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Annual Report 2007

We deliver,whatever it takes

VisionTo be recognised among the

top 10 providersof postal and related services in the world

MissionSAPO will enable the nation to efficiently connect withthe world by distributing information, goods, financialand government services; leveraging our broad reachand embracing change, technology and innovation

Values• Be passionate about customer excellence

• Contribute positively to communities and the environment

• Treat others with respect, dignity, honesty and integrity

• Recognise the contributions of individuals

• Embrace diversity in doing business

Contents

Philosophy, vision and profile IFC

Financial highlights 3

Achievements 4

Chairperson’s review 8

Historical highlights 10

Board members 12

Executive Committee 13

Acting CEO’s review 14

Review of operations 16

Corporate governance report 26

Employment equity report 33

Independent auditors’ report 34

Directors’ report 36

Balance sheets 40

Income statements 41

Statements of changes in equity 42

Cash flow statements 43

Notes to the annual financialstatements 44

Schedule 1 – Unlistedinvestments 96

Group three-year review 98

High-level performance overview 99

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POSTBANK

Our services

2 South African Post Office Annual Report 2007

As a postal services provider, SAPO isclaiming its rightful place in this country,on the African continent and indeed,worldwide. This year, the Group againreports a surplus, which allows it toaddress local developmentalopportunities in the challenge to deliverservices to every member of thecommunity. Served, underserved andunserved alike must be enabled tocommunicate, connect and transact inthe world.

3South African Post Office Annual Report 2007

Cash flow up 218% to R792 million

Operating profit* up 44% to R431 million

Profit before tax* up 56% to R507 million

Revenue up 8% to R4,885 million

NAV up 41% to R1,233 million

Postbank deposits up 13% to R2,603 million

Cash equivalents up 39% to R4,580 million

ROA* up 19% to 6%

Profit margin* up 33% to 9%

* (Adjusted for pension fund asset)

Financial highlights

Trading profit margin/ROA

12%

10%

8%

6%

4%

2%

0%

-2%

-4%

-6%

-8%

Trading profit margin ROA

2002/2003

2006/2007

2005/2006

2004/2005

2003/2004

Trading profit margin/revenue growth

12%

10%

8%

6%

4%

2%

0%

-2%

-4%

-6%

-8%

Trading profit margin Revenue growth

2002/2003

2006/2007

2005/2006

2004/2005

2003/2004


Achievements

As SAPO’s tale unfolds, it becomes clear that there are five strategic themes which driveactivities. These are:

1. Drive operational excellence to achieve top quality at benchmarkcost.Achievements in this area during the 2006/7 financial year are:

● About 1,9 million new postal addresses were rolled out by March 2007, resultingin 10 million postal addresses countrywide. The Post Office uses an ingeniousgeographic information system to give addresses to those who never had one,contributing towards the incorporation of previously disadvantaged communitiesinto the mainstream of an active economy.

● 70 new Post Offices were opened and a total of 46 outlets were relocated. Thisfurther improves the Post Office’s footprint and its ability to deliver service to thepeople – no matter where they live.

● 10 new mail sorting machines were installed and in the 18 months sincecommissioning these, 877 million mail items have been processed through thesemachines and transported and delivered countrywide. The value of the improvedprocess efficiency is R34,4 million.

2. Achieve customer intimacy and use this to grow SAPO’scommunication, logistics and financial services.Achievements in this area during the 2006/7 financial year are:

● SAPO supports consumer payments for 106 municipalities countrywide and earnedR24,9 million from this. It is safe to say that the SAPO plays a vital role in enablingservice delivery for these municipalities.

● Postbank strengthened its position as the leading provider of Mzansi accounts, witha market share exceeding 40%. It introduced debit-card functionality on theseaccounts, transforming more than 1,2 million South Africans to members of a safer,cashless society.

● Postbank does not operate as a lending institution, but handles loans on behalf ofother institutions, with the total amount on the loan book being R61,5 million.Postbank aims to continue providing financial services on behalf of third parties.


● Phuthuma Nathi was the public offer of shares in the television companyMultiChoice. The demand for these shares was so great that the offer was extendedby one week, and ended up being three times oversubscribed. In total, investorsapplied for shares worth R1,3 billion. When the Phuthuma Nathi share offer finallyclosed on 3 November 2006, Post Office tellers had completed almost 125 000 ofthese transactions. SAPO enabled almost a quarter of a million South Africans toapply for ordinary shares in Phuthuma Nathi and therefore also participated ingrowing the wealth of our country. SAPO’s wide service network and efficientdistribution made it possible for people in the most remote areas to participate onpar with those in well developed urban areas.

3. Be government’s preferred partner for economic enablementwithin product and service offerings and in the delivery ofgovernment services.Achievements in this area during the 2006/7 financial year are:

● SAPO made history when it hosted the Congress of Commonwealth PostalAdministrations (CCPA) in July 2006. It was the first CCPA congress ever on Africansoil. This opportunity was exploited to the full to showcase South Africa as a leadingspirit in Nepad and a frontrunner the African renaissance.

● A total of 560 000 social grants were paid out per month by the Post Office up toMarch 2007.

● A world-class platform was developed for the online payment of traffic fines.Launched in July 2006, three local authorities are already using the system, includingthe Ekurhuleni Municipality. Many national routes traverse Ekurhuleni. Motorists canpay an outstanding traffic fine at any online Post Office. They can also establishwhether they have unpaid fines using their car registration or identity number.

● The Post Office is a vital channel for delivering government services to the people.In the spirit of this partnership, motorists can now renew their vehicle licences atselected Post Offices in the Free State, KwaZulu-Natal and the Eastern Cape. Manyof these offices have extended business hours, making it that much easier and moreconvenient for the public to renew their licences.


Achievements (continued)

4. Build a high-performance culture and develop skills throughoutthe organisation.Achievements in this area during the 2006/7 financial year are:

● The level 6 accreditation of the Post Office Group and subsidiaries by the externalBEE accreditation agency, Empower logic, was completed.

● To improve the governance of supply chain management, a major focus was placedon continually improved controls to ensure process integrity and to minimisepotential abuse. The existing policy was reviewed and revised and processes andprocedures were aligned. Compliance was enhanced with the aid of IT systems thatregularly track the key risks that procurement is exposed to.

● Employee satisfaction in SAPO improved by 1,4% over the past two years. The2006/7 average level of satisfaction was 61,1%.

● In May 2006, the Post Office introduced IT qualified but unemployed members of thecommunity as ‘e-cadre’ volunteers at its outlets with internet terminals. Thesevolunteers were trained in skills that would be useful to the public and taught basiccustomer-service skills. E-cadres are currently deployed within their owncommunities, introducing people to the world of IT and in the process, gainingvaluable work experience.

5. Strengthen the public perception of the SAPO as a trustedbrand.Achievements in this area during the 2006/7 financial year are:

● The 2006 external customer satisfaction survey indicated that the average customersatisfaction for the total Company improved by 7,9% to 82,6%.

● With the centenary of the Bhambatha rebellion in June 2006, the Post Office issueda stamp to preserve the event for posterity. Stamps are important custodians ofculture which may otherwise be lost to later generations.

● During the campaign of Sixteen Days of Activism against Violence on Women andChildren, the Post Office engaged in a partnership with the founder members,sponsoring postcards that citizens could sign to document their opposition toviolence and to pledge their support. The Post Office is proud to have partnered insuch a worthwhile cause and plans to assist in the 2007 campaign 365 Days againstViolence.


● On World Post Day 2006 (9 October), the South African Minister of Communication,Dr Ivy Matsepe-Casaburri met her counterpart from Swaziland to mark the openingof a portable Post Office in the border-town of Oshoek. Apart from the regular postalservices, this Post Office offers vital business services such as internet, faxing andcopying – the only facility in the town to do so. Celebrations were marked by theparticipation of the local community, from public speakers to entertainment bytraditional dancers and schools.

● The final round of the annual Post Office Choral Eisteddfod took place inJohannesburg in August 2006. This year, roughly 16 600 choristers countrywide hadthe opportunity to showcase their talent. This corporate social responsibility projectprovides young people with a constructive and uplifting means of spending their freetime, building their culture and securing an enviable position among their peers.

