SAPO Corporate Strategic Plan

1

Case for change – HCM Enhancements•Qualifications Verification

SAPO Corporate Strategic PlanParliamentary Portfolio Committee

05 May 2015

Contents

2

1

BUDGETS 2015/16 – 2017/18

INTRODUCTION

4

2

5

STRATEGIC TURNAROUND PLAN

STRATEGIC FOCUS

6 WAY FORWARD

KEY PERFORMANCE INDICATORS – Included as the Additional Notes Pack

3

STP IMPLEMENTATION READINESS

7

Introduction

3

• The labour environment remains stable.

• Cash flow challenges continue with the backlog in payments to suppliers which constraints operations.

• Long term funding of is crucial to clear backlog payments and support the implementation of the STP.

• The growth in Government business to position SAPO as a delivery arm of Government, through the cabinet decision.

• Monopoly reserved area encroachment complaint has been lodged with ICASA.

• The implementation of the Strategic Turnaround Plan is key to the recovery and sustainability of SAPO.

• The turnaround quick wins are in implementation phase whilst the other detailed plans are being finalised.

SAPO Footprint Strategic Importance

4

7,5 million Postbank accounts

66 million customer visits to branches

p.a.

13 500 business customers (Bulk and frank mail & Docex)

1,4 billion mail items delivered a year

R 5,69 billion Revenue

R4,74 billion Postbank deposits

23,820Employees

13,8 million households serviced

2486 Points of Presence & 382 Mail Processing Centres

Collection agent for +/- 250 3rd party

clients

Global postal trends

5

Internationally, the postal industry is undergoing a transformation. Business models that have existed for generations are

clashing with the latest technology and social trends.

Summary SWOT Analysis

6

The SWOT analysis builds on the other components of the strategic context work and identifies where SAPO is positioned with

regard to trends, developments and the broader environment in which it operates and affect the organization’s future.

Challenges - Summary

7

Diverse range of challenges

Long-ranging reforms for sustainability

8

SAPO’s future will be secured by addressing a number of “systemic challenges”

ROLE OF SAPO AS DELIVERY ARM OF

GOVERNMENT

POLICY DIRECTION and REGULATORY

LANDSCAPE

FUNDING MODEL FOR SAPO’S

DEVELOPMENTAL AGENDA

ROLE OF SAPO IN SOCIO-ECONOMIC

DEVELOPMENT

SAPO

• SAPO’s traditional clients are large business and the strategic role that SAPO should be playing in government service delivery is limited

• SAPO has extensive citizen-facing infrastructure in the remotest parts of the country, yet access to government services remains a challenge in those areas

• Leveraging infrastructure investments will dramatically reduce the cost of service delivery

• SAPO provides critical social and economic inclusion infrastructure for millions of vulnerable South African

• The role that SAPO can play of connecting citizens to the South African government is poorly developed

• The USO mandate specifies a Point of Presence in every 3km radius, the potential of this massive investment is severely under-utilised

• Current policy and regulatory prescripts emanate from a period of low access to communications infrastructure

• SA’s mobile penetration exceeds 100% and the physical and electronic communication technologies are converging

• What is the role of postal communication in present day South African ICT landscape?

• The massive physical distribution infrastructure related to SAPO’s developmental mandate, imposes high fixed costs to SAPO’s financial model

• When the USO subsidy was withdrawn in 2011, SAPO’s suboptimal financial structure was exposed

• What is the role of SAPO in development, and how should it be funded?

Cost of Universal Service Obligation

9

• The cost of the USO is represented by the retail network.

• The size and reach of the branch network is a direct result of ICASA’s licensing requirements.

• Although the retail business generates revenues, it is not nearly adequate to cover the cost of the vast network of retail outlets.

• Not only is the profit from reserved services decreasing, but the cost of the USO is increasing.

• Over the past six years, retail losses have outstripped reserved services profits, except for 2012 in which here was an abnormally high cost recovery from other business units.

• In 2015, the shortfall in reserved services profit is expected to be in excess of R1.75bn.

