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Barnes prepares SAPO for SASSA

Modernising SAPO a culture change

….. sent to clients 27 February…. Stage by stage, Mark Barnes, Group Chief Executive Officer of South African Post Office (SAPO), appears to be reforming cultures and cleaning out “ten years of decay”, as he put it to the Portfolio Committee on Telecommunications and Postal Services.

“The years 2017 and 2018 could be our years”, he said, “especially if the Cabinet smiles on a SASSA deal. We have the reserves to do this thing.”

Introduced by Minister Siyabonga Cwele, Minister of Telecommunications and Postal Services, on the utility’s presentation on its corporate progress report and prospects for the third quarter, CEO Mark Barnes claimed that SAPO is becoming profitable; is well capitalised and the long-awaited corporatisation process is back on track with many of its labour problems sorted out.

Up and away

When introducing him to new members of the committee, the Minister said that for the last few years SAPO had been facing many challenges, but CEO Barnes, with a new Group Chief Financial Officer, “had put SAPO on the road to recovery”.

Because of its struggles with old systems of the past, digging it out of financial mismanagement and the need to pay urgently its creditors, SAPO was given a cash injection from the State.   The Minister said this was a good decision.  In 2017 SAPO was starting to focus on new businesses, with part of the strategic planning focused on the internet. One of the key goals was corporatisation, the Minister concluded.

New world

Mark Barnes described the position when he took over the reins to save the utility from “self-inflicted suicide” was far worse than was originally thought. He described a process whereby he had to send specialised “swat” teams into each major sorting complex starting with the large Johannesburg complex and eventually to other major towns and cities.

It took months, he said, to “clean up the mess and try to establish order out of chaos”, a good deal of which had been caused by the extended postal strike but mainly poor systems and management disinterest.

The delays caused by basic simple clean-up housekeeping held the initial  financial assessment back whilst the physical clean-up operations, after years of neglect were undertaken, he said.   The “swat” teams eventually established what SAPO assets had and where they were located.

First audit

He said, “I hope this is the last time I refer to ‘the past’ but we are having a mock audit in late January 2017 to establish remaining areas of wasteful expenditure, something that was not even thinkable of last year.”   He said, “The main issue is that SAPO has established an air of confidence and that confidence has reached a point where the rest of the journey becomes a worthwhile investment.”

In answer to criticism from Shadow Minister Cameron MacKenzie (DA) who said that “this SAPO report is being prefaced by the same remarks as before” and who added that it “was the same story of promises made last year but re-hashed”, CEO Barnes made a rebuttal. He retorted that “It is a mistake to take just a superficial look from the outside. Internal organization is being achieved and we haven’t had time to wave flags.”  He gave a long list of what had been achieved.

Heavyweights in saving banking

On savings, Barnes noted that SAPO serviced some 6 million customers with 2,486 outlets and reached out where no established banking services existed. “Compliance is now in place on banking procedures with the SA Reserve Bank  and we are seeking approval to establish the promised SA Postbank Limited with CIPC,  applications being submitted before July 1 2017.”

Postbank’s depositor funds were now standing at R4.9bn, having increased by 128m. Postbank itself had invested R7.3bn, he said.  Payables, Barnes also said, were reduced by R531m and the group met liquidity and solvency standards. The Post Office is backed by a R4.2bn Treasury guarantee.

 An overdraft of R270m had been repaid and R17m had been realized from the sale of pointless property holdings. Rental from existing tenants had increased and a more suitable and less expensive head office was now being targeted. He said he was always trying to get officials out of their old mindset about SAPO and to realize they were in business.

Major cut backs

On the labour front, there were 18,000 less staff this year, Barnes said, “brought about by a process of natural attrition” and it was hoped to transfer a large portion of a “hopelessly overstaffed head office” to operational duties.

If operational revenue failed to provide the necessary improved results in the short term, he said, then a retrenchment programme may have to be negotiated. “It will be tough but that’s how it is. The unions are aware of the long-term planning processes that have been undertaken and the alternatives understood”, he said.

