SAPO 2019/20 Annual Report; SABC & SAPO 2021/22 Annual Performance Plans; with Minister

Meeting report

The Chairperson opened the virtual meeting and welcomed Members and the delegations from the Ministry of Communications and Digital Technologies, the South African Broadcasting Corporation (SABC) and the South African Post Office (SAPO). No apologies were tendered by Members. He noted that it was the 30-year memorial for the Mshenguville Massacre in Kagiso, Johannesburg, where many people lost their lives in the last days of the Apartheid era. He recognised the hard work of communities and NGOs that organised memorial events for the day. It was important to recognise the injustices of the past, and to note the reminder of the long strides made by South Africa since then. 

The purpose of the meeting was for the Committee to be briefed by the SABC on its Annual Performance Plan (APP) and Budget for the 2021/22 financial year. Another item on the agenda was for the Committee to be briefed by the SAPO on its 2019/20 Annual Report, and on its APP and Budget for the 2021/22 financial year. 

The delegation from the SABC consisted of Mr Bongumusa Makhathini, Chairperson of the Board; Adv Benjamin Lekalakala; Board Member; Ms Yolande van Biljon, Chief Financial Officer (CFO); Mr  Tendai Matore, Head of Finance and Management; Ms Phathiswa Magopeni, Editor-in-Chief and Group  Executive, News and Current Affairs; and Mr Merlin Naicker, Group Executive, Video Entertainment.  The delegation from the SAPO consisted of Mr Lenny Govender, General Manager, Cost Management; Mr Jerel Ruthnam, Acting Group Executive, Strategy; and Ms Zukiswa Ntsikeni, Group Executive: Operations. Ms Stella-Ndabeni Abrahams, Minister of Communications and Digital Technologies, was in attendance. An apology from the Deputy Minister of Communications and Digital Technologies, Ms Pinky Kekana, was noted. 

Opening remarks by the Minister of Communications and Digital Technologies 

The Minister thanked the Committee for the opportunity to brief Members on the APPs and Budgets of the SABC and the SAPO. 

Regarding the SAPO, she stated that the Auditor-General of South Africa (AGSA) had informed the Committee of the review conducted on the 2019/20 annual reports that highlighted areas that needed to be corrected. At no stage was it communicated before the Annual General Meeting (AGM) of the SAPO that the AGSA would review its annual reports. Under normal circumstances, the AGSA would have informed the management of the SAPO of its intention to review and escalate the matter to the Board of Directors of the SAPO. This would have allowed the SAPO to make the necessary corrections without inconveniencing the Committee’s schedule. The SAPO was then advised to engage with the AGSA to address the matter. These engagements had taken place, and both entities had confirmed in writing that common ground was found, and corrections made, which would be incorporated in the SAPO’s briefing to  the Committee during this meeting. The amendments made would not change the audit opinion of the AGSA. 

She appreciated the engagement between the entities but stated that it could be improved. The Department of Communications and Digital Technologies (DCDT) was satisfied with the current situation, and the SAPO would be guided in the process of restructuring of the entity. The position of Chief Executive Officer (CEO) had been filled, and the process to fill the position of the Chief Financial Officer (CFO) was being expedited to ensure that the vacancy was filled with urgency. There had been significant improvement in addressing the challenges faced by the SAPO. Strides had been made to ensure that the SAPO could fulfil its mandate and continue its service delivery as per the expectations of the people of South Africa. 

Regarding the SABC, the Minister commented that the matter had been delegated to the Deputy Minister of Communications and Digital Technologies. The same process applied to the SABC as that which applied to the SAPO. The SABC had made submissions to the DCDT and the issues indicated involved the lack of performance indicators and targets to boost commercial revenue. The SABC had cited reasons in this regard, and the DCDT was of the view that the targets might not give a true representation of financial sustainability going forward. The DCDT was urging the SABC to reconsider this position.

From a financial point of view, she stated that the SABC’s revenue was expected to increase over the Medium Term Expenditure Framework (MTEF) period. The DCDT urged the SABC to consider using financial ratios as a measure of liquidity and financial position. The entity’s total revenue was expected to increase by 28 percent, 17 percent and 13 percent respectively in each fiscal year in the MTEF period. This growth would be driven by advertising revenue, which was expected to increase by 21 percent between 2021 and 2022. The SABC expected to spend between R7billion and R8.1 billion in the upcoming financial years.  

SABC APP and Budget

Adv Benjamin Lekalakala, Board Member, and Ms Yolande van Biljon, the Chief Financial Officer (CFO), presented a briefing. 

Strategic overview  

The Committee was told that, as the National Public Broadcaster, the SABC must offer, in all of South Africa’s official languages, a range of informative, educational and entertainment programmes that highlighted South African attitudes, opinions, ideas, values, talent and artistic creativity. The SABC offered a plurality of views and a variety of news, information, and analysis from a South African point of view while at the same time advancing the national and public interest. Like every other public broadcaster, the SABC was facing a world in transition, and it had to devise strategic responses to the challenges facing the delivery of public service broadcasting. 

