The government has wasted R10.4 billion on bailouts for the South African Post Office (SAPO), which could shut down next month if it does not get an additional R3.8 billion from taxpayers.
South Africa’s Post Office has been plagued by operational issues for over a decade, receiving its first bailout of R205 million in 2014.
More bailouts followed in 2016 and 2017, worth R174 million and R650 million. As it turned out, these were just the tip of the iceberg.
However, the Post Office’s decline was not inevitable, and during Mark Barnes’ tenure, the company showed signs of even being turned around.
During Barnes’ three-and-a-half-year run as CEO, the company’s equity consistently improved as its asset base grew in value.
Barnes took on the role of chief executive at the Post Office in early 2016 when the organisation had negative net equity of R140 million.
During his tenure, the company greatly improved its financial position, boosting equity to R5.19 billion.
This was driven by an increase in the value of the Post Office’s assets, which grew from R10.12 billion in 2016 to R16.07 billion in 2019.
Despite his efforts to modernise the Post Office and transform it into both an e-commerce and banking leader, his plans were cut short.
Barnes stepped down as CEO on 1 August 2019, citing disagreements over the strategic direction, particularly regarding the structure of the Postbank within the South African Post Office group.
The Post Office expressed gratitude for Barnes’ “immense contribution,” acknowledging his role in stabilising the organisation.
After Barnes left, the company’s balance sheet deteriorated rapidly, with assets plunging from R16.07 billion to R4.5 billion in three years.
Despite these significant asset disposals from 2019, the Post Office has not been able to lower its liabilities in any way.
In fact, its total liabilities have increased in the past five years, reaching a six-year high of R12.4 billion last year.
This resulted in the Post Office becoming technically insolvent and no longer able to repay its liabilities if it were to liquidate all assets.
This provided the basis for the Post Office to turn to the government for extra funds to ensure it could pay off its debt as it came due.
In 2019, it received a substantial R3.26 billion bailout to cover immediate debt payments and fund its operations for the next three years.
During these years, a turnaround plan was supposed to be developed and implemented, ensuring the company was no longer reliant on the state for funding.
However, in 2023, it once again asked the National Treasury for a R2.4 billion bailout, which was duly paid out.
As a condition of this bailout, the Post Office had to enter business rescue and come up with a viable turnaround plan to ensure it was not liquidated.
Its business rescue practitioners (BRPs), Anoosh Rooplal and Juanito Damons, proposed a plan to significantly cut costs by reducing the Post Office’s headcount and branch network.
Rooplal and Damons planned to reduce the company’s branch count to 600 and employee headcount to 5,000.
This was estimated to save the company around R1.3 billion in annual expenditure, with the reduced headcount making up nearly R1 billion.
Despite this and the closing of branches, the Post Office is on the brink of shutting down, with the BRPs warning it may have to close its doors as soon as next month without additional funding.
In a presentation to parliament last week, the BRPs said the Post Office is nearing its ‘Day Zero’ and are obliged to consider whether the company can still be rescued.
“Based on the aforesaid, with no additional funding, the BRPs will be legally obliged to place the SAPO in liquidation as directed by section 141 of the Companies Act,” the presentation said.
“The consequences of liquidation are fatal for the SAPO. The estate will be placed in the hands of the Master of the High Court, who will appoint a liquidator to wind up the estate.”
In this scenario, the BRPs said all jobs would be lost, and all business operations would cease.
The Cabinet has said that additional funding would be provided only if the Post Office proves it will avoid liquidation.
The BRPs said additional funding would be conditional and used to pay off the Post Office’s debts, fund its cash-flow deficit, develop a turnaround strategy, and create a staff reduction plan.