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SENTECH SOC LTD Corporate Plan MTEF 2018 - 2021 SENTECH SOC LTD Corporate Plan MTEF 2018 - 2021 i

ABBREVIATIONS

ASO Analogue Switch-Off

ATV Analogue Television

B-BBEE Broad-Based Black Economic Empowerment

Board Accounting Authority

BSD Broadcasting Signal Distribution

BTR Business Television and Radio

BTV Business Television

CEO ChiefExecutiveOfficer

CFO ChiefFinancialOfficer

COO ChiefOperationsOfficer

CPI Consumer Price Index

CRM Customer Relations Management

CSI Corporate Social Investment

CSS Customer Satisfaction Survey

CWU Communication Workers Union

DAB Digital Audio Broadcast

DoC Department of Communications

DR Disaster Recovery

DRM Digital Radio Mondial

DTH-S Direct-to-Home Satellite

DTPS Department of Telecommunications and Postal Services

DTT Digital Terrestrial Television

E&M Entertainment and Media

ECA Electronic Communications Act, No. 36 of 2005

ECNS Electronic Communications Network Services

ECS Electronic Communications Services

EE Employment Equity

ESD Enterprise Supplier Development

EXCO Executive Committee

FM Frequency Modulation

FTA Free-To-Air

FY Financial Year

GDP Gross Domestic Product

HbbTV Hybrid broadcast broadband TV

ICASA Independent Communications Authority of South Africa (Regulatory Authority)

ICT Information and Communication Technology

I-ECNS Individual Electronic Communications Network Services

I-ECS Individual Electronic Communications Services

IoT Internet of Things

SENTECH SOC LTD Corporate Plan MTEF 2018 - 2021 SENTECH SOC LTD Corporate Plan MTEF 2018 - 2021ii

IPTV Internet Protocol Television

IMT International Mobile Telecommunications

ITU International Telecommunications Union

KPI Key Performance Indicator

Minister Executive Authority, Minister of Telecommunications and Postal Services

MUX Multiplex

MDDA Media Development and Diversity Agency

MHZ Megahertz

MOI Memorandum of Incorporation

MTEF Medium Term Expenditure Framework

MTSF Medium Term Strategic Framework

MW Medium Wave

NAB National Association of Broadcasters

NDP National Development Plan

NPAT NetProfitAfterTax

OTT Over the Top

PFMA Public Finance Management Act, No. 1 of 1999

PPCTPS Parliamentary Portfolio Committee on Telecommunications and Postal Services

RDS Radio Data System

SA South Africa

SABC South African Broadcasting Corporation

SADIBA South African Digital Broadcasters Association

SD StandardDefinition/SkillsDevelopment

SED Socio-Economic Development

SEED Social Enterprise & Economic Development

SENTECH Act SENTECH Act, Act No. 63 of 1996

SKA Square Kilometre Array

SLA Service Level Agreement

SMME Small, Medium and Micro Enterprise

SOC State Owned Company

STL Studio-to-Transmitter Link

SW Shortwave

TR Treasury Regulation

TV Television

TVET’s Technical and Vocational Education Training

VOD Video-on-Demand

VSAT Very Small Aperture Terminal

VR Visual Reality

WIP Work in progress

WOAN Wireless Open Access Network

SENTECH SOC LTD Corporate Plan MTEF 2018 - 2021 SENTECH SOC LTD Corporate Plan MTEF 2018 - 2021 1

TABLE OF CONTENTS

ABBREVIATIONS AND DEFINITIONS i

1. FOREWORD BY THE BOARD CHAIRPERSON 4

2. OVERVIEW BY THE CHIEF EXECUTIVE OFFICER 5

3. ORGANISATIONAL IDENTITY, MANDATE AND STRUCTURE 6

4. PERFORMANCE REVIEW 10

5. MARKET OUTLOOK: MTEF 2018–2021 17

6. CORPORATE STRATEGY 25

7. STRATEGIC PRIORITIES 35

8. KEY PERFORMANCE AREAS 37

9. FINANCIAL PLAN 42

ANNEXURE A: GOVERNANCE STRUCTURES 49

ANNEXURE B: RISK MANAGEMENT PLAN 83

ANNEXURE C: FRAUD PREVENTION PLAN 60

ANNEXURE D: MATERIALITY AND SIGNIFICANCE FRAMEWORK 63

LIST OF TABLES

Table1:ExecutiveTeamProfile 8

Table 2: Coverage and Service Expansion 13

Table 3: Product Performance Review (2011-2017) 14

Table 4: Employment Equity Status to 31 October 2017 15

Table 5: Training Spend 16

Table 6: Implementation of B-BBEE Initiatives 30

Table 7: Strategic Focus Areas and Outcomes 36

Table 8: Shareholder Strategic Goals and Objectives 38

Table 9: SENTECH MTEF 2018–2021 Key Performance Indicators 39

Table 10: 2018–2019 Annual Performance Targets 41

Table 11: Detailed Statement of Comprehensive Income 44

Table 12: Statement of Financial Position 47

Table 13: Cash Flow Statement 47

Table 14: Capital Expenditure Budget 48

SENTECH SOC LTD Corporate Plan MTEF 2018 - 20212

LIST OF FIGURES

Figure 1: SENTECH Organogram 9

Figure 2: Network Performance per Service Platform 11

Figure 3: DTT Coverage 12

Figure 4: Revenue Trends (2011-2017) 14

Figure 5: Product Performance Review (2011-2017) 14

Figure 6: Media Categories and Channels 19

Figure 7: Global Media Industry by Market Size 20

Figure 8: Global Media Industry by Market Size by Region 21

Figure 9: Online Content Internet Market Size 21

Figure 10: Video Market Size 22

Figure 11: Audio Market Size 22

Figure 12: Southern Africa1 Total Entertainment and Media Market – Market Size2 23

Figure 13: Media Industry by Country – Estimated Market Size1 24

Figure 14: SENTECH’s 7 Strategic Pillars 26

Figure 15: SENTECH Growth Opportunities 27

Figure 16: The SENTECH Way 29

Figure 17: SENTECH Business Model 31

Figure 18: SENTECH’s Financial Projections (2019-2021) 43

Figure 19: Framework for Fraud and Corruption Response 62


Introduction

SENTECH SOC LTD Corporate Plan MTEF 2018 - 2021 SENTECH SOC LTD Corporate Plan MTEF 2018 - 20214

1. FOREWORD BY THE BOARD CHAIRPERSON

SENTECH herewith presents the Corporate Plan for the MTEF period 2018–2021 to the Executive Authority and the Portfolio Committee on Telecommunications and Postal Services (PCTPS). This submission is made in terms of the Money Bills Amendment Procedure and Related Matters Act of 2009; section 52 of the Public Finance Management Act (PFMA); and Treasury Regulation 29.

SENTECH is a State-Owned Company (SOC), operating in the Broadcasting Signal Distribution (BSD) and Telecommunications sector. Under the ECA, SENTECH is licensed to provide Electronic Communications Network Services (ECNS) and Electronic Communications Services (ECS).

As one of the primary enablers of government interventions in the Information and Communication Technology (ICT) sector, SENTECH’s business strategy is informed by and aligned with the Medium Term Strategic Framework (MTSF) objectives, the Strategic Goals of the Department of Telecommunications and Postal Services (DTPS) for the 2018-2021 MTEF, as well as the Company’s strategic objectives as adopted by the Board from time to time.

In the past MTEF period, the Board committed SENTECH to Seven Strategic Pillars, namely, growth, customer focus, innovation, culture change, transformation, efficiency and reputation. These Seven Strategic Pillarscontinue to be the compass and provide focus and discipline in executing our corporate strategy. Our growth journey continues, and this has translated in SENTECH setting the context to be responsive to its customers’ preferences to view and experience television, radio and digital content everywhere, anyhow and anytime.

SENTECH will continue to pursue strategic partnerships, acquire complementary businesses and assets which are in line with SENTECH’s core business, and explore and pursue opportunities on the African continent guided by the PFMA and National Treasury regulations.

The Board believes that this Corporate Plan will build on the foundation that SENTECH has laid in the last financial year andwill facilitateefforts toenableour customers to reach their audiences anywhere throughinnovation. SENTECH will continue increasing efforts to place an even greater emphasis on innovation, customer satisfaction, stakeholder and regulatory management.

The current state of economic decline has presented challenges for some of our community broadcasters who have not been able to realise advertising revenues, which has a direct impact on our business revenues. Similarly,SENTECH’smajorcustomerthatisexperiencingfinancialdifficultiesisastrainontheorganisation’srevenues and the situation is being monitored closely by the Board.

TheCompanybelievesthatcorporateorganisationalhealthisdefinedbyemployeesatisfaction,efficientandeffectiveadministration,competentoperations,strongfinancialmanagementandhealthycustomerandserviceprovider relationships. SENTECH will fully embody these aspirations and will continue to build towards this nascent healthy state.

In conclusion, the Board looks forward to delivering on the commitments made in this Corporate Plan which will contribute towards fulfilling the strategic objectives of the Company and support the Department ofTelecommunications and Postal Services in aligning with the government’s MTSF objectives.

M MelloChairpersonSENTECH SOC LIMITED


2. OVERVIEW BY THE CHIEF EXECUTIVE OFFICER

The Corporate Plan 2018–2021 has been prepared to provide the roadmap to achieve the strategic goals and objectives of the Company. The preparation of the Corporate Plan was informed by the following:

• The Shareholder’s strategic goals and objectives for the MTEF;

• The Company’s mandate, vision, mission, strategic goals and values;

• An external environmental analysis, in particular the global, continental and national broadcasting, media and ICT contexts; as well as the policy and regulatory environment including the National Development Plan (NDP), the National Integrated ICT Policy White Paper, and the National Broadband Policy which definestheparametersforSAConnect;and

• The outcome of the Executive Committee (EXCO) and Board engagements, including the strategic sessions held during the year.

South Africa’s National Broadband Policy, 2013 is considered an important policy instrument that presents opportunities for SENTECH through participating in the SA Connect Project. The Company’s strategic project is the digital migration national project which will unlock the much-needed spectrum that will enable delivery of mobile broadband to all citizens. Wireless Open Access Network (WOAN), as articulated in the ICT Policy White Paper and subsequent Electronic Communications Act (ECA) Amendment Bill presents yet another opportunity for SENTECH to play a meaningful role in the ICT space. SENTECH, therefore, plans to play an active role in the WOAN in support of government policy and towards expanding its business objectives. The SA Connect Project remains the focal point of our broadband strategy to deliver internet connectivity to public sector entities.

The Company remains committed to its vision of being “a global enabler of broadcasting and digital content delivery” and its mission “to enable our customers to reach their audiences anywhere through innovation.” This reflectsthegrowthpaththeorganisationispursuingduringtheMTEF.TheCompanyremainscommittedtoitsSevenStrategicPillars:growth,customerfocus,innovation,culturechange,transformation,efficiencyandreputation, and to translating this into tangible results.

To achieve the vision and mission for the MTEF period 2018–2021, the Company will pursue a growth strategy with a focus on customer orientation which is at the heart of everything we do. In addition to pursuing business sustainability, the Company will execute acquisitive and partnership strategies to broaden our market penetration and thus increase revenues. Furthermore, the Company is poised to deliver innovative products into the market to diversify its product portfolio and meet our customers’ expectations. The Company will also strengthen its brand awareness and stakeholder relations so as to become both an employer of choice and a leading enabler of broadcasting and digital content delivery in Africa.

This Corporate Plan is a roadmap towards realising the SENTECH of the future – the SENTECH that will strengthen its core (strategic actions that will allow the existing business to reach its full potential) and position for the future (strategic actions that respond to emerging threats and that capture developing opportunities). The SENTECHEXCOand staffwill pursue the defined annual performanceplanswith zeal anddeliver onthe results through focusing on strategy execution. In conclusion, I thank the Board of SENTECH for robust oversightandsupport indefiningthedirectionoftheorganisation.Also,weputrelianceonouremployeeswhom I thank for their commitment to deliver on our strategic goals.

M BooiChiefExecutiveOfficerSENTECH SOC LIMITED


Organisational Identity, Mandate

and Structure

SENTECH SOC LTD Corporate Plan MTEF 2018 - 2021 7

3. ORGANISATIONAL IDENTITY, MANDATE AND STRUCTURE

3.1 VisionA global enabler of broadcasting and digital content delivery.

3.2 MissionTo enable our customers to reach their audiences anywhere through innovation.

3.3 ValuesIntegrity: We act ethically, with honesty, fairness and openness;

Quality Customer Service: We are committed to proactively ensuring high levels of customer satisfaction and building a relationship based on trust;

Innovation: We endeavour to develop and support creativity and responsible risk-taking;

Accountability: We deliver on our promises and take responsibility for our actions;

Social Responsibility: Weendeavourtofulfillourmandateinamannerthatbenefitsouremployees,customers,suppliers, communities and the environment in all the areas that the Company operates in.

3.4 Legislative FrameworkSENTECH’s legislative foundation is the SENTECH Amendment Act, No. 4 of 1999 and it is incorporated as a State-Owned Company in terms of the Companies Act, No. 71 of 2008. The PFMA and National Treasury Regulations published in terms thereof, serve as the Authority for the organisation’s financial reportingrequirements. Policies have been implemented to ensure that there is compliance with all relevant legislation. The organisation is further guided by the principles embodied in the King IV Report on Corporate Governance for South Africa and the Protocol on Corporate Governance in the Public Sector, 2002.

3.5 MandateSENTECH derives its mandate from legislation, particularly the SENTECH Act and the Electronic Communications’ Act. In 1992, SENTECH was corporatised as a wholly owned subsidiary of the South African Broadcasting Corporation. In 1996, SENTECH Act No. 63 of 1996 was amended, converting SENTECH into a separate public entity responsible for providing broadcasting signal distribution services as a common carrier to licensed television and radio broadcasters.

In 2002, following the deregulation of the telecommunications sector, SENTECH was granted two additional licenses, allowing the Company to provide international voice-based telecommunications and multimedia services. These licenses were converted into an Individual Electronic Communications Network Services (I-ECNS) and an Individual Electronic Communications Services (I-ECS), licensed in terms of the ECA.

3.6 Shareholder Strategic GoalsIn preparing this Corporate Plan, SENTECH is further guided by the Shareholder’s MTSF Strategic Goals for this planning period, which are:

• Strategic Goal 1: Broadband connectivity that provides secure and affordable access for all citizens to education, health and other government services and stimulates economic development.

• Strategic Goal 2: South Africa has a modern, sustainable and competitive postal and telecommunications sector.

• Strategic Goal 3: An Inclusive Information Society and Knowledge Economy driven through a comprehensive e-Strategy and access to government services.

• Strategic Goal 4: Optimally functional Department and SOCs that effectively deliver on their respective mandates.


3.7 Corporate GoalsSENTECH’s Corporate Goals for the MTEF period are the following:

• Sustainable business growth.

• Achieve high levels of customer satisfaction.

• Build digital capabilities and enhance connectivity.

To achieve the above strategic goals SENTECH will focus on the following:

• Acquisition of complementary companies and assets.

• Wireless Open Access Network (WOAN) equity ownership.

• Build broadband wireless for business-to-business (B2B) focusing on public sector with targeted technologies including high capacity microwave links and VSAT Services.

• Innovation and research.

• Build STLs using TVWS frequencies

• Launching OTT service.

3.8 Executive ManagementThe composition of SENTECH’s executive management team is as follows:

Name Date Appointed Position Highest Qualification

Mr M Booi 15 October 2015ChiefExecutiveOfficerandExecutive Director

MSc (Electrical Engineering)

Mr S Mthethwa 1 December 2016ChiefFinancialOfficerandExecutive Director

CA (SA)

Mr TJ Leshope 1 March 2018ChiefOperationsOfficerandExecutive Director

B.Tech (Electrical Engineering)

Mr D Ngwenya 1 June 2016 ChiefTechnologyOfficer MSc (Electrical Engineering)

Mr I Segaloe 1 May 2016 ChiefStrategyOfficer MBA (Strategy & Finance)

Mr ON Nekhavhambe

3 February 2014 Executive: Finance CA (SA)

Ms M Kgari 12 June 2017Chief Marketing & Sales Officer

Master of Business Leadership (MBL)

Mr Z Adams 7 August 1995Executive: Legal & Regulatory

BProc

Ms K Motlhabi 15 August 2016Chief Human Resources Officer

BCom (Hons) Industrial Psychology

Ms F Sefara 1 August 2014 Company Secretary LLM (Master in Laws)

Mr M Finnis 1 March 2018Executive: Operations (Acting)

Masters of Business Leadership (MBL)

Table 1: Executive Team Profile


3.9 Organisational StructureFigure 1: SENTECH Organogram


Performance Review


4. PERFORMANCE REVIEW

The performance review covers the Mid-Term Expenditure Framework (MTEF) period up to 2017. The review entails operations review which includes implementation of public service mandate, network management and disaster recovery, DTT commercialisation and analogue switch-off, coverage and service expansion. Furthermore,financial,product,corporategovernanceandhumancapitalreviewsaredone.

