SABC Third quarter 2012/13 performance, Corporate Plan 2013 to 2016

Meeting report

South African Broadcasting Corporation (SABC) Predetermined Objectives 2013/14: Auditor General SA comment
Mr Wikus Janse van Rensburg, Senior Manager, Auditor-General South Africa, introduced the mandate of the Auditor-General South Africa (AGSA) as the supreme audit institution, and said it strengthened South Africa’s democracy by enabling oversight, accountability and governance in the public sector through auditing,  and thereby building public confidence.

The final draft of the 2013-2016 Corporate Plan for the South African Broadcasting Corporation (SABC), with all its indicators and targets, had been reviewed by AGSA with a view to assessing the  usefulness of the information and the measurability, relevance and definition of targets, to meet the SMART principles that they be specific, measurable, time-bound and relevant.

AGSA noted that 84% of the indicators were not well-defined (Goals 1, 2, 3, 4, 6 and 7); and 84% were not verifiable (Goals 1, 2, 3, 4, 6 and 7). With regards to the targets, 76% were not specific (Goals 1, 2, 3, 4, 6 and 7) while 76% were not measurable (Goals 1, 2, 3, 4, 6 and 7). 14% of the targets were not time bound (Goals 4, 6 and 7) while 3% of the targets (Goal 6) were not relevant.

AGSA therefore concluded that the 2013/14 plan fell short in that the number of targets not specific and not measurable was above the threshold for qualification, while the targets not time bound were below the threshold for qualification. The indicators not well-defined and not verifiable were also above the threshold for qualification, while the indicators and related targets that were not relevant were below the threshold for qualification.

AGSA recommended, in order to correct the error rate, that SABC leadership must guide and direct the development and implementation of proper performance planning and management practices. It should have clearly defined roles and responsibilities linked to corporate plan and individual performance contracts. There should be training and consultation with the National Treasury to enable application of the principles in the Framework for Managing Programme Performance Information (FMPPI). SABC should develop and implement standard operating procedures and establish policies and procedures. It needed to improve its record keeping, establish a forum for the portfolio to share insights and have a consistent approach, and finally to continue involving the AGSA in the planning process. In this regard, he noted that SABC management had only embarked on the processes very late, and that AGSA was also called in at a later stage.

Discussion
Mr A Steyn (DA) asked for clarity on what Mr van Rensburg meant by referring to the ‘portfolio’ in the recommendations. He asked why the review of the targets had taken so long. Previously, he had questioned why the technical information was not available on the website, but slide 10 of the presentation indicated that there was in fact no requirement of publishing such information, and he requested clarity on the point.

Mr van Rensburg responded said that his reference to the ‘portfolio’ in the recommendations included a forum with the Portfolio Committee on Communications. He noted that this was the first time that the AGSA was reviewing the targets of SABC. There was a need still to have the technical information on the websites verified, hence the recommendation of record keeping, which would ensure that SABC could readily make the required information available when the AGSA needed it.

Ms J Kilian (COPE) asked if baseline information was available, and how it related to record keeping.

Mr van Rensburg said that SABC’s record keeping was not sound, and so there was need to improve it by putting controls in place that would support AGSA’s role of reviewing and auditing.

Minutes: Afternoon session
SABC Third Quarter Report 2012/13
Board position
Before the report was presented, the Chairperson noted that on Thursday 18 April 2013, he had received a letter from the Interim Board Chairperson of SABC, indicating that Dr Iraj Abedian, who was one of the five Board Members, seemed to have some conflict of interest. The matter was referred to the legal advisors to guide the Committee on how to proceed in the matter.   

Third Quarter Report
Ms Ellen Zandile Tshabalala, Chairperson of the Interim Board,  SABC,  introduced the Interim Board Members present. She also noted the presence of Ms Lulama Mokhobo, Group Chief Executive Officer,  Mr Tian Olivier, Acting Chief Financial Officer, and Mr Hlaudi Motsoeneng, Acting Chief Operations Officer.

Ms M Shinn (DA) wanted to know if the re-appointment of Mr Hlaudi Motsoeneng to the post of Acting Chief Operations Officer (COO) was supported by any board resolution.

Ms S Tsebe (ANC) called Ms Shinn to order, saying that the SABC Interim Board Chairperson should be allowed to finish with her introduction before questions could be raised.

Ms Tshabalala noted that the Interim Board was presently constituted of four members, until the resolution of Dr Iraj Abedien’s possible conflict. The Board had been nominated on 23 March and was effectively appointed by the Minister on 28 March 2013.

At the time that the Interim Board came into operation, there were a lot of negative views about SABC that it had to address, and the focus was therefore on the areas that were hurting the business. A study was conducted by Deloitte and Touche, as had been authorised by the previous interim board. Deloitte and Touche was invited to give this Interim Board an observation on the effectiveness of SABC. The problems at SABC were not insurmountable, and although there were serious challenges, these could be resolved.

The Interim Board was driven by the statutory requirement to establish the audit committee and all other relevant committees. There was a process under way to nominate and appoint members of the audit committee. With regards to the other committees, the members of the Board were over-stretching themselves to ensure that all of these committees were functional and most committees had since met.

Among the common challenges facing SABC, as identified by Deloitte and Touche, was the issue of leadership. Most of the top positions in SABC were occupied by people who were in Acting roles, coupled with numerous suspensions and resignations. The control environment was also identified as a challenge, with issues of fruitless and wasteful expenditure, inconsistencies in procurement and other financial problems. The roll-out of the Turnaround Strategy was another challenge in terms of the skills audit and the government guarantee. The Interim Board resolved to look at aspects that had not been delivered and to find out if the “warm bodies” holding the positions were actually executing what SABC needed to achieve.

She noted that there would be a very high cost attached to making the changes, starting with a R58 million fee to Deloitte and Touche. The Interim Board felt obliged to request Deloitte and Touche to avail its services to assist SABC to ensure that good corporate governance was embedded in its plans, and Deloitte and Touche agreed to do this at no cost. The Interim Board also learnt from the Department of Communications that one of the ways of resolving the challenges was through engaging with the previous leaders of SABC. There were areas of non-compliance, as had been pointed out by the Auditor-General of South Africa (AGSA), but the Interim Board was now working towards addressing those areas, including non-compliance with the Companies Act.

