Chief Financial Officer’s review

The NLC was established with the primary mandate of regulating lotteries and sports pools. From that regulatory activity, the NLC is enabled to distribute funds to good causes. In this way, we seek to bring about growth by ensuring that funds are distributed to qualifying beneficiaries to contribute to job creation, rural development, infrastructure development, promoting wellness and social cohesion.

Overview of 2019/20 performance

This inspiring ambition does not come without its challenges, however. In a context characterised by a deteriorating macro-economic environment, we continued to face challenges in meeting the growing demand on the NLDTF. Prior to the onset of the COVID-19 pandemic – which has had a profound effect on revenue, specifically in the 2020/21 financial year – growth remained stagnant in the context of escalating beneficiary needs. From the share of national lottery ticket sales. The contribution to the NLDTF has remained static over the years. During the period under review, NLDTF contribution increased marginally by 0.4% to R1.632 billion, attributable mainly to high jackpots on both Powerball and Powerball plus.

The weighted average ROI exceeded the Annual Performance Plan target of 8%, with the actual return at 8.42%. During the year under review, expired and unclaimed prizes decreased by 4% as a result of the successful campaign by the operator to communicate to participants when prizes are won or are about to expire.

There was a downward trend in the revenue generated from society lotteries, predominantly attributable to the negative economic outlook, which has reduced the sponsorships for prizes that most NPOs depend on when running society schemes.

Pleasingly, grant allocations increased by 3% to R1.347 million as at 31 March 2020 due to the increase in revenue.

Ever-mindful of the challenging economic realities in which we operate, we continue to focus on improving efficiencies to reduce operational costs, where feasible. During the year, many gains were made in this regard, however, given the Board’s strategy to reposition the NLC as a regulator, necessary additional funding was directed to creating education and awareness through media coverage on the NLC’s regulatory mandate, along with a special campaign launched to mark the NLC’s 20th anniversary. Furthermore, we conducted research in various areas, including matters that relate to the NLC’s regulatory mandate and a study on the impact of our grant funding activities.

During the year, we completed the acquisition and refurbishment of two provincial offices in the Northern and Eastern Cape. These purchases mark the continuation of our property strategy, which was developed following a comparative cost and value analysis between owning or renting the buildings we operate from. Following this analysis, we have pursued our property strategy at a measured pace and have, to date, purchased and refurbished five of our office buildings in the Free state, Mpumalanga, North West, Northern Cape and Eastern Cape provinces.

The Group continues to focus on clean administration and once again received unqualified audit opinions with no findings (clean audits) opinions from the Auditor-General for the consolidated financial statements of the NLC and separate financial statements of the NLC, NLDTF and NLPT.

Furthermore, in March 2020, SAICA recognised the NLC with an Excellence in Public Finance Management award for NLDTF. The criteria used for the recognition included, amongst others, that the organisation must have achieved at least three consecutive clean audits; be financially healthy and have achieved at least 50% of predetermined objectives.

SAICA further states that the criteria indicate that the recognised institutions must have implemented sound financial controls and be sustainable. The criteria also include the achievement of predetermined objectives to ensure that institutions do not chase excellence in public finance management at the expense of service delivery.

Responding strategically to a challenging context

In light of the business implications of COVID-19, we have activated our business continuity plan to ensure the NLC continues to function and deliver on our mandate – even under these unforeseen conditions. The NLC has implemented appropriate mitigating strategies and initiatives to address risks identified as a consequence of the unfolding pandemic.

The impact of lockdown regulations and the expected loss in revenue for the 2020/21 financial year has resulted in the organisation reviewing its Annual Performance Plan and divisional functional strategies to ascertain the best means of meeting the needs of all our stakeholders, and especially the communities we seek to serve through our grant funding activities. This process involved the strategic reprioritisation of targets for the 2020/21 financial year to realign with highlighted priorities while taking into consideration available resources.

The NLC has assessed the impact of the COVID-19 pandemic on our results. While we cannot be certain of the extent to which the economy will recover in the year ahead, even when the worst-case scenario is applied to forecasted figures, there is no doubt regarding the ability of the NLC to continue as a going concern or the Group’s ability to pay debts as they become due.

Caring for our stakeholders

The NLC remained committed to service delivery and the upliftment of communities through our procurement strategy and expeditious turnaround times to beneficiaries. Our procurement strategy focuses on preferential procurement from designated groups, enterprise supplier development programme for small businesses, localised procurement and expeditious turnaround times of payment to suppliers.

In this financial year, payment to established businesses was made within nineteen (19) days on average and to small to medium businesses within eight (8) days on average (for more information, please see our case study on here).

Preferential procurement is an important tool for achieving economic growth and enabling meaningful participation in the economy by previously disadvantaged groups and, in this way, supporting sustainable development. Our preferential procurement strategy is geared towards compliance with the B-BBEE Act. During the financial year under review, the NLC ensured that preferential procurement was prioritised in order to stimulate activity. A total of R176 million was procured from businesses owned by designated groups, with the breakdown as follows:

• Ownership by black people – R108.7 million.
• Ownership by black women – R34.7 million.
• Ownership by black youth – R32.2 million.
• Ownership by black people with disabilities – R0.53 million.

Small Businesses represent more than 98% of the firms in South Africa, employing between 50-60% of our workforce across all sectors, and are responsible for a quarter of job growth in the private sector1. For this reason, the major emphasis of enterprise and supplier development, especially in a COVID-19 context, should be the long-term sustainability of small businesses. We recognise that by enabling small businesses, we are promoting South Africa’s future economic growth. The NLC therefore continued to focus on the implementation of its supplier development programme during the year under review. The major emphasis of enterprise and supplier development is the long-term sustainability of small businesses. We recognise that by enabling small businesses we are enabling South Africa’s future economic growth. The NLC continued to focus on implementation of its enterprise supplier development programme during the year under review.

99% of procurement was localised within the provinces, and furthermore, once the lockdown was announced, just before year-end, we prioritised the early payment of our suppliers, especially small businesses, understanding the cash flow difficulties that a lockdown could create and the impact that this may have on their ongoing sustainability.

Cash disbursed to beneficiaries amounted to R1.284 billion during the financial year. The NLC continued to fast track payments in line with our ambition of supporting beneficiaries to enable socio-economic development. As at 31 March 2020, 91% of all first tranche payments were paid within the regulated 60 days. On average, beneficiaries were paid within 33 days of receipt of a compliant grant agreement. The nationwide lockdown resulted in payments being temporarily halted in the last week of March 2020 as activity at these organisations ceased. As lockdown eased, however, we were able to evaluate allowed activity levels for each organisation and make funds available accordingly.

Appreciation

I would like to take the opportunity to applaud the people who have made these results possible. To the Board, thank you for your wise counsel and guidance. I would like to thank my fellow executives for their leadership and support. To the finance team, your tireless pursuit of excellence is much appreciated.

Finally, to our shareholder and other stakeholders, thank you for your continued support as we strive to achieve our ultimate ambition of being a catalyst for social upliftment in a context that has only highlighted the importance of our success in this endeavour.

Ms Xolile Ntuli
Chief Financial Officer