● The Post Office’s annual letter-writing competition ties in with the Universal PostalUnion’s competition and fosters literacy and writing skills among young South Africans.

The story I tell here, I tell with a great deal of

pride. It is the story of the 2006/7 SAPO annual

report and a tale that speaks of financial

results: revenue reported at R4,9 billion (an

8,1% improvement on the previous financial

year) and an operating profit that has grown

to R431 million.

Chairperson’s review

We deliver, whatever it takes.


As a parastatal organisation, SAPO catersto the mandate of its shareholder, the state.This positions SAPO as an essential deliverychannel for government services,contributing to the Department ofCommunications’ strategic thrust ofbecoming a “Global Leader in harnessingInformation and CommunicationTechnology for socio- economicdevelopment”.

As a player in the global postal industrySAPO has to keep abreast of marketdynamics in terms of competition, changesin technology and customer needs. Thispresents great opportunities andchallenges. The greatest challenge lies inbalancing the delivery to local imperativeswhilst pushing for global competitiveness.The immense opportunities build on themain foundation that continues to be theengine of growth and development,SAPO’s footprint, its people and keystakeholders. It is also this foundation thatmakes our Postbank to be the leading bankof Mzansi accounts with a market share of41%. It thus makes it possible for SAPO towork towards the goal of acting in the bestinterest of the South African people interms of delivering the social imperativesof affordability and accessibility.

As we release the 2006/7 results we remindourselves that our responsibility begins withthose who work for the organisation andends with the customer whom we serve.The results mark an evolutionary turnaroundthat commenced with the introduction ofa business and customer-centric model atthe turn of the new millennium. We saluteall those individuals (current and former)who contributed to the growth we nowexperience.

However, the winds of change have notbeen without turbulence and ours continueto be a work in progress. The incomingSAPO leadership has had the challengeof managing a sensitive and potentiallydisruptive phase involving the formerleadership of SAPO during a cross-overperiod when a new Board chairperson andmembers were appointed. As expectedthis attracted public attention. The decisiveand servant leadership of the new Boardwith the support of the shareholder,leadership of the communication workersunion and the Parliamentary PortfolioCommittee on Communications, made itpossible to stabilise the organisation tocontinue on its path of transformation,growing revenue and raising service levels.


The Board’s focus on corporate governancecommenced with the restructuring of Boardcommittees to drive and monitorimplementation of corrective measures asguided by ongoing reviews and audits. Thehard work and commitment shown by theexecutives and staff in general under theleadership of the Acting CEO during thisperiod is praiseworthy. We come out ofthis period stronger and ready to tacklethe opportunities and face challenges oftransforming and growing the companytogether.

Traditionally, SAPO has been aboutordinary people and today, nothing haschanged. It is still about ordinary people –and SAPO is aggressive in its bid to delivergovernment services to all South Africans.Our refined strategy is demonstrating thatpart of the business opportunity lies withinthis development imperative. As we roll-out addresses to underserved rural andurban squatter areas, we create newrevenue streams that can also grow thesedisadvantaged communities. In line withthe shareholder mandate, SAPO can thenplay a role as both a catalyst and enablerof growth in the economy and as a‘development trampoline to leverage ourPeople out of Poverty’. This contributes tothe ideal of building a developmental state.

South Africa’s hosting of the 2010 SoccerWorld Cup is another opportunity area forthe Post Office. Already initiatives havebeen implemented that will support andpromote this event, including specialstamp launches over the next three yearsas well as the upgrading of various mailand courier services in light of thisprestigious event. All these will build onthe gains of innovation. These include thefact that in 2006 the South African PostOffice was awarded a prestigious serviceinnovation award in the category Innovativeuse of Information Technology for effectiveservice delivery at the Centre for PublicService Innovation award ceremony inPretoria. This innovation will be alignedwith government’s roll out of broadbandinfrastructure in the country. This includeswireless broadband access especially torural and remote areas as part of advancinguniversal services. Special attention will be

paid to advance SAPO’s contribution toscarce and critical skills developmentbuilding on the e-cadre learnershipprogramme as part of Accelerated SharedGrowth Initiative for South Africa (Asgisa).

The South African Post Office has toppedthe parastatals and remains one of the topthree companies in South Africa toconsistently maintain more than 25%female representation in executive rolessince the start of the Business Women’sAssociation’s audit on South Africanwomen in corporate leadership. TheCompany remains committed to thedevelopment of the African continent andas such will continue to participate inregional and continental postal industrydevelopment initiatives. Of priority is tosupport Kenya as the host of the UniversalPostal Union (UPU) conference in 2008.This also includes sector-specific initiativesof New Partnership for Africa’sDevelopment (Nepad).

The impressive financial results releasedare a step towards the vision of beingrecognised as one of the top ten providersof postal and related services in the world.They build on SAPO’s current internationalranking of 14th in the world by the UPU interms of financial performance. Thisconvinces us that, as an organisation, theSouth African Post Office is making stridesand setting the international stage alight.However, this requires visionary leadershippremised on strong corporate governanceprinciples and practices, as well asoperational excellence, something theleaders are fully committed to.

And so SAPO is embracing all that is ahead– the people, the partnerships and theplans for a better future. It is with courage– and charisma – that we go about buildinga nation of which we can all be proud.

Ms Vuyo MahlatiChairperson

SAPO was ranked

14th in the world by

the Universal Postal

Union for financial

performance.This

proves that we are

making strides and

setting the

international stage

alight.


Historical highlights

The South African Post Office (SAPO) has delivered an uninterrupted service to

its clients for decades. The story of Post Office operations began in a little office

in Cape Town in 1792. Today, the organisation has evolved into the principle

mover of mail in the country. Not an easy task, considering that operations are

scattered across an area of more than 1,2 million square kilometres!

1995In August this year, SAPO launched its firstretail postal agency in Bloemfontein. Toreduce the initial internal workload, itcontracted a local shop owner to conductbusiness on its behalf. Towards the end ofthis year, Witwatersrand mail sortingactivities were moved to Witspos mailcentre in Ormonde, south of Johannesburg.To this day, this mail centre remains thelargest in the southern hemisphere.

1996This year saw the incorporation of the postaladministrations in the then independent‘homelands’, Ciskei and Transkei (EasternCape), Bophuthatswana (North West), andVenda (Limpopo) into SAPO. It meant theextension of the capacity and serviceoffering of the organisation.

1997In these days of turmoil, SAPO introduceda security division to combat postal crime.Within a short space of time, theorganisation had achieved its goal ofcombating offences such as mail violationand armed robberies.

1998-2001This significant season in SAPO’s historymarked the strategic refocus of the Group,

turning the organisation towards abusiness-orientated, customer centricmodel.

2002The State President, Mr Thabo Mbekielectronically signed the first ElectronicCommunication and Transaction Act. SAPOhas since been the preferred supplier forverification of advanced electronicsignatures.

2003To make life easier for the recipients ofsocial grants, SAPO launched the PostbankAccount in this year. The bank cardcontains a chip with the beneficiary’sdigital signature and fingerprints encodedon it. The facility enables customers towithdraw cash at any Post Office orSaswitch affiliated ATM – and eliminatesthe need to queue on pay-out days.

2004In this year, SAPO set a benchmark whenit announced the first operating profit. Theorganisation also scooped a number ofdifferent awards in this year. It wasnominated for four World Mail Awards: a‘Technology’ award, an ‘E-Commerce’finalist award (EBPP postbox solution), an‘Innovation’ finalist award (eBDN solution)and an award for ‘Security’ for the Post


Office Code of Ethical Conduct campaign.It scooped the World Mail Award for‘Security’ and two X-Pert awards: ‘Sponsorof the Year’ and ‘Project Manager of theYear’, three awards from the Centre forPublic Service Innovation (CPSI) for‘Innovative use of IT’ and two first runner-up awards for ‘Innovative Enhancementson Internal Systems within Government’and last, but not least the ‘Public SectorInnovator of the Year’ accolade.

2005At this time, Postbank made history yetagain when it took the lead in drivingMzansi accounts. To the surprise of many, itsoon boasted more Mzansi accountholdersthan the four major banks: Absa, Nedbank,Standard Bank and First National Bank. Thiscan be attributed to Postbank’s unrivalledaccessibility: every Post Office also doublesas a Postbank. In 2005 there were alreadymore than 2 000 Post Offices countrywide!

