SABC 2020/21 Annual Report: hearing; with Deputy Minister

Meeting report

The Chairperson noted an apology from the Minister who was abroad and from the Deputy Minister who would be attending a Cabinet committee meeting and would leave the meeting early. The Chairperson received an apology from the SABC CEO who is bereaved, and condolences have been conveyed to him on behalf of the Committee.

Mr S Somyo (ANC) expressed his condolence to the CEO and acknowledged the apology from the Minister. He suggested that the meeting proceeds as the necessary apologies were received.

Mr A Lees (DA) expressed concern that both the Minister and Deputy Minister had prioritised other meetings and travelling abroad, and the Chairperson had to persuade the Deputy Minister to attend the SCOPA meeting. It is really unacceptable and the Deputy Minister needs to stay until the end of the hearing and show the priority that must be given to Parliament.

He asked if an SABC representative is prepared to respond to the Committee’s questions in the absence of the CEO. One of SABC officials present appeared on the wasteful expenditure list. He hoped the official will give reasons for this and the action taken to recover the money.

A letter should be written to the Leader of Government Business to explain the dissatisfaction of the Committee with Ministers who prioritise other meetings ahead of SCOPA hearings. The Committee should insist that the Deputy Minister stay for the duration of the meeting.

Ms B Van Minnen (DA) agreed saying that with online meetings, it is easy for Ministers, CEOs and COOs to avoid their responsibility to attend SCOPA hearings. One of the solutions would be to return to face to face meetings. While face to face meetings may be a challenge at this time, the Committee should consider it. She wondered why an organisation supposed to appear to give information is suddenly handicapped with the CEO not able to attend. Someone from SABC must be able to account so that accountability does not get put on hold. SABC cannot opt out of SCOPA meetings at the last minute.

The Chairperson said that he was informed that the SABC Board Chairperson, Chief Operating Officer and CFO were present, with the Audit and Risk Committee Chairperson. The Chairperson added that it was the Deputy Minister who called him after sending his apology to discuss the modalities of the meeting.

Mr Somyo said that SCOPA needs to be consistent in the responses and dealings with institutions that come before it. The basis for his proposition that the meeting continue was that the Minister had given an apology and the CEO is faced with a situation beyond his control. Therefore, their absence in the meeting is valid in essence. However the institution that appeared before SCOPA the day before was not handled in the same way.

Mr Lees was of the opinion that the comment was inappropriate for the ongoing meeting, and that the circumstances of the previous day meeting with Eskom was completely different from that of SABC. Accusing certain Committee members of inconsistency is therefore unfounded. However, the Committee should have that conversation in private.

The Chairperson said the Committee needs to have a discussion among itself on matters of controversy. Perception is everything and the Committee must not fall into the trap of creating perceptions that could affect the Committee in executing its responsibilities. The Committee will find a time to meet and address these internal matters. Although attendance is the same as yesterday, there was better communication on the part of the SABC. He requested that the hearing proceed.

Ms N Tolashe (ANC) observed that some Members are allowed to make comments while others are refused on grounds that the matter will be discussed in a private meeting. However, she was in agreement that a separate meeting should be scheduled, but not as a private meeting. She agreed the Committee should proceed to the hearing.

The Chairperson explained that the reason for requesting the hearing proceed and the Committee has its own meeting is to manage the available time for the matter at hand.

Mr Lees said that he was ready for the debate and he thinks it will be a very interesting one.

The Chairperson made a determination that the matter will be discussed even if it means in private. and the Committee would now proceed with the hearing. He appealed for the collective strength of the Committee, as in his view the Committee is the last line of defence of Parliament oversight and accountability and the Committee cannot allow a situation that will put that line of defence in jeopardy. He requested that the Committee maintains a healthy spirit of execution of collective duties and support each other. Although there may be differences along the way, the unity of purpose far outweighs areas of disagreement which may arise. He called to continue and have a frankly and open discussion for the greater good about the public purse which it watches on behalf of the South African public.

