Revitalization of Post Office Hinges on Securing New Funding and Collaborative Partnerships
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JEREMY MAGGS: The South African Post Office (Sapo) has announced that it is transitioning out of business rescue towards becoming a viable public enterprise after enduring years of financial turmoil, significant losses, and decreasing operations.
While its financial position has shown signs of improvement, cash flow issues persist. Additional government funding may be necessary, and there are ongoing concerns regarding whether the turnaround can be sustained without ongoing state assistance.
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We are now joined by the acting CEO of the SA Post Office, Fathima Gany. Thank you for joining us. Do you believe the Post Office is genuinely saved, or has business rescue merely provided a temporary reprieve?
FATHIMA GANY: We need to consider the objectives of business rescue. They operate under a specific framework outlined in the Companies Act, which is aimed at resetting the business for future readiness.
In terms of the criteria set out, we have achieved those objectives, and it’s now about positioning ourselves to advance the business.
So can it be saved? Absolutely, I am confident it can. However, we must continuously benchmark our progress against previous periods.
This indeed reflects a different vision for the Post Office, but it will still necessitate a capital influx, whether through government funds, Sapo raising it independently, or through partnerships.
However, the organization is not yet in a stable position regarding breaking even or achieving profitability. The business rescuers have restructured the organization and adjusted the balance sheet in preparation for the next stage of development.
JEREMY MAGGS: I’d like to discuss what this new vision for the Post Office entails. You have received an unqualified audit, but the Auditor-General raises concerns regarding the Post Office’s viability. Reconciling these viewpoints must be challenging.
FATHIMA GANY: Having come from an auditing background, I consider the unqualified opinion a significant accomplishment, as it lends credibility to our financial figures at a certain point in time, specifically at year-end. These figures can be relied upon.
So what does that indicate?
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It signifies that we are prepared to engage a partner who will perform due diligence on our operations. During this process, they can assess our balance sheet.
They will analyze our operations and conclude that they can trust these figures because they are endorsed by the most credible assurance provider in the nation.
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Moreover, if we present our balance sheet and acquire PFMA (Public Finance Management Act) approvals, then when engaging with banks to secure funding, they will have confidence in the information provided due to its newfound credibility.
Thus, at a specific point, the unqualified opinion has a considerable impact.
Looking ahead, the emphasis on the going concern signifies potential future challenges due to the ongoing struggle to achieve break-even.
There will come a moment when cash, a limited resource, will deplete.
Should our partnerships or revenue diversification initiatives fail to develop as swiftly as needed, we will have to turn to government for assistance, indicating that we will need some working capital to sustain us while these developments unfold.
JEREMY MAGGS: It would surely be difficult to justify to taxpayers why additional funding should be allocated to the Post Office post-business rescue.
FATHIMA GANY: The reason is that the social mandate has not dissipated. The rationale behind our existence today is based on the decision to place the business into a rescue phase rather than liquidating it during its provisional liquidation. The Post Office carries a social mandate that it needs to fulfill.
While the significance of this social mandate is waning—with traditional mail services declining—it remains essential for South Africa and its citizens, particularly since not everyone has access to emails and electronic communications.
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Therefore, there is a significant reliance on postal services, especially in rural areas. Our business model is twofold, encompassing the delivery service and our branch operations.
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Often, our performance is evaluated based on the branches, with disregard to the delivery service and mail operations.
JEREMY MAGGS: I’d like to hear more about this new version. According to my information, more than 4,000 jobs have been eliminated, and branches have been closed.
Fathima, how much smaller must the Post Office become for the numbers to improve? What does this new version look like moving forward?
FATHIMA GANY: In my view, the organization cannot be reduced any further without jeopardizing its relevance. The current employee count post-Section 189 job cuts and branch reorganization marks the tipping point necessary to fulfill our obligations.
Now, it’s about how we build upon this foundation and diversify, as we need commercial operations to support the social mandate, which is the essence of our relevance.
This situation is complex and not a straightforward science, but growth can only be achieved from the existing workforce and branch network.
Reducing further is fruitless because our present position is unique; we have a national address database and a broad reach, which enables us to deliver on our social mandate—something that remains vital.
JEREMY MAGGS: What would you say to private courier companies that argue the Post Office is sustained by the state while they operate without similar support?
FATHIMA GANY: The private courier firms, and our market engagement for public-private partnerships in December has reflected this, can excel in urban areas. The Post Office has significant value in rural regions due to our tangible reach and infrastructure.
This could foster a beneficial collaboration between state entities and private companies to deliver comprehensive courier services to South Africans, as the private firms are more concentrated in urban areas while we dominate in rural zones.
This should establish a mutually beneficial situation for both sectors.
JEREMY MAGGS: At this point, you have shown strong interest from potential partners, but interest doesn’t equate to revenue. How much of your turnaround strategy is still in preliminary stages?
FATHIMA GANY: A considerable portion of the turnaround is still in the planning phase, as we are just emerging from business rescue. The focus is on implementing plans, and while there are ongoing workstreams with some initiating activities, they aren’t significant enough to drive substantial progress.
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Initiatives such as introducing Aarto (Administrative Adjudication of Road Traffic Offences) for motor vehicle licensing or onboarding a new lottery operator are positive steps.
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However, the key to making significant changes rests on securing a substantial partner who can enhance our business.
Indeed, they will follow their process as we follow ours. You are correct in noting that we have received unexpectedly strong interest in the market.
We now have established a framework with a transaction advisor to facilitate onboarding, and we are moving towards drafting requests for proposals to make this a reality. As a state-owned entity, we must adhere to the Public Finance Management Act.
These elements naturally prolong the timeline, but they are conducted as they should be.
Yes, progress is slower, but the Post Office is actively working towards its goals, even as we continue to consume working capital.
This brings me to the auditor’s concerns regarding our status as a going concern.
JEREMY MAGGS: One last point. Although assets now exceed liabilities—a positive development—cash flow, as you’ve indicated, is still strained. How close are we to another liquidity crisis?
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FATHIMA GANY: We have submitted our application for funding through the Medium-Term Expenditure Framework (MTEF) to the government. I understand discussions are ongoing, as I have worked on additional supplementary data. Our reliance on this funding is crucial for our viability; otherwise, our conversation would have undoubtedly turned out differently.
JEREMY MAGGS: I will conclude it here. Thank you, Fathima Gany, Acting CEO of the South African Post Office, for your insights.