Role of Sapo in the Economy

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South African Post OfficePresentation to
CommunicationsPortfolio Committee ByMr. M.
ManyatsheGroup Chief Executive Officer
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Objectives of the Presentation

• The objective of this presentation is to share
  with members of the Committee our current efforts
  and future plans in terms of
• The changing nature of our business and the
  challenges faced by SAPO
• Where we are in our turnaround efforts
• Achievements to Date
• Progress in meeting Shareholder Expectations and
  Universal Services Obligations (USO)
• Future Strategic Direction of SAPO

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Role of SAPO in the Economy

• An important medium of communication for
  business and
  commerce.
• A courier facilitating the movement of goods
  (Packages , Legal Documents etc) between business
  and government and citizens.
• A one stop shop for government information and
  transactions
• A financial services centre, enabling citizens
  in rural and urban areas to transact safely and
  efficiently.
• A preferred authentication service provider
  facilitating electronic communications and
  transactions

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Role of SAPO in the Economy

• SAPO provides citizens in underdeveloped areas
  with access to state of the art technology e.g.
  email, digital certificates etc.
• This helps to bridge the digital divide that
  currently exists in South Africa
• The principle function of the Post Office is to
  provide postal and related services inside and
  outside South Africa.
• Having a post office in almost every major
  South African town ensures that the South African
  Post Office is an integral part of the economy

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Business Overview
Annual Turnover R 4bn Company
Mail Operations R2.2bn Postbank R1.5bn Financi
al Services R14bn Retail R1.2bn Properties R
200m R300m Courier Freight Group R600m Others
Philately, International All the above will
be on the top 50 of the JSE
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Business OverviewMail Business

• Historically the core business of the South
  African Post Office.
• However mail volumes are declining due to
  changing trends in the communication sector
  worldwide
• SAPOs extensive mail processing network handles
  6 million letters on average per day
• Delivered to 10 million addresses country wide.

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Mail Business Cost Analysis
Period Data 01-10-2001 31-03-2002 Mail
Operations National Average - Standard
Letter 2001/02 2003/04 Mail Operations
R0.26 19 National Transport
R0.14 10 Regional Transport
R0.31 23 Delivery R0.64 48 Total Cost
R1.35 (excl Vat) R1.48 (excl Vat) Total Income
R1.23 (excl Vat) R1.40 (excl Vat)
(Loss) (R0.12) (R0.08)
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SAPO Mail Centres and Delivery Depots
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SAPO Mail Collection Points
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Business OverviewMail Business

• Other mail related activities include the
  following
• Mailroom management
• Securemail
• Established with the full co-operation of major
  financial institutions to minimise credit card
  theft and fraud.
• A safe delivery method for high-security items
  such as shares certificates and credit cards.
• It handles more than 2,5 million credit cards a
  year.
• Received an award from the International
  Association of Financial Crime Investigators for
  the standard of its work.
• International Mail
• Handling and distribution of inbound and outbound
  international mail.
• A transit hub for mail destined for and
  originating in the SADCC countries.
• International relations (other Postal
  Administrations, UPU, PAPU etc

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Business OverviewCourier, Express, Parcels
business

• Speed Services Couriers
• Speed Services Couriers provides the most
  extensive domestic overnight express courier
  network in Southern Africa.
• Service options include door-to-door delivery,
  counter-to-counter and same day delivery.
• Through the counter-to-counter service the Post
  Office is able to provide courier services to
  rural communities.
• Speed Services Couriers also has an
  international service, consisting of door
  delivery (only) to over 200 international
  destinations.
• Distribute documents and parcels up to 30kg per
  item.
• Parcelplus
• Provides counter-to-counter parcel service for
  delivery to any other post office counter in the
  country.
• Parcels are be delivered within two to five days

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Business OverviewCourier, Express, Parcels
business
CFG (Courier Freight Group) The Courier Freight
Group is a subsidiary of the Post Office and is
made up of the following companies XPS Courier
Services XPS reaches 3 200 destinations daily
with parcel tracking at every stage ensuring
total control of freight. Options include
Collection and delivery of abnormal or
incompatible consignments on the same
day Drop-box service for clients in main
centres who need regular after-hours
collections After-hours service with 800
delivery Optional coverage against loss,
damage or pilferage Proof of delivery supplied
on request
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Business OverviewCourier, Express, Parcels
business