4.1 Public Service Mandate Implementation Review4.1.1 Radio, Television and Internet ConnectivitySENTECH fulfils its public servicemandate by ensuring that citizens of South Africa have access to radio,television and other ICT services through its national network. The Company achieved 99.94% service network availability during the past MTEF across all platforms. Figure 2 below shows the network performance per service platform for the 2015-2017 MTEF period.

Figure 2: Network Performance per Service Platform

During the past MTEF period, SENTECH steadily sustained service availability across Frequency Modulation (FM),TelevisionandDirect-to-Home(DTH)andasignificantimprovementintheperformanceofbothMediumWave (MW) and Short Wave (SW) due to technology refreshes and enhanced service management, however, Connectivity Services, which in this case refers to Very Small Aperture Terminal (VSAT) communications, has experienced challenges during the 2016 Financial Year (FY), however, the service platform was also replaced, resulting in improved services during the 2017 FY.

SENTECH remains committed to deliver service continuity with the required quality level through innovation. Thisentailsinvestmentintechnologyrefreshandenhancedcapabilitiestoefficientlymanageserviceplatformsand improvecustomerexperienceswithmodern technology solutions.Thebenefitof the improvedservicelevel between the 2016 FY and 2017 FY is a direct result of technology refresh investments made in prior years.

4.1.2 Network Management and Disaster RecoveryThe organisation invested in the procurement of a network management system that has the capabilities to holistically monitor the Digital Terrestrial Television (DTT) network and other platforms. This enhanced capability allows for service performance management on a single integrated management platform. The platform optimisations continue to ensure full utilisations on the faultmanagement, configuration and performancemanagementapproach.Thisallowsforefficientuseofresources,accuratereporting,accuratebilling,securemonitoring, transparency and improved fault management.

To further improve service availability, SENTECH has operationalised its remote disaster recovery centre at the


NASREC facilities to ensure business continuity in case of a catastrophic event at its Honeydew facilities.

4.1.3 DTT Commercialisation and Analogue Switch-Off (ASO)To align with the 2006 International Telecommunications Union (ITU) Treaty and the global Digital Terrestrial Television (DTT) migration process, SENTECH deployed a digital television network across the country. This process enabled South Africa to commence with ASO during the past MTEF and a total of 32 sites have been switched on, entailing 18 Free-To-Air (FTA) and 14 Mnet sites.

In alignment with the ASO plan, it is envisaged that the remainder of the sites will be fully migrated to DTT during this MTEF period. SENTECH will continue to maximise DTT service availability throughout the migration process. Figure 3 below shows DTT coverage in green and the Burgersfort work in progress (WIP) in purple.

Figure 3: DTT Coverage

4.1.4 Coverage and Service ExpansionService deprivation and access to preferred language remain a challenge for the South African media industry. During the past MTEF, SENTECH enhanced the network for community, public and commercial broadcasters on Terrestrial and Satellite platforms. These projects resulted in improved service coverage. This includes the coverage expansion of existing public and community broadcasters and the establishment of new community broadcasters, as outlined in Table 2 below.


Table 2: Coverage and Service Expansion

Service Province Town Before Expansion Post Expansion Coverage

ImprovementIkhuthani FM Mpumalanga Kwaggafontein - 698 938 698 938

Inakekelo FM Mpumalanga Kwaggafontein - 307 642 307 642

Western Cape FM

Western Cape Cape Town - 188 708 188 708

Vhembe FM Limpopo Thohoyandou - 405 379 405 379

Bushveld Limpopo Thabazimbi - 8 470 8 470

Bojanala FM North-West Mogwase - 69 316 69 316

True FM Eastern Cape Ngqeleni 2 283 627 2 586 618 302 991

Thobela FM Limpopo Tshamavudzi 15 871 721 15 877 074 5 353

Ukhozi FM Eastern Cape ElandsHeights/Umtata

23 353 194 24 346 778 993 584

Umhlobo Wenene FM

Eastern Cape Elands Heights 28 792 441 28 860 230 68 789

East Coast Radio

KZN Ulundi - 703 452 703 452

Beat FM Free State Bloemfontein - 665 344 665 344

Rhythm FM Eastern Cape Umtata - 512 280 512 280

Rhythm FM Eastern Cape Butterworth - 337 789 337 789

Capricorn FM Limpopo Ga-Mabula - 63 246 63 246

Total Coverage Improvement 4 706 825

4.2 Financial Performance Review4.2.1 Profitability AnalysisThe revenue performance for the year was acceptable given the tough economic conditions experienced duringthepastfewfinancialyears.The2017turnoverincreasedmarginallyonprioryearby5%toR1.23billiondue to growth in FM Radio, Satellite and Connectivity services. This growth came mainly from the expansion of services platforms and activation of new customers.


Figure 4: Revenue Trends (2011-2017)

Figure 4 above indicates that business operations achieved above the 10% target increase Earnings Before Tax andInterest(EBIT)margin,butEBIThastakenabigknockoverthe2017yearwhereithitsignificantlylowerthatthe target. The main reason for the drop was the increase in employee costs, preventative maintenance, satellite rentalandtheincreaseintheprovisionfordoubtfuldebts.SENTECHhadtofillsomeofthecriticalvacanciestoposition the Company for growth, and strengthen some of the areas which are important for the improvement oftheoverallefficiencyoftheorganisation.

Overall,theCompanyreportedanetprofitofR104million,whichwasboostedbytheinterestincomeofR64millionfromsurpluscashfundsinvested.Therewasadeliberateefforttopreservecashthroughoutthefinancialyear. This was achieved by reprioritising capital expenditure; and executing only the most critical projects. The Companycontinuedtogeneratepositivecashflows fromoperations in2017,despite thepressuresalreadymentionedabove,andclosedtheyearwithacashbalanceofR907million.Thesignificantdropincashgeneratedfrom operations in 2018 FY forecast is mainly due to one major customer and some community broadcasting customers that have not been able to pay for the services provided.

4.2.2 Product Performance ReviewThetablebelowindicatesthattheTVandRadiobusinesseshavebeengrowingatasteadyinflationaryrate.TheDTHandfacilityleasingbusinessesshowedsignificantgrowthfollowingnewrevenuestreamsachievedbetween2011and2017.

Table 3: Product Performance Review (2011-2017)

2014 2015 2016 2017 2018TV 6.9% 6.7% (2.3%) 3.6% 8.4%

FM 7.9% 9.1% 20.6% 9.7% 6.8%

MW 16.5% 5.5% 14.% 4.0% 28.0%

SW (16.7%) 24.5% 14.2% (11.2%) 9.9%

DTH 25.7% 76.1% 35.7% 8.9% (6.3%)

Facility Rentals 16.1% 16.0% 10.1% 10.7% 8.1%

VSAT (44.9%) (20.8%) (40.3%) 12.2% (1.1%)


The product performance overview shows DTH performance increased in 2015, even though subsequent performance shows reduced growth with a marginal increase in 2017, and SW revenue continued to decline due to technology obsolescence and decreasing service demand. VSAT Connectivity has been in the decline and showed a positive increase in 2017. Facilities rentals has shown steady revenue growth over the period. Duringthe2018/19financialyear,SENTECHwillcontinuetomonitoritsproductandserviceperformanceandintroduce enhancements to the existing portfolio to ensure business sustainability into the future, with particular focus on SW and connectivity services.

4.3 Corporate Governance ReviewSENTECHhasseenadefiniteimprovementincorporategovernancewithintheCompanysincethe2010/11financialyear.ThepracticeofsoundgovernanceinformsSENTECH’sdailybusinessactivitiesandisaprerequisitefor the achievement of the Company’s objectives. Governance assures our stakeholders that SENTECH is well managed and operating with integrity and accountability. Towards this end, SENTECH ascribes to the King IV Report on Corporate Governance for South Africa, 2016 (King IV). SENTECH is focused on creating sustainable value that positively impacts our business, our people and society, and our environment.

SENTECH is committed to instil a culture of ethics throughout the Company and to proactively identify fraud and corruption, and risks impacting on its performance objectives.

IrregularexpenditurehasbeenreducedfromR84,4millionin2010/11toR3,805millionin2016/17.Thenumberofreportablefindings intheauditreporthasreducedfrom15 in2010/11tonil inthe2014/15,2015/16and2016/17financialyears.Forthepastfivefinancialyears,SENTECHhasreceivedanunqualifiedfinancialauditopinionandtherewerenoreportablefindingswithrespecttoachievementofpredeterminedobjectives,compliancewithlegislationandthe effectiveness of the internal control environment.

4.4 Human Capital ReviewAttractingtoptalentremainedakeystrategicfocusareaduringthepreviousMTEFperiod.Thus,significantprogress was made in appointing the right talent with the right capabilities to drive strategy implementation for the organisation.

An Employment Equity (EE) and Skills Development Committee was successfully established to facilitate the appointment of equity candidates to the organisation, in line with the set EE targets. The EE status as at 31 October2017isreflectedinTable3below.

Table 4: Employment Equity Status to 31 October 2017

Occupational Levels

Male FemaleTotal

African Coloured Indian White African Coloured Indian WhiteTop Management

7 0 1 0 3 0 0 0 11

Senior Management

8 1 1 2 7 0 0 0 19

Professionally qualifiedandexperienced specialists and mid-management

46 5 2 22 23 2 1 5 106


Occupational Levels

Male FemaleTotal

African Coloured Indian White African Coloured Indian WhiteSkilled technical & academically qualifiedworkers, junior management, supervisors foremen and superintendents

122 12 10 46 108 3 3 6 310

Semi-skilled & discretionary decision-making

21 1 0 0 21 5 2 4 54

Unskilled &defineddecision-making

39 7 0 0 3 0 0 0 49

Total Permanent 243 26 14 70 165 10 6 15 549

FortheMTEFperiod2017/18,UniversityCollaborationofR1,5mtoeachof thethree institutionsamountedto R4,5m and brings the Socio-Economic Development spend to R13,880m. This is 61.7% of the 6% of payroll targetofwhich95.5%isEEspend.TheWorkplaceSkillsPlan(WSP)for2017/18includes1751plannedcoursesfor the current year of which 85% is the minimum delivery target.

Table 5: Training Spend

Training AmountStaff training R4 060 904.28

Research and bursary support R4,5m for University collaborationNeed to invest a total of R2 272 167.00,Investment costs afforded is R1m

Internships R290 442.99 this year on the tail of the last group of interns

Total R8 560 904.28

SENTECH continues to strive for zero fatalities and injuries in the workplace by promoting a culture of employee wellness and safety. The number of injuries on duty reported was within the total recordable incident rate limit of 1% at an annual average of 0.0397%.

Duringthe2016/17financialyear,SENTECHembarkedonanorganisational-wideculturechangejourney,whichinvolves engaging, socialising and workshops with all levels of staff. This remains a priority for SENTECH, as a shared culture is an enabler for the organisation to achieve its overall objectives.

SENTECH has a long history with the Communication Workers Union (CWU), due to its unionised workforce. Thequalityofrelationshipswiththeunionhasvariedovertimeand,inrecentyears,hassignificantlyimproved,albeit with some tensions that have arisen recently following the breakdown in salary negotiation. However, the Executive team and the CWU national leadership have committed to working together for the good of the Company and its employees. A healthy relationship and partnership between management, employees and the CWU is crucial for the achievement of SENTECH’s strategic objectives.


Market Outlook: MTEF

2018–2021


5. MARKET OUTLOOK: MTEF 2018–2021

The market outlook provides the context in which the corporate strategy and plan was developed. It includes an analysis on policy and regulatory framework affecting the organisation. An analysis is also provided on the global broadcasting trends, online content and the Southern African market context.

5.1 Policy and Regulatory Framework5.1.1 700MHz and 800MHz BandThe 700MHz and 800MHz band (694-790MHz and 790-862MHz), also known as Digital Dividend II and I respectively, has been the most contested band since WRC-12. The band is currently used by broadcasters for terrestrial television broadcasting services.

ThebandhasbeenidentifiedforInternationalMobileTelecommunications(IMT)applicationsforbothcoverageand capacity purposes. Africa, as a region, is striving to agree on harmonised channel plans for 700, 800, 850 and 900 MHz bands with the envisioned outcome of economies of scale, reduced network implementation costs and interoperability to enable ease of regional roaming.

This framework will ease the introduction of IMT services in the bands 700 and 800 MHZ, with minimum negative impact on existing services.

5.1.2 Community BroadcastersCommunity broadcasters (both visual and audio) continue to face funding and governance challenges resulting in sustainability challenges. The issues of community broadcasters were addressed by the Department of Communications (DoC) and Independent Communications Authority of South Africa (ICASA), in separate but linked processes. These challenges impact on the ability for community broadcasters to pay for transmission costs to SENTECH. This effectively affects the ability of the organisation to continue providing the services without receiving payment. The matter is being dealt with by the DoC and the MDDA.

5.1.3 Review of the Broadcasting FrameworkThe process of developing broadcasting framework and the introduction of terrestrial digital sound broadcasting policy are underway. It is expected that the policy on the broadcasting framework will address the following subjects, inter alia:

• Redefiningbroadcasting;

• Spectrum licencing for broadcasting services;

• Redefininglicencingcategories;

• Digital sound broadcasting (DSB);

• Redefiningcommunitybroadcasting.

The need to introduce Digital Audio Broadcast (DAB+) and/or equivalent technologies by broadcastersalso speaks to ensuring continued sustainability of the “traditional” yet evolving broadcasting industry. The introduction of digital radio policy will assist the radio industry growth that is currently challenged by spectrum congestion, particularly in high metros.

5.1.4 Electronic Communications Amendment BillThe DTPS has published the ECA amendment Bill (“Bill”) to consider and legislate the proposals set out in the ICT integrated Policy White Paper. Amongst principal proposed changes are the following:

• Wireless Open Access Network (WOAN)

• Licensing framework for the WOAN

• Radio frequency spectrum trading and sharing

• Minister’s oversight role in implementing the WOAN


• Establishment of a National Radio Frequency Spectrum Planning Committee within the DTPS

• The designation of licensees to whom universal service and access obligations are applicable

• The prescription of empowerment conditions in terms of the ICASA Act, etc. The Bill does not address the subject of broadcasting, except the reference to co-ordination of broadcasting spectrum issues between DoC and DTPS.

The Bill, in combination with the rationalisation process, community broadcasting funding strategy and the proposals expected in the draft policy on broadcasting issues, will have major impact on the current format of SENTECH.

With virtual reality (VR) expanding to more devices, SENTECH seeks the opportunity to participate in the convergence of network for ubiquitous coverage. The combination of VR and personalised content offering is one of the many next best viewer experience concepts that is going to revolutionise content consumption.The significance of the synergy between telecommunications and broadcasting frameworks will determineSENTECH’s relevance and subsequently the Company’s aptitude to survive. The journey to a purposeful digital transformation process is empowered by futuristic and certain telecommunications and broadcasting regulatory frameworks.

5.1.5 ObligationsSENTECH is in discussions with ICASA on the proposed amendment of Company’s universal service and access license obligations (“draft obligations”). The draft obligations propose that SENTECH should provide an e-Learning Solution Platform to all Technical and Vocational Education and Training colleges (TVETs) nationally. The discussions are premised on the scope of the project and the affordability of the draft obligations.

5.1.6 Global Broadcasting ContextThe following outlines developments in the global broadcasting environment that were taken into consideration as part of a market analysis. Five media categories and channels were reviewed, three of which are directly relevant to SENTECH.

Figure 5: Media Categories and Channels

Source: PwC Global Entertainment and Media Outlook 2015-19


5.2.1 Global Media Industry – Market sizeThe global media industry is expected to grow but will experience decreasing growth rates due to large developed regions (Europe, USA, etc.) reaching saturation point. The corresponding growth in smaller developing markets isinsufficienttocoverthegap.Furtherpressurewilloriginatefromthedeclineinadvertisingexpenditureasadvertisingcustomersincreasinglyseektomakeefficientuseoftheiradvertisingspendbyfocusingonfewerplatforms that have a wide reach and lower price points.

Digital revenue growth will be driven by increased internet penetration from the proliferation of wireless internet services at increasingly reduced prices. Product innovation within the digital space will continue to fuel the demand for internet services e.g. Streaming services; e-Sports; Virtual reality; etc.

Video will maintain its market share mainly due to continued usage by the older generation and emergence of smart TVs that allow for both traditional and digital TV consumption. It is also the medium of choice in regions that do not have a strong internet connection as is the case in many developing countries.

Figure 6: Global Media Industry – Market Size1 (2011-2019, USD Billion)


5.2.2 Global media industry – Market size by regionTheglobaltrendsholdfirmlyonaregionallevelwithmostofthemediamarketgrowthseeninAsiaPacificandLatin America. Market growth will be characterised by cannibalisation of audio, print and TV share by digital content revenue. Decrease in the Europe and Middle East Africa (EMEA) market share is largely driven by the saturation within Europe and Middle East which cannot be compensated for, by expected growth within Africa.


