Governance and remuneration

“The Company’s governance framework and operating model provide the environment necessary to achieve the governance outcomes of an ethical culture, good performance, effective control and legitimacy.”

Deon Botha Acting Chairman

Governance

Executive summary

As a State-owned company with a mandate from government to contribute to economic growth and development in South Africa, Airports Company South Africa acknowledges its responsibility for good corporate governance, including the effective implementation of King IV throughout our organisation. We consider our Company to be one of the better run State-owned enterprises, but realise that there is a constant need for improvement. We have worked extensively to fulfil our commitment to ethical conduct and leadership as a responsible corporate citizen.

Improving irregular expenditure management is a priority and strengthening our alignment to the irregular expenditure guidelines as published by National Treasury. Moreover, we are improving our compliance systems to ensure early identification of potential irregular expenditure and to initiate the appropriate treatment thereof, whether condonations or otherwise.

As part of our process of adopting King IV, we are focusing on ensuring that all King IV disclosure requirements are addressed in our suite of reports. As explained below, we have provided disclosure within this integrated report and in the supplementary board CVs report available online at www.airports.co.za.

As our governance processes evolve, we will continue to provide concise and transparent disclosure of all areas of governance to demonstrate the re-alignment of our governance framework and operating model to achieve the governance outcomes of an ethical culture, good performance, effective control and legitimacy.

Effective and ethical leadership

The board takes responsibility for ensuring that management actively cultivates a culture of ethical conduct to which the Company will adhere. This is attained by delegating oversight of the management of the organisation’s ethics to the social and ethics committee, which ensures that management is held accountable for the organisation’s ethical performance.

ETHICS TRAINING

(NUMBERS TRAINED)

Ethics in action

The ethics pledge was finalised during the year and signed by members of the board on 5 December 2017. The pledge commits the board to ethical practices, individually and collectively, and to lead the organisation ethically and effectively as stipulated in King IV. A copy of our pledge, ethics policy and values can be found on our website at
www.airports.co.za. During our annual ethics awareness training, we ensured that our employees acknowledged receipt of the manual code of ethics and read it to re-affirm their commitment to ethical practices. To date, 1 979 copies of the code of ethics have been issued to employees and other stakeholders.

Our code of ethics is unchanged and outlines standards of conduct expected of Directors, managers, employees, service providers, suppliers and trading partners. Training was conducted throughout the Company, including our code of ethics, gift policy, conflict of interest policy, anti-corruption management plan and whistleblowing policy. We trained 1 979 employees (2017: 1 673) and 22 external partners on our ethics policies and code of ethics.

The Company’s whistleblowing policy is in effect, and the Company provides employees with various avenues, such as an anti-corruption hotline, walk-in reporting, direct calls through the ethics office or internal audit and direct reporting to management, to report unethical or irregular conduct. On average, 50 reports are received through the anti‑corruption hotline monthly. The anti-corruption hotline is independently administered by an external company which submits reports daily for investigation.

When a report is received, a preliminary investigation is conducted to establish whether there is a prima facie case. Thereafter, further investigation is conducted with appropriate recommendations should a more detailed investigation be warranted. Alternatively, appropriate action is taken where necessary, including referrals to external law enforcement agencies.

We appointed ethics champions at all our airports and report on anti-corruption measures and investigative processes in our newsletter to employees to foster a culture of honesty, where employees are encouraged to report unethical behaviour confidentially.

The Company intends to implement a Chief Executive Officer Ethics Award to recognise and reward ethical conduct within Airports Company South Africa. The award will be implemented across our airports.

As illustrated, we focused strongly on ethics during the year and intend to continue strengthening our ethical conduct. A measure of our success will be a reduction in the number of litigations brought against the Company.

Hotline number 0800 00 80 80; acsa@thehotline.co.za; or www.thehotline.co.za

Anti-corruption hotline

REPORTED CASES

Responsible corporate citizenship

Airports Company South Africa is committed to its role in supporting economic growth and development, and contributing to meaningful transformation in South Africa. Our social and ethics committee is mandated to oversee the fulfilment of this role. The committee reports quarterly to ensure regular oversight of outcomes related to:

Our focus areas during the year included obtaining an independent assessment of the Company’s social contribution, which is reflected in the value creation model. We are proud to be a net contributor of value in South Africa. In the remuneration report we have included information on the focus of our remuneration policies and practices on fair remuneration and additional assistance to employees. This includes a bursary scheme for employees’ children (73 awarded in 2018) and our contribution to reducing the significant remuneration gaps that exist in South Africa.

In addition to our focus on fair reward for our employees, we consider the workplace safety of our employees and contractors, who are an important extension of our human resources. We experienced zero fatalities of employees or contractors at our workplaces during the period from 2016 to 2018, and zero severe injuries or illnesses in 2018.

Total severe injuries/illnesses 2018 2017 2016
Employees 0 8 9
Contractors 0 8 6

Value creation and reporting

We continuously strive to improve our reporting through disclosure and alignment to relevant reporting frameworks and best practice. We seek to provide investors and other stakeholders with relevant and material information. About our integrated report sets out information regarding our reporting suite and how we ensure the integrity of each report through our assurance approach.

Our integrated reporting process has matured over the past five years to include quarterly integrated reports presented to the board by our Chief Executive Officer. The rationale is to entrench and embed managing, measuring and reporting on the Company’s business, people and society and environmental impacts and outcomes, in line with the Sustainability Framework within our strategy.

Governance structure

Board composition, structure and report-back

The board of directors is appointed by the Minister of Transport and the Public Investment Corporation to represent the government’s shareholding in Airports Company South Africa. The board is responsible for strategic direction and ultimate control of Airports Company South Africa. The Executive Committee, under the leadership of the Chief Executive Officer, is responsible for the day-to-day management and operations of the Company and implementation of the strategy. A key priority of the board is ensuring that our board and Executive team have the right combination of skills, abilities and independence to implement our strategy. Effective implementation of our strategy requires that they interrogate issues, conduct robust discussions and offer insights into all areas of our operations, including transformation and business evolution.

