The South African Post Office (SAPO) swung from a strong balance sheet to hopelessly insolvent within four years after former CEO Mark Barnes left.
Last month, the SAPO Business Rescue Practitioners (BRPs), Anoosh Rooplal and Juanito Damons, revealed that SAPO’s liabilities reached R12.5 billion.
With only R4.5 billion in assets, the Post Office is technically insolvent with negative equity of R7.9 billion. Simply put, it does not have enough money to pay its debts.
The BRPs said turning the company around and returning it to a solvent position will require a significant revenue increase and creating an effective and efficient cost structure.
The Post Office missed its revenue target by a country mile for the past financial year. It generated R3.033 billion against a target of R4.812 billion.
It blamed many factors, including its customers’ migration to digital alternatives and not paying its suppliers, who stopped providing services.
However, the Post Office was not always in such a poor state. It saw a consistent increase in equity during former CEO Mark Barnes’ three-and-a-half-year stint at the top.
Barnes joined the Post Office as chief executive at the beginning of 2016, when the organisation had equity of R10 billion.
Under his leadership, the enterprise significantly strengthened its balance sheet and increased its equity to R16 billion.
However, Barnes’ strategy of modernising the Post Office, making it an e-commerce powerhouse, and turning it into a banking powerhouse was cut short.
He resigned as CEO on 1 August 2019, citing differences in the strategy concerning the structure of the South African Post Office group, especially the Postbank.
The Post Office thanked Barnes for his “enormous service”, saying he has led the stabilisation of the organisation.
Post Office performance analysed
Between 2016 and 2019, when Barnes served as the Post Office’s chief executive, the institution’s assets were on the rise.
Under Barnes, the institution’s assets increased from R10.12 billion to R16.07 billion – a 59% increase in three years.
After he left, things deteriorated quickly. Assets declined from R16.07 billion to R4.5 billion in three years.
The rapid decline in assets points to discontinued operations and significant disposals of group assets.
Despite these significant asset disposals from 2019, the Post Office has not been able to lower its liabilities in any way.
In fact, its total liabilities have increased in the past five years, reaching a six-year high of R12.4 billion this year.
The net effect of the diminished asset based on an ever-growing liability burden can be seen in the Post Office’s total equity.
A negative equity figure shows that the group would no longer be able to repay its liabilities if it were to liquidate all its assets and repay all of its debt.
From 2016 to 2019, when Barnes was CEO, the SAPO’s equity was on the rise, indicating an improvement in the group’s solvency.
However, since then, the equity figure has been on a downward spiral. The SAPO’s liabilities currently dwarf its assets by just under R8 billion, meaning it is technically insolvent.
Offer to buy the South African Post Office
The Post Office’s growing debt burden, declining revenue, and the need for constant government bailouts show it is unsustainable.
Many argue that it is completely insolvent and should be liquidated and closed to prevent it sucking up more taxpayer money.
However, Barnes has a different view. He said the Post Office delivers important services to poor and rural communities.
If the Post Office is not saved, all its current services and revenue will go into the private sector.
“The private sector has a very simple motivation – make a profit. I don’t believe that if the private sector took over all the functions, it would serve more than 5% of the population.”
He said the Post Office has commercially irreplaceable infrastructure, and privatising the enterprise would be fundamentally wrong and inappropriate.
Barnes, in partnership with an unnamed consortium, offered to buy a majority stake – between 60% and 75% – in SAPO in 2021 to save the struggling enterprise. His offer was dismissed.
However, earlier this year, he said his proposal to save the now-bankrupt state-owned enterprise and turn it into a national treasure still stands.
Barnes laid out three conditions that have to be met to turn the enterprise around.
- There must be an agreed strategy going forward.
- SAPO needs an estimated R8 billion in capital to settle its liabilities and put it in a steady state going forward.
- The Post Office needs leadership, specifically a management team with a three-year mandate to deliver a competent, functional organisation.
“If those conditions are met, then you end up saving commercially irreplaceable infrastructure, a fabulous channel between the government and the people of South Africa and a whole bunch of jobs and precious data the state could use for the virtue of our people,” he said.
He specified that his offer only stands if it is overseen with proper due diligence by the Auditor-General and he is given three months to come up with the capital.