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ABBREVIATIONS

Ad AdvertisementAR Augmented RealityARC Audit and Risk CommitteeASO Analogue Switch-OffATV Analogue TelevisionB2B Business to BusinessB-BBEE Broad-Based Black Economic EmpowermentBoard Accounting AuthorityBSD Broadcasting Signal DistributionBTR Business Television and RadioBTV Business TelevisionCAGR Compound Annual Growth RateCEO Chief Executive OfficerCFO Chief Financial OfficerCOO Chief Operations OfficerCPI Consumer Price IndexCRM Customer Relations ManagementCSI Corporate Social InvestmentCSS Customer Satisfaction SurveyCWU Communication Workers UnionDAB Digital Audio BroadcastDCDT Department of Communications and Digital TechnologiesDR Disaster RecoveryDRM Digital Radio MondialDTH-S Direct-to-Home SatelliteDTT Digital Terrestrial TelevisionEBIT Earning Before Interest and TaxE&M Entertainment and MediaECA Electronic Communications Act, No. 36 of 2005ECNS Electronic Communications Network ServicesECS Electronic Communications ServicesEE Employment EquityEMEA Europe, the Middle East and AfricaESD Enterprise Supplier Development EXCO Executive CommitteeMUX MultiplexFM Frequency ModulationFTA Free-To-AirFY Financial YearGDP Gross Domestic ProductHbbTV Hybrid broadcast broadband TVICASA Independent Communications Authority of South Africa (Regulatory Authority)ICT Information and Communication Technology

I-ECNS Individual Electronic Communications Network ServicesI-ECS Individual Electronic Communications ServicesIoT Internet of ThingsIPTV Internet Protocol TelevisionIMT International Mobile TelecommunicationsITU International Telecommunications UnionKPI Key Performance IndicatorMinister Minister of Communications

MDDA Media Development and Diversity Agency

SENTECH SOC LTD Corporate Plan MTEF 2019/2020 - 2021/2022

MOI Memorandum of Incorporation

MTEF Medium Term Expenditure Framework

MTSF Medium Term Strategic Framework

MW Medium Wave

NAB National Association of Broadcasters

NDP National Development Plan

NKP National Key PointNPAT Net Profit After Tax

NUMSA National Union of Metalworkers South AfricaPDA Protection Disclosures Act of 2000OTT Over-the-top ServicesPFMA Public Finance Management Act, No. 1 of 1999

PPCTPS Parliamentary Portfolio Committee on Telecommunications and

Postal Services

RDS Radio Data System

PwC Price Waterhouse CoopersSA South AfricaSABC South African Broadcasting Corporation

SADIBA South African Digital Broadcasters Association

SD Standard Definition/Skills Development

SED Socio-Economic Development

SEED Social Enterprise & Economic Development

SENTECH Act SENTECH Act, Act No. 63 of 1996

SKA Square Kilometre Array

SLA Service Level Agreement

SMME Small, Medium and Micro Enterprise

SOC State Owned Company

STL Studio-to-Transmitter Link

SW Shortwave

TR Treasury Regulation

TV Television

VOD Video-on-Demand

VR Virtual RealityVSAT Very Small Aperture Terminal

WOAN Wireless Open Access Network


TABLE OF CONTENTS

ABBREVIATIONS AND DEFINITIONS

1. FOREWORD BY THE BOARD CHAIRPERSON..........................................................................................1

2. OVERVIEW BY THE CHIEF EXECUTIVE OFFICER.....................................................................................2

3. ORGANISATIONAL IDENTITY, MANDATE AND STRUCTURE.................................................................4

4. PERFORMANCE REVIEW . ..........................................................................................................................8

5. MARKET OUTLOOK: MTEF 2019–2021.....................................................................................................17

6. CORPORATE STRATEGY.............................................................................................................................26

7. STRATEGIC PRIORITIES.............................................................................................................................36

8. ANNUAL PERFORMANCE PLAN..............................................................................................................38

9. FINANCIAL PLAN.......................................................................................................................................42

ANNEXURE

10. ANNEXURE A: GOVERNANCE STRUCTURE.........................................................................................50

11. ANNEXURE B: RISK MANAGEMENT PLAN........................................................................................ ..56

12. ANNEXURE C: FRAUD PREVENTION PLAN..........................................................................................59

13. ANNEXURE D: MATERIALITY AND SIGNIFICANCE FRAMEWORK....................................................62

LIST OF TABLES

Table 1:Executive Team Profile........................................................................................................................5

Table 2: Salient Features-31 March 2018.......................................................................................................11

Table 3: Product Performance Review and Forecast (2015-2019)................................................................13

Table 4: Employment Equity Status 31 October 2018..................................................................................14

Table 5: Training Spend .................................................................................................................................14

Table 6: SENTECH Alignment to SONA Priorities..........................................................................................38

Table 7: DCDT Strategic Goals and Objectives.............................................................................................38

Table 8: SENTECH MTEF 2019/20 - 2021/22 Key Performance Indicators...........................39

Table 9: 2019/2020 Annual Performance Plan..............................................................................................40

Table 10: Detailed Statement of Comprehensive Income ............................................................................43

Table 11: Statement of Financial Position ....................................................................................................46

Table 12: Cash Flow Statement.......................................................................................................................47

Table 13: Capital Expenditure Budget..........................................................................................................48



LIST OF FIGURES

Figure 1: SENTECH Organogram....................................................................................................................6

Figure 2: Network Performance per Service Platform....................................................................................8

Figure 3: DTT Coverage....................................................................................................................................9

Figure 4: Carbon Footprint Operational, Planning Centres and Infrastructure Services..........................10

Figure 5: Historical Trends and Forecast (2016-2019)..................................................................................12

Figure 6: PwC ‘essential eight’........................................................................................................................19

Figure 7: Segment compound annual growth rate (CAGR) for the next 5 years.......................................20

Figure 8: Africa Entertainment and Media Outlook for the next 5 years....................................................21

Figure 9: SA, Nigeria, Kenya, Ghana and Tanzania: Total E&M revenue, 2013-22 (US$ millions).............21

Figure 10: South Africa: E&M revenue (R millions) and year-on-year growth (%), 2013–2017..................22

Figure 11: South Africa: Internet advertising and TV advertising................................................................22

Figure 12: South Africa: Radio market (R millions) and year-on-year growth (%), 2013–2022...................23

Figure 13: South Africa: Fixed and Mobile Internet Access Revenue 2017-2022 (R millions)...................23

Figure 14: South Africa Fixed Broad Penetration..........................................................................................24

Figure 15: SENTECH’s 7 Strategic Pillars.......................................................................................................26

Figure 16: SENTECH Way...............................................................................................................................28

Figure 17: SENTECH’s Business Model.........................................................................................................30

Figure 18: SENTECH’s Financial Projections (2019/20 - 2021/22)................................................................42

SENTECH SOC LTD Corporate Plan MTEF 2019/2020 - 2021/2022 2

INTRODUCTION

1. FOREWORD BY THE BOARD CHAIRPERSON

SENTECH herewith presents the Corporate Plan for the Medium-Term Expenditure Framework period 2019/20 - 2021/22

to the Executive Authority and the Portfolio Committee on Telecommunications and Postal Services (PCTPS). This

submission is made in terms of the Money Bills Amendment Procedure and Related Matters Act of 2009; the National

Treasury as prescribed in Section 52 of the Public Finance Management Act (PFMA); and Treasury Regulation 29.

SENTECH is a Schedule 3B Public Entity whose primary Public Service Mandate, in terms of the SENTECH Act, No.

63 of 1996 (SENTECH Act) and the Electronic Communications Act, No. 36 of 2005 (ECA), is “…to provide electronic

communications network services and electronic communications services…” that distribute broadcasting services

to all South Africans. SENTECH is a State-Owned Company (SOC), operating in the Broadcasting Signal Distribution

(BSD) and telecommunications sector. Under the ECA, SENTECH is licensed to provide Electronic Communications

Network Services (ECNS) and Electronic Communications Services (ECS).

The scope of services regulated under the EC Act legislative framework has greatly expanded due to digital

transformation of all industries. The transformation process has simultaneously created regulatory and legislative

challenges consequent to digitalisation of services and/or products. This has led to the concerted need to start

elevating the issue of spectrum which influences socioeconomic concerns i.e. social growth, social inclusion, economic

growth, social development.

SENTECH’s traditional core business has been broadcasting signal distribution in South Africa which contributes

94% of gross revenue through television (TV) and radio. This poses a challenge for SENTECH sustainability given the

disruptive and converging technology environment. In response the Board is committed to a diversification strategy

by shifting from traditional broadcasting signal distribution towards building a broadband/connectivity business.

The Board believes that this Corporate Plan will build on the foundation that SENTECH has laid in the past years of

pursuing strategic partnerships, acquire complementary businesses and assets and exploring and pursuing opportunities

on the African continent. Greater emphasis will also be on building a digitally transformed and innovation Company

that respond to the Fourth Industrial Revolution (4IR) challenges and opportunities.

In conclusion, the Board takes this opportunity to thank the former Minister of Telecommunications and Postal

Services, Dr. Cwele for strategic guidance towards achieving government’s Medium Term Strategic Framework (MTSF)

objectives. The leadership of SENTECH is looking forward to forging relations with the Minister of Communications,

Ms. Ndabeni-Abrahams. We also thank our stakeholders for their insights that help to shape the Company’s products

and solutions; the monitoring and guidance of the Parliamentary Committee on Telecommunications and Postal

Services (PPCTPS) in ensuring that we remain accountable to all South African citizens; and SENTECH’s employees

for their tenacious passion in producing a Corporate Plan that ensures sustainable delivery of the Company’s Public

Service Mandate.

Mr M Mello Chairperson

----------------------------------SENTECH SOC LIMITED


1. FOREWORD BY THE BOARD CHAIRPERSON

SENTECH herewith presents the Corporate Plan for the Medium-Term Expenditure Framework period 2019/20 - 2021/22

to the Executive Authority and the Portfolio Committee on Telecommunications and Postal Services (PCTPS). This

submission is made in terms of the Money Bills Amendment Procedure and Related Matters Act of 2009; the National

Treasury as prescribed in Section 52 of the Public Finance Management Act (PFMA); and Treasury Regulation 29.

SENTECH is a Schedule 3B Public Entity whose primary Public Service Mandate, in terms of the SENTECH Act, No.

63 of 1996 (SENTECH Act) and the Electronic Communications Act, No. 36 of 2005 (ECA), is “…to provide electronic

communications network services and electronic communications services…” that distribute broadcasting services

to all South Africans. SENTECH is a State-Owned Company (SOC), operating in the Broadcasting Signal Distribution

(BSD) and telecommunications sector. Under the ECA, SENTECH is licensed to provide Electronic Communications

Network Services (ECNS) and Electronic Communications Services (ECS).

The scope of services regulated under the EC Act legislative framework has greatly expanded due to digital

transformation of all industries. The transformation process has simultaneously created regulatory and legislative

challenges consequent to digitalisation of services and/or products. This has led to the concerted need to start

elevating the issue of spectrum which influences socioeconomic concerns i.e. social growth, social inclusion, economic

growth, social development.

SENTECH’s traditional core business has been broadcasting signal distribution in South Africa which contributes

94% of gross revenue through television (TV) and radio. This poses a challenge for SENTECH sustainability given the

disruptive and converging technology environment. In response the Board is committed to a diversification strategy

by shifting from traditional broadcasting signal distribution towards building a broadband/connectivity business.

The Board believes that this Corporate Plan will build on the foundation that SENTECH has laid in the past years of

pursuing strategic partnerships, acquire complementary businesses and assets and exploring and pursuing opportunities

on the African continent. Greater emphasis will also be on building a digitally transformed and innovation Company

that respond to the Fourth Industrial Revolution (4IR) challenges and opportunities.

In conclusion, the Board takes this opportunity to thank the former Minister of Telecommunications and Postal

Services, Dr. Cwele for strategic guidance towards achieving government’s Medium Term Strategic Framework (MTSF)

objectives. The leadership of SENTECH is looking forward to forging relations with the Minister of Communications,

Ms. Ndabeni-Abrahams. We also thank our stakeholders for their insights that help to shape the Company’s products

and solutions; the monitoring and guidance of the Parliamentary Committee on Telecommunications and Postal

Services (PPCTPS) in ensuring that we remain accountable to all South African citizens; and SENTECH’s employees

for their tenacious passion in producing a Corporate Plan that ensures sustainable delivery of the Company’s Public

Service Mandate.

Mr M Mello Chairperson

----------------------------------SENTECH SOC LIMITED


2. OVERVIEW BY THE CHIEF EXECUTIVE OFFICER

The Corporate Plan 2019/20 – 2021/22 has been prepared to provide the roadmap to achieve the strategic objectives

of the Company. The preparation of the Corporate Plan was informed by the following:

• The DTPS strategic goals and objectives with emphasis on broadband connectivity and response

to the Fourth Industrial Revolution

• The Company’s mandate, vision, mission, values and strategy

• The Company’s internal environment analysis that entails its strengths and weaknesses

• The external environmental analysis, in particular the global, continental and national broadcasting, media,

broadband and ICT contexts; as well as the policy and regulatory environment including the National

Development Plan (NDP), the National Integrated ICT Policy White Paper, and the National Broadband

Policy which defines the parameters for South Africa Connect.

The organisation is cognisant that it is not business as usual-the fourth industrial revolution (4IR) is with us, thus digital

transformation is even urgent. SENTECH like other organisations within ICT, operates in a volatile, uncertain, complex

and ambigious (VUCA) environment - an era dominated by technological disruptions. As a learning organisation,

SENTECH should either disrupt itself or be disrupted. This will require a shift in mindset by cultivating an innovative

culture; speed and agility to respond to customer needs; increased focus to execute and diverse teams working

together to move to the next level.

Some of the challenges the organisation face include the changing traditional media market; audiences are migrating

to online services with a projected shifts away from traditional TV and radio. Increase in competition is brought about

by substitute products in response to price sensitive consumers. In addition, poorly performing market environment

is affecting key customers.

The Corporate Plan will to ensure that the organisation drives digital transfromation in the Fourth Industrial Revolution.

The Company will pursue a diversified growth strategy with a focus on new markets and products in order to achieve

strategic objectives in the MTEF period 2019/20–2021/22. This will be achieved through both organic and acquisitive

growth initiatives. The SENTECH Executive Committee and staff will pursue the defined Annual Performance Plan

with zeal and deliver on the results through its focus on strategy execution.

Mr M Booi Chief Executive Officer

SENTECH SOC LIMITED


2. OVERVIEW BY THE CHIEF EXECUTIVE OFFICER

The Corporate Plan 2019/20 – 2021/22 has been prepared to provide the roadmap to achieve the strategic objectives

of the Company. The preparation of the Corporate Plan was informed by the following:

• The DTPS strategic goals and objectives with emphasis on broadband connectivity and response

to the Fourth Industrial Revolution

• The Company’s mandate, vision, mission, values and strategy

• The Company’s internal environment analysis that entails its strengths and weaknesses

• The external environmental analysis, in particular the global, continental and national broadcasting, media,

broadband and ICT contexts; as well as the policy and regulatory environment including the National

Development Plan (NDP), the National Integrated ICT Policy White Paper, and the National Broadband

Policy which defines the parameters for South Africa Connect.

The organisation is cognisant that it is not business as usual-the fourth industrial revolution (4IR) is with us, thus digital

transformation is even urgent. SENTECH like other organisations within ICT, operates in a volatile, uncertain, complex

and ambigious (VUCA) environment - an era dominated by technological disruptions. As a learning organisation,

SENTECH should either disrupt itself or be disrupted. This will require a shift in mindset by cultivating an innovative

culture; speed and agility to respond to customer needs; increased focus to execute and diverse teams working

together to move to the next level.

Some of the challenges the organisation face include the changing traditional media market; audiences are migrating

to online services with a projected shifts away from traditional TV and radio. Increase in competition is brought about

by substitute products in response to price sensitive consumers. In addition, poorly performing market environment

is affecting key customers.

The Corporate Plan will to ensure that the organisation drives digital transfromation in the Fourth Industrial Revolution.

The Company will pursue a diversified growth strategy with a focus on new markets and products in order to achieve

strategic objectives in the MTEF period 2019/20–2021/22. This will be achieved through both organic and acquisitive

growth initiatives. The SENTECH Executive Committee and staff will pursue the defined Annual Performance Plan

with zeal and deliver on the results through its focus on strategy execution.

Mr M Booi Chief Executive Officer

----------------------------------

SENTECH SOC LIMITED

------------------------------------------



ORGANISATIONALIDENTITY,

MANDATEAND STRUCTURE


3. ORGANISATIONAL IDENTITY, MANDATE AND STRUCTURE

3.1. Vision

A global leader in digital content delivery.