The SABC said it was expected to fulfil its mandate within an incredibly challenging context. In terms of the economic context, the SABC reported the following:

- Economic performance continued to be subdued, following a year of significant contraction. It would take time to get back to pre-pandemic levels; 

- The COVID-19 pandemic continued to have an effect. It was not known what the impact of anticipated subsequent waves and the vaccination programme would be; 

- Tax revenues could be expected to remain subdued in line with the national economic activity;

-  Debt levels (national, corporate and consumer) would remain high; 

- The reduced levels of industry-wide spend by multinational and local advertisers were expected to continue. The country’s overall economic performance would have a negative effect on the SABC’s revenue generation efforts, both in terms of advertising revenue and TV licence revenue 

In terms of the competitive landscape, the following challenges were reported:

- New entrants to the media sector and strategic partnerships would continue to compete for audiences and advertising revenue;

- Entry barriers were high for new broadcasters but low for additional stations. As a result, new licensees focused on the most commercially valuable audiences, impacting the SABC's margins;

- Non-linear broadcast technology made it easier for content providers to reach audiences in a cost-effective manner in an unregulated environment while generating revenue in the process;

-  South Africa’s pay TV broadcasters continued to enjoy limited regulation which created monopolies in  the marketplace, particularly around sporting events, local content offerings without mandate, pricing  of bouquets and control of revenue through the fragmentation of advertising revenue;

- The SABC also faced competition for the best content and talent. The increasing number of licensed radio and television channels had increased the cost of keeping talent, and driven up the cost of local production and the acquisition of content rights, particularly sports rights.

In terms of the regulatory landscape, the SABC, while recognising the efforts underway, had to contend with a regulatory and legislative framework that had not kept pace with the growth of digital technology, and the convergence of media, technology and telecommunications. The SABC would continue to be involved in various policy and regulatory processes that were intended to culminate in new legislation that would have implications for the Corporation’s revenue generation capabilities and business operations in 2021 and future years. The strategies planned by the SABC, painted in broad strokes in the SABC’s Corporate Plan, represented the SABC’s efforts to remain relevant, and to fulfil its public broadcasting mandate in a self-sustaining way. 

The services of the SABC 

The Committee was told that the SABC’s bouquet of services included 18 radio stations and five television channels as well as a digital media offering. Another radio station, called Channel Africa, was managed by the SABC on behalf of the Department of International Relations and Cooperation. For many who had limited access to information technology and other more advanced media platforms, radio remained a critical source of information, current affairs, and entertainment. SABC Radio commanded a healthy 73 percent share of all adult radio listening in South Africa.  This translated to 29 million adults who chose the radio stations of the SABC as their source of news and information every week. Television remained the medium of choice for most South Africans. The public broadcaster’s five television channels attracted, on average, 29 million South African adults (from the ages of 15 years old) in a typical month. The SABC News channel and SABC Encore channel were delivered through the satellite platform and reached 5 million viewers and 6.1 million viewers respectively in a typical month. The SABC had a digital media presence across the internet including social media, online video, podcasts, and streaming media. The SABC’s television channels and shows, radio stations, news, education, and other brands had popular and engaged audiences in the South African social media landscape. 

Delivery on strategic objectives 

The Corporate Plan of the SABC continued to focus on implementing the SABC’s Turnaround Plan which was anchored on the six pillars that made up the SABC’s Strategic Plan, each with its own outcomes outlined. These pillars included a financially sustainable organisation; the offering of a competitive and  innovative multichannel portfolio; achieving the ideal of “the SABC everywhere, for everyone”; having a competent and driven workforce; being compliant with governance practices, risk management and  sound internal controls; and putting strategic and sustainable partnerships in place. 

Budgetary considerations for the MTEF period

For 2021, the SABC expected R5 billion in revenue from advertising, rental income, content exploitation, and fees from TV licences. Its expenses were estimated at R5.92 billion, projecting a loss of R844.06 million. For 2022, the SABC projected R6.4 billion in revenue, and expenses of R7.03 billion, showing a loss of R603 million. For 2023, the SABC projected a profit of R150.29 million, which would be increased to R347 million in 2024. This meant that the SABC could break even in the next 18 months. 

The Committee was told that the budgeting process over the MTEF period was aligned to the targeted completion of the SABC’s Turnaround Plan. This allowed management to make conclusions about successes and achievements over this period. The SABC’s budget also highlighted areas where continued attention was required. The total revenues were expected to increase by 28 percent, 17 percent 13 percent respectively in each fiscal year in the MTEF period. Management expected the advertising revenue growth trend noticed in the third and fourth quarter of the 2020/21 financial year to continue. Income from TV licence fees would average R1.2 billion over the MTEF period with R1.12 billion budgeted for the 2021/22 financial year, showing a budgeted growth rate of 29 percent.

Permanent employee costs were expected to decline by R317 million down to expenditure of R2.06 billion in the 2021/22 financial year. This was expected to account for 28 percent of the total costs over the MTEF period compared to 40 percent in the 2020/21 financial year. No budgetary salary increases were expected over the MTEF period, except for the expected medical aid contribution increases. No provision for annual increases had been made for the 2022/23 financial year onwards, based on current alternatives that were being discussed. Alternatives to reduce the payroll had not been factored into the SABC’s budget.  

