Our strategic risks and mitigation commitments and advances

Managing risks and recognising opportunities underpin our ability to create sustained value for our stakeholders. To deliver on our strategy, we must be responsive to opportunities, as well as the associated risks, without jeopardising the direct interests of stakeholders. We have robust risk management processes set out in our integrated risk management framework, which is supported by the Company’s governance structures. Please refer to page 21 in our Governance and Remuneration Report for full details.

In the previous financial year, we outlined identified risks focused on expansion and several other areas. However, with the onset of the pandemic, COVID-19- related risks took precedent. Our risk universe in the year under review was dynamic and subject to many externalities. Our management team, with oversight by the Board, rose to the challenge of responding to the widespread impact of the pandemic and the uncertainty that remains pervasive. Please refer to page 22 in our Governance and Remuneration Report for full details on our integrated risk management framework.

Broadly, the immediate areas of concern in risk management over the period included:

Safety and security

We are in the business of people and our stakeholders must come first in everything we do. 

Accordingly, the safety and security of the people for whom we are responsible was our primary focus. The related risks to our employees and passengers were addressed with the swift implementation of stringent protocols developed through engagement with the ACI based on guidance by the International Civil Aviation Organisation (ICAO) and the IATA.

Business continuity management

In addressing the key risks and mitigations associated with business continuity management, we followed a structured approach outlined in the infographic below. This approach was adopted from the outset when only minimal services were required and will continue to be enacted until the final phase is reached.

Sustainability of the Company in the short, medium and long term

Our leadership has adopted a proactive and agile approach to addressing the looming sustainability risk. With operations and revenue thwarted by global lockdowns and travel bans in the year under review and facing bleak prospects of a recovery stretching over the next eight years, securing the long-term future of our business requires flexible and innovative thinking. We actively monitored and addressed risk in close collaboration with stakeholders. We embarked on extensive scenario planning to enhance our response to current and future operational disruptions. As a result, we revised our strategy to adapt to our current financial possibilities and limitations. (Please see further details on page 39). Accordingly, our assessment of the risk and risk register had been revised. The top 10 risks we face are outlined below.

TOP 10 Risks

Refer to our Governance and Remuneration report for detailed causes and consequences.

#1 SUSTAINABILITY RISK

Our capacity to remain in business and to adapt or quickly recover from the adverse events and effects of the COVID-19 pandemic could be threatened by diminishing opportunities to generate revenue.

MITIGATION AND CONTROLS

  • Revision of the corporate plan and financial plan
  • Long-term financial planning capability secured
  • Implementation of cost-containment measures
  • Financial support through issuing of shares
  • Active liquidity management
  • Strategy and governance framework and operating model in place
  • Partnerships with other spheres of government to promote tourism

RISK RATING:

Catastrophic

LIKELIHOOD:

Likely

Risk owner:
CEO: Mpumi Mpofu

#2 FINANCIAL SUSTAINABILITY RISK

Our ability to execute our strategic objectives in the short, medium and long term may be impacted by constraints on revenue that will lead to a weaker financial position and financial performance.

MITIGATION AND CONTROLS

  • Economic regulatory framework allows for a reset every three years
  • Long-term financial planning capability within finance
  • Economic regulatory specialist capability
  • Constructive engagement process that complies with and goes beyond the requirements of the economic regulator
  • Participation in the Economic Regulatory Review Process led by the DoT
  • Conservative financial planning approach, -inclusive of scenario planning

RISK RATING:

Catastrophic

LIKELIHOOD:

Likely

Risk owner:
CFO: Siphamandla Mthethwa

#3 UNPREDICTABILITY BY THE ECONOMIC REGULATOR

A lack of predictability relating to our aeronautical revenue impacts our ability to plan and invest in the necessary infrastructure to meet future demand.

MITIGATION AND CONTROLS

  • Participation in the Economic Regulatory Review process led by the DoT
  • Amendments proposed to the Airports Company Act that introduces an appeals mechanism
  • Constructive engagement process that complies with and goes beyond the requirements of the Stakeholder engagement plan that includes targeted engagements with the economic regulator

RISK RATING:

Critical

LIKELIHOOD:

Highly likely

Risk owner:
CFO: Siphamandla Mthethwa

#4 GROWING NON-AERONAUTICAL REVENUE

Diversifying our revenue stream by leveraging opportunities in non-aeronautical revenue offsets the risk of dependency on a regulated income stream. An inability to pursue this diversification could impact the long-term sustainability of the business.

