ARMSCOR ANNUAL REPORT 2019/20 1 2 ARMSCOR ANNUAL REPORT 2019/20 CONTENTS SECTION 1: SECTION 2: WHO WE ARE PERFORMANCE INFORMATION 1.1 Company Details 9 2.1 Performance against Predetermined Objectives 41 1.2 Chairperson’s Report 10 2.2 Operating Functions 55 1.3 Chief Executive Officer’s Report 12 2.2.1 Acquisition 56 1.4 Statement of Responsibility and 2.2.2 Research and Development 66 Confirmation of the Accuracy of the 2.2.3 Armscor Dockyard 77 Annual Report 18 2.3 Support Functions 83 1.5 Strategic Overview 19 2.3.1 Business Assurance 84 1.6 Organisational Structure 28 2.3.2 Business Enablement 97 1.7 Board Members 29 2.3.3 Corporate Support 101 1.8 Executive Management 35 SECTION 4: SECTION 3: CORPORATE GOVERNANCE HUMAN CAPITAL MANAGEMENT 4.1 Directors Report 113 3.1 Human Capital Management 105 4.1.1 Corporate Governance 114 4.1.2 Board of Directors 116 4.1.3 Board Committees 121 4.1.4 Financial Reporting 126 4.1.5 Litigation 126 4.2 Audit and Risk Committee 128 4.2.1 Governance of Risk 128 05 4.2.2 Internal Control Environment 128 SECTION 5: 4.2.3 Annual Financial Statements 129 ANNUAL FINANCIAL REPORT 4.2.4 Quarterly Reporting 129 4.2.5 Internal Audit 130 5.1 Annual Financial Report 133 4.2.6 External Audit 130 4.2.7 Finance Function 130 4.2.8 Integrated Reporting 131 4.2.9 Combined Assurance 131 SECTION 6: ACRONYMS AND ABBREVIATIONS 6.1 List of Acronyms and Abbreviations 219 ARMSCOR ANNUAL REPORT 2019/20 3 WHAT ARMSCOR HAS ACHIEVED IN THE PAST TWENTY FIVE YEARS OF DEMOCRACY…. 1968 Good Corporate Governance Armscor has applied the principles of good corporate governance across every single facet of it’s operations. 1992 Historical background As the nation celebrates twenty five years of freedom, Armscor has found it appropriate to reflect on what it has gone through, as a Corporation, over the same period. Up until 1992 Armscor fulfilled the roles of matériel acquisition for the Department of Defence (DOD) as well as the manufacturing of armaments. In 1992 the Corporation split into two and this resulted in the birth of Denel as a manufacturing company, and Armscor fulfilling the function of matériel acquisition for the DOD. 1994 Armscor Human Resources transformation and development Armscor has also made progress in transforming itself towards having a workforce that reflects the country’s demographic profile. Armscor also initiated a Talent Development Programme to provide on-the-job training with mentorship to inexperienced, largely black, technical gradutes. At the end of the learning contract, depending on the availability of posts, the said trainees are given permanent employment. Armscor offers bursaries as a feeder to the Talent Development Programme. 1998 Strategic Defence Packages One of the highlights for Armscor was the major acquisition initiative associated with the Strategic Defence Packages, which were approved by cabinet in 1998. 4 ARMSCOR ANNUAL REPORT 2019/20 1999 Defence Industrial Participation Armscor assumed responsibility for managing and monitoring the Defence Industrial Participation (DIP) Programme on behalf of the DOD. DIP is a government initiated mechanism whereby defence purchases are used as leverage to oblige a foreign seller of defence commodities/services to do defence-related business in South Africa on a reciprocal basis in order to advance military strategic and defence-related industrial imperatives. 2000 Africa Aerospace and Defence Exhibition Armscor is honoured to be a partner of Africa Aerospace and Defence (AAD) Exhibition. 2002 Corporate Social Investment Armscor actively supports the upliftment of the communities in which it operates through education and socio-eonomic development programmes. Investment in education focuses on improving results in Science, Technology, Engineering and Mathematics (STEM) subjects to encourage the growth of Engineers and Scientists. 2004 Armscor Act With the changes that Armscor had been going through it became necessary to review the legislation that regulates how Armscor operates. Accordingly a process was initiated to draw up a new Armscor Act that would reflect the Corporation’s new role. The new Act was assented to and signed by the State President on 20 April 2004. 2007 Armsor Dockyard Ministerial Authority was granted by the Minister of Defence and Military Veterans for the formal transfer of the Simon’s Town Naval Dockyard from the DOD to Armscor. ARMSCOR ANNUAL REPORT 2019/20 5 2012 National Development Plan, Vision 2030 Armscor is, as all public entities, directing its planning towards the National Development Plan (NDP), Vision 2030. The Corporation supports Government’s goals, as expressed in the NDP, Vision 2030. 2015 Military Veterans Armscor continues to collaborate with, and enhance its relationship with the Department of Defence and Military Veterans, a newly designated group in the Enterprise Supplier Development, with revised B-BBEE Codes of Good Practice. Armscor supported the launch of the Women Military Veterans Association (WOMVASA). 