Human Resource Development and Transformation; Risk Management; and Procurement.

1. Human Resource Development and Transformation; Risk Management; and Procurement. A briefing to the Portfolio Committee on Public Enterprises Adv. Sandra Coetzee Executive CEO Office (Acting CEO) , SAA

2. INTRODUCTION

3. RISK MANAGEMENT

4. BACKGROUNG OVERVIEW • We intend providing the Portfolio Committee with an overview of how significant risks are indentified, managed and monitored within SAA in order to ensure minimal adverse impact on the operations. • This section of the presentation focuses on: • Governance Structures incorporating roles and responsibilities • Approach to Enterprise Risk • Risk Management Process • Concluding Remarks

5. Risk management activities are governed by the Board approved Enterprise Risk Management Policy and Framework and the Financial Risk Management Policy. The Board Committees with responsibility for risk oversight are: Financial Risk Management and Investments Committee (FRIC) Audit Committee Operational Committees (EXCO’s committees) with responsibility for risk management are: Treasury Working Committee (TWC) Financial Risk Sub-Committee (FRSC) Emerging Risks & Crises Committee (ERCC) Anti-Fraud Committee (AFC) Compliance Forums Management GOVERNANCE STRUCTURES

6. Financial Risk Management and Investments Committee (FRIC) Assists the Board to discharge its responsibilities in relation to corporate financial and investment accountability, and the associated risks in terms of management assurance and reporting. Audit Committee: Assists the Board to discharge its responsibilities in relation to adequate systems of financial, risk management and internal control including financial reporting and liaison with auditors. Treasury Working Committee (TWC) : Executes all financial market transactions (currency and commodity markets). Financial Risk Sub-Committee (FRSC) Decides on hedge strategy and recommends this to FRIC via EXCO for approval. ROLES AND RESPONSIBILITIES

7. Emerging Risks & Crises Committee (ERCC) Ensures business continuity during adverse conditions. Anti-Fraud Committee (AFC) Assists with implementation of fraud prevention, detection and response measures including the investigation of alleged irregularities, fraudulent and corrupt activities. Compliance Forums Ensure compliance with industry regulations and overall legislative and regulatory compliance. Examples include a PFMA Forum, Emergency Response Committee (aviation safety), etc. Management: Responsibility to design and implement appropriate risk and compliance management systems. This responsibility is incorporated in performance agreements of the managers. Internal Audit Function: provides assurance on risk management processes. ROLES AND RESPONSIBILITIES Cont’d

8. Risks are managed at three levels: Strategic Divisions / Subsidiary / Functional Project Significant risks are determined by using a five by five risk assessment matrix (impact and probability) NB: Template on the next slide . The risk assessment matrix incorporates financial and non-financial elements. APPROACH TO ENTERPRISE RISK

9. RISK ASSESSMENT MATRIX: IMPACT DESCRIPTION

10. RISK ASSESSMENT MATRIX: PROBABILITY

11. Strategic Risks Assessed (identified, analysed and evaluated) as part of the annual corporate planning process. Use a combination of bottom-up and top-down methodology. Approved by the Board for inclusion in the Corporate Plan submitted to the Shareholder (Executive Authority). Quarterly feedback to the Audit Committee, Board and the Shareholder on progress in mitigating these risks. By and large, the sources of the strategic risks lend themselves to legacy issues and the regulatory environment within which we operate. RISK MANAGEMENT PROCESS

12. Divisional / Subsidiary / Functional Risks Assessed on an ongoing basis using a facilitated workshop methodology. Workshops are attended by the GMs/CEOs and their direct reports. Significant risks in this regard are managed at divisional or subsidiary level. These are however reported to EXCO regularly and to the Audit Committee quarterly. Functional Risks Mainly high risk areas, including but not limited to compliance with existing and new legislation like Consumer Protection Act, anti-trust litigation (competition issues), hedging, etc. Project Risks Major projects’ specific, including the transactions under section 54(2) of the Public Finance Management Act (PFMA) Assessed on ongoing basis using facilitated workshop methodology with the Project Teams. Significant project risks are reported to EXCO regularly. RISK MANAGEMENT PROCESS CONT’D

