State-owned signal provider, Sentech says it is making progress in implementing its turnaround strategy after a troubling financial year to March in which it wrote off R65 million in irregular, fruitless and wasteful expenditure.
Sentech has previously been referred to as government's problem child, as it has been in financial dire straits for several years.
Last February, a task team was appointed to investigate the company's precarious situation, and found it was in a “weak” and financially thorny position. It has also been through a series of top-level ructions that destroyed the board that was installed last April.
The entity recently presented its annual report to the Parliamentary Portfolio Committee on Communications. Chairman Logan Naidoo said in his presentation that the past financial year was “characterised by the departure of the entire executive committee, breaches of corporate governance, and a disregard for due process”, which resulted in substantial irregular expenditure.
Irregular, fruitless and wasteful expenditure during the year amounted to R66.4 million, of which the entity wrote off R65 million, leaving an outstanding amount of R956 000. It did not recover any of the irregular expenditure.
However, said the chairman, Sentech is solvent to the tune of R740 million, and had reported a profit of R72 million.
Naidoo says significant progress has been made, especially in restoring positive cash flows, improving relationships with customers, and implementing key infrastructure projects. He adds that the “haemorrhaging has stopped” after Sentech terminated loss-making divisions Carrier of Carriers and MultiMedia services.
Although there are still some operational costs, the company will trim these in the new financial year, which will improve profitability, says Naidoo. “In summary, Sentech is solvent, cash-positive and profitable.”
Naidoo says Sentech is a going concern, and received an unqualified audit report from the auditor-general. Its strategic roadmap for 2011 to 2014 will “go a long way in the restructuring of the company as we prepare to enter the digital world”, he adds.
Much to do
CEO Setumo Mohapi says the provider faced a number of legacy and financial challenges. He says the task of executive management and staff, under the guidance of the board, “was to pull together and restore Sentech to its leading position in the information and communications technology sector”.
When the new board came into being last April, its first task was to develop a one-year business plan that would serve as the first part of its turnaround strategy, says Mohapi, who was appointed in November.
The main purpose of the plan was to restore operational and financial stability to make sure Sentech could continue as a going concern, he says. “Despite operating challenges, the company was able to make significant progress in terms of its turnaround plan, and is well placed to consolidate these gains in the current financial year.”
Mohapi says Sentech has a “healthy cash position” with R363 million in unencumbered cash by the end of the financial year, and had improved its collection rate to 95% from a “worrying” 70% after discontinuing its Carrier of Carriers business and improving billing.
Although the positive financial performance is to be celebrated, “we acknowledge that the turnaround programme is not complete”, says Mohapi. “We are still at the early stages, and will need to be prudent going forward to ensure that the company does not retreat into the financial and operating status that will threaten its going concern status.”
Mohapi says this will be managed through an enterprise-wide risk management strategy to make sure that company policies, processes, systems and controls are in place to improve efficiencies and corporate effectiveness.
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