OUR MATERIALITY PROCESS
We consider a matter to be material if it has the potential to substantially affect our ability to create or sustain value for our business and our stakeholders over the short, medium and long term. Material matters may affect the implementation of our strategy and therefore warrants significant attention throughout the year. The following diagram outlines this process, followed by a brief discussion of each stage of the process.
Integrated Annual Report and Governance and Remuneration Report
External
environment analysis
Stakeholder
analysis
Risk
analysis
We continuously assess local and global business conditions that have the potential to affect our business.
In the last quarter of the financial year, for example, the COVID-19 pandemic had a significant impact on our operations requiring in-depth analysis.
Economic regulation, as a crucial factor affecting our ability to plan for the future, achieve our strategic objectives and create value for stakeholders, is also closely monitored. See page 30 for a full analysis of our external environment.
As we have increased our focus on becoming a stakeholder-centric company, we have intensified the time and resources spent on understanding stakeholder needs. See page 32 for a full stakeholder analysis.
Risk may affect our ability to create value in the short, medium and long term. In our risk analysis, we consider risks in relation to our strategic objectives and highlight strategic initiatives that mitigate relevant risks. See page 35 for an overview of our risk analysis.
Active management of material matters
Material matters
assessment
Material matters
analysis
Risk may affect our ability to create value in the short, medium and long term. In our risk analysis, we consider risks in relation to our strategic objectives and highlight strategic initiatives that mitigate relevant risks. See page 35 for an overview of our risk analysis.
Material matters are continuously managed at executive level with reporting done internally on a quarterly basis. Our reflections on the most pertinent issues relevant to our material matters are publicly disclosed in our Integrated Annual Report annually. See page 37 for a full account of our material matters assessment.
External environment analysis
Our financial year ended amid profound uncertainty, as the coronavirus pandemic caused unprecedented economic and societal disruption. We found ourselves coming to grips with this new normal, as we all redefine how we live and work in these extraordinary times.
The year that was … FY2019/20
Impact on our business in FY2019/20:
- The COVID-19 pandemic had a profound impact on our ability to operate at optimum levels in the last quarter of FY2019/20
- Weak economic growth coupled with weak consumer demand limited traffic volume throughout the year
- The revision of Sovereign credit outlook by Moody’s from stable to negative led to a similar decision taken on our credit rating
The year ahead … FY2020/21
The FY2020/21 financial year and beyond will be severely impacted by the COVID-19 pandemic.
Impact on our business in FY2020/21:
- Until a vaccine is available international travel will be severely impacted by COVID-19 risk
- Under different lockdown levels our airports are allowed varying levels of operation, with normal levels of operation not expected in the near future
- Weak economic growth coupled with weak consumer demand will continue to limit traffic volumes
- Increased costs of capital due to the credit rating downgrade is likely to affect capital availability for infrastructure development
- A drop in tourism, trade and investment from China, UK and Europe will impact traffic dynamics while the impact of Brexit on travel from London Heathrow – the most connected airport in the world – is still to unfold
Stakeholder analysis
Stakeholders are at the heart of what we do. Airports by their nature are complex networks that comprise an ecosystem of intrinsically linked stakeholders, which often have differing objectives. As a State-owned company, we must balance the interests of all our stakeholders by building infrastructure and collaborating with service providers to provide seamless, safe and secure services, while furthering our transformation imperatives. Through stakeholder management activities, we are able to build mutually beneficial relationships that create sustainable shared value. We have a progressive stakeholder engagement strategy aimed at creating a stakeholdercentric culture towards our mission to develop and manage world-class airport businesses for the benefit of all stakeholders.
Stakeholder relations are managed by stakeholder champions in a systematic and structured manner though our stakeholder engagement plans. Ensuring mutually beneficial relationships and tapping into our stakeholder universe is key to achieving our Vision 2025. The following cycle outlines our plan to continuously engage stakeholders, while the figure below illustrates how we categorise stakeholder groups.
