SA Post Office Financial Analysis and Challenges

An analysis of the SA Post Office's income statement, creditors, financial trends, challenges, and situational context. It also outlines the Post Office of Tomorrow strategy and strategic pillars.

• SA Post Office
• financial analysis
• income statement
• creditors
• financial trends
• challenges
• situational context
• Post Office of Tomorrow
• strategic pillars.

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1. SA POST OFFICE STANDING COMMITTEE ON APPROPRIATIONS APPROPRIATION BILL (B3-2023) 9 May 2023

2. Content 1. Income Statement YTD2023 (Preliminary) 2. Creditors as at 31 March 2023 3. R2.4 billion Utilisation 4. Financial Trend Analysis Net profit / loss position 5. Challenges 6. Situational Context 7. Post Office of Tomorrow Strategy 8. Post Office of Tomorrow Strategic Pillars 9. National Postal Network remains a Strategic Advantage 10.KPI Performance Overview Q4 2022/23 11.Annual Performance Plan FY2023/24 2

3. Income Statement YTD 2023 (Preliminary) Revenue R2.6 billion is below budget by R2.3 billion and year on year decline of R931 million (26%). Decline in postal services and financial services revenue Expenses R5.1 billion below budget by R1.6 billion and year on year decline of R1.1 billion (18%) Staff costs at R3.6 billion (70% of total costs) Year adjustments for PRMA actuarial, deferred revenue, accruals; IFRS 16 and VSP costs for March 2023 to be processed. 3

4. Creditors as at 31 March 2023 2020/2021 2021/2022 2022/2023 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 An amount of R3.9 billion is owed to Postbank Jun-20 Sep-20 Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22 Jun-22 Sep-22 Dec-22 Mar-23 Liabilities ('R million) Trade Creditors Accruals 386 469 470 389 565 514 607 467 433 735 492 830 465 753 928 488 894 668 1,047 646 1,277 469 1,438 186 Property accruals of R168 million requires urgent attention by the Properties. Statutory SARS Retirement fund Medipos medical aid UIF Other 357 104 82 129 13 28 721 230 202 262 27 1,065 318 321 357 1,396 427 437 450 1,809 624 543 543 2,182 806 639 622 2,334 838 723 646 2,444 928 769 645 100 2,560 881 865 679 100 2,698 892 963 709 100 2,900 938 1,063 724 109 2,406 539 1,135 596 108 R186 million for accruals is significantly lower than previous months. 37 32 51 32 65 33 80 35 94 33 2 34 34 66 27 Delivery Agents 3 7 8 11 8 10 4 5 7 9 10 11 Medical aid contributions for March 2023 remains unpaid. Rental Rental accruals Municipalities 51 139 105 81 152 80 189 55 189 110 256 125 11 288 132 270 94 281 110 304 117 329 154 13 355 168 2 7 4 3 3 1 2 6 4 Cash flow remains severely constrained. Salary debt VSP payments 151 150 150 150 150 150 150 150 150 150 219 Total 1,407 1,776 2,541 2,878 3,437 4,057 4,129 4,380 4,670 4,977 5,303 4,937 Note: Excludes Postbank debt: R3.9bn Liabilities exceed Assets by approximately R7bn 4

5. Challenges Financial Provisional liquidation order granted Historical debt and increasing creditor liabilities Declining revenue lines Revenue insufficient to cover even staff expenses Numerous request for funding have been submitted, however not supported Implementation of turnaround strategy delayed by funding availability Lack of capital expenditure Enforcement of reserved Postal area (<1kg) regulation ICASA Postal Regulations and Reserved Postal Product Pricing Model Under recovery of costs SASSA / SRD Separation of Postbank without compensation Low levels of government business 5

6. Challenges Operational Delivery of postal items affected by removal of delivery fleet Closure of branches outstanding rentals Ageing branch infrastructure Upgrade of data centre urgently required Outdated IT hardware / software Tools of trade Security infrastructure soft target Low levels of morale 6

7. R2.4 billion Utilisation Funding Allocation R millions Trust center 100 Business digital hubs and modernizing branches / mail centers 300 Logistics modernization 400 Point of Sale hardware and software 200 Reduce staff costs and establish employee-owned companies 700 Partial settlement of liabilities 700 Total funding 2 400 7

