SABC releases 2007/8 annual report

During the year a new board was appointed at the national broadcaster and wide-ranging improvements to the systems and processes at the corporation were made. A 30-year-old accounting system was replaced with a modern SAP system. Production of local programming and programming in local languages was boosted.

The corporation also expanded its transmission footprint in television and radio to reach more under serviced areas. It now reaches over 20-million South Africans through 18 radio stations and four television stations, who spend an average of three hours per day watching SABC TV and 22 hours listening to SABC radio. Advertising spending for radio and television is at 46%.

Over the last year it also became the first SA broadcaster to launch a 24-hour news channel - SABC News International broadcasts across Africa on the Vivid platform. The news service also opened a number of international news bureaux.

At the same time, the corporation actively engaged in the digital terrestrial television migration project to ensure it is able to transform its broadcast technology along with the rest of the industry. The SABC is ready to transform its technology to digital standards if the cost implications can be negotiated with the shareholder.

In addition, various risk and governance processes were implemented, improving the governance of the corporation.

Financial health

The SABC reported an operating profit for the year before the impact of the pension fund and medical aid costs of R111,3 million, compared to R182,8 million the year before. Profit after tax was R321,2 million, due largely to the recognition of a R420,8 million pension fund surplus, a cost of R144,5 million to fund post retirement medical aid obligations and a R89,4 million contribution to the pension fund. Profit after tax in 2007 was R192,8 million for the group.

The corporation reports good growth in revenue, particularly in commercial advertising, which grew 14% to R3,1 billion. Advertising accounted for 81% of total revenue. A further R568 million of commercial revenue was generated from sponsorships and other revenues. Sponsorships, however, disappointed, with a 9% fall on 2007's revenue. This was due to the decrease in aired sports events, following the loss of rights to broadcast games in the Premier Soccer League. TV licence revenue grew 8%, although the licence fee has not been increased for a few years. Government transfers were 10% lower than in 2007. Overall, revenue increased by 10% to R4,7 billion.

There were significant pressures on the cost side, however. Programming rights the SABC had already acquired were impaired by R76 million as programming was not broadcast within the licenced period. The SABC also raised a new provision against debtors of R41 million in recognition of the tougher economic environment. Staff costs were also higher, due to the reclassification of freelance payments from general expenses to staff expenses, a higher headcount, and higher salaries in some cases in response to competition in the industry. A process has now been implemented to manage staff costs more effectively.

The SABC also incurred expenditure during the year of R40,6 million that can be classified as “wasteful” in terms of the Public Finance Management Act (PFMA). The corporation is now attempting to recover this expenditure.

Due to the implementation of the SAP system, the corporation had to re-audit all of the expenditure and amortisation of the more-than 4000 programming projects on its books, due to a different basis for cost and amortisation accounting from the old system. This process could not be completed in time for the sign-off of the financial results; however, its completion will result in the most rigorous treatment of production costs in decades. The auditors have therefore qualified the audit report in that they were unable to audit the costs and amortisation of programme, film and sports rights. The audit of the rights will be completed shortly and future financial statements will reflect the current stock of rights fully.

In addition, the corporation is facing a number of litigation processes. These include the Public Investment Corporation over the premises of the Bophuthatswana Broadcasting Corporation and a R140 million claim from a supplier.

The corporation is currently in a solid cash position, with R165,6 million on the balance sheet and has little debt, should it need to raise further debt to fund operations. As evidence of the corporation's successful debt raising capability, it recently secured a R425 million facility from a major investment bank to fund the purchase of four outside broadcasting units.

Local programming

As part of the SABC's mandate, it is required to increase the broadcast of locally generated content. Despite the significantly higher costs of local content, the corporation passed a landmark in the last financial year when a greater portion of its content budget was invested in locally produced programming compared to foreign content. Improvements were also made to the use of local languages in drama and documentaries.

On TV, local content was increased by 16% on SABC1 and 7% on SABC2. Local music now accounts for 60% of music broadcast on the public broadcasting service radio stations. Between 60% and 70% of programming is now in languages other than English, with 80% of local programmes now in languages other than English.

Corporate governance

The board of directors is responsible for the governance of the corporation and for ensuring that it complies with the King 2 report on corporate governance and various pieces of legislation. During the period, the SABC implemented a comprehensive risk management strategy that was approved by the board. It appointed a risk committee of the board and a risk manager. It has also adopted a comprehensive delegation of authority framework which governs decision making in the organisation. A proper procurement framework was set up for the first time to govern all of the SABC's acquisitions.

One of the largest projects in the reporting period was the procurement of the four high definition outside broadcast vans which will be used extensively in the broadcast of the 2009 Confederations Cup and the 2010 FIFA World Cup.

According to the SABC, its new systems has ensured far more transparency and accountability in procurement processes. However, a number of issues prevented the SABC from fully complying with the PFMA, although some significant steps were taken during the year to address this. The risk management process and procurement framework are two areas which are now being improved in order to comply with the risk and procurement stipulations of the PFMA.

The corporation is also working to improve various reporting requirements in terms of the PFMA, including the time taken to refer instances of wasteful expenditure to the police and the shareholder. One area which has been a long-running problem is the absence of a “corporate compact” which has to be approved by the shareholder. The plan should govern the objectives and accountability of the board and management but the plan was not submitted in time in an agreed format.

However, the board has set corporate goals for the organisation, which govern the key performance areas of all management. Another issue of non-compliance is that the audited financial statements were not submitted within the deadline prescribed by the PFMA - this was largely due to the SAP implementation which required significant extra work to be undertaken for the year-end audit.

The year ahead

The year ahead will be one of consolidating the new systems and processes in the organisation. The corporation's revenue has shown good growth in commercial advertising in the past year, although the market is likely to be tougher in the year ahead. A new strategy is also being formulated to regain sponsorship revenue. On the cost side, better procurement and governance processes will bring down procurement costs and prevent unjustified expenditure. In addition, initiatives have been formulated to improve costs in areas such as staff and programming rights. Most outstanding issues with the PFMA are currently being addressed and will be resolved in the year ahead.

The board has formulated a set of corporate goals that are now being internalised in the whole organisation to focus all employees on a set of objectives. Exciting projects for the broadcaster are the imminent implementation of DTT (digital terrestrial transmission) and preparations for the broadcast of the 2010 FIFA World Cup, for which the SABC is the official rights-holding broadcaster.

Management's key performance indicators are now based on the corporate goals. There remains a clear challenge to fully implement the new systems and ensuring that they are functioning smoothly within a climate that will be tougher on the broadcasting industry than the past year. Overall, however, the SABC is confident it will have a solid year ahead.

For more information on the 2007/8 Annual Report, go to www.sabc.co.za.