SA Post OfficeSTP Progress for the period ended 31 July 2015

Portfolio Committee Meeting – 08 September 2015

Introduction

Capacitation and stability

Funding

Financial health

STP Performance and progress

Government business

Revenue opportunities

Regulation

The next steps

Conclusion

Contents

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• The financial recovery remains slow due to the revenue shortfalls to match operating costs.

• STP initiatives realising benefits on cost reduction but the lack of investment funding hampers the launch of revenue and rightsizing initiatives.

• The appointment of the SAPO Board brings Leadership stability.• Key management positions being finalised to ensure continuity.• Financial constraints continue to affect the payment backlogs and

disrupt operations intermittently.• Funding discussions with commercial banks and the Shareholder

are progressing.• On-going engagements with Union Leaders have resulted in ER

Stability thus far.

Introduction

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• The SAPO Board of Directors have been appointed by Cabinet on 13 August 2015. On-boarding of the new directors took place on 28th – 29th August 2015.

• The Macro Structure was completed and approved in mid June 2015.

• The second layer structure as well as the Commercial structure is approved and being implemented.

• The third layer structure has been approved for Operations (COO), Governance + Compliance and Strategy + Sustainability.

Organizational stability – Capacitation

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Position Function ProgressCompany Secretary (3) Office of the Group CEO Preferred candidate accepted offer

Chief Operating Officer (2A) (Fixed Term)

Operations We are experiencing difficulties in finding short-term executives

Group Executive (2A) Commercial Second round of Interviews

Group Executive (2A) Strategy and Sustainability

Offers made to candidates.Group Executive (2A) Governance and

Compliance

General Manager (3) Program and Project Office

Offer accepted

Group Executive (2 A) Information Technology Offer accepted

General Manager (3) Properties Candidate commenced at SAPO on 3 August 2015

General Manager (3) Employee Relations Candidate commenced at SAPO on 3 August 2015

• A Cross Functional Communications and Change Management team has been established to manage people change enablement.

• Different interventions have been developed and identified to capacitate employees on all levels to deal with the change during the implementation of the STP.

• Regional Change Agents/ Line Champions have been identified, to be taken through the role of a Change Agent and how will they support the Business using the toolkits developed.

• Business Transformation will be driven and monitored through a council, chaired by the GCEO.

• In order to strengthen relations with labour the following ER Forums have been created:• National Bargaining Chamber - Identification and development of a new Bargaining team consisting of

business and employee relations. A new mandate approval framework is being developed for BoD approval. • BWR (business workplace relations) - Continuous bi-lateral meetings are held to improve the relationship

and deal with disputes and labour matters.• Establish consultative structures in SA Post Office - A consultative structure constitution was singed off

with Union Leaders.

Organizational stability – Change

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Financial health- Cash constrains affecting Supplier Payments

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• R150 million has been paid to critical creditors from Term Loan funds during August 2015.

• The creditors backlog which includes accruals but excludes current amounts is R480.6 million.

• The rentals have been reduced to two month in arrears and 18 branches (out of 2445 branches) currently closed by

Landlords.

• Key creditors that remain unpaid for extended periods result in intermittent interruptions of some operations.

Summary Creditors age analysis included in additional notes pack – Slide AN01 Accruals included current liabilities – Slide AN02

Progress on Implementation of Initiatives

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• Quick wins initiatives have realised cost reduction benefits of R77.9m (77%) achieved against a target of R100.9m for the period ended 31 July 2015.

• The achievement to date translates to a 26% achievement on the year target of R302.8m.

• Cost reduction initiatives were successfully implemented whilst revenue opportunities are still in the contracting phase coupled with the lack in funding that limits their progress into the benefits realisation phase.

• The STP initiatives year to date target is R183.2m with benefits of R105.2m (57%) realised for the period ended 31 July 2015.

• Rightsizing Initiatives have not started

• A more cost-efficient SAPO is now poised for revenue growth

Performance at 31 July 2015

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• The performance on both the quick wins and short term STP initiatives show a similar trend with:

• Realisation of benefits on the cost reduction initiatives implemented.

• Poor traction on the revenue initiatives and contracting contributing to the benefit realisation lagging behind target.

• Availability of funding to launch Revenue and Rightsizing initiatives will bring the implementation trends on track

• Impact of adherence to 0-1kg rule by Government departments is being assessed

STP Streams Progress at 31 July 2015

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• Activation of Commercial capability to support revenue recovery and growth is underway.

• Mail operations achieved cost reductions of R31.5m from route optimisation.

• Transport and Logistics initiatives are activated in Quick wins and gaining traction to recover during 2nd quarter.

