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Integrated Annual Report 2013 originthe emergence of an existence
Performance Highlights for the Past Five Years
Revenue (R’billion) EBITDA (R’millions)
6.0 700 5.0 600 500 4.0 400 3.0 300 2.0 200 1.0 100 - - 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013
Profit after taxation (R’mllions) Profit per passenger (Rands)
250 50 45 200 40 35 150 30 25 100 20 15 50 10 5 - - 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013
Sectors flown Passengers carried
45,000 6,000,000 40,000 5,000,000 35,000 30,000 4,000,000 25,000 3,000,000 20,000 15,000 2,000,000 10,000 1,000,000 5,000 - - 2009 2010 2011 2012 2013 2009 2010 2011 2012 2013
Fuel burn (litres) per 1,000 available seat kilometres
45.00 40.00 35.00 30.00 25.00 20.00 15.00 10.00 5.00 - 2009 2010 2011 2012 2013 Integrated Annual Report 2013
Contents
2 Report Profile 4 Who We Are and What We Do 7 Group Value-added Statement 8 Chairman and CEO’s Report 12 Core Values 13 Group Objectives 14 Strategic Intent 16 Internal Control and Risk Management 20 Sustainable Development Report 45 Corporate Governance 54 Audit Committee Report 57 Remuneration Report 60 Social and Ethics Committee Report 61 Report of the Directors 67 Statement of Responsibility by the Board of Directors 68 Certificate of the Company Secretary 69 Independent Auditor’s Report 70 Statements of Financial Position 71 Statements of Comprehensive Income 72 Statements of Changes in Equity 73 Statements of Cash Flow 74 Segmental Report 75 Accounting Policies 85 Notes to the Annual Financial Statements 118 Notice of Annual General Meeting 129 Share Price Performance 130 Shareholder Analysis Form of Proxy for Annual General Meeting
Integrated Annual Report 2013 1 originthe emergence of an existence
Report Profile
Scope, Boundary and Reporting Cycle This Report was prepared in accordance with International Financial Reporting Standards, the Financial Reporting Guides issues by the This Integrated Annual Report (“Report”) of the Comair Group (“the Group”) Accounting Practices Committee, the Listings Requirements of the JSE presents the economic, social and environmental sustainability of the Group’s as well as the requirements of the Companies Act (Act No. 71 of 2008) airline and non-airline businesses in respect of its operations in South Africa as amended. only, as well as presenting the financial results of the Group for the annual financial year 1 July 2012 to 30 June 2013. While the performance of the The Group’s reporting on sustainable development is guided by the Group’s associates is discussed in this Report, the Report focuses more Sustainability Reporting Guidelines of the Global Reporting Initiative (“GRI”), on the performance of the Group’s subsidiaries as their contribution to the and undertaken in accordance with G3.1. Group’s performance is more significant. In addition, this Report does not extend to cover the performance or issues facing the Group’s suppliers in The Group has applied the majority of the principles contained in the its supply chain, outsourced operations such as, but not limited to, its fleet King Code of Governance for South Africa 2009 (“King III”).The Group’s maintenance or its leased facilities. These limitations are not considered application of the principles of King III, as well as the few instances of material to impair the completeness of this Report. There have been no non-compliance, are recorded and explained in the Group’s King III restatements of previously reported information nor have there been changes register that is continuously updated and maintained and located on the to the basis of calculations or to the assumptions and techniques applied Group’s website www.comair.co. za. A summary report is also attached to in compiling the data presented in this Report. the Corporate Governance Report.
The Report will be sent to shareholders who are recorded as such in the Group’s Securities Register on 20 September 2013 and is available on Our Stakeholders the Group’s website at www.comair.co.za. Printed copies are available on The Group’s commitment to its stakeholders to conduct its business in a request from the Group Secretary. This, the Group’s third Integrated Annual sustainable way and to respond to their needs is entrenched in the Group’s Report, and the prior period’s Integrated Annual Report which covered core values. The nature of the Group’s business implies a close relationship the period 1 July 2011 to 30 June 2012, was published on 28 September with its stakeholders who include but are not limited to, those customers 2012 and is also available on the Group’s website. who purchase the Group products and services and to whom the Group must provide, amongst other things, a safe, secure and reliable service; Reporting Principles its employees, who are responsible for providing safe, secure and reliable services; its various suppliers who form an integral part of the Group’s ability The content of this Report is driven by those issues that have the greatest to provide a safe, secure and reliable service; Government Regulatory and potential to impact the Group’s ability to operate. We consider a broad range Industry Bodies, since the industry in which the Group operates, is subject of external and internal factors including the outcome of various stakeholder to extensive government and regulatory oversight; the community in an engagement processes driving the Group’s integrated reporting process attempt to improve the lives of fellow South Africans; the media who play when deciding which issues are of the utmost importance to address. an important role in the Group’s engagement with stakeholders; and its Whilst this Report attempts to highlight the significant issues raised and investors, since one of the main objectives of the Group is to create wealth the outcomes of these various engagement processes, the content of this for its investors as reflected in the stakeholder diagram set out below. Without Report predominantly focuses on the information deemed relevant to the regular communication with the Group’s various stakeholder groups, the Group’s shareholders and potential investors. Group would not be able to deliver its products and services in a safe, secure or reliable way. Of the stakeholder group’s identified below, and as The information included in this Report aims to provide shareholders and part of the Group’s regular business activities, certain stakeholder groups investors with a good understanding of the significant economic, social are considered to be more significant in determining the Group’s ability to and environmental risks and opportunities the Group faces in the short operate and generate value. and medium term as well as the Group’s response in order to ensure its ability to create and sustain value for its shareholders and investors in the long term. In addition, the Group attempts to explain its efforts to reduce its impact on the environment and the societies in which it operates.
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Contact Us Media We welcome the opinions and suggestions of all our stakeholders. All Communities Customers* opinions, suggestions and questions must please be directed to the Group Secretary, Derek Borer. Please find our contact details included on the inside back cover of this Report. Employees and COMAIR Investors* trade unions* LIMITED
Government and Industry regulatory bodies* associations*
Suppliers*
* Considered to be significant stakeholder groups
Risk Management The Group follows a comprehensive and integrated risk management process where the identification and management of risk forms part of the Executive Management business plan. The Board, through the Group’s Risk Management Committee, actively monitors this process. For more information on the Group’s risk management process, refer to the Internal Control and Risk Management Report on pages 16 to 19 of this Report.
Significant Events During the Reporting Period No significant changes regarding the Group’s size, structure or ownership occurred during the reporting period compared to previous financial years. Hence there are no significant changes from previous reporting periods in the scope, boundary, or measurement methods applied in this Report.
External Audit and Assurance The Group’s Financial Statements on pages 70 to 117 were audited by the Group’s independent external auditors, Grant Thornton (Jhb) Inc. (“GT”), which merged with PKF (Jhb) Inc., in accordance with International Standards of Auditing. The report of the external auditors is included on page 69.
Independent “limited assurance” was also obtained from Grant Thornton (Jhb) Inc. in terms of ISAE 3000 on whether this Report (inclusive of the supplemental GRI Content Index Table on the Group’s website www.comair.co.za), is in alignment with the AA1000APS (2008) principals (inclusivity, materiality and responsiveness) as well as to assess whether the Group’s self-declaration of a C application level is fairly stated in all material respects, in accordance with the GRI G3.1 Guidelines. Their Assurance Statement can be obtained from the Group Secretary or be accessed via the Group’s website www.comair.co.za.
Integrated Annual Report 2013 3 originthe emergence of an existence
Who We Are and What We Do
The Group is a South African company listed on the Johannesburg Stock In addition to providing scheduled and non-scheduled airline services, the Exchange since 1998, offering scheduled and non-schedule airline services Group offers the following non-airline-related services: within South Africa, sub-Saharan Africa and the Indian Ocean Islands as it main business. • A travel and holiday package service using world-leading technology to deliver travel and holiday packages both locally The Group has operated successfully in South Africa since 1946 and is and internationally to consumers and the retail travel trade. one of the only known airlines to have achieved operating profits for 68 Through acquisitions, expansion and partnerships, the Group has consecutive years and to have a safety record which is internationally established what it believes to be the country’s largest and broadest recognised. digital travel distribution network. The brands under the Group’s travel and holiday package banner include kulula holidays, Holiday The Group operates its scheduled airline services under two (2) brands, Tours, GoTravel24, MTBeds and African Dream Holidays. The namely, the kulula brand and the British Airways brand, the latter under Group continues to form partnerships with industry leaders as part licence from British Airways Plc. During the period under review the of its objective to continuously expand and grow this business. Group operated 40,757 sectors (one way flights) and carried 5,050,873 passengers, an improvement over the 40,153 sectors flown and 4,795,733 • In 2009 the Group launched its SLOW Lounges in association passengers carried during the prior reporting period. A diagram reflecting with First National Bank, and currently operates SLOW Lounges all the destinations to which the Group’s two (2) airline brands provided at OR Tambo International Airport in both the domestic and airline services during the period under review is set out below. The Group’s international terminals; Cape Town International Airport domestic headquarters are based in Bonaero Park, Kempton Park and whilst the terminal; King Shaka International Airport domestic terminal; and Group operates flights destined for locations outside of South Africa, the SLOW in the City in Sandton, Johannesburg. The SLOW Lounges Group’s operations are based in South Africa. have set a global standard for airport lounges, providing a perfect sanctuary from the fast pace of travel and modern life, and have London and the world won numerous awards for their creative excellence.
• The Group launched its own catering unit in 2012 under the Food Directions brand and provides onboard catering services to its Livingstone kulula and British Airways flights, giving the Group control and Harare Victoria Falls flexibility in terms of cost and product offering. Windhoek Mauritius Maputo • In addition to training its own pilots, the Group’s Training Centre Johannesburg OR Tambo and Lanseria (“CTC”) offers flight simulator training for the full range of Boeing (kulula.com) Durban 737 aircraft, as well as a variety of pilot and cabin crew ground East London Cape Town Port Elizabeth training. In conjunction with Avion de Transport Regional (“ATR”), George it also offers simulator training for pilots of ATR turboprop British Airways (Plc) aircraft. The CTC has a client base of airlines from various African British Airways (operated by Comair) countries, as well as the likes of Argentina, China and India. kulula.com kulula.com and British Airways (operated by Comair)
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A diagram reflecting the various Group brands is set out below.
kulula.com and British Airways, operated by Comair, are our airline-related brands, while the balance of the brands are non-airline brands.
The Group currently employs 1,912 employees over its various operating platforms (1,853 in the prior reporting period).
Integrated Annual Report 2013 5 originthe emergence of an existence
Who We Are and What We Do (continued)
Organisation Structure
100% 100% (2) Alooca Properties 100% (1) Kulula Air (Proprietary) Limited trading as (Proprietary) Limited (3) Aconcagua 32 Properties SLOW in the City (Proprietary) Limited
100% 100% (12) Comair Catering (Proprietary) Limited (4) Amber Capital (Proprietary) Limited
COMAIR 100% LIMITED 100% (11) Churchill Finance Services 23 Limited (5) Holiday Tours (Proprietary) Limited
49% 49% (10) Comair Mozambique Limitada (6) Online World Travel 24 (Proprietary) Limited
40% 25% 30% (9) Commuter Handling Services (8) Protea Hotel ORT (7) Imperial Air Cargo (Proprietary) Limited (Proprietary) Limited (Proprietary) Limited
1 Kulula Air (Pty) Limited: Holds the liquor licences in respect of 9 Commuter Handling Services (Pty) Limited: Provides ramp certain of the Group’s Lounges and looks after various service handling services in South Africa to various airlines agreements relating to the Lounges 10 Comair Mozambique Limitada: The Company is currently dormant 2 Alooca Properties (Pty) Limited: Property owning company which 11 Churchill Finance Services 23 Limited: A company established owns a number of properties in Rhodesfield surrounding the in Mauritius for the purposes of financing the acquisition of Group’s operations building aircraft. This company is dormant and is in the process of being 3 Aconcagua 32 Investments (Pty) Limited: Property owning deregistered company which owns the property on which the Group’s operations 12 Comair Catering (Pty) Limited: The Company is currently dormant building is situated 4 Amber Capital (Pty) Limited: This company was set up as part of Apart from Comair Mozambique Limitada, which is registered in a financing transaction for certain aircraft and is in the process of Mozambique, and Churchill Finance Services 23 Limited, which is registered being deregistered in Mauritius, all the other subsidiaries and entities of the Group are registered 5 Holiday Tours (Pty) Limited: An outbound tour operating company in South Africa. offering holiday packages to destinations outside of South Africa 6 Online World Travel 24 (Pty) Limited: A full service online travel The Group’s affiliated businesses performed well over the period under agency providing travel services online review and made a meaningful contribution to profits, although they 7 Imperial Air Cargo (Pty) Limited: A cargo and freight company make up a small percentage of the Group’s turnover. In addition, they providing cargo and freight services in South Africa are exposed to immaterial risks and pose no threat to the completeness 8 Protea Hotel ORT (Pty) Limited: Property owning company which principle. owns the building that constitutes Protea OR Tambo Hotel
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Group Value-added Statement for the year ended 30 June 2013
2013 2012 % % R‘000 R‘000
Wealth created Group revenue 5,386,581 4,162,938 Cost of materials and services (4,112,260) (3,392,452) Value added 1,274,321 771,213 Interest income 20,217 8,200
Total value added 1,294,538 779,413
Wealth distributed 825,430 618,067
Community investment 660 0 727 0
Employees Salaries, wages and related benefits 671,936 52 596,456 77
Providers of capital Interest on loans 61,641 5 19,433 2 Dividends paid to shareholders 24,215 2 - 0
Government Taxation expense 66,978 5 1,451 0
Wealth retained 469,108 161,346
469,108 36 161,346 21 Accumulated profits 469,108 161,346
1,294,538 100 779,413 100
Integrated Annual Report 2013 7 originthe emergence of an existence
Chairman and CEO’s Report
Group Performance • The maintenance of a safe, reliable, competitive and commercially viable air transport sector, where all operators are afforded equal As Chairman and Chief Executive Officer, it is our privilege to oversee and treatment by government; lead an airline that has grown from its infancy in 1946 to the Group we • The provision of an air transport infrastructure that is affordable know today, which operates scheduled airline services in South Africa, and consistent with the requirements of the air transport sector and sub-Saharan Africa and the Indian Ocean Islands using 26 aircraft made the travelling public; and up of B737-800s, B737-400s and B737-300s. During the period under • The provision of air travel at costs that are affordable to South review, the Group operated 40,757 sectors, carrying 5,050,873 passengers African consumers and in line with internationally accepted airline and employing 1,912 employees in South Africa. service standards and practices.
Since our listing in 1998, we have seen our Group revenue increase from R513 million for the year ended 30 June 1998 to R5.3 billion for the year Strategic Priorities under review, equating to a compounded annual growth rate of 17%. During the period under review, we focused on the following strategic priorities: We remain firmly committed to our vision of offering an exceptional travel experience in the most efficient way. Our focus in delivering on our strategic • Improving revenue to cover the rapidly rising fuel price and intent will enable us to continue to create long-term shareholder value. The US dollar denominated costs and managing these costs without Group’s reputation and focus on safety, customer service and efficiency ever compromising our safe, secure and reliable airline service; has built a sustainable foundation to accommodate growth opportunities • Constantly delivering on our promise to customers; and ensure that the Group continues to play a major role in the Southern • Implementing a new, enterprise wide IT platform; African aviation and travel industry. • Upgrading our fleet, including the investment in new aircraft; • Continually monitoring and responding to changes to our macro The Airline Industry operating environment; and • Providing employment security to all our employees. The aviation industry worldwide is recognised for its operating challenges. It is an industry that is capital intensive, has small profit margins and is We have delivered against these priorities during the period under review. highly regulated. A consistent theme across the global airline industry is one of poor returns on investment, protected competition and low barriers to entry. It is an industry that is a soft target for taxes, volatile costs and Performance against Objectives increased regulation. Financial Performance The high and volatile fuel price, and in South Africa, our volatile exchange The global aviation industry has shown some improvement in profitability rate, requires airlines to constantly innovate and improve on operating since 2011, with most of the plans to deal with a consistently high oil price efficiency. Worldwide the industry has recognised the need for radical now delivering results. Most markets have shown contraction in capacity change to ensure sustainability and profitability. along with downscaling of airline operations, increased ticket prices and a move towards separate charges for services such as baggage, seat selection Our top priorities are to continuously improve on our customer service, and call centre assistance. Upgrading to more efficient aircraft remains control costs and increase business efficiencies. In this regard, we have a prerogative in the industry, but is generally constrained by long lead adopted an approach, not dissimilar to many successful airlines worldwide, times for aircraft deliveries, and the weak balance sheets of many airlines. of acquiring and operating larger but more fuel efficient aircraft and implementing a new generation information technology (“IT”) platform In the period under review, our Group has seen a significant turnaround enabling us to deliver greater efficiencies and new commercial opportunities. in profitability from the previous reporting period, and the realisation of our plans implemented at the end of 2011, to deal with sustained higher We are firmly committed to the local aviation industry and to working with operating costs. The first phase involved a freeze on all non-critical costs, government and other relevant authorities to ensure: as well as a headcount and salary freeze to January 2012. In the second phase we implemented the new enterprise system platform from Sabre
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solutions, with the cut-over of inventory in June 2012, and took delivery of substantial cost savings while improving our control over menu flexibility four new Boeing 737-800 aircraft towards the end of the 2012 calendar and quality. year. We are currently working on the third phase, which is to optimise the use of the new Sabre platform and implement the remaining modules. Customer Experience Service levels, as measured by onboard and call centre surveys, remained While some of the cost cutting from the first phase was not sustainable, there strong, with the new, in-house catering units raising the score for in-flight also emerged improved practices which will provide ongoing benefit. The new food to a new high. On-time departures achieved our 85% target on Sabre platform has delivered substantial improvements in revenue integrity, both brands. On the kulula brand, on-time performance has improved inventory management and optimised ticket pricing, as well as improved crew significantly since the introduction of our new fleet of B737-800 aircraft and airport staff productivity. We see further opportunities for better customer during the financial year. service and revenue growth from the ongoing enhancements to the systems. Investment The new generation Boeing 737-800 aircraft have delivered to expectation, During the period under review we made substantial investments towards with a significant reduction in the fuel burn per seat relative to the 737-400 the acquisition of a new fleet of Boeing 737-800 aircraft with a total cost aircraft that they replaced. At 189 seats they also have greater revenue of R1.5 billion. The first new Boeing arrived in July 2012, and a further generating potential, and require less maintenance down-time. three were delivered in October, November and December 2012 to join the five 737-800s currently on lease. Four more are on order for delivery The above initiatives, amongst many others, delivered a turnaround in in 2015 and 2016. By December 2012 the entire kulula fleet had been earnings per share from 1.6 cents in the previous reporting period, to upgraded to 737-800s, where the high seating capacity, lower operating 47 cents for the period under review. Turnover increased by 29%, mostly cost and extended potential daily utilisation were extremely productive. A as result of increased ticket prices in response to exchange rate related programme is also under way to replace and, where necessary, refurbish cost inflation, as well as improved inventory management as mentioned the interiors of the British Airways fleet, and the first Boeing 737-800 was above. The exit of the last remaining privately owned competitor airline introduced into this fleet in October of the new financial year. helped to restore seat occupancy to prior year levels. Despite improved earnings, our net profit per passenger remains low at R45, relative to the Market Environment substantial capital investment required in the airline business. Partnerships During the period under review, the escalation of the dollar oil price since We still see partnerships as the cornerstone of our business. We continue to 2011 was exacerbated by the rapid devaluation of the rand against the work closely with the travel agent community in distributing our products. Our dollar, affecting the rand fuel price as well as various hard-currency based relationship with Discovery Vitality has grown and now includes local, regional maintenance, lease and distribution system costs. The fuel efficiency of and international flights, holiday packages as well as car rental for Vitality the new 737‑800 aircraft, as well as the termination of some dollar-based members. We have extended our First National Bank/Rand Merchant Bank leases on aircraft that they replaced, helped marginally to reduce exposure relationship with further investment in SLOW Lounges, both in the international to the currency and fuel price. terminal at ORT and in Sandton. Europcar is one of our strongest partners, and together we are the largest on-line seller of car rental in South Africa. Cash generation remained strong and resulted in a cash balance of Brands R778 million at year end. Our brands continue to perform well in the market. kulula is the market leader in affordable, easily accessible air travel and continues to grow kulula started services on the East London route in March 2013, providing in the cost conscious business and leisure market. kulula has become much needed cost-efficient flights to this important Eastern Cape destination, one of South Africa’s iconic consumer brands. It is South Africa’s largest and we commenced flights from Johannesburg to Maputo on the British on-line retailer by annual sales value. Our BA brand has continued to Airways brand in May 2013. The Group’s affiliated businesses, in flight grow in the corporate and public sectors as well as in the inbound tourist training, travel product distribution and airport lounges continued to perform markets. The BA loyalty programme, Executive Club, the SLOW Lounges well and in line with the prior reporting period. Our catering operation, and our investment in our new catering product, have all helped grow which was launched in March 2012, has been very successful in delivering the appeal of this brand. In the recent Sunday Times brand survey, the
Integrated Annual Report 2013 9 originthe emergence of an existence
Chairman and CEO’s Report (continued)
British Airways and kulula brands came first and second respectively in small percentage of our turnover, they are making an increasing contribution the Domestic Business Airlines Category. Our relationship with British to our profits. Specifically, our on-line travel business, lounges and flight Airways Plc remains strong, with BA and ourselves seeing great potential training business performed well during the year. to grow our partnership further into Africa. Our SLOW Lounge brand has built great equity amongst business travellers. Corporate Governance
Competition Tribunal Claim We aim to be a good corporate citizen and maintain the highest standards As previously reported, the Competition Tribunal ruled in our favour in our of integrity and ethics in our dealings with our stakeholders. To ensure that case against SAA for its anti-competitive travel agent incentives and its we offer the best possible airline service and are regarded as the airline abuse of dominance. We also won the appeal which SAA lodged, and have of choice for all travellers within our operating environment, we manage issued a multi million rand summons against SAA for damages related to and control our business by implementing governance procedures and this claim. We are currently waiting for a date in the High Court of South ensure that we identify and manage our risks effectively. More information Africa to have our damages claim against SAA heard. can be found in our Internal Control and Risk Report on pages 16 to 19 of this Report. During the period under review, we lodged a third complaint against SAA with the Competition Commission, once again in respect of SAA’s anti- Sustainability competitive travel agent incentive scheme, which complaint is currently We are committed to managing our business in a sustainable way. This under investigation by the Competition Commission. It is our view that means considering not only the Group’s financial performance, but also SAA has once again implemented travel agent incentive schemes which its social, environmental and economic impacts. Included in this Report is are by nature in contravention of the earlier Competition Tribunal order. our Sustainable Development Report which provides our shareholders and investors with information regarding the significant social and environmental State Funding of SAA risks and opportunities that have an impact on our ability to create long- The Group’s entry onto the main South African routes, and its ongoing term value for our stakeholders. In addition, we explain our effort to reduce sustainability, relied on the commitments made by government in various our impact on the environment and the societies in which we operate. policies and legislations to create a pro-competitive aviation industry. Failure by government and the state owned airlines to adhere to these principles, People including the ongoing state funding of SAA, has led to an unlevel playing We continue to attract the best talent in the business and continually field for competitors. The resulting, often irrational, commercial behaviour invest in their well being and development. Due to the tough economic of the state owned airlines remains the most disruptive challenge to the circumstances, we decided to freeze salaries to January 2013, and our sustainability of the domestic industry, and to our delivery on our obligations staff again demonstrated their commitment by giving their best under to our customers, employees and shareholders. these conditions. Our team was further challenged by the development, testing and training for the cut over to our new enterprise wide Sabre During the period under review, the Group found it necessary to challenge, IT platform, and performed exceptionally well in delivering a seamless by way of an action before the South African High Courts, the R5 billion system change. State guarantee provided by government to South African Airways. This challenge is on the basis that such funding is contrary to the government’s We are very fortunate to have an extremely experienced and dedicated domestic aviation policy, the Constitution, the Public Finances Management management team that has a wealth of experience in the industry. Act, the Promotion of Administrative Justice Act and the SAA Act. The Group is awaiting a court date for its challenge but sincerely hopes that the Training Group will be able to amicably settle the matter with government and find Training and skills development is a major priority to ensure that we a solution whereby SAA is held accountable to operate in a commercially are able to provide a quality service to our customers, and we spent responsible manner in the domestic market. approximately 3% of payroll during the period under review in support of our commitment to training and skills development. Further details are set Affiliate Businesses out in our Sustainable Development Report. Our affiliates’ businesses performed well over the period and we continued to look for aligned business opportunities. While these businesses constitute a
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Society four aircraft in late 2015 as well as potential further aircraft orders for We are a committed corporate citizen and, together with our staff, endeavour delivery post 2018. to improve the lives of fellow South Africans. We try to make a meaningful impact on our local communities by attempting to alleviate some of their While the foundation of our Sabre platform is now implemented, we have socio-economic challenges. Further details are set out in our Sustainable plans for the realisation of further value from the optimisation of the systems Development Report. and for the implementation of additional enhancements. Our on-line travel distribution capability and inventory also continues to grow and reveal new Environment opportunities with the advancement of this technology. We are committed to protecting the environment, conserving natural resources and utilising resources in an effective and responsible way by Externally there remains some unwarranted expectation of imminent and adopting sound environmental practices in our business and industry. We significant growth of air travel within Africa. We are still of the opinion that are committed to improving our environmental performance by attempting there are substantial challenges to overcome before Africa achieves the to reduce the adverse impact that aviation has on the local and global economies of scale that will adequately address the risks of operating in environment. Further details are set out in our Sustainable Development many parts of the continent. We will therefore remain pragmatic in our Report. assessment of opportunities for expansion into Africa.
Transformation We will continue to focus on the behaviour of the state owned airlines where The Group continued to progress with its transformation programme, as it impacts on the prospects of the Group, and expect to spend some time in seen in the most recently issued BBBEE certificate where the score has the courts in order to enforce their compliance with legislation and policy. It improved from a level 6 to a level 5 contributor. We also recently received a would be remiss of our duties to all of our stakeholders if we did not do so. clean audit report from the Department of Labour regarding our Employment Equity plan and the implementation thereof. The industry is still faced with Despite the challenges of the industry, our much improved infrastructure significant challenges in attracting adequate numbers of matriculants with and continued focus on customer service bode well for good results in higher grade mathematics and science from previously disadvantaged the year ahead. groups for training in specialised aviation skills. Further details are set out in the Sustainable Development Report. Appreciation Looking Ahead Our sincere appreciation goes to every person within the Group who contributed to the ongoing success of the Group during the year under We remain cautious regarding the strength of the domestic market, review, which includes our Directors, management and employees. A particularly in light of the relatively weak GDP growth forecasts. The special thanks goes to our customers and other stakeholders who have monthly domestic passenger numbers remain 5% down on last year, and chosen to use our services or provide services to us. have yet to recover to the volumes seen in 2008. The recent demise of two local competitors did great damage to the reputation of the industry, We also thank all the public sector departments and agencies that we with customers, suppliers and bankers alike. State infrastructure suppliers have worked with this year for their shared commitment to our objectives. wrote off over R250 million in debt, with private sector suppliers incurring losses of over R100 million and the credit card acquiring banks taking the brunt of the passenger ticket liability. The challenge to industry profitability is highlighted by the fact that in the domestic industry the average ticket price has only increased by 14% since 2001, while operating costs have increased by 163% and the consumer inflation index by 98%.
Although the aviation industry continues to face obstacles, we remain confident that the recent capital investments have elevated the Group to a new level of efficiency. The 2014 year will be the first full year of operation for the new B737-800s, and we look forward to the delivery of the next
Integrated Annual Report 2013 11 existencethe fact or state of living or having objective reality
Core Values
The Group and its employees support the following core values: Performance Driven We seek to always to: Our Customers In our dealings with our customers, we aim to: • Set objectives and give regular performance feedback; • Ensure that each employee knows what is expected of him/her and • Deliver a safe and quality service; what our standards are; • Regard everyone who is dependent on our outputs as a customer; • Give recognition to those to whom it is due; • Meet the expectations of our customers; • Continuously strive to improve our operating efficiencies; • Measure customer satisfaction levels; • Eliminate activities that do not add value; and • Respect our customer’s rights to confidentiality; and • Base appointments and promotions on competence and • Accept responsibility for customer service. performance.
Mutual Trust and Respect Team Approach We aim to: We:
• Share information to the benefit of the Group; • Promote positive team behaviour; • Listen with empathy; • Ensure the participation of all role players in problem solving; • Communicate openly and honestly; • Set common goals; and • Display respect for the individual and his/her dignity; • Exhibit responsible, fair, honest and effective leadership. • Solve problems on a win-win basis for all parties; • Greet and acknowledge one another; • Maintain ethical standards; • Exhibit respect for the individual and his/her dignity; and • Commit to sustainable transformation, addressing the inequalities of the past.
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Group Objectives
Creating Shareholder Value Provide Growth and Development Opportunities • We will continue to optimise operating efficiencies and grow the for Employees profitability of the business. • We strive to maintain a corporate culture that provides a good • We will continue to optimise our cost base, without compromising working environment, training and skills development that assists safety, reliability and customer services. us to attract and retain a talented workforce. • We will always look to make investments that will provide • We will strive to be an employer of choice, recognising that market incremental growth based on sound investment principles. competition for competent resources is increasing.
Commitment to Quality Operating Effectiveness • We will strive to be trusted by all our stakeholders. • We will continue to develop core competencies across our • We will always ensure that we provide a safe, secure and reliable operating environment. service. • We will continue to look for cost-saving initiatives and look to create • We will always strive to improve customer satisfaction levels. synergies over our existing and future operations. • We wish to position ourselves as the airline of choice. Managing Risk • We will continue to ensure that our risks are meticulously managed. • We will adopt a proactive approach to ensure compliance with regulatory and legislative change.
Leading as a Responsible Corporate Citizen • We are committed to managing our business in a sustainable way and upholding high standards of ethics and corporate governance practices.
Integrated Annual Report 2013 13 existencethe fact or state of living or having objective reality
Strategic Intent
The ‘Group’s Cycle of Success’ is an indication of the Group’s strategic intent The Group’s mantra is: and covers its purpose, business model, vision as well as action pillars. • We lift ourselves up, The Group’s purpose, ‘We Lift You Up’, serves as a guiding force and sets • To lift each other up, the tone in which the business exists to serve. It creates a work culture • To lift our customers up, that promotes productivity and teamwork. • To lift society up, • To lift nations up, The Group is committed to upliftment in every sense and to creating a • To lift the world up. positive impact in the world. A diagram reflecting the Group’s Cycle of Success is set out below.
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This business model is not unique to the Group or the airline industry. The Governance of the Business challenge, however, lies in making sure that the Group achieves the ’cycle’ for sustainability and growth. It means that with the right equipment and The Group’s governance structures are focused on maintaining and building people, we can deliver a fantastic travel experience to our customers. If a sustainable business and being a responsible corporate citizen. The key our customers are happy, they will keep coming back and when they keep elements of these governance structures include: coming back our investors will continue to invest in us. This will allow the Group to be more resilient to change and together we can move forward • Providing a safe, secure, reliable and quality airline service (refer to in a sustainable way. the Sustainable Development Report for more information); • Maintaining principles of good corporate governance, integrity Our vision is to: “DELIVER AN AWESOME TRAVEL EXPERIENCE IN THE and ethics (see the Corporate Governance Report for more MOST EFFICIENT WAY”. It is an aspirational description of what the Group information); would like to achieve and is intended to serve as a clear guide for choosing • Maintaining effective risk management and internal controls (see current and future courses of action. the Internal Control and Risk Management Report for further information); The four action pillars support and guide the Group in following the business • Engaging with stakeholders and responding to their reasonable model in the right direction. expectations (see the Report Profile and Sustainable Development Report for more information); Innovation The Group has a professional approach to • Managing the business in a sustainable manner (see the everything it does or presents. It is committed to Sustainable Development Report for more information); and offering world class products and services in the • Offering employees a good working environment and competitive most efficient way. The Group aims to stay up remuneration packages, based on the principles of fairness and to date with current trends and can relate and affordability (see the Sustainable Development Report and the communicate to the general public, customers, Remuneration Report for more information). investors and employees. Leadership The Group is a well led and managed South African company. It leads by example and represents courage and humility. The Group behaves in a responsible way towards the public, customers, investors and employees. Integrity Safety and security underpins everything the Group does. It represents poise and reassurance and is trusted by the public, customers, investors and employees. Passion for service The Group is committed to operational efficiency and value. It understands and anticipates the needs of customers, investors and employees.
Integrated Annual Report 2013 15 existencethe fact or state of living or having objective reality
Internal Control and Risk Management
Corporate Governance associated with the Group’s operations. The Risk Committee also reviews the risk management process. The Group’s Risk Committee met four (4) The Group is committed to maintaining principles of good corporate times during the period under review. governance to ensure that its business is managed in a responsible manner with integrity, fairness, transparency and accountability. In addition to the foregoing, the Group recognises the need for its employees and stakeholders to have a confidential reporting process (“whistle blowing”) Internal Controls over Financial Reporting covering fraud and other risks. In line with its commitment to transparency Internal controls and risk management systems in relation to the Group’s and accountability, the Group takes action against employees and others financial reporting process are in place. During the period under review, who are guilty of fraud, corruption and other misconduct. Procedures no material changes in risk management and internal control systems over are in place for the independent investigation of matters reported and for financial reporting occurred. appropriate follow up action.
The Board believes that the risks described below are those that may Internal Control Framework have the most significant impact on the Group’s ability to achieve its six The Group continues to review its internal control processes to ensure (6) objectives set out earlier on in this Report. it maintains a strong and effective internal control environment. During the period under review, the effectiveness of the process was regularly Debt Funding reviewed by the Group’s Risk Management Forum and Audit Committee. The Group is exposed to a variety of financial risks including market For further information on the Group’s internal controls, please refer to risks, credit risks, capital risks and liquidity risks. The Board approves pages 51 and 52 of this Report. prudent financial policies and delegates certain responsibilities to Executive Management who directly control day to day financial operations and who Risk Management operate within clearly defined parameters.
Effective risk management is critical to the Group’s operations and is The Group carries substantial debt that needs to be repaid. The ability crucial to the continued growth and success of the Group. In order to to finance ongoing operations, committed aircraft orders and future fleet achieve the Group’s objectives and create shareholder value, the Group growth plans is vulnerable to various factors including institutions’ appetite does take risks but fully understands and effectively manages the risks for secured aircraft financing. The Group attempts to maintain substantial it takes in order to minimise loss and maximise opportunities. In order to cash reserves and committed financing facilities to mitigate the risk of give effect to same, the Group follows a comprehensive risk management short-term interruptions to the aircraft financing markets. The Group, in process, which involves identifying, understanding and managing the risks addition, continually monitors its cash position and further undertakes associated with its various businesses. As the Group, through its various long-term planning of its capital requirements. business units, is exposed to a wide range of risks, some of which may have serious consequences, the identification of risk and its management For more information regarding the Group’s response to this risk, see the forms part of Executive Management’s business plan. Risk priority registers Annual Financial Statements in this Report. are used to identify, assess and monitor the risks faced by the Group and are prepared by each business department. The risk priority registers are Currency Fluctuations combined into a group risk register by the Group’s Risk Management The Group reports in South African Rands, the exchange rate of which Forum and are prepared, discussed and assessed by the Group’s Risk varies relative to other currencies. A significant portion of the Group’s costs Management Committee, which in turn reports to the Board. The Group are incurred in foreign currencies, mainly the United States Dollar. The prioritises risks based on the likelihood of the risk occurring, i.e. as either movement of these currencies could have a positive or negative impact on almost certain to occur, likely to occur, possibility of occurring, unlikely the Group’s income, expenses and profitability. Unrealised and realised to occur, and categorises each risk as high, medium or low, detailing the currency gains or losses may distort the Group’s financial accounts. The impact of the risk, the consequence of same and the mitigating factors Group has a policy in place to govern the hedging of currency exposure. put in place. A Risk Management Forum comprising the CEO, the Chief Risk Officer, the Chief Audit Executive and certain Executive Management For more information regarding the Group’s response to this risk see the meets at least four (4) times per year to assess and consider the risks Annual Financial Statements in this Report.
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Oil Price Fluctuations Non-beneficial Increases in Airline Tickets As with foreign currencies, the Group incurs substantial costs with regard There is an extremely high correlation between the volume of air travel to the purchase of fuel for its Aircraft. The Group has a policy to hedge and the average price of airline tickets in the domestic market. Various portion of its fuel requirements based on various instruments available and state owned suppliers to the aviation industry have implemented tariff where this is achievable. increases for users that are significantly greater than the rate of inflation and threaten to constrict the size of the market for air travel. There is also For more information regarding the Group’s response to this risk see the talk of government imposing carbon taxes on airline tickets. Furthermore, Annual Financial Statements in this Report. the Consumer Protection Act has, to a limited degree, impacted on airline commercial practices, which possibly could lead to an increase in ticket Safety of Passengers and Employees prices. As such increases in ticket prices do not benefit the airline and the A multitude of processes and structures is in place to monitor and report consequential constraint on demand will negatively impact industry revenue. on aviation safety, quality and security within the Group and its operating environment. The Group maintains an IOSA (“IATA Operational Safety For more information regarding the Group’s response to this risk, see the Audit”) registration, thereby ensuring the implementation of global best Sustainable Development Report and the Annual Financial Statements practice in managing its operational safety, and is also audited by British in this Report. Airways Plc as well as the South African Civil Aviation Authority. Political and Economic Developments For more information regarding the Group’s response to this risk, see the The state of the local economy impacts on the profitability of the aviation Sustainable Development Report in this Report. industry, and the political climate affects the number of visitors from overseas to the Southern African region. Strikes and labour disruptions Aircraft Safety by suppliers to the Group have the potential to constrain the operation Maintenance of the Group’s fleet of Aircraft is regulated by the South of the airline. The Group monitors global and local trends in order to African Civil Aviation Authority and, in certain instances, the Federal adapt its business strategy accordingly. Political instability in any country Aviation Authority of the United States, and the European Aviation Safety into which the Group operates its services could also affect the Group. Authority. While the Group outsources the maintenance of its fleet of aircraft The Group therefore undertakes risk assessments before embarking on and engines to the likes of South African Airways Technical, Israeli Aircraft new routes in Africa and internationally, and continually reviews those Industries, Singapore Aerospace, it maintains an oversight function over risks, and is assisted in this regard through its Licence Agreement with all these entities and ensures that it maintains a good relationship with the British Airways Plc and through its membership of the International Air South African Civil Aviation Authority. The Group, in addition, runs a safety Transport Association. management system to address all aspects of aviation and ground safety. For more information regarding the Group’s response to this risk see the For more information regarding the Group’s response to this risk, see the Sustainable Development Report and Annual Financial Statements in Sustainable Development Report in this Report. this Report.
Brand Reputation Economic and Business Environment The Group’s brands have significant commercial value. Erosion of the The Group’s revenues are sensitive to the economic and business brands may adversely impact the Group’s position with its customers environment. A downturn in the general economic and business environment and could ultimately affect future revenue and profitability. The Group’s could affect the Group’s revenues and operations. The Group therefore Executive team regularly monitors customer satisfaction through monthly continually monitors developments in the economic and business surveys as well as ongoing improvements in the Group product offering environment for trends and early warning indicators. Executive Management in order to mitigate this risk. The Group allocates substantial resources to and the Audit Committee regularly review the Group’s revenue forecasts. safety, security, onboard product and new aircraft. For more information regarding the Group’s response to this risk, see For more information regarding the Group’s response to this risk, see the the Sustainable Development Report and Annual Financial Statements Sustainable Development Report in this Report. in this Report.
