A N N U A L R E P O R T 2 0 1 0
2009/10 SENTECH LIMITED
ANNUAL REPORT FOR THE YEAR ENDED 31 MARCH 2010
Annual Report 2009/10 Contents Page 02
contents
Company Overview 3 - 9 Board of Directors 10 - 14 Chairperson's Review 15 - 16 Performance against Predetermined Objectives - Performance Summary 17 - 20 - Network Performance 21 - 31 - Digital Terrestrial Television 32 - 34 - 2010 FIFA World Cup Soccer 35 - 36 - Telecommunications 37 - National Wholesale Broadband Network 37 - Human Resources 38 - 46 Government Relations 47 Corporate Social Investment 48 - 49 Corporate Governance 51 - 59 Annual Financial Statements 61 - 136 Supplementary Information 137 - 138 Glossary of terms 139 Notes 140 - 145 Contact Details BACK COVER
Annual Report 2009/10 03 Company Overview
Company Overview Annual Report 2009/10 Company Overview 04
Company Overview
Sentech Limited “Sentech” is a commercially operated State Owned Enterprise (SOE). The Company's signal distribution network forms the backbone of broadcasting in South Africa. In May 2002 Sentech was awarded two additional licences allowing the Company to provide international voice-based telecommunications and multimedia services. However, on 1 April 2009 the licences were converted into Individual – Electronic Communications Network Service (I-ECNS) and Individual – Electronic Communications Service (I-ECS) licences in terms of the Electronic Communications Act No.36 of 2005. The broadcasting signal distribution licence of Sentech has been converted into an I-ECNS licence. Sentech now provides broadcasting signal distribution to competing broadcasters under its I-ECNS licence.
Within the broadcasting signal distribution arena, Sentech has infrastructure and systems that enable it to provide coverage to 92% of the South African population of 48 million people (SAARF 2004 – 2008). The Company provides these services to 98% of South African broadcasters. Its broadcasting signal transmission services range from terrestrial Medium Wave, Short Wave and FM radio and terrestrial television broadcast to direct-to-home (DTH) digital satellite-based radio and television signal distribution. The DTH platform also has a footprint that covers sub-Saharan Africa.
Vision
Sentech will be a leader in providing broadband communications.
Mission
Sentech is a broadband network business accommodating narrowband functionality on a common platform, supplying communication solutions and services to wholesale customers in chosen markets in South Africa and the rest of the continent.
Values
?Integrity, honesty and fairness in dealings with all stakeholders;
?Quality customer service is the cornerstone of the Company’s success and every customer contact should be a pleasant experience; and
?Opportunities for Sentech people to develop to their full potential by ensuring quality leadership, rewarding excellent performance and encouraging innovation. about sentech Annual Report 2009/10 05 Company Overview
Our Stakeholders
Stakeholders are defined as “those people, Department of Finance (National Treasury) organisations and entities that impact on The interaction with National Treasury is Sentech or who are impacted by Sentech governed by the Public Finance Management activities”. Based on this definition, the Act (PFMA) and appropriation of funding in Sentech stakeholders are: terms of the annual budget speech by the Minister of Finance. Employees
Full-time and temporary Employees constitute Trade Unions the primary stakeholders of the Company. At the The Communication Workers Union (CWU) is close of the financial year, March 2010, there the only officially recognised trade union in the was 550 full-time staff. For more details refer to company. Human Resources section on pages 38-46.
Government Agencies Shareholder: State (as represented by the Minister of Communications) Sentech interacts with various government agencies for the advancement of shared ICT Sentech is a State Owned Enterprise (SOE) goals. These include ICASA for regulatory reporting to the Minister and Department of compliance and USAASA for universal access Communications. This relationship is governed services. by the Sentech Act, Sentech Amendment Act, and Public Finance Management Act including; Customers Treasury Regulations, Articles of Association, Companies Act and Government Protocol on The relationship with customers is managed by Corporate Governance. On an annual basis, account managers, who engage on both a Sentech concludes a Shareholder’s Compact formal and informal basis. with the Minister of Communications that sets Broadcasting Customers out the governance principles that regulate the relationship between the parties and the key Terrestrial television broadcasting performance targets for the year are as set out Sentech has 7 customers: SABC (1, 2 and 3), on page 17-20. The Minister of Communications e.tv, Multichoice (MNET and CSN), Soweto TV, and the Sentech Board further interact through Bay TV, Cape TV and Trinity Broadcasting. All bilateral meetings attended by the Chairperson these customers together cover approximately of the Board, Chief Executive Officer and/or any 92% of the population. other appointed representative/s. Television broadcasting; VIVID:
The Government Sentech operates a Direct-to-Home (DTH) The Department of Communications platform – Vivid, that offers facilities for satellite based broadcasting, making signal available to Sentech executive directors and employees consumers that do not have access to interact with the Department of terrestrial television and radio transmission. Communications' Director-General, Deputy- Directors-General and other officials in their The Vivid platform also offers encrypted capacity as representatives of the Shareholder television and radio services for private and as the policy formulator. business entities. Annual Report 2009/10 Company Overview 06
Sentech has 11 customers on VIVID TV transmitting Private Vivid Customers on the platform: SABC (1, 2 and 3), God TV, ASTV, In-Store radio France 24, Christian TV, Hope TV, Love World, WRS, Maranatha, Kruiskyk and Ezekiel TV. Sentech has 24 in-store radio customers, including major South African corporations in the Sentech has a total of 65 000 registered users of its transportation, retail clothing, homeware, furniture, Vivid platform. banking and mining sectors. Public broadcasters (radio) In-Store television Sentech transmits for all the 20 SABC public Sentech has 9 in-store TV customers, including broadcasting radio stations. major South African corporations in the Commercial broadcasters (radio) transportation, retail clothing, homeware, furniture, banking and mining sectors. Sentech has 17 commercial radio customers: Algoa FM, Capricorn FM, Highveld FM, Igagasi FM, Jacaranda FM, M Power FM, OFM, Radio 702, Classic Telecommunications FM, Heart FM, East Coast Radio, Kaya FM, KFM, North West FM, Y-FM, Cape Talk and Radio Pulpit. Very Small Aperture Terminal (VSAT)
Community broadcasters (radio) Sentech has 104 customers, broken down into two categories: Sentech has 59 community radio customers: Alfred Nzo, Baberton Community Radio FM, Bush Radio, Government departments, institutions and CCFM, Chai FM, Durban Youth Radio, Eden FM, agencies Ekhedhini FM, Fine Music Radio, Helderberg FM, In line with its mandate, Sentech provides internet Imbokado FM, Inanda, Inkonjane, Islamic Unity and data connectivity using VSAT technology on a Convention, Izwilomzansi FM, Kangala FM, Karabo, commercial basis to Government offices, Khanya FM, Kovsie FM, Kragbron FM, Kwezi FM, institutions and agencies. Laeveld FM, Link FM, Mafikeng FM, Maputaland FM, Med FM, Mosupatsela FM, Motheo FM, Naledi FM, Namaqualand FM, New Castle Community Radio, Corporate Business New Pan Hellenic Voice, Nkqubela FM, Orange Farm Sentech corporate customers range from small, FM, Qwa-Qwa FM, Radio KC FM, Radio N FM, Radio medium to major corporations both locally and Sunny South, Ripple FM, Setsoto FM, Soshanguwe outside South African borders in the ICT, mining, Community Radio, Thaba Stereo, Thembisa financial, construction, retail and education sectors. Community Radio, Radio Hindvani, Radio Graaf Reinett, Radio Today, Takalani FM, Tshwane Voice Telephony Service University FM, Tuks FM, Radio Tygerberg, Ubuhlebeshowe, UJ Radio, Unitra FM, Vaal University Sentech provides local and international voice FM, Vaaltar FM, Vibe FM, Voice of the Cape, Vukani traffic termination using its state-of-the-art IP-based FM and West Coast FM. international gateway (switching) system. Sentech is interconnected to all the licenced South African mobile and fixed line operators as well as to major telecommunication operators in all five continents. Annual Report 2009/10 07 Company Overview
The Voice Telephony Service has three External Auditors types of customers Sentech has external auditors that are In-bound: appointed on a one-year cycle. The current external auditors are KPMG Inc. In The inbound customers bring international accordance with the Public Audit Act, the voice traffic into RSA for termination locally via external auditors attend the Audit Committee Sentech. In this category, Sentech has 13 meetings throughout the year. From May to customers spread across the globe. August each year, the external auditors audit Out-bound: the Group's Annual Financial Statements in These customers send local voice traffic for terms of which they issue an audit report, termination to international destinations via which forms part of the Sentech Annual Sentech, i.e. outside of the RSA. Currently, Report on page 65 to 67. Sentech has three customers - Cell-C, MTN and Vodacom. Suppliers
Corporate Customers: Sentech has three categories of suppliers, namely technology, support and general. At present Sentech has two corporate customers: NetBasket and Syrinx. Technology
Financiers This refers to all suppliers of technology used to build, operate and maintain the Sentech Key stakeholders include: Amalgamated Banks networks. Almost 90% of the technology of South Africa (ABSA) and the Development suppliers are based in Europe, USA and the Bank of South Africa (DBSA). Far East. This classification of suppliers is engaged when the company procures Internal Auditors equipment as part of major projects such as The internal auditors are appointed by the Digital Terrestrial Television (DTT), 2010 FIFA Board and provide an independent assurance World Cup and building of a National Wireless and consulting services to the Company Broadband Network (NWBN).
covering all departments within Sentech. PKF Technology suppliers are also engaged in the Inc. were the Company’s internal auditors for procurement of spare parts required to the financial year under review. External operate and maintain the Sentech networks. auditors place reliance on the work performed Due to international trends, especially in the by the internal auditors. manufacture of communications technology, Meetings between the internal audit it would appear that in the foreseeable future management and Sentech management are Sentech will continue to procure most of its held monthly. The three-year internal audit plan infrastructure outside South Africa. approved by the Board of Directors details the areas that the internal auditors cover. Other Support areas are determined by the risks identified by This includes suppliers who provide the Audit Committee. resources including time and knowledge to Annual Report 2009/10 Company Overview 08
support the Sentech networks and ensure that they perform at the required level. Most of the suppliers are locally based.
General
General suppliers provide resources that are used by the Sentech business on a day-to-day basis. Sentech attempts to apply the Preferential Procurement and Broadbased Black Economic Empowerment (BBBEE) legislation when procuring goods and services and to ensure that a preferred and compliant local supplier base is established and monitored on an ongoing basis. Existing suppliers who have not started to transform their businesses are encouraged and offered guidance towards Community compliance of their businesses to both Sentech's A key stakeholder is the general South African requirements and BBBEE compliance. public, which is impacted daily by Sentech The process of engagement with the suppliers forms business through our transmission of information part of the tender and procurement processes used to improve their quality of life, be it through where, generally, both formal and non-formal radio and television content or Internet meetings are held. connectivity. The extent of this impact is realised The company's commitments for 2010/11: when you consider that according to the South African Advertising Research Foundation ?Ongoing overall efficiency improvement in all (SAARF) 2009 All Media Products Survey aspects of supply chain management; (AMPS) state that there are 10.1 million television ?Procurement will continue to work towards households and 10,7 million radio households. increasing the level of BBBEE compliant The total households, according to SAARF 2009, suppliers on the database; is 12,4 million with a total population of 48.2 million. Sentech's television signals are ?Ongoing supplier evaluation process which distributed to just over 92% of the population. targets strategic suppliers, addresses specific measured performance items based on SLAs, lead times, quality and cost competitiveness;
?Sentech will continue to use the information gathered from the tender process, to identify major players in the market for various goods and services from which the most suitable partners are selected and utilised as preferred suppliers. Annual Report 2009/10 09 Company Overview
Sentech operates within the following regulatory framework:
?The Constitution of the Republic of South Africa Act No.108 of 1996 ?Sentech Act No.63 of 1996, as amended ?Broadcasting Act No.1of 1999, as amended ?Electronic Communications Act No.36 of 2005 ?Public Finance Management Act No.1 of 1999 ?National Treasury Regulations ?Companies Act No.61 of 1973, as amended ?Independent Communications Authority of South Africa Act No.13 of 2000, as amended ?Electronic Communications and Transaction Act No.25 of 2002 ?Promotion of Access to Information Act No.2 of 2000 ?Promotion of Administrative Justice Act No.3 of 2000
Sentech is a major player in the Information Communication and Technology “ICT” industry and therefore keeps abreast of trends by participating in the following bodies, amongst others:
?International Telecommunications Union (ITU) ?Commonwealth Telecommunications Organisation (CTO) ?African Union of Broadcasting Union (AUB) ?Southern African Broadcasters Association (SABA) ?National Association of Broadcasters of South Africa (NAB) ?European Broadcasting Union (EBU) ?South African Communications Forum (SACF) ?Internet Services Provider Association of South Africa (ISPA) ?The Global UMTS- TOO Alliance (GUSTA) - Founding Member Engineering Council of South Africa ?South Africa Board of Personnel Practice ?South Africa Institute of Chartered Accountants (SAICA) ?Southern Africa Digital Broadcasting Association (SADIBA) Annual Report 2009/10 Board of Directors 10
Board of Directors
[Non-executive Board of Directors, from left to right] : Ms. Leah Khumalo, Mr. Mesuli Dhlamini, Ms. Zanele Hlatshwayo, Dr. Nompumelelo Siswana, Mr. Dingane Dube [Executive] and Mr. Quraysh Patel
Mr. Quraysh Patel
Chairperson of the Board (non-executive) (appointed 1 April 2010)
Mr. Patel is experienced in the fields of journalism, media, law and broadcasting policy.
Ms. Zanele Hlatshwayo
Non-Executive Director (appointed 1 April 2010)
Ms. Zanele Hlatshwayo is an Executive Director of the Progressive Women's Movement of South Africa (PWMSA). Her work experience is in policy research to improve access to services. She holds an MSc in Policy and Planning in Developing Countries from the London School of Economics UK, Management Advancement Programme from Wits Business School and a Post Graduate Diploma in Education and a BA Humanities, both from University of Botswana. Annual Report 2009/10 11 Board of Directors
Ms. Leah Khumalo
Non-Executive Director (appointed 1 June 2010)
Ms. Leah Khumalo is the founder and managing director of Mngoma – Mlaba & Khumalo Inc. (MMK Inc.). Ms. Khumalo has extensive experience and advanced knowledge in drafting and interpreting legislation as well as execution of litigation. Ms Khumalo holds a Bachelor of Iuris, LLB, Project Management and Professional Legal Training.
Mr. Mesuli Dhlamini
Non-Executive Director (appointed 1 April 2010)
Mr. Mesuli Dhlamini is a Chartered Accountant whose key academic qualifications include BCom Finance and a Postgraduate Diploma in Management. Mr. Dhlamini is in the final stage of his studies towards a MSc Economic Policy (Finance) with the University of London. Mr. Dhlamini is experienced in public finance, turnaround strategy and business transformation. He is currently the owner of Linkages Consulting, and has worked with leading Accounting and Auditing Firms such as Ernst & Young and Deloitte. He also worked for Eskom (Rotek Industries).
Dr. Nompumelelo Siswana
Non-Executive Director (appointed 1 June 2010)
Dr. Siswana is an oil and gas industry expert who is currently the Vice President of Trading, Supply and Logistics at PetroSA. She graduated from the School of Chemical Engineering and Industrial Chemistry, the University of New South Wales in Sydney, Australia, and has held various positions in the petroleum industry such as at BP Southern Africa, Engen Petroleum Ltd and the Department of Minerals and Energy.
Mr. Dingane Dube
Acting Chief Operations Officer (appointed 1 April 2010)
Mr. Dingane Dube is an admitted attorney currently employed at Sentech as Executive: Legal and Regulatory from 17 April 2004 to date. He holds B Juris and LLB degrees from the University of the North and an LLM in Communications from Wits University. Mr. Dube serves as Information Officer for the Sentech Group, as required by the Promotion of Access to Information Act. Annual Report 2009/10 Board of Directors 12 Annual Report 2009/10 13 Board of Directors
Board of Directors
Mr. Colin Hickling Dr. Deenadayalen Konar
Chairperson of the Board Non-executive Director (Non-executive Director) (Resigned 29 January 2010) (Resigned 28 February 2010) Dr. Konar is a chartered accountant and Mr. Hickling is the Chairperson of the holds a Bcom and Post Graduate Public Trustees and Trust Corporation Diploma in Accounting (University of and a trustee of various trusts. He is a Durban-Westville), a Masters of director at Pangbourne Properties, Paforma Property Accounting Sciences Degree (Illinois, Finance and MR Trustees and Executors. USA), a Certificate in Tax Law (Unisa) and a Doctorate in Commerce (Accounting) (Unisa).
Mr. Thabo Leeuw Mr. Tau Mashigo
Non-executive Director Non-executive Director (Resigned 31 May 2010) (Resigned 5 February 2010)
Mr. Tau Mashigo holds a Bachelor of Mr. Thabo Leeuw is the Executive Business Administration degree, a Director and Founder Member of Programme on eCommerce Thesele Group. Mr. Leeuw holds a qualification and an Executive BCom from Unizulu, a BCompt Hons Development Program certificate, from Unisa and a Management Advancement Programme several management diplomas and an Information from Wits Business School. Technology users (formerly Computer Users Council) technical qualification. He is the Chief Information Officer for the South African Revenue Service (SARS).
Dr. Yvonne Muthien Ms. Nandi Sihlali
Non-executive Director Non-executive Director (Resigned 28 January 2010) (Resigned 23 March 2010)
Ms Sihlali holds a BSc in electrical Dr. Yvonne Muthien holds a B.A. engineering (light current) and is a (Hons), M.A., and a D. Phil. She member of the South African Institute of currently works as a Business Electrical Engineers. Consultant . She has extensive experience in business management and electricial engineering. She also has experience in the telecommunications sector. Annual Report 2009/10 Board of Directors 14
Adv. Nonkumbulo Tshombe Dr. Sebiletso Mokone-Matabane
Non-executive Director Chief Executive Officer (Resigned 28 February 2010) (Retired 31 March 2010)
Adv. Tshombe is a practising Advocate Dr. Mokone-Matabane holds a PhD in of the High Court of South Africa, having Educational Administration and joined the Pretoria Bar of Advocates on 1 degrees in Television and Radio and February 2002. She is an expert in Political Sciences. restructuring issues and financing agreements utilised by major empowerment groups. She is currently a member of the Presidential National Commission on Information Society and Development. She has had exposure providing advice on various aspects of commercial agreements for some major listed groups in information technology, mining houses and some multinational corporations.
Ms. Beverley Ngwenya Mr. Mohammed Siddique Cassim
Chief Operations Officer Chief Financial Officer (Resigned 6 July 2010)
Ms. Ngwenya holds a BSc in electrical Mr. Cassim is a chartered accountant, engineering from the University of with an electricity pricing certificate from the University of Stellenbosch and a Cape Town. She has extensive certificate in regulation and strategy of experience in the telecommunications utilities from the University of Florida, sector gained with South Africa's leading ICT companies. USA.
Note on post-reporting date events
Subsequent to the close of the 2009/10 financial year end, the Minister of Communications made a number of changes to the oversight and management of Sentech. These changes are expected to have a positive material effect on the Company's sustainability and ability to deliver on its mandate over the long term.
The measures included the appointment of a new non-executive Board of Directors, Acting CEO who has since resigned and an Acting COO. These changes are described in detail in the Directors' Report. Annual Report 2009/10 15 Chairperson’s Review
Chairperson’s Review
he appointment of a Task Team in July 2009 by the Minister of Communications signalled a new beginning for Sentech. In February T2010 the Minister announced the task team’s key findings and recommendations. While the report was critical of the operations and the lack of leadership (at both Board and executive levels), the Task Team report is primarily responsible for the change of pace and direction at Sentech. The timely and critical intervention by the Minister, as shareholder representative, halted Sentech's precipitous decline.
When the new Board was appointed on 1 April 2010, the company had no approved business plan as the Parliamentary Portfolio Committee on Communications had rejected the ...formulation of a strategy that will propel the business plan. The affairs of the company required scrutiny company to new growth opportunities will embed a and various processes had been found wanting. renewed commitment to the company.
High costs, marginal growth and no vision characterised business – and of the Board - demanded its direct Sentech's environment. Accusations of corruption and non- intervention at all operational levels. The lack of compliance with procedures and processes and low staff reliance on senior management and the failure by morale make for an unwelcome entry to Sentech by the this management to formulate a business plan for the new Board. company were the factors that motivated the new Board to seek expert external assistance for the Board members, however, have taken the view that a purpose of information assurance. shared vision of propriety and a formulation of a strategy that will propel the company to new growth opportunities will embed a renewed commitment to the company. The formation of a Board-initiated Turnaround sub- committee, directing and controlling the operations of the company, shaped a new strategy that brought The legacy that this Board has inherited includes a immediate benefits that include: dysfunctional senior management team that relied on a “hands-off” approach by the previous Board. Relying ?the formulation of a one-year business plan specifically on the provisions in Chapter Six of the PFMA, approved by the Department of Communications this Board decided to lead the company by participating “DoC” on 3 June 2010; directly in the formulation of a much-needed business plan. ?through the establishment of an expenditure The experience of the new Board was that key information committee; the prevention of payments without about the business from senior management was generally value and significant cash savings; unreliable and often incomplete or absent without reason. ?the identification of weaknesses in processes and
Faced with the prospect of being rendered ineffective in procedures, particularly in procurement; meeting the statutory obligations in Chapter Six of the ?an identification by the Board of the lack of in- PFMA, the Board took the view that the future of the depth skills among senior managers; Annual Report 2009/10 Chairperson’s Review 16
?the identification of procurement of products and the 2010 World Cup. Immediately before the without contracts and payments to suppliers in World Cup tournament, Sentech rolled out 15 low circumstances which cannot be justified; power transmitter sites to give hundreds of thousands of rural citizens access to television for ?decisions relating to unprofitable businesses; the first time in their areas. ?introduction of an awareness of the state of the business among staff; These achievements should not be ?stopping transactions which have the potential underestimated. They demonstrate the potential of disabling the business; of Sentech to achieve excellence, and staff should take pride in their valuable contribution to ?focusing on cash collections and the our country. This foundation of service excellence management of cash; is where the Board will focus to rebuild the ?reviewing the company's tariff structure; and company and to re-position Sentech as the wireless communications network service ?restructuring of the senior management team. provider of choice for radio, television and the These initiatives arose as a result of the state of the provision of broadband services. company during the period under review.
The Board is continuing its inquiries to determine ...Sentech to achieve excellence, and staff what action, if any, should be taken where sufficient should take pride in their valuable information is obtained about irregular, fruitless and contribution to our country. wasteful expenditure. The acting Chief Executive Officer requested, and was granted, immediate termination when she was suspended pending the Whether Sentech can achieve these goals formulation of various charges. At the date of this depends on the commitment of our staff and this report the Chief Financial Officer had been remains the crucial risk that will determine the suspended pending the finalisation of the success of the company's business plan. disciplinary hearing. Our current circumstances reflect an entirely Among the Board challenges is the appointment of different reality. It is to this reality that staff, our executive committee members. The process of stakeholders and customers will look when they appointing a Chief Executive Officer is continuing; decide to continue their journey with Sentech, the search for a Chief Operations Officer and other and they know they will be richly rewarded. senior appointments, following a restructuring, will also take place soon.
Notwithstanding a difficult company environment, Sentech continues to deliver an excellent signal distribution service for television and radio. It is focused on meeting its obligation to roll out a world- class digital terrestrial network. he company has successfully delivered on its promises to meet and exceed all expectations for the Confederations Cup Annual Report 2009/10 17 Performance against Predetermined Objectives
Performance against Predetermined Objectives Annual Report 2009/10 Performance against Predetermined Objectives 18
Performance Summary
KEY 2009/10 PERFORMANCE KEY ACTIVITIES/OUTPUTS PERFORMANCE MEASURES PERFORMANCE AREA
Key Activities Outputs Target Date Indicator
Network Analogue Exceeded at Performance television Intermittent 99.70% transmission. 99.92%
FM Radio transmission. Intermittent 99.80% Exceeded. 99.94%
MW & SW Exceeded. Radio Intermittent 99.50% 99.57% Broadcasting transmission. Signal Distribution Not Achieved due to Digital Population delays in publication of Terrestrial Coverage. 31 Mar 2010 *63.30% Final Frequency Plan Television & DTT Regulations. Achieved 33.3%.
Capacity on 8 channels, per multiplex multiplex for 31 Mar 2010 Achieved. DDT.
Capacity on 18 radio channels, per multiplex for 31 Mar 2010 multiplex Achieved. radio channels.
2010 FIFA Secure satellite Secure satellite capacity World Cup capacity for 31 Mar 2010 Achieved. Soccer and 2010 & Confed Confederations Cup. Cup Security of Classification as a National Not achieved until the second 31 Mar 2010 Key Point (NKP) the construction of teleport. the second teleport has been completed.
Secure commercial Signed commercial contracts for June 2009 contracts with FIFA. Achieved. Broadcasting international Signal satellite uplink. Distribution Achieved for the Implement Build the infrastructure; 2009 infrastructure Handover the infrastructure; Confederations Cup. 1 May 2009 for the and operate & maintain the Confederations infrastructure to ensure Handover of Cup. 100% availability. infrastructure for the 2010 WCS achieved on 1 June 2010.
Implement Build the infrastructure at the infrastructure 09 stadia; Handover the for 2010 31 Dec 2009 infrastructure; and operate Achieved. and maintain the infrastructure World Cup to ensure 100% availability. Soccer Annual Report 2009/10 19 Performance against Predetermined Objectives
KEY 2009/10 PERFORMANCE KEY ACTIVITIES/OUTPUTS PERFORMANCE MEASURES PERFORMANCE AREA
Key Activities Outputs Target Date Indicator No Achieved. MyWireless Implementation Exit retail As the assets 31 Dec 2009 of exit strategy. broadband must still be decommissioned
Implementation Biznet 31 Mar 2010 Exit retail Not achieved. of exit strategy. broadband 90% completed.
Approval of Dinaledi Not achieved. appropriate Rollout network Schools 31 Mar 2010 Business and Telecommunications business and to 500 Dinaledi funding model funding model. schools. not approved.
Implement Profitability by VSAT product line did not achieve profitability VSAT turnaround the end of the 1 Apr 2009 in the 2009/10 financial strategy that 2011/12 will ensure year. financial year The Company is profitability by refocusing the product the end of the line to achieve 2011/12 profitability by the financial year. end of 2011/12.
Increase traffic Voice Implement a by 60% Not achieved. Telephony turn around 31 Mar 2010 compared to Carried Service strategy 2008/9 (118, 84,908,811 724,451 minutes. minutes)
Attain 3.8% Not achieved. market share. Only attained 2.73% market share.
Increase gross Not achieved. revenue by Achieved gross Telecommunications 60% compared revenue of to 2008/9 R68,414 million (R121, 472, 962) which is negative growth compared to 2008/9.
Voice Telephony Report profit Service reported a as at end of loss for 2009/10. The 2011/12. product is not sustainable in its current form and will be repositioned.