3.2. Mission

Connecting customers anywhere through innovative solutions.

3.3. Values

• Integrity: We act ethically, with honesty, fairness and openness;

• Quality Customer Service: We are committed to proactively ensuring high levels of customer satisfaction and building a relationship based on trust;

• Innovation: We endeavour to develop and support creativity and responsible risk-taking;

• Accountability: We deliver on our promises and take responsibility for our actions;

• Social Responsibility: We endeavour to fulfil our mandate in a manner that benefits our employees, customers, suppliers, communities and the environment in all the areas that the Company operates in.

3.4. Legislative Framework

SENTECH’s legislative foundation is the SENTECH Amendment Act, No. 4 of 1999 and it is incorporated as a State-Owned Company in terms of the Companies Act, No. 71 of 2008. The PFMA and National Treasury Regulations published in terms thereof, serve as the Authority for the organisation’s financial reporting requirements. Policies have been implemented to ensure that there is compliance with all relevant legislation. The organisation is further guided by the principles embodied in the King IV Report on Corporate Governance for South Africa and the Protocol on Corporate Governance in the Public Sector, 2002.

3.5. Mandate

SENTECH derives its mandate from legislation, particularly the SENTECH Act and the Electronic Communications’ Act. In 1992, SENTECH was corporatised as a wholly owned subsidiary of the South African Broadcasting Corporation. In 1996, SENTECH Act No. 63 of 1996 was amended, converting SENTECH into a separate public entity responsible for providing broadcasting signal distribution services as a common carrier to licensed television and radio broadcasters.

In 2002, following the deregulation of the telecommunications sector, SENTECH was granted two additional licenses, allowing the Company to provide international voice-based telecommunications and multimedia services. These licenses were converted into an Individual Electronic Communications Network Services (I-ECNS) and an I-ECS, licensed in terms of the ECA.

3.6. DCDT Strategic Goals

In preparing this Corporate Plan, SENTECH is further guided by the DCDT MTSF Strategic Goals for this planning period, which are:

a) Strategic Goal 1: Broadband connectivity that provides secure and affordable access for all citizens to education, health and other government services and stimulates economic development.

b) Strategic Goal 2: South Africa has a modern, sustainable and competitive postal and telecommunications sector.

c) Strategic Goal 3: An Inclusive Information Society and Knowledge Economy driven through a comprehensive e-Strategy and access to government services.

d) Strategic Goal 4: Optimally functional Department and SOCs that effectively deliver on their respective mandates.

3.7. Corporate Goals

SENTECH’s Corporate Goals for the MTEF period are the following:

a) Sustainable business growth.

b) Create digitally connected societies.

c) Achieve excellent customer and stakeholder satisfaction.

3.8. Executive Management

The composition of SENTECH’s Executive Management Team is as follows:

Name Date Appointed Position Highest Qualification

Mr M Booi

15 October 2015 Chief Executive Officer and Executive Director MSc (Electrical Engineering)

Mr TJ Leshope

1 March 2018

Chief Operations Officer and Executive

Director B. Tech (Electrical

Engineering)

Mr S Mthethwa1 December 2016

Chief Financial Officer and Executive Director CA (SA)

Ms R Ramlal2 July 2018

Chief Technology Officer

Master of Business Administration (MBA)

Mr I Segaloe1 May 2016 Chief Strategy Officer MBA (Strategy & Finance)

Mr O Nekhavhambe3 February 2014 Executive: Finance CA (SA)

Ms M Kgari12 June 2017

Chief Marketing & Sales Officer

Master of Business Leadership (MBL)

Mr Z Adams7 August 1995

Executive: Legal & Regulatory BA and BProc

Ms K Motlhabi15 August 2016

Chief Human Resources Officer

BCom (Hons) Industrial Psychology

Ms P Matsane 1 November 2018 Company Secretary LLB

Mr M T Finnis 8 June 2018 Executive: Operations Master of Business Leadership (MBL)

Table 1: Executive Team Profile


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PERFORMANCEREVIEW


4. PERFORMANCE REVIEW

The role of Operations is to ensure service continuity and customer satisfaction through managing signal distribution platforms, maintaining integrity of key infrastructure and associated risks while keeping operational costs minimal.

The performance review covers the Medium Term Expenditure Framework (MTEF) period up to 2018. This includes the implementation of the public service mandate, technology refresh and facilities improvements, human and asset security initiatives, Digital Terrestrial Television (DTT) commercialisation and analogue switch-off, implementation of the energy management strategy and challenges experienced.

4.1. Public Service Mandate Implementation Review

4.1.1 Radio, Television and Internet Connectivity

The organisation achieved 99.92% weighted network availability during the past MTEF period across all platforms. The figure below shows the network performance per service platform for the 2015-2019 MTEF period.

Figure 2: Network Performance per Service Platform

During the past MTEF period, SENTECH steadily sustained service availability across Frequency Modulation (FM), Television and Direct-to-Home (DTH) and a significant improvement in the performance of both Medium Wave (MW) and Short Wave (SW) due to technology refreshes and enhanced service management. However, the Connectivity Services, which refers to Very Small Aperture Terminal (VSAT) communications, has experienced challenges during the 2016 Financial Year (FY) and underperformed.

The Short Wave services complied with the Service Level Agreement (SLA) targets, however, the product is facing revenue challenges. This product can no longer be operationally sustained as the cost of operating the network exceeds the revenue generated. As a result, the product will be discontinued in the 2019/20 FY.

The Connectivity platform will also be expanded to deliver Broadband services, more specifically Fixed Wireless services, to the rural communities.

4.1.2 Technology Upgrades and Facilities Improvement

Over the course of the MTEF period, SENTECH invested in the upgrade and refresh of various technologies with innovative solutions to maintain service continuity and improve efficiencies.

One such example is the upgrade of the VSAT Hub which resulted in the improvement of the Connectivity product performance over the last two years of the MTEF period.

SENTECH also upgraded its standby power plants over the MTEF period which is in line with its Energy Management Strategy.

Facilities improvements is a key operational objective. A new state of the art facility was constructed and completed for the Western Region Operations in Cape Town. SENTECH’s Head Office is also undergoing internal renovations to elevate the working environment for all staff. In addition, the Upington Operation Centre is also being upgraded. This specific project will be concluded in the following MTEF period.

4.1.3 Human and Asset Security Initiatives

Sentech invested in security upgrade initiatives to reduce the impact of theft and asset vandalism. Various CCTV systems were installed at Sentech’s NKP facilities at Brixton, the Western Regional Office and other high sites. Access control systems were upgraded to the biometric access technology. Perimeter fences were upgraded and made more secure at various high sites. The asset management strategy was adopted to control the movement of assets and reduce the loss of assets. Full implementation will commence in the following MTEF financial year.

4.1.4 Digital Terestrial Television (DTT) Commercialisation and Analogue Switch Off (ASO)

SENTECH deployed a digital television network across the country in order to align with the 2006 International Telecommunications Union (ITU) Treaty and the global Digital Terrestrial Television (DTT) migration process. This process enabled South Africa to commence with ASO during the past MTEF and a total of 32 sites have been switched on, entailing 18 Free-To-Air (FTA) and 14 Mnet sites. In alignment with the ASO plan, it is envisaged that the remainder of the sites will be fully migrated to DTT by 2020. SENTECH will continue to maximise DTT service availability throughout the migration process.

Figure 3: DTT Coverage


4.1.5 Energy Management Strategy

SENTECH has adopted an Energy Management Strategy for the management of energy supplies and provisioning of backup energy supplies to the high sites. In this regard, the provisioning and upgrading of Standby Power Plants are key to this reliable autonomy. This strategy also focusses on the reduction of the cost of energy. This refers to migration of the tariffs to more favourable and less costly tariffs from Eskom and the refresh current infrastructure with energy efficient solutions.

SENTECH collaborated with Eskom and identified 55 sites to be migrated, all of which were successfully migrated, resulting in approximately 5% saving on the energy bill. The third tier of the strategy refers to the reduction of SENTECH’s Carbon Footprint. This refers to the rolling out of green energy solutions and conducting a baseline test of its Carbon Footprint.

The solar solution will reduce the reliance on Eskom during day time, resulting in a Hybrid Energy supply solution i.e. Solar, Eskom and Standby plant backup to both. This will have significant savings on the energy bill. Two sites have been identified to kick start this initiative i.e. SENTECH Head Office and Welverdiendt site.

SENTECH solicited the services of an industry professional to conduct the baseline test of its Carbon Footprint. The baseline carbon footprint indicated that its operations have no serious direct emissions which are harmful to the atmosphere, but its energy consumption does impact the global carbon emissions in terms of energy generation by Eskom.

Figure 4: Carbon Footprint Operational, Planning Centres and Infrastructure Services


4.1.6 Operational Challenges

The operation of the network does come with certain challenges that inhibits its ability to provide a high-level service and limits expansion opportunities. The DTT network capacity, which comprises of two Muxes has dedicated allocation of capacity as it is duplicating the current Analogue TV services. SENTECH therefore has no freedom to reallocate capacity to new content providers.

The regulatory environment is also a huge barrier to entry for new content providers on both the FM and TV platforms. The instability of the energy supply to the high sites is a major challenge as it causes service outages which cannot be easily mitigated and reflects poorly on SENTECH’S service availability. The fluctuations in the energy supply, in some cases, causes catastrophic failure of network infrastructure.

SENTECH relies on third parties for linking services from a studio to a transmitter site. SENTECH has limited control over the management of these links. A failure of these links can therefore cripple, for example, a Community Radio Broadcaster as their services will be “off air” for the duration of the fault, causing irrevocable loss of confidence from their advertisers and other sponsors. SENTECH is working on partnership models with such service providers to ensure that preventing service outages is a high priority for them as well.

The scourge of copper theft and vandalism of the network infrastructure on the high sites has, in some cases inhibited the organisation’s ability to deliver services to its customers. This has a huge financial impact and has brought about a security risk for the organisation. Certain sites are now deemed unsafe and dangerous to attend to during night time. This has resulted in the organisation incurring costs of the provisioning of security measures on site, which depletes the bottom line.

4.2. Financial Performance Review

4.2.1 Overview

The 2017/18 financial year was a challenging one for SENTECH, the broadcasting sector and the entire ICT industry. This was mainly caused by the weak South African and global economy. The impact on the broadcasting sector was lower than anticipated advertising revenue, which put pressure on existing and new broadcasters, in both radio and television. For SENTECH, there were delays in expansion programmes for existing customers and servicing of new ones, including DTT migration. Thus, some of the capital expenditure was either postponed or reduced in line with changing business requirements and cost containment measures.

Efforts to build a financially sustainable company within the overall financial strategy continued during the financial year. Significant progress was made in streamlining business processes, creating an agile organisation and implementing initiatives that positively drive Shareholder value, including diversification of revenue in the medium- to long-term period, to sail through the volatile trading conditions.

ForecastFY2019 FY2018 FY2017 FY2016

R’000 R’000 R’000 R’000

Turnover 1 401 242 1 349 590 1 232 619 1 179 253

Gross profit 207 490 360 342 234 169 326 885

Gross profit margin % 15% 27% 19% 28%

EBIT 144 060 141 990 33 955 196 144

EBIT margin % 10% 11% 3% 17%

Net profit 161 122 152 792 104 153 199 803

Cash generated from operations 121 756 (102 993) 133 482 161 540

Cash balances 1 036 309 916 149 907 357 957 242

Net asset value 2 081 136 1 920 014 1 767 472 1 662 603

Table 2: Salient Features-31 March 2018


Figure 5: Historical Trends and Forecast (2016-2019)

4.2.2. Key highlights on 2017/18 financial year performance

Gross profit and Earnings Before Interest and Tax (EBIT) have improved from the prior year. The main reason for this was growth in revenue, the favourable ZAR/US$ exchange rate which had a positive impact on the satellite costs, marginal increases in preventative maintenance and reduction in the provision for doubtful debts i.e. from R27million prior year to R9million in 2017/18. SENTECH could fill some of the critical vacancies to position the Company for growth and strengthen some of the areas which are important for the improvement of the overall efficiency of the organisation. There was deliberate effort to preserve cash throughout the financial year. This was achieved by reprioritising capital expenditure, and executing only the most critical projects in line with cost containment measures implemented in the 2017/18 financial year.

Despite the pressures of the main customer having challenges of servicing the account, the Company closed the year with a cash balance of just above R900 million. The financial position of the Company improved from prior years, demonstrated by the net asset value of the Company which increased from R1.7 billion in the prior year to R1.9 billion in 2017/18 due to sustained profitability. The Company remains solvent and liquid with solvency with no debt in the balance sheet.

4.2.3 Outlook

The coming financial year and the remainder of the MTEF period will be challenging for SENTECH and the broadcasting industry, given the forecasted economic climate. The South African economy grew by approximately 1.3% in 2017 and it is forecasted to marginally improve in the next two years which means that it is unlikely there will be much recovery in the advertising revenue throughout this period for SENTECH’s key customers. The Company has worked tirelessly with its customers despite the challenging economic climate and anticipates that the initiatives put in place will yield stabilisation and much needed improvement in the operating cash flows.

SENTECH will continue to streamline processes, strengthen business development, execute capital projects aimed at growing revenue, contain costs and diversify revenue. The focus for the 2019/20 financial year will be:

• Growing the managed infrastructure services and connectivity services business

• Identify possible acquisition targets

• Execute the Pan-African Business Strategy

• Develop a funding plan for both acquisitions and the Pan-African Strategy.


4.3. Product Performance Review

The table below indicates that the TV and Radio businesses have been growing at a steady inflationary rate. The product performance overview shows DTH performance increased in 2015, even though subsequent performance indicates reduced growth with a marginal increase in 2017 due to market fluidity. SW revenue continued to decline due to technology obsolescence and decreasing service demand. Connectivity has been in the decline and showed a positive increase in 2017. Facilities rentals has shown steady revenue growth over the period. During the 2018/19 financial year, SENTECH continued to monitor its products and services performance to ensure business sustainability into the future.

Product Portfolio 2015 2016 2017 2018Forecast

2019

TV 6.7% (2.3%) 3.6% 8.4% 6.4%

FM 9.1% 20.6% 9.7% 6.8% 5.9%

MW 5.5% 14.0% 4.0% 28.0% (9.3%)

SW 24.5% 14.2% (11.2%) 9.9% (8.5%)

DTH 76.1% 35.7% 8.9% (6.3%) (2.4%)

Facilities Leasing 16.0% 10.1% 10.7% 8.1% 5.1%

Connectivity (20.8%) (40.3%) 12.2% (1.1%) 15.8%

Table 3: Product Performance Review and Forecast (2015-2019)

4.4. Corporate Governance Review

The practice of sound governance informs SENTECH’s daily business activities and is a prerequisite for the achievement of the Company’s objectives. Governance assures our stakeholders that SENTECH is well managed and operating with integrity and accountability. Towards this end, SENTECH ascribes to the King IV Report on Corporate Governance for South Africa, 2016 (King IV). SENTECH is focused on creating sustainable value that positively impacts our business, our people and society, and our environment.

SENTECH is committed to instilling a culture of ethics throughout the Company and to proactively identify fraud and corruption, and risks impacting on its performance objectives.

SENTECH continues to receive unqualified financial audit opinions and nil reportable findings with respect to achievement of predetermined objectives, compliance with legislation and the effectiveness of the internal control environment.

4.5. Human Capital Review

Attracting and retaining top talent remained a key strategic focus area for the 2018/19 MTEF period whilst effectively managing staff costs.

A three-year Employment Equity Plan is developed to drive transformation and gender representation across all levels. The table below reflects the organisation’s employeement equity status.


MALE FEMALE

OCCUPATIONAL LEVEL African Coloured Indian White African Coloured Indian White

Total

Top Management 5 1 1 0 2 0 1 0 10

Senior Management 8 0 1 2 8 0 0 0 19

Professionally qualified and experienced specialists and mid-management 46 5 2 17 23 2 1 4 100

Skilled technical & academically qualified workers, junior management, supervisors foremen and superintendents

123 12 10 41 106 4 3 6 305

Semi-skilled & discretionary decision-making 21 1 0 0 20 5 2 4 53

Unskilled & defined decision-making 37 6 0 0 3 0 0 0 46

TOTAL PERMANENT 240 25 14 60 162 11 7 14 533

Table 4: Employment Equity Status

For the MTEF period 2018/19, the current budget for skills development will result in a spend of 3% of Payroll to a target of 6%.

A total amount of R4,5 million has been allocated for the University Collaboration programme, with each of the three institutions

receiving R1,5 million. This will improve the Corporate Social Investment spend. The Workplace Skills Plan (WSP) for 2018/19

includes 1 751 planned courses of which 85% is the minimum delivery target with a focus on digital skilling and transformation.