2015 SA Defence Review The Defence Review maps the way for the defence environment in which Armscor is called upon to play its part in support of the mandate of the SANDF. This mandate of the SANDF is to defend and protect South Africa, to safeguard its borders and infrastructure, to promote peace and security in Africa, and to perform developmental and other tasks assigned to it. Armscor intends to play a supportive role with patriotism, diligence and enthusiasm. 2016 National Defence Industry Council National Defence Industry Council (NDIC) was established as a significant policy making and coordination tool for the defence industry. Armscor forms part of the NDIC. 2018 Armscor ISO 9001:2015 Certification Armscor has maintained its certification under ISO 9001:2015. 2018 National Defence Industry Strategy Armscor has provided support to the development of the National Defence Industry Strategy and will continue to do so in the year ahead as the implementation framework unfolds. 6 ARMSCOR ANNUAL REPORT 2019/20 2018 Development of the Defence Industry Fund The Defence Sector Charter performs optimally if funding can be made available to the new entrants into the industry. It is envisaged that, through the Defence Industry Fund (DIF) [which was part formed by Armscor and the DOD], the local SMMEs in the defence industry will be able to compete in the global defence market; it will also help with the transformation of the industry by introducing new entrants into the industry, while ensuring security of supply of strategic and sovereign capabilities to the SANDF. 2019 Public - Private Growth Initiative The Department of Planning, Monitoring and Evaluatation identified twenty sectors of the economy for the Public - Private Growth Initiative (PPGI). Armscor as part of the Defence Sector participated in the PPGI initiative. 2019 Defence Sector Charter Spearheading the process of the development of the Defence Sector Charter, with NDIC partners, which was gazetted by the Minister of Trade and Industry. This provides a regulated way of transforming the defence industry and bringing in new entrants in support of the national imperatives. ARMSCOR ANNUAL REPORT 2019/20 7 SECTION: WHO WE ARE 8 ARMSCOR ANNUAL REPORT 2019/20 1.1 COMPANY DETAILS Registered Name : Armaments Corporation of South Africa SOC Limited Physical Address : Corner of Delmas Drive and Nossob Street, Erasmuskloof Extension 4, Pretoria Postal Address : Private Bag X377 Pretoria 0001, South Africa Contact Telephone Numbers : 012 428 1911 Email Address: [email protected] Website Address : www.armscor.co.za External Auditor : Auditor-General of South Africa Banker : ABSA Company Secretary : Ms FM Kumalo ARMSCOR ANNUAL REPORT 2019/20 9 1.2 CHAIRPERSON’S REPORT In the last annual report we bid farewell and paid tribute to the outstanding contributions made by Mr Kevin Wakeford. The Board had since appointed Advocate Solomzi Phineas Mbada as the new Chief Executive Officer of Armscor with effect from 1 February 2020. The benefits of appointing an internal successor of Solomzi’s calibre is that he brings with him 11 years of experience as an executive within Armscor and a wealth of experience from other companies that he will utilise in his new position. Solomzi is supported by a strong and committed leadership team. The Board congratulates Solomzi on his appointment and will provide their full support and guidance required. It has not only been a challenging financial year for Armscor, but for the South African Defence Industry (SADI) as well. Contrary to global trends and well below Mr MS Motimele the funding levels recommended by the 2015 Defence Review, our country’s ACTING CHAIRPERSON defence expenditure declined by 1,5 percent in 2019, a fourth consecutive year of decrease. This had led to the significant decrease of the Special Defence Account (SDA), which meant that the Department of Defence (DOD), as our client, had less funding for existing projects and even lesser for new projects. Our financial well-being was negatively impacted by the prevailing fiscal constraints and we logically looked elsewhere for revenue generating projects. In this regard we had initiated the process of positioning Armscor as the primary procurement agency for the South African Government’s security cluster; sweating our own assets; sourcing contracts from foreign governments through government to government contracting and through Intellectual Property exploitation. I must admit that these initiatives are taking longer than expected to produce the results we sought as Armscor. We will however continue to strengthen our efforts and focus on these vital initiatives. The declining SDA will in the next financial year decrease our workload from the client and affect our critical competences and expertise to maintain strategic and sovereign capabilities. The SADI has suffered loss of development expertise and competitive edge as a result of under utilisation and no new or modernised products to market.