1. SA Post Office Standing Committee on Appropriations
28 November 2017

2. Six months performance overview
Financial Performance
SAPO Group posted a net loss of R723 million
Revenue of R2.3 billion - retention and growth still remains a challenge with tough trading conditions
Expenses of R3 billion – Staff of R1.8 billion (60%) remains the highest cost driver
Cash flow position remains constrained
Working capital and investments in infrastructure remains a challenge
Non-Financial Performance
DTT Project STB registrations and STB’s issued to qualifying recipients.
Delivery standard for mail has improved to 88.04% (Q %)
new addresses rolled out to citizens
The Banks Act legislative issues gained traction during Q2 but the Bank Controlling Company Structure still has to be concluded
Performance objectives achieved 27.8% (10 KPI’s), however an additional 6 KPIs (16.6%) performed above 70%.
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3. Six months performance – 30 September 2017
Income statement
Revenue of R2,3 billion
R848 million below budget and decline of 2% year on year
R715 million budgeted revenue for growth initiatives not achieved (No cash to invest in growth)
Mail revenue contribution at 62%
R57 million revenue for DTT project
R150 million for motor vehicle licencing revenue (growth of 10%)
R332 million for Postbank interest revenue (growth of 9%)
Expenses of R3 billion
R277 million below budget and year on year increase of 2%
Staff cost of R1,8 billion has declined by 2% ( employees – decline of 244)
Interest on loans acquired R182 million (R101 million prior year)
SAPO has a high fixed cost structure (Staff costs contributes 60%)
Net loss of R723 million
Exceed budgeted net loss by R560 million
Increased by R115 million year on year
Liquidity concerns still remain due to expenditure exceeding revenue
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4. Year to date performance – 30 September 2017
Statement of Financial Position
Assets
Total assets of R13,3 billion [31 March R13,4 billion]
Property portfolio revalued during the previous financial year to R2,7 billion
Liabilities
R3,7 billion long term loans secured by Government Guarantees
Annual interest cost of R364 million
Bank overdraft repaid in December 2016
Trade and other payables of R1 billion
Subsidy of R383 million for Government projects (DTT – R335m and Address rollout – R48m)
Postbank
NAV of R2.9 billion (Retained Earnings - R2.6bn and Share Capital of R379m)
Cash and short term investments of R7.9 billion (Surplus of R2,5bn to match deposits)
Deposits from the public increased by 7% to R5,4 billion
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5. Performance summary at 30 September 2017
Strategic Themes
Number of KPIs measured
Number of KPIs Achieved Q2
Q2 Above 70 %
Q2 TOTAL
1. Revenue Growth 13 3  4 7 
2. Optimise the Cost Base 4 2  0  2
3. Operational Efficiency 8 1  3
4. Be a Performance driven Organisation 7
5. Governance and Compliance
6. Stakeholder Engagement
Total number of KPIs 36 10  6
 16
% of KPIs Achieved
27.8%
 16.6%
 44.4%
Only 10 KPIs (27.8%) of the performance measures were achieved during Q2 due to program/project implementation delays and funding constraints. However an additional 6 KPIs (16.6%) performed above 70%.