Cycle of stakeholder engagement plans development
Our stakeholder groups
Measuring and monitoring
Our stakeholder engagement plans ensure that we work towards establishing and maintaining a positive relationship status with our various stakeholders. Through tailored engagements, led by stakeholder champions, we are able to address stakeholder issues. Our stakeholder engagement plans are also linked to our Group KPIs, ensuring alignment between stakeholder management and value creation outcomes. The following table provides a brief overview of our stakeholder engagement dashboard.
| Stakeholder category | Stakeholder | Stakeholder champion | Relationship status | Engagement approach | Stakeholder issues | Group KPI | Outcomes |
| Government, regulators and Board of Directors | Government | Board Chairperson CEO CFO | Positive | One-on-one forums Parliament presentation | Alignment to government mandates | Return on capital employed (ROCE) Reputation Index | Ministerial buy-in to our Corporate Plan |
| Regulators | CEO CFO COO | Positive, but negative with Economic Regulator | One-on-one meetings | Long-term industry sustainability and licence to operate | ROCE Reputation Index | Tariff approval | |
| Board of Directors | CEO | Positive | One-on-one meetings | Governance Going concern | All group KPIs | Delivering on government mandate Transformation |
|
| Shareholders, investors and lenders | Shareholders | Board Chairperson CEO | Neutral | AGMs | Financial/Business performance | ROCE | Corporate Plan approval |
| Investors | CFO | Positive | Investor roadshows Meetings | Financial performance | ROCE Reputation Index | Access to funding | |
| Lenders | CFO | Positive | Investor roadshows One-on-one meetings | Financial performance Capital expenditure | ROCE Reputation Index | Access to funding | |
| Associations, partners, professional bodies | Associations (Airlines Association of Southern Africa, Board of Airline Representatives of South Africa) | CEO COO | Positive | Meetings | Traffic development and operational efficiency | ROCE | Traffic development and operational efficiency |
| Wesgro, Gauteng Tourism, Dube Trade Port) | CEO COO Group Executive: Business Development | Positive | Meetings and forums | Traffic and route development alignment on airlift strategy and collaboration | ROCE | Growth of trade and tourism. |
|
| Professional bodies (ACI, ICAO, IATA) | CEO COO Chief Information Officer Group Executive: Technical Services and Solutions Group Executive: Human Resources Group Manager: Security Enterprise Security | Positive | Conferences and forums | Global innovation Defining future travel Aviation security | Reputation Index ACI Carbon level | Improve passenger experience |
| Stakeholder category | Stakeholder | Stakeholder champion | Relationship status | Engagement approach | Stakeholder issues | Group KPI | Outcomes |
|---|---|---|---|---|---|---|---|
| Passengers, airlines, customers, retailers and distributors | Passengers and customers | COO | Positive | Traditional media, digital platforms | Airports processes and service offerings | Reputation Index ASQ | Passenger satisfaction |
| #colspan# | Airlines | CEO COO | Positive | Meetings | Traffic development and operational efficiency | ROCE | Traffic development and operational efficiency |
| #colspan# | Retailers and distributors | COO Group Executive: Commercial | Positive | Meetings and group presentations | Conducive business environment Tenant partnerships | Non-aeronautical revenue % Black business share of commercial revenue generated | Alignment on commercial strategy |
| Employees, unions and suppliers | Employees | CEO Group Executive: Human Resources | Positive | Line management Engagement framework CEO roadshows | Workplace environment Rewards and benefits | Reputation Index | Employee satisfaction |
| #colspan# | Unions | Group Executive: Human Resources | Positive | Line management Engagement framework CEO roadshows | Workplace environment Rewards and benefits | Reputation Index | Engaged union |
| #colspan# | Suppliers | Group Manager: Supply Chain Management | Positive | Meetings | Supply chain management processes Contract management | B-BBEE % Black business share of commercial revenue generated | Transformation |
| Media, academia, activists and special interest groups | Media | Group Executive: Corporate Affairs | Neutral | Interviews Media briefings Meetings | Information sharing on our business | Reputation Index | Positive reporting on our business |
| Academia | Group Executive: Human Resources | Positive | Forums and meetings | Training research | Reputation Index | Staff development | |
| Activists and special interest groups | Group Executive: Corporate Affairs | Neutral | Meetings | Alignment on our business approach on key issues | Reputation Index | Increase reputation | |
| Community, NGOs, enviromentalists | Community | Group Executive: Corporate Affairs | Positive | Meetings | Community development and programmes | Reputation Index | Transformation and creating sustainable livelihood programmes |
| NGOs | Group Executive: Corporate Affairs | Positive | Meetings | Community development and programmes | Reputation Index B-BBEE Job creation opportunities | Transformation and creating sustainable livelihood programmes | |
| Environment | Group Executive: Corporate Affairs | Positive | Meetings | Ways to reduce environmental impact | Reputation Index ACI Carbon level | Environmental sustainability |
|
| Joint venture partners, competitors, tourism bodies | Joint venture partners | Group Executive: Business Development | Positive | Positive | Equity investments and concessions partnerships | Non-aeronautical revenue | Increase equity investments |
| Tourism bodies | Group Executive: Business Development | Positive | Positive | Traffic and route development alignment on airlift strategy and collaboration | ROCE | Growth of trade and tourism |
Our strategic risks and mitigation commitments and advances
Strategic risks affect our ability to create value over the short, medium and long term. These risks are closely linked to our strategic objectives and are monitored throughout the year. In order to mitigate our strategic risks, we undertake mitigation measures as set out below.