Deputy Minister remarks
The Deputy Minister of Communications and Digital Technologies, Mr Mohlopi Philemon Mapulane, thanked the Chairperson for clarifying the impression that he was dragged to the meeting. There is a meeting clash with the Cabinet committee where the Department is presenting two bills. The Minister is not around and the Deputy Minister is supposed to lead the Department to in present its bills and motivate for the Cabinet committee to approve the bills. He explained that he took the initiative to contact the Committee Chairperson once he realised that the Acting Minister was not going to be around to present the two bills. It was agreed that the Deputy Minister would attend the meeting but would not stay till the end. He expressed displeasure about the impression created that the Department does not respect the Committee.

The SABC will brief SCOPA on its financials and on progress in the turnaround plan. SABC is almost in the second year of the turnaround plan, and SABC is doing well in achieving the targets of the turnaround plan. The Ministry is satisfied that the turnaround plan is being implemented, and that the set targets are being achieved. There are however still some issues such as the decline in the revenue which remains a cause for concern. The Deputy Minister hoped that by the end of the turnaround plan, SABC will be stabilised and be financially sustainable.

SABC Board Chairperson remarks
Mr Bongumusa Makhathini said he was present with the Chair of Audit and Risk Committee, CFO and COO. He apologised for the non-attendance of the Group CEO who lost his brother and had to rush home to make funeral arrangements.

SABC has aligned with the recommendation made by the Auditor General (AG) on the need to focus on dealing with the historical irregular expenditure.

On the turnaround strategy, SABC has implemented a lot of the recommendations set for itself in the turnaround. As a result, SABC was profitable in two quarters, which gives an indication that a lot of progress has been made.

In the area of consequence management, the process of identifying all possible irregular expenditure that happened in prior years must be concluded. SABC is conscious of the need to be focused and ensure that consequence management is adequately addressed.

SABC was grateful to engage with SCOPA and looked forward to a productive engagement.

SABC 2020/21 Annual Report; irregular, fruitless and wasteful expenditure: hearing
Mr Lees remarked that he did not accept that a Cabinet committee meeting should take precedence over a SCOPA hearing.

Mr Lees observed that on wasteful expenditure, there were a lot of comments and highlights about fruitless and wasteful expenditure which had been approved for write-off but very little was reported about recovery. The Board Chair spoke about consequence management, and stated that it had to wait for SABC to identify all the IFWE. It is highly unlikely that even if ten years are written off, all such expenditure will be identified. He asked how many people have actually faced the consequences of their actions and if not, why not.

SABC CFO, Ms Yolande van Biljon, replied that for fruitless and wasteful expenditure, a significant balance was inherited when the current board and management joined in 2017 and 2018 respectively. The focus of the write-off was on the fruitless and wasteful at the time, while trying to ensure that the internal control environment was in order. On historic items, even where processes were followed, it was often very difficult to identify the person responsible and proceed with recovery. Some of the historic items included content that was not broadcast between 2009 and 2010 and sports rights in that period had similar challenges. Looking at the period between 2014 and 2017, SABC tried to get the information and identify the people responsible, but due to its historic nature, the search has proved challenging. There are a number of oversight bodies that participate in the write-off and condonation request before it gets to the Audit and Risk Committee which will endorse it before it goes to the Board. It takes a long time to gather the information and identify the responsible parties. When the Board is satisfied that everything reasonable has been done, it will proceed with the write-off.

In the last three years particularly, a number of the fruitless and wasteful items identified in the course of the forensic audit have been recovered such as subsistence and travel allowance for when there were travel cancellations. At present, what is mainly in the register is interest on repeat fees. The repeat fees require an engagement that affects the whole of the creative industry and a number of stakeholders. SABC is busy rolling out a communication plan with its stakeholders to change the practice of repeat fees.

The Mbombela lease is the subject of an SIU investigation and the parties are currently proceeding to the Special Tribunal to identify the person responsible. SABC has been informed that there is no criminal liability to be identified in this case, but there are discussions to be had and conclusions to be reached on certain recoveries. Consequently, SABC is working with the SIU and the recovery will take place depending on the outcome of the Tribunal. The CFO said she cannot tell the exact number of persons that have been engaged in fruitless and wasteful expenditure, but can confirm that it has been taking place in the last few years and that there are challenges with the prior history.

