South African Post Office (SAPO) CEO Nomkhita Mona said they have performed miracles to ensure the institution did not collapse completely.
Mona briefed Parliament on the Post Office’s 2022/23 annual report and financial statements on Wednesday.
The Post Office’s revenue declined from R3.0 billion in 2022 to R2.3 billion in 2023, driven by lower postal and financial services revenue.
The group reported a loss of R2.2 billion for the year, similar to the loss incurred in the previous financial year.
Its expenses continued to exceed revenue, which means the institution had insufficient funds to settle its liabilities.
The poor performance means the Post Office’s balance sheet weakened tremendously. Assets declined from R6.4 billion to R4.4 billion, and liabilities increased to R11.9 billion.
The Post Office, therefore, has negative equity of R7.5 billion, which renders it hopelessly insolvent.
The situation was so dire that the Auditor General raised concerns about the Post Office’s ability to continue operating as solvency and liquidity conditions could not be met.
Despite the Post Office’s dismal state, Mona said they have done tremendously well with the hand they were dealt with.
She told Parliament that the Post Office’s former chief financial officer warned the institution would hit “day zero” in May 2020. Their own investigations confirmed that he was right.
“We needed to do things differently. We performed a lot of miracles to ensure the Post Office is still standing. Even though it is limping, it did not collapse completely,” she said.
“We managed to hold it together and give it to people who can rescue it and come up with a plan.”
Turning the Post Office around
SAPO’s Business Rescue Practitioners (BRPs), Anoosh Rooplal and Juanito Damons, are working to save the struggling state-owned enterprise.
They said returning it to a solvent position will require a revenue increase and creating an effective and efficient cost structure.
Rooplal said they have been working with the Post Office’s management to address the decline in revenue.
They also want to reduce costs, affect critical structural changes in the business model, and consider key investments in technology and infrastructure to drive performance.
“The success of the business rescue is predicated on stopping the cash flow bleed whilst allocating capital to facilitate the company to service clients effectively,” Rooplal said.
One of the focus areas is the Post Office’s branch network, which is the cornerstone of its business.
They looked at the profitability, geographical reach, universal service obligations (USOs), services like motor vehicle licencing, financial services, and SASSA grant payouts at individual branches.
“The Post Office services include the USOs in rural areas, and so a mere profitability metric or cost centre metric would be trite,” Rooplal said.
Another focus area is staff salaries, which are monitored and reviewed and depend on cashflows and government funding.
For almost two decades, the Post Office’s financial position continued to decline, and in the last few years, expenses outstripped earnings by a wide margin.
As this situation persisted, it prioritised paying the employees the cash component of their salaries from 2020.
The entity was simply not making enough money to cover other employment costs, including medical aid and pension funds.