SABC Presentation to Parliamentary Portfolio Committee of Communications 16 th August 2011

1. SABC Presentation to Parliamentary Portfolio Committee of Communications 16th August 2011

2. Contents Contents Points for Discussion 1 Chairpersons Report 2 Strategic Focus 4 SABC Structure 5 Operational 5 Government Guarantee Targets 6 Conclusion & Recommendations 3

3. Chairpersons Opening Remarks Although challenging, a number of objectives have been achieved • In the application for a Government Guarantee, by the Interim Board of the SABC, (09 Oct ‘09), a detailed outline of the funding requirements to maintain the SABC as a going concern, were conveyed to the Minister of Communications, Hon General (Ret) Siphiwe Nyanda. • The amount of the Government Guarantee requested was R1,473Bn and was additional to the R200 million allocation to the SABC in the 2009/10 Adjustment Estimates of National Expenditure. • The GG application was based on the SABC's Corporate Plan, which dealt with the organisation's key performance areas for the MTEF Period 2009 to 2012. It also articulated a turn around strategy designed to stabilise the SABC and return it to profitability by 2012, while fulfilling the SABC's Public Broadcast Mandate. • It was intended that the GG be used to secure medium-term funding from commercial banks, funding which would restore liquidity to the organisation and enable the sign-off of the SABC's Audited Financial Statements and the External Auditors' Report, for the year ending March 2009. • The request for the GG met the requirements of the Public Finance Management Act as well as the Treasury Regulations and the application supported the SABC's Mandate, it's objectives and those of the Government as a whole.     4

4. Contents Contents Points for Discussion 1 Chairpersons Report 2 Strategic Focus 4 SABC Structure 5 Operational 5 Government Guarantee Targets 6 Conclusion & Recommendations

5. Strategic drivers Both internal and external factors have influenced the performance of the SABC over the last few years, resulting in poorer than expected performance. • Finance Perspective • Financial instability • Commercial viability threatened Funding Commercial Sales Cost efficiencies • External Stakeholder Perspective • Ineffective brand and image management • High reputational risk Government Public International Groups • Conflicting and often competing business objectives • Silo behaviours • Internal Business Perspective TV Radio News Sport Commerce Core Functional Value Chain Perspective • Enabling and support structures suboptimal • Resource Perspective Staff & Skills Technology (DTT) Infrastructure Enablers The Turnaround Programme has already shown an improvement in each of the above perspectives and will continue to drive improvements for the SABC.

6. Contents Points for Discussion 1 Chairpersons Report 2 Strategic Focus 4 SABC Structure 5 Operational 5 Government Guarantee Targets 6 Conclusion & Recommendations

7. SABC Structure Structure Key: Group Chief Executive Officer (GCEO) Executive Director post Group Executive or General Manager post Office of the GCEO Chief Audit Executive Company Secretariat Strategy, Innovation & Planning (Perf Eval.) Group Finance Officer (CFO) Chief Operating Officer (COO) Commercial Enterprises Human Capital Services Risk Future Media & Innovation Legal & Regulation Sport News Radio TV Provinces & Stakeholder Relations

8. Contents Contents Points for Discussion 1 Chairpersons Report 2 Strategic Focus 4 SABC Structure 5 Operational 5 Government Guarantee Targets 6 Conclusion & Recommendations

9. Organisational Achievements The SABC is making good progress towards stabilisation. Recovery, Stabilisation & Sustainability: A clearly defined strategy for long term success Turnaround Cash Flow Management • Financial Challenges have been addressed • For example we have reduced the amount of money owed to us by Debtors (those who owe us money) • R 150 m of old Debt was collected in June • SABC’s Ability to produce and broadcast enhanced • Increased Advertising from a year ago • Regained and improved our Market Share by 2% • Focused and Motivated Management Team • Good experience in Broadcasting • United team with specific goals • Head of Audit appointed 1/8/2011 • Improved Processes • Improved processes for easier ways of working in core functional areas • Enhanced SABC support functions such as HR and Finance to enable the SABC to better achieve its primary goals • We are a going concern • Repaid R 110 m of Nedbank Loan ahead of schedule • Cash Flow Stable • Improved Cash Flow for the SABC which means that there is enough cash in the bank to continue operations • We have over R500 m cash available in the bank Financial Challenges are being addressed The SABC continues as a Going Concern Business Efficiency and easier ways of working 10

10. Operational Achievements – FY 10/11 and to date The past fiscal has seen the enterprise attain other major achievements for the SABC Strategic Goals Achieved • Turnaround Strategy approved, Recovery achieved, now in Stabilisation phase • Plan of action established to address the recommendations contained in the AG Report • The Board has adopted a set of Corporate Pillars that informs the SABC’s Strategic Focus areas and operational plans • Revised operating model and structure developed and being considered by the Board • Performance contracts signed with all Executives for the 2012 fiscal Stakeholders • Briefing to all political parties on Local Government Elections • Consultations with The Ministry of Sport & Recreation and the Portfolio Committee on Sport as well as engagement with sporting bodies on the development of a new sport strategy for the SABC • Commercial relationships stabilised • International content supplier relationships stabilised and local content relationships improving Broadcasting Successes • FIFA 2010 Soccer World Cup • Delivery on language and local content mandate • Celebration of 150 years of the arrival of Indians to South Africa • India/South Africa cricket tournament • Cricket World Cup • Coverage of Local Government Elections – a Great Success! • Re-launched digital media platforms • SABC is also an award winning broadcaster, collecting the most awards at the 2010 SAFTA Awards as well receiving a number of international awards 11

