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South African Post Office Financial Results 2004/05

Highlights of the financial results of the South African Post Office for the 2004/05 financial year, including improved profitability, a healthy balance sheet, and investment in infrastructure and technology.

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South African Post Office Financial Results 2004/05

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  1. SOUTH AFRICAN POST OFFICE Financial Results 2004/05ByMr Khutso IMampeuleGroup CEO (Add your Business Unit name here)

  2. Highlights • Solid 2nd Year of Profitability • Healthy Balance Sheet • Positive Capital and Reserves Position • Best Practice Solvency & Liquidity State • Strong Cash Generated from Operations • Sizeable Investment in Infrastructure & Technology • Postbank Powers on (Leading in Mzansi Accounts) • Passionately fulfills its Universal Service Obligation • Rewards & Recognition in Innovation & Technology Application • Remains an Overall Good Corporate Citizen • Embraces Change and Looks Forward to a Brighter Future

  3. Financial overview 2004/2005 SAPO Group

  4. Financial overview 2004/2005 SAPO Group

  5. Profit / (Loss) from trading operationshistory

  6. Key Achievements Improved Financial Performance • Turnover up 6% on previous year • Postal services increase of 3.5% on prior year. • Operating expenses increased by only 3%. • PRMA Liability reduced from R2.3 billion to R929 million • Income Statement Recognitions • Deferred tax R287m • PRMA : R512 million • R135m Profit from trading operations (2003/04 R27m) • Once-off Net profit of R1,068m

  7. Postbank depositors funds (Rm)

  8. Key achievements – Postbank accounts (’000)

  9. Review 2004/05Financial year

  10. Income Statement

  11. Financial overview 2004/2005 SAPO Group

  12. Balance sheet

  13. Financial overview Balance Sheet

  14. Financial overview Balance Sheet

  15. Financial overview Statement changes in equity

  16. Capital expenditure

  17. Key achievements –Working capital • Improvement in working capital. • Total debtors days • SAPO - 19 days, achieved target, as a result R100 million improvement in cash flow. • CFG – 57 days. • Cash generated from operations R371 million (2003/04 R283 million). • Post Office excluding Postbank has R333m in short term investment.

  18. Key achievements –Balance sheet • Deferred tax of R287 million. • Funding level the pension fund is 127% as at 31 December 2004. Conversion from defined benefit to defined contribution. • R750 million increase in share capital. • Increase in capital & reserves of R1.8 billion. • Cash & cash equivalents increased by R1 billion.

  19. Financial OverviewPAST 5 YEARS

  20. Net Profit / Loss history (R’000)

  21. Balance sheet

  22. Net cash inflow/(outflow) from operations (R’000)

  23. Employee ratios

  24. Solvency and liquidity

  25. The Way Forward Focus Areas:2005/06

  26. Market becoming more competitive • Expansion into financial services requiring skill upgrade • Mail volumes stagnating globally • Government continuing to reinforce branch infra-structure reach mandate • Customers demanding more • Deregulation is decreasing the monopoly landscape – incumbents have to manage this • Large players are emerging as dominant competitors offering complete services/product portfolio • Several postal organisations pursuing Financial Services as growth opportunities • All of them forced to upgrade staff skills significantly • Global mail volume growth of 0.43% from 1999-2003* • Electronic substitutes growth (per capita) of 46.7% from 1999-2003 • Access provision mandate through branch network will continue to be reinforced by government • Large customers demanding more sophisticated solutions • Targeted approach to serve the market required Additional challenges . . . AFTER THE TURNAROUND SAPO IS WELL POSITIONED TO FACE ADDITIONAL PRESSURE FROM TRENDS IN THE POSTAL INDUSTRY . . . but therein lie opportunities * Average of selected countries Source: Pitney Bowes; McKinsey analysis

  27. FUTURE ASPIRATIONS SUPPORTED BY STRATEGIC POSTURE AND 5 KEY STRATEGIC THEMES FOR THE GROUP • Key strategic themes for SAPO Group • SAPO strategic posture 1 Drive operational excellence to achieve top-quality at benchmark cost • Be the premier commercial organisation enabling the South African economy with integrated solutions in the areas of • Communications • Logistics • Financial Services • Access to Government Services • Create a great customer experience through targeted products and high-quality customer service • Competently and diligently advance USO in partnership with the government • Build a high-performing organisation, which respects, develops, recognises, and rewards its employees 2 Achieve customer intimacy and leverage this for growth in Communication, Logistics and Financial Services 3 Be government’s preferred partner for economic enablement within the scope of our product and service offerings and in the delivery of government services 4 Build a highperformance culture and develop capabilities throughout the organisation 5 • Strengthen the public perception of SAPO as a trusted brand Source: Management workshops; McKinsey analysis