Source: SAPO, Evolut

SAPO’s business model immature

10

Service BrokerLogistics of G

oodsPu

blic

Ser

vice

Ope

ratio

ns P

artn

erNo

n-Ba

nkin

g Fi

nanc

ial

Serv

ices

Banking Financial Services

Communication Fulfilment

Customer Targeting

Mail

Distribution

Creation

Make Selection

ExpressParcel Freight

Forwarding

Fulfilment 4PL W

arehouse

PO

Outlet

RetailerConvenience

Store

E-TailerService PlatformPost Bank

Savings

Government Banking Transactions

Insurance

Retail Banking

PO

Out

let

Gove

rnm

ent

Serv

ices

Secu

rity

Prov

ider

Wor

kflo

w / A

rchi

ving

Busi

ness

Out

sour

ce P

artn

er

for G

over

nmen

t

PO

Out

let

Paym

ents

Mon

ey

Tran

sfer

s

Virtu

al to

p-up

and

e-

ticke

ting

Paym

ents

agg

rega

tor a

nd

dist

ribut

or

Banking Financial Services

• Postbank currently offers basic savings and transactional banking products

• After Corporatisation a holistic financial service offering is envisaged

Public Service Operations Partner

• Offerings to government exist, however SAPO is not seen as a government outsource partner even in its core areas such as mailroom management

• Penetration of value proposition to the breadth of government is poor

Service Broker

• The retail network asset is not sweated optimally towards becoming a ‘retail destination’

• A limited number of services are drawing feet into the branches such as Postbank transactions and MVL

Communication Fulfillment

• Mail is viewed from a physical letter point of view despite considerable investment in hybrid mail capability

• The hybrid mail offering is reliant on a handful of clients, whilst the market is vast

Logistics of Goods

• SAPO is underperforming in this fast-growing sector, whilst one of the top players in the market it lacks scale and is unprofitable

• Positioning as the government logistics partner to support volume growth

Non-Banking Financial Services

• Limited capability to play a in a R15 billion revenue market

• Massive untapped potential in the space of consumer-consumer, government & bill payments, wages, payments for goods and services (prepaid electricity and airtime, e-ticketing)

SAPO’s business model overhaul

11

FINANCIAL HEALTH

• Unsustainable financial model – costs exceed revenue; and have been growing faster than revenue

• Human and physical infrastructure has excess capacity and low productivity• Volumes growth focus versus value in mail• Poor performance from retail and CFG is strangling the business

RETAIL REVENUE PERFORMANCE

• Retail Business Unit key revenue drivers are contracted government bill payments, including Telkom, Motor Vehicle Licencing, Municipal accounts, etc.

• As seen in the period following the loss of the SASSA account in 2008/09, reliance on contracted business in not sustainable

• Driving robust transactional volumes to sustain the business is key, however Information Technology deficiencies are hampering the ability of retail to compete in lucrative markets such as non-banking financial services

CUSTOMER-FOCUS

• SAPO business model not centred around the customer• The organisation is inward-looking – the Post Office not recognised as a key element of the

South African economic infrastructure• SAPO’s revenue is concentrated within a highly vulnerable customer base, particularly

given recent service disruptions, understanding and pursuing new growth markets is lacking


12

COMPLIANCE TO REGULATION

• Ill-defined USO is burdensome to the business and SAPO’s pursuance of USO targets at all costs has left the business severely exposed

• The strategy has been to “own” the majority of the fixed cost of the branch network, in contrast to global trends, where Postal Agencies and Franchising model are the dominant models and thus reducing the burden of universal service obligation to the operator

INFORMATION TECHNOLOGY

• SAPO IT systems are unstable, in an unsafe environment, without adequate connectivity, weak redundancy, without independent testing environment; without disaster recovery and certain to collapse in the immediate future if no drastic and urgent intervention is taken

• Mission critical IT systems failure introduces excessive inefficiencies, losses and waste

DELIVERY PLATFORMS• The “silos” that have developed within SAPO have resulted in duplication of costs, poor

efficiency and sub-optimal investment decisions in areas such as transport, property, technology, call centres, etc.

PARCELS BUSINESS INTEGRATION

• Whilst integration of Parcels business (Speed Services and CFG had occurred at a linehaul and route sharing business level, fundamental issues remained unaddressed

• The courier business continues to run two parallel brands resulting in internal competition and cannibalisation


13

LABOUR ENVIRONMENT

• The labour environment at SAPO is broken, mistrust prevails between management and staff – due to a long history of unfulfilled agreements

• The conversion process of casual labour has aggravated an already ailing organisation, leading to the current situation

LEADERSHIP AND STRATEGIC DIRECTION

• SAPO leadership has been unstable for the past 5 years, and presently, leadership vacancy rate is sitting at 49% - a successful implementation of a turnaround programme is impossible without a stable leadership team

• Internally the organisation lacks a high-performance culture and accountability for performance

IMPLEMENTATION CAPABILITY AND CAPACITY

• SAPO is good at developing strategies, however implementation has been elusive in the past – turnaround proposals not “operationalised” into corporate plans down to individual performance with relevant accountability

• SAPO lacks a single consolidated programme management, operations management and performance management process and tools

GOVERNANCE AND OVERSIGHT

• Clear warning signs for financial disaster were masked by poorly segmented financial reporting and the Board seems to have taken reported information at face value

• Robust strategic leadership, performance management and monitoring is lacking• Organisational health indicators not monitored and organisation not steered in the right

direction

Bloated and inflexible cost structure

14


All branches - 2013 Loss making Profitable

Staff cost / revenue 119% 53%

Prop. cost/revenue 35% 8%

70-80% of cost base is fixed in nature – negative

operational gearing

Long-term expense growth exceeds revenue growth

15

• For many years, SAPO barely managed to recover all of its expenses.

