SABC Annual Results Presentation

5 November 2004

The public broadcaster:

Delivering social and financial value

What a year!• A year of tremendous achievements for South

Africa• For SABC viewers and listeners, world-class

coverage of:– Elections 2004– Decade of Democracy Celebrations– Pan-African Parliament– South Africa’s 2010 Bid– World Cup Rugby– World Cup CricketAnd more recently– Olympics 2004

What a year!• For the SABC itself:

– Strong delivery on public service mandate, exceeding targets for language diversity and local content

– Solid financial performance– Recognition from domestic and international peers,

with over 120 awards for excellence

• In a nutshell: We have succeeded in meeting the triple bottom line in terms of economic, social and environmental value

Overview

Section 1: Introduction Eddie Funde

Chairperson of the Board

Section 2: Review of performance Peter Matlare

Group CEO

Section 3: Review of services Peter Matla re

Group CEO

Section 4: Financial results Robin Nicholson

Chief Financial Officer

Section 1Introduction

Eddie FundeChairperson of the Board

Chairperson’s statement• Building on achievements of the previous board• Challenges included:

– Corporatisation process– Introduction of new editorial policies, including

compliance with language mandate– Ensuring regulatory compliance, including submission

of licence renewals and amendments, and regional TV licences applications

SABC Goals• Critical that SABC continues to be in a position

to deliver on its commercial and public service mandates

• The Board has set specific goals going forward to build a world-class public broadcaster

SABC Goals• This means creating an SABC that enjoys the support

and respect of its shareholder, viewers, listeners as well as other stakeholders– Promoting democracy, national unity, (national consciousness)

non-racialism, non-sexism and empowerment.– Align the Charter, company objectives and editorial policies.– Create a financially sound company built on a sustainable

model enabling it to fulfill its mandate.– Revitalising the company, particularly news and making it a

preferred employer of choice.– Ensuring compelling and professional programming– Full regulatory compliance.– Continuous evaluation and monitoring to ensure alignment with

the broadcasting act and its own editorial policies.

Resourcing• Board will continue to ensure investments that

deliver social and financial returns• This will require combination of funding:

– Licences– Commercial revenues– Public funding

Going forward• New board has clearly defined what needs to be

achieved in next year and the years going forward.– Building a strong team of board and management

– Ensuring the SABC is a caring organisation

– Ensuring good governance, accountability, editorial independence based on accurate balanced reporting and compliance.

– Ensuring continued stakeholder involvement and public participation

– Contributing to a South Africa that is based on the values contained in the Constitution

Section 2Review of performance

Peter MatlareGroup Chief Executive Officer

The strategy

• Stabilising the SABC– People– Revenues– Costs

• Striving for best practise– Implementing the Act– World class operations

• People and success behaviours

• World class content and brands

The strategy

• From non-core to core business– Focus on local content– Focus on industry development– Focus on talent development– Focus on technology investment

Our performance

• SABC uses a balanced scorecard for measuring performance:

1. National priorities and mandate

2. Universal service and access

3. Local content

4. Growth and financial health

5. Innovation, customers and stakeholders

6. People and success behaviour

Growth and financial health

• Revenue increased by 11% to R 2.7-billion• TV revenue grew 14%• Radio revenue grew 18 %• License revenue grew 10%• EBITDA improved by R11-million• Cash flow from operations up R236-million

Growth and financial health

• Expenditure on local content up R 218-million (27.6%)

• Foreign content down R49-million (21%)• Total investment in local content R 1,007-bn• Growth in cost contained to 6.8%• Personnel cost growth 9%• Facilities cost growth zero• Signal distribution 6%

Public Service highlights

• News on TV in 11 languages• Educational TV broadcasts increased by 20%• Language delivery other than English from 25%

to 34%• Increased delivery of sports of national interest

and minority sports

Compliance

• Corporatisation completed

• Re-organisation completed

• Licences renewed

• Regional licences applied for

Universal Service and Technology

Delivering Services

• Radio has remained at current level of access -- however we have applied for expanded transmitters that would improve coverage as follows:– Radio: 815 000 – Television: 583 000

Technology

• Critical in ensuring SABC can meet its mandate

• Four business imperatives for 2004:– Operational excellence– Cash efficiencies– Development of skills and talent– Increase in delivery success

• Investment during this period R103,9-million.