Network Monthly, 99.70% Exceeded at 99.75% performance Quarterly, 31 Mar 2010 Annual Report 2009/10 Performance against Predetermined Objectives 20
KEY 2009/10 PERFORMANCE KEY ACTIVITIES/OUTPUTS PERFORMANCE MEASURES PERFORMANCE AREA
Key Activities Outputs Target Date Indicator
Increase Not achieved. Financial Revenue and Increase revenue by Revenue increased profitability revenue and 31 Mar 2010 22% by 3.83% (excluding reduce compared to Dual Illumination grant overheads 2008/9 income). Key strategies for VSAT and Voice Telephony Service were not successfully implemented. Corporate overheads reduced by 3.56%.
Human Not achieved. Achieve Achieve Resources Employment Due to the Employment 31 Mar 2010 2009/10 Strategy Equity Employment employment Equity targets challenges in the Equity targets. ICT sector.
Skills Achieve skills Achieve Development development 31 Mar 2010 2009/10 Skills Exceeded by 35.5% targets. Development targets.
Achieve 0.8% Occupational Creating a Disabling 31 Mar 2010 Disabling Not achieved at Health and conducive Injury Injury working Frequency 2.56% due to number Safety Frequency of incidents. environment Rate Rate (DIFR)
Compliance Achieve The assessment Broadbased with the 2014/15 Broadbased level 3 will be performed in Black Compliance Black contributor the following Economic status financial year. Empowerment Economic Empowerment legislation Annual Report 2009/10 21 Performance against Predetermined Objectives
Network Performance Annual Report 2009/10 Performance against Predetermined Objectives 22
Terrestrial Broadcast Networks
Television
Notwithstanding interruptions due to mains power failures and inclement weather (rain fade), it was again possible to achieve the average overall (contractual and non-contractual) network availability of 99,78%. Sentech's contractual network availability of 99,92% for the analogue terrestrial TV broadcast networks exceeded the agreed target of 99,7% for the year. This is illustrated in Figure 1 below.
Fig 1 - Terrestrial TV Network Performance
Terrestrial TV Network Performance TV Major Interruptions APR 2009 - MAR 2010 APR 2010 - MAR 2010
100.00 Transmitter - 9.11% 99.95 Force Majeure - 31.49% 99.90 Antenna System - 1.45% 99.85 99.80 Programme Routing - 1.70% 99.75 Transmission - 1.23% Availability % Availability 99.70 99.65 Lines - 0.26%
99.60 Incoming Mains Power Supply - 15.10% Installation - 16.68% JUL 2009 JUL JAN 2010 JAN JUN 2009 FEB 2010 SEP 2009 SEP APR 2009 MAY 2009 MAY OCT 2009 OCT DEC 2009 AUG 2009 AUG NOV 2009 NOV MAR 2010 MAR Station Power - 14.13% Scheduled Maintenance - 6.89% Sentech Target Norm Sentech Performance Overall Performance Other - 0%
TV Network Performance APR 2009 to MAR 2010
Total Transmit Sentech Target Overall Overall Sentech Sentech Hours Norm Interruptions Performance Interruptions Performance 5 687 641 99.700 12 292.90 99.784 4 514.56 99.921
FM (Recovery)
The overall availability of the FM terrestrial radio network was adversely affected by extensive mains power interruptions, as well as the force majeure situation at Blouberg transmitting station – the condition of the solar power and accompanying battery capacity has deteriorated to the point that the system is unable to maintain power without the aid of the Standby Generator (STG).
It is, however, not economically viable to hire a helicopter to attend to each and every problem at site as the STG has to run continuously and either runs out of fuel or fails due to mechanical faults. In addition, access to the site is dependent on weather conditions.
Closure of the Blouberg site has been agreed to with the SABC, though it is dependent on the expansion of services at the Tolwe site. Sentech is awaiting confirmation through an agreement with SABC of the services to be provided at Tolwe.
The Sentech contractual network availability of 99,94% achieved for the year under review exceeded Sentech's target norm of 99,8%, as illustrated in Figure 2. Annual Report 2009/10 23 Performance against Predetermined Objectives
Fig 2 - Terrestrial FM Network Performance
Terrestrial FM Network Performance FM Major Interruptions APR 2009 - MAR 2010 APR 2009 - MAR 2010 100.00 99.95 99.90 Transmitter - 1.59% 99.85 99.80 Force Majeure - 75.34% 99.75 Programme Routing - 0.27% Availability % Availability 99.70 99.65 Transmission - 0.25% 99.60 99.55 Lines/ Links - 0.01% 99.50 Incoming Mains Power Supply- 4.74% Installation - 3.36% Station Power - 10.54% JUL 2009 JUL JAN 2010 JAN JUN 2009 FEB 2010 SEP 2009 SEP APR 2009 MAY 2009 MAY OCT 2009 OCT DEC 2009 AUG 2009 AUG NOV 2009 NOV MAR 2010 MAR Scheduled Maintenance - 1.62%
Sentech Target Norm Sentech Performance Overall Performance Other - 0%
FM Network Performance APR 2009 to MAR 2010
Total Transmit Sentech Target Overall Overall Sentech Sentech Hours Norm Interruptions Performance Interruptions Performance 6 970 716 99.800 24 999.02 99.641 4 139.96 99.941
Medium Wave
The Medium Wave transmissions were adversely affected by extended scheduled maintenance to install insulators on the Medium Wave mast. This resulted in a Sentech contractual network availability of 99,57% for the MW broadcast network. This is slightly above the target norm of 99,5% for the year, as illustrated in Figure 3 below.
Fig 3 - Terrestrial MW Network Performance
Terrestrial MW Network Performance MW Interruptions APR 2009 - MAR 2010 APR 2009 - MAR 2010
100.00 99.50 Transmitter - 13.01% 99.00 98.50 Programme Routing - 0.94% 98.00 Lines - 1.40% 97.50 Incoming Mains Power Availability % Availability 97.00 Supply - 2.15%
Installation - 2.60%
Station Power - 2.57% JUL 2009 JUL JAN 2010 JAN JUN 2009 FEB 2010 SEP 2009 SEP APR 2009 MAY 2009 MAY OCT 2009 OCT DEC 2009 NOV 2009 NOV AUG 2009 AUG MAR 2010 MAR Scheduled Maintenance - 77.33%
Sentech Target Norm Sentech Performance Overall Performance Other - 0%
MW Network Performance APR 2009 to MAR 2010
Total Transmit Sentech Target Overall Overall Sentech Sentech Hours Norm Interruptions Performance Interruptions Performance 61 320 99.500 277.90 99.547 264.70 99.568 Annual Report 2009/10 Performance against Predetermined Objectives 24
Short Wave
As depicted in Figure 4, the continued satisfactory performance of Short Wave transmissions, 99,79% Sentech contractual network availability versus a target norm of 99,5%, despite the advanced age of the transmitters. This can again be attributed to the dedication and innovation of Sentech's technical staff at Meyerton transmitting station.
Fig 4 - Terrestrial SW Network Performance
Terrestrial SW Network Performance SW Interruptions APR 2009 - MAR 2010 APR 2009 - MAR 2010
100.00 99.90 Force Majeure - 0.28% 99.80
99.70 Antenna System - 4.27% 99.60 Programme Routing - 5.14% Availability % Availability 99.50 99.40
Lines/ Links - 5.34% 99.30
Incoming Mains Power Supply - 8.92% JUL 2009 JUL JAN 2010 JAN JUN 2009 FEB 2010 SEP 2009 SEP APR 2009 MAY 2009 MAY OCT 2009 OCT DEC 2009 NOV 2009 NOV AUG 2009 AUG MAR 2010 MAR Transmitter - 70.66%
Sentech Target Norm Sentech Performance Overall Performance Other - 5.39%
SW Network Performance APR 2009 to MAR 2010
Total Transmit Sentech Target Overall Overall Sentech Sentech Hours Norm Interruptions Performance Interruptions Performance 47 591 99.500 108.22 99.773 98.27 99.794 Annual Report 2009/10 25 Performance against Predetermined Objectives
Satellite Operations
Sentech's average availability of Ku-band satellite TV and Radio services was well above the target norm of 99,8% with DTH TV networks 99,97% (see Figure 5a), DTH Radio networks 99,95% (see Figure 5b), Business TV networks 99,91% (see Figure 5e) and Business Radio networks 99,90% (see Figure 5f). The dip in overall Network Performance of Business TV and Radio networks in November 2009 was due to a Studio to Transmitter Link (STL) failure.
Fig 5a - DTH TV Network Performance
DTH TV Network Performance - KU Band DTH TV Major Interruptions - KU Band APR 2009 - MAR 2010 APR 2009 - MAR 2010
100.00
99.80 Force Majeure - 22.87% 99.60 99.40 Lines/ Links - 31.14%
99.20 Programme Routing - 5.76% Availability % Availability 99.00 Transmission - 31.90%
Scheduled Maintenance - 1.04% AUG 2009 AUG JUL 2009 JUL JAN 2010 JAN JUN 2009 FEB 2010 SEP 2009 SEP APR 2009 MAY 2009 MAY OCT 2009 OCT DEC 2009 NOV 2009 NOV MAR 2010 MAR Transmitter - 5.98%
Sentech Target Norm Sentech Performance Overall Performance Other - 1.29%
DTH TV Network Performance - KU Band APR 2009 to MAR 2010
Total Transmit Sentech Target Overall Overall Sentech Sentech Hours Norm Interruptions Performance Interruptions Performance 146 096 99.800 54.50 99.963 41.90 99.971
Fig 5b - DTH Radio Network Performance
DTH Radio Network Performance - KU Band DTH Radio Interruptions - KU Band APR 2009 - MAR 2010 APR 2009 - MAR 2010
100.00 Force Majeure - 10.98% 99.80 99.60 Lines/ Links - 52.08% 99.40 99.20 Programme Routing - 1.04% 99.00
Availability % Availability Transmission - 32.39% 98.80 Scheduled Maintenance - 0.73%
Transmitter - 0.71% AUG 2009 AUG JUL 2009 JUL JAN 2010 JAN JUN 2009 FEB 2010 SEP 2009 SEP APR 2009 MAY 2009 MAY OCT 2009 OCT DEC 2009 NOV 2009 NOV MAR 2010 MAR Installation - 0.55%
Sentech Target Norm Sentech Performance Overall Performance Other - 1.53%
DTH Radio Network Performance - KU Band APR 2009 to MAR 2010
Total Transmit Sentech Target Overall Overall Sentech Sentech Hours Norm Interruptions Performance Interruptions Performance 239 448 99.800 137.23 99.943 121.39 99.949 Annual Report 2009/10 Performance against Predetermined Objectives 26
TV Linking Network Performance
Fig 5c - TV Linking Network Performance
TV Linking Network Performance - C Band TV Linking Interruptions - C Band APR 2009 - MAR 2010 APR 2009 - MAR 2010
100.00
99.95 Force Majeure - 1.79% 99.90 Lines/ Links - 29.83% 99.85
99.80 Programme Routing - 9.91% Availability % Availability 99.75 Transmission - 61.01%
Scheduled Maintenance - 0.56% AUG 2009 AUG JUL 2009 JUL JAN 2010 JAN JUN 2009 FEB 2010 SEP 2009 SEP APR 2009 MAY 2009 MAY OCT 2009 OCT DEC 2009 NOV 2009 NOV MAR 2010 MAR Transmitter - 1.90%
Sentech Target Norm Sentech Performance Overall Performance Other - 0%
TV Linking Network Performance - C Band APR 2009 to MAR 2010
Total Transmit Sentech Target Overall Overall Sentech Sentech Hours Norm Interruptions Performance Interruptions Performance 61 320 99.800 14.92 99.976 14.65 99.976
Radio Linking Network Performance
Fig 5d - Radio Linking Network Performance
Radio Linking Network Performance - C Band Radio Linking Interruptions - C Band APR 2009 - MAR 2010 APR 2009 - MAR 2010
100.00
99.95 Force Majeure - 5.18% 99.90 99.85 Lines/ Links - 13.54% 99.80
Availability % Availability Programme Routing - 8.22% 99.75 Transmission - 81.03%
Scheduled Maintenance - 5.87% AUG 2009 AUG JUL 2009 JUL JAN 2010 JAN JUN 2009 FEB 2010 SEP 2009 SEP APR 2009 MAY 2009 MAY OCT 2009 OCT DEC 2009 NOV 2009 NOV MAR 2010 MAR Transmitter - 6.16%
Sentech Target Norm Sentech Performance Overall Performance Other - 0%
Radio Linking Network Performance - C Band APR 2009 to MAR 2010
Total Transmit Sentech Target Overall Overall Sentech Sentech Hours Norm Interruptions Performance Interruptions Performance 78 840 99.800 17.04 99.978 16.16 99.980
The availability performances for both TV and Radio C-band satellite linking were above the target norm, resulting in average overall network performance close to 100%, against a target norm of 99,8%, as illustrated in Figures 5c and 5d. Annual Report 2009/10 27 Performance against Predetermined Objectives
Business TV Network Performance
Fig 5e - Business TV Network Performance
Business TV Network Performance Business TV Interruptions APR 2009 - MAR 2010 APR 2009 - MAR 2010
100.00
99.60
99.20 98.80
98.40 Force Majeure - 9.79% Availability % Availability 98.00 Lines/ Links - 81.24%
Transmission - 9.00% AUG 2009 AUG JUL 2009 JUL JAN 2010 JAN JUN 2009 FEB 2010 SEP 2009 SEP APR 2009 MAY 2009 MAY OCT 2009 OCT DEC 2009 NOV 2009 NOV MAR 2010 MAR Other
Sentech Target Norm Sentech Performance Overall Performance
Business TV Network Performance - APR 2009 to MAR 2010
Total Transmit Sentech Target Overall Overall Sentech Sentech Hours Norm Interruptions Performance Interruptions Performance 17 520 99.800 17.03 99.903 15.36 99.912
Business Radio Network Performance
Fig 5f - Business Radio Network Performance
Business Radio Network Performance Business Radio Interruptions APR 2009 - MAR 2010 APR 2009 - MAR 2010 100.00 99.80 99.60 99.40 99.20 Force Majeure - 7.45%
Availability % Availability 99.00 98.80 Lines/ Links - 82.95% 98.60 Programme Routing - 2.04%
Transmission - 7.40% JUL 2009 JUL JAN 2010 JAN JUN 2009 FEB 2010 SEP 2009 SEP APR 2009 MAY 2009 MAY OCT 2009 OCT DEC 2009 NOV 2009 NOV AUG 2009 AUG MAR 2010 MAR Other
Sentech Target Norm Sentech Performance Overall Performance
Business Radio Network Performance - APR 2009 to MAR 2010
Total Transmit Sentech Target Overall Overall Sentech Sentech Hours Norm Interruptions Performance Interruptions Performance 246 144 99.800 279.77 99.886 258.40 99.895 Annual Report 2009/10 Performance against Predetermined Objectives 28
Telecommunications networks
VSAT
The performance of the VSAT network for the 2009/10 financial year was well above the target norm of 99,8% for the year, despite rain fade which occurred during December 2009 and January 2010, resulting in an overall availability figure for the year of 99,93%. This is depicted in Figure 6.
Fig 6 - VSAT Network Performance
Availability Analysis for VSAT Interruptions Analysis for VSAT APR 2009 - MAR 2010 APR 2009 - MAR 2010 100.00
99.95 99.90 Hub 99.85
99.80 Scheduled Outages Availability % Availability 99.75 Satellite - 90% 99.70
99.65 Equipment - 10% 99.60 (GCU, RF, NCC, RNCC etc) Core Network
Power JUL 2009 JUL JAN 2010 JAN JUN 2009 FEB 2010 SEP 2009 SEP APR 2009 MAY 2009 MAY OCT 2009 OCT DEC 2009 NOV 2009 NOV AUG 2009 AUG MAR 2010 MAR Other
Sentech Target Norm Sentech Performance Overall Performance
VSAT Network Performance APR 2009 to MAR 2010
Total Transmit Sentech Target Overall Overall Sentech Sentech Hours Norm Interruptions Performance Interruptions Performance 4 136 904 99.800 2 782.20 99.933 2 175.81 99.947
VMESH
As indicated in the Figure 7, the availability of the VMesh network exceeded Sentech's target norm for the entire period in consideration, resulting in an overall availability of 99,99% versus a target norm of 99,8%.
Fig 7 - VMESH Network Performance
Availability Analysis for VMESH Interruptions Analysis for VMESH APR 2009 - MAR 2010 APR 2009 - MAR 2010 100.00
99.95
99.90 Hub
99.85 Scheduled Outages 100% Availability % Availability 99.80 Satellite
99.75 Equipment (GCU, RF, NCC, RNCC etc.) 99.70 Core Network
Power JUL 2009 JUL JAN 2010 JAN JUN 2009 FEB 2010 SEP 2009 SEP APR 2009 MAY 2009 MAY OCT 2009 OCT DEC 2009 NOV 2009 NOV AUG 2009 AUG MAR 2010 MAR Third Party
Sentech Target Norm Sentech Performance Overall Performance
VMESH Network Performance APR 2009 to MAR 2010
Total Transmit Sentech Target Overall Overall Sentech Sentech Hours Norm Interruptions Performance Interruptions Performance 202 032 99.800 23.00 99.989 23.00 99.989 Annual Report 2009/10 29 Performance against Predetermined Objectives
BIZNET
The availability for Sentech's BizNet services exceeded Sentech's target norm for most of the period in consideration, with the exception of August and November 2009. The severe underperformance in November 2009 was due to extended mains power failures as Sentech does not have STGs at these sites; resulting in an overall network availability of 99,5% versus a target norm of 99,7% as depicted in Figure 8.
Fig 8 - BIZNET Network Performance
Availability Analysis for Biznet Interruptions Analysis for Biznet APR 2009 - MAR 2010 APR 2009 - MAR 2010 100.00
99.50 99.00 98.50
98.00 Sentech Links - 6% Availability % Availability 97.50 Scheduled Outages - 0.00% 97.00 Equipment - 0.00% 96.50 (GCU, RF, NCC, RNCC etc.) 96.00 Internet - 1.00%
Power - 92.00% JUL 2009 JUL JAN 2010 JAN JUN 2009 FEB 2010 SEP 2009 SEP APR 2009 MAY 2009 MAY OCT 2009 OCT DEC 2009 AUG 2009 AUG NOV 2009 NOV MAR 2010 MAR Third Party - 1.00%
Sentech Target Norm Sentech Performance Overall Performance Core Network - 0.00%
Biznet Services Network Performance - APR 2009 to MAR 2010
Total Transmit Sentech Target Overall Overall Sentech Sentech Hours Norm Interruptions Performance Interruptions Performance 466 272 99.700 2 042.51 99.562 1 945.00 99.583
Voice Telephony Service
Sentech's Carrier of Carrier (Voice Telephony Service) average overall network performance was 99,51% over the year, against the target norm of 99,7% primarily due to extended third party link failures in April and July 2009. This is depicted in Fig 9. Annual Report 2009/10 Performance against Predetermined Objectives 30
Voice Telephony Service Network Performance
Fig 9 - Voice Telephony Service Network Performance
Availability Analysis for Voice Telephony Service ASR Trend Analysis APR 2009 - MAR 2010 APR 2009 - MAR 2010 100.00 65.00 99.80 99.60 % % 55.00 99.40 99.20 45.00 vailability vailability 99.00 vailability A A 98.80 98.60 35.00
98.40
98.20 25.00 2009 2009 2009 2009 2009 2009 2009 2009 L L L T T T Y Y Y P P P JU JU JAN 2010 JAN 2010 JAN JUN 2009 JUN 2009 FEB 2010 FEB 2010 SE SE APR 2009 APR 2009 MA MA OC OC DEC 2009 DEC 2009 NOV 2009 NOV 2009 NOV AUG 2009 AUG 2009 AUG MAR 2010 MAR 2010 MAR
Sentech Target Norm Sentech Performance Overall Performance Norm MTN Vodacom Cell C
Interruptions Analysis for Voice Telephony Service APR 2009 - MAR 2010
Scheduled Outages - 2.00%
Transmission - 4.00%
Equipment - 38.00% (GCU, RF, NCC, RNCC etc.)
Core Network - 6.00%
Power - 1.00%
Third Party - 47.00%
Other - 2.00%
Voice Telephony Service Network Performance - APR 2009 to MAR 2010
Total Transmit Sentech Target Overall Overall Sentech Sentech Hours Norm Interruptions Performance Interruptions Performance 840 960 99.700 4 114.21 99.511 2 077.97 99.753
INTERNET
As indicated in Fig. 10, Sentech's Internet services were negatively affected by third party link failures in July 2009 and in February 2010 the extended outages on Intelsat link was due to failure of the satellite IS-4. The average overall availability of the Internet services was 99,83% against the target norm of 99,7% for the year. Annual Report 2009/10 31 Performance against Predetermined Objectives
Internet Services Network Performance
Fig 10 - Internet Services Network Performance
Availability Analysis for Internet Services Interruption Analysis for Internet Services APR 2009 - MAR 2010 APR 2009 - MAR 2010 100.00 99.80 99.60 99.40 99.20 Scheduled Outages - 3.00%
Availability % Availability 99.00 98.80 Unscheduled Outages - 29.00%
98.60 Core Network - 13.00%
JUL 2009 JUL Power - 0.00% JAN 2010 JAN FEB 2010 JUN 2009 SEP 2009 SEP APR 2009 MAY 2009 MAY OCT 2009 OCT DEC 2009 AUG 2009 AUG 2009 NOV MAR 2010 MAR
Sentech Target Norm Sentech Performance Overall Performance Third Party - 55.00%
Internet Services Network Performance - APR 2009 to MAR 2010
Total Transmit Sentech Target Overall Overall Sentech Sentech Hours Norm Interruptions Performance Interruptions Performance 70 272 99.700 120.47 99.829 107.93 99.846
General notes:
Force Majeure – is a condition or event outside of Sentech's responsibility that consequently affects the company's performance. The most common event is “No access to site” due to inclement weather, no transport and/or physical disaster.
Target Norms – are defined by the network design, specifically the level of redundancy provided, and by the Service Level Agreements signed with Sentech's clients. Annual Report 2009/10 DTT 32
Digital Terrestrial Television (DTT)
Population coverage
In terms of the 2009 - 2012 Corporate Plan, the population coverage targets for 2009/10 Analogue Switch Off (ASO) were as follows:
KEY OUTPUT PERFORMANCE MEASURES
Population coverage Target Date Indicator
Upgrading of mechanical, electrical and civil support services and Phase 2 (2007/8) the replacement of a range of specialized equipment. Commence with transmitter rollout.
Phase 3 (2008/9) 47% and Digital Switch-on (DSO) as at 30 November 2008.
Phase 4 (2009/10) 63.30%
Phase 5 (2010/11) 75.50%
Phase 6 (2011/12) 84% 92% and Analogue Switch-off (ASO) which as resolved by Phase 7 (2012/13) Cabinet was intended for 30 November 2011.
The achievement of the population coverage targets were based on two assumptions:
?timeous publication of the Final Frequency Spectrum Plan (FSP) and Regulations by the Independent Communications Authority of South Africa (ICASA); and
?timeous transfer of both the funding and additional allocations.
Four years after Sentech commenced with the Digital Terrestrial Television (DTT) rollout based on the Sentech Complementary Frequency Plan (SCFP), the FSP and Regulations were published on 18 November 2009 and 15 February 2010 respectively. This delayed the rollout as per Phase 2, 3 and 4 as Sentech, after analysing the FSP, realised that there were anomalies such as lower Effective Radiated Powers (ERP) which would not attain DTT coverage similar to the current analogue coverage. Sentech then submitted a report to ICASA following the analysis of the plan and did not proceed with rolling out transmitters pending the outcome of the engagement with ICASA.
As at 31 March 2010, Sentech had achieved only 33.3% active population coverage but rolled out infrastructure, that if switched on (as per the SCFP), would cover about 47% of the population. This would meet the phase 3 (2008/2009) target of 47% and confirmed as the target in the 2009 – 2012 Corporate Plan.
The table below gives the transmitters that were installed by the end of March 2010 with some of the sites requiring only the installation of combiners to be completed before it could be switched on. This is 20 out of the 179 transmitter stations to be fitted out for DTT to simulate the SABC 2 analogue TV network which currently provides a service to 92% of the SA population. Annual Report 2009/10 33 DTT
Transmitter Station Comments Population Coverage (%)
Johannesburg Switched on as per SCFP. Part of trial with SABC and e.tv. 33.3% population coverage achieved Pretoria Switched on as per SCFP. Part of trial with SABC and e.tv. since 30 October 2008 Durban Switched on as per SCFP. Part of trial with SABC and e.tv. to date. Nelspruit Combiner to be installed Bez Valley Completed. Helderkruin Completed. Rustenburg Completed. Welverdiend Completed. Bloemfontein Completed. Cape Town Combiner to be installed Potgietersrus Combiner to be installed Tygerberg Combiner to be installed Verulam Combiner to be installed East London Combiner to be installed Heidelberg Combiner to be installed Linmeyer Combiner to be installed Menlo Park Combiner to be installed Mondeor Combiner to be installed Mulbarton Combiner to be installed Pretoria North Combiner to be installed
DTT Rollout during 2009/10
Phase 2
This Phase can only be concluded once the combiner systems have been installed. The transmitter and combiner final tests will then be completed after the combiner installations.
Combiner systems could not be installed pending the finalisation of the FSP. This is despite the fact that the equipment for phase 2 and 3 was procured and stored at a central location pending the publication of the FSP. Following the publication of the FSP by ICASA on 18 November 2009, the combiner systems were retuned to new FSP frequencies.
Phase 3
The Phase 3 rollout objective was to finalise the digital head-end equipment as well as installing DTT transmitters for two multiplexes at five high power sites and seven On-Frequency-Repeaters at low power sites to achieve 56% population coverage by 31 March 2009.
In terms of the 2008 National Budget Speech, Communications Vote 24 Sentech was allocated CAPEX of R150 million. This presented a shortfall of R112.6 million in comparison to the CAPEX requirements of R262.6 million for phase 3. As a result phase 3 was re-scoped from a population coverage target of 56% to 47% as per the 2009 – 2012 Corporate Plan. Annual Report 2009/10 DTT 34
Delays in the publication of the Digital Terrestrial - Installation of C-band and Ku-band Television (DTT) Frequency Spectrum Plan satellite receive antennas at the above (FSP) and Regulations affected the following sites to provide primary and secondary key activities: Single Frequency Network (SFN), feeds to the DTT transmitters. Head-end, SABC-Sentech linking, combiner - Procurement and installation of Network installations and transmitter knock-ons. Management System components to Notwithstanding, Sentech switched on the DTT transmitter sites. signal on 30 October 2008, 2 days before the prescribed date of 1 November 2008 providing During the financial year under review, 33.3% population coverage. Sentech achieved the following in Using the SCFP the Company proceeded to accordance with the ICASA FSP Plan: rollout the infrastructure beyond the 33.3% population coverage, in line with the phase 3 - Digital TV Transmitters for 13 transmitter project scope. However, the transmitters could sites and On Frequency Repeaters at 10 not be switched on. sites were purchased and installed.
