Annual Report 2016 About this report

SCOPE AND REPORTING CYCLE This is the Annual Report for South African Express SOC SA Express Mandate 04 Limited, a State-Owned Company (SOC), and provides SA Express Strategy 05 Route Network 06 an overview of SA Express’ overall performance for the Network Strategy and other Initiatives 07 reporting period 1 April 2015 to 31 March 2016. This report KEY RESULTS 08 is available on the www.fyexpress.aero website. On Time Performance (OTP) & Customers 08 Revenue & Net Profit 09 OUR LEADERSHIP 12 Board Members 12 STRUCTURE OF THIS REPORT Governance Report is guided by the King Executive Management 14 This report addresses the Company’s Report on Governance (King III). Chairman's Report 16 performance in terms of its strategic 8 objectives, statutory mandate, the SAX This report contains all strategic, fnancial Chief Executive Note 1 and operational matters that had the 22 20/20 Vision Strategy and the Austerity Chief Financial Officer’s Statement Measures Plan. The report covers the greatest impact on the airline’s year-todate SUSTAINABILITY REPORT 26 performance in terms of the Company’s performance. Sustainability Performance 26 four objectives in terms of the SAX 20/20 Vision Strategy and the Austerity The report aims to provide the Department Key Environment Sustainability 27 of Public Enterprises, the National 27 Measures Plan, namely: Key Developments in 2015/16 Treasury and the general public, with a full INTERNAL CONTROL AND RISK 36 Q Leverage state capabilities to improve understanding of the various signifcant risks and opportunities the airline has Internal Control and risk 36 sustainability and economic viability; 36 Q Improve collaboration, through deeper faced in the year under review. The annual Risk Management Process integration and increased trade with report also includes the Shareholder Internal Control System 36 its regional trade partners in Africa; Compact and performance to targets Risk Categorisation 36 Q Lower the cost of doing business; and contained in the Compact and these are Q Service delivery. addressed in detail within the document. ERM Process -in brief 36 Furthermore, the airline, as an SOC, Risk Profile 37 The Report is broadly divided into six has a dual mandate and it is important SA Express ERM Goals 38 subcategories, namely: that it achieves both the fnancial and Fraud Prevention Plan 39 a) About SA Express; developmental mandates respectively. It is important to SA Express’ existence Ethics 39 b) Internal Controls and Risk Management; that the airline ensures sustainable value Legal Compliance 39 c) Sustainability; creation for its stakeholders in the short Aviation Specific Internal Controls 39 d) Corporate Governance; and long term. CORPORATE GOVERNANCE e) Auditor-General’s Report; and 42 The report also aims to provide an Interaction between the board and shareholder f) The Annual Financial Statements. 42 understanding of the various signifcant Board of Directors 42 All six categories are complementary. economic, social and environmental Board meetings 43 risks and opportunities that the industry Audit and Risk Committee 44 faces, in the short and medium term REPORTING PRINCIPLES respectively. It further demonstrates Human Resources, remuneration and 45 The 2015/16 Annual Report is prepared in the Company’s unique response in Transformation Committee accordance with International Financial mitigating the above-mentioned risks Safety and Security, Health Environment and Reporting Standards (IFRS) and the and ensures that the airline continues 45 Financial Reporting Guides issues by Quality Committee to be regarded as a sustainable entity the Accounting Practices Committee. (in terms of environmental and human Social and Ethics Committee 46 The Sustainability Report is prepared capital sustainability). Procurement Committee 46 in accordance with the Sustainability Human Resources Committee Reporting Guidelines of the Global 47 Reporting Initiative. The Corporate ANNEXURES Annexure A: Strategic Deliverables 52 Annexure B: Financial Performance 57 Annexure C: Operational Performance 58 Annexure D: Social Impact 58 Annexure E: Economic Impact 58 Annexure F: Energy Efficiency 60 ANNUAL FINANCIAL STATEMENTS

SA Express 1 About this report continued

Additionally, the report highlights the for ensuring the airline operates daily with airline’s focus on environmental a focus on safety and comfort; our various sustainability as well as profling SA suppliers, who form an integral part of the ability of the Company to fy; Government Express as a leader in transformation and regulatory and industry bodies, since the human capital development, as aligned with industry in which the Company operates the Shareholder’s development mandate. is subject to extensive government and regulatory oversight; and the South African OUR STAKEHOLDERS public, who are our key shareholders. The Company, as a strategic asset of the Republic of South Africa, reports to the Shareholder’s representative, the RISK MANAGEMENT The Company follows a comprehensive and Minister of Public Enterprises and is integrated risk management process where committed to the founding mandate of the identifcation and management of risk the airline and to the Preamble of the SA forms part of the Executive Management Express Act of 2007. The Mandate of the business plan. The Board, through the Audit Leverage state capabilities airline is to offer seamless air travel and to and Risk Sub-Committee of the Board, to improve sustainability and offer connectivity to secondary and main actively monitors this process. airports while being a feeder airline to the economic viability national carrier, South African Airways (SAA). SIGNIFICANT EVENTS DURING In addition to domestic operations, the THE REPORTING PERIOD airline is mandated to ensure No signifcant changes regarding the size connectivity and economic growth in of the Company, its structure or ownership, the region, thus its commitment to occurred during the reporting period operating in fve of the Southern African compared to previous fnancial years. Hence Improve there are no signifcant changes from Development Community (SADC) collaboration, previous reporting periods with respect to countries, namely: Botswana, the scope, boundary, or measurement Austerity through deeper Namibia, Zambia, Zimbabwe and the methods applied in this report. Democratic Republic of Congo. measures integration and THE COMPANY FOLLOWS plan increased trade A COMPREHENSIVE The Company’s commitment to its EXTERNAL AUDIT AND SAX with regional AND INTEGRATED RISK stakeholders is to conduct its business in ASSURANCE 20/20 partners in Africa MANAGEMENT PROCESS a sustainable and responsible manner and The Annual Financial Statements on pages to respond to their respective needs as 72 to 101 are audited by the Auditor- WHERE THE IDENTIFICATION effectively and timeously as possible. The VISION AND MANAGEMENT OF General of South Africa, in accordance with nature of the airline business implies a International Standards of Auditing and RISK FORMS PART OF THE close relationship with its stakeholders, IFRS. EXECUTIVE MANAGEMENT which comprises – but are not limited to – those customers whom we fy, with a BUSINESS PLAN. commitment to safe, secure and reliable service; our employees, who are responsible Service Lower the cost of delivery doing business

Pursuant to the 2013 SA Express turnaround Q Foster performance excellence through strategy - the SAX 20/20 Vision Strategy, the development of people, skills and jobs; aligned to the South African Airways’ long Q Become a catalyst for key developmental term turnaround strategy (LTTS) and the state objectives, including the Austerity Measures Plan – the Company has, development of infrastructure, the in the period under review, entered into facilitation of trade and the growth of an annual Shareholder Compact with the the tourism industry; and Shareholder Oversight Department and has Q Expand the airline’s services throughout agreed that the airline would focus on the Africa. following strategic priorities: SA Express has delivered against the Q Consolidate and cement its business majority of these priorities during the model, which predominantly was that of 2015/16 fscal year. The Company will a regional carrier, with a strong focus on continue to ensure that the airline is business travel; prudent in all its commercial endeavours. Q Be a sustainable, well managed and proftable airline; Q Provide consistent and effcient customer service;

2 SA Express SA Express 3 Who we are and what we do

THE SA EXPRESS STRATEGY

SA EXPRESS AT A The Long Term Strategy is called the SAX 20/20 vision and is aligned to SAA’s Long Term Turnaround Strategy (LTTS), in support SA EXPRESS MANDATE GLANCE of the’ Whole of State Aviation approach’, At the core of the issues identifed are issues relating to: • Collaboration with SAA and Star Alliance, SA Express’ statutory mandate, as a strategic asset to the Republic of South • The single feeder regional airline to SAA, Africa, is defned in the preamble of the SA Express Act and • Optimised extensive network, the Strategic Intent Statement 2016-19 as follows: Our PURPOSE is to be: • The right feet for the region, • An integrated, sustainable • Technical as a proft centre and critical revenue stream and Q PROVIDE transportation of passengers, cargo and mail, air regional airline connecting • Adequate funding with suitable cash. charters and other related aviation services; secondary and main Q PROMOTE frequency of services on lower-density routes; and airports. All the above-mentioned issues cannot be resolved by SA Express in isolation without collaboration with SAA and therefore, the Q EXPAND regional air services capability in South Africa, the African two companies and their Shareholder representatives are working together to ensure that the strategies are implemented to continent and surrounding islands. improve Shareholder value.

Another challenge that faced SA Express was due to a lot of new competition that entered into some of its biggest markets. Our VISION is to be: This forced SA Express to take action including reviewing its pricing structure to keep those price sensitive customers as well as • A world-class regional developing a detailed decision making matrix which includes processes for assessing and remedying loss making routes, and airline with an extensive determines the introduction of new routes or withdrawal of air services on an existing routes. footprint in Africa. Complementing this strategy is the Cost Containment Plan and the Austerity Measures Plan, which are aimed at addressing the immediate fnancial sustainability of the airline. The Plan addresses cost line items like catering, passenger handling, fuel and optimising schedules.

BRAND PROMISE Some of the successes relating to the 20/20 vision were based on SA Express going into partnerships with some of the Provincial We fy for you. entities. We are a team. We go further together. YOU, our valued SA Express engaged SAAT and is working with Denel and is exploring the possibility to fully introduce a passengers are people, not Maintenance Repair and Overhaul (MRO) facility for the country as South Africa is in need for a state of the art MRO facility. SA EXPRESS OVERVIEW and Timing of fights), affords consumers a merely numbers. Our service SA Express was established on 24 April unique and convenient service. The FACT is personalised. We are SA Express since the inception of the strategy has been seen as the incubator for leading transformation in the aviation sector 1994, on the eve of South Africa’s new Principle enhances South Africa’s prospects caring in our relationships; and has used the Cadet Pilot and the Technical Apprenticeship training programmes as vehicles to achieve transformation within democratic dispensation. As a regional as a preferred air travel destination, and a we care for our passengers the industry. airline, SA Express offers seamless major trade and tourism hub. with a personal touch. It is These programmes have successfully created a career path for Pilots and Technicians. Historically, pilots from SA Express who connectivity between primary and secondary important for us to talk to have qualifed through the Cadet Programme, have been absorbed into SAA as direct entry pilots. In April 2015, another six SA domestic and regional destinations in The vision of SA Express, supported by its our passengers and for them Express cadets joined SAA as pilots whilst another six black pilots joined Mango by mutual agreement. South Africa and fve SADC countries. The aspirations and strategy, is underpinned to talk to us. Company’s head offce is based at Airways by its core values and unique selling In the fnancial Year 2015/2016, SA Express has contributed towards the unlocking of potential SMME’s by Park, Jones Road, Kempton Park. propositions that drive proftability. In spending a total of R1, 5 Billion on the procurement of goods and services and 35% of this amount which pursuit of its mandate, SA Express aims to represent R525 000 was spent locally. With 22 years of service and 22 aircraft, the facilitate the lowering of the cost of doing airline has in the fscal period under review business in South Africa by providing VALUES operated approximately 3 000 fights per affordable air services within benchmarked Q We never compromise on month, carrying in excess of 1.3m standards. The airline is continuously SAFETY, no matter what. seeking opportunities for growth and passengers per annum. The objectives of the Q We deliver with SPEED Company are to provide transportation of partnerships within the region, in order to without compromising passengers, cargo and mail, air charters and expand its route network. QUALITY. other related aviation services, as well as Q We strive for continuous to promote frequency of services on lower This Annual Report highlights the key improvement. density routes; and to expand regional air achievements and opportunities to Q Our CUSTOMERS are our services capability within the Republic and operationalise the strategy and vision of the most important investors. airline. to the African continent. Q We partner with people across all operations. The improvement of intra-Africa travel is Q We keep it SIMPLE. aligned to the Airlift Strategy of the State, aiming to increase aviation’s contribution towards sustainable economic growth and job creation. The fexibility and reliability presented by the airline’s ‘FACT Principle’ (Frequency, Availability, Competitive price

4 SA Express SA Express 5 Who we are and what we do continued

NETWORK STRATEGY AND However, the potential revenue that could secondary routes domestically and within be realised as a result of this increase in the SADC region. These low cost airlines OTHER STRATEGY INITIATIVES passenger numbers is absorbed by lower focus on point-to-point traffc operating Network planning lies at the heart of any revenue margins. Average global fares fell from ACSA airports. They offer an ROUTE NETWORK airline’s operation. Creating a successful by approximately 12% in 2015 compared to all-economy class product with a and sustainable network strategy is a 2014 (excluding taxes, fees and surcharged). high-density confguration in an attempt to crossfunctional undertaking that relies on IATA further postulates that adjusting for lower prices to drive high load factors. Fares highly skilled experts supported by a the currency effect, global fares were on are generally lower than those of the legacy sophisticated methodology and multiple average 4.5% lower than in 2014 (and down carrier groupings and there is a heavy data sources. As a result, SA Express follows 6.2% year-on-year in January). This trend reliance on ancillary revenue so as to keep a structured approach to route forecasting of shrinking average fares, coupled with the advertised price as low as possible and using a range of data sources relevant to the the volatile exchange rate meant that the allow the customer to choose which task, as well as global industry trends. When South African aviation industry was further additional products (hold baggage, used together, these combined factors not adversely aected. pre-seating and travel insurance) are of only allow the Company to identify demand value to them. for any potential route, both point-to-point Locally, the aviation landscape has been and all possible connections, but consider affected by economic uncertainty. Although SA Express connects 24 city pairs the best gauge for the region, and the fuel costs have decreased, driving down (19 domestic and 5 regional) and operates protability of the route. direct operating costs, the following approximately 3000 fights per month over challenges among others persist: domestic hubs in Johannesburg, Cape Town With 22 years’ experience in the South and Durban. African aviation industry and a proven safety Q Regulated costs from Airports Company and performance track record, SA of South Africa (ACSA) and Air Trac New markets Express services both the domestic and Navigation Services are high, adding regional markets. The Company continues to In the period under review, SA Express pressure to direct operating costs; consolidated its services in order to focus on its founding mandate of providing Q Passenger demand is decreasing due to connectivity to secondary markets. adequately service its existing network, with low uptake; expansion services being explored as part of Furthermore, it continues to focus on Q Uncertainty relating to unfavourable increased intra-Africa connectivity that is the new regional initiative to deploy current legislation in the international inbound equipment in order to increase utilisation fully aligned to the State’s Airlift Strategy, market; aiming to increase the aviation industry’s in anticipation of increased yields. The Q Cost cutting on travel from corporate envisaged deployment of larger regional contribution towards economic growth and and government departments has job creation. jets will allow for optimum payload contributed to lower than forecast availability. There are currently plans to passenger travel; and include two new routes in 2016/17, one The Key Objectives of the Network Plan are: Q The South African market has seen the Q Schedule optimisation – build optimal domestic and one regional, in line with the entrance of more low cost carriers in the short and long term strategies outlined in schedules and improve aircraft and feet last two years, intensifying a price war utilisation against different demand levels, this document. The focus will be on growth with legacy carriers as customers seek in tactical markets in the short term and operating costs and passenger spills; cheaper travelling options. Q Network growth – optimise route investment markets in the long term. network in all hubs to maximise connections and revenue; and Competitors Q Protability forecasting – evaluate Despite the challenges faced by the global potential protability of dierent aviation industry, such as rising operating forecasted routes based on network costs, exchange rate fuctuations, fuel costs growth. and airport operating costs; competitors have not been deterred from entering the The current domestic and regional network aviation industry, notwithstanding recent of SA Express consists of 24 routes with 19 failures of some commercial operators. domestic and fve regional routes. The past fnancial year has seen airlines such as Skywise (domestic) and FlyAfrica INDUSTRY OVERVIEW (regional) cease operations. At the same The aviation industry, globally, has time new entrants, Fly Safair and Cemair, experienced unstable performance, with expanded their domestic operations, and the International Air Transport Association Fastjet invested in a regional hub in Harare. (IATA) having initially forecast reasonable SA Express has seen new competitors industry growth across its regions and later increasingly operating on routes previously revising these forecasts downwards. This is dominated by SA Express. detailed in the IATA Airline Industry Forecast 2015-2018. This industry outlook for system Low cost carriers have continued to expand wide passenger growth foresees passenger and now compete directly with mainline and numbers expanding by an average of 5.3% regional carriers operating on primary and per annum between 2016 and 2018.

6 SA Express SA Express 7 Key results

Key results 2016 Revenue (billions) Net proft/loss (millions)

2015/16 2014/15 3.0 The revenue has 10 The three-year Cost 16.95 Containment and Revenue 2.56 2.59 decreased by Financial results 2.39 0 Enhancement Programme 2.5 7%, in line with Revenue ( billion) Operating 2.39 2.59 the passenger of austerity measures proft/(loss) (R million) Net 269 175 numbers. -10 implemented in the 2.0 2013/14 fscal period has proft/(loss) (R million) 16.95 (69) (69.3) Key fnancial -20 produced encouraging results and are currently Operating proft margin (%) 11 7 1.5 Operating statistics meeting the majority -30 of the airline’s short Passenger carried (million) 1.310 1.409 1.0 to medium term goals. Passenger load factors (%) 64 62 -40 In the period under review, the Company 0.5 -50 has declared a net proft of 21m after tax, and these (14.1) 0.0 -60 positive results are set to On-time performance (OTP) (%) 2014 2015 2016 2014 2015 2016 continue into the next fnancial year.

100 SA Express achieved an 87.46% On Time Performance (OTP) for the fnancial 88.00 88.00 87.46 year under review.

80 The Company will continue to implement improved business processes that Operating proft and loss (millions) Number of employees focus on customer interface as a core function. SA Express has prioritised employee training in operational areas, harnessing critical skills and optimising 60 the positive staff resources. Schedule optimisation continues to have optimal 250 The operating 1 188 269.55 1 200 impact on the airline’s OTP through effective delay management and proft has shown 1 127 The number of maximising aircraft utilisation. a tremendous 1 036 employees has 200 40 improvement 1 000 decreased due to the compared to last austerity measures 150 175.8 year. This is due to in place as well as 20 austerity measures 800 the human capital implemented. The initiatives to match 100 operating proft 600 the right people with 0 grew by 148% the right skills to the 2014 2015 2016 right position. 50 (25.4) compared to last year. 400 -50 200

-100 2014 2015 2016 0 2014 2015 2016 Customers (millions) Load factors (%)

1 494 1 500 1 409 The customer numbers dropped 80 1 310 by 7% compared to last year. 70 This drop is due to scheduled 64 64 1 200 capacity reduction that were 62 effected as part of the Austerity 60 Measures Plan. The plan was 50 900 aimed at improving customers carried per fight as depicted 40 by the load factors graph 600 alongside. The load factors 30 improved from 62% to 64%. 20 300 10

0 0 2014 2015 2016 2014 2015 2016

8 SA Express SA Express 9 Our Leadership

10 SA Express SA Express 11 Our leadership

SHAREHOLDING SA Express is 100% owned by the South African Government

Ms B Dibate Ms G Sibiya Ms N Nkabinde Non-Executive Director Non-Executive Director Non-Executive Director

Qualifcations Qualifcations Qualifcations BA Social Science, BA Honours in Clinical BCom, BAcc, Post Graduate Diploma in BCom (Accounting), Advanced, Executive BOARD MEMBERS Psychology and MSc in Clinical Psychology Accountancy CA(SA) Programme MBL, SBL (UNISA) The Board, as appointed by the Minister of Public Enterprises, is guided by and complies with the provisions of: the Companies Act, the Protocol, the Founding Documents, the Signifcance and Materiality Framework, the Strategic Intent Statement and the Public Finance Management Act, as Membership Accreditation Membership well as any other legislation, regulations, guidelines, instruction notes and/or directives issued by the National Treasury and/or the Shareholder Chairperson of the Social and Ethics Registered Quality Assessor (IIASA) Member of the Audit and Risk Committee, representative as shall be considered by the Board. Committee, Member of the Audit and Risk Member of human resources, remuneration Committee, Member of the Human Membership and transformation committee, Member of Members of the SA Express Board are listed below Resources, Remuneration and Chairperson of Audit and Risk Committee, Safety, Security, Health, Environment and Transformation Committee, Member of the Member of Safety, Security, Health, Quality Committee Procurement Committee Environment and Quality Committee, Member of Social and Ethic Committee Experience Profles of Board Members Experience Finance, Aviation, Strategy and Leadership Held various Executive positions, Former Membership: SAICA, IIASA and IODSA Held executive positions at SAB, ESKOM, SA Express CEO, former Esselenpark Centre Uthingo (Pty) Ltd, Barclays International , of Excellence CEO, Former Chairperson Experience SAA and Sebenza FS. of Tourism Business Council of SA and Finance and Audit. Eastgate Airport. Board Member of the University of Pretoria, President of the Business Women Association.

Mr G Mothema Mr V Xaba Mr M Shelley Chairperson and Chief Executive Offcer and Chief Financial Offcer and Independent Non-Executive Director Executive Director Executive Director

Qualifcations Qualifcations Qualifcations B Proc. National Diploma: Chemical Engineering BCompt (Hons) (CTA) UNISA, CA(SA) (Tshwane University of Technology) Experience Diploma: Project Management (Rosebank Accreditation Mr T Abrahams Dr R Naithani Mr P Ramosebudi Corporate Governance, Board Experience, College) Registered Chartered Non-Executive Director Non-Executive Director Non-Executive Director Former Company Secretariat Executive at Diploma: Advanced Project Management Accountant and Auditor SA Express and SAA, previously SA Post (Damelin College) Qualifcations Qualifcations Qualifcations Offce Chairperson, and with experience in Statistical Process Control For Managers Experience MA in Sociology (Political Economy), BA PhD (Pharmaceutical Chemistry) BSc in Physics and Chemistry, Certifcate Programme Aviation and Commuter Transport sectors. (Tshwane University of Technology) 10 years consulting in Finance, previously Hons in Psychology, BA MBA (Stuart: Strategy and Marketing) in Mathematical Modelling of Derivatives (UNISA), B-TECH: Quality (Tshwane University of VicePresident - Finance at SAA (1998-2005). MBA (UP) in Financial and Investment Management Technology) First to hold a seat on behalf of SAA at Membership Membership IATA in the Finance Committee and has Chairperson of the Safety, Security, Health, Chairperson of the Human Resources and Accreditation Experience held other Senior Management positions in Environment and Quality Committee, Remuneration Committee, Member of the MIFM (South African Institute of Financial During his 17 year tenure with Denel he other organisations. Member of the Procurement Committee, Safety, Security, Health, Environment and Markets) Certifed Financial Risk Management (FRM) has helped position Denel Aerostructures Member of the Social and Ethics Quality Committee, Member of the from Global Ass. of Risk Professionals (GARP), USA (SOC) Ltd as a leader in the African Committee Procurement Committee aerospace industry. Has a strong skills set Membership comprising strategic management, Experience Experience Chairperson of the Procurement Committee, Member continuous improvement strategies, Aviation Safety and Security, Academia and Science Medicine and Academia. of the Audit and Risk Committee, Member of the operational excellence programmes, Strategy. Administration, Human Resources, Social and Ethics Committee business development strategies, Academia, Policy design, strategy and aerospace market intelligence and marketing Experience incubating new business models. Finance, Risk Management, Aviation, Freight and Rail, Academia, Stock Broking and Housing Infrastructure.

12 SA Express SA Express 13 Our leadership continued

EXECUTIVE MANAGEMENT The Executive Management team is comprised of seven (7) individuals, who all hold appropriate qualifcations and experience. All members have extensive aviation business knowledge and skills set.

Profles of members of the Executive Management Mr D Allanby Mr P Mashaba Ms M (Chueu) Mochoele General Manager: Operations General Manager: General Manager: Legal, Risk and Technical Maintenance and Engineering Compliance Appointment date 1 April 2009 Appointment date Appointment date 1 December 2010 20 January 2014 Qualifcations Qualifed Pilot Resignation date Qualifcations 29 February 2016 BProc., admitted Attorney of the High Court Airlines’ Compliance to Civil Aviation in Good Standing. Holds a Management Legislation and IATA standard operating Qualifcations Development Certifcate from University of procedures. Flight deck and cabin crew A Masters Degree in Aviation Safety Pretoria and a certifcate in Management of administration including training. He has and Aircraft Airworthiness from ENAC and Aviation Quality and Service from IATA. broad aviation experience: eight years as ENSICA University in France, and is Chief Pilot of Gencor Aviation; eight currently completing a PhD in Management Previously worked at the SACAA as a Senior years at SAA and other Senior Management of Technology and Innovation. Legal Advisor, former Director of Safety and positions in various entities. He is Principal Security at the Department of Transport. Offcer of the Pension and Provident Fund Ensure the safety of the airline She joined SA Express with her most recent and lead negotiator in annual union salary through compliance with Civil assignment as Gautrain Management Mr V Xaba Mr I Ntshanga Mr M Shelley reviews. Aviation Authority (CAA) regulations and Agency as the Executive Manager Compli- Chief Executive Offcer and Chief Executive Offcer Chief Financial Offcer international standards set by IATA. ance. She has international law experience, Executive Director representing South Africa on the ICAO Appointment date Appointment date His 15 years experience in the aviation Legal Committee, including various Appointment date 19 January 2010 22 May 2015 industry includes working at the SACAA sub-groups and commissions. 10 April 2017 to oversee safety of commercial aircraft Resignation date Qualifcations operators. Responsible for preparing South Qualifcations 31 March 2017 BCompt (Hons) (CTA) UNISA, CA(SA) Africa for state civil aviation safety audits National Diploma: Chemical Engineering conducted by the International Civil (Tshwane University of Technology) Qualifcations 10 years consulting in fnance, previously Aviation Organis ation (ICAO) and Federal Diploma: Project Management (Rosebank BA Economics (Harvard), Global Executive Vice President - Finance at South African Aviation Administration (FAA) in 2007. College) Development and Board Leadership Airways between 1998 and 2005. First to Diploma: Advanced Project Management Programme (GIBS). hold a seat on behalf of SAA at IATA in the (Damelin College) Finance Committee and has held other Statistical Process Control For Managers 18 years Aviation experience has held Senior Management positions in other (Tshwane University of Technology) senior leadership and positions in the organisations. B-TECH: Quality (Tshwane University of private sector. Currently the Chairperson Technology) and Member of the Executive Committee of AASA, has served as the First Vice During his 17 year tenure with Denel he Chairperson of the Executive Committee of has helped position Denel Aerostructures African Airlines Association for three years. (SOC) Ltd as a leader in the African He also holds Board Membership in other aerospace industry. Has a strong skills entities. set comprising strategic management, Mr B van Wyk continuous improvement strategies, General Manager: Commercial Ms K Nkala operational excellence programmes, General Manager: Human Capital business development strategies, Appointment date aerospace market intelligence and 1 November 2013 Appointment date incubating new business models. 1 November 2013 Resignation date Qualifcations 30 September 201 6 BSoc.Sc (Social Sciences), Honours in Industrial Relations, PostGrad in Personnel Qualifications Management from University of Natal. BCom Acc. (Hons), CTA from University of AdvCert in Project Management. Natal Accounting, Finance, Tax, Management Human Capital Management, including Accounting, Strategy and Business various specialisations in Learning and Management, Sales and Marketing. He has Development, Organisational Design and held numerous Managerial positions in the Development. She has held various private sector prior to joining SA Express. managerial, positions in 14 years in the aviation industry.

