1. SAPO Appropriations Committee Presentation 25 April 2018

2. Agenda
Introduction Allocation of Funding Recap Committee Recommendations Feedback Turnaround Progress – Achievements and Challenges Strategic Plan Overview Implementation Plan Risks Overview SAPO Future Context Public Service Mandate

3. Introduction
SAPO, as it is currently structured, managed and funded, is not financially sustainable.
SAPO has regressed so far technologically, that it simply cannot offer a competitive service.
SAPO will need to invest, not only in technology, but in our basic customer interfaces, in order to compete on the frontline.
The possibility of partnerships or joint ventures with established players as an alternative to organic growth.
Postbank has always been central to the diversified revenue strategy of SAPO, with the expectation that it could contribute up to a third of total revenue once earnings from lending become a reality.
If SAPO does not initially get government business to help it fund its cost base and required investment in upgrades and growth, SAPO will continue to require direct government subsidies.
SAPO can become an investible entity which can attract its own capital and deliver reasonable returns to government.

4. Funding Allocation Recap
The R3.7bn recapitalization funding from National Treasury has been received on 29 December 2017 and utilized to repay the R3.7bn term loans which has been settled on 12 January 2018.
The repayment in the R3.7bn term loans will result in monthly debt cost savings of R24m.
Stronger Group Balance Sheet Position as at 31st March 2018, preliminary
Equity of R 3.8bn - Share Capital & Reserves
Debt of R 400m - A new term loan facility of R400m has been secured, in December 2017, with commercial banks to assist SAPO with working capital to partially repay creditors backlogs.

5. Committee Recommendations Feedback
SAPO reporting to Monitoring Task Team MMTT
SAPO continues to report to the MTT (made of the DTPS and National Treasury) on a monthly basis and also to the DTPS on a quarterly basis
Critical Skills for Postbank -
MD Postbank - The panel received feedback on the psychometric assessments on the 17th January Minister’s office was informed on the recommendations. The fit and proper process to be done – procurement process underway
CFO, CRO and Company Secretary – The procurement process to be concluded to appoint and Executive Search service provider for recruitment of these positions
Consequence Management
1,048 cases of misconduct for absenteeism, gross negligence, dishonest acts, gross insubordination and non-compliance, were dealt with the past financial year.
189 employees have been dismissed during the year

6. Legislative Oversight
SCOPA
Presented to SCOPA on numerous occasions on: SASSA, including two SCOPA oversight visits
SCOA
Presented on Recapitalisation 28 Nov 2017
Portfolio Committee on Telecommunications and Postal Services
Presented on numerous occasions on Annual Report; SAPO Turnaround, Quarterly Performance; DTT Project, SASSA
Joint Portfolio Committees on Telecommunications and Postal Services and Social Development
Presented on SASSA
Inter-Ministerial Committee (IMC) Meetings on SASSA
Numerous meetings on SASSA

7. Executive and Accounting Authority Oversight
Oversight meetings by Board with Executive Authority/Shareholder/DTPS
Met on numerous occasions: AGM; SAPO Turnaround, E-Commerce; SASSA; Financial Model and Sustainability
Accounting Authority - SAPO Board Meetings
Four Quarterly meetings and AGM
Numerous interventionist/oversight meetings: SASSA; SAPO Turnaround; Corporate Plan; Annual Report; E-Commerce; Executive interventions
Executive Oversight
Shareholders’ Compact entered into with the Shareholder (Minister of DTPS)
DTPS monitored compliance with the Shareholders Compact with requisite evidence
Board and Committee Charters in place
Audit, Risk and IT Governance, STP, HR Committees meets quarterly (Oversight over financial status, Audit Matters, Organisational performance against Corporate Plan, IT Governance and projects)
Materiality Framework and Board and Management Delegations established and reviewed
Group Chief Operating Officer appointed 01 June 2017
Group Company Secretary appointed 01 August 2017
Board Evaluation conducted and report submitted to the DTPS

8. Turnaround Progress - Achievements
Restoration and a stabilisation of operating and labour environment
SAPO consistently performing above 85% of mail delivery standard and peaked to 91% at 31 March 2018
Signed New Recognition Agreements with Labour – jointly with two unions SAPWU and DEPACU on 2 February 2018
Roll-out of Key Government Projects
SASSA roll-out is in progress, with new SASSA bank cards issued
- Appointment of over 700 tellers to support SASSA rollout
- The social grant disbursements for some grantees started on the 1st April 2018
- The first SASSA new bank card has been issued on 16 April 2018 to a grantee
DTT rollout has been successful with a total of qualifying applicants have been registered to date and STB kits have been issued up to 31 March 2018