It was reported that the following factors were not included in the budget:

- The impact of any legislative support being requested, such as the must-carry provisions and the  review of licensing conditions at some of the SABC’s radio stations;  

- The review of the Sentech signal transmission costs, including the analogue switch-off as the pace of the processes could be reliably forecast;

 - Any return from additional TV-channels that were under consideration as discussions were in their infancy;  

- The impact of any TV licence fee amnesty programme that might be implemented if approval was obtained from the DCDT and the National Treasury;

- The impact of further waves of the COVID-19 pandemic which continued to cause a level of  unpredictability in financial considerations relating to further national lockdowns.  

The following challenges and risks should also be kept in mind:

 - The budgeted advertising revenue growth for the 2021/22 financial year of 20 percent was high, and might not  be attainable with the current economic climate and the waves of the COVID-19 pandemic;  

- The ability to turn around the SABC 3 channel and radio platforms as these were operating at a loss throughout the MTEF period;  

- The stagnating or maturing linear TV advertising market, with stiffer competition and increased costs  in gaining advertising revenues over the MTEF period;  

- The limited forays into continental markets and volatility in the South African market;

- The achievement of significant efficiencies in the signal distribution costs was key to ensuring the sustained financial improvement of the SABC;  

- The slow pace of legislative and regulatory reform to secure and sustain the turnaround of the SABC;

- The focus on digital needs should be magnified to increase revenue.  

The profitability of the various channels and radio stations was outlined to the Committee, as well as the financial performance indicators of the SABC.   

SAPO 2019/20 Annual Report   

The Committee was briefed by the SAPO on its Annual Report for the 2019/20 financial year. Mr Jerel Ruthnam, Acting Group Executive for Strategy, SAPO, presented the briefing. The Annual Results for the 2019/20 financial year were outlined. 

As background, it was stated that the SAPO’s audit outcomes were less favourable than in the previous financial year. The management of the SAPO was working to ensure the stability of the entity. Members should note that the SAPO was presenting these results a year later, and that the COVID-19 pandemic had significantly changed  the ways of doing business, including the way of working at the SAPO. 

Regarding its operational highlights for the year, the SAPO reported that its delivery standard of 89.25 percent had improved by 12.85 percent from the prior year, and that 535 million items were delivered. The SAPO had implemented a courier delivery matrix model to increase competitiveness, and the security features at  branches had been improved, resulting in a 45 percent reduction of crime incidents. The SAPO’s targets for  reducing its carbon emissions were achieved, with a 17 percent reduction in energy costs, and 54 tons of waste paper  being recycled during the past year. It was crucial that the SAPO made contributions in terms of energy reduction.

Regarding technological highlights, it was reported that the network upgrade project achieved 81 percent of target, with 1 083 post offices operating on the new fibre networks from 1 329 identified sites. The Postbank ATMs and point-of-sale (POS) transactions were operating at 99 percent.  

It was reported that the labour environment remained stable during the year, and the number of employees was reduced by 1 871 to 16 488. The Voluntary Severance Package process was implemented to address the high cost base of the organisation with 730 applications approved. Recruitment was being done to fill critical executive vacancies, and processes were underway for the appointment of the six Regional General Managers for Operations. The SAPO had been identified as a provider of an essential service by the Labour Court, relating to its function of paying out the grants allocated by the South African Social Security Agency (SASSA). For this, 8.1 million beneficiaries were paid monthly. In addition, 2.6 million school books were delivered to schools in Limpopo and the Northern Cape. 

SAPO’s performance for the 2019/20 financial year 

For the 2019/20 financial year, a total of 17 performance indicators and targets were set, and six of these achieved 100 percent completion, resulting in an overall performance of 35 percent. The performance of the SAPO for the 2019/20 financial year was outlined as follows: 

- Regarding efficient systems and processes, it was reported that this strategic objective focused on improving the effectiveness of the SAPO’s business processes and operational environment supported by the required enabling IT systems. The mail delivery standard had steadily improved over the 2019/20 financial year, and the annual target of 80 percent was exceeded at 89.25 percent, just below the regulated standard of 92 percent. The IT Network upgrade attained 81 percent of target while the ATM and the POS uptime attained 99 percent of target. 

- Regarding asset and infrastructure optimisation, it was reported that this strategic objective was to utilise and maximise the SAPO’s assets and owned infrastructure to create new and enhance existing revenue streams. The planned investment in property maintenance was not achieved due to funding challenges; however the targets of maintaining of the Universal Service Obligations (USO) points of presence and increasing the number of postal addresses were achieved. 

- Regarding the diversification of funding and revenue, it was reported that the strategic objective was for the SAPO to be a productive asset rather than a liability for the government, by ensuring financial sustainability of the SAPO. The annual revenue was below target by 8 percent. Mail revenue remained the main contributor but was in a steady decline due to substitutions for traditional mail. There was a continued mismatch between monthly revenues generated and corresponding operating expenditure, resulting in a deficit in meeting monthly financial obligations. This had now been aggravated by the COVID-19 pandemic. The R2.9bn funding allocation received in the 2018/19 financial year was utilised to settle all loans and pay critical suppliers.

