CORPORATE PLAN 2018/21 - Parliamentary Monitoring Group
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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 Chief Executive Officer CFO Chief Financial Officer COO Chief Operations Officer 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 i
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 Net Profit After Tax 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 Standard Definition/Skills Development 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 ii SENTECH SOC LTD Corporate Plan MTEF 2018 - 2021
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 Table 1: Executive Team Profile 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 - 2021 1
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 2 SENTECH SOC LTD Corporate Plan MTEF 2018 - 2021
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 Pillars continue 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 and will facilitate efforts to enable our customers to reach their audiences anywhere through innovation. 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’s major customer that is experiencing financial difficulties is a strain on the organisation’s revenues and the situation is being monitored closely by the Board. The Company believes that corporate organisational health is defined by employee satisfaction, efficient and effective administration, competent operations, strong financial management and healthy customer and service provider 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 of Telecommunications and Postal Services in aligning with the government’s MTSF objectives. M Mello Chairperson SENTECH SOC LIMITED 4 SENTECH SOC LTD Corporate Plan MTEF 2018 - 2021
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 defines the parameters for SA Connect; 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 reflects the growth path the organisation is pursuing during the MTEF. The Company remains committed to its Seven Strategic Pillars: growth, customer focus, innovation, culture change, transformation, efficiency and reputation, 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 SENTECH EXCO and staff will pursue the defined annual performance plans with zeal and deliver on the results through focusing on strategy execution. In conclusion, I thank the Board of SENTECH for robust oversight and support in defining the direction of the organisation. Also, we put reliance on our employees whom I thank for their commitment to deliver on our strategic goals. M Booi Chief Executive Officer SENTECH SOC LIMITED SENTECH SOC LTD Corporate Plan MTEF 2018 - 2021 5
3. ORGANISATIONAL IDENTITY, MANDATE AND STRUCTURE 3.1 Vision A global enabler of broadcasting and digital content delivery. 3.2 Mission To enable our customers to reach their audiences anywhere through innovation. 3.3 Values Integrity: 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: We endeavour to fulfill our mandate in a manner that benefits our employees, customers, suppliers, communities and the environment in all the areas that the Company operates in. 3.4 Legislative Framework SENTECH’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 reporting requirements. 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 Mandate SENTECH 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 Goals In 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. SENTECH SOC LTD Corporate Plan MTEF 2018 - 2021 7
3.7 Corporate Goals SENTECH’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 Management The composition of SENTECH’s executive management team is as follows: Name Date Appointed Position Highest Qualification Chief Executive Officer and Mr M Booi 15 October 2015 MSc (Electrical Engineering) Executive Director Chief Financial Officer and Mr S Mthethwa 1 December 2016 CA (SA) Executive Director Chief Operations Officer and B.Tech (Electrical Mr TJ Leshope 1 March 2018 Executive Director Engineering) Mr D Ngwenya 1 June 2016 Chief Technology Officer MSc (Electrical Engineering) Mr I Segaloe 1 May 2016 Chief Strategy Officer MBA (Strategy & Finance) Mr ON 3 February 2014 Executive: Finance CA (SA) Nekhavhambe Chief Marketing & Sales Master of Business Ms M Kgari 12 June 2017 Officer Leadership (MBL) Executive: Legal & Mr Z Adams 7 August 1995 BProc Regulatory Chief Human Resources BCom (Hons) Industrial Ms K Motlhabi 15 August 2016 Officer Psychology Ms F Sefara 1 August 2014 Company Secretary LLM (Master in Laws) Executive: Operations Masters of Business Mr M Finnis 1 March 2018 (Acting) Leadership (MBL) Table 1: Executive Team Profile 8 SENTECH SOC LTD Corporate Plan MTEF 2018 - 2021
3.9 Organisational Structure Figure 1: SENTECH Organogram SENTECH SOC LTD Corporate Plan MTEF 2018 - 2021 9
