State-owned telecommunications company Broadband Infraco has turned in an operating loss of R207m in its 2011 financial year and received a qualified audit opinion from its external auditors, which public enterprises minister Malusi Gigaba has described as “of grave concern”.

Public enterprises and the Industrial Development Corp have also “recapitalised” the company to the tune of R187m. The new investment in Infraco brought total shareholder contributions to R1,8bn by the end of March 2011.

Infraco generated sales of R297m in the 12-month period, far short of its budgeted turnover of R412m. Total incurred expenses of R505m surpassed budgeted expenses and led to a reduction in gross operating margins from 23% in the previous year to 12%.

Gigaba blames declining broadband prices, increased maintenance and outsource costs, as well as shrinking broadband traffic volumes from a contract the company has with Neotel, previously its sole customer.

“Of grave concern is the qualified audit opinion the company received from the external auditors due to having incurred irregular expenditure of R151m and fruitless and wasteful expenditure of R1,9m,” Gigaba says.

“As the shareholders, we wish to confer our dissatisfaction with the level of poor corporate governance and substandard internal controls that are implemented at Broadband Infraco, which has translated into the unacceptable breach in adhering to appropriate legislation.”

Gigaba says government has had to implement “various interventions to avert further erosion of shareholder value”.

Government is working to “strengthen and diversify the skills complement of the board”, appointing Andrew Shaw as 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”.

The board, working with Shaw, has “undertaken measures to fill the vacancies that existed in the exco team”, Gigaba says. “This has resulted in the recent appointment of a chief financial officer, chief technical officer and chief sales & marketing officer, positions that had been vacant for some time.”

Public enterprises has also commissioned the services of an independent telecoms industry consulting firm owned by T-Systems to conduct a review of the business. It should present its report shortly. — Duncan McLeod, TechCentral