14 SA Express SA Express 15 Our leadership continued

CHAIRMAN’S REPORT

As another fnancial year comes to a close, Q A safe, reliable, competitive airline; I am pleased to report that we have Q An integrated, sustainable regional continued to grow and make great strides in airline connecting secondary and main connecting smaller cities to economic hubs, airports; and both in South Africa and across Southern Q Attracting, retaining and developing Africa. skills in key areas and contributing to the transformational goals of the As it stands, air transport to, from and country. within South Africa creates unparalled economic benefts for the African continent. OPERATIONS AND THE ROLE According to IATA, the connections created between cities and markets are an OF THE BOARD important infrastructure asset that The Board, in accordance with the terms generates benefts by enabling foreign direct of National Treasury regulations, submits investment, business clusters, specialisation quarterly reports on performance (including and other spill-over benefts that impact on the LLTS implementation progress) an economy’s productive capacity. against the Shareholder’s Compact to the Shareholder, and represents SA Express IATA reports that the aviation sector annually in engaging with Parliament. represents 2.1% of South Africa’s GDP, which Strategic issues that concern the airline’s national development mandate as well as the net loss of the 2014/2015 fnancial year. At SA Express we appreciate amounts to ZAR 50.9bn. There are currently As the airline continues to employ the SAX The audit report for the fnancial year more than 156 000 domestic fights, which aviation policy framework, as identifed on the LTTS for a successful State-Owned airline 20/20 Vision and Austerity 2015/16 was delayed as a result of the that our people and their denotes 17 million seats available to Measures Plan, it will continue to strive to going concern assessment as well as the passengers annually, destines to 17 airports. and as designated in the Shareholder’s Com- dedication to going above and pact as a key strategic initiative, are regularly achieve the fnancial stability and fnancial essential changes to the guarantee. performance targets. We are proud to beyond in their day-to-day In the period under review, SA Express grew discussed during Board meetings. It is the Board’s responsibility to convey the announce that while the Company has not In line with the transformation goals of its route network to include fights between achieved all its fnancial performance and the Shareholder, our Broad-Based Black roles, is central to our Johannesburg and Pilanesberg; Cape Town interests and concerns of the airline in this complicated arena. sustainability indicators, our operational Economic Empowerment (B-BBEE) status is success in delivering on our and Pilanesberg, as well as Johannesburg to performance KPIs have all been achieved. currently at level 5. Mahikeng. This means that we have improved our SAX 20/20 Vision. PERFORMANCE ACCORDING operational effciency and customer OUR PEOPLE THE AIRLINE INDUSTRY TO OBJECTIVES centricity. The aviation sector supports an estimated complete their frst year of study. The global aviation industry has its share 227 000 jobs in South Africa and SA Express of operating challenges. These include has been a proud partner in South Africa’s Training and skills development is a major fuctuating exchange rates, volatile fuel Financial performance COMPLIANCE AND priority as it enables the Company to SA Express’ mandate to its Shareholder runs growing democracy over the past 22 years. prices and growing competition, which provide a quality service to our customers. deeper than sound fnancial and operational GOVERNANCE We have consistently focused on developing means that SA Express has had to be During the period under review, we spent in performance. We are required to build a We are equally dedicated to ensuring that and nurturing people from within our own innovative in order to mitigate these excess of 5.1% of payroll in support of our stronger economy and a more equitable Corporate Governance within SA Express organisation and have introduced a number challenges and to improve operational training and skills development initiatives. society while protecting our natural remains of the highest quality. Ongoing risk of human capital initiatives, among which effcacy. environment. However, among our management is a priority for the Company is our ‘Mentorship Programme’ where junior strategic objectives are goals such as and it is extensively monitored by the Audit staff are given the opportunity to shadow APPRECIATION A consistent theme across the global airline capital and fnancial effciency and and Risk Committee. Corporate Governance managers in other departments in order On behalf of the Board I would like to industry is one of poor returns on commercial and operational effcacy. Despite and risk management within the airline to expose them to the different areas of extend my sincere gratitude to the investment and high barriers to entry, this diffcult economic conditions, we have been became even more signifcant in light of the operations. Management and staff of SA Express. despite the large capital investment costs able to show a proft. We have successfully April 29 2016 temporary suspension of SA Your professionalism, enthusiasm and requiredby the industry. Ours is an implemented a number of initiatives Express’ Airline Operator’s Certifcate (AOC) We aspire to develop a diverse and commitment to this Company are what industry that is sensitive to dynamic through our Cost Containment and Revenue for 42 hours, by the South African Civil empowered workforce as well as to makes us great! changes in taxes, volatile operating costs OVER 1.3 Enhancement Programme of austerity Aviation Authority (SA CAA). It is regrettable encourage the active participation of people and ever increasing regulations. measures that have shown encouraging that discrepancies related to paperwork living with disabilities, as well as women in To my fellow Board Members, I would like results and are currently meeting the submitted resulted in our grounding and the technical environment. These initiatives to thank you for your time, guidance and Our top priorities are to continuously majority of our short to medium term goals. led to our impeccable 22-year safety record and programmes continue to be at the wisdom. Your ongoing support and MILLION improve on our customer experience, being called in to question. forefront of our human capital objectives. dedication have helped build a truly regulate costs and increase business When comparing our fnancial performance remarkable organisation. effcacy. In this regard, we have successfully PASSENGERS WERE CARRIED to the Key Performance Indicators (KPIs) As we release this year’s fnancial report, the SA Express, as a leader in transformation, implemented austerity measures with a total OVER THE COURSE OF THE as per the Shareholders Compact, the Executive Management team and Board of exceeded the National Demographics To our many partners in the industry, I would saving of R330m year-to-date. We are frmly Company has not achieved its objectives of a Directors continue to strengthen the inter- targets and Industry targets in Employment be remiss if I did not acknowledge the vital YEAR BY SA EXPRESS AS WE committed to the South African aviation R60m proft, but has achieved a net proft of nal control environment and adhere to the Equity and we are proud to be the most role you have played in our ongoing success OPERATED IN EXCESS OF 3 000 industry and to working with Government R16.95m - a vast improvement on the R69.38 highest standards of corporate governance transformed airline in the country. in January and growth. FLIGHTS MONTHLY. and other relevant stakeholders to ensure: and fnancial reporting, while ensuring the 2015, SA Express received a discretionary sustainability of the business. grant from the Transport Education and Training Authority (TETA) to fnance ten To this end, SA Express has been granted a Mach II cadets to study towards a B Com guarantee amendment which affords the (Aviation) degree and ten unemployed airline R 121million authorised to be learners on Air Transportation and Station utilised and the repayment period of fve Management training. The B Com (Aviation) G Mothema years has been extended to seven. learners are left with just three modules to Chairman

16 SA Express SA Express 17 Our leadership continued

CHIEF EXECUTIVE NOTE

The 2015/16 fnancial year was an We are pleased with the especially challenging year for the business. The South African aviation landscape was Company’s performance, but plagued by increasing cost pressures due acknowledge that the airline’s to rising competition, lower margins, decreasing passenger numbers, a fuctuating fnancial position remains exchange rate and volatile oil prices. Compounding these challenges is the a priority and our vigilance airline’s under-capitalised balance sheet, remains an essential tool to which impacted the fnancing models available to the airline. navigate our way to success. Additionally, through hard work, dedication The previous fnancial year (2014/15), saw and determination, we have sustained our SA Express implement the frst year of market share, local and regional, this is no the airline’s Austerity Measures Strategy small feat considering the current economic designed to maximise our potential for landscape. unearthing value from the business and We are pleased with the company’s perfor- mance but we acknowledge that the airline’s generating sustainable profts. devices than the general population. In socio-economic factors in the future and Pilot training programme has absorbed ten fnancial position remains a priority and order to mitigate the challenges facing the adapt accordingly. SA Express will continue (10) young people from previously our vigilance remains an essential tool to The airline has already achieved signifcant aviation industry, our priorities at SA Express to implement its SAX 20/20 Vision, the disadvantaged backgrounds, eight (8) of navigate our way to success. progress since implementing austerity remain to improve on customer Board-approved strategy. Apart from adding which are female. measures, which has seen a substantial experience, control costs and improve new routes and reprioritising existing ones, improvement in the airline’s fnancial ROUTE EXPANSION business effciency. we are investing in our main business tool, CORPORATE SOCIAL performance for the 2015/16 fnancial year. During the 2015/16 fscal year, SA our aircraft. The results of these initiatives include: INVESTMENT Express continued to review new routes, and STRATEGIC PRIORITIES operations on existing routes were carefully At SA Express, we recognise that we are but As a SOC, SA Express enters into an annual The guiding principles for this exercise Q Savings on fuel expenditure of 34% monitored. As part of our mandate to a small part of a greater community, and Shareholder Compact with the Department includes improvements in safety and year on year. promote frequency of services on that our success is contingent on the success of Public Enterprises. The Shareholder reliability, deploying a feet that is Q As a result of focused route and schedule lower-density routes, we are presently of the communities in which we operate. It Compact, together with the SAX 20/20 cost-effective, effcient and, most optimisation, the airline reduced its fight reviewing the possible introduction of is of utmost importance that we continue to Strategy, focused on the following strategic importantly as a global citizen, utilising operations associated costs such as those additional city pairs, in both our domestic support our communities with initiatives priorities: aircraft that are environmentally friendly. payable to ACSA and ATNS. The total year and regional routes. SA Express is This is the start of SA Express’ investment that change their lives in a positive manner. on year savings amount to 12% when committed to making air travel widely This year, SA Express partnered with Emila Q Consolidate and fortify our business for the next 20 years, with emphasis on compared to the previous fnancial year. accessible to as many South Africans as House for Disabled Children in model, which is predominately that of a re-feeting with aircraft frames that utilize Q Following the decision taken to insource possible by offering value for money fares. Bloemfontein, as well as SAWIA Youth Camp, regional carrier with a strong focus on low emission and fuel-effcient engines. certain aspects of catering, SA Express has We believe that fying should be affordable through an initiative that promotes the feld managed to reduce catering and catering business travel; of aviation among young women from and accessible to more South Africans. Q related expenditure by 48%. Be a sustainable, well-managed and DEVELOPMENTAL OBJECTIVES previously disadvantaged backgrounds. Q Having insourced passenger handling proftable regional airline; As an SOC, SA Express plays a signifcant Q and with the new ground handling THE AIRLINE INDUSTRY Provide consistent and effcient role in supporting the New Growth Path We are committed to improving our country Notwithstanding the low margins and high agreement, SA Express has managed to customer service; and the National Development Plan (NDP) and the lives of our fellow citizens. SA capital costs of the South African aviation Q achieve a savings of 34% on these costs. Foster performance excellence through in terms of development. Without a doubt, Express also actively encourages employees industry, there has been an increase in new Q Through the labour restructuring process the development of people, skills and skills development plays a critical role for to participate in volunteer work and to be market entrants. The various competitors in undertaken by the airline, which included jobs; South Africa’s economic growth and so, in actively involved in key projects identifed the industry currently have bullish Q a labour freeze on non-essential posts Become a catalyst for key developmental line with the goals set out in the NDP, the by the airline in efforts to improve the expansion plans, and have encroached upon and natural attrition, the airline managed State objectives, including the Company is focused on skills development circumstances of South Africans at all levels. to save 7% year on year on total labour previously dominant and exclusive routes. development of infrastructure, the to ensure that employees are well equipped costs. facilitation of trade and the growth of with the necessary skills to achieve the We expect even more airlines to follow this the tourism industry; and organisation’s goals. CUSTOMER EXPERIENCE trend. The information age has seen a shift Q To expand the airline’s services A key differentiator for SA Express is that, COMPANY PERFORMANCE in the way customers behave, in that the throughout Africa. Our continued focus on employee as a Company, we put our customers at the Despite diffcult local and global economic ‘now generation’ have access to information development and training has seen a great heart of what we do and great customer conditions and industry specifc challenges, at their fngertips. This has resulted in SA SA Express has delivered against the number of employees undergoing training. experience is an integral part of our overall SA Express managed to generate a proft Express developing a fully mobile accessible majority of these priorities during the period Some of the courses include: Back to Basics, strategy and is central to the SA Express of R16m. This proft was earned despite and responsive website. In keeping with our under review and we will continue to pursue Finance for Non-fnancial Managers, culture. To ensure that our customer’s voices numerous challenges such as currency fuc- efforts to remain innovative and responsive cost saving initiatives and ensure that the Performance Management Masterclass and are heard, we have since introduced various tuations, rising fuel prices, competition from to our customers’ needs, we took note of airline is prudent and sustainable in all its Aviation Fuel Management. Furthermore, channels of communication including new entrants and a decline in passenger the IATA study on trends transforming commercial endeavours. within this fnancial year, partnerships have certain of the social media platforms, and a demand. SA Express has continued to show the travel distribution landscape. The been formed with TETA, the Department of dedicated email address for our customers a sustainable turnaround, a trend we believe study confrms that travel is the largest CORPORATE STRATEGY Public Enterprises and the Department of to speak directly to me so that I am able to will continue for the foreseeable future. We e-commerce category, led by ticket sales evaluate all the opportunities for continuous While celebrating past and current Transport in initiatives such as career owe our turnaround over the 2015/16 fscal and more importantly, that passengers are improvement and address their concerns in achievements, the Company must also look exhibitions, aviation awareness and an year, largely to the strategies and interven- more likely to own smartphones and mobile active drive for to encourage South Africans a timely manner. tions implemented across all business units. forward and analyse future opportunities and threats, as well as the continuous to pursue careers in aviation. It is changes brought on by technology and remarkable that this year, the Mach 1 Cadet

18 SA Express SA Express 19 Our leadership continued

CHIEF EXECUTIVE NOTE continued

We have an inherent ability to grow in areas APPRECIATION that our competitors currently don’t, and I wish to express my sincere appreciation therefore we remain on track to fulfll our to the Executive Management team and vision of being a sustainable, world-class their business unit heads, as well as every regional airline with an extensive footprint individual who works at and lives the SA in Africa. Express values. Thank you for dedicating your time, energy and passion to making At 88% SA Express has one of the highest our combined vision a reality, for taking the targets for on-time performance, but we are brand promise to heart and ensuring that on track to achieve our goal, as set out in every day we are in the air, on time, safe and the Shareholder’s Compact. The airline will reliable. None of what we have achieved strive to maintain and, where possible, im- thus far, as an airline, would have been prove on this level of performance to ensure possible without the individual efforts of that customers’ experiences are positive and each and everyone that works here. to attract new customers. The supportive role of the Department of Public Enterprises and all our Government CORPORATE GOVERNANCE stakeholders, has enabled us to continuously As SA Express, we aim to be a good pursue our developmental mandate. The corporate citizen and maintain the highest continued success of our airline would standards of integrity and ethics in not have been as evident without your dealings with all our stakeholders. We are unremitting support. Likewise I would like dedicated to the principles of the Code of to thank our Board of Directors for their hard Corporate Practices and Conduct set out in work, dedication and wisdom. the King Report of Governance (King III). The Company endeavours to ensure that And in conclusion, to our valued customers, it offers the best possible airline service your sustained faith in SA Express and your and is regarded as the airline of choice for loyalty are fundamental to our continued travellers within its operating environment. growth and we know that, without you, there would be no SA Express, and for that I The business is managed and controlled humbly thank you. by implementing governance procedures and ensuring that risks are identifed and managed effectively. Our proactive Audit and Risk Committee reviews the Risk Register on a regular basis, mapping out and executing Mr. V Xaba strategies to mitigate risk in any and all Chief Executive Offcer areas of concern.

LOOKING AHEAD SA Express continues to pursue its dual mandate and is looking forward to being a catalyst for key developmental objectives of the State. As the domestic market growth has reached a plateau, we should exercise caution regarding the strength of the domestic market, particularly in light of the relatively weak Gross Domestic Product growth forecasts. Although the aviation industry continues to face obstacles, I am confdent in our team’s ability to further improve our service offering, expanding our market share even further into the local market and the African continent.

20 SA Express SA Express 21 Our leadership continued

CHIEF FINANCIAL OFFICER’S STATEMENT

The objective of this section is to provide an insight into the financial performance for the year ended 31 March 2016. This report should be read in conjunction with the attached Annual Financial Statements.

FINANCIAL PERFORMANCE

Revenue Operating proft Despite the continuing challenging global Operating proft for 2016 was R269,55m economic conditions in the airline industry, compared to R175,84m in 2015 which South African Express Airways managed represents a change of 148%. to minimize the topline negative impact to 7,8% (R203m) in revenue compared to Finance costs 2015. This reduction was attributable to the The net fnance costs increased to R40,1m overpayments of tax in prior years. The asset years and has obtained approvals from RMB decrease in average yield achieved. Average compared to R30,1m in 2015 as a result of has been derecognized in 2014, and once for access to funding of R375m, amortising yield decreased by 13% year on year, whilst the process has been fnalised, could yield a over four years. passenger numbers declined by 7% year on higher average borrowings compared to the prior year as well as the increase in rates. refund of R33,6m, which will be accounted for year. The average load factor for the year in the period in which fnality is reached. was 64% compared to last year’s load factor Subsequent events During the negotiation of loan terms with of 62%. This was due primarily to the impact Financial position The impact of the weaker ZAR/USD lenders, a portion of the guarantees issued of the continued weak economic growth as The statement of financial position exchange rate impacted negatively on USD in 2015 were deemed to be for insolvency well as, the impact of additional compe- remained weak as the company ended the based costs, including network cost and SAP purposes only, and not liquidity. The tition in an already overtraded domestic year with a cash and cash equivalents of transaction costs. Outstanding trade creditors reinstatement of these guarantees has market. The outlook for the following year is R57,1m when compared with a positive have decreased by R61.2m, but there is been negotiated, and the airline will be expected to continue, with revised fore- balance R23,9m in 2015, due to the substantial pressure on the company to in a position to utilise these for loans to casts projecting average fares increasing ongoing settlement of outstanding creditors. address this issue with key suppliers. raise funding to satisfy working capital by 3%. The impact of the weaker ZAR/USD requirements. The airline is in negotiation exchange rate delivered positive impacts on The accounting treatment for maintenance with funders to adjust the loan tenure to foreign based sales. The investment in inventory reserves is consistent with last year, and the match the guarantees issued, being seven company has obtained an updated has increased by R43.7m, and years, from four years, which will assist with Operating costs independent technical opinion on the trade debtors and other trade liquidity and stabilization of the airline. The airline implemented a range of methodology used. This has been a point of measures to return the airline to a viable disagreement with the auditors, and led to a receivables has grown by The airline was grounded for 40 hours on and sustainable business during the year. qualification of the results in 2015. R83.5m. the 1st of May 2016, due to documentation These measures include the review of Management is accounting for the issues relating to reportable incidents. This several costly maintenance agreements with treatment in line with the requirements of had a profound effect on the airline, as the offshore service providers, reviewing and the International Accounting Standards, and The investment in inventory has increased market perception was adversely affected. In optimising the operating schedule and stresses that the technical opinion received by R43.7m, and trade debtors and other trade addition the spares removal and exiting loss-making routes. The performance confirms this position. The autitors have receivables has grown by R83.5m. replacement procedures were redesigned of the airline improved signifcantly accepted the new opinion obtained but which led to delays in returning aircraft to from October 2014, following the a dispute still exists on the accuracy and The balance sheet indicates that the service. This, together with major scheduled implementation of these measures. Fuel classification of the capitalised maintenence company is in need of urgent recapitalisation, maintenance has severely hampered costs have decreased based on the decline reserves. by way of permanent equity funding, as the operations and proftability in the 2017 year. in oil prices, but these were largely offset balance sheet cannot bear more debt in order The airline has also parted ways with the by the weakening ZAR/USD exchange rate. The qualication included in to refeet. Short or long term debt funding CEO, effective March 2017 after 13 years of Fuel volumes due to optimised fying saw will further hamper the proftability of the service in the company. fuel costs decrease as a result. SA Express, last year’s Annual Financial company. despite the age of its feet, manages it fuel Statements was limited to the The company has been granted an extension Mr. Ntshanga, whose contract was due to burn to below industry norms for of the working capital and equity covenants expire in August 2017, left the employ of comparative aircraft types and ranges fown. carrying value of the opening guarantees, as well as additional working the airline after agreeing a separation The airline has successfully appointed new balances at 2015. capital guarantees to ensure the airline meets agreement in March 2017. He has been ground handlers at signifcantly lower rates, the requirements of a going concern, as well replaced Mr. V Xaba, formerly Deputy CEO and has commenced self handling at ORTIA, as addressing its immediate cash fow needs. of Denel Aerostructures. The airline is still in a VDP process with the with improved service levels as well as These guarantees will allow SAX to borrow South African Revenue Services relating to lower costs. funds in the open market, and have an amortization profle of seven years. During this time the airline, based on measures introduced, will return to proftability and become a net cash contributor. M. Shelley The airline has successfully renewed the long Chief Financial Offcer term loan with Nedbank, amortising over 4

22 SA Express SA Express 23 Sustainability Report

24 SA Express SA Express 25 Sustainability report

SA Express SOC Ltd is a State-Owned Company (SOC) which holds itself accountable not only to the South African Government as KEY ENVIRONMENT engagements SA Express has improved the sole Shareholder, but also to society at large for the long term sustainable value it creates for the environment, economy and SUSTAINABILITY Economic climate its outlook on environmental aspects. society through its day-to-day operating activities. Due to the volatility of the Rand and USD/ Considering the above challenges, and In consultation with the Shareholder’s Representative, the Department of Public Enterprise (DPE), SA Express adopted a that the Company required heavy capital Key environment sustainability ZAR exchange rate, the beneft of decreased sustainability reporting framework which has been incorporated into the overall business strategy. fuel prices are not realised and this cost investment to improve emissions, the SA Express’ approach on environmental sustainability framework is categorically based on these three philosophies: challenges is transferred to passengers. SA Express’ plan has since been reviewed. SA Express Promoting sustainable growth is one of the emissions per gram, per passenger still aspires to a target of 34% emissions Q Support a precautionary approach to environmental challenges; strategic focus areas of our Shareholder’s kilometre travelled are negatively affected reduction by 2020. However, with further Q Undertake initiatives to promote greater environmental responsibility; and Compact as is long term value creation. by low load factors. analysis, this target remains fexible. It Q Encourage the development and diffusion of environmentally friendly technologies. The challenges faced by SA Express remain should be noted that SA Express has thus unchanged, in comparison to previous Climate change far managed to reduce GHG emissions prevailing trends and this has permeated (greenhouse gas) by 15.5%. Therefore, the SUSTAINABILITY PERFORMANCE Due to the Global Warming Phenomena, in the business’ strategies. The Company potential of reaching the desired target The Sustainability Report illustrates a year-on-year comparison of applicable SA Express indicators. The movement column the average temperatures are considerably depicts either an increase or decrease in performance. applies a consistent and concerted effort in is high. improving its reaction to these challenges. warmer which negatively impacts aircraft The sustainability challenges are as follows: performance. This results in higher fuel Sustainability Report 2015/16 consumption that increases carbon Electronic fight bag (EFB) The Sustainability Report illustrates a year-on-year comparison of performance. emissions. This factor continues to serve as SA Express received its EFB approval on Nature of business a motivator for SA Express to improve its 27 August 2013 from the SACAA, and the Performance dimension An airline operation by its nature dictates systems and modernise its feet in order to Company has since equipped fight crews that there will be greenhouse gas emissions minimise the effects suffered as a result of with an in-house developed EFB. In 2014, 2015/16 2014/15 due to the amount of fuel burnt per fight global warming. further engagements with the SACAA and undertaken. This element represents 99% of additional trials confrmed the use of this SA Express’ emissions and continues to take Financial and Economic performance Carbon tax system. In 2015 the Company enjoyed the centre-stage. Moreover, the signifcant factor full beneft of the system and is now Revenue (R billion) 2.39 2.59 Although planned for implementation contributing to the greenhouse gas utilising less paper in the aircraft cockpits. Operating proft margin (%) 11 7 in 2015, the Carbon Tax law has been emissions, being the airline’s predominant This project provides the necessary Year end net cash (R million) (57.3) 23.9 postponed. This, however, remains a concern challenge, is that a large number of the infrastructure aboard aircraft and on the Value added to employees (Rands) 0.732 0.530 for the organisation when considering Company’s aircraft has aged. It is the crews’ new tablets to digitalise all processes Value added to providers of fnance (Rands) 28.5 22.1 the fnancial implications associated with airline’s belief that modern aircraft will and with time, to introduce the fully Cargo as a % of turnover 0.59 0.61 the additional tax, as this will negatively drive emissions down and would paperless cockpit. SA Express is on track and Aircraft utilisation (average hours per day) 7.57 7.35 impact on passenger numbers, as a result in be more environmental friendly. A small but pleased with the outcome of this seemingly OTP (within 15 min of scheduled departure (%) 87.46 88 negative knock-on effects. positive change has been reported, in the easy innovative solution, which is Passengers transported 1.310 1.409 period under review, as compared to the contributing to a more environmentally Passenger revenue in (Rands) 2.281 2.498 2014/15 fnancial year. Our carbon footprint KEY DEVELOPMENTS IN 2015/16 friendly SA Express. Average revenue per passenger (Rands) 1 741 1 772 has decreased from 183.96 to 181.02 Passenger load factors (%) 64 62 (Scope 1 and 2) tons of carbon dioxide and Climate change framework our carbon effciency by 1.1% (emissions in Climate change framework discussions were Social Safety grams/passenger kilometre). held on 17 September 2015, and from these Fatalities 0 0 Number of serious incidents 4 16

Health Sustainability performance versus Shareholder’s Compact This is a year-on-year comparison of SA Express’ performance on selected indicators. The movement column depicts either an increase or Employees medically surveyed 236 463 decrease in performance. Noise induced hearing loss 0 0

Employees Total employees 1036 1127 Performance Movement Expenditure on employee training (Rands) 27.6 29.4 Performance dimension 2015/16 2014/15 Black employees attending Leadership Development Programme (%) 72 74 Female employees attending Leadership Development Programme (%) 61 52 Social safety Fatalities 0 0 Constant Transformation and B-BBEE Number of serious incidents/accidents 4 9 Down B-BBEE rating Level 5 Level 5 Black employees (%) 59 68 Health Female employees (%) 38 38 Employees medical costs (Rands) 236 253 420 117 Down Black employees in Management (%) 64 50 Noise induced hearing loss 0 0 Constant Female employees in Management (%) 34 26 Environmental Community Carbon footprint (Scope 1 and 2) tonnes CO e 183 096 183 026 Down (1.1%) Corporate Social Responsibility expenditure (Rands) 488 066 1.50 2 Carbon efciency (emissions in grams/passenger kilometre) 172.05 165.5 Down Environment

Carbon footprint (Scope 1 and 2) Tons CO2e 181.02 183.96 Carbon efciency (emissions in grams/passenger kilometre) 172.05 165.5 ISO 9001 implementation Implemented in progress

26 SA Express SA Express 27 Sustainability report Total number of employees (including those with disabilities) in each occupation level continued Male Female Foreign nationals Total Occupational level A C I W A C I W Male Female The airline continues to seek the best Q Creating a talent pipeline for black Focus on human capital Top Management 3 0 0 2 2 0 0 0 0 0 7 structural alignment in order to ensure The developmental imperative in South pilots and technicians for the aviation Senior manager 6 0 1 106 14 0 0 0 6 0 133 that the optimal match between people, Africa is to create and sustain jobs. The industry; Professional 23 4 1 14 12 2 1 5 0 0 62 jobs and skills required. This strategy, World Economic Forum ranks Q Striking a good ft between the skill set Skilled 136 19 11 114 71 12 9 21 0 0 393 together with a moratorium on all unemployment as the ffth highest global and the right job for the right person; Semi-skilled 89 14 1 13 135 29 9 26 0 0 360 recruitment, ensured that structures are risk. South Africa’s unemployment rate is Q Keeping transformation on the Unskilled 40 4 0 3 8 0 0 0 0 0 55 aligned, talent and skills are deployed currently at 25% - the eighth highest in agenda; and Total permanent 297 41 14 252 242 43 19 58 0 0 966 effciently and matched to facilitate the world according to the International Q Ensuring compliance with all relevant Temporary employees 40 22 70 optimisation. The Company’s focus Labour Organisation. As articulated in the legislation pertinent to employment. 1 3 1 0 2 1 0 0 Grand total 337 264 1 036 is to consolidate it’s employee value NDP, a coordinated effort by Government, 42 17 253 43 21 59 0 0 proposition, ultimately ensuring robust labour and private sector is required on a Workforce profle employee engagement practices, and multitude of levels to address The staff complements as at 31 March Total number of employees with disabilities only in each occupation levels continued to concentrate on the unemployment. 2016 was 1036. This is marked following: year-on-year decline over a three-year Employment period, from 1188 to 1036. SA Express Male Female Foreign nationals Q Total Seeking to be the aviation employer The SAX 20/20 Vision strategy has implemented a number of strategies Occupational level A C I W A C I W Male Female of choice, the Company continues to presents both signifcant opportunities in order to contain labour costs as part grow the ‘Best Company to Work For’ and challenges for job creation. Although of improving operations. These include a Top Management 0 0 0 0 0 0 0 0 0 0 0 brand through continued investment the Company continues to focus on moratorium on recruitment and Senior manager 0 0 0 0 0 0 0 0 0 0 1 in initiatives that contribute towards containing labour costs as part of leveraging on natural attrition to reduce Professional 0 0 0 0 0 0 0 0 0 0 0 the Company ensuring that it remains improving operations, SA Express the staff complement. Tables and fgures Skilled: technical and the best Company to work for; remains at the forefront of transforming below provide the demographic details: academically Q To recruit, train and appoint suitably the aviation industry through critical Qualifed workers 1 0 0 0 3 qualifed persons from the designated skills development and training. 0 0 2 0 0 0 groups; Semi-skilled 3 0 0 0 2 0 0 0 0 0 5 Q Unskilled 0 To increase representation among and The median age of the SA Express 0 0 0 0 0 0 0 0 0 0 0 diversity of our workforce; employee is 26 years and 15% of Total employees 4 0 0 2 3 0 0 0 0 9 Q To develop and retain for the airline; employees are between the ages of 26 and and 30. Q To create a talent pipeline and We pride ourselves on being the most SA Express race split – March 2016 (%) SA Express gender split – March 2016 (%) transformed airline in the country, succession SA Express’ most signifcant issues with having surpassed National plan for critical functional areas. respect to employment are: Demographics targets and Industry targets in Employment Equity.

