Case for change –SAPO HCM Enhancements Corporate Strategic Plan • Qualifications Verification Parliamentary Portfolio Committee 05 May 2015 1 Contents 1 INTRODUCTION 2 STRATEGIC TURNAROUND PLAN 3 STRATEGIC FOCUS 4 BUDGETS 2015/16 – 2017/18 5 STP IMPLEMENTATION READINESS 6 WAY FORWARD 7 KEY PERFORMANCE INDICATORS – Included as the Additional Notes Pack 2 Introduction • The labour environment remains stable. • Cash flow challenges continue with the backlog in payments to suppliers which constraints operations. • Long term funding of is crucial to clear backlog payments and support the implementation of the STP. • The growth in Government business to position SAPO as a delivery arm of Government, through the cabinet decision. • Monopoly reserved area encroachment complaint has been lodged with ICASA. • The implementation of the Strategic Turnaround Plan is key to the recovery and sustainability of SAPO. • The turnaround quick wins are in implementation phase whilst the other detailed plans are being finalised. 3 SAPO Footprint Strategic Importance 2486 Points of Presence & 382 Mail Processing Centres 23,820 Employees 7,5 million Postbank accounts R 5,69 billion Revenue 1,4 billion mail items delivered a year R4,74 billion Postbank deposits 13,8 million households serviced 66 million customer visits to branches p.a. 13 500 business customers (Bulk and frank mail & Docex) Collection agent for +/- 250 3rd party clients 4 Global postal trends Internationally, the postal industry is undergoing a transformation. Business models that have existed for generations are clashing with the latest technology and social trends. 5 Summary SWOT Analysis The SWOT analysis builds on the other components of the strategic context work and identifies where SAPO is positioned with regard to trends, developments and the broader environment in which it operates and affect the organization’s future. 6 Challenges - Summary Diverse range of challenges 7 Long-ranging reforms for sustainability SAPO’s future will be secured by addressing a number of “systemic challenges” • Current policy and regulatory prescripts emanate from a period of low access to communications infrastructure • SA’s mobile penetration exceeds 100% and the physical and electronic communication technologies are converging • What is the role of postal communication in present day South African ICT landscape? ROLE OF SAPO AS DELIVERY ARM OF GOVERNMENT POLICY DIRECTION and REGULATORY LANDSCAPE SAPO • SAPO provides critical social and economic inclusion infrastructure for millions of vulnerable South African • The role that SAPO can play of connecting citizens to the South African government is poorly developed • The USO mandate specifies a Point of Presence in every 3km radius, the potential of this massive investment is severely under-utilised ROLE OF SAPO IN SOCIOECONOMIC DEVELOPMENT FUNDING MODEL FOR SAPO’S DEVELOPMENTAL AGENDA • SAPO’s traditional clients are large business and the strategic role that SAPO should be playing in government service delivery is limited • SAPO has extensive citizen-facing infrastructure in the remotest parts of the country, yet access to government services remains a challenge in those areas • Leveraging infrastructure investments will dramatically reduce the cost of service delivery • The massive physical distribution infrastructure related to SAPO’s developmental mandate, imposes high fixed costs to SAPO’s financial model • When the USO subsidy was withdrawn in 2011, SAPO’s suboptimal financial structure was exposed • What is the role of SAPO in development, and how should it be funded? 8 Cost of Universal Service Obligation • The cost of the USO is represented by the retail network. Reserved services profit versus USO cost (Rm) Retail losses • The size and reach of the branch network is a direct result of ICASA’s licensing requirements. Reserved services profit 1,760 • Although the retail business generates revenues, it is not nearly adequate to cover the cost of the vast network of retail outlets. • Not only is the profit from reserved services decreasing, but the cost of the USO is increasing. • Over the past six years, retail losses have outstripped reserved services profits, except for 2012 in which here was an abnormally high cost recovery from other business units. 1,169 1,015 1,030 913 848 920 533 474 454 • In 2015, the shortfall in reserved services profit is expected to be in excess of R1.75bn. 463 14 2010 2011 2012 2013 2014 2015e Source: SAPO, Evolut 9 SAPO’s business model immature Banking Financial Services • • Postbank currently offers basic savings and transactional banking products After Corporatisation a holistic financial service offering is envisaged Service Broker Banking Financial Services Government Banking Transactions Insurance Retail Banking Savings Non-Banking Financial Services • Limited capability to play a in a R15 billion revenue market • Massive untapped potential in the space of consumer-consumer, government & bill payments, wages, payments for goods and services (prepaid electricity and airtime, eticketing) Public Service Operations Partner • Offerings to government exist, however SAPO is not seen as a government outsource partner even in its core areas such as mailroom management • Penetration of value proposition to the breadth