• This precarious existence was only made possible through a subsidy from government.

• Unfortunately, the point at which this lifeline ceased to exist in 2014, is also the point at which SAPO’s business model was exposed and labour unrest reared its head.

• Even though revenues are expected to recover and grow following the 2013-2014 labour unrest, the business model in its current state will continue to produce losses.

CAGR = 2.1%

CAGR = 4.5%

CAGR = 5.4%

CAGR = 5.7%

Source: AFS, management forecast, Evolut calculations

CAGR = 2.0%

Mail volumes not the main reason for revenue slump

16

• Despite the international trend of declining mail volumes, mail revenues grew at 4.1% p.a. from 2005 to 2014.

• PostBank revenues (fees and interest income) increased from R243m in 2005 to R724m in 2014.

• Retail and logistics revenues remained negative to flat over the same period, even though a large amount of investment went into both business areas.

• SAPO will remain dependent on mail revenues for the foreseeable future but it is imperative that other business units accelerate revenue growth.

CAGR = 4.1%

(rhs)

Source: AFS

Retail business is the largest contributor to SAPO’s losses

17

• Impact of labour unrest on mail division is clear. However, this division still managed a profit in 2014 and 2015e.

• Postbank has performed steadily, its only hiccup being the loss of SASSA revenues in 2012.

• The retail business is the largest loss maker in SAPO.

• This is largely due to the high and inflexible cost base but also due to a lack of retail transactional volumes over the counter.

• Retail’s revenue 95% reliant on contracted business, largely motor vehicle licencing and public sector bill payments


Lost retail revenues must be replaced

18

• The loss of the social grant payments had quite a significant impact on retail revenues (26% loss in revenues)

• Government related services contribute the bulk of retail revenues (currently 64%) and has been growing handsomely (+23% CAGR)

• However, there are more opportunities to grow revenue from government sources.

• Bill payments relate mainly to Telkom accounts.

• Although bill payments are very competitive, it is an area where there is further opportunity for growth.

Slight decline in revenues (-2.8% CAGR)

Source: Management Accounts

Branch property and staff costs are too high

19

• Since 2010, total expenses increased by 5.1% per annum.

• Property leases, however, has increased by 15.1% over the same period.

• This is largely due to the recent trend of vacating existing post office premises in favour of leased spaces in shopping malls.

• The loss making branches have a total property cost to revenue of 35% compared to just 8% for the profitable branches.

• Loss making branches have on average 3.5 staff compared to 4.5 for profitable branches.

• Yet, the loss making branches have a higher staff cost to revenue.

All branches - 2013 Loss making Profitable

Staff cost / revenue 119% 53%

No of staff 3.5 4.5

Prop. cost/revenue 35% 8%

CAGR 15.1%

Source: Management

There is misalignment between cost of branches and performance

20

• The top 20 worst performing branches are mostly all in large metropolitan areas.

• A large number of these are in shopping malls.

• The average bottom 20 branch is Type A with 11 staff and a very high relative property cost

• The average top 20 branch is a Type B, most likely in the Eastern Cape with only 6 staff members and a property cost of only 2% of revenue

Source: Management & Evolut

Type: ARegion: W/Cape or Wits

Staff: 11Revenue: R1.6m p.a.

Property cost: R0.9m p.a.(75% of revenue)

USO: No

Type: BRegion: E/Cape

Staff: 6Revenue: R3.8m p.a.

Property cost: R0.1m p.a. (2% of revenue)

USO: No

Average Top 20 branch Average bottom 20 branch

Logistics product profitability needs review

21

• More than half of the products in logistics are making losses. XPS and PX products are almost all loss making.

• The five worst performing products are responsible for 65% of the total cost base in logistics.

• The biggest single loss maker is the Speed Services Parcel Door to Counter product which lost R52m for the year ended March 2014. It is also the 2nd biggest revenue generator.• PostNet charges R190 for a 1kg

parcel from JHB Door to CPT Counter.

• SSC charges R166.55 for the same service – a 12% discount.

• The bulk of the loss is therefore down to volumes and cost.

