SAPO Financial Overview 30 November 2012

1. SA Post Office Annual Results For the year ended 31 March 2013 Presentation to Parliament Portfolio Committee SAPO Financial Overview 30 November 2012

2. Agenda • Highlights • Outlook 2013/14 • Performance Scorecard • Group Results

3. The Strategic Themes Strategic Themes Vision To be recognised among the leading providers of postal and related services in the world Mission We will enable the nation to efficiently connect with the world by distributing information, goods, financial and government services; leveraging our broad reach and embracing change, technology and innovation • Values • We have a passion for our customers and will meet their specific needs through excellent service • We aim to contribute positively to our communities and environment • We treat each other with respect, dignity, honesty and integrity • We recognise and reward individual contributions • We embrace diversity in the way we conduct business Focus on customers, supported by our employees and systems

4. Governance • Corporate Governance and Compliance • King III and Companies Act • Financial Services Regulatory Bodies • PFMA • Postbank Corporatisation • Long Term Sustainability Platform • Financial Performance • Human Resource Capacity • Service Improvement Drive • Environmental Programmes

5. The most important market trends in 2013 Parcel and Logistics Europe Source:AT Kearney LetterMailSubstitutionInternational Source:IPC2012,digitalisedeconomies Electronicsubstitution Growingmarket 8% 5% 4% 3% -3.2% -3.3% -3/-4% -3/-4% -5.4% -4% 2013e 2011 2012e 2010 2009 2009 2010 2011 2012e 2013e e-Business Growth Trends in South Africa Source:Worldwide Worx; various 2012 e-Business Growth Trends in South Africa Source: Worldwide Worx; various 2012 • This is a growing market • Actual spend of R3.3bn and projected to grow to R4.4bn in 2013/14 • High satisfaction rates amongst current online shoppers • Secure payment facilities remained fundamental to lift uptake of online shopping

6. SA Post Office in 2013 • Impact of worldwide economic slowdown continued to impact operations • Continuous decline in Letter Mail with flat Courier volumes • Labour unrest adversely impacted revenue performance • Loss of SASSA business compounded revenue decline against fixed costs • Operating costs remained a challenge – efficiency and optimisation initiatives implemented • Solid progress with Postbank corporatisation • Application for banking licence submitted on 25 September 2013 • MTEF funding allocation approved at R481m

7. Financial health Without extraordinary profits, subsidies and PostBankprofits, the SAPO results look vastly different Extraordinary profits in 2005 and 2006 Since 2007 subsidy bulk of SAPO profits SASSA • The 2005 PAT was boosted by a R495m after-tax one-off contribution from the Registrar of Pension Funds and the 2006 PAT received a kicker from a R280m after-tax pension fund asset • These profits are clearly not sustainable • If the subsidy from National Treasury is stripped out, the sustainable PAT number is reduced even further • Since 2006, this subsidy has been the largest contributor to profits

8. Net profit / loss per division • SAPO excluding Postbank is challenged with a net loss of R259 million. • CFG posted a R50 million loss and Docex a R0.8 million loss. Postbank performed strongly posting net profit of R99m

9. Subsidy removal +12.0% -1.8% +9.0% +8.6% +4.4% +3% -20% -41% -71% • The subsidy allocations declined from 2010 with the final allocation in 2013. • No subsidy allocation from the 2014 financial year. • Engagements underway with ICASA and National Treasury. Cost of service provision in under-serviced areas remains high

10. Economics of SAPO’s Universal Service Obligation (USO) • 629 post offices located in the previously under-serviced areas are marginal. • Low revenues of R73 million with operating costs of R473 million. • Operating costs are high at 74% being fixed costs for staff and property costs. • Staff employed in these post offices are 1,693. • The subsidy allocations declined from 2010 with the final allocation in 2013. • No subsidy allocation from the 2014 financial year. • Engagements underway with ICASA and National Treasury. SA Post Office continues to deliver on USO mandate despite high service costs

