1. Parliamentary Portfolio Committee
April 2017

2. Contents Progress to 31 March 2017 Corporate Plan 2017/18 to 2019/20
Current Status Overview
Achievements for 2016/17FY
Postbank Corporatisation Update
Corporate Plan 2017/18 to 2019/20
Key Challenges
The Future State of SAPO
Strategic Goals and Themes
Financial Plan 2017/18 – 2019/20
Key Focus Areas for 2017/18FY
Appendices (Including Key Performance Indicators) 2

3. Current Status Overview – Preliminary Results 31 March 2017
The net financial position still remains challenged with a year to date net loss of R1.33bn, with a negative variance of R186m for the year against a targeted net loss of R1.15bn.
This has been a difficult trading year that still leaves SAPO challenged to achieve the existing baseline revenue targets whilst creating a conducive environment for growth.
Despite the seasonal renewal of post-boxes total revenues of R4.73bn performed marginally below the prior year of R4.83bn, by R96m. The revenue lag results in R1.14bn shortfall to match operating costs.
The cost compression initiatives has resulted in budget savings of R1.06bn for the year on operating costs which are at R5.67bn, down from the prior year R5.93bn, by R68m. 3

4. Current Status Overview continued
Creditor outstanding backlog balance for the 2015/16 FY is R124m from the R899m at March 2016.
The consolidated balance available from the term loans is R687m.
Total STB Installations completed is and registration of qualifying recipients at 31 March 2017.
ICASA has approved the 2017/18 Price Cap Tariff Proposal of 9.3%.
The total staff headcount as at 31 March 2017 has been reduced by to from in March 2016. 4

5. Achievements for the 2016/17FY - Finance
A R3,7bn loan facility was finalised, incorporating the prior R1,0bn facility
The Government’s going concern guarantees were consolidated and are coterminous with the loan facility.
Creditors backlog was settled and the accruals backlog reduced by 90%.
Mail revenue was stabilized with early signs of customer confidence & trust returning to SAPO.
The funding materialised 4 months later than expected and consequently, the recovery of operations was delayed by six months 5

6. Achievements continued - Operations
15 Mail machines were brought back online.
JIMC cleanup and clearing of mail backlogs.
Retail branches are operational.
Transport routes have been optimized and the frequency of trips were reduced from 6 to 5 days on all national routes.
The integration of the Courier Freight Group subsidiary into SAPO was initiated. 6

7. Achievements continued - Human Capital Management
A joint settlement agreement with the recognised trade unions was reached resolving a number of legacy labour issues.
CFG staff were absorbed by SAPO on existing terms and conditions of service.
A voluntary separation program was implemented resulting in 768 additional employees leaving the organisation during the year.
Regular engagements with trade unions resulted in labour stability. 7

8. Postbank corporatisation update
Completed:
Section 13 Approval to Establish the Bank granted by the SA Reserve Bank in July 2016
Postbank Board appointed in March 2017
Company Incorporation documents lodged with the CIPC
To be completed:
Postbank staff, operations and balance sheet will transfer from the Postbank division to the new entity after the banking license is obtained
Bank Controlling Company structure and legislative conflict issue being addressed
Postbank Section 16 Application to Register a Bank on Track for submission before the deadline of 3 July 2017 8

9. Corporate Plan
2017/18 to 2019/20 9

10. SAPO Vision and Mission
A leading provider of postal, logistics and financial services to the South African market
Vision
We leverage our established infrastructure and link government, business and consumers with each other locally and abroad.
Mission
SAPO promotes economic growth by leveraging off its sizeable retail and distribution network 10

11. Key Challenge….Digital substitution
Internet access in South Africa has grown significantly over the years.
Smartphones driving internet access growth and currently make up 60% of active mobiles in South Africa.
Users are able to access statements or bills by or apps, conduct purchases, payments and money transfers online.
The biggest factor impacting the postal business is technological advancements 11

12. SAPO Revenue split vs Global postal operators (2014)
Globally, postal operators are experiencing a decline in physical mail volumes, which is mainly attributed to digital substitution.
Internet access is also driving e-commerce growth resulting in a growing demand for parcel and express delivery services.
There is also an increasing need for economic financial inclusion which is driving a greater demand for financial services.
In comparison to its African and International counterparts, SAPO is still heavily reliant on mail revenue 12

