PROGRESS REPORT ON THE SABC Presenter Avril Halstead

PROGRESS REPORT ON THE SABC Presenter: Avril Halstead | Chief Director: Sectoral Oversight, Asset and Liability Management Division | AUGUST 2011

Contents • • Reporting Compliance with guarantee conditions and commitments Projected cash flow position MTEF application 2

This report is based on submissions received from the SABC • • Dates for submission of the reports by the SABC to the Monitoring Task Team (MTT) and monthly meetings of the MTT have been agreed for the rest of 2011 SABC submitting on a monthly basis the following information: – – • MTT has also received: – – – Ø • • • CFO report Divisional income statements Turnaround strategy executive project update Performance review report Corporate plan (Missing 3 y financial projections) 36 month cash flow projections (includes 3 y financial projections) Turnaround strategy executive project update (details turnaround initiatives) SABC to consolidate these reports into a single “turnaround strategy” An MTEF application has been submitted to DOC (and copied to NT) Signed performance agreements for Executive Committee members submitted There are still inconsistencies in the information that has been communicated to Government (e. g. News 24) 3

SABC is still not meeting many of the guarantee conditions Guarantee conditions: Develop a detailed turnaround plan outlining milestones, timelines and executives responsible for achieving the cost savings and revenue enhancement measures Compliance X Implementation plan for addressing the issues raised in the Auditor General’s (AG) report X Cost cutting and revenue enhancement measures to be captured in the shareholder compact X Monitoring task team to be established to monitor progress on the turnaround plan √ Guarantee conditions met: √ Guarantee condition not met: X

SABC has failed to achieve the committed changes in its cost structure Cost cutting or revenue enhancement initiative Targeted Achieved Comments saving Advertising revenue enhancements R 535 m X Increased sponsorship revenue R 128 m X Enhanced content management R 336 m √ Decreased people costs R 287 m X Reduction in professional fees R 136 m X Increased expenditure on marketing (R 42 m) X Marketing expenditure declined instead of increasing Improved license fee collection R 46 m X Mitigated by some savings on collection costs Other costs R 72 m X Net finance costs No target √ Commitment met: √ Commitment not met: X Content savings achieved at the expense of long term performance

Process for finalising the turnaround plan and shareholder compact • • • SABC is proposing amendments to the cost cutting and revenue enhancement initiatives that were committed to in applying for the guarantee and which were the basis for the guarantee being issued SABC is also proposing that the guaranteed loan be restructured Request to amend initiatives and restructure loan to be submitted by SABC with revised turnaround plan to MOC and MOF for approval Turnaround plan needs to be in line with government guarantee requirements and address the issues raised in the Auditor General’s report SABC Board drafting a proposed shareholder compact If approved, shareholder compact, which is based on the turnaround plan, can be finalised 6

SABC’s capacity to meet its obligations is entirely dependent on MTEF funding Source: SABC 7

SABC’s MTEF application 8

MTEF application • • • DOC needs to assess the SABC’s application and submit a request for funding for consideration in the Budget process For the 2012 Budget, the focus is on finding savings and reprioritising spending as very little additional funding will be made available SABC’s request for funding in 2011/12 cannot be considered as additional funding is only for unforeseen and unavoidable expenditure Business case for News 24, Sports channel and DTT is still outstanding Funding requests are to cover operational expenditure (for DTT, SABC had committed that the company would cover all operating expenditure and would only require funding for capital expenditure) 9

Additional information required • To get a more complete understanding of the MTT has requested the following information from the SABC which is still outstanding: – – – Business plans for News 24, DTT and Sports channel Turnaround strategy for SABC 3 and link to content procurement SABC’s proposal for restructuring the Nedbank Loan Consolidated turnaround strategy Project plan and progress report on initiatives to address the Auditor General’s recommendations – Separate reporting of public and commercial broadcasting businesses – Monthly reporting on risks and mitigating actions being taken by the SABC 10

Conclusion • • There has been an improvement in the working relationship between the SABC and the MTT, with regular reporting being more forthcoming The SABC is still not meeting most of the guarantee conditions The SABC’s financial sustainability is entirely dependent on receiving additional funding from government Additional information is required to get a more complete understanding of the SABC’s financial position 11

Annexure 12