SA Post Office’s new chapter post business rescue

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JIMMY MOYAHA: The South African Post Office [Sapo] has officially confirmed that it would be looking to exit business rescue.

We know that the Post Office has been under business rescue for several years, and just last week we caught up with the stakeholder in question, which is responsible for the South African Post Office in the form of the Department of Communications and Digital Technologies.

They too confirmed that they would be looking forward to seeing a renewed Post Office, and how we move forward from here.

I’m joined on the line by the acting CEO of the South African Post Office, Fathima Gany, to look at the development side of the Post Office and see where we go from here. Fathima, lovely having you on the show. Thanks so much for taking the time.

Can we perhaps start the conversation with an overview of where the South African Post Office sits at this particular moment? We know that business rescue proceedings are just about being wrapped up. We know that we have a direct sense of the direction we’re headed in, but what is the state of the Post Office at the moment?

FATHIMA GANY: Good evening, Jimmy. Thank you for having me. We are in what we would call in a ‘transitional state’. The business rescue practitioners have filed to the courts for substantial completion. And then the business will be handed over to the new board of directors.

Incidentally, we met them today, starting a period of handover.

So currently we are in in this transitional state which we call the ‘high-care’ state because from being a distressed entity which is ICU, you’re now moving into high-care, to hand over to the board.

This is really the next phase about preserving the value that we achieved through the business rescue stabilisation and building a long-term sustainable organisation.

JIMMY MOYAHA: Fathima, can we take a look at some of the events that were a focal point of the business rescue? There was significant debt within the Post Office business. The previous board had been removed.

We know that there were a couple of challenges facing the Post Office financially – to the extent that at one stage the business rescue practitioners had confirmed that at least R3.7 billion, which was then revised down to almost R3.2 billion, would be needed to get us out of business rescue and have the entity operational.

As it currently stands, we know that debt has come down significantly. We know that there’s been an increase from a revenue perspective. Do we still need R3.7 billion to operate?

FATHIMA GANY: Let’s pause. The business rescue was funded out of the fiscus, and there was an initial tranche of R2.4 billion. So when you say, ‘where we were’, before the business went into rescue in July 2023, in February 2023 it was filed for provisional liquidation.

So it was a severely distressed business, with an accumulation of historical debt – predominantly in the current liability space. So you haven’t met your business debt in the ordinary course of business.

Sapo had not paid its employee benefits. So you had employees who were earning net salaries – but pensions, medical aids, those elements were all outstanding. So you’re looking at an extreme case of distress to an organisation today which has been right sized in terms of its cost base.

The creditors have reached a compromise as part of the business rescue plan, and that ‘12 cents in the rand’ has been paid out.

There have unfortunately been retrenchments, and those retrenchment packages have been paid out.

So when you look at the R2.4 billion initial tranche from the fiscus, that has been fully accounted for in terms of the activities that the business-rescue practitioners have engaged in accordance with their plan.

R3.8 billion was the second tranche, which was the ask that was not forthcoming. That additional funding was intended to support the longer-term modernisation initiatives like technology, infrastructure and new revenue streams. So its absence undoubtedly delays aspects about the broader turnaround strategy.

It’s important to distinguish that the funding would have accelerated the modernisation, but it was not a prerequisite for the stabilisation which has occurred in the business rescue.

JIMMY MOYAHA: Fathima, going forward, let’s look at that turnaround strategy and what lies ahead for the Post Office. What is the business model here? What is the plan? What are we expecting the new board to have or to give guidance on? We know that that new board is coming in. As you mentioned, the entity will be handed over to that new board from the business rescue practitioner perspective.

But what is the plan for the South African Post Office to become competitive economically – and viable at that?

FATHIMA GANY: The discussions with the new board were really to have a two-pronged approach because the Post Office is not out of the woods. It has achieved stability, but there’s a turnaround that needs to be implemented.

So the first priority for the board would be to protect the value that’s been created through the business rescue – and not dilute that value. That means maintaining financial discipline, governance standards and operational control.

And then the second priority, which you are alluding to, is really extending sustainability through revenue diversification, partnerships and service innovation.

And the third priority – which is a global standard of a postal services operator – is really modernisation, and so ensuring that Sapo evolves in line with changes in customers’ expectations and the broader postal industry.

So really, if I were an incoming board, I’d be thinking about protecting, preserving and building – not all stacked up against each other.

But some of them, in an acceleration and turnaround, you’d be keeping your eye on protecting while at the same time trying to bolt. So it’s not an easy game.

JIMMY MOYAHA: Not an easy game, but certainly a lot to look forward to from a Post Office perspective. The Post Office looks to begin its new chapter as it exits business rescue. [We have had] confirmation of that from the acting chief executive officer, Fathima Gany, who joined me on the line to look at the business and where we go from here.