• PX Courier Services
• PX focuses on moving consolidated loads of up
  to three tons between larger centres in Southern
  Africa.
• Docex
• Docex moves mail exclusively between Docex
  members and other relevant points.
• Docex services its members through a network of
  200 exchanges throughout the country.
• Currently concentrates on legal, medical
  profession as well as travel industry

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Business OverviewRetail Services

• SAPO has the largest retail network in Southern
  Africa
• 2588 postal outlets
• 6500 counters
• The following services are offered through the
  retail network
• Cash Collections
• 4.3 Million transactions valued at 12 billion are
  handled on behalf of third parties e.g. Telkom,
  municipalities, customs etc
• Cash Payout
• 500000 pensions are paid every month
• Electronic filling
• Approximately 1 million transactions involving
  data capturing are handled on behalf of
  government e.g. licence applications for SABC,
  motor vehicle and fishing licences

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Business OverviewPostBank

• PostBank operates as a division of the South
  African Post Office.
• PostBank is exempt from the Bank Act and
  governed by Section 52 on the Post Office Act
• PostBanks operations are limited to deposit
  taking
• Has a total of 2.3 million account holders with
  a savings portfolio of R1.4 billion
• Account Profile
• 50 of PostBank Accounts are deposits of R50
  and Less
• It costs roughly R30 to service each account
  every month
• Accounts of R50 or less will therefore only
  service themselves for a single month and
  the remaining 11 months are subsidised by the
  Post Office to the tune of R396 million (1.2
  Million Accounts times R30 times 11 months)
• Being positioned to be a key player of national
  significance in the provision of financial
  services

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Operating Environment Mail Industry

• Key Drivers of Change
• Technology
• Email Increased usage of this medium as a
  alternative to sending hard copies
• Internet As this technology becomes available
  on a wider scale, people are using it a as
  alternative to acquire information
• Cell Phones There is a migration from sending
  hard copy messages to SMS messages
• Competition
• Increased competition eg PostNet, Knock and Drop,
  Insert Market etc
• Liberalisation
• The reduction of the monopoly from 2kg to 1kg
• Allows private companies to compete in this
  environment
• Growing number of fly by night operators
• The regulator will undertake a review of the
  monopoly and if the reserved area is reduced
  further, it would mean the South African Post
  Office would suffer further losses due to its
  Universal Service Obligations (USO)
• Universal Service Obligations (USO
• The post office must provide affordable postal
  and financial services to all South African
  citizens
• This includes the remote areas of South Africa
  which are non profitable by nature.

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Operating Environment Courier, Express,
Parcels Industry

• Face increasing competition from international
  players eg DHL, TNT etc
• Government Courier Tender lost to Skynet
• Trends in the Courier Industry
• Network expansion has been based on acquisitions,
  alliances and partnerships and has occurred
  across national boundaries.
• Upward linkages with integrators combining with
  airlines, or parcel operators linking up with
  warehousing enterprises
• Downward linkages with logistics operators
  acquiring couriers to service home deliveries
• Combining (vertically) under one management
  several process in the supply chain i.e. 4th
  Party logistics.
• Moving to the one stop shop and single sourcing
  strategies, especially in an environment in which
  outsourcing is a strong trend.
• Improving profitability through higher efficiency
  or sale of new services.
• Robust track and trace and streamlined return
  processes

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Operating Environment Banking Industry

• Dominated by five major banks - SBSA, Absa Group,
  First Rand, Nedcor, Investec
• Approximately 70 foreign banks operating in the
  local market
• Formal banking sector focused on providing
  finance to the top end of the market.
• Majority of the population unbanked
• Between 60 and 80 of countries economically
  active people are unbanked. According to census
  data this translates to 12 million employed
  people.
• Only 30 of the black population hold a bank
  account.
• Savings products offered by most commercial
  institutions do not meet the specific needs of
  rural communities
• Channels of access for savings are limited.
• The cost of savings is very high contributing to
  the low level of savings in South Africa
• This provides a unique opportunity for PostBank
  to be a key player in the financial services
  industry