2006Postbank improved its lead even further in2006, with Mzansi accounts capturing 40%of the total market. At the announcementof the 2010 Soccer World Cup to be held inSouth Africa, a first for our country, thePost Office issued a miniaturecommemorative stamp sheet. SAPO alsomade history when it hosted the annual

Congress of Commonwealth PostalAdministrators (CCPA). This was the yearthat SAPO proved that it was still in thedriving seat when it received two awardsfrom CPSI for ‘Innovative use of IT’.

2007The Post Office shifts focus from costcutting to revenue growth and launcheda number of strategic offerings on thestrength of SAPO brand. In the arena oftechnology, the organisation is nowproperly positioned as an innovative,dynamic and critical national asset.Excellent results in this financial yearenhanced its offering as preferred service-provider to its stakeholder, the SouthAfrican government.

1 V Mahlati Chairperson of the Board

2 MM Lefoka* Chief Operating Officer and ActingChief Executive Officer

3 NJD Buick* Chief Financial Officer

4 MM Mphelo Acting Company Secretary

5 P Canca Non-executive Director

6 AJ Hendricks Non-executive Director

7 SMA Malebo Non-executive Director

8 S Mokoetle Non-executive Director

9 V Mhlongo Non-executive Director

10 T Mokgosi-Mwantembe Non-executive Director

11 FN Msimang Non-executive Director

12 PE Pokane Non-executive Director

* Executive Directors


Board members

7 8 9 10 11 12

1 2 3 4 5 6

1 MM Lefoka Chief Operating Officer and Acting ChiefExecutive Officer

2 NJD Buick Chief Financial Officer

3 H Choonara Group Executive: Human Resources

4 JS Kotsi Senior General Manager: Mail Business

5 ME Lancaster Acting Group Executive: Strategy

6 M Mathibe Managing Director: Courier Freight Group

7 TBJ Memela-Khambule Managing Director: Postbank

8 R Mkhize Group Executive: Customer RelationshipManagement

9 NA Mnisi Acting Senior General Manager: Retail

10 MM Mphelo Acting Company Secretary

11 L van der Bank Chief Information Officer

12 TE Xiphu Group Executive: Corporate Services

7 8 9 10 11 12


Executive Committee

1 2 3 4 5 6

Acting CEO’s review

Improving the country’s competitiveeconomic performance


The history of SAPO is a chapter in a story.And the story is an account of Africa – ofSouth Africa; of its people, of the courageand conviction of these people and theintriguing role that the postal service hasplayed to these people.

And since stories are about talking, itmakes sense that SAPO’s services reflecta dialogue with the community. SAPO’sfocus is at the local community level,where its customers rise to the challengesof daily life – of communicating,connecting and transacting in a world atonce local and global.

Addressing issues at community leveltranslates into many things. Take anaddress, for example. What’s in anaddress, you may ask? Whether it is deathrow or millionaire’s mile, an address tells astory – a tale about people, about theirpasts and their futures. And about wherethey are located – physically andpsychologically. So, what is an addressworth? Well, to the woman who is tracedand receives mail for the very first time –its value is priceless. Who can measurethe value of a father receiving a letter froma son? An address represents the right tointeract in a bigger world and March 2007saw SAPO enable that right, with

approximately 1,9 million new postaladdresses being rolled out, growing thetotal numbers of postal addresses in ourcountry to 10 million. Via a GPS (globalpositioning system) offering, householdsin the most rural of areas – houses withno numbers in streets with no names –now enjoy postal delivery and, along withthat, vital services such as the delivery ofidentity documents.

But SAPO’s mandate is also to tell the storyof their partnership with government inaddressing the myriad of social andeconomic issues that face our nation.A Mzansi bank account is not just a bankaccount; it is part of a bigger plan to enablea marginalised person to complete financialtransactions in a modern world. A PhuthumaNathi shareholder is not just a shareholder,but a person who tastes empowerment –and a real sense of hope for the future.

SAPO embraces a number of governmentinitiatives. These include reducing the cost


of doing business in South Africa andcontributing to a more competitiveeconomy. This we do through ourinvestments in Information, Communicationand Technology (ICT) infrastructure,broadening the ICT skills base,implementing new technologies and ICTskills-transfer programmes like the ‘e-cadre’programme. Annually, we broaden our retailinfrastructure to reach more communitiesand to intensify outreach; improve deliveryby upgrading our mail centres and focusingon continuous address expansion. As anorganisation, we broaden participation in theeconomy by facilitating access to financialservices and play a key role in improvingaccess to government-funded projects.

In this past financial year, SAPO enteredinto arbitration with Vision Design House(VDH), the company responsible for theupgrading of Post Office retail outlets. VDHwanted to recover payments for work doneamounting to R4,251 million. SAPOwanted to recover money for over chargesamounting to R31,528 million. Thearbitrators granted absolution on both theVDH claim and our counterclaim, meaningthat neither party successfully proved itscase. SAPO is not entitled to a refund orVDH to further payments. It was orderedthat each party was to pay its own legalcosts. This matter has now been finalised.

In the 2006/7 financial year SAPO hasdriven operational excellence to achievetop quality service at benchmark cost. Thisfocus has found its way into the bottom-line; and a good looking bottom-line it is!Top of mind has also been the business ofbuilding a strong performance culture anddeveloping skills throughout theorganisation. The incredible turnaround ofthe South African Post Office in recentyears has nothing less than ‘success story’stamped on it – one of the best to comefrom corporate South Africa yet.

The successes have not only beenfinancial. In almost every arena, SAPOhas enjoyed significantly improvedperformance and the organisation is ontrack to transform itself into a commerciallydriven enterprise – one that will use itscommercial surplus to reinvest in theeconomy, enabling it to fulfil and sustainits universal service obligation, proving thatthe name of the South African Post Officeis one of which we can be proud.

Ms Motshoanetsi Lefoka

Acting CEO

Via a GPS (global

positioning system)

offering, households

in the most rural of

areas – houses with

no numbers in

streets with no

names – can now

enjoy postal delivery

and, along with

that, vital services

such as the delivery

of identity

documents.


For some time, the postal sector hasgrappled with how it needs to address thechallenges of the future. Globalisation andcontinued technological leaps inevitablylead to more competition in postalservices. The needs and expectations ofcustomers are increasingly changing as thedigital economy asserts itself.

SAPO’s performance during the year underreview is testimony to the Company risingup to meet these new challenges.

The story of SAPO’s successfulperformance involves many factors, thebiggest of which is cost containment,followed by innovation thanks to theembracing of technology. Not least was theimplementation of a strategic partnershipwith government in service delivery.

Socio-economic relevance ofSAPOSAPO is an integral cog in the state’sservice delivery machinery. The mandate issimple: provide universal and affordableaccess to postal services. At the heart ofthis mandate is the need to promoteeconomic development and communityupliftment, as enshrined in thegovernment’s aims of growing the

economy, creating jobs, addressing thechallenges of the second economy, anddiminishing poverty.

Accessibility, affordability anddelivery standardsAt the core of postal services provision areaccessibility and affordability. Underlyingthese is the requirement to developmentrecipient addresses and adherence to thedelivery standard of 96% set by theregulator.

The target of providing 4,6 millionaddresses over three years, set in 2005,has been exceeded by 800 000. Ondelivery standards, this year has seen animprovement of 1% from the previous year– current delivery is at 93% compared with92% previously, thanks to an upgrade ofthe postcode system and the improvementof operational processes.

SAPO delivers six million items per day.Bucking international trends, SAPO hasexperienced an increase in delivery of 7%,an encouraging sign of capacity for growthin the South African economy.

Through its 438 delivery depots around thecountry, SAPO has assisted the Department

Review of operations

SAPO’s commitment to delivering onthe shareholder’s mandate is driven bythe ethos of good service delivery andis firmly rooted in principles of goodcorporate governance.

of Home Affairs in reducing its backlog ofuncollected identity documents – and it didso at a reduced cost of R5,75 as comparedto R15. More than 1,3 million identitydocuments have been delivered nationally.

SAPO has won a national tender fromTelkom Directory Services for the deliveryof about seven million telephonedirectories. SAPO also delivers non-localdirectories that are ordered through theSouth African Post Office Call Centre.