Total number of employees by department 29 Typical of our industry, SA Express remains a male dominated environment; however 38.5 we have endeavoured to maintain a Female Male 61.5 balance between gender and racial Female Male Grand 59 demographics. This could only be Group African total total total 3 Coloured Indian White African Coloured Indian White achieved through arduous 5 implementation of our Transformation Top Management 2 2 2 2 4 6 Strategy and the Employment Equity Plan. Senior Management 13 2 15 6 1 7 22 Strategic Development Programmes that Middle Management 12 1 1 5 19 16 3 12 31 50 form our human resources pipeline, like Pilots 10 1 1 15 27 18 1 7 136 162 189 the Cadet Pilot Scheme and the Cabin 88 27 8 17 140 10 5 5 20 160 Aeronautical Technicians (Apprenticeship) Technical 15 2 3 20 125 17 6 61 209 229 African Coloured Indian White Female Male Training Programme for Artisans, have Staf 122 15 7 12 156 144 19 1 19 183 339 remained instrumental in facilitating Apprentice 16 16 7 1 3 11 27 transformation in the pilots and artisan Cadet 3 1 1 5 6 2 1 9 14 environmnets respectively Grand total 281 44 20 55 400 334 48 18 236 636 1 036 We have increased the number of females employed at SA Express, from 38% in the previous fnancial year to 38.5% in the period under review. The Company aims to meet the National Target. Our Cadet and Technical Apprentice Programmes have increased their female intake, during this reporting period, to 100% and 60% respectively. We successfully surpassed the national demographics with respect to the

28 SA Express SA Express 29 Sustainability continued

indian population, with SA Express achieving Talent management The shortage of aviation talent in the 3% in comparison to the National Statistics’ The key differentiator of talent at SA Express industry contributed to 14% of our staff 2.5%. The National Targets for the coloured is that the Company has aligned its human exiting the airline during this reporting population are at 8.9% while SA Express has capital strategy to the developmental period, of which 23% were pilots. A similarly achieved 9%. Due to the legacy of inequality objectives and goals of the National large number of our skilled technicians of the industry, 71% of the staff complement Development Plan. While learnership were recruited by Maintenance Repair are black (African, Indian and Coloured) and skills programmes, translating into Organisations (MROs) with similar aircraft. which is below the National Target. SA Aeronautical Technicians and Cadet Due to globalisation, many of our pilots and Express falls short of the National Target, of Pilot Training Programmes, provide a aeronautical technicians were recruited 2% in the recruitment of people living with transformation driven succession plan for overseas. To address the high staff turnover disabilities. the core skills of the business, the Company of pilots and technicians, the Cadet Pilot has drafted a succession plan for all Programme and the Aeronautical We have exceeded the industry targets Management and critical positions. Technicians Training Programmes are in two critical pillars of B-BBEE, namely essential to the continued replenishment of Employment Equity and Management The airline invested in leadership skilled personnel for the airline, thus Control. Currently 85.7% and 87.1% of competency based assessments that adapting a just in time approach to talent our top and Senior Management, are provided an objective approach to sourcing. SA Express’ recruitment and black, surpassing the industry target. identifying successors for positions. This selection practices are carried out in The Company’s middle Management has provides certainty and business continuity accordance with applicable labour Labour relations The fight, cabin and cockpit crews’ unions, The Company is at the forefront of successfully surpassed industry targets for legislation and are based on the principles in cases where resources are required to SA Express continues to strive to create enjoy both organisational and collective transforming aviation through critical black people and black females. Strides have of fairness, transparency and consistency. fll these positions. Investing in suitably sound labour relations and as a result bargaining rights as they have majority skills development and training, with the been made in transforming the core areas qualifed people in this manner, is sure to regularly reviews its employment conditions representation. It is notable that there has Cadet Pilot Programme and Aeronautical of the business, namely: technicians and provide a return on investment. The airline Staff welfare and policies. The Company also regards been a marked increase in the number of Technicians Programme. Through the pilots. Within the technical environment, believes in developing its own people as far As it becomes increasingly diffcult to it as imperative that employees are well SATAWU members from 45% in 2014 to 73% successful implementation of these 60.4% are black. Pilots represent 18.5% of as possible, as evidenced in the fact that maintain a work-life balance, SA Express versed on the labour policies adopted by the in the period under review for Cabin Crew. programmes, the airline has managed to our staff complement, 10.5% of whom are 85% of SA Express’ Executive Management employees are afforded access to the organisation and are aware of their benefts Pilots are represented by SAXPA. lead transformation in the industry by black and 14.2% female, surpassing industry team was developed and placed through Independent Counseling Advisory Services and rights. Such information is provided to training in excess of 250 black pilots and targets. Furthermore, our talent pool the implementation of the succession plan. (ICAS). ICAS aims to inform, empower and employees during induction sessions and SA Express was not subject to any industrial over 300 black aeronautical technicians in comprises 1.3% cadets in training at the There are justifable instances where talent provide employees with the skills to take made available via the Company’s intranet. action in the period under review. This the past ten years. Flight School. SA Express and TETA is sourced externally, however, the strategy ownership of their wellbeing. Additionally, period showcased the stable relationship partnered to ensure that strategic initiatives, of the Company is to grow and support ICAS provides a 24-hour a day, 365 days a The percentage of employees represented the airline has with all its unions. Regular It is also worth noting that SA Express such as the Cadet Programme, remain vital talent within, as far as possible. year personal support service for employees by trade unions or collective bargaining is consultations between the Company and employs nine people with disabilities in in enabling transformation of pilots in the and their families to call for help during 70%. organised labour were instrumental in various roles throughout the Company. The industry. SA Express has managed to provide The airline successfully unveiled a times of stress. identifying initiatives for labour cost savings Industry target is 2% and SA Express has a steady supply of pilots to airlines like Mentorship Programme aimed at exposing The graph below depicts the union ensuring no retrenchments as aligned to the achieved 1.3% in the period under review, Mango and SAA, through a resource strategy junior staff members to various aspects During the period under review, 54 membership in the Company. The Shareholder’s job and retention mandate. with the Company aspiring to employ more that emanates from the Cadet Pilot Training of the operation, with the guidance of a employees made use of the face-to-face percentage split indicates that 29% of the The implementation of the strategies to black employees, female employees and Programme, right through to the main pilot mentor. This is a skills transfer initiative that counselling services and a total of 156 emplyees are still not unionised with the reduce labour costs yielded positive results, people with disabilities in key and strategic resource. During this reporting period, 20 reaffrms the Company’s commitment to its counselling sessions took place, while 68 exception of Management. enabling the Company to reduce labour roles. black pilots were appointed into the Mango investment in the development of talent and staff members made contact costs by 42% during the period. and SAA fight deck. leadership across the organisation, through telephonically. Additionally, 16 SA Express B-BBEE the continuous education, skill upliftment, employees utilised the legal advice services, Union membership (%) Skills development As a SOC and corporate citizen, SA and requisite insight. 14 enquired about family care and 10 SA Express is committed to providing Express is mandated to contribute to the obtained fnancial advice and information. a quality air service, which means that Shareholder’s B-BBEE goals and objectives, Recruitment and retention of skills development is a priority for the the purpose of which is to redress the legacy skilled staff A number of wellness strategies, focusing 12 13 Company. During the year under review, of inequality. This is essentially a growth on awareness and empowering employees, the Company invested R27 633 893 strategy, targeting South Africa’s weakest At SA Express we believe in fnding the such as AIDS, TB and cancer awareness ‘right ft for the right job’ ensuring that the (compared to R33 522 209 in 2014/15), point, inequality, and to ensure that our were implemented. In addition to the or approximately 5.1% of payroll in support country’s economy can meet the needs Company is attracting and retaining the implementation of various wellness 19 correct calibre of employee. It is through of its commitment to training and skills of all its economic citizens – the South strategies across the organisation wellness development. African public and their enterprises – in employing rigorous employment standards 30 days were held for all employees enabling a sustainable manner. According to the that the Company is able to deliver on its them to get health checks. goal of becoming the employer of choice Transformation Department of Trade and Industry (DTI), in the aviation industry. SA Express Transformation remains a concern for the societies characterised by entrenched Employee medical costs have decreased 26 gender inequality or racial or ethnically acknowledges that the retention of critical from R420 117 to R236 250, indicating that South African aviation industry. In line with skills is imperative in order to maximise the Shareholder’s B-BBEE and Employment defned wealth disparities are not likely to interventions and tools given to employees be socially and politically stable, particularly proftability. The lack of new talent entering have been successful. The number of serious Equity policies, SA Express continues to 70% the aviation skills pool results in the airline appoint, upskill, and retain suitably qualifed as economic growth can easily exacerbate incidents/accidents has shown an these inequalities. The Company strives to industry cannibalising itself in regard to impressive decrease fom nine in the persons from historically disadvantaged OF EMPLOYEES REPRESENTED skills. The Company’s differentiator is the AUSA Non union SATAWU SAXPA UASA people. This is evident in our B-BBEE rating balance driving a transformation mandate BY TRADE UNIONS OR 2014/15 fscal year to four in 2015/16, strong employee value proposition provided signifying that our Occupational Health and Level 5 and an increase of 14% in the COLLECTIVE BARGAINING. to our employees. Safety initiatives were effectual and the number of black employees in management number of fatalities remains unchanged at and 8% increase of female emplyees in zero. management.

30 SA Express SA Express 31 Sustainability continued

while enabling the performance needs of for B-BBEE enterprises which will be wheelchairs to children in Richards Bay. the business. Skills development, updated regularly; preferential procurement and enterprise Q Developing a database for B-BBEE As a corporate citizen and through the development initiatives, continue to be key enterprises which will be updated B-BBEE Pillars, SA Express aims to: focus areas for the airline’s B-BBEE regularly; objectives. Q Demanding B-BBEE accreditation of Q Contribute towards social upliftment in suppliers; and South Africa; B-BBEE is an important instrument Q Setting of B-BBEE development plans Q Enhance progress to comply with aimed at broadening the economic base with suppliers where appropriate. enterprise development requirements of the country, and through this, at of the B-BBEE Codes of Good Practice stimulating further economic growth and The above mentioned interventions and and government’s overall empowerment creating employment. SA Express tools are essential to our transformational drive; subscribes to the B-BBEE Codes of Good goals and as the Company relies on Q Aligning B-BBEE initiatives with those Practice, thereby encouraging the suppliers to deliver products and services in of the Shareholder Compact’s Social and meaningful economic participation of line with our high standards of quality and Economic Impact targets; and historically disadvantaged people, and in safety, it enters into service level Q Drive superior compliance to particular black people, women, youth, agreements so as to ensure that these demonstrate SA Express’ commitment to people with disabilities and rural standards are met and maintained, in B-BBEE. communities. accordance with local and international laws. We are steadfast in the procurement Corporate social investment SA Express has progressed signicantly of good quality products and services, Community upliftment, social development in transforming its compliance towards reliability and stability and cost and cohesion are strategic imperatives that B-BBEE supplier base, with the actual effectiveness. While we attempt to source inform the airline’s mission of improving the spend on B-BBEE for 2015/16 amounting to products and services from South African communities in the areas in which the R699 806 210. In terms of the DTI Codes of suppliers, there are instances where aviation airline operates. Fulflling social Good Practice, SA Express’ B-BBEE spend in equipment and specialised products are responsibilities is an integral component 2015/16 is as follows: sourced from foreign companies. in the manner that SA Express conducts its business. Q Black-Owned enterprise - R132 732 142 Q Enterprise development Black Woman-Owned - R49 026 603 The organisation has been active in Furthermore, it is the Company’s role to Q Qualifying small enterprises and ensuring that non-monetary support is raise the awareness of civil and commercial exempted micro-enterprises - extended to qualifying entities, aligned aviation as a career prospect among young R149 129 546 to the Aviation Sub-Sector codes, which people. SA Express’ partnership with schools encourages sector specifc support, and this and communities fosters education, youth SA Express has a B-BBEE rating of level 5 for continues to be a focus area for the development and empowers women. The 2015/16. business. In future, an enterprise involvement of SA Express staff in CSI is a development road map will be established critical element in enabling the business, Preferential procurement in order to address these shortcomings as employees and communities to work Preferential procurement is a vital well as allocating a budget for projects together towards joint socio-economic component of the B-BBEE Act of 2003 aligned to the aviation sector. interests. The aim is to create a deeper South Africa’s BEE strategy document understanding of the numerous career reiterates that no economy can grow by The following factors are primary to the ED opportunities in the aviation industry. excluding any of its people, and an economy strategy initiatives: that is not growing cannot integrate all its citizens in a meaning manner. SA Express Q Impact on transformation; is committed to the concept of preferential Q Impact on economic growth; and procurement and in order for the Company Q Impact on skills transfer. to achieve its developmental objectives through transformational procurement; it Socio-economic development has identied the following solutions: As part of our contribution to improving the lives of South African communities, Q Actively promote the increase on the airline has identied strategic procurement spend on B-BBEE socioeconomic development initiatives that enterprises and SMMEs; promote social inclusion and integration Q Increase spend on black-owned, through education and youth empowerment black women-owned and qualifying initiatives. The focus is on women, the youth small enterprise or exempted and people living with disabilities. A notable microenterprises based on applicable initiative was the donation of 16 B-BBEE Procurement Recognition levels; Q The allocation of minimum weightings

32 SA Express SA Express 33 Internal Control and Risk

34 SA Express SA Express 35 Internal control and risk

Risk profle SA Express’ approach for managing risk is underpinned by the Company’s understanding of current risk exposures and how risks are changing over time. The following illustrates the nature of some of the Company’s principal risks, although it does not represent an exhaustive list of INTERNAL CONTROL AND RISK Board of Directors, carries out an annual Risk categorisation the risks faced by the business. review of the Company’s internal control SA Express faces risks that in broad terms and risk management systems and looks can be categorised as follows: Risk Possible root causes Controls Intensity Internal controls and risk into specifc aspects of internal control and Taking calculated risks is an integral part of risk management on an on-going basis. Q the development of any company. SA Strategic: including risks related Cash fow Inability to raise cash due to Austerity measures implemented and closely monitored. to macro-economic and fnancial constraints weak balance sheet Express’ Board of Directors is ultimately Each business unit is responsible for the responsible for assessing the risk profle of conditions, technological changes, Shareholder Guarantee – the Company has been granted a guarantee mitigation of its own risks. The Executive corporate reputation, political and the Company within the context of Company Committee intervenes in cases where Business inadequately by the Shareholder. strategy and external factors such as market legislative environment; capitalised managing a certain risk is beyond the Q Operational: including risks related conditions, competitor positioning and capabilities of a particular business unit. Stakeholder management – improved management relationship with technological developments, while ensuring to changing passenger numbers, Not being able to honour Banks to keep them informed of progress and performance. The Executive Committee and the Chief production (safe operation), labour that adequate processes are in place to critical payments to suppliers Executive Offcer are also responsible, in a relations, human resources, IT manage these risks. SA Express broader context, for identifying and dealing Continued weekly, monthly, quarterly cash forecast in line with Management is tasked with successfully infrastructure, occupational health with those risks that affect the organisation and safety, emission control, impact Lack of capitalisation fnancial planning. exploiting business opportunities, while such as strategic positioning, funding and escalating costs exceeding limiting possible business losses. In order to of current or past activities on the macroeconomic risks. A specifc monitoring environment, asset and data security revenue generated Management accounts and variance analysis reported and achieve this, SA Express operates a role is assumed by the SA Express Internal monitored monthly. comprehensive integrated risk management and disaster recovery; and Audit Department in order to provide Q system. Financial: including risks related to oversight for the risk management process, treasury, tax, forecasting and budgeting, Have negotiated with some of the suppliers for relaxed payment terms. and this has led to improvements in how The Board is always aware of the dual accuracy and timeliness of reporting, risk is managed within the Company. Payments to suppliers are prioritised on a monthly basis at EXCO mandate of the Company, and directs SA compliance with accounting standards, Express’ risk exploitation within those fuel price and currency fuctuation. level. parameters. The aim of this system is to Internal control system enable the Company to identify risks in a SA Express adopted the Committee of Most companies would normally expect Cash management make use of the dashboard to create awareness of proactive and dynamic way and to manage Sponsoring Organisations of the Treadway to face a combination of the risks listed the Company cash position. or mitigate these identifed risks to an Commission (COSO) Framework for its above. It is not the intention to provide Increased number Ageing feet Daily focus (delay) meetings to monitor reasons for delays and or acceptable level, where possible. Internal Enterprise Risk Management and has exhaustive details on each risk posed to the of delays and cancellations. control mechanisms exist throughout adapted its various controls constituent Company in this report. However, the most fight Cash constraints SA Express, providing Management with within its organisation and processes. ‘The noteworthy strategic and operational risks, cancellations Introduced shift work at heavy maintenance in order to reduce the reasonable assurance of the Company’s SA Express Way’ and the ‘Code of Conduct’ either in their relevance to SA Express and down time of aircraft at ‘C Check’. ability to achieve its objectives. These are the cornerstones of the internal control its strategic goals or in the Company’s way controls cover the effectiveness and environment, and together with the concept of dealing with them, have been highlighted below. Entered into a number of agreements for the supply of aircraft spares effciency of operations; the reliability of of management by objectives and through within three days from placement of order. Payments to suppliers are the setting of clear roles and responsibilities fnancial processes and reporting; the prioritised on a monthly basis to address operational critical suppliers they establish the operating framework for compliance with laws and regulations; and ERM process – in brief in order to minimise the disruption to the operation. the Company. provide for the mitigation of errors and SA Express utilises the standard Foreign currency fraud risks. identifcation-assessing-planning- Free market movements Approved Treasury Policy by the board is being implemented to Specifc internal control mechanisms have volatility reduce the impact of currency fuctuations. implementing-communicating stepped negatively been developed by the various business process of managing risk. These have Changes to international Risk management process units at their level of operations, while impacting cost of commodity prices afect SAX Foreign currency and hedging impact continuously monitored and The frst step in the risk management been presented in graphic view and briefy shared operational functions and the Legal, defned: operations mainly on the following areas, reported at Board level. process is to enable and channel the Risk and Compliance business unit provides namely; identifcation of the various material risks. guidance and set’s controls for SA Express has established a business cross-organisational activities. These give Fuel, aircraft leases and risk assessment process which is to be rise to specifc policies, procedures and aircraft undertaken by each business unit and charters covering all areas. SA Express has corporate department. The process requires Overreliance on Most systems outsourced There is a commercial and associated agreement in place with SAA increased capacity in the Risk Management Identify partner airline that all departments within the business Department to monitor internal control unit carry out a risk scan in order to identify systems and and these are continually reviewed. requirements, with more emphasis services all signifcant risks (fnancial and on the mitigation of fnancial risks and to Monthly reconciliations. non- fnancial) that might affect the ability enhance the reliability of fnancial reporting. of the business unit to meet its objectives Implement Communicate Assess as set out in the strategic plans. The process The SA Express framework requires that all Monthly monitoring meetings between SA Express, SAA and Mango. then requires that each of these risks be business units comply with a uniform set of described in detail. Besides the assessment internal controls. Within the internal control SAX have implemented self handling where at most airports where of potential impact and likelihood, the risk framework, specifc attention is paid to the register also contains information on the SAA used to handle us. segregation of duties and the defnition of Plan status of any Management action or Loss of staf that Better opportunities There are diferent types of programmes in place i.e. skills clear roles and responsibilities. In addition, development programmes in critical areas e.g. cadet, apprenticeship, mitigation plan and the ownership thereof. the Internal Audit Department reviews the learnerships and graduates programmes. compliance assessments, during its missions. possess key skills Reduction of salary bill has These risk registers are then fed back to in key areas had positive impact to the the member of the Executive Committee business but negative impact Programme to retain top performers and key skills. responsible for that particular business on certain individuals area. A consolidated review takes place at Improvement of recruitment process to attract talent and high the level of the Executive Committee, the potential individuals. outcome of which is presented to the Audit and Risk Committee (ARC) and to the Board The Graduate Development Policy and Procedures and the Talent High of Directors. The ARC, on behalf of the Management Policy and Procedures have been reviewed and have Medium been approved by Management. 36 SA Express SA Express 37 Internal control and risk continued

SA Express ERM Goals Fraud Prevention Plan at all levels. It does not derogate from In order to assess SA Express’ safety In order to improve and ensure that the entity’s risks are properly managed, the Company has identifed the following objectives, to be in compliance with Section 29.1.1(e) of the other requirements, duties, obligations or performance, an IATA industry benchmark implemented in the short and medium-term: Treasury Regulations prescribed under the standards that fow from any provision of exercise is conducted on a quarterly basis, Public Finance Management Act (Act 1 of a legal or contractual nature, or from the and the Company has always performed 1999), SA Express has a Fraud-prevention general employment relationship. within the recommended standards, which Short-term goals Plan that effectively manages the fraud risk is commendable taking into consideration to which the company is exposed. Furthermore, the Company has established a the nature and complexity of an airline Short-term goal Progress Fraud Prevention and Whistle Blowing Policy operation. The Fraud Prevention Plan provides for the so as to foster a climate within SA Express Update governance documents In progress. process in terms of which SA Express will where all employees and Stakeholders strive SA Express is, on a continuous basis, mitigate, control and reduce the risk of fraud for the ultimate eradication of all types monitoring its systems to assure that and corruption. The plan also provides for, of fraud, corruption, theft and fnancial any potential safety abnormalities are Source/procure a risk management software Even though this is not fnalised, ERM processes have been revised among other things, the mechanics misconduct through the application of minimised. This simply means that regular and improved. Quality and Safety were prioritised while the for the early detection of fraud and for the proactive and reactive means at their integrated system reviews are conducted. Company uses a manual system in the interim. professional investigation of fraud offences, disposal. It also gives guidelines and Our focus is mainly on latent conditions so as to minimise the extent of the negative directives on the reporting and handling of and causal factors, which if identifed and Ensure that risks are reviewed periodically with the appropriate Goal reached during the year. effects this poses on the organisation and any incidents of fraud, corruption, theft and mitigated early, go a long way in avoiding corporate governance functions the South African economy at large. misconduct within SA Express. any serious incidents and/or accidents. This is also achieved through our effcient Training and awareness Goal reached during the year, especially in regards to awareness, SA Express commits itself to actively Legal Compliance safety reporting programme. To this end, fghting fraud and corruption as well as SA Express has a Regulatory Universe which SA Express has implemented a Flight Data and we will continue to implement. other acts of dishonesty on a zero tolerance comprises 70 pieces of legislation, including Analysis Programme, which assists the basis. As a result, the organisation accepts among others, the South African Express Act, Company in monitoring and tracking safety Medium-terms fraud and corruption as operational risks Companies Act, Public Finance Management performance through rigorous analysis without condoning fraud. Act and the National Treasury Regulations. of data. Furthermore, the Company is in the process of implementing a safety Medium-term goal Progress These pieces of legislation provide for the SA Express’ primary goal for the fnancial Company’s mandate and the regulation reporting tool, which will enhance our safety year has been to conduct the Ethics Hotline of fnancial management in all spheres performance and direct accountability, to a Conduct a Business Impact Analysis and update the Business The Business Continuity Plan has been updated and the Company awareness campaign. The Company has of government to ensure that SA Express’ maturing safety culture. Continuity Programme accordingly was presented with an opportunity to test it. Further development also recently revised the Policy, designed revenue, expenditure, assets and liabilities will be undertaken, with meticulous attention paid to impact to govern fraud prevention and are managed effciently and effectively. Aviation Security analysis. whistleblowing. During the year, training and Living with the ever-present risk of security awareness through publication of articles in The Company’s level of compliance is attacks as one of the signifcant survival Develop a combined Assurance Reporting Framework Work in progress – initial draft reviewed by the ARC, and ‘Expresso’ (the Company’s internal magazine) tested regularly throughout the year, by threats that has transformed the way many airlines and airports need to operate, implementation envisaged for the new fnancial year. were carried out. Furthermore, the various assurance bodies and compliance Company’s website provides details of the is confrmed by the issuance of certifcates has resulted in the introduction of an Ethics Hotline, for anyone seeking to report such as the Air Operating Certifcate (AOC), Aviation Security Management System. Develop and implement Risk Management Maturity Work in progress. a fraudulent activity. All these initiatives Aircraft Maintenance Organisation (AMO), It is appreciated that positive aviation Measurement Matrix have provided suffcient awareness on fraud Aviation Training Organisation (ATO), security results can never be achieved in reporting and during the year under review. International Standards Organisation (ISO), isolation without the value-add of other There were two reports made to the Ethics IATA Operational Safety Audit (IOSA). stakeholders. SA Express prides itself Hotline which were investigated, concluded with the achievement of its mandated and reported at the Social and Ethics SA Express places a tremendous amount of role to implement and promote a security Committee, as well as to the Board. value on compliance and is always exploring programme that safeguards against the acts ways of enhancing its compliance system. of unlawful interference on persons, aircraft Ethics In this regard, the Company has procured and equipment, in conjunction with other stakeholders. The Company’s compliance SA Express’ investment in ethics a compliance tool, which will allow the records, with no signifcant or major fndings management is not only driven by a need Company to track and ensure that all the from both SACAA and IOSA, have proven to comply with legislation and codes but compliance requirements are identifed and that SA Express continues to meet the by the commitment to instil a culture of implemented on time. requirements of National Aviation Security ethics throughout the Company and to Plan (NASP) and best industry practices. proactively identify and address any fraud Aviation Specifc Internal and corruption risks that may impact on the delivery of the SAX 20/20 vision strategy. Controls The purpose of SA Express’ Ethics Safety Management system Management Programme is thus: The Safety Management System is a systematic and comprehensive process for Code of ethics the proactive management of safety risks that integrates operations, technical services SA Express is committed to providing a with quality, fnancial and human resource working environment that is conducive to management. SA Express’ core safety value good business practice. The SA Express’ is ‘We never compromise on SAFETY, no Code of Ethics sets out the Company’s matter what.’ This is the way safety is values, ethics, objective and responsibilities. perceived, valued and prioritised within the This Code is applicable to all employees organisation.