- Regarding future products and services, it was reported that the strategic objective was the development of an integrated service delivery platform, accessible to all. Whilst the digital strategy  towards attaining Vision 2030 was developed and approved, the launching of the E-Pay and Omni Channel Platforms were delayed due to procurement and related matters. 

- Regarding the “customers and communities first” objective, it was reported that the SAPO remained at its core, a government entity that primarily existed to serve the citizens of South Africa. While there had been a substantial improvement in the resolution of customer complaints since the 2018/19 financial year, the target of 100 percent resolution within 14 days from receipt of the complaint was not achieved at 84 percent. The customer satisfaction survey undertaken during February and March 2020, reported 58 percent satisfaction levels. 

- Regarding the efforts to achieve a culture of excellence, the strategic objective was to have a liberated, engaged team of brand ambassadors providing excellent service. The SAPO’s headcount was reduced from 18 359 on 31 March 2019, to 16 488 as of 31 March 2020, a reduction of 1 871 employees. An Employee Satisfaction Survey was conducted during the latter part of 2019 year, with a reported result of 42 percent satisfaction levels. To improve the culture of excellence, an unqualified audit opinion by the AGSA was set as a performance measure. 

For the 2019/20 financial year, it was reported that the SAPO had revenue of R4.1bn for the year ending on 31 March, consisting of the revenues from Postbank, the postal services, and the financial services.  Operating costs of R6.5 billion were reduced by 5 percent from R6.8 billion in 2019. The costs of staff increased by 3.6 percent R3.9 billion and continued to make up 60 percent of the operating costs. The loss for the 2019/20 financial year increased by R669 million to a total of R1.8 billion.

Correction of erratum

The SAPO then outlined the erratum in its Annual Report to the Committee (see the attached presentation).

It was stated that the SAPO, as a state company, played a strategic role in the provision of essential goods and services. The activities of the SAPO impacted on the quality, accessibility, and affordability of services provided to the community, especially the poor and vulnerable. In determining the appropriate basis of preparation of the financial statement, management was required to consider whether the group would continue to be operational in the near future. The conditions noted resulted in a material uncertainty that might cast significant doubt on the SAPO’s ability to continue as a going concern. This included the reported net loss of R1.79 billion. This was a 39 percent increase in losses since the prior year. The substantial movement was because of the transfer of assets to Postbank during the current year. The transfer saw an estimated value of R400 million in profits being shifted to Postbank. The SAPO was faced with a low revenue base and high fixed costs. 

Employee costs made up a 94 percent reduction in revenues. For every R100 generated by the SAPO, R95 was used to pay salaries. This high employee costs rendered most plans ineffective with only negligible funds available for operations. This ratio had increased by 40 percent since 2019. Another challenge was the existence of contingent liabilities to the value of R122 million as at year-end. A lack of funding to fund for new capital projects and revenue initiatives, old and ageing infrastructure backlogs, outdated operating assets and outdated IT solutions made competing in the market space almost impossible. An inappropriate and inefficient business model had resulted in the SAPO not generating sufficient revenue to finance its high cost base. 

There was a continuous decrease in mail volumes and revenue due to the emergence of a successful competitor. Several competitors had captured the courier market and the migration to digital communication had resulted in a significant decline in mail business over the past years. Revenue from mail services had been on a declining trend and several key customers were migrating to digital platforms. A significant decline had been noted for the courier business. 

The Committee was told that, based on these factors, there was substantial doubt about the SAPO’s status as a going concern. Notwithstanding the substantial doubt, management had adequate plans in place to mitigate this risk, including requesting COVID-19 relief for the year, developing a turnaround strategy to improve the financial position of the group, and increases in prices for postal services. 

In addition, the budget included projected revenue from the Digital Terrestrial Television (DTT) project of R158 million for the 2020/2021 financial year and R141 million for 2021/2022. This was based on funds already received and awaiting the roll-out of the DTT set-top box kits. Through partnerships, revenue would also be generated directly from citizens not included in the DTT subsidy and who bought the devices from the SAPO. The SASSA’s transaction fees generated from the disbursement of social grants was included in the budget as part of the financial services revenue.

The SAPO was engaging in partnerships to grow the current revenue streams by undertaking the following initiatives:

- Entering partnerships with lessees on the basis that they were exempt from rental payments for a period covering the lease allowance amount that would be incurred. This would improve the rental revenue base in the MTEF period. 

- Increasing the number of post office branches offering motor vehicle licensing services. The increment on this revenue is expected to yield R48 million in the current financial year.

- An increase in revenue by R100 million due to expansion of delivery services for AARTO infringements notices. The roll-out is to be expanded over the areas currently covered. 

- An increment of R50 million in the recovery of costs incurred pertaining to transfer pricing to Postbank for the use of Post Office branches. 

- Implementation of e-commerce which would have a direct impact on the number of parcels couriered because of items purchased on the SAPO e-commerce platform. 

- An increment in revenue from sale of properties that were approved for disposal. 