of government is poor Post Bank Mail Distribution Creation Make Selection Customer Targeting Communication Fulfilment • The retail network asset is not sweated optimally towards becoming a ‘retail destination’ • A limited number of services are drawing feet into the branches such as Postbank transactions and MVL Logistics of Goods • SAPO is underperforming in this fast-growing sector, whilst one of the top players in the market it lacks scale and is unprofitable • Positioning as the government logistics partner to support volume growth Communication Fulfillment • Mail is viewed from a physical letter point of view despite considerable investment in hybrid mail capability • The hybrid mail offering is reliant on a handful of clients, whilst the market is vast 10 SAPO’s business model overhaul • Unsustainable financial model – costs exceed revenue; and have been growing faster than revenue FINANCIAL HEALTH • Human and physical infrastructure has excess capacity and low productivity • Volumes growth focus versus value in mail • Poor performance from retail and CFG is strangling the business • SAPO business model not centred around the customer • The organisation is inward-looking – the Post Office not recognised as a key element of the CUSTOMER-FOCUS South African economic infrastructure • SAPO’s revenue is concentrated within a highly vulnerable customer base, particularly given recent service disruptions, understanding and pursuing new growth markets is lacking • Retail Business Unit key revenue drivers are contracted government bill payments, including Telkom, Motor Vehicle Licencing, Municipal accounts, etc. • As seen in the period following the loss of the SASSA account in 2008/09, reliance on RETAIL REVENUE PERFORMANCE contracted business in not sustainable • Driving robust transactional volumes to sustain the business is key, however Information Technology deficiencies are hampering the ability of retail to compete in lucrative markets such as non-banking financial services 11 SAPO’s business model overhaul • Whilst integration of Parcels business (Speed Services and CFG had occurred at a linehaul PARCELS BUSINESS INTEGRATION and route sharing business level, fundamental issues remained unaddressed • The courier business continues to run two parallel brands resulting in internal competition and cannibalisation • The “silos” that have developed within SAPO have resulted in duplication of costs, poor DELIVERY PLATFORMS efficiency and sub-optimal investment decisions in areas such as transport, property, technology, call centres, etc. • SAPO IT systems are unstable, in an unsafe environment, without adequate connectivity, INFORMATION TECHNOLOGY weak redundancy, without independent testing environment; without disaster recovery and certain to collapse in the immediate future if no drastic and urgent intervention is taken • Mission critical IT systems failure introduces excessive inefficiencies, losses and waste • Ill-defined USO is burdensome to the business and SAPO’s pursuance of USO targets at all costs has left the business severely exposed COMPLIANCE TO REGULATION • The strategy has been to “own” the majority of the fixed cost of the branch network, in contrast to global trends, where Postal Agencies and Franchising model are the dominant models and thus reducing the burden of universal service obligation to the operator 12 SAPO’s business model overhaul • The labour environment at SAPO is broken, mistrust prevails between management and LABOUR ENVIRONMENT staff – due to a long history of unfulfilled agreements • The conversion process of casual labour has aggravated an already ailing organisation, leading to the current situation • SAPO leadership has been unstable for the past 5 years, and presently, leadership vacancy LEADERSHIP AND STRATEGIC DIRECTION rate is sitting at 49% - a successful implementation of a turnaround programme is impossible without a stable leadership team • Internally the organisation lacks a high-performance culture and accountability for performance • SAPO is good at developing strategies, however implementation has been elusive in the IMPLEMENTATION CAPABILITY AND CAPACITY past – turnaround proposals not “operationalised” into corporate plans down to individual performance with relevant accountability • SAPO lacks a single consolidated programme management, operations management and performance management process and tools • Clear warning signs for financial disaster were masked by poorly segmented financial GOVERNANCE AND OVERSIGHT reporting and the Board seems to have taken reported information at face value • Robust strategic leadership, performance management and monitoring is lacking • Organisational health indicators not monitored and organisation not steered in the right direction 13 Bloated and inflexible cost structure Cost breakdown (Rm) Employee cost Transport cost Property leases Vehicle leases Consumables Other expenses 317 467 351 747 200 526 277 544 292 606 2,961 3,095 3,228 3,600 3,665 2010 2011 2012 2013 2014 All branches - 2013 Loss making Profitable Staff cost / revenue 119% 53% Prop. cost/revenue 35% 8% 70-80% of cost base is fixed in nature – negative operational gearing Source: SAPO, Evolut 14 Long-term expense growth exceeds revenue growth • For many years, SAPO barely managed to recover all of its expenses. SAPO Group revenues and expenses (Rm) Revenue adjusted for historical forecast error • This precarious existence was only made possible through a subsidy from government. Total revenues Total expenses before subsidy • Unfortunately, the point at which this lifeline ceased to exist in 2014, is also the point at which SAPO’s business model was exposed and labour unrest reared its head. 8500 • Even though revenues are expected to recover and grow following the 2013-2014 labour unrest, the business model in its current state will continue to produce losses. 