• Property initiatives benefits delayed due to contract negotiations

• Consolidation of properties in July and August will result in savings on rental costs.

• Human capital savings achieved through natural attrition and resignations instead of the rightsizing plans.Further detail on stream progress included in additional notes pack – Slides AN04 to AN11

Work Stream (R’m) Q1

Actuals

July

Target

July

Actuals YTD

Target

YTD

Actual

Benefit Status

Commercial - Revenue 0.3 35.5 0.5 60.0 0.8 Partially Achieved

Information Technology 0 0 0 0 0 No Target

Mail Operations 0 11.2 31.5 28.4 31.5 Achieved

Transport and Logistics 0 2.0 0.2 4.9 0.2 Partially Achieved

Properties 0 2.8 0 7.9 0 Not Achieved

Supply Chain Management 3.0 2.9 6.1 6.4 9.1 Achieved

Human Capital Management 45.1 20.0 18.5 75.6 63.6 Partially Achieved

TOTAL 48.4 74.4 56.8 183.2 105.2 57%

Government Business

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•Out of 35 national government ministries we have met with 20 of them and one provincial government of Eastern Cape (Dept. of Education).

•SAPO is capacitating and reinforcing the team driving Government Business and have placed SAPO resources at five Departments and others are pending.

•The Treasury Instruction, on the reserved postal services as indicated in the Postal Services Act No. 124 of 1998, has been approved by the CPO on 12th August 2015 and is being circulated to all departments by the National Treasury.

•The Transversal Tender from National Treasury on the Government Courier Services has been extended to January 2016, with the current service provider.

1. Dept. of Correctional Services – 3 SAPO Resources 2. Dept. State Security Agency3. Dept. Public Service Administration4. Dept. of Communication. 5. Dept. of Police 6. The Presidency7. Dept. of Human Settlement - 2 SAPO Resources 8. Dept. of Public Works 9. Dept. of Social Development10. Dept. of Arts and Culture11. Dept. of Environmental Affairs - 3 SAPO Resources 12. Dept. Public Enterprise13. Dept. of International Relations & Co-operation 14. Dept. of Energy 15. Dept. of Mineral Resource 16. Dept. of Trade and Industry – 1 SAPO Resource 17. Eastern Cape Province - Dept. of Education18.Dept. of Telecomms and Postal - 2 SAPO Resources19. Independent Police Inspectorate Dept. (IPID) 20. National Treasury21. Monitoring Evaluation

• A task team was established by the DG DTPS comprising ICASA, SAPO and DTPS and chaired by the DDG DTPS to explore regulatory measures that had an adverse impact on SAPO’s viability.

• A preliminary list of issues were raised, inclusive of the following;

• Poor enforcement by the Regulator leading to losses through leakage

• The need to review the retail roll-out target and establish a more realistic bench mark based on a needs analysis

• Review the current pricing model and assumptions used

• SAPO has formally laid complaints with ICASA in which it cites the contraventions by 2 Private Sector companies and various small municipalities. The matter is currently being reviewed by the Complaints and Compliance Commission.

• The matter of technological neutrality regarding the definition of USO is to be considered together with other proposals in respect to USO which were tabled for consideration during the course of the development of the National ICT Policy.

• Follow-up meetings scheduled for September 2015.

Regulation

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• More focus and drive on revenue initiatives to claw back lost revenues.

• In order for further traction to be gained on the STP initiatives during the second quarter the following

critical next steps must be concluded:

• Conclude the term loans from the balance of the R1.25bn with the remaining commercial banks;

• Funding submission done to DTPS for critical capital investment in ageing infrastructure and systems to protect

current revenues and fast-track STP revenue initiatives;

• Finalise the appointments to populate the macro structure to ensure stability;

• Capacitate the Commercial structure to focus on revenues and customers;

• Concluding proposals for services with Government Departments to unlock value;

• Strengthen the regional Labour forums through effective and regular communication;

• Offer new Customer value propositions through cross-selling and Marketing campaigns to intensify the

drive to grow Revenues.

The next steps

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• The organisation has overcome inertia and achieved relatively good progress in pursuing

financial viability and normalization of service delivery.

• Improvements in cost reduction and process optimisation are the first steps towards a

leaner SAPO.

• Drive to be customer focused, although this will take more time, training and funding.

• Ongoing discussions with the banks and shareholders to create an optimal funding model

that is crucial for SAPO. This is also crucial for a faster Turnaround of the business

• The engagements with employees continue to repair the damage in trust following years of

frequent and crippling disruptions.

In conclusion

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Thank You

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