The South African Bureau of Standards is undergoing a major turnaround following years of losses which are eroding its cash reserves.
The SABS, a statutory body which is the national standardisation institution responsible for the safety and quality of products of SA companies, on Tuesday briefed the portfolio committee on trade and industry on the progress of its turnaround plan.
Acting CEO Garth Strachan, who was seconded from the department of trade and industry when the SABS was placed under administration in July 2018 due to failures by the board and management, unpacked the challenges facing the institution – which have been coming along over many years.
Among these are the loss of its certification accreditation, which caused it reputational damage in the market, misguided policy decisions and as much as R65m additional unfunded costs to the company per annum.
CFO Tina Maharaj further unpacked financial challenges at the entity which are two-pronged. Firstly the SABS is not generating enough revenue, in the face of employee expenditure accounting for the majority or 70% of all operational expenditure. Namely the SABS had agreed to offer increasing benefits to central bargaining employees, to the value of R65m per annum, which has not corresponded with revenue generation, Maharaj said.
Secondly the SABS is at risk of its cash resources being depleted by March 2021.
The entity had been profitable between 2009 and 2016, but has been making losses since 2017, Maharaj pointed out. While the trend is expected to rebound in three years, the SABS does not have time before it reaches the day zero of its cash reserves. The company's losses have been eroding reserves, Maharaj explained.
The entity is now embarking on a three-phase turnaround strategy, the first involving stabilising the entity. The second phase, which is where the SABS is at, is to fix the entity by addressing business processes and policies which must be corrected, and the final phase would involve charting a long-term plan.
So far the SABS has managed to achieve cost saving of R53.3m, by cutting operating expenditure from R901.3m to R847.8m.
Maharaj explained that the entity implemented cost containment initiatives – such as reviewing contracts, developing a new cost allocation model and new pricing model, the number of its executives reduced through attrition.
The SABS further elected not to pay bonuses. Maharaj said this was significant because in the past, performance bonuses were awarded even though the entity made losses.
It has also secured additional funding from the department of trade and industry to support capital expenditure over the short term. The entity has also cancelled a R300m digitisation plan in favour of a cost-effective integrated model.
Strachan gave an update on forensic investigations.
One relates to the loss of its International Automotive Task Force accreditation – the investigation picked up on inadequacies at the entity which led to the loss of its accreditation.
"Remedial steps are being taken to address weaknesses. Regrettably, the executives responsible with the general manager are no longer in the employ of the institution, and according to legal advice are beyond reach," Strachan said.
Another investigation relates to irregular appointments at the entity. The investigation picked up on a number of deficiencies in the recruitment and appointment process. One of the executives responsible is also no longer employed at the SABS. A general manager has been suspended, pending disciplinary action, Starchan added.
A forensic investigation into allegations of irregularities by the SABS with respect to the coal testing for Gupta-linked Tegeta Coal Mine. There were some "minor deficiencies" in the operating procedures and compliance, which led to amendments in operating activities. The recourse is beyond the reach of the SABS, Strachan said, and the report was sent to the dti and Eskom.
Strachan said he is confident that phase two of the turnaround plan will secure an "integrated and operational management plan" with strong monitoring and oversight. These plans will be supported by robust sales and marketing initiatives, he said.
He added that the turnaround plan will take time to produce results in making the institution a competitive institutional services company.
He said the entity's financial sustainability and cash position will remain a critical challenge over the two years.
The SABS plans to develop a cost compliance, cost cutting and revenue generation plan, which it endeavors to have ready before the committee's site visit by January 21, Strachan said.