SAPO Presentation to Portfolio Committee Annual Performance Plan and Budgets 08 July 2014

1. SAPO Presentation to Portfolio Committee Annual Performance Plan and Budgets 08 July 2014

2. Agenda 1. SAPO strategic focus • SAPO strategic focus • Key Performance Indicators • Budgets for 2014/15 • Strategic Turnaround Plan • Postbank Corporatisation • Way forward

3. SAPO Vision

4. Strategic Goals Strategic Challenges • Financial sustainability due to declining revenue, loss of subsidy, loss of revenue streams including social grants and the large fixed cost base (staff, property and transport etc.). • Feasibility of funding mechanisms to support investments required to operationalise the strategy, including the Postbank corporatisation. • Supply Chain Management challenges due to complex and onerous regulatory compliance requirements. • IT integrated infrastructure and capability challenges in supporting secure, seamless and efficient service delivery across customer and employee touch points.

5. SAPO’s Strategic Themes • The SA Post Office faces several challenges that impact the business’s ability to deliver against its mandate and license requirements. • These include, negative customer perception due to labour instability uncertain financial sustainability due to declining revenues, loss of USO subsidy and a large fixed cost base. • These challenges present the organisation with opportunities to exploit new growth alternatives. • The 2014/15 – 2016/17 Strategic Corporate Plan of the SA Post Office is aimed at addressing these business challenges facing the organisation and mapping out a new path that will see the organisation reposition itself, into a profitable, self-sustaining, efficient and customer centric organisation.

6. SAPO Licence Requirements • 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. • The USO mandates the SA Post Office to provide services such as address provision, basic letter and accessible mail delivery and collection services to all under serviced areas. • USO branch costs R400 million per annum. • Roll out of 50 Points of Presence R70 million per annum. Licence issued in August 2001

7. SAPO Key Focus Areas The corporate plan presents the impact and response plan of our key focus areas, while maintaining a focus on efficient delivery and good corporate governance Strategic direction Universal and affordable provision of postal and other related services Key Focus Areas Property Valuation Balance Sheet Structure Funding Solutions Capital Adequacy Implementation of Turnaround Plan PostBank Corporatisation Cost Containment IT Refresh Customer Focus Performance Management Key Enablers Revenue Enhancement Retail Operations Project Execution Talent Management

8. Local Trends impact on SAPO

9. SAPO Contribution to the NDP SAPO will be able to contribute positively to the National Development Plan.

10. Agenda • SAPO strategic focus • Key Performance Indicators • Budgets for 2014/15 • Strategic Turnaround Plan • Postbank Corporatisation • Way forward 2. Key Performance Indicators

11. Key Performance Indicators – 1/5 List of the primary Key Performance Indicators (KPIs). These represent a subset of a broader list of KPIs that support each business unit and support service.

12. Key Performance Indicators – 2/5 List of the primary Key Performance Indicators (KPIs). These represent a subset of a broader list of KPIs that support each business unit and support service. Licence targets being reviewed / negotiated with Regulator.

13. Key Performance Indicators – 3/5 List of the primary Key Performance Indicators (KPIs). These represent a subset of a broader list of KPIs that support each business unit and support service.

14. Key Performance Indicators – 4/5 List of the primary Key Performance Indicators (KPIs). These represent a subset of a broader list of KPIs that support each business unit and support service.

15. Key Performance Indicators – 5/5 List of the primary Key Performance Indicators (KPIs). These represent a subset of a broader list of KPIs that support each business unit and support service.

16. Agenda • SAPO strategic focus • Key Performance Indicators • Budgets for 2014/15 • Strategic Turnaround Plan • Postbank Corporatisation • Way forward 3. Budgets for 2014/15

17. SAPO Group Income Statement • The difficult trading conditions are expected to continue in the 2014/15 financial year and the focus is on revenue growth and prudent cost management. • The budgeted net loss for the 2014/15 financial year is R249 million. • The projected net loss decreases to R200 million for the 2015/16 financial year. • The projected net loss decreases further to R17 million for the 2016/17 financial. • The revenue and cost initiatives are crucial to support the reduction in the net loss position.

