Performance Analysis and Financial Overview for FY2018
The presentation to the Portfolio Committee on Trade and Industry in March 2019 highlighted the organization's performance recap for the 2017/18 financial year, progress on the SABS Turnaround Plan, Corporate Plan for 2019/20, and an update on the Eskom investigation. It covers the promotion of standards, financial performance, revenue sources, and key focus areas. The total revenue for FY2018 was R760 million, with a loss of R48.2 million. Revenue sources included conformity assessment services, training and standard sales, laboratory services, and certification. The report provides insights into new standards published per sector, analysis of standards, and adoption trends.
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Presentation to the Portfolio Committee on Trade Presentation to the Portfolio Committee on Trade and Industry and Industry March 2019 March 2019 1
TABLE OF CONTENT 1. Recap of the performance for the 2017/18 financial year 2. Progress on the SABS Turnaround Plan 3. Corporate Plan 2019/20 and key focus areas 4. Update Eskom investigation 2
FY2018 Promotion of standards Currently maintaining around 7 430 standards Published 314 standards in the year, with a strong focus on health care, telecommunications, manufacturing and engineering Completed seven out of nine IPAP projects Total number of standards published 600 498 470 500 370 400 314 300 218 New standards published per sector 200 25 100 0 20 FY2014 FY2015 FY2016 FY2017 FY2018 15 Analysis of standards published during 2018 10 5 120 99 90 100 0 Agriculture Electrical engineering Mathematics Telecomunications Generalities Health care technologies Other Energy and heat transfering engineering Mining and minerals Civil engineering Electronics Image technology Information technology Environment and health protection Domestic and commercial Manufacturing engeneering Metrology and equipment Petroleum and related technologies Textile and leather technology Construction materials and building Fluid systems and components Services 80 50 60 31 40 25 17 20 0 Adoption Home-grown Amendment Revision New FY2016 FY2017 FY2018 3
Financial performance for FY2018 Total revenue of R760 million, including revenue from conformity assessment services and grant has remained flat over the past few years Loss for the year increased to R48.2 million Received an disclaimer audit opinion for the AGSA Total income Net profit/loss 800 40 32 30 700 22 193 190 243 20 600 183 10 500 R million - R million 400 (10) 300 557 545 516 (20) 501 200 (30) 100 (40) - (50) (44) FY2015 FY2016 FY2017 FY2018 (48) (60) Revenue Grant FY2015 FY2016 FY2017 FY2018 4
Sources of revenue Revenue for conformity assessment services totaled R516 million for FY2018 (FY2017: R501 million) Revenue: Training and standard sales Revenue: Laboratory services Revenue: Certification 330 300 45 320 40 250 35 310 200 30 300 R million 25 R million R million 150 20 290 15 100 280 10 5 50 270 0 FY2015 FY2016 FY2017 FY2018 260 0 Training Standard sales FY2015 FY2016 FY2017 FY2018 FY2015 FY2016 FY2017 FY2018 Includes revenue from tests conducted on behalf certification division 5
High level context for turnaround SABS placed under administration in July 2018 Ongoing diagnostic process highlights . Turnaround plan approved by Shareholder - Oct 2018 and Jan 2019 The need for turnaround plan driven by Shareholder/SABS unsustainable adversarial policy and mandate creep Stakeholder and client relations deterioration: Customer specific requirement testing, declining capacity/capability in testing infrastructure, adversarial client/stakeholder relations and sub-optimal resolution of complaints and queries Ineffective or sub-optimal business processes permit expiry, loss of accreditation, standards development Human capital and policies: Loss of critical skills, long-standing mission critical vacancies Arbitrary shifting of functions and personnel deployment Sub-optimal suite of policies Pervasive bottlenecks e.g. procurement Degraded Performance Management Maintenance and facilities : Serious shortcomings and lack of capex investment in plant and equipment. Finances; Disclaimer audit opinion Precipitous fall in revenue in certification and laboratory services Stabilising SABS over the six month tenure of Administrators Increase in customer and industry complaints Substantial governance and operational performance concerns Extension of Administrators term - medium term ongoing fix-it execution simultaneously laying foundations for longer term strategy development Weak financial position and significant sustainability concerns 6
