COVER FINAL 08/30/2005 10:17 AM Page 1 C M Y CM MY CY CMY K PEOPLE, PATRONAGE & PROFIT ANNUAL REPORT 2005 Composite ANNUAL FINANCIAL STATEMENTS CONTENTS Information page 46 Report of the Audit Committee 47 Statement by the Company Secretary 49 Report of the independent auditors 50 Directors’ report 52 Income statements 68 Balance sheets 69 Statements of changes in equity 70 Cash flow statements 72 Accounting policies 73 Notes to the annual financial statements 85 The annual financial statements set out on pages 46 to 127 were approved by the board of directors on 20 June 2005. 45 INFORMATION PAGE for the year ended 31 March 2005 DIRECTORS Prof GJ Gerwel Chairman Dr K Ngqula President and Chief Executive Officer Ms MMT Ramano Executive Vice President and Chief Financial Officer Prof R Doganis (Greek) Adv MTK Moerane Ms LM Mojela Mr MV Moosa Dr CC Okeahalam (British) Ms A Ngwezi Mr AP Nkuna Ms MDCDNC Ramos CURRENT SECRETARY Ms T Melk (appointed 1st April 2005) REGISTERED OFFICE / ADDRESS Airways Park Jones Road Johannesburg International Airport Kempton Park 1627 Private Bag X13 Johannesburg International Airport Kempton Park 1627 COUNTRY OF INCORPORATION South Africa REPORTING CURRENCY South African Rand (ZAR) PRIMARY MEASUREMENT CURRENCY South African Rand (ZAR) JOINT AUDITORS Deloitte & Touche APF Incorporated Private Bag X6 PO Box 260144 Gallo Manor Excom 2052 2023 BANKERS Nedbank, a division of Nedcor Limited Standard Bank Limited Citibank of South Africa (Proprietary) Limited HOLDING COMPANY Transnet Limited COMPANY REGISTRATION NO. 1997/022444/07 46 REPORT OF THE AUDIT COMMITTEE for the year ended 31 March 2005 We are pleased to present our report for the financial year ended 31 March 2005 as recommended by the King II Report on Corporate Governance and the Public Finance Management Act. The Audit Committee is composed of four non-executive directors. The committee held six scheduled meetings relating to the 2005 financial year. The Audit Committee reports that it has adopted appropriate formal terms of reference as its Audit Committee charter and has regulated its affairs in compliance with this charter, and has discharged all of its responsibilities as contained therein. In the conduct of its duties, the Audit Committee has, inter-alia, performed the following activities: • Received and reviewed reports from the internal auditors, and from forensic investigations concerning the effectiveness of the Group’s internal control systems. • Reviewed the report of the joint external auditors detailing their concerns arising out of their audit and ensured that there are appropriate responses from management, which will result in their concerns being addressed. • Considered the effectiveness of internal audit and the adherence of internal audit to its annual programme. • Considered the risk areas identified by management, internal and the joint external auditors that the Group is exposed to and deliberated the extent to which these risks are covered by the scope of the internal and the joint external auditors’ work programmes. • Considered the Group’s compliance with legal and regulatory provisions to the extent that such issues have been brought to the attention of the Audit Committee by either management, internal audit or the joint external auditors. • Reviewed and recommended for adoption by the Board such financial information that is publicly disclosed which for the year under review included: • The annual financial statements for the year ended 31 March 2005. • The interim results for the six-month period ended 30 September 2004. • Considered the independence and objectivity of the joint external auditors and ensured that the scope of their additional services provided were not such that they could be seen to have impaired their independence. • Made appropriate recommendations to the Board regarding the corrective actions to be taken as a consequence of audit findings. In the opinion of the Audit Committee, the internal controls of the Group (other than those required to meet all of the obligations of the Public Finance Management Act as set out under the heading “Section 51 and 55” in the Directors’ Report) are considered to be appropriate to: • ensure the Group’s assets are safeguarded; and • ensure that transactions undertaken are recorded in the Group’s records. Where weaknesses in specific controls have been identified, management has undertaken to implement the appropriate corrective action to mitigate the weaknesses identified. The Audit Committee is pleased to report that SAA is implementing a new Revenue Accounting System, which will remediate concerns and possible weaknesses inherent in the current system. None of these weaknesses constituted a material breakdown in the internal controls of the Group. However, the Audit Committee has noted that SAA’s risk management framework, certain of its policies and procedures and elements of the Company’s monitoring procedures need to be redefined and enhanced to ensure that they meet the needs of a modern international airline. 