Mr Lees said what the Committee needs is the list of people who have faced some sort of disciplinary action and the consequences imposed. It was an indication of the hopeless situation in the entity that people involved in decision making over the historic period could not be identified. It is evident that SABC Annual Report lacks the necessary details and this applies to both irregular expenditure and fruitless and wasteful expenditure. The Committee will need some level of the details to enable it carry out its oversight role. On the Mbombela lease, for example, the report states that SABC is looking for the person responsible and the SIU is investigating. The 2021/22 Quarter 3 report of December 2021 identified the person so why then is SABC saying that it is still trying to identify the person.

CFO van Biljon explained that the CEO is referring to the whole institution that was inherited and the problem being the inability to identify people from that time. On the lack of details in the Annual Report, SABC followed Treasury guidelines and accounting standards, but it did endeavour to give as much information in the Annual Report. With the Mbombela lease and the reference to the COO, the accounting system is related to a function, and a function has an executive assigned to it. The person currently overseeing that business unit is named, and is not necessarily the person responsible for that fruitless and wasteful expenditure.

Mr Lees said that it cannot be that the person in charge escapes culpability. If an executive's name is included in the report, then the person must accept culpability if there is sufficient evidence. Irregular and fruitless and wasteful expenditure is difficult to deal with if there are no details. He pointed to one which is being covered to some extent. The report highlights late payments and non-payments to local municipalities and Telkom and so on. He asked for the exact issues on this.

CFO van Biljon explained that historically there was a lack of discipline which affected all the regions. It was a historic major problem. In the last three years, however, SABC has engaged with the municipalities to ensure there is alignment between the billing date and the SABC financial system payment date. It typically pays once a month at the end of the month, but there are cases where an account can be due in the middle of the month. SABC has therefore made special arrangements in the last two years to ensure that payment is made on the day the invoice demands. Secondly, with Telkom, SABC has a hundred different accounts with it depending on existing activity. Obviously, the systems generate interest automatically. In the last six months there have been engagements to consolidate the accounts and ensure there is accuracy in the billing and the timing of the payment take place as expected. The process to ensure that timely payments are made however does take time. The SABC system has been enhanced to assist with the consolidation of Telkom accounts. No determination has been made yet on how to deal with the consequence management in this particular case.

Mr Lees noted that the IFWE still continues and SABC system has not stopped it entirely or reduced it to an acceptable minimum. The SABC board chair indicated profit in two quarters, but SABC is still experiencing challenges. The only reason SABC can claim to be a going concern is that it is misappropriating funds meant for other or capital projects and using it for operating costs. The R3bn bailout was given to the SABC for specific projects. About R1.5bn has been used. How much of the R1.5bn has been used for operating costs?

CFO van Biljon replied that not one rand of the R1.5bn was used for operating costs, and she does not believe the Auditor-General was suggesting that it was not used for its allocated purpose. SABC has adhered to the Appropriations Bill that permitted it to get the bailout and it is managed in terms of very strict SOPs. It has been audited and those funds have never been used for anything other than for what it was applied and received.

Mr Lees asked if SABC runs year after year at a loss. Where does SABC get the money to pay its creditors if it is not using any portion of the R3bn.

CFO van Biljon explained that the definition of 'going concern' that the Auditor-General uses is based on whether the entity is able to meet its obligations for the next 12 months.

Mr Lees restated if SABC is running year after year at a loss, how does SABC fund its liabilities?

CFO van Biljon explained that in 2018, SABC developed very strict cash management practices. At the time SABC was following austerity measures. Since receipt of the bailout, as much as the austerity measures might have been lifted, SABC continues with the cash management practices, which includes a monthly meeting with senior representatives. It considers what is expected to be paid at each date that month, if there is a need to reduce the payment requested to fit the funds available, and then a collective decision is made about that. There are engagements with those that may or may not be affected, and SABC has in the last nearly 18 months, been able to meet its obligations when they are due. Payment day is less than 15 days, and it is a combination of the 30 days from invoice or otherwise as negotiated and as permitted by the PFMA. What contributes to available funds is the delayed or slow spend, so even where revenue generation was not as expected in the last two years, there are still savings and anything that can be postponed is postponed so that when funds are not available, resort can be made to the savings.