Figure 7: Global Media Industry – Market Size by Region (2011-2019, USD Billion)


5.2.3 Online Content – Internet Market SizeFigure 8: Online Content – Internet market size (2011-2019, USD Billion)

Source: PwC Global Entertainment and Media Outlook 2015-19The digital market share is driven primarily by the growth in the internet market as this forms the backbone of digital content distribution. Mobile internet is the largest segment and has the highest growth potential, driven primarily by the surge in smartphone penetration. The increase in internet adoption rates will fuel increasing content consumption on internet. Advertising revenue growth will ease as advertisers follow the crowd and optimise spend.


Within the video market, TV is split between FTA and Pay-TV and remains the largest segment. TV series and movies stand out as the most popular genres representing nearly half of the total viewing time. However, the industry is shifting from linear TV towards non-linear digital viewing. Video on Demand and Pay-per-view under Pay-TV, are the fastest growing sub-segments and expected to grow at ~15% with Video on Demand representing every third hour spent watching TV. Growth in the cinema segment will be primarily driven by local filmsalthoughHollywoodwillcontinuetodominatethemarket.

Figure 9: Video Market Size (2011-2019, USD Billion)


Consumer preference is shifting towards streamed on-demand video due to:

• Increased internet penetration

• Rise of over-the-top content providers

• Emergence of connected screens e.g. Smart TV

• ‘Binge’ watching phenomenon – viewing of multiple episodes in one sitting

• Need to control TV line-up due to lifestyle trends that limit traditional TV time

• Increase in user generated content.

Figure 10: Audio Market Size (2011-2019, USD Billion)



Within the audio market, live music will be the highest growth segment due to the extension and expansion of tours as global income rises. Recorded music’s decline is due primarily to the rise of competing streaming services with lower price points whilst radio revenue will be driven mainly by digital.

5.2.4 Market Context – AfricaLocally, Africa exceeds the average growth rates in all areas, even in traditional media where growth rates are stagnating. Africa holds considerable untapped potential in media across all categories, however, the potential differs by country. Traditional media continues stable growth but is under threat from digital. Over the top distribution is on the rise due to improved internet infrastructure, smartphone penetration and entrance of new playerse.g.NetflixandShowMax.

5.2.5 Market Context – Southern AfricaDespite different macroeconomic conditions compared to the rest of the world, the Southern African media market is expected to undergo the same trends as those seen globally. The largest markets in this grouping include South Africa, Nigeria and Kenya.

Figure 11: Southern Africa1 total Entertainment and Media Market – Market Size2 (2012-2019, USD Million)


5.2.6 Media industry by country – Estimated market sizeOn a country level, the trends remain consistent. Although still better than other African countries in terms of market size, South Africa’s growth is restricted by decreased Gross Domestic Product (GDP) performance. Digital has anchored itself in the market due to an established middle class, healthy competitive environment that improves quality and price points, together with solid internet infrastructure. South Africa’s over-the-top revenues are expected to increase at a faster rate than those of the whole continent. Video is still relevant but under threat as connected screens move users more towards the digital space.

Due to population size and internet penetration, expectations were that Nigeria’s media market would rival thatofSouthAfrica,however,Nigerialagsduetoinsufficientinternetcoverageandspeedofservicetosupportmeaningful internet video revenue. Pay-TV consumption comprises mainly of low-priced bouquets and digital stems from internet access for communication purposes largely – video consumption is still limited. Despite all this, Nigeria is expected to have the largest growth of the three countries due to expected increased media consumption.

Improved internet access in Kenya is driven mainly by smartphone usage which is supported by developed internet infrastructure. The digital market has attracted new players such as iFlix from Malaysia. The growth in digital has revived the news sector as access to digital newspaper applications has increased viewership.


Figure 12: Media Industry by Country – Estimated Market Size1 (2011-2019, USD billion)


5.2.7 Opportunities and challenges for SENTECH• Revenuediversificationinthedigitalmediamarket

• Upskilling of employees on digital skills and new technologies are required to address the rapidly changing consumer needs

• The development of innovative products and services relevant to both existing and new customer

• The increase in competition presents an opportunity for SENTECH to leverage its position as an established digital content distributor within Africa.


Corporate Strategy


6. CORPORATE STRATEGY

SENTECH has developed a corporate strategy that responds to challenges and the changing market conditions asdiscussedinsection5above.ToaddressthesechallengesSENTECHwilladopta‘enhanceandfly’approachtocreatea‘SENTECHofthefuture’.‘Enhance’denotesallactivitiesrequiredtostrengthenthecorewhilst‘fly’refers to all activities required to position the organisation for the future.

SENTECH’s traditional core business has been broadcasting signal distribution in South Africa which contributes 94% of gross revenue through TV and Radio. The 5% comes from Facilities leasing whilst remaining 1% from connectivity services through VSAT.

To strengthen the core for SENTECH means defending the market share within the traditional media distribution through innovation and leveraging on existing businesses. However, to position for the future would mean expansion on the broadband market because as pointed earlier, large value potential exists if connectivity portfolio is expanded. SENTECH will thus develop and implement a Broadband Strategy that will position SENTECHinthefixedwirelessbroadbandmarkettobecomegovernment’spreferredlastmileprovider.

The“enhanceandfly”approachaddressesbothSENTECH’schallengesasitacceleratesandenhancesbothvalue delivery and capability development. This is the most sustainable route for transformation given limited capabilities,itwillbedifficulttosupportapure‘fly’approach.Theorganisationwillbecomeimpatientwithapure ‘enhance’ approach as this will take time to materialise.

6.1 Seven Strategic PillarsThe corporate strategy is aimed at ensuring sustainable business growth. The strategy considers the need for revenue growth in the context of technology disruptions, the future of broadcasting, changing consumer behaviour and socio-economic transformation imperatives.

SENTECH’s corporate strategy hinges on the Seven Strategic Pillars as shown below, namely, growth, innovation, customerfocus,culturechange,efficiency,transformationandreputation.

Figure 13: SENTECH’s 7 Strategic Pillars


STRATEGIC PILLAR 1: GROWTHGrowing our revenue is critical to ensuring the sustainability of our business. This will be achieved by implementing the following:

• Leverage our existing businesses. SENTECH aims to leverage existing television, radio, infrastructure and connectivity businesses. This includes DTT commercialisation, value-added services (OTT) and digital radio (Digital Audio Broadcast [DAB+], Digital Radio Mondiale [DRM], Hybrid Radio and Streaming (OTT), advert monitoring and syndication, Radio Data System [RDS]). The current facilities leasing business is consolidated under Managed Infrastructure Services to include 3rd Party facility management, facilities leasing and managed network infrastructure services. Connectivity solutions will include wireless broadband and Internet of Things (IoT).

• Expand to Pan-African markets. SENTECH will expand its business to selected African countries to provide broadcasting services such as DTT solutions, project management and consultancy services.

• Acquire new businesses and assets. Growth through acquisitions of complementary businesses and assets will be pursued in the next three years. This will be done to diversify revenues by seeking opportunities that will accelerate revenue growth. The acquisition strategy considers the strength of SENTECH’s balancesheet,optimalcapitalstructure(debt/equity),riskappetite,fundingmodels,duediligenceandacquisitions required in terms of the PFMA.

• Form strategic partnerships for opportunities. Building strong partnerships is key to growing SENTECH’s business for mutual benefit, risk mitigation and synergies. These partnerships will be formed forimplementation of specific projects, products and innovation, and for entry into the Pan-African andinternational markets.

• Deploy wireless broadband. SENTECH will build and deploy broadband wireless for B2B focusing on public sector with targeted technologies such as High Capacity Microwave links and VSAT services.

Insupportoftheabovegrowthstrategies,theorganisationhasidentifiedthefollowinggrowthoptions:

Figure 14: SENTECH growth options

SENTECH needs to explore both organic and inorganic growth options which will require:

Growthofcurrentproduct/serviceofferings

• Increase market share within each product offering

• Review pricing structure to become more competitive

• Explore new markets for existing products


New product offerings

• Review and understand market requirements

• Identify new products

• Sell to new and existing markets

Adjacencyacquisitions/partnerships

• Identify acquisitions and partnerships

• Investment opportunities.

STRATEGIC PILLAR 2: INNOVATIONAs a technology company, SENTECH is positioning itself to lead innovation in broadcasting and digital solutions. The Company has been lagging in this area, however, innovation is now a strategic area of focus given the disruptive nature of the technology industry and global trends. The following will be executed:

• Design new solutions for current and potential customers. The Customers Satisfaction Survey indicated the need to bring new solutions for customers. Some of the proposed solutions include hybrid radio and streaming, advert monitoring and data analytics, Hybrid DTT, satellite and OTT.

• Implement a research programme. The research programme will focus on Cloud, OTT and DTT value add, receiver technology, new business models and business cases and IoT. Research will be done in partnershipwith reputable industrialand technology research institutes.Thiswill include identificationand formation of strategic partnerships to drive innovation.

STRATEGIC PILLAR 3: CUSTOMER FOCUSCustomer orientation and focus will remain the key strategic thrust and will be achieved by attaining the following:

• Operating and maintaining a reliable network. A reliable and available network is core to SENTECH’s business. Maintaining an average weighted available network of 99.80% over the years has been the Company’s key success and it will continue to deliver for all its TV, FM, MW, SW and DTH products.

• Respond promptly to customer queries. By ensuring customer relationship management (CRM) is in place to register customer queries and maintain the Service Level Agreement (SLA), a speedy response to customer needs will be ensured.

• Charge competitive tariffs. SENTECH will ensure a competitive pricing model for its product offering.

• Exceed customer expectations. Customers see SENTECH as a technology company. By being more innovative and living up to its brand promise, customer expectations can be exceeded.

STRATEGIC PILLAR 4: CULTURE CHANGECore to achieving the strategic objectives and implementing the strategy is the need for a shared culture for SENTECH. As part of creating a culture that promotes accountability, cross collaboration, leadership excellence and innovation, SENTECH has implemented ‘The SENTECH Way’ that is shared and understood by all employees. The SENTECH Way encapsulates the behaviours that enable strategy focus and execution throughout the organisation. Figure 15 below depicts The SENTECH Way.


Figure 15: The SENTECH Way

Sources: Adapted from various culture models i.e. (Shingo Institute, Vadin Kotelnikov and Bersin)

STRATEGIC PILLAR 5: TRANSFORMATIONThe socio-economic transformation strategy is aimed at redressing the triple challenges of unemployment, poverty and inequality. Focus will be on executing the following:

• Support for ICT Small, Medium and Micro Enterprises (SMMEs). Through the Enterprise and Supplier Development Programme, the Company will ensure compliance with ICT codes by providing both financialandnon-financialsupporttoqualifyingSMMEsintheICTsector.Thesupportwillbeintheformofpreferentialprocurement,actualNetProfitAfterTax (NPAT) spendonenterprisedevelopmentandfinancialgrants.

• Implement B-BBEE initiatives. The Amended ICT Sector Codes require SENTECH’s compliance and a high-level score on four elements, namely, Management and Control, Skills Development (SD), Enterprise Supplier Development (ESD) and Socio-Economic Development (SED). SENTECH plans to improve its current Broad-Based Black Economic Empowerment (B-BBEE) Level Four and the following will be put in place to ensure implementation of B-BBEE initiatives to increase SENTECH B-BBEE scoring:

B-BBEE Elements InitiativesManagement and Control Recruiting more black females at Executive and senior management

Skills Development (SD) Training to focus more on core ICT skillsProvide training for unemployed black peopleRetaining most of the interns

Enterprise Supplier Development (ESD)

Increase preferential procurement for black owned ICT SMMEsIncrease preferential procurement for black female owned ICT SMMEsActual NPAT spend of at least 2% for supplier developmentActual NPAT spend of at least 3% for enterprise development

Socio-Economic Development (SED)

Actual NPAT of at least 1.5% on socio-economic development programmesSupport Maths and Science Programme

Table 6: Implementation of B-BBEE Initiatives


• Partner to support socio-economic initiatives and corporate social investment (CSI). SENTECH will continue living its values of social responsibility and being a good corporate citizen by supporting CSI initiatives and collaborating with relevant stakeholders. Initiatives such as Mandela Day, SENTECH’s Chairman’s Charity Fund Raising Golf Day, and others that make a difference in the lives of underprivileged groups and individuals, will be implemented in partnership and with minimal cost to the Company. SENTECH’s role will be to mobilise resources and volunteers to give their time and energy in support of such good causes.

STRATEGIC PILLAR 6: EFFICIENCYEfficiencyasastrategicinitiativeisaimedatstreamliningprocessesandsystemstoincreaseproductivity,cutinefficienciesandimproveprofitability.Thefollowingwillcomprisetheefficiencydrive:

• Drive down the cost of doing business. Guided by National Treasury’s Cost Containment directives and internal measures, SENTECH will ensure that its cost of doing business decreases. By improving efficiencies,andbettercontractmanagementandpricenegotiationwithsuppliers,keycostdriverssuchas employee, satellite, operations and cost of sales costs will be minimised.

• Automate processes.AlmosthalfofSENTECH’sprocessesstillneedtobeautomated.Inthepastfinancialyear, completion of the System Application and Products (SAP) Phase 2 upgrade, including modules such as Customer Relationship Management (CRM), Supply Chain Management (SCM) were implemented to improveefficienciesandresponsetimes.

• Reduce the use of paper and energy. SENTECHaims for apaperlessanddigitisedoffice, aswell asenergyefficiency,toreduceitscarbonfootprintontheenvironment.EnergyisoneofSENTECH’sbiggestoperational costs and can be reduced through the implementation of alternative energy sources.

STRATEGIC PILLAR 7: REPUTATIONThe way in which SENTECH conducts its business is affected by and affects a range of stakeholders. Reputation management is a key strategic imperative that is central to the Company’s sustainability. To ensure good reputation and stakeholder management, the Company will embark on the following:

• Influencing public policy. SENTECH will continue to participate in ICT and broadcasting public policy and regulatory discussions through various fora and submissions. The Company will position itself as a thought leader in public discourse that affects its industry.

• Continuous stakeholder engagement. Stakeholder engagement has become central to how business is done at SENTECH. Through the implementation of the stakeholder management strategy, engagement will continue with stakeholders such as the Shareholder, regulators, employees, organised labour, customers, suppliers, government and agencies, public, media and social partners.

• Position the brand. The SENTECH brand will be positioned in the minds of stakeholders, nationally and on the continent, as a leading, innovative, agile, caring, transforming, employer of choice and a successful enabler of broadcasting and digital content. The SENTECH brand will be visible and likeable. Investment will be made in understanding our stakeholder perceptions, building the brand through various brand initiatives, including public relations, promotions, website and social media.

• Applying the best corporate governance practices. SENTECH will apply the governance principles espoused in King IV in creating value for the shareholder.

6.2 Business ModelThe Board has reviewed the SENTECH Business Model to ensure that the Company is prepared for the converged digital communications ecosystem. The current business model, which puts more emphasis on across-the-board research, development and innovation, has products and services focused in three categories, namely, Content and Multimedia Services, Infrastructure Management Services and Connectivity Services as shown below in Figure 16.


Figure 16: SENTECH Business Model

6.2.1 Content and Multimedia ServicesContent and multimedia services cover broadcasting signal distribution services, including business television delivered via satellite. There are other value-added services that form part of this service, such as OTT, broadcast monitoring and syndication and Hybrid Broadcasting (e.g. HbbTV and Hybrid Radio), which according to the SENTECH Product Development Blueprint are in the development stage, to be followed by beta testing before going to market.

Terrestrial Television

Analogue Television (ATV) signal distribution remains the major revenue contributor for SENTECH. The service revenueprojection for theMTEF considers implementationofDTT andwill remain linked to inflation tariffincreases. Since the announcement of the performance period by the DoC Minister, the Square Kilometre Array (SKA) in the Northern Cape has been fully digitised through the implementation of the ASO Regional Plan, which will continue during the performance period. The future sustainability of SENTECH is intricately linked to the successful launch and mass household uptake of the FTA commercial DTT service. To assist broadcasters with their migration requirements, SENTECH has developed an ASO tariff model that has components of both analogue and digital tariffs and will be implemented in line with the Regional ASO Plan.

Growth of DTT is anticipated based on the licensing of additional broadcasters on the third Multiplex (MUX 3). SENTECH will leverage its existing capabilities to enable licensed future DTT customers to reach market quicker. Potential broadcasters will be engaged on this multiplexer to enable the completion of the network build programme in accordance with the licensing conditions.

Business Radio and TV

SENTECH’s business television and radio services currently operates in a linear environment. The evolution of the product will create a multi-platform environment, where business communications services, at store level, are available on multiple devices for consumers to interact with their retailer of choice. Services on offer will be traditional satellite broadcasting, push VOD, live streaming and Internet Protocol Television (IPTV). Engagements with existing Business Television (BTV) and Business Television and Radio (BTR) customers will take place in the 2018/19financialyearforpotentialmigrationtoadigitalmediaservicesplatform.

Direct-to-Home (DTH)

Content Platform Applications

It is envisaged that the future growth of the DTH market will be driven by multi-channel bouquet operators. SENTECH will continue to provide an open access and interoperable DTH platform, with a focus on super programme aggregators. This approach will see SENTECH provide an array of services along the broadcasting value chain ranging from, but not limited to, up-linking, multiplexing, encoding and transcoding to playout.