The Committee was told that staff voluntary severance packages approved in the 2019/2020 financial year would result in lower staff costs for the 2020/2021 financial year and further cost reductions of R300 million had been included in the budgets for the 2021/2022 financial year. This reduction was made possible by the severance packages that were paid in the 2019/20 financial year.   Some part time employees were also absorbed and this curbed the over-time payments previously made to them. Due to excess staff within the organisation, overtime and night duty allowances were also managed to further realise cost reductions. Security costs had been reduced by R286 million due to lower contractual obligations and due to the investments that would be made in improving the security infrastructure. These revenue and expense initiatives were crucial to ensure that the SAPO’s financial position was improved over the medium term, with a net loss of R177 million projected for the 2020/2021 financial year. 

Focus areas

The SAPO outlined seven major focus areas for the year ahead:

- Finalising the turnaround strategy. It aimed to address the sustainability and relevance of the entity by improving operational performance to achieve compliance with local and International.

- Improving the SASSA social grant payments system to ensure greater efficiency and lower service costs. 

- Fast-tracking digital migration.

- Supporting the Postbank corporatisation to ensure a smooth transition.

- Collaboration with the State Information Technology Agency (SITA) to stabilise the ICT infrastructure of the SAPO and to speed up digitalisation to improve service delivery.

- Providing inputs for the review of the SAPO’s enabling legislation to include the diversification and digitisation of services.

-  Regarding e-commerce, to allow greater digital market access to small businesses and increase market shares. 

SAPO APP and Budget for 2021/22   

The Committee was briefed by the SAPO on its APP and Budget for the 2021/22 financial year. Ms Zukiswa Ntsikeni, SAPO Executive for Operations, presented the briefing. 

She told Members that the SAPO was mandated by the Postal Act 44 of 1958 and the Postal Services Act 124 of 1998 to provide affordable and accessible postal and financial services to all South Africans. These statutes provided for the regulation of postal services and the operational functions of the company, including its Universal Service Obligations (USO0, as well as the operation of the Postbank. The USO mandated the SAPO to provide services such as address provision and accessible mail delivery and collection services to all underserved areas. 

Customer value was important. The SAPO had to ensure that its services were accessible and convenient and provide easy to use products and services. It was important that the needs and expectations of the SAPO’s customers were met. The entity had to provide secure handling of customers’ items. The customer-value proposition of the SAPO included the following:

- Convenience through easy access to simple and easy-to-use products and services;

- The availability of relevant products and services of acceptable quality which fulfilled the needs and expectations of customers;

-Trust in the secure and safe handling of physical items and electronic data while maintaining customer privacy throughout the collection and delivery process;

- Reliable, consistent, and speedy service;

- Reach; the availability of a point of presence network that was a convenient distance from home, work and social environments.  

Strategic alignment with the DCDT and the strategy of the SAPO: 

The Committee was told that areas that were being addressed included the review and expansion of the South African Post Office Act and the development of small and medium business through the SAPO’s digital strategy. The SAPO is working to increase digital and physical access to government services in all communities and was training its staff in digital technologies. Plans were being developed to address delays in payments to suppliers. The SAPO’s organisational performance and compliance was measured against the targets in its APP. The strategy of the SAPO was to transform the entity into an organisation that catered to the needs of a modern society. 

The successful implementation of the SAPO’s strategy was highly dependent on the resolution of several significant challenges. These included acquiring funding to fully resource all key initiatives; comprehensively reducing fixed costs; eliminating organisational inefficiencies; providing training and development opportunities to employees; increasing the entity’s revenue and diversification through strategic partnerships; improving customers’ experiences by responding to the real needs of clients; rebuilding the entity’s brand to be trusted in the market; and achieving total employee engagement at all levels. 

Financial information and performance indicators 

Members heard that the SAPO’s revenue was expected to increase to R4.81 billion in the 2021/22 financial year, including the revenues from postal services, courier and parcel services, financial services, interest, digital revenue, and property and sundry revenue. The expenditure was estimated to amount to R6.91 billion, including the compensation of employees, transport expenses, property expenses, IT-related expenses, security services, and other operating services. This meant that the SAPO expected to operate at a loss of R1.53 billion after transfer pricing and subsidies had been included as mitigating measures. The balance sheet of the SAPO was continuously weakening with the increasing accumulated loss over the MTEF period. The liquidity of the entity remained a key challenge and was showing a decline. The SAPO outlined 17 key performance indicators for the 2021/22 financial year (see the attached presentation). 

Discussion: 

Ms P Faku (ANC) said she appreciated the briefings given to the Committee. Regarding the SABC’s presentation, she asked for clarity on the R500 million spent on content by the entity. This was 50 percent of the funding received from National Treasury. The Committee had been told that the forecast for revenue was for the entity to break even. Regarding the budget for advertising which was 20 percent of the total budget, she noted that the SABC had reported that it will not be attainable. What was the problem with this and how far was the process for reducing Sentech costs?

She said the process regarding the analogue switch was slow, and asked for clarity on why the matter was not progressing more timeously. The SABC continued to make a loss over the MTEF period, which remained a concern. The Committee would hold the SABC responsible for the commitments it had made, including improvements in the audit outcomes.

