1. Corporate Plan FY
Portfolio Committee
24 April 2018

2. Introduction
SAPO, as it is currently structured, managed and funded, is not financially sustainable.
SAPO has regressed so far technologically, that it simply cannot offer a competitive service.
SAPO will need to invest, not only in technology, but in our basic customer interfaces, in order to compete on the frontline.
The possibility of partnerships or joint ventures with established players as an alternative to organic growth.
Postbank has always been central to the diversified revenue strategy of SAPO, with the expectation that it could contribute up to a third of total revenue once earnings from lending become a reality.
If SAPO does not initially get government business to help it fund its cost base and required investment in upgrades and growth, SAPO will continue to require direct government subsidies.
SAPO can become an investible entity which can attract its own capital and deliver reasonable returns to government.

3. Improved Performance
 Item
2014/15
2017/18
Change
Delivery Standard
69.22%
77.69%
8.47%
Revenue Decline
14% 4%
10%
Transport Costs
R 726m
R 326m
55%
Property Costs
R 648m
R 561m
13%
Staff numbers
23 591
18 226
5 365
There has been restoration in operations resulting in 8.47% improvement in the delivery standard of mail. Delivery standard peaked at 91% at 31 March 2018.
The 14% decline in revenue that was experienced in FY2014/15 has also been reversed to a 4% decline in revenue over prior year for the FY2017/18 year.
Although transport costs have been reduced up-scaling will require increased spending.
Property Costs have been reduced by 13%.
Salary costs have remained inappropriately high given the revenue profile of SAPO.

4. SAPO financials before any initiatives
Revenue declines in 2020/21 due to the DTT project conclusion and no further revenue projected
Interest costs of new loans of R2bn (R400m required to settle current term loan in December 2018)
Expenses of R5.6bn includes the IT Network Upgrade [R978m over 5 years]

5. SAPO financials including initiatives
Corporate / government revenue initiatives includes new revenues for Hybrid-mail, Courier and Logistics
The public service mandate funding stopped in 2011 [R300m per annum]. SAPO now incurs annual cost of R769m.

6. Staff Cost Optimisation
Human Resources Cost Optimisation
A phased approach will be adopted to address the high staff cost base [Results of optimal crewing model].
Phase 1 - continuous reduction overtime and extended hours.
Phase 2 - SASSA - redeployment of staff from other business areas to retail/SASSA to contribute towards addressing the staff salary costs
Phase 3 – Outsourcing of non-core activities - reorganization of non-core business support services i.e owner driver schemes, travel, and support functions
Phase 4 – Human resource cost optimization - The success of phases 1 to 3 will determine the extent of a Human Resources reorganization process.
Skills development
Up skilling of employees and re-training will be important to support the re-organisation process.
SAPO will also maximise the Skills development grant to off-set training investment costs.
The Academy will also offer training to operators on the continent.

7. SAPO funding requirements

8. Investment in Infrastructure to build capacityNo
Project
2018/19FY R'm
2019/20FY R'm
2020/21FY R'm
Total R'm 1
Courier Solution and System 45 - 2
eLand (Mail Centre Automation) 50 20 70 3
Hybrid Mail Printers 10 30 4
POS Software System & Servers 43 93 5
Branch hardware replacement 52 77 37
166 6
Cloud Managed Service and IaaS 7
Customer Relationship Management (CRM) 8
SAPOPAY (e-Wallet) 14
Building Refurbishment 40
122 72
234 11
E-Commerce 25
150
225 12
Small Capex 47
157
Grand Total
356
500
200
1 056
The capital investment supports revenue growth initiatives and investment in post office systems that have long exceeded their useful life.

9. SAPO solvency, liquidity and funding requirements
Net asset value of R3,6 billion projected as at 31 March 2018
Liquidity
R800 million required to settle outstanding liabilities
As at 31 March 2018 – going concern guarantee will be required of R1,6 billion (forecasted baseline loss of R1.2bn and R400m repayment of term loan) in order to pass liquidity test [12 months forward looking cash flow]
Funding
Surplus of R785 million projected for the 2018/19 FY dependant on the following:
Achievement of revenue and cost initiatives
Recapitalisation funding of R800 million
Public service mandate funding of R769 million
New loans of R2 billion [Property and Retail bonds]
Annual average funding surplus of R899 million maintained over the MTEF period:
Term loans of R2 billion / National Treasury exposure could be reduced
Sources of funding excludes Postbank excess capital of R1,3 billion

10. Funding requirements …. Planned Bond issues
SAPO Property bond of R1 billion (Not yet approved)
SAPO has 444 owned properties revalued at market value of R2,7 billion as at 31 March 2017
Property portfolio used as collateral for the debt
Funding to be utilized to repay the interim loan facility of R400 million and capital infrastructure investment
SAPO Retail bond of R1 billion (Not yet approved)
10 year term and guaranteed by National Treasury
Bonds issued would need to be listed on the Bond Exchange
SAPO could consider offering the issue through the SAPO branch network
National Treasury would effectively be underwriting a higher yield (than the deposit rate) to citizens instead of Commercial Banks

11. Envisaged SAPO Corporate Structure (Board supported)
Partnerships
SAPO will look to partner with organisations that have technical solutions and products that it can leverage off of, for example products and technologies that SAPO can white label.
Partnerships will be crucial in allowing SAPO to close its investment gap and being able to provide competitive offerings in banking and E- Commerce.
Government
100%
Capital and
Technical
Partners
SAPO
Properties
>50%
100%
100%
E-Commerce
Mail
(incl. Retail)
Docex
Bank Controlling
Company
Potential
acquisitions
Legislative Changes
Allow outside investment
Exemption from PFMA compliance for revenue generating initiatives
>50%
Postbank
Ministerial Support and Cabinet Approval must still be obtained to proceed

12. Annual Performance Scorecard – KPI’s
No.
Measure
Annual Target Q1 Q2 Q3 Q4 1
Achieve current baseline Revenues target as per Corporate Plan
R4.6bn
R1.13bn
R1.10bn
R1.17bn
R1.19bn 2
Achieve the regulated mail delivery standard of 92% as per the agreed delivery model with ICASA
92% by
31 March 2019
85%
87%
90%
92% 3
% Uptime for ATM and POS Transactions per the industry standard
98% 4
% of all customer complaints must be resolved within 7 working days from date of receipt of complaint
100% by
80%
100% 5
Achieve baseline expenditure target as per Corporate Plan
R5.70bn
R1.42bn
R1.44bn 6
Consolidation and optimisation of the regional operations infrastructure network
Approved consolidation and optimisation plan by 30 September 2018
Exco approved draft consolidati on and optimisatio n plan
Approved consolidati on and optimisatio n plan by 30 September 2018 -

13. Annual Performance Scorecard – KPI’s
No.
Measure
Annual Target Q1 Q2 Q3 Q4 7
Achieve Postbank Revenue target per Corporate Plan
R822m
R202m
R201m
R207m
R212m 8
% Growth in the total number of Postbank accounts , from the prior year actuals
3% from the prior year actuals
0.75% 9
Achieve Corporate Plan Revenue Growth Target
R 162m -
R60m
R102m 10
% adherence of performance management targets
100% adherence to performance management processes by management level staff
100% contracting of all manageme nt staff
100% completion of midyear reviews by manageme nt staff 11
% compliant Retail branches and to comply with the SASSA requirements for Postbank
100% by 30 September 2018
100% 12
Achieve 100% effective resolution of AG audit findings resulting in an Unqualified audit opinion for the 2018/19 Financial year
Unqualified audit opinion
100% Resolution of AG Audit Findings