13. SAPO’s Planned Revenue Split
SAPO’s revenue generation strategy focuses on:
deriving maximum revenue from existing products;
developing new revenue sources by entering new markets segments and;
developing customised solutions for key revenue partners.
A critical pre-condition to achieving the envisaged revenue mix is the corporatisation of Postbank and growing e-commerce revenues. 13

14. Other Challenges Facing SAPO
Enabled by technology and/or market conditions, new players such as large retailers are now entering the courier sector.
Revenue leakage from inadequate enforcement of legislated monopoly in the 0-1kg space.
Acquiring and maintaining appropriate skills.
Outdated IT infrastructure and damaged brand.
SAPO’s Traditional Customers are evolving into Potential Competitors 14

15. The Future State of SAPO
Profitable by 2018FY.
A leading provider of postal, logistics and financial services.
Recognized expansive points of presence, competitively priced and innovative product offerings and digital capabilities.
Key driver of government’s service delivery objectives.
An Operationally efficient environment.
2020
2019
2018
2017 15

16. SAPO’s Strategic Themes
Grow Revenue
Reduce Costs
Operational Efficiencies
Performance Based Culture
Governance & Compliance
Stakeholder Engagement
Refer slides A05 – A10 for detailed key performance indicators. 16

17. Strategic Goals 17

18. Expand existing Revenue Base Increased Product Access
Theme 1: Revenue Growth
Integrated Marketing
Product Redesign
KAM Sales Approach
Customised Solutions
Retail Partnerships
Expand existing Revenue Base
Increased Product Access
Goal Statement
1.1
SAPO will grow its revenue by improving the value offering to its customers across existing key product lines and introducing new and innovative products. 18

19. Theme 1: Revenue Growth continued
Revenue Diversification – Digital Solutions
Parcel Business - E-Commerce Logistics
Financial Services -Informal Business Sector
& Government
Diversify Revenues
Goal Statement
1.2
SAPO will grow its revenue by diversifying from traditional product lines towards newer offerings where there is greater growth potential i.e. digital services and parcels. 19

20. Theme 2: Optimised Cost Base
Optimise Delivery Network
Optimise Sorting
Automation
Optimise Transport Capability
Rationalise Postal and Parcel sorting network
Optimise Costs
Goal Statement 2
Operating costs will be reduced by improving productivity and increasing the usage of technology within the operating environment. 20

21. Theme 3: Be Operationally Efficient
Improve Operations
Optimise IT Landscape
Optimise Shared Services
Operate Efficiently
Outsourcing Opportunities
Goal Statement 3
SAPO intends to increase its operating efficiencies on an ongoing basis without
sacrificing its commitment to achieving service standards. (Linked to Goal 2) 21

22. Theme 4: Be a Performance Driven Organisation
Develop and Manage Talent
Optimised Remuneration Model
Enhance Employee Engagement
Enhance Business Performance and Reporting
Performance Driven
Organisation
New Post Office Operating Model
Goal Statement 4
SAPO will embark on a process of rebuilding its skill base and human resource capacity. The quality of workplaces will be improved and the availability of tools of trade will be increased to enable higher productivity levels across the organisation. 22

23. Theme 5: Be the Face of Government
Postbank Corporatisation
Grant Beneficiary Payment Platform
Postbank Lending Strategy
Delivery Partner to Government
Goal Statement 5
SAPO will work to become the service delivery partner to government. 23

24. SAPO is targeting a net profit of R87m for the 2017/18FY
Financial Plan FY
FY17/18
FY18/19
FY19/20
R6.621bn
R7.869bn
R8.880bn
Revenue
Revenue
Revenue - - -
R6.451bn
R7.341bn
R7.990bn
Expenses
Expenses
Expenses = = =
R86.59m
R440.79m
R797.48m
Net Profit
Net Profit
Net Profit
SAPO is targeting a net profit of R87m for the 2017/18FY
Refer slides A02 – A04 for detailed financial information (Income statement, Balance sheet and Cash flow). 24

25. SAPO Capital Structure
With current capital structure SAPO will spend over R 2bn in interest payments over the next 6 years.
SAPO is targeting a 50:50 debt:equity ratio, to ensure an appropriate capital structure.
Current debt funding to be replaced with equity funding from government as a means of reducing the interest burden on SAPO.
Capital injection for SAPO will be considered during the 2017 Mid-term budget process.
If SAPO relies only on debt funding, the company will be in a position to only settle its loans in FY22. This means that the loan guarantees would have to be rolled over at the end of the current 3 year loan period for another 3 year period.
The total interest paid until the end of the period will be over R 2.2 billion or
60.6% of the R 3,7 billion loan capital amount that was borrowed. 25

