QUARTER 2 BUSINESS PERFORMANCE REPORT Presentation to the Department of Telecommunications & Postal Services DECEMBER 2017

INTRODUCTION Overview of performance against corporate KPIs Financial Performance Product and Network Performance Governance Internal Audit External Audit Progress Our People Enterprise Development Risk Management Conclusion and Recommendations

Performance Against Corporate KPIs

Performance against corporate KPIs Six KPIs out of the nine have been achieved as summarized below: KPI KPI 1: Revenue R627 million KPI 2: EBIT R27 million KPI 3: 50% ESD Spend KPI 4: 275 STBs installed KPI 5: Clean Audit Actual Performance Revenue of R606m achieved EBIT of R121m achieved Achieved a 50% spent on ESD 500 STB delivered and procurement of installation material and contract labour initiated Not applicable for the period under review. It should be noted that the Internal Audit Plan is being implemented. Performance Not Achieved Achieved No performance Required KPI 6: Weighted Average Network Availability 99.80% KPI 7: Four Customer Engagement Workshops KPI 8: 50% organisational objectives achieved KPI 9: 45% of training interventions completed KPI 10: Establish project office and develop concept document. Total average network availability indicated good performance of 99.93% against target of 99.80%. Customer engagements held including HFCC, Limpopo Commercial & Community Workshops and FS National Community Radio Week. This KPI is depended on achievement of other objectives and was mainly affected by missed revenue targets. 984 of 1751 (56,2%) of the annual training interventions have been delivered to date. The Project Office has been established and a service provider appointed to conduct market research and develop a business plan.  

Performance against corporate KPIs Achieved/ Not Achieved Strategic Goals Strategic Objectives KPIs Annual Target   Quarter 2 Actual Performance Achieved/ Not Achieved Variance Explanation SG 1: Sustainable business growth Increase revenue Revenue growth by 8–10% annually (cumulative) R1 275.8 million R627 million Achieved revenue of R606m Not achieved This KPI was not achieved mainly due to a deficit in the Connectivity and DTH Services. The catch up on the revenue will be on closing CAR, SA connect and available capacity on Satellite. Increase Earnings Before Tax and Interest (EBIT) Earnings before Interest and Tax (cumulative) R138 million R27 million EBIT of R121m achieved Achieved This positive performance was due to there being 15% (R50m) less operating expenditure regarding maintenance, satellite rental and marketing costs.

Performance against corporate KPIs Achieved/ Not Achieved Strategic Goals Strategic Objectives KPIs Annual Target   Quarter 2 Actual Performance Achieved/ Not Achieved Variance Explanation SG 1: Sustainable business growth Contribution to socio-economic transformation Actual spend of NPAT on Supplier Development (2%), Enterprise Development (3%) and SED (1.5%) 6.5% of Actual NPAT for the 2017/18 Financial Year Achieve 50% of budgeted Enterprise and Supplier Development Spend 50% of budgeted ESD was spent Achieved KPI achieved due to ongoing support of SEED initiatives. Ensure reliable commercial DTT network 550 DTT national viewer sites installed & viewer experience measured 550 DTT national viewer sites installed and field trial experience tested 275 STB installed  500 STB delivered and the procurement process to acquire installation material, and contract labour is in process Not Achieved The catch-up plan includes SENTECH OCs being utilised for implementation in the regions. The communication plan has been improved. 500 STBs will be installed by end of November and additional 50 in December.

Performance against corporate KPIs Achieved/Not Achieved Strategic Goals Strategic Objectives KPIs Annual Target   Quarter 2 Actual Performance Achieved/Not Achieved Variance Explanation SG 2: Achieve high levels of customer satisfaction Ensure network availability meets SLA requirements across all platforms Weighted average availability based on product revenues Weighted average availability based on product revenues of 99.80% Weighted average network availability 99.93% achieved Achieved Overachievement due to better network management Enhanced customer orientation Customer satisfaction level of 80% Customer satisfaction level of 80% achieved 4 Customer engagement workshops 4 Customer Engagement Workshops were held during the quarter Scheduled engagements were executed timeously.