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Shareholders Expectations

• The issues to be addressed by the Post Office to
  meet shareholders expectation of an affordable,
  accessible, efficient and effective postal
  service are as follows
• Service delivery policy
• To improve delivery performance standards and to
  provide delivery to postal addresses for all
  households on an equitable basis.
• To re-balance the post office network by reducing
  post offices in serviced areas and increasing and
  upgrading post offices in under serviced areas.
• Financial mandate
• To secure economic growth, investment and
  employment.
• Economic empowerment of historically
  disadvantaged South African
• To transform the procurement and tendering
  process.
• Human resource development
• To develop human resources capacity and create
  continuous learning opportunities.

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Shareholders Expectations

• Impact of technology on postal services
• To protect the Post Office market share from the
  threat of electronic substitution.
• International relations
• To be recognised as the key player in the global
  postal market within Africa.
• Postbank
• To develop Postbank as the bank of first choice
  for the lower income groups.
• Postal Security
• To eliminate postal crime and corruption in all
  its forms, restore public confidence in the
  integrity of the mail, and enhance the image of
  the Post Office as a trusted service provider.

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Key Achievements
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Reduction in Operating losses over the past years
Key Achievements
2001
584 Million Loss
2002
371 Million Loss
2003
215 Million Loss
Breakeven
2004
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SAPO Group operating Profit/(Loss)
Breakeven
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Turnaround in performance of acquired courier
business
Key Achievements

• PX (Fast Forward) was acquired from Transnet in
  2001
• R450 million loss making entity
• Transnet paid SAPO R100m integration grant
• XPS acquired in 1998 from Rennies Group
• Approximately R50 million loss making company
• These businesses have been integrated into the
  courier and freight group (CFG)
• Now forecasting only a R40-45 million loss in
  financial year 2002/2003 compared to the R450
  million loss in 2001

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Permanent Staff Reduction over the past 2 years
Key Achievements
Staff reduced from 26000 in 2000 to 18380 in 2003
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Fleet Reduction over the past 2 years
Key Achievements
A total reduction of 376 vehicles
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Contracts Terminated over the past 2 years
Key Achievements

• SMP
• Mapkas
• Q Data
• ICL
• National data system
• Gentroncis
• Permarep
• SF
• Airworld

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Key Achievements
Improvements in the Control Environment

• Unqualified audit Report (2001\02)
• E Procurement
• Reduction in number of bank accounts
• Firewall between Sapo Postbank
• Financial Statements (1997 - to date)

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Business Development over the past 2 years
Key Achievements

• Telkom IPO
• Money Transfer Services pin based money
  transfer services
• Products
• Payments on behalf of 25 local Governments
• Payments on behalf of 20 other parties

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Business Development over the past 2 years
Key Achievements

• Agreements finalized and in the process of
  implementation
• Western Union Money Transfer Services
  International transfer
• Agreements negotiated and in process of sign-off
• EBPP (Electronic bill presentment and payment)
• Financial and data switch
• RFQs and RFPs submitted and awaiting outcome
• Dept of Justice Payment solution for
  maintenance, bail, fines
• UIF Collection and payment of UIF

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Business Development over the past 2 years
Key Achievements

• ECT enablement
• Implementation of dedicated ECT counters with
  peripherals
• Brits pilot project.
• Already 2500 pensioners have been registered at
  Brits
• All 10 fingerprints and ID details are taken and
  Postbank accounts are being opened.
• Details are being forwarded to Home Affairs to
  assist in building of HANIS database.
• Interactive reporting is done via Web to all
  relevant role-players.

