new south african post office soc ltd · 2019. 11. 29. · 3 south african post office soc ltd...

3SOUTH AFRICAN POST OFFICE SOC LTD ANNUAL REPORT 2019

Highlights

FiNANciAL HigHLigHTs• Revenue increased 20% to R5,4 billion from the prior year

• Motor vehicle licencing revenue increased by 5% to R308 million

• R2,947 billion recapitalisation funds received in January 2019

• All loans settled during the year with no debt at yearend

• Funding has been ring-fenced for investment in capital projects

• subsidy of R1,5 billion allocated over the medium term to fund the UsO post offices in rural and under-serviced areas

OPERATiONAL HigHLigHTs• improvement of 10% in the mail delivery standard from the prior year, to 76.4%

• Mail carryovers reduced to less than one day’s volumes by end of financial year

• The fleet increased to 1,280 vehicles, improving the capacity to 98%

• scope 1 carbon emissions 23% below target

• Revenue from processing small foreign parcels and small packets increased by 60,2%.

POsTbANk

• SASSA grants paid to beneficiaries in the National Payments System 1 from June 2018, a global industry record in terms of deploying a new product of this magnitude

• By 31 March 2019 approximately 8,3 million social grants were paid to over 7,7 million beneficiaries through the new SASSA card hosted on Postbank’s IT system

• The financial matters amendment bill was approved enabling the corporatisation of the Bank

• The net profit increased to R496 million from R296 million in the prior year

HUMAN REsOURcEs • Employee headcount reduced

by 4% during the year

• Nine critical senior appointments made

• Branch Manager positions 88% filled, Chief Tellers 85% and Tellers 83% filled with a concurrent positive impact on morale

• Creation of 3,000 temporary and 1,000 permanent jobs for the SASSA project

• The labour environment remained stable during the year

gOvERNMENT PROJEcTs• Over three million textbooks

delivered to 3 659 schools in the Northern Cape and Limpopo

• Address verification project completed for the Independent Election Commission with 4.9 million geo-referenced addresses in rural areas.

• Total of 1 012 518 qualifying households registered for the DTT set-top box, thus exceeding the one million mark.


TAbLE OF cONTENTs

PART A: gENERAL iNFORMATiONGeneral Information 6List of Abbreviations and acronyms 7Foreword by the Chairperson 8Chief Executive Officer’s Overview 10Chief Operations Officer’s Overview 12Chief Financial Officer’s Overview 14Strategic Overview 16Legislative and Other Mandates 17Organisational Structure 18

PART b: PERFORMANcE iNFORMATiONReport on Predetermined Objectives 20Performance Information by Function 27Sales 27Operations 28Security and Investigations 30International Relations and Participation 31Corporate Social Investment 33Postbank Acting Managing Director’s Overview 34

Docex Managing Director’s Overview 37

PART c: gOvERNANcEIntroduction 38The Accounting Authority – Board of Directors 39Risk and Regulatory Compliance 47Social and Ethics Committee Report 51

PART D: HUMAN REsOURcE MANAgEMENTHuman Resources Oversight 56Human Resources Initiatives 58Employee Wellness 61Employee Relations 62

PART E: FiNANciAL iNFORMATiONReport of the Auditor-General to Parliament 64Director’s Responsibility and Approval 71Audit Committee Report 72Director’s Report 74Financial Statements 80Notes to the Consolidated Financial Statements 87Detailed Income Statement 210


PART A: GENERAL INFORMATION


General Information

Registered name South African Post Office SOC (Limited)

Registration number 1991/005477/30

Registered office address 497 Sophie de Bruyn Street, Pretoria 0001

Postal address PO Box 10 000, Pretoria, 0001

Contact telephone number (012) 407 7000

Email address [email protected]

Website address www.postoffice.co.za

External auditors information Auditor-General of South Africa

Banker’s information Standard Bank South Africa

Company Secretary Mr Dawood Dada, (ACIS)

Photographs:

South African Post Office

stamp images:

© South African Post Office:

Philatelic Services

Designed in-house by:

Rachel-Mari Ackermann and Thea Clemons

South African Post Office: Philatelic Services


AGSA Auditor General of South Africa

ALCO Asset and Liability CommitteeALM Asset and Liability

ManagementAPP Annual Performance Plan ATMs Automatic Teller Machines BCC Bank Controlling Company BOT Build Operate TransferCCMA Commission for conciliation,

Mediation and Arbitration CCPA Conference of

Commonwealth Postal Administrators

CENTRIQ Centriq Insurance Innovation (Pty) Ltd

CFG The Courier and Freight Group (Pty) Ltd

COO Chief Operating Officer CRMP Compliance Risk

Management Plan DAFF Department of Agriculture,

Forestry and FisheriesDB Defined BenefitDOCEX The Document Exchange

(Pty) LtdDRC Democratic Republic of the

CongoDTA Department of Traditional

AffairsDTPS Department of

Telecommunications and Postal Services

DTT Digital Terrestrial TelevisionEAP Employee Assistance

Programme EBDN Electronic Bulk Mail Delivery

NoteFIC Financial Intelligence Centre FRA Forward Rate AgreedFSB Financial Services Board FY Financial Year GCEO Group Chief Executive Officer

GE Group Executive HR Human ResourcesICASA Independent Communications

Authority of South AfricaICT Information and

communications technologyID IdentityIEC Independent Electoral

Commission IFRS International Financial

Reporting StandardsIGPS Integrated Grant Payment

System IMC Inter-Ministerial CommitteeIT Information TechnologyIWPS Istanbul World Postal Strategy JSE Johannesburg Stock

ExchangeKING IV King Report on Corporate

Governance IVKPIs Key Performance Indicators KZN KwaZulu-NatalMBA Master in Business

Administration MCP Mail Collection PointMD Managing DirectorMTEF Medium Term Expenditure

FrameworkMVL Motor Vehicle Licence NCD Negotiable Certificates of

DepositsNCO Net Charge-OffNIR Non-Interest Revenue NPS National Payment SystemNQF National Qualification

FrameworkOCI Other Comprehensive

Income ORE Operational Readiness for

E-CommercePAA Public Audit Act, No 25 of

2004PAPU Pan African Postal Union

PFMA Public Finance Management

Act, No. 1 of 1999 (as

amended)

PN Promissory Notes

POC Postal Operations Council

PPTEs Permanent Part-Time

Employees

PRMA Post-Retirement Medical Aid

RDMS Retail Document and

Management System

RFQ Request for Quotation

SADC Southern African

Development Community

SAPOA Southern African Postal

Operators Association

SARB South African Reserve Bank

SASSA South African Social Security

Agency

SFTP Secure File Transfer Protocol

SLA Service Level Agreement

SMME Small, Medium, Micro

Enterprises

SOC State-owned Company

SOE State Owned Entity

SSETA Services Sector Education

and Training Authority

STBs Set-Top Boxes

STP Strategic Turnaround Plan

The Post Office Act

The South African Post

Office Act No. 22 of 2011 (as

amended)

TVBC Transkei, Venda,

Bophuthatswana and Ciskei

UPU Universal Postal Union

USO Universal Service Obligation

YTD Year to Date

List of Abbreviations and Acronyms

The south African Post Office (sOc) Ltd is referred to in the text of the document as the Post Office.


It is with great satisfaction that we present to all our stakeholders the 2018/19 annual report of the Post Of-

fice. The report coincides with the historic year in which South Africa is celebrating a number of notable national milestones, to name a couple; the 25th anniversary of our democratic dispensation and also the country’s National and Provincial Elections.

The Post Office is proud to have played a significant role in the delivery of successful National and Provincial elections through the address-roll out project, which had been neces-sitated by the Constitutional Court Ruling in the Tlokwe mat-ter, that all available addresses should be included in the Na-tional Common Voter’s Roll prior to elections taking place. In accordance with inter-governmental collaboration, Post Office worked with the Independent Electoral Commission (IEC) and other stakeholders in providing formal addresses to many households in rural areas and informal settlements, securing them the fundamental democratic right to vote and in compliance with the Constitutional Court Ruling. The gov-ernment’s project to generate geo-referenced addresses in the rural areas nationally was targeted to achieve 3.5 million addresses, but this target was exceeded during the year with an achievement of 4.9 million addresses. The Post Of-fice is continuing its collaboration with the IEC on the roll-out of addresses and it is envisaged that the Constitutional Court extension to November 2019 would be achieved.

In April 2019, the Post Office issued a limited edition 25-Year Stamp symbolising the celebration of a wonderful mile-stone of our democracy.

Globally the risks to growth within emerging markets has been on the rise, especially inside the African continent where many markets are generally under pressure due to various socio-political and macro-economic factors.

Within our borders, the increase of value-added tax by 1 percentage point to 15 percent which took effect on 1 April 2018, interest rates hikes as well as recurring fuel price in-creases, have without doubt put pressure on businesses and consumers. However, a positive tone of optimism about

economic growth is emerging following the announcement of the Economic Stimulus Plan, the hosting of the Jobs Summit and the Investment Conference.

Notwithstanding these developments, the Post Office man-aged to make significant strides in its course of building a firm foundation for a sustainable organisation that is a trust-ed, multi-channel, technology centred provider of postal, e-Commerce, financial and government services to all of the people who live in South Africa.

The Post Office is grateful to government for agreeing to our motivation for the re-introduction of the funding of R1.5bn over the Medium Term Expenditure Framework (MTEF) pe-riod for the public service mandate of the Post Office. This funding had been suspended since 2011 and we are grate-ful for its reinstatement. It will enable the Post Office to deliver on its public service mandate to the people of South Africa, especially in outlying and remote areas even where it is not necessarily economically feasible to do so.

A feat of near miraculous proportions was the takeover of the payment of social grants by the Post Office, on behalf of the South African Social Security Agency (SASSA) and the Department of Social Development. This is a living ex-ample of success of collaboration between government in-stitutions thereby keeping scarce and valuable rands within government and reducing state owned companies’ depend-ence on bailouts.

The successful integration of the social grants by the Post Office demonstrates that investment in state capacity and infrastructure which builds the overall capacity of the State instead of the reliance on the private sector.

Government can now take advantage of the interoperability of the information communication technology, and other in-frastructure, the state developed in the Post Offices to take government services to the people.

The corporatisation of Postbank is in progress and a Post-bank Board appointed. The application for a banking licence

Foreword by the Chairperson


“A feat of near miraculous proportions was the takeover of the payment of social grants by the Post Office, on behalf of the South African Social Security Agency (SASSA) and

the Department of Social Development.”is with the South African Reserve Bank and recent legisla-tion amendments now enable state owned companies who meet the Banks Act requirements to establish a bank.

Cooperation and location between the Post Office and Post-bank will have to be carefully managed to ensure that both entities can leverage of each other and continue to thrive.

A mountainous backlog of mail was successfully eliminated through tremendous effort by the executive and staff, and I would like to thank South Africans and users of the Post Of-fice for their patience and understanding during this period.

The Post Office is grateful for the successful motivation for the capitalisation of the Post Office. The Medium Term Budget Policy Statement of October 2018 by the Minister of Finance, Hon. T. Mboweni, has allowed the organisation to commence its value creation strategy. Central to this is the inauguration of initiatives in accordance with the Post Of-fice’s broader e-Commerce strategy and the Ecom@Africa commitments in line with its Universal Postal Union desig-nation as Southern Africa’s e-Commerce regional hub. The first phase of the initiatives will target the acceleration of the market reach of local small and medium enterprises.

The Post Office is positioning itself to participate in the 4th industrial revolution in order to leverage current and fast emerging technologies.

When this Board was appointed in 2015, the Post Office was in a financial crisis: debt-ridden and could hardly pay its creditors and employee salaries. The Post Office today is debt-free and does not have any National Treasury loan guarantees or loans from private banks. The Post Office is now ideally positioned to form an integral link for govern-ment services through its unmatched reach, footprint and infrastructure. Investment is now being made in upgrading infrastructure and systems will ensure that this government

asset is poised to deliver a wider bouquet of services to our people. Over the reporting period, Post Office approved various projects for the upgrade and refurbishment of infra-structure, which would bring these facilities up to required safety and operational standards.

The Board was strengthened with the appointment of Dr Charles Nwaila and Adv Galetlane Rasethaba, who will also provide continuity to the Board as their term overlaps with that of current board members which expired in the finan-cial year and was extended until the appointment of a new board.

I am indebted to my fellow board members, who rigorously engaged with matters and issues thereby providing the best oversight and leadership to executives and supported by an effective secretariat.

I am grateful to the former Minister Dr Siyabonga Cwele, the current Minister Ms Stella Ndabeni-Abrahams and her deputy, the former Chairperson of the Board Dr Simo Lushaba, the Department of Communications and Digital Technologies led by the Director-General Mr Robert Nkuna, executives led by former CEO, Mr Mark Barnes and staff for their dedication in service to the people of South Africa. To-day the Post Office is a better place to work for and is in the process of becoming the pride of the South African public and on route to being a successful state owned company.

comfort NgidiChairperson


Chief ExecutiveOfficer’s Overview

The Post Office adopted a new vision for the 2030 strategy, aligned with the standards set by

our world governing body, the Universal Postal Union, “To be the trusted channel of service delivery in South Africa, respected for our Relevance, Reliability, Reach and Resilience”.

The 2018/19 financial year was another year of foundation building for the SA Post Office Group as we set in place the foundations of the 2030 strategic plan.

Various initiatives are in progress to support the priorities outlined in the State of the Nation Address:

• distribution of set-top boxes and e-enablement through the provision of broadband hotspots for connectivity

• distribution of learning materials

• creation of new delivery addresses and provision of rural services in line with the public service mandate

• further progress in the development of the ECOM@AFRICA joint venture.

Progress continues to be made to enable the Post Office to play a central role in supporting all applicable aspects of the 4th industrial revolution as we roll out our new network and development of new Apps for electronic payment capabilities across the many services the group offers.

The assenting of the Financial Matters Amendment Bill has further paved the way for Postbank to acquire a full banking license. The transfer of the business of the Postbank division to Postbank SOC Limited, a wholly owned subsidiary of the Post Office, was gazetted with an effective date of 1 April 2019.

The integrated model of Mail, E-Commerce, Financial Services and Logistics is the established gold standard for successful postal operations around the world. The Post Office is on a journey from a traditional post office to the modern, technology based, centre of exchange. The

Post Office will leverage its commercially irreplaceable infrastructure to build state capacity and eliminate any unnecessary dependencies on the private sector, which are not strategically aligned with government purpose and policy.

A significant milestone for the year was the opportunity afforded by the Inter-Ministerial Committee on SASSA grants for the Post Office to take primary responsibility for the essential service of the payment of social grants. The Post Office was responsible for the payment of approximately 7,7 million out of a total of 11,2 million social grant recipients by 31 March 2019. Unfortunately the Post Office received a qualified audit for the 2019 financial year. The qualification relates to matters of reconciliation in relation to the implementation of this extensive and complex project which was spread throughout very remote regional offices throughout the country, in particular arising from offline payments and system integration issues. These matters were not able to be addressed within the regulated timeframes of the audit, but significant progress has been made to resolve this. Despite these expected initial challenges with the significant increases in systems utilization and increased security issues associated with cash handling, the project remains on track to be a case study of how inter-governmental projects can be successfully implemented.

Following a further capital injection of R2,95 billion from the shareholder during the financial year, the Post Office now finds itself in a sound financial position, with no external bank borrowings or outstanding National Treasury guarantees.

The Post Office continues its progress towards profitability, although significant upfront expenditure was incurred by the group in the preparation and implementation of the SASSA project, which amounted to R754 million.

Revenue increased by R897 million (19,8%) to R5,44 billion compared to the previous reporting period whilst expenses, including the SASSA project increased by R1,43 billion (6%) to R6,78 billion.


The Post Office is now in a position to invest in the much needed upgrades in infrastructure and IT, with an approved capital budget of R826 million for the 2019/20 financial year.

The Post Office has enjoyed relative labour stability over the year, despite sometimes difficult trading conditions. I am grateful for the open, honest and mutually respectful relationship we have been able to build up over the past three years with our unions and employees. I believe we have made significant strides forward in creating an aspirant culture within the organisation.

As a result of a difference with the shareholder on the future structure of the group, effective 1 August 2019, I took the decision to tender my resignation as GCEO of the Post Office.

I have had extra-ordinary experiences during my more than three and a half years at the helm of the SA Post Office. I have met and engaged with all levels of employees throughout the organisation and that was both a learning experience and a privilege.

I believe we have an established central leadership team at the centre of the Post Office, ably supported by regional management structures now in place, to take the group towards the achievement of its 2030 vision.

I am grateful for the support I received from management, the guidance from the Post Office Board, and the funding from the government.

I wish the organisation and all of its stakeholders every success in their future endeavours.

Mark barnesChief Executive Officer

“The Post Office is on a journey from a traditional post office to the modern, technology based, centre of exchange. SAPO will leverage its commercially irreplaceable infrastructure to build state capacity and eliminate any unnecessary dependencies on the private sector,

which are not strategically aligned with government purpose and policy.”


The 2018/19 financial year proved to be a fairly suc-cessful year for the Post Office’s operations

as the implementation of the operations strategy that was adopted in the previous year gained momentum. The opera-tions business is mandated to deliver products and services in three international supply chains, viz., money movement, movement of messages and movement of small goods. All these streams demonstrate phenomenal growth globally as a result of e-Commerce.

From the Corporate Strategy, we have aligned our Opera-tions strategy to take advantage of this e-Commerce expan-sion. We did this through adopting disruptive technologies and adapting to new ways of doing business in a technol-ogy driven social interaction. For us to participate in the 4th industrial revolution, we had to build new capabilities. The prerequisite for our new capabilities was aligned to com-petitive strategy, namely to build a cohesive team, revise the operating model and present an investment case for strategic catalytic initiatives.

Our operations have been aligned with the country’s po-litical boundaries. This allows for better oversight by public and legislative bodies as well as the fulfilment of govern-ment services contracts and improved customer services. The decentralised posture now accords responsibility to a team of regional general managers that are assigned the responsibility of improving relationships with customers, employees and all our stakeholders in each province.

Consequently, we are in progress to improving efficiencies and focusing resources and daily operations’ priority to the needs of our customers. A change management program was rolled out to reinforce the new operations strategy and devolve authority to the regional structures in order to re-spond to customer needs at local level. These operations improvements have also resulted in the speedy closing of the backlog of domestic deliveries that emanated from the brief labour instability of July 2018. The backlog relating to international mail and parcel items was also cleared in the first quarter of 2019.

The service delivery performance was recorded at 76,4% by the end of the reporting year, and we are confident to raise this to the standard set by the regulator.

In pursuit of our designation as the access point of govern-ment services to communities, the Post Office was able to successfully implement a grant payment solution in con-junction with South Africa Social Security Agency (SASSA), servicing 7,7 million beneficiaries monthly during the re-porting period. Our focus in the coming financial year, is on strengthening internal controls and security.

More than 1 million households were registered for subsidised DTT set-top boxes as part of digitisation of broadcasting.

In collaboration with the Independent Electoral Commission and Stats SA to enhance the voters ‘roll, over 4, 9 million addresses have been assigned to households. The address rollout is part of the efforts to increase access to service delivery and open doors to economic inclusion, especially for marginalised communities.

During the reporting period, the Post Office delivered more than three million textbooks to approximately 3 659 schools on behalf Provincial Departments of Education.

In addition to strengthening our customer-centric approach, we overhauled our strategy in relation to our properties and logistics portfolios. On properties, we reached agreement on a long outstanding rental matter with Telkom. The para-digm change was to focus on space utilisation, which was initiated by a new Distribution Network Optimisation Policy. We will continue to implement these changes relating to the management of our property portfolio in the oncoming financial year, including improving our utilization of compa-ny-owned buildings for all operations where feasible in or-der to minimize costs.

A new fleet management strategy was also initiated to mini-mize the extent of our dependency on third party providers. The process will continue in the new financial year with the

Chief Operations Officer’s overview


implementation of an integrated courier solution and sys-tem as well as logistics route systems to enhance vehicle optimization and load capacity.

The Istanbul World Postal Strategy (IWPS) talks to international interoperability, sustainability of the market and dynamic products for postal operators due to the rise in e-Commerce trade. As a consequence, our major operations investments are in Operational Readiness for e-Commerce (ORE) and Postal Security (SECUREX). These are multi-country solutions and South Africa, via the Post Office, has positioned itself as one of the three regional hubs in Africa to lead implementation.

On the ORE, we upgraded our international tracking sys-tem. This allows machines to exchange data without human interference, which is the essence of the fourth industrial revolution (4IR). There is now data exchange with other global operators and airlines to monitor postal cargo from the acceptance to delivery in developed and developing countries. Through the UPU, Tunisia has also shared with the Post Office the tracking API to facilitate integration of eTailers.

We have adopted the World Customs Organisation UPU Postal Customs Guide, which simplifies documentation, promotes pre-alert and system integration in relation to SE-CUREX. Future plans for the coming financial year include extending the data exchange to other customs organisa-tions through the customs declaration system. This system allows customs declaration at source, with the aim of re-moving paper in the process. The Post Office will conclude memoranda of understanding with SARS and SAA in this regard, which will assist us to meet the requirements of the New Customs Act.

On the wave of digitisation, the investment was mainly to increase machine availability and the availability of optical

character and barcode readers. An investment case was also made for the increase of capacity to handle Hybridmail. The new equipment will be used in the 2019/20 financial year, which will service customers who prefer lodging data for letters instead of printing on their own.

The customer interface points, including our branch net-works, will be further upgraded through investments in point of sale equipment, e-Commerce tools and mobile plat-forms. Investments have also been allocated to the upgrade of the Post Office branch network physical infrastructure.

The operations environment during the reporting financial year, demonstrates that the Post Office has established a firm ground to advance into a relevant, reliable and resilient organization that is capable of taking advantage of the reach of its nation-wide physical infrastructure. The new frontier is to enhance our digital transformation journey.

I would like to express a word of thanks to the shareholder, the board as well as my fellow executives for their contin-ued support. To all the women and men of the Post Office, thank you for your commitment. Our destiny is in our hands.

Lindiwe kweleChief Operations Officer


The Post Office operated under tough trading con-ditions during the past year with rising cost

outpacing revenues for another year. This is further exac-erbated by increasing digitisation, stronger competition and slow economic growth that continue to drive structural de-clines in letter post volumes. The Post Office is cognisant that the reliance in mail revenue is not sustainable over the long term. As parcel post volumes continue to grow interna-tionally, the Post Office’s focus over the immediate to me-dium-term, is investments into new areas of growth such as e-Commerce fulfilment utilising parcel post channels and the provision of government services. A key focus is also on retaining and reclaiming the lost market share through in-vestment in infrastructure and improved customer services at all our branches and centres.

Group revenue increased from R4,54 billion in the prior year to R5,44 billion for the year ended to 31 March 2019. The revenue increase was realised from the payment of social grants for the SASSA social grant project that was awarded to the Post Office during the year under review.

Although the overall group revenue increased, mail reve-nues continued to be depressed mainly due to the declines in volumes and this is in line with global mail business trends. The mail revenue declined by 8% but still contrib-utes 52.1% of the total group revenue, which remains a significant revenue stream.

Group operating expenditure increased from the prior year amount of R5,35 billion, an increase that is largely attributable to additional security and personnel to implement the cash payment points component of the SASSA social grant payments contract. Employee costs still remain the key cost driver, increasing by 10,3% from the prior year and contributing 63% of operating costs.

The historical challenge of the Post Office has always been a very high fixed cost structure that needs optimisation and robust restructuring to match the changing operational re-quirements. Group restructuring and cost containment will be adopted in a phased approach to address the challenge of low productivity due to high staff numbers against declin-

ing volumes.

During the 2019/20 financial year, the branch network, mainly in relation to branches located in leased properties in urban areas as well as non-performing urban area sites, will be optimised to minimize rental costs and approximately 114 sites could be affected. The business reorganization of non-core business support services will also be a key focus area to reduce costs.

The group net loss for the year remained relatively un-changed at R1,172 billion from R1,173 billion net loss post-ed in the prior year. As much as the revenue increased in the current financial year, we could not improve our net loss position due to the significant upfront costs and unforeseen additional costs required for the implementation of social grants payment. The Post Office Strategic Plan 2019/2020 – 2021/2022 shows the planned reduction in the net loss position to R378 million for the 2019/20 financial year, which will be a major milestone in the turnaround of the Post Of-fice.

The Group’s cash and cash equivalents at the end of the year increased to R6,12 billion from R3,2 billion the prior year. The long outstanding rental matter with Telkom has been settled in the amount of R60m being paid during the year. During the 2018/19 Mid Term Budget Adjustment, the Post Office was further allocated R2,9 billion which was received from the shareholder in January 2019 and partly utilised to settle all long term loans, pay critical suppliers to enhance the operational environment and to fund future capital expenditure.

The organization’s financial position is stronger with the carrying value of total assets exceeding the total carrying value of liabilities by R5,2 billion. In the prior year, total as-sets exceeded total liabilities by R3,4 billion. This has greatly improved the solvency and liquidity position of the group.

The Post Office’s investment in property, plant and equip-ment changed to R2,3 billion during the year with additions of R110 million from the prior year. There were no signifi-cant asset disposals or asset write-offs during the year. The

Financial overview by the Chief

Financial Officer


Group has commitments of R60 million for contracts placed for capital expenditure.

The Post Office has not invested in capital infrastructure over the past few years. The losses posted in the last five years resulted in a lack of funding available to invest in ageing technology and physical infrastructure. Physi-cal infrastructure investments have to be allocated to the maintenance and renovations of to attract tenants, provide employees a conducive working environment and, in some cases, attract tenants.

Customers’ needs are changing and we are also investing in technology as a vehicle for radical economic transfor-mation and for customers to be empowered. With this in mind, given that we consider ourselves a state asset for service delivery, it is always a difficult investment balancing act between bringing real returns on investment in terms of economics, community and national development, future growth potential and quality of life for all.

