1. SAPO Presentation to Portfolio Committee
Annual Performance Plan and Budgets
08 July 2014

2. Agenda 1. SAPO strategic focus SAPO strategic focus
Key Performance Indicators
Budgets for 2014/15
Strategic Turnaround Plan
Postbank Corporatisation
Way forward

3. SAPO Vision

4. Strategic Goals Strategic Challenges
Financial sustainability due to declining revenue, loss of subsidy, loss of revenue streams including social grants and the large fixed cost base (staff, property and transport etc.).
Feasibility of funding mechanisms to support investments required to operationalise the strategy, including the Postbank corporatisation.
Supply Chain Management challenges due to complex and onerous regulatory compliance requirements.
IT integrated infrastructure and capability challenges in supporting secure, seamless and efficient service delivery across customer and employee touch points.

5. SAPO’s Strategic Themes
The SA Post Office faces several challenges that impact the business’s ability to deliver against its mandate and license requirements.
These include, negative customer perception due to labour instability uncertain financial sustainability due to declining revenues, loss of USO subsidy and a large fixed cost base.
These challenges present the organisation with opportunities to exploit new growth alternatives.
The 2014/15 – 2016/17 Strategic Corporate Plan of the SA Post Office is aimed at addressing these business challenges facing the organisation and mapping out a new path that will see the organisation reposition itself, into a profitable, self-sustaining, efficient and customer centric organisation.

6. SAPO Licence Requirements
The SA Post Office is mandated through the Postal Act 44 of 1958 and the Postal Services Act 124 of 1998 to provide postal services to all South Africans.
The USO mandates the SA Post Office to provide services such as address provision, basic letter and accessible mail delivery and collection services to all under serviced areas.
USO branch costs R400 million per annum.
Roll out of 50 Points of Presence R70 million per annum.
Licence issued in August 2001

7. SAPO Key Focus Areas Strategic direction Key Focus Areas Key Enablers
The corporate plan presents the impact and response plan of our key focus areas, while maintaining a focus on efficient delivery and good corporate governance
Strategic direction
Universal and affordable provision of postal and other related services
Property Valuation
Balance Sheet Structure
Funding Solutions
Capital Adequacy
Implementation of Turnaround Plan
PostBank Corporatisation
Key Focus Areas
Cost Containment
IT Refresh
Customer Focus
Performance Management
Key Enablers
Revenue Enhancement
Retail Operations
Project Execution
Talent Management

8. Local Trends impact on SAPO

9. SAPO Contribution to the NDP
NDP Priority
SA Post Office’s Role in implementation
Raising employment through faster economic growth
Efficient infrastructure lowers the cost of doing business and attracts new business to South Africa
Improving the quality of education, skills development and innovation
Educated workforce in the Postal Sector and continuous skills development programmes
Leverage retail and broadband footprint to create new products and services and also provide a platform for citizens to innovate
Building the capability of the state to play a developmental, transformative role
In collaboration with government and the regulator, Postal Services can facilitate national development and transformation
Delivery of Government services
Enable key Government priorities
Postbank to enable financial inclusion in rural areas
SAPO will be able to contribute positively to the National Development Plan.

10. Agenda SAPO strategic focus Key Performance Indicators
Budgets for 2014/15
Strategic Turnaround Plan
Postbank Corporatisation
Way forward
2. Key Performance Indicators

11. Key Performance Indicators – 1/5
List of the primary Key Performance Indicators (KPIs). These represent a subset of a broader list of KPIs that support each business unit and support service.
Strategic Goal
Objective
Key Performance Indicator
2014/15
2015/16
2016/17
Attain Financial Sustainability while delivering on Government social mandate
Growth
Year Over Year Group Revenue Growth
Grow by 12% over prior year actual
Grow by 8% over prior year actual
Grow by 8% over prior year actual
Group Operating Profit/Loss(-)
-R315m
-R299m
-R124m
Year Over Year Post Bank Deposits Growth
Grow by 5% over prior year actual
Grow by 5% over prior year actual
Sustainability
Current Ratio
Maintain minimum
of 1.1
Customer Satisfaction survey ( % overall result)
Conduct new survey
Implement survey recommendations