Discussion
Ms M Shinn (DA) said that the previous Board of SABC had removed Mr Hlaudi Motsoeneng from the position as Acting COO, and put him back to the position of Group Executive: Stakeholder Relations and Provinces. She maintained therefore that any activities that he was doing as a member of the Board of the SABC and as Acting COO were in fact illegal and that “he had no mandate to be where he is… so he should excuse himself.”

Ms S Tsebe (ANC) suggested that it was better for Committee Members to wait until the report had been presented by the Group Chief Executive Officer, which had noted that the position of Mr Motsoeneng was dealt with by the Interim Board.

Ms R Morutoa (ANC) said that the Committee was here to listen to the SABC report, and not to correct an issue that had already been corrected by the Interim Board. The issue of the COO appointment was well within the reach of the Interim Board.

Ms R Lesoma (ANC) said that the issue of the Acting COO was an administrative matter, and would be addressed, and proposed that the Committee Members should not select certain issues only before the full report was presented by SABC.

Ms J Kilian (COPE) said that it was important for the Committee to start at the right point with the new Interim Board. There had been serious governance challenges at SABC such as irregular appointments, unlawful people holding key positions something that presented a serious risk. The Committee had received information that the outgoing Board had in February, at a duly constituted Board meeting, decided to end the term of office for the Acting COO.

Ms S Tsebe (ANC) raised a point of order, saying that the Interim Board was not dodging the issue of the Acting COO but Members had to wait until the report was presented.

Mr C Kekana (ANC) said that there was no need to be ‘individually obsessed’ by addressing matters prematurely. The Interim Board Chairperson had earlier on informed the Committee that the challenges at SABC were not insurmountable, and this gave the Committee confidence that they would be addressed by the interim Board. The Committee had to proceed correctly, by having the report presented, and then raising issues that required clarification at the right time.

Mr A Steyn (DA) said that he was not sure what the right time was for addressing the issue of the Acting COO, because it went to the heart of corporate governance. As had been pointed out by Ms Shinn, the Acting COO was not actually appointed, under the previous Board’s resolution. There was need to provide a resolution appointing him back to the position of Acting COO.

The Interim Board Chairperson said that one of the issues that had been singled out was the leadership vacuum at SABC especially in senior executive positions. Mr Hlaudi Motsoeneng was initially appointed by the previous Board to the position of Acting COO and there was a letter to that effect signed by the Board Chairperson. This issue would be dealt with at some other time, but presently, there was need for a COO, and Mr Hlaudi Motsoeneng qualified to be in that position as he understood the job.

Continuation of report
Ms Lulama Mokhobo, Group Chief Executive Officer, SABC, presented the 3^rd Quarter Report for the financial year 2012/2013. The 4^th quarter report would be sent to the Committee through the Department of Communications. The SABC had reviewed its vision of “broadcasting for total citizen empowerment” and found it appropriate. SABC still believed in its mission of being “a people centred, content driven, and technologically enabled, strategically focused and financially sustainable public service”. SABC also was standing by its values of “conservations and partnerships”. SABC also espoused the value of “restoration of human dignity”, as human rights continued to be essential to the debate within South Africa. From the perspective of human rights and what they actually translated into in the reality of South Africa, and what needed to be done, SABC’s role was to speak loudly about the things ailing society and those that were being done well.

Speaking to the executive summary, Ms Mokhobo said that the SABC remained committed to delivering against its mandate to educate, inform and entertain, as contained in the Broadcasting Act, as well as the licence conditions stipulated by the Independent Communications Authority of South Africa (ICASA), through the radio and television platforms, whilst fighting off increased competition on these platforms. SABC also remained committed to stabilising the operating environment through: appointments made at Group Executive level, efforts to right-size the organisation in preparation for successful Digital Terrestrial Television (DTT) operations, concerted efforts on turnaround, and a focus on improving the organisational internal control environment.

In terms of the digital migration, SABC had successfully established the infrastructure for its first ever High Definition (HD) broadcast and this represented a significant step towards narrowing the competition gap. The digital studios were ready to commence broadcasting, and the infrastructure to carry additional channels would be completed by the end of the financial year.

With regards to universal access, there had been a commitment to rollout of 300 Low Power Transmitters (LPT) at the end of the financial year 2013/2014. She noted, however, that the rollout of the transmitters had been very slow due to administrative challenges and funding, and that so far there were 85 sites operational throughout the country, which was 90 sites short of the target. The framework for the rolling out of the transmitters had been completed and would be submitted through the SABC Governance structures. 

Ms Mokhobo tabled slides on the performance against the key performance indicators. At the beginning of the 2012/13 financial year (FY), the SABC submitted a Corporate Plan, based on a request to revise the Government Guarantee financial targets (GGT) submitted for approval by National Treasury, through the Department of Communications. The request to revise the GGT was based on the revised projected financial performance of the Corporation, and adverse trading conditions as a result of the global economic downturn. This request was declined, with the result that SABC must realign its targets strictly in line with the original Government Guarantee. This caused delays and also brought up the issue of non-compliance. The SABC had to continue to assess and measure its performance against the Government Guarantee Targets. This culminated in the Corporation only achieving 15 out of the 25 key performance indicators set for this financial year, by the end of the 3^rd quarter.

SABC partially achieved its 3^rd quarter target of R1.294 billion, by bringing in R1.188 billion in advertising revenue. This was mainly due to underperformance by television advertising, with peak season audience shares nearly 4% lower than the budgeted assumption. In terms of the sponsorship revenue deliverable of R387 million, SABC partially achieved the 3^rd quarter target of R108 million with a performance of R76 million. On licence revenue, the 3^rd quarter target of R267 million was achieved, and in fact exceeded by R15.5 million, since R282.2 million revenue was collected. The target of R142 million on other revenue (including Government Grant) was not achieved, as only R85 million was collected. This was due to a downturn in the market for CD/DVDs, with more consumers downloading content from the internet rather than purchasing CD/DVDs.

In terms of the strategic objective of operations that ensured sustainability, and the key performance area of cost management, the 3^rd quarter expenditure target of R1.407 billion was not achieved, as the actual expenditure was R1.507 billion, including depreciation and financing costs. The 3^rd quarter target of capping employee costs at R487 million was not achieved, with an actual performance of R526 million, which was 8% lower than target

On the target to achieve 2% reduction of overtime, SABC also under-performed, having reached only 1% less. The target of achieving 5% leave liability reduction was not achieved, with leave liability increasing to R190 million at the end of the 3^rd quarter. The SABC Board approved the principle that employees could be offered cash in lieu of leave during the 4^th quarter, in order to reduce liability. There was no quarterly target set for the key deliverable of limiting sports rights costs increase to 9%. Sports rights were, however, recorded to be R125 million over the budget of R78 million, while the actual cost was R68 million for the 3^rd quarter.