Integrated Annual Report 2013 17 existencethe fact or state of living or having objective reality
Internal Control and Risk Management (continued)
Competition community constantly reviewing processes and developing new products. The market in which the Group operates is highly competitive which is Nevertheless, the Group is always faced with managing the risk presented augmented by the fact that the country’s biggest airline is owned by the by new technology, new developments by its competitors or the speed of state. Direct competition is faced from other airlines on the routes the development. Group operates and from other modes of transport. Competitor capacity growth in excess of demand growth could materially impact the Group’s For more information regarding the Group’s response to this risk, see the margins. Some competitors have other competitive advantages such as Sustainable Development Report in this Report. being funded and supported by government intervention. Fare discounting by competitors has historically had a negative effect on the Group’s results Information Systems Security and Availability Risk because a response is generally required to competitor fares to maintain The Group is dependent on information technology (“IT”) systems for most passenger volumes. The Group has a strong market position, a good alliance of its principal business processes. The failure of a key system may cause with British Airways Plc and a diverse customer base to address this risk. significant disruption and/or result in lost revenue. System controls, disaster recovery and business continuity arrangements exist to mitigate the risk For more information regarding the Group’s response to this risk, see the of a crucial system failure. The Group has launched several initiatives to Sustainable Development Report and the Corporate Governance Report cover not only information system security and availability risk, but also IT in this Report. governance in accordance with the requirements of King III. The Board has also appointed a Chief Information Officer. The Group has, in addition, Legislation and Regulation implemented software dealing with IT systems security. No security breaches Regulation of the airline industry is increasing and covers many of the occurred during the period under review. As regards systems and network Group’s activities such as safety, security, traffic rights, slot control access availability, the Group’s IT department has worked closely with its service and environment controls. In order to mitigate these risks, the Group providers to ensure that a better than 99% (ninety-nine percent) up time attempts, amongst other things, to maintain a good working relationship was achieved on the Group’s networks and customer facing systems. with the government departments it interacts with, the Airports Company of South Africa and other regulatory and industry bodies. Notwithstanding For more information regarding the Group’s response to this risk, see same, bilateral treaties governing route rights within the African continent the Corporate Governance Report and Annual Financial Statements in have had a major impact on the Group’s ability to expand its operations this Report. into the African region. Landing Fees and Security Charges For more information regarding the Group’s response to this risk, see the Airport taxes, landing fees and security charges represent a significant Sustainable Development Report in this Report. operating cost to the Group and have an impact on operations. Whilst certain of these charges are passed on to passengers by way of surcharges Technical Innovation and taxes, others are not. The Group regularly engages with various Technology forms an integral part of the Group’s business. While the Group’s industry bodies and government in an attempt to keep these costs British Airways brand is, to a large extent, dependent on developments under control. implemented by British Airways Plc, the Group’s kulula brand is not, and the Group devotes significant resources to information technology For more information regarding the Group’s response to this risk see the in respect of this brand, including the development of new products and Sustainable Development Report and Annual Financial Statements in services, as well as analysing emerging trends in information technology this Report. and consumer behaviour. The Group, during 2012, embarked on one of the single biggest business transformations in its history whereby a suite of Employee Relations integrated solutions procured from Sabre Airline Solutions, including a new A large number of the Group’s employees in South Africa are members of reservations platform for kulula.com was implemented. The transition to trade unions. The Group strives to maintain a good working relationship the new platform provides the organisation with an integrated solution that with the trade unions where the Group has recognition agreements in place will, in the medium- to long-term result in greater efficiencies, improved and enters into substantive negotiations annually. The Group further has and wider distribution capabilities and the benefit of access to a global a strike action policy in place.
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For more information regarding the Group’s response to this risk see the Broad-based Black Economic Empowerment Sustainable Development Report in this Report. The Group recognises the importance of implementing a broad-based black economic empowerment (“BBBEE”) programme that addressed Key Supplier Risk the inequality of the past and regularly reviews its BBBEE strategy, so as The Group is dependent on suppliers for some principal business processes. to ensure that the Group remains an integral part of the political, social The failure of a key supplier to deliver contractual obligations may cause and economic community in South Africa. In addition, the International significant disruption to operations. A close relationship is maintained Air Services Licensing Council and the Domestic Air Services Licensing with key supporters in order to ensure awareness of any potential supply Council review the BBBEE score of companies applying for licences in chain disruption. The Group further continually monitors its key suppliers. deciding on who to grant such licences to.
For more information regarding the Group’s response to this risk, see the For more information regarding the Group’s response to this risk, see the Sustainable Development Report in this Report. Sustainable Development Report.
Fraud (Credit Card, Cash, System) Skills Shortages The Group has implemented a number of risk mitigants to cover credit card, The training, employment and retention of skilled staff, with particular cash and systems fraud, such as, but not limited to, the implementation reference to pilots, remains a major challenge, particularly pilots from of Cybersource software and the possible implementation of 3D Secure in previously disadvantaged groups. The Group has attempted to address respect of credit card fraud; strict controls and authorisation frameworks this challenge through its cadet pilot training programme and through its for use of Travel Bank; internal write off accounts in respect of systems policy of having its pilots sign training bonds in an attempt to ensure that fraud; strict controls over access and transfer rights; regular password they remain in the employ of the Group for a certain period of time to cover changes in respect of bank accounts; and daily bank reconciliations, with the cost of their training. immediate investigation of discrepancies in respect of cash fraud. The Risk Management Committee and, where appropriate, the Audit Committee, For more information regarding the Group’s response to this risk, see the considers any incidents of fraud and corruption. As a result of recent Sustainable Development Report. fraud experienced, the Group has appointed Grant Thornton to conduct an independent third party review of fraud relating to the sale of tickets. Environmental Impacts, Industry Emissions and Waste Management For more information regarding the Group’s response to this risk, see The aviation industry is extremely vulnerable to climate change response the Corporate Governance Report and Annual Financial Statements in policies, especially where these involve the pricing of carbon emissions. this Report. The progress made at the International Civil Aviation Organisation (“ICAO”) General Assembly in October 2010, where 190 member sates agreed to State Funding of South African Airways (SAA) the aspirations of achieving carbon neutral growth from 2020, together with During the period under review, the Group launched a legal challenge the global airline industry vision for a sector-wide approach of enabling in the High Courts of South Africa against the government’s R5 billion carbon neutral growth by 2020 and a huge reduction in emissions by 2050 guarantee provided to SAA on the basis that such action was contrary to places enormous pressure on the Group to abide by and be an industry the government’s domestic aviation policy implemented just prior to the leader in this area. The Group support these aspirations, as well as the deregulation of the South African skies to create an equal playing field implementation of a framework for reducing aviation emissions based on amongst domestic competitors, and in contravention with, amongst others, carbon trading that is applied equally to all airlines and all industries as a the Public Finance Management Act. No court date has yet been set for the whole. In response to these pressures the Group has embarked on a number hearing of this matter, and the Group sincerely hopes that it will be able to of initiatives to reduce its environmental impact, including the introduction amicably settle the matter with government without the need for litigation. of more fuel-efficient and quieter aircraft, as well as continuously measuring and monitoring its emissions and waste management. For more information regarding the Group’s response to this risk, see the Sustainable Development Report and Annual Financial Statements For more information regarding the Group’s response to this risk, see the in this Report. Sustainable Development Report.
Integrated Annual Report 2013 19 inventionthe achievement of a unique function or a radical breakthrough
Sustainable Development Report
Introduction • Silver PRISM award for “kulula’s ridiculously posh Boeing launch”; and The Group is firmly committed to managing its business in a sustainable • The Sunday Times Top Brands Award – second place in the way and upholding high standards of ethics and corporate governance Business category. practices. The benefits of delivering on these commitments are many; through our sustainability efforts we maintain our business integrity, maintain International Awards: and improve the confidence, trust and respect of our stakeholders and • Simplifying Awards for Social Media Excellence – second place in increase our ability to attract and retain staff. Aviation is an economically the “Best use of Social Media to Drive Customer Service” category. vital activity generating employment and wealth across the world and it is thus important that we develop a truly sustainable industry. Loerie Awards: The Loerie Awards are presented each year in recognition of and to reward The Group’s track record on delivering growth and creating long-term value and foster creative excellence in all areas of brand communication. In this is testament to our strategy of being a long-term player and delivering a category the Group was awarded the following in respect of its SLOW in sustainable business. While growth, profitability and creating value are the City brand”: certainly major strategic drivers, this cannot be achieved unless we offer a safe, secure, reliable and quality product; value our employees by • Gold award for interior design; following fair labour practices and offer fair remuneration, training and • Silver award for the brand identity; and development opportunities; respect the communities in which we operate • Silver award for the best media campaign. and contribute to the wellbeing of society; and care for and manage our impact on the environment. Route Network It is evident from our profile that we operate in a highly regulated environment. We are a South African Group operating scheduled and non-scheduled We manage the risks effectively as reported in our Corporate Governance airline services as our main business under both our kulula and British and Internal Control and Risk Management Reports and despite the many Airways brands (under licence from British Airways Plc) in South Africa, challenges faced by the airline industry, we are confident that we are sub-Saharan Africa and the Indian Ocean Islands as well as providing other involved in a growing and sustainable business, delivering value to all our travel related services, airline pilot training facilities and operating airline stakeholders in the short, medium and long term. lounges. While the British Airways brand operates flights into sub-Saharan Africa and the Indian Ocean Islands and the Group advertises its flights on The Group received the following external recognitions and achievements both its kulula and British Airways brands for sale through global distribution during the period under review. systems, the majority of its revenue is earned in South African Rands with a small portion being earned in foreign currency, which foreign currency British Airways: is repatriated to South Africa. During the period under review, the Group • The Sunday Times Top Brands Awards – First in the Business to operated 40,767 flights (one-way sectors) using bigger aircraft and carried Business category; 5,050,873 customers. In the prior reporting period the Group operated • The Sunday Times Top Brands Awards – Second in the Business 40,153 flights and carried 4,795,733 customers. A diagram reflecting all to Consumer category; and the destinations to which the Group’s two brands provided scheduled air • ACSA Feather Awards for Best Domestic Full Service Airline at services during the period under review is set out below. Cape Town and King Shaka International Airports.
kulula.com – Local Awards: • Bronze Eagles for “kulula’s 4th wife” print; • Creative Circle Ad – 3rd place of the Month Award for Radio for “kulula man go ad”;
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British Airways Route Network the stakeholder engagement process undertaken by the Group, as well as to disclose the key topics raised as a result of this process, and the London and the world Group’s response in this regard.
Engagement with Stakeholders Livingstone The Group’s commitment to its stakeholders to conduct its business Harare Victoria Falls in a responsible and sustainable way and to respond to their needs is Windhoek Mauritius entrenched in the Group’s values. The nature of the Group’s business Maputo requires close engagement with its stakeholders including but not limited Johannesburg to customers, employees and trade unions, suppliers, government and Durban authorities, industry associates, investors and the media. Communication Cape Town Port Elizabeth with stakeholders is important in maintaining the Group’s reputation as a trusted and reliable provider of airline and related services. One of the Group’s main objectives is to become the premier domestic and regional airline in sub-Saharan Africa and the airline of choice for travellers within kulula.com Route Network its operating environment. The Group, in addition, values the importance of its brands, namely British Airways, kulula and SLOW, and has taken the necessary legal steps to protect them. A diagram reflecting the Group’s brands is set out on page 5 of this Report.
Johannesburg (Lanseria) Johannesburg (OR Tambo) The Group, having regard to the importance and power of social media, has adopted a social media strategy allowing it to communicate with its customers through this media. The social media platforms used by it are Durban mainly Twitter, Facebook and YouTube.
While there have been no incidents of material non-compliance with any applicable regulations or legislation concerning marketing communication, Cape Town East London George the Group was, during the period under review, taken to the Advertising Standards Tribunal by South African Airways in respect of its “Most South African way to travel” advertising campaign on the basis that the advertising campaign was a flagrant breach of the Advertising Standards Authority Management Approach Code. The Advertising Standards Tribunal dismissed South African Airways’ The Group Sustainable Development Manager is Mr Derek Borer, the application. South African Airways has taken the decision on appeal Group Company Secretary, who, as part of the Group’s Social and to the Final Appeal Committee of the Advertising Standards Authority, Ethics Committee, is responsible for the compilation of this Sustainable which is being defended by the Group. The appeal will be heard on Development Report. The Social and Ethics Committee is also responsible 26 September 2013. for developing and reviewing Group policies with regard to social and economic development, good corporate citizenship and for making No requests for information were received in terms of the South African recommendations to the Board and/or Management on matters within its Promotion of Access to Information Act. mandate. See the Social and Ethics Report for more information in this regard. The content of this Sustainable Development Report is driven by As part of its ongoing operations, the Group frequently engages with various the material risks and opportunities impacting the Group’s ability to achieve stakeholder groups. The Group defines stakeholders as “anyone who its objectives, as set out in the Internal Control and Risk Management affects or is affected by the Group”, and in deciding on which stakeholder Report. In addition, this Sustainable Development Report aims to explain groups to concentrate its engagement efforts, the Group considered the
Integrated Annual Report 2013 21 inventionthe achievement of a unique function or a radical breakthrough
Sustainable Development Report (continued)
significance of the various stakeholder groups in the achievement of the level such as, but not limited to, airline lounge access, dedicated check-in Group’s strategic objectives. Only those significant stakeholder groups that processes and priority waitlists. could fundamentally impact the ability of the Group to achieve its strategic objectives were engaged. The kulula credit card The kulula credit card is a Visa credit card which is issued, owned, financed Customers and administered by First Rand Bank Limited, which is an authorised Providing a safe, secure, reliable and quality experience on both of the financial services and registered credit provider. Customers can earn Group’s airlines brands as well as in its travel related business is core to up to 3% back in kulula moolah when using their kulula credit card to the Group’s business and it therefore strives to be the airline of choice purchase various goods and services. kulula moolah can be used to pay for all travellers within its operating environment. The Group continually for or towards flights sold via the kulula website. kulula moolah is a virtual measures customer satisfaction through various surveys to identify areas currency with one kulula moolah equalling R1. for improvement in order to ensure it provides a quality service. No issues of a material or significant nature were raised by customers during the Magazines period under review. The Group, in addition, prints two onboard magazines, namely, High Life South Africa for its British Airways brand, and khuluma for its kulula brand, The Group does monthly research on its brands, subject to that which is which magazines cover a number of subjects including pertinent information detailed later in this Report, to determine its performance and identify areas relating to the Group and its business. Twelve issues are printed per year of that need improvement. The result of the research undertaken is shared each magazine title (one per month). The circulation for High Life South Africa amongst relevant staff members, where concerns raised are addressed. is 16,000 per month and for khuluma, 21,000 per month. The magazines Please refer to the section in the Sustainable Development Report under are made available onboard the aircraft and High Life South Africa is also Customer Experience for more information on the research tools used and available in the SLOW Lounges. Other mediums of communication with the overall performance of each of the Group’s brands. customers and potential customers include direct e-mail communications to the Group’s respective customer databases, onboard announcements To enhance the quality of its service the Group provides access to its SLOW and advertising campaigns (including radio, TV, outdoor, print and on-line) Lounges, at OR Tambo International Airport, Cape Town International as well as social media channels such as Facebook, Twitter and Youtube. Airport, King Shaka International Airport and SLOW in the City situated opposite the Gautrain station in Sandton to qualifying customers (i.e. Gold Employees and Trade Unions and Silver Executive Club Members, business class customers, the Group’s The Group’s business is also about the people it employs, and gaining the VIP guests and RMB qualifying clients). In addition, the Group participates trust and respect of its employees is vital to its success. Paying attention to in and runs two loyalty programmes/ initiatives known as the British Airways and responding to employee needs through effective communication and Executive Club and the kulula credit card as follows. sound labour relations is important in being considered as an employer of choice among existing and prospective employees, and vital to maintaining a British Airways Executive Club contented and loyal workforce. Employees are treated with respect, receive The Executive Club is British Airways Plc’s global frequent flyer programme competitive remuneration and are involved in the day-to-day running of designed to recognise and reward loyal members, with the aim of making the business. All employees have access to the Group’s e-mail facility and their travel more enjoyable and rewarding. Executive Club members earn intranet. The Group communicates with its employees in a variety of ways Avios points (previously referred to as BA Miles) whenever they fly on British including, but not limited to: Airways, a partner airline or on one of the oneworld® alliance partners. The number of Avios points which members earn depends on the distance • The My Comair intranet. The My Comair intranet provides a they fly, the cabin they travel in, the type of ticket they purchase and their platform to inform employees of current news and events, Executive Club tier status. Members can also collect Avios points with newsletters from the CEO, classifieds, corporate information, British Airways’ worldwide hotel, car rental, financial and shopping partners social responsibility feedback, a library of standard templates to and credit card providers, even when they are not flying. In addition to assist employees in the performance of their duties, policies and Avios points, members also earn Tier Points. Tier Points allow members procedures, standard forms for leave and employee travel benefits, to move from Blue to Bronze, to Silver and finally Gold Executive Club as well as travel and related specials made available to employees status, enabling them to enjoy additional benefits associated with each tier which the Group has been able to secure from various suppliers;
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• Direct e-mails to employees; There was no strike action during the period under review. However, • Bi-weekly newsletters to employees from the CEO known as Plane unionised airport staff who belong to SAAAWU did refer a wage negotiation Talk; dispute to the CCMA. The Group and the Union were fortunately able • Ad hoc marketing communications in respect of the Group’s two to resolve the dispute with the parties having entered into a three-year brands; salary agreement. SAAAWU also referred a dispute to the CCMA regarding • Ad hoc IT communications known as IT Talk; bonuses, which dispute was withdrawn by SAAAWU. The Group, in • Ad hoc communications from the Learning and Development addition, reached a three year salary agreement with both the pilots’ and Department; the cabin crew unions. • E-mail notification to employees of changes in policies and procedures; and Other than the above-mentioned, no other material or significant issues • Interactions with employees through various workplace forums and were raised by employees or trade unions during the period under review. the Employment Equity Forum. Human Rights The Company, in addition, has the following programmes in place for all The United Nations Global Impact is an international initiative that addresses employees: human rights, labour, environmental and corruption issues through a commitment to ten principals derived from the Universal Declaration of • Think Vision. This is the Group’s formula for success and was Human Rights. The information set out below provides a brief overview formulated in consultation with employees to identify values and of the Group’s implementation of the ten principles as further dealt with behaviours that are beneficial to the Group and to eliminate those in this Report. values and behaviours which are detrimental; • Catalyst Awards. This is a programme that encourages employees • Business should support and respect the protection of to implement the Think Vision philosophy and to inspire other International Proclaimed Human Rights employees to do the same; The Group’s human rights policy is part of the “Guidelines to the • The Precious Cargo Programme. This was created to assist Code of Ethics”. Human rights principles are incorporated in the employees with balancing the demands of work and family life. Group’s labour relations policies and practices and corporate social Details of this programme are dealt with further on in the Report; responsibility initiatives. • Tip Offs Anonymous. This is an anonymous whistle blowing facility to enable employees to report any suspicious activities. • Make sure that they are not complicit in human rights abuses The Group adheres to this principle through its compliance with all Currently approximately 50% (946 of the 1,912 employees in South applicable legislation. Africa) are members of trade unions compared with 54% (1,003 of 1,853 employees) during the previous reporting period. The Group strives to • Business should uphold the freedom of association and effective maintain good working relationships with the trade unions, where it has recognition of the right to collective bargaining recognition agreements in place and enters into substantive negotiations The Group recognises the rights of employees to collective annually. These negotiations mainly focus on salary increases and bargaining and to freedom of association in accordance with all improvements to employment conditions. Current union membership is relevant South African labour legislation. It maintains constructive as follows: relationships with all representative unions who enjoy consultative and negotiating rights on issues of employee rights and mutual 2013 2012 interests. Solidarity 188 194 • The elimination of all forms of forced and compulsory labour United Association of South Africa (“UASA”) 89 28 All the Group’s employees are sourced from the open labour South African Aviation and Allied Workers 517 603 market. Employees are provided with employment contracts and Union (“SAAAWU”) are free to resign at any time. Comair Pilots Association (which is affiliated to 152 178 the Airline Pilots Association of South Africa)
Integrated Annual Report 2013 23 inventionthe achievement of a unique function or a radical breakthrough
Sustainable Development Report (continued)
• The effective abolition of child labour Suppliers The Group does not make use of child labour and does not The Group is dependent on a number of suppliers who form an integral support the use of child labour in any form whatsoever. It does, part of its ability to provide a safe, secure, reliable and quality service. The in certain instances, provide employment opportunities for school Group attempts to build up long-term relations with suppliers who are of leavers, provided that such persons meet the International Labour vital importance to it, based on the principle of mutual trust and respect. Organisation’s employment age requirements. Regular meetings are held with suppliers to ensure continuity of service. It further relies on its suppliers to deliver products and services in line with • The elimination of discrimination in respect of employment and its own standards. Other criteria also play an important role in selecting occupation suppliers, such as compliance with international and local quality standards, The Group is committed to compliance with the intent and price, stability of the organisation support network and technical capacity spirit of employment equity legislation in the workplace. It is and the BBBEE status of South African suppliers. Any form of purchase further committed to meeting its targets to achieve an equitable incentive is prohibited and the Group’s whistle blowing facility is available representation of race and gender in the workplace. An analysis to suppliers. Employees involved in the purchasing of equipment are of the Group’s employment equity status is set out later in this bound by strict ethical principles ensuring that high standards of integrity Sustainable Development Report. are maintained in the supplier relationship.
• Businesses should support a precautionary approach to No material or significant issues were raised by suppliers during the period environmental challenges under review. This will be the third time the Group reports on its emissions in terms of the Corporate Accounting and Reporting Standards of the British Airways Plc Green House Gas Protocol. Its environmental performance is set The Group entered into a Licence Agreement with British Airways Plc (“BA”) out later in this Sustainable Development Report. in and during the 1996 calendar year in terms of which it was granted a licence to operate flights using BA intellectual property and in accordance • Undertake initiatives to promote greater environmental with BA style of business, tweaked to meet local conditions. In terms of the responsibility Licence Agreement, BA provides other services to the Group such as, but The Group undertakings in this regard are set out later in this report. not limited to, access to the BA frequent flyer programme. As mentioned above, the Licence Agreement has been in operation for almost 17 years • Encourage the development and diffusion of environmental and has, in the Group’s view, been highly beneficial to both BA and the friendly technologies Group. No issues of a material or significant nature were raised by BA The Group is committed to developing and diffusing during the period under review. environmentally friendly technologies where both a clear benefit and business case can be made for the introduction of this Government and Authorities technology, such as, but not limited to, the new fleet of aircraft The Group remains committed to working with government and other introduced into service, which are more environmentally friendly, relevant authorities to ensure: as set out later in this Sustainable Development Report. • The maintenance of a safe, reliable, competitive and commercially • Businesses should work against corruption in all its forms, viable air transport sector where all operators are afforded equality including exploitation and bribery of treatment by government and the authorities; The Group’s commitment to combating corruption is embodied in • The provision of air transport infrastructure that is affordable to and its Code of Ethics as detailed in the Corporate Governance Report. consistent with the requirements of the air transport sector and the Allegations of fraud and corruption are rigorously investigated and, travelling public; and where sufficient evidence exists, appropriate disciplinary action is • The provision of air travel at a cost that is affordable to South enforced including the dismissal of offending employees. African consumers and in line with internationally accepted airline service standards and practices.
24 Integrated Annual Report 2013 Integrated Annual Report 2013
Government Financial Assistance has continued to participate in the Airlines Association of South The Group received no financial assistance from government nor did it Africa (“AASA”) initiative to alert the DoT and other government make any contribution towards any political party. departments to concerns about the implementation of the Cape Town Convention and Aircraft Equipment Protocol into South Government, Regulatory and Industry Bodies African (“SA”) Law which impacts on the ability of South African The airline industry is subject to extensive government and regulatory Airlines to obtain discounted aircraft financing rates. Under the oversight relating, amongst other things, to safety, security, licensing traffic auspices of AASA, various meetings were held with senior officials rights and consumer protection. The Group regularly communicates and from the DoT and other government departments to discuss the interacts with the following governmental, regulatory and industry bodies, issue and agree on a remedy for the problem. The DoT is now and no material or significant issues were raised by these bodies during leading an inter-departmental committee which is evaluating the the period under review: measures needed to correct the implementation difficulties with the Cape Town Convention. Government and Regulatory Bodies • International Air Services Council • Department of Transport International air services operated by South African carriers The Department of Transport (“DoT”) is responsible for providing between South Africa and other countries remain regulated with secretarial support to the two licensing councils and the Airports respect to traffic rights, frequency and capacity. The International Company of South Africa (“ACSA”) and Air Traffic and Navigation Air Services Council (“IASC”) is the authority responsible for issuing Services Company (“ATNS”) Regulating Committee; for ensuring licences to South African operators wishing to operate air services entity oversight of ATNS, ACSA and the South African Civil to regional and international destinations. During the period under Aviation Authority (“SACAA”); for conducting bilateral air service review, the Group was successful in obtaining an international negotiations with foreign governments; and for managing aviation licence to operate 1,376 seats per week on the route between industry involvement in major events. The Group interacts, Johannesburg and Maputo, Mozambique. An application to the co-operates with and provides feedback to the DoT in all these IASC in July 2012 to operate an additional three frequencies per areas. The Group strongly supports the concept of a de-regulated week on the route Johannesburg – Harare was unsuccessful, but a and competitive domestic airline industry where all airlines subsequent application in April 2013 for rights on the same route are required to comply with applicable aviation legislation and was granted. The Group also relinquished capacity to operate compete fairly and equally with one another for market share. on the routes, Johannesburg – Dar Es Salaam, Johannesburg – However to ensure stability and legality in the domestic airline Gaborone, Johannesburg – Walvis Bay and Johannesburg – Kigali, industry, the Group has made various written representations which route rights had not been utilised for a period of more than to the Minister of Transport and the two licensing councils with one year. The Group maintains an excellent working relationship respect to the legal requirement that 75% of the ownership in with this Council. South African airlines must be held by South African residents. This issue came about as a result of an exemption application by • Air Services Licensing Council Fastjet Plc to purchase 100% of the shareholding in the insolvent Domestic air services within the Republic have been de-regulated 1Time Airlines. Fastjet Plc later decided to abandon its plans to since 1990. Therefore the Air Services Licensing Council’s purchase 1Time and also withdrew the exemption applications (“ASLC”) responsibilities are restricted to the issuing of air service to the Minister. Subsequent to the period under review, Safair licences to new applicants, ensuring the safety and reliability of air Operations (Pty) Ltd (“Safair”) applied for a scheduled air service services operated within South Africa and adjudicating complaints licence to operate scheduled services in South Africa. The Group of non-compliance with the Air Services Licensing Act. As the objected to Safair’s application on the basis that 75% of the Group has held and maintained a Class I and Class II Air Service shareholding in Safair is not held by South African residents. The Licence for many years, it only appears infrequently before the Air Services Licensing Council dismissed the Group’s objection. Council to either answer questions on its published annual financial The Group has referred the Air Services Licensing Council’s results or to amend certain details on its licence. During the period decision to the High Courts of South Africa for review. The Group under review, the Group submitted one amendment application to
Integrated Annual Report 2013 25 inventionthe achievement of a unique function or a radical breakthrough
Sustainable Development Report (continued)
the Council to change the particulars of its Air Safety Officer. This • Air Traffic and Navigation Services Company amendment application is still awaiting the approval of the ASLC. Air traffic and navigation services in South Africa are provided by It also made representations to the Council against an amendment the Air Traffic and Navigation Services Company (“ATNS”). During application by Fastjet Plc to purchase 100% of the shareholding the period under review, the Group had regular meetings with in the insolvent airline, 1Time Airlines, and subsequent to the ATNS and co-operated in developing the first Global Navigation reporting period, objected to the Scheduled Air Services Licence Satellite System (“GNSS”) VNAV Baro Approach into Lanseria applied for by Safair Operations (Pty) Ltd. International Airport, Runway 06L. This has resulted in significant cost reductions and improvement in efficiencies for the Group. The • South African Civil Aviation Authority Group regularly interacts with ATNS on an operational level and The South African Civil Aviation Authority (“SACAA”) is the body maintains a very good relationship with this service provider. responsible for controlling and regulating civil aviation safety and security in South Africa. As safety and security is the Group’s • National Consumer Commission number one priority, it interacts and co-operates on a regular basis The Group has co-operated with the National Consumer with the SACAA to ensure that it maintains and in some areas Commission (“NCC”) by providing expeditious responses to exceeds the safety and security standards required by the SACAA. all consumer complaints referred to it by the NCC as well as Besides the usual interaction between the Group and the safety by participating in NCC initiated conciliation proceedings with regulator during the period under review, the Group’s involvement consumers whose complaints are not initially resolved. Almost all with the SACAA has concentrated on co-coordinating the factory consumer complaints are dealt with directly between the Group inspection and registration of the new B737-800 aircraft by the and the consumer. No significant complaints were received during Authority so that the delivery schedule and introduction into the period under review and almost all complaints were resolved to operation of the new aircraft could be achieved. Throughout this the satisfaction of the consumer with no complaints having been process, the Group and the SACAA worked well together. Group referred to the Consumer Tribunal. The Group, via AASA, has management continues to maintain a positive and good working further co-operated with the NCC through the development of a relationship with the Authority. draft Airline Industry Code intended to provide guidance on how the airline industry will deal with specific airline related consumer • Airports Company of South Africa matters and compensation issues. The Draft Code has been Most large airports in South Africa are owned and operated by the submitted to the NCC and a response thereon is awaited. Airports Company of South Africa (“ACSA”). At an operational level, the Group interacts with ACSA on a continuous basis and maintains Industry Bodies a fulltime representative in the ACSA Airport Management Centre at OR Tambo International Airport. The Group, together with the • Airlines Association of South Africa Airlines Association of South Africa (“AASA”) also engages ACSA The Airlines Association of Southern Africa (“AASA”) is an on the important issues of airport user charges and the standard of organisation formed to promote and protect the interests of its service provided by ACSA to airport users. During the period under member airlines operating within the Southern African region. review, as part of the IATA Runway Excursions and Incursions The Group actively participates in both the activities of and Initiative, the Group attended the ACSA Runway Safety Team management of the Association. It believes that the association meetings for the purpose of indentifying and mitigating runway is vital to ensuring a healthy and commercially successful airline hazards. The Group, in the prior reporting period, raised a concern sector in Southern Africa. The Group supports AASA by providing regarding a 70% increase in ACSA passenger service charge which it with data and information on a variety of airline issues; by giving was implemented on 1 October 2011 and which increase affected feedback and comment on AASA position papers and submissions; the Group’s operating costs and reduced passenger demand for air and by participating in the various AASA delegations that attend services. The Group participates, on an ongoing basis, with AASA, important stakeholder meetings. During the period under review, in to implement regulations to better structure the permission process addition to participating in the standard AASA activities, the Group for the setting of ACSA tariffs. continued participation in the AASA initiative to brief government on certain deficiencies in South Africa’s implementation of the
26 Integrated Annual Report 2013 Integrated Annual Report 2013
Cape Town Convention and Aircraft Equipment Protocol. A series of It believes that social responsibility is a duty, privilege and obligation to help individual meetings were held with the Departments of Transport, those less fortunate and to make some impact on society in general. For Public Enterprises, Trade and Industry, Justice, International more information regarding the Group’s engagement with the community, Relations and Co-operation as well as the SACAA to brief them on refer to the section dealing with community involvement on page 38 of the problems with the Cape Town Convention. Thereafter, a joint this Report. industry/government workshop on this issue was hosted by AASA in April 2013, which resulted in the government departments Media setting up a committee under the leadership of the DoT to review The media plays an important role in the Group’s engagement with all its the corrective measures needed to properly implement the Cape stakeholders. The Group interacts on a regular basis with the media by Town Convention into SA Law. The findings of this committee are issuing press releases to both the corporate and trade media as well as due shortly. granting media interviews to share news on developments related to the Group. No material or significant issues were raised by the media during • The International Air Transport Association the period under review. The International Air Transport Association (“IATA”) is responsible for promoting safe, reliable, secure and economical air services and The objective is to position the Group in the media as a trusted player in the fostering inter-airline co-operation. IATA also operates the airline airline industry – a ‘champion’ of the people; to position its management clearing house in Geneva which processes and allocates financial as leaders on industry issues; to educate the media about its business credits and debits between member airlines and administers and how the industry operates; as well as to broaden the Group’s profile the IOSA airline safety audit scheme. The Group maintains its amongst the travel industry media. membership of IATA, participates in the clearing house and undergoes a bi-annual IOSA safety audit. The Group’s Response to Material Risks and Opportunities Identified Investors The Group’s main objective is to create value for its shareholders. Reports to its shareholders are aimed at providing a clear understanding of the Issues Impacting the Group, its Strategic Group’s financial, economic, social and environmental performance both Direction and its Ability to Operate and Create positive and negative. Policies are in place to ensure that communications Value with shareholders are made available timeously and simultaneously.
The Group endeavors to maintain dialogue with its shareholders and Commitment to Quality other interested parties in the investor community and meets with its institutional shareholders twice a year after the release of its annual and Commitment to Safety and Quality of Service interim results. The Group’s website, www.comair.co.za, contains the The Group is committed to providing a safe, secure, reliable and quality latest, as well as historical, financial and other information about the service to its customers, and aims at being regarded as the airline Group, including its Integrated Annual Reports. The Board encourages of choice for corporate and individual travellers in all the areas and shareholders to attend its Annual General Meeting, notice of which is regions in which it operates. The safety and security of its customers is contained in this Report, at which shareholders have the opportunity to of paramount importance and the Group therefore ensures that a strong put questions to the Board. culture of safety and security exists among all employees, which goal is supported by a well defined reporting and management process to No material issues or topics were raised by investors during the period ensure that all safety and security issues are dealt with thoroughly and under review. effectively. This is formally documented in a Safety Management Manual that has been accepted by the South African Civil Aviation Authority. In Community addition, the Group maintains an International Air Transport Association The Group is a committed corporate citizen and, together with its employees, Operational Safety Audit (“IOSA”) Registration and has been audited and endeavors, wherever possible, to improve the lives of fellow South Africans. has passed all previous audits. The next bi-annual IOSA audit is due in
Integrated Annual Report 2013 27 inventionthe achievement of a unique function or a radical breakthrough
Sustainable Development Report (continued)
February 2014. The Group has also received unqualified audit ratings • Implementation of safety management system from British Airways Plc, the Boeing Company and the South African The Group has a safety management system (“SMS”) to address Civil Aviation Authority. The Group’s simulators have also been audited all aspects of aviation and ground safety. The purpose of the SMS by external airlines interested in making use of our simulator training is to ensure that safety management systems are in place and to facility and we accordingly have 21 airlines currently making use of the ensure that risks affecting safety are controlled and appropriately facility. Avions de Transport Regional (“ATR”) conducted an audit of the mitigated. The Director of Operations monitors the Group’s Group’s ATR72 simulator training facilities in the 2011 calendar year and performance against defined objectives and the Board reviews the the Group passed the audit with flying colours. Aviation Safety Goal matrix at its quarterly Board Meetings.
Security of customers is achieved by applying measures such as, but not Quality of Equipment limited to, ensuring that all customers, including the Group’s airline crew As mentioned above, the Group’s goal is to provide a safe, secure, reliable are screened together with their carry-on baggage, prior to entering the and quality service to its customers and the Group strives to procure the secure area of the airport; all baggage and cargo placed in the hold of the best and latest equipment and technology affordable to it in providing aircraft is screened; and no aircraft departs unless the customer and his/ such services. her baggage is onboard the aircraft subject to certain SACAA exemptions. Maintenance of its fleet of aircraft is regulated by the South African Civil The key safety and quality of service priorities applied by the Group are Aviation Authority and, as the Group leases in a number of aircraft from detailed below. foreign owned leasing companies, the Federal Aviation Authority of the United States and the European Aviation Safety Authority. The Group also • Implementation of the IATA Operational Safety Audit (“IOSA”) ensures compliance with directives issued by the manufacturers of the The IOSA is an internationally recognised and accepted evaluation equipment. Its buildings, plant and other equipment are also maintained system designed to assess the operational management and to a high standard to ensure a safe and user-friendly environment for control systems of an airline. The Group’s approach to aviation employees and customers. safety is one of oversight and audit as defined within the context of the discipline of the IOSA audit structure, namely, flight, The Group has, in the past financial year, made the following investments ground, cabin maintenance, security and dispatch. The Group in respect of equipment, plant and buildings: has participated in the IOSA programme since 2006 and has successfully undergone a total of four unqualified audits. • Continuous investments in maintaining the safety and reliability of its Aircraft. The Group subcontracts the maintenance of its aircraft • Implementation of runway safety measures and engines to South African Airways Technical (Pty) Ltd, Israeli Safety statistics show that runway excursions and incursions are Aircraft Industries and Singapore Aerospace. the most common type of accident or incident reported annually. In • Since the successful implementation of a business-wise airline response to this, ACSA has established consultative forums, in the enterprise reservation system from Sabre Airline Solutions in form of local Runway Safety teams, at each ACSA airport. The Group June 2012 at a cost of approximately R52 million, the Group actively participates in such forums. It also provides operational has continued to improve the system with new modules and guidance to the Lanseria Airport management team on their airport updated technology as and when required during the period under runway upgrade programme and associated infrastructure. review. This system has and will continue to deliver substantial improvements in revenue integrity, inventory management and • Training on preventing loss of control optimised ticket pricing as well as improved crew and airport staff The Group incorporates loss of control inflight training, as part productivity. of its continuous pilot training curriculum. Various exercises are • A substantial investment towards the acquisition of a new fleet practiced during such training. of Boeing 737-800 new generation aircraft, which, in addition to having delivered substantial fuel savings compared to the
28 Integrated Annual Report 2013 Integrated Annual Report 2013
B737‑400 fleet, also has a greater revenue generating potential kulula.com with its bigger seating capacity and requires less maintenance Previously kulula used a system called Attentive Customer Experience downtime. The Group took delivery of four new Boeing 737-800 (“ACE”). The ACE system was put in place with the assistance of a research aircraft during the period under review and will be taking delivery company called Ransys and was in line with GPMs. The ACE system was of a further four new Boeing 737-800 aircraft during the 2015 and a proactive live feedback solution, where randomly selected customers 2016 calendar years. In addition to the foregoing, the Group is were contacted via telephone and prompted with questions specific to also currently looking to purchase/lease a further two second-hand their unique customer experience. Upon further investigation, kulula B737‑800 aircraft during the 2013/14 financial year. decided to replace the Ransys customer experience management tool with the inQuba system. The inQuba system collects data using email based Customer Experience surveys to customers and at any given time up to 2,000 surveys can be In providing a safe, secure, reliable and quality service the Group continuously dispatched. The rate of return on these surveys is expected to be 10% undertakes to seek the best and most reliable tools to measure customer which will result in a much higher response then we previously experienced satisfaction levels in respect of both its British Airways and kulula.com as well as resulting in real time feedback and maintaining the integrity of brands. This information/research aids in identifying areas of improvement the Group’s data. The areas of the business being surveyed are Overall and in ensuring the delivery of a quality service to customers. Loyalty, Booking Experience, Flight Experience and Delays. The first batch of surveys went out on 8 July 2013 after several months spent on getting British Airways everything in place. As this new tool has only recently been launched we The Group conducts monthly onboard research amongst randomly selected are still gathering and collecting the data and, as the data collected will customers with the assistance of a research company called Catalyst. The provide a better indication of kulula’s brand performance, statistics on the research methodology is in line with the global brand’s research methodology previous system have not been reported on. known as Global Performance Measurements (“GPMs”). The overall customer satisfaction performance of the British Airways brand during the Broad-Based Black Economic Empowerment period under review is reflected in the table below. The Board views the Group’s business as an integral part of the political, British Airways overall performance social and economic community in South Africa and is committed to July 2012–June 2013 sustainable transformation as part of its business strategy. The Group recognises the importance of implementing a broad-based black economic Overall satisfaction 75% empowerment (“BBBEE”) programme that addresses the inequality of the with British Airways past through a dedicated and ongoing process and regularly reviews its Value for money 63% BBBEE strategy with the aim of effecting improvement across all seven pillars Likelihood to travel with of the BBBEE scorecard, as detailed later in this report. The Group is also British Airways again 76% required to provide both the International Air Services Council and the Air Likelihood of recommendation 73% Services Licensing Council with its verification certificate and employment equity plan when making application for licences or amendments to same. Check-in process 74%
Lounges 78% The Group’s verification audit for the financial year 2011/12 and 2012/13 was conducted by an organisation called BEESCORE. The comparison of Departure process 84% the results of both audits is contained in the table below:
Cabin environment 61%
Meal/refreshments 60%
Cabin crew 81%
Integrated Annual Report 2013 29 inventionthe achievement of a unique function or a radical breakthrough
Sustainable Development Report (continued)
The decrease in ownership score between the 2012 and 2013 financial Score Score Elements Indication Weighting 2013 2012 years appears to be as a result of the public sale of the Group’s shares in the market. Ownership Black ownership 20 14.88 18.79 Management Black top 10 2.63 2.42 The Group, on its listing in 1998, implemented a share incentive scheme for control management all permanent employees, including previously disadvantaged employees, Employment Black managers 15 2.39 1.90 to enable them to purchase shares in the Group. This scheme, as a result equity of certain tax changes, has, to a large extent become dormant. The Group Skills Black training 15 3.66 7.20 Shareholder Analysis is set out on pages 130 to 132 of this Report. development spend Preferential Procurement 20 12.42 12.16 Management Control procurement spend The Group’s Black Economic Empowerment Consortium has representation Enterprise Investment in on its Board with two of the Consortium members having been appointed development black-owned 15 15 0 to the Board, namely, Mr Ronald Sibongiseni Ntuli as the Non-executive enterprises Joint Deputy Chairman of the Board and Mr Khutso Ignatius Mampeule Socio-economic Socio-economic 5 4.44 5 being an independent Non-executive Director. development contribution
Total Points 100 55.42 47.74 Currently four of the Group’s 13 Directors (30,8%), excluding the alternate Director, are previously disadvantaged persons, as opposed to 28.6% in the The assessment indicates that the Group achieved a total of 55.42 in 2013 previous financial year. Effectively there has been no change, with the Board compared to a total of 47.74 in 2012. The BBBEE recognition level for having reduced in size from 14 to 13 Directors, as a result of the resignation the Group increased from Level 6 to Level 5, indicating an improvement of Mr AK Buchanan, a Non-executive Director. At Executive Management due to the Group’s focus on several elements of the BBBEE scorecard. level (which includes both top management and senior management), two members (18%) of the 11 member Executive Committee are previously Equity Ownership disadvantaged persons compared to 17% in the prior financial year. The Group concluded a Black Economic Empowerment (“BEE”) transaction during the 2007 financial year, pursuant to which shares equivalent to Employment Equity 15% of its post-transaction issued share capital were issued to a Black The Group’s focus on employment equity is in line with its overall Empowerment Consortium known as Thelo Aviation Consortium (Proprietary) transformation strategy. Limited (“Thelo Aviation Consortium”) led by Thelo Aviation Investments (Proprietary) Limited (“Thelo Aviation Investments”). In addition to the The overall race distribution of the Group’s employees in South Africa as above-mentioned BEE transaction, Thelo Aviation Investments, the biggest at 30 June 2013, compared to 30 June 2012, is set out below: shareholder in the Thelo Aviation Consortium, purchased an additional 6,172,550 shares in the Group for cash from various shareholders. This resulted in Thelo Aviation Investments and the Thelo Aviation Consortium, together, holding in aggregate 16.1% of the Group’s issued share capital post the BEE transaction in 2007. Thelo Aviation Investment did, however, during the previous financial year, sell some of the shares it purchased, but as a result of the sale still holds an aggregate 16.1% of the Group’s issued share capital post the BEE transaction.
