1. SA Post Office 2nd Quarter performance YTD 30 September 2016

2. Financial performance Performance indicators Critical next steps
Contents
Overview
Financial performance
Performance indicators
Critical next steps
Additional slides

3. Overview
Despite the tough trading conditions for the first six months, SAPO achieved revenues of R2 321m, which R802m below target.
On a positive note during the first six months of the financial year, SAPO achieved the following successes;
SARB has approved the Postbank section 12 application to establish a bank;
conclusion of syndicate term loans from various financial institutions amounting to R3, 700m, consolidating the previous R1, 000m term loan;
total payments to creditors of R1,791m; (R883m paid during quarter 2);
reduction in the R899m creditors backlog from March 2016 by R639m to R260m;
settlement of historical salary obligations with all employees;
conversion of 6,724 casuals from temporary to permanent employment;
the activation of the voluntary severance package and the exits of 680 employees during September 2016.
customer breakfast meetings to regain customer confidence;

4. Overview
SAPO staff head count declined to 19,876 as at 30th September 2016, which excludes the employees who have opted to take the voluntary severance package.
Investment in our employees resulted in 384 employees graduating on 27th August with the Bachelor in Business Administration degree.
A higher focus on consequence management saw 68 employees dismissed during Q2 mostly for gross negligence, financial misconduct, theft, fraud and misappropriation.
A total of 36, 840 qualifying needy households have been successfully registered for the DTT project to date. 19,710 STB units has been issued in the Northern Cape and Free State provinces. SAPO expects an increase in DTT registrations, due to the analogue signal being switched off at the end of October 2016.
The loss of the RT5 - Government Courier tender demonstrates SAPO’s ongoing battle to secure Government business.
Revenue recoveries and growth still remain a key focus area with the year-end projections being currently finalised.

5. Financial performance

6. Financial overview YTD September 2016
YTD net loss of R607m ( Prior year net loss of R599m) as a result of poor revenue performance.
Revenue of R2 321m for the YTD below budget by R802m – 26%
All revenue streams (except interest revenue) performed poorly against the budgetary targets
Revenue performance lower than prior year by R90m (4%)
Corporate Plan revenue growth target of R593m not achieved
DTT R33m & Property R17m achieved
Slow progress in obtaining Government business
Operating expenditure of R2 907m below budget by R514m (15%)
Lower than prior year expenditure by R84 million (3%)
However, monthly expenditure continues to exceed revenue by R101m
Focus areas to year end
Improvement of the operational performance across the organization
Regain customer confidence in order to improve revenues
Delivering on the Corporate Plan revenue initiatives and achieving the budgetary targets
Accelerate actions to obtain Government business
Fast track implementation of the strategies to operate successfully in the Parcel business
Costs for VSP’s will be incurred in October 2016 and staff cost reduction to be realised from November 2016

7. Financial performance – YTD 30 September 2016
Net loss of R607m
Post Office excluding Postbank net loss of R634m
CFG net loss of R92m
Docex net profit of R489k
Postbank net profit of R118m
Revenue of R2 321m
Below budget by R802m (26%)
YoY decline of R90m (4%)
Expenses of R2 907m
Below budget by R514m (15%)
YoY decline of R84m (3%)
Non operating items
Budget for staff – VSP not utilized (R500m)
R802m (26%) below budget
R514m (15%) below budget
More detail on financials included in Additional notes slides AN01 – AN03

8. Revenue performance – YTD 30 September 2016

9. Expenditure performance – YTD 30 September 2016
Below budget by R514m– 15%

10. SAPO Group statement of financial position
Postbank statement of financial position is strong with cash and short investments exceeding depositors funds by R2,4 billion
Post Office and CFG financial position has been weakened by the continued losses
R650m recapitalization funds received in April 2016
R2,7 billion loans acquired in July 2016 – total loans of R3,7 billion

11. SAPO Group excluding Postbank cash flows
SAPO is “burning cash monthly”
R650m recapitalization funds received in April 2016
R50m subsidy received for address roll out projects – not yet utilized
R120m received for DTT project in August – not yet utilized
R2.7 billion loans acquired in July 2016
Balance of loans acquired as at 05 Oct 2016 amounts to R1,9 billion

12. Creditors SAPO creditors: R434m
Creditors reduced from R899m in March 2016
Trade vendors - Nil
Accruals of R407m in August 2016 reduced to R360m
Business units have been urged to process all outstanding invoices
CFG creditors: R251m
Trade vendors R48m
R43m older than 120 days
Statutory amount of R158 millions includes amounts owing to SAPO for shared services