Detail on KPI’s included in Additional Slides AS-01 to AS-03
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6. Performance summary at 30 September 2017
The 6 additional KPIS performed above 70%, as follows:
Revenue Growth
Revenue of R1.132 billion achieved 71.6% of budget
Percentage of customer complaints resolved within 7 calendar days achieved 83.7% of target
Net interest income for Postbank achieved 95.6% of target
Increase in Depositors accounts achieved 89.3% of target
Operational Efficiency
Upgrade of Enterprise Business systems achieved 85.7% of target (International Parcel System, Windows operating system, SQL Database)
The Mail Delivery Standard achieved 95.7% of the target (Improved to 88.04% from 73.6% at 31 March 2017)
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7. Funding requirements and sources of funding (Excludes SASSA Project)
Funding required
Cash flow shortfalls 2018FY
Capex Investment
Cash flow shortfalls 2019FY
TOTAL
Settle Creditors
Repay Loan
R350m
R600m
R1bn
R1bn
R600m
R3.5bn
6 months
9 months
12 months
Nov 17
Mar 18
Jun 18
Sept 18
Dec 18
Mar 19
R400m
R1bn
R500m
R1bn
R1bn
R3.9bn
Overdraft facility
Retain Loan facility
Postbank Excess Capital
SAPO Retail bond
SAPO Property bond
TOTAL
At this stage these proposed sources of future Capital have been discussed, but not approved by DTPS, SAPO Board or the Minister
R400m
Surplus
Sources of funding
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8. Funding requirements …. Bond issue
SAPO Property bond of R1 billion (Not yet approved)
The property portfolio has been revalued to R2,7 billion
Guarantee not required from National Treasury
Property portfolio as collateral for the debt
Funding to be utilized to repay the interim loan facility of R1 billion retained for capex
SAPO Retail bond of R1 billion (Not yet approved)
10 year term and guaranteed by National Treasury
Bonds issued would need to be listed on the Bond Exchange
SAPO could consider offering the issue through the SAPO branch network
National Treasury would effectively be underwriting a higher yield (than the deposit rate) to citizens instead of Commercial Banks
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9. Recapitalisation and guarantee requirements
Recapitalisation funds of R3,7 billion
Borrowings of R3,7 billion with Government guarantees
National Treasury proposed settlement of R3,7 billion loans acquired
Eliminate exposure on Government Guarantee and cancellation of current Government Guarantees
Alternate Guarantee requirements
R400 million for overdraft facility
R1 billion interim guarantee for capex until the Property bond is issued (Proposed)
R1 billion for SAPO Retail bond
Guarantees reduced from R3.7bn to R1.4bn
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10. Envisaged SAPO Corporate Structure (Board supported)
Government
100%
Capital and
Technical
Partners
SAPO
Properties
>50%
100%
100%
E-Commerce
Mail
(incl. Retail)
Bank Controlling
Company
Potential
acquisitions
Revenue 2018: - R 383m
Revenue R1, 109m
[Including Courier revenue share]
Revenue R 4,439m
Revenue 2020 – R5,036m
>50%
Postbank
New Revenue Streams
[SASSA, Government and Lending]
Revenue R 883m
Revenue 2020 – R1, 086m
Revenue R 693m
Revenue 2020 – R3,982m
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11. Strategy going forward - Postbank
Mandate:
National transactional bank for Government
Financial inclusion and bridge unsecured lending gap, through new methods of properly risk assessed loans to the unbanked, especially SMEs
Challenge:
Over-capitalized with limited growth prospects without lending functions
Building credit capacity and systems takes time and money – we need to get started
National Treasury support has not been finalised
Alternative growth strategy:
Acquire existing bank with lending infrastructure and expertise alternatively pursue consolidation of second tier banks
Postbank: Driver of Financial Inclusion and Economic Transformation Through Lending
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12. Government Department or Competitive Business?
SAPO is a national infrastructure asset which must be leveraged to assist in the delivery of Government mandates
Critical success factors:
Resolve capital structure (equity injection)
Split Development (subsidy) and Commercial (profit) mandates
Position Postbank to compete
Implement E-Commerce capabilities
Private – Public partnerships (Banking, E-Commerce & Courier)
Address cost structure (Optimal staffing, diverse revenue streams)
Government subsidy to fund the developmental mandate
Capital and technical partners to fund the commercial mandate
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13. End of presentation
Additional Slides

14. Performance Objectives Q2
AS-01
Revenue Growth
Revenues of R1.13bn (71.6%) has been achieved against a target of R1.58bn for Q2. Whilst customer behavior is changing from traditional postal the growth initiatives are focused on parcels, E-Commerce and Digital. Investment in systems and solutions remains key to unlock market potential.
Marketing campaigns have been planned but deferred due to the funding challenges.