• Given that the cost base is more fixed in nature than variable, the impact of volume changes become very meaningful.

84% of cost – 72% of revenue

65%

of c

ost –

52

% o

f rev

enue

Source: SAPO

Revenue mix diversification

22

ROA

(%)

Fin. Lev.

(x)

ROE

(%)

Weight

(%)

Rev

(Rm)

CAGR2015-

20(%p.a.)

Retail 2.0% 2.0 4.0% 15% 1,189 25%

PostBank 2.5% 10.0 25.0% 20% 1,585 18.5%

Logistics 4.0% 3.0 12.0% 15% 1,189 18%

Mail 3.0% 2.0 6.0% 50% 3,963 2%

SAPO 2.9% 3.6 10.4% 100% 7,925 8.9%

Before tax 14.9%Total return to shareholder

including taxes paid – sufficient to cover government borrowing

cost

Summary of Strategic Turnaround Plan

23

Sustainable social mandate delivery leveraging

Reserved Area

Profitable revenue growth from diversified customer

base and product mix

Grow financial resource base

Improve productivity & asset utilisation and reduce costs

Income derived from the reserved markets must be sufficient to meet operating costs for developmental obligations; whilst ensuring that business activities in the unreserved markets are

competitive, profitable and commercially viable for SAPO’s sustainable growth.

Responsible Corporate Citizen

International Postal Reputation

Product Diversification Customer Intimacy Improve Operational Efficiency and Quality

Social Mandate Delivery

Restore public confidence in the South African Post Office

Trusted partner for government service

delivery

Rebuild SAPO’s brand

Social cohesion and economic/financial inclusion

infrastructure & solutions for citizens

Improved customer satisfaction

Customer centric ethos across the organisation

Value-based solutions for corporate customers as

partners

Social mandate aligned to NDP

Enterprise Development

Remodel and optimise channel mix to reduce cost of

social mandateTransformation towards a needs-based policy and

regulatory regime

Reserved Area revenue protection

Massification of new products to leverage innovation

Cross-selling of existing products

Logistics solutions to capture e-commerce opportunities

Understand customer segments and value

Grow on government and SMME revenue contribution

Customer experience improvement across all

channels

Optimised mail operations to align capacity to mail volumes

Continuous process improvement

Reduce property, transport and IT costs

Agency model improvement and supportImprove product development

and lifecycle management

Environmental sustainabilityStakeholder management and

effective communication

Improve supply chain efficiency and effectiveness

High Performance CultureEfficient and effective Technology

Sales Force Effectiveness

Implement new operating model, build strategic

capabilities and capacity

Develop leadership accountability and an

execution-driven culture

Leverage strategic partnerships

Foster conducive

organisational climate

Optimise technology effectiveness – systems,

network, databases

Technology solutions to support current and future products and operations

Optimise knowledge

sharing

STP Business Case

24

4 435

4 600 1 540

STP Business Case Detail

25

Initiative 2015/16 Target Initiative 2015/16 TargetRevenue Uplift Cost Reduction

Capture additional government business - Logistics 352 518 Workforce rightsizing 517 563 Capture additional government business - Retail 287 166 Align sorting capacity with volumes 97 500 Retail hostpot & ICT hub - Mail 90 000 Eliminate late night shifts 78 280 Mobile virtual network operator 67 500 Reduced rates and reduced TOC 64 750 Capture additional government business - Mail 46 250 Postbank IT outsourcing 64 425 Cross-sell to large customers - Logistics 40 375 Reduce manual sorting 55 000 Capture additional government business - Postbank 31 913 MVNO 52 500 Protect DOCEX revenue/Digital lodgement 24 000 Unified Oracle database license 51 000 Revenue collection - Telkom masts 16 800 Reduce rental exposure 44 550 Retail hostpot & ICT hub - Retail 14 000 Optimise network 22 200 Eliminate price discounts 13 413 Relocate the JIMC property 16 983 New mailing business for online mall 5 750 Ensure last mile performance 9 900 Cross-sell to large customers - Retail 4 750 Reduce call centre costs 9 065 Digital certificates 4 625 Parking of vehicles 2 914 Revenue from non-traditional customers 4 050 Terminate excess FMLs 1 850 Reduce reliance on gov 3rd party payments 3 875 Terminate casuals

R1 006 m R1 088 m

Quick wins

26

Operating Model

27

Products

Core Operations

Letter mail Parcels BankingNon-Banking Financial

Services

Mail Operations Parcels OperationsRetail Operations Postbank

Retail Solutions

Customers

Marketing & Communication

Business Government ConsumerD

elivery Platforms &

Enablers

Transport and Logistics

Information Technology

Property Management

Supply Chain Management

Human Resources Management

Stakeholder Management

Governance and Regulatory

Strategy and Sustainability

Financial Management

Implementation of the new business model will necessitate a change in SAPO’s operating model to place the customer at the heart of the business:

•Break Business Unit silos

•Create market facing commodity-based SCM

•Create a commercial capability at SAPO and consolidate all “commercial” functions.