38 SA Express SA Express 39 Corporate Governance

40 SA Express SA Express 41 Corporate governance

SA Express was established in terms of the South African Express Act 34 of 2007 (the Founding Legislation) and incorporated as a SOC in terms of the Companies Act 71 of 2008 as amended.

Governance informs SA Express’ day-to-day Q Determining Board strategic policy Q Delegating certain responsibilities to the the agenda for discussion at each meeting. THE SA EXPRESS BOARD IS Composition business activities and is a requirement for The current Board, announced 22 May 2015, decisions; Chief Executive Offcer; Resolutions of the Board were taken by way COMMITTED TO MAINTAINING the successful delivery of the Company’s comprises of two Executive Directors, Q Ensuring that the necessary fnancial Q Reviewing and monitoring the of Directors’ written resolutions, in terms HIGH STANDARDS OF objectives. Governance provides our namely the Chief Executive Offcer and Chief and human resources are in place to performance of the Chief Executive of the provisions of the Companies Act and CORPORATE GOVERNANCE AS stakeholders with the assurance that the Financial Offcer and seven Non-Executive enable the Company to meet its strategic Offcer and Chief Financial Offcer; the Memorandum of Incorporation, where Company is well managed and functioning Directors. objectives; Q Approval of the annual budget and necessary. GOOD GOVERNANCE IS with integrity and accountability. In this Q Ensuring sustainability of the business plan for the Company; INTEGRAL TO A SUCCESSFUL regard, SA Express ascribes to the King The Chairperson of the Board is Mr George organisation to ensure that it is capable Q Approval, subject to Shareholder’s Such matters were deliberated by the ENTERPRISE AND CRITICAL Code of Corporate Governance for South Mothema and his role is separate from of fullling its commercial objectives consent, of all major transactions within Board prior to circulation of the respective TOWARDS BUSINESS Africa, 2009 (king III) and the Protocol on that of the CEO, as the Board believes that and statutory obligations; the ambit of Section 54 of the Public written resolutions, including Management Corporate Governance in the Public Sector Q Fulfllment of its fduciary duty in Finance Management Act and the interviews. Management ensures that INTEGRITY. separation of powers and responsibilities whilst upholding specifc best practices such ensures an appropriate balance of authority accordance with the principles of good Signicant and Materiality Framework; the Board is provided with all relevant as accountability, transparency, fairness and between the Board and Management. governance; and information and facts to enable them to responsibility. Q Effective reporting and accountability Q Consideration and approval of the make appropriate and informed decisions. The current Board consists of the following to the Shareholder and other regulatory Annual Financial Statements and Minutes of the meetings were kept in the Interaction between the Board members: bodies; Dividend policy. Minute Books for the relevant year and Q Exercising of due care, skill and good access to the said minutes was given to both and the Shareholder Mr G Mothema Non-Executive Director faith in the execution of its duties; Board meetings Internal and External Auditors for auditing. In terms of its founding legislation, the Q Ensuring that effective audit, risk Minister of Public Enterprises assumes and and Chairperson The Board holds regular meetings that are management and compliance systems scheduled in advance, in accordance with exercises all rights attaching to SA Express Mr T Abrahams Non-Executive Director are in place to protect the Company’s shares and interests; including the rights as the Board’s annual calendar, which sets out Ms B Dibate Non-Executive Director assets; Shareholder Representative on behalf of the Government of South Africa. Ms N Nkabinde Non-Executive Director Dr R Naithani Non-Executive Director The Board regularly interacts with the The following refects the number of meetings and attendance of the Directors for the year under review: Shareholder through the Chairperson of the Mr P Ramosebudi Non-Executive Director Board meeting attendance Board, who is the point of contact regarding Ms G Sibiya Non-Executive Director interactions with both the Shareholder and Director Parliament. The Chairperson and the CEO Mr I Ntshanga Executive Director and 22-Jun-15 30-Jul-15 21-Aug-15 28-Sep-15 26-Oct-15 12-Nov-15 25-Nov-15 15-Feb-16 attend parliamentary sessions to update the CEO G Mothema Portfolio Committee on Public Enterprises Mr M Shelly Executive Director and P P P A P P P P on a number of strategic issues involving CFO T Abrahams P A P A P P P P the Company and the Audited Annual B Dibate P P P P P P P Financial Statements. Dr B Samula Was rotated on P 22 may 2015 N Nkabinde P P P P P P P P In addition to regular interaction between R Naithani P P P P P P P T Ms K Nondumo Was rotated on the Chairperson and the Minister of Public E Mabyana P R R R R R R R Enterprises, the Board also reports to the 22 may 2015 P Ramosebudi P A P P P A P P Shareholder at the Annual General Meeting. Ms N Gxumisa Was rotated on G Sibiya P P A The last Annual General Meeting took place 22 may 2015 P A P P P on 10 September 2015 I Ntshanga P P P P P P P P Mr E Mabyana Resigned on M Shelley P P P P P P P P 29 June 2015 The Board of Directors C Erasmus (COSEC) N/A N/A P P P P P P The SA Express Board is committed to maintaining high standards of corporate Role and function of the board governance as good governance is integral Q Setting the strategic direction of the P Present to a successful enterprise and critical Company; T Teleconference towards business integrity. The Board Q Reviewing and monitoring the A Absent ultimately takes overall responsibility of management and performance of the R Resigned directing the strategic objectives of the business by Management; N/A Not yet appointed business. Q Recommending the appointment of the external auditors to the Shareholder;

Mr G. Mothema Chairperson: SA Express Board of Directors.

42 SA Express SA Express 43 Corporate governance continued

Interaction between the Board and Management Human Resources, Remuneration and Transformation Committee: Executive Management and the Board interact through various presentations at Board meetings and Non-Executive Directors have access to Dr R Naithani (Chairperson) Executive Management and may meet with Executive Management in the absence of Executive Directors. Such meetings are facilitated Ms B Dibate through the offce of the Company Secretary upon request. Ms N Nkabinde

Disclosure of Interest Register of meetings and attendance: All Directors must disclose their interest in other companies, either in the form of shares held, Directorship or business dealings. There were no declarations of interests registered in contracts held directly or indirectly with SA Express during the year under review. The Company Human Resources, Remuneration and Transformation Committee Secretary is obliged to ensure that the Company does not enter into any contracts with any of the business interests of the Directors, without such information frst being considered by the Board in order to establish the nature and extent of the confict of interest. Director 18-Aug-15 23-Sep15 11-Nov-15 03-Feb-16

Section 54 (2) (PFMA) Transations R Naithani P P P P The PFMA submissions made in the year under review were for a feet renewal programme as part of the overall strategy to further the B Dibate P P P P business turnaround objectives, the withdrawal of the Cape Town–Durban and Johannesburg–Windhoek routes and aircraft lease extensions. N Nkabinde P P P P C Erasmus (COSEC) Board Committees P P P P In line with the requirements of the King Code III and the Protocol on Corporate Governance in the Public Sector, the following Committees P Present duly assisted the Board in discharging its duties and responsibilities: Audit and Risk Committee; Human Resources, Remuneration and Transformation Committee; Safety, Security, Health, Environment and Quality Committee; Social and Ethics Committee; and a newly formed Procurement Committee. The following persons attended per invitation and attended the majority of the meetings by the Committee: Mr I Ntshanga (Chief Executive Offcer) All these Committees are chaired by Non-Executive Directors and these Committees were also assisted by the Company Secretary in the Ms K Nkala (GM: Human Capital) performance of their duties.

These Committees consist of: Dr R Naithani Audit and Risk Committee: Chairperson: Human Resources, Remuneration and Transformation Committee. Q Ms G Sibiya (Chairperson) Q Ms B Dibate Safety, Security, Health, Environmental and Quality Committee: Q Ms N Nkabinde Q Mr T Abrahams (Chairperson) Q Mr P Ramosebudi Q Ms N Nkabinde Q Dr R Naithani The Committee is satisfed that the members thereof have the requisite knowledge and experience as required as set out in Section 94(5) of Q Ms G Sibiya the Companies Act 71, 2008; read with Regulation of the Companies regulations. The Committee held seven meetings during the 2016 fnancial year and the members of the Committee attended the meetings as follows: Register of meetings and attendance: Safety, Security, Health, Environmental, Quality Committee Audit and risk meeting attendance Director 23-Sep-16 11-Feb-16

14-Aug-15 21-Aug-15 23-Sep-15 28-Sep-15 26-Oct-15 12-Nov-15 08-Feb-16 22-Feb-16 T Abrahams P P Director Special Special Special Special Special N Nkabinde P P R Naithani P P G Sibiya P P A A A P P P G Sibiya A P B Dibate P P P P C P P P C Erasmus (COSEC) P P N Nkabinde P P P P P P P P P Ramosebudi P P C C P A P P P Present C Erasmus (COSEC) P P P P P P P P A Absent

P Present The following persons attended per invitation and attended the majority of the meetings by the Committee: Mr I Ntshanga (Chief Executive Officer) A Absent C Acting Chair Mr D Allanby (GM: Flight Operations and Technical)

The following persons attended per invitation and attended the majority of the meetings by the Committee: Mr I Ntshanga (Chief Executive Offcer) Mr M Shelley (Chief Financial Offcer) Mr S Struwig (Auditor General of South Africa – External Auditor) Mr K Lekalakala (Internal Auditor) Mr T Abrahams Chairperson: Safety, Security, Health, Environmental and Quality Committee.

Ms G Sibiya Chairperson: Audit and Risk Committee.

44 SA Express SA Express 45 Corporate governance continued

Social and Ethics Committee: Human Resources, Remuneration Non-Executive Directors’ remuneration was approved by the Shareholder at the Annual General Q Ms B Dibate (Chairperson) and Transformation Committee Meeting on 10 September 2015, for the period under review. The Remuneration Policy is in line Q Mr T Abrahams with the SOC remuneration guidelines as provided by the Department of Public Enterprises. The Committee comprises three Q Mr P Ramosebudi Non-Executive Directors, responsible for the Q Ms G Sibiya The remuneration of the Non-Executive Directors consists of an annual fee paid quarterly in overall competitive remuneration policies, arrears. Basic salaries of Executive Directors are set at competitive market rates in terms of the on behalf of the Board, the remuneration Register of meetings and attendance: SOC’s Remuneration Guidelines and are subject to annual review. The review is based on the of Directors as well as the terms and performance of the Company in terms of the Shareholder’s Compact. conditions of employment of the Executive Social and Ethics Committee Directors. In determining the remuneration policies, comparative industry surveys are Remuneration of Non-Executive Directors Director 23-Sep-16 03-Feb-16 provided by the Company’s human resources department to enable the Committee to Director 2016 take heed of issues such as market norms, B Dibate P P skills retention and performance of the G Mothema 796 928 T Abrahams P P Company. The Committee operates with clear T Abrahams 280 790 P Ramosebudi P P terms of reference and applies the SOC’s B Dibate 397 568 G Sibiya A P Remuneration Guidelines, as developed by the Department of Public Enterprises. N Gxumisa (rotated) 41 635 R Naithani I E Mabyana (resigned) 62 521 N Nkabinde I The remuneration philosophy of SA R Naithani 252 976 C Erasmus (COSEC) P P Express is to attract, develop, and retain key individuals and reinforce superior N Nkabinde 276 116 performance in order to maximise K Nondumo (rotated) 31 445 P Present proftability aligned with the strategic P Ramosebudi 298 908 A Absent objectives of the business. The Committee G Sibiya 311 469 I Invitee believes that the incentive scheme plays a B Ssamula (rotated) 89 250 The following person attended per invitation and attended the majority of the meetings by the Committee: pivotal role in retention of staff as per Mr I Ntshanga (Chief Executive Officer) the KPI. Remuneration of Executive Management The CEO is best placed, as the delegated Member of the Board, to execute the 2016 2015 Comments Ms B Dibate Board’s strategic KPIs as agreed with the Shareholder. Chairperson: Social and Ethics Committee. I Ntshanga 2 417 976 2 417 976 Executive Directors do not have a fxed term D Allanby 1 776 159 1 776 158 Procurement Committee: of service and all Non-Executive Directors Q K Nkala 1 161 756 1 161 756 Mr P Ramosebudi (Chairperson) are subject to retirement by rotation and Q P Mashaba 1 540 000 1 680 000 Resigned Mr T Abrahams re-election by the Shareholder at least once Q Ms B Dibate every three years in accordance with the 14/12/2015 Q Dr R Naithani protocol on Corporate Governance in the M Mochoele 1 250 000 1 250 000 Public Sector. Despite these, the Shareholder M Shelley 1 599 999 246 125 Register of meetings and attendance: is entitled to appoint Directors at every B van Wyk 1 361 038 1 361 038 Annual General Meeting (AGM). Procurement Committee The Committee discussed all aspects of 21-Aug-15 23-Sep-15 26-Oct-15 11-Feb-16 remuneration of employees, including Special Special Special and that of Executives. The remuneration of Director employees is, as far as possible, aligned combined to and infuenced by the interests of the Shareholder, market indicators, performance Dr. R. Naithani P Ramosebudi P P P P of the Company and employees’ overall Chairperson: Human Resources, Remuneration and Transformation T Abrahams P P P P contribution towards the growth of the Committee. B Dibate P P P P Company. R Naithani P P P P C Erasmus (COSEC) P P P P

P Present A Absent

Mr P Ramosebudi Chairperson: Procurement Committee

The following person attended per invitation and attended the majority of the meetings by the Committee: Mr I Ntshanga (Chief Executive Officer)

46 SA Express SA Express 47 Corporate governance continued

Safety, Security, Health, Social and Ethics Committee Procurement Committee Environment and Quality The Committee comprises four The Committee was established in the year Non-Executive Directors and operates under under review to assist the Board of Directors Committee the Terms of Reference approved by the in discharging its duties relating to: the The Committee comprises four Board which is reviewed annually. awarding of contracts and to authorising Non-Executive Directors. contract expenditure in accordance The Government has introduced legislation with established norms and legislation, The Executive Manager responsible for to address compliance such as B-BBEE, delegation of authority approved by the Safety, Security, Health and Environment Corporate Governance and Employment Board. The Committee does not assume attended all the meetings of the Committee Equity, to assist in mitigating social and management or operational responsibility and the Committee operated within its ethical matters in the workplace. Where but has oversight over management delegated terms of reference and reported there is limited or no legislation, there are implementation of its decisions and all activities to the Board at every meeting. international declarations and industry recommendations to the Board. charters that guide the Committee. The overall key responsibilities of the The Committee comprises four members. Committee are to: SA Express supports the ten principles of the United Nations Global Compact and is The primary role of the Committee is Q Ensure that issues pertaining to safety, committed to the New Growth Path. The to ensure the integrity of SA Express’ health and environment are aligned to Company is committed to make these part tender processes and is the ultimate body the overall business strategy of the of the organisation’s strategy, culture and responsible for the approval contracts. Company and are geared towards day-to-day operations. SA Express is also compliance with international norms committed to engaging in collaborative The Committee’s secondary key and practices; projects that advance the broader responsibilities are to: Q Consider and approve the corporate development goals of the United Nations. safety, health and environmental strategy SA Express has committed to support public Q Consider and monitor availability of and policies; monitor compliance with accountability and transparency. funds for projects when authorising such strategy and policies; contract expenditure; Q Consider and approve major safety, The Committee continues to provide Q Monitor the management of risk health and environmental projects; oversight as SA Express continues to embed affecting its areas of responsibilities; Q Ensure that its members are informed legislation codes of best practice essential Q Make recommendations of a strategic about any signicant impact on the to the core business of the airline. nature to the Board in regard to Company in the safety, health and awarding of contracts and monitor environmental feld and how these are In situations where duplication in the implementation by Management; managed (process and activities); oversight roles exist with other Q Ensure compliance with all applicable Q Review the structure, adequacy and subcommittees, the Committee ensures that laws and regulations and review the effcacy of the Safety, Health and information and decision making is shared Terms of Reference annually; and Environment Committee within the among the relevant sub-committees. Q Ensure that the awarding of contracts Company including review of any terms of promotes B-BBEE within the industry reference for the same; The Committee has monitored SA Express’ and achieve the empowerment targets Review the scope of and results of any Q activities, in regard to any relevant applicable in the aviation industry. safety, health and environment audit legislation, other legal requirements or and the effectiveness of the Company’s prevailing codes of best practice, in regard safety, health and environment policies to matters relating to social and economic and procedures and such audit’s cost development such as, but not limited to effectiveness and the independence and human rights, labour, the environment, and objectivity of the audit body; anti-corruption. P Ramosebudi Consider the major fndings, if any, of Q Chairperson: Procurement Committee internal and external investigations and Management’s response thereto and, Company Secretary’s Compliance where necessary make recommendations to the Board in respect of the same; and Statement Deal with any other matters formally in terms of Section 88(2) (e) of the Q B Dibate delegated by the Board to the Committee Companies Act No.71 of 2008, I certify that Chairperson: Social and Ethics Committee from time to time, including but not the Company has lodged with the Registrar limited to matters relating to security and of Companies all such returns as are quality assurance. required of a SOC in respect of the year ended 31 March 2016 and that to the best The Committee was focused on monitoring of my knowledge and belief, all such returns the processes that were implemented in the are true, correct and up to date. previous year to ensure improvement in the quality of maintenance and reduction of incidents.

The Committee continues to uphold safety M Gie as SA Express’ first priority. Company Secretary

T Abrahams Chairperson: Safety, Security, Health, Environment and Quality Committee 48 SA Express SA Express 49 Annexures

50 SA Express SA Express 51 Annexures

ANNEXURE A: STRATEGIC DELIVERABLES

Key performance area 1. SA Express sustainability framework Assessment Key performance area 3. Financial sustainability Assessment Target delivery timelines Target delivery timelines Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Description of deliverables (April-Jun) (Jul-Sep) (Oct-Dec) (Jan-Mar) Description of deliverables (April-Jun) (Jul-Sep) (Oct-Dec) (Jan-Mar) 1.1 Sustainability assessment and reporting 3.1 Guarantee 1.1.1. Provide a sustainability reporting framework in 31-Dec-15 Achieved 3.1.1. Repay R100 million of the R1.06 billion 31-Mar-16 Achieved line with the Global Reporting Initiative (GRI) guaranteed facilities guidelines for measuring and reporting the 3.2. Creditors economic, environmental and social impacts and performance related to SA Express 3.2.1. Provide a repayment plan for long outstanding 30-Sep-15 Achieved operational activities (between 90 and 150 days) creditors. The guaranteed debt should only be used to settle Key performance area 2. Austerity measures long outstanding creditors 2.1 Labour restructuring 3.2.2. Report quarterly on progress in repaying long 30-Sep-15 31-Dec-15 31-Mar-16 Achieved 2.1.1. Provide an action plan on the proposed labour 30-Sep-15 Achieved outstanding creditors between 90 and 150 days restructuring activities to save R118 million as 3.3. Funding indicated in the Austerity Measures Plan 3.3.1. Provide a comprehensive funding plan for 30-Sep-15 Achieved 2.1.2. Provide an internal audit report detailing a 31-Mar-16 Achieved utilising the guarantee with concomitant saving of R41 million from labour restructuring contingency plans. These plans must give initiatives a clear indication of the timelines for all the required approvals to ensure that all required 2.1.3. Provide a plan for the proposed restructuring 30-Nov-15 Achieved funding is secured timeously of business units to achieve efciencies, quantifying savings expected 3.3.2. Detailed report identifying whether there is a 15-Dec-15 Achieved need to hedge or not 2.1.4. Provide a report on the outcome of the 31-Dec-15 Achieved restructuring of business units to achieve 3.4. Cost containment efciencies, quantifying savings expected 3.4.1. Provide an approved spending per line item 15-Dec-15 Achieved 2.2. Aircraft leases Cost Containment Plan – Provide motivation on the numbers, benchmarking and context 2.2.1. Signed new lease agreement that reduce 30-Sep-15 Not achieved behind the target operating lease commitment 3.4.2. Report quarterly on implementation of cost 30-Sep-15 31-Jan-15 30-Apr-16 Achieved 2.2.2. Conclude renegotiations of covenants related 30-Sep-15 Not achieved containment per line* to lease agreements to remove the 3.5. Internal controls requirement to maintain equity above R1 billion 3.5.1. Provide plan to improve internal control 31-Oct-15 Achieved processes and enhancement 2.3. Inventory 2.3.1. Provide quarterly reports on the savings on 30-Oct-15 31-Jan-16 30-Apr-16 Achieved 3.5.2. Report quarterly on progress on improving 30-Sep-15 31-Oct-15 31-Mar-16 Achieved the inventory initiative* internal control processes 2.4. Reporting 2.4.1. Provide a comprehensive implementation plan 30-Sep-15 Achieved for the austerity measures outlining the milestones and timelines for delivering the targeted savings and identifying the responsible individuals 2.4.2. Provide a comprehensive quarterly progress 30-Oct-15 31-Jan-16 30-Apr-16 Achieved report on the austerity measures and the savings achieved and mitigation plans to address any non-achievement in the given timelines*

52 SA Express SA Express 53 Annexures continued

ANNEXURE A: STRATEGIC DELIVERABLES (CONTINUED)

Key performance area 4. Express 2020 Vision Key performance area 7. Commercial agreements Target delivery timelines Target delivery timelines Quarter 1 Quarter 2 Quarter 3 Quarter 4 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Description of deliverables (April-Jun) (Jul-Sep) (Oct-Dec) (Jan-Mar) Description of deliverables (April-Jun) (Jul-Sep) (Oct-Dec) (Jan-Mar) 4.1. Annexure to SA express 20/20 vision 7.1 Conclusion of commercial agreement and associated agreements 4.1.1. Provide an Annexure to the SA Express 20/20 31-Dec-15 Achieved 7.1.1. Conclusion of the main commercial agreement 31-Aug-15 Achieved Vision on material changes to the Strategy with SAA infuenced by the economic climate and 7.1.2. Conclusion of agreements associated to the 31-Oct-15 Not achieved aviation environment with an updated commercial agreement with SAA implementation plan. 7.1.3. Submit the commercial agreement concluded 31-Oct-15 Achieved 4.2. Routine network with SAA 4.2.1. Provide a detailed decision making matrix 31-Dec-15 Achieved 7.1.4. Submit the agreements associated to the 31-Oct-15 Not achieved which includes processes for assessing and Commercial Agreement that have been remedying the loss making route, and concluded with SAA determines the introduction of new route or 7.1.5. Finalise and provide the Terms of Reference 31-Oct-15 Achieved withdrawal of air services on an existing route (TOR) of the joint formal committees 4.3. Maintenance, repair and overhaul (MRO) overseeing the implementation of the commercial agreements 4.3.1. Provide business case options for optimising 31-Dec-15 Achieved MRO operations 7.2. Contracting and sharing of costs for shared services 4.3.2. Provide a remedial plan for reducing the cost 30-Sep15 Achieved of sourcing of spares 7.2.1. Finalise and provide the Terms of Reference 31-Oct-15 Achieved (TOR) with SAA for the establishment of a 4.4. Contract management committee structure for negotiating and 4.4.1. Renegotiate and conclude service level 30-Sep15 Not achieved contracting for a joint procurement of shared agreements with suppliers to ensure service services integrity and cost competitiveness 7.2.2. Provide quarterly performance reports of the 30-Sep-15 31-Dec-15 31-Mar-16 Achieved 4.5. Research and development excellence established committee structure for negotiating and contracting for a joint 4.5.1. Review of the approved implementation plan 31-Dec-15 Not achieved procurement of shared services and update the implementation plan with new initiatives while maintaining the agreed Key performance area 8. Integrated route network structure performance target 8.1. Implementation of an Integrated Route 4.6. Cargo operations Network Structure and Fleet Plan 4.6.1. Provide a plan to integrate and support cargo 30-Sep-15 Achieved 8.1.1. Finalise and provide the Terms of Reference 31-Oct-15 Achieved operations in the same manner as passenger (TOR) with SAA of the Formal Joint Committee operations overseeing the consolidated route network Key performance area 5. Human capital plan 5.1. Performance agreements 8.1.2. Establish the Routine development and 30-Sep-15 Achieved Scheduling Committee (RDSC) with SAA for 5.1.1. Translate targets in this Shareholder Compact 30-Sep15 Achieved the implementation and management of the and deliverables in the 20/20 Vision into Integrated Route Network Plan performance agreements of management 8.1.3. Provide quarterly reports on the 30-Sep-15 29-Dec-15 31-Mar-16 Achieved 5.1.2. Report of executives performance against 15-Oct-15 15-Apr-16 Not achieved implementation and performance of an targets and deliverables bi-annually* integrated route network plan and Fleet 5.2. Stafng plan Deployment 5.2.1. Provide the revised stafng plan and the skill 30-Nov-15 Achieved Key performance area 9. Governance audit report of top management 9.1. Governance practices Key performance area 6. Business processes 9.1.1. Provide audited interim results (six months) 30-Nov-15 Not achieved 6.1. Internal business processes 6.1.1. Provide a plan for improving internal business 30-Nov-15 Achieved processes for internal communication and decision making, revenue management, fight operations, contract management and stakeholder engagement 6.1.2. Report on progress on improving internal 30-Sep15 31-Dec-15 31-Mar-15 Achieved business processes