The Capital Investment Framework has been approved by the Post Office Board during the year. The purpose of the Capital Investment Framework is to bridge the gap between the Corporate Strategy and implementation by business units on the ground. This framework will also provide a rig-orous governance framework that guides the capital project owners in effective decision making, and lays the ground-work for project implementation success.

The Capital Investment and Monitoring Committee, com-prising senior executives, has been established to oversee the designation of the allocation amongst various compet-ing needs requiring capital investment. The focus would be to improve new and existing infrastructure, information technology, especially embracing developments of the 4IR, and human capital management.

Fruitless and wasteful expenditure increased to R368 million.

Irregular expenditure amounted to R1 232 billion

During 2018/19 financial year the Department of Telecom-munications and Postal Services and National Treasury ap-proved the funding for the Universal Service Obligation/ Public Service Mandate amounting to R1,5 billion over the MTEF. This will ensure that service provision is focused in

the rural and under-serviced communities so they can have access to financial and other services.

Although the Post Office is grateful for the SASSA project, the speed to implement this essential service and a pro-ject of this magnitude resulted in the Post Office receiving a qualified audit. The three areas of qualification are around the SASSA documents and reconciliations that were not available at the time of the audit.

The implementation year posed many challenges, but pro-cesses are underway to source the documents, finalise rec-onciliations and improve the internal control environment around the SASSA project to prevent a repeat audit finding in the new year.

The Post Office’s intention is to leverage on its footprint and infrastructure in order to become a delivery mechanism for government and private sector services. The implemen-tation of the new strategy remains crucial in attaining a sustainable Post Office of the future that remains relevant, reliable and resilient to reach all citizens in South Africa. To achieve this sustainably and timeously, there is undeniable demand for the relaxation of the regulatory environment to accommodate private equity injection as well as the for-mation of partnerships with private sector role players that have the requisite exposure in the fields we are investing in.

Jabulani DlamukaActing Group CFO

“There is undeniable demand for the relaxation of the regulatory environment to accommodate equity injection as well as the formation of partnerships with private sector role players that have the requisite exposure in the fields we are

investing in.”


Strategic Overview

visionA leading provider of postal, logistics and financial services to the south African Market.

MissionWe leverage our established infrastructure and link goverment, business and consumers

with each other locally and abroad.

valuesWe have a passion for our customers and will meet their specific needs through

excellent service.

We aim to contribute positively to our communities and environment.

We treat each other with respect, dignity, honesty and integrity.

We recognise and reward individual contributions.

We embrace diversity and transformation in the way we conduct business.


Legislative and Other Mandates

MANDATE, REgULATiON AND LicENsEThe South African Post Office SOC Limited was established on 1 October 1991 as a company in terms of the Companies Act, No. 61 of 1973. The State (Republic of South Africa), represented by the Minister of Telecommunications and Postal Services, is the sole Shareholder.

Following the repealing amendment of the Companies Act No. 61 of 1973 and the enactment of the Companies Act No. 71 of 2008 (as amended), the SA Post Office was desig-nated as a state-owned company (SOC) as per the South Af-rican Post Office Limited Act No. 22 of 2011, as amended.

The SA Post Office is also a major state entity in terms of Schedule 2 of the PFMA No. 1 of 1999 (as amended).

RegulationThe SA Post Office is mandated to provide postal services in accordance with the Postal Services Act of 1998. This Act provides for the regulation of postal services including its Universal Service Obligations (USO).

The license to operate as South Africa’s postal services provider was issued to the SA Post Office by the regula-tor in August 2001. This license is valid for 25 years and is reviewed every three years in terms of targets and perfor-mance.

The SA Post Office is afforded a legislated monopoly over reserved services, and until the 2011 year received a gov-ernment subsidy. The Postal Services Act of 1998 charges the regulator, Independent Communications Authority of South Africa (ICASA), with protecting the provision of the universal service through the reserved postal services licen-see, namely the SA Post Office.

Through the SA Post Office’s USO, a strategic priority for the Company is rolling out new addresses and branches in remote areas, in line with the government’s developmental programme for 2030. The Postal Services Act further re-quires ICASA to monitor the incumbent against ‘anti-com-petitive’ behaviour.

Legislative and governance Framework

The SA Post Office complies with the protocols and legisla-tion governing SOCs and is guided by various postal, courier and financial regulations laid down by the regulatory bodies such as ICASA, the Financial Intelligence Centre (FIC) and the Financial Services Board (FSB).

The Group is required to comply with, inter alia, the following:

• SA Post Office Act No. 22 of 2011 (as amended);

• Postbank Act No. 9 of 2010 (as amended);

• Postal Services Act No. 124 of 1998.

• Public Finance Management Act No.1 of 1999 (as amended);

• Companies Act No. 71 of 2008 (as amended);

• Relevant legislation applicable to the postal sector and to SOCs;

• King IV Code on Good Corporate Governance.

• Other relevant local and international codes for the postal sector.


GROUP CHIEF EXECUTIVE OFFICER

CompanySecretary

Chief AuditExecutive

general Manager:Executive support

Managing Director

Postbank

chief Finan-cial Officer

group Executive

governance

chief Oper-ating Officer

group Executive:

Human Resources

group Executive:

sales

group Executive:

information Technology

group Executive: strategy

Bloemfontein

Cape Town

East Rand

Port Elizabeth

Rossburgh

Support Services

Finance

Governance & Regulatory

HR

Strategy & Sustainability

IT

Sales

SCM

New company – Assets to still be transferred

All subsidiaries 100% owned by the Post Office

The Post Office Company

The SAPOS Property

Companies

Docex CFG Postbank SOC Ltd

Operations

Logistics

Properties

Centre of Excellence

Regional Operations

Value Added Services

InternalAudit

Postbank Division

GOVERNMENT

The Post Office Group

Organisational Structure



PART B: PERFORMANCE INFORMATION


Report on performance on predetermined objectives sERvicE DELivERy ENviRONMENTThere has been an overall improvement in the service deliv-ery environment in Post Office. During quarter 1 and quarter 2, there were some challenges that resulted in mail back-logs, which were eliminated at year end. The increase in the number of delivery vehicles enhanced the conveyance of mail in terms of frequency and capacity. The receipt of the R2,9 billion equity injection during the mid-term budget pro-cess, also assisted to settle critical suppliers that reinstated their services to Post Office that enabled the operational environment.

The Post Office took over social grant payments during the current financial year. A total of 7.7 million grantees were converted to the new gold SASSA cards. The SASSA pro-ject was a huge success for both Post Office and Govern-ment with a smooth transition from the old service provider to on-boarding to Post Office systems.

Post Office has seen revenue growth by 20% year on year. This was largely contributed by the SASSA social grants payments and the DTT project.

The past year has seen tough economic conditions pre-vail with rising fuel costs and higher interest rates which restricted the operating environment to perform better on other revenue streams. The loss in customer volumes and the impact of digital communication, has seen postal rev-enues performing below the planned targets.

There is still a mismatch between monthly revenues gener-ated and corresponding operating expenditure, resulting in a deficit to meet our monthly financial obligations. The R2,9 billion funding allocation received on 25 January 2019, has been utilised to settle all loans and the payment of critical suppliers, with a balance of R1 204 million remaining at 31 March 2019. Post Office has also been allocated funding of R1,5 billion over the medium term to fund the public service mandate.

The Distribution Network Optimisation policy and a proposal to align the six Post Office regions with the Government provincial boundaries have been approved by the Post Of-fice Board and consultation with organised labour has been concluded and referred to the Regional Consultative Forums for further engagements on the rollout and implementation. Once this policy is implemented, it will create an efficient

regional distribution network that will derive better value from Post Office assets.

The mail service delivery performance at the end of the year was recorded at 76.4% against the ICASA approved target of 92%. The operational challenges experienced in quarter 1 and 2 contributed to the decline of 11% from per-formance in the prior year. An upward trend since July 2018 was attributed to the injection of a large number of vehicles into operations, which enhanced the conveyance of mail in terms of frequency and capacity. At the end of the financial year, the fleet improved to 98% of the total fleet require-ment, with only the remaining motorcycles outstanding. The Post Office branding has also been completed on the new vehicles to ensure more visibility and exposure.

An additional 589,156 street addresses were allocated to citizens against a planned target of 500,000. The Govern-ment project to generate geo-referenced addresses in the rural areas nationally exceeded the target during the year with an achievement of 4.9 million addresses.

The registration of 1 012 518 qualifying needy households have been registered nationally as at 31 March 2019. A total of 549 344 Set Top Boxes has been issued up to 31 March 2019.

ORgANisATiONAL ENviRONMENT

The Post Office Group headcount increased to 18 359 at 31 March 2019, an increase of 240 employees from the prior year mainly due to the increase in Teller assistants/ Payment Clerks at Retail branches for the SASSA social grants payments throughout the year. The headcount of 18 359 comprises 17 275 permanent staff and 1 084 con-tract employees.

During the 2018/19 financial year, the following executive positions were filled: GE Operations, GE IT and 9 General Manager Operations. The specialised positions that were filled during this period were mostly within Finance (11), IT (7), Postbank (43) and other BUs (15). Due to the SASSA project the filling of permanent Branch Managers, Chief Teller and Teller vacancies during the financial year was a focus area to enable the branches to deliver the required services. Progress with the filling of these vacancies is as


follows: 88% of Branch Manager Positions, 85% of Chief Teller and 83% Teller vacancies were filled. During this pro-cess 731 part time employees were appointed in full time teller positions.

Other projects that required additional temporary staff was the DTT project (133 appointments), DTPS project (6 appointments) as well as the distribution of text books in Limpopo for Department of Education (164 appointments). In order to deliver on these projects temporary staff were appointed on a fixed term contract.

kEy POLicy DEvELOPMENTs AND LEgisLATivE cHANgEs

The section 16 application to register a bank has been sub-mitted on 26 June 2017 to the SARB. Cabinet has approved the legislative changes of the Banks Act through the Finan-cial Matters Bill, which will now enable Postbank to regis-ter as a fully fletched bank. The Bank Controlling Company (BCC) structure will still be finalised in the new financial year.

sTRATEgic OUTcOME ORiENTED gOALs

Performance information

Strategic objectives, performance indicators, planned targets and actual achievements

The strategic objectives over this planning period covered the under-mentioned key areas that focused the organisa-tion on recovery and to set it on a growth trajectory for sus-tainability over the medium term.

Post Office planned to retain, grow, and diversify reve-nues with the introduction of new product and service of-ferings that will provide greater value to customers.

Cost reductions and optimisation will be realised by in-creasing operational efficiencies across the organisation. To elevate organisational performance, the Post Office will embark on reskilling and rebuilding lost capacity as well as redesigning the performance management system and create workplace environments that are conducive for its employees.

The summary performance of the strategic areas is included in the table below.

strategic ThemesPlanned

target

Number

achieved

100%

100%

Achieve-

ment

Revenue Retention Through Operational Effectiveness 4 1 25%

Reduce Operating Costs (Operations Company) 2 1 50%

Grow and Diversify Rev-enues 3 3 100%

Performance Management 1 1 100%

Structural Reorganisation 1 1 100%

Governance 1 - 0%

Total 12 7 58%

Three areas performed poorly whilst the other areas per-formed at 100%, resulting in the overall achievement of 58%. For the financial year 12 KPIs were measured with 7 achieving the planned targets with 100% whilst 3 additional KPI’s achieved above 80% of the year target.

Revenue Retention Through Operational Effectiveness The revenue retention strategic area recorded an achieve-ment of 25% for the year with 2 additional KPI’s achieving above 80% against respective target. The main contributor for the underperformance was the loss of customers, vol-umes and decline in mail revenues. The delivery standard for mail has performed at 76.4%, 15.6% below the target of 92%. Operations were primarily challenged with labour is-sues and work stoppages at the Tshwane and Witspos mail centres. The ripple effect in Logistics due to interrupted transportation of local and national mail contributed to fur-ther delays of mail to customers. Shortages of containers, forklifts, vehicles, motorbikes, bicycles and other tools of trade continue to affect service delivery negatively.

Reduce Operating costs (Operations company) - The consolidation and optimisation of the regional operations infrastructure network policy was approved by the board on 5 March 2019, whilst expenditure exceeded the budget by R600 million attributed to card and security costs for the SASSA project.

grow and Diversify Revenues - The SASSA revenue con-tributed substantially to the 100% performance for this area. The increase in the number of SASSA grant benefi-

SOUTH AFRICAN POST OFFICE SOC LTD ANNUAL REPORT 2019

22

ciaries to 7,7 million and the growth in number of Postbank depositor accounts exceeding the target by 5% together with property revenue received from Telkom ensured attain-ment of the target.

Performance Management – The adherence to perfor-mance management processes by management level staff was achieved with a total number of 405 performance eval-uations of the 407 having been submitted.

governance - As at 31 March 2019, the target for Auditor General SA matters achieved 63.13%, which constitutes 113 issues, resolved from 180 issues reported. From the 67 issues not resolved, 16 issues failed implementation whereas the remaining 50 issues are still work in progress.

Work is continuing for the current items not resolved. The strategy is being formulated by Management to drive this aspiration of control improvement. This will receive prior-ity focus in the new financial year, and thereafter ongoing focus by Management and oversight bodies. The AG Audit Report has been submitted to Post Office on the 30 July 2019 and the Post Office achieved a qualified audit opinion for the 2018/19 financial year.

The detailed performance for the key performance indica-tors are indicated in the tables on the next pages.


Th

eme

go

alk

Pi

Ref

key

Per

form

ance

in

dic

ato

r

An

nu

al P

erfo

rman

ce 2

018/

19

Targ

etA

ctu

alv

aria

nce

Ach

ieve

d/

No

t ac

hie

ved

Rea

son

fo

r Ta

rget

var

ian

ce

1. R

even

ue

Ret

entio

n Th

roug

h O

pera

tiona

l E

ffec

tiven

ess

Ret

entio

n of

prio

r ye

ar

re

venu

es

1.1

Ach

ieve

cur

rent

ba

selin

e R

even

ues

targ

et a

s pe

r C

or-

pora

te P

lan

R4,

6 bi

llion

R5,

27

billi

onR

669

mill

ion

Ach

ieve

dTh

e ta

rget

was

exc

eede

d du

e to

the

SA

SS

A r

even

ues

and

inte

rest

ear

ned

by P

ostb

ank

The

incr

ease

in t

he S

AS

SA

rev

enue

has

sup

plem

ente

d th

e lo

wer

lett

er a

nd p

arce

l rev

enue

.

Mor

e ha

s to

be

done

to

enco

urag

e S

AS

SA

gra

ntee

s to

co

llect

the

ir gr

ants

fro

m P

ost

Offi

ce p

ay p

oint

s to

en-

sure

rec

over

y of

ope

ratio

nal a

nd in

vest

men

t co

sts.

Impr

ove

Ope

ra-

tiona

l Effi

cien

cy

of M

ail,

Ret

ail

and

Tran

spor

t (O

pera

tions

C

ompa

ny)

1.2

Ach

ieve

the

reg

u-la

ted

mai

l del

iver

y st

anda

rd o

f 92

%

as p

er t

he a

gree

d de

liver

y m

odel

w

ith IC

AS

A

92%

by

31 M

arch

20

19

76.

4%-1

5.6%

Not

A

chie

ved

The

perf

orm

ance

for

qua

rter

tw

o an

d th

ree

was

ver

y lo

w c

onsi

derin

g th

e hi

gh n

umbe

rs o

f ca

rry

over

s th

at

had

to b

e de

alt

with

. La

bour

sto

ppag

es a

nd a

nat

iona

l st

rike

in q

uart

er t

wo

have

res

ulte

d in

larg

e nu

mbe

rs o

f po

stal

item

s no

t de

liver

ed o

n tim

e, w

ith a

rip

ple

effe

ct

on f

ollo

win

g m

onth

s. T

he b

ackl

og h

as b

een

redu

ced

from

45

mill

ion

item

s fr

om J

uly

2018

to

513

000

in

Mar

ch 2

019.

Alth

ough

an

upw

ard

tren

d is

vis

ible

sin

ce q

uart

er t

wo,

se

rvic

e de

liver

y pe

rfor

man

ces

wer

e st

ill n

egat

ivel

y af

-fe

cted

by

shor

tage

s of

con

tain

ers,

mot

orbi

kes,

bic

y-cl

es a

nd o

ther

too

ls o

f tr

ade.

The

flee

t w

as h

owev

er

incr

ease

d to

128

0 (9

8%)

with

rem

aini

ng 2

% f

or m

otor

cy

cles

stil

l to

be a

lloca

ted

for

deliv

ery

wal

ks.

Sho

rtag

es o

n ke

y st

ock

item

s su

ch a

s Tr

ack

& T

race

la

bels

, RJ

stic

kers

and

lock

s &

key

s ha

ve b

een

part

ially

re

solv

ed,

but

not

adeq

uate

ly a

nd t

here

fore

the

lack

of

thes

e st

ock

item

s im

pact

ed n

egat

ivel

y on

ope

ratio

nal

effic

ienc

y an

d ef

fect

iven

ess.

Crit

ical

sta

ff s

hort

age

in s

ome

area

s of

the

bus

ines

s w

ere

still

ha

mpe

ring

prog

ress

an

d in

so

me

of

our

smal

ler

deliv

ery

offic

es t

here

are

no

staf

f to

ren

der

ser-

vice

s. W

ithou

t fil

ling

thos

e po

sitio

ns, s

ervi

ce le

vels

will

pr

obab

ly n

ot im

prov

e. T

he im

pact

of

SA

SS

A a

nd o

ther

pr

ojec

ts h

ave

also

con

trib

uted

in t

he r

educ

tion

of s

taff

re

sour

ces

from

con

vent

iona

l ope

ratio

ns w

ithin

the

pro

-ce

ssin

g an

d la

st-m

ile d

eliv

ery.


Th

eme

go

alk

Pi

Ref

key

Per

form

ance

in

dic

ato

r

An

nu

al P

erfo

rman

ce 2

018/

19

Targ

etA

ctu

alv

aria

nce

Ach

ieve

d/

No

t ac

hie

ved

Rea

son

fo

r Ta

rget

var

ian

ce

Impr

ove

Ope

rat-

ing

Effi

cien

cies

(Pos

tban

k)

1.3

% U

ptim

e fo

r AT

M

and

PO

S T

rans

-ac

tions

per

the

in

dust

ry s

tand

ard

98%

97.6

8%-0

.32%

Not

A

chie

ved

The

targ

et w

as n

ot a

chie

ved

due

to t

he f

ollo

win

g:

Net

wor

k co

nnec

tivity

com

prom

ised

the

effe

ctiv

e op

era-

tion

of a

ll sy

stem

s. T

his

resu

lted

in a

ll of

the

tra

nsac

-tio

ns b

eing

dro

pped

. D

ata

Cen

tre

bein

g do

wn

due

to

load

she

ddin

g an

d P

ost

Offi

ce n

ot h

avin

g ge

nera

tors

to

assi

st d

urin

g th

is p

erio

d. T

his

also

had

a n

egat

ive

impa

ct

on t

he s

yste

m’s

abi

lity

to p

roce

ss t

rans

actio

ns.

Lack

of

capa

city

at

the

Pos

t O

ffice

Dat

a ce

ntre

and

sy

stem

s th

at w

ere

not

adeq

uate

ly e

quip

ped

for

the

incr

ease

in

volu

mes

due

to

the

SA

SS

A p

roje

ct,

tran

s-ac

tions

wer

e no

t pr

oces

sed

on t

ime

and

even

tual

ly

drop

ped

due

to w

aitin

g tim

e.

UB

S s

yste

m r

each

ed i

ts s

eque

nce

thre

shol

d an

d th

e th

resh

old

not

bein

g up

date

d, t

his

resu

lted

in t

rans

ac-

tions

bei

ng d

ropp

ed.

Net

wor

k co

nnec

tivity

ch

alle

nges

, sp

ecifi

cally

w

here

th

ere

was

a f

ailu

re i

n th

e lin

k be

twee

n Te

lkom

and

B

anks

erve

. Thi

s ha

d a

nega

tive

impa

ct o

n th

e sy

stem

’s

abili

ty t

o pr

oces

s tr

ansa

ctio

ns

Impr

ove

cus-

tom

er e

xper

i-en

ce

1.4

% o

f al

l cus

tom

er

com

plai

nts

mus

t be

res

olve

d w

ithin

7

wor

king

day

s fr

om d

ate

of r

e-ce

ipt

of c

ompl

aint

100%

by

31 M

arch

20

19

51%

-49%

Not

A

chie

ved

Nat

iona

l Cus

tom

er S

ervi

ces

is f

acin

g a

serio

us p

robl

em

of d

epen

denc

ies

from

oth

er B

usin

ess

Uni

ts in

ter

ms

of

repo

rtin

g w

ith r

egar

ds t

o tr

acki

ng a

nd d

eliv

erie

s of

mai

l an

d re

solu

tion

of c

usto

mer

com

plai

nts.

Lack

of

a pr

oper

Cal

l Cen

tre

Ope

ratio

ns S

yste

m m

akes

it

diffi

cult

for

Cal

l C

entr

e M

anag

emen

t to

ide

ntify

the

du

plic

atio

n of

com

plai

nts.

A n

ew c

all c

entr

e m

anag

emen

t sys

tem

is b

eing

sou

rced

w

hich

will

ens

ure

prop

er t

rack

ing

and

reco

rdin

g of

all

com

plai

nts

rece

ived

. It

will

als

o pr

ovid

e ca

ll ce

ntre

ag

ents

a s

ingl

e, e

asy-

to-u

se a

pplic

atio

n th

at m

anag

es

inte

ract

ion

incl

udin

g cu

stom

er d

etai

ls,

call,

em

ail

and

chat

.

Rep

eatin

g of

wor

k al

so c

ause

s th

e av

erag

e qu

euin

g to

in

crea

se t

hus

lead

ing

to a

band

onm

ent

of c

alls

and

long

av

erag

e ta

lk t

ime.

Thi

s ca

uses

fat

igue

and

dis

cour

age-

men

t to

age

nts

lead

ing

to d

rop

in p

erfo

rman

ce.


Th

eme

go

alk

Pi

Ref

key

Per

form

ance

in

dic

ato

r

An

nu

al P

erfo

rman

ce 2

018/

19

Targ

etA

ctu

alv

aria

nce

Ach

ieve

d/

No

t ac

hie

ved

Rea

son

fo

r Ta

rget

var

ian

ce

2. R

educ

e O

p-er

atin

g C

osts

(O

pera

tions

C

ompa

ny)

Impr

ove

cost

ef

ficie

ncy

2.1

Ach

ieve

bas

elin

e ex

pend

iture

tar

get

as p

er C

orpo

rate

P

lan

R5,

7 bi

llion

R6,

51

billi

on-R

810

mili

ion

Not

A

chie

ved

Incl

uded

in

the

R6,

5 bi

llion

exp

ense

s is

an

amou

nt o

f R

754

mill

ion

for

the

SA

SS

A p

roje

ct

Opt

imis

e th

e P

ost

Offi

ce

infr

astr

uctu

re

netw

ork

2.2

Con

solid

atio

n an

d op

timis

atio

n of

the

re

gion

al o

pera

-tio

ns in

fras

truc

ture

ne

twor

k

App

rove

d co

nsol

ida-

tion

and

optim

isa-

tion

plan

by

30

Sep

tem

ber

2018

Dis

tri-

butio

n N

etw

ork

Opt

imis

a-tio

n P

olic

y ap

prov

ed.

0A

chie

ved

The

targ

et h

as b

een

achi

eved

. D

istr

ibut

ion

Net

wor

k O

ptim

isat

ion

Pol

icy

was

app

rove

d at

Boa

rd l

evel

on

8 M

arch

201

9.

3. G

row

and

D

iver

sify

Rev

-en

ues

Ach

ieve

Cor

po-

rate

Pla

n R

ev-

enue

Gro

wth

Ta

rget

3.1

Ach

ieve

Cor

pora

te

Pla

n R

even

ue

Gro

wth

Tar

get

R16

2 m

illio

nR

168

mill

ion

R6

mill

ion

Ach

ieve

dTh

e ta

rget

has

bee

n ac

hiev

ed t

hrou

gh t

he S

AS

SA

pay

-m

ents

mad

e ov

er t

he c

ount

er b

y re

tail

offic

es o

f R

116

mill

ion

and

R52

mill

ion

prop

erty

rev

enue

in

full

sett

le-

men

t fo

r th

e Te

lkom

am

ount

due

.

Gro

w P

ostb

ank

reve

nues

3.2

Ach

ieve

Pos

tban

k R

even

ue t

arge

t pe

r C

orpo

rate

Pla

n

R82

2 m

illio

nR

1,8

billi

onR

982

mill

ion

Ach

ieve

dTh

e In

com

e be

fore

tax

exc

eeds

the

tar

get,

mai

nly

due

to in

crea

se in

non

-inte

rest

rev

enue

(N

IR).

The

incr

ease

in

the

NIR

is d

riven

mai

nly

by t

he g

row

th in

the

SA

SS

A

reve

nue.

Incr

ease

fina

n-ci

al in

clus

ion

3.3

% G

row

th in

the

to

tal n

umbe

r of

P

ostb

ank

ac-

coun

ts, f

rom

the

pr

ior

year

act

uals

3% f

rom

th

e pr

ior

year

ac

tual

s

5%2%

Ach

ieve

dTh

e ta

rget

has

bee

n ac

hiev

ed.

The

grow

th in

acc

ount

s on

ly c

onsi

dere

d th

e gr

owth

in a

ccou

nts

on th

e U

BS

pla

t-fo

rm,

excl

udin

g th

e S

AS

SA

acc

ount

s of

app

roxi

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sALEs Business for the financial year under review took place un-der tough trading conditions. The slowdown in the national economy continues to affect most sectors and companies that utilise the services of the Post Office. Nevertheless, the Sales division continues to present the Post Office products and services to existing and new customers while identifying opportunities to design specific tailor-made solu-tions for the market.