•Outsource SAPO and Postbank IT

•Break down e-Business into Mail and Channels.

•6 Regional centers to be headed by Regional GM (report to Operations Exec in the office of the COO; 2 GM levels dependent on size and complexity)

•Integrated delivery teams

•Network and logistics managed centrally through the NCC supported by Transport teams regionally

•Regional NCC re-established

•Support services integrated under Regional GM’s with dotted line reporting into HQ Support Exec’s

PROPOSED MACRO-STRUCTURE

28

CEO

GE: Strategy and Sustainability GE: HCMChief Commercial

OfficerChief Operations

Officer GE: Governance

SAPO Board

Chief Financial Officer

• Strategy planning, monitoring and reporting

• PMO• Risk Management• Group

Communication• Stakeholder

Management• Sustainability• Enterprise

development• CSI

• Corporate Finance• Management

Accounting• Tax and Retirement

Fund• Treasury• Capex Management• Financial Planning and

Reporting• Supply Chain

Management

• Market and Customer Intelligence

• Product Management• Sales & Marketing• Customer Service• Channels

• Talent attraction and retention

• Organisation design and remuneration

• Performance Management

• Employee Relations

• Internal audit• Company secretariat

• Legal• Economic

Regulation• Regulatory

Reporting• Security and

Investigations• Ethics

• Mail Operations• Parcels Operations• Property• Transport and

Logistics• Head of Regions

Bank Controlling Company

Ltd

100% Subsidiary

Chief Technology Officer

• Corporate IT• Networks & Connectivity

• Services Partner Management

• IT Design• IT Services• Product Innovation & Test Environment Hub

100% Subsidiary

Postbank (Pty) Ltd

Executive Assistant

PROPOSED STAFF NUMBERS TO BE REDUCED

29

BUSINESS AREAEmployee Numbers Potential Saving

OPERATIONS

Mail Operations - Reduction aligned to productivity and efficiency analysis 2650 325 655 971

Transport reduction aligned to transport optimisation 236 25 736 109

International Mail – reduction in ops. staff only 34 4 666 635

CFG – volume and efficiency aligned reduction 339 49 788 696

Speed Services – volume and efficiency aligned reduction 131 20 333 541

Closing of 8 Mail Processing Hubs 191 22 018 572

Closing of 652 Retail Branches over 5 years 1000 134 427 250

CORPORATE SUPPORT FUNCTIONS 160 51 231 510

- Supply Chain Management reduced by 8,3 % included above

IT – Outsource IT Support function 201 69 322 185

REGIONAL SUPPORT FUNCTIONS aligned to operational structure 96 24 307 864

SALES & CUSTOMER SERVICES 36 9 857 108

TOTAL 5065 R728 223 385

COST TO FILL CRITICAL ROLES

30

BUSINESS AREA Cost

Executive positions

Chief Commercial Officer 1 800 000

Chief Technology officer 1 800 000

GE Legal and Regulatory 1 500 000

GE Strategy and Reporting 1 500 000

Regulatory Compliance positions

Senior Manager 756 530

Manager (2 Positions) 1 015 076

Compliance Analyst (3 positions) 750 450

Total R9 122 056

Net effect of changes

Reduction in staff numbers R728 223 385

Filling of critical vacancies -R9 122 056

Net saving R719 101 329

IMPACTED POSITIONS BY LEVEL

31

Management

Administrative/ Operational

General workers

REDUCTION PER JOB LEVEL

JOB LEVELNUMBER OF EMPLOYEES/

POSITIONS % SPLITActual current % of

total workforceA - level 310 6% 8.06%B - level 3590 71% 72.03%C - level 1026 20% 17.59%DL - level 114 2% 1.59%DU - level 38 1% 0.59%Executive level 1 0% 0.14%

SAPO EMPLOYEE PROFILE

32

• SAPO’s current attrition rate is 3% annualized. However, care must be taken as current resignations are on the increase.

• If considering natural attrition, the staff numbers retiring over a 5 year period only accounts to 501

• Potential early retirement could be considered but this will still only present 1807 headcount

• Engagement and consultation with Union currently underway to consider strategies and options

MITIGATION MEASURES

33

• The DTPS will engage the Regulator to strengthen the Reserved Market Inspection and Enforcement capability with "impacted" mail processing staff.