With regards to DTT readiness and digitisation of internal broadcasting value chain, and the audience attraction and retention, the SABC had a 3^rd quarter target of launching three channels on the DTT platform (24 hour channel, 24 hour sport channel and Children/Education channel), in addition to SABC 1, 2 and 3. This was not achieved, due to shortage of funding. In relation to the 3^rd quarter target of launching all 19 radio stations on the DTT platform, SABC was ready and there was an on-going live trial through the SABC DTT equipment.

SABC had a target to maintain 60% of the TV average audience market share, but this was not achieved, since only 53% was achieved. This was partly due to the increasing competitive environment and increasing take-up of pay-TV, which had resulted in the fragmentation of audiences. SABC achieved the ICASA target of 55% of broadcasting of local TV content in minutes across platforms. The internal target was also achieved in prime time on SABC 1 (76.35%) and SABC 2 (62.50%), but there was non-achievement in the performance period. SABC achieved its 3^rd quarter target of public commercial services of 35% of minutes across platforms (37.52% in prime time and 39.02% in performance period.)

The 3^rd quarter target of R200 million local content investment was not achieved. There was an actual performance of R162.5 million cash investment, which was 18.8% below the target. In relation to amortisation, this was R156.4 million, against a budget of R201.8 million. The 3^rd quarter target of an investment of R50 million in international content was not achieved, with an actual performance of R45.5 million cash investment and amortisation of R67.3 million against a budget of R48.7 million.

SABC achieved its 3^rd quarter target of growing and maintaining SABC Public Broadcasting Services (PBS) audience market share by 56%, with an actual performance of 58%. However the 11% target on Public Commercial Services (PCS) was not achieved, with an actual performance of 9.4%. SABC had only achieved 15.6% of the 3^rd quarter target of 18%, with regards to the improvement of SABC PCS radio share. There was an achievement of 72% above the set 3^rd quarter target of 70% of minutes across PBS platforms. This excluded Lotus FM, which had a concession of 20%. The PCS target of 30% of minutes across platforms was achieved, with actual performance of 34%.

The completion of the digitisation of studio 1 and 2 was not achieved, although the sport production systems were updated, at a total cost of R15 million. The delay was largely due to the Siemens/Atos contract dispute. The 3^rd quarter target of rolling out 30 power transmitters for radio and TV was not achieved. 28 power transmitters had been completed as of December 2012, with 13 sites being work in progress. ICASA had approved 20 more sites for television and SENTECH had committed to servicing more sites.

Ms Mokhobo said that embedding of risk management into the day-to-day activities of SABC, and the  3^rd quarter target of fraud risk assessment, were not achieved. The Group Risk Management division was, through the procurement division, in the process of appointing a service provider. SABC could not do this on its own because of the absence of skill in the division. Funds had been allocated to the project, to enable project completion by 31 March 2013.

Mr Tian Olivier, Acting Chief Financial Officer, SABC, presented on the financial performance for the months of October, November and December 2012. The revenue achieved R1.6 billion, compared to the budget figure of R1.8 billion, and noted that this was due to television advertising revenues being  behind budget, as well as sponsorship, although radio was performing better. The operating expenditure was R1.3 billion, which matched the budget, for human capital cost. Depreciation was slightly higher than the budget, with some clean-up work done in addition to getting the fixed assets register sorted out. Some assets had not been activated for depreciation, as indicated by Ernst & Young. Net financing income and loss was higher than the budget, due to some forex losses. SABC posted a net profit of R125 million, compared to the target of R404 million. He reiterated that SABC’s revenue had been under pressure, due to the decrease in television audiences.

The TV advertising revenue was R820.5 million, against a budget of R936 million. Radio advertising revenue was at R367.8 million, against a budget of R358.4 million. Sponsorship revenue was below budget, as so was the trade exchange, although this was a non-cash item. TV licence fees revenue was slightly better, due to the Christmas period run, and the Government grants were also slightly better. Other revenue was below budget, due to a decline in the market for CDs and DVDs. Content and commercial exploitation was also lower than budget. with R10 million achieved against a budget of R18.8 million.

In terms of the operating expenditure, Mr Olivier explained that the programme and film costs were below budget, as there was some scheduling in December to accommodate some of the sporting events. Sports rights and production had been over the budgeted amount of R123.8 million, being at R194.3 million. The broadcast expenditure was below budget. Signal distribution and linking costs were slightly lower, while employee compensation costs were higher, due to the pension holiday.  SABC also set a productivity gains target, in accordance with the Government guarantees. Marketing costs, direct licence collection costs, professional and consultancy costs, and other expenses were also below budget. SABC exceeded the operational expenditure target of R1.313 billion for the quarter,  by 5.8%, with overspends in the areas of sports production and rights, and employee compensation and benefits.

In terms of the Government Guarantee, Mr Olivier said that at the end of the 2012/2013 financial year, SABC was projecting a loss of R227 million against the Government Guarantee profit of R536 million. As a result, SABC was expecting to be R763 million below the Government Guarantee. However, since a review of the projections had been done after the third quarter, this negative projection had since changed. It was, however, clear that SABC would not meet the Government Guarantee target by the end of the financial year, because he revenues that were far behind the target surplus of R536 million that had been set under the Guarantee. Sports sponsorships since the 2010 World Cup had declined. From a revenue perspective, SABC was expecting variance of R763 million below the Government Guarantee, and variance of R369 million below the Government Guarantee on expenses.

In terms of the progress in meeting the Government Guarantee conditions, SABC had developed and implemented a Board Approved Integrated Turnaround Plan. It also implemented the recommendations of the Auditor-General with policies and systems continuously being improved. With regards to cost cutting and revenue enhancement measures, the SABC submitted a corporate plan with targets based on an application to revise the Government Guarantee targets which was declined. This resulted in the revision of targets by aligning them to the Government Guarantee. Cost cutting and revenue enhancement measures had also been appropriately captured.

