South African Post Office Turnaround: progress report

Meeting report

COMMUNICATIONS PORTFOLIO COMMITTEE
23 September 2003
SOUTH AFRICAN POST OFFICE TURNAROUND: PROGRESS REPORT

Chairperson :

SAPO presentation Part 1
SAPO presentation Part 2
SAPO presentation Part 3
SAPO presentation Part 4
SAPO presentation Part 5

SAPO website

SUMMARY
The South African Post Office reported on the progress of its efforts to turnaround from being a continual loss-maker and to ensure that its assets exceed or equal its liabilities.
Its strategies to prevent loss were outlined. It noted that as historical liabilities exceed historical assets, it would need a letter of support from its shareholder, the government, to allay the concerns of the Office of the Auditor General. This would be needed on an on-going basis until the assets exceed or equal the liabilities.

In the discussion, these were some of the issues raised:
- what amount SAPO would request from the government this year and when would the government subsidy no longer be needed.
- the court case involving a R42million summons against SAPO
- the Postal Services Amendment Bill that appeared to create a monopoly for SAPO
- the reduced permanent employee rate and the stance of the unions on this
- SAPO's lack of provision for the use of bank cards
- the Authentication Service Provider.

MINUTES
The Group CEO of the South African Post Office, Mr M Manyatshe, reported on the financial status of the company and the progress with its efforts to turnaround SAPO from being a continual loss-maker. He reported that from a loss of R577.4 million in March 2001 SAPO had registered a R154.6 million loss in 2003 and it was aiming for a 1.8 million profit in March 2004. The report outlined the liabilities and burdensome historical obligations that the Post Office had inherited. It spoke of its strategies to reduce the obligations associated with Medical Aid for retirees, its Medical Aid Fund, its Pension Fund (move from Defined Benefit to Defined Contribution), its Post Bank loan and disadvantageous contracts.

The report outlined achievements in service delivery, Post Bank account growth, training, employment equity and black economic empowerment. It also spoke of reviving and enhancing its status as "trusted" third party through the Electronic Communication and Transactions Act where it acts as the intermediary between government and its citizens. It then listed its current and future initiatives

Information was provided on its financial statements for 2001/2 and 2002/3. Finally it noted that as historical liabilities exceed historical assets, it would need a letter of support from its shareholder, the government, to allay the concerns of the Office of the Auditor General. This would be needed on an on-going basis until the assets exceed or equal the liabilities.

An interesting example given by SAPO to illustrate their successes was of the Post Office in Paarl which was running at a loss. Instead of shutting down the operation, its manager was given the opportunity to take the Post Office and turn it around. Unessential staff were laid off and expenses cut. The Paarl Post Office now runs at a profit of over R1 million.

DiscussionMr V Gore (DA) referring to the Director's Report of the 2000/2001 Annual Report, and stated that according to his interpretation the company was technically insolvent. If no subsidy were granted, then essentially the company would cease to exist - the question was then that were it not for the subsidies, would there be a break-even point?

Mr Manyatshe replied that the issue of technical bankruptcy lies in the definition thereof. If one were to close shop and sell the assets of the Post Office today, then the company would not be able to meet all its financial obligations. As it stands, there is a R1.3billion letter of comfort and by law, this is guaranteed by the Government. After this, there is a balance left of approximately R400million. In addition, there are about 200 buildings owned by the Post Office which at present is valued at R1.00, as well as various lotteries. In addition there also exists a stamp museum and collection valued at approximately R200million which at present is also valued at R1.00. According to him, the argument was purely academic and in addition, one should also take cognisance of the intangible assets - such as brand value.

Mr Manyatshe went on to explain that the way he saw it was that the instruction has been issued to management to turn the company around and not merely to focus on looking good, especially where one did not deserve to look good. The company has resisted selling the buildings, only to lease them back, and rather is focused on meeting the challenge of the organisation managing to fund itself.

Mr Gore asked what equity would be made available from the Government.

Mr Manyatshe explained why the Post Office had not spent all the money as allocated to them. When he assumed his position at the company, the company was on a spending spree and there was an urgency at that stage to spend approximately R600 million. He had stopped this spending spree, evaluated the situation and had came to the conclusion that what needed to be delivered had to be delivered - no more and no less. At that time, the projects that were rolled out were not clear on their aims, purposes or policies. He believed that the projects needed to have clear policies and guidelines.

One example he cited was that of urban street deliveries where paid and unpaid boxes were all mixed up during 2000. In Bryanston, for example, there are both street and boxes situated at post office sites. Everyone is entitled to one free box, but the confusion in this area is that some members of the public were charged for both types of boxes.

