Message from the acting chairman

We acknowledge transformation as a fundamental part of our business and our broader role in society to develop and strengthen South Africa’s democracy. We fulfil our commitment to transformation through our triple bottom line Sustainability Framework.

Dear stakeholders,

Airports Company South Africa encountered challenging operating conditions during the 2018 financial year, but we remained steadfast in the implementation of our revised governance framework and operating model. We made further progress towards attaining our vision to be the most sought-after partner in the world for the provision of sustainable airport management solutions by 2025, and we accelerated the impact of our transformation agenda in South Africa.

On behalf of our Company, I thank the former Minister of Transport, Joe Maswanganyi for supporting our strategic direction and transformation agenda. We welcome the new Minister of Transport, Dr Bonginkosi (Blade) Nzimande and look forward to working with him as we fulfil our mandate for the provision of excellent airport services while contributing to the inclusive growth imperative of the National Development Plan (NDP) and the UN Sustainable Development Goals.

Our external environment

Global economic activity accelerated in 2017 and is forecast to gain further momentum as emerging and developing economies benefit from a recovery in commodity markets. The South African economy is lagging behind global and other African economies, recording modest gross domestic product (GDP) growth of 1.4%. In April 2017, the credit rating of Airports Company South Africa was downgraded following South Africa’s sovereign credit rating downgrade. Rating agencies cited the weakening of South Africa’s institutional strength, poor growth prospects, policy uncertainty and rising public debt as reasons for the downgrades. The election of Mr Cyril Ramaphosa as President of South Africa in February 2018 led to an improvement in domestic and external confidence in the country, strengthening the South African Rand against all major foreign currencies and reducing the likelihood of a further rating downgrade. Signs of recovery in many other economies in Africa bode well for our business development activities on the continent. Our global equity investments are also expected to benefit from improving economic conditions in Brazil and India.

The global airline industry is closely aligned with macro‑economic trends. Increasing demand for global air travel is driving consistent growth in the number of international visitors to South Africa, and South Africans travelling to Africa or global destinations. Growth in the industry has heightened competition between airlines, on the one hand, and airport service providers, on the other. In a constantly evolving world where technology is used to improve efficiency and disrupt entire industries, we are ensuring that we remain globally competitive by deploying trusted technologies. This will improve customer processing and enhance the customer experience at our airports and strengthen our airport management and security systems to ensure we continue to run our airports efficiently and safely.

Our role as a state-owned company

As a State-owned company, we constantly balance our stakeholders’ expectations of excellent service, inclusive economic growth and sound financial performance.

We continue to fulfil government’s requirement that we remain self-funding and able to deliver a return on capital despite the impact of often unpredictable regulatory decisions on our revenues. Our service delivery remains satisfactory, despite the pressure of rapid growth in passenger numbers on our airports’ infrastructure. We acknowledge transformation as a fundamental part of our business and our broader role in society to develop and strengthen South Africa’s democracy. We fulfil our commitment to transformation through our triple bottom line Sustainability Framework.

Governance

Our ability to continue meeting stakeholders’ expectations requires that we fulfil our commitment to operating ethically, in compliance with the regulations that govern our industry in South Africa and the other jurisdictions in which we operate. It also requires that we shift towards more mindful compliance envisaged by King IV.

The governance of procurement has come under public scrutiny in the past year, and rightly so, because this is where failures of governance and incidents of corruption often occur. We acknowledge that this is an area of our business that requires improvement and we have placed tremendous effort into overhauling our supply chain operating model and processes. For detailed information on our remedial measures, refer to message from the Chief Executive Office.

Critical to this process has been our governance framework and operating model, which is embedded in the Company and creates the environment necessary for us to achieve the governance outcomes of an ethical culture, good performance, effective control and legitimacy.

Matters relating to corporate governance and procurement pose a risk to the Company and its reputation. In this regard, our stakeholders will be aware of allegations of irregularities, corruption and violations of the Public Finance Management Act published in the media about our Chief Executive Officer. In April 2018, the Minister of Transport assured the board that he would address these allegations as a matter of priority.

