April 2017 Contents 2 2 Progress to 31 March 2017 Current Status Overview Achievements for 201617FY Postbank Corporatisation Update Corporate Plan 201718 to 201920 Key Challenges The Future State of SAPO ID: 651575
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Slide1
Parliamentary Portfolio Committee
April 2017Slide2
Contents
2
2
Progress to 31 March 2017
Current Status OverviewAchievements for 2016/17FYPostbank Corporatisation UpdateCorporate Plan 2017/18 to 2019/20 Key ChallengesThe Future State of SAPOStrategic Goals and ThemesFinancial Plan 2017/18 – 2019/20Key Focus Areas for 2017/18FYAppendices (Including Key Performance Indicators)Slide3
Current Status Overview – Preliminary Results 31 March 2017
3
3
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. Slide4
Current Status Overview continued
4
4
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 36 999 and registration of 149 145 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 2 052 to 18 729 from 20 781 in March 2016. Slide5
Achievements for the
2016/17FY -
Finance
5
5The funding materialised 4 months later than expected and consequently, the recovery of operations was delayed by six months A R3,7bn loan facility was finalised, incorporating the prior R1,0bn facilityThe 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.Slide6
Achievements continued
- Operations
6
615 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.Slide7
Achievements continued
- Human Capital Management
7
7A 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.Slide8
Postbank corporatisation update
8
8
Completed: Section 13 Approval to Establish the Bank granted by the SA Reserve Bank in July 2016Postbank Board appointed in March 2017Company Incorporation documents lodged with the CIPCTo be completed:Postbank staff, operations and balance sheet will transfer from the Postbank division to the new entity after the banking license is obtainedBank Controlling Company structure and legislative conflict issue being addressedPostbank Section 16 Application to Register a Bank on Track for submission before the deadline of 3 July 2017 Slide9
9
9
Corporate Plan
2017/18 to 2019/20 Slide10
SAPO Vision and Mission
10
10
SAPO promotes economic growth
by leveraging off its sizeable retail and distribution networkA leading provider of postal, logistics and financial services to the South African market VisionMissionWe leverage our established infrastructure and link government, business and consumers with each other locally and abroad. Slide11
Key
Challenge….Digital substitution
11
11
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 e-mail or apps, conduct purchases, payments and money transfers online.The biggest factor impacting the postal business is technological advancementsSlide12
SAPO
Revenue split vs Global
postal operators (2014)
12
12Globally, 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 revenueSlide13
SAPO’s Planned
Revenue
Split
13
13SAPO’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.Slide14
Other Challenges Facing SAPO
14
14
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 CompetitorsSlide15
The Future State of SAPO
15
15
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.2017201820192020Slide16
SAPO’s Strategic Themes
16
16
Grow Revenue
Reduce CostsOperational EfficienciesPerformance Based CultureGovernance & Compliance
Stakeholder Engagement
Refer slides A05 – A10 for detailed key performance indicators. Slide17
Strategic Goals
17
17Slide18
Theme 1: Revenue Growth
18
18
Integrated Marketing
Product RedesignRetail PartnershipsIncreased Product AccessExpand existing Revenue BaseGoal 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.
KAM Sales Approach
Customised SolutionsSlide19
Theme 1: Revenue
Growth continued
19
19
Revenue Diversification – Digital SolutionsParcel Business - E-Commerce LogisticsFinancial Services -Informal Business Sector& GovernmentDiversify 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.Slide20
Theme 2: Optimised Cost Base
20
20
Automation
Optimise Delivery NetworkRationalise Postal and Parcel sorting networkOptimise CostsGoal Statement 2Operating costs will be reduced by improving productivity and increasing the usage of technology within the operating environment.
Optimise Sorting
Optimise Transport CapabilitySlide21
Theme 3: Be Operationally Efficient
21
21
Improve Operations
Optimise IT LandscapeOptimise Shared ServicesOutsourcing OpportunitiesOperate EfficientlyGoal 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)Slide22
Theme 4: Be a Performance Driven Organisation
22
22
Develop and Manage
TalentEnhance Business Performance and ReportingNew Post Office Operating ModelPerformance Driven OrganisationGoal Statement 4SAPO 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.