Regarding the customer survey conducted by the SAPO in February 2020, she asked for clarity on how the survey had been conducted. How would the satisfaction levels of staff be improved? Service delivery was where the SAPO really needed to improve in terms of customer satisfaction. How many of the reported security issues were resolved? What measures were implemented by the SAPO to reduce the employee headcount and ensure that the labour environment remained stable? How did the SAPO implement retrenchments without having conflicts? She appreciated the appointment of six regional managers. She asked for time frames on when the critical executive positions would be filled. What measures would be implemented to address the issue of the SAPO’s expenses exceeding its revenue? 

Ms P van Damme (DA) stated that it was comforting to hear that the SABC could be breaking even in the next 18 months, especially after the financial implications in the previous year of the COVID-19 pandemic and the decline in advertising. The Committee’s biggest concern the previous year had been that, because of the decline in advertising, the SABC could make serious losses and be requesting another bailout. It was comforting that this could now be avoided.

She said the Committee had hope that the strife present in the Board of Directors of the SABC would be resolved.  She appreciated the good working relationship between the SABC and the DCDT.

She stated that the presentation raised a number of red flags that were quite concerning, resulting from the fact that advertising was the bulk of the SABC’s revenue. She noted that the SABC billed R3 billion in TV licence fees per year but was only able to collect around R791 million. There is an evasion rate of 75 percent in payments for TV licences, which is significant. Historically, the payment of TV licences had had to do with public perceptions of the SABC. This should not come as a surprise. Incompetence, maladministration, and corruption at the SABC meant many people refused to fund the state broadcaster. However, the method of collecting these fees was not working and needed reconsideration.

It was worrying that the Committee had repeatedly raised the issue of unfunded mandates. What progress had been made in this regard? The SABC had mentioned the constraint of the slow pace of legislation and regulation development. It was worrying that these issues still had not been resolved. It is trite that the SABC, as a public broadcaster, did not have deep pockets. This was problematic because of the SABC’s role as a public broadcaster in making sure that the public could view major sporting events, especially international ones that grew social cohesion and pride in the country. She

Asked for clarity on what legislative amendments the SABC would be proposing to ease constraints on service delivery, especially regarding the Broadcasting Act of 1999. There was a need for the SABC to be innovative to survive and make a profit. One of the key proposals that was supported by the Committee was establishing a streaming platform that would speak to the separate and unique markets out there. Why had this not been included in the APP? 

Mr C Mackenzie (DA) welcomed the new CEO of the SAPO who had been recently appointed. He asked how many turnaround plans had been tabled to Parliament by the SAPO since 2014. How many bailouts had been given to the SAPO since 2014, and what was the value of these bailouts?

Regarding the USO, he stated that the Independent Communications Authority of South Africa (ICASA) had started court action relating to the SAPO’s monopoly on transporting parcels weighing less than one kilogram. The intention behind that monopoly was to fund the USO, which involved 529 branches. What were the costs of maintaining these branches? He referred to three revenue streams, the SASSA grants, e-commerce and the USO subsidies. If the SAPO received a subsidy from the government for USO, why did it need a monopoly? The SAPO was patently unable to deliver parcels at this moment in time and yet other competitors in this space were able to run their business effectively. The SAPO was not able to compete in this regard, and previous attempts to do so had resulted in liquidation. The history of the SAPO said that it could not deliver courier packages in the same way that its competitors could. How did the SAPO think it was going to compete in the commercial space with these courier companies who were rendering a fast and efficient service?

Regarding the staff of the SAPO, he stated that the entity had presented a picture to the Committee of a SAPO that is healthy, motivated, and vibrant. The financials of the SAPO were a horror to look at, and its staff was demotivated because benefits were not paid out as they should be. He asked for an update on the pension contributions that were deducted from employees’ salaries but did not reflect in their pension accounts. Was the SAPO simply holding them back as it had done with the salary increases and the medical aid contributions?

He stated that 56 post offices were currently closed because of non-payment of rent. How was this being dealt with given the amount of mail that was sitting behind locked doors? How did people collect their documents once a property owner had locked the post office? When would the SAPO pay its bills so that people could receive their mail, medicine, and important documents? How did this correlate with the customer-value proposition of the SAPO?

Mr Mackenzie asked for clarity on the Postbank from the SAPO. The Postbank was the only thing that stopped the SAPO from being declared bankrupt. The balance sheet had always been solid because the Postbank was included. What would happen when the Postbank was removed? It would render the SAPO bankrupt. The company law of South Africa required directors to pass a resolution for a company's business rescue or alternatively wind up or liquidate the company as soon as they became knowingly aware that the company was financially distressed or was trading in insolvent circumstances. All of the SAPO’s directors were aware of this, including the Minister of Communications and Digital Technologies. How was the SAPO, by any metric, operating solvently? Was it not time for business rescue as a matter of urgency?

There was no more rope or leeway for the SAPO. It had been acknowledged in the annual report that traditional mail was declining and yet it is put up as an increase in the SAPO’s annual revenue for two years ahead. This made absolutely no sense. There were continued reports of rats, urine, broken facilities, insecure areas, informal traders, vagrants, littering, broken air conditioners and many other problems with branches of the SAPO. How did the SAPO work on its security features when it could not even maintain the SAPO’s branches? 