Business Applications

SENTECH will continue to explore the enhancement of the BTV offering with solutions such as digital signage beyondlinearDTH.Thiswillprovidebusinesseswithflexibilityregardingtheirin-storeorin-campusadvertisingand communication.

Audio-Visual OTT/On-Demand Services

SENTECH recognises a growing trend for partnerships between platform providers, broadcasters, media companies and network operators in providing OTT services. As such, SENTECH has an objective of offering the OTT service as a value added service to broadcasters and customers. SENTECH will continue to explore how best to support players in enabling them to provide services such as catch-up, streaming and video-on-demand,andwillworktoassistbroadcastersandotherplayerstofulfilthegrowingdemandfromconsumers.

Audio-Visual Value-Added Services

Hybrid broadcasting and smart TV platforms are proving to be a good opportunity for broadcasters to provide additional engagement for consumers. In 2015, Digital UK and Freeview co-developed and launched Freeview Play, which is a Hybrid broadcast broadband TV (HbbTV) service. HbbTV and SmartTV platforms allow broadcasters to offer applications such as catch-up TV and streaming video, as well as radio.

Hybrid radio presents broadcasters with an opportunity to keep the audience more engaged and offer more interactivity,withservicessuchasvotingsongsupordowninpopularity,coverart,theabilitytofindoutmoreabout what is playing and seamless switching between the broadcast signal, e.g. FM and internet streaming where there is poor to no coverage.

SENTECH will continue to develop and implement hybrid broadcasting platforms and support technologies to enable broadcasters to exploit the opportunities introduced by these platforms.

Broadcast Monitoring and Syndication Value-Added Services

The broadcast monitoring platform will enable a broadcaster to track on air advertisements (ads) automatically for competitive analysis, ads verification, validate ad placement or regulatory purposes. It will also allowbroadcasters to archive content monitored, analyse what content brings the highest number of viewers/listeners, monitor broadcast quality and ensure ad duration is accuracy.

Broadcasting syndication platform will enable authorised broadcasters to broadcast television or radio programmes bymultiple television/radio stations without going through a broadcast network. The threemain types ofsyndicationarefirst-runsyndication,whereaprogrammeisbroadcastforthefirsttimeasasyndicatedshowandismadespecificallytoselldirectlyintosyndication.TheOff-networksyndicationwhereaprogrammethatoriginally aired on a network is licensed for broadcast on another network. The Public broadcasting syndication is where competing broadcasters share resources and rebroadcast each other’s programmes.

FM Radio

SENTECH will continue to optimise the FM radio network to improve availability to guarantee advertising revenue for broadcasters and quality of service for listeners. SENTECH operates a network comprising 285 transmitter sites to provide FM radio signal distribution services to the public and commercial and community broadcasters, using a radio frequency spectrum between 88 MHz and 108 MHz. This transmitter network supports 18 public radio services, 20 commercial radio services and 123 community radio services.

SENTECH is committed to increasing accessibility to community broadcasters by continuing with provincial workshops with the participation of key stakeholders including ICASA, the Media Development and Diversity Agency (MDDA), the DTPS and the DoC.

Given the moratorium on community sound broadcast licensing, SENTECH anticipates fewer community broadcastersbeinglicensedinthe2018/19financialyear,however,SENTECHiscommittedandremainsreadytoenable broadcasters as they are licensed, to increase universal access. The viability of community broadcasters, however, remains a challenge that affects the organisation’s business as a provider of signal distribution services. Several engagements have been held with stakeholders such as the DoC and MDDA to identify appropriate solutions and models for the struggling community broadcasters’ market.


Furthermore, SENTECH will continue to engage the commercial broadcasters, licensed in secondary markets, with the objective of rolling out their networks as soon as they are ready. SENTECH will also continue to offer network optimisation solutions to existing commercial broadcasters. This will allow broadcasters to determine appropriate, differentiated service levels in line with their business objectives. Enhancements that will allow multiple-platform access to broadcast content will be offered to customers.

For the public broadcaster (SABC), SENTECH intends to roll out the remaining radio services through the FM and Language Expansion Project, in line with the public broadcaster’s strategic objectives. FM expansion aims to diversify radio language services across all provinces. Network access redundancy options will also be offered to the public broadcaster. SENTECH, together with the public broadcaster, intends to analysis of the transmitter sites infrastructure and equipment with the aim of developing SLAs per site which might result in sites upgrades in line with the public broadcaster’s strategy.

Value-added services, such as distributed dynamic RDS and internet audio streaming platform services, broadcast monitoring and syndication will be developed over the MTEF period and the rollout of Digital Audio Broadcasting (DAB+), once commercially available (after ASO), will offer further opportunities for growth.

SENTECH will work closely with industry partners to review other emerging digital technologies and assess feasibility to deliver digital services within the existing FM spectrum capacity.

DAB+

SENTECH, in conjunction with the National Association of Broadcasters (NAB) and the South African Digital Broadcasters Association (SADIBA), successfully completed a technology trial of DAB+ transmission in Gauteng in November 2015.

We believe DAB+ to be a key growth area for the radio business, as it unlocks numerous opportunities for new and existing broadcasters. It is envisaged that DAB+ will exist alongside analogue FM radio for the next 10 to 15 years.

MW Radio

MW radio broadcasting signal distribution services are provided over eight transmitter sites, using the radio frequency spectrum 535,5 kHz–1606,5 kHz. This transmitter network supports two public broadcaster radio services,twocommercialradioservicesandfivecommunityradioservices.

Growth projections for MW are informed by the commercial MW licenses issued by ICASA and the on-boarding of a self-providing commercial MW broadcaster. Further growth is dependent on the evolution of MW from analoguetodigitalstandardDRMMW.Digitalradiobroadcastingwillserveasaspectrum-efficient,highqualityoptionforbroadcasting.SENTECHcompletedaDRMMWtrialforRadioPulpit,usingalow-profileantennathatshowcases the technology.

SW Radio

SENTECH’s mandate is to provide universal access to electronic communication services and electronic communications network services. In addition to delivering on this mandate, it is the aim of SENTECH to remain commercially sustainable, however, this has proven to be a challenge in respect of the SW radio product, which has continuously generated a loss due to high maintenance costs and low uptake of the service. The Board has approved the digital evolution of SW which will see the phase out of the analogue SW platform. The commercialisation of DRM aims to address the high support and maintenance costs associated with the current analogue SW platform.

6.2.2 Managed Infrastructure ServicesMost of SENTECH’s customers own a network of some sort. With its vast experience in managing different types of networks, from broadcasting to telecommunications, SENTECH has built up a strong capability in network design, deployment, operation and maintenance. These skills and technical capabilities are the ideal foundation from which to offer network infrastructure management services to other network owners. The facilities leasing


and managed services offerings are collectively referred to as Managed Infrastructure Services.

Facilities Leasing

SENTECH operates approximately 330 terrestrial signal distribution sites and a satellite platform to provide signal distribution services for television and radio. Site-sharing facilities are provided to public and private telecommunications service providers for various communication services on more than 147 of SENTECH’s transmitter high sites to capitalise on the infrastructure investment.

The high-sites are situated at different locations with different heights, to satisfy customer coverage needs throughout South Africa. The network infrastructure is continually operated and maintained to ensure reliability and availability of services and long-term operations continuity.

NASREC Data Centre

SENTECH provides its customers with In-building Equipment Hosting and Storage at NASREC – one of its main sites.AspartoftheFacilitiesManagementNetworkGrowthandDiversificationStrategy,hostingofin-buildingequipment and storage services will be offered to customers.

Managed Infrastructure Services

SENTECH aims to combine its skills, resources and services into an Infrastructure Management Services offering. The initial phase will focus on municipalities where they will be able to contract SENTECH to manage their external infrastructure, and on-sell any available capacity for customers’ terrestrial sites. This will allow customers to focus on their core business, whilst relying on a world-class network operator to manage their communication needs.

The Infrastructure Management Company for Municipalities will include various capabilities, such as conducting due-diligence to establish customer assets and liabilities and evaluate commercial potential, maintenance and support of the infrastructure and equipment, manage and sell facilities leasing of the sites as well as develop a businessandfinancialmodelframeworkonbehalfofthecustomers

Consultancy Services

Due to the experience accrued by SENTECH from years of running BSD services, the Company has decided to commercialise this expertise by providing knowledge-based services, focusing on planning and implementation of broadcast services. This is particularly relevant in terms of the Company’s strategy to expand business to the rest of the African continent.

6.3 Connectivity Services

SENTECHhaspositioneditselftoplayasignificantrole intheimplementationofSAConnectandservicinggovernment in wireless broadband services. The organisation will be involved in wireless broadband services in supportoftheSOC-nominatedbeneficiariesthatwillleadthebroadbandrollout.

Fixed Wireless Broadband

To deliver speed in internet connectivity.

VSAT

For remote and rapid deployment, we provide connectivity through the VSAT system.


Strategic Priorities


7. STRATEGIC PRIORITIES

7.1 SustainabilitySENTECHwillcontinuewiththeimplementationofthe‘SixCapitals’asdefinedintheCompany’sSustainabilityPlan. Emphasis will be placed on business expansion and new product innovation to ensure financialsustainability. Transformation as a social capital, will also receive greater attention to advance social and economic transformation of society.

As part of our growth strategy, the organisation will continue implementing its Pan African strategy to identify new markets. In addition, the organisation will pursue strategic partnerships and acquisitions to realise product diversification.

7.2 Build digital skills and capabilitiesThe organisation will pursue innovative ways to meet its customers’ expectations and this entails building digital skills and capabilities. For SENTECH to be part of the digital convergence and innovative solutions delivery, the organisation will invest in its human capital and capabilities to enable its workforce to drive innovation.

To achieve this, the organisationwill conduct a skills audit for the identification of skills gapwhichwill besupported by planned training interventions with the focus on digital skills. An employee value proposition will be developed to foster a work environment conducive to attracting and retaining best talent.

7.3 Enhance connectivity servicesIn the past MTEF, the organisation played a leading role in the development of the South African-based Pan-African satellite business case in support of broadband initiatives.

Asanorganisation,SENTECHispoisedtoplayasignificantroleintherolloutoftheSAConnectprojectandtodeploywirelessbroadbandservicesinfulfillingitsmandate.Theorganisationhasinvestedinseveralrefreshtechnologies to enhance the performance levels of its connectivity services to service its existing and future clients.

The following summarizes the strategic focus area in which SENTECH will track progress in the implementation of its Corporate Strategy:

Strategic focus area Outcome1. Inorganic growth through acquisitions and

strategic partnerships• Business acquisitions

• Strategic partnerships formed and contributing to revenue

2. Build Wireless Broadband business • Internal broadband capabilities built

• Marketentryintofixedwirelessbroadband

• Increase revenue and customers from Connectivity services

3. Research and Innovation • OTT service launched

• Build STLs using TVWS

• Technology exploration

• Explore starting new innovative ventures.

Table 7: Strategic Focus Areas and Outcomes


Key Performance Areas


8. KEY PERFORMANCE AREAS

The Board has adopted a set of strategic objectives for the 2018–2021 MTEF planning period that will ensure that the Company achieves its public service mandate objectives, which are aligned with Shareholder priorities, andwillensurefinancialsustainability.

8.1 Alignment with Shareholder Priorities

SENTECH has ensured alignment of its business operations with the Shareholder Strategic Goals and Objectives for 2018–2021 planning period set out in Table 6 below:

Shareholder Strategic Goals and Objectives – MTSF 2018-2021SENTECH Strategic Plan AlignmentStrategic Goals Strategic Objectives

SG 1: Broadband connectivity that provides secure and affordable access for all citizens to education, health and other government services and stimulates socio-economic development.

SO, 1.1 Co-ordinate Broadband connectivity to achieve 100% population reach.

SENTECHtoplayasignificantrole in supporting Broadband initiatives including Internet for All.

SG 2: South Africa has a modern, sustainable and competitive postal and telecommunications sector.

SO, 2.1: Develop and implement ICT policy and legislation aimed at improving access to and affordability of ICTs.

SO, 2.2: Advance South Africa’s National ICT interests in regional and international forums towards attaining partnerships for economic growth and development.

SENTECH will ensure assess and affordable services of its products and services

SENTECH strategy, amongst others, is to forge strategic partnerships and pursue international expansion especially in the Pan-African region. SENTECH has developed a Pan-African Strategy and will collaborate with the DTPS’ International branch to implement the strategy.

SG 3: An inclusive Information Society and Knowledge Economy driven through a comprehensive e-Strategy and access to government services.

SO, 3.1: Develop a national e-Strategy that will give priority to e-Government Services.

SENTECH will actively engage and participate with the DTPS in the development and implementation of the e-StrategySENTECH will use its infrastructure to support its obligations in relation to the National e-Strategy.

SG 4: Optimally functional Department and SOCs that effectively delivery on their respective mandates.

SO, 4.1: Improve performance of SOCs through proactive and stringent oversightSO, 4.2: Create a high performing organisation to enable achievement of the Department’s mandate.

Ensure that SENTECH has the appropriate corporate governance structures and policies to enable effective shareholder oversight.

Table 8: Shareholder Strategic Goals and Objectives


8.2

Key P

erfo

rman

ce In

dica

tors

Stra

tegi

c Goa

lsSt

rate

gic O

bjec

tives

KPI

Perfo

rman

ce Ta

rget

s

18/1

9 FY

19/2

0 FY

20/2

1 FY

SG 1

: Sus

tain

able

B

usin

ess

Gro

wth

Incr

ease

sal

es re

venu

eRe

venu

e g

row

th b

y 8–

10%

an

nual

lyR1

,290

mill

ion

R1,3

54 m

illio

nR1

,422

mill

ion

Incr

ease

Ear

ning

s B

efo

re

Tax

and

Inte

rest

(EB

IT)

Earn

ing

s b

efo

re in

tere

st

and

tax

(EB

IT)

R12

5 m

illio

nR1

32 m

illio

nR1

39 m

illio

n

Co

ntrib

ute

to s

oci

o-

eco

nom

ic tr

ansf

orm

atio

n Fi

ve p

erce

nt (5

%) s

pen

d

of a

lloca

ted

bud

get

on

Ente

rpris

e an

d S

upp

lier

Dev

elo

pm

ent (

ESD

), N

PAT

spen

d 1

.5%

on

Soci

o-

Eco

nom

ic D

evel

op

men

t,an

d S

kills

Dev

elo

pm

ent

wag

e ex

pen

ditu

re (3

%)

Allo

cate

d b

udg

et s

pen

d

of 5

.5%

ESD

and

NPA

T sp

end

of 2

% o

n SE

Dan

d 3

.5%

Exp

end

iture

on

Skill

s D

evel

op

men

t

Allo

cate

d b

udg

et s

pen

d

of 6

% E

SD a

nd N

PAT

spen

d o

f 2.5

% o

n SE

D

and

4%

Exp

end

iture

on

Skill

s D

evel

op

men

t

Allo

cate

d b

udg

et s

pen

d

of 6

.5%

ESD

and

3%

NPA

T sp

end

on

SED

and

4.5

%

Exp

end

iture

on

Skill

s D

evel

op

men

t

Ach

ieve

cle

an a

udit

Cle

an a

udit

achi

eved

Cle

an a

udit

achi

eved

Cle

an a

udit

achi

eved

Cle

an a

udit

achi

eved

SG 2

: Ach

ieve

hig

h le

vels

o

f cus

tom

er s

atis

fact

ion

Ensu

re n

etw

ork

ava

ilab

ility

m

eets

SLA

req

uire

men

ts

acro

ss a

ll p

latf

orm

s

Wei

ght

ed a

vera

ge

avai

lab

ility

bas

ed o

n p

rod

uct r

even

ues

Wei

ght

ed a

vera

ge

avai

lab

ility

bas

ed o

n p

rod

uct r

even

ues

of

99.8

0%

Wei

ght

ed a

vera

ge

avai

lab

ility

bas

ed o

n p

rod

uct

reve

nues

of

99.8

0%

Wei

ght

ed a

vera

ge

avai

lab

ility

bas

ed o

n p

rod

uct

reve

nues

of

99.8

0%

Enha

nced

cus

tom

ero

rient

atio

nC

usto

mer

sat

isfa

ctio

n le

vel o

f 80%

Ach

ieve

80%

cus

tom

er

satis

fact

ion

leve

lM

aint

ain

80%

cus

tom

er

satis

fact

ion

leve

lM

aint

ain

80%

cus

tom

er

satis

fact

ion

leve

l

SG 3

: Bui

ld d

igita

l ca

pab

ilitie

s an

d e

nhan

ce

conn

ectiv

ity

Enha

nce

Hum

an C

apita

l D

evel

op

men

t85

% o

f pla

nned

trai

ning

in

terv

entio

ns o

n d

igita

l sk

ills

imp

lem

ente

d

85%

of p

lann

ed tr

aini

ng

inte

rven

tions

on

dig

ital

skill

s im

ple

men

ted

90%

of p

lann

ed t

rain

ing

in

terv

entio

ns o

n d

igita

l sk

ills

imp

lem

ente

d

95%

of p

lann

ed t

rain

ing

in

terv

entio

ns o

n d

igita

l sk

ills

imp

lem

ente

d

Enha

nce

inno

vatio

nTw

o d

igita

l pro

duc

ts

dev

elo

ped

(Fix

ed W

irele

ss

and

OTT

pla

tfo

rm)

