Annual Report 2016/17 - ARMSCOR

1 CAnnual Report 2016 /17 Annual Report 2016 /17 GATEWAY TO DEFENCE SOLUTIONSDA nnual Report 2016 /17 GATEWAY TODEFENCESOLUTIONSiAnnual Report 2016 /17 WHO WE AREThe Armaments Corporation of South Africa SOC Limited ( ARMSCOR ) is 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 of 2008. Furthermore, it is listed as a Schedule 2 Public Entity in terms of the Public Finance 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 s MISSION is to meet the defence mat riel requirements, defence technology, research, development, analysis, and test and evaluation requirements of the Department of Defence and other organs of state effectively, efficiently.

2 Economically and 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:IntegrityManagement 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 of Minister of Defence and Military Veterans is the executive authority responsible for MISSIONVALUESL eading by exampleResults drivenCustomer focusCare and respect for othersExcellenceTeamwork iiAnnual Report 2016 /17 CONTENTS02 Corporate Profile03 Governance 04 Organisational Reporting Structure05 The Board of Directors08 Executive Management12 Chairman s report13 CEO s Report 22 Acquisition 30 Research and Development 43 ARMSCOR Dockyard46 Support Functions46 Quality47

3 Corporate Compliance54 Human Resources 59 Information Technology60 Marketing and Business Development GENERALINFORMATIONFROM OUR LEADERSHIPOPERATIONAL REVIEW010203iiiAnnual Report 2016 /1778 Report of the Audit and Risk Committee80 Report of the Auditor-General84 Director s approval of the Annual Report85 Director s Report94 Perfomance against Goals99 Performance against Group Corporate Objectives109 Group Five-Year Review110 Group Value-Added Statement111 Group Financial Results112 Statements of Financial Position113 Statement of Comprehensive Income114 Statements of Changes in Equity115 Statements of Cash Flows116 Accounting Policies127 Notes to the Annual Financial Statements156 Annexure A: Total value of acquisition activities 158 List of acronyms and abbreviationsGROUP Annual FINANCIAL STATEMENTSACRONYMS AND ABBREVIATIONS0405 Annual Report 2016 /17 Annual Report 2016 /1701 GENERAL INFORMATION01 ARMSCOR | Annual Report 2016 /1702 Annual Report 2016 /17 CORPORATE PROFILEWHAT WE DO The ARMSCOR Act provides that (1) The Corporation must: a) acquire such defence mat riel on behalf of the Department of Defence as the Department may require.

4 B) manage such technology projects as may be required by the Department of Defence; c) establish a programme management system in support of the acquisition and technology projects contemplated in (a) and (b);d) provide for a quality assurance capability in support of (i) the acquisition and technology projects contemplated in (a) and (b); and (ii) any other service contemplated in this section required by the Department of Defence; e) maintain a system for tender and contract management regarding defence materiel, and if required, in a service level agreement or if requested in writing by the Secretary for Defence, the procurement of commercial mat riel; f ) dispose of defence mat riel in consultation with the person who originally manufactured the mat riel.

5 G) establish a compliance administration system for the Department of Defence as required by applicable international law, the National Convention Arms Control Act, 2002 (Act 41 of 2002), and the Non-Proliferation of Weapons of Mass Destruction Act, 1993 (Act 87 of 1993); h) support and maintain such strategic and essential defence industrial capabilities, resources and technologies as may be identified by the Department of Defence;i) provide defence operational research; j) establish a defence industrial participation programme management system; k) provide marketing support to defence-related industries in respect of defence mat riel, in consultation with the Department of Defence and the defence-related industries in question; l) manage facilities identified as strategic by the Department of Defence in a service level agreement.

6 And m) maintain such special capabilities and facilities that are regarded by the Corporation as not commercially viable, but which may be required by the Department of Defence for security or strategic reasons. (2) a). The Corporation may, with the approval of the Minister (i) exploit such commercial opportunities that may arise from the Corporation s duty to acquire defence materiel or to manage technology projects;(ii) procure commercial materiel on behalf of any organ of state, at the request of the organ of state in question, and(iii) subject to the National Conventional Arms Control Act of 2002 (Act 41 of 2002), the Regulation of Foreign Military Assistance Act, 1998 (Act 15 of 1998), and the Non-Proliferation of Weapons of Mass Destruction Act, 1993 (Act 87 of 1993), perform any function which the Corporation may perform for or on behalf of the Department of Defence in terms of this Act or on behalf of any sovereign )

7 The Minister may impose such conditions in respect of the performance of a function as may be necessary in the national OBJECTIVES The objectives of the Corporation are: a) to meet the defence mat riel requirements of the Department effectively, efficiently and economically; andb) to meet the defence technology, research, development, analysis, test and evaluation requirements of the Department effectively, efficiently and 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.

8 ARMSCOR adheres to the principles of good corporate 03 Annual Report 2016 /17 GOVERNANCE governance enshrined in the Public Finance Management Act (Act 1 of 1999) as amended (the PFMA). The observance of these principles ensures that ARMSCOR maintains the integrity of its operations, thus gaining credibility from and confidence of its important stakeholders. Good corporate governance and stakeholder confidence are fundamental elements in determining the nature of the relationship between ARMSCOR , its shareholder represented by the Minister of Defence and Military Veterans, the defence industry, and the South African public as a ensure proper governance, there are structures that provide the lead and serve as a link between the Board and Management.

9 These structures are the Company Secretariat, Internal Audit and Corporate Audit, as a critical pillar of governance, is taking a lead role in the combined assurance model to coordinate the assurance efforts, so as to ensure adequate coverage of key strategic risks facing the objective of the internal auditing function is to provide independent, objective assurance and consulting services, designed to add value and improve the organisation s operations. It helps the organisation accomplish its objectives by bringing a systematic and disciplined approach to evaluating and improving the effectiveness of risk management, control and governance processes.

10 In this regard, Internal Audit reports functionally to the Audit and Risk Committee of the Board of Directors, and administratively to the CEO. 04 Annual Report 2016 /17 CEOI nternal Audit Corporate Strategy and Business PerformanceCompany SecretariatServices and DivisionsDivisionsSecretary for DefenceDEPARTMENT OF DEFENCEC hief of the SANDFC orporate Financ