sapo corporate strategic plan
TRANSCRIPT
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
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
SAPO’s business model overhaul
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
SAPO’s business model overhaul
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
Source: SAPO, Evolut
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
Source: SAPO, Evolut
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
SA Post Office Group
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 2 897 164 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.
Actuals Forecast Budget Budget Budget2013/2014 2014/2015 2015/2016 2016/2017 2017/2018
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
SA Post Office Group
Actuals Forecast Budget Budget Budget2013/2014 2014/2015 2015/2016 2016/2017 2017/2018
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