SASSA a target

CEO Barnes expanded on the possibility of SAPO handling all payments of SASSA grants in the light of the volumes of “points of presence which amounted”, he repeated, “to approximately 5,000 counter points  Postbank is also to make an application to government to both handle all government mail business and a submission to SASSA in the very near future as current hiatus evolves.

He said that they had been talking to National Treasury on the savings to the national fiscus that could be gained. It was agreed that it would take much to achieve this possibility but was highly “do-able”.

He said Postbank had sufficient funds of its own to capitalize such a venture with IT networks and training should the security of such a contract be awarded. He commented that ordinary mail had dropped to 50% of original volumes due to the advent of electronic mail.

“This sea change in the way that the world now communicates had found the original management of SAPO completely at a loss on what to do”, he said, “and the decision had  apparently been to do nothing.”

Diversification from snail mail

The plan was now to diversify into courier services probably with a partner and to focus on selling Postbank services at package rates to corporate business.  

So far, four offer attempts had been made to “buy in” as partners, CEO Barnes said, all four of which had been found totally unacceptable.  There had been an obvious attempt in all cases just to acquire Postbank’s extensive national footprint as if a possible merger of interests was a fire sale, in each case contenders having given no consideration to the idea of what “was in it” as a revenue source to Postbank.   All propositions were  rejected out of hand.

Barnes told Parliamentarians, with the Minister still present at the portfolio committee meeting, that e-commerce in the form of public hubs or malls to the SADC area as well as locally will become a major revenue base for SAPO especially in lower income groups.

Generally, on all fronts, 22 significant projects had been approved, CEO Barnes said, with a further 9 in the project stage; 4 projects were in the procurement stage and others in testing and feasibility stages.

Transport more agile

As far as the transport book was concerned, SAPO  had decreased its annual expenditure   by 30% by exercising rationality and purchasing new vehicles cutting down on maintenance and repairs to old vehicles, Savings were also achieved by boosting efficiency with “a more agile logistics mind-set.”

The overall corporate plan forecast is mixed, Barnes said, and whilst revenue has declined significantly on a net basis, which was expected and planned for whilst SAPO re-grouped and cut out unprofitable exercises, it will still meet its corporate plan targets and “looked headed to be back into the black by a small amount in 2016/7”, said Barnes.

When it came to the balance sheet, he remarked SAPO still has an extremely large amount of debt which needs to be paid. However, it was important to note that the entity was now solvent and could pay. It also had liquidity in cash of its own available for development.

The big plan

He told the Committee that the key to SAPO’s future was the corporatisation of the Post Bank, with approval to establish the bank being granted by the SA Reserve Bank in July 2016. Preparations were currently underway to submit for registration in February 2017 as a South African Postbank Limited entity with CIPC.

The Postbank staff, operations and balance sheet will transfer from the Postbank division to the new entity after the incorporation process. The Postbank will allow for broader financial inclusion for all South Africans and it has the capacity to do this, he said.

SAPO, he said, had a relatively sophisticated E-commerce infrastructure with a large footprint which allowed it to facilitate speedy connections and deliveries. This, combined with the ports, vehicles and the access SAPO has at airports could make SAPO the E-commerce hub for Africa.

Ms M Shinn (DA) asked whether anything had been done address the security of IT systems and whether SAPO had the money to recruit and retain cyber-security skills. Cameron MacKenzie asked for more information on the SASSA bid.

Biometrics needed

Outsourcing was now underway and tenders being called for on biometrics, CEO Barnes said, which was the only route to stop fraud, duplicated payments to persons claiming or withdrawing twice under different names; to follow world trends and to get SAPO into the future to serve the nation as it should. Such was necessary if they were to handle the SASSA account which would be a great achievement and was the correct thing to do.

He said that partnerships in the IT sector were very likely to be sought as well as outsourcing, as SAPO, given its size and history, was not going to be able to keep up with the latest developments in the IT sector, nor would SAPO wish to be that expert, he said. Their focus was to get into courier work and banking, not IT. So, partnerships were going to be needed on the right terms.
He said that there had been half-expected problems with the data centre and disaster recovery this year as new equipment was being added to old. Repairs had been undertaken and there were negotiations underway to outsource the work of the data centre.