Achievements highlights: Financial management and related Cost containment & revenue generation: programme implemented with ongoing effort to secure stronger execution/outcomes Work in progress Financial & related External Audit: Disclaimer - extensive engagement with the AGSA. Robust audit plan in place. Additional fiscal transfers from the dti: Critical maintenancecompleted on plant room and related infrastructure. Roll-out of sequenced investment in laboratory services. Procurement: Interventions to overcome significant bottlenecks - improved turn- around times and cost savings. Further improvement requirements. Additional planned initiatives Financial analysis: deep dive analysis into cost and revenue structures, pricing models. Roll-out of ICT strategy in constrained fiscal conditions. Digitisation to secure integration; efficiencies and integrated, segmented improved customer engagement and experience. 7
Achievements highlights: Human Capital Successful process to fill mission critical positions. Work in Progress Human Capital Programme of internal communications and stakeholder management in place labour, management and staff. Internal stakeholder engagement to build coherence with clear messaging to raise productivity and outcomes. Additional planned initiatives Organisational Skills Audit Review Review of the SABS organisational structure fit for purpose mix of support and client facing divisions Review and finalisation of the full suite of SABS policies will be completed by the end of the financial year. This includes the finalisation and implementation of an employment equity plan and the occupational health, safety and environmental management plan, training, learning and development plan 8
Key achievements to date: Certification SANAS Product Certification: maintained in December 2018 Local Content Verification: capacity is in place for the dti verification. Funding model for wider verification requires government attention. Work in Progress Expired Permits: Interventions to secure management, systems and oversight improvements. Further consolidation indicated. Certification Singular focus on client retention and revenue pipeline and growth. Additional planned initiatives Review of business model and turn-around plan inclusive of coastal regions. Increasing outreach and visibility to stakeholders and customers 9
Achievement highlights: Laboratory services Sequential reinstatement of Customer Specific Requirement / Partial testing Work in Progress Laboratory services Incremental testing infrastructure investment programme underway Redesign of the laboratory services delivery model Additional planned initiatives Productivity improvement plan in progress Renewal of laboratory infrastructure New paint lab completed and industry have recommitted to SABS. Plans for upgrading/investment in NETFA; petroleum Chemicals and Materials and Agro-processing underway. R5m spent, R10m approved and R43m awaiting approval Revenue operating profit improved New business development underway in automotive and mechanical; chemicals and materials; electro-tech; mining and minerals, paints, piping, footwear, cement, geyser, refrigerated trucks and number plates. Various industry events planned 10
THREE YEAR CORPORATE PLAN: OVERVIEW OF REFINED STRATEGY Vision To be the trusted standardisation and quality assurance service provider of choice Mission The SABS provides standards and conformity assessment services to contribute towards the efficient functioning of the economy Strategic objectives Achieve and maintain financial sustainability Continuous improvement in internal systems and process Creating and maintaining a high- performance culture Provide integrated conformity assessment service solutions Develop, promote and increase the use of standards Overall, maintain financial sustainability to support long-term growth Employees are SABS most valuable resource and the SABS is committed to attracting, developing, retaining, and rewarding the best people Maintaining and promoting standards forms a critical part of the effort to secure socio-economic development, national industrialisation, and open up regional trade opportunities and economic integration to the growing and evolving South African economy To improve operational efficiencies and maintain a stable operating platform Provide conformity assessment solutions across value-chains and be the partner of choice in these service offerings Strategic objectives and key performance metrics refined 11
KEY FOCUS AREAS: DEVELOP, PROMOTE AND INCREASE THE USE OF STANDARDS National Standards Development Average number of days to publish a standard Development of standards 600 Review current capacity and capability and establish an optimised structure aligned to best practice. o 504 500 450 423 421 400 380 360 400 Refocusing and strengthening Technical Committee output and productivity o 300 200 In key IPAP sectors particularly agro-processing, mineral beneficiation, upstream mining capital equipment, energy efficiency and waste management and transport o 100 0 FY2016 Actual FY2017 Actual FY2018 Actual Dec 2018 Actual FY2020 Target FY2021 Target FY2022 Target Improve the interface with government regulators and industry to ensure alignment of efforts. o Promotion of standards Forge new and strengthen existing regional and international stakeholder relationships (BRICS, ISO, IEC, SADC, ARSO) to increase standards harmonisation, trade relationships (market access) and strategic partnerships in line with national priorities o Promoting standardisation through stronger communication and marketing to increase awareness of standards and the centrality thereof in support of inclusive growth, opening up of markets and job creation o 12
