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Country pursuits

March 31, 2016

On January 15, 2016, the transformation of South African Post Office (SAPO) began with the appointment of Mark Barnes as CEO (left). Barnes has had leadership experience in financial services at Standard Bank, Capital Alliance and Brait, something that should come in very handy when turning around the fortunes of a post office that posted R1.4bn (US$89.5m) in losses in the year to March 31, 2015. This was not the first loss for SAPO; it posted a net loss of R359m (US$22.9m) for the year to March 31, 2014, a 6.5% increase on the net loss of R337m (US$21.5m) in 2013.

“SAPO is has made substantial losses as a result of uneconomic expenditure over the past few years, including a situation that has been the subject of an investigation that has now been made public [see Corruption uncovered, page 60], and because the organization hasn’t kept up with the times,” Barnes explains. “It has not invested in sources of revenue that are typically offered by other post offices around the world, such as financial, courier and e-commerce services.”

Financial help is on its way thanks to a R650m (US$41.6m) equity injection from the government, as well as government guarantees totaling R2.7bn (US$173m), which has been rolled over from existing agreements into a three-year guarantee that covers all the capital SAPO needs for its turnaround program. “As we start implementing that program, we would like to see whatever debt we’ve raised against those guarantees being replaced by equity, which is under discussion with the treasury,” says Barnes.

The turnaround
For Barnes, the best way to improve the fortunes of any business is to invest money into its core: “When an organization has ground to a standstill because it has run out of money, finding ways to reinvest is key to bringing back customers,” he says. “We are without doubt the best-placed infrastructure to serve the needs of all our clients and we have the biggest client base in South Africa.”

Barnes plans to implement a two-pronged approach to reinstating SAPO back into the heart of the South African economy: First, get back all the business it lost through financial failings, and second, become competitive again in the new-age businesses.

“We had a situation where, because of the post office’s lack of competitive service delivery, people were turning to alternative delivery companies to deliver their parcels, even if it was at a higher cost than we could have done it for if our supply chain hadn’t been clogged up. We want to get back some of the market share we lost,” he says.

Part of the reason for SAPO losing so much of its core business was due to a four-month staff strike in 2014 that cost the post about 30% of its revenue that year. “At the center of the strike were unfulfilled financial promises. There were various discussions with the unions about pay increases and conversion of temporary staff to permanent staff, which, because of cash flow constraints, we were never able to meet. I have now engaged with the unions and we will discuss the parameters of a deal once we have capital so that we can have some structural accord in the future,” Barnes explains.

According to Barnes, SAPO’s post office staff are eager to get back to work and “restore some of the economic dignity they lost”. He adds, “I think everyone has had enough of using strikes as a bargaining tool. It is clear to everyone involved at SAPO that we couldn’t bear much more in terms of work stoppage, so we are working together to reach accords between management and labor as to what the deal should be. I think we are in a position where everyone would much rather we learn from the past and move forward together.”
 

Right: SAPO CEO Mark Barnes surprised workers at South Africa’s largest sorting center in Witspos, Johannesburg, by turning up unannounced

 

 

Staff currently accounts for 71% of SAPO’s costs and Barnes is keen to reduce this ratio, although not necessarily through streamlining the workforce. Barnes has
set himself a target of reducing staff costs to 40% of revenue over the next three years mainly through substantial revenue growth. “We see growth in revenue as the preferred route and I think we can achieve this by diversifying. However, if that doesn’t materialize then staff reductions would become inevitable,” he adds.

Diversification
According to Barnes, 70% of SAPO’s revenue still comes from traditional mail services – something that doesn’t match up with the demands of today’s customers. “E-commerce is growing extraordinarily and we plan to invest in the parcel business. If you start looking at the deals that companies like Amazon are doing with brick-and-mortar partners, you can understand why e-commerce is so important to us – you can order a bicycle through the internet but someone has to deliver it to your door before you can ride it, so we see e-commerce as an area that we can capitalize on for the first time,” he says.

Another area Barnes plans to diversify into is the financial services business, which has been a popular choice for many postal operators around the world. SAPO does currently offer banking services but it has not yet capitalized on the opportunities available. “We have a banking service – Postbank – that right now just takes deposits,” Barnes comments. “We would like to see how we could get involved in the payment of government pensions, government grants and any other transactional business that rightfully should be ours.”

Technology also plays a massive role in the future of the post office and SAPO will use its current technological experience in banking and apply it to other areas of its business to meet consumer demands. “To be a relevant organization today you have to be technologically competent and competitive,” comments Barnes. “We are all connected to the world via our mobiles, so it goes without saying that SAPO needs to invest in technology to grow in the future.”
 

Left: Fordsburg Post Office in Johannesburg is one of 30 post offices in the city

 

 

While Barnes has some ambitious plans for SAPO, the postal operator is not currently working on any new projects, focusing first on securing its financial position. “I’ve been in the role for just a few weeks and my first purpose was to stabilize the ship and get some predictability about our cash flows. The growth strategies and the technology have to wait in line, but we are nearly done with the capital raising exercise, and once we’ve completed that, we will focus on growth.

“If you look at the demographics and geography of South Africa, you start to understand that the post office could be the socioeconomic thread that binds the country and its economy together. I’m looking to achieve financial independence in three years and create a valuable asset in five years,” Barnes concludes.

Country pursuits was published in the March 2016 issue of Postal Technology International. To read more from the magazine click here.

March 31, 2016

 

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