Mr Z Mbhele (DA) agreed with the comments made by Mr McKenzie. There was a clear disjuncture between the APP presentation and the situation on the ground relating to the SAPO’s branches. The facilities of the SAPO were broken and run down, and the complaints from the public kept streaming in.

Regarding the SABC, he referred to the pillar of achieving a financially sustainable organisation and being able to leverage the entity’s asset portfolio. What did this entail? He agreed that conceptually the notion of leveraging the asset portfolio was crucial for turning around the financial situation and health of the SABC. The collection of TV licence fees has been a chronic challenge for the SABC, and this situation would not change quickly. The projections by the SABC seemed to be ambitious. What gave the SABC the confidence that these projections were feasible and would be realised?

There had been mention of the increasing competition in the broadcast space, and the resulting financial pressures on the SABC. This was an endemic challenge that would be faced by any public company or organisation that provides some commercial service, especially with private businesses providing a more  compelling or convenient value offer. Customers voted with their cash.

Regarding the SABC’s intention of pursuing strategic and sustainable partnerships, he stated that there was no sense from the briefings on what this would entail. He asked for clarity on the possibility of leveraging additional resources to add value for the SABC mandates. Was there thinking about taking a consortium approach to the content production and broadcast mandates, with the onboarding of private sector equity partners in some form or another? There was ongoing talk in other spaces around strategic and deliberate, thoughtful, linking up with private sector equity partners in some form. He stated that he  believed very strongly in the idea of organisations having a clear understanding and grasp of what the core competencies and unique value add were. The figures presented by the SABC on its weekly and monthly channels did not add up. He asked for clarity in this regard.

Ms N Kubheka (ANC) asked for clarity on the challenges that constrained the SABC from paying invoices within 30 days as prescribed by the National Treasury. What were the strategic opportunities that were currently being exploited by the public broadcaster within the digital media space, as well as the checks and weaknesses that  might exist between the broadcasting sectors? How did the SABC plan to achieve the maximum returns from investment, given channel capacity challenges currently confronting the SABC? 

The Chairperson thanked Members for the inputs made and the questions.  He agreed that there were serious challenges in both entities. The Committee would keep a watchful eye over their progress in the current financial year. He asked for clarity on the retrenchments by the SABC. It was crucial to keep the Committee abreast of all the issues within the entities. 

Responses by the Minister  

The Minister said that she would respond to the issues affecting the Executive Authority.  Regarding the issue of unfunded mandates, she stated that the DCDT had applied for funding from the National Treasury in this regard. The engagements were being held at the level of officials and were led by the DCDT’s Director-General, as the Accounting Officer. The SABC had also submitted proposals in this regard that were being reviewed by the DCDT and the National Treasury. Once those issues were ironed out, a recommendation would be sent to the Minister of Finance for further consideration. 

She conceded that there had been many turnaround plans submitted by the SABC and the SAPO, but the situation was what it was. The DCDT had a process to look beyond just the lack of implementation of the turnaround plans. The fact that there had been so many bailouts showed a failure to implement what was supposed to be done as part of the turnaround plans and the mandates of the bailouts. This had necessitated a look into the root causes and contributing factors relating to the lack of implementation. The current intervention was to ensure that all the overall reviews were facilitated to reorganise and reposition in the digital era. 

The separation of the Postbank would have a negative impact on the services of the SAPO. The government had made a commitment to deal with these issues, and the operational matters would be dealt with by the Board of Directors of the SAPO.

The DCDT is looking at what the Board of Directors and the management of the SABC had said in the turnaround plan about how they were going to change things at the SABC. Currently, the DCDT was not exploring any equity partners relating to the SABC. 

Responses by the SABC

The CFO, Ms van Biljon, reported that the SABC had applied for R800 million as part of its bailout, all of which had been spent over the past few months. Regarding the question on the leveraging of the SABC’s asset portfolio, she stated that the SABC had followed a process which started with a comprehensive audit of all of its physical fixed assets. The goal was to ensure that the SABC was able to get more efficiency from its assets in terms of using them to secure funding opportunities should it be necessary and, where opportunities presented themselves, to seek non-equity partnerships. An extensive amount of work was invested in trying to address these two weaknesses, and the SABC was hopeful about seeing a return on these investments.

The SABC had received a qualified audit opinion from the AGSA. The reason for the adverse finding was that the entity was still struggling to ensure that its irregular expenditure register was complete and also to avoid non-compliance. She reported that the SABC was firmly back on the road to profitability after years of financial losses and restructuring. She stated that the SABC management team was feeling energised to see its projections materialise. The SABC’s total revenues were expected to grow by 28 percent, 17 percent and 13 percent respectively for each of the years from 2022 to 2024. She said the growth would be driven by advertising revenue, and that the SABC also expected to report a profit in the same period.

Permanent employee costs were expected to decline by R317 million in the 2021/2022 year. Signal distribution costs which are expected to decrease by 4 percent over the MTEF period. The review of signal costs with Sentech had not been factored in.