KEY FOCUS AREAS: PROVIDE INTEGRATED CONFORMITY ASSESSMENT SERVICE SOLUTIONS AND OPERATIONAL EFFICIENCIES Key focus areas Conduct business process modelling and productivity improvement project Improve overall customer engagement Embark on an infrastructure and equipment renewal programme. Funds have been set aside for immediate utilisation to upgrade the most critical laboratories Laboratory Services Continued roll-out of Customer Specific Requirements (CSR) Testing Grow revenue from R204 million in 2019/20 to R318 million by 2021/22 New business development opportunities in: automotive and mechanical (mostly civil testing), chemicals and materials, electrotechnical as well as mining and minerals Ongoing training of all laboratory staff 13
KEY FOCUS AREAS: PROVIDE INTEGRATED CONFORMITY ASSESSMENT SERVICE SOLUTIONS AND OPERATIONAL EFFICIENCIES Key focus areas Digitisation of key processes and practises to improve turnaround times Increase awareness of local content verification. Improve capacity and capabilities to conduct local content verifications efficiently Certification Improve overall customer engagement, evaluate and implement new business opportunities and secure public sector collaboration and partnerships to support the policy and regulatory priorities Grow revenue from R335 million in 2019/20 to R396 million by 2021/22 Boosting partnership with government entities in support of the need to develop management and technical skills of public sector employees The African region offers a significant market for the development of standardisation and technical skills of its people Training Leveraging technology to deliver training through blended and e-learning modes and digital marketing Grow revenue from R14 million in 2019/20 to R27 million by 2021/22 14
KEY FOCUS AREAS: ECONOMIC PARTICIPATION Number of SMMEs supported Supporting the economic participation of designated group Target based on circular received from the dti Actual Target % of women supported 50% 111 120 % of youth supported 30% 100 100 90 % of people of disabilities supported 2% 83 80 75 73 80 Both an external and internal focus 60 External: Individuals supported as part of the DI innovation programme 40 29 20 Internal: Individuals appointed in the SABS - FY2016FY2017FY2018 Dec FY2019FY2020FY2021FY2022 2018 Support targeted towards: Skills transfer to previously disadvantaged designers o Guiding small to medium enterprise, including Black industrialist as well as big corporates and government departments to meet product and service requirements as per South African National Standards (SANS) and ultimately certification o Review of the current business model in early 2019 to respond to the client requirements, innovation landscape and to align to the industrialisation mandate of the dti 15
KEY FOCUS AREAS: ACHIEVE AND MAINTAIN FINANCIAL SUSTAINABILITY Return to profitability in FY2020/21 Projected loss for FY2019/20 o Need for additional costs to fill mission critical technical posts and additional opex (licences and external engineering skills requirements) to support future growth Group revenue SABS Group: Net profit 900 60 829 43 800 731 40 22 700 614 20 600 544 3 516 501 R million R million - 500 373 400 (20) 300 (40) 200 (40) (44) (48) (60) 100 (66) - (80) FY2016 Actual FY2017 Actual FY2018 Actual Dec 2018 Actual FY2020 Target FY2021 Target FY2022 Target FY2016 Actual FY2017 Actual FY2018 Actual Dec 2018 Actual FY2020 Target FY2021 Target FY2022 Target * Excludes government grant and other income 16
KEY FOCUS AREAS: CREATING AND MAINTAINING A HIGH- PERFORMANCE CULTURE Integrated Performance and Talent Management Practices Success Embed an optimal performance management system Conduct performance management training Develop an integrated talent management strategy Integrated Wellness Programme Improving the health and well-being of SABS employees Institution-wide Learning Remuneration and Reward Philosophy and Framework Facilitate a SABS transition towards a service and customer- centric culture Revise reward and remuneration policies
TABLE OF CONTENT 1. The SABS Shareholder instructed the SABS Board of Directors to conduct a forensic investigation into the circumstances surrounding the SABS testing of coal samples at the Brakfontein mine for Eskom. 2. The then SABS Board of Directors agreed to a Terms of Reference for the investigation. 3. A firm of Auditors was commissioned to undertake a forensic investigation. 4. Subsequently in July 2018 the Minister placed SABS under administration and dissolved the SABS Board of Directors. 5. The Auditing firm have submitted a draft report to the Administrators. The Administrators have not yet signed off on the report pending further engagement with the firm on the scope of the investigation and consultation with the Shareholder. 18
THANK YOU! THANK YOU! 19