During the year under review, the then Minister of Transport reinstated Directors Kate Matlou, Bajabulile Luthuli, Kenosi Moroka and Chwayita Mabude on 31 May 2017. At the AGM on 15 September 2017 these Directors, with the exception of Kate Matlou, were not re-appointed as their terms came to end.

Subsequent to the year-end, the Minister of Transport informed the board in April 2018 that he would make appointments to fill vacancies on the board. For additional information, refer to the Message from the Acting Chairman.

Airports Company South Africa has a governance framework and operating model that sets out the governance structures over operational functional areas and the interaction of these mechanisms to ensure effective governance.

The board remains effective and responsible for the overall leadership, transparency and performance of Airports Company South Africa. The board operates under an approved charter, and ensures that financial and risk management and internal controls are effective, as required by a PFMA schedule 2 public entity. We believe that the board satisfied and fulfilled its responsibilities in accordance with the board charter.

Each board member possesses a range of necessary skills, experience and competencies to perform their duties and board members are provided with additional support on demand from the Company. The Company’s memorandum of incorporation (MOI) states that the board should comprise a minimum of three Directors and a maximum of 12, the majority of whom should be appropriately balanced in terms of Executive and Non‑executive Directors, including Independent Directors. The Chief Executive Officer is an Executive Director and the Acting Chairman is a Non-executive Director.

Our MOI ensures the independence of the board in that none of the members are public servants, holders of any office for profit under the government, or members of parliament or any provincial, legislative or local authority, municipality or other council in South Africa.

Although we have achieved our board transformation targets, we continue to focus on improving female representation.

Board evaluations are conducted every second year. The board evaluation for the year ended 31 March 2017 was not conducted due to the many board movements. The next evaluation will be conducted by an external service provider.

The audit and risk committee is satisfied that the Company’s Acting Chief Financial Officer, Dirk Kunz, has the appropriate expertise and experience for this position. Performance evaluations of the Chief Executive Officer and financial officers are conducted annually.

The Company’s talent management strategy encompasses succession and performance management frameworks. There are currently 67 positions identified as critical, of which 58% have potential successors ready to fill the roles.

The leadership development framework has five key dimensions addressing the development of leadership within the Company:

  1. Business strategy
  2. Organisational culture
  3. The leader audience
  4. Development strategies
  5. Infrastructure

The board had four normal meetings during the year (one per quarter, as required) and board members’ attendance is detailed in the following table:

Composition and membership Tenure
(Years)
Qualification Attendance (%)
Deon Botha (Acting chairman)1 4.6 BCom (Law), BCom (Hons) Business Sciences 5/5 (100)
Roshan Morar2 6.2 CA(SA), certified fraud examiner, BCom, BCompt (Hons) 4/5 (80)
Kate Matlou3 2.8 NDip (road transport, administration and stock), NQF 6 Certificate (public relations, dispute handling, SHEP, computing) 4/4 (100)
Dr John Lamola4 4.6 BTh (SA), PhD, MBA 2/2 (100)
Bajabulile Luthuli5 4.5 CA(SA), certified fraud examiner, BCom, BCompt (Hons) 1/3 (33)
McDonald Kenosi Moroka6 4.5 LLB 2/3 (66)
Chwayita Mabude7 4.5 BCompt 0/3 (0)
Dr Matlodi Mabela8 3.1 PhD (Economics), MBA, BSc (Chemistry) 5/5 (100)
Siyakhula Simelane9 3.1 CA(SA), BCom (Hons) Accounting, MDP 4/5 (80)
Bongani Maseko 4.8 BSc (Aviation Business Administration) 4/5 (80)
1 Appointed 1 August 2013, Second term 12 July 2016, appointed Acting Chairperson 13 April 2018
2 Retired 28 March 2018
3 Resigned 16 February 2017, reinstated 31 May 2017
4 Resigned 5 July 2017
5 Resigned 16 February 2017, reinstated 31 May 2017, retired 15 September 2017
6 Resigned 16 February 2017, reinstated 31 May 2017, retired 15 September 2017
7 Resigned 16 February 2017, reinstated 31 May 2017, retired 15 September 2017
8 Resigned 19 April 2018
9 Resigned 20 April 2018

Key areas of focus  during the reporting period included the following challenges, developments, outcomes and continuing focus areas:

  • Governance matters, board composition / board vacancies
  • Permission application
  • Annual strategy review
  • Forensic investigation as a result of media allegations
  • Various litigation matters
  • Irregular expenditure, causes and corrective measures as recommended by management
  • Approval policies
  • Review and consideration of new business investment opportunities as part of business development

The committee fulfilled its responsibility as described in its terms of reference.

Composition and membership Qualifications Attendance (%)
Siyakhula Simelane, Chairman1 CA(SA), BCom (Hons) Accounting, MDP 100
Matlodi Mabela2 PhD (Economics), MBA, BSc (Chemistry) 100
Dr John Lamola3 BTh (SA), PhD, MBA 100
Deon Botha4 BCom (Law), BCom (Hons) Business Sciences 100
Kate Matlou4 NDip (road transport, administration and stock), NQF 6 Certificate (public relations, dispute handling, SHEP, computing) 100
1 Resigned 20 April 2018
2 Resigned 19 April 2018
3 Resigned 5 July 2017
4 Appointed 5 December 2017 subject to shareholder approval

Minimum meeting requirement: Quarterly

Meetings held: 13

Key areas of focus during the reporting period included the following challenges, developments, outcomes and continuing focus areas:

  • Examining and reviewing the financial statements of the Company and its subsidiaries, and reporting interim and final results and presenting these to the board for approval
  • Reviewing and approving accounting policies
  • Considering management’s calculation of the going concern status of the Company, which indicated that no material uncertainties exist to cast doubt over the Company’s ability to continue as a going concern for at least the next 12 months
  • Bringing to the board’s attention irregular expenditure identified by the Auditor-General and concerns regarding the related condonation disclosure
  • Considering the appropriateness of dividend distributions and making recommendations for board approval
  • Reviewing the integrity of the integrated reporting process and making recommendations for board approval of the integrated report and its distribution to stakeholders
  • Considering internal assurance reports on KPIs
  • Collaborating with the board investment committee on GRU valuation concerns
  • Submitting IT service management policy updates for board approval
  • Renewing the audit and risk committee terms of reference in line with the Auditor-General’s recommendations and submitting to the board for approval
  • Establishing a policy for the development of policies and procedures to ensure overarching governance and appropriate policy governance processes are in place to embed a governance and compliance culture in the Company
  • Overseeing the Internal Audit function and approval of the Internal Audit plan
  • Monitoring the detailed demand plan for capital expenditure
  • Considering the PFMA and National Treasury regulatory compliance reports
  • Considering and reviewing the budget, including long-term forecasts and five-year plans

The committee fulfilled its responsibility as described in its terms of reference.

Composition and membership Qualifications Attendance (%)
Roshan Morar, Chairman1 CA(SA), certified fraud examiner, BCom, BCompt (Hons) 66
Matlodi Mabela2 PhD (Economics), MBA, BSc (Chemistry) 100
Bongani Maseko BSc (Aviation Business Administration) 100
Kate Matlou3 NDip (road transport, administration and stock), NQF 6 Certificate (public relations, dispute handling, SHEP, computing) 100
1 Retired 28 March 2018
2 Resigned 19 April 2018
3 Re-appointed 31 May 2017
 

Minimum meeting requirement: Quarterly

Meetings held: Three meetings are scheduled quarterly in arrears, which means May 2018 addressed fourth quarter results for the year ended 31 March 2018

Key areas of focus during the reporting period included the following challenges, developments, outcomes and continuing focus areas:

  • Considering the GRU valuation for noting by the board
  • Considering material commercial agreements and their effect on the Company; and making recommendations to the board on the acceptability of commercial arrangements within contracts, such as large security contracts and lease agreements
  • Considering master plans for airport development (e.g. O.R. Tambo International Airport and King Shaka International Airport) in the context of changing global trends, technical and best practice requirements, and the impact of the plans on SED in South Africa and the long-term sustainability of the Company
  • Interrogating the commercial plans of various projects, e.g. terminal development and quarterly treasury, economic and business development reports
  • Policy-setting for approval by the board on matters such as enterprise management
  • Considering supply chain management reports on tender approvals, procurement spend and irregular expenditure, and preventive and monitoring measures
  • Monitoring litigation matters

The committee fulfilled its responsibility as described in its terms of reference.

Composition and membership Qualifications Attendance (%)
Roshan Morar (Chairman)1 CA(SA), certified fraud examiner, BCom, BCompt (Hons) 100
Deon Botha BCom (Law), BCom (Hons) Business Sciences 100
Bajabulile Luthuli2 CA(SA), certified fraud examiner, BCom, BCompt (Hons) 100
Matlodi Mabela PhD (Economics), MBA, BSc (Chemistry) 100
Kenosi Moroka1 LLB 100
Current membership:
Deon Botha

BCom (Law), BCom (Hons) Business Sciences

100
Kate Matlou3 NDip (road transport, administration and stock), NQF 6 Certificate (public relations, dispute handling, SHEP, computing) Appointed to the committee after the meeting was held3
Siyakhula Simelane3,4 CA(SA), BCom (Hons) Accounting, MDP Appointed to the committee after the meeting was held3
1 Retired 28 March 2018
2 Retired 15 September 2017
3 Appointed 5 December 2017
4 Resigned 20 April 2018

Minimum meeting requirement: Annually

Meetings held: One

Key areas of focus during the reporting period included the following challenges, developments, outcomes and continuing focus areas:

  • Overseeing the development and implementation of the economic regulatory strategy and ensuring compliance with all regulatory legislation and/or requirements
  • Deliberating on the approach to the permission application for submission to the Regulating Committee established by the Department of Transport
  • Considering, reviewing and, if deemed appropriate, recommending deviations from the current Permission, or other related Permission matter, for board approval.

The committee fulfilled its responsibility as described in its terms of reference.

Composition and membership Qualifications Attendance (%)
Deon Botha (Chairman) BCom (Law), BCom (Hons) Business Sciences 100
John Lamola¹ (SA), PhD, MBA 100
Bajabulile Luthuli² CA(SA), certified fraud examiner, BCom, BCompt (Hons) 100
Siyakhula Simelane³ CA(SA), BCom (Hons) Accounting, MDP 100
Kate Matlou NDip (road transport, administration and stock), NQF 6 Certificate (public relations, dispute handling, SHEP, computing) 100
1 Resigned on 5 July 2017
2 Retired on 15 September 2017
3 Resigned 20 April 2018

Minimum meeting requirement: Quarterly

Meetings held: Three

Key areas of focus during the reporting period included the following challenges, developments, outcomes and continuing focus areas:

  • Submitting to the board about Company performance against strategic objectives and KPIs to determine short-term incentive (STI) rewards and obtain board approval of awards
  • Overseeing the determination of annual salary increases in line with remuneration policy for board approval
  • Submitting recommendations to the board about Non-executive Directors’ remuneration for shareholders’ approval
  • Considering policy amendments for submission to the board for approval including:
    • Acting allowance policy
    • STI ground rules amendment
    • Policy for bursaries for employees’ children
    • Performance management policy
  • Interrogating quarterly human resources report and succession planning submitted by management
  • Interrogating suggested long-term incentive (LTI) plan rules submitted by management
  • Monitoring board performance evaluation and Chief Executive Officer’s employment contract

The committee fulfilled its responsibility as described in its terms of reference.