11. Contents Contents Points for Discussion 1 Chairpersons Report 2 Strategic Focus 4 SABC Structure 5 Operational 5 Government Guarantee Targets 6 Conclusion & Recommendations

12. Government Guarantee Background This document outlines the current and projected financial performance of the SABC against the requirements of the Government Guarantee. The main objective of the report is to re-align the requirements of the Government Guarantee within the current operating conditions Objective re-alignment Government Guarantee Nedbank Term loan • Profit of R93m in 2008 to a loss of R790m in 2009 as a result of operating expenses and employee costs which had risen drastically as well as various operational and management inefficiencies • Free cash flow problems prevented the organisation from honouring payments of its committed contracts and commissioned local content productions • The Interim Board secured a Government Guarantee to the value of R1.473 billion from National Treasury in order to obtain a term loan from a financial institution, namely Nedbank • The initial R1 billion rand was used to eliminate the solvency crisis the SABC experienced in 2009/10 • The amount funded was conditional on meeting strict conditions and criteria set by National Treasury. • The remainder of the amount requested, being R473 million would be made available on meeting additional requirements, however the SABC will not be accessing this additional facility Improved Cash Flow, Profit Recovery, Good Performance against Budget, Turnaround Benefits 13

13. SABC Financial Performance vs. Government Guar. Targets The Total Revenue performance for FY2010-2011 has grown by 10% year on year. For FY2011-2012 we have prepared a business case that seeks to align the GG financial targets with the financial targets of the SABC. 14

14. SABC Financial Performance vs. Government Guar. Targets Austerity measures implement continue to bear fruits as expenditure is contained and well within budget. For FY2011-2012 we have prepared a business case that seeks to align the GG financial targets with the financial targets of the SABC. 15

15. SABC Financial Performance vs. Government Guar. Targets The Corporation has continued to deliver impressive operational and financial performance and that is evidenced by the reduced operating loss of R129m vs. the GG target of R228m.For FY2011-2012 we have prepared a business case that seeks to align the GG financial targets with the financial targets of the SABC. 16

16. SABC Financial Performance vs. Government Guar. Targets Variance analysis of the Revenue performance 17

17. SABC Financial Performance vs. Government Guar. Targets Analysis of the Expenditure performance. The benefits of the austerity measures are evident. 18

18. 36- Month Cash Flow Scenarios and Financial Performance A number of cash flow scenarios have been modelled as shown below. The scenario(s) below clearly indicates the benefits of the turnaround work currently under way and the need for the MTEF funding requests to be approved. 19

19. Importance of Approving the MTEF Request SABC has made progress in turning around the organisation. In order for the SABC to continue with these initiatives and remain a going concern, it is imperative that the funding request is approved AG Report Progress Cost Reduction Strategies Revenue Enhancement Employee Defined Benefits • Quality of Reporting • A performance management system has been developed and training is underway • Effective Governance • A number of corrective actions have been identified • Development is underway • Adequate Leadership Oversight • A number of corrective actions have been identified • Development is underway • Note : The detailed progress report and project plan is available • Four areas were identified for improvement: • Reduction of operational expenditure; • Head count reduction, • Conversion to Total Cost of Employment; • Reduced leave liability • The combined effect of these cost cutting initiatives was a further reduction of R104 million of operational costs during the year ended 31 March 2011 • Over the past two fiscal periods, operational expenditure has decreased by 36% (as per audited financial statements). • A number of revenue enhancement initiatives were identified: • Trading and Pricing Model to be implemented FY 12/13 • Yield Strategy • Outsourcing Sponsorship Revenues ( R115m benefit) • TV Licence Increase • Government Subsidy • - Concessionary TV • Licence • - LSM Households • The combined effect of this will result in an increase in the revenue totalling at least R800 million (as per budgeted figures) during the financial year ended 31 March 2012 • The key intent for Total Cost • is to naturally curb the • growth in the long term • Liability; • One way of doing this is through Total Cost of Employment, where benefit costs are capped and any increases that are in excess of the company contribution is funded by the Employee • Consultation with the business has begun and as a result benefits are starting to be realised • Employee compensation and benefits have reduced from R1.753 billion in 2010 to R1.705 billion in 2011 (as per audited financial statements) 20

20. Contents Contents Points for Discussion 1 Chairpersons Report 2 Strategic Focus 4 SABC Structure 5 Operational 5 Government Guarantee Targets 6 Conclusion & Recommendations

21. Recommendation In order for the SABC to meet its obligations in the normal course of doing business, the Board believes that six key strategic initiatives need to be funded by government DTT Development of Sport of National Interest News 24 National Elections Retrenchment costs Digital Play-out centre and Digital Library 22

22. Recommendation Based on the analysis above it is evident that the Corporation continues to improve its performance both in terms of revenue and cost reduction. For the next financial year(s), we have prepared a business case which clearly outlines the optimal performance of the SABC. The next step is to align the GG targets with the operational and financial performance of the corporation as outlined in our 36 month financial performance projections. We recommend that the Government Guarantee conditions be amended based on new forecasts as per Actual Results achieved in FY 2010/11 and the 36 month cash flow forecast model. It is important to take note that these forecasts exclude all current MTEF requests including DTT. 23