6500 CAGR = 5.4% 8000 CAGR = 5.7% 7500 7000 CAGR = 4.5% CAGR = 2.0% 6000 5500 CAGR = 2.1% 5000 4500 4000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015e2016e2017e2018e Source: AFS, management forecast, Evolut calculations 15 Mail volumes not the main reason for revenue slump • Despite the international trend of declining mail volumes, mail revenues grew at 4.1% p.a. from 2005 to 2014. • PostBank revenues (fees and interest income) increased from R243m in 2005 to R724m in 2014. • Retail and logistics revenues remained negative to flat over the same period, even though a large amount of investment went into both business areas. • SAPO will remain dependent on mail revenues for the foreseeable future but it is imperative that other business units accelerate revenue growth. Key revenue items (R million) (rhs) 1,000 4,500 CAGR = 4.1% 900 4,000 800 3,500 700 3,000 600 2,500 500 2,000 400 1,500 300 200 1,000 100 500 0 0 2005 2006 2007 Retail 2008 2009 PostBank 2010 2011 Logistics 2012 2013 2014 Mail Source: AFS 16 Retail business is the largest contributor to SAPO’s losses • Impact of labour unrest on mail division is clear. However, this division still managed a profit in 2014 and 2015e. • Postbank has performed steadily, its only hiccup being the loss of SASSA revenues in 2012. • The retail business is the largest loss maker in SAPO. Operating profit after transfer pricing and support cost recovery (Rm) 190 248 821 914 88 532 138 98 209 452 439 65 • This is largely due to the high and inflexible cost base but also due to a lack of retail transactional volumes over the counter. -474 -1,015 -913 -1,030 -1,169 -1,760 • Retail’s revenue 95% reliant on contracted business, largely motor vehicle licencing and public sector bill payments 2010 Mail 2011 Retail E-Business 2012 Properties 2013 Support 2014 PostBank SSC 2015e CFG Docex Source: SAPO, Evolut 17 Lost retail revenues must be replaced • The loss of the social grant payments had quite a significant impact on retail revenues (26% loss in revenues) Retail revenues Government Social grants • Government related services contribute the bulk of retail revenues (currently 64%) and has been growing handsomely (+23% CAGR) • Bill payments relate mainly to Telkom accounts. • Although bill payments are very competitive, it is an area where there is further opportunity for growth. Fax & copier Other 38 36 71 73 89 46 72 • However, there are more opportunities to grow revenue from government sources. Bill payments 82 70 87 139 116 59 177 199 2012 2013 142 145 108 2010 2011 249 2014 Source: Management Accounts 18 Branch property and staff costs are too high • Since 2010, total expenses increased by 5.1% per annum. • Property leases, however, has increased by 15.1% over the same period. • This is largely due to the recent trend of vacating existing post office premises in favour of leased spaces in shopping malls. • The loss making branches have a total property cost to revenue of 35% compared to just 8% for the profitable branches. • Loss making branches have on average 3.5 staff compared to 4.5 for profitable branches. • Yet, the loss making branches have a higher staff cost to revenue. Employee cost Transport cost Property leases Vehicle leases Consumables Other expenses CAGR 15.1% 7,000 6,000 5,000 4,000 200 277 292 2010 2011 2012 317 2013 351 3,000 2,000 1,000 0 All branches - 2013 Staff cost / revenue No of staff Prop. cost/revenue 2014 Loss making Profitable 119% 53% 3.5 4.5 35% 8% Source: Management 19 There is misalignment between cost of branches and performance • The top 20 worst performing branches are mostly all in large metropolitan areas. Average Top 20 branch Average bottom 20 branch Type: B Region: E/Cape Staff: 6 Revenue: R3.8m p.a. Property cost: R0.1m p.a. (2% of revenue) USO: No Type: A Region: W/Cape or Wits Staff: 11 Revenue: R1.6m p.a. Property cost: R0.9m p.a. (75% of revenue) USO: No • A large number of these are in shopping malls. • The average bottom 20 branch is Type A with 11 staff and a very high relative property cost • The average top 20 branch is a Type B, most likely in the Eastern Cape with only 6 staff members and a property cost of only 2% of revenue Source: Management & Evolut 20 Logistics product profitability needs review Cumulative op profit/(loss) (Rm) XPS PX SSC 84% of cost – 72% of revenue 44 46 47 46 46 45 44 43 38 35 40 43 33 28 28 21 13 8 - 12 - 35 - 64 Parcel D2C Retail Freight Half Container - 116 Mini Container Parcel D2D 65% of cost – 52% of revenue Letter C2C Int Freight Overnight Letter C2Box Letter C2Bag Letter D2C Int Courier 41 Letter D2D Parcel C2Box Int Non-Doc Int Doc Int Courier 42 Economy Parcel C2D Letter C2D Parcel C2C • More than half of the