- Three high power sites, Grahamstown, Phase 4 Glencoe and Theunissen, were added to The objective of Phase 4 was the installation of Phase 4. DTT transmitters in the most densely populated - Preparation of 4 sites that will receive areas in the country to achieve approximately wideband and higher capacity antenna 63,3% terrestrial population coverage by 31 systems. March 2010. - Installation of C-band and Ku-band Achieving the above-mentioned objective satellite receiving facilities to provide required: primary and secondary feeds to both transmitters at each of the above 13 sites. - Installation of DTT transmitters at thirteen high power transmitter sites and On- - Rollout Network Management System to Frequency-Repeaters at eleven low power new installed remote sites. transmitter sites. In addition, three high
power transmitter sites could be included in Capacity on multiplex for television and the scope of this project due to savings radio attained through effective contract negotiations and a favorable exchange rate As per the objectives as set out in the 2009 – at the time of equipment deliveries. 2012 Corporate Plan, Sentech rolled out one multiplex with the planned eight television - Replacement of the existing UHF antenna channels and 18 radio stations. systems at Aliwal North and Bethlehem with high capacity wideband antenna systems.
- Installation of new UHF antenna systems at Riversdal and second feeder cable installations at Bloemfontein and Kimberley. Annual Report 2009/10 35 2010 FIFA WCS
2010 FIFA World Cup Soccer (WCS)
Secure satellite capacity for 2009 Building of second teleport Fibre Provisioning Confederations Cup and 2010 WCS The second teleport construction was The purpose of the fibre ring Sentech secured the satellite capacity for initially planned for the beginning of between the second teleport and the 2009 Confederations Cup and 2010 November 2009, for completion by Sender Technology Park [STP] WCS from Intelsat through a contract March 2010. However, due to delays with Sentech's main site; was to link up signed in 2009. the proclamation of the site, which is the 9m antenna installed at STP to serve as a disaster recovery to the dependant on the approval of the site 7.3m antenna that would have been Classification of the second teleport as development and the subsequent installed at the second teleport. a National Key Point (NKP) application of the 7/6 certificate for the permission to commence building work, Sentech subsequently installed 25 The process to ensure that the second construction began on 27 February 2010. km of the underground fibre. In teleport is classified a National Key Point addition, 65 km of the planned (NKP) remains in progress. The new target for completion of the overhead installation is underway building at Nasrec was 31 May 2010. after Eskom and City Power gave This was the scheduled date for Secure commercial contracts for permission for Sentech to use their “practical completion” of the second international satellite uplink power line infrastructure for the teleport at Nasrec, including all the overhead portion of the optical fibre As per the commercial contract for the 2009 associated building services as well as all installation. Delays were Confederations Cup, Sentech successfully the Sentech electronic equipment and experienced in the overhead provided FIFA with international satellite antennas installation. The procurement installation due to rain and problems uplink facilities that performed at 99.9% and installation of the necessary between Ericsson and their equipment for a functional teleport have availability. subcontractors. However, this has not been completed. been resolved and more resources For the 2010 WCS, FIFA resolved not to were deployed at no cost to Sentech use Sentech for the provision of the Environmental Impact Assessment to make up for the lost time. international feed. Sentech, however, (EIA) on the Land Acquired before It must be noted that due to FIFA not provided the Bloemfontein disaster building the 13m satellite dish allowing interconnection between recovery plan (DRP) to FIFA. The Gauteng Department of Agriculture the satellite farm and the teleport the and Environmental Affairs issued the 9m could not be used as a disaster Build the back-up satellite Record of Decision (EIA approval) on 22 recovery. Instead a request was infrastructure for 2009 Confederations January 2010 to construct the 13m made to provide disaster recovery Cup and 2010 WCS antenna at the second teleport. The +/- 500km away from the IBC as per construction of the antenna was ready for ITU regulations. Sentech successfully provided back-up handover on 1 June 2010. satellite infrastructure to FIFA, during the 2009 Confederations Cup, which STP – 9m Antenna Satellite Backup Links performed at 100% availability against a According to the guarantees, a 9m guaranteed service availability of 99.97% All the planned 4.8m uplink antennas and antenna was planned to be installed as agreed to in the Service Level electronic equipment were installed at at Sentech's Sender Technology Agreement (SLA). the 10 stadia as scheduled. Integration, Park (STP) and links up to the testing and final commissioning could not second teleport at Nasrec through be finalised due to delays in the decision the fibre link. Construction of the 2010 World Cup Soccer (WCS) for the location of the 7.3m antenna either plinth commenced on 6 April 2010. Tournament at the second teleport or the FIFA The assembling of the antenna dish compound. The Department of will be done in parallel with the For the 2010 World Cup Soccer (WCS), Communications (DoC) resolved that the plinth, after installation was Sentech provided FIFA with the Service antenna should be located at the second completed. This work remains Level Agreement undertakings. teleport. incomplete. Annual Report 2009/10 2010 FIFA WCS 36
One nation united, and connected Annual Report 2009/10 37 Telecommunications
Telecommunications
MyWireless and Biznet For the 2010/11 financial year there are proportional costs for the period April to July The strategic objective of the 2009/10 2010 until the decommissioning and recovery of Corporate Plan was to terminate MyWireless by all the equipment has been completed. December 2009 whilst Biznet and VAS would be terminated by 31 March 2010. The reason for Variable costs are expenses that relate to the later termination of VAS and Biznet services contracts with service providers that will expire was that there were customers on these or can be terminated with a maximum of 90 days platforms who wanted to migrate to Sentech's notice period. These costs mainly relate to sites VSAT platform. and the contracts that will be terminated after the decommissioning and recovery of equipment The MyWireless network was switched off on 30 has been completed in July 2010. November 2009. The company is currently in the process of decommissioning and recovering the MyWireless equipment from the sites. The National Wholesale Broadband Network decommissioning and recovery was expected (NWBN) to be completed by the end of July 2010. During the year under review, the Department of As at 31 March 2010, the Biznet customer Communications (DoC) and Sentech discussed termination was 90% completed. Based on various options to rollout to the Dinaledi Schools arrangements with customers to switch off the using the allocated R500 million. The DoC was network once they have all secured alternative provided with two options: connectivity resources, there are still 10% of the ?rolling out to 150 schools in the 9 provinces customers on the network. The Biznet network with the R500 million allocated only towards was due to be switched off by the end of July CAPEX; and 2010. The decommissioning and recovery of the Biznet equipment will commence once the ?rolling out to 120 schools in the 9 provinces network has been switched off. with the R500 million allocated towards both CAPEX and OPEX.
Termination costs These options were provided with the proviso Despite the termination of MyWireless, Biznet that the business model wherein there is only and VAS there are “fixed and variable” costs focus on rollout to Dinaledi schools was not which the Company will continue to financially financially sustainable. It would only be support for a staggered period between 2009 financially sustainable as part of Phase 1 of the and 2013. National Wholesale Broadband Network Fixed costs are expenses that relate to: (NWBN).
- Spectrum licences; Ultimately, there was no consensus on the business and funding model for the NWBN and - Preventative maintenance to sustain the the plan was rejected by the DOC. Sentech is server for the financial data; currently in the process of drafting a new - Personnel remuneration, stationery and telecommunications business plan in line with printing, communication and other office the turnaround strategy mandate of the new costs. All affected staff have been Board. redeployed into other areas of the business. Annual Report 2009/10 Human Resources 38
Human Resources Annual Report 2009/10 39 Human Resources
Organisational Structure
THE BOARD
Company Secretary
Chief Executive Officer (CEO)
Chief Financial Chief Operations Executive: General Manager: Executive: Legal Risk Officer Officer (CFO) Officer (COO) Human Resources CEO Office & Regulatory
Head: Supply Executive: Outsourced Chain Management Network Services Internal Auditors
General Manager: Financial General Manager: Accounting Sales & Marketing & Billing
General Manager: General Manager: Management & IT Project Accounting Annual Report 2009/10 Human Resources 40
Our People
Staff
Sentech values its Employees and provides them with opportunities to develop to their full potential by ensuring quality leadership, skills development and encouraging innovation. The Company falls within the ICT industry, which is a highly specialized technical arena where the demand for skills exceeds the available supply.
The Company's key objective for 2009/10 was to continue with skills development initiatives and ensuring a representative work force. For the financial year under review the Company had 550 employees in comparison to 539 in 2008/9.
Employment Equity
The employment challenges in the Information, Communication and Technology sector makes it difficult for Sentech to achieve its set employment equity target on gender and occupational levels. An employment equity forum has been formed and new strategies are being discussed on how to meet the target.
Employment Equity Status as at 31 March 2010
Employment Equity Actuals 31 March 2010 Male Female OCCUPATIONAL LEVELS African Coloured Indian White African Coloured Indian White Total Top Management 1 0 2 1 3 0 0 0 7 Senior Management 16 1 3 14 9 0 0 1 44 Professionally Qualified & Experienced Specialist & Mid-Management 30 7 4 42 13 2 0 4 102 Skilled technical & Academical qualified workers, Junior Management, Supervisors, Foremen & Superintendents 93 12 14 70 67 4 5 14 279 Semi-skilled & discretionary decision making 37 4 0 3 19 5 2 7 77 Unskilled & defined Decision making 36 3 0 0 2 0 0 0 41 Total Permanent 213 27 23 130 113 11 7 26 550 Annual Report 2009/10 41 Human Resources
Employment Equity Variances Demographics:
African Coloured Indian White Totals
Target 385 47 19 97 548
70.26% 8.58% 3.47% 17.70% 100.00%
Actual 326 38 30 156 550
59.28% 6.91% 5.45% 28.36% 100.00%
Sentech did not meet the required balance in terms of demographic representation. The objective is to achieve this balance through recruitment for vacant positions arising from natural attrition (resignations, retirements, discharges, promotions and deaths).
Gender:
Occupational category Males Females
Top Management
Target 4 2
Actual 4 3
Senior management
Target 21 21
Actual 34 10
Professionally Qualified & Experienced Specialist & Mid-Management
Target 44 45
Actual 83 19
Skilled technical & Academical qualified workers, Junior Management, Supervisors ,Foremen & Superintendants
Target 137 138
Actual 189 90
Semi-skilled & discretionary decision making
Target 42 41
Actual 44 33
Unskilled & defined decision making
Target 27 26
Actual 39 2
The current ICT national skills gap especially amongst females does not make it possible for Sentech to have an equal split of males versus females. In other non-technical areas and skills development initiatives, the objective is specifically to target females. Annual Report 2009/10 Human Resources 42
Compensation and Benefits
Compensation and benefits are benchmarked against industry standards and guided by the relevant labour legislation. Sentech's remuneration policy is to remain competitive in alignment with market trends. Sentech participates in market surveys to ensure that the remuneration structure is competitive. The company's remuneration packages are structured on the basis of the total cash package and are at the median (or 50th quartile). As part of the remuneration package, the company offers benefits such as subsidised medical aid, pension, group life membership and cell-phone allowance. Sentech also provides rewards for competency achievement for technical employees as a retention incentive. This practice serves to provide a talent pipeline to meet the company's current and Trade Unions future human capital requirements. As mentioned earlier, 44.6% of the staff participates in collective bargaining through the officially recognised Integrated Performance Management Trade Union, The Communication Workers Union (CWU). System
An Integrated Performance Management System Salary and conditions of service negotiations 2009 policy was adopted and approved for implementation. to 2010
The approach was to adopt a phased-in approach, The Company and the Communication Workers Union wherein job grades outside the bargaining unit are part (CWU) concluded the following agreement: of the first phase; whilst negotiations with bargaining - Period of agreement 1 March 2009 to 28 February unit representatives continue. 2010; Employee Relations - 10% across the board salary increase backdated to 1 March 2009; No man-hours were lost to industrial action at Sentech during the period under review. Sentech continues to - The new minimum cash salary is increased to R5 support sound Employee Relations practices in 500 per month. This new minimum also attracted accordance with legislative requirements, standards the agreed 10% across the board percentage and policies. increase; and - Moratorium on retrenchments from 1 March 2009 to 30 June 2010. Annual Report 2009/10 43 Human Resources
Skills Development
Sentech is committed to employee development in accordance with the Joint Initiative on Priority Skills Acquisition (JIPSA) and Accelerated and Shared Growth Initiative for South Africa (ASGISA) objectives. The Company is a contributing member to the Information Systems Electronics and Telecommunications Technology Sector Education and Training Authority (ISETT SETA). As an ICT company, Sentech is also an Information Society and Development (ISAD) stakeholder and is committed to e-Skills development of all areas and levels in an effort to improve our nation's electronic abilities to stay abreast of an advanced technological world.
In terms of the 2009 Corporate Plan, the objective was to achieve the skills development targets as per the Skills Development Plan submitted to the Department of Labour. The Skills Development Plan is based on a Workplace Skills Plan (WSP) as per ISETT SETA guidelines. The table below is a summary of Sentech's WSP according to race, gender and occupational level for 2009/10. Annual Report 2009/10 Human Resources 44
The 2009/10 skills development targets were as follows: 2009/10
African Coloured Indian White Total Occupation M F M F M F M F
Legislators, senior officials and managers 37 21 10 0 9 0 91 14 181
Professionals 48 32 1 6 15 3 27 9 140
Technicians and associate professionals 155 65 14 0 12 0 87 0 333
Clerks 7 21 0 11 1 3 3 17 62
Craft and related trades workers 18 23 1 2 0 0 7 0 51
Elementary occupations 43 0 6 0 0 0 5 0 54
Total 308 161 33 18 38 6 219 39 822
Percentage of total 37.5 19.6 4.0 2.2 4.6 0.7 26.7 4.7
PDI 68.6% Gender 27.3%
Actual performance in terms of the 2009/10 targets:
2009/10
African Coloured Indian White Total Occupation M F M F M F M F
Legislators, senior officials and managers 29 7 9 3 6 0 71 8 133
Professionals 62 24 11 0 9 1 28 6 141
Technicians and associate professionals 236 192 25 0 22 0 119 8 602
Clerks 15 46 0 10 3 7 0 10 91
Craft and related trades workers 43 1 13 0 4 0 13 0 74
Elementary occupations 68 1 4 0 0 0 0 0 73
Total 453 271 62 13 44 8 231 32 1114
Percentage of total 40.7 24.3 5.6 1.2 3.9 0.7 20.7 2.9
PDI 76.4% Gender 29.1%
The 2009/10 Skills Development targets were achieved and exceeded by 35.5% above target on the number of training interventions (i.e. 1114 actual / 822 planned). This was mainly due to the large effort put into DTT training. Annual Report 2009/10 45 Human Resources
In-house training is provided through The Sentech Advanced School of Technology provided training in three main focus areas:
- People and Management skills;
- Information Technology and Systems skills; and
- Technical Broadcasting and
Telecommunications skills.
Some of the training is out-sourced and provided by tertiary institutions or ICT providers. Employees are also sent for specific training with suppliers and manufacturers.
One of the key areas of focus for development during the year under review was the continued Digital Terrestrial Television (DTT) migration project. For the 2009/10 financial year there were 164 DTT training interventions (112 technical and 52 non-technical).
Employee Bursaries
During the 2009 academic year 39 employees were granted bursaries. The final exam results include 76.8% passes, 16.1% failures and 7.1% supplementary exams.
Learnership
There are currently 35 learners under this programme. Five of the learners have obtained employment outside of Sentech with another five appointed internally. The Company is currently not in a position to permanently appoint all the learners. There are 24 ISETT Telecommunications Technicians, six ISETT IT Support Technician and five e- Cadre IT development programme students. Annual Report 2009/10 Human Resources 46
Occupational Health and Safety (OHS)
The following table reflects occupational injuries, diseases and days lost indicated by key performance parameters during the period April 2007 to March 2010.
Injury, occupational diseases, lost days, etc.
Key Performance Parameter 2007/8 2007/8 2007/8
Injury on Duty 4 7 15 Employee fatalities - - 1 Structural damages (masts) 1 - - Motor vehicle accidents 3 4 4 Total days lost due to the above incidents 33 238 41
The graph below depicts the year on year number of work related-injuries and number of days lost due to injuries on duty
Key Performance Parameters
250
200
150
100
50
0.00 Number of OHS Employee Structural Motor Vehicle Days lost due to Incidents Fatalities Damage Accidents injury on duty
2007/ 2008 2008/ 2009 2009/2010
Target Fewer Incidents
A target of 0.8% Disabling Incident Frequency Rate (DIFR) was set for 2009/2010 safety performance. A Disabling Incident Frequency Rate of 2.5% was obtained as a result of the incidents that occurred during 2009/10 financial year. Annual Report 2009/10 47 Government Relations
Government Relations
Sentech has a dedicated Government Relations specialist to be the focal point for civil society and all other spheres of government, including Parliament. Participating in these forums ensured the entrenchment of Sentech agenda across the three spheres of government, namely; national, provincial and local government. Sentech participated in the overall government planning processes of Integrated Development Plans, and Integrated Sustainable Rural Development Programmes.
At the national level, Sentech has an observer status in the Technical Committee of the Inter-governmental Relations Forum (IGRF) wherein ICT challenges faced by all levels of government are discussed and solutions are recommended. Sentech attended all meetings called by the Minister of Communications as the chairperson of this forum.
In conclusion, partnerships have been formed with relevant and identified government departments to bring them closer to their district offices through satellite network. Annual Report 2009/10 CSI 48 Annual Report 2009/10 49 CSI
Corporate Social Investment (CSI)
As one of the government's key delivery partners in the ICT environment, Sentech is able to leverage its skills and resource base towards CSI initiatives of both community and national significance.
Sentech's guiding CSI principle is the belief that its initiatives are tantamount to investing in the future. It views its technology, products and services as developmental tools that the company is able to use to support vital education and health requirements, while redressing previous inequalities and imbalances in our society.
Through its varied CSI initiatives, the company is able to demonstrate that its technology can operate in remote environments whilst benefitting those whom it has been deployed. Annual Report 2009/10 CSI 50
CSI Disbursements R ‘million 6
5
4
3
2
1
0 April 2008 to March 2009 April 2009 to March 2010
School Other Projects Budget Annual Report 2009/10 51 Corporate Governance
Corporate Governance
Corporate Governance authority” and the Board of Directors is defined as the “accounting authority”. The Chief Executive Officer is In order to achieve its national strategic objectives, the “accounting officer” of Sentech. Sentech has built sound corporate governance structures and processes in compliance with the Sentech Act 63 of 1996, Sentech Amendment Act Board Charter 44 of 1999, Articles of Association, Government The Board has adopted a charter, which provides a Protocol on Corporate Governance, Public concise overview of the role, powers, functions, duties Finance Management Act 1 of 1999 (as amended) and responsibilities of the directors, both collectively and Treasury Regulations, that are regularly and individually. The Board has determined that reviewed in line with changes in the regulatory and based on the Articles of Association, Shareholder's business environment. Sentech further supports Compact and applicable legislation, its main functions and endorses the guiding principles of the South and responsibilities are as follows: African Code of Corporate Practices and Conduct
as included in King Report (King III). The Group has ?Give strategic direction to the Group in line with further noted the new Companies Act 71 of 2008 Government's objectives and ensure that Sentech and will work towards implementing the applicable remains a sustainable and viable business. The provisions from the effective date. strategic objectives are set out in the annual Corporate Plan submitted to the Department of Public Finance Management Act Communications and National Treasury;
As a State Owned Enterprise (SOE), Sentech is ?Prepare and approve corporate plans, annual required to comply with the Public Finance budgets, Annual Reports and financial Management Act (PFMA) and Treasury statements; Regulations. In terms of the PFMA, Sentech is ?Effectively lead, control and manage the Sentech classified as a Schedule 3b National Public business subject to the provisions of the Sentech Enterprise reporting to the Minister of Act; Sentech Amendment; Shareholder's Communications. The Minister of Communications Compact; Companies Act; PFMA and other (Minister), who is the sole shareholder of Sentech applicable legislation; on behalf of the State, is defined as the “executive Annual Report 2009/10 Corporate Governance 52
?Monitor and evaluate implementation by Operations Officer and Chief Financial Officer. In terms executive Management of the Board's of the Shareholder's Compact, the number of non- strategies and performance objectives as set executive directors shall be limited to a maximum of out in the Corporate Plan and Shareholder's seven directors. Compact; The executive directors are appointed by the Minister ?Ensure that the Group is managed effectively in on the recommendation of the Board. On the accordance with corporate governance best appointment of non-executive directors, the Board practice and highest ethical standards; makes nominations which the Minister may consider for appointment. ?Responsibility for the risk management process, including the system of internal controls and As at 31 March 2009, the Board had a unitary structure ensuring that it is effective, efficient and comprising a total of three directors; two executive and transparent; and one non-executive director.
?Regularly assess the performance and effectiveness of the Board as a whole and the Composition individual directors, including the Chairperson of For the period under review, the Board had the the Board and Chief Executive Officer, following resignations: committees of the Board and the chairpersons of
the committees. At the end of March 2010 the Chief Executive Officer, Dr. Sebiletso Mokone-Matabane retired before the The Structure, Composition and Size of the termination of her contract of employment at the end of Board September 2010. Ms. Ngwenya was appointed acting
Structure and size Chief Executive Officer and Mr. Dube the acting Chief Operations Officer with effect from 1 April 2010. In terms of the Sentech Amendment Act, the Board shall consist of three executive directors and at least The following non-executive directors resigned on four non-executive directors. The three executive the dates indicated below: directors shall be the persons performing the 1. Dr Yvonne Muthien – resigned on 28 January functions of a Chief Executive Officer, Chief 2010 Annual Report 2009/10 53 Corporate Governance
2. Dr Deenadayalen Konar – resigned on 29 January 2010
3. Mr Tau Mashigo - resigned on 05 February 2010
4. Mr Colin Hickling - resigned on 28 February 210
5. Adv Nonkumbulo Tshombe – resigned on 28 February 2010
6. Nandi Sihlali – resigned of 23 March 2010
7. Dr Sebiletso Mokone-Matabane – resigned on 31 March 2010
As at 1 April 2010, three new non-executive directors being Mr. Quraysh Patel, Mr. Mesuli Dhlamini and Ms. Zanele Hlatshwayo were appointed for a three year period. Mr. Thabo Leeuw was re-appointed for a further three year period.
Board Membership and Meeting Attendance
In terms of the Articles of Association, the Board should hold at least four meetings per year and any special meetings as and when required. During the period under review the Board held three scheduled board meetings, two strategic workshop to formulate and approve the new business strategy and five special meetings convened to address urgent matters relating to the Sentech funding requirements.
Attendance:
2009 2010 Name 05 May *24 Jul 18 Aug *15 Oct 04 Nov 01 Dec *12 Jan *24 Feb
Mr C Hickling aaaaaaaa Dr S Mokone-Matabane aaaaaaaa Ms B Ngwenya aaaaaax a Mr MS Cassim aaaaaaaa Mr T Leeuw aaaaaaaa
Mr T Mashigo (#) aaax aaan/a
Dr D Konar (#) ax x ax aan/a
Dr Y Muthien (#) x ax aaax n/a Adv N Tshombe aaaaaaaa Ms N Sihlali aaaaaaaa
* Special Board meeting. aPresent x Submitted apologies. (#) Dr Muthien resigned on 28 January 2010, Dr Konar resigned on 29 January 2010 and Mr Mashigo resigned on 05 February 2010 Annual Report 2009/10 Corporate Governance 54
Role of the Chairperson and Chief Executive Officer
The role of the Chairperson of the Board and Chief Executive Officer does not vest in the same person. In terms of the Sentech Amendment and the Company's Articles of Association, the Minister has appointed a non-executive director as Chairperson of the Board. The Chief Executive Officer is an executive director of the Board.
Mr. Colin Hickling was reappointed as non-executive Chairperson for three years, starting 1 September 2008. Dr. Sebiletso Mokone-Matabane's term expires on 30 September 2010.
Role of the Company Secretary
The role of the Company Secretary is to advise the directors, both individually and collectively on their powers, duties and responsibilities in compliance with the Sentech Act, Sentech Amendment Act, Public Finance Management Act and Treasury Regulations, Shareholders Compact, Companies Act, Government Protocol on Corporate Governance, King II and other applicable legislation. The directors have unrestricted access to the Company Secretary and other officials in the Company Secretariat.
Director Induction and Training
During the year under review, the Board approved an Induction and Development Programme.
New directors are taken through an induction programme which covers the following topics: Sentech's strategic objectives, financial and operational status; and corporate governance practices. In addition, new directors receive an 'Induction Manual' which is a collation of applicable legislation, policies and regulations; business plans and other information relating to the Sentech business; and information from the Company Secretariat on Sentech as a corporate entity and the functioning of the Board.
For Training and Development the directors attended the IBC Conference in Belgium in September 2009.
Directors Remuneration
The Remuneration framework prescribed by the Minister is as follows:
During the year under review the Board reviewed and amended the Directors Remuneration policy within the framework as prescribed by the Minister.
Directors' remuneration is detailed on page 126 of the annual financial statements. Annual Report 2009/10 55 Corporate Governance
Chairperson of Other Non-executive Chairperson of the the Board Directors Committees
Annual Retainer R264 500 R105 800
Meeting Fee:
- Board R8 464 R6 348
- Audit Committee R6 348 R8 464
- HRA Remuneration and Nominations Committee R5 290 R6 348
Technology Committee R6 348 R8 464
Other work outside Board and Committee meetings R2 000 p/hour R2 000 p/hour
During the year under review the Board reviewed and amended the Directors Remuneration policy within the framework as prescribed by the Minister.
Directors' remuneration is detailed on page 126 of the annual financial statements.
Director Evaluation Code of Ethics
The Board conducts an annual evaluation of the During the year under review the Board approved a performance of the Board as a whole and of the consolidated Code of Ethics which regulates the individual directors, including the Chairperson of the behaviour and conduct of Board members, Board. The evaluation assesses the Board's management and the general staff body. effectiveness and how the participation of each The Code addresses the following key components of director can be improved and developed. Ethics:
?Fraud; As required in terms of the Shareholder's Compact, the outcome of the evaluation is presented to the ?Human rights and discrimination; Minister. For the period under review, the Board and ?Employment Equity; Committees of the Board conducted a self ?Political activity; assessment. The outcome of the assessments was to be discussed by the Board at a planned Strategic ?Stakeholder relations; Workshop on 01 December 2009 so that a report ?Conflict of interest; could be compiled for the Minister. This Strategic ?Declaration of gifts from suppliers and customers; Workshop was however postponed due to the Task and Team process. ?Dress code. Annual Report 2009/10 Corporate Governance 56
Appointment of External Auditors ?The risk areas of the entity's operations to be covered in the scope of the internal and external In accordance with the Public Audit Act, the Auditor audits; General did not audit the Sentech Annual Financial Statements (AFS). In consultation with the Auditor- ?Oversight of the risk management process; General the Shareholder approved the re- ?The adequacy, reliability and accuracy of financial appointment of KPMG Inc. as the external auditors of information provided to management and other Sentech Limited and its subsidiaries with effect from users of such information; date of the Annual General Meeting held on 25 August 2009. ?Any accounting and auditing concerns identified as a result of internal and external audits;
?The entity's compliance with legal and regulatory COMMITTEES OF THE BOARD OF DIRECTORS provisions;
? The Board has three committees: The activities of the internal audit function, including its annual work programme, co- ? Audit; ordination with the external auditors, the reports of ?Technology; and significant investigations and the responses of management to specific recommendations; and ?Human Resources, Affirmative Action, Remuneration and Nominations. ?The independence and objectivity of the external auditors.