Sales is encouraged and excited by the Post Office’s move towards e-Commerce and the positioning of the Post Of-fice as the driver of e-Commerce growth in the Republic especially into the rural areas. The Post Office intends to do this while also bringing emerging entrepreneurs into the e-Commerce arena. The implementation of the Logistics Plan and the e-Mall should see the Post Office make significant strides towards meeting this objective.

The next logical step in the Post Office’s evolution is into being an enabler of economic transactions. The awarding of SASSA contract was in line with the vision of the Post Office of being the payment hub for most Government ser-vices. This has given us insight into the rural economies and the possibilities of bringing these economic drivers for con-tinued inclusive growth. We have also noted an increase in the financial services revenue, across the product range, which is testament to the growth and potential in this seg-ment. Having the grant payment process as a standard op-eration within its services ensures that the Post Office can now offer cash disbursement services to any customer.

We continue to respond to tenders from Municipalities for services. The Sales team is developing a tailor-made solu-tion for this important segment. This should see the Post Office contributing tangibly in servicing municipalities while bringing innovation to our people, and at the same time ena-bling service delivery.

Government business is not the only focus for the division, as engagements continue with our Corporate and SMME customers in order to retain and grow the business.

Baseline revenues were affected mostly by the decline ex-perienced in Mail revenue. This is a direct result of migration by customers onto digital platforms in response to techno-logical innovation and perceived poor delivery standards by the Post Office. It is encouraging to note that the decline has been stabilised to levels prior to the operational disrup-tions experienced in recent history.

The YTD overall revenue for Operations was recorded at

approximately R3,5 billion, against a budget of R3,7 billion at the end of March 2019. It is also 5% lower than the previous years’ revenue. In general all product lines show a decline, except for the properties revenue mainly as a result of historic Telkom revenue received during the year.

The motor licensing revenue is recorded at R308,3 mil-lion against a budget of R330,3 million. However, the YTD revenue is R13,8 million higher than last year’s actual for the same period. The DTT actual revenue at R99,3 million is well below the budget of R180 million at only 55,2% of the budget. Compared to the previous year, DTT revenue is down by R16,7 million.

Despite the decline, Sales continued to engage with Key Account customers in order to co-create solutions that will grow existing revenues while also exploring additional or new revenue streams.

22% of the Key Account customers attained growth from the past year’s revenues. 78% performed below the 90% mark compared to the previous year. Key Account manage-ment continues to be a focus area for Sales.

93% of the growth target was met, which assisted in mov-ing the overall performance by 5% from 88% in the previ-ous year.

Motor Vehicle Licence renewals and SASSA contributed positively towards the Retail revenue line while making government services accessible to the population. The DTT project met some unexpected delays as a result of changes with the project partners, which led to income from the pro-ject being delayed nationally. We are currently working with the relevant government Departments to assist with the fi-nalisation of this National Project.

The Customer/ revenue pipeline requires investment into platforms that would enable delivery of services. Most of the potential projects require integration, which the Post Office has not been able to implement thus far. Prioritisation of projects has seen investments in some technologies and the completion of these will ensure the ability to integrate with customers and offer a wider portfolio of services.

key Revenue achievementsRevenue for CN22 small packets at international services performed very well for the year, exceeding the previous years’ income by R36,5 million or 60,2%. Although the small packet income increased significantly, improvements are necessary on the scanning and delivery performance to meet customer expectations.

Performance Information by Function


Property revenue exceeded budget by R30,1 million. Revenue for MVL was 6,6% lower than budget, but exceeded last year’s revenue by R13,8 million.

DTT revenue was R16,7 million lower than last year. The availability of installers and recruitment of DTT volunteers for the registration campaign are key towards the improve-ment of the performance. A recruitment campaign for vol-unteers has been launched since the start of the 2019/20 financial year.

customer service – service with a smile

Customer complaints are the main barometer to determine the level of customer satisfaction and the quality of service provided. Remedial action is implemented considering the key principles of type of complaint and timeous resolution.

The total annual complaints received for the year amounted to 1 833 compared to 2 130 complaints for the previous 2017/2018 financial year. This represents a 13,9% reduction year-on-year. Streamlining and improvement of processes have contributed to the scenario, and complaints are managed on a case-by-case basis, with the time sensitivity it requires.

Customer Services is striving to meet performance targets in terms of the SLA with ICASA of resolving complaints within 14 working days. This was achieved, and the seven working days SLA required by Executive Management will be met on the conclusion of the Call Centre upgrade project.

The Call Centre update project is delayed by technical mat-ters which should be resolved within the completion of the Network Upgrade project scheduled to be completed in Q2 2019/20. The conclusion of this project should improve the overall effectiveness of the Call Centre management pro-cess.

The team is optimistic that the interventions being imple-mented will result in value to our clients while ensuring that Post Office remains relevant in the supply chains and infra-structure of the country as a capable enabler for business and national economic growth.

OPERATiONAL REPORT

Operations

Operations experienced a successful year during 2018/ 2019. The implementation of the Operational Blueprint strategy advanced significantly and a key catalyst, the high level organisational structure, was implemented while the regional demarcation was aligned to the provincial boundaries to execute on the strategic and functional plans. Within the orbit of Operations, various key performance

areas, initiatives and projects were aligned to focus on the improvement of the ability to deliver on our mandate. Positive strides were made in achieving key deliverables; however cognisance should be taken of the financial and operational challenges still experienced during the year by the organisation.

With regard to the mail delivery performance, the achieve-ment for 2018/19 at 76,4% was lower than the 87,1% achieved the year before. However, it was better than the 73,6% achieved in 2016/17 and 61,2% in 2015/16. The reason for this temporary hiatus was a brief strike in quarter two. This had a ripple effect in the months that followed.

This is clearly shown by the monthly average carry overs from July 2018 to December 2018 which stood at 26 million items. As a result of sustained efforts, these carry overs were reduced to 513 000 by March 2019.

The Post Office delivers roughly two million items per day.

sAssA ProjectThe grant payment system was implemented successfully with the provision of banking services and cash payment solutions. Approximately 7,7 beneficiaries were serviced through the Post Office network by the end of the financial year.

In line with the National Development Plan, SASSA grant beneficiaries are now part of the national payment system. Service levels are very high, and the focus has now shifted to improving internal controls and concluding an accurate billing platform. In addition, security is being improved with the introduction of cash protection devises, use of biometric ID verification and implementation of the new card inventory management module.

Logistics OptimisationVarious initiatives all work towards the same goal – implementing the integrated Logistics strategy. During the year under review, the focus was on optimising the line haul and consolidating transport routes across the national network in order to support the end-to-end solution. Delivery routes were successfully optimised and 98% of the fleet requirement was allocated to cater for this. The optimisation is continuing in the new financial year with the implementation of an integrated courier solution and system, as well as a Logistics route guide to enhance vehicle optimisation and load capacity.

Textbook delivery The mandate to deliver textbooks on behalf of the Department of Education to schools was concluded successfully for the year under review. Over three million textbooks were delivered to no less than 3 659 schools in the Northern Cape and Limpopo. This project also contributed to the revenue and service delivery to citizens.


staff positioning - vacancies and crewingStaff resources were consolidated and aligned with the Operations blueprint strategy. For this purpose, a new high-level organisational structure dispensation has been approved and is being populated. Key milestones included the establishment of six operational regions demarcated along provincial boundaries and setting up of divisional portfolios for Real Estate, Centre of Excellence, Logistics and Value Added Services. The structure was populated up to executive level through a comprehensive Human Resources selection process. The process will continue in the new financial year to lower levels in line with the relevant policy and crewing guidelines.

By the end of March 2019, the Operations staff complement by end March 2019 consisted of 21 438 positions of which 16,976 (or 79,2%) positions are filled. By the end of March 2018 the total of Operations positions stood at 21 278 with 16 767 positions filled – a figure of 78,8%.

The rebalancing of resources and crewing is aimed at optimising staff numbers for Operations to be effective and efficient. Emphasis is needed on training and skills development to meet the demands of a modernised business of the future. For example, the capacitating of resources to meet demands of SASSA has started, but new initiatives such as e-Commerce require more focus.

The distribution network infrastructure programme aims to determine an ideal staff component within the newly demarcated Operations structure framework. Consultative sessions with organised labour, were part and parcel of an inclusive process and to that effect, the national and regional consultative forums have been constituted. Processes at national level were successfully concluded, culminating in the deliberating of key issues such as the rollout of the Operations blueprint, implementation of shifts framework, demarcation of regions, districts and areas at regional level. That process has gained momentum and will manifest in the implementation of the organisational structure to lower levels in the new financial year.

Meeting the challengeOperations aligned various initiatives to drive business to become more effective and efficient. Efforts to achieve such will be expanded and optimised to meet customer needs.

Financial consolidation for Operations – blue print aligned

Operating expenditure at R4,4 billion exceeded the budget by approximately R230 million or 6%. The main expense for Operations is staff cost at 70,5%, property cost at 11,8%, transport cost at 5,2% and security services at 9% of the

total expenses. Compared to the previous year the actual expenses are higher by R300 million or 7%.

Points of Presence – competitive Advantage

The Retail outlet footprint remains one of the Post Office’s key enablers to fulfil its government mandate and to provide a strategic competitive advantage to secure additional revenue streams to the benefit of South African citizens, such as the payment of Social Grants. The current footprint comprises of 2,185 points of presence, including 696 Retail Postal Agencies.

During the year under review twenty four points of presence were amalgamated with closely located existing branches, all of them in over-serviced urban areas. This process forms part of an integrated Distribution Network Optimisation programme, which was implemented in line with a board approved policy and demarcation framework. The measurement of the points of presence has been re-scoped for the new year to focus on USO branches in rural and under-serviced communities.

Address rollout The rollout of 4,9 million addresses, exceeded the target of 3,5 million by 40%. Due to the successful implementation of this project funded by R50 million from DTPS, a further R35 million grant was allocated through the USO funding to expand addresses.

Process Optimisation – Operational Efficiency

Process optimisation has been completed to meet the expectations of the broader Operations blueprint. Operational efficiency and effectiveness are at the core of the programmes and initiatives that are underway.

As part of process optimisation, communiques are sent to branches and / or other operational offices when a specific matter needs to be resolved or taken note of. End-to-end process automation is being implemented to ensure alignment, while mapping of business processes is implemented considering the integrated value proposition for Operations. Alignment and implementation of standard operating procedures and service level agreements have started and will be concluded in the new financial year.

Optimised and fully integrated future systems are critical for a consolidated Operations. The portfolio will be determined by the enterprise architecture, including business require-ments and specifications alignment.


international services

The successfully piloting of the customs declaration system for countries such as Uganda, eSwatini, and Russia was completed and the network speed was increased with the migration from analogue to fibre, which provided more capacity.

e-commercee-Commerce was identified as one of the new products and services to diversify revenue in Post Office. A website (eMall) was built to facilitate the online trading for the SMMEs and other brands, and is currently being refined.

The Post Office has also defined three levels of warehousing which will act as storage facility for the traders’ products, and also bring products closer to the customers to minimise delivery time. The warehouses fit in with the zoning strategy of Post Office Logistics, and warehouses will be set up based on customer requirements. The distribution solution was mapped at the end of March 2019.

Equipment

Multi-functional Devices (Printers, Copiers, Scanners)

The Post Office and the supplier have entered into a partnership to rollout multi-functional devices to identified Post Office sites. A rollout plan for 1,885 units to Post Office sites has been completed for approval and implementation in 2019/20.

Pinpads

The rolling out of pin pads to branches across the six regions has been completed, and the project is to be closed out in the new financial year.

DTT set-top boxes

The DTT distribution process has continued in all nine provinces. During the first year of the project – by 31 March 2017 – a total of 125 624 qualifying households were registered for the project. By 31 March 2018, a cumulative total of 686 150 qualifying households had been registered for the project.

By 31 March 2019, a total of 1 012 518 qualifying households had been registered for the project, thus exceeding the one million mark.

Since inception of the project, a total of 549 344 Set Top Boxes (STBs) had been issued by 31 March 2019. In 2018/2019 a total of 192 942 STB’s were issued, which represents a 54,1% increase from the prior year.

Replacement of branch point of sale equipment

The replacement of IT equipment in branches was refined to include scope changes and new business solutions. The investment in this equipment will improve the customer interface further sale, and is due for completion during the 2019/2020 financial year.

sEcURiTy AND iNvEsTigATiONs

introduction

With effect of 1 April 2018, the South African Post Office commenced with the payments of Social Grants on behalf of SASSA across its branch network nationally. Additionally, it commenced with cash payments at dedicated SASSA Paypoints from 1 September 2018.

As at 31 March 2019, 7.7m SASSA beneficiaries have been registered for the new Postbank SASSA Debit Card – in total 56.8m grants were processed through Postbank during the past financial year.

With the introduction of the 7.7m SASSA Postbank debit cards into the industry and allowing beneficiaries to transact at any Point of Sale (POS) in South Africa (Post Office Branches, ATMs, Banks and other Retail Outlets), the Retail Industry in South Africa experienced a major increase in the demand for cash.

By the end of March 2019, the value of SASSA grant payments processed by Postbank amounted to R59bn. Of this, an amount of R3.3bn was withdrawn at Post Office branches – the remainder was withdrawn at other retailers, banks and ATMs.

By virtue of the increased demand for cash experienced at Post Office Branches, Post Office had since April 2018 experienced a rise in armed robberies and business burglaries, which are classified as violent crime related incidents.

Similarly, with the introduction of the SASSA debit cards into the industry, debit card fraud had increased.

The Post Office has however, in view of the risks brought about by the increase in accounts, started implementing mitigating strategies which will during 2019/2020 significantly reduce both forms of crime.

OverviewWhen Postbank (SASSA) related fraud is excluded, crime incidents in comparison to the 2017/2018 Financial Year decreased from 2 373 incidents to 2 251 incidents during 2018/2019.


violent crime Overview

The amount lost in criminal violent crime incidents constitutes 0,8186% of the SASSA withdrawals at Post Office Branches, which is in line with industry standards.

The Post Office’s Board of Directors has approved funding for implementing the following physical security measures to mitigate the security risks:

• Installation of Cash Protection Devices• Armed Reponses and Alarm Monitoring Services• Alarm Repair and Maintenance• Installation of Cash Time Delay Safes• Installation of CCTV Systems

As an immediate short-term solution pending the deployment of the physical security measures during 2019, Post Office has increased its monthly guarding services.

sAssA Related Fraud With the introduction of the 7.7m SASSA Postbank debit cards allowing beneficiaries to transact at any Point of Sale (POS), the retail Industry in South Africa experienced an increased level of fraud risks that provide criminal elements the opportunity to defraud beneficiaries and the State.

• Over the year under review, the total number of fraud related incidents in relation to the 56.8m grants processed amount to 0,0122%

• The fraud loss in relation to the cash withdrawn at Post Office Branches amount to 0,3616%

Both SASSA and Post Office have reviewed and strengthened their internal control measures at SASSA local Offices and Post Offices nationally. Key mitigating aspects being deployed relate to the:

• Implementation of an Electronic Card Inventory Man-agement System as well as the

• Implementation of a Biometric login system.

Once fully deployed nationally, these systems will have a significant positive impact on the prevention of fraudulent activities.

iNTERNATiONAL RELATiONs AND PARTiciPATiON

The Post Office’s participation within the international space is located within the framework of the government’s White Paper on International Relations. The Post Office’s active participation in international postal organisation fulfils one of the international obligations as contained in Section 21 of the Post Office Licence:

The South African Post Office sees its role as being key to postal development in continental Africa. The disparities within the African Postal Administrations require solutions driven by Africans themselves.

The Post, internationally, is an integral part of national identity and socio-economic development.

The global postal network is made up of postal admin-istrations from 194 countries. The mother-body to which all belong to, is the Universal Postal Union (UPU), a specialised agency of the United Nations Organisation. Affiliation is by country and not directly by the postal administrations. Worldwide, there are 630,000 postal outlets driven by a workforce of 6 million (5.38 million permanent and 1.04 million part time). Africa accounts for 1% of the workforce (55,479). South Africa contributes 32% of this continental workforce.

To this end the Post Office together with the Department focus on the following issues:

• Protecting revenue streams into Africa

• Ensuring that developing countries and African coun-tries in particular, have a platform in the UPU to operate effectively in the decision-making process

• Managing the technological changes and ensuring that implementation does not disadvantage African postal development

• Capacitating African postal operators to take advantage of new technologies and business models to guarantee the sustainability of the postal business

• Encouraging African countries to diversify postal products into financial and logistics areas to maximise revenue opportunities, particularly with respect to e-Commerce

• Ensuring that strategic implementation of international policies is led by African countries on the continent

• Encouraging the speedy development and implementa-tion of the National Addressing and Infrastructure roll-out programs across Africa, in which the Post Office intends to play a leading role

The Post Office is an active member of the following inter-national organisations:

• Universal Postal Union (UPU) • southern African Postal Operators Association

(sAPOA)• Pan African Postal Union (PAPU)• conference of commonwealth Postal

Administrations (ccPA)


The Universal Postal Union (UPU) was established in 1874, with its Headquarters in Berne (Switzerland). It is a specialised agency of the United Nations; it is the primary forum for cooperation between postal-sector players and helps to ensure a truly universal network of up-to-date products and services with 191 member countries. It sets the rules for international mail exchanges and makes recommendations to stimulate growth in mail volumes and to improve the quality of service for customers.

Post Office’s Active Participation in the structures of the UPU (POc):

The POC represents the business oriented platform for UPU. Matters related to products, services, postal security, remuneration, letter post and parcel post, new products and marketing are handled in this Council. Consequently many of Post Office ’s efforts are focused at this level.

The importance of this committee cannot be over-emphasised. The areas of focus in any cycle for the UPU are determined by the strategy that is adopted. There are tensions in this process due to the disparate developmental states that countries and regions are at. It is imperative that developing countries are in a position to ensure that the strategy reflects their realities and the required developmental trajectory. The role that SA has to play assumes great significance in this context.

Our election into these councils therefore requires a greater commitment of resources commensurate with this requirement, coupled with the identification of a core team that will be part of this international engagement.

PAPUThe Pan African Postal Union (PAPU) is a specialised agency of the African Union (AU) with its headquarters in Arusha, Tanzania. It was established for securing the organisation and improvement of the Postal services within the Continent of Africa, and to this effect promotes the development of international collaboration amongst member Postal Enterprises and undertakes technical assistance in Postal matters.

sAPOAThe organisation was established in 2001 following the adoption of the SADC Protocol on Transport and Commu-nication (2001). The organisation represents a collaborative and cooperative forum for the 14 member postal operators. The members correspond to the SADC member countries.

The current members of SAPOA are Angola, Botswana, DRC, Lesotho (Chair), Malawi, Mauritius, Mozambique, Namibia (Vice-Chair), South Africa, Swaziland, Tanzania, Zambia, Zimbabwe.

SAPOA’s main objectives are to promote the develop-ment, establishment and operation of efficient, affordable and accessible postal services within the Southern Africa region that meet the diverse needs of customers while being economically and commercially sustainable.

ccPAThe CCPA was formed in 1971 and has a membership of 71 Postal Administrations drawn from the Commonwealth’s 53 member countries.

It was created as a forum for sharing best practice, discussing matters of common interest and acting as a concerted lobby on key issues given that CCPA’s membership represents about a quarter of the UPU electorate.

CCPA has held 14 Conferences and 7 pre-Congress meet-ings during the year under review.

international projects e-Commerce project is a national project endorsed by the Minister of Telecommunications and postal services. South Africa was earmarked to be the hub of e-Commerce in the region.

Assessment has been done by the UPU team in 2017 and the Post Office is readying itself to play this role.

ENviRONMENTAL sUsTAiNAbiLiTyThe goal of the Environmental Sustainability program is to promote systems that support the three pillars of sustainability: people, planet and profits. Sustainability seeks to balance society’s needs against the need for ecological protection and stable economic conditions.

The Post Office provides physical delivery services using vehicles, and that has an impact on the environment. Its buildings use electricity and water and its operations use paper and other resources.

carbon managementThe carbon management is divided into two sections. Scope 1 emissions (direct emissions), are the annual emissions of the transport fleet. The target for scope 1 emissions was met. The company emitted 8 702 tons for the year under review. This was 23% below the target of 11 344 tons.

Scope 2 carbon emissions (indirect emissions) are derived from the electricity used by the Post Office. The target is to reduce energy use by 2.5% per year. The scope 2 target was not met during the year under review. The organisation emitted 33 236 tons of carbon emissions; this exceeded the threshold of 33 094 tons by 0.42%.


Energy consumption was 0.81% better than the 2018 year. Post Office saved 17% in electricity cost compared to the previous year.

Waste managementThe target for paper consumption is a reduction of 2.5% compared to the year before, and for 95% of all paper to be recycled. The paper recycling target was not met; the target was to recycle 76 tons of paper, and only 54 tons were recycled.

cORPORATE sOciAL iNvEsTMENTThe Brave Foundation was registered as a non-profit Trust (for approximately 7 years) based in Cape Town in South Africa. To date, the foundation had supported over 550 individuals, adults and children, along with their families, through recovery from physical trauma of all kinds, on a donation basis.

The mission of the Foundation was to ensure that irrespective of prognosis, those at Brave are empowered and enabled, never limited, and rather go on to lead lives of ability and unlimited potential.

The Brave Foundation approached the South African Post Office with a corporate social investment sponsorship proposal. The proposal includes the collection, storage and distribution of wheel chairs by the South African Post Office. In future Brave will work with the Post Office in offering some of their services during SASSA Pay-out Days.

This fits within the Post Office Corporate Citizenship Strategy. The project will enhance the image of the company as a caring company. Secondly partnership with Brave will assist the Post Office Dignity Programme that is associated with SASSA Social Grants Programme.

The Board is awaiting further details from the Foundation prior to approval of the project.

The Post Office is also in a partnership with the non-governmental organisation Nal’ibali, which promotes reading in mother languages. The Post Office distributes reading material free of charge to schools and reading clubs nationally.


Postbank Acting Managing Director’s

OverviewPOsTbANk 2019 ANNUAL REPORT cHAPTER Postbank expended a great deal of effort in the past year in delivering on the SASSA contract. The initial contract concluded with SASSA on 8 December 2017 required Post Office and Postbank to start migrating SASSA beneficiaries from the old SASSA card to the new Postbank card by the 31st of March 2019 (less than 4 months from the date of the signing of the contract). This deadline was extremely tight and despite the many challenges experienced, Post-bank accomplished a number of key achievements with re-spect to the implementation of the SASSA project:

• The migration of SASSA beneficiaries from the old Grin-drod card to the new SASSA card hosted by Postbank commenced in May 2018, following a successful pilot conducted during April 2018 in all nine provinces.

• SASSA grants were paid to beneficiaries in the Na-tional Payments System with effect from the 1st of June 2018. This was a local and global industry record in terms of deploying a new product of this magnitude into a National Payments System.

• By 31 March 2019, over 8,3 million social grants were paid to over 7,7 million beneficiaries through the new SASSA card hosted on Postbank’s IT system.

Postbank also made progress in its corporatisation pro-gramme:

• The Financial Matters Amendment Bill, which deals with the issue of allowing a State Owned Company to register as a Bank, was passed by the NCOP on 28 March 2019 and was officially assented to by the State President on the 25th of May 2019.

• The transfer of the operations of the Postbank divi-sion to the Postbank SOC Ltd was Gazetted by the

Department in March 2019 with an effective date of 1 April 2019, in line with the provisions of the Postbank Amendment Act 44 of 2013. From 1 April 2019, Post-bank has been operating as a separate legal entity. The transfer of staff to the new Postbank SOC was suc-cessfully implemented and the consultation process with organised labour on the transfer in line with Sec-tion 197 of the Labour Relations Act was completed without any disputes. A number of other project mile-stones were also achieved.

• The retention of Postbank employees on the Post Of-fice Retirement Fund.

• Per discussions with the South African Reserve Bank (SARB), the section 16 Application will be updated with more up to date information because a considerable amount of time had passed since the initial submission that was made in June 2017. The updated information will be submitted to the SARB at the same time that the amendments to the Postbank Act are passed.

• The finalisation of the Bank Controlling Company Struc-ture is being addressed by the Minister of the Depart-ment of Communications and the Minister of Finance.

• A skills and qualification audit for managerial and ex-ecutive staff was concluded towards the last quarter of 2018/19 and a report was submitted to Department of Telecommunication and Postal Services.

POsTbANk’s FiNANciAL PERFORMANcE FOR THE yEAR ENDED 31 MARcH 2019Postbank’s net profit before tax rose from R296 million in the previous financial year to R496 million for the year un-der review. This was mainly due to the implementation of


the SASSA project. The Net Profit position does not fully reflect the cash impact of the project because Postbank had to make a substantial capital investment to operationalise the SASSA business. These costs will only start reflecting in future years’ Income Statements as depreciation.

Net interest income has decreased from R521 million in the 2018 financial year to R515 million in the year under review because a number of investments had to be liquidated to free up funds to spend on the SASSA project.

Postbank deposits due to the public, excluding SASSA deposits, increased by 4% to R5,28 billion (FY18: R5,07 billion).

Other key achievements• Instituted engagements with selected government de-

partments and agencies in order to extend paymaster services for the benefit of South Africa’s citizens.

• Implementation and continual stabilisation of Post-bank’s core banking systems and product operations in order to optimise Postbank’s offerings, including the new SASSA card.

• Substantial progress was made on a number of digital banking projects that will see Postbank launch its own digital bank and acquire transactions within the National

Payment System (NPS) in the near future.

• On-boarding of key resources in the Marketing and Lending areas in order to drive strategic elements of the bank’s strategy.

Key activities for the remainder of this financial year in-clude capacitating and optimising Postbank’s operational environment to deal with the SASSA volumes and also to implement various IT capabilities linked to SASSA. The im-plementation of various compliance and digital banking pro-jects will also receive renewed focus.

I would like to extend a word of thanks to the Board of the Post Office as well as the Board of the Postbank company for their unwavering support in making the 2018/2019 year a significant period in the history of Postbank. The success-ful implementation of the SASSA project has provided Post-bank with the size and scale that is needed to compete with the larger banks in a concentrated market.

