/ 30 September 2016

The loss reported by the SABC goes to the heart of the mandate problems of state-owned companies

SABC will pay an administrative penalty of over R31.8-million and provide 25% bonus advertising space for every rand of advertising space.
Once the final submissions are made by August 31, the public’s input will be consolidated internally and a final draft will go through approval by the board and finally sent to Icasa. (Delwyn Verasamy/M&G)

The CEO of the South African Broadcasting Corporation, in announcing at a Press conference at the Auckland Park HQ of the corporation a R411-million loss for the year to end-March, made it clear that profit was secondary.

Disregard for a moment concerns about interference in media freedom and governance, what does this mean for us, the SABC audience, workers and – on our behalf supposedly – the shareholder, the State?

For the shareholder, Hlaudi Motsoeneng, the general executive for corporate affairs, summed up the attitude of the executives, as he did last year, by insisting that critics focus not on the profit or loss but on whether the SABC is sustainable. It must be pointed out that the SABC still has a lot of cash on hand.

The R411-million loss compares to the R900-million or so in cash the corporation recorded at the end of the financial year and the around R8-billion in revenue. It is also around three times higher than the restated loss of the previous financial year of R131-million.

Acting group CEO James Aguma blamed the loss on the economy, being forced to cover unforeseen events, being forced to buy rights to broadcast sports on a take-it-or-leave-it basis, investment in new broadcasting infrastructure and currency movements.

If these are one-offs, and the SABC does as promised report a profit next year, then there is no need for concern. However, a few years of comparable losses and the cash will be gone, forcing the broadcaster to knock on government’s door for a direct cash injection or guarantees.

Almost the entire loss comprises capital spending during the year. Capital expenditure amounted to R327-million, and of this R242-million went on upgrading or replacing technology infrastructure, while spending on building and equipment maintenance was around R30-million.

While the loss is nothing to boast about, no obvious signs at this stage of disaster appear in the financial statements. For now, the SABC is solvent, both in assets and in cash versus liabilities. The current ratio, a measure of how easily the company can pay current liabilities with current assets, is a healthy 1.7:1. Another way of putting this is that the SABC has around R1,70 in current assets for every R1,00 in liabilities.

For us as viewers and listeners, the quality of the programming is the issue, and it must be stressed that we need to take a view that does not reflect only the upper end of the market which has most migrated to DSTV or increasingly to internet streaming services.

As CEO James Aguma pointed out, the SABC’s 18 radio stations and TV stations serve a wide audience in all South Africa’s official languages. What he did not say was that a big percentage of that audience is not served by anyone else. A handful of indigenous language newspapers and private radio stations speak to the majority in their mother tongue. The SABC has a virtual monopoly in some areas and dominates in others. However, it has always struggled to profit properly from its enormous, but often poor, indigenous-language audience.

On the other hand, the threat from higher-income earners deserting the SABC entirely – many probably still watch at least some SABC programmes on the DSTV platform – could dent revenue further. The effect of the long-delayed switch-over to digital TV transmission and new competition is another imponderable.

The employees of the SABC have, on the financial front, little to complain about. And that is relevant to the financial sustainability of the SABC. On the face of it, the SABC cannot continue to make all its employees happy forever. The wage bill overall was almost 12% higher than the previous financial year, and around double the inflation rate in March, while revenue only rose around 6%.

Employee and directors’ compensation and benefit expenses, plus other personnel costs soaked up 42% of the around R8-billion revenue in this past financial year. In the year to end-March 2015, the figure was around 40%.

Unlike for the private sector, for SOCs in a country with a persistently high unemployment rate the employment numbers will not reduce at all in future. Retrenchments, according to the CEO, are not on the cards. Were the SABC a private company, and the SABC ran into real financial trouble, this is where the axe would fall.

The SABC wants to broaden its sources of revenue. At the press conference, mention was made of the SABC seeking strategic partnerships, but no details were given.

Around 85% of revenue comes from ads, 12% from license fees, 1% other sources such as renting out buildings, and only around 2% directly from government. Non-payment of licence fees has been a sore point with the SABC since the 1980s. Aguma told me that the SABC had just cleaned up the licence fee database, so, for example, I will no longer be sent demands for my late mother’s TV licence, and he agreed that there is space to increase revenue from this source.

The SABC, as a public entity, received a “qualified” audit, in terms of the Public Finance Management Act. SABC management maintains it has made progress in meeting the audit requirements, from the disclaimer of the 2103 financial year and has only one reporting area to clear up.

This does not mean the SABC is out of the woods. Around R35-million in fruitless and wasteful spending was identified in this financial year, and around R441-million in irregular spending. And it still has to look into around R4-billion in of irregular spending incurred in the past and R58-million wasteful spending. It must be noted that there is a difference between money simply wasted and irregular spending, which is spending that has not been accounted for properly and at least part of which could be condoned.