13. Performance summary YTD as at 30 September 2016
Strategic Themes
Number of KPIs measured
KPIs Achieved
KPIs Not Achieved Q1 Q2 Q3 Q4
1. Increase and Diversify Revenues 4
2. Cost Management 1
3. Improve Operational Efficiency 2
4. Sustainable Delivery of Social Mandate 5 6 3
5. High Performance Organisation
Total number of KPIs 14 16 10 12
% of KPIs Achieved/Not Achieved
28.5%
25%
71.5%
75%
KPI achievement is low at 25% for Q2, due to the delay in funding to enable operations and revenue recoveries – Term loans only concluded at end of Q1 and received in July 2016.
Revenue recoveries and growth still remain a challenge
The cost management indicators have achieved target.
The High performance KPI’s have not been achieved due to the delay in finalising the managers performance contracting process, although 91% of senior managers and above have contracts in place.
Additional detail on key performance indicators (KPI’s) included in Additional Notes slides AN04 – AN12
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14. Critical next steps
Improvement of the operational performance across the organisation.
Regain customer confidence in order to improve revenues.
Accelerate actions to obtain Government business.
Fast track implementation of the strategies to operate successfully in the Parcel business.
Fund critical projects – to aid the recovery of the business.
The shareholder decision on the Bank Controlling Company structure for Postbank.
Fast-track the critical appointments of CFO, COO and Company Secretary during quarter 3 to strengthen the governance within SAPO.