MITIGATION AND CONTROLS

  • Commercial strategy approved
  • Stakeholder engagement plan in place
  • Standardised process for rental case
  • negotiations developed

RISK RATING:

Critical

LIKELIHOOD:

Highly likely

Risk owner:
GE: Jabulani Khambule

#5 CYBER-SECURITY

Ensuring readiness to protect against advancing and sophistication of cyber-criminals.

MITIGATION AND CONTROLS

  • Cyber-security experts employed
  • Investment in cyber-security insurance to mitigate against advancing sophistication of cyber-criminals
  • Compliance plan for external regulations Protection of Personal Information Act (POPIA), General Data Protection Regulation (GDPR), Payment Card Industry Data Security Standards (PCI DSS), Minimum Information Security Standards (MISS) in place
  • Cyber-security strategy developed and implemented
  • Technology security tools in place to prevent data
  • leakages and connectivity incidents
  • Use of unique usernames and passwords to authenticate and authorise access to systems and information mandated

RISK RATING:

Catastrophic

LIKELIHOOD:

Likely

Risk owner:
CIO: Mthoko Mncwabe

#6 SAFETY AND SECURITY RISK

Ensure readiness to protect public safety, prevent criminal activity and provide a safe environment at airports to prevent possible injuries and loss of life.

MITIGATION AND CONTROLS

  • Vetting of key personnel is in progress
  • Vuvuzela Hotline in place
  • Anti-corruption Awareness campaigns undertaken
  • Security forums established internally
  • Participation in external security forums and access to information from other aviation industry partners
  • Engagement with other local and international agencies
  • Airport security programme and surveys in place
  • Regular collaboration with South African Police Service, Crime Intelligence, State Security Agency SACAA audits conducted
  • Internal audit/combined assurance
  • Management Committee oversight
  • Airside standard operating procedures in place
  • Monthly airside Safety Committee meeting scheduled
  • Airside service provider service level agreement in place

RISK RATING:

Catastrophic

LIKELIHOOD:

Likely

Risk owners:
COO: Fundi Sithebe (Aviation Safety)
GE: Badisa Matshego (OHS)
GE: Mzwandile Petros

#7 DIGITAL TRANSFORMATION

An inability to adopt and deliver resilient and secure digital and/or disruptive platforms and technologies that transform current and future business strategic objectives will result in eroding of our offering and reputation as world-class airports.

MITIGATION AND CONTROLS

  • Digital strategy in place and aligned with the knowledge and innovation strategy, enterprise security strategy, enterprise risk management and business continuity framework
  • Information Management Committee monitors the implementation of the information management plan
  • Appropriate IT architecture in place

RISK RATING:

Critical

LIKELIHOOD:

Highly likely

Risk owner:
CIO: Mthoko Mncwabe

#8 LEGISLATIVE REGULATORY COMPLIANCE

Non-compliance/conformance to relevant legislation, regulations, policies and procedures could compromise safety and security, threaten our licence to operate and damage our reputation.

MITIGATION AND CONTROLS

  • Compliance universe mapped
  • Training and awareness conducted
  • Policies, frameworks, manuals and procedures monitored
  • Compliance risk management plans in place
  • Compliance assurance plans in place
  • Compliance management procedure in place
  • Integrated compliance management system in place

RISK RATING:

Critical

LIKELIHOOD:

Likely

Risk owner:
GE: Bongiwe Mbomvu

#9 BRAND, REPUTATION AND STAKEHOLDER MANAGEMENT

Failure to manage and improve reputation through the effective management of the brand and various stakeholders could cause reputational damage, compromise relationships with key stakeholders and impact our ability to raise capital.

MITIGATION AND CONTROLS

  • Stakeholder relation management policy
  • Stakeholder engagement plans
  • Stakeholder risk intervention portfolio
  • Focused engagements with critical stakeholders
  • Monitoring and assessment of stakeholder perceptions
  • Implementation of stakeholder engagement plans
  • Proactive internal and external stakeholders communications
  • Internal communication strategy and plan
  • Annual internal communication survey
  • Airport stakeholder feedback surveys
  • Proactive brand communication
  • Comprehensive communication strategy
  • Approved social media procedure and social media presence
  • External communication procedure
  • Crisis management procedure in place
  • Approved ethics and anti-corruption policies
  • Ethics risk assessment and ethics management plan

RISK RATING:

Critical

LIKELIHOOD:

Likely

Risk owner
GE: Refentse Shinners

#10 BUSINESS INTEGRATION AND OPERATIONAL PLANNING

An inability to effectively execute operational objectives as a result of a lack of strategic and operational planning, an erosion of skills, a lack of business intelligence and incorrect resource allocation could impact our service offering, reputation and cause stakeholder dissatisfaction.