| Stakeholder category | Stakeholder | Stakeholder champion | Relationship status | Engagement approach | Stakeholder issues | Group KPI | Outcomes |
| Government, regulators and Board of Directors | Government | Board Chairperson CEO CFO | Positive | One-on-one forums Parliament presentation | Alignment to government mandates | Return on capital employed (ROCE) Reputation Index | Ministerial buy-in to our Corporate Plan |
| Regulators | CEO CFO COO | Positive, but negative with Economic Regulator | One-on-one meetings | Long-term industry sustainability and licence to operate | ROCE Reputation Index | Tariff approval | |
| Board of Directors | CEO | Positive | One-on-one meetings | Governance Going concern | All group KPIs | Delivering on government mandate Transformation |
|
| Shareholders, investors and lenders | Shareholders | Board Chairperson CEO | Neutral | AGMs | Financial/Business performance | ROCE | Corporate Plan approval |
| Investors | CFO | Positive | Investor roadshows Meetings | Financial performance | ROCE Reputation Index | Access to funding | |
| Lenders | CFO | Positive | Investor roadshows One-on-one meetings | Financial performance Capital expenditure | ROCE Reputation Index | Access to funding | |
| Associations, partners, professional bodies | Associations (Airlines Association of Southern Africa, Board of Airline Representatives of South Africa) | CEO COO | Positive | Meetings | Traffic development and operational efficiency | ROCE | Traffic development and operational efficiency |
| Wesgro, Gauteng Tourism, Dube Trade Port) | CEO COO Group Executive: Business Development | Positive | Meetings and forums | Traffic and route development alignment on airlift strategy and collaboration | ROCE | Growth of trade and tourism. |
|
| Professional bodies (ACI, ICAO, IATA) | CEO COO Chief Information Officer Group Executive: Technical Services and Solutions Group Executive: Human Resources Group Manager: Security Enterprise Security | Positive | Conferences and forums | Global innovation Defining future travel Aviation security | Reputation Index ACI Carbon level | Improve passenger experience |
Material matters assessment
Material matters are assessed annually according to our analysis of the external environment, stakeholder needs and our Executives’ input into the process. Although all material matters remain important to Airports Company South Africa, the assessment process allows us to evaluate the significance we attribute to a material matter in comparison to the significance external stakeholders attribute to it. The matrix below illustrates how significant material matters are to Airports Company South Africa and our external stakeholders.
Material matters analysis
A volatile external environment coupled with changes in stakeholder expectations and perceptions in FY2019/20 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
Description and desired outcome
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 a significant impact on the air transport sector this year.
The COVID-19 pandemic profoundly negatively impacted our operations. The virus led to a major global recession and a deep downturn in the economy locally. Uncertainty as to how long the impact of the pandemic will last and the effect on the air transport sector endures.
Our response
A strong financial foundation, the stability of our business and sound, existing structures and procedures in our airport operations as well as our strengthened leadership enhances our resilience and ability to withstand this crisis. In these times our shareholders’ support is essential as the crisis has impact beyond our own means.
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.
- Long-term impacts including likely changes to airline revenue and yield models due to travel protocols and other measures as a result of the pandemic will create an entirely different air transport sector. The realisation that global pandemic outbreaks will become part of the future might have significant impacts on passengers’ decision to travel.
Risks
- Limited coordination between relevant departments, agencies and other organisations.
Trade-offs
- The pervasiveness and uncertainty of these global impacts leads to ambiguity in terms of future predictive models and risk mitigation strategies.
Strategic objective
- Increase reputation
- Create shareholder value
Material Matter: Transformation
Description and desired outcome
Our mandate requires us to make a positive contribution to the economic growth and development of South Africa. We promote 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
To transform our business, we focus on the formation of empowerment partnerships. By concentrating on preferential procurement and enterprise development in seven sectors, we are transforming our supplier base. Read more about our seven sectors on page 59 . Internally, we transform our people through management control, ensuring employment equity and providing skills development opportunities.
As a State-owned company, our approach to transformation must include a socio-economic development component through which we not only contribute to the transformation within the Company – at Board and employee level – but also to the transformation of communities surrounding our airports. Further, we recognise our environmental impact and work to reduce it. Please refer to page 54 for our achievements in transformation for the year under review.
