SOUTH AFRICAN POST OFFICE (SOC) LTD - (SAPO)

CALLIBRATING THE POINT OF DEPARTURE 4 Rudderless organisation that lacks vision, strategy and skills to transform and re-align itself to changing market conditions, loosing relevance and impact that caused the business into a tailspin.

Executive Team without the mettle to take corrective action against patently obvious organisational deficiencies, including Revenue Mix, Asset Maintenance, Staffing.

Decimated balance sheet without any clear funding model, relying heavily on third party monies to pay salaries in lieu of desperately required operational expenses.

Complete disregard of social and legislative responsibilities.

Poor planning and implementation of the Postbank carve out, causing tension between the organisations.

Allowed liquidation and the risk of auction of invaluable social infrastructure to repay creditors, effectively disowning Government of its invaluable social infrastructure<br>

REPORT ON DAY ZERO 5 In the PCC held on 3 September 2024, the officials delegated by the BRPs advised that there is a looming Day Zero for SA Post Office.

From the report, SA Post Office will run out of operational funds at the end of October 2024.

As reported, without further capital injection by the fiscus, SA Post Office will not be able to fully implement the BR Plan.

The BRPs will have no option but to apply for the liquidation of SA Post Office in its entirety.

The consequences of liquidation are fatal for SAPO. The estate will be placed in the hands of the Master of the High Court, who will appoint a liquidator to wind up the estate. The Liquidator becomes the final authority of SAPO. 

The Social Infrastructure and physical representation of SAPO across towns in South Africa, accumulated for over 200 years and the foundation of SAPO’s business, will be auctioned off. To re-establish this representation in the current fiscal and economic climate will be improbable.

All jobs will be lost, business operations will cease, save only for those operations necessary to wind up the company. Furthermore, all assets will be sold at forced sale value; any proceeds will be divided amongst creditors. SAPO’s mandate cannot be met.

To aggravate matters, the provisional liquidation order (issued prior to SAPO being placed in business rescue) remains in place. The attorneys for the provisional liquidators have been successful in extending the rule nisi on three separate occasions. We have a difference of opinion & have applied for a special motion court to fully ventilate our position. The matter is set down for 18 November 2024.<br>

2. Mitigation against DAY ZERO<br>

Exemptions to Secure Loans The Public Finance Management Act No. 1 Of 1999 ('PFMA’) states in section 66(3)(a)

“Restrictions on borrowing, guarantees and other commitments.

(3) Public entities may only through the following persons borrow money, or issue a guarantee, indemnity or security, or enter into any other transaction that binds or may bind that public entity to any future financial commitment.”

Equally, section 7(4) of the SA Post Office SOC Act 22 of 2011 states as follows:

“a) The Post Office and its subsidiaries may not borrow money without the prior
written approval of the Minister, granted after consultation with the Minister of
Finance.
b) Any decision to borrow money taken without such approval is of no force and
effect.” 7<br>

Exemptions to Secure Loans (continued) The BRPs have requested an exemption from the Minister to borrow monies and receive a guarantee during business rescue – it would be impossible to raise any funding without the guarantee. These funds will be used to continue trading and settling some of the outstanding creditor dividends in terms of the BR Plan (18 cents).

The exemption for borrowing money was filed on 17 August 2023. A follow up was submitted to DCDT, however, no response has been received. 8<br>

Exemptions to Sell Properties The Public Finance Management Act No. 1 of 1999 ('PFMA’): Sec 54(2)

“Before a public entity concludes any of the following transactions:

d) Acquisition or disposal of a significant asset:
the accounting authority for the public entity must promptly and in writing inform the relevant treasury of the transaction and submit relevant particulars of the transaction to its executive authority for approval of the transaction”

The BRP filed an exemption application with the relevant authorities on 22 April 2024. Further information was requested by the DCDT and such was since provided. We are still waiting for a decision on the exemption application.
The proceeds that can be received from the sale of properties will be utilized in the operational expenses (opex).
The anticipated challenge is that property sales do not realise funds immediately. These funds are usually realised between 3 – 6 months. This is only if there are interested buyers.
Value of properties to be sold totals approximately R163 million. 9<br>

Drawdown on R3.8b Funding 10 Both the application to convert the liquidation proceedings into BR proceedings and the BR Plan were premised on the two tranches of funding from the fiscus i.e. the R2.4b and the R3.8b.

One of the fundamental assumptions of the BR Plan was the receipt of further funding from the fiscus and based on this assumption, creditors voted on the BR plan.

To avoid Day Zero, a drawdown ought to be made from the R3.8b. A drawdown of a minimum of R1b will sustain us until the end of March 2025. However, if the full amount is not received, then we will not be able to upgrade the infrastructure, which will then lead to a liquidation / day zero scenario in 12 months time again.

NB refer to slide 16 below.<br>

Increasing and Protecting Revenue Streams 11 At the commencement of BR proceedings, partners and service providers were not willing to provide services to SA Post Office due to non – payment and failure to render services on the part of SA Post Office.

The BRPs had to negotiate for the re-instatement for a number of partnerships/service providers. This included having to make up-front payments to ensure that services are reinstated.

The BRPs continue to monitor these relationships to ensure that there are no disruptions with the services.