• Scaling up of the Mailroom Management Offering and deployment of Mailroom Coordinators in government departments' mailrooms.

• An average of R3.4m/month is spent on cleaning services. An opportunity analysis will be done on in sourcing; alternatively a business opportunity could be presented to impacted staff. This could accommodate an average of 300 employees.

• An average of R1.5m/month is spent on catering services. An opportunity analysis will be done on in sourcing; alternatively a business opportunity could be presented to impacted staff. This could accommodate an average of 150 employees in the opportunity.

• R126m/month spent on third-parties line haulage. An opportunity in owner-driver scheme will be explored.

• The proposed agency model in Retail to be deployed over the next 5 years furthermore presents an opportunity for staff to be empowered as entrepreneurs, the extent of impact in this area will be dependent on the outcome of the Agency model redesign.

• Review vacancies across the organisation to identify areas where impacted employees could be accommodated, e.g. JIMC, etc.

The following will be considered to reduce the impact on employees:

IMPLEMENTATION OF ORGANOGRAM

34

NotesMuch opportunity in the assumptions has been presented for further work study. It is recommended as part of the implementation process to deploy the HR org design team to execute critical area work studies to further optomise and address inefficiencies and potential duplicationUpdate of micro design roles and profiles

SAPO’s Strategic Intent

35

Strategic IntentStrategic Intent

The strategic intent is to turn SAPO around in line with the Strategic Turnaround Plan,

which establishes a new business model, such that SAPO becomes customer–centric, with

income derived from the reserved markets being sufficient to meet operating costs for the

developmental obligations of SAPO such as the universal service obligation (USO) whilst

ensuring that business activities, including government business, in the unreserved markets

are competitive, profitable and commercially viable to achieve sustainable growth for SAPO.

We will position SAPO as a key service provider that delivers government services to

citizens. Business derived from government will grow to levels of 50 - 55% of SAPO

revenue per annum whilst still growing from the current revenue levels from private and

consumer segments of the market.

Vision, Mission and Values

36

VisionVision

A leading provider of postal, logistics and financial services that is responsive to market changes whilst achieving sustainable growth.

MissionMission

We facilitate communication and delivery of services by linking

government, business and customers with each other across

the world by leveraging our broad reach, employees, technology

and innovation.

ValuesValues

SA Post Office subscribes to the following values when planning and executing

business delivery within the agreed mandate:

•We are customer centric and will meet customer specific needs through excellent

service;

•We contribute positively to our communities and environment;

•We treat each other with respect, dignity, honesty and integrity;

•We strive for a high performance culture and recognise individual contributions;

•We embrace change and diversity in the way we conduct business.

Strategic Goals and objectives

37

No Strategic Goals Strategic Objectives

1Implement the Strategic Turnaround Plan to achieve a

sustainable organisation

• Deliver sustainable developmental obligations funded from the reserved market

• Create a commercially viable business from the unreserved markets

• Achieve operational efficiency and effectiveness

• Achieve Leadership stability that ensures continuity and accountability

• Achieve labour stability and improve labour relations,

• Achieve financial sustainability

2Create a customer centric organisation to restore

customer confidence• Improve the customer experience to achieve customer loyalty

3Position SAPO as a key service partner that delivers

government services • Grow to levels of 50 - 55% of SAPO revenue per annum

4Corporatisation of Postbank and increase access to

financial services,

• Facilitate the corporatization of Postbank

• Increase access of financial services to the unbanked

5Ensure good corporate citizenship and corporate

governance

• Ethical Leadership

• Sustainability contribution

• Legal compliance

• Effective risk and governance

• Effective stakeholder management

Note: The detailed performance measures are included in the Additional Notes Pack

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. These Acts

provide for the regulation of postal services

and the operational functions of the

company, including its Universal Service

Obligations (USO), as well as the operation

of the Postbank.

Shareholder mandates and NDP

38

The National Development Plan

Post

al S

ervi

ces

Act 1

24 o

f 199

8

SA P

ost O

ffice

SO

C L

td A

ct 2

2 of

2011

Post

bank

Act

9 o

f 201

0

SAPO’s strategic planning model

39

• This integrated strategic management model enables SAPO to develop informed strategic responses.

• Adjust the strategy, if required through a continuous environmental scan.

• Understand the impact of all internal and external factors that may influence SAPO’s ability to maintain its competitive advantage as well its ability to deliver on its universal service logistics.

• A key component of the strategic formulation is to assess the business and operating model for relevance in the situation it finds itself.

• If there is a need for organisational adjustments, then SAPO will move, with speed, to ensure that the organisation is optimised for efficiency and effectiveness.

