SAPO Financial Overview 30 November 2012

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SAPO Financial Overview30 November 2012

SA Post Office Quarter 3 Performance31 December 2012

Contents

Overview

Economic sustainability

Scorecard

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Overview

Revenue growth remains a challenge.

872,610 motor vehicle licences renewed during 3rd quarter.

Labour unrest in economy had adverse effect on postal services

contributing to delays.

Flexible labour broking staff employed as Post Office casual

employees.

Additional 653,696 new addresses rolled out to date.

13 new points of presence opened and 12 upgraded/relocated.

Mail delivery standard of 89% achieved.

Financial Misconduct Framework is being rolled out.

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Economic Economic

SustainabilitySustainability

Economic Economic

SustainabilitySustainability

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ECONOMIC SUSTAINABILITY(GROUP FINANCIAL OVERVIEW)

Revenue below budget by R196 million, up 2% from prior year . Revenue shortfall – Due to customer consolidation of volumes posted, delay in the

Licence approval for the Trust Centre and loss of SASSA business. Expenses below budget by R22 million, up 6% from prior year. Lower revenues and withdrawal of subsidy for marginal Post Offices contributes to higher

net loss position of R173 million.

SA Post Office Group2012 2013 2013

Year To Date P/year Budget Actual R'000

Revenue 4 307 323 4 572 555 4 376 271 (196 285) 68 947Expenses 4 285 584 4 555 492 4 533 131 22 361 (247 547)

Operating Profit / (Loss) 21 739 17 063 (156 861) (173 923) (178 600)

PRMA (65 163) (83 508) (14 325) 69 183 50 839Cell captive 175 155 155 (20)Transfer pricing (6) 6

Profit / (Loss) before Subsidy (43 249) (66 451) (171 030) (104 579) (127 781)

Subsidy 181 925 51 964 36 811 (15 153) (145 115)Profit / (Loss) before Tax 138 676 (14 487) (134 220) (119 733) (272 896)

Taxation (42 998) (14 516) (38 399) (23 883) 4 599

Net Profit / (Loss) 95 678 (29 003) (172 618) (143 615) (268 296)

Variance Change

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FINANCIAL SUSTAINABILITY (BUSINESS SEGMENTS)

The summary of the third quarter results for the different business segments within the Post Office Group is indicated in the table below. The summary of the third quarter results for the different business segments within the Post Office Group is indicated in the table below.

9 Months to December 2012 Post Office SSC Postbank SAPO CFG Docex Group

Revenue 3 332 844 260 925 484 648 4 078 417 267 554 30 299 4 376 271Expenses (3 932 848) (150 653) (96 553) (4 180 053) (322 695) (30 384) (4 533 131)

Operating profit / (Loss) (600 004) 110 273 388 095 (101 636) (55 140) (84) (156 861)PRMA (14 239) (14 239) (86) (14 324)Cell captive 0 0 0 0 155 0 155Transfer Pricing 162 605 (30 673) (131 932) 0 0 0 0Support Cost charge-out 100 724 (29 847) (44 136) 26 741 (26 741) 0 0SSC Management Fee 0 (35 972) 0 (35 972) 35 972 0 (0)Impairment of CFG Loan (31 578) 0 0 (31 578) 0 0 (31 578)

Profit / (Loss) before subsidy (382 492) 13 781 212 027 (156 683) (45 840) (84) (202 608)Subsidy 36 811 0 0 36 811 0 0 36 811

Profit / (Loss) before Taxation (345 681) 13 781 212 027 (119 872) (45 840) (84) (165 797)Taxation (38 075) 0 0 (38 075) 0 (324) (38 399)

Net profit /(Loss) (383 756) 13 781 212 027 (157 947) (45 840) (408) (204 195)

(157 947) (45 840) (408) (204 195)Less: Elimination of CFG Loan Impairment 31 578Group net profit (172 618)

Profit Recon

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ECONOMIC SUSTAINABILITY(REVENUE OVERVIEW)

Mail - below budget due to decline in volumes from customer consolidations and the recent labour strike impact.

Digital – below budget due to delay in Licence approval for Trust Centre. Logistics – decline in customer volumes for courier items. Postbank – loss of customers and delayed implementation of bank fees. Financial Services – Loss of SASSA business and decline in third party payments. Interest – Lower interest rates and cash available for investment. Sundry – Above budget due to the insurance claim pay-out for the Postbank fraud.