Hannes van der MerweActing Managing Director, Postbank


Docex is a niche document distribution operator that pro-vides secure distribution services of confidential docu-ments. It currently enjoys a dominant position within the secure document distribution market particularly in the legal industry. Docex’ dominance is enabled by a large physical network across the country and its product offering within South Africa’s court system.

The past financial year was both challenging and exciting at the same time. The economic landscape together with the digitisation has put pressure on revenue. These challenges have been addressed by a concerted effort in minimising costs to increase profits together with the development of electronic services.

Service levels have been stabilised and the Docex contin-ues to deliver overnight to its members across the country. Docex has expanded its footprint and reach in bringing a further 10 courts on board nationally to cater for the needs and services to its existing members.

Docex has further increased its service offering by launch-ing the messenger service giving our members the opportu-nity to communicate with their clients through one channel.

DOcEX FiNANciAL PERFORMANcE FOR THE yEAR ENDED 31 MARcH 2019Revenue for the year increased from R35,9 million in the prior year to R37,8 million in the year under review. This was due to an increase in both the customer base, and also improved revenue recognition measures put in place in the 2018/2019 year. The increase in revenue coupled by a re-duction in operating expenses resulted in an increase in re-ported operating profit of R3,4 million; this was an increase from a loss of R1,2 million in the prior year.

The company reported an increased profit before tax (PBT) to R4,5 million from a marginal loss of R0,1 million in the prior year. The current year has seen an adoption of new ac-counting standards. These have not had any material impact on reporting for the year on year comparison.

Financial indicators

• The entity has a net asset position of R10 million at the end of March 2019.

• The entity boasts cash and investment reserves amounting to R18.0m at the end of the period.

• The Quick asset ratio of 1,79 in the current year is an increase compared to 1,29 in the prior year; this repre-sents the company’s ability to pay its current liabilities as they become due.

• The company’s current liabilities decreased by 27% year on year, and current assets increased marginally by 2% compared to prior year.

• There was an improvement in the company’s ability to cover its operations from an operational loss of (R1,2 million) to a profit of R3,4 million in the current year.

• Payment terms of creditors remain consistently within 30 days.

Docex will be investing in technological offerings for the remainder of 2019/2020 year which will include the tran-sition of the Docex current business and operating model to a complementary model that caters for the physical and electronic document needs of its customers.

I would like to extend a word of thanks to the Docex Board of Directors as well as the Board of the Post Office for their continued support in the year under review year.

Dina LumeManaging Director, Docex PTY(Ltd)

Docex Managing Director’s Overview


PART C: GOVERNANCE


iNTRODUcTiONThe Post Office is a State Owned Company (SOC) with a public service mandate to provide universal, accessible, reli-able and affordable postal services. The provision of these services occurs in line with Universal Service Obligations (USO). The Post Office is further required to encourage the development of human resources and capacity-building within the postal industry, especially among historically dis-advantaged groups.

The Post Office Group comprises the following companies: The Postbank (SOC) Ltd; The Document Exchange (Pty) Ltd (DOCEX); The Courier Freight Group (Pty) Ltd (CFG); prop-erty companies: SAPOS Properties Companies (Pty’s) Ltd: Bloemfontein; Cape Town; East Rand; Port Elizabeth and Rossburgh.

PORTFOLiO cOMMiTTEEsThe Parliamentary Portfolio Committee on Telecommunica-tions and Postal Services (PPCTS) exercises oversight over the Post Office through its Executive Authority, the Minister of Communication and Digital Technology. The Board of Di-rectors of the Post Office which is the Accounting Authority of the Post Office is accountable to the Minister.

The Post Office appeared before the Portfolio Committee on the following matters; quarterly and annual performance reporting; strategic and annual performance plans; financial performance and the social grants project. The Post Office also provided replies to Parliamentary questions on varied matters over the reporting period through the Minister.

EXEcUTivE AUTHORiTyThe Minister of Communication and Digital Technology ful-fils the PFMA defined role of Executive Authority over the Post Office, and is also the sole shareholder on behalf of the South African Government over the Post Office. The Post Office had numerous interactions with the Minister in relation to performance, funding and governance matters. The Inter-Ministerial Committee (IMC) on Comprehensive Social Grants provided strategic leadership and oversight over the Post Office participation in the payment of social grants project.

THE AccOUNTiNg AUTHORiTy/THE bOARDThe Board is the Accounting Authority of the Post Office and provides strategic leadership and proprietorship of the Post Office Strategic Plan, Annual Performance Plans (APP) and the process of the payment of social grants.

The Board approved the Annual Financial Statements, Audi-tor General’s Report as well as the Annual Report for the Post Office Group of Companies for the 2018/2019 year.

The Board provided oversight over the utilisation of funding received from the fiscus which is being utilised to amongst others the refurbishment and upgrade of mail centres and the funding of several capital projects.

In the year under review the Board also provided oversight over the salary increases for the Bargaining Unit and man-agement along with conversion of Permanent Part Time Employees (PPTEs) and more affordable alternate health scheme for low-income earners.

The Annual General Meeting was held on 21 September 2018, where the requisite statutory approvals in terms of the Public Finance Management Act and Companies Act were made.

cOMPOsiTiON OF THE bOARDThe Board consists of not more than 10 non-executive members and three executive members who are the fol-lowing: the Chief Executive Officer (CEO), the Chief Finan-cial Officer (CFO) and the Chief Operations Officer (COO). Two non-executive directors, Dr Charles Nwaila and Adv Galetlane Rasethaba, were appointed by the Minister on 01 April 2018. The term of the rest of the Board members expired on 31 July 2018, which term was extended by the Minister until the appointment of a new Board. No Board members resigned during the reporting period.


bOARD MEMbERs

comfort Ngidi – chairperson

Full-time director at Ngidi & Company Inc; part-time Chairperson of Ezemvelo KZN Wildlife

Qualifications:

• BA (Law) and LLB degrees from the University of Natal • Completed course on Judicial Skills for future judges • Completed courses on Board Skills at Wits Business School

Ms Nomahlubi victoria simamane – Deputy chairpersonMs Simamane is the CEO of Zanusi Brand Solutions, a branding consultancy she founded in 2001. She has delivered brand building strategies and activated plans for blue chip companies and state owned entities and has over 20 years international experience in application of effective strategies. She gained her vast experience in Unilever and Brit-ish American Tobacco where she worked for 12 and 5 years, respectively, in roles of Marketing Manager and Marketing Director. She became the first black female Manag-ing Director of a top 20 SA Advertising Agency in 1999.

Ms Simamane holds the following qualification: B.Sc. Honours in Chemistry and Biology University of Botswana and Swaziland (1981).

Her area of contribution to the Board is in business strategy, business development, retail, sales and marketing.

Front: Mr Mark Barnes (CEO), Mr Comfort Ngidi (Chairperson), and Ms Lindiwe Kwele (COO). Back: Dr Charles Nwaila, Mr Dawood Dada, Mr Kgosie Matthews, Dr Moretlo Molefi, Ms Nomahlubi Simamane, Ms Lesego Marole, Mr Jabulani Dlamuka, Adv Galetlane Rasethaba, Mr Phetole Rabohale, and Mr Mdu Zakwe.


Mr Phetole Elvis Rabohale – board member

Mr Rabohale was a Human Resource Director at SepFluor Ltd, a mining company, since 2012. He held executive and management positions as General Manager, Chief Finance Officer, Chief Operating Officer and Managing Director at various organisa-tions since 1994. He was General Manager for Processing Planning and Development (Mail) at Post Office until 2004.

Mr Rabohale possesses the following academic qualifications: MBA; Master of Devel-opment Finance; BComm-Honours (Business Management); BComm; National Higher Diploma (Industrial Engineering); National Diploma (Organisation & Work Study).

His key area of contribution to the Board, due to his past employment with Post Office and knowl-edge of, and working experience at mail operations, Mr Rabohale assists the Board in strategy and human resource and performance matters.

Ms Lesego Dawn Marole - board member

Ms Marole is Executive Chairperson of Executive Magic, an investment holding company. Prior to that she worked in executive and senior management roles of Executive Director: Strategic Projects, Executive Director: HR, Deputy CEO, Executive Director at the African Bank Investment Ltd and Fabcos Investment Holdings Company as well as Thebe Health Care (Stratmed) since 1996. She has served on the Presidential Review Committee of State-Owned Enterprises and the Export Advisory Board. She serves on the boards of various companies including

MTN, DBSA, Santam, and Richards Bay Mining Holdings.

She holds the following qualifications: BComm; Diploma in Tertiary Education; MBA; Executive Leadership Development Programme; and Global Executive Leadership Pro-

gramme. Her key areas of expertise are Strategy, Business Leadership, Governance, Banking and Human Resource Management.

Mr Mdu Zakwe – board member

Mr. Zakwe is Executive Chairman of Cyber Core (Pty) Ltd, an entity primarily focused at cyber talent development, research and development into cyber offensive and defen-sive products and solutions and generally assists other companies mature towards an acceptable business resiliency against cyber-attacks, threats, risks and vulnerabilities.

Prior to that he held positions of Partner and Director at EY (Africa Enterprise Intelli-gence) KPMG (Head of KZN IT Advisory) and Nkonki (Head of IT Audit). He has worked at Unilever, FirstRand, AngloGold in SAP Project Implementation, Credit Re-engineering and IFRS Implementation respectively.

Mr. Zakwe is a Chartered Accountant with an MBA in IT & Commerce. He has authored a journal on Electronic Bill Present-ment & Payment and he continues to contribute to literature like the IRMSA Annual Risk Report. He is certified in Applied Cyber Security with the Massachusetts Institute of Technology.

He has served as Chairperson of various audit & risk committees (Department of Science & Technology, UIF, Department of Labour, and State Security Agency) and also served as member of audit committee at Trade & Investment KZN, FASSET, and City of Johannesburg, Public Service Commission.

When he was President of the South African Institute of Chartered Accountants in KZN he also served as non-executive Board Member of SAICA nationally and the Black IT Forum. He currently serves as a member of Risk Intelligence Committee with the Institute of Risk Management South Africa. He is a founding member and ex-Chair of Cebisa Financial Services Coopera-tive operating primarily in KwaZulu Natal. He also contributes to our national food basket through his hydroponics farm which produces various capsicums.


Dr Moretlo Molefi – board member

B.Sc., MBCHB, TelemedDip, SMP

Dr. Lynette Moretlo Molefi is a South African medical doctor, a dynamic and versatile entrepreneur and business executive, with a reputation for exemplary leadership. She

has been one of the few pioneers of telemedicine in South Africa and Africa with repre-sentations at various levels of government and non-governmental organizations.

Currently she holds executive positions at Telemedicine Africa (Pty) Ltd and Sunpa Africa (Pty) Ltd. She also serves as a board member of HCI, a JSE listed company; The International Society

for Telemedicine and eHealth; Business System’s Group Africa, a business and software company; Syntell, a leading blue chip company providing technology based services for Road Safety, Traffic Management and Revenue Collection and most recently she has been appointed to serve on the Board of Lodox Systems – a South African company that produces a unique full-body X-ray scanner, the only one of its kind currently on the market.

Dr Molefi’s leadership abilities can be evidenced in the number of leadership positions she has undertaken both in South Africa and across the globe in various businesses that she runs.

Dr Molefi’s success has been built on a solid work ethic, a belief in the power of technology, and an unwavering insistence that business must do good to do well.

Mr kgosie Matthews – board memberA highly motivated and accomplished Senior Business Executive, with strong experi-ence in international relations, politics, and international business strategy. He has ex-cellent communication skills with individuals at all levels, and is fluent in three lan-guages. Mr Matthews is skilled at developing business and investment strategies, promoting growth and expanding markets, and is highly experienced in dealing with governments, international organisations, corporations and officials at all levels. He possesses qualifications in International Relations, International Finance and Political Science, including a Master’s Degree from Harvard University. Currently he is Manag-ing Director of Valhalla Capital, a diversified privately held investment holding company. Valhalla is focused on investing significant equity stakes in strong companies and supports management teams in achieving their long-term objectives for their businesses. By not be-ing a traditional private equity fund, Valhalla does not face exit timing pressures and is able to invest in the long-term growth of its partner businesses.

Dr charles Nwaila - board memberDr Charles Nwaila has been working in the public sector for 42 years since his retirement in Janruary 2018 and has occupied various managerial and leadership positions over the years. He has worked with fourteen Executive Authorities for almost twenty four years of democracy. In the last year of his career in 2017, as Director General of DTA from Septem-ber 2010 to January 2018, he was further given a rare opportunity of being the Director General of two departments- acting for a year on the other department of Cooperative Governance. Dr Nwaila was able to run the two departments simultaneously with effect from 1 February 2017 to 30 November 2017. During the same period, the Department of

Traditional Affairs received a clean audit opinion in both performance and financial audits.

Dr Charles Nwaila was also the Director General of the Free State province (2005 – 2010). Fur-thermore, he was Superintendent General of Education in the Free State from 2002 – 2005.

In his carteer he has accomplished a BA (Hon) MA and DLitt. Recently he has been awarded a certified Director designation by the Institute of Directors in southern Africa having successfully completed the programme.

His contribution to the Board is, among others, in policy development and implementation, strategic development, corporate gov-ernance and intergovernmental relations.


Adv galetlane Rasethaba - board member

Advocate Juliana Rasethaba is an Advocate of the Supreme Court of South Africa, a highly seasoned litigant of extensive experience with many years as an Attorney prior to being an Advocate.

She has B PROC Degree, LLB, LLM and a Higher Diploma in company law.

She has played a leading role in contributing to the telecommunications landscape, having worked in Telkom for 10 years in Governance and Risk roles.

An accomplished leader that is innovative and insightful, she is a Governance ex-pert, a Mediator and Arbitrator, a certified coach and public speaker and member of Dr John Maxwell team of Florida US.

Mr Mark barnes – cEO board memberMark Barnes is widely known as an Investment Banker in South Africa. He has had 30 years of experience in financial services, holding positions of leadership at Standard Bank, Capital Alliance and Brait. Mark has had a wide exposure to financial markets previously as Head of the biggest Treasury operation in South Africa and as Chair-man of the South African Futures Exchange. He is currently the Chairman and the single biggest shareholder in the Purple Group, a listed company with interests primarily in financial markets trading and asset management.

Mark Barnes graduated from UCT with an Honours Degree in Actuarial Science and attended a Management Programme at Harvard Business School.

In January 2016, Mark joined the South African Post Office as CEO, to head up a turnaround strategy at the SOE.

Lindiwe kwele – cOO board member

Lindiwe Kwele was appointed as Chief Operating Officer of the Post Office on 5 June 2017.

Before that, she was Deputy City Manager for the City of Tshwane Metropolitan Municipality from January 2012, and acted as City Manager from August 2016 until she was appointed at the Post Office. The City of Tshwane employs 25 000 people.

From December 2008 until her appointment in Tshwane, she was CEO of the Joburg Tour-ism Company. She was also CEO of Durban Africa and head of the Business Support Unit at the EThekwini Metropolitan Municipality.

She holds an MBA from the University of Wales and has successfully completed the Gor-don Institute of Business Science’s Executive Leadership Programme, the Municipal Finance

Management Programme at the University of Pretoria, an Advanced Business Programme at the Natal Technicon, as well as a B Admin degree (majoring in Economics and Public Administra-

tion) at the University of Durban-Westville (now UKZN).


Mr Jabulani Dlamuka - Acting cFO board member

Mr Dlamuka is currently the Acting Chief Financial Officer of the Post Office and Gen-eral Manager Finance. Prior to that he was the CFO of Ushaka Marine World, EX Tour-ism and also as the Acting CFO of Amatola Water Board. Jabulani counts amongst his achievements; funds raising for bulk water infrastructure projects, the implementation of a significant turnaround strategy at Amatola Water, introduction and implementation of new internal control policies and procedures in Finance Department and achievement of unqualified and clean audits. He has a BComm Honours in Accounting and a BComm in Tax and Estate Planning and is a qualified CA(SA).

Mr Dawood Dada – group company secretaryMr Dada was appointed as the Group Company Secretary with effect from 1 August 2017. Previously he was the Board Secretary and Manager in the Office of the National Director of the CCMA. He is a seasoned and skilled manager in defence, acquisition, human resources and labour relations. He is a Qualified Chartered Secretary and an Associate member of Chartered Secretaries Southern Africa. He holds a Master’s Degree in Management and Public and Development Management, a Post Graduate

Diploma in Labour Law and a BComm with specialisation in Human Resources.


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cOMMiTTEEsThe statutory committees of the Board are: the Audit Com-mittee; Human Resources Committee and Trans-formation Committee; Remuneration and Performance Committee, Social and Ethics Committee. The Board may establish committees to assist it in its work and the following committees have been established in this regard: the IT Governance Committee, the Strategic Turnaround Com-mittee (STP), the Postbank Committee; the Risk Committee and the Stamp Advisory Committee.

AUDiT cOMMiTTEEThe Post Office Audit Committee was established in terms of section 51(1)(a)(ii) of the Public Finance Management Act No 1 of 1999 (PFMA) as amended and relevant Treasury Regulations, and in accordance with the Post Office Memorandum of Incorporation. As a major public entity in terms of Schedule 2 of the PFMA, Post Office is required to establish an Audit Committee. The Audit and Risk Committee is responsible for, evaluating the Group’s financial statements which will be provided to Parliament and other stakeholders, the systems of internal control which management and the Board have established, the audit processes, the risk management framework and assessing the Group’s financial performance against its Corporate Plan. Representatives of external and internal audit have direct access to the Chairperson of the Committee. The committee is chaired by Mr Mdu Zakwe, with Mr Kgosie Matthews, Dr Charles Nwaila and Mr Elvis Rabohale. The Chief Executive Officer (CEO), Chief Financial Officer (CFO), Chief Operations Officer and other group executives are permanent invitees to all committee meetings.

Risk cOMMiTTEEDuring the reporting period it was decided to establish a stand-alone Risk Committee in order to provide sufficient time and reporting of risk management. The committee also monitors, evaluates and advises the Board on the adequacy of risk management processes and strategies within the Group and recommends the approval of risk policies to the Board. It further reviews significant risks facing the company and reports these to the Board. The scope of the Committee extends across the Group to include the subsidiary companies whose products and processes expose the Group to Credit Risk, Liquidity Risk, Market Risk, Balance Sheet Risk and Operational Risk within the legislative and regulatory framework that governs the Post Office Group. Representatives of Group Risk Management, Internal Audit, the Security and Investigations division and all core Business Units attend all meetings of the Committee. The Risk Committee was chaired by Mr Mdu Zakwe in the early part of the financial year and thereafter by Adv Rasethaba, with two non-executive members Mr Elvis Rabohale and Mr

Kgosie Matthews. The Chief Executive Officer (CEO), Chief Financial Officer (CFO), Chief Operations Officer and other group executives are permanent invitees to all committee meetings.

REMUNERATiON AND PERFORMANcE cOMMiTTEE

The Remuneration and Performance Committee was estab-lished in accordance with the Post Office Act, section 14(2)(a)(i) during the financial year. The committee reviews all as-pects relating to remuneration and performance within the Group. The committee comprises Mr Elvis Rabohale (chair-person), Mr Comfort Ngidi, Ms Dawn Marole and Mr Mdu Zakwe. The Chief Executive Officer (CEO), Chief Financial Officer (CFO), Chief Operations Officer and other group ex-ecutives are permanent invitees to all committee meetings.

HUMAN REsOURcE AND TRANsFORMATiON cOMMiTTEE

The Human Resource and Transformation Committee was established in accordance with the Post Office Act, section 14(2)(a)(ii) during the financial year. The committee moni-tors compliance with relevant labour and employment leg-islative matters and recommends approval of significant human resources related policies to the Board. This com-mittee’s mandate includes transformation matters and com-prises Ms Dawn Marole (chairperson), Mr Comfort Ngidi, Dr Charles Nwaila and Dr Moretlo Molefi. The Chief Executive Officer (CEO), Chief Financial Officer (CFO), Chief Opera-tions Officer and other group executives are permanent in-vitees to all committee meetings.

POsTbANk cOMMiTTEEThe Postbank Committee was established with an oversight role to ensure that the Postbank division operates within all applicable legislation, monitors the performance of the in-vestment portfolio of depositors’ funds as well as ensuring that these funds are invested appropriately. It also recom-mends the approval of fees and bank charges to the Board. The committee meets four times a year. The Postbank Act which came into operation in late 2010 provides for the es-tablishment of a Board of Directors for the Postbank entity (to be formed) when it starts operating as a licensed bank. The committee is chaired by Mr Kgosie Matthews, support-ed by Ms Dawn Marole, Mr Mdu Zakwe and the chairper-son of the Postbank Board, Ms Phumzo Noxaka. The Chief Executive Officer (CEO), Chief Financial Officer (CFO), Chief Operations Officer and other group executives are perma-nent invitees to all committee meetings.


iT gOvERNANcE cOMMiTTEE The Committee is responsible for overseeing on behalf of the Board, the execution of IT-related decisions across the Group. The committee reports to the Board and is responsible for the governance of IT across the Group, which includes monitoring and reviewing IT policies and practices to ensure that the required IT support is provided and that IT is positioned as a key enabler for business. The committee meets at least four times a year and comprises Mr Mdu Zakwe (chairperson), Ms Nomahlubi Simamane and Mr Elvis Rabohale. The Chief Executive Officer (CEO), Chief Financial Officer (CFO), Chief Operations Officer and other group executives are permanent invitees to all committee meetings.

sTAMP ADvisORy cOMMiTTEEThis is an advisory committee which has been established to advise the Minister of Telecommunications and Postal Services on the South African annual stamp issue program and related issues. The Committee is made up of specialists in philately and representatives from the Department and a representative from the Post Office Board. The committee meets twice a year and on an ad-hoc basis if required and comprises; Mr Elvis Rabohale (chairperson), Mr Kgosie Matthews and independent specialists, Mr David Wigson, prof Gavin Younge and Ms Marilyn Martin. The Chief Executive Officer (CEO), Chief Financial Officer (CFO), Chief Operations Officer and other group executives are permanent invitees to all committee meetings.

sTRATEgic PLANNiNg cOMMiTTEE (sTP)

The scope of the STP Committee, founded in 2014/15, ex-tends to ensuring the necessary oversight within the legis-lative and regulatory framework, as contained in the Postal Services Act, Post Office SOC Limited Act, Dedicated Bank’s Bill 2004, etc. and it has been established to deal specifically with the activities of the Post Office.

In general the Committee is responsible to the Board for overseeing the overall strategic planning, budget and report-ing process, stewardship and related reporting.

The Committee is further responsible to exercise oversight on initiatives implemented in order to address strategic is-sues identified from time to time.

The Board members serving on the STP committee since their appointment to the Board in August 2015 are: Ms Nomahlubi Simamane (chairperson), Mr Mdu Zakwe, Mr Elvis Rabohale. The Chief Executive Officer (CEO), Chief Financial Officer (CFO), Chief Operations Officer and other group executives are permanent invitees to all committee meetings.

sUbsiDiARy cOMPANiEs

DOcUMENT EXcHANgE gROUP (DOcEX) bOARD

The Document and Exchange Group (DOCEX) is an operat-ing subsidiary company of the South African Post Office. DOCEX has its own Board of Directors which is account-able to the Post Office Group which is the sole Shareholder. The company provides a secure and expeditious delivery of documents, letters and parcels or postal articles within the country. The Board of Directors of DOCEX comprises of non-executive directors appointed by the Post Office Group Board including independent non-executive directors with expertise in the courier and freight industry.

Board Composition

The Docex Board consists of the following:

• Dr LM Molefi (Chairperson) - Non-executive Director• Mr ZC Ngidi - Non-executive Director• Mr MA Barnes - Executive Director• Mr J Dlamuka – Acting CFO

Subsidiary companies are represented at Group Board Com-mittees and thus do not have their own separate Board Committees.

The Courier and Freight Group

During the year under review, the Courier and Freight Group was inactive.

Risk AND REgULATORy cOMPLiANcE

Risk MANAgEMENTThe Board acknowledges the legislative, governance and compliance requirements which define and direct its risk management responsibilities, as well as that of executive management and all other employees as mandated in the Public Finance Management Act, 1999 as amended (PFMA), other legislation and King IV.

“Risk Management Policy and Framework” aligned to the National Treasury “Risk Management Framework” with the aim to institutionalise risk management in the organisation. The Board, through this policy, has duly accepted account-ability for risk management across the Group and has addi-tionally established a Board Sub-Committee to monitor risk and compliance levels within the organisation.

The Policy is aimed at:


• Ensuring the deployment of a common and systematic risk management operating standard across operational activities within the Group.

• Integrating a risk management approach to direct deci-sion making on deviations threatening achievement of goals and objectives;

• Ensuring the timely identification and measurement of risks across the organization as well as the deployment of appropriate mitigation strategies;

• Continuous monitoring and identification of risks that would negatively impact the functioning of the organi-zation, thereby allowing risks or opportunities to be managed effectively.

2018/19 Risk Assessment

Post Office has seen a progressive improvement of its risk management practices in the past year. These have been specifically adopted to improve the risk management matu-rity and culture of the organisation. The steady improvement of performance can be attributable to improved mitigation of identified risk exposures. The top ten strategic risks were largely considered residually high to extreme at the begin-ning of the year. This indicated that the control environment against the said risks were considered inadequate and fur-ther signifying that the achievement of the 2018/19 strat-egy, which was primarily aimed at turning the organisation around would require additional effort in order to overcome the exposures identified. The table below provides a sum-mary of the status of the top ten risks at year-end.

