1. Parliamentary Portfolio Committee – 23 August 2016
SA Post Office SAPO Performance Report ending First Quarter- 30 June 2016
Parliamentary Portfolio Committee – 23 August 2016

2. Overview
The first quarter has been stable at SAPO despite the prolonged financial challenges.
The traction on revenue recoveries and growth remain slow although overall revenue performed at 79% of budget for the first quarter. This period was prior to the settlement of any creditors and an improvement is expected.
The total number of registrations for the DTT is 24,557 as at 30 June SAPO has received the first payment of R14.8m for the DTT project.
The term loans funds will be prioritised for the settlement of historical labour matters, pay the long outstanding creditor backlogs as well as fund critical projects to support the corporate plan, during quarter 2. This will normalise the operations and service delivery.
The labour environment remains stable despite the termination of employment of 230 employees that belonged to the non-recognised IICOUSA trade union, due to participation in an unprotected strike.
SAPO staff head count declined to 20,366 as at 30 June 2016, with exit of critical skills in some areas.
The Voluntary Severance Package initiative will be activated during July Due consideration will be given to the scarcity of skills in question before approving separation.
Critical positions of CFO, COO, Company Secretary have been prioritised and in progress.
The submission date for management performance contracts has been extended until 15th August An audit is currently underway for unsigned performance contracts for this year.
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3. Financial overview
Revenue of R1 155m was earned, below budget by R310m - YoY decline of R62m (5%)
Mail revenue R767m below budget by R77m - YoY decline of R37m (5%). Tariff increase of 9.1%.
Mail parcel revenue of R42m below budget by R83m - YoY decline of R19m (31%).
Retail revenue of R114m below budget by R34m - YoY increase of R18m (18%).
Logistics revenue of R18m below budget by R48m - YoY decline of R30m (63%).
Revenue growth initiatives of R212m not achieved.
Operating expenditure
Operating expenditure of R1 385m below budget by R298m - YoY decline of R110m (7%), due to funding delays to invest in the growth revenue case.
Staff cost of R897m. Staff costs are 65% of expenditure and 78% of revenue
Transport cost of R76m is below budget by R83m - YoY decline of R47m (38%).
Cash flow
Operations not generating positive cash flows.
YTD net loss of R259m. Improvement of R26m on prior year.
Additional detail on financials and initiatives included in Additional notes slides AN01 – AN06
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4. SAPO Group excluding Postbank cash flows
Operations burnt cash of R411m due to salaries and critical suppliers being funded from Treasury allocation of R650m and term loans.
R50m subsidy received for address roll out projects – recruitment of field data collection agents to be completed on 16/08/2016.
Bank overdraft declined by R59m to R171m at month end.
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5. Creditors SAPO creditors: R729m
Creditors reduced from R899m in March 2016 to R729m in June 2016
Trade vendors reduced from R382m in March 2016 to R200m in June 2016.
Accruals of R399m
Business units have been urged to process all outstanding invoices during Q2.
CFG creditors: R217m
Trade vendors increased from R40m in March to R46m in June 2016.
R41m older than 120 days
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6. Performance summary (YTD) as at 30 June 2016
Strategic Themes
Number of KPIs measured in Q1
KPIs Achieved
KPIs Not Achieved Q1 Q2 Q3 Q4
Increase and Diversify Revenues 4
Cost Management 1
Improve Operational Efficiency
Sustainable Delivery of Social Mandate 5 2 3
High Performance Organisation
Total number 14 10
% of KPIs Achieved/Not Achieved
28.5%
71.5%
KPI achievement is low at 28.5% for Q1, due to lack of funding to enable operations and revenue recoveries – Term loans only concluded at end of Q1 and received in July 2016.
The High performance KPI’s have not been achieved due to the delay in finalising the Shareholder compact and the performance contracting process will be concluded during Q2.
Rollout of initiatives will commence in Q2 and will drive performance up.
Additional detail on KPI performance included on slides 23 to 29.
Additional detail on key performance indicators (KPI’s) included in Additional Notes slides AN07 – AN13
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7. Critical next steps
The approval of the Postbank board nominees, the registration of it as a company and the transfer of business from SAPO to the new company.
The decision on the Bank Controlling Company.
Settle long outstanding creditors to enable operations to function normally.
Settle all historical labour payments with employees.
Fund critical projects – to aid the recovery of the business.
Capacitation of the Commercial Structure to be expedited to enhance revenue generation and recovery.