CEO Barnes said motor vehicles licence renewal processing was up by about R7m transactions in the year but this figure was coming from a very low base.

Money, money, money

In response to the question of when was SAPO likely to return to profitability, he re-confirmed that SAPO expects to start trading profitably during the 2018 financial year.

On complaints from the DA that SAPO still needed help from Treasury, Barnes explained that it was the nature of a turnaround situation not use cash in hand for the wrong things. Working money was one thing but depositor’s funds and reserves were a completely different issue, he said, and these were the security needed for developmental issues to get SAPO off the starting block.

He said whilst corporates have replaced SAPO with other service providers, they are a lot more expensive to hire. “SAPO is a low-cost producer and the only reason people turned to the alternatives is because SAPO became a dysfunctional low cost producer.”
“This is changing”, he said, “and we have to change the corporate customer mindset to show that we can do things again”.
Previous articles on category subject

SAPO – one big bungle at taxpayer’s cost – ParlyReportSA

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SAPO – one big bungle at taxpayer’s cost

Total management failure…..

The horror story of the uncontrolled mess in the South African Post Office (SAPO) and how this state entity,
without forSAPOmal management control to speak of and facing imminent danger of structural collapse, was reported upon in Parliament recently

The route to near bankruptcy was recounted to the Standing Committee on Public Accounts (SCOPA) by current SAPO board chairperson, Mr Simo Lushaba, who had been summoned to explain the crisis at SAPO, accompanied by the new CEO of the Post Office, recently appointed Mark Barnes.  Comments were added by Minister of Posts and Telecommunications, Siyabonga Cwele.

Previously Mark Barnes had tried to respond to the call by SCOPA to report but the meeting had to be abandoned, incurring the ire of the Committee, since it is the chairman of the board of the state entity in question, in this case Simo Lushaba, who can only respond to a SCOPA call as the nominated person in terms of parliamentary procedure was unavailable.

Rulings are clear on this, as is the Public Finance Management Act (PMFA) in the case of SOEs.

Poor management

Immediately, it became evident in the meeting that whilst the worst period of poor management in SAPO had occurred in the last two years culminating in four strikes in 2015, although not necessarily connected issues, the common factor was a collapsing management hierarchy over a number of years beforehand.

Senior officials, it appears, throughout the organisation were totally out of touch with employees and no overarchingSimo Lushaba managerial directives were passed according to any form of plan. The disastrous current situation was a culmination of “systemic mismanagement over a long period of time”, said Lushaba.

The SAPO board chairperson said SAPO did not have the cash available to continue with legal disciplinary proceedings against the former CEO and CFO, both persons having received a total of R5.7m in salaries whilst suspended for a year, during which it was alleged that they were responsible for the chaos when in control of SAPO.

The SAPO board had decided to cut its losses and halt the legal proceedings with regard to the legal case. “It was not an ideal outcome but unfortunately it was just taking too long, plus we did not have the money to follow the case through”, said Lushaba.

Ship with no rudder

When asked for sum up comments by MPs of the SCOPA committee towards the end of the meeting, new CEO Barnes said that SAPO, as an entity, was currently suffering a loss of about R125m a month. He told sapo queuesparliamentarians that twenty-five post offices had been closed down, some of them because of rent arrears.

Despite a further allocation of R650m in terms of the last Budget allocation, “this came nowhere near to eliminating the mountain of debt which amounted to more than R800m by March 2016”, he said.

With a balance sheet such as this, he said, “a government guarantee was no longer sufficient to persuade banks to lend SAPO money, despite Treasury agreeing to extend on its repayment loan date.” An immediate cash injection was the only route, he said, and that was on its way as agreed to by the Minister of Finance and Treasury. “This means that SAPO can pay its some of its creditors within the next few days”, he said.

Compromising with creditors

“The very existence of SAPO under threat on a daily basis is evident as creditors understandably want simple proof of future income which is extraordinary for a state entity”, Barnes said.