Training Amount

Staff training Invested R18m for Training

Research and bursary support Invested R4,5m for University collaborationInvested a total of R2m for internal bursary

Internships Invested R2m for the internship programme

Total Skills Development Spend R 20m invested for Skills Development

Table 5: Training Spend



SENTECH continues to strive for zero fatalities and injuries in the workplace by promoting a culture of employee wellness and

safety. Injuries on duty continues to be closely managed through awareness campaigns and training. Research shows that culture

distinguishes organisations. More and more, employees look for organisations with a culture that fits their own values and

preferences. For the MTEF period 2018/19, SENTECH will focus on the implementation of organisational-wide culture change

programmes to drive a culture of innovation, customer centricity, efficiency and leadership excellence. SENTECH will continue to

develop our leaders and review our leadership initiatives to ensure leaders are able to respond to the new challenges brought

about by changes in the environment.

SENTECH, like many organisations, is facing intense talent shortages resulting from scarcities in critical skills, accelerating retirements,

technological developments and increased turnover in critical skills. Essential to SENTECH’s success is the ability to implement an

integrated talent management strategy across all levels.

SENTECH has a recognition agreement with the Communication Workers Union (CWU), as the majority union within the workplace.

CWU currently has 53.35% representation in the workplace and National Union of Metalworkers South Africa (NUMSA) has 26.11%.

The relationship with the unions has improved significantly over the years. A healthy relationship and partnership between

management and the unions is crucial for the achievement of SENTECH’s strategic objectives.


MARKET OUTLOOK MTEF

2019/20 - 2021/22

5. MARKET OUTLOOK: MTEF 2019/20 – 2021/22

The market outlook provides the context in which the corporate strategy and plan was developed. It includes an analysis on policy and regulatory framework affecting the organisation. This section also includes an outlook on the entertainment and media industry trends.

5.1. Policy and Regulatory Framework

The scope of services regulated under the ECA legislative framework has greatly expanded due to digital transformation of all industries. The transformation process has created regulatory and legislative challenges consequent of the digitalisation of services and/or products. Legislative amendments currently considered by Parliament seeks to create an inclusive telecommunications industry by striving to remove infrastructure as a barrier to entry. The interpretation is that legislative framework seeks to move beyond traditional issues of technology convergence and competition. There is a concerted need to start elevating spectrum with respect to socio-economic concerns of social growth, social inclusion, economic growth and social development.

5.1.1. 700MHz and 800MHz Band

The President’s commitment and support for the imminent licensing of high demand spectrum, 700/800/2600 MHz, exerts pressure on the terrestrial broadcasting industry. The anticipated analogue switch off (ASO) of July 2020 will not yield digital dividend I and II for exclusive usage by International Mobile Telecommunication (IMT) services. It is imperative that the Regulator considers co-sharing of spectrum on a secondary and non-interference basis, between terrestrial broadcasting and mobile services, until digital-to-digital migration has been successfully completed. It is therefore crucial that there is an understanding and expectations are managed regarding exclusive availability of digital dividend I and II.

It is important to note that activities leading to the World Radiocommunication Conference 2019, has seen increased pressure for Regulators to not only release 700/800 MHz bands, but to also introduce mobile services, particularly IMT, in the band 3600 – 3800 MHz within the borders of South Africa. The Regulator is also considering the introduction of broadband fixed wireless access (BFWA) in the 3600 – 4200 MHz band. The SENTECH distribution network is primarily dependent on the C-band (3600 – 4200 MHz) for the delivery of content to national transmitter sites.

5.1.2. Broadcasting Framework

Based on the industry discussions on the issues affecting all spheres of broadcasters, SENTECH expects the Authority to initiate section 67 (ECA) process. This is in line with a number of issues raised during the Discussion Document on Regulatory Framework for Community Broadcasting Services, Discussion Document on Digital Sound Broadcasting and Colloquium on Public Broadcasting Policy Review. Therefore, it is expected that the Broadcasting Act maybe considered for review and the Draft Audio and Video Policy finally gazetted for public comments. Additionally, the Digital sound broadcasting policy direction will be finalised and gazetted before or in the next financial year.

As at 15 December 2018, the Regulations on the protection of the Karoo Central Astronomy Advantage Areas in terms of the Astronomy Geographic Advantage Act 2007, will come into effect. The coming into effect of the regulations in the Karoo Central Astronomy Advantage Areas will impact the operations of the DTT network.


5.1.3. Outlook into the next financial year 2019/20

The 2019/20 financial year will likely prove to be an active period for SENTECH. A number of external activities will impact on the

Company’s resources and strategic plans, inter alia:

• Ensuring compliance with the Regulations on the protection of the Karoo Central Astronomy Advantage Areas in terms

of the Astronomy Geographic Advantage Act 2007

• Public discussions on SENTECH’s tariff model (audio and video)

• Invitation to apply (ITA) for the Wireless Open Access Network (WOAN) consortium

• Regulatory process for licensing of digital sound broadcasting (DSB) services

• Gazetting of the Draft Audio and Visual Policy for public comments

• Gazetting of the Amended ECA

• Initiating the Studio Transmitter Link (STL) migration process

• Phased ASO

• Migration of e.tv terrestrial services to DTH.

5.2. Global Broadcasting Context

The following outlines developments in the global broadcasting environment that were taken into consideration as part of a market

analysis. The trends were adapted from the PwC Entertainment and Media Outlook 2018 to 2022.

Many sectors of the Entertainment and Media (E&M) ecosystem are showing stagnant or even declining growth. Similarly,

telecommunications companies face stagnant core businesses and are looking at E&M as a growth driver of new products, services

and enhanced customer experiences. As a result, data analytics and technology that can support better decision-making with

respect to content, distribution, user-experience and monetisation have become increasingly critical to success in the E&M industry.

Technology is enabling cheaper and more personalised content delivery; thus, driving cost efficiency is an important element of

future viability. PwC’s ‘essential eight’ is a set of technologies that every organisation, within E&M and beyond, must consider in

formulating its technology strategy. This presents various considerations for SENTECH such as creating cloud computing capability

connected to Internet of Things (IoT) infrastructure and AI micro services to deliver Augmented Reality (AR)/Virtual Reality (VR)

and blockchain technologies.

5.2.1. Fourth Industrial Revolution

The Fourth Industrial Revolution has begun and will continue to have an impact on organisations and society at large. The essential

eight reflects the Fourth Industrial Revolution (4IR) and implies that SENTECH needs to ensure it forms part of its strategy, in

particular, through innovation by creating new products and services traversing into existing and new markets too.


Figure 6: PwC ‘essential eight

The Fourth Industrial Revolution will have impact on the following:

• Efficiency:

Personal and societal growth with greater interactions and impacts through the use of technology (such as freeing up time by automating menial tasks and self-driving vehicles). At an industrial scale, robotics will increase replacing human jobs.

• Security threats:

As the world become more digital, our security vulnerabilities increase.

• Changes in equality :

4IR will bring both quality of life but also promote gender equality with automation of tasks at home, freeing up time for woman at work. In the South African context, the divide may increase.

• Skills gap: The skills to survive in 4IR by 2020 are changing with Complex Problem Solving topping the leader board. Other skills include Critical Thinking, Creativity, People Management, Coordinating with Others, Emotional Intelligence, Judgement and Decision-Making, Service Orientation, Negotiation and Cognitive Flexibility.

Source: PwC ‘essential eight Entertainment and media outlook: 2018–2022, An African perspective, PwC, Ovum, www.pwc.co.za/outlook’ ‘


5.2.2. Media and Entertainment Global Trends

The figure below indicates a significant forecasted (2017-22) compound annual growth rate (CAGR) of more than 40% for virtual

reality (VR) followed by Over-The-Top (OTT) at 10%. TV and Radio, where SENTECH operates, is showing a CAGR of less than 5%.

This implies a threat to SENTECH business.

Figure 7: Segment compound annual growth rate (CAGR) for the next 5 years

Global trends in the entertainment and media will require companies operating in the industry to review their strategies. For instance, virtual MultiChannel Video Programming Distributors (vMCVPD) are providing linear TV via the internet with skinny bundles (holds 20% of the US market). Media companies are going directly to consumers (e.g. Disney acquiring its own tech company and ditching Netflix).

Content is still king – consumers want the exclusive content, video on demand – anywhere, anytime. Entertainment companies are going into streaming whilst Internet/telco companies are fighting for content (sports rights) for streaming. OTT companies are fighting to keep content whereas the content providers are starting their own platforms (DTH e.g. Disney). Radio companies are now streaming. Google/Youtube and adtech companies are providing Out of Home (OOH) advertising, news companies are becoming media companies (hiring video experts and VR teams). There is opportunity to optimise content for mobile and binge watching. Short content bursts will grow.

Targeted advertising (hyper targeting) is another key growth opportunity (data analytics and personalisation) – augment it with social media data. On demand purchasing during the advert (payment portals become key).

Virtual Reality/Augmented Reality to be incorporated into media and entertainment. eSports – multiplayer gaming is a growing segment. 4K video – high quality grows as more 4K TVs are sold.

Autonomous vehicles (not too distant future) will need media delivery devices. 5G will undoubtedly accelerate content consumption. AR/VR applications will grow on this technology. Wearables will be key for health and wellness. There is growth through M&As – convergence of ICT, telecoms, video entertainment.

5.2.3. Africa Entertainment and Media Outlook

The Middle East and Africa revenue growth indicates a decline from around 12% in 2014 to almost 7% by 2022. The EMEA revenue remained below 5% and will continue to do so by 2022. South Africa E&M revenue growth is above the EMEA’s 5% but below the Middle East and Africa. There is overall revenue growth forecast in all the regions of below 10% by 2022.

Source: PwC ‘Global Entertainment and media outlook: 2018–2022, PwC, Ovum


Figure 8: Africa Entertainment and Media Outlook for the next 5 years

5.2.4. Selected African countries

From the selected Africa countries of South Africa, Nigeria, Kenya, Ghana and Tanzania, an E&M collective revenue of US$12.4 billion is forecasted in 2022.

Figure 9: South Africa, Nigeria, Kenya, Ghana and Tanzania: Total E&M revenue, 2013-2022 (US$ millions)

The above selected African countries are of interest to SENTECH for entry to African markets, especially in the east, Kenya and Tanzania.

Source: Entertainment and media outlook: 2018–2022, An African perspective PwC, Ovum,

Source: Entertainment and media outlook: 2018–2022, An African perspective PwC, Ovum,


5.2.5. South Africa: E&M revenue (R millions) and year-on-year growth (%), 2013–2017

Sources: Entertainment and media outlook: 2018–2022, An African perspective, PwC, Ovum, www.pwc.co.za/outlook

Figure 10: South Africa: E&M revenue (R millions) and year-on-year growth (%), 2013–2017

The South African E&M experienced a spike from 6% in 2014 to 12.8% in 2015 as a result of internet access growth. However, a steady decline to below 8% started in 2016 towards 2017. A 7.6% year-on-year growth is anticipated with CAGR of 6.5% or R177.2 billion forecasted in 2022.

5.2.6 South Africa: Internet advertising and TV advertising


Figure 11: South Africa: Internet advertising and TV advertising


Whilst TV remains the largest advertising segment, Internet advertising is projected to exceed TV in absolute growth - R4.3 billion against R1.5 billion. By 2022, Internet advertising is projected to surpass TV advertising for the first time. The emphasis for SENTECH is to move to OTT platform for content distribution, enabling its customers to grow advertising revenues.

5.2.7 South Africa: Radio market (R millions) and year-on-year growth (%), 2013–2022


Figure 12: South Africa: Radio market (R millions) and year-on-year growth (%), 2013–2022

The total radio market in South Africa is set to rise at a 3.9% CAGR over the next five years and would be worth R5.2 billion by 2022. This may indicate the pressure that traditional radio is experiencing as consumer preferences shift to using online streaming services. This creates a need for digital strategies aimed at exploring the trajectory within the tablet and smartphone market in order to bolster listenership and advertising growth in the long-term.

5.2.8. Broadband Market Outlook

The mobile internet sector which dominates the South Africa broadband market, enjoying 90.9% of the total internet access revenue, is forecasted to grow by 11.5% CAGR to R70.3 billion by 2022. Fixed broadband access, especially in the 10-30Mbps brackets, is to increase to 22% of households in 2022 with forecasted revenue close to R10 billion. SENTECH is positioning itself to play in the fixed wireless broadband market by leveraging on its network deployment capabilities and high sites.

Figure 13: South Africa: Fixed and Mobile Internet Access Revenue 2017-2022 (R millions)


The South African fixed broadband penetration was at 14% in 2017 and projected to increase to 22% by 2022. This indicates opportunity growth in this market.

Figure 14: South Africa Fixed Broad Penetration

5.2.9. Opportunities and challenges for SENTECH

• Revenue diversification in the digital media market

• Upskilling of employees on digital skills and new technologies to address the rapidly changing consumer needs and align to the demands of the Fourth Industrial Revolution

• The development of innovative products and services relevant to both existing and new customers.



CORPORATESTRATEGY


6. CORPORATE STRATEGY

SENTECH has developed a corporate strategy that responds to challenges and the changing market conditions as discussed in section 5 above.

SENTECH’s strategy is to defend traditional broadcasting revenue streams, whilst pursuing diversified revenue and profitability growth by offering wireless broadband solutions and innovative digital content delivery to new markets; through operational excellence, strategic partnerships and acquisitions enabled by a high performance culture.

To address the current challenges the organisation faces, SENTECH has adopted an ‘enhance and fly’ approach to create a ‘SENTECH of the future’. ‘Enhance’ denotes all activities required to strengthen the core whilst ‘fly’ refers to all activities required to position the organisation for the future.

SENTECH’s traditional core business has been broadcasting signal distribution in South Africa which contributes 94% of gross revenue through TV and Radio. The 5% comes from Facilities Leasing whilst the remaining 1% from connectivity services through VSAT.

In line with the its growth strategy, the organisation will focus on revenue diversification where content and media will make up 40% or revenues infrastructure, and connectivity will generate 60% of revenues underpinned by building broadband capability and innovation.

6.1. Seven Strategic Pillars

The Corporate Strategy is aimed at ensuring sustainable business growth. The strategy considers the need for revenue growth in the context of technology disruptions, the future of broadcasting, changing consumer behaviour and socio-economic transformation imperatives.

Figure 15: SENTECH’s 7 Strategic Pillars

STRATEGIC PILLAR 1: GROWTH

Growing our revenue is critical to ensuring the sustainability of our business. This will be achieved by implementing the following:

• Pursue mergers and acquisitions. Growth through acquisitions of complementary businesses and assets will be pursued in the next three years. This will be done to diversify revenues by seeking opportunities hat will accelerate revenue growth. The acquisition strategy considers the strength of SENTECH’s balance sheet, optimal capital structure (debt/equity), risk appetite, funding models, due diligence and acquisitions required in terms of the PFMA.

• Form strategic partnerships for opportunities. Building strong partnerships is key to growing SENTECH’s business for mutual benefit, risk mitigation and synergies. These partnerships will be formed for implementation of specific projects, products and innovation, and for entry into the Pan-African and international markets.

• Establish wireless broadband business. SENTECH will build and deploy broadband wireless for B2B focusing on public sector with targeted technologies such as High Capacity Microwave links and connectivity services.

• Expand to Pan-African markets. SENTECH will expand its business to selected African countries to provide broadcasting services such as DTT solutions, project management and consultancy services.

STRATEGIC PILLAR 2: INNOVATION

As a technology company, SENTECH is positioning itself to lead innovation in broadcasting and digital solutions. Innovation is a strategic area of focus given the disruptive nature of the technology industry and global trends. The following will be executed:

• Lean Start-Up Programme. Aligned to the SENTECH Way culture, the organisation is embarking on this programme to explore and introduce a new approach to developing products and offerings, utilising Lean Start-up and Design Thinking and Agile Methodologies.

• 5G Trials. To introduce mobile communication capabilities and stimulate connectivity business.

• Establish SENTECH Innovation Centre. To create an environment for research and innovation within SENTECH and in partnership with reputable industrial and technology research institutes. This will also include participation in technical forums and thought leadership.

STRATEGIC PILLAR 3: CUSTOMER CENTRICITY

Customer orientation and focus will remain the key strategic thrust and will be achieved by attaining the following:

• Customer engagement. By ensuring customer relationship management (CRM) is in place to register customer queries andmaintain the Service Level Agreement (SLA), a speedy response to customer needs will be ensured.

• Innovative initiatives. By being innovative; living up to its brand promise resulting in enhanced customer expectations.

• eCommerce channel initiatives. To bring about efficiencies in doing business such as easy access to SENTECH’s product offering and reducing operational costs.