Underlying SAPO’s account for the pastyear are two key facts:• Since the postal monopoly limit has

been reduced from 2 kg to 1 kg, SAPOhas suffered a market share reductionof 4% (98% to 94%); and

• There was a reduction of 69% ininternal postal crime.

But the narrative on delivery does notstop there. From identity books to deathcertificates, SAPO’s infrastructure enablesit to literally go the extra mile in thedelivery of essential services to SouthAfricans nationwide. Unparalleled reachhas allowed the Courier and Freight Group(CFG) to make inroads into the EasternCape, which, with its high proportion ofunder-serviced areas, has provided anexcellent platform for the distribution ofteacher payslips: the delays of two to threemonths have been turned around to justone week. In turn, CFG through proof ofdelivery assists the provincial governmentin determining the number of teachersemployed at each school, thus eliminatingpayments to “ghost” teachers. SAPO alsohelps the provincial government with thedelivery of first-aid and refill kits for theHIV section of the Department ofEducation, and the distribution ofmedication on behalf of the Department ofHealth and Social Welfare.

In KwaZulu-Natal, the extensive reach ofSAPO’s services has ensured book deliveryto the most rural of schools.

One critical factor in the tale of improveddelivery is SAPO’s investment in new high-speed sorting machines, introduced atmajor mail-centres in Cape Town,Johannesburg and Durban. Since thedeployment of these machines in October2005, 877 million mail items have beenprocessed; an average of 46,8 million permonth. This brings SAPO closer towardsachieving the shareholder’s delivery targets.

SAPO’s contribution to black economicempowerment (BEE) through procurementresulted in the purchase of products andservices worth about R900 million fromthis sector.

Banking on the Post OfficeSAPO has come a long way in assistingthe government to meet its objective ofextending banking services to all citizenswho need them. It does so throughPostbank, whose expansive branchnetwork also provides cost-effectivepayment of social grants and value-addedservices such as funeral and loanschemes. Postbank has 4,6 millionaccounts, an increase of 772 330 newaccounts year on year.

While not operating as a lending institution,Postbank handles loans on behalf of otherinstitutions, such as Bayport. A total of 5603 loans with a book value of R61,6million are currently reflected in Postbank’sbooks.

In order to draw on international expertiseand best practice, Postbank has acquiredmembership to the World Savings BankInstitute (WSBI), and is actively involved inthe Postal Financial Service Group (PFSG)


Approximately

1,9 million new

postal addresses

were rolled out

by March 2007,

resulting in

10 million postal

addresses in total.


of the Universal Postal Union (UPU) in theestablishment of electronic postal paymentsystems.

Making it with MzansiPostbank is the leading South African bankin terms of Mzansi accounts, with a 41%market share. Mzansi is a banking facilityprovided by all banking institutions for thepreviously unbanked. It is a requirement ofthe Financial Sector Charter which seeks tomake banking more accessible to the widerSouth African community. Postbank’ssuccess story is due to its unrivallednational coverage through 2 600 postaloutlets. In addition, Postbank introduceddebit-card functionality on 1,2 million ofthese accounts.

As part of its aim of promoting a cultureof savings in South Africa, SAPO sellsGovernment Retail Bonds to the public onbehalf of the National Treasury. During thepast year, sales amounted to R135 million,representing 70,6% of the totalGovernment Retail Bonds business.

Cashing in on cardsA milestone in the provision of electronicbanking services was the May 2006 launchof the Visa-branded Postbank debit card,enabling customers to purchase directlyfrom merchants nationally andinternationally without having to carry cash.At the end of the period under review, atotal of 1 078 159 Visa-branded debit cardshad been issued to customers to replacetheir ordinary ATM cards.

Pensioners benefited from the move to acard-based system as grants are paid viaa Pension Flexi-card. At the beginning of2007, 330 000 pension beneficiaries wereregistered at Postbank. Postbank’sobjective is for 80% of pensioners to bebanked in five years’ time.

Postbank has also converted about200 000 grant recipients in the North West

province from a traditional cash paymentsystem to the special Postbank PensionFlexi-card product. This card entitlespensioners to a service free of monthlyservice fees and one free cash withdrawalat either a post office counter or ATM.During the next financial year this productwill be replaced with a Visa Electron debitcard.

Modernising moneyInternational growth in electroniccommunications has set the tone for theway in which postal services around theworld are conducted, dramatically affectingpost office service delivery. Globally, thishas resulted in postal services embracingelectronic communications to extendexisting services to more customers andto add new services.

The Post Office distribution network andinfrastructure base is ideally suited to theprocessing of many types of transactions.Opportunities for new Postbank businessconstantly arise; it has developed its owninternet banking capability, launching thisas an internal service to its employees inAugust 2006. The product will be availableto external customers later in 2007.

Retailing rightA story not often fully told is that of SAPOas a provider of a cost-effective networkthroughout South Africa, supplying avariety of payment options, collections,payouts, banking services, addressservices, hybrid mail and direct marketingservices as well as various physical andelectronic products.

SAPO aims to ensure that it has one outletfor every 10 000 people nationwide. Thepast year has seen an improvement in theaverage number of citizens per post officebranch, with 14 107 citizens above the ageof 10 per branch versus the 2005/6 figureof 14 458.

Review of operations (continued)

The number of SAPO outlets, whichincludes both branches and agencies, grewfrom 2 574 in 2005/6 to the current 2 664,translating into nearly 6 000 counter points.This was enabled by the addition of 70 newbranches – both permanent andtransportable – to the Post Office stable,with 52 of the 70 established in previouslyunder-serviced areas. Altogether46 branches were relocated and renovated.The number of customers served grew by7% – from 72,7 million to 78 million andthe improvement in the number oftransactions stands at 4% – fromR103 million in 2005/6 to R107 million in2006/7. Plans are under way for the furtherexpansion and upgrading of SAPO’s retailnetwork to 3 015 outlets by 2010.

Thus was SAPO’s footprint and its ability todeliver service to the people improved,regardless of where they live. Even thefield office of the South African NationalDefence Force in the Democratic Republicof the Congo is represented in the offering.

An increased number of SAPO branchesnow offer extended trading hours. These852 outlets, previously open from 08:30 to16:30, now offer services from 08:00 to17:30 daily. A total of 124 branches inshopping malls offer service on Saturdayafternoons and Sundays.

Critical to the SAPO account is the need toeliminate postal crime and corruption in allits forms to restore public confidence inthe integrity of mail and to enhance theimage of the Post Office as a trustedservice provider. Improved cashmanagement and practices have reducedlosses due to robberies and burglaries.

Motoring aheadSAPO’s partnership with government in themotor licence renewals arena grew at animpressive rate during the past financialyear. The motor vehicle licence (MVL)service bounded ahead; with incomeincreasing from R6 million to R24,9 million

thanks to improved marketing, increasedawareness as well as improved customerservice.

MVL renewal is now offered at 18 branchesin the Free State, 26 branches in KwaZulu-Natal and 31 branches in the Eastern Cape.SAPO continues to negotiate with otherprovincial governments with the aim ofexpanding the motor vehicle licence andmotor vehicle registration services.

Paying up and paying outThe Pay-a-Bill service continues to growin popularity with government as well asthe private sector. During the past year,12 additional agreements were signed withmunicipalities and private businesses forconsumer payments of their accounts atPost Office branches. SAPO supports106 municipalities with payments andearned R24,9 million from thesetransactions.

The traffic fines service was successfullyrolled out to three municipalities. Usingonly their car registration or identitynumber at any online post office,customers can establish whether they haveunpaid fines in that municipality. Thissystem, a first for South Africa, offers areal-time solution to customers, who canvalidate a fine at the point of sale. Sinceimplementation in June 2006, 13 817 trafficfines have been paid with a turnover ofR2,4 million generated from thesetransactions. Income earned for the PostOffice on these transactions was R95 000.