26. USO Branch Subsidy
A study conducted by SAPO shows that in rural areas, SAPO spends in excess of R180m directly (excluding overheads) on loss-making USO branches.
The branches are operating purely as a Universal Service and not as commercial undertakings.
SAPO will submit the report and subsidy funding request to the Department of Telecommunications and Postal Services for consideration for the FY18/19 Medium Term Expenditure Framework process. 26

27. STP Link to 2017/18 Corporate Plan
SAPO
2016/17 to 2018/19
Corporate Plan
SAPO
2017/18 to 2019/20
Corporate Plan
28 Initiatives carried over from STP
24 Initiatives carried over from 2016/17FY
6 Initiatives
completed
24 Initiatives
21 – In progress
3 = Due to start
3 Initiatives
were not realisable
Refer slides A12 – A15 for detail on initiatives.
Initiatives being carried over from the STP into the 2017/18FY corporate plan are revenue generation initiatives and operational efficiency improvement initiatives.
The initiatives that were not realisable are tenders that were not issued but had been in the STP, such as the SASSA tender, and tenders that were not awarded to SAPO, such as tender for distribution of tablets and ARV’s.
STP initiatives carried over to the 2016/17FY were 28 of which 4 were completed and 24 moves to 2017/18FY 27

28. Key areas of focus for 2017/18 year
Branch network and operational efficiency
Postbank licence
SASSA grants readiness
Re-launch a competitive courier business
Invest to become the e-commerce hub of choice for Africa
Become government’s delivery partner of choice 28

29. End of Presentation 29

30. Appendices 30

31. Legal and Regulatory Framework31

32. SAPO Group Income Statement32

33. SAPO Group Balance Sheet33

34. SAPO Group Projected Flow of Funds34

35. Key Performance Indicators
Theme One
Goal
Key Performance Indicator
Financial Year
Annual Target
Q1 Target
Q2 Target
Q3 Target
Q4 Target
Revenue Growth
(SAPO Group)
Total Revenue
Achievement of CP targeted revenue from 2016/17FY baseline revenue
R6.6bn
R1.536bn
R1.580bn
R1.749bn
R1.756bn
Customer Focus
# of Marketing Programs to key customer segments 8
2 marketing programs launched
4 marketing programs launched
% of Customer Complaints resolved within 7 calendar days
80%
80% of customer complaints resolved within
7 days for the quarter
E-Commerce
# of e-Commerce Solutions launched 4
1 e-Commerce solution launched
2 e-Commerce solutions launched -
New Revenue
# of New Products Launched 1 2
# of Digital Solutions Launched 3
1 Digital solution launched
2 Digital solutions launched
Key Account Management
% Growth as per the CP for Baseline Revenue 2016/17FY from Key Accounts
16%
3.68%
3.84%
4.16%
4.32%
Revenue Protection
Revenue Leakage recovered
(Including from Reserved Market)
R100m
R25m
A05 35

36. Key Performance Indicators
 Theme One
 Goal
 Key Performance Indicator
  Financial Year
Annual Target
Q1 Target
Q2 Target
Q3 Target
Q4 Target
Revenue growth
(Postbank)
New Revenue - Government business
 No. of New Business Segments 3 - 1
Increase and Diversify Revenues
- Postbank Base Case Revenue
– Net Interest Income
Achieve Net Interest Revenue target from 2016/17FY Baseline Revenue
R558m
R131m
R139m
R146m
R141m
Postbank Growth Case Revenue
– Non Interest revenue
Achieve Non- Interest Revenue target from 2016/17FY Baseline Revenue
R192m
R41m
R49m
R45m
R57m
Sustainable Delivery of Social Mandate - Increase financial inclusion of the mass market
Year on Year % increase in Depositor Accounts. 3%
0,75%
0.75%
Implement e-Docex solution
% Implementation of e-Docex Patform and Solution
As per project plan*
As per project plan
Completed 36