Two

dig

ital p

rod

ucts

d

evel

op

edTw

o d

igita

l pro

duc

ts

dev

elo

ped

Two

dig

ital p

rod

ucts

d

evel

op

ed

Sup

po

rt S

A C

onn

ect

thro

ugh

del

iver

y o

f the

In

tern

et fo

r All

pro

ject

4 b

road

ban

d s

ites

conn

ecte

d in

sup

po

rt o

f in

tern

et fo

r All

4 b

road

ban

d s

ites

conn

ecte

d6

bro

adb

and

site

s co

nnec

ted

6 b

road

ban

d s

ites

conn

ecte

d

Tabl

e 9:

SEN

TECH

MTE

F 20

18–2

021

Key

Perfo

rman

ce In

dica

tors


8.3

Annu

al Pe

rform

ance

Targ

ets

Stra

tegi

c Goa

lsSt

rate

gic O

bjec

tives

KPIs

Annu

al Ta

rget

Perfo

rman

ce Ta

rget

s*

Qua

rter 1

April

201

8 to

Ju

ne 2

018

Qua

rter 2

July

2018

to

Sept

embe

r 201

8

Qua

rter 3

O

ctob

er 2

018

to

Dece

mbe

r 201

8

Qua

rter 4

Janu

ary 2

019

to

Mar

ch 2

019

SG 1

: Su

stai

nab

le

bus

ines

s g

row

th

Incr

ease

sal

es

reve

nue

Incr

ease

sal

es

reve

nue

gro

wth

by

8–10

% a

nnua

lly

R1,

290

mill

ion

R 31

5 m

illio

nR

637

mill

ion

(Cum

ulat

ive)

R 96

4 m

illio

n(C

umul

ativ

e)R

1290

mill

ion

(Cum

ulat

ive)

Incr

ease

Ear

ning

s B

efo

re T

ax a

nd

Inte

rest

(EB

IT)

Incr

ease

Ear

ning

s B

efo

re T

ax a

nd

Inte

rest

(EB

IT)

R125

mill

ion

R12

5 m

illio

nR3

7 m

illio

nR8

1 m

illio

n(C

umul

ativ

e)R

110

mill

ion

(Cum

ulat

ive)

R 12

5 m

illio

n(C

umul

ativ

e)

Co

ntrib

utio

n to

so

cio

-eco

nom

ic

tran

sfo

rmat

ion

Five

per

cent

(5

%) s

pen

d o

f al

loca

ted

bud

get

o

n E

nter

pris

e an

d S

upp

lier

Dev

elo

pm

ent

(ESD

), N

PAT

spen

d 1

.5%

on

Soci

o-E

cono

mic

D

evel

op

men

t, an

d

Skill

s D

evel

op

men

t w

age

exp

end

iture

(3

%)

Five

per

cent

(5

%) s

pen

d o

f al

loca

ted

bud

get

o

n En

terp

rise

and

Sup

plie

r D

evel

op

men

t (E

SD),

NPA

T sp

end

of 1

.5%

on

Soci

o-E

cono

mic

D

evel

op

men

t, an

d S

kills

D

evel

op

men

t w

age

exp

end

iture

(3

%)

Soci

o-E

cono

mic

an

d E

nter

pris

e D

evel

op

men

t (S

EED

) pro

gra

mm

e im

ple

men

tatio

n p

lan

app

rove

d

by

EXC

O a

nd

imp

lem

enta

tion

star

ted

Ach

ieve

30%

of

allo

cate

d b

udg

et

on

ESD

and

40%

sp

end

of (

1.5%

) fo

r SE

D a

nd 4

0%

wag

e ex

pen

ditu

re

(3%

) on

Skill

s d

evel

op

men

t

Ach

ieve

75%

of

allo

cate

d b

udg

et

for

ESD

, and

75%

sp

end

of (

1.5%

) fo

r SE

D a

nd 4

0%

wag

e ex

pen

ditu

re

(3%

) on

Skill

s d

evel

op

men

t

Allo

cate

d

bud

get

sp

end

on

Ente

rpris

e Su

pp

lier

Dev

elo

pm

ent

(5%

), So

cio

-Eco

nom

ic

Dev

elo

pm

ent

NPA

T o

f (1.

5%) a

nd S

kills

D

evel

op

men

t w

age

exp

end

iture

(3%

)

Ach

ieve

cle

an a

udit

Cle

an a

udit

achi

eved

Cle

an a

udit

achi

eved

No

per

form

ance

re

qui

red

No

per

form

ance

re

qui

red

Red

uctio

n o

f M

anag

emen

t Le

tter

Po

ints

by

50%

Co

mp

lete

and

issu

e In

terim

Fin

anci

alSt

atem

ents

for

the

nine

mo

nths

p

erio

d e

ndin

g 3

1 D

ecem

ber

201

8an

d s

ubm

issi

on

of

2018/19Quarter

3 B

usin

ess

Perf

orm

ance

In

form

atio

n to

the

Ex

ecut

ive

Aut

horit

y


8.3

Annu

al Pe

rform

ance

Targ

ets

Stra

tegi

c Goa

lsSt

rate

gic O

bjec

tives

KPIs

Annu

al Ta

rget

Perfo

rman

ce Ta

rget

s*

Qua

rter 1

April

201

8 to

Ju

ne 2

018

Qua

rter 2

July

2018

to

Sept

embe

r 201

8

Qua

rter 3

O

ctob

er 2

018

to

Dece

mbe

r 201

8

Qua

rter 4

Janu

ary 2

019

to

Mar

ch 2

019

SG 1

: Su

stai

nab

le

bus

ines

s g

row

th

Incr

ease

sal

es

reve

nue

Incr

ease

sal

es

reve

nue

gro

wth

by

8–10

% a

nnua

lly

R1,

290

mill

ion

R 31

5 m

illio

nR

637

mill

ion

(Cum

ulat

ive)

R 96

4 m

illio

n(C

umul

ativ

e)R

1290

mill

ion

(Cum

ulat

ive)

Incr

ease

Ear

ning

s B

efo

re T

ax a

nd

Inte

rest

(EB

IT)

Incr

ease

Ear

ning

s B

efo

re T

ax a

nd

Inte

rest

(EB

IT)

R125

mill

ion

R12

5 m

illio

nR3

7 m

illio

nR8

1 m

illio

n(C

umul

ativ

e)R

110

mill

ion

(Cum

ulat

ive)

R 12

5 m

illio

n(C

umul

ativ

e)

Co

ntrib

utio

n to

so

cio

-eco

nom

ic

tran

sfo

rmat

ion

Five

per

cent

(5

%) s

pen

d o

f al

loca

ted

bud

get

o

n E

nter

pris

e an

d S

upp

lier

Dev

elo

pm

ent

(ESD

), N

PAT

spen

d 1

.5%

on

Soci

o-E

cono

mic

D

evel

op

men

t, an

d

Skill

s D

evel

op

men

t w

age

exp

end

iture

(3

%)

Five

per

cent

(5

%) s

pen

d o

f al

loca

ted

bud

get

o

n En

terp

rise

and

Sup

plie

r D

evel

op

men

t (E

SD),

NPA

T sp

end

of 1

.5%

on

Soci

o-E

cono

mic

D

evel

op

men

t, an

d S

kills

D

evel

op

men

t w

age

exp

end

iture

(3

%)

Soci

o-E

cono

mic

an

d E

nter

pris

e D

evel

op

men

t (S

EED

) pro

gra

mm

e im

ple

men

tatio

n p

lan

app

rove

d

by

EXC

O a

nd

imp

lem

enta

tion

star

ted

Ach

ieve

30%

of

allo

cate

d b

udg

et

on

ESD

and

40%

sp

end

of (

1.5%

) fo

r SE

D a

nd 4

0%

wag

e ex

pen

ditu

re

(3%

) on

Skill

s d

evel

op

men

t

Ach

ieve

75%

of

allo

cate

d b

udg

et

for

ESD

, and

75%

sp

end

of (

1.5%

) fo

r SE

D a

nd 4

0%

wag

e ex

pen

ditu

re

(3%

) on

Skill

s d

evel

op

men

t

Allo

cate

d

bud

get

sp

end

on

Ente

rpris

e Su

pp

lier

Dev

elo

pm

ent

(5%

), So

cio

-Eco

nom

ic

Dev

elo

pm

ent

NPA

T o

f (1.

5%) a

nd S

kills

D

evel

op

men

t w

age

exp

end

iture

(3%

)

Ach

ieve

cle

an a

udit

Cle

an a

udit

achi

eved

Cle

an a

udit

achi

eved

No

per

form

ance

re

qui

red

No

per

form

ance

re

qui

red

Red

uctio

n o

f M

anag

emen

t Le

tter

Po

ints

by

50%

Co

mp

lete

and

issu

e In

terim

Fin

anci

alSt

atem

ents

for

the

nine

mo

nths

p

erio

d e

ndin

g 3

1 D

ecem

ber

201

8an

d s

ubm

issi

on

of

2018/19Quarter

3 B

usin

ess

Perf

orm

ance

In

form

atio

n to

the

Ex

ecut

ive

Aut

horit

y

Stra

tegi

c Goa

lsSt

rate

gic O

bjec

tives

KPIs

Annu

al Ta

rget

Perfo

rman

ce Ta

rget

s*

Qua

rter 1

April

201

8 to

Ju

ne 2

018

Qua

rter 2

July

2018

to

Sept

embe

r 201

8

Qua

rter 3

O

ctob

er 2

018

to

Dece

mbe

r 201

8

Qua

rter 4

Janu

ary 2

019

to

Mar

ch 2

019

SG 2

: Ach

ieve

hi

gh

leve

ls

of c

usto

mer

sa

tisfa

ctio

n

Ens

ure

netw

ork

av

aila

bili

ty m

eets

SL

A re

qui

rem

ents

ac

ross

all

pla

tfo

rms

Wei

ght

ed a

vera

ge

avai

lab

ility

bas

ed

on

pro

duc

t re

venu

es

Wei

ght

ed a

vera

ge

avai

lab

ility

bas

ed

on

pro

duc

t re

venu

es o

f 99

.80%

Wei

ght

ed a

vera

ge

avai

lab

ility

bas

ed

on

pro

duc

t re

venu

es o

f 99.

80%

Wei

ght

ed a

vera

ge

avai

lab

ility

bas

ed

on

pro

duc

t re

venu

es o

f 99.

80%

Wei

ght

ed a

vera

ge

avai

lab

ility

bas

ed

on

pro

duc

t re

venu

es o

f 99.

80%

Wei

ght

ed a

vera

ge

avai

lab

ility

bas

ed

on

pro

duc

t re

venu

es o

f 99.

80%

Enh

ance

d c

usto

mer

o

rient

atio

nC

usto

mer

sa

tisfa

ctio

n le

vel

of 8

0%

Ach

ieve

80%

cu

sto

mer

sa

tisfa

ctio

n le

vel

Cus

tom

er

Satis

fact

ion

Surv

ey

Mo

nito

ring

To

ol

Dev

elo

ped

and

A

pp

rove

d b

y EX

CO

Imp

lem

ent

40%

o

f the

co

rrec

tive

mea

sure

s

Imp

lem

ent

80%

o

f the

co

rrec

tive

mea

sure

s

Ach

ieve

cus

tom

er

satis

fact

ion

leve

ls o

f 80

% b

ased

on

the

surv

ey c

om

ple

ted

SG 3

: Bui

ld

dig

ital

cap

abili

ties

and

enh

ance

co

nnec

tivity

Enh

ance

H

uman

Cap

ital

Dev

elo

pm

ent

85%

of p

lann

ed

trai

ning

in

terv

entio

ns

on

dig

ital s

kills

im

ple

men

ted

85%

of p

lann

ed

trai

ning

in

terv

entio

ns

on

dig

ital s

kills

im

ple

men

ted

20%

of p

lann

ed

trai

ning

in

terv

entio

ns

on

dig

ital s

kills

im

ple

men

ted

45%

of p

lann

ed

trai

ning

in

terv

entio

ns

on

dig

ital s

kills

im

ple

men

ted

(c

umul

ativ

e)

63%

of p

lann

ed

trai

ning

in

terv

entio

ns

on

dig

ital s

kills

im

ple

men

ted

(cum

ulat

ive)

85%

of p

lann

ed

trai

ning

in

terv

entio

ns

on

dig

ital s

kills

im

ple

men

ted

(c

umul

ativ

e)

Enh

ance

Inno

vatio

nTw

o d

igita

l p

rod

ucts

d

evel

op

ed (F

ixed

w

irele

ss a

nd O

TT

pla

tfo

rms)

2 d

igita

l pro

duc

ts

dev

elo

ped

Bus

ines

s re

qui

rem

ents

, specificationsand

pro

duc

t pla

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Financial Plan


9. FINANCIAL PLAN

ThisfinancialplanprovidesinsightontotheinvestmentandfinancingdecisionsmadebySENTECHinbuildingafinanciallysustainablecompanywithintheframeworkoftheoverallfinancialstrategy.Significanteffortsarebeing made to streamline business processes, create an agile organisation and implement initiatives that positively drive shareholder’s value.

9.1 Executive summaryOverall,SENTECH(broadcasting)andtheentireICTsectorfacesignificantfinancialsustainabilitychallenges.This is within the context of a weak local economy that is hamstrung by the recent rating downgrades of the country by the major rating agencies to sub investment grades. The company is necessitated to embark on initiatives that will improve and preserve the available cash resources as well as scrutinize opportunities that offer growth in terms of service offering and geographical spread.

Thetablebelowprovidesahigh-levelsynopsisofthefinancialstateofthecompany,withaglaringpictureofstagnant growth in revenues from the core service offerings (television, radio and multimedia content services). ThenormalisedEBITremainsflatduetothecontinuedprioritisationofinitiativesthatarenecessarytoreadySENTECH for the digital future whilst revenues are constrained in the short term. Dual illumination is expected to continue during the MTEF period as SENTECH will be running the DTT and analogue networks simultaneously, whilst the funding allocation is not allocated for the two outer years.

The lack of dual illumination funding in the outer years will result in the shortfall for the business which will lead toatotaloperatinglossbeingreportedbythe2020/21financialyear.SENTECHhasreceiveddual-illuminationgrant funding over the years from government and will continue to engage the relevant stakeholders towards securing the necessary funding for the period that has not yet been allocated the necessary budget.

Figure 17 SENTECH’s Financial Projections (2019-2021)

The company will continuously review the impact of the economic constraints on growth opportunities, risks associated with lack of funding of dual illumination and the overall impact on the available cash and long-term financialsustainabilityofSENTECH.

9.2 Comprehensive Income StatementThetablebelowdepictsthestatementofprofitorloss.SENTECHisprojectingrevenueofR1,289billionandtotaloperatingexpenditureofR1,164billion fromcontinuingoperations for the2018/19financial year.Themovementequatestoayear-on-yearincreaseof6%and10%,whencomparedtothe2017/18forecastforbothrevenue and operating expenses, respectively.


Government has allocated R203 million in FY2019 for Dual illumination incremental costs attributable to running twoparallelnetworks.Thenon-fundingofdualilluminationintheFY2020andFY2021contributessignificantlytothemarginaldecreaseinprofitability.Governmenthasfundedmostofthedualilluminationincrementalcostsin the past and engagements are ongoing in order to deal with the shortfall.

FY2017 FY2018 FY2019 FY2020 FY2021 FY2018 vs FY2019Actual Forecast Budget Budget Budget Variance

For the year ended R’000 R’000 R’000 R’000 R’000 R’000 %

Revenue 1 142 813

1 216 780

1 289 625

1 354 107

1 421 812

72 845 6%

Cost of Sales (998 450) (977 577) (1 086 838)

(1 141 180)

(1 198 239)

109 261 11,2%

Gross Profit 144 363 239 203 202 787 212 926 223 573 (36 416) (15,2%)

Operating Expenses (118 020) (125 366) (146 280) (152 852) (160 494) 20 915 16,7%

Selling expenses (17 672) (21 943) (15 570) (16 348) (17 166) (6 373) (29,0%)

Administrative expenses (64 522) (66 302) (74 884) (78 628) (82 560) 8 582 12,9%

Dual Illumination costs 138 299 133 061 159 415 167 386 175 755 (26 354) 19,8%

Normalised Operating Profit

82 448 158 653 125 468 132 484 139 108 (33 185) (20,9%)

EBIT Margin 7,2% 13,0% 9,7% 9,8% 9,8%Dual Illumination Revenue

89 806 133 061 159 415 54 892 – (26 354) 19,8%

Dual Illumination costs (138 299) (133 061) (159 415) (167 386) (175 755) 26 354 19,8%

Dual Illumination Deficit (48 493) – – (112 494) (175 755) – –

Operating Profit 33 955 158 653 125 468 19 990 (36 647) (33 185) (20,9%)

3,0% 13,0% 9,7% 1,5% (2,6%)Finance income 64 415 60 566 24 191 19 196 15 814 (36 375) (38,7%)

Finance costs (4 207) (138) (105) (111) (116) (33) (23,7%)

Profit Before Taxation 94 163 219 081 149 553 39 076 (20 949) (69 593) (31,8%)

Taxation (9 990) (61 343) (41 875) (10 941) 5 866 (19 468) (31,7%)

Profit or (Loss) for the year

84 173 157 738 107 678 28 135 (15 084) (50 060) (31,7%)

Table 11: Detailed Statement of Comprehensive Income

9.3 Revenue

The projected 2018/19 financial year revenues are based on the analysis of the market environment andestimated earnings to be derived from growth opportunities by customers. Estimates for the 2019/20 and2020/21financialyearsarebasedontheprojected2018/19figures,increasedbytheOctober2017CPIof4,8%.