Performance against corporate KPIs Achieved/Not Achieved Strategic Goals Strategic Objectives KPIs Annual Target   Quarter 2 Actual Performance Achieved/Not Achieved Variance Explanation SG 3: Build a high-performance culture Achieve high performance culture (85% of Organisational objectives achieved) Average employee performance ratings of 3.6 achieved Performance rating of 3.6 for the 2017/18 Financial Year 50% of Organisational objectives achieved 33.3% of Organisational objectives achieved Not Achieved This KPI is dependent on achievement of other objectives and was mainly affected by missed revenue targets Ensure employee development 85% Training Plan Interventions implemented 85% of the 2017/18 approved Training Plan interventions implemented 45% of training interventions completed 984 of 1751 (56,2%) of the annual training interventions have been delivered to date Achieved This KPI has been overachieved due to better execution of the training plan

Performance against corporate KPIs Achieved/Not Achieved Strategic Goals Strategic Objectives KPIs Annual Target   Quarter 2 Actual Performance Achieved/Not Achieved Variance Explanation SG 4: Lead preparation for the launch of the South African-based Satellite Project Develop a South African-based Satellite business plan and funding proposal South African-based Satellite business plan and funding proposal submitted to Shareholder subject to feasibility study results South African-based Satellite business plan and funding proposal submitted to Shareholder subject to feasibility study results Establish the Project Office and Develop concept document The Project Office has been established. Service provider appointed to conduct market research and compile business plan Achieved This was achieved due to better planning and appointment of a dedicated project manager

Product and Network Performance

Product and Network Performance   National Network Performance – Quarter 2, 2017 Network Services SLA Target SENTECH Performance R' 000 Weighted Ave Terrestrial Television 99.7 99.94 155888 55.34 FM Radio 99.88 77136 27.37 Medium Wave Radio 99.5 99.89 3279 1.16 Short Wave Radio 6577 2.33 Satellite 99.8 100.00 38640 13.73  TOTAL 281520 99.93

Financial Performance

Financial Performance Q2 June 2017

Financial Performance Revenue Per Service   Quarter 2 YTD FY2018 Service Actual Budget Variance R '000 % TV 155 889 155 912 (24) (0%) 312 114 311 825 289 0% FM 77 135 76 868 267 155 831 153 239 2 592 2% MW 3 278 2 487 792 32% 5 763 4 971 - SW 6 578 7 153 (575) (8%) 13 336 13 968 (632) (5%) DTH 38 550 42 273 (3 723) (9%) 79 786 81 902 (2 116) (3%) Facility Rentals 17 785 16 333 1 452 9% 36 142 32 579 3 563 11% Connectivity services 1461 13837 (12 376) (89%) 3 457 28 804 (25 348) (88%) Continuing business 300 675 314 863 (14 188) 606 428 627 288 (20 859) DTT: Dual Illumination 31 753 28 161 3 592 13% 64 578 84 079 (19 501) (23%) Sundries (commission) 92 100% 94 Total revenue 332 520 343 024 (10 504) 671 101 711 367 (40 266) (6%)

Governance

Governance Annual General Meeting was held on 11 August 2017 PFMA, Companies Act and King IV Compliance matters Annual General Meeting was held on 11 August 2017 The Board Evaluation Report has been submitted to the Minister SENTECH has achieved a clean audit for the fifth successive year Quarterly Board and Board Committee meetings have been held The filling of the COO position is underway.  

Internal Audit

Name of Internal Audit Project Name of Internal Audit Project The below table highlights Internal Audit Functions progress against the 2017/18 Revised IA Plan for Quarter 2: Name of Internal Audit Project Fieldwork Completed Audit Report Issued Audit Project Status Travel Management Audit n Network Performance Management Review Security Follow Up Review Accounts Receivable Follow Up Review IT Vulnerability Assessment Risk Assurance Review Progress against Approved Ad-Hoc- Projects: Name of Internal Audit Project Fieldwork Completed Audit Report Issued Annual Report Review n SCM Tender Review

External Audit Progress Continuous Improvement Plan Programme No. of findings raised by the Auditor General of South Africa No, of Internal Controls Developed for Implementation 0% - Not Addressed 25% In - progress 50% Implementation Achieved 75% Adequately Effective 100% Fully Effective Finance 12 5 3 1 Revenue: Invoices not reviewed Receivables: Customer given credit after failing credit check and no security deposit requested from customer Trade Receivables: No supporting document obtained for account 39020 Prepayments: Differences identified between the prepayments recorded and the recalculated amount Prior period revenue billed in the current year Employee costs: Interest free loans not in compliance with Income tax Act Trade Payables: Payroll Creditors incorrectly classified as trade payables Trade Payables: Creditors reconciliations not performed Items not recorded in the correct accounting period Expenditure: Invoice recorded in the incorrect accounting period Trade Payables: Eskom clearing account not being cleared Related Parties balances disclosed could not be confirmed Supply Chain Management 10 4 SCM: FY2017 Capital Expenditure-Demand Management Plan insufficiently designed SCM: Points awarded to supplier that did not submit an original and valid B-BBEE Status Level Verification Certificates SCM: Evidence of approval to do business with the state SCM: SENT/001/2016-17 not advertised for 21 days Points awarded to supplier that did not submit an original and valid B-BBEE status Level Verification Certificates Inventory: Non-compliance with SCM policy Stand-by hours worked were not capped at 40 hours Employee Cost: Incomplete listings received Terminated employees not removed timeously from SAP Overtime not pre-approved by the line manager