Innovation Customers and Stakeholders

Stakeholders

• Improved access for audiences– Refocused audiences services– Extensive consultation on editorial policies– Effective participation on public hearings

• Key social initiatives with government.– 16 Days– HIV and Aids– Educational programming

Stakeholders

• Key partnerships with civil society– Community builder of the year– Literacy programmes

• Support for cultural activities– North Sea Jazz– Macufe– Klein Karoo– Fidelio

Customers

• Improved relations with marketing industry• Launch of the “Your SABC “ campaign• Launch of the Ya Mampela brand• SABC 2’s Feel at Home• SABC 3 Much Better• On radio we have seen Metro, 5 FM, RSG,

SAFM and Good Hope all create exciting offerings

Customers

• Launch of Consumer Scope

• Launch of Future fact

• Introduction of the SABC People Panel

• Focus on music research

• Strong relationship with SAARF

People and Success Behaviours

1. Investing in our industry• SABC continues to invest heavily in local

production industry, to increase the sector’s capacity and develop talent

• Significant investments in productions on all three TV channels

• More than 4 000 freelance contractors employed• Commissioned 247 productions, at a cost of

R319-million• Specific focus on black-owned companies, to

facilitate empowerment

2. Human capital

• Our people are at the centre of our success• Human capital investment continues:

– Performance management• New system put in place

• Align business strategies with performance

• Drive performance in strategic areas

• Employment equity• No. of black people on staff increased from 58% to 60%

• No. of women on staff increased from 39% to 40%

Human capital

• Training and development• 4 592 trainees this year (61% black) – an all-time high

• Support for employees affected by HIV/AIDS• HIV/AIDS strategy developed after extensive research and

consultation

• Labour relations initiatives• Collective agreement signed with Mwasa

• Similar agreement being developed with Bemawu

• 195 shop stewards completed training in disciplinary hearings

3. Awards and achievements

• More than 120 awards for SABC journalists and staff– TV awards on all three levels:

• CNN World Report (global)• CNN African Journalist of the Year (African)• Vodacom Journalist of the Year • A range of other awards for excellence

– Radio awards acknowledged excellence in reporting, contributions to language diversity, sport, news and economic growth

– Educational programmes received international recognition

Section 3Review of services

Peter MatlareGroup CEO

Introduction

• Another significant year for SABC radio and television

• Great strides made on the path towards the transformation of the SABC into a true public broadcaster

• Success of our programming and scheduling strategies confirmed

Introduction

• SABC radio and television remain dominant in South African broadcasting

• Exceeding new local content regulations introduced by ICASA in August 2003

• Establishment of Content Enterprises to improve management of the content of SABC services

• PBS Re-building Radio Project launched to take portfolio forward – focused on people and content

• Key outputs: re-investment in drama, radio news and current affairs, and music

• This investment is what has underpinned excellent performance of this portfolio this year

Public broadcasting performance

• Local music quota for PBS radio was increased to 40% in August 2003

• PBS radio continued to perform well above the minimum quota

Public Broadcasting performance

PBS Television

• PBS Television channels repositioned and dedicated to public broadcasting, in terms of Broadcasting Act

• SABC1 and SABC2 maintained prime time audience dominance of television market

• Delivery on local content increased on both PBS channels in line with new ICASA quotas introduced late 2003

PBS Television

• Language delivery expanded with introduction of news bulletins in siSwati, isiNdebele, xiTsonga and tshiVenda. Increased programming in SA Sign Language and use of subtitles

• SABC 1: programme offering defined by celebrating the freedom to engage real issues. Consolidated its position as the nation’s number 1 channel, reaching 88% of potential viewers

• SABC 2: programmes that truly reflect the multifaceted nature of the South African family. Rapidly re-establishing itself as the nation’s number 2 channel, reaching 90% of potential viewers