67% of customer complaints resolved within 7 days against a target of 80%, making the achievement 83.7%. A project to install a new complaint management and telephony system is underway to address the operational challenges at the Call Centre.
The current funding shortfall is delaying the achievement of objectives to address new products, Digital and E- Commerce products, services and solutions.
Complaints have been lodged with ICASA on infringements within the postal sector to stop the revenue leakage. SAPO still awaits the confirmation of a date for the hearing from ICASA.
Postbank revenues achieved R53m against a target of R49m, exceeding budget by R4m. Strong performance contributed by the increased transactional fees and the increase in the number of transactions ECDPW and DEA beneficiaries paid through Postbank.
The Postbank depositor accounts increased by 0.67% against a target of 0.75% during Q2, an achievement of 89.3% whilst increasing the number of accounts to 5,807,672. Postbank plans to revisit its consumer value proposition with the aim of increasing customer base and progressing financial inclusion of the mass market.
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15. Performance Objectives Q2
Optimise the Cost Base
Expenses performed at R1.50bn against a target of R1.61bn, below the target by R109m during Q2.
Cost optimization yielded results and prudent cost containment measures will be maintained for the year.
In contributing to a sustainable environment SAPO reduced carbon emissions by 2.13% against a target of 0.75% during Q2.
Operational Efficiency
The delivery standard for mail has increased to 88.04% in Q2 from 85.5% in Q1 due to the improvement in operations.
The Postbank achieved uptime of 99% against a target of 98%. Introduction of effective controls in terms of monitoring and remediation of incidents had assisted in maintaining a stable uptime percentage.
Be a Performance driven Organisation
A total number of 625 employees were trained against a target of 1,160 during Q2 on compliance related training such as FAIS, FICA and OHSA. The non-achievement of the target is related to the lack of funds.
SAPO targeted to populate 244 critical positions during Q2 of which 173 vacancies for branch managers have been advertised and 37 other positions are in various stages of the selection process.
Management Performance contracts alignment and finalisation remains low at 33% against a target of 90% for Q2, which improved to 49% at 4 Oct Executives are driving the process to be completed during Q3.
As part of the broader Change Management program The 5 Principles of Ethical Behaviour was launched during July 2017 to ensure buy-in and the culture being changed to one of living ethical behaviour.
AS-02
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16. Performance Objectives Q2
AS-03
Governance and Compliance
The outstanding Audit findings have been reduced, by 84 items, from 377 in Q1 to 293 in Q2 despite not achieving the target in Q2. The Management Letter Action Plans are being concluded by all units to drive the resolution of audit findings by yearend and thus improve the control environment at SAPO.
Irregular expenditure amounts to R745m at Q2. An amount of R428m relates to the 2015/16FY and R317m for the 2016/17FY. All incidents are reported at the Financial Misconduct Committee (FMC) after which submissions for approval. Investigations by Supply Chain Management revealed that most irregular spending relates to legitimate business expenses. There has however been non-compliance to established processes. These non-compliances have been mitigated by weekly reviews of transactions to monitor adherence and execution of controls, blocking of vendors amongst other interventions.
Stakeholder Engagement
In an effort to improve International Relations SAPO participated in various successful events during Q2 –
The MISSION TO SOUTH AFRICA (Operational Readiness for E-Commerce at JIMC July 2017,
The Lesotho visit for Benchmarking on operational matters on site visit at JIMC on 8 August 2017 and
The SADC Minister’s Forum during 4-7 September 2017
Engagements with labour continue as they are critical partners in business resulting in a stable work environment. The substantive negotiations on salary and benefits have reached a deadlock due to the continued weak financial position of SAPO.
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17. Critical Infrastructure Investment
Investment in infrastructure
‘R’m
Retail point of sale system
150
Track & trace system 30
Track & trace POD and equipment 60
Mail centres automation including JIMC
100
Ecommerce
SAP and system improvements
Revenue projects (Commercial)
130
IT infrastructure
Fleet and transport systems
Total
1 000
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