Twenty 16/17 Twenty Integrated Report

Twenty 16/17 Twenty Integrated Report

Defence Innovation Redefined! Defence Innovation TWENTY 16/17 INTEGRATED REPORT ABOUT THIS REPORT REPORTING SCOPE AND BOUNDARY This report provides information on Denel SOC Ltd's strategy and business model, financial information, operations and its ability to create value for the period 1 April 2016 to 31 March 2017. Financial information includes information regarding associated companies. All significant items are reported on a comparative basis. ASSURANCE Financial information The financial information in this report has been prepared in accordance with International Financial Reporting Standards (IFRS) and has been independently audited by Denel’s external auditors, SizweNtsalubaGobodo Incorporated. The report of the external auditors on our consolidated annual financial statements has been included on pages 110 to 114. Non-financial information The South African Companies Act no. 71 of 2008 (Companies Act), the King Code of Governance Principles and the King Report on Governance in South Africa 2009 (King III), Global Reporting Initiative (GRI) G4 guidelines and the International Integrated Reporting Council’s (IIRC’s) Integrated Reporting (IR) Framework have been considered in providing non-financial information. Non-financial information presented in the report relates to Denel, its operating business entities, subsidiaries and associated companies, unless otherwise stated. Financial information includes information regarding associated companies. Most of the non-financial information presented in this integrated report was assured by a number of service providers through various processes, i.e. Broad-based black economic empowerment (B-BBEE) verification, International Standards Organisation (ISO) certification, organisational climate assessment, etc. REPORT CONTENT This report outlines the group’s outlook and further aims to highlight opportunities and challenges, as well as planned actions to address these. 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 are reflected in the financial and economic decisions made by the group. Denel actively identifies material matters through engagements with 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. APPROVAL OF THE REPORT The Denel board, supported by the audit and risk committee, has taken an overall responsibility and accountability for this report. The board confirms that it has collectively reviewed the report’s content and has concluded that the integrated report has been presented in accordance with the IR Framework. The board believes that this report is a balanced and appropriate presentation of the profile and performance of Denel. The board approved this report on 27 July 2017. Lugisani Daniel Mantsha Mpho Kgomongoe Chairman Acting Audit and Risk committee Chairperson TWENTY 16/17 INTEGRATED REPORT INTEGRATED SEA LAND AIR CYBER SPACE TWENTY 16/17 INTEGRATED REPORT CONTENTS PART WHO WE ARE 05 Vision and values 06 Performance indicators 07 1 What we do 08 Organisational structure 09 Our global presence 10 Chairman’s report 12 PART CREATING VALUE FOR OUR STAKEHOLDERS 17 Business model 18 Stakeholder engagement 20 2 Human capital 24 Social capital 38 Environmental capital 41 Intellectual capital 46 Financial capital 48 PART STRATEGY AND OPERATING CONTEXT 51 External environment 52 Strategy 53 3 Material issues 54 Risk management 56 PART PERFORMANCE REVIEW 61 Group Chief Executive Officer's report 62 Operational review 66 4 Financial performance 75 Shareholder's Compact 80 This integrated report is available on Denel’s website www.denel.co.za PART HOW WE ARE GOVERNED 83 Corporate governance 84 5 Remuneration report 103 CONSOLIDATED ANNUAL PART FINANCIAL STATEMENTS 107 Report of the audit and risk committee 108 Independent auditors’ report to Parliament 110 6 Statements of responsibility 115 Directors’ report 116 Consolidated statements of financial position 120 Consolidated income statements and statements of comprehensive income 121 Consolidated statements of changes in equity 122 Consolidated statements of cash flows 123 Notes to the consolidated annual financial statements 124 PART INFORMATION SERVICE 205 GRI content index 206 Glossary 210 7 Corporate contact details 212 A list of abbreviations and acronyms is provided on pages 210 to 211. PART 1 WHO WE ARE 1 WHO WE ARE VISION The state-owned credible South African strategic partner for innovative defence, security and related technology solutions VALUES Performance Integrity Innovation Caring Accountability