Mr Olivier then discussed the staffing structures. The SABC headcount in the 3^rd quarter had reduced by 17 staff members, from the 3 647 at the end of the second quarter, to stabilise at 3 630 employees. A reduction of 11% was achieved since March 2009 and an additional 4% was expected, to lead to the Government Guarantee target on this point. Divisional structures were submitted and discussed with the Group Executive. Currently there was a headcount reduction in the senior level posts of the organisation, such as Group Executive and General Manager levels of organisation. The proposed structure would see twelve Group Executives, three Heads, and 70 General Managers.

A skills audit had commenced at SABC and out of the 3630 employees in the organisation there was a 67.7% participation rate. Senior and Middle management level employees had the highest participation rate levels, with the former at 70% and the latter at 73%. Employees at scale code 404 to 407 had a 62% participation rate level. The qualifications were captured on SAP, according to the National Qualifications Framework. The Request for Proposal for the second phase of the skills audit was combined with the workforce planning segment. This commenced in January, once all procurement processes for appointing a service provider had been finalised.

Mr Olivier noted that, on the basis of the latest sales projections, SABC was expecting revenue to improve and so it was unlikely that it would be posting a loss at year-end. Its cash position was in excess of R1 billion at the end of December, so SABC made an advance repayment of the Nedbank loan, in the amount of R416 million, in January 2013. 80% of the loan had been repaid and the rest would be repaid by the end of September 2013.

SABC was determined and committed to achieving a clean audit in 2014. The audit findings were still the same as in the prior years, but there had now been a new focus on finding quick solutions to resolve the issues. SABC’s recruitment strategy was targeting the bringing-in of real skills, and, to that end, someone with experience in the Office of the Auditor-General had been brought on board to work in the Operations Division, because most of the audit queries emanated from here. SABC had also brought someone on board from SARS, to be able to strengthen areas of procurement. 

The Interim Board Chairman said that SABC would like to implement the Deloitte & Touche recommendations, as a matter of urgency, but within the next two months, especially in areas of failure to execute deliverables. Some senior employees of SABC had taken SABC to court, which the Interim Board thought was due to ignorance of the internal procedures. The court matters were very cumbersome and dragged-out. She said that she could not give details of the court matters, as they were still sub judice. Most of the senior employees, with the exception of Mr Hlaudi Motsoeneng, were involved in Court matters. The SABC had hired a legal firm to handle the matters, reporting directly to the Board. SABC was, however, worried about the delays because new staff could not be employed in the affected positions until the court had given its ruling.

A report on the filling of the strategic positions and the skills audit was expected at the end of May 2013. SABC was not waiting for the skills audit report before refining issues of key performances, but was doing this based on the preliminary report. SABC was going to institute change management, with emphasis on governance of the board, senior management and executive. She reminded Members that Deloitte & Touche had offered its services for free, at the request of the Interim Board, on this point. The current human resource policies would be revised and there would be an alignment of the organisational structure. The source of funding for DTT had to be resolved to ensure uninterrupted implementation.

Finally, she noted that SABC had vacant properties that were not accumulating value, and there was need for a valuation to find out the worth of these properties. SABC was also working on a National and Provincial Plan for the 2014 elections. Finally, she noted that the Interim Board had condoned the Chief Operating Officer appointment, as an Acting position, until another advertisement had been done.

Discussion
Audience Recovery Strategy
Ms L Van der Merwe (IFP) asked for clarification on what the audience recovery strategy involved and if the concerns of the public were being taken into account in terms of the content.

Mr A Steyn (DA) thought the Audience Recovery Strategy had to be reviewed because it was not yielding results.

Ms Tshabalala responded that SABC could not present the Audience Recovery Strategy yet to the Committee. A programming summit was scheduled for two weeks’ time, and that was aimed at interrogating the Strategy. The Audience Recovery Strategy had to remain confidential, because it should not be allowed to get into the hands of SABC’s competitors. Certain information would be held back because it was what created the competitive edge for SABC. Not everything could be shared.

Local content
Ms van der Merwe asked how the figures on local content broadcasting were verified.

Ms J Kilian (COPE) also commented on local content, she said that the level of accountability had to be stepped up, citing an example of international programmes that had to be aired, because they had been purchased, to avoid fruitless and wasteful expenditure.

Ms Tshabalala responded that in relation to local content, the Independent Communications Authority of South Africa (ICASA) made its own independent measurement and the results indicated that SABC was over-delivering on local content across the channels that were required. There was, however, a challenge in delivering on marginalised languages on the television platform, due to a shortage of enough producers with the capability of entering this particular space. SABC was working towards addressing this as part of its future strategy, and was including discussions on partnering with rural communities to bring on board people who could read and write in the marginalised languages.

Turnaround strategy
Ms van der Merwe pointed out that there were no details on the Turnaround Strategy dashboard.

Mr A Steyn (DA) also commented on this point, saying that in regard to meeting the Government Guarantee, the implementation of the Integrated Turnaround Plan was lacking, and this affected the achievements. The Turnaround dashboard did not mean much, as there was no progress report and besides, there was not much achievement.

Sports broadcasting
Ms van der Merwe noted that SABC could not afford its obligations with regards to sports rights, but wondered if it had looked at other international examples like Australia that had the anti-siphoning legislation.

Mr Steyn added that there were no quarterly targets set for sports rights as indicated in the performance against the key performance indicators, however the actual performance indicated a cost of R68 million for the quarter. He asked which quarter was referred to here.

Mr Olivier said that there was an on-going discussion on the funding of sport and the source of the funds.

Ms Mokhobo added that in regard to the sports operating model and the level of SABC’s negotiation capability, there was change under Mr Hlaudi Motsoeneng and the sports team. For instance the team went and negotiated radio rights for the Premier Soccer League (PSL) games, whose value was R500 million. The result was that SABC was able to get free broadcasting rights for the PSL as opposed to paying R500 million. In terms of improving international content, blockbuster content could not be obtained because of the international sales policies that gave priority to pay TV.

Election coverage
Ms van der Merwe wondered if SABC had made sufficient provision for the financial implications that would be imposed on the public broadcaster leading to the 2014 elections.

Mr Olivier responded that the SABC had met with the Independent Electoral Commission of South Africa to try and determine what would be expected from it in terms of broadcasting during the 2014 elections. He added that in terms of costs, the majority of SABC’s costs went into local content with the exception of sport.

Staffing issues
Ms van der Merwe said that staff morale was a critical area, and wondered how it would be addressed, including the issues of low salary for journalists.