“Every month the delay in paying creditors has made it increasingly difficult to continue operations and negotiate commercial contracts on favourable terms since there is a total lack of trust on the part of suppliers.”

CEO Barnes said there was now a plan in place to turn around the organisation, with an estimated loss of R1.5bnsapo3 expected for the current year, adding to the R1.2bn loss for R2014/5. By the end of 2017/8 there could be a small gain reflected on the balance sheets. But the plan still hangs in the balance awaiting decisions from banks, he said at the time.

He also said he was “disturbed by the fact the banking sector did not automatically accept government guarantees”. This fact was slowing the downturn around and the plan was losing momentum. He suggested that the state should take another view on their relationships with the banks and enormous sums of cash they receive from the state to pay public servants.

SAPO was already three months behind in its strategy to achieve future successful financial outcomes whilst the banks made up their minds and Treasury despatched the cash on a painfully slow basis, he noted.

Oligarchy over

He stated that never again should SAPO ever be “a one man one show business.” It could indeed be rescued, he said, and made profitable in the next three years but no sooner and it could become a valuable asset in five years.”

This could be achieved by doing vigorous work to identify every source of loss, he said. The memory of the postal strike was also very evident with all speakers, still not resolved in entirety.

Mark Barnes“The Public Finance Management Act is the challenge”, CEO Barnes noted. “The competitors of SAPO make decisions in three to six minutes whilst SAPO made decisions in three to six months.” It was clear he included Treasury in this remark.

He stressed that PostBank was unaffected by SAPO’s trading deficit since it was an entirely separate enterprise holding some R7.3bn in cash in the form of savings. In this area lay the future, CEO Barnes said, adding that SAPO had to turn from a postal operation to a faster and cheaper package/courier service for the citizens of South Africa.

Minister weighs in

Minister Cwele added to this comment when he noted that reckless trading decisions had been made when globally mail volumes were going down. There were far too many post offices in unprofitable areas paying enormous rentals to developers all resulting from the days when it was “the hype to have a post office in every major shopping centre.” This was bad management and bad thinking at the time, the Minister said.

cweleHe pointed out that Parliament had passed the Post Bank Act and the PostBank could eventually work as a limited savings banker and bank operator in post offices, especially in unreachable areas where the private sector did not wish to venture, if not in small towns as well.

The Minister said that at some stage strategic decisions needed to be taken on such issues and also such matters as government officials being paid through PostBank. The Minister echoed the view that post offices should become competitive, low cost, courier service providers as well as handling smaller volumes of mail now being experienced and be run individually on a profit basis.

Where the money is

A recent survey had been conducted of post offices running at a loss and those most profitable, the Minister said. The most profitable were in the old Transkei area in the Eastern Cape and the one post office running at the biggest loss was the Sandton Post Office, he concluded.

Chairman Lushaba explained that the service called PostBank was a division of the post office. There was a risk osapo7f talking of the organization as a whole. For example, the disaster recovery IT programme of PostBank had worked well but the IT problems of post offices itself were still causing high risk. For example, he said, the entire post office backup system was on its own system and there was no separate system to switch to. He wondered how such elementary mistakes had been made.

Bad record

During the debate on a litany of irresponsible financial decisions, absent financial systems and even the lack of a working asset register, it emerged after a full day of reporting and cross questioning by MPs that a call had to besapo5 made for upgrading of IT and general management skills, Treasury officials present took a dim view on the future unless this was done, they said.   The question of basic training was also seen as an impediment as was the lack of broadband facilities to improve the IT position.

SCOPA demanded, as a committee, that the previous CFO and CEO be brought to book since, besides matters involving the rejection of the auditor general to undertake an audit; the inability to produce a balance sheet and ignorance of the Public Finance Management Act in all matters of procurement, criminal charges should be investigated as a matter of course and with speed.

Previous articles on category subject

Lack of skills hampering broadband rollout – ParlyReportSA

The big SA cabinet crunch – ParlyReportSA

Broadband allocation on its way – ParlyReportSA

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