Composition and membership Qualifications Attendance (%)
John Lamola (Chairman)1 (SA), PhD, MBA 100
Deon Botha BCom (Law), BCom (Hons) Business Sciences 100
Bongani Maseko BSc (Aviation Business Administration) 100
Kate Matlou NDip (road transport, administration and stock), NQF 6 Certificate (public relations, dispute handling, SHEP, computing) 100
Kenosi Moroka2 LLB 0
Current membership:
Kate Matlou (Chairman)3 NDip (road transport, administration and stock), NQF 6 Certificate (public relations, dispute handling, SHEP, computing) 100
Deon Botha BCom (Law), BCom (Hons) Business Sciences 100
Bongani Maseko BSc (Aviation Business Administration) 100
1 Resigned 5 July 2017
2 Resigned 15 September 2017
3 Appointed 5 December 2017

Minimum meeting requirement: Two

Meetings held: Three

Key areas of focus during the reporting period included the following challenges, developments, outcomes and continuing focus areas:

  • Monitoring ethics training and declarations made about conflicts of interests and gifts received
  • Interrogating and monitoring anti-corruption hotline activities and investigation reports
  • Assessing key safety, health and environmental risks the Company faces, noting ICAO and legislative requirements
  • Assessing transformation initiatives with a focus on challenging areas that were identified for improvement. These include SED programmes and employing people with disabilities
  • Considering public relations report highlighting salient issues that had a reputational impact on the Company and monitoring appropriateness of responses
  • Conducting formal assessments of stakeholder engagement feedback received from management and formalising the process with a stakeholder engagement policy. Refer to stakeholder relationships.
  • Considering the Company’s working conditions in line with the International Labour Organisation’s Protocol’s four strategic objectives for working conditions
  • Conducting quarterly assessments of internal communications and human resources reports
  • Tracking performance against employment equity targets
  • Monitoring the 20 litigation cases against the Company and the 12 cases the Company has brought against others, including a Competition Commission law case and five liquidation cases

The committee fulfilled its responsibility as described in its terms of reference.

“Management structures are established to govern operational performance are clearly mandated, well-resourced with the necessary expertise to support critical business requirements, and able to achieve our strategic objectives.”

Bongani Maseko CEO

Executive committee

Bongani Maseko (50)

Chief Executive Officer

Dirk Kunz (46)

Acting Chief Financial Officer

Fundi Sithebe (39)

Chief Operating Officer

Andre Vermeulen (48)

Group Executive: Airport Management

Bongiwe Mbomvu (50)

Group Executive: Governance and Assurance

Charles Shilowa (46)

Group Executive: Business Development

Girish Gopal (54)

Group Executive: Technical Services and Solutions

Pieter du Plessis (56)

Group Executive: Human Resources

Refentse Shinners (42)

Group Executive: Corporate Affairs

Sello Mmakau (43)

Chief Information Officer

Badisa Matshego (41)

Group Executive: Infrastructure Asset Management

Sithembiso Ngwenya (36)

Chief Audit Executive

Composition and membership Tenure
(Years)
Qualifications Attendance %
Bongani Maseko, Chief Executive Officer 4.8 BSc (Aviation Business Administration) 85
André Vermeulen, Group Executive: Airports Management 3.7 BEng (Mechanical Engineering) 75
Bongiwe Mbomvu, Group Executive: Governance and Assurance 4.5 BSocSci, LLB and LLM – Admitted Attorney of the High Court 90
Charles Shilowa, Group Executive: Business Development 2.3 BSc (Chemistry), BSc (Chemical Engineering), MBA, HDip (Tax), Post Graduate Certificate (Mechanics of Project Finance) 70
Dirk Kunz, Acting Chief Financial Officer 1.2 CA(SA), BCom (Hons) Accounting 100
Girish Gopal, Group Executive: Technical Services and Solutions 2.8 BSc (Electrical Engineering), MSc (Electrical Engineering), MBA 90
Pieter du Plessis, Group Executive: Human Resources 14.7 MCom (Personnel Management), BPsych (Industrial Psychology) 95
Refentse Shinners, Group Executive: Corporate Affairs 3.1 NDip, BTech (Public Relations Management) 84 (maternity leave from 1 June to
30 September)
Sello Mmakau, Chief Information Officer1 3.4 BA, various IT-related qualifications (A+, Network+ and CISCO Certified Network Associate), MBL 90
Badisa Matshego, Group Executive: Infrastructure Asset Management 2.7 BSc (Civil Engineering), Executive Development Programme 90
Fundi Sithebe, Chief Operating Officer2 0.3 Bachelor of Business Administration (BBA), Post Graduate Diploma in Management (Bus Admin) 100
Sithembiso Ngwenya, Chief Audit Executive4 1.3 BCom (Hons) Accounting (UKZN), Dip (cost and management accounting) (Durban University of Technology), advanced certificate (auditing) (accounting professional training), CA(SA) (registered with the Independent Regulatory Board of Auditors) 80
1 Resigned on 31 March 2018
2 Appointed 1 December 2017
3 Maternity leave from 1 June to 30 September 2017
4 Invitee to Exco
   

Key areas of focus during the reporting period included the following challenges, developments, outcomes and continuing focus areas:

  • Focusing on the airline industry’s impact on the Company and collaboration with stakeholders, including government and airlines
  • Considering and approving ground handling strategy for new entrants
  • Continuous follow-up on transformation sector strategies in collaboration with board investment and social and ethics committees
  • Considering employee satisfaction survey results
  • Conducting quarterly assessments of financial and operational results for presentation to the board, including monitoring financial covenants
    and credit ratings
  • Presenting challenges to the Executive Committee, including the decrease in airport tariffs, which affects the Company’s financial performance
    and ability to grow and develop airports
  • Assessing changes to the operational structure, which indicated a positive effect on financial results and remains a focus area
  • Capital budgeting remains a focus area as 30% of risks identified related to the impact on capital projects of delays experienced in supply chain management
  • Approving the 2019 – 2021 Corporate Plan

The committee fulfilled its responsibility as described in its terms of reference.