Risk Description

impact/

severity

evaluation

Probability of

occurrenceinherent Risk

Perceived

control

effectiveness

Residual Risk

Increasing competition and migration to

digital substitutionCatastrophic Almost Certain Very High Weak Very High

Financial Sustainability and high fixed

operating costCatastrophic Almost Certain Very High Weak Very High

Risks emanating from the SASSA project Critical Almost Certain Very High Weak High

Loss of customers and market share Catastrophic Likely High Weak High

Universal service obligation and non-

commercial initiativesCritical High High Weak High

Postbank Corporatisation that may result

in its separation from the Post Office

Group

Critical Almost Certain High Weak High

Ageing and Decayed infrastructure Critical Almost Certain Very High Weak High

Impaired brand value Critical Almost Certain Very High Satisfactory Medium

Human capital Risks inclusive of

Industrial RelationsCatastrophic Likely Very High Satisfactory Medium

Operational Inefficiencies Critical Likely High Satisfactory Medium


1. increasing competition and migration to digital substitution: Competitive forces have rendered Post Office vulnerable. E-substitution of traditional post has further contributed to the continued decline in mail vol-umes. New entrants in the courier and express markets have had a negative impact on the anticipated growth strategy of the parcel business.

2. Loss of customers and market share/position: In-efficiency of services and products contributed to the loss of clients and market position. In this regard, the sustained and successful retention of key customers is vital and considerable efforts has been made to secure and retain these revenues.

3. Ageing and decayed infrastructure resulting in operational inefficiencies: The impact of aged infra-structure has placed the organisation on a back foot to respond and adapt to changing customer demands. The cumulative impact of investment backlog on both IT and Property infrastructure also contributed to this situation. Continued deterioration of facilities has re-mained a risk mainly due to the minimal repairs and maintenance

4. Financial sustainability and high fixed cost struc-ture: Continuing operating losses and insolvency threat (excluding Postbank) mainly due to operating expendi-ture still exceeds declining revenues and thus impact-ing on the future sustainability of the organisation. The organization’s inability to meet its financial obligations

during the year also exacerbated the risk. However, the organisation is continuously improving its expenditure controls with the integration of risk mitigation proce-dures to achieve improved control management

5. Postbank corporatization: Impact of potential separa-tion of Postbank from the Post Office group. Meeting of the required corporatization requirements timetable Post Office’s BCC status - capital requirement ratio

6. Human capital Risks inclusive of labour stability: The organisation operates in a complex and difficult la-bour environment with multiple trade unions. The loss of specialised skills has negatively impacted operational capability as lost skills could not be replaced from the internal skills pool or acquired in the market.

7. Universal service obligation and non-commercial initiatives: The ongoing disconnect between compul-sory fixed costs relating to the social mandate and de-clining reserved mail revenues over many years, fund-ing R1.5bn has been allocated for the USO to the Post Office.

8. Risks emanating from the sAssA project: The risks associated with the enormity and complexity of this project was high on the radar in the implementation of this project during the year. This was also further ex-arcebated by the limited time afforded to implement this project.

Increasing Competition and Migration to Digital Substitution 14%

Financial Sustainability and High Fixed Operating Cost 14 %

Risks Emanating from the SASSA Project 11%

Operational Inefficiencies 5%Human Capital Risks Inclusive of Industrial Relations

Impaired Brand Value 6%

Ageing and Decayed Infrustructure 11%

Postbank Corporatisation that

may result in its separation from the

Post Office Group

Universal Service obligation and Non-commercial Initiatives 11%

Loss of Customers and market Share 11%


Persistent operational risk and inefficiencies indicate that controls have not reached the desired levels. Losses resulting from inadequate internal processes, incidents caused by the actions of personnel, system failures or external events still remain evident.

Risk FiNANciNg

Risk financing responds to damage or loss incidents as a result of unforeseen events. To the extent considered ap-propriate, external insurance cover is used as one of the mechanisms to mitigate operational risks and transfer some risk to third parties in the insurance market, including:

• Cover for damage to property and equipment;

• Cover for business interruption;

• Comprehensive cover for crime, including electronic crime;

• Directors’ and Officers’ liability;

• Public liability cover;

• Cover for legal liability arising out of the use of non-owned aircraft; and

• Cover for liabilities or damages arising out of any ac-tivities of consultants, contractors, suppliers, vendors, manufacturers or other advisors and third party contrac-tors appointed by the Post Office, etc.

REgULATORy cOMPLiANcE As a State Owned Company, and a Schedule 2 public entity, the organisation recognizes compliance as an integral part of governance and in this regard has established appropri-ate structures and processes to ensure adequate and ef-fective adherence to applicable statutes, guidelines, rules and codes.

The compliance function has a responsibility to ensure com-pliance with various legislations impacting on the organisa-tion, this includes compliance monitoring to detect and cor-rect violations, provide compliance assurance and evaluate the compliance status of the organisation.

sUPERvisiON by REgULATORs DURiNg THE yEAR UNDER REviEW

Financial Intelligence Centre

• The Financial Intelligence Centre (FIC) conducted their annual inspection to evaluate compliance with the Fi-nancial Intelligence Centre Act (FICA). A report in this regard was issued and queries raised were addressed by the relevant business unit.

The Financial Services Board

• The annual compliance report required in terms of Sec-tion 17(4) of the FAIS Act was submitted to the Finan-cial Services Board (FSB).

• Annual levies were paid.

ICASA

• All four quarterly reports for the 2018/19 financial year have been filed with the regulator.

• A roll-out of 500 000 addresses nationally was planned and 589 186 addresses were rolled out due to financial and resource constraints.

• The annual license fee of 0.055% of the audited an-nual turnover is paid annually but is an onerous costs that derives no value due to the lack of reserved market monitoring and enforcement.

• The annual price cap proposal was filed in September 2018 for the 2018/19 financial year. The authority ap-proved an annual increase of approximately 7.7% for the 2018/19 financial year.

The laws that hold the most significant risk for the organi-sation relates to, the postal licence requirements as deter-mined by ICASA, the FAIS licence issued by the Financial Services Board, and other prescripts, including but not lim-ited to:

• Broad Based Black Economic Empowerment Act No: 53 of 2003

• Companies Act No. 71 of 2008

• Financial Intelligence Centre Act, No. 38 of 2001

• Financial Advisory and Intermediary Services Act, No. 37 of 2002;

• Consumer Protection Act, No. 68 of 2008;

• Post Office Licence (ICASA)

• Postal Services Act, No. 124 of 1998

• Public Finance Management Act, No. 1 of 1999 - Public Entities Schedule 3

• South African Post Office SOC Limited Act, No.22 of 2011

• South African Social Security Agency Act

Monitoring of compliance with the regulatory framework is done through independent internal assessments and reporting is done regularly to the respective business and


support unit management teams, the group executive man-agement, the risk management committee and the Board.

sOciAL AND ETHics cOMMiTTEE REPORT FOR THE yEAR ENDED 31 MARcH 2019The Social and Ethics Committee (“the Committee”) is con-stituted as a statutory committee of the Board under sec-tion 72(4) of the Companies Act (read together with Regula-tion 43 of the Companies Regulations).

In addition, the Committee fulfils the role of the Post Of-fice Group and therefore no other South African Post Office subsidiaries have established social and ethics committees.

This report therefore, describes how the committee dis-charged its responsibilities in respect of the financial year ended 31 March 2019 and it will be presented to the Share-holder at the 2019 annual general meeting (AGM).

Furthermore, the Social and Ethics Committee Charter was formally adopted by the Board with the intension of guiding the Committee to perform its oversight role in an ethical and properly governed manner. The Committee also developed or reviewed policies, governance structures and existing practices which guided the Group’s approach to new and emerging challenges.

The role of the Committee is, having regard to any relevant legislation, other legal requirements or standards of best practice, to monitor the following activities:

• Social and Economic Development, including the Company’s standing in terms of the goal and purposes of:

- The Organisation of Economic Co-operation and Development (OECD) recommendations regarding corruption;

- The Employment Equity Act (EEA); and - The Broad Based Black Economic Empowerment

Act (BBBEE).

• To ensure that Post Office is and is seen to be a good corporate citizen by the:

- Promotion of equality, prevention of unfair discrimination and reduction of corruption;

- Contribution to development of the communities in which its activities are predominantly conducted or within which its products or services are predominately marketed; and

- Recording of sponsorships, donations and charitable giving.

• The Environment, Health and Public Safety, including the impact of the company’s activities and of its products and services;

• Consumer relationships, including the Company’s advertising, public relations and compliance with consumer protection laws;

• Labour and employment policies and practices of Post Office, including:

- The Company’s standing in terms of the International Labour Organisation (ILO) protocol on decent work and working conditions; and

- The Company’s’ employment relationships and its contribution toward the educational development of its employees.

• Ensuring that ethics is managed effectively (as recommended in principle of King IV report

on Governance):

- Leadership demonstrating support of ethics throughout Post Office;

- Ethical standards are articulated in a Code of Ethics and supporting ethics policies;

- Ethics performance is included in the scope of internal audit and reported on in the annual report;

- Ethical risk and opportunities are incorporated in the risk management process;

- A strategy developed for managing ethics in the organisation;

- Processes are put in place to ensure that the various stakeholders within the organisation (Board committees and employees) are familiar with and adhere to the Post Office ethical standards; and

- Ethics is entrenched in the corporate culture of Post Office.

• The Committee investigates, reviews and resolves any matters arising from the scope of Post Office Code of Ethics, which are reported to the Committee or which it becomes aware of.

• The Committee ensures that policies and procedures required in order for Post Office to perform its respon-sibilities in respect of social and ethics matters are implemented and reviewed on an annual basis, or as required.

Membership of the committeeThe Committee comprises three non-executive directors (including the Chairperson). Non-executive directors are members of the Committee for a maximum of three years, renewable once.

• Dr Charles Nwaila (Chairperson),• Mr Comfort Ngidi• Dr Moretlo Molefi• Ms Nomahlubi Simamane

The Chief Executive Officer (CEO), Chief Financial Officer


(CFO), Chief Operations Officer, five other group executives are permanent invitees to all committee meetings.

MeetingsThe Social and Ethics Committee met 4 times over the reporting period and received reports from management and provided oversight over the key focus areas of the committee.

social ResponsibilityThe Brave Foundation was registered as a non-profit Trust (for close to seven years, based in Cape Town in South Africa. To date, the foundation had supported over 550 individuals, adults and children, along with their families, through Recovery from Physical Trauma of all kinds, on a donation basis.

The mission of the Foundation was to ensure that irrespec-tive of prognosis, those at Brave are empowered and ena-bled, never limited, and rather go on to lead lives of ability and unlimited potential.

The Brave Foundation approached the South African Post Office with a CSI Sponsorship Proposal. The proposal in-cludes the collection, storage and distribution of wheel chairs by the South African Post Office. In future Brave will work with the Post Office in offering some of their services during SASSA Pay-out Days.

This fits within the Post Office Corporate Citizenship Strat-egy. The project will enhance the image of the Post Office as a caring company. Secondly partnership with Brave will assist the Post Office Dignity Programme that is associated with SASSA Social Grants Programme.

compliance and Regulatory MattersThe Post Office strives not only to meet the universal stand-ards for postal services, but through the oversight role of the Social and Ethics Committee, it seeks to improve per-formance on these standards. In this regard, the Committee was able to recommend improvements to customer care standards through the Customer Care Dashboard reports received.

Previously, only information relating to Occupational Health and Safety Act compliance as well as information related to organisational policies has been tabled at the Social and Ethics Committee. In order to provide assurance to the So-cial and Ethics Committee on organisational compliance, we have attached the following:

The established Compliance Universe of Post Office

The Compliance Unit has established the applicable legisla-tion and regulations for the Post Office. These have been categorized in order of applicability (core, secondary and

pertinent) and further risk assessed in terms of impact to the organisation. A summary is provided in this report.

FICA Compliance Risk Management Plan

The FICA CRMP has been developed to indicate how each of the applicable acts and regulations would ultimately be unpacked to firstly ensure that relevant BU and individu-als are aware of their compliance responsibilities to ensure these are factored into their day to day activities. Secondly, the CRMP is also used to test actual compliance.

The PFMA Compliance checklist

This is provided to indicate to the committee, an example of the actual compliance testing for PFMA compliance. Such are produced for each of the Acts tested as part of the ap-proved compliance activity report.

A litigation process against PostNet was commenced in the prior year in order to enforce regulatory reserved postal ser-vices, and a judicial outcome is expected soon.

broad based black Economic Empowerment (bbbEE)

The Company status in terms of Broad Based Black Eco-nomic Empowerment (BBBEE) continued to be a chal-lenge over the reporting period with a non-compliant rat-ing achieved mainly due to restrictive compliance of BEE policies, ineffective spending procurement processes and being bound by multi-year contracts with suppliers. The Committee led a process on behalf of the Board to receive an improved and compliant rating in 2019, and the lifting to prominence, performance and reporting of the subcontract-ing to BEE companies by qualifying Post Office suppliers. Furthermore, a workshop during the year under review was conducted to ensure that all members of the Committee are adequately informed and a task team has also been estab-lished to monitor performance in this area of work.

Environmental, Health and

safety issues

An improved funding position has enabled the approval of projects for major refurbishment of mail centres and the pri-oritisation of health and safety measures, including equip-ment, signage and personal protective clothing.

consumer Relations A consistent income stream in terms of mail revenue at-tests to consumer loyalty and this loyalty has been strength-ened with an improved service and operational offering; the upgrading of the entire network, training programmes and the improvement of service offerings.

SOUTH AFRICAN POST OFFICE SOC LTD ANNUAL REPORT 2019

53

stakeholder Management

The Committee provided oversight over the development of a Stakeholder Management Strategy. The demands for the Post Office’s comprehensive approach to stakeholder and media relations approach, are elevated by the need for cohesion on how the shareholder, employees and the gen-eral public perceive the organization. The strategy road map toward the development of a shared messages framework to be delivered to all Post Office stakeholders is summa-rised below.

The strategy will focus on Post Office stakeholders that include the shareholder, customers, employees, lenders, National Treasury, media, general public, ICASA and UPU as well as other key stakeholders.The media relations aspect is raised as part of the broader stakeholder strategy given that in the past 6 months, Post Office has experienced largely balanced and positive reporting on the SASSA grants payments project.

Environmental sustainabilityPost Office also focused on detailed sustainability on water, paper, recycling and reduction of carbon footprint, through smart metering, energy management system implementation, Green Procurement Handbook Launch, Compressed Natural Gas Vehicle implementation. Scope 1 emissions were within target during the year under review.

Ethics ManagementThe Committee maintained a keen eye on ethics and received regular reports on the implemented Ethics Programme and its impact. The following are the essential elements of the Ethics Programme being implemented:

• Responsible business conduct: the choices and actions of employees and agents that foster and meet the reasonable expectations of enterprise stakeholders.

• Responsible business enterprise: an enterprise char-acterised by good governance policies and management practices as well as by a culture of responsible business conduct. It is adept at dealing with the challenges and complexities of its business environment, but holds closely to its purpose, core values, and vision.

• business ethics program: a tool that owners and managers use to inspire, encourage, and support responsible business conduct, by engaging enterprise stakeholders in order to foster and meet their reasonable expectations, and designing structures and systems to guide and support employees and agents

Employment Equity and Employment Practices and Policies

The Committee continues to provide oversight over the de-velopment of an organisational culture that strives for excel-lence, where each employee is a brand ambassador that will attract and retain customers.

Key elements that will impact on this will be among others, a decent and conducive working environment; ensuring the right person, with the right skills, in the right position, at the right time and cost.

Growing capability and skills that will ensure an effective succession planning process to attract, retain and grow tal-ent, which will be recognised and rewarded appropriately.

As the most important leverage element, leadership behav-iour will be developed and aligned to build organisation re-silience and embed the Post Office culture.

Dr charles NwailaChairperson – Social and Ethics Committee

54SOUTH AFRICAN POST OFFICE SOC LTD ANNUAL REPORT 2019SOUTH AFRICAN POST OFFICE SOC LTD ANNUAL REPORT 2019

54



PART D: HUMAN RESOURCES MANAGEMENTPART D: HUMAN RESOURCES MANAGEMENT


iNTRODUcTiONDuring the past financial year, Human Resources has iden-tified the following initiatives in relation to undertakings within Post Office.

• The Strategic Workforce Plan has been finalised with a focus on revision of Post Office structures, skills and qualification audit and staff optimisation.

• Performance management rating for 2018/19 is 100% and roll process out to all employees (non-managerial staff) has started.

• Post Office permanent staff numbers reduced by 4% from 17 951 (1 April 2018) to 17 275 (31 March 2019).

• PRMA: The liability is being managed to ensure it is contained.

• HR Automation project is underway.

• Learning and development interventions and Services Sector Education and Training Authority support have been determined and delivery has started for certain initiatives (e.g. Management training, teller training and compliance), plans and funding negotiated with SSETA, procurement processes in various phases for others (e.g. Employee Satisfaction survey, Leadership and Management journey and Culture transformation and change management).

• Strategies for Remuneration, Benefits, Reward and Recognition as well as Employee Health and Wellness are under review.

• Human Resources compliance: - Employment Equity plan and report submitted on

time. - Workplace Skills Plan and Annual Training Report

submitted to Services SETA with the total number of interventions completed of 16 606 for 2018/19.

HUMAN REsOURcEs OvERsigHTPersonnel cost

Total Expenditure for

the entity (R’000)

Personnel Expenditure

(R’000)

% of Personnel

expenditure to total

Personnel cost

No. of employees Average personnel cost

per employee (R’000)

R6 078 900 R3 664 311 55% 18 359 R199 592

Total expenditure figure is preliminary and subject to change after the external audit is finalised.

staff EstablishmentThe Post Office’s staff establishment was 18 359 as at 31 March 2019, compared to the figure of 18 119 at 31 March 2018. The 0,10% in staff increase during the year under review was as a result of the SASSA Project.

salary band employment at beginning and end of period

salary band Employment at begin-ning of the period

Appointments Terminations Employment at end of the period

Board 15 0 **15 0

Top Management 34 1 + 8* 8 35

Senior Management 260 1 20 + 8* 233

Specialist 387 24 +12* 30 393

Skilled 3 005 17 +242* 156 3 108

Semi-skilled 13 054 1 088 + 75* 565 13 652

Unskilled 1 364 0 97 + 329* 938

Total 18 119 1 131+ 337* 891 + 337* 18 359

*Internal appointments/terminations **Board members removed from payroll and paid as vendors



Apr May Jun Jul Aug sep Oct Nov Dec Jan Feb Mar

Appointments 11 909 649 522 168 21 27 79 96 6 0 0

Exits 62 78 122 84 91 410 203 255 482 1145 153 33% 0% 0% 1% 0% 1% 2% 1% 1% 3% 6% 1% 0%

0

200

400

600

800

1000

1200

0%

1%

2%

3%

4%

5%

6%

Attrition 2018/19

As at the end of March 2019 Post Office had 17 275 permanent and 1 084 employees on fixed term contract.

The attrition rate for Post Office for the 2018/19 financial year is 14% in comparison with the average attrition rate of 10, 76% during the past three years. Based on the attrition rate for the past 3 years the anticipated attrition rate for 2019/20 may be 10% at an estimated annualised cost saving of R270 million.

Recruitment and AppointmentsRecruitment and Selection is striving to ensure that the right skills are at the right place at the right time. In order to achieve this objective, continuous enhancements were made to the recruitment and selection process during this year. These improvements included updating the standard operating procedures, implementing functional and psy-chometric assessments as well as the implementation of a vetting committee where vetting results of recommended candidates are discussed and corrective action is recom-mended.

The focus was on internal recruitment as part of driving employee engagement and ensuring talent development whilst curtailing a rise in staff costs. The management of vacancies is closely aligned to the need to manage the cost structure of the Post Office and all vacancies are reviewed and if possible roles are combined to reduce the number of vacancies. The Post Office’s policy and practice is first, to fill positions internally. Only in cases where scarce skills are required and no suitable skills are found internally, the vacancies are filled with external applicants.

During the 2018/19 financial year, the following Executive positions were filled: GE: Supply Chain Management and 9

General Manager Operations. The selection process for the GE Operations and GE IT were finalised during this financial year, however, the successful candidates assumed duty re-spectively in April and May 2019. Specialised positions that were filled during this period were mostly within Finance, Postbank and IT.

Post Office embarked on a process to fill permanent posi-tions within Operations focusing on Branch Manager, Chief Teller and Teller vacancies. Currently Branch Manager posi-tions are 88% filled, Chief Tellers 85% and Tellers 83%. The filling of these vacancies internally, had a positive impact on the morale of the employees.

During the year, a number of executive positions became vacant due to resignations. The positions has also been ad-vertised externally since the moratorium on appointments has been lifted:

• Chief Financial Officer.• Group Executive: Governance.• Group Executive: Sales.• Group Executive: Strategy and Sustainability.• Group Executive: Human Resources.


government Projects and Job creation

SASSA Project

Temporary staff (approximately 2160) for the SASSA “Card swap” programme were appointed on a fixed term contract from May 2018 to the end of January 2019. In addition, Post Office assisted SASSA with cash payments and therefore 978 Payment Clerks were appointed on a fixed term con-tract. The Post Office Recruitment and Selection team had to deal with a large number of appointments within a short space of time and therefore had to adapt the selection pro-cess without compromising on quality appointments.

Digital Terrestrial Television (DTT) Distribution Project

Cabinet approved a revised delivery model for the DTT pro-ject. The first objective with the revised delivery model plan over the short term, was the completion of the roll-out in the Free State Province for analogue switch-off at the lat-est by 31 December 2018. In order to achieve this target, temporary DTT Tellers were appointed as per business re-quirements.

Department of Education Project

In order to deliver on the distribution of text books in Lim-popo for the Department of Education, 165 employees were appointed on a fixed term contract. Candidates were sourced from the Department of Labour and Department of Education and the positions were filled for the duration of the project.

Address Rollout Expansion Program

Human Resources played a pivotal role in employing 88 fixed term field workers inducted them and got them ready for the Address roll-out project which was spread across North West, Limpopo, Mpumalanga and Eastern Cape. The rest of the provinces utilised existing Post Office staff to complete the project. The Post Office had been tasked from the Department to roll out 3.5 million addresses across the country. The project was successfully completed in Novem-ber 2018 and all contracts were terminated at the end of the project. This project enabled the 2019 General elections to run smoothly without major disputes.

staff OptimisationThe intention of Staff optimisation is to ensure Post Office employees function at an optimal level of productivity at the best cost to income ratio. Human Resources and organisa-tion practices and procedures need to be reviewed to en-sure no cost leakage or unnecessary expenses happen.

A high level implementation plan guides the process.

HUMAN REsOURcEs iNiTiATivEs

Post Office competency FrameworkThe Post Office 19 key competencies were extracted from all Post Office job profiles and benchmarked extensively with local and international standards eg CEB (Corporate Executive Board – International body), UPS (United States Postal Services), Department of Finance, Eskom and SAA.

Each of the 19 competencies has been translated into be-haviours for the appropriate level of work of the particular competency for the organisation. The GE (General Electric) model and the work of Elliott Jacques was used as refer-ence in defining the levels of work behaviours.

The Competency framework is the key element in ensuring Human Resources practices are sound and scientific. It is used during the process of Job/position/role requirements, during recruitment and selection to ensure best fit to posi-tion, on the right level of work appointments, for assess-ment and psychometric evaluations as well as appropriate learning and development interventions for optimal perfor-mance and growth.

strategic Workforce PlanThe strategic workforce plan is a ‘continuous work in pro-gress’ which informs and is informed by, various initiatives regarding Post Office’s 2023 (and 2030) strategy.

The plan consists of a demographic analysis of Post Of-fice employees on managerial and non-managerial levels. Post Office skills and competencies were matched to fu-ture skills and competencies informed by the Post Office Strategy of 2030, 4th Industrial Revolution information and industry benchmarks.

Demographic Analysis

A Post Office Strategic Workforce Plan has been created to establish/understand the gaps of Post Office’s future talent demands in relation to the workforce and as guideline to implement staff optimisation.

An extract of the high level analysis is included below to create some context for staff optimisation.

The workforce demographics are as follows:

• Employees that will retire within the next 5 years are 703 at an estimated cost R134 million. The retire-ments for 2019/20 are mostly on the lower levels and therefore the cost is low.

• The average age for the employees is 44 years which means that Post Office has an ageing workforce.

• The majority of employees have on average 16 years of service.


Demographics

Ageing workforce and years of service

Post Office has an ageing workforce which means that 4-5 generations are working together with different values and expectations.

Due to the ageing workforce, employees have longer years of service and therefore mentoring and coaching have to be imple-mented to ensure that skills are transferred from older to younger workers.

Post Office has to assist ageing workers with the transition to retirement by offering financial planning and counselling sessions. It is also critical to reskill older workers, especially in using technology. Wellness programmes for the ageing workforce also becomes critical.

Employment EquityAt management level, female employees are underrepresented in terms of staff compliment specifically at Executive Level. Apart from the Executive level, both African, Coloured male, female employees as well as pockets in White female categories are under-represented as shown in the table below.

Organisational level

Tota

l

Wh

ite

Afr

ican

co

lou

red

ind

ian

Mal

e

Fem

ale Under/ over represented

Top Management 35 9 31 1 4 28 7 The figures are reflecting an over repre-sentation of the African, Indian and white males. Opportunities exist for the appoint-ment /development of African, Indian and White females as well as Coloured males and females.

Senior Manage-ment

84 23 35 8 8 61 23 White males and females, Coloured males, Indian males and females should be guarded for appointment. There is an op-portunity for African males and females as well as Coloured females. Appointments and development should be considered when the opportunity arises.

Professionally qualified and experi-enced specialists and mid-manage-ment

285 67 170 27 21 188 97 White males and females, Coloured males, Indian males and females should be guarded for appointment. There is an op-portunity for African males and females as well as Coloured females. Appointments and development should be considered when the opportunity arises.

Skilled technical and academically qualified workers, junior management, supervisors, fore-men and superin-tendents

3 352 573 2 218 404 156 1 494 1 854 Opportunities exist for the appointment /development of African males. The other groups are over represented at this level.

Semi-skilled and discretionary deci-sion making

12 493 588 9 901 2 330 321 6 574 5 476 African, Coloured and Indian males as well as White females are over represented. Opportunities exist for the appointment /development of African, Coloured and Indian females as well as White males.


