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

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SAPO Presentation to Portfolio Committee

Annual Performance Plan and Budgets

08 July 2014

2

Agenda

1. SAPO strategic focus

2. Key Performance Indicators

3. Budgets for 2014/15

4. Strategic Turnaround Plan

5. Postbank Corporatisation

6. Way forward


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SAPO Vision

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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.

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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.

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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

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SAPO Key Focus Areas

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

Universal and affordable provision of postal and other related services

Revenue Enhancement

Revenue Enhancement

Cost Containment

Cost Containment Customer FocusCustomer Focus

Project ExecutionProject Execution

Pos

tBan

k C

orpo

ratis

atio

nP

ostB

ank

Cor

pora

tisat

ion

Performance ManagementPerformance ManagementIT RefreshIT Refresh

Retail OperationsRetail Operations

Pro

per

ty V

alua

tion

Pro

per

ty V

alua

tion

Fun

ding

So

lutio

nsF

undi

ng S

olu

tions

Cap

ital A

dequ

acy

Cap

ital A

dequ

acy

Imp

lem

ent

atio

n o

f T

urna

rou

nd P

lan

Imp

lem

ent

atio

n o

f T

urna

rou

nd P

lan

Bal

anc

e S

heet

Str

uctu

reB

ala

nce

She

et S

truc

ture

Talent Management

Talent Management

Strategic direction

Key Focus Areas

Key Enablers

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Local Trends impact on SAPO

SA Post Office affected by local trends Impact on SA Post Office

The economic slowdown will impact business demand.

Negative impact on all business units.

Rising unemployment will slow consumer spending.

Negative impact on all business units.

Strong competition will demand price competitiveness and reliability.

Negative impact on market share and profitability for logistics, retail and banking.

Demand for digital offerings. Negative impact on all business units except E-Business parcels and logistics (e-commerce).

Increasing urbanisation will change geographical demand profile.

Positive impact (greater concentration) on parcel and logistics profitability; and

Negative impact (greater number of delivery points) on mail profitability.

Growing Middle Class. Positive impact on mail volumes; Positive impact on financial services; and Positive impact on parcels and courier.

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SAPO Contribution to the NDP

SAPO will be able to contribute positively to the National Development Plan.

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

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6. Way forward

Agenda


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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


year actual


year actual

Grow by 5% over

prior year actual

Sustainability Current Ratio Maintain minimum

of 1.1

Maintain minimum

of 1.1

Maintain minimum

of 1.1

Customer Satisfaction

survey (2009 - 43%

overall result)

Conduct new survey Implement survey

recommendations

Implement survey

recommendations

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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% 95% 95%

Logistics Delivery Performance Levels 96% 96% 96%

Retail Conformance to Queue Wait

Time of 7 Minutes (to be

negotiated with ICASA)

98% 98% 98%

Provide a secure, efficient

and integrated

infrastructure for consistent

and seamless service

delivery

Properties Number of Refurbished

Workplace Environments

45 70 70

Licence targets being reviewed / negotiated with Regulator.

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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)

1 195 680 Pending ICASA

regulation

Pending ICASA

regulation

Additional Retail Points of Presence (to be

negotiated with ICASA)

50 50 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% 60% 60%

Total blacks /base (85%) 87% 87% 87%

Disability

Targets

Disability/base (0.44%) 0.5% 0.6% 0.7%

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Strategic Goal ObjectiveKey Performance

Indicator2014/15 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

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

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

0 compliance findings

older than 6 months

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Strategic Goal ObjectiveKey Performance

Indicator2014/15 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

Reduce emissions by

2.5% of prior year

actual 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

Reduce energy


prior year actual

consumption

Reduce energy


prior year actual

consumption

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6. Way forward

Agenda


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SAPO Group Income Statement

Statement of Comprehensive Income (R'000)

Actuals 2013 Forecast 2014 Budget 2015 Budget 2016 Budget 2017

Revenue 5 980 355 6 103 408 6 837 662 7 354 523 7 948 100Expenses (6 286 277) (6 636 037) (7 152 635) (7 653 117) (8 072 189)Operating (loss) profit (305 922) (532 629) (314 974) (298 594) (124 089)

Non-operating items 98 732 64 350 66 521 98 958 107 517(Loss) / profit before tax (207 190) (468 279) (248 452) (199 636) (16 572)

Taxation 28 625 72 399 (391) (555) (798)

(Loss) / profit for the year (178 565) (395 880) (248 843) (200 191) (17 370)

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.