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, corporate governance and human capital reviews are done. 4.1 Public Service Mandate Implementation Review 4.1.1 Radio, Television and Internet Connectivity SENTECH fulfils its public service mandate 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), Television and Direct-to-Home (DTH) and a significant improvement in the performance of both Medium Wave (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. This entails investment in technology refresh and enhanced capabilities to efficiently manage service platforms and improve customer experiences with modern technology solutions. The benefit of the improved service level 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 Recovery The 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 fault management, configuration and performance management approach. This allows for efficient use of resources, accurate reporting, accurate billing, secure monitoring, transparency and improved fault management. To further improve service availability, SENTECH has operationalised its remote disaster recovery centre at the SENTECH SOC LTD Corporate Plan MTEF 2018 - 2021 11
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 Expansion Service 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. 12 SENTECH SOC LTD Corporate Plan MTEF 2018 - 2021
Table 2: Coverage and Service Expansion Before Coverage Service Province Town Post Expansion Expansion Improvement Ikhuthani FM Mpumalanga Kwaggafontein - 698 938 698 938 Inakekelo FM Mpumalanga Kwaggafontein - 307 642 307 642 Western Cape Western Cape Cape Town - 188 708 188 708 FM 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 Elands Heights/ 23 353 194 24 346 778 993 584 Umtata Umhlobo Eastern Cape Elands Heights 28 792 441 28 860 230 68 789 Wenene FM East Coast KZN Ulundi - 703 452 703 452 Radio 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 Review 4.2.1 Profitability Analysis The revenue performance for the year was acceptable given the tough economic conditions experienced during the past few financial years. The 2017 turnover increased marginally on prior year by 5% to R1.23 billion due to growth in FM Radio, Satellite and Connectivity services. This growth came mainly from the expansion of services platforms and activation of new customers. SENTECH SOC LTD Corporate Plan MTEF 2018 - 2021 13
Figure 4: Revenue Trends (2011-2017) Figure 4 above indicates that business operations achieved above the 10% target increase Earnings Before Tax and Interest (EBIT) margin, but EBIT has taken a big knock over the 2017 year where it hit significantly lower that the target. The main reason for the drop was the increase in employee costs, preventative maintenance, satellite rental and the increase in the provision for doubtful debts. SENTECH had to fill some of the critical vacancies to position the Company for growth, and strengthen some of the areas which are important for the improvement of the overall efficiency of the organisation. Overall, the Company reported a net profit of R104 million, which was boosted by the interest income of R64 million from surplus cash funds invested. There was a deliberate effort to preserve cash throughout the financial year. This was achieved by reprioritising capital expenditure; and executing only the most critical projects. The Company continued to generate positive cash flows from operations in 2017, despite the pressures already mentioned above, and closed the year with a cash balance of R907 million. The significant drop in cash generated from 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 Review The table below indicates that the TV and Radio businesses have been growing at a steady inflationary rate. The DTH and facility leasing businesses showed significant growth following new revenue streams achieved between 2011 and 2017. Table 3: Product Performance Review (2011-2017) 2014 2015 2016 2017 2018 TV 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%) 14 SENTECH SOC LTD Corporate Plan MTEF 2018 - 2021
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. During the 2018/19 financial year, SENTECH will continue to monitor its product and service performance and introduce enhancements to the existing portfolio to ensure business sustainability into the future, with particular focus on SW and connectivity services. 4.3 Corporate Governance Review SENTECH has seen a definite improvement in corporate governance within the Company since the 2010/11 financial year. The practice of sound governance informs SENTECH’s daily business activities and is a prerequisite for 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. Irregular expenditure has been reduced from R84,4 million in 2010/11 to R3,805 million in 2016/17. The number of reportable findings in the audit report has reduced from 15 in 2010/11 to nil in the 2014/15, 2015/16 and 2016/17 financial years. For the past five financial years, SENTECH has received an unqualified financial audit opinion and there were no reportable findings with respect to achievement of predetermined objectives, compliance with legislation and the effectiveness of the internal control environment. 4.4 Human Capital Review Attracting top talent remained a key strategic focus area during the previous MTEF period. Thus, significant progress 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 October 2017 is reflected in Table 3 below. Table 4: Employment Equity Status to 31 October 2017 Occupational Male Female Total Levels African Coloured Indian White African Coloured Indian White Top 7 0 1 0 3 0 0 0 11 Management Senior 8 1 1 2 7 0 0 0 19 Management Professionally 46 5 2 22 23 2 1 5 106 qualified and experienced specialists and mid- management SENTECH SOC LTD Corporate Plan MTEF 2018 - 2021 15