8. Financial Trend Analysis Net profit / loss position The decline in the financial position commenced as far back as 2006 17 years ago, as illustrated in the decline of the net position, which has been declining annually and has remained unfunded. Economic Recession Smartphone Adoption 1 362 Labour Brokers removed Absorption of part-time workers Labour unrest 293 377 204 153 2 486 158 8 1 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 Business Administration 3 2 Financial Distress Leadership instability 4 -179 7 -359 Covid-19 Pandemic Accelerated Digital Adoption -935 -1,358 5 -1,206 4 -1,770 Stabilisation / Section 189 / VSP / Restructure / Partnerships Improved net loss position -1,311 -1,462 6 -2,181 -1,662 3 -2,071 -2,056 Activation of turnaround strategy Courier / Trust Centre / eMall / Digital Business Hubs 7 6 -2,492 5 Full implementation of turnaround strategy 8 8

9. Situational Context Market Trends 1. Digital communication platforms substituting physical letter mail. 2. Digital financial platforms enable electronic financial transactions. The SA Post Office 3. Declining volumes in letter-post and financial business segments, driving revenue downwards. Current Traditional Postal Operator 4. Cost of maintaining physical postal network increasing annually. Designed to collect and deliver letter-post 5. Customer demands are evolving (Convenience). Provider of Financial Services 6. Current business model unable to respond adequately to changing market. 7. SA Post in financial distress. 9

10. Post Office of Tomorrow Strategy The repositioning of the SA Post Office comprises: Leading Logistic Service Provider for South Africa and the Region Logistic service partner to other e-commerce and logistics players, including SMMEs and informal traders nationally and internationally based on its expansive postal network. e-Commerce hub for South Africa and the Region Designated Authentication Authority that fulfils its role as a national Trust Centre in the age of digital identity and services Digital Business Hubs that serve as digital hubs for communities Grow Government business 10

11. Post Office of Tomorrow Strategic Pillars Strategic Outcomes Post Office of Tomorrow Authentication Authority & Trust Centre Logistics Centre Logistics Partnerships Digital eCommerce Business Hubs Building Capacity & Capability Modernisation & Digitalisation Strategic Partnerships SA Post Office Employees 11

12. National Postal Network remains a Strategic Advantage Total Branches: > 1 400 Street Delivery = 12m households = National Address Database SASSA Cash Paypoints = 90 000 Beneficiaries Parcel Volumes = ~ 800 000 (Excludes CN22 items) BDM DTT Decoder Distribution = 22 Warehouses (20 817m2) Third Party Payments = R6bn (Cash processed over the counter) Map not to scale 12

13. KPI Performance Overview Q4 2022/23 Q4 2022/23 Performance No. Corporate Key Performance Indicator (KPI) Annual Target Q4 Target Actual Variance % Achieved Attain net profit / (loss) position as per the 1.1 (R1.384bn) (R1.384bn) (R2 056 281) (R671 931) 149% Corporate Plan 2022/23 -2024/25 Consolidation of courier and parcel business Roll out & Implement the Roll out & Implement the Consolidated Consolidated Plan deliverables rolled 2.1 - 100% into unified platform Consolidated Plan/deliverables Plan/deliverables out and implemented Pilot Implementation Pilot Implementation (achievement Pilot Implementation (achievement of Pilot Implementation partially (achievement of project 2.2 Network of warehouses of project plan deliverables for pilot project plan deliverables for pilot of 50% completed plan deliverables for pilot of solution) solution) of solution) Implementation & Achievement of Implementation & Achievement of the Establishment of Logistics Alliance Implementation & Achievement of the 3.1 the Logistics Alliance Plan Logistics Alliance Plan deliverables - 100% (international & domestic) Logistics Alliance Plan deliverables deliverables achieved Establish eCommerce mall to support SMME eMall / eCommerce services not Launch eMall / 4.1 Launch eMall / eCommerce services Launch eMall / eCommerce services 0% launched development eCommerce services Compliance processes & remedial Compliance processes & Compliance processes & remedial Trust Centre establishment Accredited Trust centre process 5.1 0% actions remedial actions actions not implemented 6.1 Establishment of Digital Business Hubs 100% 100% 55% (45%) 55% 7.1 Achieve the regulated mail delivery standard 92% 92% 59.76% (32.24%) 64.96% Achieve domestic and international courier 7.2 92% 92% 25.7% Domestic 20.5% EMS Not verifiable - delivery standard Resolution of customer complaints recorded at 7.3 100% 100% 79% (21%) 79% the call centre within 7 days Maintain system uptime at online Post Office 8.1 98% 98% 97.58% (0.42%) 99.57% branches Implementation of critical modernisation and 8.2 100% 100% 42% (58%) 42% digitalisation programmes 75% of the Category-A audit findings 15% of the Category-A audit findings 9.1 20% Improve the Audit Outcome Unqualified audit opinion (60%) resolved 13 resolved 2 TOTAL 13 11 15%