Another example given by Mr Manyatshe was that of PITs (Public Internet Terminals) which at that time the shareholders wanted to have rolled out immediately - however, it was finally considered more prudent that the PITs be rolled out as business units which must in turn be sustainable. One could not roll out a project just for the sake of rolling them out. One needed to make sure that there was correct advertising - both on the PITs and the services they provide - and this needed to be done properly.

Mr Gore asked about the R42million summons against SAPO and enquired as to the liability thereof.

Mr Manyatshe stated that the case was now finished and a settlement had been reached of R500 000. The dispute arose in terms of a contract and work done. However, the claim of R42million was not realistic and the final settlement amount has been attached by the Receiver of Revenue.

As far as the increase was concerned, Mr Gore wished to know what amount SAPO would request from the Government this year.

Mr N Buick (Chief Financial Officer : SAPO) replied that the subsidy is now at break-even stage. However, all staff members are now managed by the Post Office itself, and this includes management of medical aid and subsidies. The targeted funding is not reflected in the numbers and in this regard matters are at breakeven point if one included the subsidies but excluded the medical aid.

Mr Gore asked about the Postal Services Amendment Bill which essentially, according to him, would create a monopoly for the Post Office.

This question seems not to have been answered.

Ms D Smuts (DA) noted that the employment rate had been reduced. Also an employment agency was used to place casuals - what was the stance of the Union to this action?

Mr Manyatshe replied that the employment agency and the union had reached an agreement on this. When he came to the helm of the company there was an excess of staff but no staff where staff were actually needed. Union discussions were held on this situation in terms of consideration of relocations and other solutions. At that stage, transfer policies were unfriendly and are now being reconsidered. The company is in such a position that it will always have to use temps in one area or another. Essentially the Post Office service operates on a seasonal basis - that is, during the Christmas period more temps are employed, however, a sustainable labour force remains throughout the year.

Ms Smuts stated that the Post Office should be seen as a one-stop service agent where people could use their bank cards to pay rates, etc. However, the Post Office did not as yet make provision for the use of bank cards - what was the future in this regard?

Mr Manyatshe replied that he envisaged the Post Office becoming just that - a one-stop shop and in this regard, debit card facilities were busy being negotiated. However, there were a couple of complicating factors such as the regulations issued by the Reserve Bank.

Ms Smuts referred to the financial statements and specifically to the fact that in order for the Post Office to continue to operate there must be a letter of comfort from the shareholder. It was noted that this was a worrying factor to the Members. A subsidy had been granted and there should be an attempt to reduce this to nil - the question was then what could Parliament do to assist this?

Mr Manyatshe replied that the letter of comfort would still be required for the next four to five years. He would like the understanding of the Portfolio Committee that there was nothing untoward about the requirement of such a letter of comfort.

Ms W Newhoudt-Druchen (ANC) expressed interest in the PITs and the Brazil model as referred to in the presentation. She asked if there was anything for South Africa to use, or was this process still in the negotiating phase. She also asked if there were any statistics available for the number of PIT users.

Mr Manyatshe replied that there was an agreement with Brazil in place at present and South Africa was in the process of obtaining 10 PITs in terms of a proof of concept. The PITs seem to work very well and there is positive feedback. At present, there were no usage statistics. However, as far as the actual workings of the PITs, they are a big success and where such terminal is out of order (should it so be) these will be fixed quickly. The areas of focus for installation include schools. He was convinced that there was a future for PITs in the Post Office and South Africa as a whole. However, this must be carefully judged at first and one must be conscious of the fact that discrimination may occur if PITs are installed in some areas and not in others.

Ms Newhoudt-Druchen said that on a recent committee study tour of Gauteng Post Offices it seemed that their physically disabled staff had been employed since before 1994 with no people with disabilities having been employed after that date. What was the position in this regard?

Due to time constraints, this question was not answered.

Mr Lekgoro (ANC) asked for elaboration on the Authentication Service Provider.

Mr Manyatshe replied that there is an accredited trust centre and the next step would be to fulfil the centre's complete potential. At the moment, various banks were talking with the Post Office on this trust centre. The trust centre has a pivotal role in the assistance of the implementation of the Finance Intelligence Centre Act (FICA) in that the centre would be able to ensure the correct identity of people by the use of fingerprints instead of just an Identity Document in order to ascertain their actual identity.

The Chair thanked the SAPO representatives for their presentation.