Content and Multimedia ServicesTerrestrial broadcasting services include both digital and analogue network services and are divided between televisionandradio.Overallprojectedrevenueforthisserviceforthe2018/19financialyearisR1,2billion,whichis6,3%abovethe2017/18financialyearforecastofR1,1billion.Thevarianceof6,3%ismainlyattributabletotheCPI adjustments and modest growth in new business within television services. The traditional television, radio


and digital media services remain the core competence of SENTECH and they are projected to remain stable without attractive growth in the medium term as the transformation in the industry unfolds.

Infrastructure Management ServicesThefacilityleasingrevenueprojectionforthe2018/19financialyearisR71millionwhichisconsistentwiththe2017/18forecastreflectingthelevelofsaturationinthemarketandminimumgrowthopportunities.

Connectivity ServicesThe company has invested resources in refocusing the connectivity business which has presented new opportunities for SENTECH to offer competitive offering to the market. There is no growth budgeted in this service because of the uncertainties and long lead times on business development. Revenue is budgeted at R7 millionforthe2018/19financialyear.

Operating ExpenditureExpenditure for FY2019 is projected to be R1.323m, an increase of R132m from the FY2018 forecast. In line with thecostcontainmentplan,MTEFexpendituregrowthovertheMTEFarelargelyCPIbased,exceptforspecificitems with contractual obligations. The major line items driving operating expenses are detailed below.

Personnel CostsPersonnel Costs (R432m) are for personnel remuneration; which include basic salaries, pension & medical fund contributions, housing subsidy, shift & climbing allowances and other personnel costs; such as recruitment costs, skills development levy, bursaries and courses.

Satellite CapacitySatellite capacity costs (R333m) are for transponder capacity used for distribution and linking of the current analogue and future digital terrestrial broadcasting services; and for the DTH-S open access platform service. Satellite capacity costs are projected to primarily be driven by exchange rate variations.

EnergyEnergyCosts (R140m) are in respectof electricity, diesel&oil forgenerators. In the 2018/19 financial year,costs increases were mainly driven by the electricity suppliers’ annual tariff increase as approved by the energy regulator.

DepreciationThe depreciation charge of R117 million is regarding the normal depreciation on assets in use and a provision for depreciation on new capital expenditure for product and projects expansion inclusive of provision for work-in-progress.

Preventative MaintenancePreventative maintenance costs (R32m) are to support network continuity to enable delivery of broadcasting signal distribution services. The costs are meant for rehabilitating and maintaining the network for improved network performance.

Corrective MaintenanceThe corrective maintenance costs (R46m) are to perform work necessary to address potential weakness that can impactontheorganization’soverallefficiencyandeffectivenessandinfrastructurepreservation.

Travel and SubsistenceTravel and subsistence costs (R33m) have been subjected to an internal cost containment measures in line with the National Treasury instruction.

Computer ServicesComputer services (R20m) is in respect of annual software and maintenance licences for IT servers and computer network, including other system development technical upgrades project implementation.

Professional and Consulting ChargesProfessional and consulting charges are budgeted at R51m to accommodate the initiatives necessary for long-term growth and sustainability. In addition to internal and external audit related fees, and directors’ emoluments. Funds have been budgeted to address initiatives that are aimed at improving processes through automation, development of applications, skills audit, culture change, commercialisation of new services through marketing and those that are shareholder driven (internet for all, mergers and acquisitions and continued investment in enterprise and supplier development).


Earnings before Interest and Tax (EBIT)SENTECHisbudgetingtoachieveR125millioninearningsbeforetaxfortheFY2019financialyear,resultingin a 21% (R33m) decrease on the forecasted FY2018. The projected decrease in earnings is impacted mainly byoperatingexpenditureCPIpriceincreases,theimpactofforeignexchangefluctuationsimpactonsatelliterental, energy and focused investment in maintenance.

Earnings after TaxSENTECHisbudgetingtoachieveR108millioninearningsaftertaxforthe2018/19financialyear.Theprojecteddecrease in earnings is impacted mainly by the lack of sizeable growth on the core business whilst there is a continued necessity to further invest in costs to ensure the company remains relevant in delivering quality services to customers, this is described in detail above.

9.4 Statement of Financial Position

2021 2020 2019 2018F 2017

R’000 R’000 R’000 R’000 R’000

ASSETS

Non-Current Assets

Property, Plant & Equipment 978 514 958 307 941 365 925 740 946 509

978 514 958 307 941 365 925 740 946 509

Current Assets

Inventories 46 028 54 151 58 842 75 607 80 301

Tax – – – – 18 138

Trade and other receivables 162 976 149 824 119 521 446 965 43 131

Cash and cash equivalents 966 860 1 059 022 1 170 706 758 917 907 357

1 175 864 1 262 997 1 349 069 1 281 489 1 048 927

Total Assets 2 154 378 2 221 304 2 290 434 2 207 229 1 995 436

EQUITY

Share capital 75 892 75 892 75 892 75 892 75 892

Reserves 667 868 667 868 667 868 667 868 667 868

Accumulatedprofit 1 233 015 1 299 941 1 314 125 1 206 433 1 023 712

1 976 775 2 043 701 2 057 885 1 950 193 1 767 472LIABILITIES

Non-current liabilities

EmployeeBenefits 14 735 14 735 14 735 14 735 14 060

Deferred Tax 40 577 40 577 40 577 40 577 40 577

55 312 55 312 55 312 55 312 54 637Current liabilities

Trade and other payables 118 307 118 306 118 305 118 307 132 011

Deferred income – – 54 948 78 334 10 216


2021 2020 2019 2018F 2017

R’000 R’000 R’000 R’000 R’000

Provisions 3 984 3 984 3 984 5 084 31 100

122 291 122 290 177 237 201 725 173 326Total liabilities 177 603 177 602 232 549 257 037 227 963Total Equity and Liabilities 2 154 378 2 221 304 2 290 434 2 207 229 1 995 436

Table 12: Statement of Financial Position

Notes:

• Deferred income (government grants) is depleting in line with completion of the government funded projects i.e. DTT and disaster recovery, thus clearing the cash balance; and

• Property, plant and equipment will increase during the MTEF period as part of the programme to stabilise thenetwork,andinvestmentintechnologyandinfrastructuretoimproveefficienciesandtomeetinternalrequirements.

9.5 Cash Flow StatementFY2021 FY2020 FY2019 FY2018 2017

R’000 R’000 R’000 R’000 R’000

CASH FLOW FROM OPERATING ACTIVITIES

Cash generated from operations 88 116 63 101 426 888 (313 257) 92 486

Interest received 8 706 12 427 17 743 35 487 45 310

Dividends received 7 129 6 789 6 466 12 932 19 104

Interest paid (116) (111) (105) (100) (250)

Tax Paid (45 997) (43 890) (41 880) (6 112) (23 168)

Net cash from operating activities 57 838 38 316 409 112 (271 050) 133 482CASH FLOW FROM INVESTING ACTIVITIES

Property, Plant & Equipment (216 845) (213 360) (175 393) (94 931) (274 615)

Net cash from investing activities (216 845) (213 360) (175 393) (94 931) (274 615)

CASH FLOW FROM FINANCING ACTIVITIES

GRANT received 66 845 63 360 178 070 215 789 87 719

Interest on government grant – – – 1 751 3 529

Net cash from financing activities 66 845 63 360 178 070 217 540 91 248

Total cash movement for the year (92 162) (111 684) 411 789 (148 441) (49 885)Cash at the beginning of the year 1 059 022 1 170 706 758 917 907 357 957 242

Cash at the end of the year 966 860 1 059 022 1 170 706 758 917 907 357

Table 13: Cash Flow Statement

Notes:

• The cash from operating activities is forecasted to decline in the FY2018 due to non-payment by a major customer,however,inFY2019theoperationswillrealisebettercashflowsasthiscustomercatches-upwithpayment of the outstanding debt.


9.6 Capital Expenditure PlanSENTECH operates infrastructure that offers signal distribution services to most of the country’s licensed broadcasters which include the Public Broadcaster, Commercial and Community Broadcasters. Facilities leasing is also offered to operators looking for the best geographic operations that offer broad signal coverage.

To ensure service delivery the Company maintains and expand service offerings infrastructure from resources generated from operations. The FY2019 MTEF Capital Expenditure budget is aimed at ensuring continued service offering and expending the infrastructure for any new business opportunities. The budgeted capital will depletetheavailablecashresources,withtheintentionofearningfuturecashflows.

Source of funding 2018/19 2019/20 2020/21

(R’ mil) (R’ mil) (R’ mil)

Internal funds R150,00 R150,00 R150,00

External funds R28,07 R63,36 R66,85

Total R178,07 R213,36 R216,85

Table 14: Capital Expenditure Budget

The budgeted capital expenditure has the following main objectives:

• Increasethescopeofoperationsand,thus,improvethebaseofprofitablerevenues;

• Improveinternalefficiencies;and

• Transform business capabilities.

9.7 Borrowing PlansSENTECH’sfinancialstrategyhighlights theappropriatenessofasuitablecapitalstructure that incorporatesareasonableamountofborrowing,withoutplacingasignificantburdenonthefinancialperformanceoftheCompany. The Company will put in place facilities for short-term borrowings, during the 2019 – 2021 MTEF period,incasethefinancingrequirementsgobeyondthecapacityofinternally-generatedresources.

Long-term borrowing will be considered for significant investment needs that are supported by attractivebusiness investment opportunities that are aligned to the long-term strategy of the company. In consultation with the Shareholder and National Treasury a borrowing facility and debt management plan will be developed in accordance within the guidelines and objectives for financing as prescribed by National Treasury andShareholderfinancialgovernancerulesandregulations.


ANNEXURE A: Governance Structures


ANNEXURE A: GOVERNANCE STRUCTURES

1. OverviewSENTECH has built sound corporate governance structures and processes in compliance with the SENTECH Act, the PFMA and Treasury Regulations, the Companies Act, the Memorandum of Incorporation (MOI) and the Government Protocol on Corporate Governance, which are reviewed annually in line with changes in the regulatory and business environment. These structures and processes ensure SENTECH achieves its strategic objectives. SENTECH’s corporate governance structures and processes have, by and large, been aligned with the King Report on Governance for South Africa, 2016 (King IV) , and this is an ongoing process. The governance structure is integrated with the strategy and are at the centre of everything we do.

2. OwnershipSENTECH is a public entity that is wholly owned by the Government of South Africa. In terms of the PFMA, SENTECH is classified as a Schedule 3B National Public Enterprise, reporting to the Minister ofTelecommunications and Postal Services. The Minister, who is the Shareholder Representative on behalf of the State, is SENTECH’s Executive Authority.

3. ROLE AND COMPOSITION OF THE BOARD3.1 Role of the BoardThe Board is responsible for effectively leading, controlling and managing SENTECH’s business, subject to the provisions of the SENTECH Act, the Shareholder’s Compact, the Companies Act, the PFMA and other applicable legislations. The Board is responsible for the overall leadership, transparency and performance of SENTECH.

The Board operates under an approved charter that provides a concise overview of the role, powers, functions, dutiesandresponsibilitiesofthedirectors,bothcollectivelyandindividually,andensuresthatfinancialandriskmanagement, and internal controls are effective.

The Board has determined that, based on the MOI, Shareholder’s Compact and applicable legislation, its main functions and responsibilities are to give strategic direction to the Company, in line with government’s objectives, and ensure that SENTECH remains a sustainable and viable business. The Board monitors and evaluates the implementation of the Company’s strategy and achievement of performance objectives by executive management, as set out in the Corporate Plan and Shareholder’s Compact. The Board ensures that the Company is managed effectively, in accordance with corporate governance best practice and the highest ethical standards.

3.2 Structure of the BoardIn terms of the SENTECH Amendment Act, the Board shall consist of three executive directors and at least four non-executive directors. The three executive directors are the persons performing the functions of ChiefExecutiveOfficer,ChiefOperationsOfficerandChiefFinancialOfficer.ThenonexecutivedirectorsareappointedbytheMinitser.TheMinister,onrecommendationbytheBoard,confirmtheappointmentoftheexecutive directors.

Board CommitteesThe Board has four sub-committees, namely:

Audit & Risk Committee Social & Ethics Committee

Human Resources, Nominations & RemunerationCommittee

Technology, Policy & Regulatory CoordinationCommittee

All committees have adopted charters that are reviewed annually and as and when necessary to ensure that they continue to be relevant and comply with applicable legislation, regulations and best practice on corporate governance.

The King IV philosophy, which focuses on sustainable development, integrated thinking, corporate citizenship,


stakeholder inclusivity and the Company’s role and responsibility in society, has been incorporated in the charters. An outcomes-based rather than rules-based approach has been adopted. The Board has focused on opportunity management in addition to risk management.

Audit and Risk CommitteeThe Audit and Risk Committee (ARC) is constituted in terms of sections 51(1)(a)(ii), 76 and 77 of the PFMA read together with Treasury Regulation 27 and section 94 (7) of the Companies Act. The Committee has adopted its charter, in compliance with the aforementioned, which outlines its role and responsibilities. The ARC plays an essential role in ensuring the integrity and transparency of corporate reporting, pays attention to the key accounting issues and key audit matters, and ensures proactive risk management, including an open avenue of communication between Management, Internal Auditors, External Auditors and the Board. The Committee oversees, among others, integrated planning and reporting, internal and external audit plans and reports.

The Committee recommends the Company’s Risk Management Plan and Framework, Fraud Prevention Plan, Combined Assurance Policy, and Risk Appetite and Tolerate Levels Policy to the Board for approval. The Committee reviews the risks relating to SENTECH’s business after consideration of the risks by the relevant Board Committees. It reviews the adequacy and effectiveness of risk management, and ensures that risks are reviewed on an annual basis.

Social and Ethics CommitteeThisCommitteefulfilstheobligationsoftheCompanywithrespecttosection72(4)oftheCompaniesAct.Thepurpose of the Committee is to oversee the sustainability of SENTECH. The Committee has adopted its charter in compliance with the Act, which outlines its role and responsibilities.

The Committee focuses on social and ethical issues that are critical for the Company’s sustainability and management of material issues. ‘Material issues’ pertains to statutory obligations, risks, stakeholder issues and key performance indicators.

The Committee exercises oversight over SENTECH’s reputation management, transformation and stakeholder relationshipswithspecificreferencetocompliancewithrelevantlegislationandgenerallyacceptedcodesofcorporate governance. The Committee places emphasis on relationships with employees, customers, suppliers, local communities, and government.

Human Resources, Nominations and Remunerations CommitteeThisCommitteeensures that theBoardand itsCommitteesareproperly resourced toenable themto fulfiltheir responsibilities. The Committee assists the Board on matters of strategic remuneration by ensuring that decisions are aligned to the Company’s strategic objectives.

The Committee oversees the human resources strategy and plan aimed at creating and sustaining technical and managerial excellence, talent retention and succession management. The Committee oversees the performance of the executive directors and company secretary, and considers procedures for the Committee to oversee the evaluation of the performance of the Board and each director, including an assessment of each director. The Committee has adopted its charter which articulates its roles and responsibilities.

Technology, Policy and Regulatory Co-ordination CommitteeThis Committee ensures co-ordination between policy, regulation and technology in the development and implementation of the Company’s overall strategy. The Committee oversees the development of the technology and information, and regulatory strategies, and ensures compliance with technology regulatory legislation, policiesand/orrequirements.Inthisregard,theCommitteeensuresstrategicscanningoftechnologytrendsanddevelopments within the technology and information industry are carried out regularly, and that the strategies are aligned to good corporate governance and the corporate strategy.

The Committee also assists the Board in overseeing strategic projects, commercial activities, capital investments and transformation of suppliers.

4. Executive Committee (EXCO)EXCO is constituted in terms of the SENTECH Act and the Memorandum of Incorporation which provide that the day-to-day affairs of the Company shall be managed by an Executive Committee, which consists of the executive directors of the Board As mentioned above.

The CEO chairs the EXCO and executive management attend EXCO meetings by invitation.


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ANNEXURE B: Risk Management Plan


ANNEXURE B: RISK MANAGEMENT PLAN

Risk Management is an integral part of the organisation’s objectives. It is the responsibility of the Board to ensure that there iseffectiveandefficient riskmanagement in theorganisationand that itsmethodologiesare embedded within strategy setting, planning and business processes to safeguard performance and sustainability.