13. SAA operates in a highly competitive, risky and complex global environment. Accordingly, risk management plans will always lend themselves to improvement and this is a focus of the Board and management. Airline still has a lot of legacy issues to deal with Some of the top risks monitored: A weak balance sheet; Onerous contracts; and Anti-trust litigation relating in various jurisdictions. Baggage pilferage RISK MANAGEMENT – CONCLUSION

14. PROCUREMENT

15. BACKGROUND • SAA’s legacy of PFMA related non compliance extends from both the 2006/7 and 2008/9 AFS: • Irregularities regarding procurement breaches • The 2008/9 external audit management letter indicated: • poor use of the SAP IT system as a key enabler of compliance, and • the need to develop a total Procure to Pay and Strategic sourcing capability. • 3 year plan put in place in late 2009 with the objective of re-establishing the procurement function • Action plan takes the form of a “portfolio of initiatives” to be executed in order to create sustainable change on the procurement function within the framework of: Governance, People and Methods and practices. • This was designed to move the SAA Procurement from its current “Basic” state of maturity to an “Advanced” state in lie with global best practice.

16. BACKGROUNG STATUS – PROCUREMENT CLEAN UP PROJECT • Short term focus remains compliance with legislation, policy and procedure through the establishment of a suitably controlled procurement environment. • Short term focus also includes the review of the Delegation of Authority framework and the use of SAP as a key enabler of compliance and process. • In pursuit of the above, particular attention is given to compliance to the following sections of the PFMA: • Section 51(1) (iii): “An accounting authority of a public entity must maintain “an appropriate Procurement and provisioning system which is fair, equitable, transparent, competitive and cost effective” Prevent irregular expenditure, fruitless and wasteful expenditure, losses resulting from criminal conduct, and expenditure not complying with the operational policies of the public entity.” • Section 55 (2): “The Financial statements must include particulars of and irregular expenditure and fruitless and wasteful expenditure that occurred during the financial year”

17. BACKGROUNG STATUS – PROCUREMENT CLEAN UP PROJECT CONT’D • Medium and longer term focus is on optimisation and driving efficiencies. It includes the following initiatives: • Enforcement of a centre-led procurement organisation that re-enforces SAA’s policies and strategies for the procurement function, while delegating individual buying and tactical execution to purchasing staff to achieve efficiency as well as flexibility in times of change. • Enhanced use of systems to facilitate efficiency, re-skilling of staff, as well as visibility of spend and strategic sourcing capability • Demand management • Catalogue buying • Supplier relationship management • Targeted cost savings of R58m for the 2010/11 financial year, and • R73m of annual benefits from 2011/12 and beyond

18. BACKGROUNG CLEAN UP PROJECT – PROGRESS TO DATE • Maintenance of “an appropriate procurement and provisioning system which is fair, equitable, transparent, competitive and cost effective” • Review of all tender processes in line with the SAA Procurement and  Supply Chain manual  to: • ensure a common understanding of the tender process by all key personnel, • identify areas where underlying controls need to be strengthened • ensure consistency in the application of these policies • highlight any areas where the policy requires revision • Creation of standard tender audit documentation with checklists for each stage of the tender process to aid self audits throughout the tender process • Implementation of the Internal Audit tender process whereby a minimum of 4 tenders are audited on a quarterly basis, and all tenders in excess of R50 million in value are audited on a progressive basis to minimize any potential deviations from policy.

