The year under review was characterised by slow economic growth, recession and credit rating downgrades which affected the household spending and disposable income of the lotto participants. South Africa, however, saw improved economic conditions towards the end of the year because of improved growth from primary economic sectors and improved investor and business confidence following the developments in the country’s landscape. Revenue from share of ticket sales increased by 1.46% to R1.392 billion. The National Lottery Operator grossed R5.315 billion (excluding VAT) from ticket sales despite facing continuing challenges from a weakening economy, increased competition from bookmakers and illegal lottery operators.
Grant allocations for the current year amounted to R1.506 billion and a total of R2.073 billion was paid to beneficiaries across all sectors. The liability reached at an all-time low of R580 million through efforts of applying the Grant Finance Management Policy and fast tracking of payments.
King IV report, (2016) maintains that the primary reason for the existence of a business enterprise is to create value. The NLC is experiencing growing demand by applicants for grants with a revenue that cannot service all the applicants. There is thus a need to create long-term shareholder value by embracing the opportunities and managing the risks that result from the NLC’s economic and social responsibilities. The NLC has implemented cost cutting measures in line with Treasury Regulations and continues to explore alternative sources of revenue within the confines of the Lotteries Act in order to maximise revenue for good causes. Furthermore, the Finance division has undertaken to purchase buildings across the provinces which will be converted into office space in order to yield value for the organisation and create a financially viable option to that of leasing.
The NLC continues to monitor its investments in an effort to maximise revenue that is destined for good causes. The investment strategy was reviewed in order to maximise the return on investment and ensure liquidity and capital preservation of amounts invested. The NLC achieved a return on investment of 8.40% surpassing the 8% target as indicated in the APP.
The organisation seeks to always maintain strategic reserves of R1.5 billion as a contingency fund to fund operational expenditure of the NLC and grant allocations for good causes which are distributed through the NLDTF. The reserves for the current financial year amounted to R1.428 billion and the Finance division continues to monitor the reserves closely to determine whether it addresses the risks which are faced by the NLC.
The National Lotteries Participants Trust (NLPT) was established by the Lottery Operator [herein Ithuba Holdings RF (Pty) Ltd in terms of the licence agreement between the dti, NLC and the Lottery Operator. It was established to achieve the regulatory objective of protection of lottery participants and prize monies. For the first time since inception of the NLC, the Auditor-General of South Africa required the NLC to consolidate the NLPT in the financial statements of the NLC. It goes without saying that there are fundamental differences in the interpretation of the relevant accounting standards on the consolidation of the NLPT. Subsequent to numerous engagements during the final stages of the audit and notwithstanding the divergent views, the NLC implemented the recommendation by the Auditor-General to consolidate. The Auditor-General did not audit the consolidated financial statements due to the different audit cycles of the NLC and NLPT and as a result a modified audit opinion was issued on the consolidated financial statements of the NLC. Clean audit opinions were issues and maintained for the separate annual financial statements of NLC and NLDTF for three (3) years in succession. An unqualified audit opinion was issued for the NLPT which has been included in Part F of this report. The NLPT has achieved unqualified audit opinions since inception.
Supply Chain Management controls and processes continue to be in place and strengthened. The NLC and NLDTF did no incur irregular, fruitless and wasteful expenditure in the current financial year.
I would like to take this opportunity to thank the Board, Board Committees, the Commissioner and Executive Management for their continued leadership and support, together with dedicate staff of the NLC, in particular the finance team for their hard work.