Sharing sharesSAPO was integral to Phuthuma Nathi,the public offer of shares in the televisioncompany, MultiChoice. Available to all blackcitizens – as individuals or groups – thePhuthuma Nathi share was priced atR10,00. Via its extensive service network,SAPO made it possible for those in eventhe most remote areas to participate onpar with those in well developed urban


New sorting

machines at

Durmail, Capemail

and Witspos were

installed in October

2005. Since then,

these machines

process 48,8 million

mail items every

month.


areas. The organisation handled nearly125 000 of the Phuthuma Nathitransactions, thereby enabling almost aquarter of a million South Africans to applyfor shares and participate in the growingwealth of the nation, with the total turnoverof the transaction at R1 109 billion. Theshare offer was three times oversubscribed.

Putting a stamp on itPhilately enjoyed a successful year, withthe number of active customers buyingdirect from Philatelic Services increasingfrom 5 143 in February 2005 to 7 984 inMarch 2007.

The Philately publication, Setempe, has25 000 subscribers from 70 countriesworldwide on its database, with its printrun having increased from 15 000 in 2002to 30 000 in 2007.

Interest in stamp collecting continues togrow and the division has designed andprinted – for the first time – a booklettargeted at the general public inits endeavour to actively promote theeducational value of stamps among theyouth and grow national interest in stampsand stamp-collecting. In the past year, thisdivision took part in 12 exhibitions bothlocally and abroad, including one inBelgium and another in Tanzania. For thefirst time ever, this division organised theJunior National Stamp Show in Pretoria.New business includes products aimed atthe tourist market, a possible exhibition inAugust 2007 in Uganda and continuingwith plans to host an international stampexhibition in November 2010 along with theSA Philatelic Foundation.

Humanly resourcefulSAPO employs 14 424 people. SAPOcontinues to create jobs in line withgovernment’s goal, particularly theincreased number of outlets each yearaveraging three employees per new outlet.

For its investment in upgrading of facilities

as well as the building of new outlets,SAPO uses skills from the Expanded PublicWorks Programme database in variouscommunities, participating in an activeSMME development programme which iscreating and supporting small businessesand entrepreneurs across the country.

May 2006 saw the successful introductionof the ‘e-cadre’ programme, when SAPOintroduced unemployed, IT-qualifiedmembers of the community as ‘e-cadre’volunteers to its outlets with internetterminals. These 100 volunteers, play a rolein educating the public, and wherenecessary, Post Office staff, on the useof new Post Office technology and weretrained in customer and government-service skills, introducing customers tothe world of ICT (Information andCommunications Technology) and in theprocess, gaining valuable work experience.This programme, which deployedindividuals in their own communities,served to strengthen the public perceptionof SAPO as a trusted brand – both ascreator of employment and as provider ofa global ICT offering to the customer.

For SAPO the story of developing peopleis all-important, in line with a nationalmandate that incorporates developing thehuman resources capacity within theorganisation as well as the creation ofcontinuous learning opportunities for thoseemployed by the Post Office – this in thespirit of achieving operational excellencethat is customer-centric and founded ondelivery of the highest standards.

SAPO has continued to streamline humanresource processes to achieve operationalexcellence. In recruitment, systemenhancements have reduced the time forprocessing job applications from 100 to35 days. Improved data management hasenabled more efficient payment ofpensions, with retirees enjoying a reductionin delays from nine to three months. The


Postbank’s debit-

card functionality

transformed more

than 1,2 million

South Africans from

people who kept

their money under

the mattress to

members of the

cashless society.

organisation has improved the time takento attend to employee grievances.Absenteeism against an internationalbenchmark of 2,5% is at 1,5%. Employeesatisfaction has improved over the past twoyears by 1,4%, with the 2007 average levelof satisfaction at 61,1%.

The Human Resource Department pridesitself on the development of an integratedtalent management programme, whichaims to align succession management,employment equity, competency and skillsdevelopment, performance managementand personal development or careermanagement with SAPO’s strategy as wellas national and international benchmarks.As a result, SAPO has developed a“leadership pipeline” that differentiates theroles and responsibilities of managersaccording to the various levels within theorganisation. This is in a drive to build ahigh-performance culture through skilledand motivated staff.

Aiding the fight against AidsSAPO has joined the struggle againstHIV/Aids. The Corporate Social InvestmentDepartment is focusing on providingsponsorship and management support inthe fight against the affliction. Unparalleledreach has allowed the Post Office’s Courierand Freight Group, for example, to partnerwith the Department of Health in thedistribution of antiretroviral medication tohospitals and clinics throughout the country.

Improvements to the working environmenthave been introduced through the adoptionof employee wellness programmes, whichincludes voluntary confidential counsellingand treatment. In the past year, 48% of full-time and part-time employees underwenttesting, with post-test counselling. Supportgroups were set up to enhance the lives ofthose living with HIV/Aids. General healthrisk assessment opportunities were alsooffered, with surveillance programmes

encouraging employees to improve theirwellness status and assessing areas inthe environment where improvementwas needed.

Financially flyingSAPO’s financial results tell a tale ofincreased profitability and an impressivebottom line. The past five years in particularreflect an upward move in commercialsurplus on the back of the organisation’smove towards commercialisation. Revenuegrowth for the 2006/7 financial year is at8%, with operating profit at R431 million,a 44% increase on last year*. Theorganisation’s profit margin stands at 9% –up from last year’s 7%. Profit before tax, asa percentage of total assets, is up from 5%to 6%. Moreover, SAPO is on track to meetits targeted net operating profit rate of 15%within five years.

Key to the 2006/7 financial year’s surplusis the combined effect of revenue growthat 8% and the maintenance of costincreases at 6%. This combination of costcutting as well as improvements on thebusiness front is serving SAPO well.

Non-traditional businesses have also shownstrong growth, particularly financial and retailservices. Improved efficiency in the humanresource arena – despite an increase in mailvolumes – have also aided in painting a rosyfinancial picture. The SAPO delivery fleetcontinued with the rationalisation of costsand the exploitation of synergies betweenthe mail and courier arenas.

The restructuring of the balance sheet isalmost complete, with equity and reservesof R1,2 billion and total assets of R6,8billion including cash and cash equivalentsof R4,6 billion.

The biggest contributor to revenue growthlies in the traditional mail business arena,


(* Adjusted for pension fund assets)


where volume increases continue tosignificantly impact on the bottom line. Thisis on the back of a buoyant economy aswell as the successful roll-out of postaladdresses across the country as reportedabove. The division reflected an operationalcontribution of R1,2 billion. The largestcontributor to mail business revenue wasin the form of bulk mail; letters posted inlarge numbers for business-to-businessand business-to-consumer purposes.

Postbank continued to performexceptionally well, with a generatedcontribution of R110 million – up fromR98 million in 2005/6.

The main contributors here are the 13%growth in deposits and improvements onservice fees, generated from highertransaction volumes. Postbank’s depositbook for the year grew by 13%, toR2,6 billion. Postbank now has 4,6 millionaccounts, showing an increase of 784 000accounts, a 20,5% improvement on lastyear’s figures.

On the Courier and Freight Group (CFG)side, a subsidiary integral to the SAPOoffering, the 2006/7 financial year saw areduction in losses from R84 million in2005 and R61 million in 2006 to R7 millionin 2007. CFG is well poised to move intoprofitability in the next financial year.The turning of the tide is attributable toimproved cost management and therationalisation of infrastructure. Operatingcosts were reduced by 17% for the 2006/7financial year, with the key areas of savingsa 22% lower staff cost, a 25% reduction intransport costs and another 25% reductionin communication costs. Revised pricingsystems introduced to addressinefficiencies have also positively impactedthe bottom line. On the transport front, on-time delivery has continued to improve,with service levels up by 7% on last year’sApril figure of 88% to March 2007’s 95%.

Areas under review to improve profitabilityinclude splitting the Group’s courier andfreight service offering, clearlydifferentiated minimum weight and pricingconsiderations, developing a high-levelcosting model to identify unprofitableaccounts and an assessment of the facilityfor consignment billing for courier products.

SAPO is striving for top-line growththrough the diversification of non-traditionalrevenue and creative use of electronicofferings. The drive to grow revenue hasstarted to yield results, with new businessopportunities such as the growth in cellphones and related products, motorvehicle licence renewals, pay-a-billservices, hybrid mail and government grantpayouts coming into play. Improvement indelivery standards are key to the customeroffering. Further revenue diversification inrespect of courier and financial services isbeing considered.