Ms van der Merwe asked about the estimated increase in the headcount as the country prepared for DTT migration.

Ms J Kilian (COPE) said that there was a skills audit that had been internally done, due to financial constraints, at which the Committee had raised concerns and thought that the 67% participation was inadequate. There were too many managers at SABC consuming a lot of resources while the people that were actually keeping SABC on air were struggling to bring in the news and she wanted to know how SABC was going to address this. It was time to put the right people in the right position, through restructuring, to have a constructive turnaround.

Mr D Kekana (ANC) pointed out that the conclusion of all the suspension and disciplinary issues would also give a proper picture of whether SABC needed more staff or needed to reduce the numbers.

Mr Vusumuzi Mavuso, Interim Board Member, said the Interim Board had taken over at a time when SABC was being held to ransom by unions that threatened strikes every time there was an attempt at making a decision. The Interim Board had to ‘bite the bullet.’ Management had to weigh the option of having SABC switched off against employees striking. SABC was also waiting for the Skills Audit report although preliminary details indicated where it was pointing. The staff morale issue was depressing, but the Interim Board had met with the employees of SABC to try to instil more certainty and to inform them that SABC was a state-owned entity and not owned by an individual. The Interim Board wanted to leave a legacy that things would not revert to the original position, and therefore it was clear that SABC could not continue on a ‘business as usual’ basis.  There was also a need to review the human resource aspect, as it was obvious that some personnel belonged elsewhere.

Ms Mokhobo added that the SABC had to wait for the results of the Skills Audit at the end of May 2013 that would give a correct picture and allow for proper measures on how to address the challenges indicated. This would allow for a determination of what skills are required and the re-organisation of the structure.

It was noted that in relation to human capital leadership, SABC would be interviewing for a new Group Human Resource Executive on 24 April 2013. 

Mr Motsoeneng referred to salary increments, and said that performance management was not going to be negotiable as people were to be paid based on the level of performance.

Audit trend
Ms Kilian noted that the lack of a clean audit was an indication of corporate governance failure and asked what was the guarantee that SABC would have a clean audit this year.

Ms Tsebe said that AGSA had indicated that there were deficiencies in internal controls, yet SABC had nothing in the 3^rd quarter report addressing this.

Ms Lesoma commented that SABC and AGSA needed to interact more frequently.

Mr Olivier said that SABC would be not getting a clean audit in this year, but the qualification on TV content would be lifted, as the numbers would be manageable.  

Targets
Mr A Steyn (DA) said that if the Interim Board achieved half of what had been identified, he would “eat the hat that I did not own”. The report from Auditor-General South Africa (AGSA) had indicated that the targets were not measurable, verifiable and well-defined, and as long as this remained, nothing would change.

Mr Steyn asked what percentage of the R924 million TV licence revenue was SABC targeting. There was a possibility that there was 50% of uncollected revenue.

Mr Olivier said that there were 12 million households with television sets, with 11 million on SABC‘s database. 3 million (25%) of these regularly paid their TV licences while 4.5 million, (33%) were paying “in bits and pieces”. There was an estimate of 30% to 35% piracy level. A list of Government departments that were not paying their TV licences had been submitted to the Department of Communications and National Treasury.

Leave policy
Mr Steyn wondered why the leave liability policy had not been changed to-date.

The Chairperson wanted clarification on the issue of leave and basic conditions of employment, as there was a possibility of abuse with employees’ leave being encroached on.

Mr Ronny Lubisi, Interim Board Member, SABC, said that the current policies would address the capping of leave days, which had been a historical problem and there was a need to reduce the number of days that could be capped, to reduce the liability.

Mr Olivier added that in regard to the compulsory leave, employees were not allowed to convert that to cash, and the Basic Conditions of Employment Act was being strictly applied.

Ms R Lesoma (ANC) said that the issue of leave liability was a non-issue for discussion before the Committee.   

Digitisation
Mr Steyn said that There was an indication that the digitisation of studio 1 and 2 had not been achieved and yet the introduction indicated that the studios were ready to commence broadcasting.

Ms Mokhobo responded that the digital migration and multichannel environment referred to SABC’s readiness to broadcast DTT. The completion of digitisation of a studio meant that it was ready to go live. For purposes of the 4^th quarter, all the three studios were ready to go live. The only difference was that decoders were needed for people to receive the signal. The television operating model and organisation design had been addressed by the Board Chairman. As a turnaround strategy, it was not addressing the legal requirement for PBS and PCS to exist as two separate divisions.

Fraud risk
Mr Steyn pointed out that the Fraud Risk Assessment was one of the areas that required skilling, but this had been pointed out by the AGSA every year.

Financial matters
Mr Steyn wondered why Government would pay SABC grants in advance, referring to the AFCON grants paid in January 2013, as had been indicated by Mr Olivier.

Mr Steyn said that SABC could not afford to have capital expenditure and then add on it as this was unacceptable.

Mr Steyn said that clarity was needed on the R170 million surplus.

Mr Steyn said that the R129 million on professional and consultancy costs was something that had to be contained.  

Ms Lesoma asked for more details on the spending on consultancies and what services were involved.

Ms Tshabalala said that in the past there was indeed use of consultants at the expense of disempowering the employees, and it was a known fact that this culture existed in many organisations.  However, in the Procurement Strategy the use of consultants was to be the prerogative of CEO only.

Ms Shinn asked when the Nedbank loan would be repaid.

Mr Olivier explained that money for paying the Nedbank loan came from increased capital management. R500 million was to be invested in capital expenditure.

Audiences
Ms Shinn asked where the money was coming from, if SABC was losing audiences. She felt that the issue of people leaving SABC was attributable to poor content, and that adding extra channels would not change that problem. She urged that the core issues had to be addressed.

Ms Kilian noted that some pay TV bouquets had become more popular. She wondered how far SABC gone in doing an analysis of sectors of the public that it could not afford to lose in future, because the trend at present did not bode well for SABC. There was a need for an alternative strategy.

Mr C Kekana (ANC) said the statement that SABC was losing audience due to ‘rubbish programmes’ was not correct. Of course, what amounted to “rubbish” was also debatable.  There was a need to assess the time at which the drops in audience had happened. these audience falls started, to get a deeper analysis of what was causing the loss of audience.