Occupational Male Female Total Levels African Coloured Indian White African Coloured Indian White Skilled technical 122 12 10 46 108 3 3 6 310 & academically qualified workers, junior management, supervisors foremen and superintendents Semi-skilled & 21 1 0 0 21 5 2 4 54 discretionary decision- making Unskilled 39 7 0 0 3 0 0 0 49 & defined decision- making Total 243 26 14 70 165 10 6 15 549 Permanent For the MTEF period 2017/18, University Collaboration of R1,5m to each of the three institutions amounted to R4,5m and brings the Socio-Economic Development spend to R13,880m. This is 61.7% of the 6% of payroll target of which 95.5% is EE spend. The Workplace Skills Plan (WSP) for 2017/18 includes 1 751 planned courses for the current year of which 85% is the minimum delivery target. Table 5: Training Spend Training Amount Staff training R4 060 904.28 Research and bursary support R4,5m for University collaboration Need 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%. During the 2016/17 financial year, SENTECH embarked on an organisational-wide culture change journey, which involves 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. The quality of relationships with the union has varied over time and, in recent years, has significantly improved, 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. 16 SENTECH SOC LTD Corporate Plan MTEF 2018 - 2021
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 Framework 5.1.1 700MHz and 800MHz Band The 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. The band has been identified for International Mobile Telecommunications (IMT) applications for both coverage and 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 Broadcasters Community 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 Framework The 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: • Redefining broadcasting; • Spectrum licencing for broadcasting services; • Redefining licencing categories; • Digital sound broadcasting (DSB); • Redefining community broadcasting. The need to introduce Digital Audio Broadcast (DAB+) and/or equivalent technologies by broadcasters also 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 Bill The 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 18 SENTECH SOC LTD Corporate Plan MTEF 2018 - 2021
• 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 determine SENTECH’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 Obligations SENTECH 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 Context The 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 SENTECH SOC LTD Corporate Plan MTEF 2018 - 2021 19
5.2.1 Global Media Industry – Market size The 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 is insufficient to cover the gap. Further pressure will originate from the decline in advertising expenditure as advertising customers increasingly seek to make efficient use of their advertising spend by focusing on fewer platforms 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) Source: PwC Global Entertainment and Media Outlook 2015-19 5.2.2 Global media industry – Market size by region The global trends hold firmly on a regional level with most of the media market growth seen in Asia Pacific and Latin 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. 20 SENTECH SOC LTD Corporate Plan MTEF 2018 - 2021
Figure 7: Global Media Industry – Market Size by Region (2011-2019, USD Billion) Source: PwC Global Entertainment and Media Outlook 2015-19 5.2.3 Online Content – Internet Market Size Figure 8: Online Content – Internet market size (2011-2019, USD Billion) Source: PwC Global Entertainment and Media Outlook 2015-19 The 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. SENTECH SOC LTD Corporate Plan MTEF 2018 - 2021 21
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 films although Hollywood will continue to dominate the market. Figure 9: Video Market Size (2011-2019, USD Billion) Source: PwC Global Entertainment and Media Outlook 2015-19 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) Source: PwC Global Entertainment and Media Outlook 2015-19 22 SENTECH SOC LTD Corporate Plan MTEF 2018 - 2021
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 – Africa Locally, 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 players e.g. Netflix and ShowMax. 5.2.5 Market Context – Southern Africa Despite 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) Source: PwC Global Entertainment and Media Outlook 2015-19 5.2.6 Media industry by country – Estimated market size On 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 that of South Africa, however, Nigeria lags due to insufficient internet coverage and speed of service to support meaningful 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. SENTECH SOC LTD Corporate Plan MTEF 2018 - 2021 23
Figure 12: Media Industry by Country – Estimated Market Size1 (2011-2019, USD billion) Source: PwC Global Entertainment and Media Outlook 2015-19 5.2.7 Opportunities and challenges for SENTECH • Revenue diversification in the digital media market • 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. 24 SENTECH SOC LTD Corporate Plan MTEF 2018 - 2021
Corporate Strategy