SAPO has a social mandate, for whichcash needs to be generated. Cashgenerated from operating activities is atR792 million, a staggering improvementof 219% on the prior year, enablingsignificant infrastructural investments –both in buildings and IT – totallingR400 million.

The Post Office completed the level6 accreditation of the Post Office Groupand subsidiaries by the external BEEaccreditation agency, Empowerlogic. Thepercentage of black staff at managementlevel is 70, which is an improvement of1,05 percentage points on last year. Over30% of management is female – a3,64 percentage point improvement on2005/6 figures. The Post Office is amongthe first public entities to receive a BEEaccreditation level 6 (50%) from anindependent rating agency.

Whatever it takesFrom the specifics of rolling out new postoffices to the bigger picture of extending


its African footprint, the story of SAPO isabout expansion. Broadening postalservices to the community and rolling outcommunication systems through itsextensive infrastructure demands a robustInformation Technology (IT) network. SAPO’sIT capability is key to the success of theorganisation and spans the spectrum ofinfrastructure, application development andproduct support. This forms part of a biggerpicture – that of promoting investment andinnovation in the InformationCommunication and Technology (ICT) sector.

Also imperative is the protection of SAPO’smarket share from the threat of electronicsubstitution.

SAPO works with other key players tobring essential services to customers aswell as to establish the organisation as atechnology-driven entity. In under-servicedcommunities with no infrastructure, SAPOmakes use of VSAT (very small apertureterminal), an earthbound station used inthe satellite communication of data, voiceand video signals to service portable postoffices.

That SAPO business is flourishing can beattributed, among other things, to a robustIT infrastructure, residing at the very heartof the organisation. From the paying ofpensions and social grants to theestablishment of its 825 PiTs (publicinternet terminals), offering the under-serviced segments of society access togovernment services and websites as wellas internet engines and e-boxes, theappropriate infrastructure enables acustomer to do anything from print out abirth certificate application form to applyfor a job. From facilitating SMS servicesoffering the accessing of postal codes andelectronic box renewal to the growingdemands in financial services, this vitalsupport function is the mechanism bywhich efficiencies are delivered – directlyto the customer.

Successful pilots such as the ‘e-cadre’initiative mentioned earlier translated intothe employment of 21 people inpermanent positions. Experientialtraining/learnership programmes have alsobeen set up, with IT jobs being created forindividuals across the organisation. Theyear 2006 saw the training of more than30 people in networking, MySAP andsoftware development and managementstreams. MySAP, an enterprise resourceplanning system that integrates mostaspects of a business, will streamlineprocurement, the internal ordering ofgoods, accounting and human resourcesand is set to go live in September 2007.

A new financial switch has been in placesince 2005. A more user-friendly offeringthan its predecessor, the system hasspeeded up transaction time, and is ableto integrate with the SAP system used forfinancial management and financialinformation. This in turn leads to faster,more accurate management information,which makes informed managementdecisions possible. Plans are also underway, in a strategic partnership withgovernment, for the establishment of atrust centre, an authentication serviceprovider that allows transactions in asecure environment. This investment isof critical importance for the support ofpension pay-outs.

Towards supply chain excellenceOffering efficient systems that work is partof SAPO’s promise to the customer. Theorganisation provides one of the mostextensive supply chain networks inSouthern Africa.

Steps have been taken towards creatingmore cost-effective and efficientmanagement of the supply chainenvironment. In an agreement with SAPO’stop 300 suppliers, a price reduction of 10%and a quality improvement of 10% werenegotiated. This benefit extends to both


2010 Fifa World Cup

South Africa


SAPO’s bottom line and the productivity ofthe suppliers.

The procurement spend directly with BEEenterprises has once more surpassed thetarget of 50%, with the achievement of59% of the discretionary procurementspend.

Socially significantBeing socially relevant is played out in anumber of practical ways at SAPO, suchas activities in support of combatingHIV/Aids, cancer and illiteracy such assponsoring the Winning Teams FinancialLiteracy Programme at high schools inGauteng.

During the Sixteen Days of Activism forNo Violence against Women and ChildrenCampaign, SAPO engaged in a partnershipwith government, sponsoring postcards thatcitizens could sign, thereby documentingand pledging their opposition to violence.More than 130 000 signed postcards werereceived.

With the centenary of the Bhambatharebellion in June 2006, SAPO issued astamp to preserve the event for posterity.SAPO sees its stamps as importantcustodians of culture which may otherwisebe lost to later generations. Stamps,having value as collectors’ items, are likelyto be preserved for many years to come.

Sponsorship of the annual Post OfficeChoral Eisteddfod continues with morethan 10 000 choristers countrywide takingpart in the last year. This activity providesyoung people with a constructive anduplifting means of spending their free time,building their culture and broadening theirworld.

The Post Office continues to hold anannual letter-writing competition, whichties in with the Universal Postal Union’s

competition, fostering literacy and writingskills among young South Africans.

Corporately connectedIn its universal service obligation to deliveressential services to the people of SouthAfrica, SAPO must maintain a healthyworking relationship with its stakeholder,the South African government. To this end,the organisation needs to keep abreast ofgovernment developments. The PostOffice, regarded as a main interface on theICT front, strives to maintain its role aspreferred partner to government and iscontinually strengthening its relationshipwith the Portfolio Committee onCommunications as well as theDepartment of Communications andParliament as a whole. Relationships at alllevels – with government decision-makersand local communities alike – are essentialto the organisation, translating intobusiness opportunities for the entity.

Self-sufficiency is SAPO’s goal. In anyevent, surplus funds are re-invested inpostal infrastructure in the ultimatenational aim to make services accessibleat the one-post-office-per-10 000-peoplelevel. Compared with Africa, which standsat one facility per 50 000 people, SAPO isa flagship organisation, leading the way tobetter days for the nation of South Africa.

Internationally acclaimedSAPO has a vision to be recognised amongthe top 10 providers of postal and relatedservices in the world – a fairy-tale thatmoves closer to reality each year.According to Universal Postal Union (UPU)statistics, SAPO moved from a ranking of101 out of 114 postal administrations in2003 and 81 out of 110 in 2004 to 14thposition out of 119 postal administrationsin 2005.

International recognition has grown toinclude the making of history – this when


The South African

Post Office delivers

six million mail

items per day and

enjoys an increase

in mail volumes of

seven percent year-

on-year.This figure

is ahead of universal

postal standards

and contrasts with

trends worldwide,

reflecting the

inherent capacity for

growth that the

developing economy

of South Africa has.

SAPO hosted the Conference ofCommonwealth Postal Administrations(CCPA) at Sun City in July 2006. This wasthe first CCPA congress ever held in Africaand an opportunity for SAPO to showcaseSouth Africa’s role as key player within thecontext of the New Partnership for Africa’sDevelopment (Nepad) and driver of theAfrican renaissance.

SAPO continues to enjoy excellentinternational relationships and is a memberof the Universal Postal Union (UPU), thePan African Postal Union (PAPU), theConference of Commonwealth PostalAdministrations (CCPA) and the SouthernAfrican Postal Operators’ Association(SAPOA), representing SADC countries andwhere relevant, becoming involved inoperational support and skills transfer toother African postal administrations.



IntroductionThe Group is required to comply with theProtocol on Corporate Governance in thePublic Sector, Public Finance ManagementAct No 1 of 1999 and the Postal ServicesAct No 124 of 1998.

The Group is committed to CorporateGovernance. A Risk ManagementCommittee was established as acommittee of the Board to report on therisk management processes withinthe Company. The Board is ultimatelyresponsible for the total risk managementprocess as well as internal controls withinthe Company, and therefore has to have anunderstanding of the significant risks facedby the Company. The Board also ensuresthat management has adequatelydischarged their responsibility of designingthe appropriate infrastructure and systems,as well as controls throughout theorganisation for the integration of riskmanagement into day-to-day activities.The Risk Management Committee advisesthe Board on the identification andmanagement of the main risks within theCompany. Risk strategies and policies havebeen formulated and will be implementedduring the coming year. The risk culturewithin the organisation has improved in thepast year due to the aggressive awarenesscampaigns that were rolled out throughoutthe organisation to ensure a common risklanguage. Ongoing education and monitoringwill be embarked on to ensure that riskawareness is inculcated into the Company’sorganisational culture. The process ofintegrating risk management into businessprocesses and activities at all levels willcontinue in the coming year and will alsoform part of the ongoing risk managementfocus within the Company’s activities. As partof the risk management process, riskidentification and assessment workshopsare facilitated at Board and ExecutiveCommittee level. The risks identified at thatlevel are further unpacked by second tier

assessments at business unit level.Significant risks that could influence theattainment of the Company’s strategic intentare identified, sized and prioritised.Management strategies and action plans areimplemented to address these risks. Theseare then assessed, managed and monitoredon a regular basis. The Risk Managementgovernance structure is further reinforcedby the formation of several specialistsubcommittees which report into the RiskCommittee, including an Asset and LiabilityManagement Committee (ALCO) for themanagement of treasury risks. The varioussubcommittees, directly tasked to ensurethat the Company complies with all therelevant acts, are detailed on pages 27 to 28.