  28. NOT EXHAUSTIVE • Example: postal operators services beside mail … AS THEY CAN BE THE BASE FOR A STRONG RELATIONSHIP WITH RETAIL CUSTOMERS THROUGH ‘PUBLIC SERVICES’ Ö Service provided • Public ‘universal’ services besides mail - Service not provided ? Data not available • Pensions/benefits payment • Utilities bill payment • Taxcollection • Country/Postal operator • Everyone interacts with the Postal Operators several times in a year • SAPO should consider opportunities in public services, such as • Pensions and benefits represents a huge untapped potential • Utilities’ bills are a lost opportunity that should be regained • Tax collection is another path to be explored • Other opportunities should be explored (e.g. payment of traffic fines) • - • Germany/Deutsche Post • UK/Consignia • Italy/Poste Italiane • France/La Poste • Spain/Correos • Switzerland/Swiss Post • Belgium/La Poste • Portugal/CTT Post • Poland/Poczta Polska • Czech Repulic/Ceska Posta • Hungary/Magyar Posta • Austria/Post AG • Ireland/An Post • Sweden/Posten • Netherlands/TPG • Norway/Posten • Finland/Suomen Posty Oy • Denmark/Post • Turkey/PTT • Greece/Hellenic Post • Ö • Ö • Ö • Ö • Ö • Ö • Ö • Ö • Ö • Ö • Ö • Ö • Ö • Ö • Ö • Ö • Ö • Ö • Ö • Ö • Ö • Ö • Ö • Ö • Ö • Ö • Ö • Ö • Ö • Ö • Ö • Ö • Ö • Ö • Ö • Ö • Ö • Ö • Ö • Ö • Ö • Ö • Ö • Ö • Ö • Ö • - • - • - • - • -* • ? • - • ? • ? • ? • ? • - • - * Belgian Post provides a deposit service onto any bank account which is in practice used mostly for bill payment Source: McKinsey analysis

  29. ADDITIONAL GOVERNMENT OPPORTUNITIES FOR SAPO • Government department • Opportunities for SAPO • Transport • Car registration • Traffic fines • Drivers licences • Home Affairs • ID books • Passport • Work permits • Health • Birth/death certificates • Distribution of medicines • Education • Student textbooks • Distribution of exam papers • Welfare • Child grants • Maintenance grants • Others • Address verification/certification [PMG note: graphics not included, please email info@pmg.org.za] Source: SAPO

  30. SAPO VISION AND MISSION NEED TO BE REVISED TO REFLECT THE NEW STRATEGIC POSTURE • FOR DISCUSSION • From • To • Vision • ‘To be the leading provider of postal and related services in Africa’ • ‘To be recognised among the top 10 providers of postal and related services in the world’ • Measures of success • Profitability – operating margin/ROIC • Efficiency – operational KPIs • Customer Ratings • EmployeeSatisfaction • Corporate social responsibility • Mission ‘We will connect people through the distribution of information, goods, and financial services; building on our strengths as a provider of postal services and by embracing change …’ • ‘We will enable the nation to efficiently connect with the world by distributing information, goods, financial and government services; leveraging our broad reach and embracing change, technology and innovation’ Source: Management workshops; McKinsey analysis

  31. THE ASPIRED NEW POST OFFICE • Retail • Business centre • Counter • Communicationcentre • Back office • Queue control • ATM[PMG note: graphics not included, please email info@pmg.org.za] Source: ExCo meeting 12 September

  32. Thank you

  33. SOUTH AFRICAN POST OFFICE Post Retirement Medical Aid HR7 November 2005 (Add your Business Unit name here)

  34. Post Retirement Medical Assistance • Prior to collective agreement, liability in balance sheet = R2.6 billion – rule AC 116, to report in the balance sheet – placed Post Office in a liquid position • Approximately R967 million constituted pensioner liability • The remaining approx R1.6 billion constituted Active employee liability.

  35. Post Retirement Medical Assistance • Agreement reached on 10th May 2005, to remove the benefit of PRMA for active employees (future pensioners) • This resulted in a positive impact on the balance sheet of approximately R1.6 billion (R1.6 billion of the medical aid liability removed) • The above came into effect from 1 July 2005 • Pensioner liability of approximately R967 million in the process of being corrected • Utilise partly the contribution reserve (in process of acquiring a portion through a commercial settlement with Board of Trustees) • The balance – long term government bond with consent of Treasury • Cost to remove liability of current pensioners – approx R420 million • Benefit of removing the liability – R967 million liability removed from the balance sheet • Medical Aid Liability reduced to zero

  36. Post Retirement Medical Assistance Note: Exits since 2000, that qualified for PRMA = 1198 out of a total exits of 11498 – this is a mere 10%.

  37. Mail Logistics Retail Postbank Ops Ops Ops Ops S&M S&M S&M S&M Customer service Customer service Customer service Customer service • FOR DISCUSSION Market SAPO’S DELIVERY SYSTEM SHOULD ALSO BE RESHAPED – FUTURE VALUE DELIVERY SYSTEM Group strategy Group marketing and communications Key account management Government and international relationships Transaction centre (branch network, call centres, Truebill, Trust Centre, etc.) Support functions (Finance, HR, IT, S&I, Internal Audit, Risk Mgmt, Legal, SCM, Properties,…; tailored to users where required) Source: Management workshops; McKinsey analysis

  38. 1 THE FOCUS ON OPERATIONAL EXCELLENCE SHOULD BE PURSUED BY BUs AND SFs ADDRESSING THEIR SPECIFIC ISSUES OVER TIME (1/2) • Area • Overall strategic priority Mail • Optimise mail operations to lower cost and grow volume through improved operations Logistics • Build an efficient nationwide logistics network (set stage for/explore international alliance) Postbank • Achieve benchmark cost levels for Postbank operations Retail • Optimise counters operating branches as efficient distribution channel Support functions • Refocus to operate as value-adding, cost effective and reliable internal service providers Source: Management workshops; McKinsey analysis

  39. Postbank POST OFFICE/MAIL SERVICES REFINING THE DISTRIBUTION MODEL SHOULD INCLUDE A NEW SERVICE LEVEL FOR SAPO ‘CURRENT ACCOUNT’ HOLDERS: PRIORITY LINE Current SAPO clients are still served by the single queue Current account holders have dedicated service line Idle teller calls first client in the single queue POSTBANK “By the way Mr Tema, have you heard about our new life policy? If you wish, you could talk to your account manager” • Postbank • Postbank • Postbank Source: McKinsey analysis

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