Investment in local content

• Increased investment in local content of R132-m, as part of continued focus on local industry, has delivered award-winning programming:

• Radio: drama and documentaries

• Television: drama and documentaries

• Showcasing events of national importance

PCS Radio

• Radio stations in SABC’s commercial service portfolio offer programmes and services that are in keeping with the principles of public broadcasting

• Metro FM continues to grow brand presence and audience, with over 6-million listeners

• Significant investment in 5FM, leading to 13% growth in audience

• Tighter focus on Goodhope FM, to address challenges

PCS Television

• As a commercial channel, SABC 3 prides itself on bringing viewers a fusion of the best of local with the best of international programmes

• Exceeded its local content quota and delivered quality local content, eg. Isidingo

• Introduction of South Africa’s first daily talk show, 3-Talk

• Moving news to 7pm has ensured its position as the most-watched English news bulletin

News and current affairs

• News content informed by editorial policies• Special focus on elections through Current

Affairs slots on radio and television, resulting in accolades from key stakeholders

• Programmes aimed at reflecting a country in transition and marking the first Decade of Democracy

• All television Current Affairs shows tackled the key election campaign issues, such as unemployment, HIV/Aids and crime

News and Current Affairs

• Radio News and Current Affairs• Extended Current Affairs programmes on SAfm• Production of iPhalamente on Ukhozi FM

• Television News and Current Affairs• For the first time ever, television bulletins in siSwati,

isiNdebele, xiTsonga and tshiVenda• Asikhulume, a Nguni weekly Current Affairs show was

introduced on SABC 1 and immediately established itself as the biggest Current Affairs show in South Africa

SABC Africa

• SABC Africa leading broadcaster of African programmes in the DSTV bouquet

• 180 Degrees in Africa• 60 Minutes Live• Live coverage of key events such as inauguration

of Pan African Parliament• Entertainment on SABC Africa continued to cross

borders with top quality African films in English and French

Education

• Increased delivery: broadcast minutes up 20% • Established itself as a world leader in dramatic

edutainment• Has earned an enviable reputation for excellence

in the production and delivery of educational material

• This development has attracted an impressive list of funders, sponsors and stakeholders

Religion

• Continued to reflect diversity of faiths in South Africa:• The Big Question: an interactive magazine

show on SABC 2• The Chatroom: a multifaith youth morality

show • HIV/Aids awareness campaign• National Transformation Day of Prayer• Bayethe Jesu

Sport

• Continued increased investment in domestic soccer, cricket, rugby and minority sports, plus premier events:• 2010 bid matches/bid• All Africa Games 2003• Rugby World Cup 2003• President’s Cup golf • Africa Cup of Nations 2004

• Number of future contracts secured

Section 4Financial outcomes

Robin NicholsonChief Financial Officer

Key financial imperatives• Sustainable financial outcomes within the context of

the SABC’s mixed funding model• Strategic and deliberate focus on the funding of core

activities of the SABC– The funding of programming including news– The provision and distribution of broadcasting services– The technologies and facilities that support broadcasting

activities of the SABC

• Modernisation of the organisation’s financial management and systems

Highlights • The corporation remained largely self-funded (97% of revenue from

SABC activities)• Revenue sources increased by 11%

– TV revenue grew by 14%– Radio revenue grew by 18%– Non core revenues declined in line with expectations– TV license revenue grew by 10%

• Costs remained contained– Programme and broadcast costs grew by 6%– Personnel remuneration (excl. PRMA) grew by 7%– News costs grew by 9% in total– Sport costs grew by 17% in total – Facilities costs remained constant

• Contribution from TV improved by R128m• Contribution from Radio improved by R66m• An overall improvement of R151m from a loss of

R148m to a profit of R3,4m

Income StatementsIncome Statements for the year 31 March 31 March

2004 2003Rm Rm

Revenue 2 712 2 452 Cost of sales ( 1 149) ( 1 083) Gross profit 1 563 1 369 Personnel remuneration ( 771) ( 657) Signal distribution and linking costs ( 286) ( 264) Marketing costs ( 131) ( 112) General and administrative expenses ( 357) ( 329)

