South African Post Office Annual Report 2006/07

COMMUNICATIONS PORTFOLIO COMMITTEE
13 November 2007
SOUTH AFRICAN POST OFFICE ANNUAL REPORT 2006/07

Chairperson:  Mr I Vadi (ANC)

Documents handed out
South African Post Office Annual Report Presentation
We Deliver Whatever It Takes:  Post Office Annual Report 2007

Audio recording of meeting

SUMMARY
The South African Post Office (SAPO) briefed the Committee on its Annual Report and noted that the focus over the last year was on improvement of service delivery, including forging of partnerships with various government departments. In the last year it had established new post offices, relocated outlets and distributed 1.9 million new addressed. Mail volumes increased 7% and worldwide postal revenue increased by 3.3%. There had been organisational review and a review of supply chain and procurement policies and systems. Postbank was showing 21% growth in accounts and a 13% capital growth. SAPO had again achieved an unqualified audit report, and had achieved growth in three of its four trading operations. The financial position was sound. Its future focus would again concentrate on delivering superior financial performance and investing in infrastructure. There would also be emphasis on Corporate Governance, people management and the Shareholders Mandate. Technology, customer needs and regulatory changes remained as challenges that SAPO would address. 

Members asked why SAPO felt it still deserved the government subsidy and asked for a breakdown of it, and also questioned the statement by the Department of Home Affairs that it would no longer be doing business with SAPO, the situation with the former CEO, the funding of the Post Office through Postbank, the decline in employment figures, and the plans for the high influx of people in 2010. Further questions addressed the benefits paid to former employees, the reason for the carry-forward of funds, the relationship with the Independent Communications Authority, the salary scales, the new focus of the Board, theft of post, and inaccessibility of many post offices to those in the rural areas.

 
MINUTES
South African Post Office (SAPO) Annual Report Briefing
Ms Vuyo Mahlati, Chairperson, South African Post Office, started by saying that the issue of customer services remained a challenge.  SAPO had done much to improve service delivery, including forging of partnerships with various government departments in the past year, and working together to understand the value chain from a supply chain management view.

The vision of SAPO was to be recognised among the top ten providers of postal and related services in the world. 

The key strategic themes included driving operational excellence, achieving customer satisfaction, becoming government’s preferred partner, building a high performance culture and strengthening the public perception of the Post Office as a trusted brand.
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Other challenges faced by SAPO included revenue diversification, infrastructure development, and corporate governance.

In the past financial year SAPO had established 47 new post offices and relocated 48 outlets.  It had distributed 1, 9 million new addresses which would be implemented with a GPS system.  SAPO wished to increase its footprint by also providing a universal service.

In the past year mail volumes had increased 7%, worldwide postal revenue increased by 3.3% and delivery standards improved by 92.4%.  With regards to supply chain management, procurement policies and procedure were reviewed, and R626 million was invested in Broad Based Black Economic Empowerment (BBBEE). In Postbank there was a 21% growth in accounts and a 13% capital growth. 

SAPO had achieved its fifth consecutive unqualified audit report.  It also converted to International Financial Reporting Standards (IFRS) in the 2005/06 financial year, and had a financially sound balance sheet.

There was growth in three of the four trading operations, namely, Group Trading, Post Office, and Docex, whilst the Courier Freight Group showed a loss of R7 million.

In the coming financial year SAPO would be focusing on delivering superior financial performance, and investing more on infrastructure, as also concentrating on people management to build a high performance organisation.  It would also place focus on Corporate Governance and the Shareholders Mandate.  It estimated that the capital expenditure would increase from R301 million in 2006/07 to R892 million in the coming year. 

Ms Mahlati concluded that technology, customer needs and regulatory changes remained a challenge.  Service delivery and universal service remained key areas of focus.  Revenue diversification would be a strategic priority.  SAPO would be strengthening their capability and competence.  They would also be investing in property and IT infrastructure.  Brand positioning and creation of sustainable growth and value were also a priority.

Discussion
Ms D Smuts (DA) asked why the SAPO deserved the R300 million government subsidy.

Ms Mahlati said that the annual results of 2006/07 did not include the subsidy.  This was a proactive approach.  At this point SAPO did get the subsidy but would not be banking on it in the future, which was why the subsidy was reported outside the rest of the budget.  She said that currently many people were excluded from postal services, by reason of their situation in remote areas, where there had been under-development. SAPO had taken it upon themselves to work on address systems, outside of their normal business, and due to this extra work it believed that it still needed assistance. Through the subsidy it would be able to fulfil the Universal Service Obligation (USO).

Mr Nick Buick, Chief Financial Officer, SAPO, said that there was a USO element on the IT side.  SAPO planned to put post offices on line by putting a PC in every post office. 
 
Ms Smuts also asked for a breakdown of where the subsidy went. 

Ms Smuts commented that the Department of Home Affairs said that they would no longer be doing business with SAPO.

Ms Mahlati preferred not to comment on this issue.  She did say that SAPO was unaware that they had been “fired”. 

Ms Smuts asked SAPO to update the committee on the situation with the former CEO.

Ms Mahlati said that his contract was terminated.  She said that he did not want to be reinstated but there were still issues around compensation.

Mr R Pieterse (ANC) asked if SAPO still used money from Postbank to pay for the costs of the Post Office.

