTIONS Corporate Quality Corporate Human Information Marketing Finance and Compliance Resources Technology & Business Infrastructure Development 04 Annual Report 2016/17 THE BOARD OF DIRECTORS CHAIRMAN OF THE ARMSCOR BOARD VICE ADMIRAL (RET) R 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 also served as Inspector General of the Navy. He served in Umkhonto we Sizwe (MK) High Command until the integration 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