1. Strategic Plan and Annual Performance Plan
PRESENTATION TO SELECT COMMITTEE ON PUBLIC ENTERPRISES
10 May 2017
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2. Presentation outline Purpose of the presentation Strategic context
Strategic objectives
Strategic outcomes
2017/18 priorities
SOC performance targets (shareholder compact)
Resources
Strategy roadmap
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3. Purpose of the presentation
The purpose of the presentation is to brief the Portfolio Committee on :
The strategic context within which the Department will implement on its plans
The changes that have been introduced into the plans
The strategic outcomes that will be pursued by the Department for the remainder of the MTSF period
Define the Strategic Objectives of the Department
Outline the 2017/18 priorities for the Department and the SOCs
Resourcing of the mandate
The roadmap for the execution of the Strategy
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4. Strategic context: Domestic economic outlook
The South African economic growth has remained relatively steady influenced by both domestic and global factors
The structural constraints that impedes accelerated growth remains and accelerating investments remains important for long term economic growth
Government has identified a list of interventions that must support economic recovery and put the economy on a different trajectory
Over the MTSF period growth is projected to recover but not to the desired levels outlined in the National Development Plan.
Source: Res Bank, 2017
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5. Strategic context: Economic policy framework
The current economic policy framework is targeted to stabilise the economy and transform
The current plans have been designed to:
Support the implementation of the current economic policy framework
Pursue the outcomes outlined in the NDP through the appropriate positioning of the SOCs
Create a system of Governance that will boost the confidence of the citizenry on the management of State Assets
National Vision and responding to the triple challenges
National Development Plan
Accelerate the implementation of interventions to essential to turnaround the economy
Nine Point Plan
Implement projects and develop policies to support movement towards investment driven growth
Outcome Six including SIPs

6. The role of the Department in the Development Context
Vision
The aim of the Department is to drive investment, productivity and transformation in the Department’s portfolio of SOCs, their customers and suppliers to unlock growth, drive industrialisation, create jobs and develop skills.
Strategic objectives
Promote independent financial sustainability of SOCs
Promote commercial viability of SOCs’ operations
Position SOCs to support the reindustrialisation of the South African economy
Increase contribution of the SOCs to support the transformation of the South African economy
Promote institutional alignment in the execution of oversight function
Promote the development of a strong shareholder
Oversee the implementation of infrastructure programmes within SOCs
Mandate
The Department has been tasked by Cabinet to lead the Government effort to develop a Government Shareholder Oversight Policy. This will form the framework within which Government will leverage its position to accelerate investments in the economy and its transformation.
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7. Instruments to be used to achieve the designed outcomes?
 2016/17 Financial Year
Total value of assets
‘Rbn
Total Liabilities
Profits
Eskom
660,685
480,122
4,617
Transnet
356,393
213,103
0,393
SAX*
1,779
1,704
0,010
Denel
13,002
10,681
0,395
Alexkor
0,673
0,348
-0,041
SAFCOL
4,652
1,419
0,058
Total
1 037,184
707,377
5,432
* SAX numbers are unaudited
SOCs within DPE have a combined asset value of over one trillion Rand and its in key sectors of the economy
This capacity in SOCs can influence the direction of the economy and this is a key leverage for the Department
Investments by SOCs have been central to keep the economy afloat. In 2000, SOCs investment represented only 10 percent of total investment and increased to 20 percent in 2016
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8. 2017/18 Priorities Per Programme
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9. Programme 1: Administration
The projects in Programme 1 are targeted to modernise the organisation and improve its influence and on governance systems
The creation of systems will strengthen the capacity of the department to deepen its oversight with the same level of resources
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10. Programme 2: Legal and Governance
The focus of the programme in 2017/18 is to conclude the Government Shareholder Policy
The draft policy will re-organise and optimise the State investments in the economy and ensure that SOCs drive the developmental requirements of the State
The work to conclude the phasing out of Aventura will be concluded in the current financial year. This work provides an important business case for Government on how to phase out SOCs whose mandate is no longer relevant for current developmental requirements
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11. Programme 3: Energy Enterprises (a)
The Programme will focus on improving the sustainability of Eskom and improving its contribution to the broader competitiveness of the economy
This will be accompanied by assessing the effectiveness of the business model to deliver on the company’s mandate and influence the long term trajectory of the energy sector
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12. Programme 3: Manufacturing Enterprises (b)
Denel has shown that Government can implement a turnaround and provided key lessons for incorporating private sector without weakening Government’s influence and control on the company
In the current financial year the Department will focus on providing the company support to strengthen its financial position
SAFCOL will also be supported to improve its processing capacity and supporting the broader transformation of the economy
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13. Programme 3: Transport Enterprises (c)
The decline in economic activity has had an impact in the operational environment for the transport enterprises
The Department in the current financial year will focus on pursing initiatives to improve their performance and sustainability
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14. Programme 3: Economic Impact and Policy Alignment (d)
The department continue to persue programmes to support black participation in the manufacturing sector
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15. Programme 3: Strategic Partnerships (e)
Sustaining the current level of investments will require SOCs to diversify their funding sources
The Department will develop a funding strategy that will improve access to funding for the SOCs
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16. SOCs performance targets (summary)
Denel
KPA
KPIs
Target
Financial sustainability
Cash generated from operations
R730m
Value of new orders
R2bn
EBIT Margin 7%
Operational performance
R&D investment
8,5%(limited to R740mn)
Achievement of cardinal milestones as contractually agreed with clients
85%
Socio economic
Local content
70%
Procurement from black owned suppliers as % of local spend
30%
Skills development
Total number of engineering trainees 50
Total number of artisan trainees
100
SAFCOL
KPA
KPIs
Target
Financial sustainability
EBITDA Margin 1%
Overhead reduction
1.5%
Revenue growth 5%
Operational performance
Maintenance of planted area (RSA) ha
% of total forest are in RSA fully certified
100%
Lumber Market share 3%
Socio economic
Local content
80%
BBBEE spend on Qualifying Small Enterprise (QSE’s)
65%
BBBEE Spend on Exempted Micro Enterprise (EME’s)
45%
Total direct employment
2 898
Optimisation of State’s role focused on coherent private sector participation is critically imperative. 1