11. Government mandate 1,201, 263 (vs 1,195, 690 target) new addresses rolled out to afford citizens to get connected and be contacted • 50 new postal outlets (vs 50 target) to increase access to services and provide convenience • 4 mobile post offices for low-density areas 906 branches with lowered counters and 1 461 branches with ramps for alternatively-abled individuals Mail: 92.3% achieved (vs 95%) Queue waiting time: 96% of retail outlets complied to target of 7minutes Logistics: 96% achieved (vs 98%) Reporting to ICASA done as per set timelines • Cost of USO – R473m for 2013 • Operational funding – R73m • Subsidy funding – R45.6m • Shortfall – R354.4m SA Post Office continues to deliver on its social mandate

12. SA Post Office footprint Regulatory Target 1: 10 000 Within a radius of 5km Limpopo 1: 17 104 Actual Overall 1: 20 748 Gauteng 1: 32 639 Northern Cape 1: 8 185 Mpumalanga 1: 20 932 North-West 1: 12 810 KZN 1: 30 377 Free State 1: 16 948 Eastern Cape 1: 17 501 Western Cape 1: 18 027 Increased focus on multi-channel strategy to increase access to services

13. Retail infrastructure deployment Transportable Mobile Mgwali, Eastern Cape SA Post Office has continued to be responsive to demands of licence agreement

14. Customer, employee and social investments • E-Rural Access via digital solutions has been rolled out to 24,000 people in 3 villages in northern Cape and Limpopo • Tree-planting benefited 15,000 learners vs a target of 9,000 • Reduction of HIV/Aids and poverty through social sustainability programmes reached 90,000 vs target of 90,000 • 100% of new approved Employee Relations (ER) • 70% of total staff participation in wellness programme • Employee training: SA Post Office has spent R38.3m on various aspects of training SA Post Office continues to fulfil its corporate citizenship responsibilities

15. Environmental Plans • Carbon emissions: criteria and targets set • Carbon off-set at 4.5% emissions, exceeding target by 1.5% • Paper recycling • 618 tons of waste paper recycles against target of 511 tons • 230 tons of paper used versus 537 tons used in previous year • Electricity consumption reduced by 5.8% versus target of 3% • Continued participation in the Carbon Disclosure Project Environmental sustainability is at the core of business operations

16. Agenda • Highlights • Outlook 2013/14 • Performance Scorecard • Group Results

17. Outlook 2013/14

18. Agenda • Highlights • Outlook 2013/14 • Performance Scorecard • Group Results

19. Summary of performance 9 KPI’s within the not-achieved performed above 90% 6 KPI’s within the not-achieved performed above 95%

20. Performance results: high-level (1/2)

21. Performance results: high-level (2/2)

22. Priorities in 2013/14 1 2 3 4 Ensure financial sustainability Focus on Postbank corporatisation Investment in human capital Relevancy in the economy • Deliver on the STP (Strategic turnaround plan). • Review the extent of our future Universal Service Obligation costs following the phasing out of the related Government subsidy • Licence application. • Enablement for SAPO to comply with the controlling company provisions of the Banks Act. • Strengthening of capacity while improving and stabilizing internal relations • Continue to remain a pillar and relevant component and player in the South African economy

23. Agenda • Highlights • Outlook 2013/14 • Performance Scorecard • Group Results

24. Financial performance Group posted a net loss of R179m on the back of declining revenue • Revenue declined by 0.1% from the prior year due to impacts of strike action and loss of SASSA. • Strong performance in depositor’s book with growth of 5.5% from prior year.

25. Revenue and expense trends -3.0% +7.1% +7.1% +3.6% +0.4% +0.4% -1.8% +9.0% +3.6% +2.7% +2.7% -3.0% +12.0% +8.6% +4.4% Expenses Revenue • Revenue performance peaked in 2012 at R6.1 billion. • Revenue growth in 2009 was at a high of 7.1% then the pace slowed. • Revenue performance in 2013 declined by 3% from 2012, matching performance in 2011 • Strike action during the first and last quarters, as well as the loss of SASSA contributed to low revenues. • Expenses peaked in 2013 at R6.3 billion, outpacing revenue. • Expense growth in 2009 was at a high of 12.0%. • Expenses in 2013 increased by 4.4% from 2012 due to the positive impact of the cost optimisation program. • High focus on cost optimisation and reduction to match low revenues.