MITIGATION AND CONTROLS

  • Corporate strategy planning undertaken
  • Business process modelling undertaken
  • Critical business process identified
  • Alignment of strategy and operational planning
  • Established governance processes
  • Regular review of governance structures and delegation of authority
  • Customer and stakeholder surveys to continuously monitor prioritisation to align business demand

RISK RATING:

Critical

LIKELIHOOD:

Likely

Risk owner
COO: Fundi Sithebe

Artboard 3@4x

Material matters analysis

A volatile external environment coupled with changes in stakeholder expectations and perceptions in FY2020/21 require that we reflect on these material matters as they have affected or may affect our ability to create and preserve value. In our material matters analysis, we briefly describe each material matter as well as our desired outcome. This is followed by our response to the material matter and its impact on our stakeholders. We have also linked the key risks, trade-offs and strategic objectives relevant to each material matter.

Material matter: Disruptive global shifts

Material matters analysis

A significant impact of globalisation is the increased risk to national economies of external shocks over which they have little control. Globalisation means economies are increasingly interconnected and interdependent and, while this generates long-term gains in terms of trade, growth and jobs, it also presents economies and various industries within them with risks and challenges. External economic shocks have had an unprecedented significant impact on the air transport sector this year.

The COVID-19 pandemic had a profound negative impact our operations. The virus led to a major global recession and a deep downturn in the local economy. Uncertainty as to how long the impact of the pandemic will last and the effect on the air transport sector endures. The pervasiveness and uncertainty of these global impacts lead to ambiguity in terms of future predictive models and risk-mitigation strategies.

Our response

Our response to the pandemic demonstrated the agility and decisiveness of our leadership that adopted a scenario-planning approach to charting a way forward through these multitudes of challenges we face.

Impact on stakeholders

  • National lockdowns globally and in South Africa influenced passengers’ ability to travel and the ability of suppliers and service providers to operate.

Risks

  • Sustainability risk
  • Financial sustainability risk
  • Unpredictability by the economic regulator
  • Growing non-aeronautical revenue
  • Cybersecurity
  • Safety and security risk
  • Business integration and operational planning

Trade-offs

  • The pervasiveness and uncertainty of these global impacts lead to ambiguity in terms of future predictive models and risk mitigation strategies.

Strategic objectives

  • Financial sustainability
  • Increase our reputation through demonstrated business excellence
  • Transform Airports Company South Africa’s business
  • People and culture

Material matter: Transformation

Description and desired outcome

Our mandate requires we make a positive contribution to the economic growth and development of South Africa through the promotion of inclusive growth that boosts the economy, creates jobs and empowers people. We strive to transform our business, our people, our society and our environment to address inequality, strengthen our democracy and promote sustainable use of environmental resources.

Our response

Internally, we transform our people through management control, ensuring employment equity and providing skills development opportunities. Externally, we focus on the formation of empowerment partnerships through preferential procurement and enterprise development in seven sectors.

As a State-owned company, we believe our approach to value creation must be focused on addressing the legacies of our economic imbalances to deracialise and achieve fairness and equity in the South African economy. To drive and advance our transformation agenda, we focus on four key priority areas namely, increased market access for new black entrants; building capacity for small and medium enterprises providing training and up-skilling opportunities to grow; increasing the number of black business contributing towards sector participation and promoting access to funding through strategic partnerships with development financial institutions. We achieve this through enterprise and supplier development programmes, skills development programmes, corporate social investment and sustainable socio-economic development programmes within our business, communities and in the country at large, given our national footprint.

Refer to page 62 for more information on our transformation activities in the year under review.

Impact on stakeholders

  • We create advancement opportunities for all our employees in line with our transformation agenda.
  • Our suppliers – particularly local small, medium, micro suppliers and service providers, and black-owned businesses – rely on us to provide opportunities to advance transformation.
  • Our socio-economic development programmes empower local communities.

Risks

  • Sustainability risk
  • Growing non-aeronautical revenue
  • Digital transformation
  • Legislative regulatory compliance
  • Brand, reputation and stakeholder management

Trade-offs

  • A reduction in profits will inevitably result in lower socio-economic development contributions.
  • We take a balanced approach to the implementation of transformational initiatives and ensure we follow legal requirements.

Strategic objectives

  • Transform Airports Compan
  • South Africa’s business

Material matter: Economic regulation

Description

Our aeronautical income is derived from regulated charges or tariffs. These consist of aircraft landing and parking charges, and passenger service charges. The Airports Company Act provides for an independent statutory body, the Regulating Committee, to oversee the economic regulation of Airports Company South Africa. These charges are reviewed in three-year cycles. The unpredictability of regulatory decision-making regarding regulated charges impacts long-term financial and infrastructure planning and decision-making.