All committees have adopted terms of references which are reviewed as and when necessary to Composition of the Committee ensure that they continue to be relevant and also in In line with the requirements of section 77(a) of the compliance with applicable legislation. For the period PFMA, the Audit Committee comprised of three non- under review, the Committees have complied with executive directors, namely, Mr Thabo Leeuw their responsibilities under their terms of references. (Chairperson), Adv Nonkumbulo Tshombe and Mr Tau Mashigo. The Chief Executive Officer (CEO), the Chief Operations Officer (COO), the Chief Financial Officer Audit Committee (CFO), internal and external auditors attend all meetings by invitation. Purpose of the Committee
The Audit Committee is constituted in terms of Meetings sections 76 and 77 of the PFMA and regulation In accordance with the Terms of Reference of the 27.1.1 of the Treasury Regulations. The purpose of Committee, the Committee held four scheduled the committee is to review the following: meetings during the year under review. The ?The effectiveness of internal control systems; attendance record for the individual members is outlined as follows: ?The effectiveness of internal audit; Annual Report 2009/10 57 Corporate Governance
Attendance:
2009 2010 Name 20 Apr 21 Jul 20 Oct 15 Feb
Mr T Leeuw aaaa
Mr T Mashigo (#) x aan/a
Dr D Konar (#) ax x n/a Adv N Tshombe x aaa
aPresent x Submitted apologies. (#) Dr Konar resigned on 29 January 2010 and Mr Mashigo resigned on 05 February 2010.
Technology Committee
Purpose of the Committee
The purpose of the committee is to review and provide the Board with recommendations on the following:
?Technology (ies) to support the business objectives;
?Performance of all Sentech networks, including sales performance;
?Maintenance and operations of all Sentech networks; and
?Information technologies (IT) and information systems (IS).
Composition of the Committee
The committee is constituted of four non-executive directors:
Ms. Nandipha Sihlali (Chairperson), Mr Thabo Leeuw, Mr Tau Mashigo and Dr Yvonne Muthien; one independent advise Mr Mlamli Booi and two executive directors, namely the Chief Executive Officer and the Chief Operations Officer. The executive responsible for Network services, Marketing & Sales and Legal & Regulatory attend meetings by invitation.
Meetings
In accordance with the Terms of Reference, the committee held three meetings during the year and no special meetings. The attendance record for the individual members is outlined as follows: Annual Report 2009/10 Corporate Governance 58
Attendance:
2009 2010 Name 02 Apr 05 Oct 19 Feb
Ms Nadipha Sihlali aaa Mr T Leeuw aaa
Mr T Mashigo (#) aan/a
Dr Yvonne Muthien (#) ax n/a Dr Sebiletso Mokone-Matabane aax Ms Beverly Ngwenya aaa Mr M Booi aaa
aPresent x Submitted apologies. (#) Mr Mashigo resigned on 05 February 2010
Human Resources, Affirmative Action, Remuneration & Nominations Committee
Purpose of the Committee
The committee reviews and provides the Board with recommendations on the following:
?Human resources issues in general, including HR policies and procedures, retention of staff and employment equity;
?Remuneration and benefits of non-executive and executive directors, senior management;
?Nomination of non-executive directors; and
?Recruitment of executive directors.
Composition of the Committee
The composition of the committee includes four non-executive directors: Adv Nonkumbulo Tshombe (chairperson), Mr. Colin Hickling, Dr. Yvonne Muthien and Ms. Nandi Sihlali, and two executive directors, namely the Chief Executive Officer and Chief Operations Officer.
The Human Resources executive attends all meetings by invitation.
Meetings
In accordance with its Terms of Reference, the Committee held four meetings and one special meeting. The attendance record for the individual members is outlined as follows: Annual Report 2009/10 59 Corporate Governance
Attendance:
2009 2010 Name 04 May 07 July 17 Aug 14 Oct 16 Feb
Adv Nonkumbulo Tshombe aaa aa Mr Colin Hickling aaa aa Ms Nandipha Sihlali aaa aa Dr Sebiletso Mokone-Matabane aaa ax Ms Beverly Ngwenya aaa ax Dr Yvonne Muthien (#) x ax an/a
* Special HRA meeting. aPresent x Submitted apologies. (#) Dr Muthien resigned on 28 January 2010,
Executive Committee
The Executive Committee is constituted in terms of the Sentech Amendment Act and Articles of Association, which provides that the day-to-day affairs of the Company shall be managed by the executive committee which consists of the executive directors of the Board: Chief Executive Officer, Chief Operations Officer and Chief Financial Officer.
Other members of Management are invited to attend, as and when required. The committee is chaired by the Chief Executive Officer. Thirty two meetings were held, including 16 ordinary meetings, 14 special meetings and two workshops.
Going Concern
The going concern status of Sentech Limited is dealt with on page 71 in the Directors' Report.
Integrated Performance Report
Sentech is presenting the Annual Report to include an Integrated Performance Report against Key Performance Areas and Indicators as agreed to between Sentech and the Shareholder in terms of the Shareholders Compact and 2009 – 2012 Corporate Plan. The Integrated Performance Report has been audited by the external auditors in terms of the guidelines determined by the Auditor General.
The information focuses on the economic, social and environmental elements of the business. The Integrated Performance Report is included on page 17 to 49 in the Annual Report. Annual Report 2009/10 60 Annual Report 2009/10 61 Annual Financial Statements
Annual Financial Statements annual financial statements Notes tothefinancialstatements Statements ofcashflows Statements ofchangesinequity Statements ofcomprehensiveincome Statements offinancialpositionforcompany Statements offinancialpositionforgroup Accounting authority'sreport Independent auditor'sreport Statement bythecompanysecretary Accounting authority'sresponsibilitiesandapproval Report oftheauditcommittee Contents Page Annual FinancialStatements Annual Report2009/10 81 -136 80 78 -79 77 76 75 68 -74 65 -67 64 64 63 62 Annual Report 2009/10 63 Annual Financial Statements
Report of the Audit Committee
To the Sentech Executive Authority
The Audit Committee consists of 4 members who are independent non-executive directors. The Committee was chaired by an independent, non-executive director. The Executive Directors, as well as the outsourced internal audit and external audit representatives, were invitees to the Committee.
The Audit Committee was guided in the execution of its role by an Audit Committee Charter which has been approved by the Board of Directors.
In the conduct of its duties during the period under review, the Audit Committee has, inter alia:
?Reviewed any accounting and auditing concerns identified as a result of the internal or external audits and considered any significant transactions not directly related to the company's normal business as the Committee, in its discretion, deemed appropriate.
?Reviewed the annual report and annual financial statements for the year ended 31 March 2010 to ensure that they present a balanced and understandable assessment of the financial position, performance and prospects of Sentech Limited.
?Where the company's external auditors are contracted to render any additional services which are not part of their audit activities, this was subject to the specific prior approval of the Audit committee. This Committee confirms that to the best of its knowledge, the external auditors have not been involved in any assignment that may impair their independence.
The Audit Committee has evaluated the annual financial statements of Sentech Limited for the year ended 31 March 2010, the effectiveness and adequacy of the company's internal controls and any pending litigation. The Committee is of the opinion that the annual financial statements as presented, comply in all material respects with the relevant provisions of the Companies Act, No 61 of 1973, and the Public Finance Management Act, 5 No 1 of 1999. The Committee is also of the opinion that these financial statements as presented comply with International Financial Reporting Standards; that they fairly present the results of the operations, cash flows and financial position of the company and group and that the adoption of the “going concern” premise in the preparation of the financial statements is appropriate. The Audit Committee accordingly has pleasure in recommending the adoption by the Board of Directors of the Sentech Limited of the financial statements of the company for the year ended 31 March 2010.
On behalf of the Sentech Audit Committee L Khumalo
30 July 2010 Annual Report 2009/10 Annual Financial Statements 64
Accounting Authority's Responsibilities and Approval
The group's accounting authority is responsible for the The accounting authority's responsibility also includes preparation and fair presentation of the annual financial maintaining adequate accounting records and an statements of Sentech Limited and subsidiaries comprising effective system of risk management as well as the the statements of financial position at 31 March 2010, and preparation of the supplementary schedules included the statements of comprehensive income, the statements in these financial statements. of changes in equity and statements of cash flows for the The accounting authority has made an assessment of year then ended, and the notes to the financial statements, the company and group's ability to continue as a going which include a summary of significant accounting policies concern and there is no reason to believe the business and other explanatory notes, and the accounting authority's will not be a going concern in the year ahead. report, in accordance with International Financial Reporting Standards and in the manner required by the Companies The auditor is responsible for reporting on whether the Act of South Africa and the Public Finance Management Act annual financial statements are fairly presented in of South Africa. accordance with the applicable financial reporting framework.
The accounting authority's responsibility includes: Approval of group annual financial statements and designing, implementing and maintaining internal control annual financial statements relevant to the preparation and fair presentation of these financial statements that are free from material The group annual financial statements and annual misstatement, whether due to fraud or error; selecting and financial statements of Sentech Limited and applying appropriate accounting policies; and making subsidiaries, as identified in the first paragraph, were accounting estimates that are reasonable in the approved by the accounting authority on 30 July 2010 circumstances. and are signed on its behalf by:
Q Patel MH Dhlamini Chairman Non-executive Director
Statement by Company Secretary
In terms of section 268G (d) of the Companies Act, 1973, as amended, I certify that, to the best of my knowledge and belief, Sentech Limited has lodged with the Registrar of Companies for the financial year ended 31 March 2010, all such returns required in terms of the Companies Act, 1973, as amended, and that all such returns are true, correct and up to date.
MC Monyai Company Secretary 30 July 2010 Annual Report 2009/10 65 Annual Financial Statements
Independent Auditor's Report to Parliament on the financial statements of Sentech Limited
Report on the financial statements evidence about the amounts and disclosures in the financial statements. The procedures selected depend We have audited the Group Annual Financial Statements on the auditor's judgement, including the assessment and the Annual Financial Statements of Sentech Limited of the risks of material misstatement of the financial (“Sentech”), which comprise the statements of financial statements, whether due to fraud or error. In making position at 31 March 2010, and the statements of those risk assessments, the auditor considers internal comprehensive income, changes in equity and cash flows control relevant to the entity's preparation and fair for the year then ended, and the notes to the financial presentation of the financial statements in order to statements which include a summary of significant design audit procedures that are appropriate in the accounting policies and other explanatory notes, and the circumstances, but not for the purpose of expressing Accounting Authority's Report, as set out on pages 68 to an opinion on the effectiveness of the entity's internal 136. control. An audit also includes evaluating the appropriateness of accounting policies used and the Accounting Authority's responsibility for the financial reasonableness of accounting estimates made by statements management, as well as evaluating the overall presentation of the financial statements. The Accounting Authority, which constitutes the Board of Directors of Sentech Limited, are responsible for the We believe that the audit evidence we have obtained is preparation and fair presentation of these financial sufficient and appropriate to provide a basis for our statements in accordance with International Financial audit qualified opinion. Reporting Standards, and in the manner required by the Public Finance Management Act of South Africa, and the Basis for qualified opinion Companies Act of South Africa. This responsibility includes: designing, implementing and maintaining As indicated in the Accounting Authority's report, the internal control relevant to the preparation and fair present Accounting Authority was appointed on 1 April presentation of financial statements that are free from 2010 and is unable to confirm whether the fruitless and material misstatement, whether due to fraud or error; wasteful expenditure disclosed as R31 million and the selecting and applying appropriate accounting policies; irregular expenditure disclosed as R14 million and making accounting estimates that are reasonable in represents all fruitless and wasteful expenditure and the circumstances. irregular expenditure incurred under the previous Accounting Authority. Auditor's responsibility Qualified opinion Our responsibility is to express an opinion on these financial statements based on our audit. We conducted In our opinion, except for the possible effects of the our audit in accordance with International Standards on matter described in the preceding paragraph, these Auditing. Those standards require that we comply with financial statements present fairly, in all material ethical requirements and plan and perform the audit to respects, the consolidated and separate financial obtain reasonable assurance whether the financial position of Sentech Limited at 31 March 2010, and its statements are free from material misstatement. consolidated and separate financial performance and consolidated and separate cash flows for the year then An audit involves performing procedures to obtain audit ended in accordance with International Financial Annual Report 2009/10 Annual Financial Statements 66
Reporting Standards, and in the manner required by the performance summary, in which the actual Public Finance Management Act of South Africa, and the performance (key performance indicator) of the group Companies Act of South Africa. for the year ended 31 March 2010 is compared with target (predetermined objectives), and report thereon Other matter to those charged with governance. In this Report we are required to report our findings from our The supplementary information set out on page 138 does engagement relating to non-compliance with not form part of the annual financial statements and is regulatory and reporting requirements, usefulness presented as additional information. We have not audited and reliability of information. this information and accordingly we do not express an opinion on it. We report that the Public Finance Management Act of South Africa (PFMA) and related Treasury Regulations require a company to, inter alia, monitor Emphasis of matter and report the results of its performance against Without further qualifying our opinion, we draw attention to predetermined objectives. Sentech Limited does not the going concern paragraph in the Accounting Authority's have a formal process in place to monitor and report Report which indicates that the present Accounting performance information. Authority will make certain requests to the Department of Communication to enable Sentech and its subsidiaries to Compliance with laws and regulations have sufficient cash resources to meet their financial obligations, both present and future, in the normal course Non-compliance with certain sections of the of their business. The Accounting Authority's Report further PFMA, and related Treasury Regulations. indicates that in the event that the Department of Section 51(1)(a)(i), read with Treasury Regulation Communication does not meet Sentech's requests, there 27.2.1 requires a company to put in place a risk is significant doubt on the ability of Sentech and its management system throughout the organisation. subsidiaries to continue as a going concerns and, Although, an Audit and Risk Committee was appointed therefore, that they may be unable to realise their assets and key risks were identified, there were no embedded and discharge their liabilities in the normal course of their risk management and monitoring procedures in place business. within the entity to manage and monitor the risks.
Report on other legal and regulatory requirements Section 51(1)(b)(ii) requires the Accounting Authority In terms of the Public Audit Act of South Africa and General to take appropriate steps to prevent irregular notice 1570 of 2009, issued in Government Gazette No. expenditure, fruitless and wasteful expenditure, 32758 of 27 November 2009, we include below our findings losses resulting from criminal conduct and on the Report on performance against predetermined expenditure not complying with the operational objectives, compliance with laws and regulations, internal policies of the company. Sentech Limited has policies control and investigations. and procedures in place which would assist with the prevention of such expenditures and losses, i.e. Delegation of Authority Framework, SAP system, Report on performance against predetermined travel policy, regular financial reviews, etc. However, objectives the instances we became aware of in our audit of the We are required by the Auditor-General to undertake a financial statements indicated that the policies and limited assurance engagement on the 'Performance procedures in place to prevent these types of against the predetermined objectives', as set out on pages expenditures and losses were not effective during the 17 to 46 of the Annual Report in the section headed 2009/10 financial year. Annual Report 2009/10 67 Annual Financial Statements
Internal control
We considered internal control relevant to our audit of the financial statements and our report on the Report on performance against predetermined objectives and compliance with laws and regulations, but not for the purposes of expressing an opinion on the effectiveness of internal control.
?Our audit opinion contained in our Report on the financial statements is modified in respect of fruitless and wasteful expenditure and irregular expenditure incurred under the previous Accounting Authority.
?Our limited assurance engagement on the report on performance against predetermined objectives identified no significant findings. Accordingly we are not required to comment on internal control relating to the report on performance against predetermined objectives.
Investigations
The Minister of Communication appointed a task team that performed a special investigation during the year on governance, leadership, procurement procedures, and non-compliance with the company's policies. The Minister of Communication gave a summary of the report to Parliament on 2 February 2010.
Other matter
Except for fruitless and wasteful and irregular expenditure, the matters contained in this Report are not considered to affect our opinion contained in our Report on the financial statements.
KPMG Inc.
Per M Rattigan Chartered Accountant (SA) Registered Auditor Director
30 July 2010
KPMG Crescent 85 Empire Road Parktown Annual Report 2009/10 Annual Financial Statements 68
Accounting Authority's Report
1. Review of activities Licences held by Sentech Limited include:
Legal and regulatory environment lI-ECNS licences
Licensing lI-ECS Licences
The Electronic Communications Amendment Act, No lFrequency Spectrum Licenses 36 of 2005, was published on 8 January 2008 and lRadio Station Licences came into effect on 2 February 2008. The Amendment provides for: Held by InfoSat (Proprietary) Limited (subsidiary of - Encouraging investment, including strategic Sentech) infrastructure investment, and innovation in the Information, Communication and Technology lIndividual Electronic Communications (ICT) sector; and for Network Services lIndividual Electronic Communications - The Minister of Communications, after obtaining Services Licence Cabinet approval, to issue a policy direction to: * Licences issued previously, not replaced by the linitiate and facilitate intervention by ECA. government to ensure strategic ICT infrastructure investment; and, Compliance with the Public Finance Management Act (PFMA) lprovide for a framework for the licensing of a public entity (with state ownership of more During the year, there was no control to identify than 25%) by the Independent and record fruitless and wasteful and irregular Communication Authority of South Africa expenditure by the previous Accounting Authority. (ICASA). Accordingly, the present Accounting Authority are unable to confirm whether the fruitless and Effective 1 April 2009, ICASA converted certain wasteful expenditure disclosed in note 30 of the licences held by Sentech. As a result, Sentech annual financial statements as R31 million and the derecognised the licences held previously amounting irregular expenditure disclosed as R 14 million to R15.6 million. This was recorded as an expense for (2008 - R 35.6 million) represents all fruitless and Sentech in the current year. The DTH licence is still wasteful expenditure and irregular expenditure awaiting approval. incurred during the year. Inquiries into various transactions are continuing and the shareholder Consequently, as a result of the withdrawal of the will be notified of the results. previous licences, ICASA issued Sentech with the following licences in terms of the Electronic Communications Act (ECA): Section 51(1)(b)(ii) requires the Accounting Authority to take appropriate steps to prevent irregular expenditure, fruitless and wasteful expenditure, losses resulting from criminal conduct and expenditure not complying with the operational policies of the company. Annual Report 2009/10 69 Annual Financial Statements
Sentech Limited has policies and procedures in place Statement of financial position which would have assisted with the prevention of such Total assets increased marginally as compared to expenditures and losses, i.e. Delegation of Authority the prior year. In the current financial year, the Framework, SAP system, travel policy, regular financial position of the group has improved in financial reviews, etc. However, the policies and certain areas while deteriorating in other areas procedures in place to prevent these types of that have been explained in more detail below. expenditures and losses were not effective during the Property, plant and equipment have increased 2009/10 financial year. marginally due to the capitalisation of 2010 World Cup (WC) assets. These increases were offset by During the year, there was no risk management the impairment of Voice Telephony Service assets system throughout the organisation. Section of R 10.7 million and impairment of discontinued 51(1)(a)(i), read with Treasury Regulation 27.2.1 operations' (Biznet, MyWireless and VAS) assets requires a company to put in place a risk management of R1.7 million. The impairment of the Voice system throughout the organisation. Even though, an Telephony Service business was recognised as Audit and Risk Committee was appointed and key the business in its current format continues to incur risks were identified, there were no embedded risk losses and will not recover the value of the assets. management and monitoring procedures in place The total impairment of R 12.5 million has been within the entity to manage and monitor the risks. The included as an expense in the profit for the year. present Accounting Authority has engaged the services of a consultant to assist in implementing the The Group revalued assets during the year, which risk management system for the 2010/11 financial resulted in the devaluation of land and buildings of year. The previous Accounting Authority began the R14.8 million. The devaluation has been risk management process in about February 2010. recognised in the statement of comprehensive The task team appointed by the Minister identified a income, net of the related deferred tax of R 4.1 number of non-compliance matters for which the million. Intangible assets decreased by R 15.6 Accounting Authority has instituted actions that, on million due to the change in legislation being the resolution, may result in further fruitless and wasteful Electronic Communications Act becoming and irregular expenditure being reported in the effective from 1 April 2009. The derecognition of 2010/11 financial year. licences has been recorded in the profit for the year as an expense. Government Grants cash and 2. Financial results cash equivalents increased as a result of funds received for the DTT project of R228 million and Overview interest earned of R11.4 million (on the DTT The annual financial statements of the group project) and interest on other government grants (Sentech and its subsidiaries) consist of the capitalized and not yet utilised. The most Statements of financial position, Statements of significant amount residing in the Government comprehensive income, Statements of changes in Grant cash and cash equivalents relates to the equity, Statements of cash flows and notes to the R500 million received to roll out the National financial statements. Below is an analysis of each of Wholesale Broadband Network. the movements and variances between the current The business plan is being prepared. The interest and prior year. earned on Government funding has been included in the Government Grants cash and cash equivalents. The Group's own cash and cash Annual Report 2009/10 Annual Financial Statements 70
equivalents have decreased by R65 million during the expenses have reduced which is attributed to year. This decrease has been further explained in the deferring non-core maintenance to later periods. analysis of the statement of cash flows. Employee expenses have decreased year on year. However, the decrease relates to the The changes in equity will be discussed in the section reduction of the profit or loss movement in post- on Statement of changes in equity below. employment benefits from R24.2 million in 2009 to R 1.6 million in 2010. Employee costs, excluding Liabilities, both current and non-current, decreased post-employment benefits, increased marginally due to the repayment of the Development Bank of by 2% from the prior year. South Africa loan by R25.9 million and the settlement of the South African Revenue Services liability of The Group has an income tax expense of R 70.6 R132 million plus interest of R18.7 million relating to million and the effective tax rate is 40%. This the VAT on Government Grants and income taxation. expense includes a prior year current tax under- Liabilities decreased further due to the repayment of provision of R 16.6 million. the ICASA licences of R 25 million plus interest for late payments of R8.9 million. The Group has continued to report the discontinued operations (Biznet, MyWireless and Statement of comprehensive income VAS). Sales to customers had substantially been reduced as the services have mostly been The Group has reported a profit of R105 million for the discontinued. The operating costs linked or year. Included in the profit is interest income earned allocated to the discontinued operations require on Sentech's own cash of R7.7 million and further analysis by the present Accounting Government Grant cash of R 59.6 million which Authority who are investigating the cancellation of excludes the capitalized FIFA 2010 interest of R13 contracts related to these discontinued million. Interest income does not form part of the operations. The present Accounting Authority Group's results from operating activities and cannot continues to pursue the full closure of these be sustained in future periods as the interest will businesses in line with the directive from the decline as the Government Grant funding is utilised to Shareholder. complete the rollout of various capital projects. Statements of changes in equity Revenue increased from R750 million to R 838 million and this is mainly attributable to tariff increases for There were no changes in share capital and broadcast signal distribution and the DTT dual premium during the current year. The revaluation illumination cost recovery grant income of R51.3 reserve decreased due to a devaluation of land million. The real increase in revenue excluding the and buildings of R 10.6 million (net of tax) in the DTT grant income was only 3.83%. Revenue current year. It is Group policy to revalue generated from discontinued operations also significant land and buildings annually and other decreased from R15.2 million to R7.4 million. less significant land and buildings on a three year- cycle.
The cost of sales increased due to impairments of the Voice Telephony Service' assets (R10.7 million), Statements of cash flows derecognition of licences (R15.6 million) and The statement of cash flow reflects a net cash additional operational expenditure incurred on the outflow of R65 million during the year. The most rollout of the DTT network (R51.3 million). Some notable decrease relates to cash generated from operations which excludes all non-cash and non- Annual Report 2009/10 71 Annual Financial Statements
operating items, for example: depreciation; March 2010. The profit for the year includes derecognition of licences; movement in the post - interest earned on Government Grants cash of retirement obligations; and interest received. The R67.4 million. The present Accounting Authority Group generated R2.5 million cash from operations in has prepared cash flow forecasts for 12 months comparison to R121 million in the prior year. This is from the date of approval of the annual financial after the VAT settlement of R150 million which statements that indicates that there will be a includes the interest of R18 million which related to projected cash flow shortage from December VAT on Government Grants that was not paid in prior 2010 if excluding interest earned on Government periods. This indicates that there is a marginal cash Grants cash. However, there are a number of flow surplus covering the operational cash outflows. uncertainties in the projected cash flow forecast. The cash generated from operations exclude the interest received, as this is included in investing Implementation of cost-cutting measures and activities and may not be sustainable in the future as business plan for 2010/11 cash may be utilised to rollout capital projects. The present Accounting Authority has instituted measures to restrict cash outflow by implementing There is a significant strain on projected cash emergency controls such as additional Supply resources for the coming financial year (2010/11) and Chain Management ('SCM') controls, an the present Accounting Authority has implemented an Expenditure Committee and the Turnaround Expenditure Committee and a Turnaround Committee. The additional controls in SCM Committee to assist in monitoring and managing the include supplier data base clean-up, updating the cash resources available. This projected cash flow policy regarding supplier criteria, negotiating strain is a significant concern for the present directly with suppliers and not supplier agents. Accounting Authority and immediate action has The Expenditure Committee's role is to ensure already been taken to mitigate the risk. The present that all commitments and current expenditure is Accounting Authority will also be approaching the supported by valid contracts and provide a value Shareholder to discuss the recovery of costs for the for money service or supply of goods, as well as, implementation of capital projects relating to project ensuring that all the SCM processes have been management and possible profit margin. The present followed and expenditure is matched to revenue. Accounting Authority is also placing significant focus Daily own-cash balances are monitored to ensure on the collection of debtors and other amounts owing sufficient cash availability. The Turnaround by Government departments to Sentech which will Committee's role is to assist with initiatives to improve the cash position. update all relevant policies, procedures and processes to alleviate the cash flow strain. Basis of preparation of financial information
The annual financial statements have been prepared Furthermore, the present Accounting Authority is in accordance with International Financial Reporting working on updating the delegation of authority Standards ("IFRS") and the Companies Act of South document to ensure compliance in respect of Africa and the Public Finance Management Act of National Treasury regulations, Public Finance South Africa. Management Act (PFMA) and group specific requirements. This will further assist by preventing 3. Going concern irregular and fruitless and wasteful expenditure.
The Group has reported a profit of R 105.1 million The present Accounting Authority is developing a (2009 - loss of R23.8 million) for the year ended 31 detailed corporate plan. The proposed corporate Annual Report 2009/10 Annual Financial Statements 72
plan highlights the following: identifies products or services that are not profitable and to take decisions Application of the interest earned on to either modify or discontinue the services or Government Funded Projects products; identifies product enhancements to Included in Government Grants cash and cash increase profitability; identifies new products through equivalents of R798.9 million is interest of R162 research and development to fully utilise the Group's million that has been earned over time. With the licences; reducing non-essential costs/expenditure; exception of world cup grants, the Government developing business cases to support all capital Grants documentation was silent on the expenditure and that this capital expenditure is in application of interest earned. The present terms of funding received from government for Accounting Authority has taken a decision not to specific projects. utilise this interest earned as part of its future cash flow projections until such time as the terms have Additional recovery of other costs incurred in been agreed with the Department of rolling out Government Funded projects Communications and will be requesting the Department to approve the utilisation of the In the past, Sentech has only recovered the capital interest earned. cost of a project funded by the Government in terms of government grants received. Costs relating to shipping, transport, technical knowledge and other Conclusion costs specifically related to the project have been The present Accounting Authority expects the borne by Sentech. As disclosed in the previous year, Department of Communication to meet the Sentech had also, incorrectly, not paid VAT on the requests of Sentech to the extent that Sentech and Government Grants received, thus all funding its subsidiaries will have sufficient cash resources requested and received prior to July 2009 had a to meet their financial obligations, both present shortfall of 14% which had to be paid over to the and future, in the normal course of their business. Revenue Authority. The shortfall of R131 million has Accordingly the financial statements are prepared significantly impacted the ability of the company to on the going concern basis. In the event that the complete Government Funded projects. Department of Communication does not meet The present Accounting Authority intends to request Sentech's requests, there is significant doubt on further grants from the Department of the ability of Sentech and its subsidiaries to Communication to enable the recovery of other costs continue as a going concern as they may be relating to the rollout of Government Grant funded unable to realise their assets and discharge their projects and to meet the shortfall arising from the liabilities in the normal course of their business. payment of VAT. 4. Post reporting date events Sentech has underspent on government grants received on the 2010 World Cup soccer project and There have been a number of changes to the will be requesting the Department of composition of the Accounting Authority which are Communications for permission to redirect the under reported below. The present Accounting Authority spent funds for use by Sentech to enable it to partially is not aware of any other matters or circumstances meet its shortfall on projected expenditure. arising since the end of the financial year that would impact the reported results. Annual Report 2009/10 73 Annual Financial Statements
5. Authorised and issued share capital
2 000 ordinary shares are held by the State, represented by the Department of Communications.