47 REPORT OF THE AUDIT COMMITTEE (continued) for the year ended 31 March 2005 Our report in compliance with the PFMA section 55(2)b, is incorporated in our holding company’s submission to the Minister of the Department of Public Enterprise. The Audit Committee has evaluated the annual financial statements for the year ended 31 March 2005 and considers that they comply, in all material respects, with the requirements of the Companies Act, 61 of 1973 in South Africa, as amended, the Public Finance Management Act, 1 of 1999, as amended, and Statements of South African Generally Accepted Accounting Practice. The Audit Committee concurs that the adoption of the going concern premise in framing the annual financial statements is appropriate. The Audit Committee has therefore recommended the adoption of the annual financial statements by the Board of Directors at their meeting on 20th June 2005. Dr CC Okeahalam Chairperson: SAA Audit Committee 20 June 2005 48 STATEMENT BY THE COMPANY SECRETARY for the year ended 31 March 2005 The Company secretary, Ms T Melk, certified that the Company has lodged with the Registrar of Companies all such returns as are required for a private Company in terms of the Companies Act , 61 of 1973, as amended, and that all such returns are true, correct and up to date in respect of the financial year reported upon. COMPANY SECRETARY 20 June 2005 SECRETARY Name: Ms T Melk Business Address: Airways Park Jones Road Johannesburg International Airport Kempton Park 1627 Postal Address: Private Bag X13 Johannesburg International Airport Kempton Park 1627 49 REPORT OF THE INDEPENDENT AUDITORS to the members of South African Airways (Proprietary) Limited We have audited the annual financial statements of South African Airways (Proprietary) Limited and the Group set out on pages 52 to 127 for the year ended 31 March 2005. These annual financial statements of South African Airways (Proprietary) Limited and the Group are the responsibility of the South African Airways (Proprietary) Limited accounting authority. Our responsibility is to express an opinion on these financial statements based on our audit. The performance information is the responsibility of the accounting authority. Our responsibility is to express an opinion on whether the performance information furnished in terms of sub-section 55(2)(a) of the Public Finance Management Act, 1 of 1999, as amended, is fair in all material respects and, on a basis consistent with that of the preceding year. Scope We conducted our audit in accordance with Statements of South African Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement. The audit was also planned and performed to obtain reasonable assurance that our duties in terms of sections 27 and 28 of the Public Audit Act, 25 of 2004, have been complied with. An audit includes: • examining, on a test basis, evidence supporting the amounts and disclosures in the annual financial statements; •assessing the accounting principles used and significant estimates made by management; and • evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. Audit opinion The annual financial statements fairly present, in all material respects, the financial position of South African Airways (Proprietary) Limited and the Group at 31 March 2005, and the results of their operations and cash flows for the year then ended, in accordance with South African Statements of Generally Accepted Accounting Practice and in the manner required by the Companies Act, 61 of 1973 in South Africa, the Public Finance Management Act, 1 of 1999, as amended, and the Public Audit Act, 25 of 2004. Emphasis of matter Without qualifying our audit opinion, we draw your attention to: The performance information as envisaged in sub-section 55(2)(a) of the Public Finance Management Act, 1 of 1999 and section 28(1)(c) of the Public Audit Act, 25 of 2004, has not been included in the annual financial statements and we are therefore unable to express an opinion thereon; and 50 REPORT OF THE INDEPENDENT AUDITORS (continued) to the members of South African Airways (Proprietary) Limited The transactions of South African Airways (Proprietary) Limited and the Group that had come to the auditors attention during the audit were in all material respects in accordance with the mandatory function of South African Airways (Proprietary) Limited, as determined by law or otherwise, with the exception of the South African Reserve Bank approval as outlined in the Directors’ Report on page 65. Deloitte & Touche APF Inc. Registered Accountants and Auditors Registered Accountants and Auditors Chartered Accountants (SA) Chartered Accountants (SA) Johannesburg 20 June 2005 51 DIRECTORS’ REPORT for the year ended 31 March 2005 INTRODUCTION The Directors have pleasure in presenting their report, which forms part of the annual financial statements of the Company and of the Group, for the year ended 31 March 2005.