2012 2013 2013Year to date (R'000) Prior Year Budget Actual

Mail revenue 2 808 565 2 931 596 2 852 480 (79 116) (3%) 43 915 2%Digital revenue 77 980 105 264 72 825 (32 438) (31%) (5 154) (7%)Logistics revenue 530 573 568 248 549 861 (18 387) (3%) 19 288 4%Postbank revenue 174 224 188 842 171 663 (17 180) (9%) (2 561) (1%)Financial services revenue 356 439 394 000 327 579 (66 421) (17%) (28 860) (8%)Interest revenue 319 435 339 706 323 542 (16 164) (5%) 4 107 1%Sundry revenue 40 108 44 899 78 321 33 422 74% 38 213 95%

4 307 323 4 572 555 4 376 271 (196 285) (4%) 68 947 2%

Budget Prior YearVariance Change

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ECONOMIC SUSTAINABILITY(EXPENSES OVERVIEW)

Staff expenses above budget by R16 million due to additional costs incurred during strike action and conversion of casual staff – detail on next slide.

Transport expenses above budget by R42 million due to the increase in line-haul costs for the Transnet brokerage business, increase in airline costs and transport strike .

Material and services below budget due to cost optimization and lower spending during December.

Other expenses below budget due to cost optimization and R20,3 million reversal for the Transman legal case won by SAPO.

P/year Budget Actuals Mix

R'000 R'000 R'000 R'000 % R'000 % %

Expenses 4 285 584 4 555 492 4 533 131 22 361 0% (247 547) (6%) 100%

Staff expenses 2 168 833 2 318 004 2 396 125 (78 121) (3%) (227 292) (10%) 53%Flexible staff expenses 237 239 220 018 158 082 61 937 28% 79 157 33% 3%

Transport expenses 486 802 502 089 543 942 (41 853) (8%) (57 140) (12%) 12%Property expenses 436 063 487 801 485 830 1 970 0% (49 768) (11%) 11%Material and services 225 263 251 727 202 535 49 191 20% 22 728 10% 4%

Other expenses 731 385 775 854 746 617 29 237 4% (15 232) (2%) 16%

Year to date

R'000Budget variance Prior Year Change

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ECONOMIC SUSTAINABILITY(EXPENSES OVERVIEW)

(R'000)Previous

yearBudget Actual

R'000 % R'000 %Staff Expenses 2 168 833 2 318 004 2 396 125 (78 121) (3%) (227 292) (10%)

Permanent staff salaries 1 498 211 1 634 413 1 601 446 32 967 2% (103 235) (7%)Casual staff salaries 14 031 14 410 103 602 (89 192) (100%) (89 571) (100%)Overtime expenses 24 077 27 130 43 735 (16 605) (61%) (19 658) (82%)Fringe benefit expenses 582 357 587 973 588 505 (532) (0%) (6 148) (1%)Statutory expenses 47 017 50 813 54 219 (3 406) (7%) (7 202) (15%)Directors fees 3 142 3 265 4 619 (1 354) (41%) (1 477) (47%)

(R'000)Previous

yearBudget Actual

R'000 % R'000 %Flexible Staff Expenses 237 239 220 018 158 082 61 937 28% 79 157 33%

Casual labour 224 818 201 790 145 888 55 902 28% 78 930 35%Long term contractors 12 421 18 228 12 193 6 035 33% 228 2%

Variance Change

Variance Change

R33 million under budget due to critical vacant positions. R89 million over budget for casuals net-off with R62 million savings from flexible staff costs. R27 million overspending on casuals and R17 million for overtime relate to additional costs incurred

during the strike action.

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ECONOMIC SUSTAINABILITY(CAPITAL EXPENDITURE)

Payments of R79 million to suppliers and R141 million is committed for purchase orders issued.

R30 million remains unutilized from the 2012/13 budget allocation. Decrease in available funding results in the re-prioritisation of key capital programs

and the replacement of ageing technology equipment.

Budget Actual CommitedTotal

utilisedUnspent

250 000 79 285 140 569 219 855 30 145

50 000

100 000

150 000

200 000

250 000

300 000Capex (R'000)

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ECONOMIC SUSTAINABILITY(CASH FLOW STATEMENT)

Operating activities generated cash of R550 million for the Group. Increase in cash invested of R510 million. Financing activities increased by R6 million due to subsidy received and claims made. Depositors funds increased by R219 million. Cash and cash equivalents increased by R253 million.