6. Borrowing limitations
In terms of the company's articles of association, the Accounting Authority shall not have the power to incur borrowings without the prior approval of the shareholder. The Minister of Communications has approved a banking facility with ABSA for R74 million which includes an overdraft facility of R 6.7 million. The facility has not yet been utilised and will only be used when required by the company.
7. Dividends
No dividends were declared or paid during the year under review.
8. Directors
The Accounting Authority is represented by the board of directors in terms of the Public Finance Management Act of South Africa. The directors of the company during the year and to the date of this report are as follows:
Non-executive directors Changes Q Patel Chairperson Appointed 1 April 2010 M Dhlamini Member of the audit committee Appointed 1 April 2010
LT Khumalo Chairperson of the audit committee Appointed 1 June 2010 ZD Hlatshwayo Member of the audit committee Appointed 1 April 2010 N Siswana Member of the audit committee Appointed 1 June 2010
CK Hickling Chairperson Resigned 28 February 2010 Dr D Konar Member of the audit committee Resigned 29 January 2010 N Sihlali Resigned 23 March 2010 Adv. NL Tshombe Member of the audit committee Resigned 28 February 2010 TH Mashigo Member of the audit committee Resigned 5 February 2010 TP Leeuw Chairperson of the audit committee Resigned 31 May 2010 Dr Y Muthien Resigned 28 January 2010 Executive directors Dr SL Mokone-Matabane Chief Executive Officer Early retirement, 31 March 2010 B Ngwenya Acting Chief Executive Officer Resigned 6 July 2010 (Previously Chief Operations Officer)
MS Cassim Chief Financial Officer D Dube Acting Chief Operations Officer Appointed 1 April 2010 Annual Report 2009/10 Annual Financial Statements 74
9. Company Secretary
The secretary of the company is Adv. MC Monyai, appointed 1 January 2010. The previous company secretary Adv. RN Imasiku resigned on 20 January 2010.
The company secretary's business and postal addresses are as follows:
Business address Augusta House Fourways Golf Park Roos Street Fourways
Postal address Private Bag X06 Honeydew 2040
10. External Auditors
KPMG Inc. will continue in office in accordance with section 270(2) of the Companies Act. Annual Report 2009/10 75 Annual Financial Statements
Statements of Financial Position at 31 March 2010
GROUP Restated Restated 2010 2009 2008 Note R’000 R’000 R’000 Assets Non-current assets Property, plant and equipment 6 846 405 741 451 882 258 Intangible assets 7 528 17 897 22 791 Employee benefits 15 1 600 2 200* 3 800* Long-term receivables – – 463
848 533 761 548 909 312
Current assets Government grants cash and cash equivalents 11 798 939 785 700* 555 072* Inventories 9 8 462 13 825 17 793 Trade and other receivables 10 74 385 77 219 86 286 Cash and cash equivalents 11 178 586 257 053* 158 550*
1 060 372 1 133 797 817 701
Total assets 1 908 905 1 895 345 1 727 013
Equity and liabilities Equity Share capital and premium 12 75 892 75 892 75 892 Reserves 422 824 433 465 490 807 Retained earnings 43 435 (61 692) (37 880) Total equity attributable to equity holders 542 151 447 665 528 819
Liabilities Non-current liabilities Loans and borrowings 13 65 825 92 709 130 506 Employee benefits 15 119 580 122 140* 101 552* Deferred tax liabilities 14 9 583 20 944 67 014
194 988 235 793 299 072
Current liabilities Loans and borrowings 13 17 352 38 723 27 937 Deferred income-government grants 16 978 903 850 918* 579 743* Current tax payable 47 391 19 012 – Trade and other payables 17 128 120 299 234* 291 442 Provisions 18 – 4 000 –
1 171 766 1 211 887 899 122
Total liabilities 1 366 754 1 447 680 1 198 194
Total equity and liabilities 1 908 905 1 895 345 1 727 013
*Amounts restated. Refer to note 28 for disclosure on the prior year restatement.
In accordance with IAS1 – Presentation of Financial Statements, the Statements of Financial Position for 2008 has been presented and only notes to the annual financial statements related to the restatement have been presented in the financial statements. Annual Report 2009/10 Annual Financial Statements 76
Statements of Financial Position at 31 March 2010 (continued)
COMPANY Restated Restated 2010 2009 2008 Note R’000 R’000 R’000
Assets Non-current assets Property, plant and equipment 6 846 405 741 451 882 258 Intangible assets 7 528 17 897 22 791 Investment in subsidiaries 8 * * * * * * Employee benefits 15 1 600 2 200* 3 800* Long-term receivables – – 303
848 533 761 548 909 152
Current assets Government grants cash and cash 11 798 939 785 700* 555 072* equivalents Inventories 9 8 462 13 825 17 793 Trade and other receivables 10 74 338 76 788 85 456 Cash and cash equivalents 11 178 239 256 714* 158 512*
1 059 978 1 133 027 816 833
Total assets 1 908 511 1 894 575 1 725 985
Equity and liabilities Equity Share capital and premium 12 75 892 75 892 75 892 Reserves 422 824 433 465 490 807 Retained earnings 42 562 (59 950) (39 035) Total equity attributable to equity holders 541 278 449 407 527 664
Liabilities
Non-current liabilities Loans and borrowings 13 65 825 92 709 130 506 Employee benefits 15 119 580 122 140* 101 552* Deferred tax liabilities 14 9 583 20 944 67 014
194 988 235 793 299 072 Current liabilities Loans from group companies 27 156 277 5 331 Loans and borrowings 13 17 352 38 723 27 937 Deferred income – government grants 16 978 903 850 918* 579 743* Current tax payable 47 391 19 012 – Trade and other payables 17 128 443 296 445* 286 238 Provisions 18 – 4 000 –
1 172 245 1 209 375 899 249
Total liabilities 1 367 233 1 445 168 1 198 321
Total equity and liabilities 1 908 511 1 894 575 1 725 985
* Amounts restated. Refer to note 28 for disclosure on the prior year restatement. * * Amounts below R1 000. In accordance with IAS1 – Presentation of Financial Statements, the Statements of Financial Position for 2008 has been presented and only notes to the annual financial statements related to the restatement have been presented in the financial statements. Annual Report 2009/10 77 Annual Financial Statements
Statements of Comprehensive Income for the year ended 31 March 2010
GROUP COMPANY
2010 2009 2010 2009 Note R’000 R’000 R’000 R’000
Continuing operations
Revenue 19 838 868 750 347 845 467 757 088 Cost of sales 20 (556 103) (468 527) (568 009) (484 948)
Gross profit 282 765 281 820 277 458 272 140
Operating expenses 20 (32 611) (47 491) (34 101) (47 491) Selling expenses 20 (6 804) (5 637) (6 804) (5 637) Administrative expenses 20 (51 683) (75 135) (50 983) (74 485)
Results from operating activities 191 667 153 557 185 570 144 527
Finance income 22 67 410 88 615 67 401 88 593
Finance expenses 22 (1 701) (32 534) (1 954) (31 542)
Profit before income tax 257 376 209 638 251 017 201 578
Income tax expense 23 (92 411) (61 279) (92 411) (58 211)
Profit from continuing operations 164 965 148 359 158 606 143 367 Loss for the year from discontinued operations (net of income tax) 24 (59 838) (172 171) (56 094) (164 282)
Profit/(loss) for the year 105 127 (23 812) 102 512 (20 915)
Other comprehensive income:
Revaluation of property, plant and equipment (14 778) (78 872) (14 778) (78 872)
Income tax related to other comprehensive income 4 137 21 530 4 137 21 530
Other comprehensive income for the year, net of tax (10 641) (57 342) (10 641) (57 342)
Total comprehensive income for the period 94 486 (81 154) 91 871 (78 257)
Annual Report 2009/10 Annual Financial Statements 78
Statements of Changes in Equity
Attributable to Equity Holders of the Company
Share Gain on Share Share capital and Revaluation waiver of Total Retained Total 1 2 capital premium premium reserve SABC loan reserves earnings equity Group R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000
Balance at 1 April 2008 2 75 890 75 892 402 193 88 614 490 807 (37 880) 528 819 Total comprehensive income for the period – – – (57 342) – (57 342) (23 812) (81 154) Loss for the year – – – – – – (23 812) (23 812)
Other comprehensive income
Revaluation of property, net of tax – – – (57 342) – (57 342) – (57 342)
Balance at 1 April 2009 2 75 890 75 892 344 851 88 614 433 465 (61 692) 447 665
Total comprehensive income for the period – – – (10 641) – (10 641) 105 127 94 486 Profit for the year – – – – – – 105 127 105 127
Other comprehensive income
Revaluation of property, net of tax – – – (10 641) – (10 641) – (10 641)
Balance at 31 March 2010 2 75 890 75 892 334 210 88 614 422 824 43 435 542 151
1 Revaluation reserve
Significant land and buildings are revalued to fair value annually and less significant land and buildings are revalued on a three year cycle. The last valuation was performed on 31 March 2010. See Note 6.
The revaluation reserve movement for the year on land and buildings is the gross revaluation amount of R14 778 000 (2009 – R78 872 000) less the corresponding deferred tax amount of R4 137 000 (2009 – R21 530 000).
2 Gain on waiver of SABC Loan
The SABC, in terms of an agreement arrangement by the shareholder, waived the interest-free portion of its long-term loan. The gain is reflected as a non-distributable reserve to increase the equity contribution from the shareholder. Annual Report 2009/10 79 Annual Financial Statements
Statements of Changes in Equity (continued)
Attributable to Equity Holders of the Company
Share Gain on Share Share capital and Revaluation waiver of Total Retained Total 1 2 capital premium premium reserve SABC loan reserves earnings equity Company R’000 R’000 R’000 R’000 R’000 R’000 R’000 R’000
Balance at 1 April 2008 2 75 890 75 892 402 193 88 614 490 807 (39 035) 527 664 Total comprehensive income for the period – – – (57 342) – (57 342) (20 915) (78 257) Loss for the year – – – – – – (20 915) (20 915)
Other comprehensive income
Revaluation of property, net of tax – – – (57 342) – (57 342) – (57 342)
Balance at 1 April 2009 2 75 890 75 892 344 851 88 614 433 465 (59 950) 449 407
Total comprehensive income for the period – – – (10 641) – (10 641) 102 512 91 871 Profit for the year – – – – – – 102 512 102 512
Other comprehensive income
Revaluation of property, net of tax – – – (10 641) – (10 641) – (10 641)
Balance at 31 March 2010 2 75 890 75 892 334 210 88 614 422 824 42 562 541 278
1 Revaluation reserve
Significant land and buildings are revalued to fair value annually and less significant land and buildings are revalued on a three year cycle. The last valuation was performed on 31 March 2010. See Note 6.
The revaluation reserve movement for the year on land and buildings is the gross revaluation amount of R14 778 000 (2009 – R78 872 000) less the corresponding deferred tax amount of R4 137 000 (2009 – R21 530 000).
2 Gain on waiver of SABC Loan
The SABC, in terms of an agreement arrangement by the shareholder, waived the interest-free portion of its long-term loan. The gain is reflected as a non-distributable reserve to increase the equity contribution from the shareholder. Annual Report 2009/10 Annual Financial Statements 80
Statements of Cash Flow
GROUP COMPANY
2010 2009 2010 2009 Note R’000 R’000 R’000 R’000
Cash flow from operating activities
Cash generated from Operations 25.1 53 645 154 051 53 899 152 940
Interest paid 22 (1 701) (32 534) (1 954) (31 542)
Income tax paid 25.3 (49 442) – (49 442) – Net cash inflow from operating activities 2 502 121 517 2 503 121 398
Cash flow from investing activities
Interest received 22 80 966 103 222 80 957 103 200
Acquisition of property, plant and equipment 6 (269 865) (173 744) (269 865) (173 744) Receipt of long-term receivables – 463 – 303
Acquisition of intangible assets 7 – (572) – (572) Proceeds from sale of property, plant and
equipment 25.2 929 14 929 14
Net cash outflow from investing activities (187 970) (70 617) (187 979) (70 799)
Cash flows from financing activities
Repayment of interest - bearing liabilities (48 255) (27 011) (48 255) (27 011) 16 232 434 307 017 232 434 307 017 Government grants received
Utilisation of government grant funding excluding acquisition of property, plant and equipment 16 (63 939) (1 775) (63 939) (1 775)
Net cash inflow from financing activities 120 240 278 231 120 240 278 231
Net (decrease)/increase in cash and cash equivalents (65 228) 329 131 (65 236) 328 830
Cash and cash equivalents at beginning of the year 11 1 042 753 713 622 1 042 414 713 584
Cash and cash equivalents at the end of the year 11 977 525 1 042 753 977 178 1 042 414 Annual Report 2009/10 81 Annual Financial Statements
Notes to the Financial Statements
1. Reporting entity present value of the defined benefit obligation; and - land and buildings are measured at the fair Sentech Limited (the "company") is a company value, net replacement value, at the date of incorporated and domiciled in South Africa. The revaluation. address of its registered office is Augusta House, Fourways Golf Park, Roos Street, Fourways. The 2.3. Functional currency consolidated financial statements of the company These consolidated financial statements are as at and for the year ended 31 March 2010 presented in South African Rands, which is the comprise the company and its subsidiaries company's functional currency. All financial (together referred to as the "group" and individually information presented in Rands has been rounded as "group entities"). The group primarily is involved to the nearest thousand. in signal distribution and has transmission stations across the country and provides broadcasting 2.4. Use of estimates and judgements services within the South African borders. The preparation of consolidated financial statements in conformity with IFRS requires 2. Basis of preparation management to make judgements, estimates and assumptions that affect the application of 2.1. Statement of compliance accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual The consolidated annual financial statements have results may differ from these estimates. been prepared in accordance with International Financial Reporting Standards (IFRS), the Estimates and underlying assumptions are requirements of the Companies Act of South Africa reviewed on an ongoing basis. Revisions to and the Public Finance Management Act (No. 1 of accounting estimates are recognised in the period 1999 as amended by Act 29 of 1999) of South in which the estimates are revised and in any Africa. future periods affected.
These consolidated annual financial statements Information about significant areas of estimation and annual financial statements were authorised for uncertainty and critical judgements in applying issue by the accounting authority on 30 July accounting policies that have the most significant 2010. effect on the amounts recognised in the consolidated financial statements is included in 2.2. Basis of measurement note 4 and the following notes: The consolidated annual financial statements have - Notes 3.4 and 6 - valuation of property; been prepared under the historical cost basis, except for the following: - Notes 3.9 and 15 - measurement of defined benefit fund assets and obligations; - the defined benefit asset/liability is recognised as the net total of the plan assets, plus unrecognised - Notes 3.15 and 14 - utilisation of tax losses; past service cost and unrecognised actuarial - Notes 3.10 and 18 contingencies and losses, less unrecognised actuarial gains and the provisions. Annual Report 2009/10 Annual Financial Statements 82
2.5. Changes in accounting policies 3. Significant accounting policies
Starting as of 1 April 2009, the company has The accounting policies set out below have been changed its accounting policies in the following applied consistently to all periods presented in areas: these consolidated financial statements, and have been applied consistently by group entities, except - Presentation of financial statements. as explained in note 2.5, which addresses changes in accounting policies. - Accounting for borrowing costs. Certain comparative amounts have been Presentation of financial reclassified to conform with the current year's statements presentation. In addition, the comparative statements of financial position has been re- The group applies revised IAS 1 Presentation presented for the prior year and year preceding the of Financial Statements (2007), which became prior year to comply with IAS1 - Presentation of effective as of 1 January 2009. As a result, the Financial Statements (2007), and only notes that group presents in the consolidated statement of have been restated have been presented for the changes in equity all owner changes in equity, year proceeding the prior year. In addition, the whereas all non-owner changes in equity are comparative statements of comprehensive income presented in the consolidated statements of has been re-presented as if an operation comprehensive income. discontinued during the prior period had been Comparative information has been re- discontinued from the start of the comparative presented so that it also is in conformity with the period (see note 24). revised standard. This change in accounting policy only impacts presentation 3.1. Basis of consolidation aspects. 3.1.1. Subsidiaries
Accounting for borrowing costs Subsidiaries are entities controlled by the group. The financial statements of subsidiaries are In respect of borrowing costs relating to included in the consolidated financial statements qualifying assets for which the commencement from the date that control commences until the date for capitalisation is on or after 1 January date that control ceases. The accounting policies 2009, the group capitalises borrowing costs of the subsidiaries have been changes when directly attributable to the acquisition, necessary to align them with the policies adopted construction or production of a qualifying asset by the group. as part of the cost of that asset. Previously, the group immediately recognised all borrowing In the company's separate financial statements, costs as an expense. This change in investment in subsidiaries are carried at cost less accounting policy was due to the adoption of any accumulated impairment. The cost of an IAS 23 Borrowing Costs (2007) in accordance investment in a subsidiary is the aggregate of: with the transitional provisions of such - the fair value, at the date of exchange, of standard; comparative figures have not been assets given, liabilities incurred or assumed, restated. The group has not capitalised any and equity instruments issued by the borrowing costs in the current year with respect company; plus any costs directly attributable to property, plant and equipment as there were to the purchase of the subsidiary. no borrowing costs attributable to the assets' acquisition, construction or production. Annual Report 2009/10 83 Annual Financial Statements
Subsidiaries are all entities over which the group has 3.3 Financial instruments the power to govern the financial and operating 3.3.1 Non-derivative financial assets policies generally accompanying a shareholding of more than one half of the voting rights. The existence The group initially recognises loans and and effect of potential voting rights that are currently receivables and deposits on the date that they are exercisable or convertible are considered when originated. All other financial assets (including assessing whether the group controls another assets designated at fair value through profit or entity. loss) are recognised initially on the trade date at which the group becomes a party to the contractual 3.1.2 Transaction eliminated on provisions of the instrument. consolidation The group derecognises a financial asset when the Inter-company transactions, balances and contractual rights to the cash flows from the asset unrealised gains on transactions between group expire, or it transfers the rights to receive the companies are eliminated in preparing the contractual cash flows on the financial asset in a consolidated financial statements. transaction in which substantially all the risks and rewards of ownership of the financial asset are 3.2 Translation of foreign currencies transferred. Any interest in transferred financial Foreign currency transactions assets that is created or retained by the group is recognised as a separate asset or liability. Transactions in foreign currencies are translated to the respective functional currencies of group entities Financial assets and liabilities are offset and the at exchange rates at the dates of the transactions. net amount presented in the statements of Monetary assets and liabilities denominated in financial position when, and only when, the foreign currencies at the reporting date are company has a legal right to offset the amounts retranslated to the functional currency at the and intends either to settle on a net basis or to exchange rate at that date. The foreign currency gain realise the asset and settle the liability or loss on monetary items is the difference between simultaneously. amortised cost in the functional currency at the The group has the following non-derivative beginning of the period, adjusted for effective interest financial assets: financial assets at fair value and payments during the period, and the amortised through profit or loss, held-to-maturity financial cost in foreign currency translated at the exchange assets, loans and receivables and available-for rate at the end of the period. Non-monetary assets sale financial assets. and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the Financial assets at fair value through profit or functional currency at the exchange rate at the date loss that the fair value was determined. Foreign currency differences arising on retranslation are recognised in A financial asset is classified at fair value through profit or loss, except for differences arising on the profit or loss if it is classified as held for trading or is retranslation of available-for-sale equity instruments designated as such upon initial recognition. or a financial liability designated as a hedge of the net Financial assets are designated at fair value investment in a foreign operation or a qualifying cash through profit or loss if the group manages such flow hedges, which are recognised directly in other investments and makes purchase and sale comprehensive income. Non-monetary items that decisions based on their fair value in accordance are measured in terms of historical cost in a foreign with the group's documented risk management or currency are translated using the exchange rate at investment strategy. Upon initial recognition the date of the transaction. attributable transaction costs are recognised in Annual Report 2009/10 Annual Financial Statements 84
profit or loss as incurred. Financial assets at fair Available-for-sale financial assets value through profit or loss are measured at fair Available-for-sale financial assets are non- value, and changes therein are recognised in profit derivative financial assets that are designated as or loss. available-for-sale and that are not classified in any of the previous categories. The group's Held-to-maturity financial assets investments in equity securities and certain debt If the group has the positive intent and ability to hold securities are classified as available-for-sale debt securities to maturity, then such financial financial assets. Subsequent to initial recognition, assets are classified as held-to-maturity. Held-to- they are measured at fair value and changes maturity financial assets are recognised initially at therein, other than impairment losses and foreign fair value, plus any directly attributable transaction currency differences on available-for sale equity costs. Subsequent to initial recognition held-to- instruments, are recognised in other maturity financial assets are measured at amortised comprehensive income and presented within cost using the effective interest method, less any equity in the fair value reserve. When an impairment losses. Any sale or reclassification of a investment is derecognised, the cumulative gain or more than insignificant amount of held-to-maturity loss in other comprehensive income is transferred investments not close to their maturity would result to profit or loss. in the reclassification of all held-to-maturity investments as available-for-sale, and prevent the 3.3.2. Non-derivative financial liabilities company from classifying investment securities as The group initially recognises debt securities held-to-maturity for the current and the following two issued and subordinated liabilities on the date that financial years. they are originated. All other financial liabilities (including liabilities designated at fair value Loans and receivables through profit or loss) are recognised initially on the Loans and receivables are financial assets with trade date at which the group becomes a party to fixed or determinable payments that are not quoted the contractual provisions of the instrument. in an active market. Such assets are recognised The group derecognises a financial liability when initially at fair value plus any directly attributable its contractual obligations are discharged or transaction costs. Subsequent to initial recognition cancelled or expire. loans and receivables are measured at amortised cost using the effective interest method, less any Financial assets and liabilities are offset and the impairment losses. net amount presented in the statements of financial position when, and only when, the group Loans and receivables comprise trade and other has a legal right to offset the amounts and intends receivables and related party receivables. either to settle on a net basis or to realise the asset Cash and cash equivalents comprise cash and settle the liability simultaneously. balances and call deposits with original maturities of The group has the following non-derivative three months or less. Bank overdrafts that are financial liabilities: loans and borrowings, bank repayable on demand and form an integral part of overdrafts, trade and other payables and related the group's cash management are included as a party payables. component of cash and cash equivalents for the purpose of the statements of cash flows. Such financial liabilities are recognised initially at fair value plus any directly attributable transaction Annual Report 2009/10 85 Annual Financial Statements
costs. Subsequent to initial recognition these Other items of property, plant and equipment are financial liabilities are measured at amortised cost measured at cost less accumulated depreciation using the effective interest method. and impairment losses.
3.3.3. Share capital Cost includes expenditures that are directly Ordinary shares are classified as equity. attributable to the acquisition of the asset. The cost Incremental costs directly attributable to the issue of of self-constructed assets includes the cost of ordinary shares and share options are recognised materials and direct labour, any other costs directly as a deduction from equity, net of any tax effects. attributable to bringing the asset to a working condition for its intended use, and the costs of 3.4 Property, plant and equipment dismantling and removing the items and restoring the site on which they are located. Cost may also 3.4.1. Recognition and measurement include transfers from other comprehensive Land and buildings comprise mainly transmitter income of any gains/losses on qualifying cash flow stations and offices. Significant land and buildings hedges of foreign currency purchases of property, are revalued to fair value annually, less significant plant and equipment. Purchased software that is land and buildings are revalue on a three year cycle integral to the functionality of the related and are stated at revalued amounts, based on equipment is capitalised as part of that periodic valuations by external independent equipment. valuers, less subsequent accumulated depreciation When parts of an item of property, plant and (see below) and impairment losses. Any equipment have different useful lives, they are accumulated depreciation at the date of revaluation accounted for as separate items (major is eliminated against the gross carrying amount and components) of property, plant and equipment. the net amount is restated to the revalued amount. Gains and losses on disposal of property, plant and equipment are determined by comparing the Increases in the carrying value arising on the proceeds from disposal to the carrying amount of revaluation of land and buildings (revaluation property, plant and equipment and are recognised surpluses) are credited in other comprehensive net within "other income" in profit or loss. When income and presented in the revaluation reserve in revalued assets are sold, the amounts included in equity. Any loss is recognised in other the revaluation reserve are transferred to retained comprehensive income and presented in the earnings (accumulated losses). revaluation reserve in equity to the extent that an amount had previously been included in the revaluation reserve relating to the specific property, 3.4.2. Subsequent costs with any remaining loss recognised immediately in The cost of replacing part of an item of property, profit or loss. Each year, the difference between plant and equipment is recognised in the carrying depreciation based on the revalued carrying value amount of the item if it is probable that the future of the asset charged to the profit or loss and economic benefits embodied within the part will deprecation based on the asset's original cost is flow to the group and its cost can be measured transferred from revaluation reserves to retained reliably. The carrying amount of the replaced part is earnings/ (accumulated losses). derecognised and the replacement part is When revalued land and buildings are sold, the capitalised. The costs of the day-to-day servicing revaluation surpluses included in revaluation of property, plant and equipment are recognised in reserve are transferred to retained profit or loss as incurred. earnings/(accumulated losses). Annual Report 2009/10 Annual Financial Statements 86
3.4.3. Depreciation
Depreciation is calculated over the depreciable amount, which is the cost of an asset, or other amount substituted for cost, less residual value.
Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the group will obtain ownership by the end of the lease term. Land is not depreciated.
The estimated useful lives for the current and comparative periods are as follows:
Item Average useful life Land Indefinite Buildings 40 years Improvements to leasehold premises 20 years Motor vehicles 5 years Technical equipment 10 to 20 years Computer, network and office equipment 2 to 5 years Monitoring equipment 5 to 10 years
Depreciation methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate.
3.5. Intangible assets
Licences
Licences are measured at historical cost less accumulated amortisation and accumulated impairment losses. The historical cost is determined as the net present value of future discounted cash flows based on the original agreement for the purchase of the licences. Licences are amortised on a straight-line basis over their estimated useful lives, which is the period of the licences according to signed agreements, ranging from 15 to 25 years. In subsequent periods, should the terms and conditions of the licence be replaced or cancelled the licence will be derecognised and the amount will be expensed in profit and loss.
