Posted on March 20, 2017.
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.
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.
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.
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”.
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