Mr Lees said he still did not understand. If SABC is still running at a loss it means it is spending more money than it receives. If it has been running at a loss year in year out and it has not used the bailout to fund those losses – how then are the losses being funded? Cutting costs is very important and he thanked SABC for its effort in this. However, if SABC has been running at a loss and its revenue is less than its expenditure, how has SABC been funding that expenditure?

CFO van Biljon replied that the bailout funds SABC applied for were for content, capital, training and other payables as at 30 September 2019. That balance has been set to as much as 98% for trade and other payables out of the R1.5bn that was left about a year ago. There is still about R1bn left while the R500m was used for dedicated capital projects and specific content. That helps with the funding requirement. Secondly, in the course of the turnaround plan, some of the initiatives that were implemented yielded efficiencies. In the next few months, it is expected that there will be proceeds from the sales of non-core assets and that will go towards funding capital projects. SABC therefore funds its expenditure from a combination of strict cash management practices, operational cash generated, and the sale of non-core assets. SABC has managed to re-establish a very good relationship with its financial institutions.

The support in the form of the bailout gave the financial institutions a lot of comfort. The financial institutions have assisted with innovative measures. For example, SABC has a receivables funding facility in place the last 18 months, and it is able to access forex lines and a full maintenance lease mechanism that helps manage its cash flow. All of this is supplemented by an SOP called a liquidity SOP which determines how much cash needs to be available and freely accessible at any given point in time.

Mr Lees asked for clarity that SABC is confirming the AG’s position that some of the bailout has been used to assist with operational expenses and it was included in the mandate given on the bailout. Therefore, expenses that would otherwise have been made from the proceeds of revenue have been allowed against the bailout. What kind of loans or overdraft is the SABC running with the banks or other financial institutions and what is the extent of its liabilities there?

CFO van Biljon replied that when an application was made for the bailout, there were specific items that were part of both content as well as capital and the long-term infrastructure plan. The bailout funding only applies to those items, and if there are variations internally there are processes to follow. The bailout has never been used for funding operational expenses such as salaries, travel costs and consulting fees. The funds have not been used for loans or overdraft. There is a R15m overdraft facility, but it has not been used or needed since 2018. The debt finance facility which SABC can access is valued at R280m. It is a rolling facility where debtors are factored in. The funding is collected in advance and as the debtors pay it goes into that specified bank account and then the facility tops itself up as well.

Mr Lees noted SABC revenue has been decreasing every year, so when debtors are factored, an apparently decreasing revenue stream is factored in. First, what is it costing to factor in the debtors, because normally factoring debtors is a hugely expensive route to take and it is a route in desperation, which is always avoided except if the alternative is bankruptcy. What are the costs of debt factoring, and has the facility of R280m been adjusted since it is expected that debt will be reducing given the revenue is going up?

CFO van Biljon explained that SABC tracks its programmes that were part of the debtors list to ensure that if there are losses they are mandatory such as education and religion, where profits are seldom made. But for soaps and drama and other entertainment, a host of measures and mechanisms have been put in place to ensure that profit is achieved. On reducing revenue and the factoring of debtors, the mechanism has been made available to SABC. In the past year it was used once and has not been needed again. SABC tries to be proactive by trying to understand specific business needs, and it has a long-term capital plan of about R2bn. However, because the business has not needed it, the management of cash liquidity changes. That facility has now been reduced to about R100m and it is a backup plan. And with the reduction, any relative costs are currently being renegotiated. There was a credit review in December 2021 with the financial institutions, and the final outcome is being awaited.

Mr Lees asked if SABC has no bank overdraft, no bank loans and its creditors are being paid on a 30 days or on negotiated settlement terms. In the current year is SABC likely to break even or make a loss or make a profit?

CFO van Biljon replied that SABC has an overdraft that it has not used. It has no loans except for the finance management leases for fleet vehicles. For 2021/22, the SABC is likely to end with a R200m to R300m loss. It had just finalised its corporate plans for the next three years, and will endeavour to break even or make a profit in 2022/23.

