Broadband Infraco generated a net loss for the financial year 2010/2011 of R207 million.
Speaking at the company's annual general meeting yesterday, public enterprises minister Malusi Gigaba said this indicates a significant decline from the net loss of R28 million incurred in the previous financial year.
“Remember this is a start-up company, so it is expected that for the next four or five years it will continue to have some degree of loss,” said acting CEO Andrew Shaw.
Gigaba added that of “grave concern” is the qualified audit opinion the company received from the external auditors, due to having incurred irregular expenditure of R151 million and fruitless and wasteful expenditure of R1.9 million.
Infraco also generated lower than expected turnover of R297 million, with a budget R412 million, which is lower than the turnover of R306 million, which was generated in the previous reporting period.
Total incurred expenses of R505 million surpassed the budgeted expenses and reduced the gross operating margins from 23% in the previous year to 12% in the year under review, according to the minister.
Broadband Infraco was established by government several years ago to provide a national telecoms backbone to telcos in SA. Its intention was to drop the cost of connecting to international undersea cables. However, the ailing entity has been rife with internal turmoil.
Leadership build
Gigaba said the net loss can be attributed largely to declining broadband prices, increased maintenance and outsource costs, and shrinking broadband traffic volumes generated from the Neotel right of use contract.
governance and substandard internal controls that are implemented at Infraco, “which has translated into the unacceptable breach in adhering to proper legislation.”
“Following the challenges faced by Infraco in adhering to adequate corporate governance standards, the shareholders have had to implement various interventions to avert further erosion of shareholder value.”
These interventions include strengthening and diversifying the skills complement of the board; appointing an acting CEO to stabilise the entity, which is struggling with vacancies at the various levels of management; and strengthening the shareholder oversight role by fostering active engagement and more regular interaction between the shareholders.
Of five executive committee vacancies that had to be filled, two remain outstanding. The board recently appointed a CFO, CTO, and chief sales and marketing officer.
Shareholder rescue?
In line with government's agenda to create a knowledge economy in which affordable broadband is accessible to all, Infraco has an important mandate to increase availability to broadband connectivity by increasing the reach to include under-served areas, while lowering the cost of broadband connectivity, according to Gigaba.
He added that it is in light of this the Department of Public Enterprises and the Industrial Development Corporation contributed an additional R187 million to “recapitalise” Infraco.
This raised the total shareholder contributions in the company to R1.8 billion by the end of March 2011.
According to a National Treasury official, Broadband Infraco was expected to be self-funding from now.
“It is not only highly unlikely that Infraco will become self-funding, it is also highly probable that its losses will continue to mount, and its services become increasingly outmoded, as it struggles with management and operational issues,” argued WWW Strategy MD Steven Ambrose previously.
Tarnished image
The company been faced with numerous challenges that hindered its delivery and performance in the financial year ended March 2011, said the minister.
“As an endeavour to address the operational challenges faced by BI, the department has also commissioned the services of an independent telecommunications industry consultant to conduct a review of the key areas of the Infraco business.”
He said the review is due to be completed shortly and the shareholders of Infraco remain committed to supporting it.
“Such support is further necessary to ensure the company both sustains its current clients and wins new clients in future. Recent upheavals within the company must have impacted on the image of the company among its clients and stakeholders.”
Proper foot
Gigaba also called on Infraco to ensure it achieves the target of a minimum of 50% of its spend going to BBBEE companies within the next five years.
“I am happy to note that in the year under review Broadband Infraco has managed to exceed its overall BBBEE scorecard targets by 38% and achieved an overall BEE procurement spend of R280 million, which accounts for 88% of total procurement spend.”
He has also asked the board for an analysis of this BEE spend and its impact on the economy in general and on BEE.
“It is important, unequivocally to state that the shareholders remain confident of the viability of Broadband Infraco and its ability to meet its mandate, providing that we continue expeditiously to address whatever remaining challenges within the company.
“We are happy that work has already begun and remedial steps have been taken...to place the company on its proper footing.”
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