17. SOCs performance targets (summary) Cont…
Eskom
KPA
KPIs
Target
Financial sustainability
Debt/Equity Ratio
3.07
EBITDA margin
R18.90 bn
Operational performance
Arrear debt as % of electricity Revenue
1.29%
Average debtors days
65.82
Socio-economic
EME (Exempted Micro Enterprise) attributable spend
15%
Local content contracted
70%
Training spend 5%
Transnet
KPA
KPIs
Target
Financial sustainability
EBITDA margin
≥41.5%
Gearing
≤50%
Operational performance
ROTA Port operations
≥12.4%
ROTA Rail
≥5.2%
Socio-economic
Technician trainees
≥160
Artisan trainees
Local Content
≥75%
BBBEE
≥70
SOC continue to operate under constrained business environment which impact on their financial position and sustainability.
This requires efficient and productivity improvements that will change cost structures of the SOCs.
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18. SOCs performance targets (summary) Cont…
Alexkor
KPA
KPIs
Target
Financial sustainability
Operational Cash buffer
R65mn
Rental income collected
85%
EBITDA margin
10.5%
Operational performance
Exploration and mining of shallow water channels
5 000 carats
Deep water mining
15 000
Socio economic
Artisan trainees 12
Engineers trainees 3
Total BBBEE spend
SAX
KPA
KPIs
Target
Financial sustainability
Net profit after tax
R77 mn
EBITDA 9%
Net cash position
R131 mn
Operational performance
Aircraft availability
80%
Breakeven load factor
≤50%
Socio-economic
BBBEE Score 4
Total BBBEE Spend
40%
SAX financial position is significantly constrained and the targets are focused on improving the operational and financial efficiency
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19. Key events post the tabling of the Strategic Plan and Annual Performance Plan
Post the tabling of the SP and APP there are significant events that have occurred that will require the Department to put in place appropriate responses
The downgrading of the sovereign debt to sub-investments will have the material impact on the ability of SOCs to raise funding i.e. have the potential of increasing the cost of borrowing
The Department has done preliminary assessment of the post-downgrade impact on the credit spread of the SOCs
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20. Key events post the tabling of the Strategic Plan and Annual Performance Plan (Cont…)
The Department will develop an appropriate response plan that will strengthen investor confidence on the financial position of SOCs in particular Eskom and Transnet
The shareholder’s attention will be increased on the following, which contribute towards cost structure of the SOCs:
Management of primary energy cost to be examined and new contracting options explored
Government guarantee in a short/medium term for SOCs to secure funding
Delivery of the build programmes to ensure budget overruns are contained
Optimal capital structures of SOCs
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21. Resourcing of the Department: Human resources1

22. Resourcing of the Department: Budget
The Department's budget increased from R266.7 million in 2017/18 to R296.5 million in 2019/20 at an average growth rate of 3.4%.
Compensation of employees is a significant share of the department’s budget over the medium term and this is as a result of the oversight function which requires specialised, highly skilled personnel.
Over the medium term Compensation of Employees is expected to increase from R166.9 million in 2017/18 to R184.6 million in 2019/20 at an average growth rate of 6.2% as a result of the expansion of the establishment over this period.
Goods and Services including Payments for Capital Assets is expected to increase from R96.9 million in 2017/18 to R108.6 million in 2019/20 to support the increased establishment.
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23. Resourcing of the Department: Budget Cont…
DESCRIPTION
2017/18
2018/19
2019/20
R'000
 BUDGET REDUCTIONS      
- Compensation of employees
-2 062
- Goods and services
- Payment for capital assets
-37
-35
-44
 2017 MTEF ALLOCATIONS (included in 2017 ENE)      
- COMPENSATION OF EMPLOYEES CEILING
Mitigation plan on budget reductions
Funding for priority projects as set out in the strategic and annual performance plan.
Re-alignment of the departmental organisational structure.
Implementation of the cost containment measures (reduction on non-core goods and services).
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24. Strategy roadmap
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25. THANK YOU
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