The current tariff promulgation, which allowed for a 5.8% increase in airport charges in FY2018/19 with no further increases until FY2020/21, applies until 31 March 2021. As a result of COVID-19, the Regulating Committee has taken a decision to run the current permission to the end. A new application will be submitted in June 2022. Increases of 3.3% and 3.6% will apply to 2021/22 and 2022/23 respectively.

Our response

We are engaging the Economic Regulator on the best economic regulatory framework to facilitate our road to recovery. We also engage with the DoT on an ongoing basis.

Impact on stakeholders

A lack of predictability relating to our aeronautical revenue impacts our ability to plan and invest in the necessary infrastructure to meet future demand, 

which in turn impacts the wider economy and stakeholders that operate in our aviation ecosystem such as airlines, passengers and tenants.

Risks

  • Sustainability risk
  • Financial sustainability risk
  • Unpredictability by the economic regulator

Trade-offs

  • Growth of assets, as a result of traffic volume growth, is funded through the regulatory model. Constraints on revenue generation, owing to the regulatory model, limits growth opportunities and places pressure on nonaeronautical revenue generation.

Strategic objectives

  • Financial sustainability

Material matter: Technology and digitisation

Description

Technology and digitisation enable improved airport operational efficiency as well as the improved management of safety and security. Most of our stakeholders continue to demand innovation and embrace new initiatives. While advances in technology and digitisation represent an opportunity, we must remain aware of the potential risks.

Our response

Our IT/digital strategy ensures we adopt and leverage appropriate digital technology to enhance operational efficiency and customer experience while protecting our information and systems. In FY2020/21, several initiatives that form part of this strategy were placed on hold because of financial constraints. However, key initiatives have been identified, prioritised and funds made available to ensure our operation remain efficient and safe. Please refer to page 86 for an overview of IT and digitisation in the year under review.

Impact on stakeholders

  • Our increased use of technology enabled us to safely process passengers, engage with multiple stakeholders online and provide a digitally enabled working environment for our employees.

Risks

  • Cyber-security
  • Safety and security risk
  • Digital transformation
  • Legislative regulatory compliance

Trade-offs

  • Technological advancement and digitisation require a high level of capital investment. While some investments have been postponed in the short term to support liquidity, there may be higher cost implications in the long term.

Strategic objectives

  • Increase our reputation through demonstrated business excellence

Material matter: Growth opportunities

Description

Airports Company South Africa’s global and domestic growth outlook remains a cornerstone of our strategic plans. While our short-term focus is on navigating the current market, our growth ambitions are centred on rebuilding our network following the suspension of routes by numerous airlines. To maintain and develop our footprint, we actively seek opportunities in South Africa, Africa and internationally that will provide alternative sources of revenue and improve our long-term sustainability.

To support economic growth, we will respond to the opportunities presented by the African Continental Free Trade Agreement, export through cargo and tourism growth even in the domestic market. The development of Aerotropolis will present opportunities for smart high technology-based developments around our airports of O.R. Tambo, King Shaka and Cape Town International. The development, underpinned by a focus on business intelligence, digitisation, technical advisory and consultancy service capability based on process knowledge and other technical expertise, will enable the growth of our footprint.

Our response

To support our revised strategy, an enhanced operating model backed by a fit-for-growth capability model was developed to enable our continued focus on growth.

Impact on stakeholders

  • The diversification of our revenue reduces our dependence on aeronautical revenue and debt to finance capacity expansion and other projects.
  • Our growth creates employment and stimulates economic activity beyond our internal operations.

Risks

  • Financial sustainability risk
  • Unpredictability by the economic regulator
  • Digital transformation

Trade-offs

  • By diversifying our revenue sources, we reduce our dependence on aeronautical revenue.

Strategic objectives

  • Financial sustainability
  • Diversify business portfolio
  • Transform Airports Company South Africa’s business

Material matter: Safety and security

Description

The review of our security model is critical and will be achieved through benchmarking against the best international models, continuously engaging with law enforcement partners and investing in security advancements, including integrated communication systems. Prevention and threat response procedures are in place to deal with crises and ensure the continuity of operations. The adoption of an integrated safety and security approach throughout our environment is necessary to enhance airport and aviation security in general.

Our response

We continue to engage with various stakeholders including the South Africa Civil Aviation Authority (SACAA) and our law enforcement partners and invest in security advancements to mitigate safety and security risks. Preventative measures, as well as threat response procedures, are in place at all our airports to deal with crises and ensure the continuity of operations.

Impact on stakeholders

  • Our airports remain free of major safety incidents or security breaches, thanks to our threat prevention and response procedures.