54 SA Express SA Express 55 Annexures continued ANNEXURE B: FINANCIAL PERFORMANCE

Key Key Unit of 2015/16 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Actuals Performance Performance Measure target achieved Assessment Area Indicator (April-Jun) (Jul-Sep) (Oct-Dec) (Jan-Mar) 2015/16 ANNEXURE A: STRATEGIC DELIVERABLES (CONTINUED) Achieve a sustainable, proftable operation in all market segments namely: domestic and regional markets. Achieve recurring sustainable earnings as follows Net proft/ R’m 60.21 8.31 8.90 27.10 15.90 16.95 Not achieved Key performance area 10. Policy and regulation (loss) Target delivery timelines after tax Quarter 1 Quarter 2 Quarter 3 Quarter 4 EBITDA (% Percentage 10.24 9.34 15.81 10.50 5.31 9,7 Not achieved of total Description of deliverables (April-Jun) (Jul-Sep) (Oct-Dec) (Jan-Mar) Revenue) 10.1 Whole of State Aviation Policy Cargo 1% of Percentage 1.00 1.00 1.00 1.00 1.00 0,62 Not achieved total 10.1.1. Cooperation in the development of the a a a a Achieved revenue Fly SA Policy Financial RASK to Number 1.04 1.04 1.04 1.04 1.04 1,37 Not achieved 10.1.2. Inputs on award of Bilateral Air Service a a a a Achieved Performance CASK Agreements (BASA) ratio 10.1.3. Inputs on South African Aviation a a a a Achieved Net cash R’m 10.00 1.55 3.63 3.17 1.66 -57.7 Not achieved Transformation Strategy position Gearing Percentage 103 103 103 103 103 97 Achieved a a a a Achieved 10.1.4. Inputs on any other National Policy related to (debt/ air transportation total asset Key performance area 11. Competitive Supplier Development Programme (CSDP) ratio) 11.1. Support for local spend Financial Gearing Percentage -3503 -3503 -3503 -3503 -3503 -1053 Achieved Sustainability (debt/ 11.1.1 Submit a plan to support local spend 31-Oct-15 Not achieved equity ratio)

* The “a” represents targets achieved ANNEXURE C: OPERATIONAL PERFORMANCE

Key Key Unit of 2015/16 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Actuals Performance Performance Measure target achieved Assessment Area Indicator (April-Jun) (Jul-Sep) (Oct-Dec) (Jan-Mar) 2015/16 To improve Operational Eciencies as follows and execute in a fawless manner

Daily Block hours 8 8 8 8 8 6,5 Not achieved Hours per Aircraft (weekdays) Direct R’m 2.2741 0.5580 0.6175 0.5727 0.5259 2.211 Achieved Operating Revenue per employee Improve Direct R’m 2.0364 0.5059 0.5199 0.5126 0.4980 2.066 Not achieved Operational Operating Efciency Costper employee To deliver customer service in a consistent manner On-time Percentage 88 88 88 88 88 87.46 Not achieved Performance (within 15 minutes of scheduled departure time) 1 Customer Bags Number 3 3 3 3 3 Achieved Centricity mishandled per 10000 pax

56 SA Express SA Express 57 Annexures continued

ANNEXURE D: SOCIAL IMPACT

Key Key Performance unit of 2015/16 Actuals Assessment SHC Targets Performance indicator measure proposed target achieved Area 2015/16 Achieved - KPIs 10 Developmental Improve Human Capital transformation on the following programmes and ensure skills Achieved - Deliverables 38 Objectives development objectives are met as follows Total Achieved 48 Learners Intake Target Number of new Total Targets 70 entrants in FY Total % Achieved 68.6% Artisan trainees (provided funding is Number 5 5 Achieved obtained) Cadet pilot trainees (provided funding is Number 5 5 Achieved The 2015/16 Shareholder Compact agreed with the Shareholder constituted 70 key performance indicators, including quarterly targets. obtained) The focus of the Shareholder due to the airline’s continued precarious fnancial position was on Financial Value Creation measures. It Semi-skilled and skilled workers Number 0 0 Achieved is important to note that SA Express managed to achieve 68.6% of the 70 indicators. The airline however failed to achieve the majority learnerships of the fnancial targets compacted, due to the escalating operating cost, increased competition and airline sector challenges such as the dollar-rand exchange Experiential learners/graduate trainees Number 0 0 Achieved fuctuations. Training spend as a % of leviable amount Percentage 5 5,7 Achieved The Austerity Measures Plan implemented in September 2014 continues to reap positive benefts and have directly led to the net Jobs created Number 0 4 Achieved proft realised. As per the challenges experienced, the airline operating sector and the cost of training and development, SA Express B-BBEE score level Number 4 6 Not achieved achieved most of the developmental objectives indicators, especially since the Company was able to use the funds raised with TETA. The airline continuously seeks new partnerships to ensure the airline is able to train pilots and technicians at a sustainable rate. However, the airline is to improve the operational efficiencies and customer centricity, as these targets have not been achieved. The airline has a target of 88% On Time Performance: the airline achieved 87.46%. The target addressing energy efficiency indicator was ANNEXURE E: ECONOMIC IMPACT not achieved. In addition, as referred earlier the RASK and CASK (including and excluding fuel costs), revenue per employee, Corporate Social Investment and the number of bags mishandled all achieved under strategic deliverables. SA Express made an operational proft in the amount of R230m, but due to operational and funding challenges, a net proft of R21m was reached, whilst a net proft Key Key Performance unit of 2015/16 Actuals Assessment target of R60m was set. Performance indicator measure proposed target achieved Area 2015/16 In addition, net profit after tax, CASK (total operating expenses leases plus depreciation): EBITDA. Passenger Load Factor, Daily Block Transformation % total local spend Percentage 60 35 Not achieved Hours per Aircraft and OTP were not achieved. The airline is to focus on total B-BBEE spent as the entity failed in its target of services Procurement procured from black owned enterprises. % total bbbee spend

% black owned entities Percentage 40 15 Not achieved % youth owned % people with disabilities

% Spend on black-owned QSE/EME Percentage 40 10 Not achieved

ANNEXURE F: ENERGY EFFICIENCY

Key Key Performance unit of 2015/16 Actuals Assessment Performance indicator measure proposed target achieved Area 2015/16

Energy Reduction and ofsetting of emissions Grams, 168 186 Not achieved Efciency Tonnes and C02

58 SA Express SA Express 59 Annual Financial Statements

60 SA Express SA Express 61 Financial Report

GENERAL INFORMATION INDEX

Country of incorporation and domicile South Africa The reports and statements set out below comprise the annual fnancial statements Nature of business and principal activities Aviation presented to the Shareholder:

Directors G. Mothema Index Page I. Ntshanga B. Dibate Directors’ Responsibilities and Approval 64 M. Shelley T. Abrahams Audit and Risk Committee Report 65 R. Naithani P. Ramosebudi Directors’ Report 66-67 G. Sibiya 6 N. Nkabinde External Auditors Report 8 -71 V. Xaba Statement of Financial Position 72 Registered offce 2nd Floor E Block Offces Statement of Proft or Loss and Other Airways Park Comprehensive Income 73 1 Jones Road Gauteng Statement of Changes in Equity 73 1627 Statement of Cash Flows 74 Business address 2nd Floor E Block Offces Accounting Policies 75-81 Airways Park 1 Jones Road Notes to the Annual Financial Statements 82-101 Gauteng 1627 Preparer

Postal address P. O. Box 101 M Shelley O.R. Tambo International Airport Chief Financial Officer 1627 Chartered Accountant (S.A)

Holding company Department of Public Enterprises on Published behalf of the South African Government 6 May 2017 incorporated in accordance with the Companies Act of the Republic of South Africa

Bankers First National Bank a division of FirstRand Bank Limited Nedbank a division of Nedbank Group Limited

Auditors Auditor General of South Africa

Secretary M Gie

Company registration number 1990/007412/30

Tax reference number 9466416840

Preparer The annual fnancial statements were internally compiled by: M Shelley Chief Financial Officer Chartered Accountant (S.A)

62 SA Express SA Express 63 Financial Report continued

DIRECTORS’ RESPONSIBILITIES AND APPROVAL AUDIT AND RISK COMMITTEE REPORT

The directors are required in terms of the Companies Act 71 of 2008 to maintain adequate accounting records The Audit and Risk Committee is pleased to present its report for the fnancial year ended 31 March 2016. and are responsible for the content and integrity of the annual fnancial statements and related fnancial information included in this report. It is their responsibility to ensure that the annual fnancial statements Audit and risk committee responsibilities fairly present the state of affairs of the company as at the end of the fnancial year and the results of its operations and cash fows for the period then ended, in conformity with International Financial Reporting We report that we have adopted appropriate formal terms of reference in our charter, have conducted our Standards, the Public Finance Management Act of 1999. The external auditors are engaged to express an affairs in compliance with the charter, and have discharged our responsibility as contained therein. independent opinion on the annual fnancial statements. As stated above, the Audit and Risk Committee comprises four Non-Executive Directors all of whom possess The annual fnancial statements are prepared in accordance with International Financial Reporting Standards, the necessary degree of fnancial knowledge, skill and insight. During the year eight (8) meetings were held the Public Finance Management Act of 1999 and are based upon appropriate accounting policies consistently and attendance is as indicated above. applied and supported by reasonable and prudent judgements and estimates. In the execution of its duties during the past fnancial year, the committee has: The directors acknowledge that they are ultimately responsible for the system of internal fnancial control • Reviewed the effectiveness of the internal control systems that management and the Board have established by the company and place considerable importance on maintaining a strong control environment. established including the effectiveness of policies and procedures, the effectiveness of the information To enable the directors to meet these responsibilities, the board sets standards for internal control aimed at systems environment, the reliability and integrity of fnancial and operational information, the reducing the risk of error or loss in a cost effective manner. The standards include the proper delegation of responsibilities within a clearly defned framework, effective accounting procedures and adequate segregation effectiveness of operations, safeguarding of assets and compliance with laws and regulations; of duties to ensure an acceptable level of risk. These controls are monitored throughout the company and all • Reviewed the independence, objectivity, performance and cost effectiveness of the external auditors; employees are required to maintain the highest ethical standards in ensuring the company’s business is • Reviewed the reliability, quality and accuracy of fnancial information and fnancial statements conducted in a manner that in all reasonable circumstances is above reproach. The focus of risk management • Reviewed the integrity of the Company’s fnancial reporting process, both internal and external; in the company is on identifying, assessing, managing and monitoring all known forms of risk across the • Quarterly reviewed business and other risks and the impact of such on the Company; company. While operating risk cannot be fully eliminated, the company endeavours to minimise it by ensuring • Reviewed and approved the External Auditor’s strategy; that appropriate infrastructure, controls, systems and ethical behaviour are applied and managed within • Considered and reviewed quarterly management accounts; predetermined procedures and constraints. • Reviewed and approved the Annual Financial Statements and the accompanying reports to the Shareholder The directors are of the opinion, based on the information and explanations given by management, that the • Reviewed the annual report and fnancial statements for the year under review to ensure that they system of internal control provides reasonable assurance that the fnancial records may be relied on for the present a balanced understandable assessment of the position, performance and prospects of preparation of the annual fnancial statements. However, any system of internal fnancial control can provide the Company only reasonable, and not absolute, assurance against material misstatement or loss. • Reviewed the internal audit activities, including the internal audit charter, independence, internal audit plan, coordination with external auditors, report on signifcant fndings as well as management The directors have reviewed the company’s cash fow forecast for the year to 31 March 2018 and, in light of responses to internal audit fndings and recommendations this review and the current fnancial position, they are satisfed that the company has or had access to adequate resources to continue in operational existence for the foreseeable future. Internal audit and effectiveness of internal control

The external auditors are responsible for independently auditing and reporting on the company’s annual The audit and risk committee is satisfed the internal audit function is operating effectively and that it has financial statements. The annual financial statements have been examined by the company’s external addressed the risks pertinent to the entity in its audits. auditors and their report is presented on pages 68 to 71. As much as there has been an improvement over the control environment, we believe that the system of internal controls over financial and risk management, was partially inadequate and ineffective for the The annual financial statements set out on pages 72 to 101, which have been prepared on the going concern period under review. basis, were approved by the board on 6 May 2017 and were signed on their behalf by:

G Sibiya G. Mothema V. Xaba Chairperson: Audit and Risk Committee

64 SA Express SA Express 65 5. Directorate

Financial Report The directors in offce at the date of this report are as follows: continued Directors Ofce Designation Changes

G. Mothema Chairperson Non-executive I. Ntshanga Chief Executive Ofcer Executive Resigned 31 March 2017 DIRECTORS’ REPORT B. Dibate Non-executive B. Ssamula Non-executive Resigned 21 May 2015 E. Mabyana Non-executive Resigned 29 June 2015 The directors have pleasure in submitting 2. Prior year adjustments counting treatment of maintenance G. Sibiya Non-executive Appointed 22 May 2015 their report on the annual fnancial reserves. The opinion obtained in the K. Nondumo Non-executive Resigned 21 May 2015 statements of South African Express In the prior year, management and the current year reaffrmed the accounting M. Shelley Chief Financial Ofcer Executive AirwaysSOC Limited for the year ended auditors were in dispute around the policy and provided further clarifcation N. Gxumisa Non-executive Resigned 21 May 2015 classification of maintenance reserves , the 31 March 2016. of how managements position on the N. Nkabinde Non-executive Appointed 22 May 2015 dispute resulted in a qualification of trade classifcation of maintenance reserves P. Ramosebudi Non-executive Appointed 22 May 2015 and other receivables for the 2014/2015 1. Review of fnancial results and should be assessed. The auditors have R. Naithani Non-executive Appointed 22 May 2015 year end. This was despite management accepted the new opinion obtained but a activities T. Abrahams Non-executive Appointed 22 May 2015 providing the auditors with an independent dispute still exists on the accuracy and V. Xaba Chief Executive Ofcer Executive Appointed 10 April 2017 The annual fnancial statements have been opinion on what type of accounting policy classifcation of the capitalised maintenance (Acting) prepared in accordance with International should be adapted for the accounting of reserves included in the trade and other the maintenance reserves sourced from receivables balance. Financial Reporting Standards and the savings and further cost containment one of the “top four independent 6. Directors’ interests in contracts 9. Going concern requirements of the Companies Act 71 of measures are expected to be made in the professional accounting firms”. Our accounting treatment has remained 2008 and the Public Finance Management forseeable future; consistent throughout the dispute with the During the fnancial year, no contracts were The directors believe that the company has Act of 1999. The accounting policies have entered into which directors or offcers of adequate fnancial resources to continue in • No suppliers have withdrawn their been applied consistently compared to the During this financial year, management re- auditors. the company had an interest and which operation for the foreseeable future support to the Company. prior year. engaged with one of the top four independent professional accounting firms signifcantly affected the business of the and accordingly the annual fnancial * The Company’s liquidity requirement is assessed by assessing the cash required by to provide an opinion on the correct ac- company. statements have been prepared on a going Full details of the fnancial position, results concern basis. The directors have satisfed the company against the cash and of operations and cash fows of the 7. Borrowing powers themselves that the company is in a sound funding available. The Company will still company are set out in these annual fnancial position and that it has access to have access to cash to be suffciently liquid. fnancial statements. In terms of the Memorandum of suffcient borrowing facilities to meet its • The Company has positive equity Incorporation of the Company, the Directors foreseeable cash requirements. The indicating the Company is solvent. Positive may exercise all the powers of the Company directors are not aware of any new material equity is driven by the raising of long term 3. Share capital to borrow money, as they consider changes that may adversely impact the funding of R121 million, profts for the year appropriate, within the mandate of the company. The directors are also not aware and the reduction of capital expenditure. Number of shares Public Finance Management Act of 1999. of any material non-compliance with statutory or regulatory requirements or of Further to the above points, the Company’s Authorised 2016 2015 2014 8. Events after the reporting period any pending changes to legislation which going concern status is also informed by its may affect the company. We draw attention strategy called SAX 20/20, the funding to the fact that at 31 March 2016, the plan and the long-term turnaround strategy Ordinary shares 1 000 1 000 1 000 The Airline’s operating certifcate was company had accumulated losses of that has been implemented. Number of shares temporarily suspended by the South African R (726 917 609). The ability of the company to continue as a R2016 R2015 R2014 2016 2015 2014 Civil Aviation Authority on 30 April 2016 as Issued going concern is dependent on a number of it was deemed that the quality assurance Briefy, below are some of the factors that factors. The most signifcant of these is systems were inadequate. The temporary the Directors considered for the period that the directors continue to procure Ordinary shares R452 R452 R452 452 452 452 suspension was lifted on 1 May 2016 after March 2016 to March 2017 extended for funding for the ongoing operations for the clarity discussions with the Civil Aviation the twelve months ended March 2018, to company. Authority and the submission of all ensure that the going concern assumption requested documentation to provide There have been no changes to the authorised or issued share capital during the year under review. is appropriate: 10. Auditors comfort that all systems were adequate • The Company was granted an extension and in place. Correction action has been on the existing guarantee of R539 million, Auditor General of South Africa continued in implemented to ensure that this does not 4. Dividends Given the current state of the global relating to convenant breaches and working offce as auditors for the company for 2016. happen in future. economic environment, the board believes capital as well as an additional guarantee of The company’s dividend policy is to consider that it would be more appropriate for the R567 million, for the further working capital 11. Secretary an interim and a fnal dividend in respect of company to conserve cash and maintain Mr Ntshanga resigned as Chief Executive and asset based fnance facilities. The each fnancial year. At its discretion, adequate debt headroom to ensure that the Offcer on 31 March 2017, Mr Xaba was guarantee was reduces by R100 million in The company secretary is Mrs M Gie. the board may consider a special dividend, company is best placed to withstand any appointed as acting Chief Executive Offcer. March 2016 in line with the conditions where appropriate. Depending on the prolonged adverse economic conditions. attached to the guarantee. The guarantee Postal address perceived need to retain funds for Therefore the board has resolved not to On 27 March 2017, the Company was was reduced further by R58 million in P.O. Box 101 expansion or operating purposes, the board declare a dividend for the fnancial year given approval to utilise the R121 million February 2017. In March 2017, approval was O.R. Tambo International Airport may pass on the payment of dividends. ended 31 March 2016 perpetual guarantee and the repayment of obtained to utilise the R121 million 1627 the guarantee extended to the end of March perpetual guarantee. The amortisation 2023. period was also extended from fve years to Business address 7 years; 2nd Floor The directors are not aware of any other • Negotiations have been and continue to E Block Offces material event which occurred after the be held with funders; Airways Park reporting date and up to the date of this • No legislative, regulatory or policy 1 Jones Road report. changes that negatively affect and impact Gauteng the Company have been made; 1627 • The Company has made signifcant cost 66 SA Express SA Express 67 Financial Report continued

REPORT OF THE AUDITOR-GENERAL TO PARLIAMENT ON SOUTH AFRICAN EXPRESS AIRWAYS SOC LIMITED

REPORT ON THE FINANCIAL STATEMENTS

Introduction those risk assessments, the auditor Deferred tax asset sundry income corresponding fgure stated access to an additional guarantee portion Report on other legal and regulatory considers internal control relevant to the at R180 739 485 in the fnancial statements of a perpetual nature and extends the requirements 1. I have audited the financial statements entity’s preparation and fair presentation of 8. Due to the possible effects of the was necessary. guarantee period to 31 March 2023. The of the South African Express Airways SOC the fnancial statements in order to design limitations as described in paragraphs 6 and guarantee was granted subject to 18. In accordance with the Public Audit Act Limited set out on pages 72 to 101, which audit procedures that are appropriate in the 7 above, I was unable to obtain suffcient Irregular expenditure certain conditions. As at the date of signing of South Africa, 2004 (Act No. 25 of 2004) comprise the statement of financial position circumstances, but not for the purpose of appropriate audit evidence to support the this report the entity is in the process of (PAA) and the general notice issued in terms as at 31 March 2016, the statement of profit expressing an opinion on the effectiveness account balances and class of transactions 11. Section 55(2) (b) (ii) of the PFMA negotiating the terms of a loan against this thereof, I have a responsibility to report or loss and other comprehensive income, of the entity’s internal control. considered in the computation of the requires the entity to disclose in note 38 additional guarantee portion and receipt fndings on the reported performance statement of changes in equity, and An audit also includes evaluating the deferred tax asset for the fnancial year of the fnancial statements particulars of of this loan from fnancial institutions. The information against predetermined statement of cash flows for the year then appropriateness of accounting policies ended 31 March 2016. Consequently, I was all irregular expenditure that had occurred ability of the entity to continue as a going objectives for selected objectives presented ended, as well as the notes, comprising a used and the reasonableness of accounting unable to determine whether any during the fnancial year. The entity did not concern is dependent on the entity in the annual performance report, summary of significant accounting policies estimates made by management, as well as adjustment relating to the deferred tax have an adequate system for identifying successfully securing the loan. compliance with legislation and internal and other explanatory information. evaluating the overall presentation of the asset stated at R183 932 639 (2015: R195 control. The objective of my tests was to Accounting authority’s responsibility and recognising all irregular expenditure fnancial statements. 256 048) in note 5 to the fnancial and there were no satisfactory alternative Restatement of corresponding identify reportable fndings as described for the fnancial statements statements was necessary. procedures that I could perform to obtain fgures under each subheading but not to gather 5. I believe that the audit evidence I have reasonable assurance that all irregular evidence to express assurance on these 2. The board of directors, which constitutes obtained is suffcient and appropriate to Trade and other receivables expenditure had been properly recorded in 15. As disclosed in note 32 to the fnancial matters. Accordingly, I do not express an the accounting authority, is responsible for provide a basis for my qualifed audit note 38 to the fnancial statements. statements, the corresponding fgures for 31 opinion or conclusion on these matters. the preparation and fair presentation of opinion. these fnancial statements in accordance 9. The entity did not appropriately Consequently, I was unable to determine March 2015 have been restated as a result classify the maintenance reserve receivable whether any adjustment was necessary to of an error discovered during 31 March Predetermined objectives with International Financial Reporting Basis for qualifed opinion Standards (IFRS) and the requirements as required by IAS 1 Presentation of the irregular expenditure disclosure note 2016 in the fnancial statements of the of the Public Finance Management Act fnancial statements between non-current relating to the current and prior fnancial South African Express Airways SOC Limited 19. I performed procedures to obtain of South Africa, 1999 (Act No. 1 of 1999) Property, plant and equipment and current asset. Additionally, the entity did year. at, and for the year ended, 31 March 2015. evidence about the usefulness and (PFMA) and the Companies Act of South not appropriately consider the recoverability The restatements relates to non-current and reliability of the reported performance Africa, 2008 (Act No. 71 of 2008), and for 6. I was unable to obtain suffcient of the maintenance reserve receivable as Qualifed opinion current assets, current liabilities, revenue information for the following selected such internal control as the accounting appropriate audit evidence to support the required by IAS 36 Impairment of assets. and expenses. objectives presented in the annual authority determines is necessary to enable property, plant and equipment due to Consequently trade receivable was 12. In my opinion, except for the effects of performance report of the public entity for the preparation of fnancial statements that inadequate record keeping by the entity. overstated by R169 131 171 (2015: R127 the matters described in the basis for Additional matter the year ended 31 March 2016: are free from material misstatement, I was also unable to confrm the balance 090 151) and non-current portion of qualifed opinion paragraphs above, the whether due to fraud or error. by alternative means. Consequently, I was the maintenance reserve receivable fnancial statements present fairly, in all 16. I draw attention to the matter below. My • Financial Sustainability on page 53 unable to determine whether any was understated by R94 784 324 (2015: material respects, the fnancial position of opinion is not modifed in respect of this Auditor-general’s responsibility adjustment to the property, plant and R133 913 429) and impairments of asset the South African Express Airways SOC matter. • SA Express 20:20 Vision on page 54 equipment balances stated at R498 355 was understated by R15 951 167 (2015: Limited as at 31 March 2016 and its 442 (2014: rotables balance accounted for (R6 823 278)). There was a resultant impact fnancial performance and cash fows for Other reports required by the • Operational Performance on page 57 as part of property, plant and equipment on the surplus for the period and on the the year then ended, in accordance with Companies Act 3. My responsibility is to express an opinion R278 332 278) and the resultant impact on accumulated surplus. IFRS and the requirements of the PFMA and 20. I evaluated the usefulness of the on these fnancial statements based on my depreciation stated at R115 997 774 in note Companies Act of South Africa. 17. As part of my audit of the fnancial reported performance information to audit. I conducted my audit in accordance 3 to the fnancial statements was necessary. Sundry Income statements for the year ended determine whether it was presented in with International Standards on Auditing. Emphasis of matters 31 March 2016, I have read the Directors’ accordance with the National Treasury’s Those standards require that I comply with Inventories 10. I was unable to obtain suffcient Report, the Audit Committee’s Report and annual reporting principles and whether the ethical requirements, and plan and perform appropriate audit evidence for the 13. I draw attention to the matters below. the Company Secretary’s Certifcate for the reported performance was consistent with the audit to obtain reasonable assurance 7. I was unable to obtain suffcient restatement of corresponding fgures for My opinion is not modifed in respect of purpose of identifying whether there are the planned objectives. I further performed about whether the fnancial statements are appropriate audit evidence to support the sundry income in the fnancial statements. these matters. material inconsistencies between these tests to determine whether indicators and free from material misstatement. inventory balance due to inadequate record As described in note 17 and 32 to the reports and the audited fnancial targets were well defned, verifable, specifc, keeping by the entity. I was also unable to fnancial statements the restatement was Material uncertainty related to going statements. These reports are the measurable, time bound and relevant, as 4. An audit involves performing procedures confrm the balance by alternative means. made to rectify prior years’ misstatements, concern responsibility of the respective preparers. required by the National Treasury’s to obtain audit evidence about the amounts Consequently, I was unable to determine but the specifc allocation to the period for Based on reading these reports I have not Framework for managing programme performance information (FMPPI). and disclosures in the fnancial statements. whether any adjustment to the inventory which the restatement related to could not 14. The accounting authority’s report identifed material inconsistencies between The procedures selected depend on the balance stated at R172 309 376 (2014: be determined by the entity due to on page 66 -67 and note 34 to the financial the reports and the audited fnancial 21. I assessed the reliability of the auditor’s judgement, including the R175 178 302) in note 6 to the fnancial inadequate record keeping. I was unable statements indicates that the South African statements in respect of which I have reported performance information to assessment of the risks of material statements was necessary. to confrm the restatement by alternative Express Airways SOC Limited was granted a expressed a qualifed opinion. I have not determine whether it was valid, accurate misstatement of the fnancial statements, means. Consequently, I was unable to revision of the terms of the existing audited the reports and accordingly do not and complete. whether due to fraud or error. In making determine whether any adjustment to the government guarantee which includes express an opinion on them.