products in logistics are making losses. XPS and PX products are almost all loss making. • The five worst performing products are responsible for 65% of the total cost base in logistics. • The biggest single loss maker is the Speed Services Parcel Door to Counter product which lost R52m for the year ended March 2014. It is also the 2nd biggest revenue generator. • PostNet charges R190 for a 1kg parcel from JHB Door to CPT Counter. • SSC charges R166.55 for the same service – a 12% discount. • The bulk of the loss is therefore down to volumes and cost. • Given that the cost base is more fixed in nature than variable, the impact of volume changes become very meaningful. Source: SAPO 21 Revenue mix diversification ROA SAPO existing business mix % (%) 12 ROE Weight Rev (%) (%) (Rm) (x) 7 12 Fin. Lev. CAGR 201520 (%p.a.) Retail 2.0% 2.0 4.0% 15% 1,189 25% PostBank 2.5% 10.0 25.0% 20% 1,585 18.5% Logistics 4.0% 3.0 12.0% 15% 1,189 18% Mail 3.0% 2.0 6.0% 50% 3,963 2% SAPO 2.9% 3.6 10.4% 100% 7,925 8.9% 69 Total return to shareholder including taxes paid – sufficient to cover government borrowing cost Before tax 14.9% 22 Summary of Strategic Turnaround Plan Income derived from the reserved markets must be sufficient to meet operating costs for developmental obligations; whilst ensuring that business activities in the unreserved markets are competitive, profitable and commercially viable for SAPO’s sustainable growth. Sustainable social mandate delivery leveraging Reserved Area Profitable revenue growth from diversified customer base and product mix Grow financial resource base Improve productivity & asset utilisation and reduce costs Restore public confidence in the South African Post Office Social cohesion and economic/financial inclusion infrastructure & solutions for citizens Trusted partner for government service delivery Value-based solutions for corporate customers as partners Customer centric ethos across the organisation Improved customer satisfaction Rebuild SAPO’s brand Social Mandate Delivery Product Diversification Customer Intimacy Improve Operational Efficiency and Quality Responsible Corporate Citizen Remodel and optimise channel mix to reduce cost of social mandate Massification of new products to leverage innovation Understand customer segments and value Optimised mail operations to align capacity to mail volumes International Postal Reputation Transformation towards a needs-based policy and regulatory regime Cross-selling of existing products Reserved Area revenue protection Logistics solutions to capture e-commerce opportunities Stakeholder management and effective communication Improve product development and lifecycle management Grow on government and SMME revenue contribution Customer experience improvement across all channels Reduce property, transport and IT costs Enterprise Development Agency model improvement and support Improve supply chain efficiency and effectiveness Environmental sustainability Sales Force Effectiveness Leverage strategic partnerships Efficient and effective Technology Optimise technology effectiveness – systems, network, databases Technology solutions to support current and future products and operations Social mandate aligned to NDP Continuous process improvement High Performance Culture Implement new operating model, build strategic capabilities and capacity Develop leadership accountability and an execution-driven culture Foster conducive organisational climate Optimise knowledge sharing 23 STP Business Case 4 600 1 540 4 435 24 STP Business Case Detail Initiative 2015/16 Target Revenue Uplift Initiative 2015/16 Target Cost Reduction Capture additional government business Logistics Capture additional government business - Retail 352 518 287 166 Align sorting capacity with volumes 97 500 Retail hostpot & ICT hub - Mail 90 000 Eliminate late night shifts 78 280 Mobile virtual network operator 67 500 Reduced rates and reduced TOC 64 750 Capture additional government business - Mail 46 250 Postbank IT outsourcing 64 425 Cross-sell to large customers - Logistics Capture additional government business Postbank Protect DOCEX revenue/Digital lodgement 40 375 Reduce manual sorting 55 000 24 000 Unified Oracle database license 51 000 Revenue collection - Telkom masts 16 800 Reduce rental exposure 44 550 Retail hostpot & ICT hub - Retail 14 000 Optimise network 22 200 Eliminate price discounts 13 413 Relocate the JIMC property 16 983 New mailing business for online mall 5 750 Ensure last mile performance 9 900 Cross-sell to large customers - Retail 4 750 Reduce call centre costs 9 065 Digital certificates 4 625 Parking of vehicles 2 914 Revenue from non-traditional customers 4 050 Terminate excess FMLs 1 850 Reduce reliance on gov 3rd party payments 3 875 Terminate casuals 31 913 R1 006 m Workforce rightsizing MVNO 517 563 52 500 R1 088 m 25 Quick wins PROPE RTIES LOGISTICS INFORMATION TECHNOLOGY AREA INITIATIVE IMPACT SAVINGS (annualised) NEW REVENUE (Rm) INVESTMENT (Rm) TIMING MVNO airtime / sim reselller Revenue share for SAPO with an operator - R 53 R 33 Apr-15 Channel distribution partner for OnLine malls New transactional revenue share with OnLine malls - R 90 - Apr-15 Fax-To-Mail; Mail-To-Fax & CloudFax New transactional revenue share on FaxTo-Mail - R 14 - Apr-15 New mail revenue - partner with