Mr Buick said that this did not happen. The Postbank was not using deposited funds to fund their operations.  As the organisation had become successful there was no longer a need to do that.

Ms T Mamela-Khambule, Managing Director, Postbank, added that on a day to day basis Postbank could assess what deposits had been put in by customers.  Those funds would -be used to pay the Post Office on a daily basis what they would pay for retail transactions. The remainder of the funds would be invested, as some would not be required the next day by customers. All investments were sound, and none were in risky environments.

Mr Pieterse noted in the report SAPO had mentioned that there was a steady decline in terms of restructuring of employment.  He asked when that would be turned around so that there would be growth. 
 
Mr Buick said that the staff figures had come down from 33 000 to 17 000.  This was a significant decline but there were no forced retrenchments.  He felt that they had “bottomed out” in terms of staffing, and that levels were now stable.  He felt that the challenge now was to retrain the staff in terms of new business opportunities.  If revenue increased SAPO would be able to invest in increasing staff numbers.

Mr Pieterse enquired how 2010 and its high influx of people would be dealt with by SAPO.

Mr Twiggs Xiphu, Group Executive: Corporate Services, SAPO said that SAPO had been meeting with the local organising committee.  They had realised that they would need to work with provincial government and local authorities so as to ensure that service delivery was up to scratch. He felt that SAPO was well prepared for the event.

Mr Pieterse mentioned that SAPO paid the phone bills of certain retired employees.  He asked when this exercise would stop.

Mr Buick said that was a benefit to which certain retired employees were legally entitled. This will decline over time, as no one was entitled to this benefit any more. SAPO was trying to ring-fence funds to deal with this obligation.

Adv P Swart (DA) noted that National Treasury gave SAPO a subsidy.  Much of the money given was not being used, and was being carried forward. He said that there seemed to be no real indicators to ensure that the subsidy would be used, and asked why the money was allowed to be carried forward. 

Adv Swart asked what the relationship between Independent Communications Authority of South Africa (ICASA) and SAPO was like.

Ms Mahlati said that the relationship was strengthening, especially in terms of their USO.

Mr K Khumalo (ANC) mentioned that the Acting CEO was not present, and noted that there was no explanation proferred for her absence.

Ms Mahlati apologised to the Committee on behalf of the Acting CEO for her absence, as she was ill.

Mr Khumalo asked when the new CEO would be appointed.

Ms Mahlati said that the selection process for the new CEO was under way.  It was an extensive process, as the Board wanted the job description to be more specific.  There was a short list that would be brought to the shareholders.

Mr Khumalo noted that SAPO in upmarket areas was very different to the offices in the townships.  He asked for the reason. 

Ms Mahlati said that there was an aesthetic feel that was linked to the context, and some structures that worked in Sandton, for example, may not work in rural areas. 

Mr Khumalo noted that the salary scales between the managing directors and group executives were very different.  He asked what informed the disparities in the salary scales.

Ms Humaira Choonara, Group Executive: Human Resources, SAPO said that Deloitte Touch, external auditors, had benchmarked all the salary scales.

Mr Khumalo was pleased to hear that some of the temporary staff had now been absorbed.  Into the permanent staff, but asked how many of the 1 000 temporaries had now got permanent posts.

Mr Khumalo asked about the relationship between ICASA and SAPO, and if there was respect.

Mr Khumalo asked whether SAPO was classed as a private company or public entity.

Mr Khumalo asked how SAPO could be competitive and make a profit, but still comply with its under serviced area obligations.

Mr S Malebo, Non executive Director, SAPO, said that the Board had looked at what happened when it had previously tried to commercialise, and had then decided to re-position SAPO. The Post Office was clearly the centre of delivery of integrated services and this was a role that the Board did not want to abandon.  He added that he hoped people appreciated the status of SAPO being the service provider of choice.

Ms S Vos (IFP) asked about theft of post, how this still occurred despite the incorporation of new technology, and what SAPO was doing to try to address it.

Ms Mahlati said that the current approach was not sustainable.  SAPO needed to have a more preventative approach.  She added that the issue of permanent temps could result in the situation where a person, knowing that he might not be at the job the next week, might just “grab” what was there. It was important to deal with this issue and it was important to work with the Unions.

Ms L Yengeni (ANC) asked if SAPO officials had led by example with regards to the voluntary HIV testing.

Ms Choonara answered that everyone had gone for testing and counselling.

Ms Yengeni asked about the reduction in crime, and the benchmark of 10% increase in reporting of crime. She asked how these percentages were reached.

Mr Buick said that internal and external crime were tracked separately. 

Mr E Kholwane (ANC) noted that often there would only be one Post Office in a specific area, and said that it was not always easily accessible to people in the rural areas.

Mr Kholwane also asked if SAPO had an asset register, which specified acquisition and disposal of assets. He enquired if there were any disused Post Offices, and whether they would be regarded as assets of the Post Office, or if they were government assets.

Mr Buick said that SAPO did have a fixed asset register.  Even though there might not be a Post Office operating on those premises, they still were owned by SAPO.

The Chairperson asked what training was offered to frontline staff in terms of customer service. This was an area of concern to the Committee. In addition he noted that SAPO needed the cooperation of the unions.

The meeting was adjourned.