• Tariffs review. SENTECH will ensure a competitive pricing model for its product offering.

• Market and customer intelligence. An in-depth understanding of market trends and consumer behaviour and needs to ensure that SENTECH exceeds customer expectation.

• Network availability. A reliable and available network is core to SENTECH’s business. Maintaining an average weighted available network of 99.80% over the years has been the Company’s key success and it will continue to deliver for all its TV, FM, MW, SW and DTH products.


STRATEGIC PILLAR 4: CULTURE CHANGE

Core to achieving the strategic objectives and implementing the strategy is the need for a shared culture for SENTECH.

• Leadership Excellence. This is meant to drive a commitment of high performance through energising, engaging and enabling teams.

• Develop Digital Skills. To unlock the organisation’s ability to adequately respond to the market and customer needs.

• Living the SENTECH Way Initiative. As part of creating a culture that promotes accountability, cross collaboration, leadership excellence and innovation, SENTECH has implemented ‘The SENTECH Way’ which encapsulates the behaviours that enable strategy focus and execution throughout the organisation.

• Creativity Time Initiative. This approach enables teams to explore idea generation, conceptualisation and realisation, with the intent of driving an innovative culture.

Sources: Adapted from various culture models i.e. (Shingo Institute, Vadin Kotelnikov and Bersin)

Figure 16: SENTECH Way

STRATEGIC PILLAR 5: TRANSFORMATION

• The Socio-Economic Transformation Strategy is aimed at redressing the triple challenges of unemployment, poverty and inequality. Focus will be on executing the following:

• Enterprise Supplier Development. Through the Enterprise and Supplier Development Programme, the Company will ensure compliance with ICT codes by providing both financial and non-financial support to qualifying Small Medium Micro Enterprises (SMMEs) in the ICT sector. The support will be in the form of preferential procurement, allocated budget of Net Profit After Tax (NPAT) spend on enterprise development and financial grants.

• Corporate Social Investment (CSI). SENTECH will continue living its values of social responsibility and being a good corporate citizen by supporting CSI initiatives and collaborating with relevant stakeholders. Initiatives such as Mandela Day, SENTECH Chairman’s Charity Fund Raising Golf Day, and others that make a difference in the lives of underprivileged groups and individuals, will be implemented in partnership and with minimal cost to the Company. SENTECH’s role will be to mobilise resources and volunteers to give their time and energy in support of such good causes.


• Socio-economic Development. SENTECH will pursue programmes that seek to advance the social and economic status of our host communities.

• Skills Development. To sustain a learning organisation, SENTECH continues investing in its people by supporting employee personal development, internal capability building, enhance business competencies, and cultivate a culture of innovation and high performance.

• Employment Equity. SENTECH strives to ensure equitable demographic representation across all occupational levels and categories and ensure equal opportunity and fair treatment in the work place.

STRATEGIC PILLAR 6: OPERATIONAL EXCELLENCE

This is aimed at streamlining processes and systems to increase productivity, cut inefficiencies and improve profitability. The following will comprise the efficiency drive:

• Workplace Digitisation. In line with industry 4.0 advancements, SENTECH will focus on enhancing its digital skills capabilities, supported by an enabling environment to promote agility in responding to customer and market needs.

• DTT Network Stabilisation. The organisation will ensure continued maintenance of the DTT network and service availability throughout the migration process.

• Cybersecurity Initiative. To improve proactive ICT security visibility and access control vulnerability management detection processes.

• Develop Project Management Capabilities. The organisation will develop the identified project management capabilities to ensure delivery of projects on-time, at the right quality and within budget.

STRATEGIC PILLAR 7: REPUTATION

The way in which SENTECH conducts its business is affected by and affects a range of stakeholders. Reputation management is a key strategic imperative that is central to the Company’s sustainability. To ensure good reputation and stakeholder management, the Company will embark on the following:

• Stakeholder Management Initiative. Stakeholder engagement has become central to how business is done at SENTECH. Through the implementation of the stakeholder management strategy, engagement will continue with stakeholders such as the Shareholder, regulators, employees, organised labour, customers, suppliers, government and agencies, public, media and social partners.

• Performance Information Management. The organisation will continue to ensure quality performance information management through its monitoring and reporting.

• External and Internal Communications. Enhance both internal and external communications to ensure that the right message reaches target audiences at the right time.

• Brand Management. The SENTECH brand will be positioned in the minds of stakeholders, nationally and on the continent, as a leading, innovative, agile, caring, transforming, employer of choice and a successful enabler of broadcasting and digital content. The SENTECH brand will be visible and likeable. Investment will be made in understanding our stakeholder perceptions, building the brand through various brand initiatives, including public relations, promotions, website and social media.

• Ethics Training. This will be done to augment the organisation’s commitment to instilling a culture of ethics and to proactively identify fraud and corruption, and risks impacting on its performance objectives.


6.2 Business Model

The current business model places emphasis on across-the-board research, development and innovation. The model has products and services focused in three categories, namely, Content and Multimedia Services, Infrastructure Management Services and Connectivity Services as shown below in Figure 17.

Figure 17: SENTECH Business Model

6.2.1 Content and Multimedia Services

Content and multimedia services cover broadcasting signal distribution services, direct to home and business television delivered via satellite. There are other value-added services that form part of this service, such as OTT, broadcast monitoring and syndication and Hybrid Broadcasting (e.g. HbbTV and Hybrid Radio), to which the SENTECH Product Development Blueprint OTT will be fully commercialised during this MTEF period.

Terrestrial Television

Analogue Television (ATV) signal distribution remains the major revenue contributor for SENTECH. The service revenue projection for the MTEF considers implementation of DTT and will remain linked to inflation tariff increases. Since the announcement of the performance period by the Minister of Communications, the Square Kilometre Array (SKA) in the Northern Cape and Free State has been fully digitised through the implementation of the ASO Regional Plan, which will continue during the performance period. The future sustainability of SENTECH is intricately linked to the successful launch and mass household uptake of the FTA commercial DTT service. To assist broadcasters with their migration requirements, SENTECH has developed an ASO tariff model that has components of both analogue and digital tariffs and will be implemented in line with the Regional ASO Plan.

Growth of DTT is anticipated based on the licensing of additional broadcasters on the third Multiplex (MUX 3). SENTECH will leverage its existing capabilities to enable licensed future DTT customers to reach the market quicker. Potential broadcasters will be engaged on this multiplexer to enable the completion of the network build programme in accordance with the licensing conditions.


Business Radio and TV

SENTECH’s business television and radio services currently operates in a linear environment. The evolution of the product will create a multi-platform environment, where business communications services, at store level, are available on multiple devices for consumers to interact with their retailer of choice. Services on offer will be traditional satellite broadcasting, push Video-on-Demand (VOD), live streaming and Internet Protocol Television (IPTV). Engagements with existing Business Television (BTV) and Business Television and Radio (BTR) customers will take place in the 2019/20 financial year for potential migration to a digital media services platform.

Direct-to-Home (DTH)

Content Platform Applications

It is envisaged that the future growth of the DTH market will be driven by multi-channel bouquet operators. SENTECH will continue to provide an open access and inter-operable DTH platform, with a focus on super programme aggregators. This approach will see SENTECH provide an array of services along the broadcasting value chain ranging from, but not limited to, up-linking, multiplexing, encoding and transcoding to playout.

Business Applications

SENTECH will continue to explore the enhancement of the BTV offering with solutions such as digital signage beyond linear DTH. This will provide businesses with flexibility regarding their in-store or in-campus advertising and communication.

Audio-Visual OTT/On-Demand Services

SENTECH recognises a growing trend for partnerships between platform providers, broadcasters, media companies and network operators in providing OTT services. As such, SENTECH has an objective of offering the OTT service as a value-added service to broadcasters and customers. SENTECH has fully explored how best to support players in enabling them to provide services such as catch-up, streaming and video-on-demand, and will work to assist broadcasters and other players to fulfil the growing demand from consumers.

Audio-Visual Value-Added Services

Hybrid broadcasting and smart TV platforms are proving to be a good opportunity for broadcasters to provide additional engagement for consumers. In 2015, Digital UK and Freeview co-developed and launched Freeview Play, which is a Hybrid broadcast broadband TV (HbbTV) service. HbbTV and SmartTV platforms allow broadcasters to offer applications such as catch-up TV and streaming video, as well as radio.

Hybrid radio presents broadcasters with an opportunity to keep the audience more engaged and offer more interactivity, with services such as voting songs up or down in popularity, cover art, the ability to find out more about what is playing and seamless switching between the broadcast signal, e.g. FM and internet streaming where there is poor to no coverage.


SENTECH will continue to develop and implement hybrid broadcasting platforms and support technologies to enable broadcasters to exploit the opportunities introduced by these platforms.

Broadcast Monitoring and Syndication Value-Added Services

The broadcast monitoring platform will enable a broadcaster to track on air advertisements (ads) automatically for competitive analysis, ads verification, validate ad placement or regulatory purposes. It will also allow broadcasters to archive content monitored, analyse what content brings the highest number of viewers/listeners, monitor broadcast quality and ensure ad duration accuracy.

Broadcasting syndication platform will enable authorised broadcasters to broadcast television or radio programmes by multiple television/radio stations without going through a broadcast network. The three main types of syndication are First-run syndication, where a programme is broadcast for the first time as a syndicated show and is made specifically to sell directly into syndication. The Off-network syndication where a programme that originally aired on a network is licensed for broadcast on another network. The Public broadcasting syndication is where competing broadcasters share resources and rebroadcast each other’s programmes.

FM Radio

SENTECH will continue to optimise the FM radio network to improve availability to guarantee advertising revenue for broadcasters and the quality of service for listeners. SENTECH operates a network comprising 285 transmitter sites to provide FM radio signal distribution services to the public and commercial and community broadcasters, using a radio frequency spectrum between 88 MHz and 108 MHz. This transmitter network supports 18 public radio services, 20 commercial radio services and 135 community radio services.

SENTECH is committed to increasing accessibility to community broadcasters by continuing with provincial workshops with the participation of key stakeholders including Independent Communications Authority of South Africa (ICASA), the Media Development and Diversity Agency (MDDA), the Department of Communications and Digital Technologies (DCDT).

Given the moratorium on community sound broadcast licensing, SENTECH anticipates fewer community broadcasters being licensed in the 2019/20 financial year, however, SENTECH is committed and remains ready to enable broadcasters as they are licensed, to increase universal access. The viability of community broadcasters, however, remains a challenge that affects the organisation’s business as a provider of signal distribution services. Several engagements have been held with stakeholders such as the DCDT and MDDA to identify appropriate solutions and models for the struggling community broadcasters’ market.

Furthermore, SENTECH will continue to engage the commercial broadcasters, licensed in secondary markets, with the objective of rolling out their networks as soon as they are ready. SENTECH will also continue to offer network optimisation solutions to existing commercial broadcasters. This will allow broadcasters to determine appropriate, differentiated service levels in line with their business objectives. Enhancements that will allow multiple-platform access to broadcast content will be offered to customers.

For the public broadcaster, the South African Broadcasting Corporation (SABC), SENTECH intends to rollout the remaining radio services through the FM and Language Expansion Project, in line with the public broadcaster’s strategic objectives. FM expansion aims to diversify radio language services across all provinces. Network access redundancy options will also be offered to the public broadcaster. SENTECH, together with the public broadcaster, intends to analyse the transmitter sites infrastructure and equipment with the aim of developing SLAs per site which might result in sites upgrades in line with the public broadcaster’s strategy.

Value-added services, such as, distributed dynamic Radio Data System (RDS) and internet audio streaming platform services, broadcast monitoring and syndication will be developed over the MTEF period and the rollout of Digital Audio Broadcasting (DAB+), once commercially available (after ASO), will offer further opportunities for growth.

SENTECH will work closely with industry partners to review other emerging digital technologies and assess feasibility to deliver digital services within the existing FM spectrum capacity.


DAB+

SENTECH, in conjunction with the National Association of Broadcasters (NAB) and the South African Digital Broadcasters Association (SADIBA), successfully completed a technology trial of DAB+ transmission in Gauteng in November 2015.

We believe DAB+ to be a key growth area for the radio business, as it unlocks numerous opportunities for new and existing broadcasters. It is envisaged that DAB+ will exist alongside analogue FM radio for the next 10 to 15 years. The product development blue print for digital radio will commence during 2019/20 to ensure rollout readiness, should the regulator start the application process during this MTF period.

MW Radio

MW radio broadcasting signal distribution services are provided over eight transmitter sites, using the radio frequency spectrum 535,5 kHz–1606,5 kHz. This transmitter network supports two public broadcaster radio services, two commercial radio services and five community radio services.

Growth projections for MW are informed by the commercial MW licenses issued by ICASA and the on-boarding of a self-providing commercial MW broadcaster. Further growth is dependent on the evolution of MW from analogue to digital standard Digital Radio Mondial

(DRM) MW. Digital radio broadcasting will serve as a spectrum-efficient, high quality option for broadcasting. SENTECH completed a DRM MW trial for Radio Pulpit, using a low-profile antenna that showcases the technology.

SW Radio

SENTECH’s mandate is to provide universal access to electronic communication services and electronic communications network services. During this MTF period, SW will commence the digital evolution including the phase out of analogue SW. The commercialisation of DRM30 aims to address the high support and maintenance costs associated with the current analogue SW platform.

6.2.2 Managed Infrastructure Services

SENTECH has built up strong capabilities in network design, deployment, monitoring, operation and support and maintenance. This knowledge, skills and experiences are the ideal foundation from which SENTECH offers network infrastructure management services and third infrastructure leasing on and/or to other network owners. The facilities leasing and managed services offerings are collectively referred to as Managed Infrastructure Services.

Facilities Leasing

SENTECH operates approximately 330 terrestrial signal distribution sites and a satellite platform to provide signal distribution services for television and radio. Site-sharing facilities are provided to public and private telecommunications service providers for various communication services on more than 148 of SENTECH’s transmitter high-sites to capitalise on the infrastructure investment.

The high-sites are situated at different locations with different heights, to satisfy customer coverage needs throughout South Africa. The network infrastructure is continually operated and maintained to ensure reliability and availability of services and long-term operations continuity. Our facility leasing now includes equipment monitoring, equipment installation, first level support and active and proactive maintenance of passive equipment e.g. Aircons, container and generator.

NASREC Data Centre

SENTECH currently manages two major data centre facilities; a primary data centre in Honeydew and a secondary facility in NASREC, providing an underpinning service for broadcasting services product suite as well as delivering a data centre hosting service. As part of the Facilities Management Network Growth and Diversification Strategy, hosting of in-building equipment and storage services are now offered to customers. The capacity availability at NASREC facility provides government agencies and private sector an opportunity for In-building Equipment Hosting and Storage with access to SENTECH platforms such as OTT.


Managed Infrastructure Services

SENTECH aims to combine its knowledge, skills, experience and resources in the broadcasting and telecommunication into an Infrastructure Management Services offering. The initial phase will focus on municipalities and other government agencies where they will be able to contract SENTECH to manage their external infrastructure, and on-sell any available capacity for customers’ terrestrial sites. This will include partnerships with telecommunication equipment manufacturers and support and maintenance service providers in capacitating SENTECH technical support staff to support and maintain.

The Infrastructure Management for municipalities and government agencies will include various capabilities, such as conducting due-diligence to establish customer assets and liabilities and evaluate commercial potential, maintenance and support of the infrastructure and equipment, manage and sell facilities leasing of the sites as well as develop a business and financial model framework on behalf of the customers. The provision of this services will allow customers to focus on their core business, whilst relying on a world-class network operator to manage their communication needs.

Consultancy Services

Due to the experience accrued by SENTECH from years of running BSD services, the Company has decided to commercialise this expertise by providing knowledge-based services, focusing on planning and implementation of broadcast services. This is particularly relevant in terms of the Company’s strategy to expand the business to the rest of the African continent.

6.2.3 Connectivity Services

SENTECH has positioned itself to play a significant role in the implementation of SA Connect and servicing government in wireless broadband services.

Fixed Wireless Broadband

To deliver speed in internet connectivity.

VSAT

For remote and rapid deployment, we provide connectivity through the VSAT system.



STRATEGICPRIORITIES


7. STRATEGIC PRIORITIES

7.1 Revenue and profitability growth

As part of our growth strategy, the organisation will pursue both organic and inorganic growth strategies through building a broadband business, strategic partnerships and acquisitions to realise revenue diversification. The organisation will build a wireless broadband business in fulfilling its mandate and has invested in several refresh technologies to enhance the performance levels of its connectivity services to service its existing and future clients.