On-Line vendor New mail revenue - R 10 - Apr-15 Purchase data service on Wholesale No retail purchase of data - cost saving benefits R 37 - - Contract concluded Contracts renegotiation - Oracle concluded Improved terms & service levels R 51 - - Contract concluded Contracts renegotiation: (SAP, Escher, Time Quantum, etc.) Better terms, better SLA etc. R 18 - - Contract concluded Parking of vehicles Reduction in Fuel Costs R 4,2 - - In Progress Termination of excess FML Reduction of vehicle lease costs R6 - - Done Rationalisation of PX routes (Shoprite - Bellville) Reduction of loss quantum within PX business R8 - - In Progress Termination of casuals Cost reduction R8 - - In Progress Relocation of the SAPO Learning Institute Cost reduction R 3,6 - - In Progress TOTAL R 132,2 R 167 R 33 26 Operating Model Transport and Logistics Mail Operations Parcels Operations Retail Operations Postbank Core Operations Letter mail Parcels Banking Retail Solutions Non-Banking Financial Services Implementation of the new business model will necessitate a change in SAPO’s operating model to place the customer at the heart of the business: Information Technology Property Management • Break Business Unit silos Products • Create market facing commodity-based SCM Supply Chain Management Stakeholder Management Customers Governance and Regulatory Business Government Consumer Strategy and Sustainability Marketing & Communication Financial Management Delivery Platforms & Enablers Human Resources Management • Create a commercial capability at SAPO and consolidate all “commercial” functions. • Outsource SAPO and Postbank IT • Break down e-Business into Mail and Channels. • 6 Regional centers to be headed by Regional GM (report to Operations Exec in the office of the COO; 2 GM levels dependent on size and complexity) • Integrated delivery teams • Network and logistics managed centrally through the NCC supported by Transport teams regionally • Regional NCC re-established • Support services integrated under Regional GM’s with dotted line reporting into HQ Support Exec’s 27 PROPOSED MACRO-STRUCTURE SAPO Board • • Internal audit Company secretariat CEO 100% Subsidiary 100% Subsidiary Bank Controlling Company Ltd Postbank (Pty) Ltd Executive Assistant Chief Operations Officer • • • • • Mail Operations Parcels Operations Property Transport and Logistics Head of Regions Chief Commercial Officer Chief Financial Officer • • • • • • • Corporate Finance Management Accounting Tax and Retirement Fund Treasury Capex Management Financial Planning and Reporting Supply Chain Management • • • • • Market and Customer Intelligence Product Management Sales & Marketing Customer Service Channels GE: Strategy and Sustainability • • • • • • • • Strategy planning, monitoring and reporting PMO Risk Management Group Communication Stakeholder Management Sustainability Enterprise development CSI GE: Governance • • • • • Legal Economic Regulation Regulatory Reporting Security and Investigations Ethics GE: HCM • Talent attraction and retention • Organisation design and remuneration • Performance Management • Employee Relations Chief Technology Officer • Corporate IT • Networks & Connectivity • Services Partner Management • IT Design • IT Services • Product Innovation & Test Environment Hub 28 PROPOSED STAFF NUMBERS TO BE REDUCED BUSINESS AREA Employee Numbers Potential Saving OPERATIONS Mail Operations - Reduction aligned to productivity and efficiency analysis 2650 325 655 971 Transport reduction aligned to transport optimisation 236 25 736 109 International Mail – reduction in ops. staff only 34 4 666 635 CFG – volume and efficiency aligned reduction 339 49 788 696 Speed Services – volume and efficiency aligned reduction 131 20 333 541 Closing of 8 Mail Processing Hubs 191 22 018 572 Closing of 652 Retail Branches over 5 years 1000 134 427 250 CORPORATE SUPPORT FUNCTIONS 160 51 231 510 - Supply Chain Management reduced by 8,3 % included above IT – Outsource IT Support function 201 69 322 185 REGIONAL SUPPORT FUNCTIONS aligned to operational structure 96 24 307 864 SALES & CUSTOMER SERVICES 36 9 857 108 TOTAL 5065 R728 223 385 29 COST TO FILL CRITICAL ROLES BUSINESS AREA Cost Executive positions Chief Commercial Officer 1 800 000 Chief Technology officer 1 800 000 GE Legal and Regulatory 1 500 000 GE Strategy and Reporting 1 500 000 Regulatory Compliance positions Senior Manager 756 530 Manager (2 Positions) 1 015 076 Compliance Analyst (3 positions) 750 450 Total R9 122 056 Net effect of changes Reduction in staff numbers R728 223 385 Filling of critical vacancies -R9 122 056 Net saving R719 101 329 30 IMPACTED POSITIONS BY LEVEL REDUCTION PER JOB LEVEL JOB LEVEL A - level B - level C - level DL - level DU - level Executive level NUMBER OF EMPLOYEES/ POSITIONS 310 3590 1026 114 38 1 % SPLIT 6% 71% 20% 2% 1% 0% Actual current % of total workforce 8.06% 72.03% 17.59% 1.59% 0.59% 0.14% General workers Management Administrative/ Operational 31 SAPO EMPLOYEE PROFILE • SAPO’s current attrition rate is 3% annualized. However, care must be taken as current resignations are on the increase. • If considering natural attrition, the staff numbers retiring over a 5 year period only accounts to 501 • Potential early retirement could be considered but this will still only present 1807 headcount • Engagement