Risks

  • Safety and security risk
  • Brand, reputation and stakeholder management

Trade-offs

  • Increased safety and security measures come at a financial cost but also influence the processing speed and experience of passengers. It is therefore necessary to balance the need for operational efficiency with the need for increased levels of safety and security.

Strategic objectives

  • Increase our reputation through demonstrated business excellence
  • Reduce our environmental impact
  • People and culture

Material matter: Access to and cost of funding

Description

Poor perceptions of South Africa’s economic prospects and financial management continue to plague the public sector. Combined with constraints on our core revenue, our ability to obtain affordable funding will be affected and may become a significant material threat to the long-term financial sustainability of our business.

Our response

The Company has secured funding and strengthened its liquidity as a result of the issuing of shares, a Development Bank of Southern Africa loan and the sale of Mumbai International Airport Private Limited.

Please refer to page 36 for an overview of our financial standing from our CFO.

Impact on stakeholders

  • Quality of service could be impacted as a result of ageing infrastructure or a lack of capacity.

Risks

  • Financial sustainability risk
  • Unpredictability by the economic regulator
  • Growing non-aeronautical revenue

Trade-offs

  • Whether we have access to funding influences our ability to embark on major built environment programmes, which in turn influences our capacity and revenue-generating possibilities. At the same time, the cost of funding necessitates that we are selective about the programmes we undertake.

Strategic objectives

  • Financial sustainability
  • Diversify business portfolio
  • Transform Airports Company South Africa’s business

Material matter: Acquisition and retention of skills

Description

Our employees are an essential part of our value creation process as they have the skills needed in all our business activities. To effectively manage our skills mix, we attract, retain and appropriately develop employees with critical skills that support our sustainability in the long term. COVID-19 has, however, presented several challenges in retaining, developing and acquiring skills.

Our response

Our staff cost reduction programme led to many experienced employees leaving the company, a recruitment freeze and a reduction in training and development spend. Although these changes have impacted the organisation, the workforce optimisation procedure has mitigated this impact to ensure business continuity. These changes have also provided an opportunity for us to reconsider the skills needed to ensure long-term sustainability in line with our Governance Framework, Operating Model and our Recover and Sustain Strategy. Moreover, our people and culture strategy will enable us to better retain institutional knowledge, develop skills where necessary and attract key employees.

We continue to support our employees through a competitive remuneration mix. Additional benefits such as our housing and transport schemes and our bursary initiatives have, however, undergone several changes to ensure the long-term sustainability of the programmes.

 

Refer to page 67 for more information on skills development, page 69 for more information on our enterprise development initiatives, and page 82 for more information on our employees.

Externally, we have continued our support of skills development initiatives through our enterprise development programmes. While these programmes have also been affected by financial constraints brought on by the pandemic, we remain committed to contributing to job creation, in particular for the youth and within scarce skills in South Africa.

Impact on stakeholders

  • Through consultation with various stakeholders, we have been able to implement our staff cost reduction programme effectively.
  • Our employees have experienced increased work pressures in the year under review as a result of the impact of the pandemic.

Risks

  • Sustainability risk
  • Financial sustainability risk

Trade-offs

  • Some roles will change while others may not exist as our business and the environment in which we operate adjusts. Without continuous training and re-skilling, we would need to acquire more external skills at great cost.

Strategic objectives

  • People and culture

Material matter: Natural environment

Description

We strive to reduce our comparative impact on the environment through the effective management of aircraft noise and air pollution, bird strikes, water, electricity and fuel usage. However, our environmental impact is closely linked to our operational intensity. In times of growth, our impact increases and in times of reduced operations – such as the year under review – our impact decreases.

Our response

We are proactive in the management of our impact through our environmental management system. We participate in the ACI’s Airport Carbon Accreditation programme to ensure we hold ourselves to the highest international standards. As we start to experience financial constraints brought on by the pandemic, we remain compliant with all legislative requirements, while continuing to implement additional measures to manage our impact on the environment where possible.

Refer to page 73 for more information on our impact on the natural environment.

Impact on stakeholders

  • The negative impact of our operations was significantly reduced in the year under review, owing to reduced operations.

Risks

  • Sustainability risk
  • Legislative regulatory compliance
  • Brand, reputation and stakeholder management

Trade-offs

  • While our negative impact on the environment has reduced significantly, we recognise that our impact will once again increase as operations increase. We must be proactive at this time and develop systems and processes to mitigate this impact. This will be possible only in partnership with various stakeholders.

Strategic objectives

  • Reduce our environmental impact
  • Increase our reputation through demonstrated business excellence
  • Transform Airports Company South Africa’s business