External Audit Progress Continued Information Communication Technology 12 1 2 7 IT Backup Procedure document is not approved and does not include restoration procedures Non-conformance to Change Management Inconsistencies in the backup environment Segregation of Duty conflicts in SAP User account parameters not in line with leading practice. Non-compliance to User Account Management Procedure Generic accounts which are not assigned to identifiable owners in the AIX Operating System Excessive amount of Administrator accounts in the Active Directory ICT policies not reviewed annually as prescribed Inadequately designed user management procedure and lack of complete sign-off from all required signatories Inadequate Incident Management Physical control weaknesses in the server room Human Resources Management 3 Employee Costs: Salary advances not deducted within 2 months Employee Costs: Salary advances granted in excess of the limit Employee costs: Additional salary advance granted before the previous advance was fully settled

External Audit Progress Continued Performance Information Management Governance and Administration Audit and Board Strategic Planning - Tabling Internal Controls - Policies Totals 37 1 12 6 17 0% - Not Addressed 3% 25% In - progress 32% 50% Implementation Achieved 16% 75% Adequately Effective 100% Fully Effective 46%

Our People

Our People Number of Employees 547 Employee Turnover 2.38%

Enterprise Development

Enterprise Development For the period under review, the following highlights outcomes of SENTECH’s Incubation Programme: 10 SMMEs comprising of 17 entrepreneurs graduated from SENTECH’s incubation programme Maebela Legacy Networks, specialists in ICT communications, hardware and cabling, grew its turnover by 72% Boleng Mechanical Engineering, air-conditioning and ventilation suppliers to the corporate market, created 10 new jobs Axotel, optic fibre cabling specialists, enjoyed a turnover growth of 320% and job growth of 50% 2VP Electrical Services, electrical contracting and maintenance services, saw a 71% increase in jobs with a growth of 54% in turnover Pacesetter Networks, IT services and support to both public and private sectors, had a job growth of 500% Prottolk Investments, industrial plant automation and after-sales support, enjoyed a turnover growth of 608% and grew their jobs by 25%

Risk Management

Risk Management Strategic Risks updates There are 16 strategic risks that were identified at the beginning of the year. The mitigation actions are being continuously implemented. DTT Risks Updates The DTT risks are continuously being monitored in the DTT risk register. Most of these risks remain the same as the impact of the risks is reduced by implementation and activities performed by external stakeholders. An advisory committee was established by the Minister of Communications during the quarter and a kick-off meeting was held during August 2017. This structure will explore alternatives to expedite the DTT migration process. DTT Risks updates Fraud risk exposures are increasing as incidents reported are new on the fraud risk register. The full implementation of the SAP upgrade will further reduce some of the risks.  

Status of implementation of action plans Strategic Risk Update Continued # KPI Risk Description Contributing factors Current Controls Mitigation Actions Status of implementation of action plans 1 Revenue growth of 10% annually Inability to sell current and new products and enter new markets Entrance of disruptive technologies and new competing players in the market Failure to successfully execute acquisition strategy Increased competition Self-provisioning by existing and potential customers Inadequate business development skills Analysis of competitors.   Implementation of go to market strategies. Product development. Regular assessment of products for market fit through benchmarking. Customer sales expertise Development of new products and services Establish an international business unit Monitor the implementation of the strategy Identify new competitors and classify them according to their impact on existing revenues and then develop and implement response strategies. Continue Implementation of the customer centric Sales strategy Implementation of the customer value proposition strategy. SENTECH has embarked on a program to establish an OTT platform. SENTECH is also evaluating IOT applications for utilization for DTT value add.. Business development in about 10 countries has started. Agreement to provide service with Central Africa Republic signed. Three M&A prospects identified and initial discussions started. A wireless solution has been developed. To maximize current staffing resources, the Sales Division is being realigned in accordance with priority revenue growth areas.

