SABS reduces net loss by 94%

The South African Bureau of Standards (SABS), which was placed under administration in June last year, reduced its net loss by almost 94% to R4.4 million in the year to March from the net loss of R70.7 million in the previous year.

The operating loss for the year was offset by net interest income earned on investments of R30.1 million compared to R29.1 million in the prior year.

The overall operating loss for the year reduced by 56.7% to R34.4 million from R79.5 million.

Revenue from services declined by 2.6% to R501.3 million from R514.4 million, while benefits from various cost management initiatives contributed to a 5.9% reduction in total operating expenditure to R847.8 million.

Outlook remains challenging

Garth Strachan, the acting chief executive of SABS, said although bureau had produced better results than in the previous year, the outlook for the next financial year remained challenging and the SABS must continue to deliver on its turnaround strategy.

Strachan said the SABS would continue to consider options to return to profitability.

The bureau received a qualified audit opinion from the Auditor-General for several reasons, including irregular expenditure.

In the previous year, the SABS received a disclaimer opinion from the Auditor-General.

Confirmed irregular expenditure amounted to R11.79 million compared to R3.1 million in the previous year.

The SABS said confirmed irregular expenditure related to amounts that had been investigated, with disciplinary proceedings against the individuals concerned currently underway.

But Auditor-General Kimi Makwetu said his office was unable to obtain sufficient appropriate audit evidence that all irregular expenditure incurred was identified and disclosed because the SABS did not have an adequate system for identifying all irregular expenditure.

Issues

The Auditor-General also emphasised a number of matters, including uncertainty related to the future outcome of “exceptional litigations”, the material losses of R35.4 million that were incurred because of write-offs of irrecoverable trade receivables and prior period errors.

Group bad debts written off rocketed to R35.4 million from R6.67 million.

Contingent liabilities rose to R45.5 million from R5.1 million and were partly due to alleged negligence in testing products, which was largely covered by insurance, and Commission for Conciliation, Mediation and Arbitration (CCMA) employee dispute cases that were still pending.

“The entity is the defendant in legal cases. The group is opposing the claims, as it believes that the claims are not valid. The ultimate outcome of the matter could not be determined and no provision for any liability that may result was made in the financial statements,” the Auditor-General said.

Investments will continue

Strachan said a further deficit was currently projected for the SABS in its 2019/20 financial year but the bureau would continue to invest in the refurbishment and replacement of essential equipment and facilities, and the filling of critical human resources.

“This planned expenditure is required to increase revenue, maintain operational stability and position the organisation for future growth in a competitive environment,” he said.

Strachan added that although the SABS received a grant from the Department of Trade and Industry, about 70% of its revenue was derived from competitive services in a commercial market.

Jodi Scholtz, one of three SABS co-administrators together with Strachan and Tshenge Demana, said the SABS had over the past few years been confronted with various challenges that impacted on its ability to effectively execute its mandate and remain financially sustainable.

Scholtz said key among these were industry complaints regarding the development of standards, the inability to retain customers and the growing expenditure base, a high employee attrition rate, suboptimal business processes and systems, and inadequate skills levels in certain business areas.

She said stakeholder and customer confidence levels in the SABS had deteriorated in the recent past and need to be rebuilt.

“The organisation has in recent years lost a large number of clients and it was unable to retain newly attracted customers. This contributed to declining revenue and impacted the financial positions of the SABS,” she said.

Ebrahim Patel, the trade and industry minister, said in the SABS’s latest integrated report that the role of industrial policy was to unleash private investment and energise the state to boost economic growth and inclusion, which was an essential part of building confidence and the platform for job creation.

“The SABS will have a critical role to play in this new industrial strategy, in maintaining appropriate standards and ensuring that South African-made goods are quality products,” he said.

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