30 Integrated Annual Report 2013 Integrated Annual Report 2013
At 30 June 2012 At 30 June 2013 White 760 employees (constituting 41% of the total number 742 employees (constituting 38% of the total number (Female and Male) of employees) of employees) African, Coloured, Indian 1,093 employees (constituting 59% of the total number 1,170 employees (constituting 62% of the total number (designated Female and Male) of employees) of employees)
Reflected below is the summarised employment equity report (“EEA2”) relating to the Group’s profile at 31 July 2012 as required in terms of section 22 of the Employment Equity Act as well as the Group’s workforce profile as at 30 June 2013:
Summarised Employment Equity Report as at 31 July 2012 Total number of employees (including employees with disabilities) in each of the occupational levels
Male Female Foreign nationals Occupational level Total A C I W A C I W Male Female Top management 0 0 0 1 0 0 0 0 0 0 1 Senior management 0 0 2 6 0 0 0 1 0 0 9 Professionally qualified and experienced specialists and 3 2 2 145 1 3 6 47 0 0 209 mid‑management Skilled technical and academically qualified workers, 123 74 45 181 330 163 93 312 1 3 1,325 junior management, supervisors, foremen and superintendents Semi-skilled and discretionary 48 13 10 18 68 47 34 45 1 0 284 decision-making Unskilled and defined 2 1 0 0 23 2 0 0 1 0 29 decision‑making Total permanent 176 90 59 351 422 215 133 405 3 3 1,857 Temporary employees 0 0 0 0 0 0 0 0 0 0 0 Grand total 176 90 59 351 422 2,115 133 405 3 3 1,857 (A = African, C = Coloured, I = Indian, W = White)
Integrated Annual Report 2013 31 inventionthe achievement of a unique function or a radical breakthrough
Sustainable Development Report (continued)
Total number of employees with disabilities in each of the occupational levels
Male Female Foreign nationals Occupational level Total A C I W A C I W Male Female Top management 0 0 0 0 0 0 0 0 0 0 0 Senior management 0 0 0 0 0 0 0 0 0 0 0 Professionally qualified and experienced specialists and 0 0 0 2 0 0 0 0 0 0 2 mid‑management Skilled technical and academically qualified workers, junior 0 1 0 1 0 0 1 0 1 0 4 management, supervisors, foremen and superintendents Semi-skilled and discretionary 1 0 0 0 1 0 0 0 0 0 2 decision-making Unskilled and defined 0 0 0 0 0 0 0 0 0 0 0 decision‑making Total permanent 1 1 0 3 1 0 1 0 1 0 8 Temporary employees 1 1 0 3 1 0 1 0 1 0 8 Grand total 1 1 0 3 1 0 1 0 1 0 8 (A = African, C = Coloured, I = Indian, W = White)
Workforce profile as at 30 June 2013
Male Female Foreign nationals Occupational level Total A C I W A C I W Male Female 1. Top management 0 0 1 2 0 0 0 0 0 0 3 2. Senior management 0 0 1 6 0 0 0 1 0 0 8 3. Professionally qualified 5 2 2 141 2 3 6 44 0 0 205 4. Skilled technical 125 77 45 185 321 148 90 280 2 2 1,275 5. Semi-skilled 58 14 13 22 109 54 45 49 1 0 365 6. Unskilled 1 1 0 0 22 2 0 0 1 0 27 Not defined 1 0 0 1 10 3 4 8 0 0 27 Total permanent 190 94 62 357 464 210 145 382 4 2 1,910 4. Skilled Technical 0 0 0 0 0 0 0 1 0 0 1 Not defined 0 0 0 0 1 0 0 0 0 0 1 Total non-permanent 0 0 0 0 1 0 0 1 0 0 2 Grand total 190 94 62 357 465 210 145 383 4 2 1,912 (A = African, C = Coloured, I = Indian, W = White)
The Group is implementing the following action plans in order to improve representation by previously disadvantaged groups:
• Workforce and succession planning. The Group has identified areas and positions, in the organisation at specialist, scarce skills, and in senior management levels and has implemented targeted plans and initiatives for identifying and fast tracking high potential candidates. • Recruitment and selection. Active steps have been taken to target and appoint suitably qualified persons from the designated groups. The Group is fully committed to increasing representation amongst, and the diversity of, its workforce. It has an established Employment Equity
32 Integrated Annual Report 2013 Integrated Annual Report 2013
Forum with whom it consults at regular intervals on progress toward achieving the EE Plan. Due to the targeted efforts made by the Group during the year the number of previously disadvantaged employees has increased to 62% compared to 59% during the previous reporting period. The percentage includes pilots and technicians, professions where the aviation industry is faced with a particular challenge to achieve a more equitable representation. The employment and retention of pilots from previously disadvantaged groups remains a major challenge, especially as the pool of suitably qualified persons from previously disadvantaged groups is less than 18%, with black persons being just over 10%. • Job profiling, job evaluation and grading. The Group has completed a major project to profile, evaluate and verify grades for jobs in the organisation and is able to conduct valid bench marking of positions and remuneration both internally and externally. This has significantly improved transparency regarding recruitment and the filling of vacancies, as well as the remuneration policy within the Group. Further, through the job profiling process, the critical competencies for each job have been identified and mapped which has facilitated the development of personal development plans per employee. • Entry level barriers and transformational opportunities. In line with industry requirements and affordability the Group will identify and attempt to eradicate non-regulatory entry level requirements for cabin crew. It is also currently investigating a programme to foster an interest among learners in mathematics and science as an entry level to flying and technical careers within the airline industry. • Electronic monitoring. The Group has established an electronic EE monitoring system which tracks, in real time, the EE profile and the Group’s progress towards achieving its employment equity targets.
The Group’s new five-year Employment Equity Plan (2011–2016) reflecting the numerical goals/targets that it has set and hopes to achieve is set out below:
% SA Budget Foreign EE Male Female Total Level black head- nationals goal target count A C I W A C I W M F M F 2011 2 0 0 0 2 0 0 0 0 0 0 2 0 Top management 0% 2016 2 0 0 0 2 0 0 0 0 0 0 2 0 2011 12 0 0 2 8 0 0 0 2 0 0 10 2 Senior management 30% 2016 10 1 0 1 5 1 0 0 2 0 0 7 3 2011 205 4 2 0 145 0 3 6 45 0 0 151 54 Mid-management 17% 2016 195 14 3 1 121 12 2 1 41 0 0 139 56 2011 1,282 128 74 42 197 311 152 95 289 0 3 441 850 Junior management 76.9% 2016 1,276 241 34 18 131 555 80 42 175 0 0 424 852 2011 421 67 20 13 22 118 68 28 84 1 0 123 298 Semi-skilled 86% 2016 444 87 12 7 27 203 29 16 63 0 0 133 311 2011 25 1 0 0 0 23 0 0 0 0 1 1 24 Unskilled 89% 2016 27 4 1 0 1 16 2 1 3 0 0 6 22 2011 10 2 0 0 3 2 1 1 1 0 0 5 5 Disabled employees - 2016 32 5 0 0 2 12 2 1 10 0 0 7 25 (A = African, C = Coloured, I = Indian, W = White, M = Male, F = Female)
Skills Development The Group’s commitment to providing a quality air service means that skills development is a priority. The Group invested approximately R14 million (compared to R13 million in the prior financial year) or approximately 3% (compared to 3.6% in the prior financial year) of payroll during the period under review in support of its commitment to training and skills development. The reason for the decrease in the percentage in the Skills Development score is as a result of the spend being allocated over an increased head count. See the section dealing with the Group’s training and development initiatives on pages 37 to 38 for more details.
Integrated Annual Report 2013 33 inventionthe achievement of a unique function or a radical breakthrough
Sustainable Development Report (continued)
Preferential Procurement • Contributions to Smile Foundation, Movember and Casual Day. The Group is committed to the concept of preferential procurement. It relies on its suppliers to deliver products and services in line with its required standards Further details on the Group’s Corporate Social Investment Strategies and such as, but not limited to, quality of the product, timeous delivery and Initiatives are dealt with on page 38 of this Report. availability of supply and, where possible, it enters into service level agreements with such suppliers in an attempt to ensure that such standards are met Economic Impact and maintained. Other important factors play a role in selecting suppliers The Group, like many other companies, has many impacts on its stakeholders including, but not limited to, compliance with local and international laws and through, amongst others, the creation of wealth; creation of employment regulations (particularly those related to aviation), good quality service and opportunities; remunerating its employees fairly and competitively, based products, reliability and stability, cost effectiveness, support networks, with on industry standards; and its Corporate Social Investment. Kindly refer particular reference to suppliers of aircraft parts, components and fuels and to the Group’s Value Added Statement as set out on page 7 of this Report. the availability of products and services. The BBBEE status of South African The Group’s economic impacts are driven by and influenced by the suppliers is also taken into account in selecting South African suppliers. following factors.
While the Group attempts to source products and services from South Ability to Offer Access to Affordable Flights African suppliers, this is not always possible, having regard to the nature The airline industry is fraught with many challenges involving, among of the Group’s business, where the acquisition of aviation equipment or others, the cost of equipment, oil price and currency fluctuations, airport specialised airline branded products needs to be procured and sourced charges and taxes and, consequently, access to affordable flights. It was from foreign companies, based mainly in Europe and the United States of for this reason that the Group was the first in South Africa to launch a low America. The proportion of spend with foreign suppliers varies significantly fare airline, making air travel affordable for a larger portion of the population year-on-year due to the capital value of spend on aircraft and aircraft that would previously not have flown. To enable the Group to continue to spares. For the period under review and excluding spend on the leasing offer access to affordable flights, it continuously looks at ways in which to and purchase of aircraft, the Group spent approximately 78% of its total improve its efficiency and cost effectiveness, such as, but not limited to: procurement spend with South African suppliers.
• Implementing a progressive fleet replacement programme. By In the period under review, the Group marginally increased its score for operating more modern and fuel efficient aircraft, a consistent preferential spend from 12.1 to 12.42 points. It will continue to focus on reduction in the cost of aircraft maintenance as well as the amount channelling procurement through to black owned Qualifying Small Enterprises of fuel used per seat has been achieved; and Exempted Micro Enterprises. It is also improving its systems to more • The Group has also introduced a comprehensive fuel savings accurately reflect its data collection with respect to preferential procurement. programme with the co-operation of its pilots; Enterprise Development • The weight of an aircraft impacts on fuel burn and the Group has, through the installation of light weight seats and catering The Group scored full points for Enterprise Development this year in equipment, substantially reduced aircraft weight; comparison with no points in the prior year. This improvement is due to • Maximum use of available technology to reduce airline distribution the improved recording of transactions. costs through the use of the internet, thereby eliminating the use of Socio-economic Development traditional paper tickets and by introducing self-service check-in for customers; The success of the Group’s Corporate Social Investment Strategy and • The Group’s Flight Operations Department, working with Air Traffic initiatives is reflected in the fact that it scored 4.44 out of 5 in this category. Control and Navigation Services, has developed the most efficient The decrease is due to the Group having no Public Private Initiatives in place. routing of aircraft between airports and developed more efficient The Group has several social development initiatives in place including: landing approach profiles resulting in substantial fuel savings; • The setup of the Group’s own catering department known as ‘Food • A programme to support and assist the Ekurhuleni Community Directions’, thereby reducing the cost of onboard catering, while at through a variety of initiatives centred around the Reiger Park the same time ensuring a better quality of catering for customers. Community Crisis Centre; and
34 Integrated Annual Report 2013 Integrated Annual Report 2013
Despite its many cost saving initiatives, some of which are mentioned Workforce composition per gender above, the Group has experienced a significant increase in average airline 2013 2012 ticket prices during the financial year as a result of a substantial rise in the Financial Financial price of fuel and weak exchange rate, as reflected in the Group’s Annual year year Financial Statements. Male 707 677 Public-Private Initiatives Female 1,205 1,176 The Group believes that Public Private Partnerships (“PPPs”) and other joint initiatives with government could play a meaningful role in ensuring access Workforce composition per age distribution to affordable airfares. The Group continuously looks at opportunities for 2013 2012 PPPs, however no PPPs were entered into during the period under review. Financial Financial year year For all other factors influencing the Group’s economic impact, and the Number of employees younger than 30 581 728 Group’s response to these factors, see the Annual Financial Statements Number of employees between 30 and 50 1,178 985 included in this Report. Number of employees older than 50 153 140
Social Impact While the Group does not maintain data on turnover rate by age group and The Group’s objective to create and sustain value for all its stakeholders gender, its staff attrition rate during the 2012/13 financial year was 9.6% is impacted by its ability to achieve its goal of being an employer of choice as opposed to 16.0% in the prior reporting period. and creating a positive impact on society as a whole. How it ensures that it achieves these goals is set out below. Employee Remuneration The Group offers competitive salaries and benefits to its employees based The Group’s Employees on the principles of equity and fairness. Further details of the Group’s remuneration policies are set out in the Remuneration Report on pages Employee Composition and Turnover Rate 57 to 59. The success of the Group is dependent on the commitment of its employees to deliver a safe, secure, reliable and quality service. The composition of Remuneration and reward guidelines serve to create a platform for fair and its employees is made up as follows: transparent human resource practices so as to ensure consistency and non-discrimination among employees and thereby eliminate any form of Workforce composition by employment type subjectivity or favouritism. The Group’s position on salaries is the middle 2013 2012 quartile; however, salary progression for new employees will range from Financial Financial the lower quartile to the upper quartile as determined by the employees’ year year skills, experience, qualification and performance. Permanent employees 1,910 1,853 The Group offers employee benefits to its permanent employees employed Temporary employees 2 0 in South Africa and makes a contribution towards employee benefits and Note 1: Of the Group’s total number of permanent employees, it has six (6) foreign medical aid schemes to those permanent employees employed in Zimbabwe. nationals in its employ which has remained unchanged from the 2012 financial year. All these foreign nationals are employed in South Africa. The Zimbabwe employees are free to join the medical aid and pension scheme they may so wish. The Group has a defined contribution pension Note 2: The total number of employees as set out above, excludes 15 of the Group’s permanent employees who are employed in Zimbabwe. This is a reduction of 25% scheme in place for its permanent employees in South Africa, which is an on 2012 levels when 20 employees were on the Group’s Zimbabwian payroll. The umbrella scheme known as Evergreen, administered by Old Mutual. In reduction is due to the Group being obliged to hand over ground handling services at addition it offers risk benefits in the form of death and disability benefits Harare and Victoria Falls airports to the Zimbabwean government, as a consequence to permanent employees in South Africa, which scheme is administered of which two (2) staff members were provided with alternate positions and a further by Discovery Life. The Group’s permanent employees in South Africa three (3) were retrenched.
Integrated Annual Report 2013 35 inventionthe achievement of a unique function or a radical breakthrough
Sustainable Development Report (continued)
contribute 7% towards retirement funding with the Group contributing fair and consistent and manage accountability throughout the Group. The 10% to cover both retirement funding and risk benefits. A medical aid emphasis is on quality and face-to-face discussions on performance, and scheme is also in place for permanent employees in South Africa, which aims to contribute to a culture of giving and receiving constructive and scheme is administered by Discovery. The Group contributes 50% of the developmental feedback. cost in respect of the Discovery Essential Comprehensive Plan for such permanent employees. In addition to the above philosophy, the functional purpose is to align individually agreed objectives to ensure that the collective effort will Labour Relations achieve the Group’s overall strategic plan. Through the performance The Group’s aim is to create and maintain sound labour relations, which management process the Group hopes to create an environment in which support its goal of being the employee of choice in the South African individuals get direction, guidance and feedback in order to perform airline industry. The Group regularly reviews its employment conditions. optimally by identifying ongoing accountabilities and agreeing to specific It tries to ensure that all employees are made aware of their benefits and task assignments. Ultimately this enables the Group to recognise and reward this information is furnished to employees during induction sessions and high performance by way of performance incentive payouts. via the Group’s intranet, newsletters sent directly to staff by the Group, Old Mutual and Discovery and other communication methods referred to Recruitment and Retention of Skilled Staff earlier in this Report. The recruitment and retention of the right calibre of employee is vital to enable the Group to deliver on its goal of becoming the airline of choice The Group was not subject to any strikes during the period under review. in the places and regions in which it operates. It acknowledges that its Its disciplinary and grievance procedures are communicated to new ability to recruit and retain skilled employees is a critical factor in driving employees as part of their induction into the Group and are also available Group performance in the intensely competitive and dynamic business to all employees to ensure that they are aware of the process in place to environment in which it operates. lodge grievances, should they have the need to do so. The employment and retention of pilots remains a major challenge to the The percentage of the Group’s employees represented by trade unions or Group, particularly pilots from previously disadvantaged groups. Attempts collective bargaining agreements is reflected on page 23 of this Sustainable have been made to address this challenge through the Cadet Pilot Training Development Report. Programme. The Group selected two coloured (one female and one male) cadets from 367 applications received in June 2013 for its Cadet Training The minimum notice periods for its employees, as set out in the employees’ Programme. The Group, in addition, having regard to the fact that each pilot letters of appointment, are as follows: that joins the Group has to be trained to fly on the its aircraft, requires that the pilots sign training bonds, to ensure that they remain in the employ of Pilots: 3 months the Group for a certain period to cover the cost of such training. All other employees: 4 weeks The Group’s recruitment and selection practices are carried out in Top and senior management enter into employment contracts with the accordance with all applicable labour legislation and are based on the Group which are subject to termination on 4 weeks’ notice and are not principles of fairness, transparency and consistency. This is achieved subject to any fixed term or form of restraint. This is under review. through the use of objective and validated tools including, but not limited to, competency based interviews and psychometric assessments. The Performance Management recruitment and selection process entails achieving a balance between A performance management process known as “On Track”, is carried out employing the best person for the position and the achievement of the for all employees in terms of which employees receive performance and numerical goals as set out in the Group’s employment equity plan, in career development reviews. The On Track process strives to give employees order to achieve an equitable representation of designated groups in all as much clarity as possible on what is expected of them and how their occupational levels within the Group. performance will be measured. It is designed to give managers and staff tools and skills to maintain open, empowered and constructive relationships. Diversity and Equal Opportunities The performance management process exists to assist managers to be The Group is committed to non-discriminatory treatment in all its employment
36 Integrated Annual Report 2013 Integrated Annual Report 2013
practices and to providing equal opportunities to all employees, and does not Staff Welfare accept any form of unfair discrimination based on gender, race, nationality or Balancing the demands of work and family life is not always easy, and it was religion. Its employment policies, including hiring, training, working conditions, with this in mind that the Group entered into a contract with Independent compensation and benefits, promotion, termination and retirement are based Counselling Advisory Services (“ICAS”) and the Group’s Precious Cargo on individual qualifications. It treats its employees equally irrespective of Wellness Programme was born. ICAS provides a confidential 24 hour gender, age, race, sexual orientation, disability or other status unrelated to a day, 365 day a year personal support and information service for performing the job. The Group’s focus on diversity and employment equity employees and their families to call for help in dealing with everyday is in line with its overall transformation objectives and this is dealt with in situations and more serious concerns and, in this regard, the Group has the section relating to BBBEE of this report. During the financial year under set up an onsite clinic, manned by a registered psychologist, once a review no incidents of discrimination were observed or reported. month at the Group’s Head Office, Operations Department, OR Tambo International Airport and Cape Town International Airport. The service Health and Safety at Work includes telephone consulting, face to face counselling, life management The Group pays special attention to health and safety in the work place so services and HIV counselling. In addition, employees have access to as to ensure that there is a safe environment for employees, customers and e-Care services, a comprehensive online health portal providing valuable invitees. The health of employees is important to ensure the sustainability and interactive resources on a wide range of topics approved by qualified of the Group. During the period under review, 33 minor incidents were health professionals. 45% of the staff made contact telephonically with reported (as opposed to 41 in the previous reporting period) which injuries the ICAS advisors and 20% made use of the counselling services during ranged from lifting heavy luggage on behalf of passengers, slipping on wet the period under review. floors and burns, to assault by passengers. The Group experienced one serious injury on duty where a cabin crew member fell out of an aircraft The Group’s HIV/AIDS programme forms part of the Precious Cargo Wellness while trying to close the door at King Shaka International Airport. There Programme for all employees and allows all employees to undergo voluntary were no fatalities during the period under review. HIV testing and, if need be, counselling. Employees who test positive are referred for additional counselling through the programme and are provided The Group’s CEO ensures that all health and safety duties are discharged with medical support through the Group medical aid scheme. The Group as a shared responsibility throughout the organisation; from appointing runs HIV awareness workshops which allow employees the opportunity to occupational health and safety representatives who know their functions, learn more about HIV and AIDS. to positively enforcing monthly inspections and to attending health and safety committee meetings on a monthly basis. The Occupational Health Training and Skills Development and Safety Representatives conduct monthly inspections within their The Group’s training programmes are focused on improving its human departments and annual audits are conducted by the Quality Assurance capital, improving business processes and procedures, maintaining and Department to ensure compliance with the Act and identify any further promoting quality service delivery in all aspects of the business and risks and/or trends. alleviating, within affordable boundaries, skills shortages amongst pilots.
Health and Safety Committee Employee Training The Group pays due regard to the health and safety of employees and The Group makes a significant investment in training, investing approximately strives to provide employees, customers and invitees with a clean and safe 3.0% (compared to 3.6% in the previous financial year) of payroll on training. working environment, and maintains reporting and notification systems. Safety incidents and damage are reported though a safety management The Group has implemented the following training programmes: system. A formal structure exists to allow safety issues to be addressed within each department. The Group has an open reporting culture and encourages • “Take Off”: As part of its succession planning, a leadership the reporting of all incidents. Safety representatives are appointed in each development programme called “Take Off”, has been running department and trained in various areas of health and safety. The Group for three consecutive years. The programme is delivered in has a Health and Safety Committee that meets at regular intervals to discuss conjunction with the Gordon Institute of Business Science (“GIBS”) pertinent issues. The Group is fully compliant with the Occupational Health which is underwritten by the University of Pretoria. As part of this and Safety Act. programme the Group’s potential future leaders are identified
Integrated Annual Report 2013 37 inventionthe achievement of a unique function or a radical breakthrough
Sustainable Development Report (continued)
and undertake courses covering several key areas of business rating for pilots in respect of the aircraft types operated by the management in a mini-MBA styled programme. Group and crew resource management training, so as to ensure • Cadet Pilot Training Programme: The Group remains committed that the highest standards of safety, security and service are to its Cadet Pilot Training Programme and two cadet pilots were maintained throughout the Group. Overall, 1,323 employees recruited during the period under review. Since the Group initiated underwent these training and development courses during the the programme, 11 cadets have obtained their commercial pilot period under review. licences, five of whom are currently employed by the Group, while • Counselling and study skills training were also provided to 110 some of the others have been employed at smaller airlines to obtain matriculants from the William Hills Secondary School in Benoni. sufficient flying experience to qualify for employment as a pilot with the Group. Investing in the Community • Workplace Experiential Learning: During the period under review, The Group is a committed corporate citizen and, together with its staff, the Group was involved with various tertiary education providers to endeavours, wherever possible, to improve the lives of fellow South Africans. provide students in the travel-related disciplines with six months’ It believes that social responsibility is a duty, privilege and an obligation workplace experiential training. In this regard, five students from to help those less fortunate and to make a positive impact on society in the Durban University of Technology completed their practical general. In this regard, the Group has assisted the Community as follows: course at King Shaka International Airport in Durban. • Skills Development: The Group has contributed R5.7 million Project Green to skills development of the country in the form of the Skills This project was launched in 2007, and its purpose is to raise money to Levy which is paid to the Department of Labour as compared care for the environment while also offsetting the Group’s carbon emissions to R4.9 million contributed during the prior reporting period. As through the sustainable greening of townships in South Africa. The Group, part of the Group’s contribution to the community, 15 students since the inception of the programme, has raised over R1 million from its from Reiger Park were provided with the opportunity of gaining customers, which money is handed over to Food and Trees for Africa to six months’ work experience. Since the Group commenced complete the greening process. This year, the Group was unable to collect this initiative in 2006, it has awarded 135 students from the donations from customers directly due to its new Sabre Reservation System Ekurhuleni district with passenger handling certificates. It has, not offering this facility, but it continued with its investment in Project Green in addition, employed nine students from the Ekurhuleni district and donated R20 thousand to this worthy cause during the period. as cabin attendants, and further offered 11 students permanent employment. Smile Foundation • A Succession Development Programme (“SDP”) was developed Through funds raised by kulula’s customers in the amount of R562 thousand, for middle management (Supervisors) at OR Tambo International the Smile Foundation which is dedicated to transforming the lives of children Airport for Ground Staff to develop to the next level of management. with facial conditions, was able to send three children for facial surgery. A Nine delegates completed the programme which is modelled on fourth child will be operated on soon. the GIBS “Take off” programme. Extension of the SDP is planned for middle management at Cape Town International Airport, Casual Day King Shaka International Airport and Cabin Services for the next The Group sold stickers onboard in support of the Casual Day charity, and financial year. raised approximately R3 thousand. • SABRE training was completed by 1,526 employees within the airports and Call Centre environments and this was a focus of the Movember Group’s training for the period under review. Movember (the month formerly known as November) is a moustache • In addition to the aforementioned, the Group has provided training growing charity event held annually during November to help raise funds and development courses to its employees in areas such as, but and awareness for prostrate and testicular cancer. The Group aided this not limited to, passenger handling, Group orientation, passenger charity by providing access to kulula’s customers via free exposure in the check-in, dangerous goods, customer service, station emergency onboard magazine khuluma, as well as an additional baggage allowance and awareness, aviation safety and security, fares and ticketing, lounge access for customers who grew their moustaches during the month. customer experience, safety and emergency procedures, type-
38 Integrated Annual Report 2013 Integrated Annual Report 2013
Environmental Impact Scope 1 Scope 2 Scope 3 The Group’s ability to operate and create and sustain value is largely driven a) Mobile fuel combustion in Purchased Water supply by its environmental impact. Group owned/leased aircraft electricity Paper use and Group owned vehicles Waste disposal: The Group is therefore committed to protecting the environment, conserving paper natural resources and utilising resources in an effective and responsible b) Stationary fuel combustion way, by adopting sound environmental practices in its business. in Group owned assets (Generator and LPG fuel use) Responsible aviation starts with safety and security and that is the Group’s fundamental duty to its customers and employees. The Group’s Environmental Objectives responsibilities also extend to the impact it has on the environment. The Group’s environmental objectives focus on assessing and minimising its impact on the environment and are currently aimed at: This section of the report deals with environmental performance and reflects the carbon footprint based on the Corporate Accounting and • Identifying and complying with environmental legislation and Reporting Standard of the Greenhouse Gas Protocol (“GHG Protocol”). regulations; The organisational boundary of the report is reflected in the table below. • Identifying and managing all risks relating to the Group’s impact on the environment with regard to water use, energy use and conservation, and emissions and climate change; Organisational entity Comair Limited “the Group” • Creating environmental awareness amongst all employees; Operational control 100% • Limiting aircraft noise without compromising safety; Boundary approved Operational control • Linking fuel saving initiatives to an environmental saving objective. Reporting period 1 July 2012 to 30 June 2013 These objectives enable the Group to identify aspects of its business that Base year 2011 could have an effect on the environment with a view to reducing such Methodology GHG Protocol Corporate Accounting impact, and it works closely with aviation policy makers in South Africa to and Reporting Standard influence the development and implementation of effective environmental Number of employees 1,912 regulations. Number of sites 16 The Group’s Chief Executive Officer is responsible for ensuring compliance Square meterage of facilities 19,276 m2 with these goals and delegates this responsibility to senior managers within Other KPI: Passengers carried 5,050,873 the Group.
As mentioned at the outset, this Report deals only with the Group and Environmental Management Risk Assessment its operations in South Africa, including its subsidiaries, but excluding The Group is committed to ensuring that it complies with environmental associated companies. The Report includes the compulsory reporting legislation and regulations applicable to it. The main environmental impact requirements of the GHG Protocol by quantifying the Group’s emissions being managed is the utilisation of fuel and oil which have a direct effect that are categorised as Scope 1 and Scope 2 and includes selected Scope 3 on carbon emissions. emissions and fugitive emissions as optimal information (Fugitive emissions from air conditioning equipment is not a Kyoto greenhouse gas). The Group assesses the risks faced by it associated with climate change, which risks include: The activities listed in the table below have been reported on. • Regulatory risks: Compliance with environmental legislation; and • Physical risks: Interruption to fuel supply, fuel shortages and the risks associated with load shedding in South Africa.
Integrated Annual Report 2013 39 inventionthe achievement of a unique function or a radical breakthrough
Sustainable Development Report (continued)
No fines or sanctions were imposed on the Group during the period under be integrated within a global agreement and that this must be done in a review for non-compliance with any environmental laws or regulations. way that ensures equal treatment of all airlines.
Emissions The Group supports the approach adopted by British Airways Plc and is Climate change is the most urgent and significant sustainability issue. The committed to improving its environmental performance and reducing the vast majority of the Group’s climate impact (approximately 99%) results from adverse impact that its activities have on the local and global environment. greenhouse gas emissions released through the burning of fossil based jet fuel in aircraft engines. The international community aims to limit greenhouse Insofar as the Group’s emissions are concerned, the Group’s greenhouse gas concentrations in the atmosphere so that global temperatures do not gas (“GHG”) inventory, by scope and expressed in metric tonnes of carbon
increase by more than 2°C by 2050. The Group wishes to ensure that it dioxide equivalent (“CO2e”) is detailed in the tables and graphs below with makes a fair contribution towards achieving this aim. comparatives between this and the previous financial year.
Globally, aviation produces around 700 million tons of carbon dioxide GHG Inventory 2012/13
(“CO2“) per year, which represents approximately 2% of total man-made emissions. This share is projected to grow. The aviation industry is extremely Total GHG emissions by scope vulnerable to climate change response policies, especially where these GHG Inventory Scope 1 Scope 2 Scope 3 Total involve the pricing of carbon emissions. On the other hand, the industry 2012/13 has to contribute its fair share to efforts to limit climate change. Slowing Metric tonnes 515,870.54 7,281.89 43.33 523,195.76 down aviation growth to reduce carbon emissions is in no-one’s interest. of CO2e It will create unemployment and undermine efforts to reduce poverty. % change from 96.5 101 Not - As it currently stands, tourism sustains one in every 12 jobs globally Base year reported and contributes approximately 9% to worldwide gross domestic product. on in Base In addition, aviation is not only a key enabler of tourism, but also of year trade, investment and global integration. However, while slowing down aviation growth is not an option, being complacent and doing nothing is not one either, as the growth of emissions will not be environmentally and GHG Inventory by Scope: Comair Limited 2012/13 Tonnes C0 e economically sustainable. The Group therefore welcomes the progress made 2 at the International Civil Aviation Organisation (“ICAO”) General Assembly Scope 2: 1% Scope 3: 0% in October 2010 where 190 member states agreed to the aspiration of achieving carbon neutral growth from 2020. This is in line with the global airline industry vision for a sector wide approach of enabling carbon neutral growth by 2020 and a huge reduction in net emissions by 2050. The Group supports a framework for reducing aviation emissions based on carbon trading that is applied equally to all airlines and all industries as a whole, i.e. the burden on aviation should not be disproportionate to that of other Scope 1 economic sectors. Aviation cannot be the “cash cow” of the climate regime. Scope 2 There is also a firm belief that sustainable bio-jet fuels will play a pivotal role in helping to meet the carbon emission targets. In this regard there Scope 3 are still hurdles to overcome, which are mainly commercial in nature, and the need to establish a level playing field for suppliers to produce aviation bio-jet fuel against road transportation and other energy products.
British Airways Plc, the franchisor in respect of the BA brand and a Scope 1: 99% major shareholder, is playing a leading role within the aviation industry in developing and promoting proactive schemes for a post-Kyoto aviation
policy. They believe that CO2 emissions from international aviation must Figure 1: Distribution of total GHG emissions by scope
40 Integrated Annual Report 2013 Integrated Annual Report 2013
Emissions intensity The direct emissions reflected above are broken down as follows:
Metric tonnes of CO e 2 Detailed breakdown of mobile fuel combustion in Group owned/leased Total GHG emissions 523,195.76 aircraft and owned vehicles Total emissions per fulltime employee 273.49 Emission Unit of Emission Tonnes of Emissions per square metre¹ 0.38 Consumption source measure factor CO2e 0.1021 Emissions per passenger² Aviation fuel litre Various 202,846,266 515,589.19 (88.17% of 2011 Base year) Petrol litre Various 26,928 62.22 (1) Square meterage intensity includes stationary combustion and electricity consumption only. Diesel litre Various 54,692 146.05 (2) Passenger emissions intensity includes aviation fuel combustion only. Total score 515,797.46
The total GHG inventory of the Group for the 2013 financial year was Detailed breakdown of stationary combustion (generators) 523,195.76 metric tonnes of CO e made up as follows: 2 Emission Unit of Emission Tonnes of Consumption source measure factor CO2e Direct Emissions (Scope 1) Diesel litre Various 2,025 5.41 Emissions by source LPG litre Various 45,331 67.67 Unit of Emission Tonnes of Emission source Consumption Total score 73.08 measure factor CO2e Mobile fuel consumption: litre Various 202,846,266 515,589.19 aircraft Mobile fuel consumption: litre Various 81,620 208.27 vehicles Stationary combustion: litre Various 47,356 73.08 generator fuel use and LPG fuel use Total Scope 515,870.54
Energy consumption within the Group 2012/13 Net Calorific Gross CV Density Density Unit of Unit of Value (“CV”) Consumption Consumption GJ GJ/tonne kg/m3 litres/tonne measure measure GJ/tonne Aviation 43.90 46.20 798.72 1,252.00 162,018 tonne 162,018 tonne 7,485,221.62 turbine fuel Diesel 42.90 45.70 837.52 1,194.00 56,717 litre 47.50 tonne 2,170.83 LPG 46.00 49.30 508.18 1,967.80 45,331 litre 23.04 tonne 1,135.69 Petrol 44.70 47.10 734.21 1,362.00 26,928 litre 19.77 tonne 931.21
Integrated Annual Report 2013 41 inventionthe achievement of a unique function or a radical breakthrough
Sustainable Development Report (continued)
Energy consumption outside the Group 2012/13 Volume Tonnes Activity Fuel Unit Consumption Total CO2e kg CO2e kg CO2e tonne 656.3 162,018 106,332.27 Aviation turbine fuel litre 0.5242 WTT – liquid fuels tonne 677.8 Diesel (100% mineral diesel) litre 0.5677 56,717 32.20 tonne 630.3 Petrol (100% mineral petrol) litre 0.4628 26,928 12.46 WTT – gaseous fuels tonne LPG litre 0.187 45,331 8.48 Total 106,385.41
Indirect Emissions (Scope 2) The total GHG Inventory of the Group for the 2012 financial year was 513,336.89 metric tonnes of CO e made up as follows: Unit of Emission Tonnes of 2 Emission source Consumption measure factor CO2e Direct Emissions (Scope 1) Purchased kWh 1.00 7,281,891 7,281.89 electricity Emissions by source Total Scope 2 7,281.89 Unit of Tonnes of Emission source Consumption measure CO2e Scope 3 Emissions Mobile fuel consumption litre 198,759,727 507,206.25 Unit of Emission Tonnes of Stationary fuel Emission source Consumption litre 8,970 16,76 measure factor CO2e combustion Water supply Million Total 507,223.01 (purchased 344 52.97 18.22 litre municipal water) The direct emissions reflected above are broken down as follows: Paper tonne 954.51 26.20 25.00 Waste tonne 21.00 5.19 0.11 Detailed breakdown of mobile fuel combustion in Group owned/leased Total Scope 3 43.33 aircraft and owned vehicles Unit of Emission Tonnes of Optional Information Emission source 2 Consumption measure factor CO2e Breakdown of fugitive emissions from airconditioning equipment: Aviation fuel litre 2.55 kg 198,681,977 507,016,54 Unit of Tonnes of Emission source Consumption Diesel litre 2.68 kg 26,938.1 72,11 measure CO e 2 Petrol litre 2.31 kg 50,811.3 117.60 Refrigerant emissions: R22 kg 19.69 35.64 Detailed breakdown of stationary fuel combustion (generator, gas) GHG Inventory 2011/12 Unit of Emission Tonnes of Emission source Consumption measure factor CO e Total GHG emissions by scope 2 Diesel litre 2.68 kg 2,635 7,05 GHG Inventory Scope 1 Scope 2 Scope 3 Total LPG litre 1.53 kg 6,335 9,71 2012 Metric tonnes of 507,223.01 6,060.82 53.06 513,336.89 CO2e
42 Integrated Annual Report 2013 Integrated Annual Report 2013
Indirect Emissions (Scope 2) • Over the past number of years, implemented a fleet replacement programme and during the period under review operated nine (9) Unit of Emission Tonnes of Emission source Consumption Boeing 737-800 new generation aircraft, 10 Boeing 737-400 measure factor CO2e aircraft and seven (7) Boeing 737-300 aircraft. These new Purchased kWh 0.99 kg 6,122,039.8 6,060.82 generation B737-800 aircraft are not only quieter than the older electricity generation B737 aircraft but also offer better performance and fuel efficiency, reduced noise on take-off and landing, and lower Scope 3 Emissions engine emissions. Since the introduction of the four (4) new Boeing Breakdown of paper usage 737‑800 aircraft during the period under review, the average fuel Unit of Tonnes of burn per passenger is now at around 30 kg per passenger. The new Emission source Consumption measure CO2e aircraft and increased passenger numbers have helped to reduce Copy kg 14,969 41,92 the average fuel burn per passenger. In fact the new 737-800 use approximately 6% less fuel per seat than the older 737-800 aircraft and 24% less fuel per seat relative to the 737-400 aircraft; Breakdown of water supply • Approximately three years ago, implemented a programme to Unit of Emission Tonnes of Emission source Consumption reduce weight onboard the aircraft by implementing a paperless measure factor CO e 2 cockpit, reducing the amount of potable water carried onboard Water supply Million the aircraft and reducing the weight of the aircraft galleys and thus (purchased 344 kg 32.37 11.14 litre reducing the fuel used onboard the aircraft; municipal water) • In conjunction with Air Traffic Control, and where possible, implemented a continuous descent approach to achieve fuel In comparing our GHG Inventory for 2013 with that of 2012, it must be efficiency and reduce the impact of noise; noted that: • Where such stands are assigned to them by the Airports Company 1. The major reason for the increase in Scope 1 emissions is due to the of South Africa, used fixed ground power units as opposed to following factors: auxiliary power units to reduce fuel consumption and noise; 1.1 The Group increased the number of flights operated to 40,757 • Attempted to reduce the impact of noise, as annoyance and sleep flights in the 2013 financial year compared to 40,153 in the disturbance are the most commonly reported adverse effects of 2012 financial year. From the base year in 2011 there has been aircraft noise. The Group’s objective is to try to reduce or limit the a significant improvement. total number of people exposed to high levels of aircraft noise. 1.2 The increase in the stationary fuel combustion was due to Current regulations and voluntary actions by the Group, such as the Group opening its own catering department and having phasing out of older aircraft, ensuring that all engines are stage‑3 purchased a number of vehicles, both petrol and diesel, to noise compliant, as well as restrictions on the use of airspace, night support this operation. time flying and ground operations restrictions, have, to a large 2. The major reason for the increase in the Scope 2 emissions during extent, resulted in reduced aircraft noise; the period under review can be attributed to the Group having • Initiated investigations into implementing various energy saving increased the number of sites from which it operates, from 14 to 16 initiatives with regard to electricity consumption such as, but not and therefore increasing the square meterage of its facilities from limited to, changing all light fittings and globes to more energy 14,525 m² in the 2012 financial year to 19,276 m² in the 2013 efficient ones; financial year and thereby increasing the electricity consumption. • Implemented a number of initiatives to reduce water consumption, 3. The major reason for the improvement in the Scope 3 emissions is including the use of borehole water at its head office and as a result of the Group having made substantial use of borehole operational buildings. Other initiatives to reduce water consumption water during the period under review. include employee awareness, monitoring of uncontrolled leakages and monitoring garden irrigation cycles; and In order to reduce the effect that the Group has in respect of Scope 1, • In conjunction with its pilots, designed and implemented a Scope 2 and Scope 3 emissions, it has: comprehensive fuel savings programme according to world
Integrated Annual Report 2013 43 inventionthe achievement of a unique function or a radical breakthrough
Sustainable Development Report (continued)
best‑practice while also taking local operating conditions into The Group outsources the maintenance of its aircraft and aircraft engines account. This has already resulted in a further reduction in fuel to third party suppliers as detailed earlier in this report. These third party consumption across the fleet. The Boeing 737-800 aircraft have suppliers dispose of waste arising from the maintenance of the aircraft and also reduced the Group’s fuel burn per passenger as they have the aircraft engines, including radioactive material, in accordance with their capacity to carry 21 more passengers and burn 200 ℓ per hour less own policies and procedures relating to water management and recycling. fuel than the Boeing 737-400 aircraft. Refuse removal in the Group complies with South African laws and regulations. Waste Management and Recycling While the Group had previously implemented a programme to recycle paper, Compliance this is the first year in which it has been able to measure the tonnage of To the best of the Group’s knowledge and belief there have been no incidents paper recycled, which measurement is included in the carbon footprint of material non-compliance with any environmental laws or regulations and measurement. no fines were imposed upon it during the period under review.
