Integrated Annual Report For the Year Ended 31 March 2016

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Presentation transcript:

Integrated Annual Report For the Year Ended 31 March 2016

Contents Contents Strategy Review Performance against Shareholder Compact Financial Overview Network and Product Performance Value Creation Governance Conclusions

Strategic Review Strategic Review The Board reviewed SENTECH’s business model during the financial year to ensure that the Company implements its business strategy. The business model set out alongside is a departure from the previous one, where the focus was on the establishment of separate business units. The current business model places more emphasis on across-the-board research, development and innovation. SENTECH’s products and services are focused into three categories, namely, Content and Multimedia Services, Infrastructure Management Services and Connectivity Services.

Chief Technology Officer Strategic Review Board CEO Chief Technology Officer Human Resources Legal Strategy Risk Management CFO Finance COO Marketing and Sales Operations Internal Audit Company Secretary The Board reviewed the organisational structure of SENTECH during the financial year to ensure that it is aligned to the new business operating model and to ensure that critical skills and capabilities are included in the correct structure. The revised organisational structure has resulted in the merger of the IT and Technology divisions who report to the Chief Technology Officer. To drive SENTECH’S B-BBEE related activities, a new focus on Socio-Economic and Enterprise Development(SEED) is driven by the Executive: Strategy.

Strategy and Risk management Review Twelve top risks were listed in the Corporate Plan for the 2015/16 financial year. Mitigating controls were implemented for all these risks. Some of them are still relevant going forward into the 2016/17 financial year as their mitigation interventions require medium to long term initiatives. The risks carried forward with the MTEF review process would therefore appear in the Corporate Plan for 2016/19. In the years ahead, SENTECH will continue to embed risk management within its business processes and day-to-day activities to create a culture of managing risk to ensure the company mandate and objectives are archived and shareholder value is created.

Performance against Shareholder Compact There were a total of 17 KPI’s set out in the 2015/16 Shareholder’s Compact. For the year ended 31 March 2016, 14 KPI’s (82%) were achieved and 3 KPI’s (18%) were not achieved. The reasons for non-achievement are set out in the following slides.

Performance against Shareholder’s Compact STRATEGIC GOAL STRATEGIC OBJECTIVES KEY PERFORMANCE INDICATOR 2015/16 ANNUAL TARGET 2015/16 ACTUAL PERFORMANCE ACHIEVED/ NOT ACHIEVED VARIANCE EXPLANATION SG1: Ensure that ICT infrastructure is accessible, robust, reliable, affordable and secure to meet the needs of the country and its people. Ensure universal access to connectivity network services Number of data connectivity terminals installed 300 0 Terminals Installed Not Achieved This target was not achieved because of the instability of the VSAT technology which has resulted in the product being discontinued. Number of smart city solutions implemented 1 1 Smart City Solution Implemented   Achieved Not Applicable Ensure secure and reliable internal ICT infrastructure and services Disaster Recovery and Business Continuity Centre Established Approved Business Continuity Plan Business Continuity Plan Approved by the Board Ensure universal access to digital broadcasting signal distribution network services Number of Digital Terrestrial sites completed 4 Greenfield Sites Completed 2 Greenfield Sites Completed This target has not been achieved due to delays experienced, subsequent to SENTECH having resolved to replace the non-performing supplier, related lead time to replace the supplier, as well as community unrest on Burgersfort site. FM Services Implemented 33 Community Radio Broadcasters Connected 34 Community Radio Broadcasters Connected This target has been over-achieved due to an additional customer requesting SENTECH connectivity services. 31 Transmitters for SABC Expansion Connected

Performance against Shareholder’s Compact STRATEGIC GOAL STRATEGIC OBJECTIVES KEY PERFORMANCE INDICATOR 2015/16 ANNUAL TARGET 2015/16 ACTUAL PERFORMANCE ACHIEVED/ NOT ACHIEVED VARIANCE EXPLANATION SG2: Ensure high levels of Customer and Stakeholder satisfaction by meeting their needs all the time Ensure network availability meets SLA requirements across all platforms Weighted average availability based on product revenues achieved Weighted average availability based on product revenues of 99.80% 99.89% Achieved This target has been over achieved due to the better management of the SENTECH network. Improve customer and stakeholder satisfaction Customer and Stakeholder Index rating achieved 69% 72% Customer and Stakeholder Index Achieved   This target has been over-achieved based on stakeholder initiatives including customer interaction workshops and meetings conducted during the year SG3: Drive organisational performance in order to improve organisational effectiveness. Effective Management of Talent Cover Ratio for Succession Achieved 25 % Cover Ratio for Succession 47% Cover Ratio for Critical and Core Skills. This target has been over-achieved due to the additional number of positions covered by succession plans. Redesigning and alignment of the organisational structure to the new operating model in order to develop organisational capacity and capability Approved organisational design and implementation of macro functional structures Implement new Organisational Structure for the Top three management layers Implemented new Organisational Structure for the Top three management layers Not Applicable