7.2 Innovation and digitisation

The organisation will pursue innovative ways to meet its customers’ expectations and this entails building digital skills and capabilities. For SENTECH to be part of the digital convergence and innovative solutions delivery, the organisation will invest in its human capital and capabilities to enable its workforce to drive innovation.

7.3 Pan-African Satellite Project

The organisation has developed a Business Plan for a communication Pan-African Satellite as a means to address the cost of communication and to achieve the country’s broadband objectives.


ANNUALPERFORMANCE

PLAN


8. ANNUAL PERFORMANCE PLAN

The Board has adopted a set of strategic objectives for the 2019/20 - 2021/22 MTEF planning period that will ensure that the Company achieves its public

service mandate objectives, which are aligned with DCDT priorities, and will ensure financial sustainability.

8.1 SENTECH Alignment to SONA Priorities

SONA priorities relevant to SENTECH

SENTECH ContributionSentech APP aligned to SONA refer

to section 8.2 below

1.Economic Transformation and

Job Creation

SENTECH through its Enterprise and Supplier Development initiatives is committed

and will continue to support SMMEs Development and B-BBEE through preferential

procurement, grant funding and capacity building. Budget has been allocated to

support economic transformation which is anticipated to results in job sustenance

and creation.

Number of digital products launched for

customers

Smart Village 5G trials access node developed

and deployed for one commercial customer

Percentage of allocated budget spent on

Enterprise Supplier Development (ESD)

and % of NPAT spent on Socio Economic

Development (SED)

2. Education,

skills and health

SENTECH is committed to skills development especially for staff and external black

people. The company collaborates with Universities to conduct research and ICT skills

in line with the 4IR. Through its bursary programme SENTECH supports internal staff

to further their tertiary education.

SENTECH runs a Maths and Science programme for Grade 10-12 learners from

disadvantaged backgrounds.

Our Broadband strategy focuses on enabling Health sector through technology.

Percentage planned digital skills training

interventions implemented

3. A capable, ethical

and developmental state

SENTECH will continue to focus on good governance driving ethical behavior through

culture change programmes

Clean audit achieved

4. A better Africa

and World

Sentech is leading the initiative to launch a South African-based communication

satellite that will increase connectivity access in the Pan-Africa region.

Sentech has a strong focus on customer satisfaction and network availability

Percentage customer satisfaction achieved

99.80% of weighted average network

availability based on product revenue

8.2 Alignment with DCDT Priorities

SENTECH has ensured alignment of its business operations with the DCDT Strategic Goals and Objectives for the 2019/20 - 2021/22 planning period,

set out in Table 6 below:

DCDT Strategic Goals and Objectives - MTSF 2018-2021 SENTECH Strategic Plan AlignmentStrategic Goals Strategic Objectives

SG 1: Broadband connectivity that provides secure and affordable access for all citizens to education, health and other government services and stimulates socio-economic development

SO, 1.1 Co-ordinate broadband connectivity to

achieve 100% population reach

SENTECH to play a significant role in supporting

broadband initiatives including Internet for All

SG 2: South Africa has a modern, sustainable and

competitive postal and telecommunications sector

SO, 2.1: Develop and implement ICT policy and

legislation aimed at improving access to and

affordability of ICTs

SO, 2.2: Advance South Africa’s National ICT interests

in regional and international forums towards attaining

partnerships for economic growth and development

SENTECH will ensure assess and affordable services

of its products and services

SENTECH Strategy, amongst others, is to forge

strategic partnerships and pursue international

expansion especially in the Pan-African region.

SENTECH has recently reviewed its Pan-African

Strategy and will collaborate with the DCDT’

International branch to implement the strategy

SG 3: An inclusive Information Society and Knowledge Economy driven through a comprehensive e-Strategy and access to government services

SO, 3.1: Develop a national e-Strategy that will give

priority to e-Government services

SENTECH will actively engage and participate with

the DCDT in the implementation of the e-Strategy

SG 4: Optimally functional Department and SOCs

that effectively delivery on their respective mandates

SO, 4.1: Improve performance of SOCs through

proactive and stringent oversight

SO, 4.2: Create a high performing organisation to

enable achievement of the Department’s mandate

Ensure that SENTECH has the appropriate corporate

governance structures and policies to enable effective

shareholder oversight

Table 7: DCDT Strategic Goals and Objectives

Table 6: SENTECH Alignment to SONA Priorities

8.2

KE

Y P

ER

FOR

MA

NC

E IN

DIC

ATO

RS

Stra

tegi

c G

oals

Obj

ectiv

eKP

IsPe

rfor

man

ce T

arge

tFY

19/2

0FY

20/2

1FY

21/2

2

SG1:

Sus

tain

able

b

usin

ess

gro

wth

Max

imis

e C

om

pan

y va

lue

1.Sa

les

reve

nue

(R)

R1,2

65 m

illio

nR1

,274

mill

ion

R1,3

40 m

illio

n

2. E

arni

ngs

bef

ore

Inte

rest

and

Ta

x (R

)R1

16 m

illio

nR8

8 m

illio

nR9

3 m

illio

n

SG2:

Cre

ate

dig

itally

co

nnec

ted

so

ciet

ies

Dev

elo

p d

igita

l cap

a-b

ilitie

s an

d p

latf

orm

s3.

% p

lann

ed d

igita

l ski

lls tr

ain-

ing

inte

rven

tions

imp

lem

ente

d85

% p

lann

ed d

igita

l ski

lls tr

aini

ng in

ter-

vent

ions

imp

lem

ente

d90

% p

lann

ed d

igita

l ski

lls tr

aini

ng in

terv

entio

ns

imp

lem

ente

d95

% p

lann

ed d

igita

l ski

lls tr

aini

ng in

terv

entio

ns im

-p

lem

ente

d

4. N

umb

er o

f dig

ital p

rod

ucts

la

unch

ed fo

r cus

tom

ers

Two

dig

ital p

rod

ucts

laun

ched

for c

us-

tom

ers

Two

dig

ital p

rod

ucts

laun

ched

for c

usto

mer

sTw

o d

igita

l pro

duc

ts la

unch

ed fo

r cus

tom

ers

Enab

le c

onn

ecte

d

com

mun

ities

5. S

mar

t Vill

age

5G tr

ials

ac

cess

no

de

dev

elo

ped

and

d

eplo

yed

for o

ne c

om

mer

cial

cu

sto

mer

Smar

t Vill

age

5G tr

ials

acc

ess

nod

e d

e-ve

lop

ed a

nd d

eplo

yed

for o

ne c

om

mer

-ci

al c

usto

mer

5G d

eplo

ymen

t fo

r mo

bile

net

wo

rk o

per

ato

rs

roam

ing

5G d

eplo

ymen

t fo

r mo

bile

net

wo

rk o

per

ato

rs

roam

ing

SG3:

Ach

ieve

exc

el-

lent

cus

tom

er a

nd

stak

eho

lder

sat

is-

fact

ion

Ach

ieve

hig

h cu

sto

m-

er s

atis

fact

ion

leve

ls

6.%

cus

tom

er s

atis

fact

ion

achi

eved

Cus

tom

er s

atis

fact

ion

leve

ls o

f bas

elin

e +

5%

Cus

tom

er s

atis

fact

ion

leve

ls o

f bas

elin

e +

5%

Cus

tom

er s

atis

fact

ion

leve

ls o

f bas

elin

e +

5%

7. 9

9.80

% o

f wei

ght

ed a

vera

ge

netw

ork

ava

ilab

ility

bas

ed o

n p

rod

uct r

even

ue

Wei

ght

ed a

vera

ge

avai

lab

ility

bas

ed o

n p

rod

uct r

even

ues

of 9

9.80

%W

eig

hted

ave

rag

e av

aila

bili

ty b

ased

on

pro

d-

uct r

even

ues

of 9

9.80

%W

eig

hted

ave

rag

e av

aila

bili

ty b

ased

on

pro

duc

t re

venu

es o

f 99.

80%

8. Im

ple

men

tatio

n Pl

an fo

r ne

w B

road

ban

d N

etw

ork

C

om

pan

y d

evel

op

ed fo

r sub

-m

issi

on

to S

hare

hold

er

Imp

lem

enta

tion

Plan

for n

ew B

road

ban

d

Net

wo

rk C

om

pan

y d

evel

op

ed fo

r sub

-m

issi

on

to S

hare

hold

er

Imp

lem

enta

tion

of n

ew B

road

ban

d N

etw

ork

C

om

pan

y as

ap

pro

ved

by

Shar

eho

lder

Imp

lem

enta

tion

of n

ew B

road

ban

d N

etw

ork

Co

mp

any

as a

pp

rove

d b

y Sh

areh

old

er

Enha

nce

Co

mp

any

rep

utat

ion

and

tran

s-fo

rmat

ion

9.%

of a

lloca

ted

bud

get

sp

ent

on

Ente

rpris

e Su

pp

lier D

evel

-o

pm

ent (

ESD

) and

% o

f NPA

T sp

ent o

n So

cio

Eco

nom

ic

Dev

elo

pm

ent (

SED

)

100%

of a

lloca

ted

bud

get

sp

ent o

n

Ente

rpris

e Su

pp

lier D

evel

op

men

t(ESD

)

and

1.5

% o

f bud

get

ed N

PAT

Spen

t on

Soci

o E

cono

mic

Dev

elo

pm

ent (

SED

)

100%

of a

lloca

ted

bud

get

sp

ent o

n En

terp

rise

Sup

plie

r Dev

elo

pm

ent(E

SD)

and

1.5

% o

f bud

get

ed N

PAT

Spen

t on

Soci

o

Eco

nom

ic D

evel

op

men

t (SE

D)

100%

of a

lloca

ted

bud

get

sp

ent o

n En

terp

rise

Sup

-p

lier D

evel

op

men

t(ESD

)

and

1.5

% o

f bud

get

ed N

PAT

Spen

t on

Soci

o E

co-

nom

ic D

evel

op

men

t (SE

D)

10. C

lean

aud

it ac

hiev

edC

lean

aud

it ac

hiev

edC

lean

aud

it ac

hiev

edC

lean

aud

it ac

hiev

ed

Tab

le 8

: SEN

TEC

H M

TEF

2019

–202

0 K

ey P

erfo

rman

ce In

dic

ator

s


8.3

AN

NU

AL

PE

RFO

RM

AN

CE

PLA

N

Stra

tegi

c G

oals

Obj

ectiv

eKP

IsA

nnua

l Tar

get

Perf

orm

ance

Tar

get

Qua

rter

1A

pril

2019

- Ju

ne 2

019

Qua

rter

2Ju

ly 2

019

- Sep

t 201

9Q

uart

er 3

Oct

201

9-D

ec 2

019

Qua

rter

4Ja

n 20

20-M

arch

202

0

SG1:

Sus

tain

able

bus

ines

s g

row

thM

axim

ise

Co

mp

any

valu

eSa

les

reve

nue

(R)

R1,2

65 m

illio

nR2

99 m

illio

nR5

92 m

illio

n

(cum

ulat

ive)

R892

mill

ion

(cum

ulat

ive)

R1,2

65 m

illio

n

(cum

ulat

ive)

Earn

ing

s b

efo

re In

tere

st a

nd T

ax (R

)R1

16 m

illio

nR2

9 m

illio

nR5

7 m

illio

n

(cum

ulat

ive)

R87

mill

ion

(cum

ulat

ive)

R116

mill

ion

(cum

ulat

ive)

SG2:

Cre

ate

dig

itally

co

nnec

ted

so

ciet

ies

Dev

elo

p d

igita

l cap

abili

-tie

s an

d p

latf

orm

s%

pla

nned

dig

ital s

kills

trai

ning

in

terv

entio

ns im

ple

men

ted

85%

of p

lann

ed d

igita

l ski

lls

trai

ning

inte

rven

tions

imp

le-

men

ted

20%

of p

lann

ed d

igita

l ski

lls tr

aini

ng

inte

rven

tions

imp

lem

ente

d45

% o

f pla

nned

dig

ital

skill

s tr

aini

ng in

terv

entio

ns

imp

lem

ente

d

63%

of p

lann

ed d

igita

l sk

ills

trai

ning

inte

rven

tions

im

ple

men

ted

85%

of p

lann

ed d

igita

l ski

lls tr

aini

ng

inte

rven

tions

imp

lem

ente

d

Num

ber

of d

igita

l pro

duc

ts la

unch

ed

for c

usto

mer

s2

dig

ital p

rod

ucts

laun

ched

for

cust

om

ers

Bus

ines

s re

qui

rem

ents

, sp

ecifi

catio

ns

and

pro

duc

t def

initi

ons

for t

wo

dig

ital

pro

duc

ts c

om

ple

ted

and

ap

pro

ved

b

y EX

CO

Bus

ines

s m

od

el a

nd p

lan

dev

elo

ped

for t

wo

dig

ital

pro

duc

ts a

nd a

pp

rove

d

by

EXC

O

2 d

igita

l pro

duc

ts d

evel

-o

ped

2 d

igita

l pro

duc

ts la

unch

ed fo

r cu

sto

mer

s

Enab

le c

onn

ecte

d c

om

-m

uniti

esSm

art V

illag

e 5G

tria

ls a

cces

s no

de

dev

elo

ped

and

dep

loye

d fo

r one

co

mm

erci

al c

usto

mer

Smar

t Vill

age

5G tr

ials

acc

ess

nod

e d

evel

op

ed a

nd d

eplo

yed

fo

r 1 c

om

mer

cial

cus

tom

er

Bus

ines

s re

qui

rem

ents

, sp

ecifi

catio

ns

and

pro

duc

t def

initi

ons

for 5

G T

rial

final

ised

Tria

l no

des

and

5G

co

re d

e-p

loye

d a

t 2 i

den

tifie

d s

iteRo

ad s

how

s to

at l

east

2

area

s o

n 5G

imp

lem

enta

-tio

n, tr

ialin

g w

ith 2

MN

Os

Smar

t Vill

age

5G tr

ials

acc

ess

nod

e d

evel

op

ed a

nd d

eplo

yed

for 1

com

mer

cial

cus

tom

er

SG3:

Ach

ieve

exc

elle

nt

cust

om

er a

nd s

take

hold

er

satis

fact

ion

Ach

ieve

hig

h cu

sto

mer

sa

tisfa

ctio

n le

vels

% c

usto

mer

sat

isfa

ctio

n ac

hiev

edC

usto

mer

sat

isfa

ctio

n le

vels

of

bas

elin

e +

5%

Cus

tom

er S

atis

fact

ion

Surv

ey M

oni

-to

ring

To

ol d

evel

op

ed a

nd a

pp

rove

d

by

EXC

O

Eng

agem

ents

with

top

5

Tie

r 1 c

usto

mer

sEn

gag

emen

t with

all

Tie

r 1

cust

om

ers

Cus

tom

er s

atis

fact

ion

leve

ls o

f bas

e-lin

e +

5%

99.8

0% o

f wei

ght

ed a

vera

ge

netw

ork

av

aila

bili

ty b

ased

on

pro

duc

t rev

enue

Wei

ght

ed a

vera

ge

avai

lab

ility

b

ased

on

pro

duc

t rev

enue

s o

f 99

.80%

Wei

ght

ed a

vera

ge

avai

lab

ility

bas

ed

on

pro

duc

t rev

enue

s o

f 99.

80%

Wei

ght

ed a

vera

ge

avai

l-ab

ility

bas

ed o

n p

rod

uct

reve

nues

of 9

9.80

%

Wei

ght

ed a

vera

ge

avai

l-ab

ility

bas

ed o

n p

rod

uct

re

venu

es o

f 99.

80%

Wei

ght

ed a

vera

ge

avai

lab

ility

bas

ed

on

pro

duc

t rev

enue

s o

f 99.