Governance functional areas

Risk and opportunity

While the board has ultimate responsibility for risk management, the audit and risk committee oversees and makes recommendations to the board for its consideration and approval. The risk management department monitors and reviews the Company’s risk management processes, system and performance, and reports to the Executive Committee regularly.

The audit and risk committee provides independent and objective oversight of risk management within the Company. This includes supporting the risk management strategy, endorsing the risk profile, and reviewing the risk management performance and assurance. The risk and regulatory committee is constituted as a sub-committee of the Executive Committee that steers the integrated risk management framework. The committee and its members are accountable for the performance of the framework.

The committee directs and evaluates the effectiveness of the integrated risk management framework and standards, and reinforces accountability for risks, controls and tasks.

During the year, Airports Company South Africa focused on improving enterprise risk management by shifting to an integrated enterprise risk management framework based on the following:

  • Expresses a clear mandate and lines of management accountability
  • Sets the performance requirements for risk management throughout the Company
  • Promotes commonality of risk management processes and methodologies and a common language
  • Organisation-wide requirements to gather and report risk information for governance purposes
  • Compliance with applicable legislation
  • Effective integration with corporate strategy and planning
  • A leadership culture that embraces risk management

In developing the framework, the Company applied the principles of the PFMA, the Companies Act, 2009, the ISO 31000:2009 and guidelines of international risk benchmarks. The illustration below indicates the components of the integrated risk management framework:

The following were among the projects rolled out during the year to enhance risk management in the Company:

  • Risk assessments: Business risk assessments for infrastructure asset management, business development, airport management and, to a large extent, technical services solutions were completed
  • Subsidiary risk registers: The process of assessing risk for subsidiaries commenced
  • Other future focus areas over and above completion of risk assessments and divisional and subsidiary plans include:
    • Competency training for enterprise risk management champions on the framework, standards and the approved risk management information system and awareness training for all employees
    • Skills enhancement for facilitators and enterprise risk management champions, typically in risk assessment and root cause analysis
    • Line manager review: control assurance covering control design and control self-assessment
  • As part of the continuous integrated reporting process, we updated the material risk and opportunity register to reflect management’s opinion on developments in strategic risks and opportunities. However, a deep dive into the company-wide strategic risk register is required and we plan to outsource the facilitation of this process to ensure the incorporation of independent and global views.

In addition to the annual audits conducted by Group Internal Audit, audits to ensure the effectiveness of enterprise risk management are initiated by the Group Executive: Governance and Assurance, the audit and risk committee, business unit risk committees, or the Group Manager: Risk Management. Refer to the risk and materiality section.

Technology and information

The board is responsible for overseeing technology management in the Company. The Executive Committee, supported by the IT steering management committee, implements the technology strategy. Deloitte assisted in developing the IT steering committee project plan and identifying the correct skills and expertise needed for management to implement the technology strategy.

Several technology and information policies were adapted to incorporate King IV application requirements. Determining which King IV practices should be applied will depend on the IT risk appetite that management will set. An in-depth IT risk appetite workshop is scheduled for the next financial year. However, some improvements in the governance of technology and information have commenced, with policies being improved and approved based on King IV recommended practices and the recommendations of external consultants. More than 10 policies were approved during the current year, some of which include:

  • IT service management policy
  • IT acceptable use policy
  • Information security policy
  • IT access and third-party management policy
  • IT acquisition and deployment policy
  • IT systems decommission policy

A decision was also taken to review the portfolio of IT-related policies every second year.

A quarterly technology and information report is presented to the audit and risk committee and to the board which sets out planned technology activity, risks and implementations status of technology projects.

Many of the technology focus areas are subject to internal audit interrogation as reflected in the internal audit plan. Key concerns arising from the internal audit were prioritisation of compliance with the requirements of information security policies and the removal of legacy systems which are no longer compliant.

System and management controls provide governance over many areas, including cyber-attacks, which is a topical information-age dilemma and an actual threat experienced by Airports Company South Africa. We have implemented intruder detection and prevention technology that provides real-time data on attempted and successful hacks. To encourage a culture of secure behaviour by employees, an information security awareness campaign was initiated.

More than 60 technology projects were completed during the year to strengthen our governance and operational capacity. Our consideration of governance over technology stretches beyond our Company and its subsidiaries to stakeholders such as airlines, air traffic and navigation services insofar as they affect our business continuity. The aim of the business continuity management project is to implement a technology solution that will allow IT systems (including applications and associated databases) to replicate between primary production data centres and secondary/back-up data centres. This allows for seamless failover from the primary site to the back-up site in the event of a disruption, and ultimately reduces downtime.

Priorities for the new financial year include a focus on data governance and knowledge management, commencing with the formalisation of information management capabilities within the Company by setting an information management strategy, policy and framework.

Other priorities for next year include a technology refresh of servers to ensure the Company does not become vulnerable to attack, improved asset management on technology and information assets, and implementation of our prioritisation model. A prioritisation model was developed to align the needs of business with available resources and focus our attention on the most impactful IT projects. Refer to IT and digitisation.

Assurance

Assurance is being aligned by instituting and supporting singular processes from the governance and assurance division that each business segment can apply. This approach will resolve the inefficiencies perpetuated by silo-based policy creation, and instead favour a centrally approved repository to ensure holistic application of processes in the business. The audit and risk committee has the main oversight responsibility over assurance processes in the Company.