Impact on stakeholders
- More local small, medium and micro suppliers and service providers do business with us.
- Black businesses continue to comprise a larger share of our operational and developmental spend, as well as a larger share of our commercial revenue.
- Our socio-economic development programmes empower local communities.
Risks
- Failure to exploit our status and strategic development plans to promote transformation.
- Non-compliance with laws, regulations, standards, policies and procedures.
Trade-offs
- The legislative environment in which we operate requires that we take a balanced approach to the implementation of transformational initiatives and ensure that we follow our legal prescripts. and ensure that we follow our legal prescripts
- Anticipated lower profit margins will result in lower socio-economic development contributions
Strategic objective
Ensure successful transformation of our operation
Increase reputation
Material Matter: Economic regulation
Description and desired outcome
Economic regulation is a vital cog in our business, as our revenue is constrained by regulated charges for the use of our airport facilities. These charges are reviewed in three-year cycles. The unpredictability of regulatory decision-making with regard to regulated charges impacts longterm financial and infrastructure planning and decision making. Promulgated charges provide certainty in the short term but the regulator’s decision making remains uncertain as we move towards the next regulatory cycle, thereby impacting long-term planning and decision making.
Our response
We continuously engage in the review of the economic regulatory framework with stakeholders to provide clarity and certainty on tariff decisions going forward, including through an appeals mechanism included in the Airports Company Amendment Bill, which was approved by the National Assembly in March 2020.
We also have an economic regulatory strategy in place aimed at improving the predictability, transparency and sustainability of regulatory decisions. The current tariff promulgation does not allow for any further increases in airport charges until 1 April 2022. In April 2020 we approached the Economic Regulator requesting a postponement of the submission of the Permission application for one year. We were advised on 3 June 2020 that request for postponement has been granted.
The unpredictability of regulatory decisions requires us to apply a conservative financial management approach while managing our supply chain in order to contain costs. Where possible, we continue to drive the growth of non-aeronautical revenue. Non-aeronautical revenue cross-subsidises aeronautical revenue in order to reduce the cost of operations of airlines and charges to passengers.
Impact on stakeholders
- Regulatory certainty allows for improved business and financial planning with predictable cash flows allowing us to plan infrastructure developments to the benefit of all stakeholders.
Risks
Unpredictability of decisions 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, due to the regulatory model, limits growth opportunities and places pressure on non-aeronautical revenue generation.
Strategic objective
Create value for shareholder
Material Matter: Technology and digitisation
Description and desired outcome
Technology and digitisation enables improved airport operational efficiency as well as the improved management of safety and security. Stakeholders, including customers and business partners, continue to demand innovation in automated services and digital enablement, including data analysis. Technology and digitisation advances represent an opportunity but we must remain aware of the heightened threat it poses in the form of business disruption and cyber-crime.
Our response
We are ensuring that we adopt and leverage appropriate digital technology to enhance operational efficiency and customer experience, while protecting our information and systems. In FY2019/20, the Board approved our IT/digitisation strategy and we embarked on several initiatives in passenger processing, cyber security, business intelligence, staff enablement and asset verification to digitise our business.
Please refer to page 98 for our achievements in IT and digitisation for the year under review.
Impact on stakeholders
Use of innovative technology enables us to respond to customer needs for efficiency and
safety and defend our competitive position.
Risks
Failure to provide digitised technology platforms to support current and future operations in a stable and secure manner.
Trade-offs
Although the long-term benefits make the implementation of digitisation initiatives an imperative, the continually changing nature of these technologies requires high levels of investment to stay up to date.
Strategic objective
Business digitisation
Material Matter: Growth opportunities
Description and desired outcome
Revenue diversification contributes to the long-term sustainability of our ability to create value. As a result, our growth plan includes increasing our non-core revenue which reduces our reliance on traditional regulated aeronautical revenue and mitigates the risks associated with a concentrated revenue profile. The diversification of our revenue sources includes new growth opportunities such as opportunities across our business value-chain, airports management, advisory, airport equity investments and the training academy.
Our response
We actively seek and cultivate new growth opportunities in South Africa, the rest of Africa and internationally to provide alternative revenue sources which improves our long-term sustainability. Please refer to page 85 for our achievements in our non-aeronautical operations and page 92 for our achievements in the growth of our footprint for the year under review.
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
- Insufficient growth opportunities in non-aeronautical revenue.
- Concentrated revenue profile.
