1. Presentation to:. The Portfolio Committee on
Presentation to: The Portfolio Committee on Telecommunications and Postal Services
Organisation: SENTECH
Presentation on: Performance Information
Period of Reporting: 2017/18 Quarter 2
Date of Presentation: 20 February 2018

2. PERFORMANCE OVERVIEW FOR
THE REPORTING PERIOD
Summary of Performance Status for period under review:
Six KPIs out of nine KPIs relevant for the second quarter were achieved .
Business year-to-date revenue at end of the quarter was 3% (R21m) below budget (R606m actual vs R627m budget) mainly due to a deficit in the Connectivity and DTH services.
Total revenue was 6% (R42m) below budget (R671m actual vs R713m budget).
An EBIT above budget of R121m against R27m target was achieved.
Overall average network availability performed well.
Product performance was within budget for majority of products except SW, DTH and Connectivity services.

3. PERFORMANCE OVERVIEW FOR THE REPORTING PERIOD
Significant Achievements / Highlights:
SENTECH achieved an EBIT above budget of R121m against R27m target due to 15% (R50m) less operating expenditure regarding maintenance, satellite rental and marketing costs.
Areas of Under-Achievement:
The revenue target (Actual R606m vs Budget R627m) was missed mainly due to a deficit in the Connectivity and DTH Services.
The target for installation of 550 DTT national viewer sites and field trial experience tested was missed.
Overall organisational objective rating of 33.3% was achieved. This KPI is dependent on achievement of other objectives and it was mainly affected by missed revenue targets.

4. Performance Information

5. Performance Information Explanation of Variance
Annual
Target
Quarterly Target
Actual Performance
Status
Explanation of Variance
R 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 realising revenue from the Central Africa Republic Project, SA connect and available capacity on satellite.
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.

6. Performance Information
Annual
Target
Quarterly
Actual Performance
Status
Explanation of
Variance
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.
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 Operational Centres 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.

7. Performance Information Explanation of Variance
Annual
Target
Quarterly
Actual Performance
Status
Explanation of Variance
Weighted average availability based on product revenues of 99.80%
Weighted average network availability 99.93% achieved
Achieved
Overachievement due to better network management
Customer satisfaction level of 80% achieved
4 Customer engagement workshops
4 Customer Engagement Workshops were held during the quarter
Scheduled engagements were executed timeously.

8. Performance Information Explanation of Variance
Annual
Target
Quarterly
Actual
Performance
Status
Explanation of Variance
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
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

9. Performance Information
Annual
Target
Quarterly
Actual Performance
Status
Explanation of Variance
Current Status of Quarterly Target
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

10. Financial Performance

11. Financial Performance
Q2 June 2017

12. Financial Performance
Revenue Per Service
Quarter 2
YTD FY2018
Service
Actual
Budget
Variance
R '000 % TV
(24)
(0%)
289 0% FM
77 135
76 868
267
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
(14 188)
(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
(10 504)
(40 266)
(6%)

13. Status on Addressing AG’s Audit Findings

14. Status on addressing AG’s findings

15. Status on addressing AG’s Audit Finding
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/ 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

16. Status on addressing AG’s Audit Finding
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

17. Status on addressing AG’s Audit Finding
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%

18. Product and Network Performance

19. 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

20. Our People

21. Our People
Number of Employees
547
Employee Turnover
2.38%

22. Enterprise Development

23. 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.
Positive outcomes include turnover growth, creation of new jobs, and job growth for the enterprises

24. Risk Management

25. 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 This structure will explore alternatives to expedite the DTT migration process.

26. 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.
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.

27. 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. The current legislative and regulatory regime burdens ECNS licensees operating as signal distributors as they are not empowered to source additional revenue from unassigned multiplex capacity
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.

28. 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 are in place for ATV, FM, MW and VSAT.
SENTECH to continue engaging DoC, DTPS and other key stakeholders through PMO to expedite commercialization of DTT services and ASO.
Implementation of maintenance plan and replacement of infrastructure as and when it becomes necessary.
Implement the technology replacement plan
Review short Wave technology
An advisory committee was established by the Minister of Communications.
Procurement process is underway for technology replacements.

29. 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.
Meetings have been held with various suppliers to facilitate strategic partnerships and performance monitoring.

30. 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. Reliance on this customer may threaten the SENTECH’s financial sustainability should the customer not be able to pay for services rendered.
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 as part of standard practice on foreign currency dominated supplies to control the risk of unfavorable exchange volatility.
Natural hedging is aggressively pursued to apply SENTECH's own foreign currency reserves to discharge foreign supplier commitments.
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 - Introduction of new products and services as well as markets’ diversification as per business model.
Sweat the assets to extract more value.
Business expansion strategies into other regions
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 expenditures, such as travels, training and others"
All controls are continuously being implemented including forward covers and cost reduction and containment strategies.
Sound International Business pipeline being pursued. Partnership Framework approved. An agreement with CAR has been signed.

31. 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) both within the Republic and neighboring countries, in the 700 and 800 MHz bands
The migration of STLs to another band will introduce spectrum fees, that currently do not form part of the tariff model for these links.
Lobbying and 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.
Monitor the High Court developments (both Cell C and DTPS processes) and develop mitigation measures as and when required. SENTECH will be making 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.

32. 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
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 (SENTECH ESD suppliers do not have preference in procurement processes)
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.

33. Thank You!