12. Key Performance Indicators – 2/5
List of the primary Key Performance Indicators (KPIs). These represent a subset of a broader list of KPIs that support each business unit and support service.
Strategic Goal
Objective
Key Performance Indicator
2014/15
2015/16
2016/17
Remain customer centric by effectively and efficiently fulfilling customer wants and needs
Mail
Delivery Standard of 95% (to be negotiated with ICASA) – Currently 90%
95%
Logistics
Delivery Performance Levels
96%
Retail
Conformance to Queue Wait Time of 7 Minutes (to be negotiated with ICASA)
98%
Provide a secure, efficient and integrated infrastructure for consistent and seamless service delivery
Properties
Number of Refurbished Workplace Environments 45 70
Licence targets being reviewed / negotiated with Regulator.

13. Key Performance Indicators – 3/5
List of the primary Key Performance Indicators (KPIs). These represent a subset of a broader list of KPIs that support each business unit and support service.
Strategic Goal
Objective
Key Performance Indicator
2014/15
2015/16
2016/17
Provide innovative, affordable and relevant services that meet the needs of our customers
USO
Number of Additional Domestic Addresses Served (to be negotiated with ICASA)
Pending ICASA regulation
Additional Retail Points of Presence (to be negotiated with ICASA) 50
Invest in our people by creating opportunities, building capacity and implementing transformation programs
Gender equity
Total females/base (currently 46%)
47.5%
49.5%
51%
Total black females/base (currently 35%)
38%
41%
45%
Black females as % of total Graduates & learners (currently 53%)
60%
Total blacks /base (85%)
87%
Disability Targets
Disability/base (0.44%)
0.5%
0.6%
0.7%

14. Key Performance Indicators – 4/5
List of the primary Key Performance Indicators (KPIs). These represent a subset of a broader list of KPIs that support each business unit and support service.
Strategic Goal
Objective
Key Performance Indicator
2014/15
2015/16
2016/17
Maintain good corporate governance principles to continuously improve as a trusted corporate citizen
Governance
Ethics strategy and programme
Develop and implement an ethics strategy and programme
Monitor deliverables as per the programme
Audit findings
Resolution of all high risk audit findings within 12 months
0 audit findings older than 12 months
Compliance findings
Resolution of all high risk compliance findings within 6 months
0 compliance findings older than 6 months

15. Key Performance Indicators – 5/5
List of the primary Key Performance Indicators (KPIs). These represent a subset of a broader list of KPIs that support each business unit and support service.
Strategic Goal
Objective
Key Performance Indicator
2014/15
2015/16
2016/17
Continue adopting and embedding environmentally sustainable business practices across the organisation
Environmental
Carbon emissions
Reduce emissions by 2.5% of prior year actual emissions
Reduction in Energy Consumption
(R/KWh)
Reduce energy consumption by 3% of prior year actual consumption

16. Agenda SAPO strategic focus Key Performance Indicators
Budgets for 2014/15
Strategic Turnaround Plan
Postbank Corporatisation
Way forward
3. Budgets for 2014/15

17. SAPO Group Income Statement
The difficult trading conditions are expected to continue in the 2014/15 financial year and the focus is on revenue growth and prudent cost management.
The budgeted net loss for the 2014/15 financial year is R249 million.
The projected net loss decreases to R200 million for the 2015/16 financial year.
The projected net loss decreases further to R17 million for the 2016/17 financial.
The revenue and cost initiatives are crucial to support the reduction in the net loss position.

18. Financial Outlook Revision
The fourth quarter for 2013/14 FY revenue performance has been disappointing.
The risk for 2015 to 2017 is on the revenue performance.
A revision of the revenue budgeted will result in a net loss of R593 million for 2014/15 FY.
However the first quarter of 2014/15 FY revenue performance has been weak and if the trend continues the net loss position could worsen to R773 million.

19. SA Group Balance Sheet
SAPO Group has total assets of R10.39 billion for the year ending 31 March 2014.
The related Postbank depositor’s book and related assets are included.
The SAPO Group is solvent and liquid.
SAPO has to use the strength of it’s balance sheet to fund capital spending on key programs.