Status of implementation of action plans Strategic Risk Update Continued # KPI Risk Description Contributing factors Current Controls Mitigation Actions Status of implementation of action plans 2 Revenue growth of 10% annually Impact of proposed changes to the regulatory environment and Absence of policy direction. Uncertainty in the SOC rationalization process. Uncertainty of whether post-ASO ECNS licensees will be permitted to act as multiplex operators. Absence of policy directive on digital sound broadcasting. SENTECH participates in the SOC rationalization Steercom. Lobbying and consultation with the DoC. Monitor developments and participation in the SOC rationalization. In relation to the expected publication of the draft Broadcasting Policy Whitepaper for public commends, SENTECH will make submissions highlighting importance of sustainability and growth Clarity was provided on the merger and a high-level approach towards the merger was provided. SENTECH will participate in the policy review process.

Status of implementation of action plans Strategic Risk Update Continued # KPI Risk Description Contributing factors Current Controls Mitigation Actions Status of implementation of action plans 3 Network availability of 99.80%. Ageing infrastructure Delayed Analogue Television network switch-off Technology obsolescence SENTECH has deployed a national DTT network to replace analogue infrastructure. SENTECH has also developed an ASO plan to spearhead migration process. Solution replacement plans Programmes for ATV, FM, MW and VSAT are in place . SENTECH to continue engaging DoC, DTPS and other key stakeholders through the PMO to expedite commercialization of DTT services and ASO. Implementation of maintenance plan and replacement of infrastructure Implementation of the technology replacement plan Review short Wave technology An advisory committee was established by the Minister of Communications. This structure will explore alternatives to expedite the DTT migration process. Procurement process is underway for technology replacements. This is expected to be finalized by November.

Status of implementation of action plans Strategic Risk Update Continued # KPI Risk Description Contributing factors Current Controls Mitigation Actions Status of implementation of action plans 4 Network availability of 99.80%. Unavailability of reliable energy to run efficient operations Power supply interruptions due to ESKOM system failures Standby power plants deployed at critical infrastructure sites. Full implementation of Power backup and new energy management strategy 32% of the STG replacement plan has been completed. A process for the design and implementation of the solar energy system is underway. 5 Sustainability of suppliers and service providers of mission critical equipment and services Sustainability and ability to remain in business of critical Solution and equipment manufacturers and service providers. Lack of alternative service providers and manufacturers of critical equipment. (over reliance on certain suppliers) Enforcing the contract terms and conditions and use of alternative suppliers where viable. Ongoing monitoring of supplier performance Review of the critical equipment suppliers and reclassification Establishment of strategic supplier partnerships. Development of local suppliers through the SEED programme. Strategic partnership strategy has been developed. A process to review supplier contracts has been initiated. Meeting have been held with various suppliers to facilitate strategic partnerships and performance monitoring.

Status of implementation of action plans Strategic Risk Update Continued # KPI Risk Descriptio n Contributing factors Current Controls Mitigation Actions Status of implementation of action plans 7 Network availability of 99.80%. Inadequate physical and Cyber security Inadequate security measures in some areas. Deterioration of socio-economic status (crime- effect on operations). Cyber crime. Approved physical security strategy that is linked with Cyber security strategy in place. Engagement with some communities. Full implementation of the physical and cyber security plans. Engagement of the communities around theft prone sites. Partners are being sourced for implementation of the plans for NKP and IT security. 8 Increase EBIT Financial Sustainability Exposure to foreign exchange rates fluctuations; Increased costs of operations (e.g. energy, Satellite, etc.). Over reliance on one customer. Delayed ASO which has an impact in dual illumination and technology obsolescence Complexity of DTT commercialization. Credit downgrade of South Africa by the rating agencies Forward contracts Natural hedging Cost reduction strategies Diversification of products and services Engagement of the shareholder and other stakeholders Engagement of an external expert with experience in ASO & DSO to share knowledge and experience in this regard.   Forward covers and natural hedging when necessary Reduce cost of doing business and drive efficiencies Cost optimization initiatives to remain focus area; Products/services and markets’ diversification Sweat the assets to extract more value. SENTECH continues to participate in the interventions established by the Shareholder to expedite the launch of commercial DTT Review of the capex plan and delaying spending where practically possible without compromising the network. Reviewing and managing discretionary expenditure All controls are continuously being implemented including forward covers and cost reduction and containment strategies. Sound International Business pipeline being pursued. Partnership Framework approved, onboarding of new partners is on-going. An agreement with CAR has been signed.