6. CORPORATE STRATEGY SENTECH has developed a corporate strategy that responds to challenges and the changing market conditions as discussed in section 5 above. To address these challenges SENTECH will adopt a ‘enhance and fly’ approach to create a ‘SENTECH of the future’. ‘Enhance’ denotes all activities required to strengthen the core whilst ‘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 SENTECH in the fixed wireless broadband market to become government’s preferred last mile provider. The “enhance and fly” approach addresses both SENTECH’s challenges as it accelerates and enhances both value delivery and capability development. This is the most sustainable route for transformation given limited capabilities, it will be difficult to support a pure ‘fly’ approach. The organisation will become impatient with a pure ‘enhance’ approach as this will take time to materialise. 6.1 Seven Strategic Pillars The 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, customer focus, culture change, efficiency, transformation and reputation. Figure 13: SENTECH’s 7 Strategic Pillars 26 SENTECH SOC LTD Corporate Plan MTEF 2018 - 2021
STRATEGIC PILLAR 1: GROWTH Growing 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 balance sheet, optimal capital structure (debt/equity), risk appetite, funding models, due diligence and acquisitions 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 for implementation of specific projects, products and innovation, and for entry into the Pan-African and international 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. In support of the above growth strategies, the organisation has identified the following growth options: Figure 14: SENTECH growth options SENTECH needs to explore both organic and inorganic growth options which will require: Growth of current product/service offerings • Increase market share within each product offering • Review pricing structure to become more competitive • Explore new markets for existing products SENTECH SOC LTD Corporate Plan MTEF 2018 - 2021 27
New product offerings • Review and understand market requirements • Identify new products • Sell to new and existing markets Adjacency acquisitions/partnerships • Identify acquisitions and partnerships • Investment opportunities. STRATEGIC PILLAR 2: INNOVATION As 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 partnership with reputable industrial and technology research institutes. This will include identification and formation of strategic partnerships to drive innovation. STRATEGIC PILLAR 3: CUSTOMER FOCUS Customer 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 CHANGE Core 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. 28 SENTECH SOC LTD Corporate Plan MTEF 2018 - 2021
Figure 15: The SENTECH Way Sources: Adapted from various culture models i.e. (Shingo Institute, Vadin Kotelnikov and Bersin) STRATEGIC PILLAR 5: TRANSFORMATION The 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 financial and non-financial support to qualifying SMMEs in the ICT sector. The support will be in the form of preferential procurement, actual Net Profit After Tax (NPAT) spend on enterprise development and financial grants. • 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 Initiatives Management and Control Recruiting more black females at Executive and senior management Skills Development (SD) Training to focus more on core ICT skills Provide training for unemployed black people Retaining most of the interns Enterprise Supplier Increase preferential procurement for black owned ICT SMMEs Development (ESD) Increase preferential procurement for black female owned ICT SMMEs Actual NPAT spend of at least 2% for supplier development Actual NPAT spend of at least 3% for enterprise development Socio-Economic Actual NPAT of at least 1.5% on socio-economic development programmes Development (SED) Support Maths and Science Programme Table 6: Implementation of B-BBEE Initiatives SENTECH SOC LTD Corporate Plan MTEF 2018 - 2021 29
• 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: EFFICIENCY Efficiency as a strategic initiative is aimed at streamlining processes and systems to increase productivity, cut inefficiencies and improve profitability. The following will comprise the efficiency drive: • 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, and better contract management and price negotiation with suppliers, key cost drivers such as employee, satellite, operations and cost of sales costs will be minimised. • Automate processes. Almost half of SENTECH’s processes still need to be automated. In the past financial year, 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 improve efficiencies and response times. • Reduce the use of paper and energy. SENTECH aims for a paperless and digitised office, as well as energy efficiency, to reduce its carbon footprint on the environment. Energy is one of SENTECH’s biggest operational costs and can be reduced through the implementation of alternative energy sources. STRATEGIC PILLAR 7: REPUTATION The 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 Model The 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. 30 SENTECH SOC LTD Corporate Plan MTEF 2018 - 2021
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