Mar-12 Dec-12

Net cash from operating activities 229 623 549 698

Net cash (to) from investing activities (1 839 666) (509 717)

Net cash from financing activities (142 856) (6 389)

Net increase in deposits from the public 273 842 219 140

Total cash movement for the year (1 479 057) 252 731

Cash and cash equivalent at the beginning of the year 4 756 214 3 277 157

Cash and cash equivalents at end of the period 3 277 157 3 529 888

GroupCash Flow Statement - December 2012

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ECONOMIC SUSTAINABILITY(BALANCE SHEET)

Total assets decreased by R180 million for the Group. Decrease of R319 million in current assets to fund operations. Decrease in equity resulted from the net loss position. Current ratio at 1.25 indicating that our liabilities have adequate cover from assets.

2012 March

December 2012

R'000 R'000 R'000 %

Total assets 10 375 567 10 195 270 (180 297) (1.7%)Non-current assets 2 117 289 2 255 921 138 632 6.5%Current assets 8 258 278 7 939 349 (318 929) (3.9%)

Equity and Liabilities 10 375 567 10 195 270 (180 297) (1.7%)Equity 2 712 197 2 541 187 (171 010) (6.3%)Non-current liabilities 1 276 614 1 305 729 29 115 2.3%Current liabilities 6 386 756 6 348 354 (38 402) (0.6%)

ROA (PBT) 2.4% (1.3%) (3.7%) (100.0%)ROA (NP) 1.5% (1.7%) (3.2%) (100.0%)ROE (NP) 5.8% (6.8%) (12.6%) (100.0%)Current ratio 1.29 1.25 (0.04) (3.3%)

SA Post Office GroupChange

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ECONOMIC SUSTAINABILITY(DEBTORS)

Bulk mail debtors days exceeded target by 5 due to low debt collections. Speed days are 11 above target due to late payments from customers. Agency debtors days are high due to the CPS matter currently in litigation. Courier days are 3 days over the benchmark due to low debt collections. Overall collection from debtors are within the target.

Bulk Speed Agency Hybrid Courier Group

Target 17 40 10 30 50 32

DSO 23 51 26 41 53 24

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51

26

41

53

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0

10

20

30

40

50

60

ScorecardScorecardScorecardScorecard

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Measurement of Economic Performance Indicators

Long-term strategic objective

Annual objective Improvement priority Target 3rd Q (YTD) Achievement 3rd Q (YTD)

Achieved Status

Remain financially sustainable while delivering on Government's social mandate

Improve financial performance

Group revenue growth 5.6% on top of declared revenue for 2011/12

1.6% Partially achieved

Achieve Group operating profit (Loss)

R18m (R156m) Not achieved

Increase cost efficiency management

Maintain Group staff cost as % of total cost

55.7% 56.3% Partially achieved

Maintain Group total cost as % of total income

99.6% 103.6% Partially achieved

Strengthen the financial position

Grow Postbank non-interest revenue

R14m (R8m) Not achieved

Grow Postbank depositors book

R190m R219m Achieved

Achieve return on assets (ROA)

0.5% -1.7% Not achieved

Achieve return on equity (ROE)

2.3% -6.8% Not achieved

Increase Total Assets R10.314b R10.195b Partially achievedAchieve Current ratio 1 1.25 AchievedAchieve Debtors days Mail Courier

1755

2353

Not achievedAchieved

Capital investment in priority areas

Achieve total CAPEX spend (paid and committed)

R187m R220m Achieved

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Measurement of non-financial Performance Indicators


Annual objective

Improvement priority

Target 3rd Q (YTD) Achievement 3rd Q (YTD) Achieved Status

Consolidation of Functions

Business restructuring

Corporatisation of Postbank

Complete the Company registration process

Postbank BoD appointed. MoI is being reviewed by Postbank BoD and the Minister. Lending, borrowing and investment policies have been approved by DoC, National treasury, the Minister and Cabinet.

Not achieved

Review and implement shared services unit

Prepare all the necessary plans and commence with the preparation of business cases for approval by Pro Capex and EXCO as per the approved Group structure

Conceptual level 2 and logical level 3 process design for contracts management completed

Not achieved

Consolidate the road transport network

Commence national linehaul tender for supply of truck tractors and drivers, and for the procurement of trailers

Legal department is finalising contracts for successful bidders. Expected implementation 01 April 2013

Achieved

Speed Services integration into Logistics

Implement the project plan and notify the minister of Finance and National Treasury re sale of significant asset as per the requirements of PFMA

Information regarding the salary impact and the grades affected was submitted to the Minister. SAPO is awaiting feedback from the Minister.