- Exposure to negative operating conditions in global target markets.
- Ineffective implementation of the business development strategy.
- Loss of OR Tambo International Airport hub status leading to the erosion of Airports Company South Africa sustainability.
Trade-offs
- By diversifying our revenue, we reduce our dependence on aeronautical revenue.
Strategic objective
- Diversify our business portfolio
- Increase reputation
- Create value for shareholder
Material Matter: Safety and security
Description and desired outcome
Revenue diversification contributes to the long-term sustainability of our ability to create value. As a result, our growth plan includes increasing our non-core revenue which reduces our reliance on traditional regulated aeronautical revenue and mitigates the risks associated with a concentrated revenue profile. The diversification of our revenue sources includes new growth opportunities such as opportunities across our business value-chain, airports management, advisory, airport equity investments and the training academy.
Our response
We continue to engage with various stakeholders including the 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 of our airports to deal with crises and ensure the continuity of operations.
Please refer to page 82 for more information on safety and security at our airports in FY2019/20.
Impact on stakeholders
Our airports remain free of major safety incidents or security breaches, due to our threat prevention and response procedures.
Risks
- Unlawful acts of interference within aviation operations compromising our airport security.
- Non-compliance with laws, regulations, standards, policies and procedures.
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 objective
Increase reputation
Material Matter: Access to and cost of funding
Description and desired outcome
Affordable external funding for infrastructure development projects is required to enable us to meet the capacity demands at our airports, and underpins our long-term sustainability. In FY2019/20, our access to and the cost of funding was negatively impacted by the downgrade of sovereign and Company credit ratings as well as the collapse of the global economy during the COVID-19 pandemic.
Our response
Constraints in our core aeronautical operations revenue generation and declining profits of our non-aeronautical operations require external debt funding. We will approach government and lenders in this regard.
Please refer to page 78 for an overview of funding position as at March 2020.
Impact on stakeholders
Quality of service could be impacted as a result of ageing infrastructure or a lack of capacity.
Risks
- Non-delivery or ineffective delivery of the major built environment infrastructure programme in a predictable manner and to business expectations.
- Inability to secure affordable funding impacting on the ability to execute the growth/ enhancement strategy and even business interruption.
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 objective
Create value for shareholder
Material Matter: Acquisition and retention of skills
Description and desired outcome
The ability to attract, retain and appropriately develop critical skills is essential in our long-term sustainability. Our employees, as internal stakeholders, are part of each component of our value creation process. As the air transport sector continues to evolve, we must work to acquire new skills where necessary, while developing our current workforce through skills development.
Our response
We focus on providing our employees with a competitive remuneration mix as well as additional benefits such as our housing and transport schemes to attract and retain talent. We also support employees and their children with education through bursaries.
Beyond our support of employees, we continue to focus on skills development of small, medium and micro enterprises (SMME) through our enterprise development programmes. These programmes contribute to the availability of scarce skills through the support of our supplier base.
Please refer to page 57 for more information on our skills development – youth empowerment initiatives, page 60 for more information on our enterprise development initiatives and page 96 for more information on how we are improving the lives of our employees.
Impact on stakeholders
- Our reputation as an employer of choice has improved and we have maintained Top Employer certification for 10 years in a row enabling us to attract key talent.
- We have created a healthy pool of talent, ready to assume critical roles.
Risks
Inability to attract, develop, retain and appropriately exit critical skills.
Trade-offs
Some roles will change while others may not exist as our business and the environment in which we operate changes. Without continuous training and re-skilling, we would need to acquire more external skills at great cost.
Strategic objective
Strengthen human capital
Material Matter: Natural environment
Description and desired outcome
We strive to ensure that we reduce our impact on the environment through the effective management of aircraft noise and air pollution, bird strikes, water, electricity and fuel usage. As we grow, our impact on the natural environment increases, raising the significance of this material matter for us and our external stakeholders.
Our response
We conduct our environmental management – including legislative compliance – through an environmental management system. We also participate in the ACI’s Airport Carbon Accreditation programme and maintain our ISO 14001 certification to ensure that we hold ourselves to the highest international standards.
Impact on stakeholders
While our airports continue to impact the environments and communities surrounding them, we continue to mitigate these impacts where possible.
Risks
Non-compliance with laws, regulations, standards, policies and procedures.
Trade-offs
- As we continue to manage our impact on the environment, we recognise that we must engage our stakeholder to have a positive impact. The process of engagement may create tension in the short term as the air transport sector strives towards having a lower impact in the long term.
Strategic objective
- Reduce environmental impact
- Increase reputation