1. SA Post Office (SOC) Limited Annual Report for the year ended 31st March Portfolio Committee on Telecommunications and Postal Services 5th October 2017

2. Introduction by the Chairperson of the Board
The slow economy placed considerable pressure on the recovery and growth within the postal sector.
Significant progress has been made in restoring the public image of SAPO.
Funding was sourced from Commercial banks and National Treasury to pay long outstanding creditors to restore operations and settle historical salary obligations that ensured a stable labour environment.
Critical senior executive positions of CFO, COO and Company Secretary have been finalised to strengthen governance.
The ship is steadily turning with an improvement in service delivery, a focus on culture change and improving the control environment – the work done in improving controls resulted in the reduction of Qualifying Audit items from 11 to 4 during the year.
A culture of High Performance is at the centre of driving improvement at SAPO.
The Postbank license submission will move South Africa closer to the establishment of a State Bank to stimulate the economy and contribute toward financial inclusion.
The postal sector is to reinvent itself and diversify its offering to remain relevant to its customers and the South African economy.
Going forward it is necessary to revisit the recapitalisation of SAPO with the view of making the Post Office self-sufficient and sustainable.

3. Highlights for the year ended 31 March 2017
Income Statement
Revenue declined by 4,1% from R4,7 billion to R4,5 billion
Expenses reduced by 3,8% from R5,8 billion to R5,6 billion
Loss for the year before taxation improved by R153 million (13,8%) from R1,1 billion to R959 million
Statement of Financial Position
Property portfolio revalued by R1,6 billion during the year to R2,7 billion
NAV improved from a negative of R242 million to R1 billion
R650 million capital injection
R1,6 billion surplus from revaluation of property portfolio
R978 million net loss for the year

4. Highlights for the year ended 31 March 2017
Human capital management
Labour environment stable during the year
5 912 casual employees converted to permanent employees
Staff numbers reduced by from employees to employees
Continuously trying to up-skill employees to meet customer requirements
Operations
Mail - delivery standards improved by 12% to 73,6% indicating the steady progress made in restoring operations
Retail - The points of presence (1 520 post offices and 702 postal agencies) remained operational, with improved stock levels, during the year.
Postbank
Section 16 application made to SA Reserve Bank
Initial Board of Directors appointed
Compliance
Critical vacancies finalised - Chief financial officer appointed 12 December 2016, Chief operating officer appointed 5 June 2017 and Company secretary appointed 1 August 2017
SAPO adheres to statutory requirements and meets the reporting timelines

5. Audit findings for the year ended 31 March 2017
At the center of the business turnaround is the improvement in controls and governance
The interventions implemented during the year resulted in the reduction of key findings shown below
31 March 2016
31 March 2017
Qualified audit opinion
1. Property plant and equipment
2. Contingencies
3. Irregular expenditure
4. International revenue
5. Site restoration
6. Fruitless and wasteful
7. Deferred tax and income tax
8. Heritage assets
9. Related parties
10. Operating loss
11. Total assets
Target for 31 March 2018 – unqualified audit opinion

6. Income statement for the year ended 31 March 2017
Revenue declined by 4,1% to R4,5 billion
Mail revenue contribution at 71%
Operating costs reduced by 3,8% to R5,6 billion
SAPO has to deal with the agility of the cost structure to ensure fiscal discipline
Staff cost increased by 5,9% from R3,5 billion to R3,7 billion
Conversion of casual staff to permanent employees
Staff numbers reduced by from employees to
Includes 768 employees that took voluntary severance packages
Settlement of long outstanding staff liabilities
Finance costs includes interest cost of R283 million for the loans acquired
Operating loss reduced by R166 million (17%) to R807 million
[Operating loss excludes finance revenue, finance costs and fair value adjustments]
Loss before taxation reduced by R153 million (13,8%) to R959 million

7. Statement of Financial Position for the year ended 31 March 2017
Total assets of R13,3 billion [31 March R10,1 billion]
Property portfolio revalued during the year to R2,7 billion
Equity and liabilities
Capital injection of R650 million
NAV improved from negative R242 million to positive R1 billion
Liabilities
Long term loans increased by R2,7 billion to R3,7 billion
Bank overdraft repaid [ 31 March 2016 – R229 million]
Trade and other payables decreased by R605 million to R888 million [Settlement of long outstanding creditors]
Deposits from the public increased by 4% to R5 billion
Resolve capital structure