Not achieved

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Measurement of Social Sustainability Performance Indicators


Annual objective



Provide a stable, well trained and satisfied employee force

Decent workplaces

Reduce workplace accidents and IODs

5% reduction on previous year’s actual 363 incidents

2.8% increase (10 incidents)

Not achieved

Improve intellectual capital

Training expenditure as % of group staff budget

1.6% (R36.1m) 1.08% (R25.9m) Partially achieved

Maintain and enhance talent management

All General Managers trained in the development board process to support the roll-out to Senior Manager level

General managers’ workshops were held during Oct and Nov 2012. Talent forums are scheduled for end January 2013.

Achieved

Labour practices

Management of HR liabilities Leave liability

Housing liability

Post-retirement Medical aid cost

10% reduction on previous year's actual of R141 million

10% reduction on previous year's actual of R1.5m

10% reduction on previous years actual of R1.234b

Increased by 41% to R199m largely due to 8128 contract workers appointed

Reduced by 6.6% to R1.4m

Increased by 1.3% to R1.239b

Not achieved

Partially achieved

Not achieved

Manage employee relations

ER structure functioning at 100%

ER structure is 95% complete

Partially achieved

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Measurement of Social Sustainability Performance Indicators (continued)


Annual objective



Provide a stable, well trained and satisfied employee force

Health Encourage employee participation in wellness program

Achieve 70% of total staff participation

70% of staff participated Achieved

Encourage employee participation in voluntary HIV/AIDS testing

Achieve 80% of total staff participation

77% of staff participated Partially achieved

Diversification strategy implementation

Access to ICT services

Grow digital business

Approval of e-Strategy Framework by Exco Commence with formulation of RFP and specifications for the e-strategy

The technical specifications and evaluation criteria for e-registered mail have been approved by the Procurement Committee. The RFP will be advertised during January/February 2013

Partially achievedTrust Centre Traffic fine online paymentsPostbank SMS balance enquire

Customer centricity

Begin to develop customer intelligence as targeted

Develop framework of customer intelligence hub

Currently scoping the Marketing Intelligence system that is relevant for the organisation’s requirements.

Not achieved

Prepare CRM business case and submit for approval

The compilation of the CRM business case is in progress.

Not achieved

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Annual objective

Improvement priority Target 3rd Q (YTD)

Achievement 3rd Q YTD)

Achieved Status

Deliver on license requirements and agreed targets

License and mandate obligations

Provide additional physical addresses a defined in schedule 2 of the amended SAPO license by ICASA

896 563 653 696 Partially achieved720 226 achieved as at 31 Jan 2013FY target of 1 195 690 will be achieved by 31/03/2013

Establish additional retail outlets (points of presence) as defined in schedule 1 of the amended SAPO licence by ICASA

38 13 Partially achievedTotal of 40 new outlets will be achieved as at 31/03/2013 against the set target of 50

Delivery performance standards as defined in schedule 3 of the amended SAPO license by ICASA Mail 95% 89% Not achieved

Achieved 94% in February. However the current industrial actions will have negative impact

Logistics 98% 88% Not achievedSubjected to: SAA flight delaysAvailability of trucks (implementing new linehaul contracts)

Reduce queue waiting time as defined in the customer care standards

achieve 7 minutes

96% of branches complied

Partially achieved

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Annual objective

Improvement priority Target 3rd Q (YTD) Achievement 3rd Q (YTD)

Achieved Status

Implement appropriate Governance structures on all levels

Ethics Establishment and functioning of a financial misconduct committee

Ensure Exco governance forums held, quarterly

Exco governance forums are held quarterly

Achieved

Report quarterly on

Financial misconduct Info gathered for drafting of report

Not achieved

Irregular expenditure Info gathered for drafting of report

Not achieved

Fruitless and wasteful expenditure

Info gathered for drafting of report

Not achieved

Incidents per BU/SU Info gathered for drafting of report

Not achieved

Encourage anonymous crime reporting

Achieve 10% increase on previous year's 136 actual number of calls received

Decreased by 4%. 131 calls received

Not achieved

Reduce crime and fraud Achieve 10% reduction on previous year's 2218 actual number of incidents

Achieved 23% reduction (reduced by 500 incidents)