Mr Lees said that it is fascinating and incredible that the R200m loss is not being financed from other revenue sources. Obviously if it is a loss, revenue cannot fund it. If liabilities are paid on time, SABC is not using overdraft facilities, and it is not currently factoring its debtors. He did not quite understand from where the money is coming to fund the loss.

CFO van Biljon explained that the accounting definition of loss would include items such as depreciation and so on. Revenue is about R1.4bn less than what was budgeted for the year, and expenditure is less than R1.8bn of what was budgeted for the year. There is a gap in the expenditure and that results in cash being available for other purposes, and the funding from the bailout is kept separate. Somehow SABC tries to manage its expenses, but it has been able to invest in content.

Mr Lees understood that there are items on the statement which are not cash items, but theoretically they are cash in the background. He understands the concept of depreciation and other expenses that are not actually cash expenses. The concern is that SABC would come back for further bailouts. Cost reduction is important but far more important is pushing revenue, as this is a very competitive market. It was reported that advertising is decreasing. To push revenue a product is needed that will appeal to customers. He acknowledged its public service mandate such as education and religion which is unlikely to be profitable. SABC does not appeal to him as a viewer, even though he pays his licence fee religiously. He does not remember watching SABC in the last 12 months, and this is because its programme and content do not appeal to him. There should be great revenue and advertisers clamouring for advertisement slots if the content were good.

The AG indicated that a material uncertainty exists that may cast significant doubt on the SABC ability to
continue as a going concern. This is a valid concern and remains one which the Committee has to monitor. He understood how the status of going concern is determined, but he does not think that its determination is based on the bailout.

Mr S Somyo (ANC), acknowledged that it was the first full year for SABC to apply fully its turnaround strategy, and there are already signals of positive recognisable benefits. It is commendable that SABC received R3.2bn from National Treasury to be utilised mainly for the capitalisation of SABC, which has helped reduce the negativity around its finances. Though there has been some form of benefit, there has been a recognisable decrease in revenue, which raises the question that when such losses are recorded, how then will SABC sustain itself and how can it prove that its going concern status is sustained.

There has been significant decreases in SABC advertising, sponsorship and TV licence revenue. The report states that while there was a decrease in revenue, there was a decrease in expenditure which is less than the decrease in revenue but this is not sustainable. The loss increased by 3.7% from R511.2m loss in 2019/20 to R530m loss in 2020/21. The current status raises concern where there is lack of balance between the depreciation in revenue and depreciation in expenditure, and the need for appropriate action to sustain revenue in the coming year. Therefore, the concern of the Committee, and as indicated by the AG is valid and SABC needs to do more to ensure that it reaches a level where the Committee can say that it is comfortable with the SABC going concern status.

CFO van Biljon replied she would respond first to the final question by Mr Lees. SABC has no intention to apply for a bailout. The business is run by a group of people and a board that believes it has the necessary requirements to return to financial sustainability. The corporate plan that would be seen in the coming months reflects that. The single biggest outstanding item is to ensure that the regulatory environment creates a platform for permanent sustainability.

The year under review feels like the last two years have been lost years, and significant losses were recorded. It was the time when a new GE joined in April 2020. In the second part of that year in quarter 3 and 4, the revenue already started to show marginal improvement. Things like sponsorship revenue became very attractive and still is, because advertisers do not need to commit for a year – that is why sponsorship has shown a good progress. TV licences were affected by the economic impact and people's inability to buy new televisions or consider renewing their TV licences. On attractive and compelling content, work is in progress to bring that content to the organisation. SABC has about 111 new productions that have come on stream in the last 18 months. The requirement is that unless it is education and religion, it must be profitable.

Another important investment in the organisation in the coming financial year is investment in marketing. To take the message of SABC compelling content to new eyes and ears. There has been a significant deviation in marketing as well, about R4m was spent in this year and nearly 4% will be spent in the next financial year on it.

If you look at the losses, these are once off losses which happen just once. A very big once off item in 2020/21 was the settlement paid as part of Section 189 retrenchments to return employee costs to reasonable and marketable percentages. If you consider the R77m spent on that Section 189 process and reduce it from the R530m loss, you will get a better sense of its true operational performance, noting the extremely difficult circumstances of that time in the country.