37. Key Performance Indicators
Theme
Strategic Goal
Key Performance Indicator
Financial Year
Annual Target
Q1 Target
Q2 Target
Q3 Target
Q4 Target
Optimise the Cost
Base
Remain within Operating Expenditure Budget
Expenditure of Operational
Budget
Less than or equal
R6.45bn
R1.63bn
R1.61bn
R1.60bn
Rebalance the
SAPO network
Finalise Retail Network
Balancing Strategy
30 September 2017
Analysis & Planning of Retail Network
by June 2017
Exco Approved Rebalancing Strategy by -
Enhance mechanization/ digitization of Postal and Parcel operations
% of Mail and Parcels handled by Machines by target date
20% by March 2018 5%
10%
15%
20%
Energy and carbon emissions Reduction#
3% Reduction of Carbon
Emissions
-3% Reduction in Scope 1
(Direct emissions from fleet)
-3% reduction in Scope 2 (Indirect emissions from electricity use)
3% reduction from target of prior year
for both scope 1 and scope 2
0.75% Reduction 37

38. Key Performance Indicators
Theme
Strategic Goal
Key Performance Indicator
Financial Year
Annual Target
Q1 Target
Q2 Target
Q3 Target
Q4 Target
Operational
Efficiency
Resilient
Operations
Board Approved Business
Continuity Plan
30 September 2017
Draft Business continuity plan by June 2017
Exco Approved BC Plan by
IT Optimisation
# of Core Operations IT Systems Redesigned and Implemented
2 systems per quarter 2
% of Enterprise Business
Systems Upgraded
100%
15%
35%
65%
Rebuild
# of Oversight visits by Area Managers per Branch per Quarter
1 per quarter per branch
# of Deviations from Standard
Operating Procedure
Implementation of MIS
30 November 2017
Design MIS
by 30 June 2017
Develop & Pilot MIS
by 31 August 2017
Implement MIS by -
% of Service Delivery Standard achieved
92%
Attain Postbank
SLA
% Uptime for ATM and POS Transactions
98% 38

39. Key Performance Indicators
Theme
Strategic Goal
Key Performance Indicator
Financial Year
Annual Target
Q1 Target
Q2 Target
Q3 Target
Q4 Target
Compliance & Governance
Rebuild
Operations
% of High Risk Quality & Operations Audit Findings resolved within 14 days (Governance)
100%
% of Medium and Low risk Quality & Operations Audit Findings resolved within 30 days (Governance)
80%
Stakeholder
Engagement
Improve External Stakeholder Relationships
% Implementation of External Stakeholder Management Programs
Improve Internal Stakeholder Relationships
% Implementation of Internal Stakeholder Management Programs 39

40. Key Performance Indicators
Theme
Goal
Key Performance Indicator
  Financial Year
Annual Target
Q1 Target
Q2 Target
Q3 Target
Q4 Target
Be a Performance
Driven Organisation
Workforce
Training
% of Key Employees trained per the Critical Skills Plan
100% per skills plan*
As per plan
Restructure the operating model
Approved Revised Organisa- tional Structure
30 September 2017 -
30 September 2017
% of Revised Structure popu- lated up to Management level by Target Date
70% by 31 March
2018
100% 0f General
Managers
100% of Senior
70% of Managers in Commercial, and Operations
70% of Managers in
Support Level
Capacitate criti- cal positions
% of Critical Vacancies Filled
100% by 31 March
20% by 30 June
2017
50% by 30 Septem- ber 2017
75% by 31 Decem- ber 2017
Critical skills retention
% of Critical Skills Retained
85%
12.75%
29.75%
21.25%
Revised Perfor- mance manage- ment framework
% of Management Employees enrolled onto Performance Management System
100%
80%
90%
Enforcement of Performance Management
% of Non-Performing employ- ees leaving the Organisation after due process
25%
50%
75%
Change Organi- zation Culture
% Completed of Implementa- tion of a Change Management Program
As per project plan*
Per project plan
A10 40

41. Current Status Overview – Loan balance detail
The consolidated balance available from the term loans is R687m.
An amount of R3.09bn (R1.02bn to settle previous loans and R2.07bn on operations) being utilised from the initial R3.7bn term loans raised.
The amount utilised for operations includes the settlement of the R260m overdraft facility and debt service costs of R253m.
A11 41

42. STP Initiatives – Status update42

43. STP Initiatives – Status update continued43

44. STP Initiatives – Status update continued44

45. STP Initiatives – Status update continued45

46. End 46