Glossary of Terms Relating to the Environmental Impact Section of this Report
Boundaries The inventory boundaries to determine which emissions are accounted for and reported. Boundaries include organisational, operational, geographic and business unit structures. Carbon footprint The total greenhouse gas emissions caused directly and indirectly by an organisation, typically over a period of 12 months.
CO2e Carbon dioxide equivalent – standardisation of all greenhouse gases to reflect its warming equivalent to carbon dioxide (“CO2”). This is used to evaluate different greenhouse gases against a common basis. Direct emissions GHG emissions from facilities or sources owned or controlled by the Group, e.g. generator, vehicles, etc. Emissions The release of greenhouse gases into the atmosphere. Emission factor Conversion factor to translate activity data, e.g. tonnes of fuel consumed, into emission data. GHG Greenhouse gases. Under the GHG Protocol standard, six gases are accounted for, namely carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, per fluorocarbons and sulphur hexafluoride. GHG Inventory A listing of the GHG emissions and sources that are attributable to the Group. GHG Protocol GHG Protocol Corporate Accounting and Reporting Standard. Indirect emissions Emissions that are a consequence of the operations of the Group, but occur at sources owned or controlled by another company. Operational The boundary to establish the operations and sources of emissions included in the GHG Inventory. boundary Organisational The boundary to establish business units or entities of an organisation included in the GHG Inventory. An equity or control boundary approach can be taken. Reporting period The period of time, typically a calendar or financial year, which the report covers. Scope 1 emission Direct emission from Group-owned or controlled equipment, vehicles or aircraft. Scope 2 emission Indirect emission from the consumption of purchased electricity. Scope 3 emission Indirect emission from other activities associated with the activities of the Group, e.g. commuter travel, business air travel and paper or water consumption.
44 Integrated Annual Report 2013 Integrated Annual Report 2013
Corporate Governance
Introduction Confidential Reporting Process The Group recognises the need for a confidential reporting process (“Whistle The Group is subject to the Listings Requirements of the JSE Limited Blowing”) covering fraud and other risks. In line with its commitment to (“JSE”) as well as the requirements of the Companies Act, (No. 71 of transparency and accountability, it takes action against persons who are 2008) as amended (“Companies Act”). The Group supports the governance guilty of fraud, corruption and other misconduct. Any employee or external principles and guidelines contained in the King Code on governance for stakeholder is able to report wrongdoing on a confidential and anonymous South Africa 2009 and the King Report on governance for South Africa basis to an independent service provider, which ensures that all calls are 2009 (“King III”) and is comfortable that effective controls have been put treated confidentially. The number of calls or e-mails received during the in place and complied with. reporting period was five (5). All calls and e-mails were followed up by the Group and, where necessary, appropriate action was instituted. Compliance with the JSE Listings Requirements and the Companies Act is monitored by the Group Company Secretary and the Group’s Compliance Corruption Officer and reported to the Board. The Group has a no-tolerance approach with regard to unethical conduct, in particular to fraud and corruption. Strict policies relating to gifts and The Group is committed to maintaining principles of good corporate donations received from third parties are in place compelling employees governance to ensure that its business is managed in a responsible manner or Management to declare same. with integrity, fairness, transparency and accountability.
The Group further prohibits the making of donations to political parties Statement of Compliance unless same have been pre-approved by the Board. No donations to In terms of the JSE Listings Requirements the Group is required to report political parties were made by the Group during the period under review. in respect of King III for its financial year end 30 June 2013. The Risk Management Committee and, where appropriate, the Audit The JSE Listings Requirements require all JSE listed companies to comply Committee, considers any incidents of fraud and corruption. Any material with King III and to report on the application of the King III principles in incidents of fraud or corruption are reported to the Risk Management accordance with the “comply or explain” approach of King III. While the Committee and, where appropriate, to the Audit Committee. The following vast majority of King III principles were applied by the Group for the duration incidents of fraud and corruption were brought to the attention of both the of the period under review, those principles that were not complied with Risk and Audit Committees and reported to the Board: are explained in this Report. A summary King III check list is included at the end of this Corporate Governance Report. The full King III Application • Credit Card Fraud Register appears on the Group website at www.comair.co.za. The Group started experiencing increased credit card fraud levels in 2010 and as a result implemented a software programme known Code of Ethics as Cybersource Fraud Detection, which resulted in credit card fraud reducing significantly. With the implementation of Sabre, The Group has a strong culture of entrenched values, which forms the the call to the Cybersource system occurred after the booking cornerstone of the behaviour expected of it towards its stakeholders. These was confirmed, whereas previously it had taken place prior to values are embodied in a written document known as the Group Code booking confirmation. As a result of this change, the Group again of Ethics. Conducting business in an honest, fair and legal manner is a experienced an upsurge in respect of credit card fraud and charge- fundamental principle of the Group. Ethical behaviour has always been a back from the banks. While the Group was able to cancel many of fundamental guiding principal and management continually focuses on the fraudulent credit card bookings, there were still passengers who establishing a culture of responsibility, fairness, honesty, accountability were able to fly and, even where the bookings were cancelled, the and transparency. The Group has adopted a Guide to the Code of Ethics banks regarded these transactions as charge-backs, resulting in to further explain to employees what constitutes ethical conduct and to the Group breaching the charge-back thresholds set by both Visa provide guidance on how to make ethically correct decisions. and Mastercard. As a result, the Group was fined approximately R300 thousand between February and March 2013. The Group, together with a team from Sabre, managed to implement a fix
Integrated Annual Report 2013 45 inventionthe achievement of a unique function or a radical breakthrough
Corporate Governance (continued)
on the Sabre system, which fix went live on 5 May 2013. The backs, there has been no significant non-compliance by, nor fines, nor call to the Cybersource system now takes place prior to booking non-monetary sanctions or prosecutions against the Group during the confirmation, which has resulted in a significant reduction in credit period under review. card fraud. It will, however, take a few months before the Group sees a significant drop in charge-backs. Customer Privacy There have been no complaints regarding breach of customer privacy or The surge in credit card fraud activity was also associated with loss of customer data against the Group during the year. a surge in credit card fraud activity nationwide. In response, the Payments Association of South Africa is seeking to make Financial Reporting and Going Concern mandatory, additional anti-fraud mechanisms such as 3D Secure. The Group is working with the Payment Association of South Africa The Directors are responsible for the preparation of the Annual Financial to see how these mechanisms can be implemented in a way that Statements in a manner that fairly and accurately represents the state of overcomes certain technical and logistical challenges relating to 3D affairs and results of the Group. The Directors are responsible for adopting Secure. sound accounting practices, maintaining adequate accounting records, ensuring an effective system of internal controls and for safeguarding of • Travel Bank Fraud assets. The Financial Statements of the Group have been prepared on Travel Bank is a tool used by the Group to provide, amongst other the “Going Concern” basis and the Board is of the view that the Group things, a credit to customers inconvenienced due to flight delays, has adequate resources to continue operating for the foreseeable future. cancellations, overbookings, etc. In March 2013 substantial credits were allocated to Travel Bank accounts that appeared unusual Board of Directors relative to the size of the expected account. Following a detailed investigation, the Group established that substantial credits had Composition of the Board been fraudulently allocated to various Travel Bank accounts by a The Group has a unitary Board structure. The composition of the Board supervisor in the Group’s outsourced call centre in Cape Town. It is set out on pages 63 and 64. The roles of the Chairman and the Chief was further established that the supervisor in question was working Executive Officer, (“CEO”) are separate. The Non-executive Directors, within a syndicate whereby cheap flights on both kulula and British with a strong independent element, are of sufficient number to ensure Airways were being advertised through Facebook. Four people that no single individual has unfettered power of decision-making and were arrested in connection with this fraud and were due to appear authority. As at 30 June 2013, the Board comprised seven independent in court in August 2013. The Group has implemented a number of Non-executive Directors, three Non-executive Directors and four Executive corrective measures to prevent this kind of fraud from recurring. Directors (including the alternate Directors) as required in the listing requirements of the JSE. As a result of the fraud experienced, and in addition to the number of corrective measures implemented to avoid such fraud from recurring, the The Board is considered to be appropriately skilled with regard to its Group has appointed ORCA (Jhb) Inc. to conduct an independent third responsibilities and the activities of the Group and is involved in all material party review of internal controls relating to the sale of tickets. business decisions enabling it to contribute to the strategic and general guidance of management and the business. Newly appointed Directors Competition are informed of their fiduciary duties and in this regard are provided with The Group supports and adheres to the relevant competition laws applicable a Director’s Manual which contains guidelines regarding their duties and to it. No legal action for anti-competitive conduct, anti-trust or monopoly responsibilities as Directors. The skills and experience profiles of the Board practices was instituted against the Group during the financial year in members are regularly reviewed to ensure an appropriate and relevant question. Board composition.
Compliance Dealing in Securities Compliance with all relevant laws, regulations or codes is integral to the The Group has a formal policy in place to ensure that the Directors and Group’s risk management approach. Other than the R300 thousand in senior management do not trade in the Group’s shares during price-sensitive fines imposed by Visa and Mastercard in respect of credit card charge or closed periods. In terms of the policy, closed periods commence from
46 Integrated Annual Report 2013 Integrated Annual Report 2013
the last day of the financial year or the last day of the end of the first six • Ensuring that the remuneration of Directors and Executive month period of the financial year up to the day after publication of the Managers occurs in accordance with the Group’s remuneration annual or interim results. Directors are required to obtain approval from policy; the Chairman or a designated Director before dealing in any securities. • Identifying and managing potential conflicts of interest; • Settling principles for recommending the use of external auditors Conflict of Interest for non-audit services; All Board members and the Group Secretary are required to disclose their • Establishing Board committees with clear terms of reference and shareholding in the Group, other directorships and potential conflicts of responsibility; interest. Where potential conflicts of interest exist, Directors are expected • Defining levels of authority and delegating required authority to the to recuse themselves from relevant discussions and decisions. committees and management; • Considering and, if appropriate, declaring payment of dividends to Role and Function of the Board shareholders; The Board retains full and effective control of the Group and is accountable • Evaluating the effectiveness of the Board and its committees; and responsible for the performance and affairs of the Group. The Board • Conducting an evaluation of the Group Company Secretary; and is accountable to all of the Group’s stakeholders for exercising leadership, • Ensuring the creation of sustainable shareholder value. integrity and judgment in pursuit of the strategic goals and objectives of the Group. Formal requirements specifying the responsibilities of and type To fulfil their responsibilities adequately, Directors have unrestricted access of conduct expected from the Directors, the Group Company Secretary, to timely financial and other information, records and documents relating the Chairman and the CEO are set out in the Group’s Board Charter. The to the Group as well as free access to senior management and the Group Board’s primary functions include, amongst others: Company Secretary. During the financial year under review, the Board received presentations from senior Executive Management enabling it to • Determining the Group’s vision; explore specific issues and developments in greater depth. • Determining and providing strategic direction to the Group; • Adoption of strategic plans and ensuring that same, through Induction of New Directors and Independent Advice the Executive Directors, are communicated to the applicable Newly appointed Directors are informed of their fiduciary duties by the management levels and further ensuring that the objectives as set Group Company Secretary. Newly appointed Directors receive information out in the strategic plan are met; on the JSE Listings Requirements and the obligations therein imposed • Approving and evaluating the annual business plan and budget upon Directors and are informed of any amendments to legislation and compiled by management and monitoring management on the regulations. implementation of the approved annual budget and business plan; • Approving the Group’s Financial Statements and interim reports; Individual Directors may, after consulting with the Chairman or the CEO, • Appointing the CEO who reports to the Board and ensuring that seek independent professional advice, at the expense of the Group, on succession is planned; any matter connected with the discharge of his/her responsibilities as • Determining Director selection and evaluation; a Director. • Evaluating the viability of the Group on a “going concern” basis; • Ensuring that the Group has appropriate risk management, internal Board Evaluations control and regulatory compliance procedures in place. It further The Board conducts informal evaluations of its performance. During the identifies and continually reviews key risks as well as the mitigation evaluation process, the Board identified improved sustainability management thereof by management; and governance of information technology as areas requiring attention. • Approving of major capital expenditure and significant acquisitions and disposals; Board Meetings and Attendance • Monitoring non-financial aspects pertaining to the business of the The Board meets at least four (4) times a year with the proviso that Group; additional meetings may be called when certain important matters arise. • Monitoring of compliance with laws, regulations and the Group’s Details of attendance at Board meetings are provided on pages 63 and Code of Ethics; 64 of this Report.
Integrated Annual Report 2013 47 inventionthe achievement of a unique function or a radical breakthrough
Corporate Governance (continued)
Retirement and Re-election of Directors • Monitoring of Directors’ dealings in securities and ensuring that Under the Group’s Memorandum of Incorporation, a third of the Directors prior approval to deal in securities is obtained from the Chairman or retire by rotation each year and are eligible for re-election by shareholders another designated Director. at the Annual General Meeting. Details of the Directors retiring by rotation are set out in the notice of Annual General Meeting. The appointment of The Group Company Secretary is a Director of the Group, albeit an alternate Directors is a function of the entire Board based on recommendations Director, and a Director of some of the Group’s subsidiaries. The Board is made by the Nominations Committee. of the opinion that, in view of the fact that the Group Company Secretary is an alternate Director of the Group, an arm’s length relationship is not Chairman feasible. However, the Board conducted an annual evaluation and is The Group’s Chairman, Mr P van Hoven, is an Independent Non-executive satisfied that no conflict exists and that the Group Company Secretary Director. In addition to playing a key role within the Group, he provides has the requisite competence, knowledge and experience to carry out the guidance to the Board as a whole and ensures that the Board is efficient, duties of a secretary of a public company. focussed and operates as a unit. He acts as a facilitator at Board meetings to ensure a flow of opinions, and attempts to lead discussions to optimal The Group Company Secretary reports to the CEO and has a direct channel outcomes in the interests of good governance. of communication to the Chairman. He meets with the Chairman before each Board and general meeting to prepare for and discuss important issues. The CEO The CEO, who reports to the Board, is responsible for the running of the He is responsible for the functions specified in section 88 of the Companies day-to-day business of the Group and for the implementation of policies Act 2008 (as amended). All meetings of shareholders, Directors and and strategies adopted by the Board. The Executive Directors and Executive Board committees are properly recorded as per the requirements of the Managers of the various business units and subsidiaries assist him in this Act. The removal of the Group Company Secretary would be a matter for task. The Group’s Executive Management Committee meets on a bi‑monthly the Board as a whole. basis or more regularly if required, to consider, inter alia, investment opportunities, operational and financial matters and other aspects of The name and qualifications of the Group Company Secretary appear on strategic importance to the Group. Executive Managers have specific page 64 of this Report. roles and responsibilities with specific reference to their authority levels. Board Committees The Group Company Secretary The Board has created an Audit Committee, Risk Management Committee, The Group Company Secretary plays a pivotal role in the continuing Nominations Committee, Remuneration Committee and a Social and Ethics effectiveness of the Board, ensuring that all Directors have full and timely Committee, as set out below, to enable the Board to properly discharge access to the information that helps them to perform their duties and its duties and responsibilities and to effectively fulfil its decision making obligations properly, and enables the Board to function effectively. process. The Board and its committees are supplied with relevant and timely information enabling them to discharge their responsibilities. The Group Company Secretary’s key duties with regard to the Directors include, but are not limited to, the following: While the Board remains accountable for the performance and affairs of the Group, it does delegate certain functions to the committees • Collating and distributing relevant information such as corporate and management to assist it in carrying out its functions, duties and announcements, investor communications and any other responsibilities. The Chairman of each committee reports to the Board developments affecting the Group or its operations; at each Board meeting. • Providing counsel and guidance to the Board on their individual and collective powers and duties; The Chairman of each committee, other than the Social and Ethics • Inducting new Directors. This includes a briefing on their fiduciary Committee, which has a Non-executive Director as its Chairman, is an and statutory duties and responsibilities (including those arising independent Non-executive Director and is requested to attend the Group’s from the JSE Listings Requirements); Annual General Meeting to answer any questions posed by shareholders. • Providing regular updates on effective and proposed changes to laws and regulations affecting the Group and/or its businesses; and
48 Integrated Annual Report 2013 Integrated Annual Report 2013
The Board committees have specific terms of reference, appropriately skilled • Perform the statutory functions of an Audit Committee in terms of members, membership by Non-executive Directors who act independently, the Companies Act and other functions delegated by the Board; Executive Directors and Executive Management participation and access • Review and recommend to the Board for approval the Group’s to specialist advice when considered necessary. Integrated Annual Report, interim reports and results announcement; • Nominate and approve the terms of engagement and remuneration Audit Committee of registered auditors, who in the opinion of the committee, are The role of the Audit Committee is to review the Group’s financial position independent of the Group, and ensure that their appointment and make recommendations to the Board on all financial matters and complies with the provisions of the Companies Act, King III and internal controls. The Committee also reviews the nature and extent of other legislation relating to their appointment; non-audit services provided by the external auditors to ensure that the fees • Review and evaluate the effectiveness and performance of the for such services do not become so significant as to call into question their external auditors as well as the scope, adequacy and costs of independence. The Chairman of the Committee reports on the Committee’s audits to be performed and report there-on to the Board and to the activities at each Board meeting. shareholders; • Evaluate and approve the external auditors’ plans, findings and The members of this Committee are independent Non-executive Directors, reports; bar one member who is a Non-Executive Director who acts independently but • Receive and deal appropriately with any concerns or complaints, meets all the requirements of Section 94 of the Companies Act. All members whether received internally or externally, dealing with the Group’s are financially literate and all possess substantial business and financial accounting practices and internal audits, the Financial Statements, expertise. The Committee meets at least three (3) times per year. Both internal financial controls or related matters; internal and external auditors have unrestricted access to the Committee. • Monitor and evaluate the performance of the Financial Director; • Identify and evaluate exposure to financial risks; The Chairman of the Board, CEO, Financial Director, internal auditor and • Evaluate the effectiveness of the internal auditing function, external auditors attend the Audit Committee Meetings by invitation. The including its activities, scope and adequacy and receive and Committee held four (4) meetings during the reporting period. approve the internal audit plan, internal audit reports and material changes to same; Composition of Committee and Attendance • Evaluate procedures and systems, including but not limited to, internal controls, disclosure controls and the internal audit function; Membership Attendance • Consider legal matters which could financially affect the Group; and Chairman Dr PJ Welgemoed 4/4 • Recommend principles for the use of external auditors for non- Members Mr KI Mampeule 3/4 audit services and ensure that the fees for such services do not Ms WD Stander 3/4 become so significant as to call into question their independence. Mr AK Buchanan 1/2 (Resigned from the Audit The Committee’s report describing how it discharges its statutory duties Committee on 27 November 2012) and the additional duties assigned to it by the Board is included in this Mr GJ Halliday 0/0 Report on pages 54 to 56. (Appointed to the Audit Committee on 5 June 2013) Risk Management Committee
The Committee, amongst other things, identifies and evaluates the adequacy The role of the Risk Management Committee is to review the risks of internal controls and provides effective communication between Directors, facing the Group’s business and to ensure compliance with all required Management and the internal and external auditors. The responsibilities legislation, regulations and codes affecting the business. The members of of the Audit Committee are contained in a formal mandate from the this Committee, who also serve as members of the Audit Committee, are Board (Terms of Reference) which is reviewed annually with the main Independent Non-executive Directors, with the exception of one member responsibilities being, amongst others, to: who is a Non-executive Director and acts independently. The Committee meets at least three (3) times per year. The Chairman of the Board, CEO,
Integrated Annual Report 2013 49 inventionthe achievement of a unique function or a radical breakthrough
Corporate Governance (continued)
Financial Director, internal auditor and external auditors (where appropriate) the Group’s risk management procedures, refer to the Internal Control and attend Risk Management meetings by invitation. The Committee held three Risk Management Report. (3) meetings during the reporting period. Nominations Committee Composition of Committee and Attendance The members of this Committee are all Non-executive Directors who act independently. Membership Attendance
Chairman Dr PJ Welgemoed 3/3 This Committee, as well as the Remuneration Committee, considers the Members Mr KI Mampeule 2/3 issue of succession planning at Board and Executive Management level. Ms WD Stander 2/3 The CEO, in consultation with the Board Chairperson, Remuneration and Mr AK Buchanan 1/2 Nominations committees, is responsible for ensuring that an adequate (Resigned from the Committee on succession plan is in place. 27 November 2012) Mr GJ Halliday 0/0 The Committee met once during the year under review. The composition (Appointed to the Committee on of the Committee and attendance at meetings are set out below: 5 June 2013) Composition of Committee and Attendance The main responsibilities of the Risk Management Committee are, amongst Membership Attendance others, to: Chairman Mr P van Hoven 1/1 • Oversee the development and annual review of a Risk Management Members Mr JM Kahn 0/1 Policy and Plan for recommendation to the Board for approval; Mr KI Mampeule 1/1 • Monitor implementation of the Risk Management Policy and the Mr MD Moritz 1/1 Plan; • Make recommendations to the Board concerning the levels of Amongst others, the main responsibilities of the Nomination Committee tolerance and appetite and ensure that risks are managed within are to: the levels of tolerance and appetite as approved by the Board; • Ensure that the Risk Management Plan is widely disseminated • Make recommendations on the appointment of new Executive and throughout the Group and integrated into the day-to-day activities Non-executive Directors; of the Group; • Make recommendations on the composition of the Board generally • Ensure that risk management assessments are performed on a and the balance between Executive and Non-executive Directors; continuous basis; • Review plans for succession and ensure their adequacy, for the • Ensure that frameworks and methodologies are implemented to Chairperson, the CEO and Executive Directors; increase the possibility of anticipating unpredictable risks; • Review the Board structure, size and composition and make • Ensure that management considers and implements appropriate recommendations with regard to any adjustments deemed risk responses; necessary; and • Liaise closely with the Audit Committee to exchange information • Ensure that Board appointment policies and procedures are formal relevant to risks; and transparent and a matter for the Board as a whole, and that • Review reporting concerning risk management that is to be such appointment policies and procedures are reviewed and included in the Integrated Annual Report to ensure that such updated when necessary. reporting is timely, comprehensive and relevant; and • Evaluate procedures and systems introduced including, without Remuneration Committee limitation, the Group’s information technology systems. The members of this Committee are all independent Non-executive Directors. The CEO attends meetings by invitation only and is not entitled to vote. The For more information regarding the Group’s risk management and the CEO does not participate in discussions regarding his own remuneration. The material issues facing the Group that have been identified as a result of
50 Integrated Annual Report 2013 Integrated Annual Report 2013
Committee met three times during the year under review. The composition members of this Committee consist of Independent Non-executive Directors, of the Committee and attendance at meetings are set out below. Executive Directors and senior executives of the Group who are suitably experienced. The Chairman of the Board, Financial Director, internal Composition of Committee and Attendance auditors, representatives from other assurance providers, professional advisors and Board members are entitled to attend committee meetings. The Membership Attendance Committee met four times during the year under review. The composition Chairman Mr JM Kahn 1/3 of the Committee and attendance at meetings is set out below: Members Mr RC Sacks 1/3 Mr AK Buchanan 1/2 Composition of Committee and Attendance (Resigned as a member of the Committee on 27 November 2012) Membership Attendance Mr P van Hoven 3/3 Chairman Mr MD Moritz 4/4 Ms WD Stander 0/0 Members Mr ER Venter 4/4 (Appointed to the Committee on Mr DH Borer 4/4 5 June 2013) Mr KI Mampeule 3/4 Mr KV Gorringe 4/4 The remuneration policy and the execution thereof is the responsibility of the Remunerations Committee. Ms EA Liebetrau 4/4
The fees for Non-executive Directors and the remuneration packages of The main responsibilities of the Social and Ethics Committee are, amongst Executive Directors for the financial year under review are disclosed in the others, to: Report of the Directors on page 65 of this Report. As recommended by King III, the Group’s remuneration policy was approved by shareholders of • Assist the Board in ensuring that the Group is compliant with all the Group at its last Annual General Meeting, held on 1 November 2012, legislation and other requirements relating to social and economic by way of a non-binding advisory vote. development and remains a good corporate citizen by monitoring the sustainable development performance of the Group; and Amongst other things, the main responsibilities of the Remuneration • Perform the statutory functions of a social and ethics committee in Committee are to: terms of the Companies Act and other functions delegated to it by the Board. • Determine the Group’s general policy on remuneration as well as specific policies in respect of Executive Directors’ and Executive The Committee’s report describing how it discharged its statutory duties Managers’ remuneration; is included in this Report on page 60. • Review and determine remuneration packages for Executive Directors and Executive Management including but not limited Discharge of Responsibilities to basic salary, annual bonuses, benefits, performance‑based The Board is of the view that the committees have discharged their incentives and share incentive scheme awards; responsibilities for the financial year under review in compliance with • Annually appraise the performance of the CEO; their terms of reference. • Annually review the general level of remuneration for Directors of the Board as well as its committees and recommend proposals in Internal Control this respect for approval by shareholders at general meetings; and • Make recommendations in respect of awards from the Comair Internal Control Systems Share Incentive Scheme. The Board has responsibility for ensuring that the Group implements and monitors the effectiveness of its systems of internal control. The identification Social and Ethics Committee of risk and the implementation and monitoring of adequate systems of The role and responsibilities of the Committee are codified in a mandate internal control to manage both financial and operational risk are delegated from the Board (Terms of Reference), which is reviewed annually. The
Integrated Annual Report 2013 51 inventionthe achievement of a unique function or a radical breakthrough
Corporate Governance (continued)
to the internal auditor or CAE, who in turn makes recommendations to to the attention of the Audit and Risk Management committees, external Executive Management as well as to the Audit Committee. auditors and operational management for resolution. The internal auditor co-ordinates with the external auditors so as to ensure proper coverage While all internal control systems do have inherent shortcomings, the and minimise duplication of effort. Internal audit plans are tabled at the Group’s internal control system is designed to provide reasonable assurance Audit Committee meetings and follow-up audits are concluded in areas as to the reliability of financial information and in particular the Financial where weakness is identified. The internal audit plan, approved by the Audit Statements, as well as to safeguard, verify and maintain accountability Committee, is based on risk assessments which are of a continuous nature, for assets and to detect fraud and potential liability, while complying with so as to identify not only existing and residual risk, but also emerging risks applicable laws and regulations. and issues highlighted by the Committee and senior Executive Management.
The Group’s external auditors consider the internal control systems of the External Audit Group as part of their audit, and advise of deficiencies when identified. The independence of the external auditors is recognised. The Audit Committee meets with external auditors to review the scope of the external Internal Audit audit, and any other audit matters that may arise. The external auditors The internal audit function is an independent appraisal mechanism which attend Audit and Risk Committee Meetings and have unrestricted access evaluates the effectiveness of the applicable operational activities, the to the Chairman of the Committee. The Audit Committee is responsible attendant business risks and the systems of internal controls, so as to bring for nominating the Group’s external auditors and determining its terms of material deficiencies, instances of non-compliance and development needs engagement.
Summary King III Checklist
Applied/Partially Explanation/ IoDSA GAI Principle Principle Description Applied/ Compensating Not Applied Commentary Score Not Applied Practices Principle 2.1 The Board acts as the focal point for and Applied AAA custodian of corporate governance Principle 2.2 The Board appreciates that strategy, risk, Applied AAA performance and sustainability are inseparable Principle 2.3 The Board provides effective leadership based on Applied AAA ethical foundation Principle 2.4 The Board ensures that the Group is and is seen Applied AAA to be a responsible corporate citizen Principle 2.5 The Board ensures that the Group ethics are Applied AAA managed effectively Principle 2.6 CHAPTER 3: Audit Committees Applied AAA Principle 2.7 CHAPTER 4: The governance of risk Applied AA Principle 2.8 CHAPTER 5: The governance of information Applied AAA technology Principle 2.9 CHAPTER 6: Compliance with laws, rules, codes Applied AAA and standards Principle 2.10 CHAPTER 7: Internal audit Applied AAA Principle 2.11 CHAPTER 8: Governing stakeholder relationships Applied AA Principle 2.12 CHAPTER 9: Integrated reporting and disclosure Applied AAA Principle 2.13 CHAPTER 7 & 9: The Board reports on the Applied AAA effectiveness of the Group’s internal controls
52 Integrated Annual Report 2013 Integrated Annual Report 2013
Applied/Partially Explanation/ IoDSA GAI Principle Principle Description Applied/ Compensating Not Applied Commentary Score Not Applied Practices Principle 2.14 The Board and its Directors act in the best Applied AAA interests of the Group Principle 2.15 The Board will/has consider/ed business rescue Applied AAA proceedings or other turnaround mechanisms as soon as the Group has been/may be financially distressed as defined in the Companies Act (No. 71 of 2008) Principle 2.16 The Board has elected a Chairman of the Board Applied AAA who is an independent Non-executive Director. The CEO of the Group does not also fulfil the role of Chairman of the Board Principle 2.17 The Board has appointed the Chief Executive Applied AAA Officer and has established a framework for the delegation of authority Principle 2.18 The Board comprises a balance of power, with a Applied AA majority of Non-executive Directors. The majority of Non-executive Directors is independent Principle 2.19 Directors are appointed through a formal process Partially applied C There is currently no formal process that specifies the appointment requirements for Directors. Principle 2.20 The induction of and ongoing training, as well Partially applied BB Although no induction as the development of Directors are conducted and ongoing training through a formal process programmes exist, Directors receive informal advice and professional mentoring from the senior and more experienced Directors as well as relevant information included in the Director’s Manual from time to time. Principle 2.21 The Board is assisted by a competent, suitably Applied AAA qualified and experienced Company Secretary Principle 2.22 The evaluation of the Board, its committees and Partially applied B Every year, the evaluation individual Directors is performed every year of the Board and its committees is done informally. Principle 2.23 The Board delegates certain functions to well- Applied AAA structured committees without abdicating from its own responsibilities Principle 2.24 A governance framework has been agreed upon Applied AAA between the group and its subsidiary boards Principle 2.25 The Group remunerates its Directors and Applied AAA executives fairly Principle 2.26 The Group has disclosed the remuneration of Applied AAA each individual Director and prescribed officer Principle 2.27 The shareholders have approved the Group’s Applied AAA remuneration policy
Integrated Annual Report 2013 53 inventionthe achievement of a unique function or a radical breakthrough
Audit Committee Report
This report is presented by the Group’s Audit Committee (the “Committee”) approved by the Board and the shareholders in respect of the financial year ended 30 June 2013. It is prepared in accordance with the recommendations of King III and the requirements of the Companies Act (No. 71 of 2008), as amended, and describes how the Committee has discharged its statutory duties in terms of the Companies Act and the additional duties assigned to it by the Board in respect of the financial year ended 30 June 2013.
Audit Committee Mandate The Committee has adopted a formal mandate setting out its responsibilities and functioning, that has been approved by the Board of Directors (“Board”) and will be reviewed annually. The Committee has conducted its affairs in compliance with this mandate and is satisfied that it has fulfilled all its statutory duties and duties assigned to it by the Board during the period under review as further detailed below.
Composition and Meetings The Committee consists of three (3) Independent Non-executive Directors and one Non-executive Director who acts independently but meets the independent requirements of the Companies Act, and meets at least three (3) times per annum.
The Chairman of the Board, CEO, Financial Director, internal auditor and external auditor attend Committee meetings by invitation.
During the year the Committee held three (4) meetings.
Committee Members
Date of No. of Meetings Name Qualifications Attendance Appointment held during year Dr PJ Welgemoed 28/03/1996 BCom (Hons), MCom, DCom 4 4/4 Mr KI Mampeule 05/09/2005 BA, MSc, MBA 4 3/4 Ms WD Stander 15/09/2008 BA (Hons), MBA 4 3/4 Mr AK Buchanan (Resigned as a member of the Committee on 30/11/2009 MA, LLB 4 1/2 27 November 2012 as a result of his resignation as a member of the Board) Mr GJ Halliday (Appointed as a member of the Committee on 06/06/2013 BA (Hons), MBA 4 0/0 6 June 2013)
Abridged curricula vitae of the Committee members appear on pages 127 to 128 of this Report.
The Board re-appointed the Committee members, which appointments are subject to shareholders re-electing the Committee members at its Annual General Meeting to be held on 30 October 2013.
Role and Function of the Committee The roles and functions of the Committee, including its statutory duties, are set out in the Corporate Governance Report on page 49 of this Report.
The Committee is satisfied that it has fulfilled all its statutory duties, including those prescribed by the Companies Act, and duties assigned to it by the Board during the period under review. In addition, the Committee did not receive or deal with any concerns related to matters listed in s94(7)(g)(i)-(iv) of the Companies Act.
54 Integrated Annual Report 2013 Integrated Annual Report 2013
External Audit The Committee has, during the period under review, nominated external auditors, Grant Thornton (Jhb) Inc. (“GT”), which merged with PKF (Jhb) Inc., approved its fee and determined its terms of engagement. The appointment will be presented to shareholders of the Group at the Annual General Meeting for approval. The Committee has further satisfied itself that GT is accredited and appears on the JSE list of Accredited Auditors and that the designated auditor is not disqualified from acting as such. The Committee has further satisfied itself that the external auditors, GT, are independent of the Group as contemplated in sections 90(2)(b), (c) and 94(8) of the Companies Act.
There is a formal policy that governs the process whereby the external auditors are considered for non-audit related services. The Committee approved the terms of the policy for the provision of non-audit services by the external auditors and approved the nature and extent of non-audit services that the external auditors may provide. During the period under review, the external auditors did provide non-audit services to the Group, namely in the form of tax advice and assurance on selected information in this Report and they have been appointed to do a fraud risk analysis on the sale of the Group’s airline tickets. The use of the external auditors for such services was pre-approved by the Committee.
Internal Financial Controls The Committee is responsible for assessing the Group systems of internal financial controls and has considered reports from the internal and external auditors and has satisfied itself about the adequacy and effectiveness of the Group system of internal financial controls.
Expertise and Experience of the Financial Director and Finance Function The Committee performed a review of the Financial Director and the finance function and the Committee is satisfied with the expertise and experience of the Financial Director and the appropriateness of the finance function.
Internal Audit Internal audit forms an integral part of the Group’s risk management process and system of internal controls. The Committee is satisfied with the independence, quality and scope of the internal audit function. Mr Sean Percival Miller was appointed as Chief Audit Executive (“CAE”). The CAE has developed a sound working relationship with the Committee in that he:
• Provides an objective set of eyes and ears across the Group; • Provides assurance and awareness on risks and controls specific to the Group and the industry in which he is involved; • Has positioned himself as a trusted strategic advisor to the Committee; • Confirms to the Committee at least once a year the independence of the internal audit function; and • Communicates regularly with the Committee Chairman.
Further details of the Group’s internal audit function are contained in the Corporate Governance Report. The Committee has considered and recommended the internal audit charter for approval by the Board. The internal auditor’s annual audit plan was approved by the Committee.
Risk Management The Board has assigned oversight of the Group’s risk management function to the Risk Management Committee. The members of the Audit Committee are also members of the Risk Management Committee. The Committee fulfils an oversight role regarding financial reporting risks, internal financial controls and fraud risk as they relate to financial reporting and safety and security issues. Further details of the Group’s risk management function can be found in the Corporate Governance Report and the Internal Control and Risk Management Report.
The Committee is satisfied that the system as well as the process of risk management is effective.
Integrated Annual Report 2013 55 inventionthe achievement of a unique function or a radical breakthrough
Audit Committee Report (continued)
Financial Statements The Committee has reviewed the Financial Statements of the Group and is satisfied that they comply with International Financial Reporting Standards.
Compliance The Committee is responsible for reviewing any major breach of relevant legal, regulatory and other responsibilities. The Committee is satisfied that there has been no material non-compliance with laws and regulations.
Going Concern The Committee, based on an assessment received from Executive Management, is of the view that the Group will be a going concern for the foreseeable future.
Duties Assigned by the Board The Committee fulfils an oversight role regarding the Group’s Integrated Annual Report and the reporting process including the systems of internal financial control. It is responsible for ensuring that the internal audit function is independent and has the necessary resources, standing and authority to enable it to effectively discharge its duties. The Committee also oversees co-operation between the internal and external auditors, and serves as a link between the Board and their functions.
Whistle Blowing The Committee is satisfied that all instances of whistle blowing have been appropriately dealt with during the period under review.
Sustainability Reporting The Committee recommended to the Board the appointment of GT, an external independent assurance provider, to perform an assurance engagement with the purpose of expressing a limited assurance opinion in terms of ISAE 3000 on whether selected information contained in this Report – inclusive of the supplemental GRI Content Index Table on the Group’s website is in alignment with the AA1000 APS (2008) principals (inclusivity, materiality and responsiveness), as well as to access whether the Group’s self declaration of a C application level is fairly stated in all material aspects, in accordance with the GRI G3.1 Guidelines. The Assurance Statement can be accessed via the Group’s website www.comair.co.za.
The Committee has considered the Group’s sustainability information as disclosed in this Report and the supplemental GRI Content Index Table on the Group’s website and has assessed its consistency with operational and other information known to Committee Members, and for consistency with the Annual Financial Statements. The Committee is satisfied that the sustainability information is reliable and consistent with the financial results.
Recommendation of the Integrated Annual Report for Approval by the Board The Committee recommended this Report for approval by the Board on 9 September 2013.