Optimised Remuneration Model
Enhance Employee EngagementSlide23
Theme 5: Be the Face of Government
23
23
Grant Beneficiary Payment Platform
Postbank CorporatisationPostbank Lending StrategyDelivery Partner to GovernmentGoal Statement 5SAPO will work to become the service delivery partner to government.Slide24
Financial Plan FY 2018 - 2020
24
24
R6.621bn
FY17/18RevenueR6.451bnExpenses-=
R86.59m
Net Profit
R7.869bn
FY18/19
Revenue
R7.341bn
Expenses
-
=
R440.79m
R8.880bn
FY19/20
Revenue
R7.990bn
Expenses
-
=
R797.48m
Net Profit
Net Profit
Refer slides A02 – A04 for detailed financial information (Income statement, Balance sheet and Cash flow).
SAPO
is
targeting a net profit of R87m for the 2017/18FYSlide25
SAPO Capital Structure
25
25
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 or60.6% of the R 3,7 billion loan capital amount that was borrowed.Slide26
USO
Branch Subsidy
26
26
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.Slide27
STP Link to 2017/18 Corporate Plan
27
27
STP
28 Initiatives carried over from STP 6 Initiatives completed3 Initiatives were not realisable
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
SAPO
2016/17 to 2018/19
Corporate
Plan
24 Initiatives
c
arried over from 2016/17FY
SAPO
2017/18 to 2019/20
Corporate
Plan
24 Initiatives
21 – In progress
3 = Due to start
Refer slides A12 – A15 for detail on initiatives.Slide28
Key areas of focus for
2017/18
year
28
28Branch network and operational efficiencyPostbank licenceSASSA grants readinessRe-launch a competitive courier businessInvest to become the e-commerce hub of choice for Africa Become government’s delivery partner of choiceSlide29
29
29
End of PresentationSlide30
30
30
AppendicesSlide31
Legal and Regulatory Framework
31
31
A01Slide32
SAPO Group Income Statement
32
32
A02Slide33
SAPO Group Balance Sheet
33
33
A03Slide34
SAPO Group Projected Flow of Funds
34
34
A04Slide35
Key Performance Indicators
35
35
Theme One Goal Key Performance Indicator 2017-2018 Financial Year
Annual
T
arget
Q1
T
arget
Q2
T
arget
Q3
T
arget
Q4
T
arget
Revenue Growth
(SAPO Group)
T
otal 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
2 marketing programs launched
2 marketing programs launched
% of Customer Complaints resolved within 7 calendar days
80%
80% of customer complaints
resolved
within
7 days for the quarter
80% of customer complaints
resolved
within
7 days for the quarter
80% of customer complaints
resolved
within
7 days for the quarter
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
1 e-Commerce solution launched
-
New Revenue
# of New Products Launched
4
1
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
R25m
R25m
R25m
A05Slide36
Key Performance Indicators
36
36
Theme One Goal Key Performance Indicator 2017-2018 Financial Year
Annual
T
arget
Q1
T
arget
Q2
T
arget
Q3
T
arget
Q4
T
arget
Revenue growth
(Postbank)
New Revenue - Government business
No
. of New Business Segments
3
-
1
1
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
Y
ear on
Y
ear % increase
in Depositor
Accounts.