Profit from operations before depreciation 18 7 Depreciation ( 83) ( 91)

(Loss)/ profit from operations before net financing income ( 65) ( 84) Net financing income 23 52

(Loss)/ profit from operations before exceptional item ( 42) ( 32) Provision for state loan recovered/(raised) 46 ( 116)

Net profit/(loss) for the year 3 ( 148)

Revenue analysis

31 March 31 March Revenue Revenue analysis 2004 2003 growth

Rm Rm %Television 1,585 1,394 14 Radio 568 480 18 Audience Services 398 361 10 Other 161 217 -

2,712 2,452 11

Drivers of growth

• Audience performance• Sales focus • Delivering value for advertisers• TV licence increase assisted growth in last quarter• TV licence growth driven through collection

efficiency and new regulations

Segmental analysis

• Primary segment reflects the separation required by the Broadcast Act

• The secondary segment represent the media and platform segmentation

• Clearly overlap in the segments and analysis

Segmental analysisPrimary segmental analysis

Year to March 2004 Public

Services

Commercial

Services

Audience Services Content

Facilities Other Total

R millions

Revenue 1 476 677 398 98 28 35 2 712

Cost of sales ( 513) ( 207) ( 9) ( 385) ( 16) ( 19) ( 1 149)

Gross profit 963 470 389 ( 287) 12 16 1 563

( 386) ( 111) ( 38) ( 322) ( 341) ( 430) ( 1 628)

577 359 351 ( 609) ( 329) ( 414) ( 65)

Net Interest - - - - ( 5) 27 22

Exceptional item - - - - - 46 46

Segment contribution 577 359 351 ( 609) ( 334) ( 341) 3

Year to March 2003 Public

Services

Commercial

Services

Audience Services Content

Facilities Other Total

R millions

Revenue 1 215 659 361 148 47 22 2 452

Cost of sales ( 449) ( 217) ( 8) ( 369) ( 17) ( 23) ( 1 083)

Gross profit 766 442 353 ( 221) 30 ( 1) 1 369

( 363) ( 102) ( 41) ( 256) ( 340) ( 351) ( 1 453)

403 340 312 ( 477) ( 310) ( 352) ( 84)

Net Interest - - - - ( 1) 53 52

Exceptional item - - - - - ( 116) ( 116)

Segment contribution 403 340 312 ( 477) ( 311) ( 415) ( 148)

Profit/(loss) from operations

Shared Services

Profit/(loss) from operations

Other operating income and expenses

Other operating income and expenses

Shared Services

Primary segments PBS and CBS

• Growth in PBS driven by both Radio and TV• CBS improved contribution to PBS through

improved profitability• PBS content cost grew in line with focused delivery.

Increased by R64m• Investments in News, Sport and Education content

grew by R132m • Facility costs remained constant with prior year but

with increased internal utilisation

Secondary segmentationSecondary segmental analysis

Year to March 2004 Television Radio

Audience Services Content

Facilities Other Total

R millions

Revenue 1 585 568 398 98 28 35 2 712

Cost of sales ( 667) ( 53) ( 9) ( 385) ( 16) ( 19) ( 1 149)

Gross profit 918 515 389 ( 287) 12 16 1 563

( 287) ( 210) ( 38) ( 322) ( 341) ( 430) ( 1 628)

Profit/(loss) from operations 631 305 351 ( 609) ( 329) ( 414) ( 65)

Net Interest - - - - ( 5) 27 22

Exceptional item - - - - 46 46

Segment contribution 631 305 351 ( 609) ( 334) ( 341) 3

Year to March 2003 Television Radio

Audience Services Content

Facilities Other Total

R millions

Revenue 1 394 480 361 148 47 22 2 452

Cost of sales ( 616) ( 50) ( 8) ( 369) ( 17) ( 23) ( 1 083)

Gross profit 778 430 353 ( 221) 30 ( 1) 1 369

( 274) ( 191) ( 41) ( 256) ( 340) ( 351) ( 1 453)