15. Additional slides

16. Revenue performance – YTD 30 September 2016
R802m below budget - 26%

17. Revenue performance – YTD 30 September 2016
YoY decline of R90m – 4%

18. Expenditure performance – YTD 30 September 2016
YoY decline of R84m – 4%

19. Performance measures SA Post Office - Restricted AN04
Strategic Theme 1: Increase and Diversify Revenues
No.
Strategic Goal
Key Performance Area
Key Performance Indicator
Year Target
Q2 Target YTD
Q2 Actual YTD
Q2 Variance
YTD
% Q2 Target Achieved
Reason for variance
Planned action going forward
Outlook for the future and forecast
1.1
Expand post box user base
Implementation of post box revenue growth model
25% increase on 2016 post box subscriber base by 31 March 2017
11 784
11.8%
Marketing campaign in development phase
A national task team formed to focus on uptake of boxes.
Marketing campaign being developed to support growth. Amnesty on price increase if boxes are renewed by 31 Dec 2016.
Optimistic that the annual target will be met with the interventions implemented.
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20. Performance measures SA Post Office - Restricted AN05
Strategic Theme 1: Increase and Diversify Revenues
No.
Strategic Goal
Key Performance Area
Key Performance Indicator
Year Target
Q2 Target YTD
Q2 Actual YTD
Q2 Variance
YTD
% Q2 Target Achieved
Reason for variance
Planned action going forward
Outlook for the future and forecast
1.2
Achieve base case revenue
Base Case Revenue (excluding Postbank)
By 31 March 2017, return to revenue levels equal to the revenue achieved as at 31 March 2009
R 5 031m
R2 275m
R1 913m
-R362m
84%
SAPO is still losing volumes generally from key accounts due to operational inefficiencies.
There is no stock at the branches nationally to meet the sales requirements.
The discussions regarding the AARTO rollout and Sanral still need to be concluded.
Proposals for parcel logistics fulfilment services for key customers estimated at R19m in quarter 3 - discussions at an advance stage.
Early engagements are showing uptake from the financial services and legal sectors. Ekurhuleni Metro has signed a contract on EBPP and engagements ongoing with other Metros. Projected to perform positively through the 16/17 fiscal. Tshwane and Johannesburg metros have concluded agreements with SAPO.
All indications are that the commercial variance will be recovered in quarter three/four, due to these advanced engagements;
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21. Performance measures SA Post Office - Restricted AN06
Strategic Theme 1: Increase and Diversify Revenues
No.
Strategic Goal
Key Performance Area
Key Performance Indicator
Year Target
Q2 Target YTD
Q2 Actual YTD
Q2 Variance
YTD
% Q2 Target Achieved
Reason for variance
Planned action going forward
Outlook for the future and forecast
1.3
Achieve growth case revenue (Private sector)
Private Sector Revenue (excluding Postbank)
Achieve R600m revenue by 31 March 2017 in terms of the growth strategy for the private sector offerings
R 600m
R310m
R2m
-R308m
0.64%
Operational challenges (such as Track and Trace) hampering customers from placing more business with SAPO
Sales teams are currently in the customer engagement phase, which is a presale process..
Key revenue initiatives for this segment are currently in development stage - 3rd Party Business & collection engine, Ticket Sales, Data and Airtime vending, Business Services (MFD) and Money Transfer Services.
It is envisaged that these initiatives will claw back some revenues during quarters three and four, however major challenges exists.
1.4
Achieve growth case revenue (Public sector)
Public Sector Revenue (excluding Postbank)
Achieve R400m revenue by 31 March 2017 in terms of the growth strategy for the government sector offerings
R 400m
R150m
R34m
-R116m
22.7%
The RT5 tender which was to realise R70m within this segment has been awarded to other service providers.
Further discussion with ICASA surrounding Regulatory Enforcement to ensure the regulated revenues are protected and the leakage addressed.
SAPO continues to submit competitive bids for Government business.
SAPO is currently engaging with Treasury on RT5 tender to understand the circumstances which led to SAPO not being awarded the tender. SAPO is currently investigating other opportunities to substitute that lost revenue.
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22. Performance measures SA Post Office - Restricted AN07
Strategic Theme 2: Cost Management
No.
Strategic Goal
Key Performance Area
Key Performance Indicator
Year Target
Q2 Target YTD
Q2 Actual YTD
Q2 Variance
YTD
% Q2 Target Achieved
Reason for variance
Planned action going forward
Outlook for the future and forecast
2.1
Control total costs
Cost management
Ensure that total operational costs (excluding abnormal items) does not exceed the Corporate plan targets
R 6 929m
R3 422m
R2 907m
R515m
115%
Contributors towards savings:
Transport costs – R162m
Staff costs – R138m
IT costs – R71m
Other costs – R176m 
Additional budget allocation for the corporate plan initiatives not being utilised.
Maintain prudent cost containment.
Investment in transport to strengthen the delivery network.
Costs will be maintained within budget
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23. Performance measures SA Post Office - Restricted AN08
Strategic Theme 3: Improve Operational Efficiency
No.
Strategic Goal
Key Performance Area
Key Performance Indicator
Year Target
Q2 Target YTD
Q2 Actual YTD
Q2 Variance
YTD
% Q2 Target Achieved
Reason for variance
Planned action going forward
Outlook for the future and forecast
3.1
Meet Postbank SLA
Meet banking industry uptime requirements
98% uptime for ATM and POS transactions
98%
84.5%
-13.5%
86.2%
Combination of hosting and database issues had a major impact on the core banking platform.
IT is addressing the facilities issues with Properties. Postbank will address the core banking platform stability.
Postbank DR project is being fast tracked to build a full fail over environment for the bank. 
IT is assessing alternative options for datacentre hosting and finalise the Managed Network Services tender process.
3.2
Improved customer experience
Manage IT risk throughout
Build resilience into SAPO’s IT connectivity
50% -
The Managed Network Service procurement process is still underway.
Finalise the procurement process by the end of quarter 3. Present to IT Governance Committee in quarter 3 and Board in quarter 4.  
To achieve all approvals including Ministry and National Treasury, by end of Q4.
Improved internal customer satisfaction
Customer satisfaction index 3
1.5
100%
Maintain consistent communication and service engagement.
