Important South African state-owned company fighting for survival

The South African Post Office (SAPO) is fighting for survival, and it is now hoping for a miracle to stem its decline and help it survive.

Over the past few years, the Post Office has faced severe financial difficulties. Revenue plummeted, significant losses were incurred, and the company became technically insolvent.

The problems at the state-owned institution are clearly illustrated by examining its balance sheet over the past five years.

The institution’s equity began to decline in 2019, following the departure of former Chief Executive Mark Barnes from the company. By 2021, the Post Office was technically insolvent.

It reported a negative net asset value (equity) of R2 billion in 2021 and saw this figure deteriorate to a negative net asset value of R7.9 billion in 2023.

In simple terms, this means that if the SAPO were able to sell its assets at their audited book values, it would fall short of covering all its debt by R7.9 billion.

The situation deteriorated to the point that it was placed under business rescue in July 2023 to turn it around.

The Post Office’s business rescue practitioners (BRPs) reached an agreement with its creditors to accept 12 cents for every rand of debt owed.

This essentially meant that the Post Office was able to write off 88% of its debt, resulting in R7.4 billion in debt relief to the organisation.

However, this was only part of the solution. The government approved another R3.8 billion bailout for the Post Office, funded by taxpayers.

This R3.8 billion bailout would be allocated to statutory creditors who would receive 18 cents for every rand of debt owed to them. 

This resulted in the SA Post Office reporting a positive net asset value for the first time since 2021.

The chart below shows the South African Post Office’s equity over the last few years.

Post Office revenue and profit

The Post Office’s revenue declined from R5.44 billion in 2019, when Barnes departed, to R1.65 billion in 2024.

This rapid decline in revenue is a serious problem for any organisation, indicating a struggling business in urgent need of a turnaround.

Some people celebrated the Post Office’s reported profit. However, it provided a skewed view of what was happening due to the debt write-offs.

Debt write-offs appear as income on a company’s income statement, and therefore, the Post Office reported an income line item in the income statement of R7.4 billion.

This resulted in SAPO reporting a positive net profit of R5.2 billion, rather than a net loss of R2.23 billion.

It is essential to note that this profit line item and positive equity figure were solely due to debt write-offs and had no relation to any operational improvements within the post office.

The SA Post Office recently released a corporate plan, which highlighted strategic objectives in the organisation to improve its performance.

In this report, it stated that it planned to report a R1 billion increase in its revenue. This is highly optimistic considering the trend in recent years.

In addition, the organisation stated that it plans to generate a net profit of R1.5 billion in 2029, which is even more optimistic.

The charts below display the South African Post Office’s revenue and profit/loss for recent years, along with its 2029 targets on the right.

Mark Barnes shares his views

Former Post Office chief executive Mark Barnes told eNCA that he does not believe the numbers coming from the institution.

He highlighted that since he left the enterprise in 2019, and based on the latest financials, he is looking at reconciling around R14 billion. In addition, Barnes said the Post Office’s five-year turnaround plan lacks details.

“The first nine pages of the plan do not have numbers in them. The aspects like eCommerce and digitisation are virtuous, but nothing new,” he said.

He highlighted that fierce competition will make it challenging for the Post Office to achieve its planned eCommerce and digitisation growth.

“The people in eCommerce and digitisation are not starting tomorrow. We have the best players in the world already operating in that space,” he said.

“It is curious to me how you would go from zero to R2.5 billion in a space which world-leading companies occupy.”

Barnes added that the Post Office’s plan anticipates revenue growth of 25% per year.  However, its costs are only expected to grow by 5% annually.

“I have never seen a business plan this aspirational and confident,” he said, adding that it should concern stakeholders.

He said that instead of testing the numbers based on people’s opinions, they should be based on traditional investment criteria.

The biggest test will be to approach private sector investors and ask them if they would invest in the turnaround plan. “If that test passes, then the plan is valid,” he said.

Barnes said, considering the performance to date, he can see no sense in the government providing further bailouts to the Post Office.