80%

Imp

lem

enta

tion

Plan

for n

ew B

road

-b

and

Net

wo

rk C

om

pan

y d

evel

op

ed

for s

ubm

issi

on

to S

hare

hold

er

Imp

lem

enta

tion

pla

n fo

r new

B

road

ban

d N

etw

ork

Co

mp

any

dev

elo

ped

for s

ubm

issi

on

to

Shar

eho

lder

Pro

ject

pla

n an

d re

qui

red

reso

urce

s fin

alis

edFi

rst D

raft

of i

mp

le-

men

tatio

n p

lan

for n

ew

Bro

adb

and

Net

wo

rk C

om

-p

any

(SO

C R

atio

nalis

atio

n)

com

ple

ted

Fina

l Dra

ft Im

ple

men

tatio

n Pl

an fo

r new

Bro

adb

and

N

etw

ork

Co

mp

any

(SO

C

Ratio

nalis

atio

n) c

om

ple

ted

Imp

lem

enta

tion

pla

n fo

r new

B

road

ban

d N

etw

ork

Co

mp

any

(SO

C R

atio

nalis

atio

n) s

ubm

itted

to

Shar

eho

lder

Enha

nce

Co

mp

any

rep

u-ta

tion

and

tran

sfo

rmat

ion

% o

f allo

cate

d b

udg

et s

pen

t on

Ente

rpris

e Su

pp

lier D

evel

op

men

t (E

SD) a

nd %

of N

PAT

spen

t on

Soci

o

Eco

nom

ic D

evel

op

men

t (SE

D)

100%

of a

lloca

ted

bud

get

sp

ent o

n En

terp

rise

Sup

plie

r D

evel

op

men

t(ESD

)

and

1.5

% o

f bud

get

ed N

PAT

Spen

t on

Soci

o E

cono

mic

D

evel

op

men

t (SE

D)

Soci

o-E

cono

mic

and

Ent

erp

rise

De-

velo

pm

ent (

SEED

) Pro

gra

mm

e Im

ple

-m

enta

tion

Plan

ap

pro

ved

by

EXC

O

and

imp

lem

enta

tion

star

ted

Ach

ieve

30%

sp

end

of

allo

cate

d b

udg

et fo

r ESD

an

d 4

0% o

f bud

get

ed 1

.5%

o

f NPA

T s

pen

d fo

r SED

Ach

ieve

75%

sp

end

of

allo

cate

d b

udg

et fo

r ESD

, an

d 7

5% o

f bud

get

ed 1

.5%

o

f NPA

T sp

end

for S

ED

Ach

ieve

100

% o

f allo

cate

d b

udg

et

spen

d o

n ES

D a

nd 1

.5%

of N

PAT

spen

d o

n SE

D

Cle

an a

udit

achi

eved

Cle

an a

udit

achi

eved

N

o p

erfo

rman

ce re

qui

red

No

per

form

ance

req

uire

dRe

duc

tion

of M

anag

emen

t Le

tter

Po

ints

by

50%

Co

mp

lete

and

issu

e In

terim

Fin

anci

al

Stat

emen

ts fo

r the

9 m

ont

hs p

erio

d

end

ing

31

Dec

emb

er 2

019

Tab

le 9

: SE

NTE

CH

MTE

F 20

19–2

020

Key

Per

form

ance

Ind

icat

ors



FINANCIALPLAN


9. FINANCIAL PLAN

This financial plan provides insight onto the investment and financing decisions made by SENTECH in building a financially sustainable company within the framework of the overall financial strategy. Significant efforts are being made to streamline business processes, create an agile organisation and implement initiatives that positively drive Shareholder’s value.

9.1. Executive summary

The MTEF period will be challenging for SENTECH and the broadcasting industry. The global economic challenges remain at the forefront for all businesses, and SENTECH is exposed to the cyclical global economic volatility. The South African economy grew by approximately 1.1 % year on year based on third quarter figures of 2018 and it is forecasted to marginally improve in the next two years which means that it is unlikely that there will be much recovery in the advertising revenue throughout this period for SENTECH’s key customers. The Company is committed to initiatives that improve and preserve the available cash resources, as well as analyse growth prospects in terms of service offering and geographical spread. SENTECH will continue to streamline processes, strengthen business development, prudently execute capital projects aimed at growing and diversifying revenue and contain costs.

Over the 2019/20 - 2021/22 MTEF period, the Company will work hard to ensure financial sustainability by rethinking, reshaping, fixing, improving, re-engineering, bolstering and strengthening a multifaceted company for responsible and effective outcomes, with specific focus on:

• Improve the managed infrastructure services and connectivity services business

• Identify possible acquisition targets

• Execute the Pan-African Business Strategy

• Develop a funding plan for both acquisitions and the Pan-African Strategy.

The table below provides a high-level summary of the financial estimates of the Company, with a noticeable portrayal of no growth in revenues from the core service offerings (television, radio and multimedia content services). The normalised EBIT remains flat due to the continued prioritisation of initiatives that are necessary to ready SENTECH for the digital future whilst revenues are constrained in the short-term. Dual illumination is expected to continue during the MTEF period as SENTECH will be running the DTT and analogue networks simultaneously, until ASO is achieved at all sites.

Figure 18: SENTECH’s Financial Projections (2019/20 - 2021/22)

9.2.

CO

MP

RE

HE

NSI

VE

INC

OM

E S

TATE

ME

NT

The

tab

le b

elo

w d

epic

ts th

e st

atem

ent o

f pro

fit o

r lo

ss. S

EN

TEC

H is

pro

ject

ing

reve

nue

of R

1,26

4 b

illio

n an

d o

per

atin

g e

xpen

ditu

re o

f R1,

148

bill

ion

fro

m c

ont

inui

ng o

per

atio

ns fo

r the

20

19/2

0 fin

anci

al y

ear.

Reve

nue

will

rem

ain

flat a

nd a

n in

crea

se o

f 2.5

% fo

r op

erat

ing

exp

ense

s, w

hen

com

par

ed to

the

2018

/19

finan

cial

fore

cast

. The

incr

ease

in e

xpen

ditu

re in

corp

orat

es

focu

sed

initi

ativ

es to

ad

dre

ss re

venu

e st

agna

tion

thro

ugh

enha

ncin

g th

e co

nnec

tivity

bus

ines

s so

lutio

n an

d e

valu

atio

n o

f gro

wth

op

po

rtun

ities

to d

rive

acq

uisi

tive

div

ersi

ficat

ion

stra

teg

y.

Go

vern

men

t has

allo

cate

d d

ual i

llum

inat

ion

incr

emen

tal c

ost

s at

trib

utab

le to

runn

ing

two

par

alle

l net

wo

rks

for t

he M

TEF

per

iod

. Go

vern

men

t has

fund

ed th

e m

ajo

rity

of d

ual i

llum

inat

ion

incr

emen

tal c

ost

s si

nce

the

dig

ital s

igna

l was

sw

itche

d o

n b

ack

in 2

008.

For t

he y

ear e

nded

FY20

18FY

2019

FY20

20FY

2021

FY20

22FY

2019

vs

FY20

20

A

ctua

lFo

reca

stB

udg

etB

udg

etB

udg

etV

aria

nce

R'0

00R

'000

R'0

00R

'000

R'0

00R

'000

%

Rev

enue

1 2

14 6

57

1

264

290

1

264

563

1

273

512

1

339

735

2

73

0.0%

Co

st o

f Sa

les

(9

89 2

48)

(1 0

56 8

00)

(1 0

73 7

81)

(1 1

00 1

20)

(1 1

57 3

26)

1

6 98

1 1.

6%

Gro

ss P

rofit

2

25 4

09

207

490

190

782

173

392

182

409

(1

6 70

8)(8

.1%

)

Oth

er In

com

e

29

4

-

-

-

-

-

-

Op

erat

ing

Exp

ense

s

(122

986

)

(102

129

)

(115

785

)

(127

066

)

(133

673

)

13

656

13.4

%

Selli

ng E

xpen

ses

(

19 1

87)

(24

312)

(29

174)

(32

269)

(33

947)

4 8

61

20.0

%

Ad

min

istr

ativ

e E

xpen

ses

(

76 4

73)

(73

941)

(80

047)

(84

210)

(88

588)

6 1

06

8.3%

Dua

l Illu

min

atio

n C

ost

s

134

933

13

6 95

2

15

0 34

1

15

8 15

9

16

6 38

3

(13

389)

9.8%

No

rmal

ised

Op

erat

ing

Pro

fit

141

990

14

4 06

0

11

6 11

7

8

8 00

7

9

2 58

3

(27

943)

(19.

4%)

EB

IT M

arg

in11

,7%

11,4

%9.

2%6,

9%6,

9%

Dua

l Illu

min

atio

n R

even

ue

134

933

13

6 95

2

15

0 34

1

15

8 15

9

16

6 38

3

(13

389)

9.8%

Dua

l Illu

min

atio

n C

cost

s

(134

933

)

(136

952

)

(150

341

)

(158

159

)

(166

383

)

13

389

9.8%

Dua

l Illu

m. S

urp

lus/

(Defi

cit)

-

-

-

-

-

-

-

Op

erat

ing

Pro

fit

141

990

14

4 06

0

11

6 11

7

8

8 00

7

9

2 58

3

(27

943)

(19.

4%)

11

.7%

11.4

%9.

2%6.

9%6.

9%

Fina

nce

Inco

me

67

415

79

776

39

888

19

944

20

981

(3

9 88

8)(3

8.7%

)

Fina

nce

Co

sts

(4 1

79)

(55)

(58)

(61)

(64)

4

6.6%

Pro

fit B

efo

re T

axat

ion

2

05 2

26

223

781

155

947

107

890

113

500

(6

7 82

7)(3

0.3%

)

Taxa

tio

n

(52

434

)

(6

2 65

9)

(4

3 66

5)

(3

0 20

9)

(3

1 78

0)

(18

994)

(30.

3%)

Pro

fit o

r (L

oss

) fo

r th

e ye

ar

152

792

16

1 12

2

11

2 28

2

7

7 68

1

8

1 72

0

(4

8 84

1)(3

0.3%

)

Tab

le 1

0: D

etai

led

Sta

tem

ent o

f Com

pre

hens

ive

Inco

me


9.3. Revenue

The projected 2019/20 financial year revenues are based on the analysis of the market environment and estimated earnings expected from growth opportunities. Estimates for the 2019/20 financial year are based on the projected 2018/19 figures, increased by 5.1% CPI of October 2018.

• Content and Multimedia Services

Terrestrial broadcasting services include both digital and analogue network services and are divided between television and radio. Overall projected revenue for this service for the 2019/20 financial year is R1, 127 billion, representing an 4% reduction from the 2018/19 financial year forecast of R1, 177 billion. The negative variance is mainly attributable to the migration from the analogue to digital platform.

The Short-Wave Radio services will be discontinued from April 2019 due to the continued operating losses over the past few years. The traditional television, radio and digital media services remain the core competence of SENTECH and are projected to remain stable without attractive growth in the medium term as the transformation in the industry unfolds.

• Infrastructure Management Services

The facility leasing revenue projection for the 2019/20 financial year is R85 million representing a 10% growth on the 2018/19 forecast, reflecting growth opportunities in the coming financial year.

• Connectivity

The company has invested resources in refocusing the connectivity business which has presented new opportunities for SENTECH to offer competitive offering to the market. There is over 100% growth due to identifies opportunities in the connectivity business. Revenue is budgeted at R52 million for the 2019/20 financial year.

Operating Expenditure

Expenditure (including dual illumination) for the 2019/20 financial year is projected to be R1, 277 billion, an increase of R20 million from the 2018/19 financial year forecast. In line with the cost containment plan, MTEF expenditure growth over the MTEF are largely based on forecasted CPI, except for specific items with contractual obligations.

The major line items driving operating expenses are detailed below.

• Personnel Costs

Personnel Costs (R452 million) are for personnel remuneration; which include basic salaries, pension and medical fund contributions, housing subsidy, shift and climbing allowances and other personnel costs; such as recruitment costs, skills development levy, bursaries and courses.

9.2.

CO

MP

RE

HE

NSI

VE

INC

OM

E S

TATE

ME

NT

The

tab

le b

elo

w d

epic

ts th

e st

atem

ent o

f pro

fit o

r lo

ss. S

EN

TEC

H is

pro

ject

ing

reve

nue

of R

1,26

4 b

illio

n an

d o

per

atin

g e

xpen

ditu

re o

f R1,

148

bill

ion

fro

m c

ont

inui

ng o

per

atio

ns fo

r the

20

19/2

0 fin

anci

al y

ear.

Reve

nue

will

rem

ain

flat a

nd a

n in

crea

se o

f 2.5

% fo

r op

erat

ing

exp

ense

s, w

hen

com

par

ed to

the

2018

/19

finan

cial

fore

cast

. The

incr

ease

in e

xpen

ditu

re in

corp

orat

es

focu

sed

initi

ativ

es to

ad

dre

ss re

venu

e st

agna

tion

thro

ugh

enha

ncin

g th

e co

nnec

tivity

bus

ines

s so

lutio

n an

d e

valu

atio

n o

f gro

wth

op

po

rtun

ities

to d

rive

acq

uisi

tive

div

ersi

ficat

ion

stra

teg

y.

Go

vern

men

t has

allo

cate

d d

ual i

llum

inat

ion

incr

emen

tal c

ost

s at

trib

utab

le to

runn

ing

two

par

alle

l net

wo

rks

for t

he M

TEF

per

iod

. Go

vern

men

t has

fund

ed th

e m

ajo

rity

of d

ual i

llum

inat

ion

incr

emen

tal c

ost

s si

nce

the

dig

ital s

igna

l was

sw

itche

d o

n b

ack

in 2

008.

For t

he y

ear e

nded

FY20

18FY

2019

FY20

20FY

2021

FY20

22FY

2019

vs

FY20

20

A

ctua

lFo

reca

stB

udg

etB

udg

etB

udg

etV

aria

nce

R'0

00R

'000

R'0

00R

'000

R'0

00R

'000

%

Rev

enue

1 2

14 6

57

1

264

290

1

264

563

1

273

512

1

339

735

2

73

0.0%

Co

st o

f Sa

les

(9

89 2

48)

(1 0

56 8

00)

(1 0

73 7

81)

(1 1

00 1

20)

(1 1

57 3

26)

1

6 98

1 1.

6%

Gro

ss P

rofit

2

25 4

09

207

490

190

782

173

392

182

409

(1

6 70

8)(8

.1%

)

Oth

er In

com

e

29

4

-

-

-

-

-

-

Op

erat

ing

Exp

ense

s

(122

986

)

(102

129

)

(115

785

)

(127

066

)

(133

673

)

13

656

13.4

%

Selli

ng E

xpen

ses

(

19 1

87)

(24

312)

(29

174)

(32

269)

(33

947)

4 8

61

20.0

%

Ad

min

istr

ativ

e E

xpen

ses

(

76 4

73)

(73

941)

(80

047)

(84

210)

(88

588)

6 1

06

8.3%

Dua

l Illu

min

atio

n C

ost

s

134

933

13

6 95

2

15

0 34

1

15

8 15

9

16

6 38

3

(13

389)

9.8%

No

rmal

ised

Op

erat

ing

Pro

fit

141

990

14

4 06

0

11

6 11

7

8

8 00

7

9

2 58

3

(27

943)

(19.

4%)

EB

IT M

arg

in11

,7%

11,4

%9.

2%6,

9%6,

9%

Dua

l Illu

min

atio

n R

even

ue

134

933

13

6 95

2

15

0 34

1

15

8 15

9

16

6 38

3

(13

389)

9.8%

Dua

l Illu

min

atio

n C

cost

s

(134

933

)

(136

952

)

(150

341

)

(158

159

)

(166

383

)

13

389

9.8%

Dua

l Illu

m. S

urp

lus/

(Defi

cit)

-

-

-

-

-

-

-

Op

erat

ing

Pro

fit

141

990

14

4 06

0

11

6 11

7

8

8 00

7

9

2 58

3

(27

943)

(19.

4%)

11

.7%

11.4

%9.

2%6.

9%6.

9%

Fina

nce

Inco

me

67

415

79

776

39

888

19

944

20

981

(3

9 88

8)(3

8.7%

)

Fina

nce

Co

sts

(4 1

79)

(55)

(58)

(61)

(64)

4

6.6%

Pro

fit B

efo

re T

axat

ion

2

05 2

26

223

781

155

947

107

890

113

500

(6

7 82

7)(3

0.3%

)

Taxa

tio

n

(52

434

)

(6

2 65

9)

(4

3 66

5)

(3

0 20

9)

(3

1 78

0)

(18

994)

(30.

3%)

Pro

fit o

r (L

oss

) fo

r th

e ye

ar

152

792

16

1 12

2

11

2 28

2

7

7 68

1

8

1 72

0

(4

8 84

1)(3

0.3%

)

Tab

le 1

0: D

etai

led

Sta

tem

ent o

f Com

pre

hens

ive

Inco

me


• Satellite Capacity

Satellite capacity costs (R270 million) are for transponder capacity used for distribution and linking of the current analogue and future digital terrestrial broadcasting services; and for the DTH-S open access platform service. Satellite capacity costs are projected to primarily be driven by exchange rate variations.

• Energy

Energy Costs (R146m) are in respect of electricity, diesel and oil for generators. In the 2019/20 financial year, marginal costs increases were mainly driven by the electricity suppliers’ annual tariff increase as approved by the energy regulator.

• Depreciation

The depreciation charge of R105 million is regarding the normal depreciation on assets in use and a provision for depreciation on new capital expenditure for product and projects expansion inclusive of provision for work-in-progress.

• Preventative Maintenance

Preventative maintenance costs (R35 million) are to support network continuity to enable delivery of broadcasting signal distribution services. The costs are meant for rehabilitating and maintaining the network for improved network performance.