Performance against Shareholder’s Compact STRATEGIC GOAL STRATEGIC OBJECTIVES KEY PERFORMANCE INDICATOR 2015/16 ANNUAL TARGET 2015/16 ACTUAL PERFORMANCE ACHIEVED/ NOT ACHIEVED VARIANCE EXPLANATION SG3: Drive organisational performance in order to improve organisational effectiveness. Effective Management of Talent Performance ratings achieved Non-Bargaining Unit - 100% of performance contracts signed and reviewed. Bargaining Unit - 90% of performance contracts signed and reviewed.   Performance Contracts Signed Non-Bargaining Unit - 100% of Performance Contracts Signed. Bargaining Unit - 100% of Performance Contracts Signed. Performance Contracts Reviewed 0% Bargaining Unit 93% Non-Bargaining Unit Not Achieved This target has not been achieved primarily as a result of engagements between the employee representative and SENTECH in relation to the 13th Cheque matter. Cover Ratio for Succession Achieved 25 % Cover Ratio for Succession 47% Cover Ratio for Critical and Core Skills. Achieved This target has been over-achieved due to the additional number of positions covered by succession plans.

Performance against Shareholder’s Compact STRATEGIC GOAL STRATEGIC OBJECTIVES KEY PERFORMANCE INDICATOR 2015/16 ANNUAL TARGET 2015/16 ACTUAL PERFORMANCE ACHIEVED/ NOT ACHIEVED VARIANCE EXPLANATION SG4: Ensure that the Company is Financial sustainable Implement Sentech Foundation Funds set aside for the implementation of the SENTECH foundation 2% NPAT   4.33% Achieved This target has been over-achieved due to the number of CSI related projects and activities during the year. These included, sponsorships, bursaries and other CSI related projects. Develop and Implement Supplier Development Strategy Funds invested in the implementation of the Enterprise and Supplier Development Strategy 3% NPAT 4.00% This target has been over-achieved due to the number of ESD related activities entered into during the year. These included the ESD incubation programme, supplier engagement functions and sponsorships. Maintain a sustainable Return on Net Assets (RoNA) Return on Net Assets from Continuing Operations 8% 11.27% This target has been over-achieved based on savings against budget for the following categories of expenditure: Other Cost of Sales and Operating Expenses, Legal and Consulting Expenditure. In addition, finance income exceeded budget. Maintain a health Earnings Before Interest and Tax Earnings Before Interest and Tax Achieved R 195.7 m R 196.26 This target has been over-achieved based on savings against budget for the following categories of expenditure: Other Cost of Sales and Operating Expenses, Legal and Consulting Expenditure. In addition finance income exceeded budget. Implement effective internal control system and compliance with applicable legislation Clean Audit Achieved Clean Audit Not Applicable

Network and Product Performance SENTECH delivered overall weighted network availability of 99.89% against a target of 99.89%. All products with the exception of Medium Wave and Short Wave performed below target Medium Wave performed below target due to unavailability of spares, ESKOM load shedding and ageing infrastructure. VSAT performed below target. The major causes of service interruptions included, end of life and unsupported equipment causing instability of the connectivity services hub.

Financial Performance Review   2016 2015 % Change Revenue (000) 1 179 253 1 107 146 7% Gross Profit (000) 325 885 337 627 -3% Operating Profit Before Interest and Tax (000) 196 260 169 884 16% Profit For the Year (000) 199 919 168 836 18% Total Assets (000) 1 954 032 1 718 586 14% Total Liabilities (000) 291 312 412 970 -29% Total Equity (000) 1 662 720 1 305 616 27% Cash Flow From Operating Activities (000) 161 540 131 710 23% Capital Expenditure (000) 115 452 106 822 8% Gross Profit Margin 27.63% 30.50% Profitability Ratio 16.95% 15.25% Liquidity Ratio 5.21:1 3.21:1 Solvency Ratio 6.71:1 4.35:1

Financial Performance Review FY2016 FY2015 % change Revenue 1,179,253 1,107,146 7% 5 Gross Profit 326,885 337,627 -3% 6 Overheads -130,772 -170,567 -23% EBIT 196,144 169,884 15% Net Finance Income 43,767 33,804 29% Profit Before Taxation 239,911 203,688 18% Taxation -40,108 -34,852 Profit or Loss for the Year 199,803 168,836 Total Comprehensive Income 356,988 159,684 124% Gross Profit margin 28% 30% -9% Overheads as a % of Revenue 11% -28% Net Asset Value 1,662,603 1,305,616 27% Highlights: ( All finance figures are in R’000) Revenue growth limited to traditional streams Phasing-out of the VSAT Business Dual Illumination Funding reduction Achieved 23% overheads cost reduction 15% growth in EBIT Margins under pressure due to FOREX exposure Overall positive financial performance

Financial Performance against Budget Highlights: Revenue growth under-performed by 2% Attributable to under-performance DTH VSAT Achieved the EBIT Target Net Profit achieved 28% above budget ACTUAL BUDGET % change Revenue 1,179,253 1,206,348 -2% 6 Gross Profit 326,885 335,330 -3% Overheads -130,772 -139,600 -6% 5 EBIT 196,144 195,730 0% 4 Net Finance Income 43,767 20,840 110% Taxation -40,108 -60,640 -34% Profit or Loss for the Year 199,803 155,930 28%

% Revenue Contribution Highlights: Stable traditional revenue streams TV – slight drop Radio – maintained at 26% DTH grew by 3% almost R40m Continued strategy to diversify revenues.