Fast-track the critical appointments of CFO, COO and Company Secretary during quarter 2 to strengthen the governance within SAPO.
Restore operational competence of the organisation.
Complete organogram restructuring to align to the Corporate Plan.
Continue with the customer breakfast meetings in the other provinces.
Finalise performance contracts of Executives and management to ensure accountability.
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8. Additional Notes
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9. Financial performance – YTD 30 June 2016
Net loss of R259m
Post Office, excluding Postbank, net loss of R268m vs budget net loss of R520m.
CFG net loss of R44m vs budget net loss of R15m.
Postbank net profit of R53m vs budget profit of R34m.
Docex net profit of R151k vs budget profit of R2m.
Revenue of R1 155m.
Below budget by R310m (21%).
YoY decline of R62m (5%).
Expenses of R1 385m.
Below budget by R298m (18%).
YoY decline of R110m (7%).
AN01
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10. Revenue performance – YTD 30 June 2016
R310m below budget
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11. Suppliers impact due to non payments
Revenue analysis
Quarterly revenue performance
Averaged R1 415m during 2012 to 2014.
Declining to R1 217m in June 2015 after the Strike.
Declining to R1 155m in June 2016.
Negative CAGR of 5% and increases to 6% if interest revenue excluded.
Parcels and Logistics are the biggest challenges.
Postbank non interest negative CAGR of 11%.
AN03
Suppliers impact due to non payments
SAPO Strike
+2%
-2%
-13%
-5%
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12. Revenue Initiatives: Quarter One
Revenue (R’m)
Year Target Q1
Target
Achieved %
Variance
Benefit Status
Base Case Revenue
5,031
1,109
957
86%
-152
Not Achieved
Growth Case – Private Sector
630
151 2 1%
-149
Growth Case – Public Sector
370 19 16
84% -3
Postbank Revenue
805
187
181
97% -6
TOTAL
6,836
1,466
1,155
79%
-311
AN04
Base Case Revenue: Revenue is impacted by poor service levels due to non-payment of suppliers impacting on vehicles, sorting machines,etc. The closure of some retail branches has also impacted on the revenues. The variance will be recovered in quarter two/three with the action plans/initiatives.
Growth Case – Private Sector : Proposals regain lost volumes with key customers have been submitted awaiting feedback, proof of service and commitment to service levels are delaying implementation. It is envisaged that this initiative will claw back some losses in quarter two/three.
Growth Case – Public Sector: Awaiting award decisions on tenders responded to due to delays in the tender process. The year target only includes the DTT project (delay in DOC rollout) and RT5- Government courier tender submission. Government business awarded to SAPO will ensure maximisation of the State asset and service delivery reach to communities through the extensive SAPO branch network.
Postbank Revenue - indications are that the shortfall will be recovered in quarter 2.
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13. Cost Optimisation initiatives: Quarter One
AN05
Initiative Stream (R’m)
Year Targets Q1
Target
Actuals PI
Variance
Benefit Status
Properties
173.0 0%
Support Cost Reduction
99. 0
24.9
-24.9
Not Achieved
Information Technology
64.5
Supply Chain Management
26.8
6.6
-6.6
TOTAL
363.3
31.5
-31.5
Properties - did not realise any benefits to date, due to the activation taking place later in the 2016/17FY. The SAPO property strategy is also being revisited.
Support Cost Reduction - did not realise any benefits to date due to the dependency on the mutual separation initiative.
Information Technology – IT functions that potentially could be outsourced, delivered in-house or delivered by a combined team. It is proposed that the priority services are planned and initiated in Phase 1 as there are dependencies between them.
SCM - initiative will only deliver benefits once the Telkom contract has been finalised for purchase data on wholesale – Contract with Telkom currently for signatures.
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14. SAPO Group statement of financial position
+7%
+2%
-0.1%
-0.1%
Postbank statement of financial position is strong with cash and short investments exceeding depositors funds by R2,2 billion.
Post Office and CFG financial position has been weakened by the continued losses.
Retained earnings decreased further to negative R1 195m, impacted by the monthly losses posted.
Depositors’ funds increased by R191m to R5,02 billion.
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15. Performance measures SA Post Office - Restricted AN07
Strategic Theme 1: Increase and Diversify Revenues
No.