19. BACKGROUNG CLEAN UP PROJECT – PROGRESS TO DATE • 2. “Prevent(ion) of irregular expenditure, fruitless and wasteful expenditure, losses resulting from criminal conduct, and expenditure not complying with the operational policies of the public entity” • Focus is on the prevention of irregular expenditure, incurred when payments are made against an invalid contract. This can result through the absence of a contract, or a contract that has expired, or has not been entered into and authorised through a valid tender process or the provisions of the Delegation of Authority framework. • Activities include: • Continued review of monthly spend by vendor against the contracts database to identify irregular spend • Interaction with Accounts payable prior to payments being made • Review of all suppliers to identify those with invalid contracts • Regularisation of suppliers through the BAC in accordance with the BAC mandate

20. LONGER TERM VISION • 100% compliance for the 2010/ 11 financial year • Non Audit comments or qualifications in our Annual Financial Statements • Centre led procurement excellence, including: • Demand management • Category strategic planning and strategic sourcing • Performance management • Streamlined Procure to pay processes • Supplier relationship management • World class workforce and organisation • Optimal use of Technology – SAP SRM/, CLM, • Proven track record of cost savings and service improvement from our suppliers • Improve BBBEE rating

21. BBBEE – PAST PERFORMANCE • BBBEE spend for 2009/10 financial year.

22. BBBEE – PAST PERFORMANCE • BBBEE spend for the 1st Quarter 2010 is as follows: • SAA is in the process of being re-accredited based on the 2009/10 financial year, which is targeted for completion by the end of August

23. HUMAN RESOURCE DEVELOPMENT AND TRANSFORMATION

24. HEADCOUNT • Total headcountas at June 2010 = 7973. • Excludes • 500 fixed term contract staff • 1181 temporary workers • Includes: • 2584 SAAT staff (a wholly owned subsidiary of SAA) • 557 International staff • 1041 Airports Operations • 1500 In-Flight Services • 931 Flight Operations • 498 Cargo • Headcount data by level show 93% of the workforce represented at a junior level (bargaining chamber ).

25. HEADCOUNT – AGE DISTRIBUTION • Age distribution data shows that: • 36% of the workforce is represented in the 26 to 35 year old age group, and • 34% in the 36 to 45 year old age group • Approx 6% of the workforce is close to retirement age

26. HEADCOUNT – AGE LEVEL ANALYSIS

27. EMPLOYMENT EQUITY – STATUS • The implementation process takes place within the context of the following Employment Equity Life Cycle model.

28. EMPLOYMENR EQUITY – TARGET

29. HUMAN DEVELOPMENT – APPRENTICE SCHEME

30. HUMAN DEVELOPMENT – CADET PILOT SCHEME • This is a transformation programme to bring the SAA pilot fraternity more in line with the • demographics of South Africa • The first group of cadet pilots commenced training in 1995 and the last intake was in 2008 • before it was put on hold as part of the restructuring programme • The current status is as follows: The contract with the current training service provider is being reviewed to facilitate the next intake.

31. HUMAN DEVELOPMENT – MANAGEMENT AND LEADERSHIP DEVELOPMENT • SAA Leadership competency profiles were developed as part of the Talent management Project. • Subsequent Development Programmes were designed and implemented for all Levels of management in alignment to the competency framework. • Learning partners were identified to implement the said programmes and those include USB-ED and GIBS (Gordon Institute of Business Science). • Since April 2010 the SAA has trained a number of managers on the following programmes: • The HR Practice 77 • Workwise 105 • Management Development Program (USB-ED) • 89 • Leadership Development Program (GIBS) • Commences in September 2010

32. BACKGROUNG EMPLOYMENR EQUITY – PLAN AND AA MEASURES • The Diversity Manager Software Suite to track Employment Equity Progress has been implemented. • The Employment Equity Policy currently under revision to ensure alignment to recent regulations and best practice. • Draft Disability Policy has been finalised. • Roles and Responsibilities guidelines compiled to guide various stakeholders in terms of their specific roles regarding Employment Equity. • Plans underway to empower all stakeholders in terms of their roles to ensure successful implementation of the EE Plan. • Relevant HR Policies are under revision for alignment to the Code of Good Practice on integrating Employment Equity into HR Policies. • A company-wide initiative to update employee records, including people with disabilities, has been undertaken in compliance with Employment Equity regulations.

33. Questions and Answers