Post Office business rescue plan: no more Sassa, 6 000 to be retrenched
The ailing Post Office was placed into business rescue on 10 July 2023 and the business rescue practitioners now published their plan.
The joint business rescue plan indicates that 6 000 of the Post Office’s 11 083 employees will have to be retrenched as one of the measures to restore it to solvency and operate sustainably as a going concern without total reliance on government funding. Sassa payments will also be phased out.
The plan, drawn up by Anoosh Rooplal and Juanito Damons, also aims to provide a better outcome for creditors that would have been the case if the Post Office was liquidated.
“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,” Rooplal says in a statement, pointing out that the entity’s financial sustainability is a critical concern that demanded attention.
The Post Offices’ costs consistently exceeded 200% of its revenue since 2022, with employee costs accounting for 150% of revenue, while inadequate IT system investment, fleet management, mail processing centres, depots and the branch network added to its financial woes.
After an extensive analysis of the employee base, the business rescue practitioners propose to right-size the business by retrenching the workers to reduce the annual employee cost by approximately R1.2 billion.
“The organisation lacks skills and the 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,” Rooplal says.
Post Office branches will be reduced to 600 according to business rescue plan
The branch network will also be rationalised to further reduce cost and the business rescue practitioners anticipate that 600 branches will fulfil the Post Offices’ activities, mandated by the Universal Service Obligations and international mail centre requirements.
According to Rooplal an independent valuator valued all 427 properties the Post Office owns and although these properties experienced severe maintenance backlogs, many of them are in good locations and could be of interest to property developers.
The Post Office’s revenue segments include postal service and, financial services revenue, as well as property rentals as the main sources of revenue as forecasted from next year.
The practitioners say certain revenue segments will be prioritised, including bulk mail, which contributes 42% of the revenue base. The plan proposes investment in dedicated sales and business development teams to revitalise this segment.
Hybrid mail, including the processing of road traffic infringement notices, will also be prioritised, as the Post Office entered a service level agreement with the Road Traffic Infringement Agency to print and deliver the notices through its postal and branch network.
Further focus of revenue generation will also be on motor vehicle licensing, with the re-opening of high performing branches where customers could renew vehicle licenses.
Rooplal says revenue streams that continuously failed to produce value will be phased out. These include over-the-counter payment services, which include the SASSA and cash pay point payments.
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The plan anticipates a possible sale of certain Post Office branches to the Postbank, which will enable it to expand its banking network and allow the Post Office to focus on more sustainable business segments, he says.
Strategic partnerships will be included in the Post Office’s strategy to bolster capabilities and resources in logistics, operations and information technology, such as the large depot network strategically located throughout South Africa.
With additional investment, the network will be attractive to strategic partners, such as retailers in the e-commerce space and freight and logistics businesses.
“We think that a large accessible market exists and that implementing the plan could reposition the Post Office to reclaim a space in the logistics services sector,” Rooplal says.
After the 2.4 billion from government, another R3.8 billion is needed
The Post Office received a recapitalisation of R2.4 billion from the department of communications and digital technology, but Rooplal says they need a further R3.8 billion from government as investment capital to repair and modernise the Post Office to support this turnaround strategy.
With the current allocation of R2.4 billion, the plan proposes a dividend award of 12 cents in the Rand (about R1 billion) to all pre-commencement concurrent creditors.
The business rescue practitioners believe that the business rescue plan will, upon implementation, achieve a better return for creditors and a better outcome for everyone else who is affected, against the result from an immediate liquidation.
“Liquidation would result in the loss of all jobs. In a liquidation scenario and according to the calculation of an independent consultant, a possible liquidation dividend payable to concurrent creditors would be 4.08 cents in the Rand (normally paid out 24 to 36 months later).
“The compromise with creditors will restore the Post Office to a solvent position. We believe that with the continued support of the joint business rescue practitioners over the implementation period of the plan and through renewed endeavours to institute strong governance and ethical policies, the business can trade as a going concern,” Damons says.
According to the Companies Act the creditors will be asked to vote on the business rescue plan on 7 December and a majority of 75% in favour of the plan is required for it to be adopted.