The directors assess the recoverability of the carrying value of each intangible asset annually and revisions are made where it is considered necessary (impairment testing). The corresponding licence obligation is calculated on the present value of the future payments discounted at a market related interest rate at the reporting date and the applicable interest movements are accounted for in profit or loss.
Computer Software
Computer software is measured at cost less accumulated amortisation and accumulated impairment losses. Computer software recognised as assets are amortised on a straight-line basis over their estimated useful lives, which is currently two years. Annual Report 2009/10 87 Annual Financial Statements
The amortisation period, residual value and assets are not recognised on the group's amortisation method are reviewed at each reporting statements of financial position. period. 3.7. Inventories Subsequent costs Inventories are measured at the lower of cost and Subsequent expenditure is capitalised only when it net realisable value. The cost of inventories is increases the future economic benefits embodied in based on the weighted average method, and the specific asset to which it relates. All other includes expenditure incurred in acquiring the expenditure is recognised in profit or loss as inventories and other costs incurred in bringing incurred. them to their existing location and condition. Cost also may include transfers from other Amortisation comprehensive income of any gain or loss on qualifying cash flow hedges of foreign currency Amortisation is calculated over the cost of the asset, purchases of inventories. or other amount substituted for cost, less its residual value. Net realisable value is the estimated selling price in the ordinary course of business, less the Amortisation is recognised in profit or loss on a estimated costs of completion and selling straight-line basis over the estimated useful lives of expenses. the intangible assets, from the date that they are available for use, since this most closely reflects the 3.8. Impairment expected pattern of consumption of the future economic benefits embodied in the asset. The Financial assets estimated useful lives for the current and A financial asset is assessed at each reporting comparative periods is two years. date to determine whether there is any objective Amortisation methods, useful lives and residual evidence that it is impaired. A financial asset is values are reviewed at each financial year-end and considered to be impaired if objective evidence adjusted if appropriate. indicates that one or more events have had a negative effect on the estimated future cash flows
3.6. Leased assets of that asset.
Leases in terms of which the group assumes An impairment loss in respect of a financial asset substantially all the risks and rewards of ownership measured at amortised cost is calculated as the are classified as finance leases. Upon initial difference between its carrying amount, and the recognition the leased asset is measured at an present value of the estimated future cash flows amount equal to the lower of its fair value and the discounted at the original effective interest rate. An present value of the minimum lease payments. impairment loss in respect of an available-for-sale Subsequent to initial recognition, the asset is financial asset is calculated by reference to its fair accounted for in accordance with the accounting value. policy applicable to that asset. Leased assets are Individually significant financial assets are tested depreciated over the shorter of the lease term and for impairment on an individual basis. The their useful lives unless it is reasonably certain that remaining financial assets are assessed the group will obtain ownership by the end of the collectively in groups that share similar credit risk lease term. characteristics.
Other leases are operating leases and the leased All impairment losses are recognised in profit or Annual Report 2009/10 Annual Financial Statements 88
loss. Any cumulative loss in respect of an available- exceeds its estimated recoverable amount. for-sale financial asset recognised previously in Impairment losses are recognised in profit or loss. equity is transferred to profit or loss. Impairment losses recognised in respect of cash- generating units are allocated first to reduce the An impairment loss is reversed if the reversal can be carrying amount of any goodwill allocated to the related objectively to an event occurring after the units and then to reduce the carrying amounts of impairment loss was recognised. For financial the other assets in the unit (group of units) on a assets measured at amortised cost and available- pro rata basis. for-sale financial assets that are debt securities, the reversal is recognised in profit or loss. For available- for-sale financial assets that are equity securities, An impairment loss in respect of goodwill is not the reversal is recognised directly in other reversed. In respect of other assets, impairment comprehensive income. losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An Non-financial assets impairment loss is reversed if there has been a The carrying amounts of the group's non-financial change in the estimates used to determine the assets, other than inventories and deferred tax recoverable amount. An impairment loss is assets, are reviewed at each reporting date to reversed only to the extent that the asset's determine whether there is any indication of carrying amount does not exceed the carrying impairment. If any such indication exists, then the amount that would have been determined, net of asset's recoverable amount is estimated. For depreciation or amortisation, if no impairment goodwill and intangible assets that have indefinite loss had been recognised. lives or that are not yet available for use, the recoverable amount is estimated each year at the 3.9 Employee benefits same time. Short-term employee benefits The recoverable amount of an asset or cash- generating unit is the greater of its value in use and The cost of all short-term employee benefits are its fair value less costs to sell. In assessing value in recognised in profit and loss during the period in use, the estimated future cash flows are discounted which services are rendered. Employee to their present value using a pre-tax discount rate entitlements to annual leave and long service that reflects current market assessments of the time leave are recognised in profit and loss when they value of money and the risks specific to the asset. accrue to employees in respect of past services For the purpose of impairment testing, assets are rendered up to the reporting date. This obligation grouped together into the smallest group of assets is not discounted as a liability. that generates cash inflows from continuing use that A provision is recognised for the amount are largely independent of the cash inflows of other expected to be paid under short-term cash bonus assets or groups of assets (the "cash-generating plan if the group has a present legal or unit"). The goodwill acquired in a business constructive obligation to pay this amount as a combination, for the purpose of impairment testing, result of past service provided by the employee is allocated to cash generating units that are and the obligation can be estimated reliably. expected to benefit from the synergies of the combination. Defined contribution plans
An impairment loss is recognised if the carrying A defined contribution plan is a post-employment amount of an asset or its cash-generating unit benefit plan under which an entity pays fixed Annual Report 2009/10 89 Annual Financial Statements
contributions into a separate entity and will have no The group recognises all actuarial gains and legal or constructive obligation to pay further losses arising from defined benefit plans directly in amounts. Obligations for contributions to defined profit or loss. contribution pension plans are recognised as an employee benefit expense in profit or loss when 3.10. Provisions they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a A provision is recognised if, as a result of a past reduction in future payments is available. event, the group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of Defined benefit plans economic benefits will be required to settle the A defined benefit plan is a post-employment benefit obligation. Provisions are determined by plan other than a defined contribution plan. The discounting the expected future cash flows at a group's net obligation in respect of defined benefit pre-tax rate that reflects current market pension plans is calculated separately for each plan assessments of the time value of money and the by estimating the amount of future benefit that risks specific to the liability. The unwinding of employees have earned in return for their service in discount is recognised as finance cost. the current and prior periods; that benefit is discounted to determine its present value. Any Onerous contracts unrecognised past service costs and the fair value of any plan assets are deducted. The discount rate A provision for onerous contracts is recognised is the yield at the reporting date on AA credit-rated when the expected benefits to be derived by the bonds that have maturity dates approximating the group from a contract are lower than the terms of the group's obligations and that are unavoidable cost of meeting its obligations under denominated in the same currency in which the the contract. The provision is measured at the benefits are expected to be paid. The calculation is present value of the lower of the expected cost of performed annually by a qualified actuary using the terminating the contract and the expected net cost projected unit credit method. When the calculation of continuing with the contract. Before a provision results in a benefit to the group, the recognised is established, the group recognises any asset is limited to the total of any unrecognised past impairment loss on the assets associated with that service costs and the present value of economic contract. benefits available in the form of any future refunds from the plan or reductions in future contributions to 3.11 Revenue the plan. In order to calculate the present value of economic benefits, consideration is given any Revenue comprises the fair value of the minimum funding requirements that apply to any consideration received or receivable for the sale of plan in the group. An economic benefit is available to goods and services in the ordinary course of the the group if it is realisable during the life of the plan, group activities. or on settlement of the plan liabilities. The group recognises revenue when the amount When the benefits of a plan are improved, the of revenue can be reliably measured, it is probable portion of the increased benefit relating to past that future economic benefits will flow to the entity service by employees is recognised in profit or loss and specific criteria have been met for each of the on a straight-line basis over the average period until group's activities as described below. The amount the benefits become vested. To the extent that the of revenue is not considered to be reliably benefits vest immediately, the expense is measurable until all contingencies relating to the recognised immediately in profit or loss. Annual Report 2009/10 Annual Financial Statements 90
sale have been resolved. The group bases its design services is recognised under the estimates on historical results, taking into percentage-of-completion (POC) method. Under consideration the type of customer, the type of the POC method, revenue is generally recognised transaction and the specifics of each arrangement. based on the services performed to date as a percentage of the total services to be performed.
Goods sold If circumstances arise that may change the The group sells a range of broadcasting and original estimates of revenues, costs or extent of telecommunication products. Sales of goods are progress toward completion, estimates are recognised when a group entity has delivered revised. These revisions may result in increases or products to the customer, the customer has full decreases in estimated revenues or costs and are discretion over the channel and price to sell the reflected in income in the period in which the products, and there is no unfulfilled obligation that circumstances that give rise to the revision could affect the customer's acceptance of the become known by management. products. Delivery does not occur until the products have been shipped to the specified location, the Rental income risks of obsolescence and loss have been Rental income from the rental of premises is transferred to the customer, and either the customer recognised in profit or loss on a straight-line basis has accepted the products in accordance with the over the term of the lease. Lease incentives sales contract, the acceptance provisions have granted are recognised as an integral part of the lapsed, or the group has objective evidence that all total rental income, over the term of the lease. criteria for acceptance have been satisfied.
Customers have a right to return faulty products. 3.12. Government grants Sales are recorded based on the price specified in the sales contracts, net of the estimated volume Grants that compensate the group for the cost of discounts and returns at the time of sale. an asset are recognised initially as deferred Experience is used to estimate and provide for the income which is classified under long term discounts and returns. No element of financing is liabilities. Grants relating to completed asset deemed present as the sales are made with a credit projects are deducted from the cost of the relevant term of 30 days, which is consistent with the market asset (net presentation method). The depreciation practice. expense recognised in profit or loss over the useful life of the asset is calculated from the net cost of the asset which is after deduction of the Services corresponding deferred government grant. Grants The group sells broadcasting and transmission that compensate the group for expenses incurred services. These services are provided on a time are recognised in profit and loss on a systematic basis or as a fixed price contract, with contract terms basis in the same periods in which the expenses generally ranging from less than one year to three are recognised. Government grants are only years. recognised when there is reasonable assurance that they will be received and the group will comply Revenue from time and material contracts is with the conditions associated with the grant. recognised at the contractual rates as labour hours Deferred income is classified as a non-current are delivered and direct expenses incurred. liability as uncertainty exists as to the timing of the Revenue from fixed-price contracts for delivering release of the government grants. Annual Report 2009/10 91 Annual Financial Statements
3.13. Lease payments Deferred tax is recognised in respect of temporary differences between the carrying amounts of Payments made under operating leases are assets and liabilities for financial reporting recognised in profit or loss on a straight-line basis purposes and the amounts used for taxation over the term of the lease. Lease incentives received purposes. Deferred tax is not recognised for the are recognised as an integral part of the total lease following temporary differences: the initial expense, over the term of the lease. recognition of assets or liabilities in a transaction Minimum lease payments made under finance that is not a business combination and that affects leases are apportioned between the finance expense neither accounting nor taxable profit or loss, and and the reduction of the outstanding liability. The differences relating to investments in subsidiaries finance expense is allocated to each period during and jointly controlled entities to the extent that it is the lease term so as to produce a constant periodic probable that they will not reverse in the rate of interest on the remaining balance of the foreseeable future. In addition, deferred tax is not liability. recognised for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are 3.14. Finance income and expenses expected to be applied to temporary differences Finance income comprises interest income on when they reverse, based on the laws that have government grants invested and other funds been enacted or substantively enacted by the invested that are recognised in profit or loss. Interest reporting date. Deferred tax assets and liabilities income is recognised as it accrues in profit or loss, are offset if there is a legally enforceable right to using the effective interest method. offset current tax liabilities and assets, and they relate to income taxes levied by the same tax Finance expenses comprise interest expense on authority on the same taxable entity, or on different borrowings, unwinding of the discount on provisions, tax entities, but they intend to settle current tax impairment losses recognised on financial assets liabilities and assets on a net basis or their tax that are recognised in profit or loss. Borrowing costs assets and liabilities will be realised that are not directly attributed to the acquisition, simultaneously. construction or production of a qualifying asset are recognised in profit or loss using the effective interest A deferred tax asset is recognised for unused tax method. losses, tax credits and deductible temporary differences, to the extent that it is probable that Foreign currency gains and losses are reported on a future taxable profits will be available against net basis. which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced 3.15. Income tax to the extent that it is no longer probable that the Income tax expense comprises current and deferred related tax benefit will be realised. tax. Current tax and deferred tax are recognised in profit or loss except to the extent that it relates to a 3.16 Discontinued operations business combination, or items recognised directly in A discontinued operation is a component of the equity or other comprehensive income. group's business that represents a separate major Current tax is the expected tax payable or receivable line of business or geographical area of operations on the taxable income or loss for the year, using tax that has been disposed of or is held for sale, or is a rates enacted or substantively enacted at the subsidiary acquired exclusively with a view to reporting date, and any adjustment to tax payable in resale. Classification as a discontinued operation respect of previous years. occurs upon disposal or when the operation meets Annual Report 2009/10 Annual Financial Statements 92
the criteria to be classified as held for sale, if earlier. When an operation is classified as a discontinued operation, the comparative statements of comprehensive income is re-presented as if the operation had been discontinued from the start of the comparative period.
3.17 Related parties
Related parties include the holding company and fellow subsidiaries. Directors, their close family members and any employee who is able to exert a significant influence on the operating policies of the company are also considered to be related parties. Key management personnel are also regarded as related parties. Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity.
3.18 New standards and interpretations not yet adopted
Standards that are issues but not yet effective and have not been early adopted by the group. In terms of IFRS, the group is required to include in its annual financial statements disclosure about the future impact of standards and interpretations issued but not yet effective at the reporting date. At the date of authorisation of the financial statements, the following standards and interpretations were in issue but not yet effective:
Standard/Interpretation Effective date
IAS 24 (revised) Related Party Disclosures Annual periods beginning on or after 1 January 2011*
IAS 27 amendment Consolidated and Separate Financial Statements Annual periods beginning on or after 1 July 2009*
IAS 32 amendment IAS 32 Financial Instruments: Presentation: Annual periods beginning on or after 1 February 2010*
Classification of Rights Issues
IAS 39 amendment Eligible Hedged Items Annual periods beginning on or after 1 July 2009*
Improvements IFRS 5 Improvements to IFRSs 2008 - Amendments to Annual periods beginning on or after 1 July 2009
IFRS 5 Non-current Assets Held for Sale and
Discontinued Operations
There are 15 individual Improvements to International Financial Amendments are effective for annual amendments to 12 Reporting Standards 2009 periods beginning on or after 1 January 2010, or for standards. annual periods beginning on or after 1 July 2009 *
IFRS 3 Business Combinations Annual periods beginning on or after 1 July 2009*
IFRS 9 Financial Instruments Annual periods beginning on or after 1 January 2013*
IFRIC 14 amendment Prepayments of a Minimum Funding Requirement Annual periods beginning on or after 1 January 2011*
IFRIC 17 Distribution of Non-Cash Assets to Owners Annual periods beginning on or after 1 July 2009*
IFRIC 19 Extinguishing Financial Liabilities with Equity Annual periods beginning on or after 1 July 2010*
Instruments
* All Standards and Interpretations will be adopted at their effective date (except for those Standards and Interpretations that are not applicable to the entity). Annual Report 2009/10 93 Annual Financial Statements
IAS 27 amendments, IAS 32 amendments IAS39 measured at amortised cost when the business Amendment, Improvements IFRS 5, 15 individual model is to hold assets in order to collect amendments to 12 standards, IFRS 3, IFRIC 14 contractual cash flows and when they give rise to amendment, IFRIC 17 and IFRIC 19 are currently cash flows that are solely payments of principal and not applicable to the business of the group and will interest on the principal outstanding. All other therefore have no impact on future financial financial assets are measured at fair value. statements. The directors are of the opinion that the Embedded derivatives are no longer separated impact of the application of the remaining Standards from hybrid contracts that have a financial asset and Interpretations will be as follows: host. The impact on the financial statements for 31 March 2010 has not yet been estimated. IAS 24 (revised) - Related Party Disclosures
IAS 24 (revised) will be adopted by the group for the first time for its financial reporting period ending 31 4. Critical accounting estimates, March 2012. The standard will be applied judgements and key assumptions retrospectively. IAS 24 (revised) addresses the disclosure requirements in respect of related parties, Estimates, judgements and assumptions are with the main changes relating to the definition of a continually evaluated and are based on historical related party and disclosure requirements by experience and other factors, including government-related entities. The change in the expectations of future events that are believed to definition of a related party has resulted in a number be reasonable under the circumstances. Although of new related party relationships being these estimates are based on management's best identified. knowledge of current events and actions, actual results may ultimately differ from these Government-related entities: estimates.
As Sentech is a Government-related entity it will The company makes estimates, judgements and have to provide the following disclosures: name of assumptions concerning the future. Those that the government and nature of the relationship; have a significant risk of causing a material nature and amount of each individually significant adjustment to the carrying amounts of assets and transaction and a qualitative or quantitative liabilities within the next financial year are indication of the extent of other transactions that are discussed below. collectively, but not individually, significant.
Property, plant and equipment IFRS 9 - Financial Instruments The valuation method used for the revaluation of IFRS 9 will be adopted by the group for the first time land and building is the depreciation method. This for its financial reporting period ending 31 March method uses the replacement cost of the asset at 2014. The standard will be applied retrospectively, the date of valuation and a depreciation factor is subject to transitional provisions. applied to arrive at the depreciated revalued cost. IFRS 9 addresses the initial measurement and The comparable sales method of valuation is used, classification of financial assets and will replace the where relevant, to determine the market value of relevant sections of IAS 39. Under IFRS 9 there are the property. This method entails the identification, two options in respect of classification of financial analysis and application of recent comparable assets, namely, financial assets measured at sales involving physical and legally similar amortised cost or at fair value. Financial assets are properties in the general proximity of the subject Annual Report 2009/10 Annual Financial Statements 94
property, to enable to valuer to arrive at a norm which - Credit terms, will serve as a guide in estimating the market value of - Customer current and anticipated future the subject property. financial status, and All valuations are performed by an experienced, - Disputes with the customer. qualified and objective valuer.
The residual values of property, plant and equipment Non-derivative financial liabilities are considered to be insignificant as the estimation Fair value, which is determined for disclosure of useful lives is equal to their economic lives. purposes, is calculated based on the present value of future principal and interest cash flows, Impairment of assets discounted at the market rate of interest at the reporting date. In respect of the liability component The group tests whether assets have suffered any of convertible notes, the market rate of interest is impairment, in accordance with the accounting determined by reference to similar liabilities that do policy stated in note 3.8. The recoverable amounts of not have a conversion option. For finance leases cash-generating units have been determined based the market rate of interest is determined by on value-in-use calculations. Estimates are based reference to similar lease agreements. on management's interpretation of market forecasts.
Inventories 5. Financial risk management Impairment provisions are raised against inventory when it is considered that the amount realisable from Overview such inventory's sale is considered to be less than its The group has exposure to the following risks from book value. In determining whether a particular item its use of financial instruments: of inventory could be considered to be overvalued, - credit risk; the following factors are taken into consideration: - liquidity risk; - Saleability, - market risk; and - Excessive quantity, - operational risk. - Age, - Sub-standard quality and damage, and This note presents information about the group's - Historical and forecast sales demand. exposure to each of the above risks, the group's objectives, policies and processes for measuring Loans and receivables and managing risk, and the group's management of capital. Further quantitative disclosures are Management identifies impairment of loans and included throughout these financial statements. receivables on an ongoing basis. Impairment adjustments are raised against loans and receivables when their collectability is considered to Risk management framework be doubtful. Management believes that the The accounting authority has overall responsibility impairment write-off is conservative and there are for the establishment and oversight of the group's no significant trade receivables that are doubtful and risk management framework. The board is have not been impaired. In determining whether a responsible for developing and monitoring the particular debtor could be doubtful, the following group's risk management policies. factors are taken into consideration: The group's risk management policies are - Age, established to identify and analyse the risks faced Annual Report 2009/10 95 Annual Financial Statements
by the group, to set appropriate risk limits and controls, Cash and cash equivalents and to monitor risks and adherence to limits. Risk Reputable financial institutions are used for management policies and systems are reviewed investing and cash handling purposes. regularly to reflect changes in market conditions and the group's activities. 5.2 Liquidity risk
The accounting authority and management monitor Liquidity risk is the risk that the group will not be compliance with the group's risk management policies able to meet its financial obligations as they fall and procedures and review the adequacy of the risk due. The group's approach to managing liquidity is management framework in relation to the risks faced by to ensure, as far as possible, that it will always have the group. sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, 5.1 Credit risk without incurring unacceptable losses or risking damage to the group's reputation. Credit risk is the risk of financial loss to the group if a customer or counterparty to a financial instrument fails to Typically the group ensures that it has sufficient meet its contractual obligations, and arises principally cash on demand to meet expected operational from the group's receivables from customers and cash expenses for a period of 60 days, including the and cash equivalents held on behalf of the group by servicing of financial obligations; this excludes the financial institutions. potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters. In addition, the group maintains an Trade and other receivables overdraft facility with ABSA Bank for R73 170 000. The group's exposure to credit risk is influenced mainly The facility utilisation has been disclosed in note by the individual characteristics of each customer. The 26.3. demographics of the group's customer base, including the default risk of the industry and country in which 5.3 Market risk customers operates, has less of an influence on credit risk. There is concentration of credit risk in a single Market risk is the risk that changes in market customer, South African Broadcasting Corporation prices, such as foreign exchange rates and interest (SABC) as more than fifty percent of the company's rates will affect the group's income of the value of revenue comes from this customer. SABC is the national its holdings of financial instruments. The objective broadcaster and is supported by the government to of market risk management is to manage and ensure that it meets its obligations when they fall due. control market risk exposures within acceptable Therefore, SABC does not pose a significant credit risk parameters, while optimising the return. and has been settling its account on a timely basis. Currency risk
The group is exposed to currency risk on The accounting authority has established a credit policy purchases that are denominated in a currency under which each new customer is analysed individually other than the respective functional currency of the for creditworthiness before the group's standard group. The currencies in which these transactions payment and delivery terms and conditions are offered. are primarily denominated are, British Pound Customers that fail to meet the group's benchmark (GBP), Swedish Krona (SEK), United States Dollar creditworthiness may transact with the group only on a (USD) and Euro (EUR). paid basis. Annual Report 2009/10 Annual Financial Statements 96
The group does not hedge foreign purchases and sales but matches foreign currency denominated cash inflows and outflows through the underlying operations of the group. This provides an economic hedge and no derivatives are entered into. The group's net exposure is kept at an acceptable level by buying or selling foreign currencies at spot rates when necessary to address short-term imbalances.
Interest rate risk
The group addresses its interest rate risk by ensuring that all borrowings and investments are at market related rates. Within group entities, inter-group financing is also used as it is cheaper and subject to minimal interest rate risk. Certain long-term borrowings are entered into at fixed interest rates if the rates offered are favourable to the group.
5.4. Operational risk
Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the group's processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of the group's operations. The group's objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the group's reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity. The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management within each department. This responsibility is supported by the development of overall group standards for the management of operational risk in the following areas:
- requirements for appropriate segregation of duties, including the independent authorisation of transactions;
- requirements for the reconciliation and monitoring of transactions;
- compliance with regulatory and other legal requirements;
- documentation of controls and procedures;
- requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the risks identified;
- requirements for the reporting of operational losses and proposed remedial action;
- development of contingency plans;
- training and professional development;
- ethical and business standards; and
- risk mitigation, including insurance where this is effective.
Compliance with group standards is supported by a programme of periodic reviews undertaken by internal audit. The results of internal audit reviews are discussed with local management and the Audit and Risk Committee so that corrective action is taken. Annual Report 2009/10 97 Annual Financial Statements
5.5. Capital management
The accounting authority's policy is to maintain a strong capital base so as maintain creditors and shareholder confidence and to sustain future development of the business. The accounting authority monitors the return on capital, which the group defines as net operating income divided by total shareholder's equity.
The group seeks to maintain a balance between the higher returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position. The group's capital position has improved from the prior year.
The group's debt to capital ratio at the end of the year was as follows:
GROUP COMPANY
2010 2009 2010 2009 R’000 R’000 R’000 R’000
Total liabilities 1 366 754 1 447 680 1 367 233 1 445 168
Less: cash and cash equivalents (977 525) (1 042 753) (977 178) (1 042 414)
Total debt 389 229 404 927 390 055 402 754
Total equity 542 151 447 665 541 278 449 407
Debt to capital ratio 0,72 0,90 0,72 0,90
There were no changes in the group's approach to capital management during the year. The group is not subject to externally imposed capital requirements. Annual Report 2009/10 Annual Financial Statements 98
6. Property, Plant and Equipment
GROUP AND COMPANY
Computer, technical Land and Motor and office Capital work buildings vehicles equipment in progress Total R’000 R’000 R’000 R’000 R’000
2010 Opening carrying amount 407 819 918 205 094 127 620 741 451
Devaluation (14 778) – – – (14 778) Impairments – – (12 513) – (12 513) Additions – 263 13 493 256 109 269 865
Disposals (48) (168) (736) – (952)
Transfers 10 626 – 67 510 (78 136) –
Government grant funding – – (54 069) – (54 069) Depreciation charge (34 986) (544) (47 069) – (82 599)
Closing carrying value 368 633 469 171 710 305 593 846 405
Cost or valuation 579 760 2 482 807 016 305 593 1 694 851 Accumulated depreciation
and impairment losses (211 127) (2 013) (635 306) – (848 446)
Carrying amount 368 633 469 171 710 305 593 846 405
2009
Opening carrying amount 545 782 6 299 245 864 84 313 882 258
Devaluation (78 872) – – – (78 872) Impairments – – (45 869) – (45 869) Additions – 196 – 173 548 173 744 Disposals (100) – (187) – (287) Transfers 13 640 – 116 601 (130 241) –
Government grant funding – – (55 811) – (55 811)
Depreciation charge (72 631) (5 577) (55 504) (133 712)
Closing carrying value 407 819 918 205 094 127 620 741 451
Cost or valuation 610 139 6 358 783 283 127 620 1 527 400
Accumulated depreciation and impairment losses (202 320) (5 440) (578 189) – (785 949) Carrying amount 407 819 918 205 094 127 620 741 451 Annual Report 2009/10 99 Annual Financial Statements
The group's land and buildings were last revalued on 31 March 2010 by the directors in conjunction with Ubuntu Valuation and Appraisal Services. Details of the land and buildings are available for inspection at the group's registered office.
Valuations were made on the basis of comparative land sales in each area. The revaluation surplus, net of applicable deferred tax, was credited or debited to the revaluation reserve in shareholders' equity.
Depreciation expense of R63 601 000 (2009: R102 958 000) has been included in cost of sales and R18 998 000 (2009: R30 754 000) in other operating expenses.
A total impairment loss of R12 513 000 (Voice Telephony Service, R10 761 000, and Biznet and MyWireless, R1 752 000) was recognised in respect of property, plant and equipment relating to loss making and discontinued businesses. In 2009, the impairment loss of R45 869 000 was for property, plant and equipment for several loss making businesses which have been discontinued in the current year, namely MyWireless, Biznet and VAS. The carrying amount of assets relating to the loss making and discontinued operations will not be realised through sale thus they have not been classified as assets held for sale. These assets will be decommissioned.