Organisational level

Tota

l

Wh

ite

Afr

ican

co

lou

red

ind

ian

Mal

e

Fem

ale

Under/ over represented

Unskilled and defined decision making

1 000 15 584 138 2 308 683 African and Coloured females are over represented. Opportunities exist for the appointment /development of African and Coloured males as well as Indian and White males.

Non-perm 1 109 1 1 081 25 0 321 788

Total 18 358 1 276 14 020 2 933 512 8 974 8 928

Within the workforce segments postman and mail proces-sors there are more males than females and within the tell-er and chief teller ranks, there are more females than males. Remediation thereof will be to target the underrepresented during the recruitment and selection process.

The other processes that need to be explored should be in the following areas:

• Talent and Succession Management.• Learning and Development.

In the area of talent and succession management, a pro-cess will be put in place whereby a committee will be estab-lished which will deal with identifying high performers and put them on accelerated development initiatives. This might manifest in either formal training to close gaps or under-study process. The focus of this part will be on employees with requisite qualification but need exposure.

In addition, implement initiatives to improve the number of differently abled people.

skills and Qualifications Audit

BackgroundA skills and qualifications audit process has started in Post Office during 2017. The first phase aimed at getting quali-fications of employees captured and vetted. The second phase, was focused on skills and competency assessment.

step 1: Capture and verify all qualifications.

step 2: Firstly, a self-report on skills proficiency (relating to the competency framework) and secondly, the manager giv-ing input and signing off.

step 3: More formal scientific step to assess each em-ployee in relation to the required skills set / competence re-quired for current and future roles. A procurement process will be followed and budgeted for.

Three reports have been completed on information of step 1 and 2:

• Post Office and Postbank managerial report.• Post Office and Postbank non-managerial report.

Summary of the skills and qualifications of the workforce (Managerial level)

The Post Office has an ageing managerial staff whereby 65% of these employees are between the ages 45-59 years with an average years of service of 25-35 years. This corpo-rate memory advantage has to be balanced with the chal-lenge to transform organisational culture.

Critical skills required for Post Office future strategy

• Banking skills.• Engineering (Production and Industrial – approx. 17).• IT skills (e.g. Programming and Project Management).• Various professional skills (Professional Registrations).• Data Analysis (Big data and Business Intelligence).• Organisational Information security skills.• Customer Services skills.• Innovation, research and development and product de-

velopment skills.

All specialised functions are depleted, however, we envisage that by filling vacancies and implementing the learning and development strategy, we will be able to address the gaps.

Development of employees

Learning and Development Processes

• Post Office’s current competencies and jobs may not be relevant to meet the future challenges.

• Learning and development programs are focused on current and future demands.

• Learning interventions are implemented according to the Workplace Skills Plan.

• Ad-hoc business requests, e.g. special projects are al-ways accommodated.

• Accessibility for all employees to learning and growth (Goal: one intervention per employee per annum).


Learning and Development Offerings are as follows:

Functional training Job related training aimed at enhancing the skills, capabilities and knowledge of employees for doing a particular job in order to improve performance and quality

Leadership & Manage-ment and Development

Designed to develop and equip management with Leadership and Management skills in managing day-to-day operations, addressing problems, systems and process improvements, and facilitating change.

compliance Training Is aimed at ensuring that the organization complies with relevant legislative and regulatory requirements

seminars Workshops etc. Help employees to regularly acquire new skills, knowledge and competencies required to carry out their professional role throughout their working life

graduate Programmes

Aims are to1. create a pool of qualified and skilled workforce,2. offer experiential learning experience to graduates,3. offer on the job training to employees that have acquired formal qualifications or need

practical exposure to finalise tertiary qualification.

internshipsSupport career development by providing graduates with real work experiences and opportu-nities to develop professional skills and competencies

LearnershipsWork based learning programme directly related to an occupation or field of work that leads to an NQF registered qualification for both permanent (18.1) and external (18.2) employees.

bursariesFinancial assistance provided to employees to enable them to study with a registered edu-cational institution to obtain an approved qualification. Bursaries awarded by Services SETA.

Essential skillsInterpersonal/people skills that help employees to interact effectively and harmoniously with colleagues, clients, other stakeholders as well as in different situations.

EMPLOyEE WELLNEssEmployee health and wellness is focusing on Employee Assistance Programme; disability management; occupational health and health promotion.

Employees can access professional assistance for a wide range of personal, interpersonal; work related concerns and chal-lenges and trauma counselling through our EAP Practitioners.

A variety of Empowerment Workshops and Awareness Programmes were organised for employees in all our regions. A number of health promotion activities were done based on common health problems identified in the organisation during our medical surveillances and disability assessments. The activities included health talks and health screening.

There was a slight increase in numbers on disability applications compared to the previous financial year as we are on our second year of leave cycle and most employees have depleted their sick leave credits.


EMPLOyEE RELATiONsSince the conversion of casual labour to permanent part-time employment and the conclusion of Recognition Agree-ments with Organised Labour, the Post Office workplace have become significantly more stable.

Engagement ProcessAfter the parties failed to reach an agreement during the wage negotiation process, the Post Office was served with a notice of intention to strike during the year on review.

The process of unlocking the deadlock on substantive de-mands of the union(s) took place under the auspices of the CCMA. The discussion at the CCMA ended due to parties not reaching any resolution on the substantive issues.

The strike ended through the signing of a collective agree-ment by both Post Office and all recognised trade unions.

Essential servicesThe Labour Court issued a judgment in respect of Post Of-fice’s application on essential services. The judgement in summary indicated the following:

(i) The service identified is in fact an essential service.

(ii) Post Office is an organisation that is carrying out an es-sential service and therefore can invoke the provisions of the applicable legislation.

(iii) Employees identified in the Post Office affidavit are in fact considered to be prevented from striking on the grounds that they provide an essential service.

(iv) Employees identified in the Order will constitute the pro-viders of the Minimum Service until such time that the par-ties agree on a different Minimum Services Agreement.

case ManagementManagement of labour related cases has been relatively sta-ble and was consistently applied.

• A total of 817 misconduct cases were received for the year. A total of 742 (90.8%) were finalised. The remain-ing 75 (9.2%) cases were still pending at the end of March 2019.

• A total of 169 grievances were received for the pe-riod, of which 132 (78%) were closed. The remaining 37 (22%) cases were still pending at the end of March 2019.

• The total number of suspensions reported was 76 of which 49 (64%) were closed. The remaining 27 (36%) cases were still pending at the end of March 2019.

• A total of 164 dismissals were sanctioned and all of these cases have been finalised.

WAy FORWARD The purpose of the Human Resources strategy is to ensure that Post Office has a capable, competent and agile per-forming workforce to take Post Office to 2030, and able to embrace the 4IR to optimise Post Office’s strategic intent.


PART E: FINANCIAL INFORMATION

64

sOUTH AFRicAN POsT OFFicE sOc LTD (Registration number 1991/005477/30)Consolidated Audited Annual Financial Statements for the year ended 31 March 2019sOUTH AFRicAN POsT OFFicE sOc LTD (Registration number 1991/005477/30)Consolidated Audited Annual Financial Statements for the year ended 31 March 2019

REPORT OF THE AUDiTOR-gENERAL TO PARLiAMENT ON THE sOUTH AFRicAN POsT OFFicE (sOc) LiMiTED

Qualified opinion

1. I have audited the consolidated and separate financial statements of the South African Post Office (SOC) Ltd (Post Office) and its subsidiaries (the Post Office group) set out on pages 80 to 209, which comprise the ap-propriation statement, the consolidated and separate statement of financial position as at 31 March 2019, the consolidated and separate statement of profit or loss and other comprehensive income, statement of changes in equity, and statement of cash flows and for the year then ended, as well as the notes to the con-solidated and separate financial statements, including a summary of significant accounting policies.

2. In my opinion, except for the effects of the matters de-scribed in the basis for qualified opinion section of this auditor’s report, the consolidated and separate financial statements present fairly, in all material respects, the consolidated and separate financial position of the Post Office group as at 31 March 2019, and the group’s fi-nancial performance and cash flows for the year then ended in accordance with the International Financial Reporting Standards (IFRS) and the requirements of the Public Finance Management Act of South Africa, 1999 (Act No.1 of 1999) (PFMA) and the Companies Act of South Africa, 2008 (Act No. 71 of 2008) (Companies Act).

Basis for qualified opinion

Trade and other receivables3. I was unable to obtain sufficient appropriate audit evi-

dence for the other receivables disclosed, due to in-adequate internal controls. The entity did not have ad-equate systems of internal controls for the recording and reconciliation of these transactions to the financial statements. I also could not confirm other receivables by alternative means. Consequently, I was unable to determine whether any adjustment was necessary to other receivables stated at R800 311 000, as disclosed in note 16 to the financial statements.

Other deposits (grants)4. I was unable to obtain sufficient appropriate audit evi-

dence for the other deposits (grants) disclosed, due to inadequate internal controls. The entity did not have adequate systems of internal controls for the record-ing and reconciliation of these transactions to the finan-cial statements. I also could not confirm other deposits (grants) by alternative means. Consequently, I was un-able to determine whether any adjustment was neces-sary to other deposits (grants) stated at R621 619 000, as disclosed in note 25 to the financial statements.

Financial instrument and risk management

5. I was unable to obtain sufficient appropriate audit evi-dence for the financial instrument and risk management disclosed, due to the limitation contained in the other receivables and the other deposits (grants) in notes 16 and 25, respectively. The entity did not have adequate systems of internal controls for the recording and rec-onciliation of those transactions to the financial state-ments. I also could not confirm the related financial instrument and risk management by alternative means. Consequently, I was unable to determine whether any adjustments were necessary to the related financial instrument and risk management information, as dis-closed in note 46 to the financial statements.

context for the opinion6. I conducted my audit in accordance with the Interna-

tional Standards on Auditing (ISAs). My responsibilities under those standards are further described in the audi-tor-general’s responsibilities for the audit of the consoli-dated and separate financial statements section of this auditor’s report.

7. I am independent of the public entity in accordance with sections 290 and 291 of the International Ethics Standards Board for Accountants’ Code of ethics for professional accountants (IESBA code), parts 1 and 3 of the International Ethics Standards Board for Account-ants’ International Code of Ethics for Professional Ac-countants (including International Independence Stand-ards) and the ethical requirements that are relevant to

Report of the Auditor-General to Parliament on the Post Office

65


my audit in South Africa. I have fulfilled my other ethical responsibilities in accordance with these requirements and the IESBA codes.

8. I believe that the audit evidence I have obtained is suffi-cient and appropriate to provide a basis for my qualified opinion.

Material uncertainty relating to going concern

9. I draw attention to the matter below. My opinion is not modified in respect of this matter.

10. I draw attention to note 48 to the consolidated and separate financial statements, which indicates that the Post Office group incurred a total loss for the year of R1 171 564 000 during the year ended 31 March 2019. The Post Office group did not generate sufficient revenue to finance its high cost base. These conditions, along of with other matters set forth in note 48, indicate that a material uncertainty exists on the Post Office group and company’s ability to continue as a going concern.

Emphasis of matters11. I draw attention to the matters below. My opinion is not

modified in respect of these matters.

Restatement of corresponding figures

12. As disclosed in note 45 to the consolidated and sepa-rate financial statements, the corresponding figures for 31 March 2018 have been restated as a result of an er-ror in the financial statements of the Post Office group at the year ended, 31 March 2019.

Uncertainty relating to future outcome of litigation

13. With reference to note 42 to the financial statements, the Post Office group is a defendant in a number of lawsuits. The ultimate outcome of these matters can-not currently be determined and no provision for any liability that may result has been made in the financial statements. The amount of R362 018 000 has been dis-closed as contingent liabilities for the group.

Material impairment Trade and other receivables

14. As disclosed in note 16 to the financial statements, a material impairment of R82 323 000 was incurred as a result of irrecoverable long outstanding trade receiva-bles for the Post Office group.

OTHER MATTERs15. I draw attention to the matters below. My opinion is not

modified in respect of these matters.

Unaudited supplementary schedules16. The supplementary information set out on pages 210

to 213 does not form part of the financial statements and is presented as additional information. I have not audited this schedule and, accordingly, I do not express an opinion thereon.

Responsibilities of the accounting authority for the financial statements

17. The board of directors, which constitutes the account-ing authority, is responsible for the preparation and fair presentation of the consolidated and separate financial statements in accordance with IFRS and the require-ments of the PFMA, and for such internal control as the accounting authority determines is necessary to enable the preparation of consolidated and separate financial statements that are free from material misstatement, whether due to fraud or error.

18. In preparing the consolidated and separate financial statements, the accounting authority is responsible for assessing the Post Office group’s ability to continue as a going concern, disclosing, as applicable, matters relat-ing to going concern and using the going concern basis of accounting unless the appropriate governance struc-ture either intends to liquidate the Post Office group or to cease operations, or has no realistic alternative but to do so.

Auditor-general’s responsibilities for the audit of the consolidated and separate financial statements19. My objectives are to obtain reasonable assurance about

whether the consolidated and separate financial state-ments as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes my opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the ISAs will al-ways detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the econom-ic decisions of users taken on the basis of these con-solidated and separate financial statements.

20. A further description of my responsibilities for the audit of the consolidated and separate financial statements is included in the annexure to this auditor’s report.

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REPORT ON THE AUDiT OF THE ANNUAL PERFORMANcE REPORT

introduction and scope21. In accordance with the Public Audit Act of South Africa,

2004 (Act No. 25 of 2004) (PAA) and the general notice issued in terms thereof, I have a responsibility to report material findings on the reported performance infor-mation against predetermined objectives for selected Themes presented in the annual performance report. I performed procedures to identify findings but not to gather evidence to express assurance.

22. My procedures address the reported performance in-formation, which must be based on the approved per-formance planning documents of the public entity. I have not evaluated the completeness and appropriate-ness of the performance indicators/ measures included in the planning documents. My procedures also did not extend to any disclosures or assertions relating to planned performance strategies and information in re-spect of future periods that may be included as part of the reported performance information. Accordingly, my findings do not extend to these matters.

23. I evaluated the usefulness and reliability of the reported performance information in accordance with the crite-ria developed from the performance management and reporting framework, as defined in the general notice, for the following selected Themes presented in the an-nual performance report of the public entity for the year ended 31 March 2019:

Themes

ThemePages in the an-

nual performance report

Theme 1 - Revenue retention through operational effectiveness 23

Theme 3 - Grow and diversify revenues 25

Theme 5 - Structural re-organisation 26

24. I performed procedures to determine whether the reported performance information was properly pre-sented and whether performance was consistent with the approved performance planning documents. I per-formed further procedures to determine whether the indicators and related targets were measurable and relevant, and assessed the reliability of the reported performance information to determine whether it was

valid, accurate and complete.

25. The material findings in respect of the usefulness and reliability of the selected themes are as follows:

Theme 1 – Revenue retention through operational effectiveness

Indicator: % of all customer complaints must be resolved within 7 working days from date of receipt of complaint

26. The reported achievement of 51% for the target of 100% is not reliable as the entity did not have an ad-equate performance management system to maintain records, to enable reliable reporting on achievement of targets. As a result, I was unable to obtain sufficient appropriate audit evidence in some instances while in other cases the supporting evidence provided did not agree to the reported achievement. Based on the sup-porting evidence that was provided, the achievement was 29%, but I was unable to further confirm the re-ported achievement by alternative means. Consequent-ly, I was unable to determine whether any further ad-justments were required to the reported achievement.

Achieve the regulated mail delivery standard of 92% as per the agreed delivery model with icAsA27. I was unable to obtain sufficient appropriate audit evi-

dence for the reported achievement of the target. This was due to a limitation on the scope of my work. I was also unable to confirm the reported achievement by alternative means. Consequently, I was unable to de-termine whether any adjustments were required to the reported achievement of the theme.

Theme 3 – grow and diversify revenues

28. I did not raise any material findings on the usefulness and reliability of the reported performance information for this theme.

Theme 5 – % compliant retail branches and to comply with the sAssA requirements for Postbank29. I was unable to obtain sufficient appropriate audit evi-

dence for the reported achievement of the target of 100%. This was due to limitations placed on the scope of my work. I was unable to confirm the reported achieve-ment by alternative means. Consequently, I was unable

67


to determine whether any adjustments were required to the achievement of 100% as reported in the annual per-formance report.

OTHER MATTERs30. I draw attention to the matters below.

Achievement of planned targets31. Refer to the annual performance report on page(s) 20 to

26 for information on the achievement of planned tar-gets for the year and explanations provided for the un-der/overachievement of a significant number of targets. This information should be considered in the context of the material findings on the usefulness and reliability of the reported performance information in paragraphs 26 – 29 of this report.

Adjustment of material misstatements

32. I identified material misstatements in the annual per-formance report submitted for auditing. These material misstatements were on the reported performance in-formation of theme 1 - revenue retention through op-erational effectiveness, theme 3 - grow and diversify revenue and theme 5 - structural re-organisation. As management subsequently corrected only some of the misstatements, we raised material findings on the use-fulness and reliability of the reported performance in-formation. Those that were not corrected are reported above.

REPORT ON THE AUDiT OF cOMPLiANcE WiTH LEgisLATiON

introduction and scope

33. In accordance with the PAA and the general notice is-sued in terms thereof, I have a responsibility to report material findings on the compliance of the public entity with specific matters in key legislation. I performed pro-cedures to identify findings but not to gather evidence to express assurance.

34. The material findings on compliance with specific mat-ters in key legislations are as follows:

Annual financial statement and annual report35. The financial statements submitted for auditing were

not prepared in accordance with the prescribed finan-cial reporting framework and supported by full and proper records, as required by section 55(1) (a) and (b) of the PFMA.

36. Material misstatements of non-current assets, current assets, non-current ·liabilities, current liabilities, reve-nue, expenditure and disclosure items identified by the auditors in the submitted financial statements were cor-rected and the supporting records were provided sub-sequently, but the uncorrected material misstatements and supporting records that could not be provided for other receivables and other deposits (grants), resulted in the financial statements receiving a qualified opinion.

Expenditure management37. Effective and appropriate steps were not taken to pre-

vent irregular expenditure amounting to R182 761 000 as disclosed in note 52 to the annual financial state-ments, as required by section 51(1)(b)(ii) of the PFMA. The majority of the irregular expenditure was caused by non compliance with SCM regulations and deviations regarding shortening of tender period.

38. Effective steps were not taken to prevent fruitless and wasteful expenditure amounting to R56 565 000 as dis-closed in note 50 to the annual financial statements, as required by section 51(1)(b)(ii) of the PFMA. Most of the fruitless and wasteful expenditure was caused by the group incurring interest charges and legal fees due to non-payment of suppliers.

Revenue management39. Effective and appropriate steps were not taken to col-

lect all revenue due, as required by section 51(1)(b)(i) of the PFMA.

Asset management40. Loans were provided to subsidiaries, which were not

approved by way of a special resolution adopted by the shareholder(s) within the previous two years. The board also authorised these loans without considering whether the liquidity and solvency tests were still satis-fied after providing the financial assistance, as required by sections 45(2), 45(3)(a)(ii) and 45(3)(b)(i) of the Com-panies Act.

68


Procurement and contract management41. Some of the goods, works or service was not procured

through a procurement process which is fair, equitable, transparent and competitive, as required by section 51(1)(a)(iii) of the PFMA. Similar non-compliance was also reported in the prior year. This was due to bids ad-vertised for a shorter period and reasons provided for the deviations being considered not justifiable.

42. Some of the contracts and quotations were awarded to bidders based on preference points that were not allocated and calculated in accordance with the require-ments of the Preferential Procurement Policy Frame-work Act and its regulations. Similar non-compliance was also reported in the prior year.

consequence management43. I was unable to obtain sufficient appropriate audit evi-

dence that disciplinary steps were taken against officials who had incurred irregular expenditure, as required by section 51(1)(e)(iii) of the PFMA. This was due to im-proper and incomplete records maintenance, which is required as evidence to support the investigations into irregular expenditure.

44. I was unable to obtain sufficient appropriate audit evi-dence that disciplinary steps were taken against officials who had incurred fruitless and wasteful expenditure as required by section 51(1)(e)(iii) of the PFMA. This was due to improper and incomplete records maintenance, which is required as evidence to support the investiga-tions into fruitless and wasteful expenditure.

OTHER iNFORMATiON 45. The accounting authority is responsible for the other

information. The other information comprises the in-formation included in the annual report, which includes the directors’ report, the audit committee’s report and the company secretary’s certificate as required by the Companies Act of South Africa, 2008 (Act No. 71 of 2008) (Companies Act). The other information does not include the consolidated and separate financial state-ments, the auditor’s report and those selected strategic goals presented in the annual performance report that have been specifically reported in this auditor’s report.

46. My opinion on the financial statements and findings on the reported performance information and compliance with legislation do not cover the other information and I do not express an audit opinion or any form of assur-ance conclusion thereon.

47. In connection with my audit, my responsibility is to read

the other information and, in doing so, consider wheth-er the other information is materially inconsistent with the consolidated and separate financial statements and the selected strategic goals presented in the annual performance report, or my knowledge obtained in the audit, or otherwise appears to be materially misstated.

48. We did not receive the other information prior to the date of this auditor’s report. After I receive and read this information, and if I conclude that there is a material misstatement, I am required to communicate the mat-ter to those charged with governance and request that the other information be corrected. If the other informa-tion is not corrected, I may have to retract this auditor’s report and re-issue an amended report as appropriate. However, if it is corrected this will not be necessary.

internal control deficiencies49. I considered internal control relevant to my audit of

the consolidated and separate financial statements, re-ported performance information and compliance with applicable legislation; however, my objective was not to express any form of assurance on it. The matters re-ported below are limited to the significant internal con-trol deficiencies that resulted in the basis for the quali-fied opinion, the findings on the annual performance report and the· findings on compliance with legislation included in this report.

50. The leadership of the entity did not adequately establish policies and procedures related to key finance business processes and components, in order to enable and sup-port the understanding and execution of internal control objectives, processes and responsibilities. In addition, leadership also did not effectively implement clarifying standard operating procedures relating to performance reporting.

51. The leadership did not timeously implement effective human resource management to ensure that resources within the finance, supply chain management and strat-egy business units were sufficiently skilled and that in-dividuals were held accountable for non-performance. Additionally, no performance management system was in place for employees other than senior managers.

52. The entity developed a plan to address internal and external audit findings, but the appropriate level of management did not monitor adherence to the plan in a timely manner, resulting in material adjustments to the financial statements. This was mainly due to lack of decisive action to mitigate emerging risks and im-plement timely corrective measures to address non- performance. Additionally, the numerous material ad-justments to the submitted financial statements and performance report are indicative of a lack of proper review processes by leadership.

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53. Management did not implement proper record keeping in a timely manner to ensure that complete, relevant and accurate information is accessible and available to support credible financial and performance reporting. This resulted in significant delays in the submission of information impacting the audit process and ultimately the audit outcome.

54. Regular reconciliations of key financial components were not always adequately prepared during the year, necessitating many manual reconciliations being con-ducted at year-end. The volume of these manual rec-onciliations coupled with a lack of assurance processes not implemented in time to ensure that information was accurate and complete, resulted in a number of errors being identified.

55. Management made significant use of suspense ac-counts that are not regularly reviewed and reconciled. Where supporting listings were made available, man-agement had not always acted to ensure that long-out-standing items were reconciled and cleared.

56. Management did not always understand the require-ments of the National Treasury Framework for pro-gramme performance information (FMPPI) and thus inadequately reviewed compliance with the require-ments of the FMPPI.

57. Management did not always understand and/or imple-ment the requirements of the supply management regulations. This has resulted in non-compliance with these requirements and irregular expenditure.

58. The design and implementation of formal controls over information technology systems requires further improve-ment to ensure the reliability of the systems in terms of availability, accuracy and protection of information.

59. The leadership did not act on a timely basis on internal audit’s recommendations or reports, rendering these recommendations to improve the internal control envi-ronment ineffective.

OTHER REPORTs 60. I draw attention to the following engagements con-

ducted by various parties that had, or could have, an impact on the matters reported in the public entity’s fi-nancial statements, reported performance information, compliance with applicable legislation and other related matters. These reports did not form part of my opin-ion on the financial statements or my findings on the reported performance information or compliance with legislation.

61. The South African Police Service are currently performing investigations into social assistance grant fraud related to the period 1 April 2018 to 31 March 2019. The investiga-tions were still ongoing at the date of this report.

PretoriaDate 31 July 2019

70

sOUTH AFRicAN POsT OFFicE sOc LTD (Registration number 1991/005477/30)Consolidated Audited Annual Financial Statements for the year ended 31 March 2019

1. As part of an audit in accordance with the ISAs, I exer-cise professional judgement and maintain professional scepticism throughout my audit of the consolidated and separate financial statements, and the procedures per-formed on reported performance information for select-ed strategic goals and on the public entity’s compliance with respect to the selected subject matters.

FiNANciAL sTATEMENTs2. In addition to my responsibility for the audit of the

consolidated and separate financial statements as de-scribed in this auditor’s report, I also:

• identify and assess the risks of material misstatement of the consolidated and separate financial statements whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for my opinion. The risk of not detecting a mate-rial misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• obtain an understanding of internal control relevant to the audit in order to design audit procedures that are ap-propriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the public entity’s internal control.

• evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the board of directors, which constitutes the accounting authority.

• conclude on the appropriateness of the board of direc-tors, which constitutes the accounting authority’s use of the going concern basis of accounting in the prepara-tion of the financial statements. I also conclude, based on the audit evidence obtained, whether a material un-certainty exists related to events or conditions that may

cast significant doubt on the South African Post Office SOC Limited and its subsidiaries’ ability to continue as a going concern. If I conclude that a material uncertainty exists, Aim required to draw attention in my auditor’s report to the related disclosures in the financial state-ments about the material uncertainty or, if such dis-closures are inadequate, to modify the opinion on the financial statements. My conclusions are based on the information available to me at the date of this auditor’s report. However, future events or conditions may cause a public entity to cease continuing as a going concern

• evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation

• obtain sufficient appropriate audit evidence regarding the financial information of the entities or business ac-tivities within the group to express an opinion on the consolidated financial statements. I am responsible for the direction, supervision and performance of the group audit. I remain solely responsible for my audit opinion.

cOMMUNicATiON WiTH THOsE cHARgED WiTH gOvERNANcE

3. I communicate with the accounting authority regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that I identify during my audit.