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Business Development over the past 2 years
Key Achievements

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Business Development over the past 2 years
Key Achievements

• Trust Centre
• Operational centre created in Grabouw and
  technical centre in Sandton to provide
• Legal Certainty
• Foundation for trust
• Facilitation and regulation of electronic
  communication and transactions
• Encourage the use of e-government services
• Human resource development in electronic
  transactions
• Digital Certificates
• A special file that binds an individuals
  identity to an encryption key
• The identity of an individual or organisation
  is verified by the Certification Authority (CA)
  before issuing a digital certificate

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Service delivery improvements from 84.46 to
90.83
Key Achievements
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Employment Equity and BEE
Key Achievements

• Equalisation of apartheid salaries
• Top Management in South African Post Office is
  predominantly black and has 4 females at
  executive committee level
• Black Economic Empowerment equals 35.03 of
  total spending

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Human Resource Development

• 60 different training programmes under
  different learning portfolios namely
• Technical/Job specific
  functional,
• People management,
• Business management,
• Management Development
• ECT TRAINING

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Crime and Fraud
Key Achievements

• Breakthrough at Purchasing Material Management
  (PMM) regarding corruption in ordering of stock.
• Increased surveillance security on the trucks
  transporting the stock from Silverton to Post
  Offices.
• The establishment of armed response vehicle at
  Courier Services which has resulted in a positive
  decline of the hijacking of XPS and Speed
  Services trucks.
• The introduction of two armed response vehicle to
  monitor Post Office trucks carrying mail.
• The reduction of Bulkmail fraud around Wits and
  Wiptspos

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Key Achievements
Crime and Fraud

• Decrease in armed robberies during the festive
  period. This was achieved through the combined
  strategies on robbery between SAPO and SAPS .
• The investigation at CFG head office which led to
  suspension of 5 executives. These executives are
  currently facing charges of fraud and corruption.
• The development of the New Database for the
  Security and Investigation which is in line with
  the business. This will give accurate crime
  reporting to business units.
• Implementation of Fraud Prevention and Mail
  Violation Strategies within the organization.
  These strategies form the basis of combating
  fraud, corruption and mail violation within the
  company.
• The establishment of Special Investigation unit
  which focuses on white collar crime within the
  organization. This is another initiative to stamp
  out zero tolerance to crime within the company.

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Crime and Fraud Statistics on Dismissals
Key Achievements
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Statistics on Criminal Offences
Key Achievements

• The incident of robberies decrease by 11,4. This
  trend should prevail after the Improvement of
  security at Post Offices.
• The achievements are due to crime awareness
  initiatives to inform the employees of their
  responsibility towards the prevention of
  robberies.
• Coastal regions like KwaZulu Natal, Eastern Cape
  and Western Cape have improved on robberies.
• New Projects on Mantrap Doors, Counter Screens,
  Drop Safes, CIT and Guarding Services are all
  aimed at decreasing the robberies against the
  Post Office.
• The decrease in carrying too much cash at post
  office outlets is resulting in the increase of
  CIT robberies. Post Offices are encouraged to
  carry less cash

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Robbery Reduction in Financial Losses
Key Achievements Crime and Fraud
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Reduction in the number of Hijackings
Key Achievements Crime and Fraud

• More than 90 of Post Office cars are recovered.
  This success is attributable to
• Installation of Vehicle Tracking System on most
  of the trucks and vans.
• Armed Response vehicles monitoring the vehicles
  with high value items.
• SAPS support in investigation of hijackings.

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Collaboration with the SAPS
Key Achievements Crime and Fraud

• Across the Country major partnerships and
  effective relationships with the SAPS has been
  established
• SAPS personnel have obtained a better
  understanding of the Postal Act
• At Corporate level a sound understanding
  between the SAPS executive management and SIS
  has been established
• A Service Level Agreement between the SAPS and
  SAPO for the secondment of 6 detectives for a
  period of 3 years is reaching it conclusion and
  should be implemented by May 2003

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National Fraud Prevention Plan

• A National Fraud Prevention Plan has been
  deployed in the Post Office
• The Executive Committee forms the National
  Fraud Prevention Committee
• Business Unit Fraud Prevention Forums are being
  established nationally
• The Fraud Prevention Plan is critically
  directed at
• - increasing employee responsibility and
  accountability
• - employee education through an Awareness
  Campaign throughout SAPO
• with an emphasis on the Ethical Code of
  Conduct
• - the CEO Road Show will be rolled out at 21
  major centres from May 2003 onwards
• - Reviewing of Company Policies and
  Procedures
• - security audits
• - re-training of employees at problem offices
  
• National Mail Violation Strategy Linked to the
  Fraud Prevention Plan the
• has been deployed

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Sapo ImageThe improvement in the SAPO Brand