• Corrective Maintenance

The corrective maintenance costs (R40 million) are to perform work necessary to address potential weakness that can impact on the organization’s overall efficiency and effectiveness and infrastructure preservation.

• Travel and Subsistence

Travel and subsistence costs (R25 million) has been subjected to an internal cost containment measures in line with the National Treasury instruction.

• Computer Services

Computer services (R19 million) is in respect of annual software and maintenance licenses for IT servers and computer network including other system development technical upgrades project implementation.

• Professional and Consulting Charges

Professional and consulting charges are budgeted at R20 million to accommodate the initiatives necessary for long-term growth and sustainability. In addition to internal and external audit related fees, directors’ emoluments; funds have been budgeted to address initiatives that are aimed at improving business processes and continued investment in enterprise and supplier development.

Earnings before Interest and Tax (EBIT)

SENTECH is budgeting to achieve R116 million in earnings before tax for the FY2020 financial year, resulting in a 19% (R28m) decrease on the forecasted FY2019. The projected decrease in earnings is impacted mainly by the revenue reductions and operating expenditure cost containment and value for money motivations for exceptional expenditures.

Earnings after Tax

SENTECH is budgeting to achieve R112 million in earnings after tax for the 2019/20 financial year. The projected decrease in earnings from prior year is impacted mainly by the lack of sizeable growth on the core business whilst there is a continued necessity to further invest in costs to ensure the company remains relevant in delivering quality services to customers.


9.4. Statement of Financial Position

Group and Company 2018 R’000 Actual

2019 R’000

Forecast

2020 R’000

Forecast

2021 R’000

Forecast

2022 R’000

Forecast

Assets

Non-current assets 954 437 996 755 1 042 160 1 061 730 1 053 767

954 437 996 755 1 042 160 1 061 730 1 053 767

Current assets

Inventories 82 305 83 128 83 959 84 799 85 647

Tax 12 687 - - - -

Trade and other receivables 297 931 291 651 94 568 95 513 96 468

Cash and cash equivalents 916 149 1 036 309 1 286 907 1 340 320 1 269 509

1 309 072 1 411 088 1 465 433 1 520 632 1 451 624

Total assets 2 263 509 2 407 843 2 507 593 2 582 362 2 505 391

Equity

Share capital 75 892 75 892 75 892 75 892 75 892

Non-distributable reserves 667 868 667 868 667 868 667 868 667 868

Accumulated profit/(deficit) 1 176 254 1 337 376 1 449 658 1 527 339 1 609 059

1 920 014 2 081 136 2 193 418 2 271 099 2 352 819

Liabilities

Non-current liabilities

Employee benefits 19 588 19 588 19 588 19 588 19 588

Deferred tax 53 073 53 073 53 073 53 073 53 073

72 661 72 661 72 661 72 661 72 661

Current liabilities

Trade and other payables 146 548 118 307 88 730 66 548 49 911

Deferred income 94 286 105 739 122 784 142 055 -

Provisions 30 000 30 000 30 000 30 000 30 000

270 834 254 046 241 514 238 602 79 911

Total liabilities 343 495 326 707 314 175 311 263 152 572

Total equity and liabilities 2 263 509 2 407 843 2 507 593 2 582 362 2 505 391

Table 11: Statement of Financial Position

Notes:

• Deferred income (government grants) is reducing in the outer year in line with completion of the government funded projects i.e. DTT and disaster recovery, thus clearing the cash balance.

• Property, plant and equipment will increase during the MTEF period as part of the programme to stabilise the network, and investment in technology and infrastructure to improve efficiencies and to meet internal requirements.


9.5. Cash Flow Statement

Group and Company 2018 R’000 Actual

2019 R’000

Forecast

2020 R’000

Forecast

2021 R’000

Forecast

2022 R’000

Forecast

Operating Activities

Operating profit 141 990 144 060 116 117 88 007 92 583

Depreciation and amortisation 99 060 107 682 104 595 130 429 157 964

Grant Funds - non-cash items (134 933) (136 952) (150 341) (158 159) (166 383)

Other adjustments 1 355 - - - -

107 472 114 790 70 371 60 278 84 164

Working capital changes:

Inventories (2 004) (823) (831) (840) (848)

Trade and other receivables (241 951) 6 280 197 083 (946) (955)

Trade and other payables 13 436 (28 241) (29 577) (22 183) (16 637)

Cash generated from operations (123 047) 92 006 237 047 36 310 65 724

Interest received 35 206 79 776 39 888 19 944 20 981

Interest paid (123) (55) (58) (61) (64)

Dividends received 19 360 - - - -

Taxation paid (34 389) (49 972) (43 665) (30 209) (31 780)

Net cash from operating activities (102 993) 121 756 233 211 25 984 54 861

Investing activities

Investments in property, plant and equipment

(110 216) (178 900) (200 817) (203 609) (211 265)

Net cash utilised in investing activities (110 216) (178 900) (200 817) (203 609) (211 265)

Financing activities

Grants Received 222 001 177 304 218 203 231 038 85 593

Net cash from financing activities 222 001 177 304 218 203 231 038 85 593

Total cash movement for the year 8 792 120 160 250 597 53 413 (70 811)

Cash at the beginning of the year 907 357 916 149 1 036 309 1 286 907 1 340 320

Cash at the end of the year 916 149 1 036 309 1 286 907 1 340 320 1 269 509

Table 12- Cash Flow Statement


9.6 Capital Expenditure Plan

SENTECH operates infrastructure that offers signal distribution services to most of the country’s licensed broadcasters which include the Public Broadcaster, Commercial and Community Broadcasters. Facilities leasing is also offered to operators looking for the best geographic operations that offer broad signal coverage.

To ensure service delivery, the Company maintains and expands service offerings infrastructure from resources generated from operations. The FY2019 MTEF Capital Expenditure budget is aimed at ensuring continued service offering and expending the infrastructure for any new business opportunities. The budgeted capital will deplete the available cash resources, with the intention of earning future cash flows.

Source of funding 2019/20 2020/21 2021/22

(R’ mil) (R’ mil) (R’ mil)

Internal funds 150 150 150

External funds 51 54 61

Total 201 204 211

Table 13: Capital Expenditure Budget

The budgeted capital expenditure has the objectives of:

• Snowballing the scope of operations and, thus, improve the base of profitable revenues

• Improving internal efficiencies

• Overhauling business capabilities.

9.7. Borrowing Plans

SENTECH’s financial strategy highlights the appropriateness of a suitable capital structure that incorporates a reasonable amount of borrowing, without placing a significant burden on the financial performance of the Company. Short-term borrowing facilities are in place in case the financing requirements go beyond the capacity of internally-generated resources.

Long-term borrowing will be considered for significant investment needs that are supported by attractive business investment opportunities that are aligned to the long-term strategy of the Company. In consultation with the Shareholder and National Treasury, a borrowing facility and debt management plan will be developed in accordance with the guidelines and objectives for financing as prescribed by National Treasury and Shareholder financial governance rules and regulations.



ANNEXURE A: GOVERNANCE

STRUCTURE


ANNEXURE A: GOVERNANCE STRUCTURES

1. OVERVIEW

SENTECH has built sound corporate governance structures and processes in compliance with the SENTECH Act, the PFMA and Treasury Regulations, the Companies Act, the Memorandum of Incorporation (MOI) and the Government Protocol on Corporate Governance, which are reviewed annually in line with changes in the regulatory and business environment. These structures and processes ensure SENTECH achieves its strategic objectives. SENTECH’s corporate governance structures and processes have, by and large, been aligned with the King Report on Governance for South Africa, 2016 (King IV), and this is an ongoing process. The governance structure is integrated with the strategy and is at the centre of everything we do.

2. OWNERSHIP

SENTECH is a public entity that is wholly owned by the Government of South Africa. In terms of the PFMA, SENTECH is classified as a Schedule 3B National Public Enterprise, reporting to the Minister of Telecommunications and Postal Services. The Minister, who is the Shareholder Representative on behalf of the State, is SENTECH’s Executive Authority.

3. ROLE AND COMPOSITION OF THE BOARD

3.1. Role of the Board

3.1.1. The Board is responsible for effectively leading, controlling and managing SENTECH’s business, subject to the provisions of the SENTECH Act, the Shareholder’s Compact, the Companies Act, the PFMA and other applicable legislation. The Board is responsible for the overall leadership, transparency and performance of SENTECH.

3.1.2. The Board operates under an approved Charter that provides a concise overview of the role, powers, functions, duties and responsibilities of the directors, both collectively and individually, and ensures that financial and risk management, and internal controls are effective.

3.1.3. The Board has determined that, based on the MOI, Shareholder’s Compact and applicable legislation, its main functions and responsibilities are to give strategic direction to the Company, in line with government’s objectives, and ensure that SENTECH remains a sustainable and viable business. The Board monitors and evaluates the implementation of the Company’s strategy and achievement of performance objectives by Executive Management, as set out in the Corporate Plan and Shareholder’s Compact. The Board ensures that the Company is managed effectively, in accordance with corporate governance best practice and the highest ethical standards. SENTECH has a Delegation of Authority designed to improve efficiently and effective decision-making at appropriate levels within the Company.

3.2. Structure of the Board

In terms of the SENTECH Amendment Act, the Board shall consist of three Executive Directors and at least four Non-Executive Directors. The three Executive Directors are the persons performing the functions of Chief Executive Officer, Chief Operations Officer and Chief Financial Officer. The Non-Executive Directors are appointed by the Minister. The Minister, on recommendation by the Board, confirms the appointment of the Executive Directors.

3.2.1. The Board has communicated with the Minister, requesting the appointment of three suitably skilled individuals to serve on the Board. This was driven by the notice of resignation received from the Chairperson of the Audit and Risk Committee, Ms Zodwa Mbele, and the recent passing of a member of the Board, Ms Lungile Ndlovu. The Board assessed the skills on the Board and recognised the need for a sufficiently resourced and skilled Board to provide the necessary leadership oversight over SENTECH.

3.3. Board Committees

(i) The Board has four sub-committees and one *Ad Hoc Committee, namely:

.

(ii) All committees have adopted charters that are reviewed annually and as and when necessary to ensure that they continue to be relevant and comply with applicable legislation, regulations and best practice on corporate governance.

(iii) The King IV philosophy, which focuses on sustainable development, integrated thinking, corporate citizenship, stakeholder inclusivity and the Company’s role and responsibility in society, has been incorporated in the charters. An outcomes-based rather than rules-based approach has been adopted. The Board has focused on opportunity management in addition to risk management.

3.3.1. Audit and Risk Committee

(i) The Audit and Risk Committee (ARC) is constituted in terms of sections 51(1)(a)(ii), 76 and 77 of the PFMA read together with Treasury Regulation 27 and section 94 (7) of the Companies Act. The

Committee has adopted its charter which outlines its role and responsibilities.

(ii) The ARC plays an essential role in ensuring the integrity and transparency of corporate reporting, pays attention to the key accounting issues and key audit matters, and ensures proactive risk management, including an open avenue of communication between Management, Internal Auditors, External Auditors and the Board. The Committee oversees, among others, integrated planning and reporting, internal and external audit plans and reports.

(iii) The Committee recommends the Company’s Risk Management Plan and Framework, Fraud Prevention Plan, Combined Assurance Policy, and Risk Appetite and Tolerance Levels Policy to the Board for approval. The Committee reviews he risks relating to SENTECH’s business after consideration of the risks by the relevant Board Committees. It reviews the adequacy and effectiveness of risk management and ensures that risks are reviewed on an annual basis.

3.3.2. Social and Ethics Committee

(i) The Social and Ethics Committee fulfils the obligations of the Company with respect to section 72 (4) of the Companies Act. The purpose of the Committee is to oversee the sustainability of SENTECH. The Committee has adopted its Charter in compliance with the Companies Act, which outlines its role and responsibilities.

(ii) The Committee focuses on social and ethical issues that are critical for the Company’s sustainability and management of material issues. ‘Material issues’ pertains to statutory obligations, risks, stakeholder issues and key performance indicators.


(iii) The Committee exercises oversight over SENTECH’s reputation management, transformation and stakeholder relationships with specific reference to compliance with relevant legislation and generally accepted codes of corporate governance. The Committee places emphasis on relationships with employees, customers, suppliers, local communities and government.

3.3.3. Human Resources, Nominations and Remunerations Committee

(i) The Human Resources, Nominations and Remunerations Committee ensures that the Board and its Committees are properly resourced to enable them to fulfil their responsibilities. The Committee assists the Board on matters of strategic remuneration by ensuring that decisions are aligned to the Company’s strategic objectives.

(ii) The Committee oversees the human resources strategy and plan aimed at creating and sustaining technical and managerial excellence, talent retention and succession management. The Committee oversees the performance of the Executive Directors and Company Secretary and considers procedures for the Committee to oversee the evaluation of the performance of the Board and each director, including an assessment of each director. The Committee has adopted its charter which articulates its roles and responsibilities.

3.3.4. Technology, Sales and Regulatory Co-ordination Committee

(i) This Committee ensures co-ordination between sales, regulation and technology in the development and implementation of the Company’s overall strategy. The Committee oversees the development of the technology and information, and regulatory strategies, and ensures compliance with technology regulatory legislation, policies and/or requirements. In this regard, the Committee ensures strategic scanning of technology trends and developments within the technology and information industry are carried out regularly, and that the strategies are aligned to good corporate governance and the corporate strategy.

(ii) The Committee also assists the Board in overseeing strategic projects, commercial activities, capital investments and transformation of suppliers.

3.3.5. Investment Committee

The main purpose of the Committee is to consider and provide direction and assurance on strategic considerations and risks in respect of proposed investments, disinvestments, mergers and acquisitions within SENTECH SOC Limited, prior to the approval by the Board:

4. Executive Committee (EXCO)

EXCO is constituted in terms of the SENTECH Act and the Memorandum of Incorporation which provide that the day-to-day affairs of the Company shall be managed by an Executive Committee, which consists of the Executive Directors of the Board as mentioned above.

The Chief Executive Officer (CEO) chairs the EXCO and executive management attend EXCO meetings by invitation.


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ANNEXURE B: RISK MANAGEMENT

PLAN


ANNEXURE B: RISK MANAGEMENT PLAN

The Board of Directors has overall accountability for ensuring effective risk management and sets strategic direction and determines risk appetite for SENTECH. It maintains oversight of the top risks facing the entity through periodic review to satisfy itself that the risks are being adequately mitigated. The overall oversight role is exercised through the Audit and Risk Committee, with all other Board Committees (Human Resource Nominations; Technology, Sales, Regulations Coordination and Social and Ethics Committee) limited to issues appropriate to only their terms of reference.

The Executive Management is responsible for the management and implementation of the risk management framework together with the Risk and Compliance Management function. Successful enterprise risk management can reduce the likelihood and consequences of risks materialising, including the delivery of benefits related to better informed decision-making. As such, EXCO will continue with the initiative of ensuring that risk management is embedded in the Company’s daily operations using the approved strategies and methodologies as well as best practices.

The risks are identified and revised at least twice a year through assessment workshops with all stakeholders and they are monitored and reported to the Board on a quarterly basis.

Currently, the highest rated risks for SENTECH is the DTT project. The identified risks are linked with the delay of the commercialisation of DTT; the cost implication of the delay of ASO; the proposed funding model for set-top-boxes; and increasing the pressures for Digital-to-Digital migration to make the bands 694 – 790 MHz and 790 – 862 MHz available for mobile services.