Status of implementation of action plans Strategic Risk Update Continued # KPI Risk Description Contributing factors Current Controls Mitigation Actions Status of implementation of action plans 9 Increase EBIT Implementation of the proposed changes in the regulatory environment, i.e. 700 and 800 MH Inability for SENTECH to recover cost from the affected infrastructure and potential reduction of the coverage footprint of the terrestrial network impacted by introduction of Terrestrial Mobile Services (IMT) in the 700 and 800 MHz bands The migration of STLs to another band will introduce spectrum fees Consultation with ICASA, including submissions made during IMT public processes. SENTECH submitted an affidavit in support of the Minister of Telecommunications and Postal Services' bid to halt the ICASA ITA process.   SENTECH will make submissions on the draft National Frequency Radio Plan. In the expectation of ICASA publishing the draft Radio Frequency Spectrum Assignment Plan, SENTECH will make submissions. SENTECH will participate in the review of broadcasting policies 10 Average performance ratings of 3.6 Lack of performance monitoring on a quarterly basis to review performance and identify competency gaps. Lack of identifying current individual employee skills gaps required to execute on performance goals. Line managers not taking accountability for managing employee performance. Leadership ineffectiveness. Performance management policy in place. The SENTECH Way and Leadership development programmes Adherence to the Performance Management Policy. Drive goal alignment, culture change, leadership excellence and personal effectiveness. Quarterly reviews are used to monitor implementation of PMS policy. The SENTECH Way has been defined to drive leadership effectiveness and performance results.

Status of implementation of action plans Strategic Risk Update Continued # KPI Risk Description Contributing factors Current Controls Mitigation Actions Status of implementation of action plans 11 SA Satellite Business plan and funding proposal submitted to Shareholder. Inadequate skills and resources to develop SA satellite business Plan Research skills needed as well as information on the procurement and operating a satellite might not be available for the development of the business plan. Orbital location may impact the success of an implementable business case Lack of interest or buy-in by the relevant stakeholders. There are no current controls. Mobilize relevant partners and stakeholders for participation and support of the SADC Satellite Project Engage with the relevant stakeholders Develop and implement a stakeholder engagement strategy Project Office established. Stakeholder management is being executed and monitored monthly and quarterly by Corporate Affairs Department Implementation of the strategy continues. More awareness to be done. 12 Inadequate funding for implementable business case/ plan Current financial resources requirements from treasury and competing fiscal priorities Develop and implement a borrowing strategy Engage all stakeholders to raise funds A number of DFIs have been approached and are showing interest - including DBSA, NEF and IDC; also private banks have been approached with positive response. 13 Actual spend of NPAT on Supplier Development (2%), Enterprise Development (3%) and SED (1.5%) Lack of process to utilise the ESD beneficiaries in Supply Chain. Impact of the amended ICT codes Current SCM regulations and processes not supporting all ESD activities SCM processes Review SCM processes to create a way to absorb the ESD beneficiaries in to supply chain and sustained within SENTECH. Process underway on absorbing and developing black suppliers. 14 Prior commitments on SED not benefiting ICT beneficiaries Current SED commitments are not all in ICT (Impact of the amended ICT codes) SED processes Review current commitments to target ICT beneficiaries Continuous monitoring and evaluation. BBBEE seminar conducted to provide guidance. 15 Customer satisfaction Loss of customers Potential of self-provisioning by dissatisfied customers Customer engagement process Products regularly assessed for market fit through benchmarking Execute Customer value proposition Customer satisfaction tracking tool developed and being implemented.

Conclusion and Recommendations Performance against KPIs for the period under review indicates 33.3% overall organisational performance against objectives. The KPI pertaining to increasing revenue is at risk of non-achievement if the organisation does not come up with new revenue streams. Non-payment of recognised revenue continued throughout the period and will be managed closely as it negatively impacts revenue and cash flows. To mitigate this, the planned catch up will be implemented to pursue identified opportunities. The KPI pertaining to the DTT viewer sites is at risk of not being achieved. Plans in place will be pursued to ensure DTT stabilization and readiness for commercialization.

Conclusion and Recommendations The company achieved above budget profitability (EBIT and net profit) and finance income also was above budget, however, the continuing business revenue missed the set target and implementation of deliverables pertaining to revenue growth should help improve revenue. The forecast requires more effort by the business to ensure that the financial sustainability of the company is not threatened. The remaining quarters will incorporate the implementation of a sound management plan to further contain costs and improve revenue. Overall average network availability performed well. Product performance was within budget for majority of products except for SW, DTH and Connectivity services. SENTECH will continue to implement and maintain good governance and human capital management.

Thank You!