Another matter of concern is the high rate of retirements and resignations from our board and the impact of these vacancies on the board’s composition. At the AGM on 15 September 2017 the terms of three Directors, Bajabulile Luthuli, Kenosi Moroka and Chwayita Mabude came to an end. Dr John Lamola resigned as an independent Non-executive Director on 5 July 2017. Dr Matlodi Mabela and Siyakhula Simelane resigned as independent Non-executive Directors on 19 April 2018 and 20 April 2018, respectively.

Roshan Morar retired as Acting Chairman and Non-executive Director on 28 March 2018. I was appointed as Acting Chairman on 13 April 2018, pending the appointment of a new Chairman.

Board members are appointed by the Minister of Transport to represent the government’s shareholding in Airports Company South Africa. The Minister informed the board in April 2018 that he would make appointments to fill vacancies on the board and board committees. To maintain the stability of the Company and its executive management while this process is underway, the Minister extended Bongani Maseko’s term as Chief Executive Officer from 14 May 2018 to 30 November 2018. After the vacancies have been filled, the board will appoint a Chief Executive Officer.

My colleagues and I are committed to working with the Minister of Transport, the Auditor-General and other relevant state organs to stabilise our Company and ensure effective implementation of good governance.

Transformation

Airports Company South Africa recognises transformation as imperative for successful business operation and growth. Our Sustainability Framework and transformation policies underpin our seven transformation sector strategies. These strategies, in turn, ensure that our transformation processes are inseparable from our business activities as we seek to create value through inclusive growth that aligns the needs of our Company and our partners with those of our other stakeholders.

Our sector strategies have resulted in the issuing of a number of major tenders that will increase the participation of black‑owned businesses in our operational, developmental and commercial procurement. A major development in this regard was the award of three property development opportunities to 100% broad-based black economic empowerment (B-BBEE) companies. This contributed to an increase in the black business share of the commercial revenue we generate from 48% in 2017 to 59%, confirming our commitment to supporting black entrepreneurs. Other opportunities aligned with our transformation sector strategies are reported here.

In October 2017, we completed a Social, Economic and Environmental Impact Study that explored the size and significance of our Company’s contribution to the South African economy. The purpose of the study was to provide greater insight into the value we create for the South African economy, our employees and the communities around our operations. The study found that we contributed R9.5 billion to the South African economy during the 2017 financial year, equating to approximately 0.3% of the country’s GDP. Furthermore, we supported 14 950 jobs in South Africa (0.2% of total full-time jobs) and R2.8 billion in income for South African workers. Additional information on the report is available here.

Business development

In line with global trends, our airports continue to welcome a growing number of passengers, particularly international passengers travelling to Cape Town. Our capital investment programme will enable us to accommodate this growth in traffic and passenger numbers and ensure that our airports remain world-class, globally competitive and key contributors to regional economic growth, job creation and tourism.

Our strategy to expand our footprint has gained traction with the award of airport management service contracts at airports in South Africa and Ghana, the development of new routes, and the introduction of new airlines connecting South Africa to the world. Our formalisation of new relationships with airport authorities in Africa paves the way for more collaboration on the continent.

Outlook

We demonstrated our ability to navigate challenging environments, including the reduction in regulated tariffs, and we are starting to realise the benefits of our governance framework and operating model. The expansion of our footprint beyond South Africa is expected to contribute to an increase in non-aeronautical revenue and reduce our dependence on core aeronautical revenue. These factors, combined with a more encouraging domestic and global economic outlook, position our Company well to achieve our Vision 2025 objectives.

Appreciation

2018 was a difficult year that tested our strength and resilience as an organisation. I thank the Ministry of Transport and my colleagues on the board for their support and wise counsel. I thank the Chief Executive Officer, Bongani Maseko and his executive team for their commitment and dedicated implementation of our strategy. I also extend my gratitude to all our employees and business partners, without whom we would not be able to continue delivering performances that set us apart from our peers.

Congratulations are due to Bongani Maseko on his appointment as Chairman of the Airports Council International (ACI) World Governing Board and Pieter du Plessis on his appointment as Chairman of the ACI Africa Human Resources regional committee. ACI is the trade representative of global airports, and these appointments for a two-year term recognise the valuable contribution our Company and its executives make to the airline industry.

Deon Botha

Acting Chairman