Ms Mokhobo responded that, despite what some newspapers continued to say, the ordinary South Africans had a massive appreciation for SABC’s programmes, including the news that they relied on. SABC’s main concern was mainly about the ordinary South African who could not buy newspapers, as opposed to those that had the means to access any information through the internet and the newspapers. It was to these South Africans that SABC helped to deliver its targets, irrespective of what its critics may have to say. SABC had continued to chip away at problems that had developed over years. The fact that some changes were going on inside SABC that could not be seen externally resulted in criticism from some people who did not even tune into its programmes. There was an audience of 30 million South Africans, and their dependence on the SABC was high. Only about 3.1 million were dependent on DSTv.

Ms Lesoma thought that the decline in the markets for CDs and DVDs was an opportunity for selling online.

Power transmitters
Ms S Tsebe (ANC) requested for a breakdown of the 83 power transmitters.

Mr Olivier said that a total of 104 were completed and scattered all over the country. These had an FM component besides the TV component.

Ms Tsebe said that the explanation on the low power transmitters was not clear.

The Chairperson said SABC had made an undertaking that during the 2011/2012 to 2012/2013 period it was going to roll-out 300 low power transmitters. The current indication was that it had rolled out 104 low power transmitters and he asked for confirmation whether this meant that 196 low power transmitters were still outstanding, and said that there was a need to clarify exactly where the low power transmitters that had been rolled out were situated.

It was further explained that there were currently 255 low power transmitters all over the country with only 45 left to conclude. The 45 outstanding would have been completed by March 2013, but for the challenge of ICASA withholding the licences because it thought that SABC owed it some money, which subsequently turned out to be incorrect. In other instances SENTECH had difficulties with the farm owners who would not allow it to set up the transmitters, due to fears about radiation. In areas where the signal was not strong, there was an agreement with SENTECH of doing a direct-to-home transmission via satellite.

Mr Kganki Matabane, Chief Operations Officer, SENTECH, said that despite the challenges with ICASA, 47 sites were done, 18 of which were totally new sites. Four sites were in the North West, four in Limpopo, one in Mpumalanga, two in Northern Cape, one in KwaZulu-Natal, two in Eastern Cape and four in Western Cape. There was a balance of 45 still to be done.

The Chairperson said that he was encouraged by the roll-out and that the Committee was thankful that SABC took the recommendations of the Committee to heart on this point. With regards to the remaining 45 sites, ICASA, SABC and SENTECH had to ensure that these were rolled out.

Frequency
Ms Tsebe asked what was being done to transform frequency, especially ensuring that radio got to most of the rural areas.

Mr Hlaudi Motsoeneng, Acting Chief Operations Officer, SABC, said that there was no need to generalise in terms of audience as SABC had radio and television. SABC was doing well on the radio side reaching over 26 million people a day. People were advertising on SABC because of the audience. Although there was need to improve television revenues, the scientific method being used to calculate audiences was wrong as it left out rural areas.

Payment of TV licences
Ms S Tsebe (ANC) asked what strategy was used to achieve the TV licence revenue. She also asked what had been done about Government departments that were not paying their TV licences, besides submitting the list

Mr Steyn asked if SABC had a way of verifying that that its employees paid TV licences.

Ms Mokhobo confirmed that SABC employees paid TV licences, but these were subsidised. That would be addressed in the future as there was a suggestion that this should come to an end. In terms of the Government entities not paying their TV licences she said that the mistake was that the Government Communication and Information System (GCIS) was working through Media Buyers instead of working directly with SABC. The agreement was that this relationship had to end as the Media Buyers were in the habit of holding on to the money until it generated some interest. GCIS was going to look into the legal ramifications of the agreements with the Media Buyers.

Ms R Morutoa (ANC) asked if SABC had improved in obtaining international material that was meaningful. What was the relationship of SABC with SENTECH especially in relation to commissioning the transmitters? 

General comments
Ms Shinn said that there was a lot of pressure on the Interim Board from vested interests and that difficult decisions would have to be made.

Ms Mokhobo pointed out that the SABC’s decline had been developing for over a period of ten years and that it was impossible to achieve an institutional turnaround in a short period of time. SABC had become a difficult institution to run over the last six months, with so many people exiting. This meant that some areas were either neglected or run by people that were not as properly skilled as SABC ought to have had and that its recruitment process had become hampered by people that were highly qualified and competent being scared off by the image of the institution.

She added that the trading and methodology on how to price SABC’s airtime so that advertisers could buy it meant adjustments in many areas, especially in the discounts, where some of them were too high as had been indicated by the AGSA. Certain people within SABC were engaged in illegal practices of selling the airtime at far cheaper prices while “receiving something under the table” and one such case was currently at court. The pricing methodology had been completed in January 2012 although it was not implemented because SABC needed to get back the original positional pricing. By the end of December 2012 there was still no change because the media buyers still perceived SABC as “a corrupt bunch of people that did not know what they were doing”. A strategy was being worked on that even involved an independent review by the South African Advertising Research Foundation. This independent review had so far revealed that the valuing of the SABC audience was far below what it should have been. The results would be presented to the Committee at a future date.

The advertising revenue enhancement project was on track although not yet completed. It was part of the pricing restructuring that was driving at ensuring that SABC got the full value of its money. SABC was at its lowest in terms of the brand and reputation, however, by December 2012. Currently, there had been steps taken to deal with reputation management and SABC was on track. SABC was also reviewing ways of dealing with people cost management. There was a concerted effort with regards to sports costs reduction to get additional funding from the Department of Sports and Recreation, as had been the case during the Africa Cup of Nations. Improving Procurement Effectiveness was at a low in January 2012 due to a lack of leadership in this area with the policies still in a fluid state. The policies had since been approved.

SABC was addressing fruitless and wasteful expenditure on a daily basis.

She conceded that content acquisition was a big challenge, with SABC having content purchased many years ago that had automatic renewal. Such stock could not be written off because of the high value. One option was to shift the content to day time, leaving prime time for new content. The Competitive Intelligence Hub was completed and that new content was being put on SABC 3. There was also an increase in the 7:30pm news to give more focus to matters of national importance.

She clarified that the 24 hour channel was ready to launch with a team in place and all that was left was to prove its affordability before it could be taken to the market.

Ms Mokhobo assured the committee that the AGSA issues were being addressed, and the Board was trying to come up with a realistic plan to address the challenges.

Ms Tshabalala noted that there was a cordial relationship between SABC and SENTECH, as well as other entities surrounding the Department of Communications. She reminded the Committee again that there was preliminary report from the Skills Audit, with a final report to be released in May 2013. SABC was also addressing issues such as gender imbalances and inequalities.