The Committee is satisfied that it has complied with all its legal, regulatory and other responsibilities during the period under review.
Dr PJ Welgemoed Chairman: Comair Limited Audit Committee 9 September 2013
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Remuneration Report
The Group has a dedicated Board Committee that, inter alia, determines the governance of remuneration matters, Group remuneration philosophy, remuneration of Executive Directors and other senior managers, as well as the compensation of Non-executive Directors, which is ultimately approved by the shareholders.
Detail on the mandate, composition and attendance of meetings held by the Remuneration and Nominations Committees are set out in the Corporate Governance Report.
Remuneration Approach The Group’s remuneration policy provides full details of the remuneration approach for Directors, senior managers and Non-executive Directors.
The remuneration offered by the Group needs to be competitive in order to attract, retain and incentivise high-calibre staff.
The remuneration philosophy is based on the following principles:
• Affordability; • Internal fairness; and • External fairness.
The remuneration approach, that furthermore guides the level of salaries of all Directors and senior management, is aimed at:
• Ensuring that no discrimination occurs; • Recognising exceptional and value adding performance; • Encouraging team performance and participation; and • Promoting cost-effectiveness and efficiency.
In order to balance external equity with affordability and to ensure that market-related salaries are offered to staff, the Group participates in several salary surveys and uses that information for benchmarking purposes.
Remuneration Structures Management remuneration structures comprise of fixed and variable components:
• Fixed pay: base salary and benefits; and • Variable pay: short term merit bonus based on personal performance (40%), Group performance (40%) and Board discretion (20%) and a long‑term executive incentive scheme based on Group profits before tax and the Group’s share price performance (payable every three years).
Base Salary Market data is used to benchmark individual salary levels for Directors and senior managers. This information, combined with the individual’s performance assessment, comprises the key consideration for annual salary reviews.
Retirement Benefits The Group offers membership to a defined contribution pension fund to all permanent employees in South Africa. This fund is part of an umbrella arrangement known as Evergreen Superfund and is administered by Old Mutual.
Integrated Annual Report 2013 57 inventionthe achievement of a unique function or a radical breakthrough
Remuneration Report (continued)
Other Benefits These include benefits such as medical aid, risk benefits insurance (i.e. death and disability) and leave to permanent employees in South Africa.
Variable Pay
Executive Directors and senior managers participate in management incentive schemes.
Short-term Incentives
The key business performance criterion for the financial year in respect of the management incentive schemes was profit after tax.
Payment of short‑term incentive bonuses to employees is based on three (3) components:
• Achievement by the qualifying employee of key performance indicators (40%); • Group profit performance (40)%; and • 20% of the bonus is payable at the discretion of the Board.
Employees who do not participate in the short-term incentive scheme would be entitled as follows:
• Pilot group – Guaranteed 13th cheque; and • Rest of staff – Proportion of a 13th cheque based on personal performance and Group affordability and a discretionary amount based on the Group’s performance.
Long-term Incentive Scheme (“Scheme”) Executive Directors and designated senior managers who were in the employ of the Group on or prior to 31 December 2012 and are still in the employ of the Group as at 30 September 2015 participate in the long-term executive incentive scheme.
The purpose of the Scheme is to retain talent as well as to reward participants in the Scheme based on the Group’s performance and comprises of two components as follows:
• Profit linked component (35%) In terms of this component of the Scheme, 7% of the aggregated headline profits before tax (excluding profits from damages awards and profits from new business ventures that are not managed by the participants), made by the Group during the 2013, 2014 and 2015 financial years in excess of R250 million, but capped to a maximum of R17.5 million, would be allocated to participants in the Scheme in proportion to their basic salary versus the combined basic salary of the participants in the Scheme.
• Share price linked component (65%) This component is based on the trade weighted average share price of the Group for the six (6) months to 30 June 2015, with the bonus payable to participants being the difference between the Group share price as determined on 30 June 2015 and a share price of R1.50c, but capped to a maximum of R32.5 million.
Executive Directors’ Remuneration Remuneration of Executive Directors is compared to the market for comparable roles in companies of similar size.
58 Integrated Annual Report 2013 Integrated Annual Report 2013
The annual bonus payable to Executive Directors in terms of the short-term management incentive scheme is limited to 100% of their annual base salary.
Executive Directors have standard service contracts with no fixed duration, no restraint and with a one-month notice period. This is currently under review.
Details of the remuneration of individual Executive and Non-executive Directors are set out in the Report of the Directors on pages 65 to 66.
Non-executive Directors’ Remuneration Non-executive Directors do not receive any benefits or share options from the Group apart from Directors’ fees, which fees were approved by shareholders at the Group’s Annual General Meeting on 1 November 2012. The Non-executive Directors’ fees for the year ended 30 June 2013 are included in the joint remuneration payable to the Group’s Non-executive Directors, as included in Special Resolution Number 1 in the Notice of Annual General Meeting to be held on 30 October 2013.
The Directors’ fees per meeting, for the financial years ended 30 June 2012 and 30 June 2013, as well as the proposed fee per meeting for the financial year ending 30 June 2014, are set out in the table below. Commencing from the 2013 financial year, members of the committees are also remunerated for their participation as members of the various committees.
Directors’ fees
Annual fee for the year Annual fee for the year Annual fee for the year Meeting ended 30 June 2012 ended 30 June 2013 ended 30 June 2014 R R R Chairperson: Board 370,000 1,000,000 1,200,000 Vice-chairperson: Board 250,000 250,000 350,000 Member: Board 120,000 120,000 150,000
Fee per meeting for the Fee per meeting for the Proposed fee per meeting year ended year ended for the year ended 30 June 2012 30 June 2013 30 June 2014 R R R Chairperson: Audit Committee 10,000 10,000 13,000 Member: Audit Committee - 5,000 6,500 Chairperson: Risk Committee 10,000 10,000 13,000 Member: Risk Committee - 5,000 6,500 Chairperson: Nominations Committee 10,000 10,000 13,000 Member: Nominations Committee - 5,000 6,500 Chairperson: Social and Ethics Committee - 10,000 13,000 Member: Social and Ethics Committee - 5,000 6,500 Chairperson: Remuneration Committee 10,000 10,000 13,000 Member: Remuneration Committee - 5,000 6,500 Chairperson: Pension Fund 10,000 10,000 13,000
Integrated Annual Report 2013 59 applicationthe action of applying knowledge and theory into operation
Social and Ethics Committee Report
The Board established the Group’s Social and Ethics Committee (“the Committee”) in November 2011. This report is presented by the Committee to describe how it has discharged its statutory duties in terms of the Companies Act (No. 71 of 2008) (“the Companies Act”).
The composition and number of meetings held or to be held by the Committee is set out in the Corporate Governance Report in this Report on page 51.
The responsibilities and functioning of the Committee are governed by a formal mandate approved and subject to annual review by the Board. The main purpose of the Committee is to assist the Board in ensuring that the Group is and remains a good corporate citizen by monitoring the sustainable development performance of the Group and to perform the statutory functions required of a Social and Ethics Committee in terms of the Companies Act.
The Committee is responsible for developing and reviewing the Group policies with regard to social and economic development, good corporate citizenship and reporting on the Group’s sustainable development performance and for making recommendations to the Board and/or management on matters within its mandate.
The Committee performs a monitoring role in respect of the sustainable development performance of the Group relating, amongst others, to:
• Environmental, Health and Public Safety, which includes occupational health and safety; • Broad-based black economic empowerment and employment equity; • Labour relations and working conditions; • Consumer relationships (advertising, public relations and compliance with consumer protection laws); • Training and skills development of the Group’s employees; • Management of the Group’s environmental impacts; • Ethics compliance; and • Corporate social investment.
The Committee’s monitoring role also includes the monitoring of relevant legislation, other legal requirements or prevailing codes of good practice specifically with regard to matters relating to social and economic development, good corporate citizenship, the environment, health and public safety as well as labour and employment.
The Committee is further responsible for annually reviewing, in conjunction with Executive Management, the Group’s material sustainability issues. The Committee must also review and approve the sustainability content included in this Report.
During the past financial year, the following reports relating to the Committee’s functions were produced by Management and reviewed by the Committee:
• Labour and Employment Relationships and Educational Development Report; • Occupational Health and Safety Report; and • Flight Safety Report.
Each of the abovementioned reports was analysed in depth and in one case, namely in the area of Black Enterprise Development, management was required to present an action plan on how to improve the Group’s performance. All the reports were subsequently also approved by the Board, upon the recommendation of the Committee. The Committee is satisfied with the Group’s standing in the areas reviewed and that the current level of combined assurance provides the necessary independent assurance over the quality and reliability of the information presented.
The Committee is also required to report, through one of its members, to the Group’s shareholders on the matters within its mandate at the Group’s Annual General Meeting. Shareholders will be referred to this Report read with the Sustainable Development Report, at the Group’s Annual General Meeting on 30 October 2013.
MD Moritz Chairman: Social and Ethics Committee 9 September 2013
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Report of the Directors
The Directors take pleasure in presenting their report, which forms part of the Annual Financial Statements of the Group for the year ended 30 June 2013.
Nature of Business The main business of the Group is the provision of domestic and regional air services in the Southern African market, trading under the names of British Airways and kulula. In addition to the foregoing, the Group provides other travel related services, undertakes third party simulator training and operates airline lounges.
General Review of Main Activities The Group currently operates a fleet of twenty six aircraft flying to the destinations as set out on pages 4 and 21 of this Report. The Directors have performed the solvency and liquidity test required by the new Companies Act, the outcome of which is that the Group is a “going concern” with adequate resources to continue operating for the foreseeable future.
Financial Results Full details of the financial results are set out on pages 70 to 117 of this Report for the year ended 30 June 2013.
Dividends Notice is hereby given that a gross cash dividend of 10 cents per ordinary share has been declared payable to shareholders. The dividend has been declared out of income reserves.
The dividend will be subject to a local dividend tax rate of 15% or 1,5 cents per ordinary share, resulting in a net dividend of 8,5 cents per ordinary share, unless the shareholder is exempt from paying dividend tax or is entitled to a reduced rate in terms of the applicable double tax agreement. No STC credits were available to be utilised as part of this declaration. The Company’s tax reference number is 9281/87/47/1/0 and the number of ordinary shares in issue at the date of this declaration was 489,176,471.
In accordance with the provisions of Strate, the electronic settlement and custody system used by the JSE Limited, the relevant dates relating to the dividend are as follows:
Event Date Last day to trade (cum dividend) Friday, 11 October 2013 Shares commence trading (ex dividend) Monday, 14 October 2013 Record date (date shareholders recorded in books) Friday, 18 October 2013 Payment Date Monday,21 October 2013
Share certificates may not be dematerialised or rematerialised between Monday, 14 October 2013 and Friday, 18 October 2013, both days inclusive.
Share Capital The authorised share capital of the Group remained unchanged during the period under review.
Auditors The auditors of the Group, PKF (Jhb) Inc. merged with Grant Thornton during the year and the name has changed to Grant Thornton (Jhb) Inc.
Integrated Annual Report 2013 61 applicationthe action of applying knowledge and theory into operation
Report of the Directors (continued)
Subsidiaries and Associates Details of the Group’s subsidiaries and associates are recorded in Notes 4 and 5 of this Report on pages 88 to 92.
Subsequent Events The Directors are not aware of any matter or circumstance arising since the end of the period under review that would significantly affect or have a material impact on the financial position of the Group.
Directors’ Interest in Share Capital The following Directors of the Group held direct and indirect interests in the issued share capital of the Group at 30 June 2013 as set out below.
2013 2012 Direct Indirect Held by Total Direct Indirect Held by Total Director % % Beneficial Beneficial Associates Shares Beneficial Beneficial Associates Shares MD Moritz - 50,000,000 9,462 50,009,462 10.23 - 49,623,607 9,462 49,633,069 10.15 P van Hoven 204,647 - - 204,647 0.04 204,647 - - 204,647 0.04 ER Venter 1,531,883 - - 1,531,883 0.31 1,106,983 - - 1,106,983 0.23 MN Louw 36,732 - - 36,732 0.01 1,000 - - 1,000 0.0 PJ Welgemoed 118,788 - - 118,788 0.02 118,788 - - 118,788 0.02 KI Mampeule** - - - - 0.0 - - - - 0.0 RS Ntuli** - 5,772,615 - 5,772,615 1.18 - 5,772,615 - 5,772,615 1.18 DH Borer* 188,000 - - 188,000 0.04 188,000 - - 188,000 0.04 AK Gupta *** - 22,794,439 - 22,794,439 4.66 - 22,800,000 - 22,800,000 4.66 TOTAL 2,080,050 78,567,054 9,462 80,656,566 16.49 1,619,418 78,196,222 9,462 79,825,102 16.32 * Alternate Director ** Excludes 74,117,647 “A” shares issued to the Thelo Consortium, of which both Mr RS Ntuli and Mr KI Mampeule are members, but not forming part of the Group’s listed share capital, in terms of the Company’s Black Economic Empowerment transaction. Refer to Circular to Ordinary Shareholders issued on 23 August 2006 for further information relating to the Black Economic Empowerment transaction. *** Refers to shares owned by Oakbay Investments (Pty) Ltd, of which Mr AK Gupta has a 30% direct shareholding and a 10% indirect shareholding.
There has been a change in the Directors’ interests in share capital from 30 June 2013 to the date of posting of this Report in that Mr MN Louw purchased an additional 75,000 Group shares on 10 September 2013, taking his total shareholding to 111,732.
Special Resolutions Since its last annual report, the Group passed 6 (six) special resolutions at its Annual General Meeting held on 1 November 2012, namely:
• A special resolution for approval of Non-executive Directors’ remuneration for 2011/12; • A special resolution for the approval of Non-executive Directors’ remuneration for 2012/13; • A special resolution giving the Group a general authority to re-purchase its shares; • A special resolution as contemplated in section 45(3)(a)(ii) of the Companies Act, i.e. a general authority to provide financial assistance to related and interrelated companies or corporations; • A special resolution cancelling the Group authorised but not issued one billion “N” shares of R0.001 each; and • A special resolution in terms of which the Group’s Memorandum and Articles of Association were abrogated in favour of a Memorandum of Incorporation as required by the Companies Act.
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Other than the aforegoing, no other special resolutions were passed.
As required in terms of section 8.63(i) of the JSE Listings Requirements, no special resolutions were passed by the Group’s subsidiaries relating to borrowing powers, the object clause contained in the Memorandum of Incorporation or other material matters that affect the Group and the subsidiaries for the period under review.
Board of Directors, Company Secretary and Board Meeting Attendance The names, ages, qualifications, nationality, business addresses, attendance at Board meetings and occupations of the Directors and the Group Company Secretary, who served during the period under review, are set out below. Since certain Independent Non-executive Directors have served for a period longer than nine years, the Directors’ independence or character and judgement was assessed. This independence was not considered to be affected or impaired by the duration of service.
Name, Age, Gender Four (4) Board (M = Male, F = Female), Meetings held Race (W = White, B = Black, Nationality Business Address Occupation during the year: Coloured or Indian), Attendance Qualification Pieter van Hoven South African 1 Marignane Drive, 4/4 Independent Non-executive Age: 69 (M) (W) Bonaero Park, Chairman Kempton Park, 1619 Martin Darryl Moritz South African 1 Marignane Drive, 4/4 Non-executive Joint Deputy Age: 68 (M) (W) Bonaero Park, Chairman BCom; LLB Kempton Park, 1619 Ronald Sibongiseni Ntuli South African Thelo Group (Pty) Ltd, 4/4 Non-executive Joint Deputy Age: 43 (M) (B) Ground Floor, Block 9, Chairman LLB St. Andrews Inanda Greens Business Park, 54 Wierda Road West, Wierda Valley, 2196 Rodney Cyril Sacks South African 550 Monica Circle, 2/4 Independent Age: 63 (M) (W) Suite 201, Corona, Non-executive Director HDip. Law; HDip. Tax CA 92880, USA Dr Peter Johannes Welgemoed South African 1 Marignane Drive, 4/4 Independent Age: 70 (M) (W) Bonaero Park, Non-executive Director BCom (Hons); MCom; DCom Kempton Park, 1619 Jacob Meyer Kahn South African Retired Chairman of 3/4 Independent Age: 74 (M) (W) SABMiller Plc, 4 East Road, Non-executive Director BA (Law); MBA; DCom (hc); SOE Morningside, 2057 Khutso Ignatius Mampeule South African C/o Lefa Group 4/4 Independent Age: 48 (M) (B) Holdings (Pty) Ltd, Non-executive Director BA; MSc; MBA Mulberry Hill Office Park, Broadacres Ave, Dainfern, 2191 Wrenelle Doreen Stander South African 272 Kent Avenue, 4/4 Independent Non-executive Age: 47 (F) (B) Randburg, 2194 Director BA (Hons); MBA
Integrated Annual Report 2013 63 applicationthe action of applying knowledge and theory into operation
Report of the Directors (continued)
Name, Age, Gender Four (4) Board (M = Male, F = Female), Meetings held Race (W = White, B = Black, Nationality Business Address Occupation during the year: Coloured or Indian), Attendance Qualification Atul Kumar Gupta South African 89 Gazelle Avenue, 3/4 Independent Non-executive Age: 45 (M) (B) Corporate Park South, Director BSc Old Pretoria Main Road, Midrand, 1682 Alan Kerr Buchanan1 British British Airways Plc, 2/2 Non-executive Director Age: 55 (M) (W) Waterside (HBA3), MA; LLB Harmondsworth, Middlesex UB7 OGB, U.K Gavin James Halliday British British Airways Plc, 4/4 Non-executive Director Age: 49 (M) (W) Waterside (HAA2), BA (Hons Economics); MBA Harmondsworth, Middlesex UB7 OGB, UK Erik Rudolf Venter South African 1 Marignane Drive, 4/4 CEO Age: 42 (M) (W) Bonaero Park, BCom; CA(SA) Kempton Park, 1619 Ranil Yasas Sri-Chandana South African 1 Marignane Drive, 4/4 Finance Director Age: 40 (M) (B) Bonaero Park, BCompt (Hons); MCom; CA(SA); Kempton Park, 1619 CFA; HDip. Co.Law Martin Nicolaas Louw South African 1 Marignane Drive, 4/4 Director Operations Age: 58 (M) (W) Bonaero Park, BMil Kempton Park, 1619 Derek Henry Borer2 South African 1 Marignane Drive, 4/4 Alternate Director to Age: 51 (M) (W) Bonaero Park, Martin Nicolaas Louw, BCom; LLB Kempton Park, 1619 Rodney Cyril Sacks and Company Secretary Notes 1 Mr Alan Kerr Buchanan, a Non-executive Director, having left the employ of British Airways, resigned as a Non-executive Director of the Board on 27 November 2012. 2 Mr Derek Henry Borer was appointed as an alternate Director to Rodney Cyril Sacks, an independent Non-executive Director, on 17 October 2012.
Share Incentive Scheme Executive Directors participate in a share incentive scheme with no allocations made or options exercised during the financial year in question.
No share options were issued to employees through the share incentive scheme during the year and 5,525,864 options remain available for issue at year end. There were share options exercised by employees prior to year end, with the transfers effected post year end.
64 Integrated Annual Report 2013 application Integrated Annual Report 2013
Directors’ Remuneration 2013 For Related Group Performance Total Name services as committee Package1 Pension life and Medical related2 2013 Directors work disability R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 Executives Mr ER Venter - - 2,381 3,000 307 60 35 5,783 Mr RY Sri Chandana - - 1,330 1,341 142 28 31 2,872 Mr MN Louw - - 1,717 1,693 215 42 32 3,699 Mr DH Borer - - 1,314 1,332 159 31 37 2,873 - - 6,742 7,366 823 161 135 15,227 Non-executives Mr P van Hoven 1,000 60 - - - - - 1,060 Mr MD Moritz 250 45 - - - - - 295 Mr RS Ntuli 250 ------250 Dr PJ Welgemoed 120 70 - - - - - 190 Mr JM Kahn 120 10 - - - - - 130 Mr KI Mampeule 120 45 - - - - - 165 Ms WD Stander 120 30 - - - - - 150 1,980 260 - - - - - 2,240 1,980 260 6,742 7,366 823 161 135 17,467 Share-based payments 4,250 21,717 Notes 1 “Package” includes the following regular payments made in respect of the financial year while actively employed: Cash salary, S&T allowances and vehicle allowances. 2 “Performance related” refers to the incentive rewards in respect of the financial year ended 30 June 2012. 3 Remuneration receivable by the Directors will not vary as a result of any proposed issue for cash or repurchase of shares.
Further details regarding the Group’s remuneration policies are set out in the Remuneration Report, which can be found on pages 57 to 59 of this Report.
Integrated Annual Report 2013 65 applicationthe action of applying knowledge and theory into operation
Report of the Directors (continued)
Directors’ Remuneration 2012 For Related Group Performance Total Name services as committee Package1 Pension life and Medical related2 2012 Directors work disability R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000 Executives Mr ER Venter - - 2,064 1,020 292 57 31 3,464 Mr GS Novick4 - - 6,622 - 146 28 18 6,814 Mr RY Sri Chandana - - 1,269 618 133 26 26 2,072 Mr MN Louw - - 1,606 780 208 40 29 2,663 Mr DH Borer - - 1,232 600 153 30 34 2,049 - - 12,793 3,018 932 181 138 17,062 Non-executives Mr P van Hoven 370 30 - - - - - 400 Mr D Novick 292 ------292 Mr MD Moritz 250 10 - - - - - 260 Mr RS Ntuli 250 ------250 Dr PJ Welgemoed 120 70 - - - - - 190 Mr JM Kahn 120 10 - - - - - 130 Mr KI Mampeule 120 ------120 Ms WD Stander 120 ------120 1,642 120 - - - - - 1,762 1,642 120 12,793 3,018 932 181 138 18,824 Notes 1 “Package” includes the following regular payments made in respect of the financial year while actively employed: Cash salary, S&T allowances and vehicle allowances. 2 Performance related” refers to the incentive rewards in respect of the financial year ended 30 June 2012. 3 Remuneration receivable by the Directors will not vary as a result of any proposed issue for cash or repurchase of shares. 4 GS Novick resigned as an Executive Director and Joint CEO on 31 December 2011. His package was made up as follows: Normal benefits up to termination R1,082,000.00 Accumulated leave pay R 160,000.00 Severance pay R4,180,000.00 Restraint of Trade payment (12 months from 31 December 2012) R1,200,000.00 Total Package R6,622,000.00
66 Integrated Annual Report 2013 application Integrated Annual Report 2013
Statement of Responsibility by the Board of Directors
The Directors are responsible for the preparation, integrity and fair presentation of the Financial Statements and other financial information included in this report.
The Financial Statements, presented on pages 70 to 117, have been prepared in accordance with International Financial Reporting Standards (“IFRS”) and the requirements of the Companies Act (Act No. 71 of 2008), and include amounts based on judgements and estimates made by management.
The going-concern basis has been adopted in preparing the Financial Statements. The Directors have no reason to believe that the Company or the Group will not be going-concerns in the foreseeable future, based on forecasts and available cash resources. The Financial Statements support the viability of the Company and the Group.
The Financial Statements have been audited by the independent accounting firm, Grant Thornton (Jhb) Inc., which was given unrestricted access to all financial records and related data, including minutes of all meetings of shareholders, the Board of Directors and Committees of the Board. The Directors believe that all representations made to the independent auditors during the audit were valid and appropriate.
The Financial Statements, which appear on pages 70 to 117, were approved by the Board of Directors on 9 September 2013 and signed on its behalf.
ER Venter P van Hoven CEO Chairman 9 September 2013 9 September 2013
Integrated Annual Report 2013 67 explorationapplying what we know and have to innovate and learn
Certificate of the Company Secretary
In terms of section 88(2)(e) of the Companies Act (Act No. 71 of 2008), as amended (“Companies Act”), I certify that the Company has lodged all returns and notices as required by the Act and that all such returns are true, correct and up to date.
DH Borer Company Secretary 9 September 2013
68 Integrated Annual Report 2013 applying what we know and have to innovate and learn Integrated Annual Report 2013
Independent Auditor’s Report
We have audited the consolidated and separate Financial Statements of Opinion Comair Limited, which comprise the statements of financial position as at In our opinion, the consolidated and separate Financial Statements present 30 June 2013, and the statements of comprehensive income, statements fairly, in all material respects, the consolidated and separate financial of changes in equity and statements of cash flows for the year then ended, position of Comair Limited as at 30 June 2013, and its consolidated and and the notes, comprising a summary of significant accounting policies and separate financial performance and consolidated and separate cash flows other explanatory information as set out on pages 70 to 117. for the year then ended in accordance with International Financial Reporting Standards, and the requirements of the Companies Act of South Africa. Directors’ Responsibility for the Consolidated Financial Statements Other Reports Required by the Companies Act The Company’s Directors are responsible for the preparation and fair As part of our audit of the consolidated and separate Financial Statements for presentation of these consolidated and separate Financial Statements the year ended 30 June 2013, we have read the Directors’ Report, the Audit in accordance with International Financial Reporting Standards, and the Committee’s Report and the Company Secretary’s Certificate for the purpose requirements of the Companies Act of South Africa, and for such internal of identifying whether there are material inconsistencies between these control as the Directors determine is necessary to enable the preparation of reports and the audited consolidated and separate Financial Statements. consolidated and separate Financial Statements that are free from material These reports are the responsibility of the respective preparers. Based misstatements, whether due to fraud or error. on reading these reports we have not identified material inconsistencies between these reports and the audited consolidated and separate Financial Auditors’ Responsibility Statements. However, we have not audited these reports and accordingly Our responsibility is to express an opinion on these consolidated and do not express an opinion on these reports. separate Financial Statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated and separate Financial Statements are free from material misstatement. GRANT THORNTON (JHB) INC. Chartered Accountants (SA) An audit involves performing procedures to obtain audit evidence about Registered Auditors the amounts and disclosures in the Financial Statements. The procedures Per: B Frey selected depend on the auditors’ judgment, including the assessment of 09 September 2013 the risks of material misstatement of the Financial Statements, whether due to fraud or error. In making those risk assessments, the auditors consider 42 Wierda Road West internal control relevant to the entity’s preparation and fair presentation Wierda Valley of the Financial Statements in order to design audit procedures that are 2196 appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Directors, as well as evaluating the overall presentation of the Financial Statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Integrated Annual Report 2013 69 explorationapplying what we know and have to innovate and learn
Statements of Financial Position as at 30 June 2013
Group Company
2013 2012 2013 2012 Notes R’000 R’000 R’000 R’000
Assets Non-current assets 2,361,275 1,496,409 2,334,480 1,475,384 Property, plant and equipment 1 2,314,082 1,432,509 2,262,467 1,379,021 Intangible assets 2 41,475 51,515 41,475 51,515 Loan to share incentive trust 3 - - 5,337 5,579 Investments in and loans to subsidiaries 4 - - 25,201 23,710 Investments in and loans to associates 5 2,050 8,717 - 15,559 Goodwill 6 3,668 3,668 - -
Current assets 1,244,581 709,358 1,242,770 716,848 Inventory 7 7,086 11,389 7,086 11,389 Trade and other receivables 8 420,656 429,199 399,133 410,444 Investments in and loans to subsidiaries 4 - - 31,513 32,016 Investments in and loans to associates 5 7,852 7,727 7,852 7,852 Taxation 30,942 14,948 30,558 14,919 Cash and cash equivalents 9 778,045 246,095 766,628 240,228
3,605,856 2,205,767 3,577,250 2,192,232
Equity and Liabilities Capital and reserves 1,021,200 814,461 1,014,103 810,130 Share capital 10 5,578 5,578 5,633 5,633 Share premium 123,631 123,631 123,742 123,742 Non-distributable reserves 23,996 20,568 23,996 20,568 Accumulated profits 867,995 664,684 860,732 660,187
Non-current liabilities 1,273,713 184,946 1,274,695 185,148 Interest-bearing liabilities 11 1,133,767 85,907 1,133,767 85,907 Deferred taxation 12 135,696 99,039 136,678 99,241 Share-based payments 13 4,250 - 4,250 -
Current liabilities 1,310,943 1,206,360 1,288,452 1,196,954 Trade and other payables 13 1,058,510 788,729 1,036,019 779,323 Provisions 14 116,212 73,094 116,212 73,094 Interest-bearing liabilities 11 136,221 344,537 136,221 344,537
3,605,856 2,205,767 3,577,250 2,192,232
Net asset value per share (cents) 211.1 168.4
70 Integrated Annual Report 2013 applying what we know and have to innovate and learn Integrated Annual Report 2013
Statements of Comprehensive Income for the year ended 30 June 2013
Group Company
2013 2012 2013 2012 Notes R’000 R’000 R’000 R’000
Revenue 16 5,386,581 4,162,938 5,366,240 4,136,449 Operating expenses (4,765,356) (3,974,163) (4,742,297) (3,950,231)
Operating profit before depreciation, impairment and profit (loss) on sale of assets 621,225 188,775 623,943 186,218 Depreciation (241,582) (153,270) (239,709) (152,989) Impairments (6,817) (4,049) (17,559) (4,049) Profit (loss) on sale of assets 984 (10,669) 984 (10,669)
Profit from operations 17 373,810 20,787 367,659 18,511 Interest income 20,217 8,200 19,856 7,914 Interest expense 18 (61,641) (19,433) (61,445) (19,433) Share of (loss) profit of associates 5 (1,725) 1,329 - -
Profit before taxation 330,661 10,883 326,070 6,992 Taxation 19 (103,135) (3,202) (101,066) (1,527)
Profit for the year 227,526 7,681 225,004 5,465
Other comprehensive income Realised profit due to change in fair value of cash flow hedge net of taxation - 395 - 395
Total comprehensive income for the year attributable to equity holders of the parent 227,526 8,076 225,004 5,860
Earnings per share (cents) 20 47.0 1.6 Diluted earnings per share (cents) 20 47.0 1.6
Integrated Annual Report 2013 71 explorationapplying what we know and have to innovate and learn
Statements of Changes in Equity for the year ended 30 June 2013
Share-based Share Share Hedging Accumulated Payment Total Capital Premium Reserve Profit Reserve
R‘000 R‘000 R‘000 R‘000 R‘000 R‘000
Group
Balance at 1 July 2011 5,562 123,599 17,140 (395) 654,615 800,521 BEE share-based payments - - 3,428 - - 3,428 Total comprehensive income for the year - - - 395 7,681 8,076 Shares sold by Share Trust 16 32 - - 2,388 2,436 Movement for the year 16 32 3,428 395 10,069 13,940 Balance at 30 June 2012 5,578 123,631 20,568 - 664,684 814,461 BEE share-based payments - - 3,428 - - 3,428 Total comprehensive income for the year - - - - 227,526 227,526 Dividend paid - - - - (24,215) (24,215) Movement for the year - - 3,428 - 203,311 206,739 Balance at 30 June 2013 5,578 123,631 23,996 - 867,995 1,021,200
Company Balance at 1 July 2011 5,633 123,742 17,140 (395) 654,722 800,842 BEE share-based payments - - 3,428 - - 3,428 Total comprehensive income for the year - - - 395 5,465 5,860 Movement for the year - - 3,428 395 5,465 9,288 Balance at 30 June 2012 5,633 123,742 20,568 - 660,187 810,130 BEE share-based payments - - 3,428 - - 3,428 Total comprehensive income for the year - - - - 225,004 225,004 Dividend paid - - - - (24,459) (24,459) Movement for the year - - 3,428 - 200,545 203,973 Balance at 30 June 2013 5,633 123,742 23,996 - 860,732 1,014,103
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Statements of Cash Flow for the year ended 30 June 2013
Group Company
2013 2012 2013 2012 Notes R’000 R’000 R’000 R’000
Cash generated from operating activities 830,694 273,226 826,189 278,560 Cash receipts from customers 5,395,124 4,204,413 5,377,551 4,194,630 Cash paid to suppliers (4,440,476) (3,914,983) (4,430,503) (3,901,913) Cash generated by operations 21 954,648 289,430 947,048 292,717 Interest paid (61,641) (19,433) (61,445) (19,433) Interest received 20,217 8,200 19,856 7,914 Taxation paid 22 (82,530) (4,971) (79,270) (2,638)
Cash utilised in investing activities (104,441) (134,388) (105,242) (135,330) Additions to property, plant and equipment (105,096) (145,099) (105,151) (142,626) Additions to intangible assets (329) (42,744) (329) (42,744) Proceeds on disposal of property, plant and equipment 984 7,020 984 6,419 Decrease in loan to share incentive trust - - 242 2,175 Increase in subsidiaries loans - - (988) (4,989) Decrease in associates loans - 46,435 - 46,435
Cash utilised in financing activities (194,303) (126,774) (194,547) (129,210) Shares sold by Share Trust - 2,436 - - Dividend paid (24,215) - (24,459) - Repayment of interest-bearing liabilities (170,088) (129,210) (170,088) (129,210)
Net increase in cash and cash equivalents 531,950 12,064 526,400 14,020 Cash and cash equivalents at the beginning of the year 246,095 234,031 240,228 226,208 Cash and cash equivalents at the end of the year 778,045 246,095 766,628 240,228
Integrated Annual Report 2013 73 explorationapplying what we know and have to innovate and learn
Segmental Report for the year ended 30 June 2013
Airline Non-airline Total
R‘000 R‘000 R‘000
30 June 2013 Revenue 5,232,260 154,321 5,386,581
Operating profit before depreciation, impairment and profit on sale of assets 596,907 24,318 621,225 Profit on sale of assets 984 - 984 Impairment (6,817) - (6,817) Depreciation (236,342) (5,240) (241,582) Profit from operations 354,732 19,078 373,810
Segmental assets and liabilities Segmental assets 3,421,093 184,763 3,605,856 Segmental interest-bearing liabilities (1,226,379) (43,609) (1,269,988) Other segmental liabilities (1,251,316) (63,352) (1,314,668) Segmental net asset value 943,398 77,802 1,021,200 Segmental capital additions (excluding borrowing costs capitalised) during the year 1,093,702 432 1,094,134
30 June 2012 Revenue 4,076,004 86,934 4,162,938
Operating profit before depreciation, impairment and loss on sale of assets 169,705 19,070 188,775 Loss on sale of asset (10,669) - (10,669) Impairment (4,049) - (4,049) Depreciation (148,030) (5,240) (153,270) Profit before interest, dividend and taxation 6,957 13,830 20,787
Segmental assets and liabilities Segmental assets 2,039,582 166,185 2,205,767 Segmental interest-bearing liabilities (378,072) (52,372) (430,444) Other segmental liabilities (917,178) (43,684) (960,862) Segmental net asset value 744,332 70,129 814,461 Segmental capital additions (excluding borrowing costs capitalised) during the year 305,131 3,046 308,177
Comair predominately operates within South Africa and as a result no Geographic Segmental Report is presented. Revenue earned from flights other than in South Africa is not considered to be significant and is generated from assets in the control of the South African operation.
Inter-segmental revenue is not material and has therefore not been presented.
74 Integrated Annual Report 2013 applying what we know and have to innovate and learn Integrated Annual Report 2013
Accounting Policies
Principal Accounting Policies All intra-group transactions, balances, income and expenses are eliminated in full on consolidation. The Annual Financial Statements are presented in South African Rand as it is the currency of the economic environment in which the Group operates. Business Combinations The Group accounts for business combinations using the acquisition The Annual Financial Statements are prepared in accordance with method of accounting. The cost of the business combination is measured International Financial Reporting Standards (“IFRS”) as well as the SAICA as the aggregate of the fair values of assets given, liabilities incurred or Financial Reporting Guides as issued by the Accounting Practices Committee assumed and equity instruments issued. Costs directly attributable to the in terms of the Listings Requirements of the JSE Limited and the Companies business combination are expensed as incurred, except the costs to issue Act of South Africa 2008. The Annual Financial Statements have been debt which are amortised as part of the effective interest and costs to issue prepared on the historical cost basis, except for the measurement of certain equity which are included in equity. financial instruments at fair value and incorporate the principle accounting policies listed below. Contingent consideration is included in the cost of the combination at fair value as at the date of acquisition. Subsequent changes to the assets, liabilities or Except for the adoption of the new and revised accounting standards equity which arise as a result of the contingent consideration are not affected the principal accounting policies of the Group are consistent with those against goodwill, unless there are valid measurement period adjustments. applied in the audited Consolidated Financial Statements for the year ended 30 June 2012. The acquiree’s identifiable assets, liabilities and contingent liabilities which meet the recognition conditions of IFRS 3 Business Combinations are Adoption of Standards and Interpretations recognised at their fair values at acquisition date, except for non-current Effective in 2013 assets (or disposal group) that are classified as held-for-sale in accordance The following new standards were adopted during the finacial year under with IFRS 5 Non-current Assets Held-for-Sale and discontinued operations, review, however none had significant financial impacts for the Group. which are recognised at fair value less costs to sell.
IAS 1: New requirements to group together items within OCI that Contingent liabilities are only included in the identifiable assets and liabilities may be reclassified to the profit or loss section of the income of the acquiree where there is a present obligation at acquisition date. statement in order to facilitate the assessment of their impact on the overall performance of an entity. (1 July 2012) On acquisition, the Group assesses the classification of the acquiree’s IAS 12: Rebuttable presumption introduced that an investment property assets and liabilities and reclassifies them where the classification is will be recovered in its entirety through sale. (1 January 2012) inappropriate for Group purposes. This excludes lease agreements and insurance contracts, whose classification remains as per their inception date. A full list of standards that will become effective in the next financial year are disclosed in note 28. Non-controlling interest arising from a business combination is measured either at their share of the fair value of the assets and liabilities of the acquiree or at fair value. The treatment is not an accounting policy choice Principles of Consolidation but is selected for each individual business combination, and disclosed The consolidated Annual Financial Statements incorporate the Annual in the note for business combinations. Financial Statements of the Company and all entities, including special purpose entities, which are controlled by the Company. In cases where the Group held a non-controlling shareholding in the acquiree prior to obtaining control, that interest is measured to fair value Control exists when the Company has the power to govern the financial and as at acquisition date. The measurement to fair value is included in profit operating policies of an entity so as to obtain benefits from its activities. or loss for the year. Where the existing shareholding was classified as an available-for-sale financial asset, the cumulative fair value adjustments The results of subsidiaries are included in the consolidated Annual Financial recognised previously to other comprehensive income and accumulated Statements from the effective date of acquisition to the effective date of in equity are recognised in profit or loss as a reclassification adjustment. disposal.