OwnershipIn accordance with the Postal ServicesAct No 124 of 1998, ownership of theCompany is vested in the state as thesole shareholder. The parameters of therelationship between the Company and theshareholder have been redefined and areset out in a Shareholder’s Compact(performance agreement).

Governing bodiesGovernance structures exist in accordancewith the Postal Services Act, No 124of 1998.

Board of DirectorsThe management of the Company isvested in a single Board of Directors (theBoard). Details of members of the Boardare disclosed in the directors’ report.The Board meets at least seven times ina year – one meeting every second monthand one meeting to approve the annualfinancial statements. An annual Boardworkshop is held at least once a yearto review business strategy and theShareholder’s Compact. Ms PRE Tsukuduwas appointed Chairperson of the Boardeffective 1 March 2006. Her term of officewas extended for a period of one

Corporate governance report

month until the end of March 2007 bythe shareholder. Ms VF Mahlati wasappointed as Chairperson of the Board on1 April 2007. Directors are appointed by theshareholder. The roles and responsibilitiesof the Board are defined in the Company’sArticles of Association, the Board Charterand in the Shareholder’s Compact.The Board reports to the Minister ofCommunications.

Chairperson’s Committee Although not mandated by the Articles ofAssociation, this committee wasconstituted in pursuit of enhancingcorporate governance within the Group.

It is made up of chairpersons of all Boardcommittees.

ChairpersonMs VF Mahlati

MembersMs PE PokaneMs N MsimangMr P CancaMr SMA MaleboMr AJ Hendricks

Executive CommitteeThe Articles of Association provide forcertain powers of the Board to bedelegated and the Board has consequentlydelegated its powers pertaining to the day-to-day operations of the Company to theChief Executive Officer. The ExecutiveCommittee assists the Chief ExecutiveOfficer in executing these duties. The othertwo executive directors, namely the ChiefFinancial Officer and the Chief OperatingOfficer, are also members of the ExecutiveCommittee. The Executive Committeemeets formally weekly and additionalmeetings (formal and informal) arescheduled on an ad hoc basis. The ChiefFinancial Officer and the Chief OperatingOfficer report to the Board through the

Chief Executive Officer. Decisions aretaken in accordance with the Company’sdelegation of authority.

Risk Management CommitteeThe committee:• advises the Board on the risk

management processes;• develops risk strategies and policies; and• meets four times a year.

Representatives from finance, internalaudit as well as other business units attendmeetings by invitation.

ChairpersonMr P Canca

MembersMr SMA MaleboAdv V MhlongoMr S Mokoetle

Audit CommitteeThe committee:• acts in accordance with the

requirements set out in the PublicFinance Management Act;

• reports to the Board and has theauthority to make recommendations; and

• meets four times a year.

Representatives of the external and internalauditors have direct access to theChairperson of the Audit Committee.

Representatives from management, externalaudit and internal audit attend meetings byinvitation.

ChairpersonMs N Msimang (Acting)

MembersMs PE PokaneMr P CancaMs Mokgosi-Mwantembe



Remuneration and PerformanceManagement CommitteeThe committee:• makes recommendations to the

Board concerning appointments andsalary related issues of executivesin accordance with the Articlesof Association;

• ratifies the appointment and salaryissues of executives at generalmanager level on benchmark salarieswithin the approved salary range, andapproves appointments and salaryrelated issues on benchmark salariesabove the approved salary range;

• makes recommendations to the Boardregarding benchmark salaries forexecutive levels;

• meets at least twice a year and on anad hoc basis; and

• the Group Chief Executive Officerattends the meetings by invitation.

ChairpersonMs VF Mahlati

MembersMs N MsimangMr AJ Hendricks

Postbank CommitteeThe committee:• reviews performance; and• meets, on average, four times a year

the Managing Director: Postbank andrepresentatives from managementattend meetings by invitation.

ChairpersonMs N Msimang

MembersMs P PokaneMr B Bothma

Human Resources andTransformation CommitteeThe committee:• reviews all aspects relating to human

resources;• monitors compliance with the relevant

employment and labour legislation; and• meets four times a year.

The Head of Human Resources and herdirect reports also attend the meetingsby invitation.

ChairpersonMr AJ Hendricks

MembersMs Mokgosi-MwantembeMr S Mokoetle

Corporate SecretariatMr HP van Staden retired as theCompany Secretary on 30 April 2007.Mr MM Mphelo is acting as CompanySecretary. The Company employs aCompany Secretary who in addition toperforming statutory functions asstipulated in the Companies Act and thePublic Finance Management Act, alsosupports the Executives and Directors alikeensuring the effective functioning of theBoard and its committees.

Internal controlInternal control is a process designed toprovide reasonable assurance regarding theachievement of organisational objectives.The system of internal control, which isembedded in all key operations, providesreasonable rather than absolute assurancethat the Group’s strategic objectives will beachieved. The Board has the overallresponsibility for internal control. ExecutiveManagement, as mandated by the Board,

Corporate governance report (continued)

has established an organisation-widesystem of internal control to managesignificant risks. Ongoing monitoring andreporting processes by Business Unitheads provide for high-level assessmentson the status of internal controls. The Boardalso receives assurance from the AuditCommittee, which derives some of theinformation from regular internal andexternal audit reports.

Internal AuditThe Group Internal Audit providesindependent and objective assurance to theBoard, through the Audit Committee to whoit is functionally accountable. This assuranceis provided through an evaluation andappraisal of the organisation’s riskmanagement processes, internal controlsand governance processes.

During the course of the financial year anew Chief Internal Auditor was appointed toaddress and rectify the matters raised in theQuality Assurance Review performed on theInternal Audit function. A restructuring andrealignment of the internal audit functionhas been performed with a new appropriaterisk-based methodology beingimplemented.

Business conductThe Group has a Code of Ethical Conduct,approved by the Board, which addressesthe following matters:• Personal conduct• Security and trust• Crime prevention• Political interests• Conflict of interest• Gifts• Hospitality and entertainment• Corporate clothing• Corporate governance

• Service to clients• Service to the community• Caring about the environment• Suppliers and clients

Materiality frameworkThe Department of Communicationsreviewed the draft framework foracceptable levels of materiality andsignificance and requested certain changesto be made. The Board has endorsed therevised framework on 25 May 2007.

The framework of acceptable levels ofmateriality and significance applied during2006/7 for the purpose of theinterpretation of and compliance with thePublic Finance Management Act, No 1 of1999 is the following:




Framework Resulting figures for 2006/7 Underlying principles

Material for section 55– Disclosure, in the

annual report, of:• losses due to

criminal conduct;• irregular expenditure;

and• fruitless and wasteful

expenditure

QuantitativeCapital expenditure:10% of the capitalexpenditure budgetline itemOther expenditure:10% of the relatedoperating expenditurebudget line item

Depends on the relatedexpenditure budget line item

• Section 54, as identified,will evaluate each loss dueto criminal conduct,irregular expenditure orfruitless and wastefulexpenditure, in context ofthe expense category towhich it relates todetermine whether itqualifies for disclosure inthe annual report asrequired.

• The total value of anyidentified fruitless orwasteful expenditure willalso be reported as well ascases due to criminalconduct.