8. Statement of Cash Flows for the year ended 31 March 2017
Cash utilised by operations increased from R686 million to R1,7 billion
Settlement of long outstanding creditors
Settlement of staff liabilities
Voluntary severance packages
Capital expenditure of R54 million
Postbank cash and short term investments of R7,6 billion
Deposits from public of R5 billion
Surplus of R2,6 billion
Financing activities
R650 million capital injection
Increase on loans of R2,7 billion to R3,7 billion
Repayment of the overdraft facility
SAPO excluding Postbank cash of R985 million
R687 million available from loan funding
R266 million of unutilised subsidy (DTT and address roll out – ring fenced)
Liquidity concerns still remain due to expenditure exceeding revenue

9. Utilisation of loans and capital injection as at 31 March 2017
Utilisation of loans and equity injection
Amount (R’ M)
Roll over previous loans and accrued interest
1 133
Banking fees and settlement costs 27
Settlement of creditors
1 323
Staff costs including voluntary severance packages
602
Statutory payments [PAYE, PAYE, medical aid] 95
Repayment of overdraft
260
Interest payments
283
Total utilised
3 723
Less interest received 60
Total
3 663
Funding [R650 million plus R3,7 billion]
4 350
Remaining funding as at 31 March 2017
687

10. SAPO making steady progress
Year in review + -
Labour stability
Qualified audit opinion (improvement)
Conversion of casual employees to permanent employees
JIMC operations not yet optimal
Growth of 4% in Postbank depositors funds
new customer accounts
Branch network and operations
Not efficient / optimal
Confidence in frontline services
Postbank
Section 16 application to SA Reserve Bank
Initial Board appointed
Decline in Corporate Revenue
Improvement in Mail delivery standards by 12% to 73,6%
Balancing the development and commercial mandate
Capital structure
SAPO making steady progress

11. Annual Performance Indicators
Number
Percentage
Total number of performance indicators 18
100,0%
Performance indicators achieved 5
27,8%
achievement over 70% 9
50,0%
Sub total 14
77,8%
Performance indicators not achieved 4
22,2%
The loan funding was received in July 2017 instead of April 2017.
The delayed start in the recovery, deferred some of the outcomes to the 2017/18FY.

12. Annual performance indicators summary
Performance Indicators Summary as at 31 March 2017
Strategic Themes
Number of KPIs measured
KPIs Achieved Q1 Q2 Q3 Q4
Year
1. Increase and Diversify Revenues 4
2. Cost Management 1
3. Improve Operational Efficiency 2 3
4. Sustainable Delivery of Social Mandate 5 6 7
5. High Performance Organisation
Total number of KPIs 14 16 18
% of KPIs Achieved
28.5%
25%
22.2%
27.8%
Increase and Diversify Revenues
Although revenue targets were not achieved and despite an overall decrease in volumes the Base Case revenues of R4bn performed at 80.6% of the target.
SAPO has not managed to grow government revenue initiatives, although SAPO has been tendering for government work. Initiatives to grow private sector revenue are underway with customised offers to key clients e.g. Home Choice, Multichoice, Mr Price etc.
Cost Management
SAPO met the cost target through prudent cost management that achieved R1.4bn budget savings to off-set revenue shortfall.

13. Annual performance indicators
Improve Operational Efficiency
The target was achieved for the IT customer satisfaction index that performed at 3.9%, above the target of 3%.
The Postbank target was not achieved at 97.02% against the industry standard of 98% uptime for ATM and POS transactions.
The target for Building resilience into SAPO’s IT connectivity was not achieved as this is dependent on the Managed Network Services project, which is currently underway.
Sustainable Delivery of Social Mandate
Postbank achieved the target to increased financial inclusion through the growth in depositor accounts by new accounts, reaching 5.7 million bank accounts.
Although the target was not achieved the Mail Delivery Standard performed at 73.6% against the target of 92%, an improvement from the 61.2% achieved in the prior year contributed by the restoration of operations.
High Performance Organisation
Although the target was not achieved at 100%, the Performance contracts have been concluded for 88% of management staff and 74% of evaluations done.
Despite not achieving the target to eliminate all High and Medium audit findings, a program has been initiated in the new financial year to reduce the audit findings and improve the control environment within SAPO.
For the year SAPO achieved 5 of the 18 KPIs with an achievement of 27.8%, however 9 of the 18 not achieved fully, were achieved at over 70%.

14. SAPO that is relevant in the South African economy
Key Focus Areas for 2017/18FY
Branch network and operational efficiency
Postbank licence
SASSA grants readiness
Re-launch a competitive courier business
Invest to become the e-Commerce hub of choice for Africa
Become Government’s delivery partner of choice
SAPO’s capital structure should have been addressed by 2020
The USO and Social Mandate will be funded by government
SAPO that is relevant in the South African economy