Post office to axe 6 000 in modernisation drive

Admire Moyo
By Admire Moyo, ITWeb's news editor.
Johannesburg, 24 Nov 2023
SAPO had liabilities totalling approximately R12.5 billion as at 31 July.
SAPO had liabilities totalling approximately R12.5 billion as at 31 July.

Business rescue practitioners at the South African Post Office (SAPO) plan to retrench 6 000 employees at the bankrupt state-owned enterprise, as they put a strategy in motion to modernise the ailing entity.

This emerged when SAPO’s joint business rescue practitioners, Anoosh Rooplal and Juanito Damons, yesterday published the business rescue plan for the post office, which was placed into business rescue by the High Court on 10 July.

The practitioners cite lack of adequate investment in technology as one of the biggest reasons for the downfall of the post office.

This, as the state-owned entity battles dire financial straits, with liabilities totalling approximately R12.5 billion as at 31 July.

Furthermore, the embattled entity is faced with a waning branch network due to lack of rent payment to landlords, IT issues and forced manual operations because of outstanding electricity bills.

The business rescue plan aims to stabilise the company, restore it to solvency and enable the SAPO to operate sustainably as a going concern without total reliance on government funding in the future.

Furthermore, the plan seeks to provide a better outcome for creditors than would be the case in the event of liquidation.

“Our approach in the plan is to rationalise costs, which are currently unsustainable, and assist in restructuring the post office into an efficient and future-proofed business,” says Rooplal.

According to the practitioners, SAPO’s financial sustainability is a critical concern that demanded attention. They note its costs consistently exceeded 200% of its revenue since FY22.

Employee costs accounted for 150% of revenue, with inadequate investment in IT systems, fleet management, mail processing centres, depots and the branch network, they add.

After an extensive analysis of the employee base, the practitioners say the plan proposes to right-size the business through the retrenchment of approximately 6 000 of the 11 083 (31 October 2023) total employee base.

They believe this action will reduce the annual employee cost by approximately R1.2 billion.

“The organisation, however, lacks skills and leadership, management and technical expertise across the business. This needs to be appropriately strengthened and developed, which is necessary to drive a culture change towards a high-performance organisation,” notes Rooplal.

The branch network rationalisation will yield further cost reductions, the practitioners say.

They explain this rationalisation will retain an anticipated 600 branches, which will fulfil the SAPO’s activities, mandated by the universal service obligations and international mail centre requirements.

An independent valuator was tasked to value all 427 SAPO-owned properties. Although these properties experienced severe maintenance backlogs, they say, many properties are in good locations, and could be of interest to property developers.

The plan anticipates a possible sale of certain SA Post Office branches to the Postbank, which will enable the Postbank to expand its banking network and allow the post office to focus on more sustainable business segments.

The practitioners add that strategic partnerships will be included in SAPO’s strategy to bolster capabilities and resources in logistics, operations and information technology.

An example is the large depot network that is strategically located throughout South Africa, they note.

With additional investment, they believe the network will be attractive to strategic partners, such as retailers in the e-commerce space, as well as freight and logistics businesses.

“We are of the opinion that a large accessible market exists and that implementing the plan could reposition the SA Post Office to reclaim a space in the logistics services sector,” notes Rooplal.

It has received a recapitalisation of R2.4 billion from the Department of Communications and Digital Technology.

According to the practitioners, a further R3.8 billion allocation by government is required, as investment capital to repair and modernise SAPO to support this turnaround strategy.

With the current allocation of the R2.4 billion, the plan proposes a dividend award of 12c in the rand (circa R1 billion), to all pre-commencement concurrent creditors.

The practitioners believe the plan will, upon implementation, achieve a better return for creditors and an improved outcome for all other affected persons, against the result from an immediate liquidation of the company.