Achieved

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Annual objective


Target 3rd Q (YTD) Achievement 3rd Q (YTD)

Achieved Status

Implement appropriate Governance structures on all levels

Governance Improve contract management

100% of all valid contracts must be loaded on SAP

All the Procurement Contracts are loaded on SAP

Achieved

License agreement Submit report to ICASA on fulfilment of requirements per the licence agreement

Report to ICASA submitted

Achieved

Audit issues

Assessment of Control Environment based on completed audits

Resolution of all Audit Issues

Red audits (critical) - 10% Yellow audits (significant) – 30% Green audits (low) – 60%

Open High & Medium risk audit issues, exceeding 12 months = 0 issues outstanding

24% 60% 16%

52 issues outstanding of a total of 192

Not achieved

Transformation

Employment equity targets as defined by the Department of LabourTotal femalesTotal black femalesTotal blacksDisability

42%29%79%2%

45%36%84%0.44%

Balance needs to be corrected

Total BBBEE spend

58% 62.2% Achieved

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Measurement of Environmental Sustainability Performance Indicators


Annual objective



Corporate environmental

Environmental sustainability

Reduce carbon footprint

Reduce carbon emissions by 2.5% on prior year's actual emissions

Achieved a cumulative of 34.53 KtCO2e for the 3rd quarter against the set target of 26.86 KtCO2e

Achieved

Offset 5% of total emissions

Reduce electricity consumption

Reduce total electricity consumption by 3% over prior year consumption

The actual electricity consumption for 24 buildings is 5 108 921 KWh, the target set for the 24 buildings is 4 696 189 KWh.

Partiallyachieved

Reduce water consumption

Reduce total water consumption by 3% over prior year actual consumption

Discussions of designing new SAPO buildings with the grey water catchment areas between Sustainability and Architects are on-going.

Not achieved

Reduce water consumption per employee by 3% over prior year’s actual consumption

Reduce fossil fuel usage

Reduce total fuel usage by 2.5% over prior year's actual usage Total = 4 374 000 litresPetrol = 2 022 000litresDiesel = 2 352 000litres

Reduced by 6.8%Total fuel consumed:Total = 3 225 482Petrol = 1 320 396 litres Diesel = 1 905 086 litres

Achieved

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Annual objective


Target 3rd Q (YTD)

Achievement 3rd Q (YTD) Achieved Status

Corporate environmental


Improve sustainability through recycling

Reduce the total amount of paper used by 5% over prior year's usage of 135 tons

Reduced by 7.4%125 tons of paper used

Achieved

Recycle 45% of paper = 127 tons

Recycled 142 tons Achieved

Corporate social Social investment

E-Rural Access via digital solutions

Reach 10 000 people

The E- Rural Access Centres are up and running in the Northern Cape and Limpopo. This initiative benefits all the community members in these villages.

Achieved

Alleviate poverty through socially sustainability programmes: - Student to Government and - Humana People to People

Reach 25 000 people

The second phase of the Student to government program has commenced. The program will be rolled out to 5 provinces (Eastern Cape, Western Cape, KwaZulu Natal, Free State, Gauteng)

The Humana People to People program has continued in the community of Ribacross in the Limpopo Province. In Oct and Nov 115 people were trained in sewing, 52 trained in computer courses and 30 trained in business management skills. 80% of the participants were females.

Achieved

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Annual objective


Target 3rd Q (YTD)

Achievement 3rd Q (YTD) Achieved Status

Corporate social Social investment

Tree Planting Benefiting 7 000 people

2000 trees were procured for this FY. 816 trees were planted. 716 of these were planted at 49 schools nationally, benefiting approximately 25 200 people. 100 trees were donated to Humana People to People which were planted in 30 schools across the Tubatse Municipality in Limpopo

Achieved

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Summary

Annual objective

Improvement areas

Total KPI’s Achieved Partially achieved

Not achieved

Remain financially sustainable

4 13 4 4 5

Consolidation of functions

4 4 1 0 3

Stable and well trained and satisfied workforce

4 9 2 4 3

Diversification strategy

2 3 0 1 2

Deliver on license requirements and targets

4 5 0 3 2

Appropriate governance

9 10 3 1 6


8 11 8 1 2

Total 35 55 18 14 23

% of KPI 33% 25% 42%

End of PresentationEnd of PresentationEnd of PresentationEnd of Presentation

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Documents

SAPO Financial Overview 30 November 2012