Mr Ian Plaatjies, Chief Operations Officer, SABC, added that the SABC was in final discussions with Sentech. It had a mandate from its Board of Directors to expedite that process and to look at all the ways of pursuing cost reduction. The SABC had no plans of closing down any radio stations. In fact, the reverse was true; there are growth plans for every single radio station. The SABC was consolidating offices as part of its cost saving initiatives.  

Mr Merlin Naicker, Group Executive for Video Entertainment, SABC, commented that some viewer segments were growing faster than others, and that the SABC had implemented some branding changes. The revenue against channels was monitored on a monthly basis to determine whether there was a need to make  major pivots in the strategy. There was a more television-based look and feel in promoting the content which was driven by icons and images. The next level was to start streaming. He explained the perceived discrepancies in figures on the SABC’s weekly and monthly viewers. He stated that one page of the presentation referring to the total reach was based on monthly viewership and that another page split up the channels on a weekly basis. 

The SABC said its total expenses were under budget, which could be attributed to cash flow constraints that led to a significant decline of investment in content, infrastructure, repairs and maintenance and marketing. The SABC, which had just gone through a retrenchment process, was planning to impose a wage freeze on its employees for the next three years to contain costs. This mirrored what the government planned to do with its public-sector employees to reduce the budget deficit, but public-sector trade unions were vigorously contesting the plan. It was difficult to compete with the SABC’s competitors who generate their revenue based on subscriptions, and not on advertising like the SABC did. It was an open secret that consumers had been under pressure in the past fiscal year given the epidemic and work situation.

The SABC remained confident that in the new fiscal year, various initiatives would help in recovering its losses in revenue. There were many initiatives encouraging consumers to pay their TV licences. The SABC could confirm that 74 percent of all key activities in the turnaround plan had been completed. Being mindful of the fact that this was 17 months into the implementation period, the SABC believed there was good traction in the implementation, with the focus on revenue generation month on month.  There had been significant growth in listenership. There was good progress in ensuring stricter internal controls and adherence to policies and regulations. The aim now was to ensure that it was accelerated for the remaining period of the turnaround plan. 

On the issue of TV licences, the SABC was of the view that while most South Africans were not  paying their licence fees, this situation could change if new legislation was approved to increase compliance.  To address the low TV licence compliance rate, the SABC and the DCDT wanted South Africans to pay TV licences for laptops, tablets, and DStv decoders. They were also floating the idea of forcing MultiChoice to collect TV licence fees as part of a reform of public broadcasting laws in South Africa. The SABC had also proposed the idea of replacing the current TV licence system with a device-independent, tech-neutral household levy for public broadcasting. The proposal was founded on the fact that every single South African household had the realistic ability to access public broadcasting content. Legislative changes could help to improve TV licence compliance rates and strengthen the SABC’s financial position. 

Responses by the SAPO 

Mr Ruthnam responded that the customer survey was conducted electronically with Google Forms where the entity developed a questionnaire of about 10 questions, which was sent to the customers of the SAPO. Submissions were also received from the entity’s staff.

Regarding security services, the SAPO is looking at different types of equipment. The entity wanted to upgrade, refresh, and strengthen the security environment. In this regard, the SAPO has achieved a 2 percent completion and anticipated fast-tracking the programme in the next financial year to achieve up to 57 percent completion.

On the support network, it was stated that an upgrade was being undertaken to move to fibre. The SAPO is working with the DCDT to try and prioritise this so the entity could increase the number of installations. Regarding the reduction in employees, there was a challenge as the SAPO had lost skills, but the reduction of numbers did provide a benefit moving forward. 

Mr Lenny Govender, General Manager: Cost Management, SAPO, responded that the SAPO had engaged with various regions for the training of additional staff. The SAPO was working with them in providing more machinery and also in replacing stolen machinery timeously. This would aid in reducing the problems experienced at the SAPO’ branches. Regarding a question on queue management, the SAPO worked closely with the SASSA which had provided a lot of assistance in this regard through the use of a separate grant base that was implemented during the lockdown periods of the COVID-19 pandemic. Payments were also differentiated on days to manage queues. There was also the system that the SAPO had put in place for beneficiaries to register. With all these inputs, the queues have been improved. The SAPO had also collaborated with other entities regarding queue management systems, data analysis and data mining, as well as the international financial system that the Postal Union used.

Regarding the branches that had been closed, he stated that 11 branches had been closed with an amount outstanding of R4 million. It was not easy to provide figures on how much it cost to maintain each branch, as it varied. These costs consisted of rent, rates, taxes, electricity, water, and other utilities as well as equipment.

The SAPO currently had a speed service, which is over and above the normal post delivery service. The SAPO wants to achieve 92 percent delivery in the upcoming financial year and automate all of the entity’s mail centres by the end of the year. There were plans to implement security upgrades at 1 680 SAPO branches. The SAPO was undertaking initiatives to train and motivate its staff and had brought in some gamification to engage them on a daily basis. Communication with employees was an aspect in which the SAPO had invested substantial resources, with efforts for more stringent performance management. 

The Chairperson thanked the delegations for the briefings given to the Committee.

The meeting was adjourned.