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Financial Outlook Revision

SA Post Office Group (R'000)

Actuals 2013 Forecast 2014 Budget 2015 Budget 2016 Budget 2017

Revenue 5 926 519 5 933 926 6 441 214 7 001 129 7 629 908

Expenses 6 149 115 6 442 554 6 975 172 7 555 852 7 992 059Operating (loss) profit (222 596) (508 629) (533 959) (554 722) (362 151)

Non-operating items 15 407 (43 484) (59 173) (29 225) (23 202)Profit / (Loss) before tax (207 189) (552 113) (593 131) (583 947) (385 353)

Taxation 28 626 72 400 0 (247) (720)Profit / (loss) for the year (178 564) (479 713) (593 131) (584 194) (386 073)

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.

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SA Group Balance Sheet

Statement of Financial Position (R'000) Actuals 2013 Forecast 2014 Budget 2015 Budget 2016 Budget 2017

AssetsNon-Current Assets 2 173 846 2 308 529 3 254 438 3 719 339 3 749 411Current Assets 8 143 057 8 083 599 7 863 316 8 158 786 8 546 357

Total assets 10 316 903 10 392 128 11 117 754 11 878 125 12 295 768

Equity and LiabilitiesEquity 2 533 510 2 613 304 2 616 461 2 440 271 2 422 902Non-Current Liabilities 1 272 087 1 260 553 1 406 228 1 963 319 1 996 988Current liabilities 6 511 306 6 518 271 7 095 065 7 474 534 7 875 879

Total Equity and Liabilities 10 316 903 10 392 128 11 117 754 11 878 125 12 295 768

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.

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SA Group Cash Flow

Statement of Cash Flows (R'000) Actuals 2013 Forecast 2014 Budget 2015 Budget 2016 Budget 2017

Net cash from operating activities (371 186) (248 608) 99 128 (21 161) 156 425Net cash (to)/ from investing activities 132 418 (281 516) (1 220 184) (909 509) (426 184)Net cash from financing activities 238 367 389 821 623 933 919 016 339 926Total cash movement for the year (402) (140 303) (497 123) (11 654) 70 166Cash at the beginning of the year 3 277 157 3 276 755 3 136 452 2 639 329 2 627 675Cash and cash equivalents at end of the period 3 276 755 3 136 452 2 639 329 2 627 675 2 697 841

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.

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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.

SA Post Office Group (R'000)Roll over

2014Budget

2015Budget

2016Budget

2017Total

Projects in implementation 92 416 174 555 87 650 28 400 383 021Projects in the procurement phase 34 403 15 000 49 403Projects in the approval stage 18 769 477 307 420 878 161 047 1 078 001Postbank Corporatisation 389 500 350 000 200 000 939 500Total 111 185 1 075 766 873 528 389 447 2 449 926

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6. Way forward

Agenda


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SAPO Turnaround Programme

Wave 1: Establish the Foundation

Wave 2: Reach Competitive Parity

Wave 3: Innovate and Grow

1

2

3

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.

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SAPO Proposed Journey

11 22 33

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6. Way forward

Agenda


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Background – Banking License Application Process

Banking license application preparation

Banking License Application finalisation

Identification of the Banking License

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)

Application for

Registrar’s

approval to form the

Postbank company

(section 15)

Approval to establish

the company

Incorporate the

Postbank company

Application for

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)

The Application to Establish a Bank was submitted by Postbank on the 25th of September 2013. This triggers a 15 to 18 month process to meet Banks Act and other regulatory requirements

1 2

3

4

5

6

7

8

* Indicative dates based on urgency in obtaining the banking license

√√√

√

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Progress Update – Banking License Application

NO OUTSTANDING ITEMS TIMELINE

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

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 …

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6. Way forward

Agenda

6. Way forward

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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.

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

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