The strategic plan informs the various programs, projects and operational plans that will move the organisation towards its strategic

goals. These plans are under-pinned by critical success factors along with the applicable key performance indicators ensuring that

effective monitoring and evaluations mechanisms are in place for the strategic journey that SAPO plans to undertake.

STP Roadmap

40

Year one is crucial to get SAPO back

on track.

SAPO Income Statement

41

•SAPO Group preliminary net loss for financial year ending 31 March 2015 was R1 155m.

•SAPO Group net loss position for 2015/2016 FY reduced to R102 million.•Postbank net profit of R123 million for 2015/2016FY.

•Strategic Turnaround Plan (2016 to 2018)

• Revenue increase of R5,9bn.

• Government business R4,1bn.

• Cost reduction initiatives of R3,5bn.

• Total cost of borrowing included in Interest expenditure.

Actuals 2013/2014

Forecast 2014/2015

Budget 2015/2016

Budget 2016/2017

Budget 2017/2018

R'000 R'000 R'000 R'000 R'000Revenue 5 972 505 5 292 080 6 732 978 8 365 401 8 855 879

Mail revenue 3 863 158 3 444 152 4 531 912 5 631 414 5 863 044E-Business revenue 222 461 178 188 294 032 323 435 355 779Logistics revenue 724 749 508 065 617 902 802 450 939 940Postbank revenue 256 549 221 499 252 760 299 482 303 256Retail revenue 389 421 392 593 469 095 734 050 788 296Interest revenue 407 033 457 905 487 538 511 652 537 235Sundry revenue 109 135 89 677 79 738 62 918 68 330

Expenses 6 319 246 6 482 965 6 856 584 6 448 287 6 561 338Staff expenses 3 537 402 3 835 491 3 911 637 3 674 213 3 824 864Transport expenses 713 413 628 547 629 205 538 853 553 390Property expenses 697 017 651 261 684 049 592 036 608 785Material and services 278 646 288 601 353 821 371 512 390 087Interest paid 74 338 83 839 313 384 317 984 322 815Depreciation 166 928 164 571 196 201 267 481 293 471Other operating expenditure 851 502 830 655 768 288 686 208 567 927

Operating (loss) / profit (346 741) (1 190 885) (123 606) 1 917 114 2 294 541Non ops item (162 198) (49 486) (50 942) (50 271) (49 294)Subsidy 0 85 305 56 888 0 0Taxation 150 062 0 15 207 (569 339) (705 456)Net (Loss) / Profit (358 877) (1 155 065) (102 453) 1 297 504 1 539 791

Postbank 138 450 210 741 123 067 110 965 103 652

SAPO Group excluding Postbank (497 327) (1 365 806) (225 520) 1 186 539 1 436 139

SA Post Office Group

SAPO Statement of Financial Position

42

SAPO Group•The forecasted net loss position for the 2014/2015 financial year has reduced the retained earnings•The Postbank short-term investments and cash surplus over depositor’s funds is maintained over the medium term.

SAPO Group excluding Postbank•A 3-year term loan of R1 200 million will be secured in the 2015/2016 financial year to fund.

•Solvency for 2015/2016 Current liabilities exceed current assets.

Actuals Forecast Budget Budget Budget2013/2014 2014/2015 2015/2016 2016/2017 2017/2018

R'000 R'000 R'000 R'000 R'000

Non-Current Assets 2 954 225 3 424 187 3 868 653 4 029 882 4 215 369Current Assets 8 337 216 7 377 737 8 423 880 9 700 566 11 519 559

11 291 441 10 801 924 12 292 533 13 730 448 15 734 928

Equity 2 438 296 1 319 398 1 492 944 2 790 448 4 330 240Non- current liabilities 2 028 192 2 003 576 3 291 642 3 384 117 3 481 222Current liabilities 6 824 953 7 478 950 7 507 947 7 555 883 7 923 467

11 291 441 10 801 924 12 292 533 13 730 448 15 734 928



R'000 R'000 R'000 R'000 R'000

Non-Current Assets 2 897 164 3 315 429 3 477 085 3 607 842 3 767 965Current Assets 1 807 472 607 655 1 292 820 2 232 053 3 691 120

4 704 636 3 923 084 4 769 905 5 839 895 7 459 085

Equity 526 429 (803 210) (1 028 730) 157 809 1 582 119Non- current liabilities 2 028 192 2 003 576 3 291 642 3 384 117 3 481 222Current liabilities 2 150 015 2 722 718 2 506 993 2 297 970 2 395 745

4 704 636 3 923 084 4 769 905 5 839 895 7 459 085

SA Post Office Group excluding Postbank

SAPO Statement of Cash Flows

43

SAPO Group•Postbank depositors’ funds is projected to growth annually by 5%.•Capital expenditure for Postbank over the medium term amounts to R453m.•Capital expenditure of Post Office over the medium term amounts to R707m.