and consultation with Union currently underway to consider strategies and options 32 MITIGATION MEASURES The following will be considered to reduce the impact on employees: • The DTPS will engage the Regulator to strengthen the Reserved Market Inspection and Enforcement capability with "impacted" mail processing staff. • Scaling up of the Mailroom Management Offering and deployment of Mailroom Coordinators in government departments' mailrooms. • An average of R3.4m/month is spent on cleaning services. An opportunity analysis will be done on in sourcing; alternatively a business opportunity could be presented to impacted staff. This could accommodate an average of 300 employees. • An average of R1.5m/month is spent on catering services. An opportunity analysis will be done on in sourcing; alternatively a business opportunity could be presented to impacted staff. This could accommodate an average of 150 employees in the opportunity. • R126m/month spent on third-parties line haulage. An opportunity in owner-driver scheme will be explored. • The proposed agency model in Retail to be deployed over the next 5 years furthermore presents an opportunity for staff to be empowered as entrepreneurs, the extent of impact in this area will be dependent on the outcome of the Agency model redesign. • Review vacancies across the organisation to identify areas where impacted employees could be accommodated, e.g. JIMC, etc. 33 IMPLEMENTATION OF ORGANOGRAM Develop macro structure design Workshops held with Executive team On approval, finalise optimal workforce model Implementation Detailed (micro) organisational design (OD) Finalise micro organisation design principles Notes Much opportunity in the assumptions has been presented for further work study. It is recommended as part of the implementation process to deploy the HR org design team to execute critical area work studies to further optomise and address inefficiencies and potential duplication Update of micro design roles and profiles 34 SAPO’s Strategic Intent Strategic Intent The strategic intent is to turn SAPO around in line with the Strategic Turnaround Plan, which establishes a new business model, such that SAPO becomes customer–centric, with income derived from the reserved markets being sufficient to meet operating costs for the developmental obligations of SAPO such as the universal service obligation (USO) whilst ensuring that business activities, including government business, in the unreserved markets are competitive, profitable and commercially viable to achieve sustainable growth for SAPO. We will position SAPO as a key service provider that delivers government services to citizens. Business derived from government will grow to levels of 50 - 55% of SAPO revenue per annum whilst still growing from the current revenue levels from private and consumer segments of the market. 35 Vision, Mission and Values Vision A leading provider of postal, logistics and financial services that is responsive to market changes whilst achieving sustainable growth. Values SA Post Office subscribes to the following values when planning and executing business delivery within the agreed mandate: Mission • We facilitate communication and delivery of services by linking We are customer centric and will meet customer specific needs through excellent service; government, business and customers with each other across the world by leveraging our broad reach, employees, technology and innovation. • We contribute positively to our communities and environment; • We treat each other with respect, dignity, honesty and integrity; • We strive for a high performance culture and recognise individual contributions; • We embrace change and diversity in the way we conduct business. 36 Strategic Goals and objectives No 1 2 3 4 5 Strategic Goals Implement the Strategic Turnaround Plan to achieve a sustainable organisation Create a customer centric organisation to restore customer confidence Position SAPO as a key service partner that delivers government services Corporatisation of Postbank and increase access to financial services, Ensure good corporate citizenship and corporate Strategic Objectives • Deliver sustainable developmental obligations funded from the reserved market • Create a commercially viable business from the unreserved markets • Achieve operational efficiency and effectiveness • Achieve Leadership stability that ensures continuity and accountability • Achieve labour stability and improve labour relations, • Achieve financial sustainability • Improve the customer experience to achieve customer loyalty • Grow to levels of 50 - 55% of SAPO revenue per annum • Facilitate the corporatization of Postbank • • Increase access of financial services to the unbanked Ethical Leadership • Sustainability contribution • Legal compliance • Effective risk and governance • Effective stakeholder management governance Note: The detailed performance measures are included in the Additional Notes Pack 37 Shareholder mandates and NDP The SA Post Office is mandated through the Postal Act 44 of 1958 and the Postal Services Act 124 of 1998 to provide postal services to all South Africans. These Acts The Postal Services Act of 1998 charges the regulator, the Independent Communications Authority of South Africa (ICASA), to ensure the