/ 10 July 2009

From boom to bust

What caused the once-profitable SABC to become a financial basket case?

In just three years the SABC went from a profit of R383-million to a projected R1-billion loss this year. And a Mail & Guardian analysis of the broadcaster’s financials for the past four years shows that the rot set in during former chief executive Dali Mpofu’s reign.

How a profitable entity could, in a matter of a few years, be turned into a financial basket case has emerged as the leading question in the fog of controversies generated of late by the SABC’s woes.

The broadcaster’s financial records show clearly that Mpofu should carry the can. Where his predecessor Peter Matlare ran a tight fiscal ship, on Mpofu’s watch — and despite the best efforts of some board members — costs spiralled out of control, even while austerity measures were supposed to have been implemented.

Mpofu appears to have been singularly unqualified for the job of running an enterprise with a R4-billion turnover. Although he had a string of directorships, he had no experience in running any large media organisation. His work record includes a disastrous tenure as chairperson of the Boxing South Africa board and being fired from the ANC.

Mpofu told the M&G that it was ”absolute nonsense” that he is the cause of the SABC’s woes. ”The loss in revenue is the reason the SABC is in this current mess,” he said. ”It has nothing to do with increased costs.”

But an analysis of the SABC’s revenues reveals otherwise. Revenues have grown year after year, including in the current recessionary conditions. Although media houses generally have seen revenues decline as advertising expenditure has dried up, the SABC has continued to increase its revenues.

Revenue grew from R3.9-billion four years ago to R4.7-billion in 2007-08. The recession slowed SABC’s revenue growth to R4.8-billion in its last financial year.

Cost increases, meanwhile, have been stratospheric, increasing 63% from R3.5-billion in 2005-06 — the year Mpofu took over — to R5.7-billion in 2008-09. In the last year alone costs jumped by almost R1-billion.

Uncontrolled spending between 2006 and 2009 has encumbered the SABC with a R784-million deficit projected for this year, a nonexistent board, striking staff members and a R2-billion bail-out request to the government that looks increasingly unlikely to be granted.

Key contributors to the SABC’s costs have been employee compensation and benefits; consulting fees; and amortisation of programme, film and sports rights.

The SABC has inflated its staff, increased salaries and provided generous housing and vehicle allowances since 2005. Despite warnings from the board to cut back on hiring, management continued recruiting. Permanent staff increased from 3185 in 2005 to 4098 in March 2009. Employee compensation and benefit costs rose from R987.8-million in 2005-06 to R1.7-billion in 2008-09. And despite the recessionary climate and a negative cash flow last year, the SABC generously dished out R23-million in staff bonuses.

It has also spent recklessly on consulting fees. Payments to consultants increased by 186% from R47-million in 2005-06 to R135-million in 2006-07. These payments increased by a further 68% to R226-million in 2007-08. Consulting fees for 2008-09 amounted to R335-million.

Since 2006 the broadcaster has spent more than R1-billion each year on the amortisation of programme, film and sports rights. This increased to R1.6-billion in the last financial year.

Coupled with escalating costs is evidence of overspending and wasteful expenditure. In 2007-08 the SABC squandered R76-million on procuring programmes that were not broadcast within the licensed period. During that year, a further R40.6-million was lost through what the SABC’s annual report referred to as ”wasteful expenditure”. No one was held accountable for these unnecessary losses.

Amid the growing financial strain at the SABC, its former news head Snuki Zikalala was given free rein to develop SABC International in 2007.

In an attempt to expand the broadcaster’s global footprint he opened 12 news bureaus around the world at an estimated cost of R240-million, three of which have already shut down. A R45-million studio and annual running costs of about R60-million added to the broadcaster’s cash woes. The channel has not earned any revenue, because it broadcasts on obscure satellite platforms.

Despite slashed staff budgets, the news department overspent its budget in 2008 by almost R80-million and hired more staff.

In 2007-08 the SABC posted an impressive profit of R321-million, but this was mainly from the inclusion of a once-off R420.8-million pension fund surplus. Take into account the cost of R144.5-million to fund post-retirement medical-aid obligations and an R89.4-million contribution to the pension fund, and its profit shrinks significantly. In fact the SABC’s real operating profit for the year was a meagre R43-million.

Two years ago Mpofu attributed the broadcaster’s massive increase in costs mainly to the SABC’s investment in new technology, which he said was necessary because the changing and increasingly competitive market. He cautioned that the SABC’s performance should not be measured solely on an economic basis, but on its delivery of its broadcasting mandate, corporate goals and strategy.

While at the SABC, Mpofu also served as board chairman of Boxing South Africa (BSA). He was relieved of his duties in 2007, following a financial fiasco at BSA relating to R3-million of a government grant that was unaccounted for.

Despite Mpofu’s proud claim that he turned the ship around at BSA, the organisation has been plagued by maladministration and infighting and is facing a meltdown. Last week the Democratic Alliance called for the privatisation of the BSA and slammed Mpofu and his board for failing to deliver during their tenure.

Mpofu has been no stranger to criticism or controversy at the SABC either. Under his watch in 2007, the SABC failed to secure rights to broadcast the Premier Soccer League, a slip-up which reportedly cost it a R100-million loss in sports sponsorship revenue this year.

In 2007 SABC legal head Mafika Sihlali, who was Mpofu’s friend and business partner, was exposed by the M&G for allegedly defrauding the broadcaster of R2-million. It subsequently emerged that Mpofu had business links with Sihlali in at least nine companies.

The SABC board suspended Mpofu in May last year for alleged mismanagement of funds and insubordination. The charges included making payments of R145-million between April 2006 and March 2007 without contracts and signing an unauthorised contract worth R330-million with Siemens in 2006. Despite his suspension, he received a R2.25-million bonus in 2008-09.

In 2008-09 the SABC posted a R1-billion loss, whereas its total expenditure amounted to R5.7-billion (these figures are currently being audited).

Given the asymmetry between the SABC’s revenue and expenditure in the past four years, the R784-million deficit projected for 2009 is not surprising. The broadcaster’s financial reports speak for themselves: despite the glaring warning signs, the SABC made no significant attempts to cut costs and instead continued to allow increased, even runaway spending.

Trail of red
The SABC’s culture of financial mismanagement, fraud and excessive spending has left a long trail of red:

  • In 2007 the SABC was allegedly defrauded of R2-million by its legal head, Mafika Sihlali, who was Mpofu’s friend and business partner;
  • In 2006-07 the broadcaster incurred losses of more than R60-million through criminal conduct and irregular, wasteful expenditure;
  • The SABC incurred R40.6-million of wasteful expenditure in 2007-08. It also spent R76.2-million because of the impairment of rights for programmes not broadcast in the licensed period;
  • The SABC has faced various litigation processes since 2006, including a R140-million lawsuit from Trustco relating to a wireless agreement for an SABC2 game show and a claim of R377-million from the Public Investment Corporation because of a cancelled lease agreement;
  • In May 2008 Mpofu was suspended for alleged mismanagement of funds and incompetence. The charges included making payments of R145-million between April 2006 and March 2007 without contracts and signing an unauthorised contract worth R330-million with Siemens.
  • In March 2009 it was reported that former head of programming Matilda Gaboo had wasted R49-million buying programmes that were never aired; and
  • The organisation owes independent producers R60-million and SuperSport about R100-million
  • .

— Qudsiya Karrim

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