68 SA Express SA Express 69 Financial Report continued

REPORT OF THE AUDITOR-GENERAL TO PARLIAMENT ON SOUTH AFRICAN EXPRESS AIRWAYS SOC LIMITED

REPORT ON THE FINANCIAL STATEMENTS

annual fnancial statements, material Security Offcer (ISO) not flled during the 22. The material fndings in respect of the Usefulness of reported performance reliability of the reported performance Procurement and contract fndings with reported performance 2015-16 fnancial year. The lack of defne selected objectives are as follows: information information. management information and non-compliance with processes to manager the ICT 36. Goods, works or service were not always legislation. The accounting authority of the environment and ensuring secure Financial Sustainability 27. I did not identify any material Compliance with legislation procured through a procurement process entity should set the right tone at the top confguration of systems that have a fndings on the usefulness of the reported which is fair, equitable, transparent and that demands clean administration of its fnancial impact or informed performance Usefulness of reported performance performance information for the strategic 32. I performed procedures to obtain competitive as required by the PFMA executive team and implementation indicators resulted instances where objective. evidence that the public entity had information section 51(1)(a)(iii). of approved policies and procedures. informally adopted processes were not complied with applicable legislation adequately and consistently applied. Reliability of reported performance regarding fnancial matters, fnancial 23. I did not identify any material fndings 37. Suffcient appropriate audit evidence Financial and performance management and other related matters. on the usefulness of the reported information could not always be obtained that goods, My material fndings on compliance with management performance information for the fnancial works and services were procured through a sustainability objective. Reliability of specifc matters in key legislation, as set out 28. The FMPPI requires auditees to have procurement process which is fair, equitable, 42. The information systems used for reported performance in the general notice issued in terms of the Pretoria appropriate systems to collect, collate, verify transparent and competitive as required by recording and processing of transactions information PAA, are as follows: 09 May 2017 and store performance information to the PFMA section 51(1)(a)(iii). were not effectively and effciently used to ensure valid, accurate and complete produce reliable information. Management 24. The FMPPI requires auditees to have Strategic planning and performance reporting of actual achievements against Expenditure management did not interrogate data received from these appropriate systems to collect, collate, verify planned objectives, indicators and targets. management systems in order to ensure that it produces and store performance information to Adequate and reliable corroborating 38. Effective steps were not taken to accurate and reliable information to support ensure valid, accurate and complete evidence could not be provided for the 33. A corporate plan was not submitted prevent irregular expenditure as required the fnancial statements and reported reporting of actual achievements against reported achievement against planned within one month before start of fnancial by section 51(1)(b)(ii) of the PFMA . The full performance information. The audit team planned objectives, indicators and targets. indicators and targets of 60%. year to the National Treasury as required extent of the irregular expenditure could experienced diffculties (delays in The reported achievements against planned by section 52(b) of the PFMA and Treasury not be quantifed as indicated in paragraph submitting) during the audit due to indicators and targets of 22% were not Additional matter Regulation 29.2. 11 above. poor recordkeeping in certain areas and the reliable when compared to the evidence lack of supporting evidence for provided. 29. I draw attention to the following 34. Effective, effcient and transparent 39. Effective steps were not taken to prevent recorded balances that are reviewed by matters: systems of risk management and internal fruitless and wasteful expenditure, senior management. SAX 20:20 Vision controls with respect to performance amounting to R30 622 323 as disclosed Achievement of planned targets information and management was not in in note 37 of the fnancial statements, as Governance Usefulness of reported performance place as required by section 51(1)(a)(i) of required by section 51(1)(b)(ii) of the PFMA. the PFMA. information 30. Refer to the annual performance report Internal control 43. Although adequate governance on page(s) 52 to 59 for information on the structures were in place throughout the 25. The FMPPI requires that performance achievement of the planned targets for the Financial statements, performance 40. I considered internal control relevant to period under review and action plans were indicators should be well defned by having year. This information should be considered and annual reports my audit of the fnancial statements, annual followed up during governance meetings clear defnitions so that data can be in the context of the material fndings on performance report and compliance with the effectiveness of these oversight collected consistently and is easy to the usefulness and reliability of the 35. The fnancial statements submitted for legislation. The matters reported below are processes did not yield the desired understand and use. A total of 29% of reported performance information for the auditing were not prepared in accordance limited to the signifcant internal control improvements. Material misstatements indicators were not well defned. selected objectives reported in paragraphs with the prescribed fnancial reporting defciencies that resulted in the basis for were identifed in the fnancial statements, 24, 25 and 28 of this report. framework as required by section 55(1)(b) qualifed opinion, the fndings on the annual predetermined information and compliance Reliability of reported performance of the Public Finance Management Act and performance report and the fndings on with legislation which was not effectively information Adjustment of material misstate- section 29(1)(a) of the Companies Act. non-compliance with legislation included in identifed and prevented by the governance ments Material misstatements of non-current this report. structures of the entity. 26. I did not identify any material fndings liabilities, current liabilities and on the reliability of the reported 31. I identifed material misstatements in disclosure notes identifed by the auditors Leadership Information Technology environment performance information for the strategic the annual performance report submitted in the submitted fnancial statements objective. for auditing on the reported performance were subsequently corrected, but the 41. Ongoing monitoring and supervision 44. The entity had signifcant control information for fnancial sustainability, SAX uncorrected material misstatements undertaken to enable management to defciencies surrounding development Operational excellence 20:20 vision and Operational performance. resulted in the fnancial statements determine whether internal controls over of governance structures and processes As management subsequently corrected receiving qualifed audit opinion. fnancial reporting are present and and controls over ICT systems which were only some of the misstatements, I raised functioning were not adequate, which attributed to key vacancies of the divisional material fndings on the usefulness and led to material adjustments to the manager responsible ICT and Information

70 SA Express SA Express 71 Financial Report continued

STATEMENT OF FINANCIAL POSITION AS AT 31 MARCH 2016 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Figures in Rand Note(s) 2016 2015(Restated) 2014 (Restated) Figures in Rand Note(s) 2016 2015 (Restated)

Assets Revenue 16 2 391 268 017 2 594 012 715 Non-Current Assets Other income 17 137 332 017 180 739 485 Property, plant and equipment 3 498 355 442 504 097 753 498 584 974 Operating expenses (2 259 040 735) (2 598 905 916) Intangible assets 4 - - 397 150 Operating proft (loss) 18 269 559 299 175 846 284 Deferred tax 5 183 932 639 195 256 048 170 240 678 Investment revenue 19 771 441 7 122 773 682 288 081 699 353 801 669 222 802 Depreciation and amortisation 3 (115 997 774) (123 536 212) Fair value adjustments 20 (36 463 576) (10 359 711) Current Assets Impairment of assets 21 (46 230 082) (124 335 483) Inventories 6 172 309 376 128 511 547 175 178 302 Proceeds on sale of assets 22 (3 258 838) 10 984 185 Trade and other receivables 8 980 952 545 897 407 125 825 345 892 Finance costs 23 (40 100 885) (30 126 914) Other fnancial assets - - 75 112 192 Proft (loss) before taxation 28 279 585 (94 405 078) Current tax receivable - - 75 410 097 Taxation 24 (11 323 409) 25 015 370 Cash and cash equivalents 9 8 164 763 23 921 645 2 979 136 Proft (loss) for the year 16 956 176 (69 389 708) 1 161 426 684 1 049 840 317 1 154 025 619 Other comprehensive income - - Total Assets 1 843 714 765 1 749 194 118 1 823 248 421 Total comprehensive income (loss) for the year 16 956 176 (69 389 708)

Equity and Liabilities

Equity Share capital 10 501 837 518 501 837 518 501 837 518 STATEMENT OF CHANGES IN EQUITY Reserves 356 954 972 356 954 972 356 954 972 Accumulated loss (726 917 609) (743 873 785) (674 484 077) 131 874 881 114 918 705 184 308 413 Figures in Rand Share Share Total share Shareholder Accumulated Total equity capital premium capital loan loss Liabilities Non-Current Liabilities Opening balance as previously 452 501 837 066 501 837 518 356 954 972 (670 598 440) 188 194 050 Other fnancial liabilities 12 - - 200 000 000 reported Adjustments Current Liabilities Prior year adjustments - - - - (3 885 637) (3 885 637) Trade and other payables 15 728 758 610 803 346 810 807 875 797 Balance at 01 April 2014 as 452 501 837 066 501 837 518 356 954 972 (674 484 077) 184 308 413 Other fnancial liabilities 12 300 000 000 300 000 000 100 000 000 restated Provisions 13 349 277 420 296 469 289 254 763 621 Loss for the year - - - - (69 389 708) (69 389 708) Neutrality advance 14 268 459 314 234 459 314 177 266 915 Other comprehensive income ------Bank overdraft 9 65 344 540 - 99 033 675 Total comprehensive Loss for - - - - (69 389 708) (69 389 708) 1 711 839 884 1 634 275 413 1 438 940 008 the year Total Liabilities 1 711 839 884 1 634 275 413 1 638 940 008 Balance as at 1 April 2015 452 501 837 066 501 837 518 356 954 972 (688 924 468) 169 868 022 Total Equity and Liabilities 1 843 714 765 1 749 194 118 1 823 248 421 restated Opening balance as previously 452 501 837 066 501 837 518 356 954 972 (802 956 078) 55 836 412 reported Adjustments Prior year adjustments - - - - 114 031 610 114 031 610 Balance at 01 April 2015 as 452 501 837 066 501 837 518 356 954 972 (743 873 785) 114 918 705 restated Proft for the year - - - - 16 956 176 16 956 176 Other comprehensive income ------Total comprehensive income - - - - 16 956 176 16 956 176 for the year Balance at 31 March 2016 452 501 837 066 501 837 518 356 954 972 (726 917 609) 131 874 881 Note(s) 10 10 10 11

72 SA Express SA Express 73 Financial Report continued

STATEMENT OF CASH FLOWS ACCOUNTING POLICIES

observable data indicating a measurable extent recoverable through future Figures in Rand Note(s) 2016 2015 1. Presentation of annual fnancial statements decrease in the estimated future cash fows maintenance, and then recognized as from a fnancial asset. maintenance expense when the underlying Cash fows from operating activities The annual fnancial statements have been maintenance is performed. The recognition prepared in accordance with International Allowance for slow moving, damaged and of the maintenance reserve asset and value Cash generated from operations 26 35 213 817 44 120 031 Financial Reporting Standards, the obsolete stock thereof is subject to critical judgment by Public Finance Management Act of 1999, Interest income 19 771 441 7 122 773 Management. and the Companies Act 71 of 2008. The Finance costs 23 (40 100 885) (30 126 914) An allowance for stock to write stock down annual fnancial statements have been Tax received 27 - 75 410 097 to the lower of cost or net realisable value. Taxation prepared on the historical cost basis, and Net cash from operating activities (4 115 627) 96 525 987 Management have made estimates of incorporate the principal accounting the selling price and direct cost to sell on Judgement is required in determining the policies set out below. They are presented Cash fows from investing activities certain inventory items. The write down is provision for income taxes due to the in South African Rands. included in the operating proft note. complexity of legislation. There are many Purchase of property, plant and equipment 3 (114 344 633) (110 642 124) transactions and calculations for which the These accounting policies are consistent Sale of property, plant and equipment 3 3 358 838 1 787 730 Impairment testing ultimate tax determination is uncertain with the previous period. Sale of fnancial assets - 75 112 192 during the ordinary course of business. The Net cash from investing activities (110 985 795) (33 742 202) The recoverable amounts of company recognises liabilities for The preparation of the fnancial statements cash-generating units and individual assets anticipated tax audit issues based on in conformity with International Financial Cash fows from fnancing activities have been determined based on the higher estimates of whether additional taxes will Reporting Standards requires the use of of value in-use calculations and fair values be due. Where the fnal tax outcome of certain estimates that affect the reported Movement in neutrality advance 34 000 000 57 192 399 less costs to sell. These calculations require these matters is different from the amounts amounts of assets and liabilities at the date the use of estimates and assumptions. It is that were initially recorded, such differences of the fnancial statements as well as the Total cash movement for the year (81 101 422) 119 976 184 reasonably possible that the assumptions will impact the income tax and deferred reported amounts of revenues and expenses Cash at the beginning of the year 23 921 645 (96 054 539) may change which may then impact our tax provisions in the period in which such during the reporting period. It also requires Total cash at end of the year 9 (57 179 777) 23 921 645 estimations and may then require a material determination is made. management to exercise its judgment in the adjustment to the carrying value of process of applying the Company’s goodwill and tangible assets. The company recognises the net future accounting policies. The areas involving a tax beneft related to deferred income tax higher degree of judgment or complexity, Provisions assets to the extent that it is probable that or areas where judgments are continually the deductible temporary differences will evaluated and are based on historical Provisions were raised and management reverse in the foreseeable future. Assessing experience and other factors, including determined an estimate based on the the recoverability of deferred income tax expectations of future events that are information available. Additional disclosure assets requires the company to make believed to be reasonable under the of these estimates of provisions are signifcant estimates related to circumstances. included in note 13 - Provisions. expectations of future taxable income. Estimates of future taxable income are 1.1 Signifcant judgements and Useful lives, depreciation method and based on forecast cash fows from sources of estimation uncertainty residual values of property, aircraft and operations and the application of existing In preparing the annual fnancial equipment tax laws in each jurisdiction. To the extent statements, management is required to that future cash fows and taxable income make estimates and assumptions that affect The Company assesses the useful lives, differ signifcantly from estimates, the the amounts represented in the annual depreciation method and residual values of ability of the company to realise fnancial statements and related disclosures. property, plant and equipment at each the net deferred tax assets recorded at Use of available information and the reporting date. The useful lives of other the end of the reporting period could be application of judgement is inherent in the assets and the depreciation method impacted. formation of estimates. Actual results in the remained unchanged as they were deemed future could differ from these estimates to have remained appropriate. Fair value estimation which may be material to the annual fnancial statements. Signifcant judgements The Company assess the useful lives and The carrying value less impairment include: amortisation method of intangible assets at provision of trade receivables and each reporting date. During the year payables are assumed to approximate Trade receivables, Held to maturity under review the useful lives and their fair values. The fair value of fnancial investments and Loans and receivables amortisation method remained unchanged liabilities for disclosure purposes is as they were deemed to be appropriate. estimated by discounting the future The company assesses its trade receivables, contractual cash fows at the held to maturity investments and loans and Maintenance reserves current market interest rate that is receivables for impairment at the end available to the company for similar of each reporting period. In determining Maintenance reserves paid to certain fnancial instruments. whether an impairment loss should be aircraft lessors in advance of the recorded in proft or loss, the company performance of major maintenance 1.2 Property, plant and equipment makes judgements as to whether there is activities are recorded as a deposit, to the Property, plant and equipment are tangible

74 SA Express SA Express 75 Financial Report continued

ACCOUNTING POLICIES (continued) assets which the company holds for its own acquiring the asset or using it for purposes the gross carrying amount and the carrying The residual value, useful life and property, plant and equipment is other resources to complete the use or for rental to others and which are other than the production of inventories. amount after taking into account depreciation method of each asset are determined as the difference between the development and to use or sell the asset. expected to be used for more than one year. accumulated impairment losses. reviewed at the end of each reporting year. net disposal proceeds, if any, and the Q the expenditure attributable to the asset An item of property, plant and equipment is Expenditure incurred subsequently for When an item of property, plant and If the expectations differ from previous carrying amount of the item. during its development can be measured recognised as an asset when it is probable major services, additions to or replacements equipment is revalued, any accumulated estimates, the change is accounted for reliably. that future economic benefts associated of parts of property, plant and equipment depreciation at the date of the revaluation prospectively as a change in accounting Capital work in progress consists of assets Intangible assets are carried at cost less any with the item will fow to the company, are capitalised if it is probable that future is eliminated against the gross carrying estimate. not yet ready for use and therefore not accumulated amortisation and any and the cost of the item can be measured economic benefts associated with the amount of the asset. allocated to a specifc asset category. impairment losses. reliably. expenditure will fow to the company and Each part of an item of property, plant and the cost can be measured reliably. Day to Depreciation of an asset commences when equipment with a cost that is signifcant in 1.3 Intangible assets An intangible asset is regarded as having Property, plant and equipment is initially day servicing costs are included in proft or the asset is available for use as intended by relation to the total cost of the item is An intangible asset is recognised when: an indefnite useful life when, based on all measured at cost. Cost includes all of the loss in the year in which they are incurred. management. Depreciation is charged depreciated separately. Q it is probable that the expected future relevant factors, there is no foreseeable expenditure which is directly attributable to to write off the asset’s carrying amount over economic benefts that are attributable to limit to the period over which the asset the acquisition or construction of the asset, Property, plant and equipment is its estimated useful life to its estimated The depreciation charge for each year is the asset will fow to the entity; and is expected to generate net cash infows. including the capitalisation of borrowing subsequently stated at cost less residual value, using a method that best recognised in proft or loss unless it is Amortisation is not provided for these Q the cost of the asset can be measured costs on qualifying assets and adjustments accumulated depreciation and any refects the pattern in which the asset’s included in the carrying amount of reliably. intangible assets, but they are tested for in respect of hedge accounting, where accumulated impairment losses, except economic benefts are consumed by the another asset. impairment annually and whenever there appropriate. for land which is stated at cost less any company. Leased assets are depreciated in a Intangible assets are initially recognised at is an indication that the asset may be accumulated impairment losses. consistent manner over the shorter of their Impairment tests are performed on property, cost. impaired. For all other intangible assets The initial estimate of the costs of expected useful lives and the lease term. plant and equipment when there is an amortisation is provided on a straight line dismantling and removing an item and When an item of property, plant and Depreciation is not charged to an asset if indicator that they may be impaired. When Expenditure on research (or on the research basis over their useful life. restoring the site on which it is located is equipment is revalued, the gross carrying its estimated residual value exceeds or is the carrying amount of an item of phase of an internal project) is recognised also included in the cost of property, plant amount is adjusted consistently with the equal to its carrying amount. Depreciation property, plant and equipment is assessed as an expense when it is incurred. The amortisation period and the and equipment, where the company is revaluation of the carrying amount. The of an asset ceases at the earlier of the to be higher than the estimated recoverable amortisation method for intangible obligated to incur such expenditure, and accumulated depreciation at that date is date that the asset is classifed as held for amount, an impairment loss is recognised An intangible asset arising from assets are reviewed every period-end. where the obligation arises as a result of adjusted to equal the difference between sale or derecognised. immediately in proft or loss to bring the development (or from the development carrying amount in line with the phase of an internal project) is recognised Reassessing the useful life of an intangible recoverable amount. when: asset with a fnite useful life after it was Q it is technically feasible to complete the classifed as indefnite is an indicator that The useful lives of items of property, plant and equipment have been assessed as follows: An item of property, plant and equipment asset so that it will be available for use or the asset may be impaired. 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76 SA Express SA Express 77 Financial Report continued

ACCOUNTING POLICIES (continued) 1.4 Financial instruments based on current bid prices. If the market for Cash and cash equivalents transaction at the time of the transaction, fnancial position as a fnance lease use. This condition is regarded as met only Classifcation a fnancial asset is not active (and for affects neither accounting proft nor taxable obligation. The discount rate used in when the sale is highly probable and the unlisted securities), the company establishes Cash and cash equivalents comprise cash on proft (tax loss). calculating the present value of the asset (or disposal group) is available for The company classifes fnancial assets fair value by using valuation techniques. hand and demand deposits, and other minimum lease payments is the company’s immediate sale in its present condition. and fnancial liabilities into the following These include the use of recent arm’s short-term highly liquid investments that A deferred tax asset is recognised for the incremental borrowing rate. The lease Management must be committed to the categories: length transactions, reference to other are readily convertible to a known amount carry forward of unused tax losses and payments are apportioned between the sale, which should be expected to qualify unused STC credits to the extent that it is fnance charge and reduction of the for recognition as a completed sale within Q Financial assets at fair value through instruments that are substantially the same, of cash and are subject to an insignifcant proft or loss - held for trading discounted cash fow analysis, and option risk of changes in value. These are initially probable that future taxable proft will outstanding liability.The fnance charge is one year from the date of classifcation. pricing models making maximum use of and subsequently recorded at fair value. be available against which the unused allocated to each period during the lease Q Loans and receivables market inputs and relying as little as tax losses and unused STC credits can be term so as to produce a constant Non-current assets held for sale (or disposal Classifcation depends on the purpose possible on entity-specifc inputs. Bank overdraft and borrowings utilised. periodic rate on the remaining balance group) are measured at the lower of its for which the fnancial instruments were of the liability. carrying amount and fair value less costs obtained / incurred and takes place at initial Loans to shareholders, directors, managers Bank overdrafts and borrowings are initially Deferred tax assets and liabilities are to sell. recognition. Classifcation is re-assessed on and employees measured at fair value, and are measured at the tax rates that are expected Operating leases – lessee an annual basis, except for derivatives and subsequently measured at amortised cost, to apply to the period when the asset is A non-current asset is not depreciated (or fnancial assets designated as at fair value These fnancial assets are classifed as loans using the effective interest rate method. realised or the liability is settled, based Operating lease payments are recognised as amortised) while it is classifed as held for through proft or loss, which shall not be and receivables. Any difference between the proceeds (net of on tax rates (and tax laws) that have been an expense on a straight-line basis over the sale, or while it is part of a disposal group classifed out of the fair value through proft transaction costs) and the settlement or enacted or substantively enacted by the end lease term. The difference between classifed as held for sale. or loss category. Trade and other receivables redemption of borrowings is recognised of the reporting period. the amounts recognised as an expense and over the term of the borrowings in the contractual payments are recognised as Interest and other expenses attributable to Initial recognition and measurement Trade receivables are measured at initial accordance with the company’s accounting Tax expenses an operating lease asset. This liability the liabilities of a disposal group classifed recognition at fair value, and are policy for borrowing costs. is not discounted. as held for sale are recognised in proft Financial instruments are recognised subsequently measured at amortised cost Current and deferred taxes are recognised or loss. initially when the company becomes a using the effective interest rate method. 1.5 Tax as income or an expense and included in Any contingent rents are expensed in the proft or loss for the period, except to the period they are incurred. party to the contractual provisions of the Appropriate allowances for estimated Current tax assets and liabilities 1.9 Impairment of assets instruments. irrecoverable amounts are recognised in extent that the tax arises from: The company assesses at each end of the Q a transaction or event which is proft or loss when there is objective Current tax for current and prior periods is, 1.7 Inventories reporting period whether there is any recognised, in the same or a different period, The company classifes fnancial evidence that the asset is impaired. to the extent unpaid, recognised as a Inventories consist of consumable spares indication that an asset may be impaired. If to other comprehensive income, or instruments, or their component parts, on Signifcant fnancial diffculties of the liability. If the amount already paid in in stockholding to support technical any such indication exists, the company Q a business combination. initial recognition as a fnancial asset, a debtor, probability that the debtor will respect of current and prior periods exceeds maintenance. Inventories are measured at estimates the recoverable amount of the fnancial liability or an equity instrument enter bankruptcy or fnancial reorganisation, the amount due for those periods, the the lower of cost and net realisable value. asset. Current tax and deferred taxes are charged in accordance with the substance of the and default or delinquency in payments excess is recognised as an asset. Net realisable value is the estimated selling contractual arrangement. (more than 30 days overdue) are or credited to other comprehensive income price in the ordinary course of business less Irrespective of whether there is any if the tax relates to items that are credited considered indicators that the trade Current tax liabilities (assets) for the current the estimated costs of completion and the indication of impairment, the company also: or charged, in the same or a different period, Financial instruments are measured initially receivable is impaired. The allowance and prior periods are measured at the estimated costs necessary to make the sale. Q tests intangible assets with an indefnite to other comprehensive income. at fair value, except for equity investments recognised is measured as the difference amount expected to be paid to (recovered useful life or intangible assets not yet for which a fair value is not determinable, between the asset’s carrying amount and from) the tax authorities, using the tax rates The cost of inventories comprises of all available for use for impairment Current tax and deferred taxes are charged which are measured at cost and are the present value of estimated future cash (and tax laws) that have been enacted or costs of purchase, costs of conversion and annually by comparing its carrying amount or credited directly to equity if the tax classifed as available-for-sale fnancial fows discounted at the effective interest substantively enacted by the end of the other costs incurred in bringing the with its recoverable amount. This relates to items that are credited or charged, assets. For fnancial instruments which rate computed at initial recognition. reporting period. inventories to their present location and impairment test is performed during the are not at fair value through proft or loss, in the same or a different period, directly in condition. annual period and at the same time every equity. transaction costs are included in the initial The carrying amount of the asset is reduced Deferred tax assets and liabilities period. measurement of the instrument. through the use of an allowance account, The cost of inventories of items that are not Q tests goodwill acquired in a business and the amount of the loss is recognised A deferred tax liability is recognised for all 1.6 Leases ordinarily interchangeable and goods or combination for impairment annually. Transaction costs on fnancial instruments in proft or loss within operating expenses. taxable temporary differences, except to the A lease is classifed as a fnance lease if services produced and segregated for at fair value through proft or loss are When a trade receivable is uncollectable, it extent that the deferred tax liability it transfers substantially all the risks and specifc projects is assigned using specifc If there is any indication that an asset may recognised in proft or loss. is written off against the allowance arises from the initial recognition of an rewards incidental to ownership. A lease is identifcation of the individual costs. be impaired, the recoverable amount is account for trade receivables. Subsequent asset or liability in a transaction which at classifed as an operating lease if it does estimated for the individual asset. If it is Derecognition recoveries of amounts previously written the time of the transaction, affects neither not transfer substantially all the risks and The cost of inventories is assigned using not possible to estimate the recoverable off are credited against operating expenses accounting proft nor taxable proft rewards incidental to ownership. the weighted average cost formula. The amount of the individual asset, the Financial assets are derecognised when the in proft or loss. (tax loss). same cost formula is used for all inventories recoverable amount of the cash-generating rights to receive cash fows from the Finance leases – lessee having a similar nature and use to the unit towhich the asset belongs is investments have expired or have been Trade and other receivables are classifed as A deferred tax asset is recognised for all entity. determined. The recoverable amount of an transferred and the company has loans and receivables. deductible temporary differences to the Finance leases are recognised as assets and asset or a cash-generating unit is the transferred substantially all risks and extent that it is probable that taxable proft liabilities in the statement of fnancial 1.8 Non-current assets held for sale higher of its fair value less costs to sell Trade and other payables rewards of ownership. will be available against which the position at amounts equal to the fair value and disposal groups and its value in use. deductible temporary difference can be of the leased property or, if lower, the Non-current assets and disposal groups are Fair value determination Trade payables are initially measured at fair utilised. A deferred tax asset is not present value of the minimum lease If the recoverable amount of an asset is classifed as held for sale if their carrying value, and are subsequently measured at recognised when it arises from the initial payments. The corresponding liability to the less than its carrying amount, the carrying amount will be recovered through a sale The fair values of quoted investments are amortised cost, using the effective interest recognition of an asset or liability in a lessor is included in the statement of amount of the asset is reduced to its rate method. transaction rather than through continuing