Positive, provided the necessary Service Management tools are deployed.
3.3
AN08
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24. Performance measures SA Post Office - Restricted AN09
Strategic Theme 4: Sustainable Delivery of Social Mandate
No.
Strategic Goal
Key Performance Area
Key Performance Indicator
Year Target
Q2 Target YTD
Q2 Actual YTD
Q2 Variance
YTD
% Q2 Target Achieved
Reason for variance
Planned action going forward
Outlook for the future and forecast
4.1
Increase financial inclusion of the mass market
Growth in Postbank depositor accounts
Increase the number of depositors’ accounts by 3% year on year at 31 March 2017 3%
1.50%
1.62%
0.12%
108%
Successful launch of marketing campaigns targeting both Radio and TV audiences
More campaigns will be implemented over the course of this financial year
Target will be achieved.
4.2
Meet the mail delivery standard
Mail delivery standard
Achieve the regulated mail delivery standard of 92% as per the agreed delivery model with ICASA
92%
69.5%
-22.5%
75.5%
Various challenges are still experienced at operational level across all regions that is impacting directly on the performance levels.
Machines and mechanized operations are not functional.
Shortage of forklifts, trucks and containers.
Sorting Machine technicians have been appointed to perform in-house maintenance functions and we hope to have fully operational machines by end of November 2016.
Tender processes are underway to procure adequate forklifts, national line-haul and fleet services
A RFQ was issued on 29/09/16 for 180 000 new letter trays
4.3
IT performance and sustainability
Systems availability
Mean time to recover priority incidents
Less than 4 hours MTTR
6-10 hours MTTR
19.63%
-9.63%
-196%
Major system outage experienced on the 4th August and 10th September, amounting to 32 hours down. This was caused by power failures at the Primary Data Centre.
IT/Properties are engaged in resolving the datacentre utility issues. Managed Network tender to be finalized to reduce and meet MTTR targets. 
Activities underway to look into efficient and effective systems.
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25. Performance measures SA Post Office - Restricted AN10
Strategic Theme 4: Sustainable Delivery of Social Mandate
No.
Strategic Goal
Key Performance Area
Key Performance Indicator
Year Target
Q2 Target YTD
Q2 Actual YTD
Q2 Variance
YTD
% Q2 Target Achieved
Reason for variance
Planned action going forward
Outlook for the future and forecast
4.4
IT performance and sustainability
Systems availability
End-to-end service availability and performance
95% availability
85% availability
92.43%
7.43%
108.7%
Major incidents as a result of property utility failures.
IT/Properties are engaged in resolving the DC utility issues. Managed Network tender to be finalized to reduce and meet MTTR targets.
Activities underway to look into efficient and effective systems.
4.5
IT operations as measured against business SLAs
Business service management
Implement SLAs for all BUs
100%
75%
50%
-25%
66.7%
Pending Retail approval.
Starting with Commercial and Mail.
Finalise, replicate to the other business units.
Monthly SLA reviews
100% reviewed monthly
50% reviewed monthly 0%
-50%
SLA not in place but regular and consistent performance reviews are in place.
Finalise the procurement process to deploy the service management SLA tools
Maintain consistent communication and service engagement. Deploy a Service Management Tool. 
4.6
4.7
IT investments
Capex projects
% of top 10 IT projects across all BUs delivered on time -
SAPO IT, has identified strategic projects aligned to the Corporate Plan. However due to no Capex allocation these projects has not started. Expected to commence in 3rd quarter. 
AN10
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26. Performance measures SA Post Office - Restricted AN11
Strategic Theme 5: High Performance Organisation
No.
Strategic Goal
Key Performance Area
Key Performance Indicator
Year Target
Q2 Target YTD
Q2 Actual YTD
Q2 Variance
YTD
% Q2 Target Achieved
Reason for variance
Planned action going forward
Outlook for the future and forecast
5.1
Performance management systems implementation
Implementation of performance management system
100% performance contracts in place for managerial/TCTC staff by 30 April 2016
100%
61%
-39%
Poor submission of contracts due to instability in the work environment
Continuous communication to attempt to change the mind-set and regard performance management as a business tool to assist with other HR initiatives e.g. development, talent, succession management.
The implementation of “Success factors”, an automated performance management system, is being explored.
Assessments in place for all managerial/TCTC staff by 31March 2017
50% 0%
-100%
Assessments for 2016/2017 have been a challenge because of the poor submission of contracts due to instability in the work environment.
The interim assessments for 2016/17 will be done in October 2016
Aim to complete assessments as planned.
5.2
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27. Performance measures SA Post Office - Restricted AN12
Strategic Theme 5: High Performance Organisation
No.
Strategic Goal
Key Performance Area
Key Performance Indicator
Year Target
Q2 Target YTD
Q2 Actual YTD
Q2 Variance
YTD
% Q2 Target Achieved
Reason for variance
Planned action going forward
Outlook for the future and forecast
5.3
Achieve governance and compliance objectives
Audit issues
No outstanding high and medium audit findings older than 3 months as at 31 March*
No audit findings older than 3 months as at 31 March 2017
Only 10 audit findings older than 3 months*
157
-147 0%
There is no systemic breakdown in the control framework
attributed to:
-Staff vacancies at critical points in the various processes
-Poor skills and competencies at tactical level
-Inadequate management and supervision responsibilities - people just do not try to do the right thing (Attitude!)
-Poor skills and competencies at the more strategic level
-Ineffective consequent management and accountability processes
A back to basic project across many of the key functional processes would be the most desirable way forward to improving the close out of audit issues and the improvement of the control framework – but then the correct tactical and strategic responsibilities need to be identified and deployed to ensure maximum success and sustainable progress
This strategy is being formulated by Management to drive this aspiration of control improvement.
This will receive significant focus in the new financial year by Management and oversight bodies
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