SAPO Group excluding Postbank•Allocation of R56,888m (after payment of vat) subsidy allocation for the 2015/2016 financial year.

•A 3-year term loan of R1 200m will be secured in the 2015/2016 financial year.•Overdraft facility of R270m.


R'000 R'000 R'000 R'000 R'000

Net cash from operating activities (333 969) (639 019) (188 016) 1 333 305 1 892 082Net cash (to)/ from investing activities 306 551 (1 375 051) (771 196) (553 432) (595 443)Proceeds from subsidy 0 0 56 888 0 0Movement in overdraft facility 311 378 (41 378) 0 0 03 year term loan 0 0 1 200 000 0 0Movement in deposits from the public 245 399 82 836 241 022 253 073 265 727Funds from National Treasury - Postbank 205 000 276 000 0 0Total cash movement for the year 734 359 (1 972 612) 814 698 1 032 946 1 562 367Cash at the beginning of the year 3 276 755 4 011 114 2 038 502 2 853 200 3 886 146

4 011 114 2 038 502 2 853 200 3 886 146 5 448 513



R'000 R'000 R'000 R'000 R'000

Net cash from operating activities (433 942) (867 389) (311 737) 1 169 250 1 719 130Net cash (to)/ from investing activities (89 690) (230 412) (245 700) (215 800) (245 900)Proceeds from subsidy 0 0 56 888 0 0Movement in overdraft facility 311 378 (41 378) 0 0 03 year term loan 0 0 1 200 000 0 0Movement in intercompany trading account 200 466 (2 489) (2 613) (2 744) (2 881)Total cash movement for the year (11 789) (1 141 668) 696 838 950 706 1 470 349Cash at the beginning of the year 1 264 185 1 252 396 110 728 807 566 1 758 272

1 252 396 110 728 807 566 1 758 272 3 228 621

SA Post Office Group excluding Postbank

Borrowing / funding plan

44

• The Standard bank approved overdraft facility of R270 million

• Facility is backed by State Guarantee.

• Facility is revolving and utilized for day-to-day operational requirements.

• Term loan of R200million was approved during April 2014 ; repayable in 3 months

• Facility is backed by State Guarantee of R1.67 billion issued in December 2014.

• Facility is utilized for day-to-day operational requirements.

• A further request to increase borrowings by R1.250 billion has been lodged to DTPS /NT

• Facility to be backed by State Guarantee of R1.67billion issued in December 2014.

• Binding Term sheets of R1 billion have already been obtained from interested Banking Institutions.

Regulation

45

• Effective monitoring and policing of the reserved area and monopoly is crucial to stop revenue leakage for SAPO.

• Discussions have commenced with ICASA.

• A Task Team has been set up to move the process forward:• SAPO • ICASA • DTPS • NT

• An encroachment complaint has been officially lodged with ICASA.• ICASA has committed to investigate the matter.• DTPS has requested that ICASA fast-track this investigation.

• The Task Team will be meeting during next week.

Implementation Readiness

46

• Implementation is key to the success of the STP.

• Labour stability can be ensured through transparent ongoing engagement:• Engagements with the leadership of labour unions on the STP have taken place.• Labour leadership have submitted their inputs into the STP on the 15 April 2015.• Communication forums have been re-established for labour unions.

• Leadership stability will ensure continuity and implementation inertia:• The recruitment and selection is being fast-tracked for critical positions.• Key vacant executive positions are in process – Chief Commercial Officer and Company

Secretary.

• Performance Management is a key pillar to ensure implementation:• To ensure accountability and delivery the STP initiatives will be incorporated in the performance

contracts of Group Executives.

• The long term funding availability will enable the key resources required for the STP.

Way forward

47

• Implementation of the 30% government business as per the cabinet decision is crucial for the STP.

• The approval of the R1.25bn long term funding from commercial banks is a crucial next step to address long outstanding suppliers and enable operations.

• Increase customer engagements to regain their confidence in SAPO.

• Fast track recruitment of key executive positions to ensure continuity and stability.

• Continue labour engagements to maintain labour stability.

• ICASA to add speed to the encroachment complaint and investigation to recover revenue leakage – task team in place to move the process forward.

• The implementation of the STP initiatives to gain traction to commence financial recovery for SAPO.

End End

48

Documents

SAPO Corporate Strategic Plan