4. I also confirm to the accounting authority that I have complied with relevant ethical requirements regarding independence, and communicate all relationships and other matters that may reasonably be thought to have a bearing on my independence and, where applicable, related safeguards.

Annexure-Auditor-general’s responsibility for the audit

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sOUTH AFRicAN POsT OFFicE sOc LTD (Registration number 1991/005477/30)Consolidated Audited Annual Financial Statements for the year ended 31 March 2019

Directors’ Responsibilities and Approval

We as the directors are required by the Companies Act 2008 to keep accurate and complete accounting records as necessary to enable the company to satisfy its obligations in terms of Companies Act 2008 and provide for the compila-tion of financial statements, and the proper conduct of an audit, of its annual financial statements.

The accounting records required to be kept must be kept in such a manner as to provide adequate precautions against theft, loss or intentional or accidental damage or destruc-tion; and falsification. It is our responsibility to maintain an adequate system of internal financial control that places considerable importance on maintaining a strong control environment.

Our focus of risk management in the company is on identi-fying, assessing, managing and monitoring all known forms of risk across the company by ensuring that appropriate infrastructure, controls, systems and ethical behaviour are applied and managed within predetermined procedures and constraints.

We as the directors are responsible for the approval of the annual financial statements in compliance with Companies Act 2008, by acting in good faith, in the best interests of the

company, for proper purpose; and with the degree of care, skill and diligence that may reasonably be expected us.

Based on the legal duties expected of us as described above, we hereby approve the annual financial statements as set out on pages 80 to 209, and are signed on our behalf by:

Mr MA barnes (gcEO)

Mr Zc Ngidi (chairperson)

Pretoria30 July 2019

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SOUTH AFRICAN POST OFFICE SOC LTD (Registration number 1991/005477/30)Consolidated Audited Annual Financial Statements for the year ended 31 March 2019

Audit Committee Report

The Audit Committee hereby presents its report for the financial year ended 31 March 2019, in accordance with Treasury Regulations issued in terms of the PFMA and the Companies Act. The task of strengthening the systems of internal control was wide ranging and needed an integrated approach in improving governance, accountability and sys-tems in general. Our combined assurance providers i.e. the Auditor General, Internal Audit and Enterprise Risk Manage-ment have continued to play their role on giving the commit-tee independent professional assurance but management still have a way to go, with regard to resolving key audit issues in a timely and sustainable manner, so that repeat audit findings can be effectively eliminated.

Although there is a definitive and ongoing improved trend, in the overall experience of regularising contracts to ensure that irregular expenditure is ultimately eliminated, this re-mains an ongoing challenge. Although management have started to put certain processes in place, this issue of ongo-ing ineffective consequence management, remains a con-cern for the Committee.

The Post Office continued to experience skills shortages in critical areas within Finance during the current year, but management did proactively put a number of initiatives in place which has reasonably mitigated many of the concerns of the previous financial year.

This included achieving significant improvement, to meet-ing the required deadlines for the submission, and improv-ing the overall quality, of the annual financial statements.

Members

The Committee was established in accordance with the provisions of PFMA and the Companies Act. The Commit-tee Charter requires that the Committee comprise of a mini-mum of three members. Membership is as follows:

Name Effective dateMr M E Zakwe Appointed 13 August 2015

Mr P E Rabohale Appointed 13 August 2015

Mr Kgosie Matthews Appointed 01 October 2016

Adv. Juliana Rasethabe Appointed 01 April 2018

Dr. Charles Nwaila Appointed 01 April 2018

The Committee is satisfied that the members have the required knowledge and experience as set out in Section 94(5) of the Companies Act and Regulation 42 of the Com-panies regulation, 2011.

In addition, the following persons are also permanent in-vitees to all meetings:

Chief Executive Officer, Chief Operating Officer, Chief Fi-nancial Officer, Chief Information Officer, Chief Audit Execu-tive, Group Executive: Human Capital Management, Group

Executive: Governance and Regulation, Group Executive: Mail, Group Executive: Retail, General Manager: Risk Man-agement, Group Executive: Supply Chain Management, Managing Director: DOCEX (The Document Exchange), Managing Director: Postbank, External Auditors.

MEETINgS HELD by THE COMMITTEEIn terms of the Committee Charter, the Committee must meet at least four times a year. Details of the meetings dur-ing the financial year under review are disclosed in the Cor-porate Governance Report.

ResponsibilityThe Committee has complied with its responsibilities arising from the PFMA, Treasury Regulation and Companies Act. It further also operated in terms of the Committee Charter as its terms of reference in performing all its responsibilities.

Effectiveness of internal controlsThe Committee acknowledges management’s efforts to strengthen internal controls, as improvement continues to be seen through the last year. However, when seen in the context of the reports issued by External and Internal Audit, it is clear that management’s efforts remain unsatisfactory in resolutely improving governance sustainably at the Post Office, the underlying cause is lack of investment in sys-tems.

The Committee is concerned about the internal control weakness reported in prior years that have not been fully and satisfactorily addressed. This results in repeat audit findings. Management has given assurance that effective corrective action will be implemented in respect of all in-ternal control weaknesses and the Committee will monitor these.

The Committee emphasised that appropriate punitive measures against the responsible officials are required in instances of noncompliance of which to date, remains un-satisfactory.

The Committee heightened levels of work ethic, account-ability, and this should be addressed through a fair and rig-orous application of the performance management system and adherence to defined risk tolerance levels informed by the group’s risk appetite.

Although a performance management system is in place, it remains immature and is not yet fully effective, though slightly improved, to ensure executive performance can be more effectively and objectively evaluated.

It is of concern to the Committee that the performance

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targets of the organisation, have once again not been fully achieved. However, improved quality of the targets is an encouraging step forward, supported by a more robust re-view and assessment protocol by line management. This is a strategic focus area that management must continue to place significant effort in the new financial year – this reflects directly on the status of the Strategy and Corporate plan of the South African Post Office.

Critical vacancies continue undermine the effective func-tioning of the system of internal control and it is impera-tive that management reviews its recruitment procedures and processes to ensure that vacancies are filled in a timely manner. In particular, recruitment of appropriate skills & competencies within Finance and Accounting, remain a concern and should be addressed to maintain the sustain-ability of the internal control framework. It should be noted that an extensive recruitment moratorium, imposed by the Ministry, also prevented progress in this regard.

Owing to the strategic importance of and huge dependence on information and communication technology (ICT), the Committee emphasised the need for an ICT environment to operate at an optimal level and supported with the required infrastructure refresh.

Steady progress has been made however problems caused by people dynamics, inadequate skills and resources has resulted in ICT not being able to optimally support the busi-ness of the Post Office.

The South African Post Office has adopted anticorruption measures to prevent the frequency and magnitude of fraud and corruption.

Specific focus areas

The Committee continues to monitor, support and actively advice management on:

• Enhancement of reporting on performance information;• Modernisation of the information technology;• Improving the control environment, primarily through

timely resolution of External and Internal audit issues and closing out on critical vacancies.

• Ongoing improvement to the strength of the SCM pro-cesses to ensure elimination of irregular expenditure;

• Embedding of a combined assurance model;• Improving quality of financial and operational reporting

and monitoring.

Internal Audit Function

The Committee is satisfied that Internal Audit has prop-erly discharged its functions and responsibilities during the year under review. The capacity of Internal Audit remains a concern and it may still need further professionals to be able to more effectively complete their planned work and required intervention where management need guidance. The deployment of Co Source IT auditing skills in the new financial year, will move some way towards meeting this requirement.

Improved capacity will contribute to Internal Audit becom-ing more efficient, more responsive to the challenges and providing audit reports of a high quality to management and

the Committee on a timely basis.

The Committee continues to support the direction that Internal Audit is adopting in providing the necessary skills and agility required for Internal Audit to respond quickly and effectively to the demands for internal audit across Post Office’s multiple locations. The committee however re-mains concerned about management who are do not com-plete and resolve audit issues in a timely manner, both ex-ternal and internal highlighted matters, which does impact on the quality and integrity of the internal control environ-ment, risk management and governance.

Enterprise Risk Management Unit

The committee is satisfied with the participation of the Risk Unit during the design of a corporate plan and want to em-phasise that the Risk Unit should further look into making the current risk register more robust and be in line with the Post Office’s risk appetite and tolerance levels.

Improved capacity will contribute to risk management be-coming more embedded, thus enabling business units to mature their risk management processes.

The committee is concerned however that the Post Office still has not yet set tolerance levels and neither have they defined and adopted a risk appetite framework that is meant to guide the Board, committees and management on the management of enterprise risks within the organisation.

Evaluation of the Financial Statements

The Committee has during the year reviewed the Quarterly and Annual Financial Statements at a high level by conduct-ing the following specific functions:

• Reviewed the accounting policies and generally recog-nised accounting practices;

• Reviewed the organisation’s compliance with legal and regulatory provisions;

• Reviewed the Accounting Officer’s report;• Reviewed the presentation of the statements including

notes.• Reviewed the AGSA management report and manage-

ment responses thereto,• Reviewed any changes in accounting policies, changes

in estimates and prior period errors, Reviewed the in-formation on predetermined objectives to be included in the annual report,

• Reviewed any significant adjustments resulting from the Audit, and

• Commentary on Annual Financial Statements prepared by the organisation.

Mr ME Zakwe CA(SA), MbAChairperson Audit Committee

29 July 2019

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Directors’ Report

The Board have pleasure in submitting their report on the separate and consolidated annual financial statements of South African Post Office (SOC) Ltd and the Group for the year ended 31 March 2019.

1. Incorporation

The Company was incorporated on 01 October 1991 and obtained its certificate to commence business on the same day.

2. Holding company

The Group’s holding Company is South African Post Of-fice SOC Ltd (Post Office) and the shareholder holds 100% (2018: 100%) of the Group’s equity shares. The Post Office is incorporated in the Republic South Africa.

3. Ultimate holding entity

The Group’s ultimate holding entity is the South African Government which is represented by the Department of Telecommunications and Postal Services.

4. Nature of business

The South African Post Office was incorporated in South Africa with interests in the communication and services in-dustry. The activities of the Group are undertaken through the company and its principal subsidiaries. The Group oper-ates principally in South Africa.

The business of the group is:

• The provision of universal, accessible, reliable and af-fordable postal services to the people of the Republic of South Africa in terms of the Post Office Act No. 22 of 2011 (as amended) and the Postal Services Act No. 124 of 1 998 (as amended);

• To conduct the business of a bank that will encourage and attract savings amongst the people of the Republic of South Africa in accordance with the Postbank Act No. 9 of 2 010 (as amended) and the relevant sections of the Postal Services Act No. 124 of 1998.

• To provide an infrastructure for the movement of paper and electronic documents between members in vari-ous industries and become the preferred delivery part-ner in the judicial system; and

• To provide courier, freight and related logistical services to citizens and business, within and beyond the South African boundaries.

• To provide agency services.

The business of the Group is conducted through its op-erating divisions: Mail, Retail and Postbank as well as its operating subsidiaries within logistics, namely the Cou-rier and Freight Group (“CFG”) and Document Exchange (“DOCEX”). These divisions and subsidiaries are respon-sible for all the trading activities of the Group, which are conducted through the mail distribution network as well as the infrastructure of service points available throughout the country. The main support divisions in the Group are: Strategic Planning, Finance and Supply Chain Management, Human Resources, Information Technology, Internal Audit, Property Management, Commercial, and Governance and Compliance.

There have been no material changes to the nature of the Group’s business from the prior year.

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5. Directorate

The directors in office at the date of this report are as follows:

Directors Office Designation Changes

Mr ZC Ngidi Chairperson of the Board Group Non-executive Independent

Ms NV Simamane Director: Group Non-executive Independent

Dr LM Molefi Director: Group Non-executive Independent

Mr ZK Matthews Director: Group Non-executive Independent Appointed 01 October 2016

Mr ME Zakwe Director: Group Non-executive Independent Appointed 13 August 2015

Mr PE Rabohale Director: Group Non-executive Independent Appointed 13 August 2015

Ms LD Marole Director: Group Non-executive Independent

Mr MA Barnes CEO: Group Executive

Ms L Kwele COO: Group Executive

Mr J Dlamuka Acting CFO: Group Executive Appointed acting GCFO 01 June 2018

Adv G Rasethaba Director: Group Non-executive Independent Appointed 01 April 2018

Dr C Nwaila Director: Group Non-executive Independent Appointed 01 April 2018

6. Directors’ interests in contractsDuring the financial year, no contracts were entered into which directors or officers of the Group had an interest and which significantly affected the business of the Group.

7. Secretary

The Company secretary is Mr Dawood Dada.

Postal address: PO Box 10 000 Pretoria 0001

business address: NPC Building 497 Sophie de Bruyn Street cnr Jeff Masemola Street Pretoria 0001

8. AuditorsThe Shareholder reappointed the Auditor-General of South Africa as auditor for the Company and its subsidiaries at the Company’s previous Annual General Meeting.

9. Review of financial results and activities

The separate and consolidated annual financial statements have been prepared in accordance with International Finan-cial Reporting Standards (‘IFRS’), the Public Finance Man-agement Act (‘PFMA’) and the requirements of the Compa-nies Act 71 of 2008.

The accounting policies have been applied consistently compared to the prior year, except for the adoption of new or revised accounting standards as set out in note 2.

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The operating environment remained challenging for the Post Office during the 2018/19 financial year.

The Group recorded a net loss after tax for the year ended 31 March 2019 of R1,099 billion (2018: R1,004 billion) and a net asset value of R5,186 billion (2018: R 3,414 billion).

Group revenue increased by 20% from R 4,540 billion in the prior year to R5,437 billion for the year ended 31 March 2019. Even though the overall revenue has increased, the mail revenue continued to be depressed driven mainly by the decline in mail volumes, logistics volumes and loss of customers. The mail revenue business represents 51.9% of total Group revenues.

Group cash flows from operating activities changed from R166,9 million in the prior year to R1, 407 billion for the year ended 31 March 2019.

Equity injection of R2,9 billion was received from the De-partment of Telecommunications and Postal Services in January 2019 and partly utilised to settle long term loans.

10. Liquidity and solvency

The Board of Directors have performed the required liquidity and solvency test required by the Companies Act.

The Company’s financial position is stronger with the net asset of R5,2 billion. In the prior year, total assets exceed-ed total liabilities by R3,4 billion.The Board of directors are therefore comfortable with the solvency position of the Company as at the 31 March 2019.

The Company experienced cash flow constraints during the financial year and required additional financial resources (with shareholder support) to continue in operation for the foreseeable future.

11. Property, plant and equipment, and investment property

There was no change in the nature of the property, plant and equipment of the Group or in the policy regarding their use.

At 31 March 2019 the Group’s investment in property, plant and equipment amounted to R2,327 billion (2018: R2,342 billion), of which R180 million (2018: R101 million) was add-ed in the current year through additions.

There were no significant asset disposals or significant as-set write-offs in the period.

The Group has commitments in respect of contracts placed for capital expenditure to the amount of R60 million (2018: R64 million).

The Group also has commitments in respect of contracts placed for operating leases of R 955 million (2018: R 829 million) over the period of the lease. These commitments have been approved by the management of the respective Group companies. Refer to note 41 of the separate and con-solidated annual financial statements for further details.

12. Interests in subsidiaries

Details of material interests in subsidiary companies are presented in the separate and consolidated annual financial statements in notes 8 Investment in subsidiaries.

The interest of the Group in the profits and (losses) of its subsidiaries before inter Group eliminations for the year ended 31 March 2019 are as follows:

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2019 2018

R ‘ 000 R ‘ 000

Subsidiaries

Post Offices Properties (Bloemfontein) (Pty) Ltd (63) (107)

Post Offices Properties (Cape Town) (Pty) Ltd 369 143

Post Offices Properties (East Rand) (Pty) Ltd 14 59

Post Offices Properties (Port Elizabeth) (Pty) Ltd 274 260

Post Offices Properties (Rossburgh) (Pty) Ltd (1 438) 47

The Courier and Freight Group (Pty) Ltd 4 245 (450)

The Document Exchange (Pty) Ltd 4 270 2 300

Total interest in profits and losses after tax 7 671 2 252

There were no significant acquisitions or divestitures during the year ended 31 March 2019.

13. Share capital

2019 2018

Authorised Number of shares

Ordinary shares 1 000 000 000 1 000 000 000

Issued

2019 2018 2019 2018

R ‘ 000 R ‘ 000 Number of shares

Ordinary shares 8 164 116 5 217 116 693 115 883 693 115 882

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14. DividendsThe Company’s dividend policy is to consider an interim and a final dividend in respect of each financial year. At its discre-tion, the board of directors may consider a special dividend, where appropriate. Depending on the perceived need to re-tain funds for expansion or operating purposes, the board of directors may pass on the payment of dividends. Given the current constrained cash flows of the Company, the board of directors has not declared a dividend by the Post Office during the financial year ended March 31, 2019 (2018: RO).

15. Fruitless and wasteful and irregular expenditure

As per the requirement of the PFMA, the Post Office has formulated a Financial Misconduct Framework to enable the management of financial misconduct activities such as fruitless & wasteful and irregular expenditure. The Finan-cial Misconduct Committee (FMC) is mandated through the Group’s financial misconduct policy to regulate, monitor and report on all fruitless, wasteful and irregular expenditure and institute management consequences that need to be implemented as a result thereof. Irregular expenditure is ex-penditure other than unauthorised expenditure, incurred in contravention of or that is not in accordance with a require-ment of any applicable legislation or Treasury Regulation.

Categories of irregular expenditure include:

• Expenditure incurred as a result of non-compliance with a Treasury regulation;

• Expenditure incurred as a result of procuring goods or services by means other than through competitive bids; and

• Expenditure incurred as a result of non-compliance with a requirement of the institution’s delegation of authority framework.

All identified fruitless and wasteful expenditure for the Group has been investigated as at 31 March, 2019 resulting in R368 million of fruitless and wasteful expenditure (2018: R311 million}. Refer to note 50 for more detail.

All identified irregular expenditure for the Group has been investigated as at 31 March, 2019 resulting in R1,232 billion of irregular expenditure (2018: R1 billion}. Refer to note 52 for more detail.

16. Insurance and risk managementThe Group follows a policy of reviewing the risks relat-ing to assets and possible liabilities arising from business transactions with its insurers on an annual basis. Wherever

possible assets are automatically included. There is also a continuous asset risk control program, which is carried out in conjunction with the Group’s insurance brokers. All risks are considered to be adequately covered, except for political risks, in the case of which as much cover as is reasonably available has been arranged.

17. borrowing limitationsThe Company is a Schedule 2 entity as per the PFMA. In terms of Section 66(3}(a}, the accounting authority may not borrow money or issue a guarantee, indemnity or security, or enter into any other transaction that binds or may bind that public entity to any financial commitment without prior approval. In terms of the Post Office Act, the concurrent approval of both the Minister of Telecommunications and Postal Services and the Minister of Finance is required for borrowing. At end of 2019 financial year, the approved bor-rowing limits are R0 million (2018: R470 million} backed by a R0 million (2018: R400 million} guarantee from the share-holder.

18. Special resolutionsNo special resolutions, the nature of which might be signifi-cant to the shareholder in their appreciation of the state of affairs of the Group were made by the Group or any of its subsidiaries during the period covered by this report.

19. Material transactionsA section 54 PFMA application for approval to transfer the business of the Courier and Freight Group (Pty} Limited into the speed services division of the Post Office was submit-ted to the Minister of Telecommunications and Postal Ser-vices during the 2017 year. Employees of CFG were trans-ferred to Post Office on their existing contractual terms and conditions with effect from 1 September 2016.

20. Events after the reporting periodThe Minister of Telecommunications and Postal Services has gazetted the incorporation of Post Bank SOC Ltd as separate state owned entity reporting to the South African Post Office SOC Ltd as a subsidiary, with effect from 01 April 2019. Prior to this decision, Post Bank was a division of Post Office. Refer to note 49 for more detail.

The directors are not aware of any other material event which occurred after the reporting date and up to the date of this report.

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21. going concernPost Office, as a state company, plays a strategic role in the provision of essential goods and services. The activities of Post Office impact on the quality, accessibility and afford-ability of services provided to the community, especially the poor and vulnerable.

In determining the appropriate basis of preparation of the financial statement, management are required to consider whether the group will continue to be in operation in the foreseeable future. The 2018/19 financial year saw the group showing positive liquidity and solvency ratio (excluding Postbank). The group continues to show negative results from operation with the loss as at 31 March 2019 of R1,2 billion. Notwithstanding the loss from operation the group financial statement for the 2018/19 financial year were prepared on a going concern basis due to the following:

• Post Office signed a contract with SASSA for the pay-ment of social grants to approximately 11 million bene-ficiaries. Based on the current forecasts gross revenue expected from this project is R1,9 billion per annum;

• During 2018/19 financial year the Department of Tel-ecommunications and Postal Services and National Treasury approved the funding for the Universal Service Obligation/ Public Service Mandate amounting to R1,5 billion over the MTEF.

• During the 2018/19 mid-term budget adjustment Post Office was further allocated R2,9 billion to fund future capital expenditure, with more than R1,8 billion liquid assets at year end;

• During 2019/20 financial year Post Office will be lodging its E-commerce platform;

• During the 2019/20 financial year branch network will be rationalised to minimize rental costs of approximate-ly 114 urban branches;

• Postbank: Granting of banking licence to Postbank is expected to be finalise during 2019/20 financial year;

Group restructuring and costs containment based on a phased approach will be adopted to address the challenge of low productivity due to high staff numbers.

The directors anticipate that, the company will have ade-quate financial resources to continue in operation for the foreseeable future, and accordingly, the annual financial statements have been prepared on a going concern basis.

22. Litigation statementThe Group becomes involved from time to time in various claims and lawsuits incidental to the ordinary course of busi-

ness. Refer to note 42 for more details regarding these.

Except for those mentioned in Note 42: Litigation, there are no further legal or arbitration proceeds which have had a material effect on the Group or Company’s financial posi-tion.

23. Postbank corporatisationDuring the 2010/2011 financial period, the South African Postbank Limited Act No.9 of 2010 was signed into law providing for the establishment of a subsidiary company of the Post Office, namely the South African Postbank SOC Limited, to which the designated assets and liabilities of the current Postbank division will be transferred in terms of the Postbank Act No.9 of 2010. It is envisaged that the new subsidiary will operate as a fully-fledged bank and will be regulated in terms of the Banks Act. The Application to Es-tablish a Bank was submitted to the South African Reserve Bank on 25 September 2013. Postbank strengthened its banking capabilities and submitted its section 16 application for registration as a bank in 2017.

The Minister of Telecommunications and Postal Services has gazetted the incorporation of Post Bank SOC Ltd as separate state owned entity reporting to the South African Post Office SOC Ltd as a subsidiary with effect from 01 April 2019. Prior to this decision, Post Bank was a division of Post Office.

The South African Postbank SOC Limited Company has been registered, and the first Postbank board of directors have been appointed.

24. Date of authorisation for issue of financial statements

The separate and consolidated annual financial statements have been authorised for issue by the Board of Directors on Wednesday, 31 July 2019.

25. AcknowledgementsThanks and appreciation is extended to all of the Post Of-fice’s shareholders, staff, suppliers and consumers for their continued support of the Group.