Ms Tshabalala said that in terms of funding, the SABC was not going to let the advertisers determine its content simply because they had money, as SABC continued to work out a strategy. She added that the expectation of SABC was higher than the Government commitment in funding, which was at 3%. The productivity gain was a budget cut added to balance the profit line with Government Guarantee and a target had been set for all the business units. Capital expenditure was a concern but was also attributable to the Siemens/Atos contract dispute. SABC was also looking at a digital depositary that would enable the download of digital content online as opposed to the selling of CDs and DVDs.

Ms Shinn asked if SABC was still paying the 13^th month cheques.

Ms J Kilian (COPE) said that a move towards a performance based assessment would be very relevant in rewarding those that performed at SABC.

The Chairperson said that Members had to understand the distinction between a 13^th cheque and a performance bonus. The 13^th cheque was a basic condition that SABC could do nothing about.

Mr Olivier confirmed that these were still being paid as a condition of employment for staff in bargaining unit. It was part of the conditions of service.

Ms Shinn asked how much SABC owed ICASA.

Mr Olivier responded that after a reconciliation done by ICASA, it was found that SABC did not owe ICASA any money and that its system had not been as robust as it ought to have been.

The Chairperson asked what was involved in the Deloitte & Touch understanding.

Ms Tshabalala said that the understanding with Deloitte & Touche was recorded in the Board meeting, but there was however a need to get its commitment in writing, to avoid it reneging on the agreement.

SABC Corporate Plan 2013 to 2016
Ms Mokhobo said that the migration from analogue to DTT would lead to new ways of consuming media while on the other hand there would be continued fragmentation of audiences and revenue.  In terms of the broadcast environment, ICASA had issued the final DTT regulations and this created an opportunity to review existing regulations developed for an analogue broadcasting environment.  The regulations for an analogue broadcasting environment had had a significant and unsustainable impact on the SABC’s Financial Performance, as the Corporation was heavily reliant on commercial funding, to the tune of 82% of the SABC’s total revenue streams.

Concerns had also been raised with the Department of Communications (DoC or the Department) on the review of ‘must carry’ regulations - the current regulations mandated the SABC to make available at no additional cost (free of charge) all SABC television channels to subscription television broadcasters. This requirement did not take into account the SABC’s investment in content acquired through a competitive process and the public purse. There was some conflict with the Electronic Communications Act of 2005, which allowed the parties to negotiate commercial terms in the must-carry agreements.

She added that there were also concerns around the sports of national importance. SABC, as a national broadcaster, believed in the drive for sports, although it was becoming more and more difficult to negotiate the rights so SABC was considering pursuing anti-siphoning, in answer to the question asked earlier.

The Local Content on Television, Commissioning and Music regulations were in the process of being reviewed by the regulator, and SABC was hoping that it would be measured as a Network and not on a channel by channel basis. The licencing of additional radio stations by ICASA in 2013 was going to have an impact on the way SABC did its business. The SABC strategy would take cognisance of the impact these new players would have on its revenue and audience share. Parallel to that would be a need to secure increased public funding as the challenge to compete with commercial broadcasters and other media platforms would make it difficult for the SABC to effectively deliver on its public service mandate. In terms of the licence fees, SABC was projecting to deliver R929 million at the end of the financial year.

Speaking on the Government Guarantee repayments, she said that this continued to play a dominant role in the SABC’s financial strategy. While it had afforded SABC the ability to raise the R1.473 billion in bank loans, the SABC utilised only R1 billion through its Nedbank loan. In addition to the Company’s trajectory of prudent financial management, the SABC recognised the losses incurred through the interest rate payments attached to the loan. To mitigate this, R777.8 million of the capital portion, and interest of R240 million, had been paid back to Nedbank. The remainder of the debt now stood at R222 million, plus interest charges of R8 million as at the end of January 2013. The rating of SABC had improved greatly, with the Corporation no longer considered high risk. The total expenses in terms of the Government Guarantee for the 2013/14 financial year would be R5.6 billion, with a variance of R6.9 million.

The Chairperson interjected to ask Ms Mokhobo to highlight only the most relevant point. The Members had had the Corporate Plan document for some time and that they were actually ready to ask questions.

Ms Mokhobo concluded that in terms of e-skills, SABC would implement appropriate training programmes and also develop e-skills education content for broadcast and e-learning initiatives. SABC expected to go live with on-demand access to its web-streamed content via set-top boxes (STBs). There was also on-going progress on a Parliamentary Channel, which would ensure that the public could access the debates.

Mr Olivier gave a summary of the financial results and said that for the 2012/2014 financial year the budget was R6 billion. R100 million rand was needed to ensure sustainability. The operation expenses would R5.2 billion rand, against a revenue of R6 billion. The major revenue sources would be R2.9 billion from TV advertising, R1.3 billion from radio advertising, R420 million from sponsorship, R941 million from TV licence fees and R171 from Government grants. He added that the TV licence revenue tariffs required an annual adjustment so that the net revenue reclaimed after inflation and cost increases would improve as opposed to coming down.

In terms of expenditure, sport was going to get R400 million in the new financial year, broadcast costs would be R429 million, signal distribution was budgeted at R569 million, non-permanent human resources at R297 million, permanent staff at R1.8 billion, productivity gains at R392 million, and marketing costs at R153 million. Direct licence collection costs were budgeted at R179 million, and professional and consulting at R98 million, other operational expenses at R458 million, and personnel costs at R83 million. Other administration expenses would increase by 11%. Professional and Consulting fees included audit fees (R28 million), management fees (R35 million), project fees and technical fees (R35 million). Travel costs included both foreign and local travel, with the biggest cost going to the news division.

Other operational expenses such as energy costs had gone up by 13% and in terms of other personnel costs, R45 million has been allocated to training. R22 million was allocated to stationery and printing and R45 million was allocated to communication costs in terms of other administration costs. 
 
Discussion   
Mr Steyn  asked if the findings of the AGSA had been taken into consideration with regards to the targets.

Mr Steyn thought that there was a need for a more aggressive strategy in terms of collection of TV licence fees, as there was a danger of burdening people that were diligently paying their licence fees.

Ms Shinn asked for clarity on the correct figure in terms of licence fees.

Mr Steyn repeated concerns on the headcount, a point that was neither covered in the corporate plan nor in the expenses, and said that this had to be brought down.