Mr Somyo noted that when one tables financials there is an expectation from the AG that it is informed by both PFMA and the Companies Act. However, the 2020/21 SABC annual financial statements (AFS) had to undergo major corrections, is that the case?

CFO van Biljon replied that normally in audits, there will be adjustments made. They form part of every audit. It did happen in the case of SABC as well for disclosure items, but it was a not a matter of concern to the AG for it to determine that the AFS was not a fair presentation of the performance of the organisation.

Mr Somyo said that the AG insisted that those material misstatement of irregular expenditure gave rise to a qualified audit opinion – and the qualification rests hardly on that alone.

CFO van Biljon explained that what the AG was referring to is the completeness of the irregular expenditure register. This is a big project that has been ongoing since about 2018. That is partly why SABC had a disclaimer opinion about three to four years earlier due to the lack of procedures in place to give sufficient assurance that the register includes every irregular expense incurred. In the 2020/21 audit, the AG was satisfied with the measures put in place to ensure that the register is complete with supporting information.

The AG’s concern is with the opening balance on 1 April 2020. That balance is about R2bn which comes from 2011 more or less. Due to very similar circumstances to the UFWE, it has allowed it to conclude the completeness activities on that. Management has opted to focus on all transactions from 1 April 2018 and is now in December and is about 69% concluded in reviewing every single transaction since that date. About R11bn was spent on goods and services in that period which excludes content. There is a team of people working to ensure that the balance of 1 April 2020 is complete as well. The team is currently in 2018/2019 and working hard to have that activity concluded by the time the year-end audit starts. The one activity that would then remain is SABC’s confirmation that necessary measures and procedures have been put in place to ensure the completeness, detection, monitoring and consequence management and remedial action.

Mr Somyo said that the Committee is happy with the actions taken by SABC and hopes that it meets its target. In the last meeting there was a commitment from SABC to establish the “loss control committee” with the core responsibility to address consequence management. How many cases have gone through that committee and what is the success to realise this objective?

CFO van Biljon replied that the committee is indeed up and running again. Last year, the committee was very affected by SABC staff restructuring and it lost some members. It had to be reconstituted. The committee has been running well now for about 6 to 8 months and has a functional team. Their particular focus is on the irregular expenditure identified by the AG as well as that of the internal audit department. There are currently 379 cases of consequence management that need to be concluded. So far 36 have been concluded related to audit and finance mainly, and they have passed through the loss control committee now. There is the process of investigation that needs to be concluded, submissions need to be taken to Treasury, and it needs to come back before the Board concludes. A number are currently either on the way to loss control committee or National Treasury, and this value will significantly improve in the next few months. There are four exclusive cases that have gone through the loss control committee over and above the tax clearance of about R2.5bn, which has been presided over by loss control and was successfully accepted by the AG. The cases currently proceeding are about R19 million that have passed through the loss control committee in the last 8 months.

Mr Somyo asked if SABC is still doing business with the companies that have failed to produce credible tax certificates?

CFO van Biljon replied that there are measures in place that should ensure that something like that does not take place and SABC is very explicit about monitoring this. It does not do business with companies with no tax clearance and the process is well established and matured. SABC does not enter into a relationship of any kind unless the tax clearance is present. It monitors on a regular basis to ensure that these entities remain compliant.

Mr Somyo asked if there are companies that SABC does business with that have failed to observe some prescript as part of your procurement process?

CFO van Biljon replied that it monitors tax compliance on an ongoing basis, checks blacklisting on the National Treasury website, checks for conflict of interest, and if there is a non-compliance in any area, it does not proceed until it is sorted out.

Mr Somyo concluded that he had made a point that this is the first full year where SABC applied for its turnaround strategy and the Committee looks forward to it benefitting its revenue. The Committee appreciates SABC has not utilised in full the R3.2bn received, which is an indication of financial prudence and something which needs to be encouraged going forward.

The Chairperson asked the Deputy Minister if he is confident about the interventions put in place by SABC for its financial health. The Committee needs a definite commitment that there are interventions to help the SABC improve as a yardstick measure to hold it accountable when checking on the progress of the turnaround of the SABC. He noted the SABC CFO stating that SABC would not be making a request for a bailout.

