The Post Office is begging for another R3.8-billion in taxpayers’ money to save it from going out of business — but thousands of jobs are set to go anyway.
The money is needed as investment capital to repair and modernise the institution and support yet another turnaround plan, its business rescue practitioners said on Monday.
The money, if allocated, will add to the R2.4-billion in state funding already given to the Post Office by finance minister Enoch Godongwana in his February budget speech.
The Post Office was placed in business rescue – a form of bankruptcy protection – by the high court on 10 July.
Business rescue practitioners Anoosh Rooplal and Juanito Damons said in their business rescue plan for the Post Office, published on Monday, that with the allocation of the R2.4-billion, the plan proposes a dividend award of 12c/rand, or about R1-billion, to all creditors who applied to be paid before work began on the rescue plan.
The business rescue practitioners believe their plan will achieve a better return for creditors; the alternative is the immediate liquidation of the company, they said.
Liquidation would result in the loss of all jobs and, according to the calculations of an independent consultant, a possible liquidation dividend payable to concurrent creditors would be 4.08c/rand.
Instead, the plan aims to stabilise the company, restore it to solvency and enable it to operate sustainably as a going concern without total reliance on government funding.
“Our approach in the plan is to rationalise costs, which are currently unsustainable, and to assist in restructuring the Post Office into an efficient and future-proofed business,” Rooplal said in a statement.
The financial sustainability of the Post Office is of critical concern. Its costs have consistently exceeded 200% of its revenue since the 2022 financial year. Employee costs accounted for 150% of revenue, with inadequate investment into IT systems, fleet management, mail processing centres, depots and the branch network.
After analysing the employee base, the plan proposes to retrench more than half of the 11 083-strong employee base, or about 6 000 people. This action will reduce the annual employee cost by about R1.2-billion.
“However, the organisation lacks skills and leadership – and management and technical expertise – across the business. This needs to be appropriately strengthened and developed to drive a culture change towards a high-performance organisation,” Rooplal said.
Closure of branches will yield further cost reductions. The plan is to retain 600 branches.
An independent valuator was tasked to value all 427 Post Office-owned properties. Although these properties experienced severe maintenance backlogs, many are in good locations and could be of interest to property developers.
The business rescue practitioners said the Post Office’s main revenue in future will come from postal services, financial services and property rentals.
Certain revenue segments will be given priority focus, including bulk mail, which today contributes 42% of the revenue. The plan proposes investment into dedicated sales and business development teams to revitalise this segment.
Hybrid mail, including the processing of road traffic infringement notices will also be prioritised. The Post Office has entered a service-level agreement to print and deliver the infringement notices through its postal and branch network. A further focus of revenue generation could also be on motor vehicle licensing.
Revenue streams that have failed to produce value will be phased out, including over-the-counter payment services, grant payments and cash pay points. A possible sale of certain branches to Postbank will allow the latter to expand its banking network and allow the Post Office to focus on its core business segments.
Partnerships will be included in the strategy to bolster logistics, operations and information technology. An example is the large depot network. With additional investment, the network could be attractive to strategic partners such as retailers in the e-commerce space and freight and logistics businesses.
“We are of the opinion that a large and accessible market exists and that implementing the plan could reposition the Post Office to reclaim a space in the logistics services sector,” Rooplal said.
“The compromise with creditors will restore the Post Office to a solvent position. We believe that with the continued support of the 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 said.
Creditors will be asked to vote on the plan on 7 December. A 75% majority vote in favour is required for it to be adopted. — © 2023 NewsCentral Media