Strategic Goal
Key Performance Area
Key Performance Indicator
Rand value in millions
Year Target
Q1 Target
Q1 Actual
Variance
% 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
25 000
6 084
24%
Plan developed for the optimisation of Boxes. A national task team has been formed on the 23 May Marketing campaign being produced to support growth
Renewal period extended to the end of June2016 resulting 102,181 boxes being renewed during the first quarter.
Optimistic that the annual target will be met with the interventions implemented.
A significant increase in customer confidence will however be required
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16. Performance measures SA Post Office - Restricted AN08
Strategic Theme 1: Increase and Diversify Revenues
No.
Strategic Goal
Key Performance Area
Key Performance Indicator
Rand value in millions
Year Target
Q1 Target
Q1 Actual
Variance
% 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 5 031
R 1 109
R 957
-R 152
86%
Only the digital revenue stream and interest revenue contributed a positive variance, all other segments did not achieve the targets
Proposals for fulfilment services for Multichoice, The Foschini Group and Homechoice (R19m) - discussions at an
advance stage.
Courier agreement concluded for Eastern Cape (Dept of Education).
Two properties have been earmarked for sale
Variance will be recovered in quarter two/three with the action plans/initiatives
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17. Performance measures SA Post Office - Restricted AN09
Strategic Theme 1: Increase and Diversify Revenues
No.
Strategic Goal
Key Performance Area
Key Performance Indicator
Rand value in millions
Year Target
Q1 Target
Q1 Actual
Variance
% 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 630
R 151
R 1
-R 149 1%
All initiatives performed below their targets, with Digital and Mail parcels revenue contributing minuscule gains   
Postal Payment Services (PPS) project is currently
determining the marketing required for the customer awareness campaign for International (SADC) money orders.
Proposal is in the pipeline with the American Embassy
A tender was submitted for courier services. Closing date for tender was 29 June 2016
It is envisaged that this initiative will claw back some losses in quarter two/three.
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 370
R 19
R 16
-R 3
84%
Mail revenue was below anticipated target
DTT roll out, the slow uptake in registrations
Mail room proposals to customers
Conclusion of further discussion with ICASA surrounding Regulatory Enforcement
Proposals are in the pipeline with various entities for Courier services see of report
Variance will be recovered in quarter two/three with the action plans/initiatives
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18. Performance measures SA Post Office - Restricted AN10
Strategic Theme 2: Cost Management
No.
Strategic Goal
Key Performance Area
Key Performance Indicator
Rand value in millions
Year Target
Q1 Target
Q1 Actual
Variance
% 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 6 929
R 1 684
 R 1 385
R 299
117 %
Contributors towards savings:
Transport costs – R83m
Staff costs – R74m
IT costs – R39m
Materials & services costs – R26m
Other costs – R84m 
Maintain costs within budget
Costs will be maintained within budget
AN10
Strategic Theme 3: Improve Operational Efficiency
No.
Strategic Goal
Key Performance Area
Key Performance Indicator
Year Target
Q1 Target
Q1 Actual
Variance
% 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%
 98.9%
0.9%
100.9%
The success rate on ATM transactions was 98.80% against the industry of 98.00%.
The success rate on Debit Card transactions was 99.17% against the industry of 98.00%.
3.2
Improved customer experience
Manage IT risk throughout
Build resilience into SAPO’s IT connectivity
50% -
 No target for 1st Q. Target set from 3rd Q
3.3
Improved internal customer satisfaction
Customer satisfaction index 3
  No target for 1st Q. Target set from 2nd Q
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19. Performance measures
AN11
Strategic Theme 4: Sustainable Delivery of Social Mandate
No.
Strategic Goal
Key Performance Area
Key Performance Indicator
Year Target
Q1 Target
Q1 Actual
Variance
% 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%
0.75%
0.87%
0.12%
116%
Successful launch of marketing campaigns targeting both Radio and TV audiences more accounts were opened when compared to the last financial year, from a total number of accounts of at the end of March 2016 to at the end of June 2016
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%
59.3%
-32.7%
64.4%
Lack of funding and non-payment of suppliers contribute to insufficient “tools of trade” (containers, vehicles, etc.) thus impacting negatively on service performance.
The national carry over as on 30 June 2016 was recorded at 8.26 million items. The carry over recorded on 31 March 2016, at the beginning of quarter 1, was at 10.5 million items.
Continued reduction of carry overs in problem areas to eradicate negative performances. The principle of clear floor in work areas will be enforced.
Continued improvement in the end-to-end plan and optimizing transport network to improve service delivery. The alignment of the end to end plan with a 06h00 to 18h00 shift are formulated now for implementation.
