Many holes in the SABC plot
If the SABC was a listed company, its shareholders would have abandoned it long ago. A culture of wasteful expenditure, misappropriation of funds, theft and rocketing costs appears to have become entrenched — and the auditors had to issue a qualified report on the latest financials. In addition, the numbers came out in the annual report three months later than those of most companies with a March year-end.
Despite a revenue increase for the year to end-March 2008 of 9% to R4,7bn — barely above inflation — total expenses have shot up 14% to R4,6bn.
Most glaring is the 854% (R76,2m) increase in the impairment of rights for programming such as film and sports. This was due to programmes being purchased, but then not broadcast within the period required by contract. Yet SABC chief financial officer Robin Nicholson says no-one has been held directly accountable for this.
It indicates a serious lack of planning at the heart of what the SABC does. Nicholson is frank: “What is required of the SABC is to better manage its inventory.”
Most companies would regard a qualified report as a disgrace. The auditors couldn’t find evidence to substantiate costs of R1,5bn or the accumulated amortisation of R1,2bn relating to freelancers and sports programmes, to name just two areas.
Another worrying trend is the SABC’s high and increasing expenditure on consulting fees. During 2006/2007, these shot up 187% from R47m to R135m. This year, they rose by 68% to R226m.
Corridor talk at Auckland Park is that there are many employees who literally do nothing all day — which would explain the reliance on outside contractors. “Wasteful” expenditure stood at R40,6m, relating to “reckless” spending not accounted for.
Profits for the year to end-March 2008 fell by a huge 83% from R222m to an embarrassing R38,4m.
On the surface, the picture looks impressive — a profit of R314,6m before tax. But this is due to the inclusion of a R421m pension fund surplus, a one-off event. The total is brought down by a cost of R144,5m to fund post retirement medical aid revaluation and a R89,4m contribution to the pension fund.
With the absence of the handsome pension surplus, the picture for next year is set to look even more dire. Operating profit has already fallen 39% to R111,3m from R183m.
Theft and fraud are still a major problem at the SABC. It was swindled out of R2,5m, of which R177 000 has been written off. The good news is that this is substantially lower than the previous year’s R11m.
The corporation is facing litigation from, among others, the Public Investment Corporation, which is claiming R377m regarding a cancelled lease agreement; and a R140m suit from Trustco pertaining to a wireless agreement for a game show.
Suspended CEO Dali Mpofu’s failure last year to secure the cash-spinning Premier Soccer League broadcasting rights has resulted in a 9% drop in sponsorship revenue. That blunder has resulted in a decrease in live broadcast sports events. Last year sponsorship contributed to R568m in the SABC’s commercial income.
Mpofu was first suspended in May for alleged incompetence, mismanagement of funds, and putting the SABC at risk of going into the red.
Among other charges are: making payments of R145m between April 2006 and March 2007 without contracts, and signing an unauthorised R330m contract with Siemens.
Mpofu successfully contested his suspension in June, only to be suspended again the same month. He has yet to appear before a disciplinary hearing.
And because parliament cannot fire a board member, he still attends board meetings.
For the second consecutive year, the SABC’s poor financial performance is not mirrored in Mpofu’s salary, which has increased by 19,7% to R4,5m. He received a bonus of R2,1m during the year, 47,3% higher than last year’s R1,4m – despite his suspension in May.
The SABC’s funding model continues to be a nightmare. The broadcaster is heavily reliant on advertising revenue, a historical reality it would like to change. It believes reducing its dependence on commercial revenue would give it more freedom to attend to its public service mandate.
Whether it is capable of this is another issue. It will need substantial government funding to strike a balance. But the corporation’s pleas for increased government grants have fallen on deaf ears.
Government subsidy accounts for only 2% (R75m) of the SABC’s revenue, a drop in the ocean compared with the R3,6bn income the group receives from commercial streams. State funding for 2007/2008 fell by 10,7% from R84m.
During the year under review, the SABC spent R152m in direct collection activities — including hiring debt collectors — to gather R822m (up 8%) in television licence revenue. TV licences make up 17% of the group’s income.
The SABC’s funding model and the challenges this presents will be discussed at a funding conference scheduled for November 3 and 4.
Attendees will include government, labour and SABC management.
The meeting will also discuss additional funding to enable the SABC to switch to digital broadcasting next year. The broadcaster received R132m from the department of communications to invest in technology assets, down R5m from the previous year.
“The challenges facing the SABC are significant and will place the funding mechanism of the SABC under pressure,” Nicholson warns. “The SABC will not be able to commit further resources to digital terrestrial television until the funding challenges have been addressed.”
Another issue the SABC will have to deal with in the next financial year is the increased human-resource cost to the organisation. This is partly due to attempts to retain skilled staff, especially now with new TV players on the horizon. Nicholson says the level of cost growth “is problematic. Any major cost management strategy will have to address the continued increase in head-count costs.”
It is imperative that the SABC, which has also been plagued by internal politics and low staff morale, gets its house in order if it’s to avoid going into the red. The market in which it operates is changing drastically.
There’s the threat of new pay-TV operators, which will most certainly steal audiences and therefore advertising as well, so the advertising pie which has sustained the SABC so far is set to shrink.
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