Integrated Annual Report 2013 75 explorationapplying what we know and have to innovate and learn
Accounting Policies (continued)
Goodwill is determined as the consideration paid, plus the fair value of any eliminated on consolidation, while the Group’s share of inter-company shareholding held prior to obtaining control, plus non-controlling interest losses is only eliminated if the transaction does not provide evidence of acquired and less the fair value of the identifiable assets and liabilities of impairment of the asset transferred. Investments in associates are disclosed the acquiree. as the initial investment plus the aggregate of loans made to the associate plus the Group’s aggregate share of post-acquisition equity. Investments Subsidiaries in associates are accounted for at cost less any impairment losses in the Subsidiaries are companies and entities over which the Company has the Company’s stand alone Financial Statements. ability to control the financial and operating activities so as to obtain benefit from their activities. Investments in subsidiaries are carried at cost less any Joint Ventures impairment losses in the Company’s stand alone Financial Statements. A joint venture is an entity over which the Group has joint control. Joint control is the contractually agreed sharing of control over an entity, and The cost of an investment in a subsidiary is the aggregate of: exists only when the strategic financial and operating decisions relating to the activity require the unanimous consent of the parties sharing control. • The fair value, at the date of exchange, of assets given, liabilities The Group has elected to recognise its interest in jointly controlled entities incurred or assumed, and equity instruments issued by the using the equity method. Under the equity method, interests in jointly Company. controlled entities are carried in the Consolidated Statement of Financial Position at cost adjusted for post acquisition changes in the Group’s share An adjustment to the cost of a business combination contingent on future of net assets of the jointly controlled entity, less any impairment losses. events is included in the profit or loss of the combination if the adjustment is probable and can be measured reliably. The Group’s share of movements in the joint venture’s other comprehensive income is recognised in other comprehensive income. The Group’s share of The cost includes an estimate of contingent consideration payable at fair the aggregate loss in any joint venture is limited to its net investment in the value at acquisition date. joint venture unless the Group has incurred an obligation or made payments on the associate’s behalf. The Group’s share of inter-company gains is The Group Share Incentive Trust is included in the Consolidated Financial eliminated on consolidation, while the Group’s share of inter-company Statements as a subsidiary. losses is only eliminated if the transaction does not provide evidence of impairment of the asset transferred. Investments in joint ventures are Associate Companies accounted for at cost less any impairment losses in the Company’s stand Associate companies are those entities which are not subsidiaries or alone Financial Statements. joint ventures, in which the Group has the ability to exercise a significant influence and holds a long-term equity interest. Property, Plant and Equipment Associate companies are accounted for on the equity method. Equity Freehold property, aircraft and related equipment, vehicles, furniture, accounted income which is included in the carrying value of the investment computers and flight simulator equipment are depreciated on a systematic represents the Group’s proportionate share of the associate companies basis on the straight-line method, which is estimated to depreciate the post-acquisition reserves after accounting for dividends payable by those assets to their anticipated residual values on a component approach over associates. Any difference between the cost of acquisition and the Group’s their planned useful lives. Land is not depreciated. share of identifiable net assets is classified as goodwill and included in the cost of the investment. The carrying value is net of impairment. Property, plant and equipment are stated at cost less accumulated depreciation and impairment. Cost includes expenditure that is directly The Group’s share of movements in the associate’s other comprehensive attributable to the acquisition of the assets. Subsequent costs are included income is recognised in other comprehensive income. The Group’s share in the assets carrying value or recognised as a separate asset as appropriate, of the aggregate loss in any associate is limited to its net investment in the only when it is probable that future economic benefits associated with the associate unless the Group has incurred an obligation or made payments specific asset will flow to the Group and costs can be measured reliably. on the associate’s behalf. The Group’s share of inter-company gains is The carrying values are assessed at each reporting date and only written
76 Integrated Annual Report 2013 applying what we know and have to innovate and learn Integrated Annual Report 2013
down if there are impairments in value. The useful life, depreciation method • It is technically feasible to complete the asset so that it will be and residual values are assessed at the end of each reporting period and available for use or sale. revised if necessary. • There is an intention to complete and use or sell it. • There is an ability to use or sell it. Depreciation rates for property plant and equipment • It will generate probable future economic benefits. Property and buildings 2% • There are available technical, financial and other resources to Motor vehicles 20% complete the development and to use or sell the asset. Furniture and equipment 10% • The expenditure attributable to the asset during its development Computer equipment 20% to 50% can be measured reliably. Second hand flight simulator equipment 20% New simulator equipment 7% Intangible assets are carried at cost, less any subsequent accumulated Leasehold improvements Life of the lease agreement amortisation and any subsequent accumulated impairment losses.
Aircraft An intangible asset is regarded as having an indefinite useful life when, Aircraft are initially recognised at spot rate at date of purchase. The carrying based on all relevant factors, there is no foreseeable limit to the period over values of aircraft are assessed annually for impairment. which the asset is expected to generate net cash inflows. Amortisation is not provided for these intangible assets, but they are tested for impairment Aircraft modifications are capitalised only to the extent that they materially annually and whenever there is an indication that the asset may be impaired. improve the value of the aircraft from which further future economic benefits For all other intangible assets amortisation is provided on a straight-line are expected to flow. Maintenance and repairs which neither materially or basis over their useful life. appreciably prolong their useful lives are charged against income. C and D Checks are capitalised and expensed over their useful lives. The gain The amortisation period and the amortisation method for intangible assets or loss on disposal of an asset is determined as the difference between are reviewed every period-end. the sales proceeds and the carrying amount of the asset and recognised in the Statements of Comprehensive Income. The aircraft residual values Reassessing the useful life of an intangible asset with a finite useful life are between 0 and 10%. after it was classified as indefinite is an indicator that the asset may be impaired. As a result the asset is tested for impairment and the remaining Depreciation rates for aircraft carrying amount is amortised over its useful life. Aircraft and related equipment 4 to 20% C Checks 18 months Internally generated brands, mastheads, publishing titles, customer lists D Checks 72 months and items similar in substance are not recognised as intangible assets.
Intangible Assets Amortisation is provided to write down the intangible assets, on a straight line basis, to their residual values as follows: An intangible asset is recognised when: Internally Generated Intangible Assets: Research and • It is probable that the expected future economic benefits that are Development Expenditure attributable to the asset will flow to the entity; and Costs associated with developing and maintaining computer software • The cost of the asset can be measured reliably. programmes are recognised as expenses when incurred. Costs that are directly associated with the development of identifiable and unique software Intangible assets are initially recognised at cost. products controlled by the Group and that will probably generate economic benefits exceeding costs beyond one year, are recognised as intangible An intangible asset arising from development (or from the development assets. Costs include the software development employee costs and an phase of an internal project) is recognised when: appropriate portion of relevant overheads. Amortisation is charged on a
Integrated Annual Report 2013 77 explorationapplying what we know and have to innovate and learn
Accounting Policies (continued)
straight-line basis over their estimated useful lives of five years. Software Operating Leases – Lessee is carried at cost less accumulated amortisation and impairment. Leases of assets to the Group under which all risks and rewards of ownership are effectively retained by the lessor, are classified as operating leases. Pre-delivery Payments Payments made under operating leases are charged against income on Aircraft pre-delivery payments and security deposits are capitalised to a straight-line basis over the period of the lease. A straight-line asset/ property, plant and equipment once all conditions precedent to the legal liability is raised for the difference between the leased payment and the agreements are met and construction of the aircraft has begun. Prior to lease expense. being capitalised to property, plant and equipment, aircraft pre-delivery payments and security deposits are accounted for as deposits in other Financial Instruments receivables. Aircraft pre-delivery payments and security deposits are not depreciated. Upon delivery of the relevant aircraft the pre-delivery Initial Recognition payments are transferred to the cost of the aircraft. The Group classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability or an equity Goodwill instrument in accordance with the substance of the contractual arrangement. Goodwill represents the excess of the cost of an acquisition of a business Financial assets and financial liabilities are recognised on the Group’s over the fair value of the Group’s share of the net identifiable assets of the Statement of Financial Position when the Group becomes party to the acquired subsidiary at the date of acquisition. Goodwill is tested at reporting contractual provisions of the instrument. date for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses Fair Value Determination on the disposal of an entity include the carrying amount of goodwill relating The fair values of quoted investments are based on current bid prices. If to the entity sold. the market for a financial asset is not active (and for unlisted securities), the Group establishes fair value by using valuation techniques. These include Finance Leases and Instalment Sale the use of recent arm’s length transactions, reference to other instruments Agreements – Lessee that are substantially the same, discounted cash flow analysis, and option Leases, whereby the lessor provides finance to the Group and where the pricing models making maximum use of market inputs and relying as little Group assumes substantially all the benefits and risks of ownership, are as possible on entity-specific inputs. classified as finance leases. Derecognition The amount capitalised at inception of the lease is the lower of the fair Financial assets (or a portion thereof) are derecognised when the Group value of the leased asset and the present value of the minimum lease realises the rights to the benefits specified in the contract, the rights expire payments. The discount rate used in calculating the present value of or the Group surrenders or otherwise loses control of the contractual rights the minimum lease payments is the interest rate implicit in the lease (or that comprise the financial asset. In derecognition, the difference between the Group’s incremental borrowing rate if rate implicit in the lease is not the carrying amount of the financial asset and proceeds receivable and practicable to determine). The capital element of future obligations under any prior adjustment to reflect fair value that had been reported in other leases is included as a liability in the Statement of Financial Position. Each comprehensive income are included in profit or loss. Financial liabilities lease payment is allocated between the liability and finance charges so (or a portion thereof) are derecognised when the obligation specified in the as to achieve a constant rate on the finance balance outstanding. The contract is discharged, cancelled or expires. On derecognition, the difference interest element of the instalments is charged against income over the between the carrying amount of the financial liability, including related lease period. unamortised costs, and amount paid for it are included in profit or loss.
Loans to (from) Group Companies These include loans to subsidiaries, associates, share incentive trust (accounted for as a subsidiary) and joint ventures and are recognised
78 Integrated Annual Report 2013 applying what we know and have to innovate and learn Integrated Annual Report 2013
initially at fair value plus direct transaction costs. Subsequently these loans value. These are initially recognised at fair value including transaction costs are measured at amortised cost using the effective interest rate method, and subsequently measured at amortised cost using the effective interest less any impairment loss recognised to reflect irrecoverable amounts. rate method. These instruments are classified as loans and receivables.
On loans receivable an impairment loss is recognised in profit or loss Interest-bearing Liabilities when there is objective evidence that it is impaired. The impairment is Interest-bearing liabilities are initially measured at fair value less transaction measured as the difference between the instrument’s carrying amount costs, and are subsequently measured at amortised cost, which includes and the present value of estimated future cash flows discounted at the all interest-bearing liabilities, using the effective interest rate method. Any effective interest rate computed at initial recognition. Impairment losses difference between the proceeds (net of transaction costs) and the settlement are reversed in subsequent periods when an increase in the instrument’s or redemption of borrowings is recognised over the term of the borrowings recoverable amount can be related objectively to an event occurring after in accordance with the Group’s accounting policy for borrowing costs. the impairment was recognised, subject to the restriction that the carrying amount of the instrument at the date the impairment is reversed shall not Preference shares, which are mandatorily redeemable on a specific date, exceed what the amortised cost would have been had the impairment not are classified as liabilities. been recognised. Loans to (from) Group companies are classified as loans and receivables (financial liabilities at amortised cost). The dividends on these preference shares are recognised in the Statement of Other Comprehensive Income as interest expense. Trade and Other Receivables Trade receivables are measured at initial recognition at fair value plus Other financial liabilities are measured initially at fair value less transaction transaction costs, and are subsequently measured at amortised cost using costs and subsequently at amortised cost, using the effective interest rate the effective interest rate method. Appropriate allowances for estimated method. irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired. The allowance recognised is measured Derivatives as the difference between the asset’s carrying amount and the present Derivative financial instruments, which are not designated as hedging value of estimated future cash flows discounted at the effective interest instruments, consist of foreign exchange contracts and are initially measured rate computed at initial recognition. at fair value on the contract date, and are re-measured to fair value at subsequent reporting dates. Derivatives embedded in other financial The carrying amount of the asset is reduced through the use of an allowance instruments or other non-financial host contracts are treated as separate account, and the amount of the loss is recognised in the Statement of derivatives when their risks and characteristics are not closely related to Comprehensive Income within operating expenses. When a trade receivable those of the host contract and the host contract is not carried at fair value is uncollectable, it is written off against the allowance account for trade with unrealised gains or losses reported in profit or loss. Changes in the receivables. Subsequent recoveries of amounts previously written off are fair value of derivative financial instruments are recognised in profit or credited against operating expenses in the Statement of Comprehensive loss as they arise. Derivatives are classified as financial assets or financial Income. liabilities at fair value through profit or loss.
Trade and other receivables are classified as loans and receivables. Hedge Accounting Trade and Other Payables The Group designates certain derivatives as either: Trade payables are initially measured at fair value less transaction costs, and are subsequently measured at amortised cost, using the effective • Hedges of the fair value of recognised assets or liabilities or a firm interest rate method. commitment (fair value hedge); • Hedges of a particular risk, associated with a recognised asset or Cash and Cash Equivalents liability or a highly probable forecast transaction (cash flow hedge); Cash and cash equivalents comprise cash on hand and demand deposits, or and other short-term highly liquid investments that are readily convertible to • Hedges of a net investment in a foreign operation (net investment a known amount of cash and are subject to an insignificant risk of changes in hedge).
Integrated Annual Report 2013 79 explorationapplying what we know and have to innovate and learn
Accounting Policies (continued)
The Group documents, at the inception of the transaction, the relationship Share Capital between hedging instruments and hedged items, as well as its risk An equity instrument is any contract that evidences a residual interest in management objectives and strategy for undertaking various hedging the assets of an entity after deducting all of its liabilities. Ordinary shares transactions. The Group also documents its assessment, both at hedge are classified as equity. If the Group re-acquires its own equity instruments, inception and on an ongoing basis, of whether the derivatives that are the consideration paid, including any directly attributable incremental costs used in hedging transactions are highly effective in offsetting changes in (net of income taxes) on those instruments is deducted from equity. No fair values or cash flows of hedged items. gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Group’s own equity instruments. Consideration paid or The full fair value of a hedging derivative is classified as a non-current asset received shall be recognised directly in equity. or liability when the remaining maturity of the hedged item is more than 12 months and as a current asset or liability when the remaining maturity Incremental costs directly attributable to the issue of new shares or options of the hedged item is less than 12 months. are shown in equity as a deduction, net of tax, from the proceeds. Cash Flow Hedge The effective portion of changes in the fair value of derivatives that Share-based Payment Transactions are designated and qualify as cash flow hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion Cash Settled is recognised immediately in the Statement of Comprehensive Income Options are granted to certain employees in the Group. The fair value of within profit or loss. the amount payable to the employee is recognised as an expense with a corresponding increase in liabilities. The fair value is initially measured at The amount of gains/losses in other comprehensive income is reclassified grant date using the Black Scholes model and expensed over the period to profit or loss in the period when the hedged item affects profit or loss. during which the employee becomes unconditionally entitled to payment. Management assesses the number of options that will ultimately vest based However, when the forecast transaction that is hedged results in the on non-market vesting conditions at each reporting period until vesting, recognition of a non-financial asset (for example, inventory or fixed assets) but the assessment of the fair value of the option against the market the gains and losses previously deferred in the Statement of Comprehensive performance of the share price, is done at each reporting period end up Income are transferred from other comprehensive income and included to and including settlement date. in the initial measurement of the cost of the asset. The deferred amounts are ultimately recognised in cost of goods sold in the case of inventory or Share options that expire or are forfeited are reversed against the liability in depreciation in the case of fixed assets. raised with an adjustment to profit or loss. The fair value of the instruments granted is measured against market performance of the share price. The If a legally enforceable right exists to set off recognised amounts of financial liability is measured at each reporting date and at settlement date, with all assets and liabilities and there is an intention to settle net, the relevant movements in fair value being recognised in profit or loss. financial assets and liabilities are offset.
Where options are issued that provide the holder with a choice of settlement Where the impact of discounting is not considered to be material, financial (equity or cash) these are accounted for as a compound financial instrument. instruments carried at amortised costs are not discounted due to the fact First the fair value of the debt component is determined and then the that their carrying values approximate amortised cost. difference between the value of the compound instrument and the fair value of the debt component is recognised as the equity component. Inventory Inventory is stated at the lower of cost and net realisable values. Cost is Equity Settled determined on the first-in-first-out basis. Net realisable value is the estimated Convertible “A” class shares and options were issued in terms of a Black selling price in the ordinary course of business less the estimated costs of Economic Empowerment deal. The fair value of the equity instrument is completion and the estimated costs necessary to make the sale. The cost of measured at grant date using the Black Scholes model and recognised as inventories comprises all costs of purchase, costs of conversion and other costs an expense with corresponding increase in equity over the vesting period incurred in bringing the inventories to their present location and condition. of the share-based payment. Management reassesses the number of
80 Integrated Annual Report 2013 applying what we know and have to innovate and learn Integrated Annual Report 2013
options expected to ultimately vest based on non-market vesting conditions. International loyalty programme revenue is income received from BA The impact of the revision to the original estimates, if any, is recognised Executive Club members using the Group’s services and is recognised on on the Statements of Comprehensive Income, with a corresponding the accrual basis in profit or loss. adjustment to equity. Proceeds received net of any directly attributable transaction costs are credited to share capital and share premium when Interest is recognised on the accrual basis, in profit or loss, using the the options are exercised. Subsequent to vesting, management no effective interest rate method. longer makes any adjustments to the cost of the share-based payments recognised. Options that expire or are forfeited are removed from equity Dividends are recognised, in profit or loss, when the Group’s right to receive with a corresponding adjustment to the Statements of Comprehensive payment has been established. Income. Taxation Provisions Current tax and deferred taxes are recognised as income or an expense The amount of a provision is the present value of the expenditure expected and included in profit or loss for the period, except to the extent that the to be required to settle the obligation. Where some or all of the expenditure tax arises from: required to settle a provision is expected to be reimbursed by another party, the reimbursement shall be recognised when, and only when, it is • A transaction or event which is recognised, in the same or a virtually certain that reimbursement will be received if the entity settles the different period, directly in other comprehensive income, or obligation. The reimbursement shall be treated as a separate asset. The • A business combination. amount recognised for the reimbursement shall not exceed the amount of the provision. Provisions are not recognised for future operating losses. If Current tax and deferred taxes are charged or credited directly to other an entity has a contract that is onerous, the present obligation under the comprehensive income if the tax relates to items that are credited or charged contract shall be recognised and measured as a provision. in the same, or a different period, directly to other comprehensive income.
The rate applied to ascertain the present value of the expenditure is the pre- Current tax is calculated at rates (tax laws) enacted or substantively enacted tax market related rate adjusted for the risks associated with the obligation. at reporting period end in accordance with the South African Income Tax Act (Act No. 58 of 1962). Provisions were raised and management determined an estimate based on the information available. Additional disclosure of these estimates of Deferred taxation provisions are included in note 14 – Provisions. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amount of assets and liabilities in the Financial Statements Revenue Recognition and the corresponding tax basis used in the computation of taxable profit, Revenue comprises all airline-related and non-airline revenue earned. and is accounted for using the comprehensive liability method. Deferred tax Revenue arising from the provision of transportation services to passengers liabilities are recognised for all taxable temporary differences and deferred tax is recognised on an accrual basis in the period in which the services are assets are recognised to the extent that it is probable that taxable profits will rendered and the passenger has flown. Unflown ticket revenue is recognised be available against which deductible temporary differences can be utilised. as a liability until such time as the passenger has flown. Revenue is measured Such assets and liabilities are not recognised if the temporary differences at the fair value of consideration received and is exclusive of VAT, discounts arise from goodwill (or negative goodwill) or from the initial recognition (other received and returns. Revenue from sale of goods is recognised when risk than in a business combination) of other assets and liabilities in a transaction and rewards transfer and exclude value added tax. affecting neither the tax profit or losses nor the accounting profit or losses.
Non-airline revenue relates to services relating to the hiring of simulator Deferred tax liabilities are recognised for taxable temporary differences equipment, commission from airport lounges and the sale of holiday arising on investments in subsidiaries and associates, and interests in packages. joint ventures, except where the Group is able to control the reversal of the temporary differences and it is probable that the temporary difference will
Integrated Annual Report 2013 81 explorationapplying what we know and have to innovate and learn
Accounting Policies (continued)
not reverse in the foreseeable future. The carrying amount of deferred tax Foreign Currency assets is reviewed at each reporting date and reduced to the extent that it Foreign currency transactions are recorded at the exchange rate ruling on is no longer probable that sufficient taxable profit will be available to allow the transaction dates. Monetary assets and liabilities denominated in foreign all or part of the asset to be recovered. currencies are translated at rates of exchange ruling at the reporting date. Profits or losses arising on translation of foreign currency transactions are Deferred tax assets and liabilities are measured at the tax rates that are included in profit or loss. expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or Non-monetary assets and liabilities are translated at the prevailing rate on substantively enacted by the reporting date. date of acquisition. Exchange differences on non-monetary assets classified as available-for-sale financial instruments are recognised as part of the fair Borrowing Costs value movement in other comprehensive income. All forex movements Borrowing costs that are directly attributable to the acquisition, construction are recognised in profit or loss unless they relate to non-monetary assets or production of a qualifying asset (currently the pre-delivery payments on classified as available-for-sale financial instruments where that movement the aircraft) are capitalised as part of the cost of that asset until such time is then recognised in equity, or they form part of the borrowing costs as the asset is ready for its intended use. The amount of borrowing costs capitalised to qualifying assets. eligible for capitalisation is determined as follows: Short-term Employee Benefits • Actual borrowing costs on funds specifically borrowed for the The cost of short-term employee benefits, (those payable within 12 months purpose of obtaining a qualifying asset less any temporary after the service is rendered, such as paid vacation leave and bonuses), investment of those borrowings; and are recognised in the period in which the service is rendered and are not • Weighted average of the borrowing costs applicable to the Group discounted. The expected cost of compensated absences is recognised as on funds generally borrowed for the purpose of obtaining a an expense as the employees render services that increase their entitlement qualifying asset. The borrowing costs capitalised do not exceed the or, in the case of non-accumulating absences, when the absence occurs. total borrowing costs incurred. The borrowing costs include interest The expected cost of profit sharing and bonus payments is recognised as calculated using the effective interest rate method and exchange an expense when there is a legal or constructive obligation to make such differences arising from foreign currency borrowing to the extent payments as a result of past performance. that they are regarded as an adjustment to interest costs.
The capitalisation of borrowing costs commences when: Retirement and Medical Funds Current contributions to the Group’s defined contribution retirement • Expenditures for the asset have occurred; fund are based on current salary and are recognised when they fall due. • Borrowing costs have been incurred; and The Group has no further payment obligations once the payments have • Activities that are necessary to prepare the asset for its intended been made. use or sale are in progress.
Capitalisation is suspended during extended periods in which active Impairment development is interrupted. The Group assesses at the end of each reporting period whether there is any indication that an asset may be impaired. If any such indication exists, Capitalisation ceases when substantially all the activities necessary to the Group estimates the recoverable amount of the asset. prepare the qualifying asset for its intended use or sale are complete. Irrespective of whether there is any indication of impairment, the Group All other borrowing costs are recognised as an expense in the period in also: which they are incurred.
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• Tests goodwill acquired in a business combination for impairment Accounting Estimates and Judgements annually. • Tests intangible assets for impairment annually. Sources of Estimation Uncertainty In preparing the Annual Financial Statements, management is required to If there is any indication that an asset may be impaired, the recoverable make estimates and assumptions that affect the amounts represented in amount is estimated for the individual asset. If it is not possible to estimate the Annual Financial Statements and related disclosures. Use of available the recoverable amount of the individual asset, the recoverable amount of information and the application of judgement is inherent in the formation the cash-generating unit to which the asset belongs is determined. of estimates. Actual results in the future could differ from these estimates which may be material to the Annual Financial Statements. Significant The recoverable amount of an asset or a cash-generating unit is the higher judgements include: of its fair value less costs to sell and its value in use. If the recoverable amount of an asset is less than its carrying amount, the carrying amount Asset lives and residual values of the asset is reduced to its recoverable amount. That reduction is an Property, plant and equipment are depreciated over their useful lives taking impairment loss. into account residual values, where appropriate. The actual lives of the assets and residual values are assessed at each reporting date and may An impairment loss of assets carried at cost less any accumulated vary depending on a number of factors. In re-assessing asset lives, factors depreciation or amortisation is recognised immediately in profit or loss. such as technological innovation, product life cycles and maintenance programmes are taken into account. Residual value assessments consider Goodwill acquired in a business combination is, from the acquisition date, issues such as future market conditions, the remaining life of the asset allocated to each of the cash-generating units, or groups of cash-generating and projected disposal values. units, that are expected to benefit from the synergies of the combination. Impairment An impairment loss is recognised for cash-generating units if the recoverable Future cash-flows expected to be generated by the asset are projected, amount of the unit is less than the carrying amount of the unit. The taking into account market conditions and the expected useful lives of impairment loss is allocated to reduce the carrying amount of the assets the assets. The present value of these cash flows, determined using an of the unit in the following order: appropriate discount rate, is compared to the current asset value and, if lower, the assets are impaired to present value. • First, to reduce the carrying amount of any goodwill allocated to the cash-generating unit; and Loans and other receivables • Then, to the other assets of the unit, pro rata on the basis of the The Group assesses its trade and other receivables for impairment at the carrying amount of each asset in the unit. end of each reporting period. In determining whether an impairment loss should be recorded in profit or loss, the Group makes judgements as to The Group assesses, at each reporting date, whether there is any indication whether there is observable data indicating a measurable decrease in the that an impairment loss recognised in prior periods for assets other than estimated future cash flows from a financial asset. goodwill may no longer exist or may have decreased. If any such indication Fair value estimation exists, the recoverable amounts of those assets are estimated. The fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. The Group uses The increased carrying amount of an asset other than goodwill attributable a variety of methods and makes assumptions that are based on market to a reversal of an impairment loss does not exceed the carrying amount conditions existing at the end of each reporting period. Quoted market that would have been determined had no impairment loss been recognised prices or dealer quotes for similar instruments are used for long-term debt. for the asset in prior periods. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments. The fair value A reversal of an impairment loss of assets carried at cost less accumulated of forward foreign exchange contracts is determined using quoted forward depreciation or amortisation other than goodwill is recognised immediately exchange rates at the end of the reporting period. in profit or loss.
Integrated Annual Report 2013 83 explorationapplying what we know and have to innovate and learn
Accounting Policies (continued)
The carrying value less impairment provision of trade and other receivables Recovery of deferred tax assets is assumed to approximate their fair values as the instrument is short-term The Group recognises the net future taxation benefit related to deferred in nature. The fair value of financial liabilities for disclosure purposes is income taxation assets to the extent that it is probable that the deductible estimated by discounting the future contractual cash flows at the current temporary differences will reverse in the foreseeable future. Assessing the market interest rate that is available to the Group for similar financial recoverability of deferred income taxation assets requires the Group to instruments. make significant estimates related to expectations of future taxable income. Estimates of future taxable income are based on forecast cash flows from Critical Judgements in Applying the Entity’s Accounting operations and the application of existing taxation laws in each jurisdiction. Policies To the extent that future cash flows and taxable income differ significantly Judgements made by management are continually evaluated and are from estimates, the ability of the Group to realise the net deferred taxation based on historical experience and the expectation of future events that assets recorded at the end of the reporting period could be impacted. are believed to be reasonable under the circumstances. Management has applied a probability analysis to determine future taxable Borrowing costs income against which calculated tax losses will be utilised. Pre-delivery payment assets are regarded as qualifying assets for the purpose of the capitalisation of borrowing costs. Exchange differences arising from Segmental information foreign currency borrowings, to the extent that they are regarded as an Operating segments are reported in a manner consistent with the internal adjustment to interest costs, are capitalised as part of borrowing costs as reporting provided to the chief operating decision-maker. The chief operating these expenses are considered part of the cost of borrowing in foreign decision-maker, who is responsible for allocating resources and assessing currency. performance of the segments has been identified as the Chief Executive Officer. Segments presented are in tems of IFRS. Taxation Judgement is required in determining the provision for income taxes due to At year end the Group was organised in two main operating segments: the complexity of legislation. There are many transactions and calculations for which the ultimate taxation determination is uncertain during the 1. Airline ordinary course of business. The Group recognises liabilities for anticipated 2. Non-airline which comprises the travel business, property taxation audit issues based on estimates of whether additional taxes will investments, simulator business and SLOW in the City be due. Where the final taxation outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income taxation and deferred taxation provisions in the period in which such determination is made.
84 Integrated Annual Report 2013 applying what we know and have to innovate and learn Integrated Annual Report 2013
Notes to the Annual Financial Statements for the year ended 30 June 2013
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
1. Property, Plant and Equipment
Property and buildings Cost 92,716 107,942 41,691 55,374 Accumulated depreciation (6,724) (6,414) (6,724) (6,414) Carrying value 85,992 101,528 34,967 48,960
Leasehold improvements Cost 52,930 38,814 52,930 38,814 Accumulated depreciation (23,076) (11,778) (23,076) (11,778) Carrying value 29,854 27,036 29,854 27,036
Aircraft and flight simulator equipment Cost 3,040,961 1,506,738 3,040,961 1,506,738 Accumulated impairment (30,559) (30,559) (30,559) (30,559) Accumulated depreciation (855,473) (619,584) (855,473) (619,584) Carrying value 2,154,929 856,595 2,154,929 856,595
Vehicles, furniture and equipment and computer equipment Cost 80,567 79,628 79,606 78,337 Accumulated depreciation (61,828) (52,155) (61,457) (51,784) Carrying value 18,739 27,473 18,149 26,553
Pre-delivery payments 24,568 419,877 24,568 419,877
Total property, plant and equipment and pre-delivery payments 2,314,082 1,432,509 2,262,467 1,379,021
Reconciliation of Carrying Value
Property and buildings Carrying value at the beginning of the year 101,528 107,312 48,960 56,288 Additions 73 15,763 73 14,219 Transfer to leasehold improvements (13,756) (20,128) (13,756) (20,128) Depreciation (1,853) (1,419) (310) (1,419) Carrying value at the end of the year 85,992 101,528 34,967 48,960
Integrated Annual Report 2013 85 explorationapplying what we know and have to innovate and learn
Notes to the Annual Financial Statements (continued)
1. Property, Plant and Equipment (continued) Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Leasehold improvements Carrying value at the beginning of the year 27,036 - 27,036 - Additions 359 13,780 359 13,780 Transfer from property and buildings 13,756 20,128 13,756 20,128 Depreciation (11,297) (6,872) (11,297) (6,872) Carrying value at the end of the year 29,854 27,036 29,854 27,036
Aircraft and flight simulator equipment Carrying value at the beginning of the year 856,595 916,604 856,595 916,604 Additions 1,091,944 95,173 1,091,944 95,173 Transfer from pre-delivery payments 414,289 - 414,289 - Disposals - (17,086) - (17,086) Impairment - (4,049) - (4,049) Depreciation (207,899) (134,047) (207,899) (134,047) Carrying value at the end of the year 2,154,929 856,595 2,154,929 856,595
Vehicles, furniture and equipment and computer equipment Carrying value at the beginning of the year 27,473 35,120 26,553 34,276 Additions 1,429 12,629 1,429 11,699 Transfer to intangible assets - (8,771) - (8,771) Disposals - (573) - - Depreciation (10,163) (10,932) (9,833) (10,651) Carrying value at the end of the year 18,739 27,473 18,149 26,553
Pre-delivery payments Carrying value at beginning of the year 419,877 256,321 419,877 256,321 Payments made - 128,088 - 128,088 Capitalised as part of aircraft (414,289) - (414,289) - Borrowing costs capitalised 18,980 35,468 18,980 35,468 Interest capitalised 3,438 7,754 3,438 7,754 Foreign exchange losses capitalised 15,542 27,714 15,542 27,714
Carrying value at the end of year 24,568 419,877 24,568 419,877
Total property, plant and equipment 2,314,082 1,432,509 2,262,467 1,379,021
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Property and buildings owned consist of Erf 1092 and 1096 Bonaero Park Extension 2, Erf 931 Bonaero Park Extension 1, Erf 700 Rhodesfield Township and Erven 674, 684, 685, 687, 688, 689, 690, 695 and Erf 1040 Rhodesfield Township. Valuations of the properties are performed every three years and based on this the Directors’ estimated value of these properties is approximately R129 million (2012: R129 million).
The net book value of property, plant and equipment held under instalment sale and finance lease agreements are disclosed in note 11.
Pre-delivery payments are payments made to the Boeing Company for the eight new Boeing 737-800 aircraft which arrived in South Africa from July 2012. The finance for the aircraft was partly through a rights issue during the 2010 financial year and a further loan through Investec Limited which is disclosed in note 11. Future capital commitments relating to the Boeing 737-800s are disclosed in note 27. Borrowing costs capitalised to the pre-delivery payments were incurred at a rate of 3.7% on a US$ based facility in 2012. Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
2. Intangible Assets
Computer software Cost 51,844 51,515 51,844 51,515 Accumulated amortisation (10,369) - (10,369) - Carrying value 41,475 51,515 41,475 51,515
Reconciliation of Carrying Value
Computer software Carrying value at the beginning of the year 51,515 - 51,515 - Additions 329 42,744 329 42,744 Transfer from property, plant and equipment - 8,771 - 8,771 Amortisation (10,369) - (10,369) - Carrying value at the end of the year 41,475 51,515 41,475 51,515
The intangible asset relates to the implementation of SABRE Airline Solutions which was fully operational in the prior period.
Integrated Annual Report 2013 87 explorationapplying what we know and have to innovate and learn
Notes to the Annual Financial Statements (continued)
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
3. Loan to Share Incentive Trust
This loan relates to the Comair Share Incentive Trust's acquisition of 21 million ordinary shares at 72 cents per share in June 1998. The term of the loan is unspecified and it bears no interest.
At year end the Trust held 5,525,864 shares representing 1.1% of shares in issue (prior year: 5,525,864 shares representing 1.1%) at a closing price of 265c (prior year: 133c). - - 5,337 5,579
4. Investments in and Loans to Subsidiaries
Non-current portion 4.1 Aconcagua 32 Investments (Pty) Ltd 1 ordinary share of R1 at cost (100% shareholding) Investment at cost - - 16,732 16,732 Loan receivable - - 5,866 4,375
The company is the owner of Erf 700 Rhodesfield Township. This is the only asset in the company's books, valued at R22 million. There are no material liabilities in this company. The share in the company was acquired during May 2008. The loan is interest free and not repayable in the next 12 months.
4.2 Holiday Tours (Pty) Ltd 1 million shares of 1 cent each at cost (100% shareholding)
The Group acquired 65% of the issued share capital in the 2011 financial year. In December 2011 the remaining 35% shareholding was acquired at a cost of R35,000. The company is an outbound tour operating company offering holiday packages to destinations outside of South Africa.
Investment at cost - - 2,593 2,593
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Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
4.3 Churchill Finance Services 23 Limited 2 shares of US$1 at cost (100% shareholding)
Comair Limited acquired 100% of the shares in Churchill Finance Services 23 Limited during February 2011 for R10,000.
Investment at cost - - 10 10 Total non-current portion - - 25,201 23,710
Current portion 4.4 Alooca Properties (Pty) Ltd 100 ordinary shares of R1 at cost (100% shareholding) Loan receivable - - 28,212 28,734
The company acquired Erven 674, 684, 685, 687, 688, 689, 690, 695 and 1040 Rhodesfield Township with funding from Comair Limited. The properties at cost are valued at R30.8 million.
The loan is unsecured, has no fixed repayment terms and is interest free.
4.5 Amber Capital (Pty) Ltd 1 ordinary share of R1 at cost (100% shareholding)
The Company is currently being liquidated.
4.6 Kulula Air (Pty) Ltd 100 ordinary shares of R1 at cost (100% shareholding)
This company operates a business lounge situated opposite the Gautrain Station in Sandton. The lounge commenced operations in August 2011.
Assets were transferred to the building during the prior year as leasehold improvements as reflected in note 1.
Loan receivable - - 3,290 3,282
The loan is unsecured, has no fixed repayment terms and is interest free.
Integrated Annual Report 2013 89 explorationapplying what we know and have to innovate and learn
Notes to the Annual Financial Statements (continued)
4. Investments in and Loans to Subsidiaries (continued) Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
4.7 Comair Catering (Pty) Ltd 100 ordinary shares of R1 at cost (100% shareholding)
This dormant company has a bank account which has been funded by Comair Limited.
Loan receivable - - 11 -
The loan is unsecured, has no fixed repayment terms and is interest free.
Total current portion - - 31,513 32,016
Total investment in subsidiaries - - 56,714 55,726
Maximum amount exposed to credit risk 37,368 36,391
5. Investment in and Loans to Associates
5.1 Commuter Handling Services (Pty) Ltd Comair Limited has a 40% shareholding in Commuter Handling Services (Pty) Ltd, a company in the passenger and ground handling industry.
Carrying value of the investment
Shareholder's loan 7,852 7,852 7,852 7,852 The loan is unsecured. No interest was charged for the year and there are no fixed terms of repayment (2012: prime).
Cumulative post-acquisition equity
Prior year (125) (1,064) - - Current year 896 939 - - This associate provides passenger handling services to airlines at ACSA- based airports and made an after tax profit of R2.2 million (2012: profit of R2.3 million). The company is incorporated in South Africa and has a June year end.
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Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
5.2 Imperial Air Cargo (Pty) Ltd Comair Limited has a 30% shareholding in Imperial Air Cargo (Pty) Ltd, a Company in the air freight industry. Carrying value of the investment
Shareholder's loan 15,559 15,559 15,559 15,559 Loan impairment (4,817) - (15,559) - Cumulative post-acquisition equity
Prior year (6,842) (7,232) - - Current year (3,900) 390 - - This associate is an air freight company and made an after tax loss of R13 million (2012: profit of R1.3 million). The company is incorporated in South Africa and has a June year end.
The shareholder’s loan has been subordinated until such time as the assets fairly valued exceed the liabilities. The loan is unsecured, interest free and there are no fixed repayment terms.
5.3 Protea Hotel ORT (Pty) Ltd Comair Limited has a 25% shareholding in Protea Hotel ORT (Pty) Ltd, a company in the hotel industry. The company is incorporated in South Africa and has a June year end.
A branded Protea Hotel was built on Erf 700 Rhodesfield Township. Comair Limited has no capital commitments in relation to this project.
Cumulative post-acquisition equity
Current year 1,279 - - - 9,902 16,444 7,852 23,411
Non-current portion 2,050 8,717 - 15,559 Current portion 7,852 7,727 7,852 7,852 Total investment 9,902 16,444 7,852 23,411
The maximum credit exposure for the Company and Group amount to R23,411,000 (2012: R23,411,000). In the current year and amount was provided against a loan amounting to R4,817,000 in the Group and R15,559,000 in the Company. The balance of the loans receivable is considered to be recoverable and not past due.
Integrated Annual Report 2013 91 explorationapplying what we know and have to innovate and learn
Notes to the Annual Financial Statements (continued)
5. Investment in and Loans to Associates (continued) Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Summarised financial information of associates (aggregated) Statement of Comprehensive Income
Revenue 396,964 392,318 Operating profit 5,727 14,703 Net finance charges (5,003) (5,067) Profit before taxation 724 9,636 Taxation (6,037) (2,713) (Loss) profit for the year (5,313) 6,923
Statement of Financial Position Assets
Property plant and equipment 126,113 127,031 Deferred tax 2,520 8,430 Net current assets 30,958 42,995 159,591 178,456
Equity and liabilities
Capital and reserves (37,071) (31,747) Borrowings 196,662 210,203 159,591 178,456
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Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
6. Goodwill Gross amount 3,668 - Addition through business combinations - 3,668 Carrying value 3,668 3,668
The recoverable amount of goodwill has been determined based on value-in-use calculations. These calculations use pre-tax cash flow projections based on financial budgets approved by management covering a five year period. A growth rate of 7% and a pre-tax discount rate of 25% was used. As a result of the acquisition of Holiday Tours (Pty) Ltd the Group’s footprint in Africa has been enhanced and the synergies that the Group will add has resulted in the recognition of goodwill. The envisaged enhancement should occur in the next two years as the project is still in its infancy. No impairment has occurred in the current financial year. The goodwill relates to the travel business that is part of the non-airline business.
7. Inventory Aircraft spares - 10,064 - 10,064 Catering equipment and consumables 7,086 6,046 7,086 6,046 Write down of aircraft spares to net realisable value - (4,721) - (4,721) 7,086 11,389 7,086 11,389
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Notes to the Annual Financial Statements (continued)
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
8. Trade and Other Receivables Trade receivables 347,933 331,887 326,410 313,132 Impairment allowance (3,030) (3,030) (3,030) (3,030) 344,903 328,857 323,380 310,102 Deposits 35,827 42,300 35,827 42,300 Other receivables 39,926 58,042 39,926 58,042 420,656 429,199 399,133 410,444
Maximum exposure to credit risk 372,077 368,123 350,554 349,368
The standard credit period is 30 days from statement. The average age of the receivables is 31 days. Only customers with whom the Group has a long-standing relationship have access to credit. New customers are rare as the Group prefers selling air tickets for cash rather than on credit.
Included in the Group’s trade receivables balance are debtors with a carrying value of R6.4 million (prior year: R7.2 million) which were past due at the reporting date for which the Group did not provide an impairment as the amounts were still considered recoverable.
Ageing of past due but not impaired trade receivables 120 Days - 2,994 4,251 2,994 4,251 120 Days + 3,425 2,930 3,425 2,930 6,419 7,181 6,419 7,181
Ageing of impairment trade receivables 120 Days - - - - - 120 Days + 3,030 3,030 3,030 3,030 3,030 3,030 3,030 3,030
Reconciliation of impairment allowance Opening balance 3,030 - 3,030 - Provision impairment raised - 3,030 - 3,030 3,030 3,030 3,030 3,030
Financial instruments classified as other receivables amount to R11,647,000 (2012: R36,236,000). These receivables are not considered to be past due nor impaired. The credit quality of these receivables is considered to be good.
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Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
9. Cash Encumbered The Group has pledged cash totalling R20 million (prior year: R20 million) in respect of aircraft lease obligations.