3%
0,75%
0.75%
0.75%
0.75%
Implement e-Docex solution
% Implementation of
e-
Docex
Patform
and Solution
As per project plan*
As per project plan
Completed
-
-
A06Slide37
Key Performance Indicators
37
37
Theme Strategic Goal Key Performance Indicator 2017-2018 Financial Year
Annual
T
arget
Q1
T
arget
Q2
T
arget
Q3
T
arget
Q4
T
arget
Optimise the Cost
Base
Remain within Operating Expenditure Budget
Expenditure of Operational
Budget
Less than or equal
R6.45bn
Less than or equal
R1.63bn
Less than or equal
R1.61bn
Less than or equal
R1.60bn
Less than or equal
R1.61bn
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
30 September 2017
-
-
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
0.75% Reduction
0.75% Reduction
0.75% Reduction
A07Slide38
Key Performance Indicators
38
38
Theme Strategic Goal Key Performance Indicator 2017-2018 Financial Year
Annual
T
arget
Q1
T
arget
Q2
T
arget
Q3
T
arget
Q4
T
arget
Operational
Efficiency
Resilient
Operations
Board
Approved Business
Continuity Plan
30 September 2017
Draft Business continuity plan by June 2017
Exco
Approved BC Plan by
30 September 2017
IT
Optimisation
# of Core Operations IT Systems Redesigned and Implemented
2 systems per quarter
2
2
2
2
% of Enterprise Business
Systems Upgraded
100%
15%
35%
65%
100%
Rebuild
Operations
# of Oversight visits by
Area Managers per Branch per Quarter
1 per quarter per branch
1 per quarter per branch
1 per quarter per branch
1 per quarter per branch
1 per quarter per branch
# of Deviations from Standard
Operating Procedure
0
0
0
0
0
Implementation of MIS
30 November 2017
Design MIS
by 30 June 2017
Develop & Pilot MIS
by 31
August 2017
Implement MIS by
30 November 2017
-
% of Service Delivery Standard achieved
92%
92%
92%
92%
92%
Attain Postbank
SLA
% Uptime for
A
TM and POS
T
ransactions
98%
98%
98%
98%
98%
A08Slide39
Key Performance Indicators
39
39
Theme Strategic Goal Key Performance Indicator 2017-2018 Financial Year
Annual
T
arget
Q1
T
arget
Q2
T
arget
Q3
T
arget
Q4
T
arget
Compliance & Governance
Rebuild
Operations
% of High Risk Quality & Operations
Audit Findings resolved within 14 days (Governance)
100%
100%
100%
100%
100%
% of Medium and Low risk Quality & Operations
Audit Findings resolved within 30 days (Governance)
80%
80%
80%
80%
80%
Stakeholder
Engagement
Improve External Stakeholder Relationships
% Implementation of External Stakeholder Management Programs
100%
100%
100%
100%
100%
Improve Internal Stakeholder Relationships
% Implementation of Internal Stakeholder Management Programs
100%
100%
100%
100%
100%
A09Slide40
Key Performance Indicators
40
40
Theme Goal Key Performance Indicator 2017-2018 Financial Year
Annual
T
arget
Q1
T
arget
Q2
T
arget
Q3
T
arget
Q4
T
arget
Be a Performance
Driven
Organisation
W
orkforce
T
raining
% of Key Employees trained per the Critical Skills Plan
100% per skills plan*
As per plan
As per plan
As per 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
T
arget Date
70% by 31 March
2018
100% 0f General
Managers
100% of Senior
Managers
70% of Managers in Commercial, and Operations
70% of Managers in
Support Level
Capacitate criti- cal positions
% of Critical
V
acancies Filled
100% by 31 March
2018
20% by 30 June
2017
50% by 30 Septem- ber 2017
75% by 31
Decem
-
ber
2017
100% by 31 March
2018
Critical skills retention
% of Critical Skills Retained
85%
12.75%
29.75%
21.25%
21.25%
Revised Perfor- mance manage- ment framework
% of Management Employees enrolled onto Performance Management System
100%
80%
90%
100%
100%
Enforcement of Performance Management
% of Non-Performing employ- ees leaving the Organisation after due process
100%
25%
50%
75%
100%
Change Organi- zation Culture
% Completed of Implementa- tion of a Change Management Program
As per project pla
n
*
Per project plan
Per project plan
Per project plan
Per project plan
A10Slide41
Current Status Overview – Loan balance detail
41
41
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.A11Slide42
STP Initiatives – Status update
42
42
A12Slide43
STP Initiatives – Status update continued
43
43
A13Slide44
STP Initiatives – Status update continued
44
44
A14Slide45
STP Initiatives – Status update continued
45
45
A15Slide46
46
46
End