The Board has delegated the task of monitoring the risk management process to the Audit and Risk Committee andEXCOisresponsibleforensuringthatallsignificantrisksfacingtheCompanyaremanagedinaccordancewith the Risk Management Policy and Framework.

Thestrategicriskshavebeenassessedandthetopfiverisksarehighlightedonthediagrambelowandthefullstrategic risks for the 2018-2021 are on the table below:

CriticalMajorModerateInsignificantNegligible

Rare Unlikely likely Common Almost Certain

No. Risk Description

R1 Inability to sell current products

R2 Lack of capacity to develop products to take to the market

R3 Ageing infrastructure

R4 Unavailability of energy

R5 Cyber attacks

R6 Community unrest

R7 Stagnant and Non-performing platforms


Risk

Cat

egor

yO

bjec

tives

Risk

D

escr

iptio

nCo

ntrib

utin

g fa

ctor

sRi

sk M

itiga

tions

Cont

rol I

mpr

ovem

ents

Reve

nue

Grow

th an

d Su

stain

abilit

y

Reve

nue

gro

wth

Inab

ility

to

sell

curr

ent

pro

duc

ts

Entr

ance

of d

isru

ptiv

e te

chno

log

ies

and

new

co

mp

etin

g p

laye

rs in

the

mar

ket

Lack

o

f cu

sto

mer

, m

arke

t in

sig

ht

and

in

nova

tion

whi

ch

may

re

sult

in

self

pro

visi

oni

ng

by

exis

ting

an

d

po

tent

ial

cust

om

ers

Inad

equa

te b

usin

ess

dev

elo

pm

ent s

kills

Reg

ulat

ory

fr

amew

ork

(a

vaila

bili

ty

of

freq

uenc

ies)

Inab

ility

to m

anag

e th

e p

rod

uct l

ife c

ycle

Lack

of v

isib

ility

in t

he m

arke

t

Imp

lem

enta

tion

of m

arke

t st

rate

gie

s

Pro

duc

t dev

elo

pm

ent

Productsregularlyassessedformarketfit

thro

ugh

ben

chm

arki

ng

Bus

ines

s D

evel

op

men

t co

mp

eten

cies

Lob

byi

ng a

nd c

ons

ulta

tion

with

the

DTP

S,

Do

C a

nd IC

ASA

New

p

rod

ucts

an

d

serv

ices

d

evel

op

ed

acco

rdin

g t

o c

usto

mer

req

uire

men

ts

DefinedGovernanceStructuretoestablish

stra

teg

ic

par

tner

s fo

r m

arke

ting

an

d

dis

trib

utio

n o

f SE

NTE

CH

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fferin

g

Op

timis

atio

n o

f th

e M

arke

ting

and

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es

stru

ctur

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po

intm

ent

of

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ketin

g

agen

cies

to

ex

ecut

e o

n th

e M

arke

ting

Pla

n

Co

ntin

uous

tra

inin

g a

nd d

evel

op

men

t o

f cu

sto

mer

faci

ng e

mp

loye

e

Reve

nue

gro

wth

Bar

riers

to

entr

y in

to

new

mar

kets

Leg

isla

tion

and

reg

ulat

ions

Co

mp

etiti

on

Polit

ical

and

cul

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l ris

ks

Inte

r-g

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enta

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e in

to n

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t priv

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sect

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Part

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and

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str

ateg

y

Eng

agem

ent

with

Int

erna

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elat

ions

Fo

cuse

d in

tern

atio

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usin

ess

reso

urce

Lob

by

rele

vant

sta

keho

lder

s

Inte

rnat

iona

l Bra

nd p

osi

tioni

ng

Dev

elo

p

and

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ple

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t M

erg

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and

A

cqui

sitio

ns P

olic

y

Incr

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EB

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nanc

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Sust

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tyEx

po

sure

to

fo

reig

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chan

ge

rate

s fluctuationsasasignificantam

ountofthe

Co

mp

any’

s o

per

atio

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apita

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sts

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den

om

inat

ed in

fore

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curr

enci

es a

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red

it d

ow

ngra

des

by

ratin

g a

gen

cies

Incr

ease

d c

ost

s o

f o

per

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ns (

e.g

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llite

tran

spo

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, etc

.)

Del

ayed

ASO

whi

ch h

as a

n im

pac

t in

dua

l ill

umin

atio

n an

d te

chno

log

y o

bso

lesc

ence

Forw

ard

co

ntra

cts

as

par

t o

f st

and

ard

p

ract

ice

on

fore

ign

curr

ency

do

min

ated

su

pp

lies

to c

ont

rol t

he ri

sk o

f unf

avo

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ang

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latil

ity. C

ont

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us m

oni

torin

g

of f

ore

ign

exch

ang

e m

ove

men

ts to

ens

ure

pay

men

ts o

f fo

reig

n su

pp

liers

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mad

e at

m

ost

favo

urab

le r

ates

Co

st re

duc

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stra

teg

ies

Div

ersi

fy

reve

nues

fu

rthe

r in

to

stre

ams

with

bet

ter

gro

wth

po

tent

ial

(co

nnec

tivity

an

d

Man

aged

In

fras

truc

ture

Se

rvic

es)

to

red

uce

dep

end

ency

o

n fe

w

maj

or

cust

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Ren

ego

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su

pp

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’ co

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to

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od

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mo

re

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artn

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with

ar

rang

emen

ts

that

in

voic

es

are

bas

ed

in

loca

l cu

rren

cy

(ZA

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Trai

ning

o

f th

e Treasury/FinanceTeam

ondealingwith

FOR

EX

exp

osu

re a

nd m

itig

atin

g s

trat

egie

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plic

able

to

a c

om

pan

y o

f SE

NTE

CH

’s si

ze


Risk

Cat

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bjec

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Risk

D

escr

iptio

nCo

ntrib

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ctor

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sk M

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mpr

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ents

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nue

Grow

th an

d Su

stain

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ease

EB

ITFi

nanc

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Sust

aina

bili

tyRe

venu

e co

ncen

trat

ion

on

one

cu

sto

mer

threatens

the

SENTECH’s

financial

sust

aina

bili

ty s

houl

d t

he c

usto

mer

no

t b

e ab

le to

pay

for s

ervi

ces

rend

ered

.

Del

ays

in

reg

ulat

ory

p

roce

sses

o

n th

e m

igra

tion

of

STLs

to

an

oth

er

ban

d

and

p

ote

ntia

l sp

ectr

um fe

es

Inab

ility

of

Co

mm

unity

Bro

adca

ster

s to

pay

SE

NTE

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.

Stag

nant

and

no

n-p

erfo

rmin

g p

latf

orm

s o

r p

rod

ucts

Diversificationofproducts,servicesand

cust

om

ers

Eng

agem

ent o

f the

Sha

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and

oth

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stak

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Cre

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Man

agem

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pro

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man

agem

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Pro

duc

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form

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mo

nito

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Co

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ue

eng

agem

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w

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the

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d

the

Nat

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easu

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reg

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and

th

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en

gag

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on

the

affo

rdab

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of C

om

mun

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road

cast

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Dev

elo

p

turn

aro

und

st

rate

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s an

d

pro

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ateg

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for n

on-

per

form

ing

p

latf

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r p

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Reve

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Grow

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d Su

stain

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Net

wo

rk

avai

lab

ility

of

99.8

0%

Red

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n in

us

age

of D

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netw

ork

The

insi

sten

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of

bro

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s to

re

duc

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vera

ll D

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ost

s b

y re

duc

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num

ber

of

terr

estr

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ites

(oth

er n

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ork

s)

Eng

agem

ents

w

ith

the

bro

adca

ster

s,

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PM

O,

Bila

tera

l with

the

Min

iste

r

Ext

ensi

ve e

ngag

emen

ts w

ith th

e cu

sto

mer

Lob

by

the

DO

C

Dev

elo

p

and

im

ple

men

t A

SO

pla

n in

clud

ing

th

e co

mm

unic

atio

n an

d

awar

enes

s p

lan

Hum

an C

apita

l

Reve

nue

gro

wth

Lack

of

cap

abili

ty

to d

evel

op

ne

w p

rod

ucts

to

take

to

mar

ket

Lack

of

rele

vant

ski

lls a

nd c

apac

ity f

or

new

p

rod

uct d

evel

op

men

tRe

sear

ch a

nd d

evel

op

men

tFo

rm p

artn

ersh

ips

to e

nhan

ce t

he s

kills

an

d d

evel

op

new

pro

duc

ts

Laun

ch 2

new

p

rod

ucts

Inad

equa

te

skill

s o

n ne

w

tech

nolo

gie

s

Lack

of

skill

s in

the

mar

ket

and

ina

deq

uate

in

tern

al c

apac

ityPa

rtne

rshi

p w

ith m

arke

t le

ader

s U

psk

illin

g o

f int

erna

l sta

ff D

evel

op

men

t an

dim

ple

men

tatio

n o

f an

op

erat

ing

mo

del

Definerequiredskillsanddevelopa

reso

urce

pla

n Im

ple

men

t th

e re

sour

ce p

lan

Laun

ch 2

new

p

rod

ucts

Lack

of

stru

ctur

al

focu

s

Lack

of

road

map

fo

r p

rod

uct

dev

elo

pm

ent

life

cycl

e La

ck o

f ded

icat

ed re

sour

ces

(str

uctu

ral f

ocu

s)

Part

ners

hip

with

mar

ket

lead

ers

Up

skill

ing

of i

nter

nal s

taff

Dev

elo

pm

ent

and

im

ple

men

tatio

n o

f an

o

per

atin

g m

od

el

Dev

elo

p a

nd i

mp

lem

ent

a cl

ear

thre

e to

five-yearplanonrollingoutoftheproducts

and

cap

abili

ties


Risk

Cat

egor

yO

bjec

tives

Risk

D

escr

iptio

nCo

ntrib

utin

g fa

ctor

sRi

sk M

itiga

tions

Cont

rol I

mpr

ovem

ents

Hum

an C

apita

l

Rollo

ut

bro

adb

and

site

sInsufficient

reso

urce

s to

im

ple

men

t

Dep

end

ency

on

third

par

ties

to im

ple

men

tSt

akeh

old

er e

ngag

emen

t Pr

oje

ct M

anag

emen

t

Dev

elo

p

a fo

cuss

ed

pro

ject

p

lan

and

re

po

rt w

eekl

y

Trai

ning

in

terv

entio

n o

n d

igita

l pro

duc

ts

Una

vaila

bili

ty

of s

ervi

ce

pro

vid

ers

and

em

plo

yees

Insufficientresources(externalcapacityand

fund

s) to

imp

lem

ent t

rain

ing

inte

rven

tions

Lack

o

f co

mm

itmen

t fr

om

em

plo

yees

to

at

tend

trai

ning

Co

llab

ora

tions

an

d

par

tner

ship

s w

ith

hig

her l

earn

ing

inst

itutio

ns

Effe

ctiv

e im

ple

men

tatio

n o

f tr

aini

ng

thro

ugh

per

form

ance

mo

nito

ring

Dev

elo

p a

nd im

ple

men

t an

org

anis

atio

nal

trai

ning

pla

n to

bui

ld d

igita

l cap

abili

ties

Trai

ning

in

terv

entio

n o

n d

igita

l pro

duc

ts

Inad

equa

te

anal

ysis

of

skill

s ne

eded

Imp

lem

enta

tion

of

trai

ning

in

terv

entio

ns

that

m

ay

not

bui

ld

and

en

hanc

e d

igita

l ca

pab

ilitie

s

Revi

ew o

f co

mp

eten

cy d

irect

ory

and

jo

b

profiles

Co

nduc

t ski

lls a

udit

to id

entif

y cu

rren

t and

fu

ture

ski

ll re

qui

red

to

enh

ance

and

bui

ld

dig

ital s

kills

Co

nnec

ted

Site

sFa

ilure

to

exec

ute

on

the

pro

ject

Inad

equa

te fu

nds

to im

ple

men

t the

pro

ject

Dep

end

ency

on

third

par

ties

to im

ple

men

t

Part

ners

hip

failu

re

Pote

ntia

l cha

nges

in s

ched

ule

due

to c

hang

es

in t

he p

olit

ical

env

ironm

ent

Cha

nge

in re

qui

rem

ents

(sco

pe

cree

p)

Lack

of i

nteg

rate

d p

lan

with

all

stak

eho

lder

s

Part

ners

hip

with

mar

ket

lead

ers

Stak

eho

lder

eng

agem

ent

Dev

elo

p c

lear

wo

rk b

reak

do

wn

stru

ctur

e

Em

plo

y a

ded

icat

ed

cont

ract

p

roje

ct

man

ager

Infra

stru

ctur

e

Net

wo

rk

avai

lab

ility

of

99.8

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Ag

eing

in

fras

truc

ture

Del

ayed

Ana

log

ue T

elev

isio

n ne

two

rk s

witc

h-o

ff an

d te

chno

log

y o

bso

lesc

ence

SEN

TEC

H h

as d

eplo

yed

a n

atio

nal

DTT

ne

two

rk to

rep

lace

ana

log

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fras

truc

ture

Solu

tion

rep

lace

men

t p

lans

Pro

gra

mm

es a

re in

pla

ce fo

r ATV

, FM

, MW

an

d V

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Dev

elo

p a

nd im

ple

men

t a

com

pre

hens

ive

ASO

pla

n to

sp

earh

ead

mig

ratio

n p

roce

ss

Co

ntin

ued

im

ple

men

tatio

n o

f te

chno

log

y re

pla

cem

ent

pla

n C

ont

inue

d

lob

byi

ng

of

the

DO

C

and

p

artic

ipat

ion

in D

TT P

MO

Net

wo

rk

avai

lab

ility

of

99.8

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Una

vaila

bili

ty

of r

elia

ble

en

erg

y to

runefficient

op

erat

ions

Pow

er s

upp

ly i

nter

rup

tions

due

to

ESK

OM

sy

stem

failu

res

Stan

db

y p

ow

er p

lant

s d

eplo

yed

at

criti

cal

infr

astr

uctu

re s

ites

Imp

lem

ent

the

STG

rep

lace

men

t p

lan

Des

ign

and

dep

loy

sola

r tec

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log

y w

here

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oss

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Infra

stru

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e

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wo

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ility

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Thef

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qui

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at s

ites

Rem

ote

are

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f site

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eter

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of

soci

o-e

cono

mic

st

atus

(c

rime-

effe

ct o

n o

per

atio

ns)

Ap

pro

ved

phy

sica

l sec

urity

str

ateg

y th

at is

lin

ked

with

cyb

er s

ecur

ity s

trat

egy

in p

lace

Eng

agem

ent

with

so

me

com

mun

ities

Cyb

er s

ecur

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trat

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in p

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Imp

lem

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tion

of

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phy

sica

l se

curit

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Eng

agem

ent

with

so

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com

mun

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tr

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ona

l lea

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s

Secu

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in

al

l ar

eas

prio

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d

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ymen

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f inf

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Risk

Cat

egor

yO

bjec

tives

Risk

D

escr

iptio

nCo

ntrib

utin

g fa

ctor

sRi

sk M

itiga

tions

Cont

rol I

mpr

ovem

ents

Infra

stru

ctur

e

Net

wo

rk

avai

lab

ility

of

99.8

0%

Co

mm

unity

un

rest

sD

eter

iora

tion

of

soci

o-e

cono

mic

st

atus

(c

rime-

effe

ct o

n o

per

atio

ns)

Eng

agem

ent

with

so

me

com

mun

ities

th

roug

h G

ove

rnm

ent

Rel

atio

nsE

ngag

emen

t w

ith s

om

e co

mm

uniti

es a

nd

trad

itio

nal l

ead

ers.

D

evel

op

a

com

mun

ity

stak

eho

lder

m

anag

emen

t p

lan

and

imp

lem

ent

it.

Em

plo

ymen

t o

f lo

cal

peo

ple

w

here

fe

asib

le.

Net

wo

rk

avai

lab

ility

of

99.8

0%

Cyb

er a

ttac

ksPe

rvas

iven

ess

of I

P-b

ased

tech

nolo

gie

s

Perv

asiv

enes

s o

f IP-

bas

ed n

etw

ork

s

Incr

ease

in c

yber

-att

acks

Hig

h p

rob

abili

ty o

f in

tend

ed u

naut

horis

ed

ease

of a

cces

s to

SEN

TEC

H s

ites

Lack

of v

ideo

mo

nito

ring

of S

ENTE

CH

site

s

Cyb

er s

ecur

ity s

trat

egy

Imp

lem

enta

tion

of

the

cyb

er

secu

rity

stra

teg

y

Lega

l and

Re

gulat

ory

Reve

nue

gro

wth

Unc

erta

inty

in

the

SO

C

ratio

nalis

atio

n p

roce

ss

The

mer

gin

g

pro

cess

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ANNEXURE C: Fraud Prevention Plan


ANNEXURE C: FRAUD PREVENTION PLAN

1. IntroductionFraud is an unethical practice that remains one of the biggest challenges facing the South African public sector. It is a potential threat to sustainable service delivery and growth of public entities. As a result, fraud risk governance has become recognised as a key component of good corporate governance. It is thus good business practice to implement anti-fraud and anti-corruption measures. The anti-fraud and corruption measures are mainly successful in an ethical environment. There are many advantages of working in an ethical environment free of fraud and corruption that includes enhanced staff morale, job satisfaction, ability to meet commitments andimprovedprofitability.