provision of universal service through the reserved postal services licensee namely the South African Post Office. provide for the regulation of postal services and the operational functions of the company, including its Universal Service Obligations (USO), as well as the operation of the Postbank. The SA Post Office complies with the protocols and legislation governing state owned companies and is guided by various postal, courier and financial regulations laid down by the regulatory bodies such as ICASA and the Financial Services Board (FSB). The Department of Telecommunications and Postal Services is mandated to develop ICT policies that create conditions for an accelerated and sustained shared growth of the South African economy, and to ensure the development of robust, reliable, secure and affordable ICT infrastructure. This is to contribute to the development of an inclusive information society in which information and ICT tools are key drivers of economic and societal development. The National Development Plan 38 SAPO’s strategic planning model • This integrated strategic management model enables SAPO to develop informed strategic responses. • Adjust the strategy, if required through a continuous environmental scan. • Understand the impact of all internal and external factors that may influence SAPO’s ability to maintain its competitive advantage as well its ability to deliver on its universal service logistics. • A key component of the strategic formulation is to assess the business and operating model for relevance in the situation it finds itself. • If there is a need for organisational adjustments, then SAPO will move, with speed, to ensure that the organisation is optimised for efficiency and effectiveness. The strategic plan informs the various programs, projects and operational plans that will move the organisation towards its strategic goals. These plans are under-pinned by critical success factors along with the applicable key performance indicators ensuring that effective monitoring and evaluations mechanisms are in place for the strategic journey that SAPO plans to undertake. 39 STP Roadmap Year one is crucial to get SAPO back on track. 40 SAPO Income Statement • SAPO Group preliminary net loss for financial year ending 31 March 2015 was R1 155m. • SAPO Group net loss position for 2015/2016 FY reduced to R102 million. • Postbank net profit of R123 million for 2015/2016FY. • Strategic Turnaround Plan (2016 to 2018) • Revenue increase of R5,9bn. • Government business R4,1bn. • Cost reduction initiatives of R3,5bn. • Total cost of borrowing included in Interest expenditure. SA Post Office Group Actuals 2013/2014 R'000 Forecast 2014/2015 R'000 Budget 2015/2016 R'000 Budget 2016/2017 R'000 Budget 2017/2018 R'000 Revenue Mail revenue E-Business revenue Logistics revenue Postbank revenue Retail revenue Interest revenue Sundry revenue 5 972 505 3 863 158 222 461 724 749 256 549 389 421 407 033 109 135 5 292 080 3 444 152 178 188 508 065 221 499 392 593 457 905 89 677 6 732 978 4 531 912 294 032 617 902 252 760 469 095 487 538 79 738 8 365 401 5 631 414 323 435 802 450 299 482 734 050 511 652 62 918 8 855 879 5 863 044 355 779 939 940 303 256 788 296 537 235 68 330 Expenses Staff expenses Transport expenses Property expenses Material and services Interest paid Depreciation Other operating expenditure 6 319 246 3 537 402 713 413 697 017 278 646 74 338 166 928 851 502 6 482 965 3 835 491 628 547 651 261 288 601 83 839 164 571 830 655 6 856 584 3 911 637 629 205 684 049 353 821 313 384 196 201 768 288 6 448 287 3 674 213 538 853 592 036 371 512 317 984 267 481 686 208 6 561 338 3 824 864 553 390 608 785 390 087 322 815 293 471 567 927 Operating (loss) / profit Non ops item Subsidy Taxation Net (Loss) / Profit (346 741) (162 198) 0 150 062 (358 877) (1 190 885) (49 486) 85 305 0 (1 155 065) (123 606) (50 942) 56 888 15 207 (102 453) 1 917 114 (50 271) 0 (569 339) 1 297 504 2 294 541 (49 294) 0 (705 456) 1 539 791 138 450 210 741 123 067 110 965 103 652 (497 327) (1 365 806) (225 520) 1 186 539 1 436 139 Postbank SAPO Group excluding Postbank 41 SAPO Statement of Financial Position SAPO Group • The forecasted net loss position for the 2014/2015 financial year has reduced the retained earnings • The Postbank short-term investments and cash surplus over depositor’s funds is maintained over the medium term. SAPO Group excluding Postbank • A 3-year term loan of R1 200 million will be secured in the 2015/2016 financial year to fund. • Solvency for 2015/2016 Current liabilities exceed current assets. SA Post Office Group Actuals 2013/2014 R'000 Forecast 2014/2015 R'000 Budget 2015/2016 R'000 Budget 2016/2017 R'000 Budget 2017/2018 R'000 Non-Current Assets Current Assets 2 954 225 8 337 216 11 291 441 3 424 187 7 377 737 10 801 924 3 868 653 8 423 880 12 292 533 4 029 882 9 700 566 13 730 448 4 215 369 11 519 559 15 734 928 Equity Non- current liabilities Current liabilities 2 438 296 2 028 192 6 824 953 11 291 441 1 319 398 2 003 576 7 478 950 10 801 924 1 492 944 3 291 642 7 507 947 12 292 533 2 790 448 3 384 117 7 555 883 13 730 448 4 330 240 3 481 222 7 923 467 15 734 928 SA Post Office Group excluding Postbank Actuals 2013/2014 R'000 Forecast 2014/2015 R'000 Budget 2015/2016 R'000 Budget 2016/2017 R'000 Budget 2017/2018 R'000 