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