78 SA Express SA Express 79 Financial Report continued

ACCOUNTING POLICIES (continued)

recoverable amount. That reduction is an payments as a result of past performance. Qprovision; and specifcally borrowed for the purpose of When a gain or loss on a non-monetary incurred in contravention of or that is not impairment loss. the amount initially recognised less obtaining a qualifying asset less any item is recognised to other comprehensive incurred in accordance with a requirement 1.12 Provisions and contingencies cumulative amortisation. temporary investment of those borrowings. income and accumulated in equity, any of any applicable legislation and defnes Q Weighted average of the borrowing costs exchange component of that gain or loss is fruitless and wasteful expenditure as An impairment loss of assets carried at cost Provisions are recognised when: applicable to the entity on funds generally recognised to other comprehensive income expenditure was made in vain and would less any accumulated depreciation or Q the company has a present obligation as a Contingent assets and contingent borrowed for the purpose of obtaining a and accumulated in equity. When a gain or have been avoided had reasonable care amortisation is recognised immediately in result of a past event; liabilities are not recognised. Contingencies qualifying asset. The borrowing costs loss on a non-monetary item is recognised been exercised. proft or loss. Any impairment loss of a Q it is probable that an outfow of are disclosed in note 29. capitalised do not exceed the total in proft or loss, any exchange component revalued asset is treated as a revaluation resources embodying economic benefts will borrowing costs incurred. of that gain or loss is recognised in proft All unauthorised, irregular, fruitless and decrease. be required to settle the obligation; and 1.13 Revenue or loss. wasteful expenditure is accounted for in Q a reliable estimate can be made of the When the outcome of a transaction The capitalisation of borrowing costs proft/loss in the period in which they are An entity assesses at each reporting date obligation. whether there is any indication that an involving the rendering of services can be commences when: Cash fows arising from transactions in a identifed. estimated reliably, revenue associated with Q expenditures for the asset have occurred; foreign currency are recorded in Rands by impairment loss recognised in prior periods The amount of a provision is the present for assets other than goodwill may no the transaction is recognised by reference to Q borrowing costs have been incurred, and applying to the foreign currency amount 1.19 Neutrality advance value of the expenditure expected to be the stage of completion of the transaction at longer exist or may have decreased. If any Q activities that are necessary to prepare the exchange rate between the Rand and The determination of the prepayment to required to settle the obligation. the end of the reporting period. The such indication exists, the recoverable the asset for its intended use or sale are in the foreign currency at the date of the cash South African Express Airways is adjusted outcome of a transaction can be estimated amounts of those assets are estimated. progress. fow. quarterly to provide cash neutrality to both Where some or all of the expenditure re- reliably when all the following conditions South African Airways and South African quired to settle a provision is expected to be are satisfed: The increased carrying amount of an asset Capitalisation is suspended during 1.16 Maintenance reserves Express Airways, to compensate the reimbursed by another party, the Q the amount of revenue can be measured other than goodwill attributable to a extended periods in which active impairment provision Company for the loss of interest and cash reimbursement shall be recognised when, reliably; reversal of an impairment loss does not development is interrupted. fow impact caused by the delay in and only when, it is virtually certain that Q it is probable that the economic benefts Any non-refundable amounts that are not exceed the carrying amount that would reimbursement will be received if the entity probable of being used to fund future receiving revenue. associated with the transaction will fow to Capitalisation ceases when substantially all have been determined had no impairment settles the obligation. The reimbursement maintenance expense are recognized as the company; the activities necessary to prepare the loss been recognised for the asset in prior shall be treated as a separate asset. The additional aircraft rental expense. In Q the stage of completion of the qualifying asset for its intended use or sale periods. A reversal of an impairment loss amount recognised for the reimbursement determining whether it is probable that of assets carried at cost less accumulated transaction at the end of the reporting are complete. shall not exceed the amount of the period can be measured reliably; and maintenance deposits will be used to fund depreciation or amortisation other than provision. the cost of maintenance events, Q the costs incurred for the transaction and All other borrowing costs are recognised as goodwill is recognised immediately in proft management considers the condition, the costs to complete the transaction can be an expense in the period in which they are or loss. Any reversal of an impairment loss of Provisions are not recognised for future including the airframe, the engines, the measured reliably. incurred. a revalued asset is treated as a operating losses. auxiliary power unit and the landing gear, revaluation increase. of the related aircraft, the projected future When the outcome of the transaction 1.15 Translation of foreign currencies If an entity has a contract that is onerous, the involving the rendering of services cannot be usage of the aircraft during the term of the 1.10 Share capital and equity Foreign currency transactions present obligation under the contract shall estimated reliably, revenue shall be lease based on the Company’s business An equity instrument is any contract that be recognised and measured as a recognised only to the extent of the and feet plan, and the estimated cost of A foreign currency transaction is recorded, evidences a residual interest in the assets provision. expenses recognised that are recoverable. performing all required maintenance during of an entity after deducting all of its on initial recognition in Rands, by applying the lease term. These estimates are based to the foreign currency amount the spot liabilities. A constructive obligation to restructure aris- Revenue is classifed under these categories: on the experience of the Company’s exchange rate between the functional es only when an entity: Q Passenger revenue; maintenance personnel and industry currency and the foreign currency at the 1.11 Employee benefts Q has a detailed formal plan for the Q Cargo revenue; and available data, including historical feet date of the transaction. operating statistics reports published by Short-term employee benefts restructuring, identifying at least: Q Voyager revenue. the aircraft and engine manufacturers. The cost of short-term employee benefts, - the business or part of a business At the end of the reporting period: (those payable within 12 months after the concerned; Revenue is measured at the fair value of the Q foreign currency monetary items are service is rendered, such as paid vacation - the principal locations affected; consideration received or receivable and 1.17 Maintenance plans (including translated using the closing rate; leave and sick leave, bonuses, and - the location, function, and approximate represents the amounts receivable for power by the hour agreements) Q non-monetary items that are measured in non-monetary benefts such as medical care), number of employees who will be goods and services provided in the normal terms of historical cost in a foreign currency The Company raises a provision for the are recognised in the period in which the compensated for terminating their course of business, net of trade discounts are translated using the exchange rate restoration of leased aircraft in accordance service is rendered and are not services; and volume rebates, and value added tax. at the date of the transaction; and with the lease contracts. The prepayment discounted. - the expenditures that will be undertaken; non-monetary items that are measured at made at inception of the lease is recognised and Interest is recognised, in proft or loss, using Q fair value in a foreign currency are as an asset and is written off/wound down The expected cost of compensated absences - when the plan will be implemented; and the effective interest rate method. translated using the exchange rates at the against the provision as maintenance of is recognised as an expense as the Q has raised a valid expectation in those date when the fair value was determined. the relevant aircraft is incurred. employees render services that increase affected that it will carry out the 1.14 Borrowing costs their entitlement or, in the case of restructuring by starting to implement that Borrowing costs that are directly attributable Exchange differences arising on the 1.18 Irregular Expenditure non-accumulating absences, when the ab- plan or announcing its main features to to the acquisition, construction or production settlement of monetary items or on Irregular expenditure is incurred when the sence occurs. those affected by it. of a qualifying asset are capitalised translating monetary items at rates different procurement processes are not adhered to as part of the cost of that asset until such from thoseat which they were translated in the procurement of goods and The expected cost of proft sharing and After their initial recognition contingent time as the asset is ready for its intended on initial recognition during the period or services. Section 1 of the Public Finance bonus payments is recognised as an liabilities recognised in business use. The amount of borrowing costs eligible in previous annual fnancial statements are Management Act, as amended, defnes expense when there is a legal or combinations that are recognised separately are subsequently measured at the higher of: for capitalisation is determined as follows: recognised in proft or loss in the period in irregular expenditure as expenditure, constructive obligation to make such Q Actual borrowing costs on funds Q the amount that would be recognised as a which they arise. other than unauthorised expenditure,

80 SA Express SA Express 81 Financial Report continued

NOTES TO THE ANNUAL FINANCIAL STATEMENTS

2. New Standards and Interpretations equity investment (that is not held for effective date. The company expects to The effective date of the amendment is for the underlying asset is of a low value. A the information to disclose to meet the trading) in other comprehensive income adopt the standard for the frst time in years beginning on or after 01 January 2016. lessee will be required to recognise the objective of providing a basis for users of 2.1 Standards and interpretations with only dividend income generally the frst annual fnancial period after the The company expects to adopt the right-of-use asset and a lease liability the fnancial statements to assess the effect amendment for the frst time in the 2017 representing its obligation to make lease that the leases have on the fnancial not yet efective recognised in proft or loss. effective date. Q With regard to the measurement of annual fnancial statements. payments. As a consequence, a lessee position, fnancial performance and cash recognises depreciation of the right-of-use fows of the lessee. The lessor will need to The company has chosen not to early adopt fnancial liabilities designated as at fair It is unlikely that the standard will have a It is unlikely that the amendment will have asset and interest on the lease liability. Cash provide enhanced disclosure around the the following standards and interpretations, value through proft or loss, IFRS 9 material impact on the company’s annual a material impact on the company’s annual repayments of the lease liability will lessor’s risk exposure, particularly to which have been published and are requires that the amount of change in the fnancial statements. fnancial statements. be classifed into a principal portion and residual value risk. mandatory for the company’s accounting fair value of the fnancial liability that is interest portion and presented in the periods beginning on or after 01 April 2016 attributable to changes in the credit IFRS 15 Revenue from Contracts with IFRS 16 Leases statement of cash fows applying IAS 7 The effective date of the standard is for or later periods: risk of the liability is presented in other Customers comprehensive income, unless the Statement of Cash Flows. years beginning on or after 01 January 2019. IFRS 16 supersedes IAS 17 Leases, IFRIC 4 IFRS 9 Financial Instruments recognition of the effect of the changes IFRS 15 supersedes IAS 11 Construction of the liability’s credit risk in other contracts; IAS 18 Revenue; IFRIC 13 Determining whether an arrangement A lessor will continue to classify its leases The company expects to adopt the standard contains a lease, SIC-15 Operating leases as operating and fnance leases as per the for the frst time in the 2020 annual IFRS 9 issued in November 2009 introduced comprehensive income would create or Customer Loyalty Programmes; IFRIC 15 - Incentives and SIC-27 Evaluating the requirements of IAS 17 which have been fnancial statements. new requirements for the classifcation and enlarge an accounting mismatch in proft or Agreements for the construction of Real substance of transactions involving the carried forward to the new standard and measurements of fnancial assets. IFRS 9 loss. Under IAS 39, the entire amount of the Estate; IFRIC 18 Transfers of Assets from legal form of a lease. will account for the two types of leases The impact of this standard is currently was subsequently amended in October change in fair value of a fnancial liability Customers and SIC 31 Revenue - Barter differently. being assessed. 2010 to include requirements for the designated as at fair value through proft or Transactions Involving Advertising Services. The standard introduces a single lessee classifcation and measurement of loss is presented in proft or loss. accounting model and requires a lessee to The standard contains expanded disclosure fnancial liabilities and for derecognition, Q In relation to the impairment of fnancial The core principle of IFRS 15 is that an recognise assets and liabilities for leases requirements for lessees. Lessees will need and in November 2013 to include the new assets, IFRS 9 requires an expected credit entity recognises revenue to depict the with a term of more than 12 months, unless to apply judgement in deciding upon requirements for general hedge accounting. loss model, as opposed to an incurred credit transfer of promised goods or services to Another revised version of IFRS 9 was loss model under IAS 39. The expected customers in an amount that refects the issued in July 2014 mainly to include a) credit loss model requires an entity to ac- consideration to which the entity expects to 3. Property, plant and equipment impairment requirements for fnancial count for expected credit losses and chang- be entitled in exchange for those goods or es in those expected credit losses at each services. An entity recognises revenue in assets and b) limited amendments to the 2016 2015 classifcation and measurement reporting date to refect changes in credit accordance with that core principle by requirements by introducing a “fair value risk since initial recognition. It is therefore applying the following steps: Cost or Accumulated Carrying Cost or Accumulated Carrying value Q through other comprehensive income” no longer necessary for a credit event to Identify the contract(s) with a customer revaluation depreciation value revaluation depreciation Q (FVTOCI) measurement category for certain have occurred before credit losses Identify the performance obligations in simple debt instruments. are recognised. the contract Leasehold 226 218 774 (168 341 498) 57 877 276 186 559 618 (106 913 734) 79 645 884 Q The new general hedge accounting Q Determine the transaction price improvements - aircraft requirements retain the three types of Q Allocate the transaction price to the Key requirements of IFRS 9: Plant and machinery 33 329 390 (29 656 935) 3 672 455 33 160 265 (28 153 449) 5 006 816 hedge accounting mechanisms currently performance obligations in the contract Q All recognised fnancial assets that are Motor vehicles 3 031 733 (2 939 018) 92 715 3 595 252 (3 449 557) 145 695 available in IAS 39. Under IFRS 9, greater Q Recognise revenue when (or as) the within the scope of IAS 39 Financial Rotables 399 768 977 (131 184 922) 268 584 055 384 799 554 (114 697 631) 270 101 923 fexibility has been introduced to the types entity satisfes a performance obligation. Instruments: Recognition and Land, building and 1 260 562 (808 598) 451 964 1 260 562 (772 228) 488 334 of transactions eligible for hedge Measurement are required to be structures accounting, specifcally broadening the IFRS 15 also includes extensive new subsequently measured at amortised cost Aircraft 856 457 487 (742 899 428) 113 558 059 957 282 487 (809 743 820) 147 538 667 types of instruments that qualify for disclosure requirements. or fair value. Specifcally, debt investments Containers 5 650 (5 391) 259 5 650 (5 109) 541 that are held within a business model hedging instruments and the types of risk The effective date of the standard is for components of non-fnancial items that are years beginning on or after 01 January 2017. Capital work in progress 54 118 659 - 54 118 659 1 169 893 - 1 169 893 whose objective is to collect the contractual Total 1 574 191 232 (1 075 835 790) 498 355 442 1 567 833 281 (1 063 735 528) 504 097 753 cash fows, and that have contractual cash eligible for hedge accounting. In addition, The company expects to adopt the standard fows that are solely payments of principal the effectiveness test has been replaced for the frst time in the 2018 annual and interest on the outstanding principal with the principal of an “economic fnancial statements. are generally measured at amortised cost relationship”. Retrospective assessment It is unlikely that the standard will have a 2014 at the end of subsequent reporting periods. of hedge effectiveness is also no longer material impact on the company’s annual required. Enhanced disclosure requirements fnancial statements. Cost or Accumulated Carrying value Debt instruments that are held within a revaluation depreciation business model whose objective is achieved about an entity’s risk management activities have also been introduced. Amendments to IAS 16 and IAS 38: by both collecting contractual cash fows Leasehold improvements - aircraft 134 850 600 (39 305 227) 95 545 373 and selling fnancial assets, and that have Clarifcation of Acceptable Methods of Plant and machinery 31 885 147 (26 748 066) 5 137 081 contractual terms of the fnancial asset give The effective date of the standard is for Depreciation and Amortisation Motor vehicles 3 595 252 (3 393 223) 202 029 rise on specifed dates to cash fows that are years beginning on or after 01 January 2018. Rotables 364 621 490 (86 289 212) 278 332 278 solely payments of principal and interest The effective date has not yet been The amendment clarifes that a depreciation Land, building and 1 257 245 (792 603) 464 642 on outstanding principal, are measured at established as the project is currently or amortisation method that is based on structures FVTOCI. All other debt and equity incomplete. The IASB has communicated revenue that is generated by an activity Aircraft 936 671 623 (818 464 288) 118 207 335 investments are measured at fair value at that the effective date will not be before that includes the use of the asset is not an the end of subsequent reporting periods. In years beginning on or after 01 January 2018. appropriate method. This requirement can Containers 5 650 (4 826) 824 addition, under IFRS 9, entities may make IFRS 9 may be early adopted. If IFRS 9 is be rebutted for intangible assets in very Capital work in progress 695 412 - 695 412 an irrevocable election to present early adopted, the new hedging specifc circumstances as set out in the Total 1 473 582 419 (974 997 445) 498 584 974 subsequent changes in the fair value of an requirements may be excluded until the amendments to IAS 38.

82 SA Express SA Express 83 Financial Report continued

NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued) Capital work in progress current year, an assessment consists of assets not yet ready of the useful lives of all the Reconciliation of property, plant and equipment - 2016 for use and therefore not allo- rotables were reassessed. cated to a specifc asset category. Previously, the useful life of the As at 31 March 2016, there were majority of the rotables were Opening Other changes, Impairment Additions Disposals Depreciation Total two engines which had not assessed at 5 years, this has balance movements loss yet been allocated as well as subsequently been assessed to airfreight which had not been be more in line with the actual Leasehold 79 645 884 39 659 156 - - (61 427 764) - 57 877 276 allocated to specifc assets.In the useful life of the assets. improvements - aircraft Plant and machinery 5 006 816 169 124 - - (1 503 485) - 3 672 455 Motor vehicles 145 695 - - - (52 980) - 92 715 4. Intangible assets Rotables 270 101 923 14 779 726 (3 358 838) 4 091 453 (17 030 209) - 268 584 055 Land, building and 488 334 - - - (36 370) - 451 964 2016 2015 structures Aircraft 147 538 667 6 787 861 - - (35 946 683) (4 821 786) 113 558 059 Cost / Accumulated Carrying Cost / Accumulated Carrying Containers 541 - - - (282) - 259 Valuation amortisation value Valuation amortisation value Capital work in progres 1 169 893 52 948 766 - - - - 54 118 659 504 097 753 114 344 633 (3 358 838) 4 091 453 (115 997 773) (4 821 786) 498 355 442 Computer packages - 9 131 416 (9 131 416) - 9 131 416 (9 131 416) - internally generated Reconciliation of property, plant and equipment - 2015 Uniform design - purchased ------Total 9 131 416 (9 131 416) - 9 131 416 (9 131 416) -

Opening Other changes, Additions Disposals Transfers Depreciation Total balance movements 2014 Leasehold 95 545 373 52 904 168 - (1 195 149) (21 062 743) (46 545 765) 79 645 884 Cost / Accumulated Carrying improvements - aircraft Valuation amortisation value Plant and machinery 5 137 081 913 180 - 361 938 - (1 405 383) 5 006 816 Motor vehicles 202 029 - - - - (56 334) 145 695 Computer packages - internally generated 9 131 416 (8 734 266) 397 150 Rotables 278 332 278 35 252 031 (1 787 730) - - (41 694 656) 270 101 923 Land, building and 464 642 55 317 - - - (31 624) 488 334 Uniform design - purchased 850 000 (850 000) - structures Total 9 981 416 (9 584 266) 397 150 Aircraft 118 207 335 20 610 863 - - 42 125 485 (33 405 016) 147 538 667 Containers 824 - - - - (282) 541 Capital work in progres 695 412 906 565 - (432 084) - - 1 169 893 Reconciliation of intangible assets - 2016 498 584 974 110 642 124 (1 787 730) (1 265 295) 21 062 742 (123 139 060) 504 097 753

Opening balance Total Reconciliation of property, plant and equipment - 2014 Computer packages - internally generated - - Opening Other changes, Additions Disposals Transfers Depreciation Total balance movements Reconciliation of intangible assets - 2015 Leasehold 38 599 435 94 411 613 (1 519 564) (208 704) - (35 737 407) 95 545 373 improvements - aircraft Plant and machinery 2 541 721 3 661 053 - 208 704 - (1 274 397) 5 137 081 Opening balance Amortisation Total Motor vehicles 355 331 - - - - (153 302) 202 029 Rotables 30 606 221 57 685 136 - - 235 210 930 (45 170 009) 278 332 278 Computer packages - internally generated 397 150 (397 150) - Land, building and 1 262 062 5 965 - (728 000) - (75 385) 464 642 structures Aircraft 133 006 442 24 318 592 - - - (39 117 699) 118 207 335 Reconciliation of intangible assets - 2014 Containers 1 106 - - - - (282) 824 Capital work in progres 531 751 163 661 - - - - 695 412 206 904 069 180 246 020 (1 519 564) (728 000) 235 210 930 (121 528 481) 498 584 974 Opening balance Additions Transfers Amortisation Total

Computer packages - 762 826 68 104 1 832 286 (2 266 066) 397 150 internally generated Uniform design - purchased 325 833 - - (325 833) - 1 088 659 68 104 1 832 286 (2 591 899) 397 150

84 SA Express SA Express 85 Financial Report continued

NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued) In the prior year, an exercise was performed to correct the valuation issues surrounding 5. Deferred tax inventories this resulted in an impairment of R63 039 872. This adjustment is refected Deferred tax liability under impairment of assets. Inventories are shown at the valuation after taking into The deferred tax assets and the deferred tax liability relate to income tax in the same jurisdiction, and the law allows net account the impairments. During the current settlement. year the impairment amounted to R596 575.

Therefore, they have been offset in the statement of fnancial position as follows: 7. Loans to directors, managers and employees 2016 2015 2014 The Company did not issue any loans to Directors, managers or employees. Deferred tax asset 183 932 639 195 256 048 170 240 678 8. Trade and other receivables Reconciliation of deferred tax asset / (liability) 2016 2015 2014 2016 2015 2014 Aircraft restoration costs 337 188 596 287 860 031 254 763 621 Deposits 32 906 420 32 906 420 29 644 603 At beginning of year 195 256 048 170 240 678 159 122 113 Employee costs in advance 3 575 114 5 582 310 6 179 110 Adjustment of deferred tax asset not previously raised - (1 259 269) 15 032 403 Maintenance reserves 263 516 645 210 864 199 84 610 710 Taxable/(deductible) temporary diference movement on fxed assets 15 404 649 (2 933 510) (72 442 134) Provision: Maintenance reserves write-down (92 190 189) (76 950 770) (47 407 855) Originating temporary diference on accrual of interest on tax - 2 677 830 (827 579) Prepayments 31 068 339 32 031 626 20 502 046 (Originating)/Reversing diference on amounts received in advance (4 480 000) 30 013 872 - Trade receivables 404 887 620 401 445 908 457 665 830 Originating temporary diference on assessed loss (14 709 468) 18 912 153 72 704 864 Value added taxation - 3 667 401 19 387 827 Originating/(reversing) temporary diference on maintenance reserve (14 742 685) (27 078 961) - 980 952 545 897 407 125 825 345 892 Taxable/(deductible) temporary diference on provisions 21 168 933 17 908 588 8 956 759 Taxable/(deductible) temporary diference on intangible assets (39 200) (661 543) (468 908) Taxable/(deductible) temporary diference on prepayments (13 925 638) (12 563 790) (11 836 840) Trade and other receivables pledged as security 183 932 639 195 256 048 170 240 678 The maximum exposure to credit risk at the reporting date is the fair value of each class of loan mentioned above. The Recognition of deferred tax asset jurisdiction to which the deferred tax Company does not hold any collateral as security. asset relates. A deferred tax asset has been An entity shall disclose the amount of a recognised in the current year as future Trade and other receivables past due but not impaired deferred tax asset and the nature of the taxable profts will be available against which evidence supporting its recognition, when: the deferred tax asset will be utilised. This is The ageing of amounts past due but not impaired is as follows: Q the utilisation of the deferred tax asset is based on forecasts prepared by Management, dependent on future taxable profts in excess which show that the Company will make 2016 2015 2014 of the profts arising from the taxable profts in the future. Based on the reversal of existing taxable temporary Company’s 20/20 Strategy, the funding plan differences; and and Whole of State Strategy, the Company 1 month past due - 2 507 671 1 823 267 Q the entity has suffered a loss in either the will be making taxable income that will be 2 months past due - 426 131 - current or preceding period in the tax utilised against the assessed loss. 3 months past due 1 213 858 12 586 450 793 215

Trade and other receivables impaired 6. Inventories As of 31 March 2016, trade and other receivables of R 5 016 846 (2015: R 1 937 893 ; 2014: R 1 788 345) were impaired and provided for. Reconciliation of intangible assets - 2015 Prepayments 2016 2015 2014 Prepayments for aircraft restoration costs relate to restoration costs for leased aircraft, these are paid to Pratt & Whitney Canada Corp, as per the contract with them, who will perform the maintenance as required. Inventories 172 309 376 128 511 547 175 178 302 172 309 376 128 511 547 175 178 302 2016 2015 2014

Aircraft restoration costs 337 188 596 287 860 031 254 763 621 337 188 596 287 860 031 254 763 621

86 SA Express SA Express 87 Financial Report continued

NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued) 10. Share capital Maintenance reserves to claim against future maintenance events. Where it is deemed that the Maintenance reserves are payments made entity will be unable to claim for a future 2016 2015 2014 to certain lessors in terms of the aircraft maintenance event, the maintenance lease contract. The lessors are reserve payments are expensed accordingly. Authorised contractually obligated to reimburse the During the current year, after agreement of 1000 Ordinary shares of R1 each 1 000 1 000 1 000 Company for the qualifying maintenance the accounting opinion with the auditors, 1 000 1 000 1 000 expenditure incurred on aircraft if the maintenance reserves were confirmed Company has a maintenance reserve credit. directly with the lessor. The confirmation Maintenance reserves are recognised as resulted in a write up of maintena ce 2016 2015 2014 an asset. The recoverability of the asset is n assessed annually against the entity’s ability reserves of R77 787 361 in the prior year. Issued 452 Ordinary shares of R1 each 452 452 452 Share premium 501 837 066 501 837 066 501 837 066 501 837 518 501 837 518 501 837 518 2016 2015 2014

Opening balance - maintenance reserve asset 210 864 200 84 610 711 81 610 768 11. Shareholder Loan Claims paid by lessor (20 956 789) (1 579 650) - Restatement - (77 787 361) - Capital reserves comprise of an interest free loan from the Shareholder (Department of Public Enterprises), where the Aircraft returned (32 888 244) - (68 234 774) Company has no contractual obligation to deliver cash or another fnancial asset to the Shareholder. The instrument will or Paid to lessors 106 497 478 205 620 499 71 234 717 may be settled in the issuer’s own equity instrument, if ever called upon. Closing balance - maintenance reserve asset 263 516 645 210 864 200 84 610 711 Provision for maintenance reserve (92 190 189) (76 950 770) (47 407 855) A perpetual guarantee of R121 000 000 has been received from the Shareholder to ensure that the Company remains solvent. 171 326 456 133 913 429 37 202 856

9. Cash and cash equivalents 2016 2015 2014

Cash and cash equivalents consist of: Cash and cash equivalents consist of: Shareholder loan - Department of Public Enterprises 356 954 972 356 954 972 356 954 972 356 954 972 356 954 972 356 954 972 2016 2015 2014 12. Other fnancial liabilities Cash on hand 73 332 72 934 73 017 Bank balances 8 091 431 23 848 711 2 906 119 Bank overdraft (65 344 540) - (99 033 675) 2016 2015 2014 (57 179 777) 23 921 645 (96 054 539) Held at amortised cost Current assets 8 164 763 23 921 645 2 979 136 Nedbank Limited 300 000 000 300 000 000 300 000 000 Current liabilities (65 344 540) - (99 033 675) The loan agreement expired on 31 March 2015. During the current fnancial (57 179 777) 23 921 645 (96 054 539) year, extensions were granted on the loan on a bimonthly basis at rates agreed upon at the time of the extension. 300 000 000 300 000 000 300 000 000

2016 2015 2014 Non-current liabilities At amortised cost - - 200 000 000 The total amount of undrawn facilities available for future operating 58 760 990 92 101 400 20 444 825 activities and commitments Current liabilities At amortised cost 300 000 000 300 000 000 100 000 000 The overdraft facility of R116 000 000 is secured by a guarantee from the Shareholder. 300 000 000 300 000 000 300 000 000