Non-Current Assets Current Assets 2 897 164 1 807 472 4 704 636 3 315 429 607 655 3 923 084 3 477 085 1 292 820 4 769 905 3 607 842 2 232 053 5 839 895 3 767 965 3 691 120 7 459 085 Equity Non- current liabilities Current liabilities 526 429 2 028 192 2 150 015 4 704 636 (803 210) 2 003 576 2 722 718 3 923 084 (1 028 730) 3 291 642 2 506 993 4 769 905 157 809 3 384 117 2 297 970 5 839 895 1 582 119 3 481 222 2 395 745 7 459 085 42 SAPO Statement of Cash Flows SAPO Group • Postbank depositors’ funds is projected to growth annually by 5%. • Capital expenditure for Postbank over the medium term amounts to R453m. • Capital expenditure of Post Office over the medium term amounts to R707m. SA Post Office Group Net cash from operating activities Net cash (to)/ from investing activities Proceeds from subsidy Movement in overdraft facility 3 year term loan Movement in deposits from the public Funds from National Treasury - Postbank Total cash movement for the year Cash at the beginning of the year SAPO Group excluding Postbank • Allocation of R56,888m (after payment of vat) subsidy allocation for the 2015/2016 financial year. • A 3-year term loan of R1 200m will be secured in the 2015/2016 financial year. • Overdraft facility of R270m. SA Post Office Group excluding Postbank Net cash from operating activities Net cash (to)/ from investing activities Proceeds from subsidy Movement in overdraft facility 3 year term loan Movement in intercompany trading account Total cash movement for the year Cash at the beginning of the year Actuals 2013/2014 R'000 Forecast 2014/2015 R'000 (333 969) 306 551 0 311 378 0 245 399 205 000 734 359 3 276 755 (639 019) (1 375 051) 0 (41 378) 0 82 836 4 011 114 Actuals 2013/2014 R'000 Budget 2015/2016 R'000 Budget 2016/2017 R'000 Budget 2017/2018 R'000 (1 972 612) 4 011 114 (188 016) (771 196) 56 888 0 1 200 000 241 022 276 000 814 698 2 038 502 1 333 305 (553 432) 0 0 0 253 073 0 1 032 946 2 853 200 1 892 082 (595 443) 0 0 0 265 727 0 1 562 367 3 886 146 2 038 502 2 853 200 3 886 146 5 448 513 Forecast 2014/2015 R'000 Budget 2015/2016 R'000 Budget 2016/2017 R'000 Budget 2017/2018 R'000 (433 942) (89 690) 0 311 378 0 200 466 (11 789) 1 264 185 (867 389) (230 412) 0 (41 378) 0 (2 489) (1 141 668) 1 252 396 (311 737) (245 700) 56 888 0 1 200 000 (2 613) 696 838 110 728 1 169 250 (215 800) 0 0 0 (2 744) 950 706 807 566 1 719 130 (245 900) 0 0 0 (2 881) 1 470 349 1 758 272 1 252 396 110 728 807 566 1 758 272 3 228 621 43 Borrowing / funding plan • • • The Standard bank approved overdraft facility of R270 million • Facility is backed by State Guarantee. • Facility is revolving and utilized for day-to-day operational requirements. Term loan of R200million was approved during April 2014 ; repayable in 3 months • Facility is backed by State Guarantee of R1.67 billion issued in December 2014. • Facility is utilized for day-to-day operational requirements. A further request to increase borrowings by R1.250 billion has been lodged to DTPS /NT • Facility to be backed by State Guarantee of R1.67billion issued in December 2014. • Binding Term sheets of R1 billion have already been obtained from interested Banking Institutions. 44 Regulation • Effective monitoring and policing of the reserved area and monopoly is crucial to stop revenue leakage for SAPO. • Discussions have commenced with ICASA. • A Task Team has been set up to move the process forward: • • • • SAPO ICASA DTPS NT • An encroachment complaint has been officially lodged with ICASA. • ICASA has committed to investigate the matter. • DTPS has requested that ICASA fast-track this investigation. • The Task Team will be meeting during next week. 45 Implementation Readiness • Implementation is key to the success of the STP. • Labour stability can be ensured through transparent ongoing engagement: • Engagements with the leadership of labour unions on the STP have taken place. • Labour leadership have submitted their inputs into the STP on the 15 April 2015. • Communication forums have been re-established for labour unions. • Leadership stability will ensure continuity and implementation inertia: • The recruitment and selection is being fast-tracked for critical positions. • Key vacant executive positions are in process – Chief Commercial Officer and Company Secretary. • Performance Management is a key pillar to ensure implementation: • To ensure accountability and delivery the STP initiatives will be incorporated in the performance contracts of Group Executives. • The long term funding availability will enable the key resources required for the STP. 46 Way forward • Implementation of the 30% government business as per the cabinet decision is crucial for the STP. • The approval of the R1.25bn long term funding from commercial banks is a crucial next step to address long outstanding suppliers and enable operations. • Increase customer engagements to regain their confidence in SAPO. • Fast track recruitment of key executive positions to ensure continuity and stability. • Continue labour engagements to maintain labour stability. • ICASA to add speed to the encroachment complaint and investigation to recover revenue leakage – task team in place to move the process forward. • The implementation of the STP initiatives to gain traction to commence financial recovery for SAPO. 47 End 48