If property, plant and equipment were stated on the historical cost basis, the amounts would be as follows:
GROUP AND COMPANY 2010 2009 R’000 R’000
Cost 743 067 540 736
Accumulated depreciation and impairment losses (360 842) (278 244)
Carrying amount 382 225 262 492 Annual Report 2009/10 Annual Financial Statements 100
7. Intangible Assets
GROUP AND COMPANY Licences Software Total R’000 R’000 R’000
2010 Opening carrying value 15 672 2 225 17 897 Derecognition (15 672) – (15 672) Amortisation charge – (1 697) (1 697)
Closing carrying value – 528 528
Cost – 15 671 15 671 Accumulated amortisation and impairment – (15 143) (15 143)
Carrying value – 528 528
2009
Opening carrying value 16 997 5 794 22 791
Additions – 572 572 Disposals – (10) (10) Amortisation charge (1 325) (4 131) (5 456)
Closing carrying value 15 672 2 225 17 897
Cost 24 833 15 671 40 504
Accumulated amortisation and impairment (9 161) (13 446) (22 607)
Carrying value 15 672 2 225 17 897
Derecognition of Licences
Licences relating to Multimedia and Voice Telephony Service with a carrying value of R15 672 000 were replaced by the new Electronic Communications licences. The licence fee of the new licences is based on the gross profit for products utilising the licence. Therefore, the old licences have been derecognised as a result of the change in regulations.
Impairment Tests for Intangible Assets
The accounting authority have assessed the carrying value of each intangible asset and a provision for impairment is not considered necessary. Annual Report 2009/10 101 Annual Financial Statements
8. Investments in subsidiaries
The company's interest in principal subsidiaries, all of which are unlisted and registered in South Africa, are as follows:
COMPANY Carrying Amount Name of the Company Held by Holding 2010 2009 R’000 R’000
InfoHold (Proprietary) Limited Sentech Limited 100% * *
Vivid Multimedia (Proprietary) Limited Sentech Limited 100% * *
Sentech International (Proprietary) Limited Sentech Limited 100% * * Available-for-sale financial assets * *
* amounts are below R1 000.
Infohold (Proprietary) Limited holds 100% of the shares of its subsidiary InfoSat (Proprietary) Limited. InfoSat (Proprietary) Limited is the only trading subsidiary and contributed a loss after tax of R3 520 000 (2009: R2 756 000 loss) for the year to the group.
InfoSat (Proprietary) Limited's business was discontinued in the current year due to a lack of return on investment. InfoSat (Proprietary) Limited's results have been included in discontinued operations disclosures, see note 24.
Intercompany loans have been disclosed in Note 27.3.6.
9. Inventories
GROUP AND COMPANY 2010 2009 R’000 R’000
Consumables 9 462 14 369
Impairment (1 000) (544)
8 462 13 825
The inventory held is not encumbered. Annual Report 2009/10 Annual Financial Statements 102
10. Trade and Other Receivables
GROUP COMPANY
2010 2009 2010 2009 R’000 R’000 R’000 R’000 Third-party trade receivables 52 139 45 430 51 720 44 665
Less: impairment of receivables (22 779) (21 336) (22 407) (21 002)
Net third party trade receivables 29 360 24 094 29 313 23 663
Receivables from related parties (note 27.3.3) 19 242 30 872 19 242 30 872
Other receivables 1 639 1 133 1 639 1 133
Loans and receivables 50 241 56 099 50 194 55 668
Prepayments 24 144 21 120 24 144 21 120 74 385 77 219 74 338 76 788
11. Cash and cash equivalents
GROUP COMPANY
2010 2009 2008 2010 2009 2008 R’000 R’000 R’000 R’000 R’000 R’000
Cash and cash equivalents consist of:
Own cash and cash equivalents 178 586 257 053 158 550 178 239 256 714 158 512 Government grants cash and cash equivalents 798 939 785 700 555 072 798 939 785 700 555 072 977 525 1 042 753 713 622 977 178 1 042 414 713 584
Cash and cash equivalents have been split between government grants cash and cash equivalents and the group's own cash and cash equivalents for better presentation. Refer to note 28.1. Annual Report 2009/10 103 Annual Financial Statements
Government grant cash and cash equivalent include funds that are ring-fenced, net of VAT, allocated by government for the following projects:
GROUP AND COMPANY 2010 2009 2008 R’000 R’000 R’000
Digital Terrestrial Transmission projects 108 737 119 298 73 580 Broadband project 549 035 438 596 438 596 Under sea cable project 27 000 18 421 18 421
Community broadcasters project 10 583 19 339 24 475
2010 World Cup Soccer project 103 584 190 046 –
798 939 785 700 555 072
At year-end, the group and company had issued the following guarantees:
Eskom Enterprises 994 994 722 South African Revenue Services 6 000 6 000 3 000 Properties and related rates and taxes 2 223 1 126 1 218
9 217 8 120 4 940
12. Share Capital and Premium
GROUP AND COMPANY
2010 2009 R’000 R’000 Authorised
100 000 ordinary shares of R1 each 100 100
Issued
2 000 ordinary shares of R1 each 2 2
Share premium 75 890 75 890 75 892 75 892
The shareholder (Department of Communications) controls the unissued shares. Annual Report 2009/10 Annual Financial Statements 104
13. Loans and Borrowings
GROUP AND COMPANY
2010 2009 R’000 R’000
Interest-bearing liabilities Held at amortised cost Development Bank of South Africa – Loan 82 083 97 669
ICASA licences loan – 25 000 Finance lease liabilities 1 094 8 763
Total loans and borrowings 83 177 131 432 Less: short-term portion (17 352) (38 723)
Long-term portion 65 825 92 709
Finance lease liabilities
Finance lease liabilities are secured over the assets (motor vehicles and equipment) leased with a carrying value of: – 429
No arrangements have been entered into for contingent rental payments. The fair value of the group's finance lease obligations approximates their carrying amount. The group's obligations under finance lease are secured by the lessors' charges over the leased assets.
In prior years, the group leased motor vehicles under finance leases with an average lease term of three to four years. All these finance leases had been settled at year-end (2009: Liability of R745 000) as it is now company policy to lease motor vehicles under full maintenance operating leases. For the year ended 31 March 2010, the average effective borrowing rate was 11% (2009: 13,2%). Interest rates are linked to prime interest rate.
The group also entered into a finance lease with RentWorks Africa (Proprietary) Limited for the acquisition of certain network equipment. At year-end, the amount outstanding relating to this finance lease was R1 094 000 (2009: R8 018 000). Approval from the shareholder was not obtained. During the year, the accounting authority requested condonation from the shareholder. The shareholders has declined the condonation request. Thus all expenditure is deemed to be irregular in terms of the PFMA. Accordingly, the transaction of R35 682 000 is disclosed as irregular expenditure in note 30.1.
Development Bank of South Africa - loan
The loan relates to infrastructure development. The loan is for a period of 10 years ending on 31 March 2014 and is not secured. Interest is charged at a fixed rate of 11,03% per annum and the loan is repayable in bi-annually equal instalments. Annual Report 2009/10 105 Annual Financial Statements
ICASA licences loan
The loan relates to the granting of the Multimedia and Voice Telephony Service licence by ICASA. The loan was settled on 31 March 2010 and was being repaid by monthly payments of R2 000 000. Interest on late payments was charged at market related interest rates.
Contractual cash flows for loans and borrowings have been disclosed in note 26.2.
14. Deferred Tax Liabilities
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority. The offset amounts are as follows:
GROUP AND COMPANY
2010 2009 R’000 R’000
Deferred income tax liability 69 331 77 616
Deferred income tax assets (59 748) (56 672) Deferred income tax liabilities (net) 9 583 20 944
Movement in temporary difference during the year
Beginning of year 20 944 67 014
Recognised in profit and loss (note 23) (7 224) (24 689) Recognised in other comprehensive income (4 137) (21 381)
End of year 9 583 20 944
Deferred tax liabilities are attributable to the following:
Property, plant and Repayments equipment and deposits Total R’000 R’000 R’000
Balance at 1 April 2008 (128 971) (1 397) (130 368)
Recognised in profit and loss 33 393 (2 022) 31 371
Recognised in other comprehensive income 21 381 – 21 381
Balance at 31 March 2009 (74 197) (3 419) (77 616) Recognised in profit and loss 4 695 (547) 4 148 Recognised in other comprehensive income 4 137 – 4 137
Balance at 31 March 2010 (65 365) (3 966) (69 331) Annual Report 2009/10 Annual Financial Statements 106
Deferred tax assets are attributable to the following:
GROUP AND COMPANY
Unearned income and Government Tax Provisions deposits Grants losses Total R’000 R’000 R’000 R’000 R’000
Balance at 1 April 2008 40 397 8 979 4 574 9 404 63 354 Recognised in profit and loss 6 440 (5 538) 1 820 (9 404) (6 682)
At 31 March 2009 46 837 3 441 6 394 – 56 672 Recognised in profit and loss 6 484 112 (3 520) – 3 076
At 31 March 2010 53 321 3 553 2 874 – 59 748
GROUP AND COMPANY
2010 2009 R’000 R’000
Unrecognised deferred tax assets and liabilities: Deferred tax assets have not been recognised in respect of the following:
Tax losses 18 273 14 499
The tax losses relate to InfoSat (Proprietary) Limited, a subsidiary of Sentech Limited. The tax losses expire if the subsidiary does not trade for a continuous period of at least twelve months. Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxable profit will be available against which the group can utilise the benefits.
There are no other unrecognised deferred tax assets or liabilities.
The deferred income tax accounted for in equity during the year is as follows:
Revaluation reserve in other comprehensive income – property, plant and equipment 4 137 21 381
The company has identified that the wear and tear tax allowances claimed on certain assets may need to be amended, due to system and calculation errors. This may affect the tax expense in the previous years to the current year. The company is still in the process of identifying the required adjustments and the effect thereof, which is not yet quantifiable, this will be adjusted for when the amount is finalised. Annual Report 2009/10 107 Annual Financial Statements
15. Employee Benefits
GROUP AND COMPANY 2010 2009 2008 R’000 R’000 R’000
The employee benefits assets and liabilities are made up as follows: Retirement pension benefits asset (1 600) (2 200) (3 800)
Retirement medical benefits liability 119 580 122 140 101 552 117 980 119 940 97 752
15.1 Retirement Pension Benefits
The group provides retirement benefits to all its employees and operates a funded defined benefit plan and a defined contribution plan governed by the Pension Funds Act of 1956. The defined benefit plan was actuarially valued on 31 March 2010 by an independent actuary and will be evaluated again at the end of the 2011 financial year. The fund is a legal entity separate from the company. The assets of the fund are invested according to statutory prescriptions and the investments policy of the fund.
The expected cost of these benefits are accrued over the period of employment, using the projected unit credit method. Actuarial gains and losses are recognised in profit and loss as they arise. Annual Report 2009/10 Annual Financial Statements 108
GROUP AND COMPANY 2010 2009 2008 R’000 R’000 R’000
Present value of funded obligation (9 000) (9 200) (7 400) Fair value of plan assets 10 600 11 400 11 200
Net asset recognised at year-end 1 600 2 200 3 800
Change in the defined benefit funding obligation Present value of funded obligation at beginning of the year (9 200) (7 400) (25 700)
Service cost benefits earned during the year (300) (300) (300) Interest cost on projected benefit obligation (800) (700) (1 600)
Benefits paid 1 100 – 21 200 Actuarial gains/(losses) 200 (800) (1 000)
Present value of funded obligation at end of the year (9 000) (9 200) (7 400)
Change in plan assets Fair value of plan assets at the beginning of the year 11 400 11 200 29 800
Expected return on plan assets 1 000 1 200 2 200 Employee and employer contributions 200 200 500 Benefits paid (1 100) – (21 200) Actuarial losses (900) (1 200) (100)
Total change in plan assets 10 600 11 400 11 200
Fund surplus 1 600 2 200 3 800
Components of the retirement pension benefits recognised in profit and loss
Current service cost 300 300 300
Interest cost 800 700 1 600 Actuarial losses recognised 700 2 000 1 100
Expected return on plan assets (1 000) (1 200) (2 200)
Total included in employee remuneration costs 800 1 800 800
Movement in benefit fund asset Net asset at beginning of the period 2 200 3 800 4 100 Net amount recognised in profit or loss (800) (1 800) (800) Contributions paid to the fund 200 200 500
Net asset at end of the period 1 600 2 200 3 800 Annual Report 2009/10 109 Annual Financial Statements
GROUP AND COMPANY 2010 2009 2008 % % %
Principle actuarial assumptions used Discount rate 8,8 8,6 9,65 Future salary increases 7,0 7,0 7,0 Expected return on plan assets 8,8 8,6 10,6 Future pension increases 5,2 5,2 3,8 Proportion of employees opting for early retirement 43,3 43,3 43,3
2010 2009 2008
Members of the fund Active members at beginning of the year 6 6 10 Exits during the year (1) – (4)
Active members at year-end 5 6 6
The investments of the fund are in unitised type of investments (insurance policies). The investments of the fund provided a return of 9,8% (2009: 9,6%) for the year-end, which we derived from a "spectrum" of Government Bond Rates plus a small equity premium. The investments are expected to provide a return similar to that assumed in determining the expected present value of the plan assets. Projected contributions to the fund for the year ended 31 March 2011 financial year are R0,3 million (2010: R0,3 million).
Reclassification of retirement benefit asset
The retirement pension benefit asset has been shown separately on the face of the statements of financial position for better presentation. Refer to note 28.4.
15.2 Retirement medical aid benefits
The group provides post-retirement benefits to it's retirees in the form of contributions to the independent medical aid fund and operates as an unfunded defined benefit plan. The liability was actuarially valued at 31 March 2010 by an independent actuary, and will be evaluated again at the end of the 2010 financial year. The expected costs of these benefits are accrued over the period of employment, using the projected unit credit method. Actuarial gains and losses are recognised as they arise in profit or loss. Annual Report 2009/10 Annual Financial Statements 110
GROUP AND COMPANY 2010 2009 2008 R’000 R’000 R’000
Present value of unfunded obligations 119 580 122 140 101 552
Change in the defined benefit fund obligation
– liability at beginning of the year 122 140 101 552 75 569 – benefits paid (3 367) (1 854) (1 595)
Component of the retirement medical benefits recognised in profit and loss 807 22 442 27 578
Current service cost 4 134 3 890 3 208 Interest cost 10 251 8 367 18 963
Actuarial (gain) loss (13 578) 10 185 5 407
Liability at end of the year 119 580 122 140 101 552
GROUP AND COMPANY 2010 2009 2008 % % %
Principal actuarial assumptions used
Discount rate 9,5 8,5 9,5
Annual increase in health care costs 8,0 7,0 8,0
CPI inflation 5,6 8,5 9,7
Expected retirement age 63 years 63 years 63 years
The expected employee benefits to be paid for the 31 March 2011 financial year amount to R3,5 million (2010: R1,9 million).
Projected expenses to the fund for the 31 March 2011 financial year amount to R15,3 million (2010: R14,4 million). Annual Report 2009/10 111 Annual Financial Statements
Sensitivity analysis
GROUP AND COMPANY 2010
Accrued liability 8% +1% -1%
1% change in health care cost inflation (R’000) 119 580 139 715 103 373 2009
Accrued liability 7% +1% -1%
1% change in health care cost inflation (R’000) 122 140 144 729 104 209
10% change in post retirement mortality (R’000) 14 385 17 335 12 054
Historical information
GROUP AND COMPANY 2010 2009 2008 2007 2006 R’000 R’000 R’000 R’000 R’000
Retirement pension benefits Present value of the obligation (9 000) (9 200) (7 400) (25 700) (21 600) Present value of the plan assets 10 600 11 400 11 200 29 800 20 800
1 600 2 200 3 800 4 100 (800)
Retirement medical aid benefits Present value of the obligation 119 580 122 140 101 552 75 569 75 689 Annual Report 2009/10 Annual Financial Statements 112
16. Deferred Income – Government Grants
GROUP AND COMPANY Restated 2010 2009 2008 R’000 R’000 R’000
Analysis of movements in deferred income: Opening balance 850 918 579 743 87 314
Transfer from prepayments – – 16 334
Net funding received (see below) 232 434 307 017 569 298 Interest earned capitalised for the FIFA 2010 project 13 556 14 607 –
Utilisation recognised in profit and loss (63 939) (1 775) (1 118) – Community Broadcasters (3 118) (1 475)* (1 118) – SABC loan settlement – (300) –
– Task team payments for ministerial investigation (9 453) – –
– Dual illumination recovery of operating expenses (51 368) – –
Acquisition of property, plant and equipment (54 066) (48 674) (92 085) Closing balance 978 903 850 918 579 743
Government grants received 264 858 350 000 649 000 Deemed VAT (32 424) (42 983) (79 702)
Net funding received 232 434 307 017 569 298
* In 2009, R22 836 000 was incorrectly classified as income received in advance and included in trade and other payables. Thus the amount has been reclassified to the income utilised by community broadcasters reducing the R24 311 000 by R22 836 000, thus reflecting R1 475 000 as utilised. There was no impact on the profit or loss. Refer to note 28.3.
Government grants are received in relation to income grants to compensate for the group's operational expenditure related to government projects. Grants are also received for the purchase and construction of property, plant and equipment. The deferred income relating to completed assets has been netted-off against the cost of the respective assets under property, plant and equipment, on net presentation basis. The asset will then be depreciated over it's useful life based on the net carrying amount after taking government grant funding into account as per accounting policy, see note 3.12.
Government grants have been reclassified as a current liability, in prior year this was disclosed as a non-current liability, due to the group following the net presentation basis for accounting for government grants. Also, uncertainty exists as to the timing of the release of the income government grants to profit and loss and capital government grants to property, plant and equipment on completion of the relevant assets. The government grants have been reclassified to match the government grant ring-fenced cash and cash equivalents which are disclosed as a current assets. Refer to note 28.2 Annual Report 2009/10 113 Annual Financial Statements
17. Trade and Other Payables
GROUP COMPANY Restated Restated 2010 2009 2008 2010 2009 2008 R’000 R’000 R’000 R’000 R’000 R’000 Trade payables 42 948 49 415* 66 134 43 274 47 199* 60 754 Amounts due to related parties (Note 27.3.4) 13 313 192 464 114 956 13 313 192 464 114 956 Accrued expenses 43 819 29 292 63 020 43 716 28 721 63 196
Financial liabilities 100 080 271 171 244 110 100 303 268 384 238 906 Leave pay accrual 17 622 17 887 16 540 17 622 17 887 16 540 Unearned income 10 418 10 176 30 792 10 518 10 174 30 792 128 120 299 234 291 442 128 443 296 445 286 238
* Refer to note 28.3 for the restatement.
18. Provisions
GROUP AND COMPANY Opening Utilised Balance Additions during the year Total R’000 R’000 R’000 R’000
Reconciliation of provisions
2010
Fastcomm provision 4 000 - (4 000) -
2009
Fastcomm provision - 4 000 - 4 000
A provision of R4 000 000 had been recognised for an expected claim by a joint venture partner, Fastcomm, in respect of the group's obligations according to the joint venture agreement. The obligation was fully settled for R4 000 000 in the current year. Annual Report 2009/10 Annual Financial Statements 114
19. Revenue
GROUP COMPANY
2010 2009 2010 2009 R’000 R’000 R’000 R’000
Terrestrial television services 345 641 313 152 345 641 313 152 Dual illumination grant income 51 368 – 51 368 – Terrestrial FM and AM radio services 156 776 138 209 156 776 138 209 Terrestrial short wave radio services 27 182 35 097 27 182 35 097 Terrestrial and satellite linking 76 322 85 095 76 322 85 322 Satellite direct-to-home 29 643 29 806 29 643 29 806
Business television 10 595 13 192 10 595 13 192
Facility rentals 24 262 18 936 24 262 18 936 Sales of satellite decoders 235 255 235 255 Voice Telephony Service 68 414 76 744 68 414 76 744 VAS business 2 856 5 573 – – VSAT 38 349 34 169 38 349 34 169
Broadband wireless 2 240 6 111 2 241 6 111
Other 12 352 9 195 18 951 15 709
Total revenue 846 235 765 534 849 979 766 702
Less: Revenue from discontinued operations (note 24) (7 367) (15 187) (4 512) (9 614)
Revenue from continuing operations 838 868 750 347 845 467 757 088 Annual Report 2009/10 115 Annual Financial Statements
20. Expenses by Nature
GROUP COMPANY
2010 2009 2010 2009 R’000 R’000 R’000 R’000
Employee benefit expense (note 21) 235 730 253 575 235 730 253 575
Depreciation 82 599 133 712 82 599 133 712 Amortisation of intangible assets 1 697 5 456 1 697 5 456 Impairment of property, plant and equipment 12 513 45 869 12 513 45 869 Loss on disposal of licences 15 672 – 15 672 –
Transportation expenses 12 112 7 865 12 112 7 865
Advertising costs 6 804 5 637 6 804 5 637
Operating lease payments 19 774 32 034 19 774 32 034 Auditors remuneration – current year 2 135 1 989 2 135 1 989 Prior year under provision – audit fees 500 – 500 –
– other services 104 200 104 200
Legal and consulting fees 10 117 8 045 10 117 8 045
Other cost of sales, selling, administration and operating 336 463 356 722 342 560 355 963
Total cost of sales, selling, administration and other 736 220 851 104 742 317 850 345
Less: Expenses related to discontinued operations (89 019) (254 314) (82 420) (237 784) (note 24)
647 201 596 790 659 897 612 561
Disclosed as follows in profit or loss for continuing operations:
Cost of sales 556 103 468 527 568 009 484 948
Operating expenses 32 611 47 491 34 101 47 491
Selling expenses 6 804 5 637 6 804 5 637 Administrative expenses 51 683 75 135 50 983 74 485
647 201 596 790 659 897 612 561 Annual Report 2009/10 Annual Financial Statements 116
21. Employees Benefit Expense
GROUP COMPANY
2010 2009 2010 2009 R’000 R’000 R’000 R’000
Wages and salaries 210 729 198 390 210 729 198 390
Statutory charges 1 885 1 641 1 885 1 641 Pension costs – defined contribution plans 21 509 29 302 21 509 29 302 Post-employment benefits (note 15) 1 607 24 242 1 607 24 242 235 730 253 575 235 730 253 575
Included in the above amounts are the following expenses relating to discontinuing operations: Wages and salaries 24 253 25 564 24 253 23 951 Statutory charges 256 188 256 177 Pension costs – defined contribution plans 2 042 3 365 2 042 3 152
26 551 29 117 26 551 27 280
Total number of employees at year-end 550 539 550 539
22. Finance Income and Expenses
Recognised in Profit and Loss
GROUP COMPANY
2010 2009 2010 2009 R’000 R’000 R’000 R’000
Finance income 67 410 88 615 67 401 88 593
Interest income – financial institutions 80 966 103 222 80 957 103 200
Interest income capitalised on government grants not recognised in profit or loss (note 16) (13 556) (14 607) (13 556) (14 607)
Finance expenses (1 701) (32 534) (1 954) (31 542)
Borrowings (10 356) (18 385) (10 356) (17 393) Finance lease interest (292) (129) (292) (129) Other interest expenses 8 947 (14 020) 8 694 (14 020)
Net finance income 65 709 56 081 65 447 57 051
The finance income and expenses for discontinuing operations are not significant and thus have not been separately disclosed. Other interest expenses include reversals of prior year over-provisions for the Independent Communications Authority of South Africa and South African Revenue Services obligations in respect of interest due to late payments. Annual Report 2009/10 117 Annual Financial Statements
23. Income Tax Expense
GROUP COMPANY
2010 2009 2010 2009 R’000 R’000 R’000 R’000
Current tax expense
Current period (61 230) (19 012) (61 230) (19 012) Adjustment for prior periods (16 591) – (16 591) – (77 821) (19 012) (77 821) (19 012)
Deferred tax credit (note 14) 7 224 24 689 7 224 24 689
Origination and reversal of temporary differences (70 597) 5 677 (70 597) 5 677
Income tax expense from continuing operations (92 411) (61 279) (92 411) (58 211) Income tax effect from discontinuing operations (note 24) 21 814 66 956 21 814 63 888
(70 597) 5 677 (70 597) 5 677
% % % % Reconciliation of the tax expense
Reconciliation between applicable tax rate and effective tax rate: Applicable tax rate 28 28 28 28 Expenses not deductible 2 (6) 2 (7) Unrecognised tax losses (1) (3) – – Prior year under-provision 9 – 9 – Capitalised interest income 2 – 2 – 40 19 41 21
Management have identified that the wear and tear tax allowances claimed on certain assets will need to be amended to correct system and calculation errors. This is likely to affect years from 2005 up to the current financial year. The process of identifying the required adjustments is currently underway and the effect thereof, which is not yet quantifiable, will be incorporated in the 2011 annual report. Annual Report 2009/10 Annual Financial Statements 118
24. Discontinued Operations
On 27 January 2009, the accounting authority resolved to discontinue all non-performing telecommunication products namely MyWireless, Biznet, and VAS. This was as a result of a request by the shareholder. At the end of the 2009 financial year, these products were still being used and were discontinued during the 2010 financial year. Management terminated these products due to the strategic decision to place greater focus on the group's core business.
The assets and liabilities of the disposal group are set as follows:
GROUP COMPANY
2010 2009 2010 2009 R’000 R’000 R’000 R’000
Trade and other receivables 2 576 3 756 2 268 2 903
Trade and other payables (7 524) (7 713) (189) –
The non-current assets have been fully impaired and are to be sold piecemeal, where possible.