• In line with good businesspractice, as well as therequirements of the Act,the South African PostOffice is committed to theprevention, detection of andtaking appropriate action onall irregular expenditure,fruitless and wastefulexpenditure, lossesresulting from criminalconduct and expenditurenot complying with theoperational policies of theSouth African Post Office(section 51(1)(b)(ii)).To this end the SouthAfrican Post Office’ssystems and processesare designed andcontinually reviewed toensure the prevention anddetection of all suchexpenditure, irrespectiveof the size thereof.


Framework Resulting figures for 2006/7 Underlying principles

Significant for section54 – Information andapproval by theMinister of “qualifyingtransactions”, ie:• participation in a

significantpartnership, trust,unincorporated jointventure or similararrangement;

• acquisition ordisposal of asignificantshareholding in acompany;

• acquisition ordisposal of asignificant asset;

• commencement orcessation of asignificant businessactivity; and

• a significant changein the nature orextent of its interestin a significantpartnership, trust,unincorporated jointventure or similararrangement.

QuantitativeQualifying transactionsof an operationalnature:• 5% of asset

categoryQualifying transactionsof a strategic nature:• 5% of asset

category

QualitativeA qualifying transactionmay also be consideredsignificant based onconsiderations otherthan financial when, inthe opinion of theBoard, it is consideredto be significant for theapplication of section54. The decision onwhich non-financialissues may beconsidered at any timerequires carefuljudgement at a strategiclevel, and shouldtherefore rest with theBoard as representativebody of the shareholder.As an example, theBoard may consider aqualifying transaction assignificant when it couldimpact significantly on adecision or action by theMinister such as a largeretrenchment of lessthan R100 million.

MinimumR50 million

R50 million

• The PFMA is not intendedto affect the autonomy ofthe organisation, but itsstated objectives are toensure transparency,accountability and soundmanagement of revenue,expenditure, assets andliabilities of the institutionsto which the Act applies.Therefore, the legislaturecould not have intended forthe public entities to reportand seek approval onmatters of a daily basis.

• The business of the SouthAfrica Post Office isconducted within theframework of the mandate,objects and powerscontained in the SouthAfrican Post Office Act, aswell as the business andfinancial direction set out inthe corporate plan.

• The South African PostOffice also has definedaccountability and approvalstructures from the Board,as the shareholderrepresentative, to the CEOand management.

• The responsibility for the day-to-day management of theSouth African Post Officevests in line managementthrough a clearly definedorganisational structure andthrough formally delegatedauthorities.

Qualifying transactions are considered to be of an operational nature where it is concluded as part of the normalbusiness of the South African Post Office, and is concluded within the framework of the South African Post Office Act,its mandate and delegations of authority, as well as the agreements with the shareholder contained in the Shareholder’sCompact and corporate plan.

Qualifying transactions are considered to be of a strategic nature where it is not part of the normal business of theSouth African Post Office, is concluded outside the framework detailed above or when it links to national priorities.


Annual financial statementsThe Board of Directors is responsible forthe maintenance of adequate accountingrecords and the preparation and integrity ofthe annual financial statements and relatedinformation. The external auditors areresponsible for reporting on the fairpresentation of the annual financialstatements. The annual financialstatements have been prepared inaccordance with International FinancialReporting Standards and in the mannerrequired by the Companies Act, asamended. The directors are alsoresponsible for the Group’s system ofinternal financial control. These controls aredesigned to provide reasonable but notabsolute assurance of the reliability of thefinancial statements and to adequatelysafeguard, verify and maintainaccountability of assets and to prevent anddetect misstatement and loss. The financialstatements have been prepared on thegoing-concern basis.

Approval of annual financialstatementsThe Board of Directors is of the opinion thatthe annual financial statements for the yearended 31 March 2007 and the informationas recorded on pages 36 to 98 fairly presentthe state of the affairs of the Group. Theseannual financial statements were approvedby the Board on 26 July 2007 and signed onits behalf by:

MM Lefoka VF MahlatiActing Group Chief ChairpersonExecutive Officer

Secretary statementIn terms of section 268 G (d) of theCompanies Act, No 61 of 1973, asamended, I certify that the Company haslodged with the Registrar all such returns asrequired by the Companies Act and that allsuch returns are true, correct and up to date.

MM MpheloActing Company Secretary

Audit Committee’s responsibilityThe Audit Committee reports that it hascomplied with its responsibilities, arisingfrom section 38(1)(a) of the Public FinanceManagement Act and Treasury Regulation3.1.13. The Audit Committee also reportsthat it has adopted appropriate formalterms of reference as its Audit CommitteeCharter, has regulated its affairs incompliance with this charter and hasdischarged all its responsibilities ascontained therein. All weaknesses ininternal control reported by the internal andexternal auditors to the Audit Committeewere considered for their significance andpotential for financial losses and, based onthese reports, the Audit Committee is of theopinion that whilst there are some controlissues that have been reported and arereceiving attention, generally theeffectiveness of the internal controls ofthe Group is adequate.

Evaluation of financial statementsThe Audit Committee has:• reviewed and discussed with the

external auditors and executivemanagement the audited annualfinancial statements to be included inthe annual report;

• reviewed the external auditmanagement letter and managementresponse;

• reviewed changes in accounting policiesand practices; and

• reviewed significant adjustmentsresulting from the audit.

The Audit Committee concurs with andaccepts the conclusions of the executivemanagement on the annual financialstatements and is of the opinion that theaudited annual financial statements beaccepted and read together with the reportof the executive management.

N MsimangActing Chairperson Audit Committee


SA Post Office – Personnel strength 31 May 2007

Personnel complement

White Black Coloured AsianMale Female Male Female Male Female Male Female Total

National EAP target (%) 6,78 5,34 39,12 35,77 5,38 4,70 1,79 1,12

Executive management 8 2 15 7 1 0 1 0 34

Percentage (%) 23,53 5,88 44,12 20,59 2,94 0,00 2,94 0,00Under/(over- representation) (%) (16,75) (0,54) (5,00) 15,18 2,44 4,70 (1,15) 1,12Number (6) (0) (2) 5 1 2 (0) 0

Management (senior manager) 22 8 38 22 10 1 9 2 112

Percentage (%) 19,64 7,14 33,93 19,64 8,93 0,89 8,04 1,79Under/(over- representation) (%) (12,86) (1,80) 5,19 16,13 (3,55) 3,81 (6,25) (0,67)Number (14) (2) 6 18 (4) 4 (7) (1)

Management (D-Band) 58 35 118 52 22 5 29 5 324

Percentage (%) 17,90 10,80 36,42 16,05 6,79 1,54 8,95 1,54Under/(over-representation) (%) (11,12) (5,46) 2,70 19,72 (1,41) 3,16 (7,16) (0,42)Number (36) (18) 9 64 (5) 10 (23) (1)

C-Band 440 485 1 158 861 282 170 156 62 3 614

Percentage (%) 12,17 13,42 32,04 23,82 7,80 4,70 4,32 1,72Under/(over-representation) (%) (5,39) (8,08) 7,08 11,95 (2,42) (0,00) (2,53) (0,60)Number (195) (292) 256 432 (88) (0) (91) (22)

B-Band 666 1 393 3 476 1 684 1 080 323 472 78 9 172

Percentage (%) 7,26 15,19 37,90 18,36 11,77 3,52 5,15 0,85Under/(over-representation) (%) (0,48) (9,85) 1,22 17,41 (6,39) 1,18 (3,36) 0,27Number (44) (903) 112 1 597 (587) 108 (308) 25

A-Band 6 8 484 542 75 51 2 0 1 168

Percentage (%) 0,51 0,68 41,44 46,40 6,42 4,37 0,17 0,00Under/(over-representation) (%) 6,27 4,66 (2,32) (10,63) (1,04) 0,33 1,62 1,12 Number 73 54 (27) (124) (12) 4 19 13

Total number of employees 1 200 1 931 5 289 3 168 1 470 550 669 147 14 424

Percentage (%) 8,32 13,39 36,67 21,96 10,19 3,81 4,64 1,02Under/(over-representation) (%) (1,54) (8,05) 2,45 13,81 (4,81) 0,89 (2,85) 0,10 Number (222) (1 161) 354 1 991 (694) 128 (411) 15

Data source The EAP targets as reflected in the 2001 Household Survey conducted by the CSS, was used as basis. The EAP targets used isthe national targets as a company must reflect the national target in its head office irrespective of where it is situated.


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