Revenue Growth Analysis FY 2016

Cash Flow Analysis Highlights: ACTUAL BUDGET % change Cash flow from Operations 161,540 195,742 -17% 6 Investments -194,171 -476,436 -59% Government Grants 100,169 95,614 5% 4 Net Increase (Decrease) in Cash 67,538 -185,080 -136% 5 Cash at the end of Year 957,242 590,169 62% Cash from operations vs EBIT 82% 100% -18% Highlights: Cash Flow from operations underperformed: High inventories level and Settlement of Creditors within 30 days Less than 50% of CAPEX spent 82% of EBIT converted into cash.

Financial Capital Inputs Outputs Outcomes Approved Finance Department Policies Cash Generated From Operations of R 96m Appointment of skilled, competent management staff SAP blueprint for finance module Outputs Compliance with the PFMA and Treasury Regulations - Suppliers paid within 30 days ESD Spend of R 8m Contribution to the fiscus of R 40 m Solvency Ratio of 6.71:1 Outcomes Accountable and caring corporate citizen Reliable and accurate information available for key decision makers. SENTECH will continue as a going concern.

Manufactured Capital Inputs Outputs Outcomes Capital expenditure of R 116 m Total Expenditure of R 983 m Outputs Weighted average network availability of 99.89% EBIT of R 196m RoNA of 11.27% Population and geographic coverage of 87.26% and 61.69% respectively. Outcomes Satisfied customers as evidenced by the customer satisfaction index of 72% which is greater than the Corporate Plan target of 69% Additional geographic and population coverage will allow for increased service offering

Social and Relationship Capital Inputs Social and Ethics Committee Sponsorships Appointment of an ESD Specialist SCM Policy supporting SMME's and ESD Outputs Continuous meaningful stakeholder engagement Compliance with King III principles as per Governance Report Development of a Stakeholder Management Strategy B-BBEE Level 3 rating achieved Outcomes Skills development training resulting in community upliftment Accountable and caring corporate citizen Development of SMME's and assisting in job creation

Human Capital Inputs Healthy Satisfied Employees SENTECH Corporate Plan 2016-2019 Talent Management System Workplace Skills Plan Strengthened senior management and management team following GIBS LDP programme and 360 Effectiveness Reviews Performance management process implemented Employment Equity Policy Implemented Remuneration Policy Employee Engagement Outputs New organisational structure for top 3 layers of management 100% of all staff signing performance contracts 80% of training plan achieved Outcomes Healthy Satisfied Employees The right employees with the right skills in the right structure Inputs

Intellectual Capital Innovation hub Digital product roadmap Inputs Innovation hub Digital product roadmap Outputs Smart City Solution for CoJ Hybrid Broadcasting Platform development Completion of project and reports prepared for DAB+, DRM 30 and L Band Outcomes Enhanced product offering to customers including products and consulting services

Natural Capital Inputs Environmental Policy Service provider to dispose of waste Outputs Compliance with King III Report principles as per Governance Report Electricity costs in line with inflationary increases Outcomes Reduced impact on the environment by reducing carbon emissions Reduced environmental damage by way of the adequate disposal of hazardous and non hazardous waste Inputs

Governance BOARD Audit & Risk Committee Social & Ethics Committee Human Resources: Nominations & Remuneration Committee Technology, Policy & Regulatory Committee DTT Ad-Hoc Committee The Board ensures shareholder value creation within a framework of prudent and effective controls, which enables risk to be assessed and managed to ensure long-term sustainable development and growth. The Board has ultimate responsibility and accountability for the performance and affairs of the Company, and bears the responsibility for ensuring that the Company adheres to high standards of ethical behaviour. Board Committees provide oversight and guidance. To this end, the Board has established five Board Committees.During the financial year, the CFO resigned. The CEO position has been filled whilst the CFO position is currently in the process of being filled.

Future Business Outlook Fast changing broadcasting market conditions Introduction of broadband video on demand and video streaming services DTT platform offers multi-channel opportunities to the broadcasting market Challenges of unavailable STBs in the market will delay Analogue Switch-off Delayed Analogue Switch-off will impact SENTECH’s business negatively SENTECH’s strategy is to look at diverse services to drive business sustainability Shortage of technical skills is a risk to be managed The introduction of new ICT Policy will change the policy and regulatory environment The new digital technology platforms bring new opportunities for SENTECH’s business SENTECH will focus on innovation New markets beyond the SA borders will be explored

Conclusions Achieved an unqualified audit opinion (clean audit) in four successive years Improved labour relations at SENTECH; We remain focused on driving revenue and profitability and long term sustainability of the business; The DTT network is being stabilised; Supported Socio-economic enterprise development; Focus on developing new skills is evident on our policies on human capital development. Effective corporate governance in place

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