Combined assurance

Combined assurance refers to the integration, coordination, and alignment of risk management and assurance processes to optimise and maximise the level of governance, control and oversight over the risk landscape. The combined assurance model aims to optimise the assurance coverage obtained from management, internal assurance providers and external assurance providers on the risks facing the Company. Our combined assurance model remains unchanged and supports this centralised approach.

Combined assurance is governed by the combined assurance framework, a subset of the enterprise risk management framework. In terms of the combined assurance framework, the Company’s risk department is a critical function in supporting, implementing and embedding the combined assurance model and it reports directly to the audit and risk committee. The Company’s Internal Audit team is responsible for championing the implementation of the combined assurance plan and supporting our continued combined assurance journey.

Internal audit

In executing its board-assigned mandate, internal audit follows a risk-based audit methodology in compliance with the Institute of Internal Auditors (IIA) and the International Standards for the Professional Practice of Internal Auditing. The main objective of the Company’s internal audit is to assist the board and Executive Committee with the effective discharge of their responsibilities by evaluating the adequacy and effectiveness of risk management, the control environment and governance processes.

The Company’s internal audit function is based at the corporate office and provides its services and support at all our airports. This includes services provided to the Company’s subsidiaries. Our internal auditors are members of the IIA and comply with the IIA’s Code of Ethics and International Standards for the Professional Practice of Internal Auditing.

Quality review assessments aligned to IIA standards take place at an activity and functional level to allow the Company to state that work conducted is aligned with professional practices. The audit and risk committee approves an annual audit plan that considers the Company’s entire value chain and the internal audit that takes place using a team of appropriate, qualified and experienced internal auditors. The function is entitled to source the use of external co-source practitioners on agreed terms, where necessary. Quarterly feedback on the progress of the annual plan is provided to the audit and risk committee.

The internal audit plan is derived from these key steps:

  • Step 1: Consider strategic business objectives and risks
  • Step 2: Include business management input in terms of operational risks and priorities
  • Step 3: Consider other assurance providers and internal audit team input
  • Step 4: Prioritisation of audits
Results of internal audit findings

It is the opinion of internal audit that processes are generally adequate and provide reasonable assurance that the environment shows the implementation of effective controls or requires limited improvement.

The internal audit function hereby declares that there were no instances noted during the 2018 financial year, which would have compromised its independence and objectivity in the execution of its charter mandate.

Compliance

Adherence and compliance to applicable laws and regulations remains a board responsibility. This includes non-binding rules, codes and standards. Our compliance framework is aligned with ISO 19600, a standard for compliance and best practice. Our alignment and development of the framework yielded the notable developments below.

Compliance processes

In effectively providing oversight and guidance to the Company, the board remains acutely aware of various legislations and relevant codes of best practice, including, but not limited to:

  • Airports Company Act, No. 44 of 1993
  • Civil Aviation Act, No. 13 of 2009
  • King IV
  • Protocol on Corporate Governance for the Public Sector 2002
  • PFMA
  • Treasury Regulations
  • Companies Act
  • Income Tax Act, No. 58 of 1962
  • Value Added Tax Act, No. 89 of 1991

Continuous reporting on non-compliance to the Executive Committee and the audit and risk committee in a quarterly compliance status report escalates issues of non-compliance to the correct level within the Company. New instances of non-compliance were reported and a process exists to monitor and track completion of previous cases. Compliance processes are subject to internal audit, and the results are reported to the board through the audit and risk and economic regulation board committees, which oversee the board’s discharge of its legal and regulatory responsibilities.

The compliance department has developed a compliance framework and strategy to strengthen governance over compliance, and has started providing monthly legislature updates to affected departments. There were no changes in legislation that substantively affected the achievement of the Company’s objectives.

Various training programmes on the PFMA, Preferential Procurement Policy Framework Act, No. 5 of 2000, Treasury Regulations, Treasury Practice Notes, supply chain management policies and procedures and competition law were introduced to embed a culture of compliance. By the end of March, 1 979 employees had attended training programmes.

Effectiveness of compliance is monitored through internal audit findings and recommendations made to the audit and risk committee and the board. No catastrophic audit findings were reported during the year. The audit and risk committee reviewed and recommended for board approval the implementation of a compliance policy as a mechanism to ensure effective compliance measures.

Non-compliance and non-conformance

The Company’s Exclaim (non-compliance) and non-conformance reporting systems for recording and reporting instances of non-compliance will be upgraded during the next financial year as we embed the use of systems in the Company. There have been no catastrophic instances of non‑compliance to legislation and regulations during the year and no significant non-conformance.

Stakeholder relationships

A stakeholder engagement report is presented by management to the board quarterly through the social and ethics committee. Stakeholder engagement is managed by means of a stakeholder engagement policy and procedures which were developed and approved during the year. Internal assurance of engagement processes identified minor administrative improvements to our stakeholder engagement process. An action plan was developed to respond to identified gaps.

Formal engagement plans were developed (75% complete) to identify and prioritise stakeholders and link certain relationships to dedicated Executive Directors. We aim to improve the tracking and implementation of our engagement plans with the use of software applications. Our main focus area for the year ahead will be to implement an appropriate stakeholder engagement software application and address administrative findings from internal audit.

The Company monitors sentiments expressed in public or in the media about its Directors and areas of business, including employee relations, financial administration, innovation, products and services, corporate social responsibility, trust and corporate governance. Most negative and positive sentiments were related to security incidents at airports, which either impacted stakeholders or were prevented due to the intervention of airport security services.

Refer to stakeholder engagement.

Remuneration

Background statement

The remuneration philosophy of Airports Company South Africa is designed to support the Company and human resource strategy to attract and retain talent, and to promote high performance by offering competitive total rewards. This stimulates performance at individual and Company level. Doing so allows us to remain an employer of choice and to execute our strategy in line with our Vision 2025 objectives.