SENTECH, as a public entity, has been mandated by the National Treasury through Treasury Regulation 27.2.1 to develop and implement a Fraud Prevention Plan as part of the entity’s enterprise risk management strategy. As such, SENTECH developed a Fraud Prevention Plan that is summarised below. This plan is one of the key instruments to ensure that there is a proactive approach towards minimising risks that can adversely impact SENTECH business operations.

2. Definition of termsAlltermsusedaredefinedinthefraudpreventionpolicy.

3. Legislative frameworkInaddition to the legislated requirement foraFraudPreventionPlan, the following threespecificpiecesoflegislation also govern aspects of fraud and corruption for South African entities.

3.1 Section 34 of the Prevention and Combating of Corruption Activities (PRECCA), Act 12 of 2004, obliges people who hold positions of authority to report any offence of theft, fraud, extortion, forgery or uttering aforgeddocument,involvinganamountofR100000ormore,toanypoliceofficial.

3.2 The Protected Disclosure Act (PDA) was enacted to protect employees who make protected disclosure, which isdefinedbytheactasanydisclosureof informationregardinganyconductofanemployer,oran employee of that employer, made by any employee who has reason to believe that the information concerned shows or tends to show one or more of the following:

a) that a criminal offence has been committed, is being committed or is likely to be committed

b) that a person has failed, is failing or is likely to fail to comply with any legal obligation to which that person is subject

c) that a miscarriage of justice has occurred, is occurring or is likely to occur

d) that the health or safety of an individual has been, is being or is likely to be endangered

e) that the environment has been, is being or is likely to be damaged

f) unfair discrimination as contemplated in the Promotion of Equality and Prevention of Unfair Discrimination Act, 2000 (Act No. 4 of 2000) or

g) that any matter referred to in paragraphs (a) to (f) has been, is being or is likely to be deliberately concealed.

3.3 Protection of Personal Information (POPI) Act 2013


4. Policy Stance and Strategic Approach4.1 SENTECH assumes a zero-tolerance stance against all forms of fraudulent and corrupt activities and is

committed to discouraging and preventing such behaviour in the performance of its business operations.

4.2 SENTECH shall implement systems and processes that give assurance that the potential for fraud and corruption across all business areas is minimised. Systems and processes that provides assurance that actual incidences of fraud and corruption are detected and responded to shall also be implemented.

5. Framework for Fraud and Corruption ResponseSENTECH’s framework to fraud and corruption prevention and response is depicted in the diagram below. The details of the framework are contained in the detailed Fraud Prevention Plan.

Figure 18: Framework for Fraud and Corruption Response

6. Whistle BlowingSENTECH recognises the fact that unethical conduct and fraud within SENTECH is detrimental to good, effective, accountable and transparent governance within SENTECH and there is a need for procedures in terms of which employees may, without fear of reprisals, disclose information relating to suspected or alleged unethical conduct and fraud affecting SENTECH. And as such, a whistle blowing policy has been developed to ensure reasonable compliance with the PDA, which makes provision for the protection of employees who make disclosures in good faith.

A tip-off anonymous hot line is in place for the anonymous reporting of fraud and corruption activities. Tip-Offs Anonymousiscompletelyindependent,confidentialwhistleblowinghotlineserviceoperating24-hoursaday,365 days a year. The service allows employees, customers, service providers and other stakeholders to report fraudandinappropriateactivitiesintheCompanyinasafe,confidentialandsecureway.


ANNEXURE D: Materiality and

Significance Framework


ANNEXURE D: MATERIALITY AND SIGNIFICANCE FRAMEWORK

1. LEGISLATIVE BACKGROUND

1.1 SENTECH, as a schedule 3B public entity, is governed by the PFMA and the

1.2 Treasury Regulations issued by the National Treasury and by the Companies Act.

1.3 TreasuryRegulation28.3.1–“Forpurposesofmaterial[sections55(2)ofthePFMA]andsignificant[section54(2) of the PFMA] transactions, the SENTECH Board of Directors must develop and agree a framework of acceptablelevelsofmaterialityandsignificancewiththerelevantexecutiveauthority.”

1.4 Section55(2)(b)(i)ofthePFMA–“Theannualreportandfinancialstatementsreferredtoinsubsection(1)(d) must include particulars of any material losses through criminal conduct and any irregular expenditure and fruitless and wasteful expenditure that occurred during the year.”

1.5 Section 54(2) of the PFMA – “Before a public entity concludes any of the following transactions, the accounting authority for the public entity must promptly and in writing inform the relevant treasury of the transaction and submit relevant particulars of the transactions to its executive authority for approval of the transaction:

a) establishment or participation in the establishment of a company;

b) participationinasignificantpartnership,trust,unincorporatedjointventureorsimilararrangement;

c) acquisitionordisposalofasignificantshareholdinginacompany;

d) acquisitionordisposalofasignificantasset;

e) commencementorcessationofasignificantbusinessactivity;and

f) a significant change in the nature or extent of its interest in a significant partnership, trust,unincorporated joint venture or similar arrangement.”

1.6 NationalTreasuryPracticeNotedated13/07/2006dealingwithapplicationsunderSection54.

2. DEFINITION OF MATERIALITY AND SIGNIFICANCE2.1 TheAccountingStandardsBoarddefinesmaterialityas“themagnitudeofanomissionormisstatement

inthefinancialstatementswhich,individuallyorcollectively,makesitprobablethatareasonablepersonrelyingonthosestatementswouldhavebeeninfluencedbytheinformationormadeadifferentjudgementif the correct information had been known.”

2.2 Fromanexternalauditpointofview,ISA320definesmaterialityasfollows:“Informationismaterialifitsomissionormisstatementcouldinfluencetheeconomicdecisionsofuserstakenbasedonthefinancialstatements. Materiality depends on the size of the item or error judged in the particular circumstances of its omission or misstatement. Thus, materiality provides a threshold or cut-off point (quantitative), rather than being a primary qualitative characteristic which information must have if it is to be useful.”

2.3 TheConciseOxfordDictionarydefines‘significant’as“extensiveorimportantenoughtomeritattention”and may therefore be interpreted as of relative importance to the public entity. Transactions may be significantbasedonthemonetaryvalueofthetransactionsorduetothenatureofthetransactions.Thus,atransactionwillbesignificantifconductingthetransactionisvitallyimportantinordertofulfilthepublicentity’s mandate and for it to operate effectively.

2.4 Significant’mayalsobeinterpretedasthosetransactionsthat,inthecaseofSENTECH,wouldrequireapproval from the executive authority or the National Treasury or Parliament and would include, but notbelimitedto,participationinasignificantpartnership,trust,unincorporatedjointventureorsimilararrangement;theacquisitionordisposalofasignificantshareholdingintheorganisation;theacquisitionordisposalofasignificantasset;andcommencementorcessationofasignificantbusinessactivity.

2.5 Fromtheinterpretationsabove,itcanbeseenthatthereisadifferencebetween‘material’and‘significant’.Significantislargerthanmaterialasasignificanttransactionimpactsonthepublicentityasawhole.Anoccurrencemaybematerialbutnotnecessarysignificant,whereasanyoccurrencethatissignificantwillbe material.


2.6 As Treasury Regulation 28.3.1 also has an expectation of qualitative reporting, this framework will be dealt with in two main categories, namely quantitative and qualitative aspects. The policy set out hereunder should be appropriately presented in the Annual Report as required.

3. QUANTITATIVE FINANCIAL STATEMENT REPORTING3.1 Quantitative Aspects3.1.1 Material Losses (Section 55)Guidelines for setting materiality levels

BASIS Maximum Percentage 2019 Budget R’000 HighGross expenditure 1% 1 322 865 13 229

Gross revenue 1% 2 579 251 25 793

Net income 10% 107 678 10 768

Total assets 2% 290 434 45 809 809

From the above description of ‘quantitative materiality’, and considering the percentage guidelines listed in the table above, management is of the opinion that the most appropriate basis for calculating the quantitative material loss limit for SENTECH should be based on the annual budgeted gross operating expenditure

• The annual budgeted gross operating expenditure for the year is R1,323 billion.

• Based on the above and the guideline table above, the quantitative materiality level for SENTECH is R13.2 million, being 1% (rounded off) of the annual budgeted gross expenditure.

• Accordingly,allfruitlessandwastefulexpenditureand/orirregularexpenditurethatexceedthequantitativematerialitylevelofR13.2millionwillbereportedintheannualreportandthefinancialstatements

3.1.2 Significance Framework (Section 55)Fromtheabovedescriptionof‘significance’,andtakingintoaccountthepercentageguidelineswhichislistedinthetableabove,SENTECHisoftheopinionthatthemostappropriatebasisforcalculatingthesignificancelimitforthepurposesofSection55ofthePFMAshouldbebasedasapercentageoftotalassets,specificallyinview of the fact that SENTECH is an infrastructure company and is currently engaged in various major projects which will also translate into assets in future years.

Total assets of R2,29 billion include the following:

• Property, plant and equipment, forecast for 31 March 2019 at R941,3 million;

• Other assets at R1,349 billion.

Basedontheaboveandtheguidelinetableabove,thequantitativesignificancelevelforSENTECHisR45,8million (excluding VAT), being 2% of budgeted total assets. The cost of total assets has increased from prior years because SENTECH records assets funded through Government Grants on a net basis. SENTECH expects tochangeitsaccountingpolicytoreflectthegrossmethodandthereforethecostoftotalassetsforthe

3.1.3 Qualitative AspectsMateriality is not merely related to the size of SENTECH and/or the elements of its financial statements.Obviously, misstatements that are large either individually or in the aggregate may affect a ‘reasonable’ user’s judgment. However, misstatements may also be material on qualitative grounds. These qualitative grounds include amongst others:

Unusual transactions entered into that are not of a repetitive nature and are disclosable purely due to the nature thereof(duetoknowledgethereofaffectingthedecision-makingoftheuserofthefinancialstatements);

• Transactions entered into that could result in reputational risk for SENTECH;


• AnyfraudulentordishonestbehaviourofanofficerorstaffmemberofSENTECH–forexample,lossesresulting from criminal conduct may be seen as material, based on the public accountability of SENTECH, regardless of the monetary value of the amount;

• Procedures/processesrequiredbylegislationorregulation.

4. APPLICATION AND REPORTING4.1 The materiality matrix is developed and communicated to relevant management before the start of

thefinancialyear.ThisenablesSENTECHtomakedecisionsastowhatshouldbereportedaslossesorirregular, fruitless or wasteful expenditure. SENTECH is then able to ensure that the correct information is includedintheannualreportandfinancialstatements.

4.2 All transactions that result in a loss to SENTECH (including irregular, unauthorised and fruitless and wasteful expenditure, and losses resulting from criminal conduct) should be recorded in a register. The PFMA defines‘irregularexpenditure’asexpenditureincurredincontraventionofthePFMAoranyapplicablelegislation or incurring expenditure not in accordance with the mandate of SENTECH. ‘Fruitless and wasteful expenditure’ refers to expenditure which was made in vain and would have been avoided had reasonable care been exercised.

4.3 All material losses must be reported to the CFO who should ensure that the transaction is appropriately allocated in the general ledger and recorded in a central loss register.

4.4 An explanation detailing all information and reasons surrounding the transaction as well as amounts recovered and strategies developed to prevent similar losses in the future must be included.

4.5 Noofficermaycondoneanymateriallossincurreddirectlybyhimorthroughinstructionsissuedbyhim.

4.6 All amounts referred to in paragraph 5.1 and 5.2 must be reported to the Board.

4.7 When developing the Three-year Rolling Audit Plan and the Annual Audit Coverage Plan, the Internal AuditFunctionmustensurethatsufficientattentionisgiventotheauditofmaterialitemswhichmayfallthrough the gaps in the existing control systems.

4.8 Materialandsignificanteventswillbereportedtothefollowingparties:

• External:MinisterofTelecommunicationandPostalServices(TheMinister);and

• Internal:SENTECHBoardandEXCO

4.9 Thereportingofapplicablematerialandsignificantevents(PFMA–Section54)toTheMinisterwillbedone formally in writing before the transaction is concluded.

4.10 Thepublicentitymustincludethematerialityandsignificanceframeworkinthefollowingdocumentstobe submitted to the entity’s executive authority:

• AnnualReport[TR28.2.1]

• CorporateBusinessPlan[TR29.1.1(f)]

• StrategicPlan[TR30.1.3(e)]


5. ACCEPTANCE LEVELS OF MATERIALITY AND SIGNIFICANCEDefinitions Framework Underlying PrinciplesMateriality for section 55 of the PFMA-Disclosure, in the Annual Report, of:

• Losses due to criminal conduct

• Irregular expenditure

• Fruitless and wasteful expenditure

Quantitative:

For purposes of reporting the incidence of losses due to criminal conduct, irregular expenditure, and fruitless and wasteful expenditure, in terms of section 55(2) (b) (i) of the PFMA; disclosure shall be made where the loss or expenditure is equal to or greater than R13.2 million.

Qualitative:

Overandabovethefinancialconsiderations of materiality, any losses due to criminal conduct are considered to be material by nature, irrespective of the quantum thereof.

It is, therefore important to note that the quantitative measures of materiality will only apply to expenditure other than irregular expenditure and fruitless and wasteful expenditure, and losses due to criminal conduct which are considered in terms of the qualitative measures.

• Each loss due to criminal conduct, irregular expenditure or fruitless and wasteful expenditure, as identified,willbeevaluatedin context of the expense category to which it relates, to determine whether it qualifiesfordisclosureintheAnnual Report as required by Section 55.

• In line with good business practice, as well as the requirements of the Act, SENTECH is committed to the prevention, detection of and taking appropriate action on all irregular expenditure, fruitless and wasteful expenditure, losses resulting from criminal conduct and expenditure not complying with the operational policies of SENTECH (Sec 51(1)(b)(ii)).

To this end SENTECH’s systems and processes are designed and continually reviewed to ensure the prevention and detection of all such expenditure, irrespective the size thereof.


Definitions Framework Underlying PrinciplesSignificantforSection54–Information and approval by theMinisterof‘Qualifyingtransactions’, i.e.:

• establishment or participation in the establishment of a company

•

• Equity participation in a significantpartnership,trust,unincorporated joint venture or similar arrangement (applies to both local and international transactions);

• acquisition or disposal of significantshareholdinginan organisation;

• acquisition or disposal ofasignificantasset;commencement or cessation ofasignificantbusinessactivity; and

• asignificantchangeinthe nature or extent of itsinterestinasignificantpartnership, trust, unincorporated joint venture or similar arrangement (locally based or international transactions).

Quantitative:

Qualifyingtransactionsofanoperational nature,

Qualifyingtransactionsofastrategic nature

• 10% of equity.

Regardless of the monetary value thereof, all direct equity investments:

• greater than 20% require formal information to the Executive Authority; or

• greater than 50% require approval by the Executive Authority.

Qualitative:

A qualifying transaction may also beconsideredsignificantbasedon considerations other than financialwhen,intheopinionof the Board, it is considered to besignificantfortheapplicationof Section 54. The decision onwhichnon-financialissuesmay be considered at any time requires careful judgment at a strategic level, and should therefore rest with the Board as the representative body of the stakeholders. As an example, the Board may consider a qualifying transactionassignificantwhenitcouldimpactsignificantlyonadecision or action by the Minister.

The PFMA is not intended to affect the autonomy of SENTECH, but its stated objectives are to ensure transparency, accountability and sound management of revenue, expenditure, assets and liabilities of the institutions to which the Act applies. Therefore, the legislature could not have intended for the public entities to report and seek approval on matters on a daily basis.

• The operations of SENTECH are conducted within the framework of the mandate, objects and powers of the SENTECH Act, as well as theoperationalandfinancialdirection set out in the Strategic Plan.

• SENTECHalsohasdefinedaccountability and approval structures from the Board, as the Stakeholder representative, for the CEO and management.

• The responsibility for day-to-day management of SENTECH rests in line management throughaclearlydefinedorganisational structure and through formally delegated authorities.

6. AMENDMENT AND REVIEW

UnlessotherwiseagreedthisMaterialityandSignificanceFrameworkwillbereviewedafteraperiodofthreeyears.


7. SIGNATURES

Signed by the Minister at ……………………………………... on the …………………of …………………... 2018

………………………………………………………...……………...Minister of Telecommunications and Postal Services

Signed for as on behalf of SENTECH at ………………………on the …………………of …………………... 2018

………………………………………………………...……………...Chairperson of SENTECH


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Sentech Head OfficeSender Technology Park (STP)Octave StreetRadiokop2040

Private Bag x06Honeydew2040

Phone: 011 471 4400 / 0860 736 832 Email: [email protected]: www.sentech.co.za CO

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