20. SA Group Cash Flow
SAPO Group has total cash and equivalents of R3.13 billion for the year ending 31 March 2014.
The related Postbank depositor’s funds are matched with the cash and equivalents and other financial instruments.
The deficit from the operating activities is a result of declining revenues.
The high fixed cost structure of SAPO puts pressure on the cash flow.

21. Borrowing/Funding Requirements
Due to the removal of the subsidy to fund the universal service obligations and the increase investments in our capital programs; borrowing have to be considered.
The capital programs for the next three years is R1,5 billion excluding Postbank.
The Postbank corporatization requires R1 billion of which R481 million funding has been provided by National Treasury and the difference has to be funded by SAPO.
We are looking into alternative funding mechanisms to meet our funding requirements.
The SAPO capital investment program is crucial to enable the turnaround plan.

22. Agenda SAPO strategic focus Key Performance Indicators
Budgets for 2014/15
Strategic Turnaround Plan
Postbank Corporatisation
Way forward
4. Strategic Turnaround Plan

23. SAPO Turnaround Programme
Wave 1: Addressing short term capability requirements within the Group required to improve the speed of decision making, review the project execution capability, address issues in the corporate culture and to create the internal capacity to manage and control future business transformation activities.
Wave 2: Focusing on revenue and cost management, driving business efficiency and reliability, and improving the branding and market positioning of the Group as a trusted and efficient business partner.
Wave 3: Developing and implementing the unique strategic and tactical plans for the SA Post Office Business Units to drive innovation, diversification and growth in a responsible and profitable manner, in line with the Shareholder Compact.

24. SAPO Proposed Journey 1 3 2

25. Agenda SAPO strategic focus Key Performance Indicators
Budgets for 2014/15
Strategic Turnaround Plan
Postbank Corporatisation
Way forward
5. Postbank Corporatisation

26. Background – Banking License Application Process√ √ √
Banking license
application preparation
Banking License
Application finalisation
Identification of the
Application signatory
Submission of the
Application for
authorization to
establish a bank
(section 12)
January – June 2012
September 2013
October 2013 – June 2014*
July 2014 – June 2015*
Authorization to
proceed granted
(section 13)
Registrar’s
approval to form the
Postbank company
(section 15)
Approval to establish
the company
Incorporate the
registration as a bank
(section 16)
Application for SAPO
to be registered as a
banks controlling
Company
(section 43)
Registration of
the new bank
(section 17) 1 2 5 √ 3 6 4 7
The Application to Establish a Bank was submitted by Postbank on the 25th of September This triggers a 15 to 18 month process to meet Banks Act and other regulatory requirements 8
* Indicative dates based on urgency in obtaining the banking license

27. Progress Update – Banking License Application
The SARB is still evaluating the application submitted on the 25th of September 2013 and there have been several engagements with them where additional information was shared. They have indicated that they require resolution on … NO
OUTSTANDING ITEMS
TIME
LINE 1
The business to be transferred must be audited by the Department appointed Auditors in order to make a recommendation to the Minister. This deliverable is being managed by the DoC and the status is unknown. DoC has undertaken to engage the service provider to seek clarity on timelines.
TBC 2
The BA020 forms for the “fit and proper” assessment of potential Postbank Board members were returned by the SARB due to:
Some forms not being initialled on every page by prospective Board members
The External Auditors opinion on the Fit and Proper status of each candidate not being signed – The External Auditors had agreed with previous SARB officials that they will not be providing an opinion, given the risks involved. This is being addressed by them.
The external auditor has since delivered the initialled CVs and provided a covering letter explaining their position in not providing an opinion on the prospective board members.
Done

28. Agenda SAPO strategic focus Key Performance Indicators
Budgets for 2014/15
Strategic Turnaround Plan
Postbank Corporatisation
Way forward
Way forward

29. Way Forward
The implementation of the strategy turnaround plan will ensure the sustainability of SAPO.
SAPO funding options for the strategic enablement of USO, service delivery, access to services and financial inclusion.
External long term loans to fund capex programs.
Continue to efficiently connect Government to Citizens.
New business development and revenue growth including inter-governmental business.