Founder: Turnaround Talk
When the South African Post Office (SAPO) was placed into business rescue (in July), there was plenty of speculation as to whether the State Owned Entity (SOE) was a going concern (i.e., an ideal candidate for business rescue). One side of the argument pointed to the fact that the SOE had suffered many years of mismanagement and was in no position to become profitable. The other side of the debate pointed to the fact that the SAPO is too big to fail because of the number of South Africans dependent on the entity.
Ultimately, the latter side won, and the company was placed into business rescue. However, there was merit to the concerns regarding the company’s profitability as its BRPs released an update that points to the fact that it will take a gargantuan effort to save the company.
Improvement needed
The article points out that Joint BRPs Anoosh Rooplal and Juanito Damons on Friday (29 September) issued an update on the troubled state-owned entity’s rescue after entering the process in July. In the statement, Rooplal and Damons noted that the Post Office would need to improve revenues and attain an efficient cost structure for the entity to achieve a turnaround.
“We have been working with management to address the decline in revenue, generate additional sources of revenue, reduce costs, effect key structural changes in the Sapo business model and consider key investment in technology and infrastructure to drive performance,” Rooplal said.
“The success of the Sapo Business Rescue is predicated on arresting the cash flow bleed whilst also allocating capital to facilitate the company being able to service clients effectively.”
Image By: Pretoria Rekord
Some progress
The Moneyweb article adds that in their two months at the helm of Sapo, the BRPs noted that they’ve managed to resume contributions to medical schemes, attend to the backlog of disciplinary cases, and restore electricity supply to the Newcastle branch – with operations scheduled to resume next week.
Salary payments for staff have remained steady so far; however, they have cautioned that Sapo’s ability to continue paying salaries will depend on the entity’s cash flows and receipt of additional funding from the Department of Communications and Digital Technologies and National Treasury.
With regards to medical aid scheme payments, the BRPs say they have back-paid contributions from July and have committed to staying consistent with payments so all employees can gain access to benefits.
The article points out that the re-opening of more key branches remains a key priority for the practitioners, but doing so will have to be balanced with the costs relative to available funds.
“Paying for the electricity to be reconnected and operational at the Newcastle branch is an important step and demonstrates our commitment to negotiating with municipalities and, where necessary, landlords in the re-opening of key post offices that were closed prior to our appointment,” Damons said.
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The BRPs added that a review of the Post Office’s structure and branch network continues to be a key focus moving forward, with key assessment criteria including profitability, geographical reach to customers, and mandated universal services, among others, for each branch.
“A one-size-fits-all in determining which branches need to be reopened and which should be closed is difficult to undertake. The Post Office services include the Universal Service Obligations in rural areas, so a mere profitability metric or cost centre metric would be trite,” Rooplal said.
“However, the purpose of the practitioners is to restructure the business into a solvent entity, which is able to pay its debt as and when it becomes due,” Rooplal added.
Managing risk
The plight of the SAPO is another illustration of the important role that risk management plays in business rescue proceedings.
This has always been a case of looking for the low-hanging fruits that would increase cash flow into the troubled business. The SAPO did have a business turnaround plan, which it hoped would address some of the structural challenges that the company faced.
It will now be a question of whether Rooplal and Damons feel that this plan will be effective enough and economically viable (in terms of implementation) to return the company to profitability.