10. Share Capital
Authorised:
1,000,000,000 Ordinary shares of 1 cent each 10,000 10,000 10,000 10,000 75,000,000 "A" Class shares of 1 cent each 750 750 750 750 10,000,000 "N" ordinary shares of 1 cent each 100 100 100 100 1,000,000 Preference shares of 1 cent each 10 10 10 10 10,860 10,860 10,860 10,860 Issued:
489,176,471 Ordinary shares of 1 cent each 4,892 4,892 4,892 4,892 74,117,647 "A" Class shares of 1 cent each 741 741 741 741 Adjustment in respect of consolidation of share trust 5,525,864 (2012: 5,525,864) (55) (55) - - 5,578 5,578 5,633 5,633
At a general meeting of the Group held on 14 September 2006, shareholders approved by way of various special resolutions the creation, specific issue and re-purchase of the “A” shares, as well as the dividend and voting policy relating to those shares. The “A” shares will be converted to equity if the hurdle rate is achieved. The hurdle rate is set out as per the circular issued on 23 August 2006. Refer to note 17 below. The “A” shares shall vote as a single class at all meetings of shareholders of the Group save for resolutions of the Group relating to the rights and privileges of the “A” shares such that the holders of the “A” shares shall not be entitled to vote or approve any resolution that would otherwise have been passed or not by the required majority of votes, collectively, of the holders of the ordinary shares and the “A” shares (other than resolutions relating to the rights and privileges of the “A” shares.) The “A” shares will not be listed on the JSE and will not be taken into account for the purposes of categorisation transactions under the JSE Listings Requirements. The “A” shares will not be listed on any security exchange but are convertible into ordinary shares on a ‘one-for-one’ basis and are not entitled to dividends and voting rights.
Integrated Annual Report 2013 95 explorationapplying what we know and have to innovate and learn
Notes to the Annual Financial Statements (continued)
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
11. Interest-bearing Liabilities
Rand Merchant Bank Aircraft instalment sale agreements Instalment sale agreement payable in 40 quarterly instalments with the final payment due on 12 October 2022. Interest is charged at a variable rate – currently 6.4%. The current instalment is R13 million. 308,445 - 308,445 - Less: Finance raising fees (13,675) - (13,675) - One aircraft mortgage serves as collateral covering security (net book value R348 million).
Instalment sale agreement payable in 40 quarterly instalments with the final payment due on 12 October 2022. Interest is charged at a variable rate – currently 6.4%. The current instalment is R13 million. 308,391 - 308,391 - Less: Finance raising fees (13,568) - (13,568) - One aircraft mortgage serves as collateral covering security (net book value R342 million).
Instalment sale agreement payable in 41 quarterly instalments with the final payment due on 12 July 2022. RMB has entered into a sell down agreement with Nedbank for this loan. Interest is charged at a variable rate – currently 6.4%. The current instalment is R12 million. 285,588 - 285,588 - Less: Finance raising fees (12,659) - (12,659) - One aircraft mortgage serves as collateral covering security (net book value R317 million).
Simulator loan Instalment sale agreement payable in 30 quarterly instalments with the final payment due on 8 June 2018. Interest is charged at a variable rate – currently 9.0%. The current instalment is R3.1 million. A Boeing 737-800 simulator serves as collateral covering security (net book value R54.0 million, prior year R58.3 million). 43,609 52,372 43,609 52,372
Private Export Funding Corporation A US$ based aircraft instalment sale agreement payable in 40 quarterly instalments with the final payment due on 15 November 2022. Interest is charged at a fixed rate of 2.35% The current instalment is US$1 million. 352,976 - 352,976 - Less: Finance raising fees (13,916) - (13,916) - One aircraft mortgage serves as collateral covering security (net book value R354 million).
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Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Investec Limited Mortgage finance agreements This mortgage finance agreement is payable in 28 quarterly instalments with the final payment due on 30 September 2019. Erf 700 Rhodesfield Township has been pledged as collateral for this mortgage finance agreement. A mortgage bond of R25.9 million has been registered against this property. Interest is charged at a variable rate – currently 8.9%. The current instalment is R1.4 million. 23,142 - 23,142 - This mortgage finance agreement is payable in 20 quarterly instalments with the last instalment due on 25 June 2014. Comair properties, save for Erf 700 Rhodesfield Township, have been pledged as collateral for this loan. A notarial bond of R80 million has been registered against these properties. This loan was settled in full a year early on 25 June 2013 and the notarial bond is currently being cancelled. Interest was charged at 8.9% - 34,409 - 34,409
Working capital loan This loan is unsecured and is payable in 20 quarterly instalments with the final payment due on 30 September 2013. Interest is charged at a variable rate – currently 7.6%. The current instalment is R1.7 million. 1,655 7,990 1,655 7,990
Aircraft instalment sale agreements Instalment sale agreement payable in 20 quarterly instalments with the final instalment due on 20 December 2012. Interest was charged at 7.6% and the last instalment was R5.2 million. - 10,188 - 10,188 One aircraft mortgage served as collateral covering security (net book value prior year R69 million).
Instalment sale agreement payable in 20 quarterly instalments with the final instalment due on 5 June 2013. Interest was charged at 7.6% and the last instalment was R5.6 milion. - 21,782 - 21,782 Two aircraft mortgages served as collateral covering security (net book value prior year R167 million).
Boeing 737-800 A facility for pre-delivery payments required for four new 737-800 aircraft on order. Cross collaterisation of other Investec loans stand as security for this loan. The facility is repayable on delivery of the relevant aircraft. The facility is in US$ and earns a variable interest rate payable quarterly – currently 3.8%. The aircraft were delivered between July 2012 and December 2012 and the facility was settled in December 2012. - 263,757 - 263,757
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Notes to the Annual Financial Statements (continued)
11. Interest-bearing Liabilities (continued) Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Nedbank Aircraft refinance agreement payable in 20 quarterly instalments with the final payment due on 31 December 2014. This agreement was settled in full on 30 April 2013. - 38,500 - 38,500 One aircraft mortgage served as collateral covering security (net book value prior year R96 million). The mortgage bond is currently being cancelled. Interest was charged at 8.8%.
Wesbank An instalment sale facility of R5 million was entered into with Wesbank for the purchase of new vehicles for the Catering Division. Currently seven light delivery vehicles have been purchased. The facility was settled in April 2013. Interest was payable at prime -1% - 1,446 - 1,446
Sub-total 1,269,988 430,444 1,269,988 430,444 Less current portion (136,221) (344,537) (136,221) (344,537) Non-current portion 1,133,767 85,907 1,133,767 85,907
Total value of interest-bearing liabilities 1,269,988 430,444 1,269,988 430,444 Finance charges 326,546 25,584 326,546 25,584 Total interest-bearing liability commitments 1,596,534 456,028 1,596,534 456,028 Total commitments for year one 205,043 354,961 205,043 354,961 Total commitments for years two to five 740,447 91,877 740,447 91,877 Total commitments after year five 651,044 9,190 651,044 9,190
Allocation of present valued amounts 1,269,988 430,444 1,269,988 430,444 Capital commitments for year one 136,221 344,537 136,221 344,537 Capital commitments for years two to five 513,505 77,228 513,505 77,228 Capital commitments after year five 620,262 8,679 620,262 8,679
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Group Company 2013 2012 2013 2012
R’000 R’000 R’000 R’000
12. Deferred Taxation
On temporary differences arising from:
Property, plant and equipment 217,629 154,501 217,629 154,501 Staff obligations and accruals (60,029) (56,409) (60,029) (56,409) Unflown ticket liability (33,315) (6,685) (33,315) (6,685) Prepayments 11,411 15,549 12,393 14,966 Assessed loss - (7,917) - (7,132) 135,696 99,039 136,678 99,241
Deferred tax reconciliation Opening balance 99,039 97,258 99,241 97,715 Deferred tax – current 36,657 1,781 37,437 1,526 Closing balance 135,696 99,039 136,678 99,241
There are no unrecognised deferred tax assets on losses.
13. Trade and Other Payables Trade payables 802,754 648,435 780,263 639,029 Cash settled share-based payment - 35 - 35 Share options granted to employees 4,250 35 4,250 35 Recognised as long-term portion (4,250) - (4,250) - Unflown ticket liability 217,729 122,629 217,729 122,629 Other 38,027 17,630 38,027 17,630 1,058,510 788,729 1,036,019 779,323
Trade creditor terms vary depending on the agreements. An average of 30 days from statement is fair. Average days outstanding is 37 days.
Cash settled share-based payment – Share options are granted to certain employees in the Group. The fair value of the amount payable to the employee is recognised as an expense with a corresponding increase in liabilities. This is a long-term liability and will be paid in the future.
Unflown ticket liability is all monies received from passengers prior to reporting period and relating to flights not yet flown.
Integrated Annual Report 2013 99 explorationapplying what we know and have to innovate and learn
Notes to the Annual Financial Statements (continued)
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
14. Provisions Leave pay provision 43,994 41,952 43,994 41,952 Opening balance 41,952 48,806 41,952 48,806 - Raised 13,025 6,000 13,025 6,000 - Utilised (10,983) (12,854) (10,983) (12,854)
Bonus provision 72,218 31,142 72,218 31,142 Opening balance 31,142 27,597 31,142 27,597 - Raised 85,943 35,567 85,943 35,567 - Utilised (44,867) (32,022) (44,867) (32,022) 116,212 73,094 116,212 73,094
In terms of Comair’s policy, employees are entitled to accumulate vested leave benefits not taken within a leave cycle. Leave days have been capped depending on the level of employment of the employees.
The bonus scheme consists of performance bonuses which are dependent on the achievement of financial and non-financial targets. Bonuses are payable annually in December for all staff other than Executives. Executive bonuses are paid in July.
15. Financial Risk Management and Financial Instruments The Group finances its operations through a mixture of accumulated profits, current borrowings and non-current borrowings. The Group also enters into forward exchange contracts to manage the currency risks of its operations. The main risks arising in the normal course of business from the Group’s financial instruments are currency, interest rate, credit risk and liquidity risk. This note presents information on the Group’s exposure to these risks. The Board of Directors is responsible for risk management activities in the Group. The carrying values equate to the fair values of each financial instrument. The carrying value of short-term financial instruments approximate fair value due to their short-term natures, and all interest-bearing financial liabilities carried at amortised cost bear interest at market-related rates. Hence the carrying values of these financial instruments equate to their fair values.
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Identification of Financial Instruments At fair value Financial Fair Loans and Non-financial through profit liabilities at Total value receivables instruments (loss) amortised cost R‘000 R‘000 R‘000 R‘000 R‘000 R‘000
2013 Assets Non-current assets Property, plant and equipment - - - - 2,314,082 2,314,082 Intangible assets - - - - 41,475 41,475 Investments in associates - - - - 2,050 2,050 Goodwill - - - - 3,668 3,668
Current assets Inventories - - - - 7,086 7,086 Trade and other receivables 372,077 - 372,077 48,579 420,656 Investments in and loans to associates 7,852 - 7,852 - - 7,852 Taxation - - - - 30,942 30,942 Cash and cash equivalents 778,045 - 778,045 - - 778,045 Total assets 1,157,974 - 1,157,974 - 2,447,882 3,605,856
Equity and Liabilities Capital and reserves Share capital - - - - 5,578 5,578 Share premium - - - - 123,631 123,631 Non-distributable reserves - - - - 23,996 23,996 Accumulated profit - - - - 867,995 867,995
Non-current liabilities Interest-bearing liabilities 1,133,767 - - 1,133,767 - 1,133,767 Deferred taxation - - - - 135,696 135,696 Share-based payments - - - - 4,250 4,250
Current liabilities Trade and other payables 840,781 - - 840,781 217,729 1,058,510 Provisions - - - - 116,212 116,212 Interest-bearing liabilities 136,221 - - 136,221 - 136,221 Total liabilities 2,110,769 - - 2,110,769 1,495,087 3,605,856
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Notes to the Annual Financial Statements (continued)
15. Financial Risk Management and Financial Instruments (continued)
At fair value Financial Fair Loans and Non-financial through profit liabilities at Total value receivables instruments (loss) amortised cost R‘000 R‘000 R‘000 R‘000 R‘000 R‘000
2012 Assets Non-current assets Property, plant and equipment - - - - 1,432,509 1,432,509 Intangible assets - - - - 51,515 51,515 Investments in and loans to associates 8,717 8,717 - - 8,717 Goodwill - - - - 3,668 3,668
Current assets Inventories - - - - 11,389 11,389 Trade and other receivables 368,123 - 368,123 - 61,076 429,199 Investments in associates 7,727 - 7,727 - 7,727 Taxation - - - - 14,948 14,948 Cash and cash equivalents 246,095 - 246,095 - 246,095 Total assets 630,662 - 630,662 - 1,575,105 2,205,767
Equity and Liabilities Capital and reserves Share capital - - - - 5,578 5,578 Share premium - - - - 123,631 123,631 Non-distributable reserves - - - - 20,568 20,568 Accumulated profit - - - - 664,684 664,684
Non-current liabilities Interest-bearing liabilities 85,907 - - 85,907 - 85,907 Deferred taxation - - - - 99,039 99,039
Current liabilities Trade and other payables 666,100 - - 666,100 122,629 788,729 Provisions - - - - 73,094 73,094 Interest-bearing liabilities 344,537 - - 344,537 - 344,537 Total liabilities 1,096,544 - - 1,096,544 1,109,223 2,205,767
Financial assets are substantially the same for the Group and the Company, however, loans to subsidiaries amount to R37.3 million (2012: R36.4 million) and are classified as loans and receivables. Financial liabilities are substantially the same for the Group and the Company.
Interest Rate Risk The Group is exposed to interest rate risk as it borrows and places funds. This risk is managed by managing the Group’s exposures on long-term loans and placing surplus funds in investments that yield a market-linked return.
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Management reviews the interest rate risk on an ongoing basis. Where new loans are entered into management compares interest rates offered by various institutions and where considered more favourable may enter into loans in foreign currency. The interest rate risk is viewed in conjunction with the foreign exchange risk.
The Group as part of its financing activities enters into foreign denominated interest-bearing loans. The foreign exchange rate exposure is monitored by management in conjunction with the interest rate exposure which would have been incurred had a Rand denominated loan been taken out. Refer to sensitivity analysis below.
Credit Risk Credit risk relates to potential of non-recovery of bank and call deposits and loans and trade receivables. At the reporting date, the Group did not consider there to be any significant concentration of credit risk which has not been adequately provided for.
Liquidity Risk The liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group manages liquidity risk by monitoring forecast cash flows and ensuring that adequate cash resources and unutilised borrowing facilities are maintained. The credit quality and ageing of past due but not impaired trade receivables are presented in note 8.
Maturity profile of financial liabilities at 30 June 2013
Carrying Contractual Within 2 to 5 More than No fixed amount cash flows 1 year years 5 years terms Group R‘000 R‘000 R‘000 R‘000 R‘000 R‘000
2013 Secured non-current borrowings 1,133,767 1,391,491 - 740,447 651,044 - Secured short-term borrowings 136,221 205,043 205,043 - - - Trade and other payables 840,781 840,781 840,781 - - - Total financial liabilities – Group and Company 2,110,769 2,437,315 1,045,824 740,447 651,044 - Total financial assets – Group 1,147,527 1,147,527 1,137,625 - - 9,902
2012 Secured non-current borrowings 85,907 101,067 - 91,877 9,190 - Secured short-term borrowings 344,537 354,961 354,961 - - - Trade and other payables 666,100 666,100 666,100 - - - Total financial liabilities – Group and Company 1,096,544 1,122,128 1,021,061 91,877 9,190 - Total financial assets – Group 630,662 630,662 614,218 - - 16,444
Foreign Currency Risk The Group undertakes certain transactions denominated in foreign currencies which therefore have exposure to exchange rate variations. The Group may enter into forward exchange contracts to manage exchange rate exposure. Where appropriate, open positions are maintained. The Group does not speculate in derivative instruments and all foreign exchange contracts are supported by underlying transactions.
Approximately 50% of operating costs are incurred and approximately 12% of revenue is earned in foreign currency. The following uncovered foreign currency amounts are included in the Financial Statements at year end: net short-term liabilities of US$4,294,324 (2012: US$32,930,864) and GBP1,027,964 (2012: GBP950,188) and net short-term receivables of GBP5,820,456 (2012: GBP3,543,383).
The Group as part of its financing activities enters into foreign denominated interest-bearing loans. The foreign exchange rate exposure is monitored by management in conjunction with the interest rate exposure which would have been incurred had a Rand denominated loan been taken out.
Integrated Annual Report 2013 103 explorationapplying what we know and have to innovate and learn
Notes to the Annual Financial Statements (continued)
15. Financial Risk Management and Financial Instruments (continued)
Sensitivity Analysis The sensitivity analysis below calculates the impact of movements in the foreign exchange rates in which the Group transacts as well as in interest rates on the Group profits. The analysis is based on closing balances at year end.
Foreign exchange risk Interest rate risk Profit (loss) should the Rand exchange rate Profit (loss) should the interest rate change by 5% change by 2% Amount Amount Carrying Rand Rand Rate Rate exposed to exposed to value appreciation depreciation increase decrease Group risk risk
2013 Financial asset R'000 Cash and cash equivalents 778,045 222,605 (11,130) 11,130 778,045 15,561 (15,561) Trade and other receivables 372,077 9,075 (454) 454 Impact of financial assets on: - profit before tax - - (11,584) 11,584 - 15,561 (15,561) - profit after tax - - (8,340) 8,340 - 11,204 (11,204)
Financial liabilities R'000 Interest-bearing liabilities 1,269,988 352,976 - - 1,269,988 (25,400) 25,400 Trade and other payables 840,781 234,994 11,750 (11,750) - - - Impact of financial liabilities on: - profit before tax - - 11,750 (11,750) - (25,400) 25,400 - profit after tax - - 8,460 (8,460) - (18,288) 18,288
Overall impact on profit after taxation - - 119 (119) - (7,084) 7,084
Interest and related foreign currency amounts, made on account of aircraft and other qualifying assets under construction are capitalised, and added to the asset concerned and therefore do not affect profit or loss. The movements are recognised in other comprehensive income until such time as the other qualifying asset is complete and the aircraft has been delivered and recognised, in which case these amounts are no longer recognised and are expensed in profit or loss when incurred. The effect of a 5% movement in foreign exchange would be Rnil (2012: R13,188,000) and of a 2% interest rate adjustment would be Rnil (2012: R2,649,000).
The effect of the movement in the interest rate was only calculated for the estimated period that the loan will be outstanding.
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Foreign exchange risk Interest rate risk Profit (loss) should the Rand exchange rate Profit (loss) should the interest rate change by 5% change by 2% Amount Amount Carrying Rand Rand Rate Rate exposed to exposed to value appreciation depreciation increase decrease Group risk risk
2012 Financial asset R'000 Cash and cash equivalents 246,097 135,167 (6,758) 6,758 246,097 4,922 (4,922) Trade and other receivables 368,123 245,636 (12,282) 12,282 - - - Impact of financial assets on: - profit before tax - - (19,040) 19,040 - 4,922 (4,922) - profit after tax - - (13,709) 13,709 - 3,544 (3,544)
Financial liabilities R'000 Interest-bearing liabilities 430,444 263,757 - - 430,444 (3,334) 3,334 Trade and other payables 666,100 292,163 14,608 (14,608) - - - Impact of financial liabilities on: - profit before tax - - 14,608 (14,608) - (3,334) 3,334 - profit after tax - - 10,518 (10,518) - (2,400) 2,400
Overall impact on profit after taxation - - (3,191) 3,191 - 1,144 (1,144)
Capital Risk Management The Group’s objective when managing capital is to safeguard the entity’s ability to continue as a going concern.
The Group sets the amount of capital in proportion to risk. The Group manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares, or sell assets to reduce debt.
The Group monitors capital on the basis of the debt-to-adjusted-capital ratio. This ratio is calculated as net debt ÷ adjusted capital. Net debt is calculated as total interest-bearing debt (as shown in the Statement of Financial Position) less cash and cash equivalents. Adjusted capital comprises all components of equity (i.e. ordinary shares, share premium, accumulated profits and other reserves).
Integrated Annual Report 2013 105 explorationapplying what we know and have to innovate and learn
Notes to the Annual Financial Statements (continued)
15. Financial Risk Management and Financial Instruments (continued)
The debt-to-adjusted capital ratios at 30 June 2013 and 2012 were as follows:
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Total liabilities excluding deferred tax 2,448,960 1,292,267 2,426,469 1,282,861 Less: Cash and cash equivalents (778,045) (246,095) (766,628) (240,228)
Net debt 1,670,915 1,046,172 1,659,841 1,042,633 Adjusted equity 1,021,200 814,461 1,014,103 810,130
Adjusted capital ratio 1.64:1 1.28:1 1.64:1 1.28:1
16. Revenue 5,386,581 4,162,938 5,366,240 4,136,449 Flight revenue 5,115,761 4,013,200 5,115,761 4,013,200 Service-based 122,571 96,322 112,394 89,217 Commission-based 141,640 48,650 131,476 29,417 Other 6,609 4,766 6,609 4,615
17. Profit from Operations Operating expenses are stated after incorporating the following items:
Audit fees 656 700 656 700 Managerial, technical, administrative and secretarial services 21,435 18,081 21,435 18,081
Directors' emoluments (included in total staff costs) 17,467 18,824 17,467 18,824 - for services as Directors and related committee work 2,240 1,762 2,240 1,762 - for managerial and other services 9,858 15,811 9,858 15,811 - retirement and medical benefits 1,119 1,251 1,119 1,251 - share-based payments 4,250 - 4,250 -
Only Directors are considered key management.
A comprehensive breakdown per Director is included in the Directors’ Report on pages 65 and 66.
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Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Rentals under operating leases 309,324 331,135 309,324 331,135 - property rentals 18,855 16,371 18,855 16,371 - aircraft rentals 286,142 312,824 286,142 312,824 - equipment and vehicle rentals 4,327 1,940 4,327 1,940
Total staff costs 671,936 596,456 671,936 596,456 Employment costs 633,715 559,983 633,715 559,983 Contributions to defined contribution funds 38,221 36,473 38,221 36,473 Number of employees 1,927 1,873
(Loss) profit on exchange differences (12,199) 15,881 (12,199) 15,881
Impairments 6,817 4,049 17,559 4,049 Aircraft - 4,049 - 4,049 Loan to associate 4,817 - 15,559 - Trading loan in subsidiary 2,000 - 2,000 -
Equity Settled Share-based Payment (BEE Transaction) 3,428 3,428 3,428 3,428 This amount relates to the BEE transaction concluded in 2007 and is being equity accounted for (in terms of IFRS 2) using the Black Scholes option valuation model. The principle assumptions in applying the value of the options were as follows:
a. Volatility of 50% b. Eight years to date of exercise c. Dividend yield of 5% d. Risk free rate of 9.15% e. Strike price of R3.03
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Notes to the Annual Financial Statements (continued)
17. Profit from Operations (continued)
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Cash Settled Share-based Payment 4,250 - 4,250 - This amount relates to the long-term incentive scheme concluded in 2013 and is being cash accounted for (in terms of IFRS 2) using the Black Scholes option valuation model. The principle assumptions in applying the value of the options were as follows:
a. Total vesting period is 36 months b. Only holders in the employment of the Group after the vesting period will be entitled to receive a cash pay out. For the purposes of the calculation it was estimated that all employees will remain in the employment of the Group. c. Strike price is R1.50 d. Risk free rate was 5.22% e. Dividend yield was 2%
18. Interest Expense Total interest paid 65,079 27,187 64,883 27,187 Bank interest 61,641 19,433 61,445 19,433 Interest capitalised to pre-delivery payments 3,438 7,754 3,438 7,754
Less: amount capitalised as borrowing costs (See note 1) (3,438) (7,754) (3,438) (7,754) Net interest 61,641 19,433 61,445 19,433
19. Taxation Normal tax – current 66,478 1,451 63,629 - Deferred tax – current 36,657 1,751 37,437 1,527 103,135 3,202 101,066 1,527
Reconciliation of taxation rate % % % % South African normal tax rate (28.0) (28.0) (28.0) (28.0) Taxation effect of: Exempt income 0.1 0.1 0.1 0.1 Assessed loss utilised 0.1 - 0.1 - Disallowable expenditure (3.3) (1.5) (3.1) 5.9 Effective taxation rate (31.1) (29.4) (30.9) (22.0)
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Group
2013 2012
R’000 R’000
20. Earnings per Share Earnings attributable to ordinary shareholders 227,526 7,681 Add: IAS 16 (profit) loss on disposal of property, plant and equipment (984) 10,669 Add: IAS 16 impairment to assets - 4,049 Add: IAS 36 Impairment to loans to associates 4,817 - Less: tax effect of (profit) loss on disposal 276 (2,987) Less: tax effect of impairment to assets - (1,134)
Headline earnings attributable to ordinary shareholders 231,635 18,278
Weighted ordinary shares in issue ('000) 483,650 483,028 Weighted ordinary shares in issue 489,176 489,176 Adjustment in respect of consolidation of Share Trust (5,526) (6,148)
Adjustment for dilutive effect of share options in issue 527 27
Diluted weighted ordinary shares in issue ('000) 484,177 483,055
Earnings per share (cents) 47.0 1.6 Headline earnings per share (cents) 47.9 3.8 Diluted earnings per share (cents) 47.0 1.6 Diluted headline earnings per share (cents) 47.8 3.8
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Notes to the Annual Financial Statements (continued)
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
21. Cash Generated by Operations Profit before taxation 330,661 10,883 326,070 6,992 Impairment 6,817 4,049 17,559 4,049 Depreciation 241,582 153,270 239,708 152,989 Equity settled BEE transaction 3,428 3,428 3,428 3,428 Cash settled share-based payments 4,250 - 4,250 - Share of loss (profit) from associates 1,725 (1,329) - - Interest expense 61,641 19,433 61,445 19,433 Interest received (20,217) (8,200) (19,856) (7,914) (Profit) loss on disposal of assets (984) 10,669 (984) 10,669 Cash from operations before working capital changes 628,903 192,203 631,620 189,646 Movement in working capital 325,745 97,227 315,428 103,071 Inventory movement 4,303 (4,475) 4,303 (4,475) - Accounts receivable movement 8,543 41,475 11,311 58,181 - Accounts payable movement 312,899 60,227 299,814 49,365
954,648 289,430 947,048 292,717
22. Taxation Paid Taxation owing at beginning of year 14,948 11,428 14,919 12,281 Taxation charge for the year (66,536) (1,451) (63,631) - Taxation (receivable) at end of the year (30,942) (14,948) (30,558) (14,919) Taxation (paid) (82,530) (4,971) (79,270) (2,638)
23. Retirement Benefits
Post-retirement Benefits The Group contributes to the Evergreen Pension Fund, which is governed by the Pension Funds Act (Act No. 24 of 1956). The fund covers the majority of its employees and is a defined contribution scheme. Contributions paid by Group companies are charged against income as incurred.
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Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
24. Operating Lease Commitments
Commitments for year one Aircraft 169,759 188,823 169,759 188,823 169,759 188,823 169,759 188,823
Commitments for years two to five Aircraft 540,914 362,093 540,914 362,093 540,914 362,093 540,914 362,093
Commitments after year five Aircraft 174,472 186,374 174,472 186,374 174,472 186,374 174,472 186,374
Total operating lease commitments 885,145 737,290 885,145 737,290
Leasing arrangements – Aircraft Generally medium-term (five year) leasing agreements on aircraft.
Currently the Group has two aircraft on ZAR payment terms which are repayable at R850,000 each per month and one aircraft at R1 million all of which have been straight-lined. The Group has entered into a further two aircraft leases on ZAR payment terms of R610,500 per month. There are two aircraft leases at market-related US$ amounts which have no escalation clauses in the agreements and are repayable at US$135,000 each per month. There are a further three aircraft lease agreements at market-related US$ amounts which have no escalation clauses in the agreement and are repayable at US$160,000 each per month. Comair has entered into two aircraft lease agreements at rates of US$210,000 each per month which have no escalation clauses in them. A further lease has been entered into at a rate of US$228,000 per month. A further lease has been entered into at a rate of US$220,000 per month. A further lease has been entered into at a rate of US$255,000 per month. These leases are included in the operating lease commitments outlined above.
25. Borrowing Powers There are no restrictions on the Group’s borrowing powers.
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Notes to the Annual Financial Statements (continued)
26. Share Incentive Trust
Staff Share Incentive Scheme (Excluding BEE Equity Settled Share-based Payment) In terms of the staff share incentive scheme, shares are offered on an option or outright sale basis. Options vest over a period of 1 to 5 years (previously this was 1 to 3 years). All options must be taken up by way of purchase by no later than 10 years after the date of grant. The exercise price of the option is not less than the market value of the ordinary shares on the date preceding the day of grant and the option is exercisable provided the participant has remained in the Group’s employ until the option vests. In the case of retirement/death/retrenchment, all options immediately vest. Options can be converted into shares or cash or a combination of both, depending on the participant’s choice.
In the event of retirement/death/retrenchment of a participant, options may be taken up and converted into cash within 12 months of such an event. The Directors of the Group have the discretion to extend this by a further 12 months. In the case of the resignation of a participant, options which have vested may be exercised within 30 days after date of resignation. Options which have not vested will be forfeited.
The staff share incentive scheme is allowed to hold a total of 7.5% (36.7 million shares) of issued share capital in Comair Limited. Currently the scheme holds 1.1% (prior year: 1.1%) of issued share capital. The maximum number of options to be held by any participant in the scheme shall not exceed 1% (4.9 million shares) of the ordinary shares then in issue. The share option liability as per IFRS 2 at year end was Rnil (prior year R35,000) based on the closing share price of R2.65 (prior year: R1.33).
The following table illustrates the number and weighted average exercise prices of share options held by eligible participants, including Directors:
2013 2013 2012 2012 Weighted Weighted Number of average Number of average share options exercise price share options exercise price R R
Balance at beginning of period 1,274,667 1.55 2,840,667 1.67 Options exercised - - (1,566,000) 1.61 Balance at end of period 1,274,667 1.55 1,274,667 1.55
Share options extended and accepted during the year were done at the ruling market price on the date preceding the extension date.
The options outstanding at 30 June 2013 become unconditional between the following dates:
2013 2012 Subscription Number of Number of price share share R options options
1 September 2004 and 1 September 2007 0.80 66,667 66,667 5 December 2005 and 5 December 2010 1.70 233,000 233,000 5 June 2006 and 5 June 2011 1.57 975,000 975,000 Total 1,274,667 1 274,667
Should the participant resign from the Group before options fully vest, the unvested portion will be forfeited.
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Share options granted to Directors are as follows:
2013 2012 Number of Number of share share options options
Balance at beginning of period - 1,566,000 Options exercised - (1,566,000) - -
27. Group and Company Capital Commitments and Contingencies During 2010 the Company placed an order for eight 737-800s from the Boeing Company. The capital commitments will be settled as outlined below:
Group
2013 2012
R’000 R’000
Financial Year 2013 - 947,954 Financial Year 2014 197,413 218,750 Financial Year 2015 261,756 159,456 Financial Year 2016 945,579 1,016,398 Financial Year 2017 324,285 - 1,729,033 2,342,558
The Group has signed a subordination agreement with Imperial Air Cargo (Pty) Ltd (per note 5) which would represent a contingent liability in the amount of R10.7 million (2012: R6.8 million).
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Notes to the Annual Financial Statements (continued)
28. New Accounting Pronouncements At the date of authorisation of these Financial Statements, various standards are in issue which are not yet effective. This includes the following standards which are applicable to the business of the Group and may have impact on future Financial Statements.
Annual periods Standard Details of Amendment beginning on or after
IFRS 1: First-time Adoption of • Standard amended to remove the fixed date of 1 January 2004 relating to the 01 January 2013 International Financial Reporting retrospective application of the derecognition requirements of IAS 39, and relief Standards for first-time adopters from calculating day 1 gains on transactions that occurred before the date of adoption. • Amendments add an exception to the retrospective application of IFRSs to 01 January 2013 require that first-time adopters apply the requirements in IFRS 9 Financial Instruments and IAS 20 Accounting for Government Grants and Disclosure of Government Assistance prospectively to government loans existing at the date of transition to IFRSs. • Annual Improvements 2009–2011 Cycle amendments clarify the options 01 January 2013 available to users when repeated application of IFRS 1 is required and to add relevant disclosure requirements. • Annual Improvements 2009–2011 Cycle amendments to borrowing costs. 01 January 2013 IFRS 7: Financial Instruments: • Amendments require entities to disclose gross amounts subject to rights of 01 January 2013 Disclosures set‑off, amounts set off in accordance with the accounting standards followed, and the related net credit exposure. This information will help investors understand the extent to which an entity has set off in its balance sheet and the effects of rights of set-off on the entity’s rights and obligations. IFRS 9: Financial Instruments • New standard that forms the first part of a three part project to replace IAS 39 01 January 2015 Financial Instruments: Recognition and Measurement. IFRS 10: Consolidated Financial • New standard that replaces the consolidation requirements in SIC-12 01 January 2013 Statements Consolidation – Special Purpose Entities and IAS 27 Consolidated and Separate Financial Statements. Standard builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the Consolidated Financial Statements of the parent company and provides additional guidance to assist in the determination of control where this is difficult to assess. • Amendments to the transition guidance of IFRS 10 Consolidated Financial 01 January 2013 Statements, IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Interests in Other Entities, thus limiting the requirements to provide adjusted comparative information. • IFRS 10 exception to the principle that all subsidiaries must be consolidated. 01 January 2014 Entities meeting the definition of ‘Investment Entities’ must be accounted for at fair value under IFRS 9, Financial Instruments, or IAS 39, Financial Instruments: Recognition and Measurement.
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Annual periods Standard Details of Amendment beginning on or after
IFRS 11: Joint Arrangements • New standard that deals with the accounting for joint arrangements and focuses 01 January 2013 on the rights and obligations of the arrangement, rather than its legal form. Standard requires a single method for accounting for interests in jointly controlled entities. • Amendments to the transition guidance of IFRS 10 Consolidated Financial 01 January 2013 Statements, IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Interests in Other Entities, thus limiting the requirements to provide adjusted comparative information. IFRS 12: Disclosure of Interests in • New and comprehensive standard on disclosure requirements for all forms 01 January 2013 Other Entities of interests in other entities, including joint arrangements, associates, special purpose vehicles and other off-balance-sheet vehicles. • Amendments to the transition guidance of IFRS 10 Consolidated Financial 01 January 2013 Statements, IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Interests in Other Entities, thus limiting the requirements to provide adjusted comparative information. • New disclosures required for Investment Entities (as defined in IFRS 10). 01 January 2014 IFRS 13: Fair Value Measurement • New guidance on fair value measurement and disclosure requirements. 01 January 2013 IAS 1: Presentation of Financial • Annual Improvements 2009–2011 Cycle: Amendments clarifying the 01 January 2013 Statements requirements for comparative information including minimum and additional comparative information required. IAS 16 Property, Plant and • Annual Improvements 2009–2011 Cycle: Amendments to the recognition and 01 January 2013 Equipment classification of servicing equipment. IAS 19: Employee Benefits • Amendments to the accounting for current and future obligations resulting from 01 January 2013 the provision of defined benefit plans. IAS 27: Consolidated and separate • Consequential amendments resulting from the issue of IFRS 10, 11 and 12. 01 January 2013 Financial Statements • Requirement to account for interests in ‘Investment Entities’ at fair value under 01 January 2014 IFRS 9, Financial Instruments, or IAS 39, Financial Instruments: Recognition and Measurement, in the separate Financial Statements of a parent. IAS 28: Investments in Associates • Consequential amendments resulting from the issue of IFRS 10, 11 and 12. 01 January 2013 IAS 32: Financial Instruments: • Amendments require entities to disclose gross amounts subject to rights of 01 January 2013 Presentation set‑off, amounts set off in accordance with the accounting standards followed, and the net related credit exposure. This information will help investors understand the extent to which an entity has set off in its balance sheet and the effects of rights of set-off on the entity’s rights and obligations. • Annual Improvements 2009–2011 Cycle: Amendments to clarify the tax effect of 01 January 2013 distribution to holders of equity instruments. IAS 34: Interim Financial • Annual Improvements 2009–2011 Cycle: Amendments to improve the 01 January 2013 Reporting disclosures for interim financial reporting and segment information for total assets and liabilities IAS 36: Impairment of Assets • The amendment to IAS 36 clarifies the required disclosures of information about 01 January 2014 the recoverable amount of impaired assets if that amount is based on fair value less costs of disposal.
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Notes to the Annual Financial Statements (continued)
28. New Accounting Pronouncements (continued)
Annual periods Interpretations beginning on or after
IFRIC Interpretation 21: Levies 1 January 2014
The Directors have not yet determined what the impact of these new Standards and Interpretation will be on the Company.
29. Related Parties
Subsidiaries Inspect note 4 for investments in subsidiaries Associates Inspect note 5 for investments in associates Share Incentive Trust Inspect note 2 for the details Directors Inspect Directors’ remuneration on pages 65 and 66 and Special Resolution Number 2 on page 121
Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Related Party Balances
Loan accounts – Owing (to) by related parties Alooca Properties (Pty) Ltd - - 28,212 28,374 Aconcagua 32 Investments (Pty) Ltd - - 5,866 4,375 Kulula Air (Pty) Ltd - - 3,290 3,282 Commuter Handling Services (Pty) Ltd 7,852 7,852 7,852 7,852 Imperial Air Cargo (Pty) Ltd 15,559 15,559 15,559 15,559 Comair Share Incentive Trust - - 5,337 5,579
Amounts included in trade receivable (trade payable) regarding related parties Commuter Handling Services (Pty) Ltd - - - - Imperial Air Cargo (Pty) Ltd 71 1,208 71 1,208 Kulula Air (Pty) Ltd 1,769 522 1,769 522
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Group Company
2013 2012 2013 2012
R’000 R’000 R’000 R’000
Related Party Transactions
Interest received from related parties Commuter Handling Services (Pty) Ltd - (549) - (549)
Rent paid to related parties Aconcagua 32 Investments (Pty) Ltd - - 1,374 1,249 Alooca Properties (Pty) Ltd - - 878 799
Service recovery Kulula Air (Pty) Ltd - - 2,400 2,400
30. Subsequent Events The Directors are not aware of any matter or circumstances arising since the end of the period under review that would significantly affect or have a material impact on the financial position of the Group or Company.
Integrated Annual Report 2013 117 greatnessthe next great step in the evolution of world-class aviation
Notice of Annual General Meeting
A member of the Company entitled to attend and vote at the below-mentioned Annual General Meeting (“AGM”) is entitled to appoint a proxy or proxies to attend, speak and vote in his/ her stead. A proxy need not be a member of the Company. Meeting attendees will be required to provide reasonably satisfactory identification before being allowed to participate in or vote at the AGM. Forms of identification that will be accepted include original and valid South African identity documents, driver’s licences and passports.
This document is important and requires your immediate attention.
Comair Limited Registration number 1967/006783/06 Incorporated in the Republic of South Africa ISIN Code: ZAE000029823 Share Code: COM (“Comair” or “the Company” or “the Group”)
Notice is hereby given in terms of section 62(1) of the Companies Act (No. 71 of 2008), as amended (“the Companies Act”) that the AGM of shareholders of the Company will be held at the SLOW in the City Lounge (Radisson Blu Gautrain Hotel), corner Rivonia and West Streets (opposite Gautrain Hotel), Sandton, 2196, on Wednesday 30 October 2013 at 13h00 to consider, and if deemed fit, to pass the ordinary and special resolutions set out below.
This notice has been sent to shareholders of the Company who were recorded as such in the Company’s security register on 20 September 2013, being the notice record date set by the Board of the Company in terms of the Companies Act determining which shareholders are entitled to receive notice of the Annual General Meeting.
Electronic Participation Shareholders or their proxies are also able to attend, but not participate and vote at the Annual General Meeting by way of a teleconference call. Should you want to make use of this facility, please contact Derek Borer by e-mail at [email protected] by no later than 12h00 on 28 October 2013. Shareholders will:
• Be required to provide reasonably satisfactory identification; and • Be billed separately by their own telephone service providers for their telephone call to participate in the Meeting.
The notice of Meeting includes the attached proxy form.
Ordinary Resolutions
1. Consideration of Annual Financial Statements
Ordinary Resolution Number 1 RESOLVED THAT the audited Annual Financial Statements, together with the report of the Board of Directors of the Company (the “Board”), the auditors’ report and the report by the Audit Committee of the Company and the Group for the year ended 30 June 2013, be and are hereby received and adopted.
Reason and effect of Ordinary Resolution Number 1 The reason for and effect of Ordinary Resolution Number 1 is to adopt the complete audited Annual Financial Statements of the Company, including the report of the Board, the auditors’ report and the report by the Audit Committee of the Company and the Group for the year ended 30 June 2013.