Mr Steyn wanted to know why the TV licence agent collection charges had increased.

Mr Steyn asked for clarity on the travel costs, and more specially for those getting the news getters. He added that the move of transforming travelling expenses to travelling allowance with the introduction of petrol cards instead led to more costs and SABC needed to change this.

Ms Shinn said that although criminal proceedings had been taken on fraud and corruption, following an investigation, the Committee had received no update on the success on the previous proceedings.

Ms Shinn noted the funding constraints for the launch of the 24-hour news channel, and asked if SABC was considering using any public private partnerships to launch this.

Ms Shinn asked, in relation to earlier comments, what SABC was doing about junior staff that were discounting advertising rates. She also asked what the SABC was doing to address programme scheduling instability.

Ms W Newhoudt-Druchen (ANC) said that everyone was excited about DTT, especially people with disabilities, but no specifications had been given. She enquired if, for instance, there would be subtitles. DStv had an option of downloading such subtitles and she enquired if SABC had a similar option. She felt that she needed full access to SABC channels, pointing out that she was paying her full TV licence, while the SABC staff were being subsidised. Most of the SABC programmes were not subtitled. The deaf community had to be fully informed, particularly in the run-up to the 2014 elections, and had to have access to the debates and all the information that was coming in from the Independent Electoral Commission (IEC).

The Chairperson wondered why SABC seemed unable to address the issue of subtitles consistently. They were included for programmes like “Generations” but not for educational programmes.
 
Ms Mokhobo said that the cost for creating subtitles was quite high, but would in future be included in cost of production of content.

Ms Tsebe commented that for SABC to be subsidised on their TV licences was unfortunate and would send out a wrong message and resentment if the poor were to hear of it. She strongly recommended that the subsidisation should be scrapped.

Ms Newhoudt-Druchen asked what strategy was in place to achieve the 50% women staff component, and what it was doing to get people with disabilities at the top management level, and to skill them.

Ms Newhoudt-Druchen asked how far SABC had progressed in reducing the high error percentages as reported upon by AGSA.

Ms Lesoma spoke on the alignment to Government priorities, and said that there was a need for a working relationship of entities within the “communication family”.

Ms Lesoma asked why the SABC was setting targets, such as those for broadband, that were unachievable..

Ms Lesoma asked if the maintenance of the staff complement and the headcount would take into account other areas such as technology.

Ms Kilian asked if the SABC structure was going to be revised after the skills audit. She wondered if tit would be possible to change the increase in the leave liability for the future. In regard to the professional consulting fees, she said more clarity was needed on the management fees, and in particular the legal fees. In relation to other administrative costs, she asked if SABC had a contingency for risk management for the future.

Ms Tsebe asked if the SABC staff were consulted on the formulation of the corporate plan.

Ms R Morutoa (ANC) asked whether, now that SABC was the principal holder of PSL rights, it was broadcasting more games per month, and what was the scheduled plan.  

The Chairperson asked if the SABC was accommodative of the employee disparities in terms of the benefits, some of which resulted from apartheid days, and some from other managers in SABC. He agreed that the participation of the employees was needed to deliver on the strategic plan and therefore  it was essential to deal with their issues.

Ms Makhoba responded briefly to the questions. She assured the Committee that the SABC’s key performance indicators were now measurable and that the AGSA’s advice had been taken, although the full corrections had not yet been made. She conceded that the “savings” on content was actually money not spent, adding that part of the money had not been spent due to capacity constraints. The Skills Audit process would give a proper calculation on what was available and what skills were needed. She also added that the SABC structure would change following the skills audit. There would be no increase of staff until the audit was complete, and then the staff complement would be addressed.

She noted that to answer the apartheid language legacy, SABC was working with ICASA for the allocation of more spectrum for the radio presence throughout the country. Some radio stations were going to be expanded and the technology team was working towards this.

SABC was also working on how to address the current leave status, and the negotiations were still on-going. Performance bonuses were to be based on the performance, but it was not to be done in this financial year because an evaluation would have to be done. Performances would be evaluated consistently throughout the year.

The issue of subsidised staff TV licences was to be addressed, with a move to scrapping them.

The 24-hour news channel was to be managed by SABC without going into any partnership. DStv would avail space, if approached, to add channels on its bouquet. The point of access for people with disabilities with regards to downloading subtitles was a point well-taken and SABC would look into this by making it a condition of acceptance of contract. Audio description had been stopped by SABC as there was a need for skills to attend to this.  SABC would itself commit to delivering information to all communities in the period leading to the elections and during the elections.

Ms Tshabalala said that the Interim Board’s priorities found expression in the corporate plan as the corporate plan was done by SABC. She added that the Human Resource review was going to interrogate the salary disparities. There were debates on whether salaries of employees should be made public.

Mr Hlaudi Motsoeneng responded on events scheduling, saying that important events had been put on the calendar. SABC was engaging Super Sport on big matches, and discussions were still on-going with DStv to work together with SABC, based on the existing schedule.

Mr Olivier responded to questions on TV licence revenue and said that SABC would be using the law to assist it. The penalties were another way to deal with the issue. There was an on-going appeal case against a retailer who had been penalised, for R7 million. In terms of the agency collection fees, SABC would get back to the Committee.

Mr Olivier confirmed that the “news-getters” took up most of the travel costs as they had to get news from across the country.

Mr Olivier spoke to the leave liability, and said a new leave scheme was being adopted in which an employee could not build up more than 90 days of leave, as the value of leave was growing. There was also a request to the Board to lift the moratorium on conversion of leave into cash, and to lift the moratorium of converting leave to pension. There was need for a new strategy in the long run. One of the  proposals was bringing down leave from 90 days to 45 days, after a discussion with the Unions. Employees were also being encouraged to take their leave.

Mr Olivier pointed out that the professional fees included legal fees. There was a legal claim that went against SABC, which had increased the legal fees. There was a contingency for risk in place. With regards to the travel and petrol cards, all the risk was initially on the SABC but currently, the risk fell on the employee (in instances of abuse of the petrol card).

Ms Mokhobo added that there was a move towards scrapping the car allowance.

Mr Olivier said that SABC made R45 million available to address the salary parity issues for 3 000 staff in the bargaining unit but this was not all used because the parity exercise was initiated in December 2012. It would require an extra R54 million in the new financial year.

The meeting was adjourned.