Deputy Minister response
The Deputy Minister, said that the Ministry is satisfied with the implementation of the turnaround, and commended SABC for attaining most of the targets on the turnaround plan. This is the second year with one year left, and the Committee is confident as it can observe that there is relative stability in SABC unlike in the past, and this is owing to the board’s implementation of the turnaround strategy together with management. However, there is still some concerns, but the management has assured the Committee that it is working around the clock to deal with the declining revenue that SABC is experiencing, and if it is not attended to, it might pose a significant threat for the SABC going forward.

Management is insisting that there will be no need for a further bailout, but from the Ministry’s perspective it does remain a concern and we have encouraged both the board and the management to work towards making sure that the issue is attended to. Evidently, the revenue from advertising to other sources, is declining and is a cause for concern, but the Ministry is generally satisfied that the management is attending to the issues assisted by the board.

SABC Board Chairperson response
The Chairperson of SABC Board, reassured the Committee that they are doing everything possible to ensure that SABC reaches a state of financial viability. On what other interventions are necessary for SABC to achieve profitability, he explained that there are four main things; first is the replacement of the current television licence regime with a public media levy where the subscription major players can assist with the collection of that public media levy. That is very important because it is still one of SABC major streams of revenue, the first one being of course commercial activities which is sponsorship, advertising, and after that is the TV licence which will change to be a public media levy.

The second important thing that needs to happen for the SABC to really get to profitability level is the regulatory reforms. These are regulations that does not allow SABC to have commercial engagements with subscription players, and submissions have been made to get those kinds of regulations changed and enable SABC benefit from its content fully. Third, because of SABC’s unique role and very high-cost structure, signal distribution cost is a major cost faced by SABC.

SABC is presently in talks with SINTECH through the involvement of the competition commission, to have the tariffs that SINTECH charges SABC reviewed, and that will give a saving in the last count of over R250m and that will significantly improve SABC profitability and really get the organisation to be profitable. Fourth is the public interest programming. Due to SABC’s mandate with respect to advertisement, culture, education, health, there are a number of things that SABC needs to do else it will never be profitable. There is need for the respective departments to find those specific programmes, without interfering with the editorial independence of the SABC, but if it has to carry a mandate that talks to education, the Department of Basic Education needs to make a contribution in that particular aspect.

The Chairperson, said that the risk of revenue remains and that is why he made reference to what the CFO said that there is no outlook towards the bailout. So can it be confidently said that bailout is being ruled out one hundred percent. It is important to manage expectations and be realistic because the risk of revenue decline triggers other outlooks in terms of what interventions are in place. SABC is expected to be very frank to enable the Committee ascertain its oversight in managing the expectations that are there. Can SABC confidently rule out the possibility of a bail out, because that will be the yardstick measure of how much work it to do if you are to avoid it.

The Chairperson of SABC Board confirmed that there is no possibility of the SABC coming back for a bailout. From its achievements and the four areas highlighted, and getting very good support from the shareholder representatives in getting some of these regulatory changes effected, there will be no need for another bailout for SABC.

The Chairperson asked what are the risks that arise out of that revenue reduction for SABC? Having noted those risks what interventions are in place to address those risks?

Chairperson of SABC Board, replied that a lot can still be done in its cost line. The signal distribution cost is a major cost and SABC can realise some savings just from the distribution cost. A lot is being done from the revenue point of view.

The CFO said that one of the things that drive revenue decline is migration from manual to the digital platforms. And as such in SABC’s new financial year, the focus shifts to putting measures in place to ensure we generate revenue from the digital platforms. There are partnerships with Telkom and e-media that provide SABC access to their platforms and from where SABC generate revenue. It is anticipated that SABC’s revenue will increase in the current financial year, and the major drivers are certainly how the balance between sponsorship and classic advertising are addressed and the measures put in place to maximise SABC’s access to the market base, but to the OTT platforms and its deals with some of its trading partners.