Our remuneration policy is ratified by our shareholders at the AGM. The prior year saw a 100% vote in favour of the remuneration policy. We trust the well-considered changes to the current remuneration policy will also be favourably received. Our shareholders have approved the Company’s KPIs and thus, indirectly, the variable portion of the remuneration structure. The board approved the employee remuneration policy, taking into account the following internal and external factors:

  • Affordability
  • Economic pressures
  • Industry changes
  • Applicable legislation
  • Market remuneration data

The board, acting on the recommendations of the remuneration and nomination committee, is ultimately accountable for the Company’s remuneration philosophy and its policy application. The board is assisted by management in executing its duties. These duties include remuneration governance, skills attraction and retention, succession planning, disclosure, benefits, conditions of employment, and performance-linked remuneration.

The remuneration and nomination committee used the services of PricewaterhouseCoopers Inc. and Remuneration Consulting in different capacities during the year. They provided advisory services in the benchmarking of remuneration elements and practices against external comparatives, which informed our remuneration policy by providing an indication of equitable market-related remuneration.

Our employees are key to the achievement of our strategic objectives, and we ensure that remuneration incentives and parity, as well as enhanced benefits such as housing and transport, remain a focus area. The remuneration and nomination committee ensures that the remuneration policy is developed and implemented in a fair and transparent manner that enables the attraction and retention of talent. Our enhanced housing scheme assists employees to become home owners and improve their living conditions. There has been a significant increase in employee participation in the scheme (refer to Housing Scheme). An employee transport programme to provide employees with safe and reliable transport will commence in 2019. A project to re-align the executive total reward offering was approved and aligned with the Company’s business objectives and 2025 strategy.

The remuneration and nomination committee focused on the following enhancements to the total reward offering:

  • Executive remuneration project.
    • Approval of the total reward policy, which is aligned with the organisational strategic drivers, values and individual contribution linked to short-term and long-term strategic outputs. The policy outlines the Executives’ conditions of employment, STI ground rules, performance management principles and the introduction of the LTI cash plan rules with effect from 1 April 2018. The LTI cash plan was introduced to further instil a culture of performance excellence and grow the business sustainably over the long term.
  • Re-alignment of the STI scheme.
    • Approval of the implementation of STI ground rules and policy from 1 April 2017. The policy seeks to cultivate an integrated high-performance culture that leads to the attainment of the short-term targets, and ultimately long-term targets.
  • Airports Company South Africa housing scheme.
    • Approval of a housing subsidy aligned with employees’ home loan repayment periods, effective since August 2017.
  • Employee transport programme.

The remuneration and nomination committee will continue to monitor the effective implementation of these improvements to the total reward offering.

Overview of remuneration policy

Our total reward framework enables us to offer a remuneration mix comprising fixed and variable pay aligned with appropriate legislative frameworks, wider external factors and business strategy. The Company’s guiding principles in the application of its remuneration policy are:

  • Equity, fairness and consistency in the remuneration of employees in accordance with the value of their work, competence and performance
  • Market-related remuneration to enable market competitiveness in the attraction and retention of scarce and relevant skills, behaviours and competence
  • Good governance in the management of remuneration

The Company’s remuneration mix comprises three elements, namely guaranteed pay, benefits and variable pay, as outlined in the following table.

Guaranteed pay

Guaranteed pay, including benefits such as medical aid and retirement funding, is compensation that employees receive in exchange for their work.

  Employee category
Guaranteed pay Executives Senior
management
Middle
management
Professionals Skilled and general workers

Base pay
To attract and retain employees and ensure internal equity and external competitiveness

Our standard is to match the market

The base pay is reviewed annually considering:
  1. Company performance
  2. Executive performance
  3. CPI
  4. Executive benchmark and trends
  5. Company affordability
  1. CPI
  2. Internal parity
  3. Market benchmark and trends
  4. Individual and Company performance
  5. Company affordability
  1. National negotiations
  2. CPI
  3. Internal parity
  4. Company affordability
  5. Market benchmark and trends
13th cheque forms part of the base pay

Employee benefits
To ensure competitiveness and promote employee wellness and engagement

Employees are contractually obliged to belong to the approved medical and retirement funds, inclusive of death and disability cover. Contributions are made by the Company and the employee

  1. Employees contribute 100% towards medical and retirement fund (inclusive of risk benefits)
  1. Retirement fund: 13% employer and 8% employee contribution
  2. Medical aid: 50% employer and 50% employee contribution
  3. A once-off capital grant of R75 000 is offered to first-time home owners
  4. A monthly housing subsidy is offered to salaried employees
  5. Employees are provided with branded uniforms

Circumstantial allowance
To ensure operational effectiveness and compliance with legislation

Some benefits are elective; others are in line with statutory requirements

Acting allowance is paid to employees who are required to act in roles that are higher than their designated roles

The following allowances are paid based on job‑specific requirement:

  1. Shift
  2. Standby
  3. Overtime

Non-executive Directors receive fees that are reviewed and approved at the AGM, in line with shareholder requirements.

Variable pay

Variable pay consists of two incentive structures, namely the STI and the LTI.

The STI seeks to cultivate a high-performance culture within the Company and its divisions. The Company believes that a high-performance culture will lead to the attainment of short-term targets and, ultimately, long-term targets. The following table outlines the application of the STI with reference to the principles that determine the incentive bonus pool and how the bonus is distributed to each participant. The bonus pool is determined by a percentage of EBITDA (the “sharing percentage”), which is subsequently modified against the performance of the Company scorecard. The bonus pool payments are distributed based on Company, divisional and individual performance. Non-executive Directors do not participate in the STI or LTI.