The BRPs are unable to attract relevant/top skills and talent as there is doubt about the future of SA Post Office and job security.<br>

12 Logistics 12 Infrastructure as a Service 08 Digital Services 06 05 Other 02 Financial Services Principles to Partnerships No. of proposals received and focus area AN APPROACH FOCUSED ON PRESERVING ADVANTAGEOUS ASSET BASE AND MEANINGFUL VALUE ATTRIBUTION TO SAPO Partnership Revenues<br>

Revenues Generated from Partnerships – Public and Private 13 There are digital partnerships which are currently at a roll out stage. Revenue will only be generated in future (there is a lead time). Time to conclude partnerships also have long lead times.<br>

Anticipated Sources of funding Funding from National Treasury
Partnerships (long lead times)
UPU funding (various funding programs - $3,8 million available, based on re-imbursive model, therefore working capital outlay) Approved Projects therefore long lead time. Application process in motion.
TERS funding (new application to fund current employee salary costs. Waiting period ends on 1 October 2024)
Other possible agencies (e.g. SEFA for youth & SMME initiatives)
Sale of non-core properties (subject to receiving the exemption) 14<br>

Possible urgent/aggressive interventions to consider 15 Government to government business – there is a treasury directive for govt entities to use SAPO but entities are using the private sector. Government itself is failing SAPO. Urgent enforcement of the directive.

Exclusive licence fees – DCDT should compel ICASA to make the illegal private sector operators(e.g. Postnet) to pay SAPO monthly licence fees for illegal use of the license. Or fine them and pay the proceeds over to SAPO.

Postbank is reluctant to commit to a SA Post Office partnership – DCDT should compel Post Bank to use our branch infrastructure and contribute 33% of out total retail division branch costs (Take or pay). Post bank belonged to SA Post Office and no consideration was received for being split out. Postbank has taken advantage of the SA Post Office’s goodwill to continue supplying infrastructure and support service without equitable compensation.

TERS funding will definitely provide further breathing space on staff costs for the next 12 months.

Payment of fraction of staff salaries for the next 6 months or longer.

Further retrenchments.

Closure of all rural and loss-making branches and instead have the kiosk concept fast tracked through an urgent partnership with retail partners.

The property portfolio re-purposing will take time as maintenance/upgrade requirements are very high.<br>

3. Utilization of R2.4 bILLION<br>

Cash Utilization of R2,4 bn – July 2023 to 31 July 2024 17 Explanation:

The R2,4 billion was utilized to pay amongst others, the following:

R1 billion of total creditors were paid their 12-cent dividend. A total of 99,6% of creditors paid to date.

Supplier contracts were re-instated post-BR after suspension of services due to non-payment i.e., lifting embargo on all international and domestic mail carriers and transporters to improve the last mile, amongst others.

Prioritising landlords' post-BR to keep and maintain profitable branches.

Operational equipment was paid for required at SAPOs mail centres, depots and office of exchange i.e. Mail and Mechanisation equipment for Hybrid Mail to ensure efficiency.

The First Tranche of the severance packages were paid from the R2.4b at the end of July 2024.<br>

4. INTERNAL Utilization of R3.8 bILLION<br>

Internal Utilisation of R3.8b 19 Note:

Payment of outstanding statutory and payroll creditor dividends (Retirement Fund; Medical Aid & SARS).

The last tranche of the severance packages (2 tranches have already been paid).

Re – investing into the business as dealt with in the table.<br>

ROI in Revenue initiatives 20<br>

Revenue Strategy 21<br>

22 5. Questions from THE previous PCC meeting<br>

Questions From Previous PCC Meeting 1. Is the SA Post Office going to be a viable business?
Refer to the Revenue Initiatives on slide 17.

2. What were the improvements to date (green shots)?
SA Post Office has since dealt with the historical debt through the approved BR Plan (R8,7 billion).
Moved from a Net Asset Value (NAV) of R7,9 billion negative to R840 million positive as at 30 June 2024.
Solvency of SA Post Office has improved.
Compromised claims have been paid to creditors, save for those with reconciliation etc.
The only outstanding creditors that will be paid the 18c dividend are SARS, PORF & Medical Aids).
Current liabilities have occurred in the ordinary course of business and are being serviced as they fall due.
All landlords are up to date. 23<br>

Questions From Previous PCC Meeting 3. Branch closures – Access to rural areas.
See the tables below.











SA Post Office is still USO compliant. 24<br>

Questions From Previous PCC Meeting 4. What happens after liquidation (how will you meet your social mandate) ?
After liquidation, SA Post Office will no longer exist and will not be able to meet any of its social mandates.

5. Does SA Post Office still owe Medical Aid and Pension Fund ?
Yes. This forms part of the further 18 cent dividend.
This includes payments to the Retirement Fund, Medical Aid and SARS.
The total 18 cent dividend for these creditors amounts to R 492 934 million.

6. Vandalized properties and dysfunctional branches.
The BRPs are working on renegotiating agreements and fixing up properties particularly rural branches to make them operational. We require the additional funding for certain major maintenance and capex spend on certain branches.

7. Who is leading SA Post Office?
In terms of the Companies Act, the BRPs are the accounting authority and subsequently replace the board. 25<br>

Questions From Previous PCC Meeting 8. Does SA Post Office have an asset register of all the properties?
Internal audit is in possession of the asset register.

9. What happened to CFG?
We have applied for permission in terms of section 54 of the PFMA to liquidate CFG. The operations of CFG (assets, liabilities and employees have been absorbed into SAPO.

10. 250 Disciplinary Proceeding.
Majority of disciplinary hearings involved the misappropriation of funds.
The BRPs are also working with relevant authorities to recover misappropriated funds.

11. Revenue Growth and Digitization Channel Strategy.
The BRPs have developed a digitization and channel strategy. Refer to Detailed Treasury Submission – 30 August 2024. 26<br>

THANK YOU<br>