Facilities available with Nedbank Limited 20 000 000 Letters of credit 4 000 000 Letters of guarantee 300 000 000 Term facility loan 324 000 000

Facilities available with First National Bank Limited Direct working capital 116 000 000 Consulting ST 150 000 Consulting LT 39 850 000 Presettlement 10 000 000 Settlement 32 000 000 198 000 000 88 SA Express SA Express 89 Financial Report continued

15. Trade and other payables NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued) 2016 2015 2014 13. Provisions Accrued expense - employee costs 8 045 726 9 542 589 9 293 105 Accrued expense - lease smoothing 82 394 751 76 775 282 54 676 679 Reconciliation of provisions - 2016 Accrued interest 3 825 395 832 513 2 716 903 Accrued leave pay 14 469 266 14 842 168 14 352 272 Opening balance Additions Total Grants and subsidies - 50 000 000 - Passenger service charge 4 179 170 1 971 514 4 438 274 Trade payables 586 591 701 647 841 148 720 762 297 Aircraft restoration 296 469 289 52 808 131 349 277 420 Value added taxation 28 726 697 - - Workmens compensation fund 525 904 1 541 596 1 636 267 Reconciliation of provisions - 2015 728 758 610 803 346 810 807 875 797 16. Revenue Opening balance Additions Total 2016 2015 Aircraft restoration 254 763 621 41 705 668 296 469 289 Cargo revenue 15 561 752 16 449 890 Reconciliation of provisions - 2014 Passenger revenue 2 279 993 092 2 500 590 450 Release of unutilised air trafc liability to revenue 77 671 590 58 756 588 Voyager revenue 18 041 583 18 215 787 Opening balance Additions Total 2 391 268 017 2 594 012 715 17. Other income Aircraft restoration 159 319 046 95 444 575 254 763 621

2016 2015 The provision for aircraft restoration which causes uncertainty as to the timing relates to estimated restoration costs of the outfow. Insurance and other recoveries 21 569 409 3 814 701 that the Company is expected to carry out Sundry income 115 762 608 176 924 784 during the term of the lease contract and 14. Neutrality advance 137 332 017 180 739 485 also at the end of the operating lease. The determination of the pre-payment to The Company has entered into a contract South African Express Airways is adjusted 18. Operating proft (loss) with Pratt and Whitney, who will perform quarterly to provide cash neutrality to the required maintenance of the aircraft. both South African Airways and South Operating proft (loss) for the year is stated after accounting for the following: There is no expected reimbursement in African Express Airways, to compensate respect of this provision. the Company for the loss of interest and 2016 2015 cash fow impact caused by the delay in The costs during the term of the lease receiving revenue. Operating lease charges contract are dependant on fight hours Premises Q Contractual amounts 13 904 555 13 263 437 Motor vehicles Q Contractual amounts 2 198 145 1 923 135 Reconciliation of neutrality advance 2016 2015 2014 Equipment Q Contractual amounts 8 269 009 9 003 083 Opening balance 234 459 314 177 266 915 177 266 915 Aircraft Q Received during the year 34 000 000 57 192 399 - Contractual amounts 365 265 984 336 344 097 268 459 314 234 459 314 177 266 915 389 637 693 360 533 752

Employee costs 561 336 026 589 650 726 At March 2016, an addition amount of R5 049 925 was due to South African Express Airways. This amount was received in May 2016. Commission paid 36 640 247 90 422 226 Consumables 35 995 477 62 793 402 Penalties 20 670 481 23 847 888 Insurance 21 203 409 16 767 911 Navigation, landing and parking 209 067 392 237 126 820 Network charges 136 192 484 124 427 489 Petrol and oil 400 989 787 603 029 757 Ground handling 80 461 308 121 526 896 Repairs and maintenance 208 508 222 205 845 835 Training 27 621 596 33 528 009 Voyager bonus miles 29 929 857 23 097 679

90 SA Express SA Express 91 Financial Report continued

NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued)

19. Investment revenue 23. Finance costs

2016 2015 2016 2015

Interest revenue Non-current borrowings 29 312 645 28 624 060 Bank 771 441 7 122 773 Interest paid on late payment 10 788 240 1 502 854 771 441 7 122 773 40 100 885 30 126 914

Total interest income, calculated using the effective interest rate, on fnancial instruments not at fair value through proft or loss Total interest expense, calculated using the effective interest rate, on fnancial instruments not at fair value through proft or loss amounted to R 771 441 (2015: R 7 122 773). amounted to R 40 100 885 (2015: R 30 126 914).

20. Fair value adjustments 23. Taxation

Major components of the tax (income) expense 2016 2015

Foreign exchange revaluations (36 463 576) (10 359 711) 2016 2015 (36 463 576) (10 359 711) Deferred 21. Impairment of assets Deferred taxation - current year 11 323 409 (25 015 370) 11 323 409 (25 015 370)

2016 2015 Reconciliation of the tax expense

Material impairment losses (recognised) reversed Reconciliation between applicable tax rate and average effective tax rate. Property, plant and equipment (4 821 786) - During May 2015, an aircraft was damaged. The aircraft has not fown since Applicable tax rate 28.00 % 28.00 % date of damage. Permanent diferences 9.69 % 0.35 % Inventory write downs and opening balance adjustment 6 719 368 (62 163 942) Capital gains tax - % (0.52)% In the prior year an exercise was performed to correct the valuation issues Prior year over/under - % (1.33)% surrounding inventories this resulted in a write down of R62 163 940.65. 37.69 % 26.50 % Provision for maintenance reserve (15 239 420) (62 171 541) Possible impairment of maintenance reserves. The estimated tax loss available for set off against future taxable income isR(783 477 478) (2015: R 796 462 196 Write down of maintenance reserves ; 2014: R713 653 415). During the current year two of the leased aircraft were returned to the (32 888 244) - lessor, the maintenance reserves on these aircraft will be unrecoverable. 25. Auditors remuneration (46 230 082) (124 335 483) 22. Proceeds on sale of assets 2016 2015 Accounting Net Book Value 2016 proft/(loss) External auditors 4 091 369 2 117 882 Internal auditors 1 277 196 1 239 410 Motor vehicles - 100 000 5 368 565 3 357 292 Rotables 3 358 838 (3 358 838) 3 358 838 (3 258 838)

Accounting Net Book Value 2015 proft/(loss)

Rotables 1 787 730 7 390 843 Consumables - 3 593 342 1 787 730 10 984 185

92 SA Express SA Express 93 Financial Report continued

29. Contingencies NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued) South African Express Airways (SOC) Limited has taken out the following guarantees with First National Bank in order to 26. Cash generated from operations provide assurance should they default with regards to certain terms with the contracts signed:

2016 2015 2016 2015

(Loss) proft before taxation 28 279 585 (94 405 078) Airports Company of South Africa 110 822 110 822 Adjustments for: Commissioner for Customs and Excise 275 000 275 000 Depreciation and amortisation 115 997 774 123 536 212 Richards Bay Airport Company (Proprietary) Limited 2 320 360 1 700 516 Interest received - investment (771 441) (7 122 773) Canadian Regional Aircraft Finance Transaction 13 232 128 10 870 720 Finance costs 40 100 885 30 126 914 Computershare - 3 057 390 Foreign exchange revaluation 11 151 359 7 547 308 Lighthouse 7 088 640 5 823 600 Movements in provisions 52 808 131 41 705 668 Air Trafc Navigation Services Limited 9 950 000 9 950 000 Amorisation of training bonds 1 958 498 4 052 767 Brit Air - 18 926 700 Non cash fow movement - transfer of property, plant and equipment (4 091 453) 1 265 295 Bombardier 22 152 000 18 198 750 Impairment of property, plant and equipment 4 821 786 - SAN Parks - - Non cash fow movement - maintenance reserves 48 127 664 62 171 542 SAF CRJ-200LR 3 721 536 - Non cash movement - rotable and consumable valuation (6 719 368) 62 163 941 58 850 486 68 913 498 Non cash fow movement - sundry income - (21 062 740) Changes in working capital: (37 078 461) (15 497 186) South African Express Airways (SOC) Limited has taken out the following guarantees with Nedbank Limited in order to provide Inventories (144 782 942) (145 832 850) assurance should they default with regards to certain terms within the contracts signed: Trade and other receivables (74 588 200) (4 528 989) Trade and other payables 35 213 817 44 120 031 2016 2015 27. Tax refunded Q400 Leasing (SOC) Limited 20 000 000 20 000 000

2016 2015 30. Related parties (Proprietary) Limited. Airchefs (Proprietary) Limited Balance at beginning of the year - 75 410 097 Relationships Other related parties include other entities - 75 410 097 which are owned or operated by the South African Express SOC Limited shall • Holding company Shareholder. effect payment to Airchefs (Proprietary) 28. Commitments Department of Public Enterprises on behalf Limited within 30 days after receipt of the Terms of related party receivables original invoice and statement. Operating leases – as lessee (expense) of the South African Government, incorporated in accordance with the Companies Act of the Republic of South African Airways SOC Limited Denel SOC Limited 2016 2015 South Africa Payment in respect of fown revenue and The capital sum shall bear interest at 8.5 % • Signifcant third party relevant levies and taxes for the given per annum, compounded monthly and Minimum lease payments due South African Airways SOC Limited month of operation shall be transferred by calculated on the reducing balance - within one year 260 495 358 282 785 726 Denel SOC Limited SAA Technical direct bank deposits on the 18th of each outstanding from time to time. South African - in second to ffth year inclusive 843 133 160 889 571 747 (Proprietary) Limited SAA Cargo (Proprietary) month following the month of operation, and express airways SOC Limited shall pay the - later than fve years 126 468 041 324 004 565 Limited Airchefs (Proprietary) Limited 1 230 096 559 1 496 362 038 if this falls over a weekend, the transfer is to capital sum together with the interest • Members of key management take place on the following Monday. accrued from time to time in six instalments. - I Ntshanga South African Express Airways has entered into various lease agreements with third parties in respect of aircraft and premises - M Shelley South African Airways Cargo (Proprietary) South African Airways Cargo (Proprietary) for its day to day operations. The lease periods on aircraft range from three to fve years and one to fve years on buildings. - D Allanby Limited Limited - K Nkala - M Mochele Payment in respect of cargo revenue is due Payment will be effected by South African - P Mashaba (Resigned) 30 days from date of invoice. Express to SAA Cargo, 30 days from the date - B van Wyk of the original invoice and statement. Terms of related party payables South South African Airways Technical (Proprietary) Nature of relationships African Airways SOC Limited - Fuel Limited Payment will be effected by South African Express to SAA Technical, 30 days South African Airways (SOC) Limited and Any amounts payable by South African from the date of the original invoice and Denel (SOC) Limited are state owned Express to South African Airways SOC statement. companies and therefore have the same Limited shall be invoiced weekly covering all shareholders as South African Express supplier invoices processed, and settlement Key management Airways (SOC) Limited. South African Airways shall be effected within 17 days from date of (SOC) Limited holds 100 % shareholding in invoice delivery. Key management includes the Executive Airchefs (Proprietary) Limited, SAA Cargo Directors and the Executive management (Proprietary) Limited and SAA Technical team. Refer to emoluments note

94 SA Express SA Express 95 Financial Report continued

NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued) Non-executive Related party balances 2016 2016 2015 Directors’ fees Total

Amounts included in Trade receivable (Trade Payable) regarding related parties G. Mothema 796 928 796 928 South African Airways SOC Limited 269 745 285 274 699 850 B. Dibate 397 568 397 568 South African Airways Cargo (Proprietary) Limited 1 325 788 1 575 198 B. Ssamula 89 250 89 250 South African Airways SOC Limited (105 741 211) (160 067 456) E. Mabyana 62 521 62 521 South African Airways Technical (Proprietary) Limited (14 640 425) (10 894 308) G. Sibiya 311 469 311 469 South African Airways Cargo (Proprietary) Limited (265 989) (105 082) K. Nondumo 31 445 31 445 Airchefs (Proprietary) Limited (2 944 057) (17 439 341) N. Gxumisa 41 635 41 635 Denel SOC Limited (582 727) (1 037 416) N. Nkabinde 276 116 276 116 Other related parties 191 664 035 92 804 001 P. Ramosebudi 298 908 298 908 R. Naithani 252 976 252 976 Neutrality advance owing (to)by related parties T. Abrahams 280 790 280 790 South African Airways SOC Limited (268 459 314) (234 459 314) 2 839 606 2 839 606

Related party transactions 2015 Directors’ fees Total Purchases from (sales to) related parties South African Airways SOC Limited (2 375 706 265) (2 577 562 825) G. Mothema 250 084 250 084 South African Airways Cargo (Proprietary) Limited (15 561 752) (16 449 890) A. Mabizela 624 811 624 811 Denel SOC Limited 3 471 111 2 855 481 B. Dibate 326 545 326 545 Airchefs (Proprietary) Limited 14 170 096 47 199 702 B. Ssamula 342 688 342 688 South African Airways SOC Limited 777 833 837 321 390 073 E. Mabyana 250 084 250 084 South African Airways Cargo (Proprietary) Limited 1 614 806 716 610 G. Sibiya 262 312 262 312 South African Airways Technical (Proprietary) Limited 15 746 116 15 767 098 K. Nondumo 326 545 326 545 Other related parties 512 723 282 535 421 332 N. Gxumisa 178 188 178 188 N. Mosimane 2 561 257 2 561 257 31. Directors’ emoluments Executive management Executive

2016 2016 Pension paid Pension paid Emoluments Other benefts Total Emoluments Other benefts* Total or receivable or receivable B. van Wyk 1 247 782 81 847 31 409 1 361 038 I. Ntshanga 2 240 045 118 257 59 674 2 417 976 D. Allanby 1 581 382 112 800 81 977 1 776 159 M. Shelley 1 427 157 135 919 36 923 1 599 999 K. Nkala 1 107 922 27 024 26 810 1 161 756 3 667 202 254 176 96 597 4 017 975 M. Mochele 1 103 315 88 993 57 692 1 250 000 2015 P. Mashaba 1 396 718 72 205 71 077 1 540 000 6 437 119 382 869 268 965 7 088 953 Pension paid Emoluments Other benefts* Total or receivable 2015 Pension paid I. Ntshanga 2 243 619 113 908 60 449 2 417 976 Emoluments Other benefts Total Z. Ngwenya 1 011 510 - - 1 011 510 or receivable M. Shelley 233 768 8 799 6 154 248 721 B. van Wyk 1 257 812 71 817 31 409 1 361 038 3 488 897 122 707 66 603 3 678 207 D. Allanby 1 581 100 113 082 81 977 1 776 159 K. Nkala 1 107 923 27 023 26 810 1 161 756 M. Mochele 1 105 163 87 145 57 692 1 250 000 P. Mashaba 1 526 918 120 826 32 256 1 680 000 W. Hermanus 1 809 454 72 935 52 659 1 935 048 8 388 370 492 828 282 803 9 164 001

96 SA Express SA Express 97 Financial Report continued

NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued) At 31 March 2016 32. Prior period errors were made to agree the maintenance During the current year, it was identifed account to confrmations obtained from the Less than 1 year that the depreciation on a number of leased lessors as well to provide for the return of assets was incorrect. The depreciation was aircraft before maintenance can be Borrowings 300 000 000 corrected to ensure that the asset will be conducted. Adjustments to the tax balance Trade and other payables 728 758 610 fully depreciated on conclusion of the lease is as a result of these adjustments. Neutrality advance 268 459 314 agreement. The correction of the error(s) results in adjustments as follows: An error was identifed on the intergroup At 31 March 2015 debtor account. This account is used as a 2015 clearing account and should be nil. Less than 1 year Sundry creditors has been corrected to Statement of Financial Position ensure amounts have been allocated to the Property, plant and equipment 7 552 773 Borrowings 300 000 000 correct accounts. Amounts have been left Maintenance reserve asset 98 656 463 Trade and other payables 803 346 810 in this account until they could be correctly Provision: Maintenance reserves (29 542 914) Neutrality advance 234 459 314 allocated. Intergroup debtors 2 518 561 Opening retained earnings 3 885 637 Prior period errors are a result of Deferred tax (26 370 825) misstatements not picked up in the prior Sundry creditors 6 268 234 Credit risk Individual risk limits are set based on required for payment or when the exchange year, were identifed in the current year. internal or external ratings in accordance rate is benefcial to convert to Rand. A 10% These errors relate to maintenance reserve Proft or Loss Credit risk consists mainly of cash deposits, with limits set by the board. The utilisation imovement in the ZAR/USD exchange rate assets. A number of issues were identifed, Depreciation expense 9 624 332 cash equivalents, derivative fnancial of credit limits is regularly monitored. Sales will have an impact of approximately frstly, there was a recovery of amounts Sundry income (165 482 349) instruments and trade debtors. The company to retail customers are settled in cash or R100 million on both revenue and costs. previously provided for as doubtful and Deferred taxation 26 370 825 only deposits cash with major banks with using major credit cards. Credit guarantee secondly, capitalisation of the reserves which Revenue (2 518 561) high quality credit standing and limits insurance is purchased when deemed Fuel cost is dollar driven and this risk is were attached to an aircraft on receipt and Impairment of assets 62 171 542 exposure to any one counter-party. appropriate. mitigated by the fact that the fuel levy is subsequently paid to South African Express Commission paid 7 927 423 also linked to the dollar exchange rate. as the current lessee. Further adjustments Repairs and maintenance (1 061 141) Trade receivables comprise a widespread Foreign exchange risk customer base. Management evaluated SA Express does not hold foreign assets credit risk relating to customers on an The company does not hedge foreign or liabilities, so the impact will be to the ongoing basis. If customers are exchange fuctuations. income statement only, as all expenses that 33. Risk management borrowings (including ‘current and areas, such as foreign exchange risk, interest independently rated, these ratings are used. relate to FMP’s are translated at transaction Capital risk management non-current borrowings’ as shown in the rate risk, credit risk, use of derivative Otherwise, if there is no independent rating, South African Express Airways SOC Limited date and reported in ZAR. Creditors for statement of fnancial position) less cash and fnancial instruments, and investment of risk control assesses the credit quality has both revenue and expenditure that is expenses are translated at spot on date of The company’s objectives when managing cash equivalents. Total capital is calculated excess liquidity. of the customer, taking into account its foreign currency denominated and this transaction, and if unpaid, revalued to capital are to safeguard the company’s as ‘equity’ as shown in the statement of fnancial position, past experience and other provides a natural hedge. The currency closing rate at each month end. ability to continue as a going concern in fnancial position plus net debt. There Liquidity risk factors. received is kept as a CFC account until order to provide returns for shareholder and company has an obligation to maintain equity in excess of R1 billion as per the The company’s risk to liquidity is a result benefts for other stakeholders and to Foreign currency exposure at the end of the reporting period maintain an optimal capital structure to fnancial institution covenants (refer to the of the funds available to cover future reduce the cost of capital. Directors report, going concern paragraph). commitments. The company manages liquidityrisk through an ongoing review of 2016 2015 The capital structure of the company There have been no changes to what the future commitments and credit facilities. consists of debt, which includes the entity manages as capital, the strategy for capital maintenance or externally imposed The table below analyses the company’s Current assets borrowings (excluding derivative fnancial Trade and other receivables 948 046 125 864 500 705 liabilities)disclosed in notes 12 cash and capital requirements from the previous year. fnancial liabilities and net-settled derivative fnancial liabilities into relevant maturity Cash on hand 8 164 763 23 921 645 cash equivalents disclosed in note 9, and Deposits 32 906 420 32 906 420 equity as disclosed in the statement of Financial risk management groupings based on the remaining period fnancial position. at the statement of fnancial position to the The company’s activities expose it to a contractual maturity date. The amounts Liabilities Trade payables 728 758 610 803 346 810 In order to maintain or adjust the variety of fnancial risks: market risk disclosed in the table are the contractual capital structure, the company may adjust the (including currency risk, fair value interest undiscounted cash fows. Balances due amount of dividends paid to the shareholder, rate risk, cash fow interest rate risk and price within 12 months equal their carrying Exchange rates used for conversion of foreign items were: return capital to the shareholder, issue new risk), credit risk and liquidity risk. balances as the impact of discounting is shares or sell assets to reduce debt. The company’s current policy is to not hedge not signifcant. 2016 2015 Consistent with others in the industry, the its fnancial risks. Risk management is carried company monitors capital on the basis of the out by a central treasury department gearing ratio. (company treasury) under policies approved USD at fnancial year end 14.7680 12.1325 by the board. The board provides written USD - average for the f nancial year 13.48 11.07 This ratio is calculated as net debt divided by principles for overall risk management, as well as written policies covering specifc total capital. Net debt is calculated as total The company reviews its foreign currency exposure, including commitments on an ongoing basis. 98 SA Express SA Express 99 Financial Report continued

NOTES TO THE ANNUAL FINANCIAL STATEMENTS (continued) 38. Irregular expenditure

• The Company has made signifcant cost happen in future. 34. Going concern 2016 2015 2014 savings and further cost containment measures are expected to be made in the Mr Ntshanga resigned as Chief Executive The annual fnancial statements have been foreseeable future; Offcer on 31 March 2017, Mr Xaba was Total irregular 35 676 924 20 035 813 91 199 361 prepared on the basis of accounting policies • No suppliers have withdrawn their appointed as acting Chief Executive Offcer. Condoned - (16 851 517) - applicable to a going concern. This basis support to the Company; On 27 March 2017, the Company was given Closing balance 35 676 924 3 184 296 91 199 361 presumes that funds will be available to • The Company’s liquidity requirement is approval to utilise the R121 million Not recoverable (362 299) (3 184 296) (449 104) fnance future operations and that the reali- assessed by assessing the cash required by perpetual guarantee and the repayment Condoned (30 May 2016) (18 716 186) - (90 750 257) sation of assets and settlement of the company against the cash and funding of the guarantee extended to the end of 16 598 439 - - liabilities, contingent obligations and available. The Company will still have March 2023. commitments will occur in the ordinary access to cash to be suffciently liquid; and course of business. During the current year, the irregular expenditure for the 2013/2014 year end was reassessed for accuracy and completeness. • The Company has positive equity The Directors are not aware of any other The committee responsible for the review of these costs ensured that all these goods and services were received and had indicating the Company is solvent. Positive material event which occurred after the satisfactory explanations as to why they occurred, and that no fraudulent nor wasteful transactions were incurred in the above list. The directors believe that the company has equity is driven by the raising of long term reporting date and up to the end of this adequate fnancial resources to continue funding of R121 million, profts for the year report. in operation for the foreseeable future and and the reduction of capital expenditure. accordingly the annual fnancial statements Details of irregular expenditure condoned - Current year 36. Non consolidation of trusts have been prepared on a going concern ba- Further to the above points, the Company’s sis. The directors have satisfed themselves Expired contracts going concern status is also informed by its that the company is in a sound fnancial South African Express SOC Limited is a During the current year, expenses that were incurred on expired contracts were identifed. This was as 7 062 464 strategy called SAX 20/20, the funding plan position and that it has access to suffcient capital and income benefciary of two a result of ineffective contract management and the defciencies are being dealt with to prevent further and the long-term turnaround strategy that special purpose vehicles. irregular expenditure. The irregular expenditure was been condoned by the appropriate authority. No borrowing facilities to meet its foreseeable has been implemented. disciplinary action has been taken as this was as a result of a control defciency and cannot be traced cash requirements. The directors are not SAX Partnership Trust: A resolution was to a specifc individual. aware of any new material changes that The ability of the company to continue as a passed in December 2014 to dissolve this may adversely impact the company. The going concern is dependent on a number of trust. Documentation has been submitted directors are also not aware of any material factors. The most signifcant of these is that to the Master of the High Court to inform Procurement procees not followed non-compliance with statutory or regulatory the directors continue to procure funding them of this resolution. At the date of the During the current year, it was necessary to obtain short term leases for aircraft to met operating 8 871 040 requirements or of any pending changes to for the ongoing operations for the company. resolution, the projected net asset value of requirements. It was not possible to follow procument processes due to the timing constraints legislation which may affect the company. the trust was paid to South African Express involved. The irregular expenditure was condoned by the appropriate authority after year end. No We draw attention to the fact that at 31 35. Events after the reporting period SOC Limited. The trust will remain dormant disciplinary action was taken as the cause of the irregular expenditure is not attributable to a specifc March 2016, the company had accumulated until confrmation of its dissolution has individual losses of R (726 917 609). The Airline’s operating certifcate was received from the Master of the High Court. temporarily suspended by the South African Briefly, below are some of the factors that Civil Aviation Authority on 30 April 2016 as SAX Number 1 Trust: A resolution was Defciencies in procurement processes the Directors considered for the period it was deemed that the quality assurance passed in December 2014 to dissolve this During the year a number of expenses were identifed were the procurement process was not followed 2 791 895 March 2016 to March 2017 extended for the systems were inadequate. The temporary trust. Documentation has been submitted to in its entirity. The irregular expenditure was condoned by the appropriate authority after year end. No twelve months ended March 2018, to suspension was lifted on 1 May 2016 after the Master of the High Court to inform disciplinary action has been taken as the cause of the irregular expenditure is not attributable a ensure that the going concern assumption is clarity discussions with the Civil Aviation them of this resolution. At the date of the specifc individual. appropriate: • The Company was granted an extension Authority and the submission of all resolution, the projected net asset value on the existing guarantee of R539 million, requested documentation to provide of the trust was RNil. The trust will remain relating to convenant breaches and working comfort that all systems were adequate dormant until confrmation of its Details of irregular expenditure not condoned and not recoverable - current year capital as well as an additional guarantee of and in place. Corrective actions have been dissolution has been received from the R567 million, for the further working capital implemented to ensure that this will not Master of the High Court. Defciencies in procurement process and asset based fnance facilities. The During the year a number of expenses were identifed where the procurement process was not followed in 362 299 guarantee was reduced by R100 million in 37. Fruitless and wasteful expenditure its entirity. No motivations or deviation requests were received for these items and could therefore not be March 2016 in line with the conditions condoned by the appropriate authority. Although the procurement process was not followed correctly, the attached to the guarantee The expenditure was incurred for valid expenses and will therefore not be recovered from a specifc individual. guarantee was reduced further by R58 2016 2015 Appropriate disciplinary action will be taken to ensure the processes are followed in future. million in Febraury 2017. In March 2017, approval was obtained to utilise the R121 Penalties for late payments 19 834 083 6 612 317 million perpetual guarantee. The Interest on late payments 10 788 240 17 091 015 Details of irregular expenditure still under investigation amortisation period was also extended from Amounts not recoverable (30 622 323) (23 703 332) fve years to 7 years; - - During the year a number of expenses were identifed were the procurement process was not followed 16 598 439 • Negotiations have been and continue to be in its entirity. Investigations are underway to identify the reasons for this irregular expenditure before it can held with funders; be condoned by the appropriate authority. Once investigations are complete, appropriate action will be taken Fruitless and wasteful expenditure for the year is not recoverable as they are due to against the responsible individuals. • No legislative, regulatory or policy interest and penalties on late payments, as a result of the cash fow problems changes that negatively affect and impact experienced during the year. the Company have been made;

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