Post Office’s rescue plan gets green light despite job losses

The South African Post Office (Sapo) business rescue plan has been endorsed by creditors, receiving the majority vote following the business rescue practitioners (BRPs) meeting with creditors on Thursday. However, the plan comes with substantial job cuts.

The joint BRPs – Anoosh Rooplal and Juanito Damons – confirmed the development on Thursday, noting that the two-phased restructuring of the business will enable it to fulfil its social mandate.

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“The Post Office fulfils an important social mandate intended to provide key basic communications services to all households, including the rural areas, where access to wifi, smartphones and printers are not a given. A restructured Post Office can do this affordably and conveniently, given certain regulatory pricing and geographic reach of the branch network,” Rooplal said in a statement.

According to the rescuers, the plan will be rolled out over a period spanning two to five years.

“We thank those creditors who voted in favour of the Plan. We believe that with our continued involvement, hard work and detailed strategy, we can restructure the Post Office into a future-proofed business that can provide ‘communications inclusion’ for all South Africans,” Rooplal added.

Retrenchment

The first part of the plan will be about stabilising the Post Office, which will include reducing the entity’s branch footprint to 600 and retrenching 6 000 employees. These are just some of the measures the rescuers are willing to take to lower costs.

According to the rescue plan Sapo published in November, the entity had over 11 000 staff members on its books by September 2023.

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In the plan, employee costs were highlighted as a major operating cost, and to bring this down to a preferred level, Sapo would need to reduce annual employee costs by R1.2 billion.

The BRPs had estimated at the time that retrenchment packages would cost approximately R600 million.

Revenue review

The focus will also be on streamlining the financially distressed state-owned entity’s revenue streams. In their plan, the rescue practitioners have set out to continue pursuing bulk mail, hybrid mail and motor vehicle licensing (MVL) services as key revenue drivers.

Over-the-counter (OTC) payment services – including the payment of South African Social Security Agency (Sassa) grants – will be phased out as volumes have declined in the wake of beneficiaries finding alternative payment points.

“To address this issue, this BR Plan proposes discontinuing the SASSA OTC and CPP [cash pay points] payments, which are a significant drain on SA Post Office’s resources. This plan also suggests migrating or selling certain SA Post Office branches to Postbank, which would allow Postbank to expand its banking network and accommodate SA Post Office’s remaining OTC clients,” the plan notes.

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Regarding diversifying revenue streams, the BRPs believe there are reasonable prospects for Sapo to leverage its existing depot network to support a venture into logistics.

“SA Post Office has a depot network that is strategically located throughout South Africa. SA Post Office’s depot network, coupled with investment in a large company-owned logistics fleet could position it as an attractive partner to retailers in the e-commerce space and to corporates in the freight logistics market,” the BRPs motivated in their plan.

“Customer centricity and supplying the correct tools of the trade to the staff will be a key and ongoing initiative to provide excellent service, win back market share and gain traction with new products,” Damons said.

Post Office cash injection

The Sapo plan previously estimated that it would take about R6.2 billion to carry out its plans and place the entity on better footing.

National Treasury announced an allocation of R2.4 billion for Sapo in the February budget. According to the BRPs, some of this has already been used to address the entity’s immediate operational expenditure items. For the Post Office’s turnaround, the rescue practitioners say they will need an additional R3.8 billion, which they anticipate might be realised in 2024.

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At least R1.5 billion of that is expected to be allocated to creditors, R2.75 billion invested in capital equipment, R600 million to retrenchment packages, and a further R1.2 billion to exist as a buffer for operating cash flow shortfalls over the next three years.

This article was republished from Moneyweb. Read the original here