26. Group Revenue • Postal revenue contributes 71% of total revenue, increasing by 1% from prior year. • Courier revenue remains flat at 12% contribution. • Postbank revenue remains flat at 10% contribution. • Retail revenue decreased by 1% to 7% contribution.

27. Group Expenses • Employee costs contributes 57% of total expenses, increasing by 1% from prior year. • Transport costs contributes 8% of total expenses, increasing by 1% from prior year. • Lease rental costs remains flat at 7% contribution.

28. Group – Statement of Financial position • Property, plant and equipment decreased due to depreciation costs of R135m, disposals and transfers of R7m and additions of R111m. • Decrease in current assets resulted from a decline in of short term investments to fund operations. • Non-current liabilities includes the PRMA which is sufficiently matched with assets held in financial instruments. • Current liabilities includes the TBVC loan of R271m to be converted to equity. • Postbank depositors funds of R4.5bn included in current liabilities is fully matched with cash and investments included in the current assets. • Current ratio of 1.25:1 indicating strong liquidity. • Total assets of R10.3 billion declined by 1% from the prior year.

29. Financial positionPost Retirement Medical Position at Year End • Financial assets (Bonds & Equities and money market assets) of R1.47 billion are fair valued as per IFRS requirements. • Liability of R1.2 billion - actuarially valued at year end. • Net asset position of R262 million has improved by 60% from the prior year. • PRMA liability is fully matched with sufficient assets.

30. Group – Statement of Comprehensive income • Revenue performed poorly with a decline of 3% from the prior year contributed by the revenue loss during the labour strike action during quarter 1 and 4 and the loss of the SASSA grant tender. • Expenses contained at 4% growth due to prudent cost management and the introduction of the cost optimisation program. • The adverse movement in the yield curve as well as the lower investment capital base resulted in the decline in finance income. • Strong performance in the PRMA assets contributed to the increase in fair value adjustments. • Tax credit due to the assessed loss position. • R179m net loss posted due to tough trading conditions and depressed revenues.

31. SAPO Group – Statement of Cash flows • Operating activities utilized cash of R371m due to the poor revenue performance to match operating expenditure and the decline in the subsidy to fund USO post offices. • Investing activities includes R111m invested in property, plant and equipment and R48m invested in intangible assets. • Financing activities includes an amount of R234 for the increase in Postbank depositor’s funds. • Net cash movement of R402k for the year. • SAPO still has a strong cash position of R3.3 billion. • Total cash and cash equivalents of R3.3 billion remained flat from the prior year.

32. SAPO Group – Cash flow trends Operations consume cash to fund the loss whilst Postbank depositors funds remain invested.

33. Irregular and Fruitless & Wasteful expenditure • SAPO has formulated a Financial Misconduct Policy which creates a frame work to enable management of financial misconduct activities such as fruitless & wasteful expenditure and irregular expenditure. • A Financial Misconduct review committee has been established and mandated through the financial misconduct policy to regulate monitor and report on all proven fruitless, wasteful and irregular expenditure and institute consequence management. • Irregular expenditure of R428m. • Relates to prior years. • Awaiting condonation. • Fruitless & Wasteful expenditure of R794k. • R148k – 3G cards • R614k – Penalties and interest. • R32k – Rent paid without occupation.

34. Audit Opinion – 2012/2013 Clean Audit Opinion • Emphasis of matter ( does not modify opinion): • Going concern – the withdrawal of the Government subsidy and additional costs to fund the Postbank corporatization will further add pressure on the performance of the SA Post Office. • Management has already had engagements with the Department of Communications, ICASA and National Treasury to revisit the costs to fund the Universal Service Obligations and the additional funding requirements for the Postbank corporatisation.

35. Thank you