14. Annual Performance Plan FY2023/24 Quarterly Targets No. Corporate Key Performance Indicators Annual target 2023/24 Q1 Q2 Q3 Q4 1. Financial Sustainability Attain net profit / (loss) position as per the Corporate Plan 2023/24 - 2025/26 (R2.070bn) (R610m) (R1.112bn) (R1.595bn) (R2.070bn) 1.1 2. Logistics Centre Growth of 16% in parcel revenue from 2022/23FY Generate R1m warehousing revenue Growth of 4% in parcel revenue from 2022/23FY Generate R250k warehousing revenue Growth of 8% in parcel revenue from 2022/23FY Generate R500k warehousing revenue Growth of 12% in parcel revenue from 2022/23FY Generate R750k warehousing revenue Growth of 16% in parcel revenue from 2022/23FY Generate R1m warehousing revenue Growth in Logistics revenue 2.1 Network of Warehouses 2.2 3. Logistics Partnerships 12 Logistics IAAS clients contracted 3 Logistics IAAS clients contracted 6 Logistics IAAS clients contracted 9 Logistics IAAS clients contracted 12 Logistics IAAS clients contracted Logistics Alliance (international & domestic) 3.1 4. eCommerce Launch eMall / eCommerce services (100%) Launch eMall / eCommerce services (100%) Establish eCommerce mall to support SMME development 25% 50% 75% 4.1 5. Authentication Authority / Trust Centre Accredited Trust Centre (100%) Accredited Trust Centre (100%) Trust Centre establishment 25% 50% 75% 5.1 6. Digital Business Hubs Implementation of the Digital Business Hub to 40% of identified sites Establishment of Digital Business Hubs - 10% 30% 100% 6.1 7. Building Capacity & Capability Achieve the regulated mail delivery standard 92% 92% 92% 92% 92% 7.1 Achieve standard (>1kg) Resolution of customer complaints recorded at the call centre within 7 days domestic and international courier delivery 90% 70% 75% 80% 90% 7.2 100% 100% 100% 100% 100% 7.3 14

15. Annual Performance Plan FY2023/24 Quarterly Targets No. Corporate Key Performance Indicators Annual target 2023/24 Q1 Q2 Q3 Q4 8. Digitalisation & Modernisation Maintain system uptime at online Post Office branches 98% 98% 98% 98% 98% 8.1 Implementation of critical modernisation and digitalisation programmes to 30% of identified sites Implementation of critical modernisation and digitalisation programmes - 10% 30% 100% 8.2 9. Strategic Partnerships Appoint and conclude Strategic Partnership agreements with 10 supplier/s Appoint and conclude Strategic Partnership agreements with 5 supplier/s Appoint and conclude Strategic Partnership agreements with 5 supplier/s Develop and approve Strategic Partnership Framework Conclude procurement process (RFP/RFI/LBD) to appoint supplier/s Establishment of Strategic Partnerships 9.1 10. Corporate Governance Implement tracking process to monitor resolution of AG finding Implement tracking process to monitor resolution of AG findings 50% of the Category-A audit findings resolved 75% of the Category-A audit findings resolved Improve the Audit Outcome Audit opinion 10.1 Regular Monitoring and Reporting on the SA Post Office Turnaround Strategy Monthly Meetings Monthly Meetings Monthly Meetings Monthly Meetings Monthly Meetings 10.2 15

16. Q & A THANK YOU 16