The COO, said that the declining audience has a direct impact on SABC’s decline in advertising revenue. The decline in audience is multi causational and is a global trend and there is not much that can be done about that. There is an impact on the analog switch off but it is being managed with the department and work is ongoing with the department. There is the issue of an audience migration to digital. And right now, SABC does not have its own digital platform. SABC is at the final stage of accessing the sponsors of the digital platforms, and will have its own OTT platform in the market by the next quarter of the current financial year.

It will be launching additional channels within the financial year and is changing the process of acquiring content for the channels. It is a big game changer and there will be a lot more compelling content on the existing platforms and on the new channels that will be launched that will be available on SABC’s OTT platform. Testing of the software started yesterday, and the software will allow SABC commercialise the OTT platform, not just our own but third-party platforms that we will be using. That has started yesterday, and it will be used for a pilot phase for this month and will go live next month. For the first time, SABC will start off a financial year where it will have the ability to monitor its digital platforms as well.

The CFO said that SABC is aware of the challenges with the radio stations, and is trying to put mechanisms in place to ensure that the command of that audience is reflected in the revenue as well, and similarly for some of the big events that used to be very successful in the past like the Metro Music Awards, are hopefully going to come back on stream. All of that helps to attract people to the organisation and generate revenue ultimately.

The Chairperson, said that on the basis of SABC’s commitment, the Committee is expecting that SABC will not seek a further bailout. In the event that it does, how will the Committee hold SABC accountable for not taking steps to avoid a bailout? The fiscus is already stretched and so there has to be consequence management which will prevail because a bailout is not a default position which kicks in if all else fail. The Committee notes the emphatic commitment and will allow time for the turnaround strategy to run its course. On the consequence management Mr Lees spoke about, the Committee expects a report in writing by next week so that it can have it on record. The Committee awaits the 2021/22 Audit and Annual Report later in the year, and in so far as the SABC is concerned, we note that you are a work in progress.

Deputy Minister closing remarks
Deputy Minister Mapulane stated there is a board which is the accounting authority which handles most of the SABC matters. The job of the Ministry is to do oversight and ensure that the Board is doing as it said it will do. However, the Ministry is satisfied with the progress but there are still areas for improvements in the SABC which management is aware of. The Ministry shares the Committee’s concern on the financial sustainability of the SABC in view of the revenue decline. However, a firm commitment was received today from SABC management that they will attend to that. The Ministry will allow SABC to achieve that. There are obviously ways in which the Ministry can help SABC, particularly on the licence fees. The current regime needs to change completely because it is not getting the expected revenue. However, Ministry is busy with switching off the analog transmission. It has switched off five provinces, while four are outstanding in line with the President's commitment that the country will migrate from analog to digital by 31 March 2022. The SABC has been a very dependable partner in doing that.

The Deputy Minister was released to join the Cabinet committee meeting.

The Chairperson said it is common knowledge that there is an ongoing challenge with the SABC Group Executive of News and Current Affairs and he hoped that due process was followed and the SABC does not find itself with a financial burden that could have been avoided. Consequence management if not handled correctly incurs unnecessary cost to the state. It must therefore not lead to a financial burden and obligation for the SABC which will be undesirable and further complicate the financial position of the SABC.

The SABC Audit and Risk Committee (ARC) Chair, Ms Jasmina Patel, said that the Chairperson’s concerns about the GE are noted. She assured the Committee that the issue will be addressed. As the primary committee responsible for overseeing risk control, ARC has paid attention to the repeat audit qualification. One concern raised by the AG was that there was lack of leadership on consequence management, and ARC is specifically focusing on that. ARC noted that effective consequence management in prior years was not ideal and there is the need for efficient consequence management if public funds have been wasted. Consequence management includes implementation of controls, environment enhancement, instituting disciplinary hearings, and reporting to law enforcement. ARC is emphasising strengthening of procurement-related controls and has insisted that all irregularities exceeding R100 000 should be reported to SAPS and there should be consequence management in the form of a disciplinary for those that abuse the system. To address this, a consequence management register has been introduced and the guidelines for consequence management and financial misconduct have been finalised and approved. She thanked SCOPA, the Deputy Minister, AGSA, SIU and SABC executives for their support.

The Chairperson thanked everyone for their engagement and ended the meeting.