Profit/(loss) from operations 504 239 312 ( 477) ( 310) ( 352) ( 84)

Net Interest - - - - ( 1) 53 52

Exceptional item - - - - - ( 116) ( 116)

Segment contribution 504 239 312 ( 477) ( 311) ( 415) ( 148)

Other operating income and expenses

Other operating income and expenses

Secondary segmentation

• Televisions contribution grew by R127m and used to support News, Education and Sport

• Radio increased the contribution to the group by R66m

• The PBS stations showed exceptional growth in revenue in the year with some reporting growth in excess of 26%

• Other costs include provisions for Post-retirement Medical contributions of R7m charged v R76m release in prior year distorting the prior year comparative

• Like for like prior year was R427m this year R414m

Costs• Below revenue growth resulting in improved

margins• Central costs remain a focus and will only be

contained once appropriate technology changes take place

Investment income

• Lower cash holding over the course of the year due to Bop funding

• 600 basis point decline also impacted• Cash used to support core operations not the

income statement

Balance sheetBALANCE SHEETS 31 March 31 March

2004 2003Rm Rm

ASSETS

Non-current assets 486 459 Property, equipment and vehicles 468 440 Long-term loan receivable 18 18 Other non-current receivable - 1

Current assets 1 200 1 119 Programmes and rights 393 344 Inventories 5 5 Accounts receivable 504 490 Short-term investments 197 254 Financial assets 21 - Cash on hand and bank 80 26

Total assets 1 686 1 578

Working capital management

• Saw growth in current assets as new programmes grew inventory

• Trade receivables grew in line with revenues• Cash and cash investments slightly better than the

prior year reflecting the focus on assets management

• Accounts payable increased significantly with rights payments due to Olympics and 2006 World Cup

Financial statementsBALANCE SHEETS 31 March 31 March

2004 2003Rm Rm

EQUITY AND LIABILITIES

Capital and reserves 828 822 Share capital and permanent capital 27 27 Insurance reserve 9 8 Foreign currency reserve - ( 7) Accumulated profits 792 794

Non-current liabilities 253 252 Long-term liabilities 30 35 Employee benefits 223 217

Current liabilities 605 504 Licence fees received in advance 46 40 Grants and sponsorships received in advance 11 11 Accounts payable 475 379 Provisions 61 51 Current portion of long-term liabilities 12 23

Total equity and liabilities 1 686 1 578

Financial statements31 March 31 March

CASH FLOW STATEMENTS FOR THE YEAR 2004 2003Rm Rm

CASH FLOWS FROM OPERATING ACTIVITIES

Cash receipts from customers 2 698 2 372Cash paid to suppliers and employees ( 2 613) ( 2 524) Cash generated/(utilised) from operations 85 ( 152) Cash advanced on state loan account - ( 79) Interest received 30 55 Interest paid ( 7) ( 3) Cash retained/(utilised) from operating activities 107 ( 179) Distribution ( 2) ( 2) Net cash inflow/(outflow) from operating activities 105 ( 181)

CASH FLOWS FROM INVESTING ACTIVITIES

Net cash (outflow)/inflow from investing activities ( 92) 20 Replacement of property, equipment and vehicles ( 104) ( 111) Proceeds from sale of assets 11 3 Decrease in non-current receivable 1 2 Decrease in long-term loan receivable - 126

CASH FLOWS FROM FINANCING ACTIVITIES

Net cash inflow/ (outflow) from financing activities 41 146 (Decrease)/increase in long-term liabilities ( 16) 46 Decrease/(increase) in short-term investments 57 100

Net increase/ (decrease) in cash and cash equivalents 54 ( 15) Cash and cash equivalents at beginning of the year 26 41 Cash and cash equivalents at end of the year 80 26

Cash flow statement

Cash flow from operations improved• Cash generated from operations improved by R237

m moving from a deficit of R152m to a positive cash flow of R85 m

• Investment in capital replacement was R104m, including support for the technology renewal programme

• Cash and near cash maintained

End