Enhance the last mile delivery process through the rebalancing of staff resources, appointment of mail contractors in dedicated areas.
Payment of suppliers will improve services through the availability of material and services, and “tools of trade”.
Corporate Plan initiatives have been identified and are formulated now to support the specific KPI. 
Expect to clear carry overs within 90 days
Carryovers reduced to 4.36m items at end July 2016
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20. Performance measures SA Post Office - Restricted AN12
Strategic Theme 4: Sustainable Delivery of Social Mandate
No.
Strategic Goal
Key Performance Area
Key Performance Indicator
Year Target
Q1 Target
Q1 Actual
Variance
% Target Achieved
Reason for variance
Planned action going forward
Outlook for the future and forecast
4.3
IT performance and sustainability
Systems availability
Mean time to recover priority incidents
Less than 4 hours MTTR
10 hours MTTR
14.6 hours MTTR 
-4.6 hours MTTR  0%
Twenty seven (27) hours recorded for June This was due to extended Rustenburg regional Network failure.
 IT, is progressively working towards achieving the annual target and realign underpinning vendor SLA. Depended on the managed network services tender.
 The managed network project aims to address the challenges currently faced.
4.4
End-to-end service availability and performance
95% availability
80% availability
 86% availability  6%
107.5%
Target achieved
4.5
IT operations as measured against business SLAs
Business service management
Implement SLAs for all BUs
100%
25%
15%
-10%
60%
As at the end of June, the SLA with Retail is been reviewed by Technology to align to an SLA framework approved by IT Governance Committee
Due to realign with the latest framework approved end of May 2016 by the IT Governance Committee the process was delayed. Thus IT needs to incorporate the new framework before finalizing any SLA’s with business. Aligning the SLA with new framework is planned for end of July and review in August.
Monthly SLA reviews
100% reviewed monthly -
No target set for 1st Q. Target set from 2nd Q
4.6
4.7
IT investments
Capex projects
% of top 10 IT projects across all BUs delivered on time
50%
No target set for 1st Q. Target set from 3rd Q
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21. Performance measures SA Post Office - Restricted AN13
Strategic Theme 5: High Performance Organisation
No.
Strategic Goal
Key Performance Area
Key Performance Indicator
Year Target
Q1 Target
Q1 Actual
Variance
% 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% 1%
99%
Low morale and culture. Instability within the organisation
Leadership to drive and engage their teams about their targets. Cascading and communication of the corporate plan so that employees can align their individual score cards to the plan. Training employees. Monitoring and evaluation.
Submission date has been extended to 15 August Follow up , monitoring and providing support
5.2
Assessments in place for all managerial/TCTC staff by 31March 2017
25% 0%
No contracts were submitted therefore no reviews could be conducted
First review of /2017 will be in Oct 2016
Improve culture and morale as well as consequence management
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 25 audit findings older than 3 months*
 165
-140
0% 
During the 2nd Quarter of 2015, 184 issues form the final Auditor General management letter were incorporated into the statistics for outstanding audit issues.
All audit issues must receive effective attention to enable resolution. A significant effort is required if a target of zero issues older than 90 days is to be achieved in the second quarter of the 2016/17 financial year.
A further concern, to take cognisance of, is that the current issues are also moving into the long outstanding category if not timeously dealt with. This exacerbates the overall problem of issue resolution.
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22. Overview – Post reporting period developments
AN14
Key milestones being achieved during July 2016 has increased staff morale:
The South African Reserve Bank (SARB) has approved the SA Post Office’s first level application for a banking licence for Postbank.
SAPO has signed a joint agreement with the recognised trade unions to settle wages and conditions of employment from 2014/2015, 2015/2016 to the period ending 2016/2017 with payments to be effected during July and August 2016.
SAPO has secured a three-year loan facility of R3,7bn from major financial institutions such as Standard Bank, which consolidates the existing loan facilities of R1 billion.
These funds will be prioritised for the settlement of historical labour matters, pay the long outstanding creditor backlogs as well as fund critical projects to support the corporate plan.
The Voluntary Severance Package initiative was initiated on 20th July and extended to 19th August 2016.
SAPO held a Customer breakfast meeting with the CEO on 27th July 2016 in Gauteng with the theme “Changing SAPO, building partnerships”. The Corporate and Commercial strategies were shared with our key customers. Other regions to follow.
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23. End
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