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2. Re-appointment of External Auditors
Ordinary Resolution Number 2 RESOLVED THAT the re-appointment of PKF (Jhb) Inc., now known as Grant Thornton (Jhb) Inc. (“GT”), as nominated by the Company’s Audit Committee as independent external auditors of the Company, be and is hereby approved until the conclusion of the next AGM. It is noted that Mr Ben Frey is the individual registered auditor who will undertake the audit for the financial year ending 30 June 2014.
Reason and effect of Ordinary Resolution Number 2 The reason for and effect of Ordinary Resolution Number 2 is to re-appoint PKF (Jhb) Inc., now known as Grant Thornton (Jhb) Inc. (“GT”), as the auditors of the Company to hold office until the conclusion of the next AGM. The Company’s Audit Committee has recommended, and the Board has endorsed, the above re-appointment.
3. Re-election of Directors
Ordinary Resolution Number 3.1 RESOLVED THAT Mr Jacob Meyer Kahn, who retires in terms of the Company’s Memorandum of Incorporation (“MOI”) and who, being eligible, offers himself for re-election, be hereby re-elected as a Director of the Company.
Ordinary Resolution Number 3.2 RESOLVED THAT Mr Ronald Sibongiseni Ntuli, who retires in terms of the Company’s MOI and who, being eligible, offers himself for re-election, be hereby re-elected as a Director of the Company.
Ordinary Resolution Number 3.3 RESOLVED THAT Mr Khutso Ignatius Mampeule, who retires in terms of the Company’s MOI and who, being eligible for re-election, offers himself for re-election, be hereby re-elected as a Director of the Company.
Ordinary Resolution Number 3.4 RESOLVED THAT Mr Ranil Yasas Sri-Chandana, who retires in terms of the Company’s MOI and who, being eligible, offers himself for re-election, be hereby re-elected as a Director of the Company.
Ordinary Resolution Number 3.5 RESOLVED THAT Mr Martin Nicolaas Louw, who retires in terms of the Company’s MOI and who, being eligible, offers himself for re-election, be hereby re-elected as a Director of the Company.
Reasons and effect of Ordinary Resolution Numbers 3.1 to 3.5 The reasons for and effect of Ordinary Resolutions Number 3.1 to 3.5 is to re-elect, by way of separate resolutions, Mr Jacob Meyer Kahn, Mr Ronald Sibongiseni Ntuli, Mr Khutso Ignatius Mampeule, Mr Ranil Yasas Sri-Chandana and Mr Martin Nicolaas Louw as Directors of the Company.
In terms of article 24.1 of the Company’s MOI, one third of the Company’s Directors are required to retire at every AGM. These Directors may offer themselves for re-election. The Board recommends to the shareholders the re-election of the Directors mentioned above. A brief CV of each of these Directors appears on pages 126 to 127 of this Report of which this notice forms part.
4. Election of Members of the Audit Committee
Ordinary Resolution Number 4.1 RESOLVED THAT Dr PJ Welgemoed, who is an independent Non-executive Director of the Company, be hereby elected as a member of the Company’s Audit Committee for the financial year ending 30 June 2014.
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Notice of Annual General Meeting (continued)
Ordinary Resolution Number 4.2 RESOLVED THAT, subject to the re-election of Mr KI Mampeule as a Director of the Company pursuant to Ordinary Resolution Number 3.3, Mr KI Mampeule, who is an independent Non-executive Director of the Company, be hereby elected as a member of the Company’s Audit Committee for the financial year ending 30 June 2014.
Ordinary Resolution Number 4.3 RESOLVED THAT Ms WD Stander, who is an independent Non-executive Director of the Company, be hereby elected as a member of the Company’s Audit Committee for the financial year ending 30 June 2014.
Ordinary Resolution Number 4.4 RESOLVED THAT Mr GJ Halliday, a Non-executive Director of the Company who meets the independence requirements of the Companies Act, be hereby elected as a member of the Company’s Audit Committee for the financial year ending 30 June 2014.
Reason and effect of Ordinary Resolution Numbers 4.1 to 4.4 The reasons for and effect of Ordinary Resolutions Number 4.1 to 4.4 is to elect, by way of separate resolutions, Dr PJ Welgemoed, Mr KI Mampeule, Ms WD Stander and Mr GJ Halliday as members of the Audit Committee of the Company.
A brief CV of each of the Directors mentioned above is included on pages 127 to 128 of this Report of which this notice forms part. As is evident from the CVs of those Directors, each of the proposed members of the Audit Committee has the required qualifications and/or experience to fulfil his/her duties.
5. Non-binding Endorsement of Company Remuneration Policy
The Company’s Remuneration Policy, as described in the Remuneration Report on pages 57 to 59 of this Report of which this notice forms part, is hereby endorsed by way of a non-binding advisory vote, as recommended in the King Code of Governance for South Africa 2009, commonly referred to as King III.
Reason and effect of non-binding endorsement The reason for and effect of the above non-binding endorsement is to endorse the Company’s Remuneration Policy on the basis of a non-binding advisory vote.
Special Resolutions
6. Approval of Non-executive Directors’ Remuneration 2012/13
Special Resolution Number 1 RESOLVED THAT the joint remuneration of the Non-executive Directors for their services as Directors of the Company in the amount of R2,240,000 (two million two hundred and forty thousand Rand) for the financial year ended 30 June 2013 be and is hereby approved.
Reason and effect of Special Resolution Number 1 The reason for and the effect of Special Resolution Number 1 is to approve the remuneration payable by the Company to its Non-executive Directors for their services as Directors of the Company for the period ended 30 June 2013. The fees payable to Non-executive Directors are based on a fixed annual retainer. The Chairperson and members of every sub-committee, however, is paid an additional fee for each sub-committee meeting chaired and/or attended up until the end of the 2013 financial year. No fees are payable to Mr Gupta, Mr Sacks, Mr Buchanan and Mr Halliday. Mr Van Hoven, in addition to being the Chairperson of the Board and Nominations Sub-committee, is also the Chairman of Comair Pension Fund and as such gets paid a fee for each Pension Fund Trustee meeting attended, which fees were approved by the Company’s shareholders at the Annual General Meeting on 1 November 2012. The fees payable to each Director and further details on the basis of calculation of remuneration are respectively included in the annual finance statements on pages 70 to 117, and in the Remunerations Report on pages 57 to 59 of this Report of which this notice forms part.
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7. Approval of Non-executive Directors’ Remuneration – 2013/14
Special Resolution Number 2 RESOLVED THAT the following fees be approved as the basis for calculating the remuneration of the Non-executive Directors for their services as Directors of the Company for the financial year ended 30 June 2014:
30 June 2013 30 June 2014
Chairman of the Board R1,000,000.00 R1,200,000.00 Vice-chairman (2) R250,000.00 R350,000.00 Non-executive Directors (5) R120,000.00 R150,000.00 Chairperson of each sub-committee, per sub-committee meeting held R10,000.00 R13,000.00 Members of each sub-committee, per sub-committee meeting held R5,000.00 R6,500.00 Chairperson of Pension Fund Board R10,000.00 R13,000.00
Reason and effect of Special Resolution Number 2 The reason for and effect of Special Resolution Number 2 is to approve the basis for calculating the remuneration payable by the Company to its Non- executive Directors for their services as Directors of the Company for the period ending 30 June 2014. The fees payable to Non-executive Directors are based on a fixed annual retainer. The Chairperson and members of each sub-committee, however, will be paid an additional fee for each sub-committee meeting held, irrespective of attendance at the sub-committee meeting or not. No fees are payable to Mr Gupta, Mr Sacks, Mr Buchanan and Mr Halliday. Mr Van Hoven, in addition to being Chairperson of the Board and the Nominations Committee, is also the Chairman of the Comair Pension Fund and as such gets paid a fee for each Pension Fund Trustee meeting held. Further details on the basis of calculation of remuneration are included in the Remuneration Report on pages 57 to 59 of this Report of which this notice forms part.
8. General Authority to Repurchase Shares
Special Resolution Number 3 RESOLVED THAT the Board of Directors of the Company is hereby authorised, by way of a renewable general authority, to approve the purchase of its own ordinary shares by the Company, or to approve the purchase of ordinary shares in the Company by any subsidiary of the Company, provided that:
8.1.1 The Company or the relevant subsidiary is authorised thereto by its MOI; 8.1.2 The general repurchase by the Company and/or any subsidiary of the Company of ordinary shares in the aggregate in any one financial year shall not exceed 10% (ten percent) of the Company’s issued ordinary share capital as at the beginning of the financial year, provided that the acquisition of shares as treasury shares by a subsidiary of the Company shall not be effected to the extent that in aggregate more than 10% (ten percent) of the number of issued shares in the Company are held by or for the benefit of all the subsidiaries of the Company taken together; 8.1.3 At any point in time, the Company may only appoint one agent to effect any repurchases on the Company’s behalf; 8.1.4 The repurchase of securities being effected through the order book operated by the JSE trading system and done without any prior understanding or arrangement between the Company and the counterparty (reported trades are prohibited); 8.1.5 This general authority shall only be valid until the date of the next AGM or for 15 (fifteen) months from the date of passing of this Special Resolution Number 3, whichever is the shorter; 8.1.6 In determining the price at which the Company’s ordinary shares are acquired by the Company or any subsidiary in terms of this general authority, the maximum premium at which such ordinary shares may be acquired will be 10% (ten percent) of the weighted average of the market price at which such ordinary shares are traded on the JSE, as determined over the five (5) trading days immediately preceding the
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Notice of Annual General Meeting (continued)
date of the repurchase of such ordinary shares by the Company. The JSE should be consulted for a ruling if the Company’s securities have not traded in such five (5) day business day period; 8.1.7 The Company or its subsidiary may not repurchase securities during a prohibited period as defined in the JSE Listings Requirements, unless they have in place a repurchase programme where the dates and quantities of securities to be traded during the relevant period are fixed (not subject to any variation) and full details of the programme have been disclosed in an announcement over SENS prior to the commencement of the prohibited period; and 8.1.8 When the Company or any subsidiary has cumulatively repurchased 3% (three percent) of the initial number of the relevant class of securities, and for each 3% (three percent) in aggregate of the initial number of that class acquired thereafter, an announcement will be made.
8.2 In terms of the general authority given under this special resolution, any acquisition of ordinary shares shall be subject to: 8.2.1 Any applicable exchange control regulations and approval at that point in time; 8.2.2 The Companies Act; 8.2.3 The JSE Listings Requirements and any other applicable stock exchange rules, as may be amended from time to time; 8.2.4 The sanction of any other relevant authority whose approval is required by law; and 8.2.5 A resolution by the Board and/or the relevant subsidiary of the Company confirming that the Board of the Company and/or of such relevant subsidiary has authorised the repurchase, that the Company and/or the relevant subsidiary has satisfied the solvency and liquidity tests contemplated in the Companies Act, and that since the test was done there have been no material changes to the financial position of the Group.
The Board is of the opinion that this authority should be in place should it become appropriate to undertake a share repurchase in the future. After having considered the effect of any repurchases of ordinary shares pursuant to this general authority, the Board, in terms of the Companies Act and the JSE Listings Requirements, confirms and undertakes that it will not implement the proposed authority to repurchase the shares unless it is of the opinion that:
• The Company and the Group will be in a position to repay its debt in the ordinary course of business for the next 12 (twelve) months after the date of the general repurchase; • The assets of the Company and the Group, fairly valued in accordance with International Financial Reporting Standards, will be in excess of the liabilities of the Company and the Group for the next 12 (twelve) months after the date of the general repurchase; • The share capital and reserves of the Company and the Group will be adequate for the next 12 (twelve) months after the date of the general repurchase; • Available working capital will be adequate to continue the operations of the Company and the Group for the next 12 (twelve) months after the date of the general repurchase; and • The Company may not enter the market to proceed with the repurchase until the Company’s sponsor, Rand Merchant Bank (a division of FirstRand Bank Limited), has confirmed the adequacy of the Company and the Group’s working capital in writing to the JSE.
Reason and effect of Special Resolution Number 3 The reason for and effect of Special Resolution Number 3 is to authorise the Company or any of its subsidiaries, by way of a general authority, to acquire its own issued shares and/or its subsidiary Company on such terms, conditions and such amounts determined from time to time by the Board subject to the limitations set out above. Please refer to the additional disclosure of information contained in this notice, which disclosure is required in terms of the JSE Listings Requirements.
9. General Authority to Provide Financial Assistance to Related and Inter-related Companies or Corporations
Special Resolution Number 4 RESOLVED THAT the Board is hereby authorised in terms of section 45(3)(a)(ii) of the Companies Act, as a general approval (which approval will be in place for a period of two (2) years from the date of adoption of this Special Resolution Number 4), to authorise the Company to provide any direct or indirect
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financial assistance (“financial assistance” will herein have the meaning attributed to such term in section 45(1) of the Companies Act), that the Board may deem fit to any related or inter-related company or corporation of the Company (“related and inter-related” will herein have the meaning attributed to these terms in section 2 of the Companies Act), on the terms and conditions and for the amounts that the Board may determine.
The main purpose for this authority is to grant the Board the authority to provide inter-group loans and other financial assistance for the purpose of funding the activities of the Group. The Board undertakes that:
9.1 It will not adopt a resolution to authorise such financial assistance unless the Directors are satisfied that: 9.1.1 Immediately after providing the financial assistance, the Company would satisfy the solvency and liquidity test as contemplated in the Companies Act; and 9.1.2 The terms under which the financial assistance is proposed to be given are fair and reasonable to the Company; and
9.2 Written notice of such resolution by the Board shall be given to all shareholders of the Company and any trade union representing the employees: 9.2.1 Within 10 (ten) days after the Board adopted the resolution, if the total financial assistance contemplated in that resolution, together with any previous such resolutions during the financial year, exceeds 0.1% (zero comma one percent) of the Company’s net worth at the time of the resolution; and 9.2.2 Within 30 (thirty) days of the end of the financial year, in any other case.
Reason and effect of Special Resolution Number 4 The reason for and the effect of Special Resolution Number 4 is to provide a general authority to the Board to grant direct or indirect financial assistance to any company or corporation forming part of the Company’s Group of Companies, including in the form of loans or the guaranteeing of their debts. The Board provided such inter-group financial assistance to subsidiaries as disclosed in the Annual Financial Statements in note 4 on pages 88 to 90 of this Report of which this notice forms part.
Other disclosure in terms of the JSE Listings Requirements Section 11.26 Further to Special Resolutions Number 3 and 4, the JSE Listings Requirements require the following disclosure, some of which is elsewhere in this Report of which this notice forms part:
Directors and management – pages 63 and 64 Major shareholders of the Company – page 131 Directors’ interests in securities – page 62 Share capital of the Company – note 10 on page 95
Litigation statement In terms of section 11.26 of the JSE Listings Requirements, the Directors, whose names are given on pages 63 and 64 of this Report of which this notice forms part, is not aware of any legal or arbitration proceedings, including proceedings that are pending or threatened, that may have or have had in the recent past, being at least the previous 12 (twelve) months, a material effect on the Group’s financial position.
Directors’ responsibility statement The Directors, whose names are given on pages 63 and 64 of this Report, collectively and individually accept full responsibility for the accuracy of the information pertaining to this resolution and certify that, to the best of their knowledge and belief, there are no facts that have been omitted which would make any statement false or misleading, and that all reasonable enquiries to ascertain such facts have been made and that this resolution contains all information required by law and the JSE Listings Requirements.
Integrated Annual Report 2013 123 greatnessthe next great step in the evolution of world-class aviation
Notice of Annual General Meeting (continued)
No material change Other than the facts and developments reported on in this Report, there have been no material changes in the financial or trading position of the Company and its subsidiaries since the date of signature of the Audit Report and the date of this notice.
Statement of Board’s intention The Board has no specific intention to effect the provisions of Special Resolution Number 3 but will, however, continually review this position having regard to prevailing circumstances and market conditions, in considering whether to effect the provisions of Special Resolution Number 3.
Ordinary Resolution
10. Authorisation for Company Secretary or any Director to Sign Necessary Documents to Give Effect to Resolutions
Ordinary Resolution Number 5 RESOLVED THAT the Company Secretary or any Director be and is hereby authorised on behalf of the Company to sign all documents as may be necessary in order to give effect to the Special and Ordinary Resolutions set out above.
Other Business
11. To Transact any Other Business that may be Transacted at Annual General Meetings.
Approvals Required for Resolutions Ordinary Resolutions Numbers 1 to 5 contained in this Notice of AGM require the approval by more than 50% (fifty percent) of the votes exercised on the resolutions by shareholders present or represented by proxy at the AGM, and further subject to the provisions of the Companies Act, the MOI of the Company and the JSE Listings Requirements.
Special Resolutions Number 1 to 4 contained in this Notice of AGM require the approval by at least 75% (seventy-five percent) of the votes exercised on the resolutions by shareholders present or represented by proxy at the AGM and further subject to the provisions of the Companies Act, the MOI of the Company and the JSE Listings Requirements.
Record Date The record date on which shareholders of the Company must be registered as such in the Company’s securities register, which date was set by the Board of the Company in determining which shareholders are entitled to attend and vote at the AGM, is Friday, 25 October 2013. Accordingly the last day to trade in order to be eligible to attend and vote at the meeting is Friday, 18 October 2013.
Proxy and Voting Procedures A shareholder entitled to attend and vote at the AGM is entitled to appoint a proxy or proxies to attend, speak and vote in his/her stead. A proxy need not be a shareholder of the Company. For the convenience of registered shareholders of the Company, a form of proxy is enclosed herewith.
Shareholders are requested to lodge their forms of proxy with, or to post same to the Company’s Transfer Secretaries, Computershare Investor Services (Pty) Limited, PO Box 61051, Marshalltown, 2107, to be received not later than 48 hours (excluding Saturdays, Sundays and public holidays) before the time appointed for the holding of the AGM, being Wednesday, 30 October 2013, at 13h00. Nevertheless, forms of proxy may be lodged at any time prior to the commencement of voting on the resolutions at the AGM.
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Any shareholder who completes and lodges a form of proxy will nevertheless be entitled to attend and vote in person at the Annual General Meeting. Any forms of proxy not received by this time must be handed to the Chairperson of the meeting immediately prior to the meeting.
On a show of hands, every shareholder of the Company present in person or represented by proxy shall have one vote only. On a poll, every shareholder of the Company shall have one vote for every share held in the Company by such shareholder.
The attached form of proxy is only to be completed by those shareholders who are:
• Holding ordinary shares of the Company in certificated form; or • Are recorded on the electronic sub-register in “own name” dematerialised form.
Shareholders who have dematerialised their shares through a Central Securities Depository Participant (“CSDP”) or broker and wish to attend the AGM, must instruct their CSDP or broker to provide them with a Letter of Representation, or they must provide the CSDP or broker with their voting instructions in terms of the relevant custody agreement/mandate entered into between them and the CSDP or broker.
Equity securities held by a share trust or scheme will not have their votes at annual general meetings taken into account for the purposes of resolutions proposed in terms of the JSE Listings Requirements.
Note that holders of unlisted securities and treasury shares are not entitled to vote at the AGM.
Proof of Identification Required The Companies Act requires that any person who wishes to attend or participate in a shareholders meeting, must present reasonably satisfactory identification at the meeting. Any shareholder or proxy who intends to attend or participate at the Annual General Meeting must be able to present reasonably satisfactory identification at the meeting for such shareholder or proxy to attend and participate at the meeting. A green bar-coded identification document issued by the South African Department of Home Affairs, a driver’s licence or a valid passport will be accepted as sufficient identification.
By order of the Board
Derek H Borer Company Secretary
Date: 9 September 2013 Place: Bonaero Park
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Notice of Annual General Meeting (continued)
Directors Standing for Election or Re-election
1. JM Kahn (Board) (Age: 72) (BA (Law); MBA (UP); DCom (hc); SOE) Meyer joined the South African Breweries Group in 1966 and occupied executive positions in a number of the Group’s former retail interests before being appointed to the Board of South African Breweries Limited (“SAB”) in 1981. He was appointed Group Managing Director of SAB in 1983 and Executive Chairman in 1990. In 1997, he was seconded full-time to the South African Police Service as its Chief Executive, serving for two and a half years. In 1999 he was appointed chairman of the Company on its London listing. Amongst other awards, he holds an honorary doctorate in commerce from the University of Pretoria and was awarded the South African Police Star for Outstanding Service (“SOE”) in 2000. He retired as Chairman of SAB Miller in July 2012.
2. RS Ntuli (Board) (Age: 43) (LLB) Ronnie is founder and Chairman of Thelo Group (“Thelo”), an independent investment company with interests in the aviation, financial services and transportation infrastructure sectors.
Ronnie is also:
• A member on the Board of the African Export-Import Bank (“AFRIEXIMBANK”). Headquartered in Cairo, Egypt, the bank was established by African Governments, African private and institutional investors, as well as non-African financial institutions and private investors for purposes of financing, promoting and expanding intra-African and extra-African trade. AFRIEXIMBANK has the status of an international multilateral organisation; • A member of the Honorary International Investor Council (“HIIC”) for the President of the Federal Republic of Nigeria. The HIIC is a body of leading international business persons that advises the President and members of the Federal Government of Nigeria; • A member of the Pan-African Private Sector Trade Policy Committee (“PAFTRAC”) which along with African Ministers of Trade and Industry is responsible for developing Africa’s trade policy issues and position at the World Trade Organization (“WTO”); • Immediate former Chairman of the National Empowerment Fund (“NEF”): a multi-billion Rand development finance agency established by the Government of South Africa to promote and drive Black Economic Empowerment (“BEE”) and the transformation of the South African economy; • Deputy Chairman of Comair Limited, a JSE-listed company with investments in the aviation and travel sectors and which operates airlines such as British Airways and kulula; and • Senior Independent Director on the Board of JSE-listed Allied Technologies Limited (“Altech”). Altech is a leading multi-billion Rand high technology group that operates in the telecommunications, multimedia and information technology (“TMT”) environment.
Preceding his role at Thelo, Ronnie founded Andisa Capital, in partnership with one of Africa’s largest banking groups. Andisa is an independent and diversified financial services group with interests in private equity, stock broking, capital markets, corporate finance and treasury solutions, for which he was the founding Chief Executive.
Ronnie is former President of the Johannesburg Chamber of Commerce and Industry and holds a LLB from Edinburgh University.
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3. KI Mampeule (Board and Audit Committee) (Age: 48) (BA; MSc; MBA) Khutso Mampeule is the Executive Chairman of Lefa Group Holdings, an investment holding and consulting company he established in 2003. He has overall responsibility for the development and implementation of the Group’s strategy and business model. In addition, Khutso is a Director of JSE-listed Niveus Investments Limited, Senwes Limited, Phetogo Investments (Pty) Ltd, and Withmore Investments (Pty) Ltd, an empowerment consortium he represents on the KWV Holdings Limited Board, where is he is also the Chairman of the Social and Ethics Committee. He is also a Director of the Institute of Directors (“IoD, SA”) and a few other privately held companies. Until 21 May 2007, Khutso was the Group CEO of the South African Post Office, where he made extensive headlines for taking firm positions against poor governance and corrupt practices at the institution. Prior to starting Lefa Group Holdings, Khutso was the CEO of Old Mutual Employee Benefits, where he had the overall responsibility of the business with approximately R70 billion of assets under his management. Before joining Old Mutual, he spent seven years in various senior executive positions at Transnet where he was responsible for rail operations, including rail/port integration, and the turnaround of iron-ore export business within Spoornet (“OREX”). His last position at Transnet was as the CEO of its subsidiary, South African Express Airways. Khutso is a trustee of the World Wide Fund for Nature (“WWF, SA”), and the Regional Chairman of the Young Presidents Organisation (“YPO, Africa”). He holds BA, MSc and MBA degrees.
4. RY Sri-Chandana (Board) (Age: 40) (BCompt Hons; MCom; CA(SA); CFA; HDip.Co.Law) After qualifying as a Chartered Accountant in 1996, Yasas worked in the corporate finance department of Deutsche Bank as well as the equity research department of JP Morgan before moving into financial management at FirstRand in 2003. Since then, Yasas has held a number of senior financial management roles at FleetAfrica, a subsidiary of Super Group, and Fuelogic, an associate of Imperial Holdings, before joining Comair as Executive Manager Finance in February 2009. In September 2009, Yasas was made Finance Director of Comair, with overall responsibility for the strategy and functioning of the finance function within Comair. Yasas is also a Non-executive Director of Commuter Handling Services, an associate of Comair. In addition to being a Chartered Accountant Yasas holds a BCompt (Cum Laude), BCompt Honours, MCom, Higher Diploma in Company Law and is a charter holder of the Chartered Financial Analyst Institute.
5. MN Louw (Board) (Age: 58) (BMil) Martin started his career with the SA Air Force (“SAAF”) in January 1973 as a pupil pilot. He spent 22 years in the SAAF as a fighter pilot, flight instructor, staff officer and project officer for airborne weapons systems, rising to the rank of Lieutenant Colonel. In 1994 he resigned from the SAAF and joined Kentron as International Marketer and later IST as Project Manager. He joined Comair as a first officer in 1996 and has since served as Chief Training Captain and Fleet Captain on B727, before becoming an Executive Manager and currently Director: Operations. Martin still flies actively as a captain on the B737.
6. PJ Welgemoed (Audit Committee) (Age: 70) (BCom (Hons); MCom; DCom) In 1971 Peter obtained a Doctorate in Transport Economics at the Rand Afrikaans University. In 1974, he was appointed Professor and Chairman of the Department of Transportation Economics and Director of the Research Centre for Physical Distribution and Transportation Studies at Rand Afrikaans University. Thereafter he served on various boards of directors of companies involved in transportation and banking. In September 1989 he was appointed Deputy Minister of Mineral and Energy Affairs and Public Enterprises. In 1990 he was appointed as a Member of Cabinet, with the portfolio of Minister of
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Notice of Annual General Meeting (continued)
Transport, and in 1992 as Minister of Transport and of Post and Telecommunication. In 1998 he was appointed as the Executive Chairman of the Board of Market Power (SA) in South America. He controlled the daily operations of the Group in Chile, Argentina and Uruguay from the Head Office in Santiago. At present is he is involved in private business through directorships and consultancy.
7. WD Stander (Audit Committee) (Age: 47) (BA (Hons); MBA) Wrenelle Stander joined Sasol Limited in 2008 and was appointed as the Managing Director of Sasol Gas in October 2010. She serves on a number of Sasol subsidiary boards, including Sasol Gas, Sasol Synfuels International and Sasol Group Services. In addition, she serves as an employer representative on the Sasolmed Board of Trustees. Before joining Sasol, Wrenelle served in various capacities within the South African civil aviation industry where she also served as the Chief Executive Officer of the Air Traffic and Navigation Services Company (“ATNS”). Prior to joining the aviation industry Wrenelle served in senior positions in the South African energy NGO sector. She holds a BA (Hons) degree from UCT, as well as an MBA from Oxford Brookes University in the United Kingdom.
8. GJ Halliday (Audit Committee) (Age: 47) Gavin joined British Airways Plc (“BA”) in 1986, working in customer service, operational research and marketing, before joining sales as part of BA’s Global Sales team; he was involved in BA’s launch of e-ticket in 1995. He has since managed sales teams in Miami, the UK, and Latin America; as well as the Asia and Pacific region in 2006, where he was responsible for all sales activity, before joining Europe. He is currently the Area General Manager for BA.
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Share Price Performance
2013 2012
c c
Market price (cents per share) Closing (30 June) 265c 133c High 305c 257c Low 110c 130c
Closing price/earnings ratio 5.6 83.1
Number of shares in issue At year-end (millions) 489 489 Weighted average (millions) 489 489
Volume of shares traded (millions) 38 48
Volume of shares traded to number in issue 7.8% 10.0%
Integrated Annual Report 2013 129 greatnessthe next great step in the evolution of world-class aviation
Shareholder Analysis
Shareholder Spread
No. of Bands % No. of shares % shareholdings
1–1,000 shares 1,767 60.49 526,732 0.11 1,001–10,000 shares 736 25.20 2,652,866 0.53 10,001–100,000 shares 253 8.66 8,485,396 1.73 100,001–1,000,000 shares 118 4.04 35,873,933 7.35 1,000,001 shares and over 47 1.61 441,637,544 90.28 2,921 100,00 489,176,471 100.00
Distribution of Shareholders
No. of Type of shareholder % No. of shares % shareholdings
Banks and brokers 12 0.41 12,030,263 2.46 Medical schemes 7 0.24 1,574,361 0.32 Close corporations 22 0.75 188,485 0.04 Empowerment funds 1 0.03 5,772,615 1.18 Endowment funds 6 0.21 1,160,753 0.24 Individuals 2,554 87.44 15,361,773 3.14 Insurance companies 12 0.41 1,193,022 0.24 Investment companies 8 0.27 4,247,311 0.87 Mutual funds 61 2.09 149,761,831 30.62 Nominees and trusts 94 3.22 6,722,238 1.37 Other corporations 18 0.62 320,694 0.07 Retirement funds 85 2.91 29,108,857 5.95 Private (Pty) companies 40 1.37 256,208,404 52.37 Share trust 1 0.03 5,525,864 1.13 2,921 100.00 489,176,471 100.00
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Beneficial Shareholders Holding 3% or More The following shareholders hold more than 3% of the issued share capital of the Company:
No. of shares % shareholding
* BB Investment Company (Pty) Ltd 126,320,151 25.82 ** Allan Gray 74,495,759 15.23 Britair Holdings Limited 53,966,623 11.03 Innercreek Investments (Pty) Ltd 50,000,000 10.22 Oakbay Investments (Pty) Ltd 22,794,439 4.66 *** Investment Solutions 19,510,302 3.99 **** Oasis 17,643,212 3.61 Total 364,730,486 74.56
* BB Investment Company (Pty) Ltd Bidcorp Group Provident Fund and Pension Fund collectively hold 1,268,492 shares (0.26%), which are independently managed and which are not disclosed in the number above.
** Allan Gray Allan Gray Balanced Fund 24,454,211 (5.00%) Allan Gray Equity Fund 24,442,611 (5.00%) Allan Gray Domestic Equity Portfolio 18,061,800 (3.69%) Allen Gray Global Absolute Portfolio 2,722,003 (0.56%) Allan Gray Life Hedged Domestic Equity Portfolio 2,459,462 (0.50%) Allan Gray Domestic Absolute Portfolio 2,175,672 (0.45%) Allan Gray Relative Domestic Equity Portfolio 180,000 (0.03%) 74,495,759 15.23%
*** Investment Solutions Investment Solutions Funds 12,113,931 (2.48%) Investment Solutions Classic Balanced 2,766,740 (0.57%) Investment Solutions Balanced 1,938,000 (0.40%) Investment Solutions Real Return Focus Fund 1,055,549 (0.22%) Investment Solutions Incubator Pure Equity 1,005,170 (0.21%) Investment Solutions Aggressive Value Equity 308,692 (0.06%) Investment Solutions Relative Product 175,501 (0.04%) Investment Solutions Preservation Provident Fund 68,400 (0.01%) Investment Solutions Institutional Equity 51,166 (0.00%) Investment Solutions Specialist 27,153 (0.00%) 19,510,302 3.99%
**** Oasis Oasis Crescent Equity Fund 16,001,819 (3.27%) Oasis General Equity Fund 1,641,393 (0.34%) 17,643,212 3.61%
Integrated Annual Report 2013 131 greatnessthe next great step in the evolution of world-class aviation
Shareholder Analysis (continued)
The Company concluded a Black Economic Empowerment (“BEE”) transaction during the 2007 financial year, pursuant to which shares equivalent to 15% of the Company’s post-transaction share capital were issued to a BEE consortium known as Thelo Aviation Consortium (Pty) Ltd, led by Thelo Aviation Investments (Pty) Ltd. Thelo Aviation Investments (Pty) Ltd, in addition, purchased 1.5% of the Company’s issued share capital at the time from certain shareholders for cash. Refer to the Circular to Ordinary Shareholders issued on 23 August 2006 for further information relating to the BEE transaction.
Fund Managers Holding 3% or More The following fund managers hold 3% or more of the issued share capital of the Company:
No. of shares % Shareholding
Allan Gray Asset Management 108,312,841 22.14 Oasis Asset Management 23,163,815 4.74 Coronation Fund Managers 18,810,441 3.85 Total 150,287,097 30.73
Public/Non-public Shareholder Spread (Including Resident and Non-resident Shareholding)
Number of shareholders in Number of shareholders other Total shareholders Shareholder type and number South Africa than in South Africa of shares No. of shares % No. of shares % No. of shares %
Non-public shareholders Directors and associates (9) 80,656,566 16.49 80,656,566 16.49
Strategic holdings (more than 10%) BB Investment Co. (Pty) Ltd (1) 126,320,151 25.82 126,320,151 25.82 Britair Holdings Limited (1) 53,966,623 11.03 53,966,623 11.03
Share trusts Comair Share Incentive Trust (1) 5,525,864 1.13 5,525,864 1.13
Public shareholders Resident (2,882) 210,289,917 42.99 210,289,917 42.99 Non-resident (27) 12,417,350 2.54 12,417,350 2.54 422,792,498 86.43 66,383,973 13.57 489,176,471 100.00
132 Integrated Annual Report 2013 Form of Proxy for Annual General Meeting
Comair Limited Registration number 1967/006783/06 Incorporated in the Republic of South Africa ISIN Code: ZAE000029823 Share Code: COM (“Comair” or “the Company” or “the Group”)
The form of proxy is only to be completed by those shareholders who are: • Holding ordinary shares of the Company in certificated form; or • Are recorded on the electronic sub-register in own name dematerialised form.
Shareholders who have dematerialised their shares through a Central Securities Depository Participant (“CSDP”) or broker and wish to attend the Annual General Meeting, must instruct their CSDP or broker to provide them with a Letter of Representation, or they must provide the CSDP or broker with their voting instructions in terms of the relevant custody agreement/mandate entered into between them and the CSDP or broker.
Shareholders are requested to lodge their forms of proxy or to post same to the Company’s Transfer Secretaries to be received not later than 48 hours (excluding Saturdays, Sundays and public holidays) before the time appointed for the holding of the Annual General Meeting, being Wednesday, 30 October 2013 at 13h00. Nevertheless, forms of proxy may be lodged at any time prior to the commencement of voting on the resolutions at the Annual General Meeting. Any shareholder who completes and lodges a form of proxy will nevertheless be entitled to attend and vote in person at the Annual General Meeting.
I/We (BLOCK LETTERS) ______of (address)______
Telephone: (Work) (area code)______Telephone: (Home) (area code)______being a holder of ______certificated shares and ‘own-name’ dematerialised shares of the Company and entitled to ______votes, hereby appoint (see note 1):
(Please print) 1. ______or failing him/her 2. ______or failing him/her 3. the Chairman of the Annual General Meeting as my/our proxy to vote for me/us at the Annual General Meeting which will be held for the purpose of considering, and, if deemed fit, passing, with or without modifications, the resolutions to be proposed thereat and at each adjournment or postponement thereof, and to vote for/or against the resolutions and/or abstain from voting in respect of the shares in the issued share capital of the Company registered in my/our name/s (see note 2) as follows:
Number of votes For Against Abstain Ordinary Resolutions 1 to 4 1 Consideration of the Annual Financial Statements 2 Re-appointment of external auditors 3 To re-elect the following Directors: 3.1 JM Kahn 3.2 RS Ntuli 3.3 KI Mampeule 3.4 RY Sri-Chandana 3.5 MN Louw 4 To elect the following Directors to the Audit Committee: 4.1 PJ Welgemoed 4.2 KI Mampeule 4.3 WD Stander 4.4 GJ Halliday 5 Non-binding endorsement Non-binding endorsement of Company’s remuneration policy Special Resolutions 1 to 4 6 Approval of Non-executive Directors' remuneration 2012/13 7 Approval of Non-executive Directors' remuneration 2013/14 8 General authority to repurchase shares 9 General authority to provide financial assistance to related and inter-related companies and corporations Ordinary Resolution No. 5 10 Authorisation for Company Secretary or any other Director to sign necessary documents to give effect to resolutions and generally to act as my/our proxy at the said Annual General Meeting. (Please indicate with an ‘X’ whichever is applicable. If no direction is given, the proxy holder will be entitled to vote or abstain from voting as the proxy holder deems fit.)
Signed at ______on this ______day of ______2013
Signature/s assisted by me (where applicable)
Each shareholder is entitled to appoint one or more proxies (who need not be a shareholder/s of the Company) to attend, speak and vote in place of that shareholder at the Annual General Meeting.
Please read the notes on the reverse side hereof Notes to the Form of Proxy
1. A certificated shareholder or ‘own-name’ dematerialised shareholder may insert the names of two alternative proxies of the shareholder’s choice in the space provided, with or without deleting ‘the Chairman of the Annual General Meeting’. The person whose name appears first on the form of proxy and whose name has not been deleted will be entitled and authorised to act as proxy to the exclusion of those whose names follow.
2. A shareholder’s instructions to the proxy must be indicated by the insertion of an ‘X’ in the appropriate box provided. Failure to comply herewith will be deemed to authorise the proxy to vote or to abstain from voting at the Annual General Meeting as he/she deems fit in respect of all the shareholder’s votes exercisable thereat. Where the proxy is the Chairman, such failure shall be deemed to authorise the Chairman to vote in favour of the resolutions to be considered at the Annual General Meeting in respect of all the shareholder’s votes exercisable thereat.
3. The completion and lodging of this form will not preclude the relevant shareholders from attending the Annual General Meeting and speaking and voting in person thereat to the exclusion of any proxy appointed in terms hereof, should such shareholder wish to do so. Forms of proxy should be lodged with or posted to the Company’s Transfer Secretaries to be received not later than 48 hours before the Annual General Meeting, being Wednesday, 30 October 2013 at 13h00. Nevertheless, forms of proxy may be lodged at any time prior to the commencement of voting on the resolutions at the Annual General Meeting. Any forms of proxy not received by this time must be handed to the Chairman of the meeting immediately prior to the meeting.
4. The Chairman of the Annual General Meeting may accept or reject any form of proxy which is completed and/or received other than in accordance with these notes and instructions, provided that the Chairman is satisfied as to the manner in which the shareholder wishes to vote.
5. Documentary evidence establishing the authority of a person signing this form of proxy in a representative or other legal capacity such as a power of attorney or other written authority must be attached to this form, unless previously recorded by the Transfer Secretaries of the Company or waived by the Chairman of the Annual General Meeting.
6. The Chairman shall be entitled to decline to accept the authority of a person signing the proxy form:
(a) Under a power of attorney; or (b) On behalf of a Company,
unless that person’s power of attorney or authority is deposited with the Transfer Secretaries of the Company as set out in note 3 not less than 48 hours before the holding of the Annual General Meeting.
7. An instrument of proxy shall be valid for any adjournment or postponement of the Annual General Meeting, unless the contrary is stated therein, but shall not be used at the resumption of an adjourned Annual General Meeting if it could not have been used at the Annual General Meeting from which it was adjourned for any reason other than that it was not lodged timeously for the meeting from which the adjournment took place.
8. A vote cast, or act done in accordance with the terms of a form of proxy, shall be deemed to be valid notwithstanding:
(a) The previous death, insanity or any other legal disability of the person appointing the proxy; or (b) The revocation of the proxy; or (c) The transfer of a share in respect of which the proxy was given,
unless notice as to any of the above-mentioned matters shall have been received by the Company care of its Transfer Secretaries as set out in note 3, or by the Chairman of the Annual General Meeting if not held at the principal place of business of the Company, before the commencement or resumption (if adjourned) of the Annual General Meeting at which the vote was cast or the act was done or before the poll on which the vote was cast.
9. A minor must be assisted by his/her parent or guardian, unless the relevant documents establishing her/her legal capacity are produced or have been registered by the Company’s Transfer Secretaries.
10. Where shares are held jointly, all joint holders are required to sign the form of proxy.
11. Any alteration or correction made to this form of proxy must be initialled by the signatory/ies. Administration
Registered office 1 Marignane Drive Bonaero Park Kempton Park 1619
Principal place of business 1 Marignane Drive Bonaero Park Kempton Park 1619
Group Company Secretary DH Borer 1 Marignane Drive Bonaero Park Kempton Park 1619 E-mail: [email protected]
Transfer secretaries Computershare Investor Services (Proprietary) Limited Ground floor 70 Marshall Street Johannesburg 2001 (PO Box 61051, Marshalltown, 2107) Comair Limited Integrated Annual Report 2013
Incorporated in the Republic of South Africa Registration number: 1967/006783/06. Share code: COM. ISIN code: ZAE000029823. (“Comair” or “the Company” or “the Group”)