9. Turnaround Progress - Challenges
Turnaround has never been sufficiently funded.
Funding has always addressed historical issues and not investment requirements for growth.
Insufficient working capital
Skills of staff to be upgraded through training programs
The fixed cost base continues to exceed revenues, in part due to unfunded public sector mandate that costs SAPO over R 700m p.a. to support.

10. Secure Banking License
Section 13 Approval to Establish the Bank granted by the SA Reserve Bank in July and Postbank SOC Limited has been registered.
6 Postbank Board nominees approved by the SA Reserve Bank as “fit and proper”
The Section16 Application to Register a Bank was submitted to SA Reserve Bank on 26th June 2017.
Systems and compliance implementation is on track for the Section 16 Application
Postbank is in engagements with the Department of telecommunication and Postal services (DTPS) regarding the finalisation of the Bank Controlling Company (BCC) structure.
National Treasury is in the process of tabling the Banks Act changes to Cabinet.

11. Funding Public Service Mandate
From its corporatisation in 1991 SAPO received a subsidy for the fulfilment of the Public Service Mandate imposed on it by the Postal Services Act.
From 2002, SAPO received just over R 300m per annum in subsidy, which stopped being given to SAPO in 2012.
The subsidy was used to expand branches into areas where commercial postal operations were not viable.
By the end of 2016, this amounted to over 600 branches that are not commercially viable, but none-the-less have been funded by SAPO.
SAPO now incurs an annual cost of around R 700m in fulfilment of the Public Service Mandate.
SAPO now does not receive a subsidy for incurring this cost, which is purely a public service and is not a commercially sustainable undertaking.
The lack of subsidy is contributing to the ongoing financial challenges facing SAPO.

12. Implementation Plan Risk Overview
Key Focus Are
Risks
Remediation
Implications if not addressed
Fixing Operations
Lack of funding
Engagements with National Treasury to secure funding
Lower revenues due to poor service.
Securing Banking License
Lack of approval of BCC structure
Engagements with DTPS and National Treasury to expedite the approval process
Failure of SAPO recovery. Inability to implement lending to underserved consumers.
Securing E-Commerce Partners
Securing PFMA related approval
Engagements with National Treasury to secure approval for partnerships
Future revenue streams will be reduced and SAPO’s relevance impaired.
Securing Government Business
Lack of willingness to use SAPO
SAPO with the aid of the DTPS, will be engaging with government departments, to get buy-in into using SAPO as a preferred supplier wherever legally practical
Continued burden on the fiscus to finance SAPO while paying the private sector for services SAPO could provide to government.
Public Service Mandate Funding
Non-approval of funding by National Treasury
Engagements with National Treasury to present case for funding the Mandate
Branch closures, with associated retrenchments to reduce costs.

13. Envisaged SAPO Corporate Structure (Board supported)
Government
100%
Capital and
Technical
Partners
SAPO
Ministerial Support and Cabinet Approval must still be obtained to proceed
Properties
>50%
100%
100%
E-Commerce
Mail
(incl. Retail)
Docex
Bank Controlling
Company
Potential
acquisitions
>50%
Postbank
Corporate Re-structuring – Separating out the commercial businesses from the Public Service Mandate serving business will attract investment, support growth of commercial businesses.

14. SAPO’s Future Context Partnerships
Finding the correct technical partnerships will enable SAPO to grow and diversify its revenues without needing to invest directly in infrastructure.
SAPO will look to partner with organisations that have technical solutions and products that it can leverage off of, for example products and technologies that SAPO can white label.
Partnerships will be crucial in allowing SAPO to close its investment gap and being able to provide competitive offerings in banking and E-Commerce.
Legislative Changes
Allow external investors into SAPO
Exemption from PFMA compliance for revenue generating initiatives
Funding
Changing the funding model, by inviting capital partners and raising debt/equity capital in the private sector, will reduce SAPO’s reliance on National Treasury for Funding

15. SAPO’s Future Context
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)

16. The End