The strategic risks have been assessed and the top five risks are highlighted on the diagram below and the full strategic risks for the 2019-2022 MTEF are reflected in the table below:

RISK MATRIX

CRITICAL 5 Medium Medium Critical Critical Critical

Impact descriptor

MAJOR 4 Low Medium Critical Critical Critical

MODERATE 3 Low Medium Medium Critical Critical

INSIGNIFICANT 2 Low Low Medium Medium Medium

NEGLIGIBLE 1 Low Low Low Medium Medium

1 2 3 4 5

RARE UNLIKELY LIKELY COMMON ALMOST CERTAIN

LIKELIHOOD DESCRIPTOR


Other key (high) risks being monitored and reported are detailed on the table below:

No. Objectives Risk Description Risk ratings Mitigations

1 Revenue Growth Increased competition due to the digital transforma-tion because of innovative technologies.

• Market insights • Partnerships with innovative entities for development

of new products, research and innovation. • Build Digital competencies• Review of SENTECH’s operational model

2 Revenue Growth Customer resistance to uptake of new product offering and services (DTT and other)

• Improve and monitor customer management strategy

• Implementation and monitor M&S strategy • Develop innovative Tariff/pricing models •

3 Network Availability Infrastructure degener-ation resulting in service disruptions

• Implementation of Maintenance plans and upgrade of infrastructure

• Implement a comprehensive network monitoring (Analogue and DTT)

• Implementation of Business Continuity Plans

4 Digital skills training interventions

Over-reliance on 3rd parties to support technological advance-ment due lack of internal skills

• Talent management to address digital skills require-ments

5 5G access notes de-ployed

Inadequate function resources to deploy 5G technology

• Partner with market leaders• Build competencies required

6 Multiple objectives Uncertainty in the SOC rationalisation process.

• Participation in the SOC rationalisation task team• Position paper on the merger• Financial impact analysis of the merger was con-

ducted• Business case inputs have been submitted to DCDT

for development of the Rationalisation Business case

7. EBIT growth Financial sustainability • Implementation of hedging strategies • Cost efficiencies strategies• Diversification of products, services and customers• Engagement of the shareholder and other stake-

holders for accelerated DTT commercialisation •

8 EBIT growth Reduction in usage of DTT • Implementation of the DTT engagement strategy • Diversification of products and customers, including

increasing value add services

9 Revenue growth Acquisition delivering below target ROCE (return on capital expenditure)

• Full Implementation M&A policy and strategy • Performance monitoring

10 Multiple Objectives Legal and regulatory uncertainty

• Submission issues for consideration by the Regulator during their annual strategy planning sessions

• Monitoring of the legal and regulatory environment • Compliance to all relevant legislation• Submission of SENTECH position and stance on new

regulatory discussion and policy documents

11 Network Availability Cyber attacks • Implementation of the ICT security plan and BCP


ANNEXURE C: FRAUD PREVENTION

PLAN

ANNEXURE C: FRAUD PREVENTION PLAN

1. Introduction

Fraud is an unethical practice that remains one of the biggest challenges facing the South African public sector. It is a potential threat to sustainable service delivery and growth of public entities. As a result, fraud risk governance has become recognised as a key component of good corporate governance. It is thus good business practice to implement anti-fraud and anti-corruption measures. The anti-fraud and corruption measures are mainly successful in an ethical environment. There are many advantages of working in an ethical environment free of fraud and corruption that includes enhanced staff morale, job satisfaction, ability to meet commitments and improved profitability.

SENTECH, as a public entity, has been mandated by the National Treasury through Treasury Regulation 27.2.1 to develop and implement a Fraud Prevention Plan as part of the entity’s enterprise risk management strategy. As such, SENTECH developed a Fraud Prevention Plan that is summarised below. This plan is one of the key instruments to ensure that there is a proactive approach towards minimising risks that can adversely impact SENTECH business operations.

2. Definition of terms

All terms used are defined in the Fraud Prevention Policy.

3. Legislative framework

In addition to the legislated requirement for a Fraud Prevention Plan, the following three specific pieces of legislation also govern aspects of fraud and corruption for South African entities.

3.1. Section 34 of the Prevention and Combating of Corruption Activities (PRECCA), Act 12 of 2004, obliges people who hold positions of authority to report any offence of theft, fraud, extortion, forgery or uttering a forged document, involving an amount of R100 000 or more, to any police official.

3.2. The PDA was enacted to protect employees who make protected disclosure, which is defined by the act as any disclosure of information regarding any conduct of an employer, or an employee of that employer, made by any employee who has reason to believe that the information concerned shows or tends to show one or more of the following:

a) that a criminal offence has been committed, is being committed or is likely to be committed

b) that a person has failed, is failing or is likely to fail to comply with any legal obligation to which that person is subject

c) that a miscarriage of justice has occurred, is occurring or is likely to occur

d) that the health or safety of an individual has been, is being or is likely to be endangered

e) that the environment has been, is being or is likely to be damaged

f) unfair discrimination as contemplated in the Promotion of Equality and Prevention of Unfair Discrimination Act, 2000 (Act No. 4 of 2000) or

g) that any matter referred to in paragraphs (a) to (f) has been, is being or is likely to be deliberately concealed.

3.3. Protection of Personal Information (POPI) Act 2013


4. Policy Stance and Strategic Approach

4.1. SENTECH assumes a zero-tolerance stance against all forms of fraudulent and corrupt activities and is committed to discouraging and preventing such behaviour in the performance of its business operations.

4.2. SENTECH shall implement systems and processes that give assurance that the potential for fraud and corruption across all business areas is minimised. Systems and processes that provides assurance that actual incidences of fraud and corruption are detected and responded to shall also be implemented.

5. Framework for Fraud and Corruption Response

SENTECH’s framework to fraud and corruption prevention and response is depicted in the diagram below. The details of the framework are contained in the detailed Fraud Prevention Plan.

Framework for Fraud and Corruption Response

6. Whistle Blowing

SENTECH recognises the fact that unethical conduct and fraud within SENTECH is detrimental to good, effective, accountable and transparent governance within SENTECH and there is a need for procedures in terms of which employees may, without fear of reprisals, disclose information relating to suspected or alleged unethical conduct and fraud affecting SENTECH. And as such, a Whistle Blowing Policy has been developed to ensure reasonable compliance with the PDA, which makes provision for the protection of employees who make disclosures in good faith.

A tip-off anonymous hot line is in place for the anonymous reporting of fraud and corruption activities. Tip-Offs Anonymous is completely independent, confidential whistle blowing hotline service operating 24-hours a day, 365 days a year. The service allows employees, customers, service providers and other stakeholders to report fraud and inappropriate activities in the Company in a safe, confidential and secure way.



ANNEXURE D: MATERIALITY AND SIGNIFICANCE FRAMEWORK

AGREEMENT

on the

MATERIALITY AND SIGNIFICANCE FRAMEWORK

between

THE MINISTER OF COMMUNICATIONS

and

SENTECH SOC LTD


MATERIALITY AND SIGNIFICANCE FRAMEWORK

1. LEGISLATIVE BACKGROUND

a) SENTECH, as a schedule 3B public entity, is governed by the PFMA and the

Treasury Regulations issued by the National Treasury and by the Companies Act.

b) Treasury Regulation 28.3.1 – “For purposes of material [sections 55(2) of the PFMA] and significant [section 54(2) of the PFMA] transactions, the SENTECH Board of Directors must develop and agree on a framework of acceptable levels of materiality and significance with the relevant Executive Authority.”

c) Section 55(2)(b)(i) of the PFMA – “The annual report and financial statements referred to in subsection (1)(d) must include particulars of any material losses through criminal conduct and any irregular expenditure and fruitless and wasteful expenditure that occurred during the year.”

d) Section 54(2) of the PFMA – “Before a public entity concludes any of the following transactions, the Accounting Authority for the public entity must promptly and in writing inform the relevant treasury of the transaction and submit relevant particulars of the transactions to its Executive Authority for approval of the transaction:

i. establishment or participation in the establishment of a company;

ii. participation in a significant partnership, trust, unincorporated joint venture or similar arrangement;

iii. acquisition or disposal of a significant shareholding in a company;

iv. acquisition or disposal of a significant asset;

v. commencement or cessation of a significant business activity; and

vi. a significant change in the nature or extent of its interest in a significant partnership, trust, unincorporated joint venture or similar arrangement.”

e) National Treasury Practice Note dated 13/07/2006 dealing with applications under section 54.

2. DEFINITION OF MATERIALITY AND SIGNIFICANCE

f) The Accounting Standards Board defines materiality as “the magnitude of an omission or misstatement in the financial statements which, individually or collectively, makes it probable that a reasonable person relying on those statements would have been influenced by the information or made a different judgement if the correct information had been known.”

g) From an external audit point of view, ISA 320 defines materiality as follows: “Information is material if its omission or misstatement could influence the economic decisions of users taken based on the financial statements. Materiality depends on the size of the item or error judged in the particular circumstances of its omission or misstatement. Thus, materiality provides a threshold or cut-off point (quantitative), rather than being a primary qualitative characteristicwhich information must have if it is to be useful.”

h) The Concise Oxford Dictionary defines ‘significant’ as “extensive or important enough to merit attention” and may therefore be interpreted as of relative importance to the public entity. Transactions may be significant based on the monetary value of the transactions or due to the nature of the transactions. Thus, a transaction will be significant if conducting the transaction is vitally important in order to fulfil the public entity’s mandate and for it to operate effectively.

i) ‘Significant’ may also be interpreted as those transactions that, in the case of SENTECH, would require approval from the executive authority or the National Treasury or Parliament and would include, but not be limited to, participation in a significant partnership, trust, unincorporated joint venture or similar arrangement; the acquisition or disposal of a significant shareholding in the organisation; the acquisition or disposal of a significant asset; and commencement or cessation of a significant business activity.

j) From the interpretations above, it can be seen that there is a difference between ‘material’ and ‘significant’. Significant is larger than material as a significant transaction impacts on the public entity as a whole. An occurrence may be material but not necessary significant, whereas any occurrence that is significant will be material.

k) As Treasury Regulation 28.3.1 also has an expectation of qualitative reporting, this framework will be dealt with in two main categories, namely, quantitative and qualitative aspects. The policy set out hereunder should be appropriately presented in the annual report as required.

3. QUANTITATIVE FINANCIAL STATEMENT REPORTING

a) Quantitative Aspects

i. Material Losses (Section 55)

Guidelines for setting materiality levels

Basis Maximum % FY2020 Budget High

Gross expenditure 1% 1 298 787 12 988

Gross revenue 1% 1 414 904 14 149

Net income 10% 112 282 11 228

Total assets 2% 2 507 593 50 152

From the above description of ‘quantitative materiality’, and considering the percentage guidelines listed in the table above, management is of the opinion that the most appropriate basis for calculating the quantitative material loss limit for SENTECH should be based on the annual budgeted gross operating expenditure

• The annual budgeted gross operating expenditure for the FY2019/20 is R1,3 billion

• Considering the percentage guidelines listed in the table above, the quantitative materiality level for SENTECH is R13 million, being 1% (rounded off) of the annual budgeted gross expenditure

• Accordingly, all fruitless and wasteful expenditure and/or irregular expenditure that exceed the quantitative materiality level of R13 million will be reported in the Annual Report and the Financial Statements.

b) Qualitative Aspects

Materiality is not merely related to the size of SENTECH and/or the elements of its financial statements. Obviously, misstatements that are large, either individually or in the aggregate, may affect a ‘reasonable’ user’s judgment. However, misstatements may also be material on qualitative grounds. These qualitative grounds include, amongst others:

• Unusual transactions entered into that are not of a repetitive nature and are disclosable purely due to the nature thereof (due to knowledge thereof affecting the decision-making of the user of the financial statements)

• Transactions entered into that could result in reputational risk for SENTECH

• Any fraudulent or dishonest behaviour of an officer or staff member of SENTECH – for example, losses resulting from criminal conduct may be seen as material, based on the public accountability of SENTECH, regardless of the monetary value of the amount

• Procedures/processes required by legislation or regulation.


SENTECH SOC LTD Corporate Plan MTEF 2019–2022 2

4. APPLICATION AND REPORTING

a) The materiality matrix is developed and communicated to relevant management before the start of the financial year. This enables SENTECH to make decisions as to what should be reported as losses or irregular, fruitless or wasteful expenditure. SENTECH is then able to ensure that the correct information is included in the annual report and financial statements.

b) All transactions that result in a loss to SENTECH (including irregular, unauthorised and fruitless and wasteful expenditure, and losses resulting from criminal conduct) should be recorded in a register. The PFMA defines ‘irregular expenditure’as expenditure incurred in contravention of the PFMA or any applicable legislation or incurring expenditure not in accordance with the mandate of SENTECH. ‘Fruitless and wasteful expenditure’ refers to expenditure which was made in vain and would have been avoided had reasonable care been exercised.

c) All material losses must be reported to the Chief Financial Officer (CFO) who should ensure that the transaction is appropriately allocated in the general ledger and recorded in a central loss register.

d) An explanation detailing all information and reasons surrounding the transaction as well as amounts recovered and strategies developed to prevent similar losses in the future must be included.

e) No officer may condone any material loss incurred directly by him or through instructions issued by him.

f) All amounts referred to in paragraph 5.1 and 5.2 must be reported to the Board.

g) When developing the three-year Rolling Audit Plan and the Annual Audit Coverage Plan, the Internal Audit Function must ensure that sufficient attention is given to the audit of material items which may fall through the gaps in the existing control systems.

h) Material and significant events will be reported to the following parties:

• External: Minister of Telecommunication and Postal Services (The Minister)

• Internal: SENTECH Board and EXCO.

i) The reporting of applicable material and significant events (PFMA – Section 54) to the Minister will be done formally in writing before the transaction is concluded.

j) The public entity must include the materiality and significance framework in the following documents to be submitted to the entity’s Executive Authority:

• Annual Report [TR 28.2.1]

• Corporate Business Plan [TR 29.1.1(f)]

• Strategic Plan [TR30.1.3(e)]


Definitions Framework Underlying Principles

Materiality for section 55 of the PFMA – Disclosure, in the Annual Report, of:• Losses due to criminal conduct• Irregular expenditure• Fruitless and wasteful expendi-ture

Quantitative and Qualitative

For purposes of reporting the incidence of losses due to criminal conduct, irregular ex-penditure, and fruitless and wasteful expend-iture, in terms of section 55(2) (b) (i) of the PFMA, irrespective of the quantum thereof, all losses are considered to be material by nature.

It is, therefore important to note that the quan-titative measures of materiality will only apply to expenditure other than irregular expend-iture and fruitless and wasteful expenditure, and losses due to criminal conduct which are considered in terms of the qualitative meas-ures.

• Each loss due to criminal conduct, irregular expenditure or fruitless and wasteful expenditure, as identified, will be evaluated in the context of the expense catego-ry to which it relates, to determine whether it qualifies for disclosure in the Annual Report as required by section 55.• In line with good business practice, as well as the requirements of the Act, SENTECH is committed to the prevention, detection of and taking appropriate action on all ir-regular expenditure, fruitless and wasteful expenditure, losses result-ing from criminal conduct and ex-penditure not complying with the operational policies of SENTECH (sec 51(1)(b)(ii)).

To this end, SENTECH’s systems and processes are designed and contin-ually reviewed to ensure the preven-tion and detection of all such expen-diture, irrespective the size thereof.

• Significant for section 54 – Infor-

mation and approval by the Min-

ister of ‘Qualifying transactions’,

i.e.:

• Establishment or participation in

the establishment of a company

• Equity participation in a signifi-

cant partnership, trust, unincorpo-

rated joint venture or similar ar-

rangement (applies to both local

and international transactions;

• Acquisition or disposal of signif-

icant shareholding in an organi-

sation

• Acquisition or disposal of a sig-

nificant asset; commencement or

cessation of a significant business

activity

• A significant change in the na-

ture or extent of its interest in a

significant partnership, trust, unin-

corporated joint venture or similar

arrangement (locally based or in-

ternational transactions).

Quantitative:

Qualifying transactions of an operational na-

ture

Qualifying transactions of a strategic nature

• 10% of equity.

Regardless of the monetary value thereof, all

direct equity investments:

• greater than 20% require formal information

to the Executive Authority; or

• greater than 50% require approval by the Ex-

ecutive Authority.

Qualitative:

A qualifying transaction may also be consid-

ered significant based on considerations oth-

er than financial when, in the opinion of the

Board, it is considered to be significant for

the application of section 54. The decision

on which non-financial issues may be consid-

ered at any time requires careful judgment at

a strategic level, and should therefore rest with

the Board as the representative body of the

stakeholders. As an example, the Board may

consider a qualifying transaction as significant

when it could impact significantly on a deci-

sion or action by the Minister.

The PFMA is not intended to affect

the autonomy of SENTECH, but its

stated objectives are to ensure trans-

parency, accountability and sound

management of revenue, expendi-

ture, assets and liabilities of the in-

stitutions to which the Act applies.

Therefore, the legislature could not

have intended for the public entities

to report and seek approval on mat-

ters on a daily basis.

• The operations of SENTECH are

conducted within the framework of

the mandate, objects and powers of

the SENTECH Act, as well as the op-

erational and financial direction set

out in the Strategic Plan.

• SENTECH also has defined ac-

countability and approval structures

from the Board, as the Stakehold-

er representative, for the CEO and

management.

• The responsibility for day-to-day

management of SENTECH rests in

line management through a clearly

defined organisational structure and

through formally delegated author-

ities.

5. ACCEPTANCE LEVELS OF MATERIALITY AND SIGNIFICANCE


6. AMENDMENT AND REVIEW

Unless otherwise agreed, this materiality and significance framework will be reviewed after a period of three years.

7. SIGNATURES

Signed by the Minister at………………………………………………………...……………...

on the ………. of…………………2019

_________________________________

Minister of Communications

Signed for as on behalf of SENTECH at ……………………………………... on the …………………of …………………... 2019

____________________________________

Chairperson of SENTECH Board of Directors


Notes

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