We We are We create We care We take embrace honest, sustainable, for people, responsibility operational truthful and innovative customers, for our excellence ethical solutions communities actions and the environment DENEL GROUP INTEGRATED REPORT DENEL GROUP INTEGRATED TWENTY 16/17 06 PERFORMANCE INDICATORS Revenue Borrowings R8bn Cash R3 265m 2016 | R8.2bn R2 021m 2016 | R3 717m 2016 | R2 003m Debt to equity 1.2:1 R&D Net profit 2016 | 1.6:1 R609m R333m 2016 | R550m 2016 | R395m O N O M E C I C T R BEE A N Level 4 2016 | Level 5 S L F O A I R Employee C M numbers A O T S 4 941 I O 2016 | 5 114 N B-BBEE Corporate Level 4 social investment 2016 | Level 5 R7.2m 2016 | R7.6m Female Black-owned * appointments spend ACI * 51% R816m appointments 2016 | 35% 2016 | R873m Skills development 84% 2016 | 83% R68m 2016 | R65m PERFORMANCE INDICATORS * ”Black”/ACI means African, Coloured or Indian persons as defined by the B-BBEE Act. 07 1 PART 1 WHO WE ARE WHO WE ARE ONE DENEL. ONE VISION. ONE PURPOSE! Denel is a state-owned commercially-driven company and a strategic partner for innovative defence, security, aerospace and related technology solutions. Denel provides turnkey solutions of defence equipment to its clients by designing, developing, integrating and supporting artillery, munitions, missiles, aerostructures, aircraft maintenance, unmanned aerial vehicle systems and optical payloads based on high-end technology. Our business capabilities are as follows: • Design and manufacture of automatic grenade launchers AEROSPACE • Design and manufacture of vehicle turrets • Aircraft MRO • Design and manufacture of surface-to-air missiles • Aircraft OEM and upgrade solutions • Design and manufacture of active missile protection, • Design and manufacture of aerostructure components air defence systems and anti-armour missiles • Design and manufacture of air-to-air, air-to-surface and air defence missiles NAVAL • Design and manufacture of gas turbine engines for • Design and manufacture of: small and medium helicopters as well as turbo-shaft » 20mm guns engines through Turbomeca Africa (Pty) Ltd 1 » Ammunition • Manufacturer of aircraft bombs » DPS-35 guns • Manufacturer of ejection cartridges » Periscope through Hensoldt Optronics (Pty) • Conduct in-flight testing Ltd 1 and 2 • Manufacturer of precision-guided weapons » Umkhonto missiles • Development and manufacture of satellites • Manufacture of UAVS SECURITY AND BORDER CONTROL • Manufacture of warheads • Design and manufacture of: • Manufacturer of stabilised gimbals through Hensoldt » Ammunition Optronics (Pty) Ltd 1 and 2 » Light weapons » MEDDS ARTILLERY » Demining • Design and manufacture of: » Seeker UAVS (200 and 400 variants) » 105mm LEO guns » Surveillance equipment » 155mm G5 towed gun-howitsers » Risk control and police patrol vehicles » 155 G6 self-propelled gun-howitsers » Propellant charges TRAINING AND OTHER » Laser rangefinders • Artisan qualification • Commercial brass strip INFANTRY • Energetic material • Design, manufacture and support of armoured combat • Engineering training and other vehicles • Rocket motors through Rheinmetall Denel Munition • Land systems equipment and systems integrator (Pty) Ltd 1 • Manufacture of ammunition, machine guns, anti- • Humanitarian services including demining materiel rifles and laser rangefinders • Mine clearance training • Manufacturing of mining drill bits DENEL GROUP INTEGRATED REPORT DENEL GROUP INTEGRATED TWENTY 16/17 A list of abbreviations and acronyms is provided on pages 210 to 211. 1. Associated companies. Refer page 09. 2. Refer footnote 2, page 201. 08 ORGANISATIONAL STRUCTURE SA GOVERNMENT MINISTER OF PUBLIC ENTERPRISES MINISTER OF DENEL BOARD OF DEFENCE AND OTHER DIRECTORS MILITARY VETERANS MINISTERS Department 1 Chief: SA DENEL SOC LTD of Defence ARMSCOR National (Secretary of (Procurement) Defence Force Defence) ASSOCIATED BUSINESS ENTITIES COMPANIES DENEL HENSOLDT DENEL DENEL LAND DENEL VEHICLE DENEL AVIATION AEROSTRUCTURES OPTRONICS DYNAMICS SYSTEMS SYSTEMS (PTY) LTD SOC LTD (PTY) LTD (30%) 2 DENEL PIONEER LAND Aviation Missiles Combat Systems Denel Gear Ratio OVERBERG TEST SYSTEMS LLC RANGE (49%) RHEINMETALL DENEL Denel Technical Denel LMT HOLDINGS Spaceteq Mechem MUNITION (PTY) LTD Academy Mechatronics SOC LTD (RF) (51%) (49%) TAWAZUN UAVS Denel OMC DYNAMICS LLC (49%) TURBOMECA AFRICA (PTY) LTD (49%) DENEL INTEGRATED PRETORIA METAL DENEL ASIA SUPPORTING SYSTEMS AND PRESSINGS LLC (51%) BUSINESSES MARITIME 3 DENEL INDUSTRIAL PROPERTIES DENSECURE

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