18. Financial Outlook Revision • The fourth quarter for 2013/14 FY revenue performance has been disappointing. • The risk for 2015 to 2017 is on the revenue performance. • A revision of the revenue budgeted will result in a net loss of R593 million for 2014/15 FY. • However the first quarter of 2014/15 FY revenue performance has been weak and if the trend continues the net loss position could worsen to R773 million.

19. SA Group Balance Sheet • SAPO Group has total assets of R10.39 billion for the year ending 31 March 2014. • The related Postbank depositor’s book and related assets are included. • The SAPO Group is solvent and liquid. • SAPO has to use the strength of it’s balance sheet to fund capital spending on key programs.

20. SA Group Cash Flow • SAPO Group has total cash and equivalents of R3.13 billion for the year ending 31 March 2014. • The related Postbank depositor’s funds are matched with the cash and equivalents and other financial instruments. • The deficit from the operating activities is a result of declining revenues. • The high fixed cost structure of SAPO puts pressure on the cash flow.

21. Borrowing/Funding Requirements • Due to the removal of the subsidy to fund the universal service obligations and the increase investments in our capital programs; borrowing have to be considered. • The capital programs for the next three years is R1,5 billion excluding Postbank. • The Postbank corporatization requires R1 billion of which R481 million funding has been provided by National Treasury and the difference has to be funded by SAPO. • We are looking into alternative funding mechanisms to meet our funding requirements. • The SAPO capital investment program is crucial to enable the turnaround plan.

22. Agenda • SAPO strategic focus • Key Performance Indicators • Budgets for 2014/15 • Strategic Turnaround Plan • Postbank Corporatisation • Way forward 4. Strategic Turnaround Plan

23. SAPO Turnaround Programme • Wave 1:Addressing short term capability requirements within the Group required to improve the speed of decision making, review the project execution capability, address issues in the corporate culture and to create the internal capacity to manage and control future business transformation activities. • Wave 2: Focusing on revenue and cost management, driving business efficiency and reliability, and improving the branding and market positioning of the Group as a trusted and efficient business partner. • Wave 3: Developing and implementing the unique strategic and tactical plans for the SA Post Office Business Units to drive innovation, diversification and growth in a responsible and profitable manner, in line with the Shareholder Compact.

24. SAPO Proposed Journey 1 3 2

25. Agenda • SAPO strategic focus • Key Performance Indicators • Budgets for 2014/15 • Strategic Turnaround Plan • Postbank Corporatisation • Way forward 5. Postbank Corporatisation

26. Background – Banking License Application Process √ √ √ Submission of the Application for authorization to establish a bank (section 12) Banking license application preparation Banking License Application finalisation Authorization to proceed granted (section 13) Incorporate the Postbank company 1 2 5 √ Application for Registrar’s approval to form the Postbank company (section 15) Identification of the Banking License Application signatory Application for registration as a bank (section 16) 6 3 Application for SAPO to be registered as a banks controlling Company (section 43) Approval to establish the company 4 7 The Application to Establish a Bank was submitted by Postbank on the 25th of September 2013. This triggers a 15 to 18 month process to meet Banks Act and other regulatory requirements Registration of the new bank (section 17) 8 January – June 2012 September 2013 October 2013 – June 2014* July 2014 – June 2015* * Indicative dates based on urgency in obtaining the banking license

27. Progress Update – Banking License Application The SARB is still evaluating the application submitted on the 25th of September 2013 and there have been several engagements with them where additional information was shared. They have indicated that they require resolution on …

28. Agenda • SAPO strategic focus • Key Performance Indicators • Budgets for 2014/15 • Strategic Turnaround Plan • Postbank Corporatisation • Way forward 6. Way forward

29. Way Forward • The implementation of the strategy turnaround plan will ensure the sustainability of SAPO. • SAPO funding options for the strategic enablement of USO, service delivery, access to services and financial inclusion. • External long term loans to fund capex programs. • Continue to efficiently connect Government to Citizens. • New business development and revenue growth including inter-governmental business.