Results of discontinued operations Revenue 7 367 15 187 4 512 9 614 Expenses (89 019) (254 314) (82 420) (237 784)
Results from operating activities (81 652) (239 127) (77 908) (228 170) Income tax effect (note 23) 21 814 66 956 21 814 63 888
Loss for the period (59 838) (172 171) (56 094) (164 282)
Cash flows used in discontinued operation Net cash used in operating activities (81 043) (179 938) (77 300) (169 058)
Net cash from investing activities – (31 300) – (31 300)
Net cash from financing activities – – – –
Net cash used in discontinued operation (81 043) (211 238) (77 300) (200 358) Annual Report 2009/10 119 Annual Financial Statements
25. Notes to the Cash Flow Statement
25.1. Cash generated from operations GROUP COMPANY
2010 2009 2010 2009 Note R’000 R’000 R’000 R’000
Profit (loss) for the period 105 127 (23 812) 102 512 (20 915)
Income tax expense 23 70 597 (5 677) 70 597 (5 677)
Profit (loss) before income tax expense 175 724 (29 489) 173 109 (26 592) – depreciation of property, plant & equipment 6 82 599 133 712 82 599 133 712 – amortisation of intangible assets 7 1 697 5 456 1 697 5 456
– impairment of property, plant & equipment 6 12 513 45 869 12 513 45 869
– loss on disposals on property, plant 23 273 23 273 & equipment – loss on disposal of intangible assets 7 15 672 – 15 672 – – interest received 22 (80 966) (103 222) (80 957) (103 200) – interest received capitalised to government grants 22 13 556 14 607 13 556 14 607 – interest paid 22 1 701 32 534 1 954 31 542
– movement in defined employee (1 960) 22 188 (1 960) 22 188 benefits funds
Cash generated from operations before working capital changes 220 559 121 928 218 206 123 855 Working capital changes – decrease in inventories 5 363 3 968 5 363 3 968 – decrease in trade and other receivables 2 834 9 067 2 450 8 668 – (decrease)/increase in trade and other payables (175 111) 19 088 (171 999) 21 503 – decrease in loan from subsidiary – – (121) (5 054)
Cash generated from operations 53 645 154 051 53 899 152 940
25.2. Proceeds from sale of property, plant and equipment Carrying amount of disposals 6 952 287 952 287 Loss on disposal of property, plant and equipment (23) (273) (23) (273) Proceeds from disposal of property, plant and equipment 929 14 929 14
25.3. Income tax paid
Balance owing at 1 April 19 012 – 19 012 – Current tax expense 23 77 821 19 012 77 821 19 012 Balance owing at 31 March (47 391) (19 012) (47 391) (19 012) Tax paid 49 442 – 49 442 – Annual Report 2009/10 Annual Financial Statements 120
26. Financial Instruments
26.1. Exposure to Credit Risk
The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date was:
GROUP COMPANY
2010 2009 2010 2009 R’000 R’000 R’000 R’000
Available-for-sale financial assets (note 8) – – * *
Government grants cash and cash equivalents (note11) 798 939 785 700 798 939 785 700 Loans and receivables (note 10) 50 241 56 099 50 194 55 668
Own cash and cash equivalents (note 11) 178 586 257 053 178 239 256 714
1 027 766 1 098 852 1 027 372 1 098 082
The maximum exposure for loans and receivables at the reporting date by geographic region was:
Domestic 34 640 34 406 34 593 33 975
Foreign 15 601 21 693 15 601 21 693
50 241 56 099 50 194 55 668
* Amounts below R1 000.
Impairment losses
The ageing of loans and receivables at the reporting date was: Not past due date 14 368 14 951 14 205 15 101 Past due 30 days 9 210 20 021 9 210 19 585 Past due 60 days 10 936 13 366 10 936 13 233 Past due 90 days and more 38 506 29 097 38 250 28 751 Gross loans and receivables 73 020 77 435 72 601 76 670 Impairment allowance (22 779) (21 336) (22 407) (21 002)
Net loans and receivables 50 241 56 099 50 194 55 668
The movement in the allowance for impairment in respect of loans and receivables during the year was
as follows: Balance at 1 April (21 336) (20 369) (21 002) (20 071)
Impairment loss recognised (3 930) (9 661) (3 892) (9 625)
Bad debts written-off 2 487 8 694 2 487 8 694
Balance at 31 March (22 779) (21 336) (22 407) (21 002) Annual Report 2009/10 121 Annual Financial Statements
The collectability of loans and receivables is assessed at reporting date and specific allowances are made for any doubtful loans and receivables based on a review of all outstanding amounts at year end. Doubtful debts are written-off during the year in which they are identified. The impairment loss at year-end relates to loans and receivables which have been outstanding for a long time and have not been settled subsequent to year-end. The group does not hold any collateral as security for its loans and receivables.
26.2. Exposure to Liquidity Risk
Financial liabilities at year-end were as follows:
GROUP COMPANY
2010 2009 2010 2009 R’000 R’000 R’000 R’000
Trade and other payables (note 17) 100 080 271 171 100 303 268 384 Loans from group companies (note 27) – – 156 277
Loans and borrowings (note 13) 83 177 131 432 83 177 131 432
Carrying amount 183 257 402 603 183 636 400 093
Trade and other payables above exclude leave pay accruals and unearned income as they are not financial instruments.
The maturity of contractual financial liabilities, including estimated interest payments and excluding the impact of netting agreements are as follows:
1 year or less
Trade and other payables 100 080 271 171 100 303 268 384
Loans from group companies – – 156 277
Loans and borrowings 27 036 74 306 27 036 74 306
2 – 5 years
Loans and borrowings 77 827 86 126 77 827 86 126
Total contractual cash flows 204 943 431 603 205 322 429 903
The group and company will be able to meet their contractual obligations as they become due.
26.3 Unutilised borrowing capacity
Approved overdraft facilities 73 170 73 170 73 170 73 170 Overdraft at year-end – – – –
Unutilised borrowing capacity 73 170 73 170 73 170 73 170
Annual Report 2009/10 Annual Financial Statements 122
26.4. Exposure to Currency Risk
Available for sale financial assets, loans from group companies and loans and borrowings are denominated in South African Rand.
The exposure to currency risk was as follows based on carrying amounts for other financial instruments:
GROUP
Trade and Net Loans and other Cash and cash exposure at receivables payables equivalents year-end R’000 R’000 R’000 R’000
2010 ZAR 34 640 (98 185) 968 246 904 701 GBP 3 961 – 1 582 5 543
EUR 2 568 (475) 2 366 4 459 USD 9 072 (921) 5 331 13 482 CHF – (499) – (499) SEK – – – –
50 241 (100 080) 977 525 927 686
2009
ZAR 34 406 (262 103) 1 020 919 793 222 GBP 2 872 (4) 1 237 4 105 EUR 6 854 (2 944) 9 480 13 390 USD 11 967 (707) 11 117 22 377 CHF – (5 120) – (5 120)
SEK – (293) – (293)
56 099 (271 171) 1 042 753 827 681
COMPANY
2010
ZAR 34 593 (98 408) 967 899 904 084 GBP 3 961 – 1 582 5 543 EUR 2 568 (475) 2 366 4 459 USD 9 072 (921) 5 331 13 482 CHF – (499) – (499) SEK – – – – 50 194 (100 303) 977 178 927 069
2009
ZAR 33 975 (259 316) 1 020 582 795 241 GBP 2 872 (4) 1 235 4 103
EUR 6 854 (2 944) 9 480 13 390 USD 11 967 (707) 11 117 22 377 CHF – (5 120) – (5 120) SEK – (293) – (293) 55 668 (268 384) 1 042 414 829 698 Annual Report 2009/10 123 Annual Financial Statements
The following significant exchange rates applied during the year:
Average Rate Reporting date spot rate 2010 2009 2010 2009 R R R R
EUR 10,898 12,731 9,913 12,601
GBP 12,305 14,851 11,111 13,557
USD 7,711 8,801 7,337 9,482
SEK 0,946 0,795 0,983 0,862
CHF 0,125 0,121 0,144 0,119
Sensitivity analysis
A 10 percent weakening of the Rand against the following currencies at 31 March would have (decreased) increased equity and profit or loss for the group by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2009.
GROUP COMPANY
2010 2009 2010 2009 R’000 R’000 R’000 R’000
EUR 332 965 332 965
GBP 399 296 399 296 USD 971 1 611 971 1 611
SEK – (21) – (21)
CHF (36) (369) (36) (369)
A 10 percent strengthening of the Rand against the currencies at 31 March would have had equal but opposite effect in the above currencies to the amounts shown above, on the basis that all other variables remain constant. Annual Report 2009/10 Annual Financial Statements 124
26.5. Exposure to Interest Rate Risk
The group generally adopts a policy of ensuring that its exposure to change in interest rates is on a floating rate basis.
Profile
The interest rate risk profile of the interest-bearing financial instruments was:
GROUP COMPANY
2010 2009 2010 2009 R’000 R’000 R’000 R’000
Fixed rate instruments
Development Bank of South Africa Loan 82 083 97 669 82 083 97 669
Variable rate instruments Government grants cash and cash equivalents 798 939 785 700 798 939 785 700
Own cash and cash equivalents 178 586 257 053 178 239 256 714
Finance lease liability (1 094) (8 763) (1 094) (8 763)
ICASA licences loan – (25 000) – (25 000)
976 431 1 008 990 976 084 1 008 651
Sensitivity Analysis Loans and receivables/payables including group balances A change of 100 basis points in interest rates would have increased or decreased equity by R559 000 For receivables/payables with a remaining life of less (2009: R1 282 000) with all other variables held than one year, the notional amount is deemed to reflect constant. the fair value. All other receivables/payables are discounted to determine the fair value.
26.6. Fair Values versus Carrying Amounts Non-derivative financial assets and liabilities
The group and company carrying amounts for Fair value, which is determined for disclosure purposes, financial assets and liabilities approximate the fair is calculated based on the present value of future values of the respective financial instruments at principal and interest cash flows, discounted at the year end. market rate of interest at the reporting date. In respect of the liability component of convertible notes, the market Estimation of fair values rate of interest is determined by reference to similar The following summarises the major methods liabilities that do not have a conversion option. For and assumptions used in estimating the fair finance leases the market rate of interest is determined values of financial instruments reflected in the by reference to similar lease agreements. table. Interest rates used for determining fair value Interest bearing loans The interest rates used to discount estimated cash Fair value calculated based on discounted flows, when applicable, are based on prime rates at the expected future principal and interest cash flows. reporting date plus an adequate credit spread. Annual Report 2009/10 125 Annual Financial Statements
Fair Value Hierarchy
At 31 March 2010 and 2009, the group did not have financial instruments carried at fair value, by valuation method, requiring the following fair value hierarchy classification:
- Level 1 : quoted prices (unadjusted) in active markets for identical assets or liabilities.
- Level 2 : inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
- Level 3 : inputs for the asset or liability that are not based on observable market data (unobservable inputs).
27. Related parties
Parties are considered to be related if one party has the ability to control the other party or exercise significant influence or joint control over the other party in making financial or operational decisions.
Due to the fact that Sentech is 100% owned by the Government of South Africa, this includes the company as part of the National Sphere. The company transacts with various other entities within the national sphere and all significant transactions are disclosed in note 27.3.
Related party transactions occurred between Sentech and Telkom SA Limited, Department of Public Works, Agricultural Research Council, Municipalities, Gauteng Department of Education, Eskom, Department of Communication (DOC), SABC as well as other government entities.
All transactions with government departments were on an arm's length and therefore these are considered to be normal dealings.
Key management personnel have also been identified as related parties and their remuneration has been disclosed in note 27.2.
27.1 Loans to directors
There were no loans issued to directors during the year nor balances outstanding at the end of the year. Annual Report 2009/10 Annual Financial Statements 126
27.2 Key management compensation
Directors Emoluments
GROUP AND COMPANY
Expense and other Provident Basic salary allowances fund Fees Total R’000 R’000 R’000 R’000 R’000
2010 Executive S Mokone-Matabane 3 190 915 421 – 4 526 MS Cassim 1 457 69 204 – 1 730 B Ngwenya 1 410 66 197 – 1 673
Non-Executive C Hickling – – – 461 461 N Tshombe – – – 261 261 D Konar – – – 171 171 T Leeuw – – – 272 272 N Sihlali – – – 268 268
Y Muthien – – – 171 171
T Mashigo – – – 204 204 M Booi – – – 31 31
6 057 1 050 822 1 839 9 768
2009 Executive S Mokone-Matabane 1 724 48 241 – 2 013
MS Cassim 1 325 66 185 – 1 576
B Ngwenya 1 115 61 156 – 1 332
Non-Executive C Hickling – – – 422 422 N Tshombe – – – 209 209 D Konar – – – 246 246
T Leeuw – – – 288 288
M Booi – – – 12 12 N Sihlali – – – 257 257 Y Muthien – – – 85 85 T Mashigo – – – 80 80
4 164 175 582 1 599 6 520
See Accounting Authority’s Report for movements (resignations and appointment) in directors during the year. Annual Report 2009/10 127 Annual Financial Statements
Other key management personnel Remuneration to key management personnel excluding directors' emoluments is:
GROUP AND COMPANY
Expense and other 2010 Position Basic allowances Pension Total R’000 R’000 R’000 R’000
R Emerich General Manager: Broadcasting 789 60 111 960 AN Maseko Portfolio Manager: Sales & Marketing 598 34 84 716
GDB Dube Executive: Legal and Regulatory 1 074 42 150 1 266
RN Ramokhufi General Manager: Office of the CEO 794 41 103 938 TV La Grange Head: International Business 582 34 81 697 TM Nonge General Manager: Operations & Maintenance 767 49 105 921
JN Maphalala Procurement Manager 539 37 75 651 PC Modiko Portfolio Manager: Public Communications 652 40 91 783
J Coopsamy General Manager: Finance & Billing 701 27 98 826
ZN Gumede Manager: Compensation & Benefits 548 18 77 643
SR Kessa General Manager: Management & Project Accounting 620 49 87 756
NNN Shwala* Executive: Human Resource 746 36 104 886
Y Quansah** General Manager: Information Technology 450 34 63 547 8 860 501 1 229 10 590
* NNN Shwala was appointed on 13 May 2009 ** Y Quansah was appointed on 1 August 2009
2009
R Emerich General Manager: Broadcasting 616 54 86 756
AN Maseko Portfolio Manager: Sales & Marketing 503 28 70 601
GDB Dube Executive: Regulatory & Government 985 37 138 1 160 RN Ramokhufi Company Secretarial 677 41 95 813
TV La Grange Head: International Business 510 27 71 608
TM Nonge General Manager: Operations & Maintenance 670 48 94 812 JN Maphalala Procurement Manager 494 33 69 596
PC Modiko Portfolio Manager: Public Communications 597 41 84 722 J Coopsamy* General Manager: Finance & Billing Benefits 324 16 45 385
ZN Gumede Manager: Compensation & Benefits 133 3 19 155
SR Kessa** General Manager: Management & Project Accounting 125 13 18 156
N Basson*** General Manager: Information Technology 529 47 74 650
MB Dube**** Executive: Human Resource 338 26 47 411 6 501 414 910 7 825
* J Coopsamy was appointed on 1 October 2008 *** N Basson was acting in the position until 1 August 2009 ** SR Kessa was appointed on 19 January 2009 **** MB Dube was acting in the position until 13 May 2009 Annual Report 2009/10 Annual Financial Statements 128
27.3. Government grants
Various transactions were entered into with the Department of Communication and National Treasury with respect to government grants. Government grants are accounted for in terms of IAS 20 - Accounting for Government Grants and Disclosure of Government Assistance.
Government grants received and other related movements have been disclosed in note 16.
Entities within the National Sphere
The group is controlled by the Government of South Africa which owns 100% of the company's shares through the Department of Communications. The following transactions with related parties occurred during the year:
27.3.1. Sale of goods and services
GROUP AND COMPANY
2010 2009 R’000 R’000
Air Traffic and Navigation Services Company 415 369 SABC 440 715 414 681 Department of Education 1 755 6 241 Department of Finance 653 –
Department of Home Affairs 12 865 –
Gauteng Provincial Legislature 401 –
ISETT SETA 851 864 Universal Services Agency 2 103 866 Total Facilities Management Company (Proprietary) Limited 4 377 2 696 Department of Public Works 2 545 2 407
Eskom Limited 834 689
SA Post Office Limited 4 252 3 163
SA Weather Service 414 286
472 180 432 262
Services are rendered at market related rates in terms of the approved tariff book. Annual Report 2009/10 129 Annual Financial Statements
27.3.2. Purchases of goods and services
GROUP AND COMPANY
2010 2009 R’000 R’000
Development Bank of Southern Africa 25 942 25 966
Department of Public Works 247 –
Eskom Limited 25 837 19 481 SABC 5 263 194 SA Post Office Limited 2 – South African Revenue Services 45 282 52 071
Telkom SA Limited 48 013 50 409 The Independent Communications Authority of SA (ICASA) 41 017 30 916 Total Facilities Management Company (Proprietary) Limited 3 050 2 726 Unemployment Insurance Fund 1 584 1 512 196 237 183 275
Transactions with related parties are on an arm's length basis.
27.3.3. Related party receivables
GROUP AND COMPANY
2010 2009 R’000 R’000
SABC 852 5 512
Department of Education 1 945 1 945
Department of Home Affairs 10 928 – Department of Agriculture 19 – Department of Communication 145 – Department of Finance 527 – ISETT SETA 716 837
Department of Public Works 1 577 1 110
Eskom Limited 7 156 SA Post Office Limited 2 386 904
SA Weather Service 140 – South African Revenue Services – 20 394
Total Facilities Management Company (Proprietary) Limited – 14
19 242 30 872 Annual Report 2009/10 Annual Financial Statements 130
27.3.4. Related party payables
GROUP AND COMPANY
2010 2009 R’000 R’000
Eskom Limited 1 408 884 South African Revenue Services (VAT) 6 490 164 285
Telkom SA Limited 3 654 1 228 Total Facilities Management Company (Proprietary) Limited 120 –
The Independent Communications Authority of SA (ICASA) 1 509 26 067
Unemployment Insurance Fund 132 – 13 313 192 464
27.3.5 Transactions with subsidiaries
COMPANY 2010 2009 R’000 R’000
Income from the provision of management services to InfoSat (Proprietary) Limited 6 600 6 600
27.3.6 Loans owing (to)/by subsidiaries
COMPANY 2010 2009 R’000 R’000
Loans to subsidiary 52 202 45 023 Impairment of loans to subsidiary (6 135) – Loans owing to subsidiary (46 223) (45 300)
(156) (277)
Both loans are of long term nature, non-interest bearing, and there are no terms of repayment. However, in terms of IAS1 – Presentation of Financial Statements, the amounts owing to subsidiaries have been disclosed as current as there is not an unconditional right to avoid payment for more than 12 months after the reporting date. Annual Report 2009/10 131 Annual Financial Statements
27.3.7. Other transactions with related parties
The Minister of Communication appointed a task team to evaluate the performance and management of Sentech during the year. Certain members of the task team were subsequently appointed as non-executive directors of Sentech Limited. Amounts paid to the entities, where these members have an interest, for the work done by the task team were as follows:
GROUP AND COMPANY Amount Entity Director with relationship R’000
Russet Trading and Investment 74 (Pty) Ltd Q, Patel (appointed 1 April 2010) 446
Other transactions with related parties during the year were as follows:
GROUP AND COMPANY
2010 2009 Payments (receipts) to (from) SARS R’000 R’000
– VAT payments 191 321* 32 394 – VAT refunds (1 152) (4 621) – Company tax payments 49 442* – – Interest on late payments 21 179* – – PAYE paid 43 448* 39 830
– UIF paid 1 584* 1 512 – SDL paid 1 828* 1 657
307 650 70 772
2010 2009 Payments to ICASA R’000 R’000
Interest on late payments 8 964* –
Settlement of licence obligation 27 000* 21 000
35 964 21 000
* Where relevant, these amounts were accrued for in the prior year annual financial statements. Annual Report 2009/10 Annual Financial Statements 132
28. Prior Year Adjustments
28.1 Reclassification of Government Grants Cash and Cash Equivalents
In prior years, the government grants cash and cash equivalents were included in cash and cash equivalents in current assets. The government grants cash and cash equivalents are ring-fenced and may only be utilised in accordance with the grant. The group has reclassified the government grants cash and cash equivalents have been separately classified to clearly indicate that these funds are not available to be utilised for other purposes. The effects are as follows:
GROUP AND COMPANY
2009 2008 Current Assets R’000 R’000
Decrease in cash and cash equivalents (785 700) (555 072)
Increase in government grants cash and equivalents 785 700 555 072
Net effect on current assets – –
28.2 Reclassification of Deferred Income Government Grants
In previous periods, the deferred income on government grants was disclosed as non-current liabilities due to the uncertainties surrounding the completion and extinguishing the government grant liability. The group has reclassified the deferred income government grants from non-current liabilities to current liabilities to match the government grants cash and cash equivalents current assets to the deferred income government grants liabilities.
GROUP AND COMPANY
2009 2008 Non-current Liabilities R’000 R’000
Decrease in deferred income government grants (828 082) (579 743)
Current Liabilities
Increase in deferred income government grants 828 082 579 743
Annual Report 2009/10 133 Annual Financial Statements
28.3 Reclassification of income received in advance, incorrectly classified
In 2009, R22 836 000 was incorrectly classified in trade and other payables. The income received in advance should have been classified as deferred income – government grants.
GROUP AND COMPANY
2009 Current Liabilities R’000
Decrease in trade and other payables (22 836)
Increase in deferred income government grants 22 836
–
28.4 Reclassification of employee benefits balances
In prior years, defined employee benefit fund balances were disclosed on a net basis under non-current liabilities in the statements of financial position. The group has reclassified these balances and disclosed assets under non- current assets for better presentation.
The effects are as follows:
GROUP AND COMPANY
2009 2008 Increase in Non-Current Assets R’000 R’000
Employee Benefits 2 200 3 800
Increase in Non-Current Liabilities
Employee Benefits 2 200 3 800
29. Commitments
29.1 Capital Commitments
Capital expenditure contracted for at the reporting date but not yet incurred is as follows:
GROUP AND COMPANY
2010 2009 R’000 R’000
Property, plant and equipment 24 245 40 927
The authorised capital expenditure for property, plant and equipment is planned to occur in the next financial year. It will be financed from internal cash resources and from government grants received. Annual Report 2009/10 Annual Financial Statements 134
29.2 Operating Lease Commitments
The group leases various facilities, offices and equipment under non-cancellable operating lease agreements. The leases have varying terms, escalation clauses and renewal rights. The lease expenditure recognised in profit or loss during the year is disclosed in Note 20.
GROUP AND COMPANY
2010 2009 Minimum Lease Cash Payments due R’000 R’000
– within one year 74 064 111 021 – in second to fifth year inclusive 67 915 127 027 – later than five years 32 503 30 508
174 482 268 556
30. Losses through Criminal Conduct, Irregular, Fruitless and Wasteful Expenditures
30.1 All losses through criminal conduct and any irregular expenditure
Section 1 of the Public Finance Management Act, No. 1 of 1999, as amended, defines irregular expenditure as expenditure, other than unauthorised expenditure, incurred in contravention of or that is not incurred in accordance with a requirement of any applicable legislation.
The following amounts have been determined as being losses through criminal conduct and losses through irregular expenditure, in terms of section 55(2)(b)(i) of the Public Finance Management Act, No. 1 of 1999, as amended:
GROUP AND COMPANY
Losses Losses recovered Losses Action taken identified year to date written-off Total R’000 R’000 R’000 R’000
2010
Irregular expenditure NagraVision Disciplinary action pending 8 369 – 8 369 – # # RentWorks Africa Requested condonation, 5 679 – 5 679 – declined
14 048 – 14 048 –
2009 Irregular expenditure
# # RentWorks Africa Requested condonation, 35 682 – 35 682 – declined
# The amount includes interest and the settlement of the liability. Annual Report 2009/10 135 Annual Financial Statements
30.2 Material losses through fruitless and wasteful expenditures
Section 1 of the Public Finance Management Act, No. 1 of 1999, as amended, defines fruitless and wasteful expenditure as expenditure which was made in vain and would have been avoided had reasonable care been exercised.
The following material losses, through fruitless and wasteful expenditure have been identified as being reportable in terms of the materiality framework approved by the Minister of Communications for the year under review:
GROUP AND COMPANY
Losses Losses recovered Losses Action taken identified year to date written-off Total R’000 R’000 R’000 R’000
Group South African Revenue Services – interest on VAT for InfoSat No action 737* – 737 –
Company South African Revenue Services – interest on second
provisional tax 2009 No action 1 696 – 1 696 – – interest on VAT payable on Disciplinary action Government Grants pending 18 749* – 18 749* – ICASA – interest on Disciplinary action licences pending 8 964* – 8 964* – Misuse of company Disciplinary action vehicle and dismissal 31 – 31 –
Misuse of company Disciplinary action vehicle and dismissal 40 – 40 –
Misuse of company Disciplinary action vehicle and dismissal 120 – 120 – Unfair dismissal No action 149 – 149 – Unfair dismissal No action 33 – 33 – Alleged unfair labour practice No action 516 – 516 –
Total for Company 30 298 – 30 298 –
Total for Group 31 035 – 31 035 –
* The losses disclosed represent payments made to settle liabilities in the current year. All relevant accruals or provisions were made in the prior year's annual financial statements. Annual Report 2009/10 Annual Financial Statements 136
During the year there was no control to identify and record fruitless and wasteful and irregular expenditure by the previous Accounting Authority. Accordingly, the present Accounting Authority are unable to confirm whether the fruitless and wasteful expenditure and the irregular expenditure disclosed above represents all fruitless and wasteful expenditure and irregular expenditure incurred during the year.
The accounting authority is in the process of reviewing the expenditure related to the discontinued operations which may result in further fruitless and wasteful expenditure being identified and reported in future periods.
31. Contingent liability
The group has received a claim from Altech amounting to R 31 million relating to an order that was placed without the appropriate contract in place. The new accounting authority cancelled the purchase order based on the fact that no contract had been signed. No provision has been raised as the outcome is not certain.
Sentech Library, Johannesburg. Annual Report 2009/10 137 Supplementary Information
Supplementary Information Annual Report 2009/10 Supplementary Information 138
Detailed Analysis of World Cup Expenditure
2010 2009
Quantity R’000 R’000
Tickets acquired 96 1 067 –
Distribution of tickets Clients/Stakeholders 26 289 – Accounting Authority
– non-executive (Chairperson of the Board) 2 22 – Senior Management (Executive, GM, HODs) 2 22 –
Other employees 33 367 – Other government entities (DoC, Portfolio Orgs, PCC) 24 267 – Audit Committee members (Board) 9 100 –
96 1 067 –
Travel costs Other
Car hire to transport delegates from Sentech tower to the matches and back for the duration of the World Cup – 31 –
Purchase of other World Cup apparel
T-shirts for staff 497 161 – Beanies and scarves set 513 72 – Vuvuzelas 450 16 – 2010 World Cup staff events – 206 – 1 460 455 –
Total World Cup expenditure 1 553 –
Tickets acquired after year-end Distribution of tickets acquired after year-end – – – Annual Report 2009/10 139 Glossary of terms
Glossary of terms
AMPS All Media Products Survey ASGISA Accelerated & Shared Growth Initiative of South Africa ASO Analogue Switch Off BBBEE Broad Based Black Economic Empowerment CSI Corporate Social Investment CWU Communication Workers Union DIFR Disabling Incident Frequency Rate DTH Direct to Home DSO Digital Switch On DTT Digital Terrestrial Television EIA Environmental Impact Assessment FIFA Fédération Internationale de Football Association FM Frequency Modulation FSP Frequency Spectrum Plan I-ECNS Individual – electronic communications network service I-ECS Individual – electronic communications service ICASA Independent Communications Authority of South Africa IGRF Inter Governmental Relations Forum IBC International Broadcasting Centre ITU International Telecommunications Union JIPSA Joint Initiative on Priority Skills Acquisition MW Medium Wave NKP National Key Point NWBN National Wholesale Broadband Network PDI Previously Disadvantaged Individuals PFMA Public Finance Management Act SAARF South African Advertising Research Foundation SABC South African Broadcasting Corporation SCFP Sentech Complementary Frequency Plan SFN Single Frequency Network STG Standby Generator STL Studio to Transmitter Link STP Sender Technology Park VAS Value Added Service VSAT Very Small Aperdure Terminal WCS World Cup Soccer Annual Report 2009/10 Notes 140
Notes Annual Report 2009/10 141 Notes Annual Report 2009/10 Notes 142 Registered offce Contact Information Augusta House Fourways Golf Park Roos Street Fourways 2055
Postal address Private Bag X06 Honeydew 2040 South Africa
Corporate Communications 011 691 7256
Company Secretary 011 691 7103
www.sentech.co.za
Auditors KPMG Inc Director: M Rattigan Crescent 85 Empire Road Parktown 2193