    Employee category
Variable pay   Executives Senior management Middle management Professionals Skilled and general workers
  STI on-target bonus percentages are allocated to each grade level and expressed as a percentage of the total guaranteed pay or annual basic salary plus 13th cheque. The on-target bonus percentages are as follows:
  F3: 60%
FL: 55%
EU: 50% AGM: 45%
E1 – E3: 30%
D: U25%
DL: 20% CU: 15% CL: 15%
A to B: 8.33%
STI
Promotes a culture of collaboration and team work and recognises Company, divisional and individual performance
The STI is aligned to the KPI framework weighted on our business (41%), our people and society (53%) and our environment (6%) as reflected below:
 
  • Before bonus payments are considered, the Company must be deemed financially profitable, as determined by the Company’s profit/loss after tax
  • The Company should achieve a specified percentage of these predetermined objectives to trigger performance bonus payments. The predetermined threshold for 2017 and 2018 was set at 75%
    Employee category
Variable pay   Executives Senior management Middle management Professionals Skilled and general workers
 
  • The calculation of the bonus pool is based on a board-approved 3% of EBITDA. The bonus pool will further be dependent on the level of predetermined objectives met. In determining the final Company performance score (i.e. the percentage of predetermined objectives achieved), significance is placed on the weighting of the objectives. This method therefore recognises a scale of achievement in which weighted scores for each of the KPIs are added to calculate the overall performance score of the business.
 

At the end of each financial year, the board, through the audit and risk committee, verifies actual performance against the approved targets. Bonus payment consideration may be disqualified if the Company obtains a qualified audit opinion from the external auditors.

Once the bonus pool has been approved by the board, the potential STI will be distributed to individuals as follows:

  The LTI cash plan has been approved and was effective from 1 April 2018. The scheme aims to align the Shareholder’s Compact, 2025 strategy and individual performance to grow the business sustainably over the long term. The primary purpose of the LTI cash plan is to:
  • Incentivise eligible employees to achieve the long-term objectives of the Company strategy and corporate plan
  • Stimulate eligible employees to achieve sustainable performance, instil a culture of performance excellence and grow the business
  • Align the Shareholder’s Compact to eligible employee performance objectives
  • Reward eligible employees for significant discretionary efforts and achievements within their performance areas

The LTI cash plan is based on the following principles:

  • Eligible participation
    The LTI rules provide for board discretion in the participation of executives in the LTI cash plan. The board will approve all award allocations, taking into account individual performance and whether the employee is within a probation period. The employee must have demonstrated consistent performance and have received a performance rating which exceeds a 3 in the previous performance management cycle.
  • Award allocation
    The LTI will be awarded annually in line with the allocation terms and conditions. The award will be allocated as follows:

The abovementioned multiple will be determined by the board in accordance with the Company’s LTI policy, linked to the frequency of the allocation. If annual LTI awards are contemplated, this multiple will be 1, and if bullet LTI awards are contemplated, this may not exceed 3.

Performance assessment and vesting

For each performance condition, at the point of assessment, the achievement percentage will be determined with reference to the table below.

Performance target Achievement %
Threshold 30
Target 100
Stretch 125

Board discretion in final payments

The board has ultimate discretion in the payment of any LTI awards. This includes the ability to reduce, remove and/or defer LTI award payments. Factors considered by the board in the application of its discretion include, but are not limited to:

  • If the Company is in a cash negative position
  • Fulfilment of the free cash flow condition
  • Whether malus and/or clawback applies to the LTI award and, in the case of clawback, the duration of the clawback period
  • A qualified audit opinion
  • If the payment results in the breaching of debt covenants
  Employee category
Variable pay Executives Senior management Middle management Professionals Skilled and general workers

LTI cash plan
Aligns to the Shareholder’s Compact to instil a culture of performance excellence and growth sustainably over the long term

The LTI is effective from 1 April 2018.
The first award allocation was made on 1 April 2018 and will vest in 2021.

Eligible:
CEO, CFO and COO
Eligible: Group executives E3 – Airport general managers only Not applicable

Annual percentage (%) market allocation

Title On-target LTI
(% of total
guaranteed pay)
CEO 60
CFO 50
COO 50
Group Executives 30
Airport general managers 25

The LTI cash plan is designed based on financial and non-financial performance conditions outlined below:

The financial weighting is 60% based on:

  • ROE (30%)
  • ROCE (30%)
  • Cumulative annual growth rate in non-tariff revenue (40%)

The non-financial weighting is 40% based on:

  • Transformation (35%)
  • ASQ (35%)
  • Reputational Index (30%)
  • The LTI cash plan will be made available upon request

Implementation report

Executive management remuneration is set out in the following table. There were no deviations from the remuneration policy approved by the board.

1 Resigned in January 2017.
2 Resigned in December 2016.
3 Appointed December 2017.
* STI figures declared for 2017 were for the 2016 financial year and STI figures declared for 2018 were for the 2017 financial year. In summary, the 2017 STI bonus pool of R164 156 000 was approved and paid in 2018 based on the following Company performance:
  The Company was deemed financially profitable, where financial profitability was determined by the Company’s profit/loss after tax. The Company recorded a profit after tax of R2.9 billion, confirming that this requirement was met.
  The total bonus pool size was calculated based on 3% of EBITDA and 125% achievement of predetermined objectives.
  The 75% achievement of the predetermined objectives to trigger performance bonus payments was met and confirmed that 76% of the predetermined objective was achieved.
  The Company obtained an unqualified audit from the external auditors.

Non-executive Directors’ service contracts and fees

The Non-executive Directors’ service contracts are for a period of three years. Airports Company South Africa’s policy precludes the payment of termination benefits to Directors. The fees for Non‑executive Directors are proposed by the Minister of Transport and approved by the shareholders at the AGM. The approved fees payable to Non-executive Directors are set out in the following table:

Non-executive Directors’ fees are set out in the following table:

1 Acting Chairman from 13 April 2018.
2 Retired 28 March 2018.
3 Resigned 16 February 2017 and reinstated 31 May 2017. Resigned 15 September 2017.
4 Retired Chairman.
* Rounded to the nearest thousand.