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group Company

2019 2018 2017 2019 2018 2017

Restated Restated Restated Restated

Note(s) R ’ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Assets

Non Current Assets

Property, plant and equipment 4 2 251 729 2 266 035 2 324 880 2 246 871 2 260 347 2 317 152

Investment property 5 283 548 280 202 225 163 195 493 192 147 137 108

Heritage assets 6 46 247 46 247 46 247 46 247 46 247 46 247

Intangible assets 7 155 648 122 922 144 012 155 648 122 922 144 007

Investments in subsidiaries 8 - - - 31 933 31 933 31 933

Intergroup Loans & Receivables 9 - - - 4 625 3 346 1

Other financial assets 10 855 940 860 746 792 268 855 940 860 746 792 268

Operating lease asset 11 5 958 4 202 4 703 5 817 4 052 3 733

Retirement benefit asset 12 38 756 35 551 32 173 38 756 35 551 32 173

Deferred tax 13 303 338 265 - - -

Prepayments 14 - - 1 548 - - 1 548

3 638 129 3 616 243 3 571 259 3 581 330 3 557 291 3 506 170

Current Assets

Inventories 15 63 290 61 499 70 001 62 960 61 313 69 975

Trade and other receivables 16 1 711 847 471 567 412 711 1 701 890 455 725 385 985

Other financial assets 10 4 466 782 6 068 460 6 102 526 4 466 782 6 058 660 6 102 526

Operating lease asset 11 591 293 141 522 274 107

Prepayments 14 2 761 10 194 16 511 2 761 10 194 16 511

Current tax receivable 31 - - - - -

Cash and cash equivalents 17 6 186 856 3 241 211 3 078 284 6 167 380 3 229 765 3 056 616

12 432 158 9 853 224 9 680 174 12 402 295 9 815 931 9 631 720

Total Assets 16 070 287 13 469 467 13 251 433 15 983 625 13 373 222 13 137 890

Statement of Financial Position as at 31 March 2019

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group Company

2019 2018 2017 2019 2018 2017


Note(s) R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Equity and Liabilities

Equity

Share capital 18 8 164 116 5 217 116 693 116 8 164 116 5 217 116 693 116

Reserves 1 641 073 1 630 836 2 444 715 1 569 466 1 599 229 2 373 108

Accumulated loss (4 618 792) (3 433 154) (2 248 409) (4 549 263) (3 352 767) (2 162 418)

5 186 397 3 414 798 889 422 5 184 319 3 423 578 903 806

Liabilities

Non-Current Liabilities

Financial liabilities at amortised cost 20 275 014 - - 275 014 - -

Financial liabilities at fair value 21 - - 3 700 980 - - 3 700 980

Operating lease liability 11 40 705 41 088 69 200 40 344 40 808 69 004

Retirement benefit obligation 12 1 233 804 1 272 143 1 202 166 1 233 804 1 272 143 1 202 166

Deferred tax 13 18 807 18 567 18 809 - - -

Provisions 22 294 278 311 008 400 472 290 485 307 396 396 138

1 862 608 1 642 806 5 391 627 1 839 647 1 620 347 5 368 288

Statement of Financial Position as at 31 March 2019(continued)

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group Company

2019 2018 2017 2019 2018 2017


Note(s) R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Current Liabilities

Trade and other payables 23 1 586 903 1 442 900 901 580 1 533 404 1 369 222 806 042

Financial liabilities at amortised cost 20 126 468 - - 126 468 - -

Financial liabilities at fair value 21 - 400 305 - - 400 305 -

Operating lease liability 11 2 930 4 155 11 019 2 843 4 079 10 964

Retirement benefit obligation 12 173 117 155 229 136 294 173 117 155 229 136 294

Deferred income 24 178 944 212 734 200 011 173 139 206 960 191 145

Current tax payable - 438 736 - - -

Provisions 22 264 785 373 097 322 380 262 553 370 497 322 987

Other deposits (grants) 25 621 619 - - 621 619 - -

Deposits from the public 26 5 150 267 5 101 285 5 031 724 5 150 267 5 101 285 5 031 724

Funds collected on behalf of the third parties

27 532 265 299 363 100 514 532 265 299 363 100 514

Government grants 28 383 984 422 357 266 126 383 984 422 357 266 126

9 021 282 8 411 863 6 970 384 8 959 659 8 329 297 6 865 796

Total Liabilities 10 883 890 10 054 669 12 362 011 10 799 306 9 949 644 12 234 084

Total Equity and Liabilities 16 070 287 13 469 467 13 251 433 15 983 625 13 373 222 13 137 890

Statement of Financial Position as at 31 March 2019(continued)

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group Company

2019 2018 2019 2018

Restated Restated

Note(s) R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Revenue 29 5 437 652 4 540 619 5 393 199 4 493 654

Other operating income 30 101 373 47 669 100 743 46 625

Operating expenses 31 (2 574 670) (1 518 479) (2 573 402) (1 510 423)

Employee costs 32 (3 755 608) (3 403 293) (3 736 307) (3 384 769)

Transport costs 31 (276 741) (292 854) (272 430) (281 449)

Total depreciation, amortisation and impairments 33 (179 955) (143 286) (179 117) (142 060)

Operating loss 31 (1 247 949) (769 624) (1 267 314) (778 422)

Interest and dividend income 34 833 376 829 981 831 817 828 675

Finance expense 35 (867 027) (1 135 338) (864 725) (1 130 766)

Other non-operating income 138 352 - 138 352 -

Fair value adjustments 36 43 969 70 784 43 969 70 784

Loss before taxation (1 099 279) (1 004 197) (1 117 901) (1 009 729)

Income tax expense 37 (425) (96) - -

Loss for the year (1 099 704) (1 004 293) (1 117 901) (1 009 729)

Other comprehensive income:

Items that will not be reclassified to profit or loss:

Remeasurements on net defined benefit liability/asset (82 097) (180 750) (82 647) (180 654)

Gains on property revaluation - - - -

Total items that will not be reclassified to profit or loss (82 097) (180 750) (82 647) (180 654)

Items that may be reclassified to profit or loss:

Gain on other financial assets adjustments 10 237 11 569 10 237 11 569

Other comprehensive income (loss) for the year net of taxation

38 (71 860) (169 181) (72 410) (169 085)

Total comprehensive (loss) income for the year (1 171 564) (1 173 474) (1 190 311) (1 178 814)

Statement of Profit or Loss and Other Comprehensive Income

84


Issued share

capital

Revaluation reserve

Other compre-hensive income reserve

(OCI)

Convertible shareholder

instru-ments

Total reserves

Accumu-lated loss

Total equity

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

group

Balance at 01 April 2017 *Restated

693 116 1 535 862 84 853 824 000 2 444 715 (2 248 105) 889 726

Loss for the year - - - - - (1 004 293) (1 004 293)

Other comprehensive income for the year

- - 11 569 - 11 569 (180 750) (169 181)

Issue of shares 4 524 000 - - (824 000) (824 000) - 3 700 000

balance at 01 April 2018 *Restated

5 217 116 1 535 862 94 974 1 630 836 (3 436 991) 3 410 961

Loss for the year - - - - (1 099 704) (1 099 704)


- - 10 237 - 10 237 (82 097) (71 860)

Issue of shares 2 947 000 - - - - - 2 947 000

Total contributions by and distributions to owners of company recognised directly in equity

2 947 000 - - - - - 2 947 000

balance at 31 March 2019 8 164 116 1 535 862 105 211 - 1 641 073 (4 618 792) 5 186 397

Note(s) 18 38 38 38

Statement of Changes in Equity

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Issued share

capital

Revaluation reserve

Other compre-hensive income reserve

(OCI)

Convertible shareholder

instru-ments

Total re-serves

Accumu-lated loss

Total equity

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Company

Balance at 01 April 2017 *Restated

693 116 1 464 255 84 853 824 000 2 373 108 (2 162 378) 903 846

Loss for the year - - - - - (1 009 729) (1 009 729)


- - 11 569 - 11 569 (180 654) (169 085)

Issue of shares 4 524 000 - - (824 000) (824 000) - 3 700 000

balance at 01 April 2018 *Restated

5 217 116 1 464 255 94 974 - 1 559 229 (3 348 715) 3 427 630

Loss for the year - - - - - (1 117 901) (1 117 901)


- - 10 237 - 10 237 (82 647) (72 410)

Issue of shares 2 947 000 - - - - - 2 947 000

Total contributions by and distributions to owners of company recognised directly in equity

2 947 000 - - - - - 2 947 000

balance at 31 March 2019 8 164 116 1 464 255 105 211 - 1 569 466 (4 549 263) 5 184 319

Note(s) 18 38 38 38

The accounting policies on pages 19 to 38 and the notes on pages 39 to 107 form an integral part of the separate and consolidated annual financial statements

Statement of Changes in Equity (continued)

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group Company

2019 2018 2019 2018

Restated Restated

Note(s) R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Cash flows used in operating activities

Cash used in operations 39 (1 543 610) (40 366) (1 541 831) (40 770)

Interest and dividend income 228 318 211 045 226 833 210 155

Finance cost paid (161 400) (410 164) (159 264) (405 750)

Tax (paid) received (619) (709) - -

Net cash from operating activities (1 477 311) (240 194) (1 474 262) (236 365)

Cash flows used in investing activities

Purchase of property, plant and equipment (115 961) (34 027) (115 961) (34 089)

Purchase of investment property (3 004) - (3 004) -

Purchase of other intangible assets (66 946) (10 118) (66 946) (10 118)

(Increase) decrease in financial assets 1 660 690 47 941 1 650 890 57 741

Net cash from investing activities 1 474 779 3 796 1 464 979 13 534

Cash flows used in financing activities

Proceeds from equity injection 18 2 947 000 3 700 000 2 947 000 3 700 000

Proceeds from advance payment 401 482 - 401 482 -

Repayment of term loans (1 035 305) (3 300 675) (1 035 305) (3 300 675)

Proceeds from term loan 635 000 - 635 000 -

(Increase) decrease in intergroup loan - (1 279) (3 345)

Net cash from financing activities 2 948 177 399 325 2 946 898 395 980

Total cash increase (decrease) for the year 2 945 645 162 927 2 937 615 173 149

Cash at the beginning of the year 3 241 211 3 078 284 3 229 765 3 056 616

Total cash at the end of the year 17 6 186 856 3 241 211 6 167 380 3 229 765

Statement of Cash Flows

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1. Summary of significant accounting policies

South African Post Office (SOC) Limited is a Company in-corporated in South Africa. Its parent and ultimate holding entity is the South African government represented by the Department of Telecommunication and Postal Services. The address of its registered office and place of business are disclosed in the director’s report. The principal activities of the Company and its subsidiaries are also described in the directors’ report.

The Group and Company consolidated financial statements have been prepared in accordance with International Finan-cial Reporting Standards, and the requirements of the Public Finance Management Act and the South African Companies Act No 71 of 2008.

The accounting policies applied in preparation of these Group and Company financial statements are consistent in all material respects with those applied in the prior year, unless explicitly stated otherwise as changes in accounting policy. No standards were adopted before the effective date during the financial reporting period ended 31 March 2019.

The financial statements are presented in South African Rands (ZAR), the functional currency of the Group and Com-pany. All amounts are rounded to the nearest thousand, ex-cept when otherwise indicated. They are prepared on the historical cost basis, except for heritage assets, investment properties and certain financial instruments at fair value.

The annual financial statements were prepared under the supervision of the acting Group Chief Financial Officer, Jab-ulani Dlamuka, CA(SA).

1.1 Basis of preparation

The separate and consolidated annual financial statements have been prepared on tile the going concern basis in ac-cordance with, and in compliance with, International Finan-cial Reporting Standards (“IFRS”) and International Financial Reporting Interpretations Committee (“IFRIC”) interpreta-tions issued and effective at the time of preparing these separate and consolidated annual financial statements and the Companies Act of South Africa, as amended.

These separate and consolidated annual financial state-ments comply with the requirements of the SAICA Finan-cial Reporting Guides as issued by the Accounting Practices Committee and the Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council.

The separate and consolidated annual financial statements have been prepared on the historic cost convention, unless otherwise stated in the accounting policies which follow and incorporate the principal accounting policies set out be-low. They are presented in Rands, which is the Group and Company’s functional currency.

These accounting policies are consistent with the previous period, except for the changes set out in note 2.

1.2 Financial statement preparationbasis of consolidation

Subsidiaries

The consolidated annual financial statements incorporate the annual financial statements of the company and entities controlled by the Company. Control is achieved when the Company:

• Has power over the investee• Is exposed, or has rights, to variable returns from its

involvement with the investee and• Has the ability to use its power to affect its return.

The company reassesses whether or not it controls an in-vestee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

When the company has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The company considers all relevant facts and circumstances in assessing whether or not the Company’s voting rights in an investee are sufficient to give it power, including:

• The size of the Company’s holding of voting rights rela-tive to the size and dispersion of holdings of the other voting holders;

• Potential voting rights held by the company, other vote holder or other parties;

• Rights arising from other contractual arrangements, and• Any additional facts and circumstances that indicate

that the company has, or does have, the current abil-ity to direct the relevant activities at the time that deci-sions need to be made.

Consolidation of a subsidiary begins when the Company ob-tains control over the subsidiary and ceases when the Com-pany loses control of the subsidiary. Specifically, income

Notes to the Consolidated Financial Statements Accounting Policies

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Notes to the Consolidated Financial StatementsNotes to the Consolidated Financial Statements Accounting Policies

and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date the Company gains control until the date when the Company ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non -controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

When necessary, adjustments are made to the annual fi-nancial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies.

All intragroup assets and liabilities, equity, income, expens-es and cash flows relating to transactions between mem-bers of the Group are eliminated in full on consolidation.

Fair value considerations

The consolidated annual financial statements have been prepared on the historical cost basis except for certain prop-erties and financial instruments that are measure at fair val-ues at the end of the each reporting period, as explained in the accounting policies below.

Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated us-ing another valuation technique. In estimating the fair value of as asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and /or disclosure purposes in these con-solidated annual financial statements is determined on such a basis, except for leasing transactions that are within the scope of lAS 17, and measurements that have some simi-larities to fair value but are not fair value, such as net realis-able value in lAS 2 or value in use in lAS 36.

In addition, for financial reporting purposes, fair value meas-urements are categorised into level 1, 2 or 3 based on the de-gree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

Level 1 input are quoted process (unadjusted) in active mar-kets for identical assets or liabilities that the entity can ac-cess at the measurement date;

Level 2 inputs are inputs, other than quoted process in-cluded within Level 1, that are observable for the asset or liability either directly or indirectly; and

Level 3 inputs are unobservable inputs for the asset or li-ability.

Current non-current distinction

All assets and all liabilities are classified and presented as either current or non-current unless they are presented in order of their liquidity. The term ‘current’ is defined for: (a) assets, as an asset that is:

(i) expected to be realised in, or is intended for sale or con-sumption in, the entity’s normal operating cycle;

(ii) held primarily for the purpose of being traded;

(iii) expected to be realised within 12 months after the re-porting period; or

(iv) cash or a cash equivalent unless it is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period;

(b) liabilities, as a liability that:

(i) is expected to be settled in the entity’s normal operating cycle;

(ii) is held primarily for the purpose of being traded;

(iii) is due to be settled within 12 months after the reporting period; or

(iv) the entity does not have an unconditional right to defer settlement of the liability for at least 12 months after the reporting period. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

Current assets include inventories and trade receivables that are sold, consumed or realised as part of the normal operating cycle and current liabilities include those liabilities that form part of the working capital used in a normal op-erating cycle of the entity, for example trade payables and accruals for employee benefits expense.

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Notes to the Consolidated Financial Statements

The principal accounting policies are set out below.

1.3 Significant judgements and sources of estimation uncertainty

In preparing the consolidated financial statements, manage-ment is required to make estimates and assumptions that affect the amounts represented in the consolidated financial statements and related disclosures. Use of available infor-mation and the application of judgment is inherent in the for-mation of estimates. Actual results in the future could differ from these estimates which may be material to the consoli-dated financial statements. Significant judgments include:

Trade receivables, Held to maturity investments and Loans and receivables

The Group assesses its trade receivables, held to maturity investments and loans and receivables for impairment at the end of each reporting period. In determining whether an impairment loss should be recorded in profit or loss, the Group makes judgments as to whether there is observable data indicating a measurable decrease in the estimated fu-ture cash flows from a financial asset.

The impairment for trade receivables, held to maturity in-vestments and loans and receivables is calculated on a port-folio basis, based on historical loss ratios, adjusted for na-tional and industry-specific economic conditions and other indicators present at the reporting date that correlate with defaults on the portfolio. These annual loss ratios are ap-plied to loan balances in the portfolio and scaled to the esti-mated loss emergence period.

Financial assets through other comprehensive income (OCI)

The Group follows the guidance of IFRS 9 to determine when financial asset is impaired. This determination re-quires significant judgment. In making this judgment, the Group evaluates, among other factors, the duration and ex-tent to which the fair value of an investment is less than its cost; and the financial health of and near-term business out-look for the investee, including factors such as industry and sector performance, changes in technology and operational and financing cash flow.

Allowance for slow moving, damaged and obsolete stock

The allowance for stock write-off at the lower of cost or net realisable value requires the use of estimates to determine the selling price and direct cost to sell.

Fair value estimation

The fair value of financial instruments traded in active mar-kets (such as trading and available-for-sale securities) is based on quoted market prices at the end of the reporting period. The quoted market price used for financial assets held by the Group is the current bid price.

The fair value of financial instruments that are not traded in an active market {for example, over the counter derivatives) is determined by using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at the end of each reporting period. Quoted market prices or dealer quotes for similar instruments are used for long-term debt. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial in-struments.

The carrying value less impairment provision of trade re-ceivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is avail-able to the group for similar financial instruments.

Other items that are subject to fair value as a significant judgement and source of estimation and uncertainty include property, plant and equipment, and investment property. Further detail on the valuation of these items is provided in notes 3 and 6 respectively.

Impairment testing of non-financial assets

The recoverable amounts of cash-generating units and in-dividual assets have been determined based on the higher of value-in-use calculations and fair value less costs to sell. These calculations require the use of estimates and as-sumptions. It is reasonably possible that assumptions may change which may then impact estimations and may then require a material adjustment to the carrying value of non-financial assets.

The Group reviews and tests the carrying value of assets when events or changes in circumstances suggest that the carrying amount may not be recoverable.


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Provisions

Provisions were raised and management determined an es-timate based on available information.

Provisions and contingent liabilities

Management’s judgement is required when recognising and measuring provisions and when measuring contingent liabil-ities. The probability that an outflow of economic resources will be required to settle the obligation must be assessed and a reliable estimate must be made of the amount of the obligation. Provisions are measured at management’s best estimate of the expenditure required to settle the obligation and discounted where the effect of discounting is material.

The discount rate used is the rate that reflects current mar-ket assessments of the time value of money and, where appropriate, the risks specific to the liability, all of which re-quire management’s judgement. The Group is required to recognise provisions for legal contingencies when the oc-currence of the contingency is probable and the amount of the loss can be reasonably estimated. Liabilities provided for legal matters require judgements regarding projected outcomes and ranges of losses based on historical experi-ence and recommendations of legal counsel. Litigation is however unpredictable and actual costs incurred could dif-fer materially from those estimated at the reporting date.

Estimated credit losses (“ECL”)

Estimating ECL involves forecasting future economic condi-tions over a period of time. These longer term forecasts are subject to management judgement and those judgements may be sources of measurement uncertainty.

Expected manner of realisation for deferred tax

Deferred tax is provided for on the fair value adjustments of investment properties based on the expected manner of recovery, i.e. sale or use. This manner of recovery affects the rate used to determine the deferred tax liability.

Taxation

Judgment is required when determining the provision for income taxes due to the complexity of legislation. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax

audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

The Group recognises the net future tax benefit related to deferred tax assets to the extent that it is probable that the deductible temporary differences will reverse in the fore-seeable future. Assessing the recoverability of deferred tax assets requires the Group to make significant estimates re-lated to expectations of future taxable income. Estimates of future taxable income are based on forecast cash flows from operations and the application of existing tax taws in each jurisdiction. To the extent that future cash flows and taxable income differ significantly from estimates, the abil-ity of the Group to realise the net deferred tax assets re-corded at the end of the reporting period could be impacted.

Deferred income

Judgment is required when determining the deferred revenue due to the stage of completion of the revenue contract at year end. There are many transactions and calculations for which the ultimate deferred revenue determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated deferred income based on the stage of completion. Where the final outcome of these matters is different from the amounts that were initially recorded, such differences will impact the profit or loss and deferred income liability in the period in which such determination is made.

In determining the value to be placed on these post em-ployment benefits, various assumptions in respect of vari-ous economic and demographic factors have been made. In order to have consistency between the benefits, the same assumptions for all benefits have been applied where relevant. In assessing the appropriateness of the assump-tions used it is important to consider the assumptions as a whole rather than in isolation. In particular, the relationship between the assumptions for the discount rate and the rate of increase in benefits is important.

lAS 19 Employee Benefits (IAS19) requires that realistic as-sumptions be applied in the valuation and that this should be determined with reference to the yields on corporate stock of similar duration to the liabilities. The standard fur-ther indicates that if the corporate bond market is neither


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sufficiently deep nor liquid, reference should be made to the yields on government stock. For the purpose of this valuation, account has been taken of the yields on South African government stock as reflected in the yield curve of the Bond Exchange of South Africa. The basic inflation as-sumption has also been determined by reference to the in-flation rate implied in the market by the difference between the yield on nominal and inflation linked government stock.

The demographic assumptions (e.g. mortality, withdrawal rates, etc.) have been based on standard actuarial tables and other assumption rates that are generally used in the market place for the valuation of liabilities of this nature. Al-lowance has been made for AIDS related deaths in respect of the long service and leave encashment benefits, but not the PRMA benefits, using the Actuarial Society of South Af-rica AIDS model.

The results of the valuation are highly dependent on the choice of assumptions and the relationship between them. Therefore, in order to assist the user in interpretation of the valuation, results show the impact on the liabilities of a number of different assumptions.

Actuarial valuations are performed on an annual basis.

Site restoration and dismantling cost

Decommissioning costs that are expected to be incurred upon the termination or conclusion of lease agreements have been capitalised in terms of the relevant lease agree-ments. It is uncertain whether these leases will be ex-tended or terminated earlier and this creates uncertainties regarding the amount and timing of the cash flows. There are no expected reimbursements for the costs that will be incurred.

The main assumptions used in the calculation of this capi-talisation are as follows:

The Universal Service Obligations (USO) embodied in leg-islation governing the South African Post Office (SOC) Lim-ited obliges the Company to expand its presence in South Africa (SA), especially in rural SA. This means that the South African Post Office (SOC) Limited would most probably not reduce the number of leasehold premises, but instead ex-pand its presence to more buildings. The type of leasehold premises has been taken into account when arriving at a conclusion regarding possible restoration requirements. A vacant stand with a Mail Collection Point (MCP) would prob-

ably not require restoration should they ever wish to relo-cate. The South African Post Office (SOC) Limited may not wish to relocate from shopping centres and malls. In the event that it does relocate the terms of the lease and the nature of its business are such that restoration of the prem-ises might not be required. The date that the South Afri-can Post Office (SOC) Limited originally occupied leasehold premises is also an indication of the chances of ever moving out of the premises, thus negating the liability to restore such leasehold premises. During the year, the South African Post Office (SOC) Limited relocated from 50 sites (2018: 21) leasehold premises of which 15 site restoration (2018: 20) of the lessors required restoration.

Estimation of useful lives and residual values

Property, plant and equipment are depreciated over their useful lives taking into account the residual values, where appropriate. The actual lives of the assets and residual val-ues are assessed annually and may vary depending on a number of factors. In re-assessing asset lives, factors such as technological innovation, product life cycles and mainte-nance programmes are taken into account. Residual value assessment consider issues such as future market condi-tions, the remaining lives of the assets and the projected disposal values.

Intangible assets are amortised on a straight line basis over their estimated useful lives. The amortisation methods and remaining useful lives are reviewed at least annually. The estimation of the useful lives of intangible assets is based on historic performance as well as expectations about fu-ture use and therefore requires a significant degree of judgement.

1.4 Heritage assetsIn terms of the ICASA license agreement, the South Afri-can Post Office (SOC) Limited is required to own a muse-um which contains assets of a historical nature, including stamps, paintings, artefacts and machinery.

Due to the absence of a Standard or an Interpretation that specifically applies to Heritage Assets, the group conforms to the standards as set out in GRAP 103 – Heritage Assets issued by the South African Accounting Standards Board.

A heritage asset is recognised when, and only when:• it is probable that future economic benefits associated

with the asset will flow to the entity;


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• and the fair value or cost of the asset can be measured reliably.

Heritage assets which qualify for recognition as an asset are initially measured at cost.

Where heritage assets were acquired for no cost or nomi-nal cost, its cost is measured at fair value on the date of acquisition.

A non-exchange transaction is a transaction where an en-tity receives or gives value to another entity without directly giving or receiving an approximate equal value in exchange. Examples include gifts, fines and grants.

Fair value is the amount for which an asset could be ex-changed, or a liability settled, between knowledgeable, will-ing parties in an arm’s length transaction.

An inflow of resources from a non-exchange transaction recognised as an asset will be recognised as revenue, ex-cept to the extent that a liability is also recognised in respect of the same inflow (which is the case when a stipulation is a condition).

Costs of day-to-day servicing i.e. repairs and maintenance are expensed, only costs incurred to enhance or restore an asset to preserve its indefinite useful life can be capitalised if they meet the recognition criteria.

Heritage assets are subsequently measured at the revalued amount less accumulated impairment losses. Heritage as-sets have indefinite useful lives and are not depreciated.

Revaluations are made with sufficient regularity such that the carrying amount does not differ materially from that which would be determined using fair value at the end of the reporting period.

Any increase in an asset’s carrying amount, as a result of a revaluation, is credited to other comprehensive income and accumulated in the revaluation surplus in equity. The increase is recognised in profit or loss to the extent that it reverses a revaluation decrease of the same asset previ-ously recognised in profit or loss.

Any decrease in an asset’s carrying amount, as a result of a revaluation, is recognised in profit or loss in the current peri-od. The decrease is debited in other comprehensive income to the extent of any credit balance existing in the revaluation surplus in respect of that asset.

An asset is derecognised when it is disposed of or when no

future economic benefits or service potential is expected. Any gain or loss is recognised in profit or loss. The revalu-ation surplus included in equity in respect of a heritage as-sets may be transferred directly to retained earnings when it is derecognised.

A heritage asset is not depreciated but the entity assess at each reporting date whether there is an indication that it may be impaired. If any such indication exists, the entity es-timates the recoverable amount or the recoverable service amount of the heritage asset.

In assessing whether there is an indication that an asset may be impaired, the Group is considered, as a minimum, the following indications:

External sources of information

(a) During the period, a heritage asset’s market value has declined significantly more than would be expected as a re-sult of the passage of time or normal use.

(b) The absence of an active market for a revalued heritage asset.

Internal sources of information

(a) Evidence is available of physical damage or deterioration of a heritage asset.

(b) A decision to halt the construction of the heritage asset before it is complete or in a usable form.

1.5 Investment property

Investment properties are properties held to earn rentals and/or for capital appreciation.

Investment property is recognised as an asset when, and only when, it is probable that the future economic benefits that are associated with the investment property will flow to the enterprise, and the cost of the investment property can be measured reliably.

Investment property is initially recognised at cost Transac-tion costs are included in the initial measurement.

Costs include costs incurred initially and costs incurred subsequently to add to, or to replace a part of, or service a property. If a replacement part is recognised in the carrying amount of the investment property, the carrying amount of the replaced part is derecognised.


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Fair value

Subsequent to initial measurement investment property is measured at fair value, which reflects market conditions at the reporting date.

A gain or loss arising from a change in fair value is included in net profit or loss for the period in which it arises.

Transfers are made to (or from) investment property only when there is a change in use. For a transfer from invest-ment property to owner-occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use.

Investment property is derecognised either when it has been disposed of or when it is permanently withdrawn from use and no future economic benefit is expected from its disposal. The difference between the net disposal proceeds and the carrying amount of the asset is recognised in profit or loss in the period of derecognition.

1.6 Property, plant and equipment

Property, plant and equipment are tangible assets which the Group holds for its own use or for rental to others and which are expected to be used for more than one year.

An item of property, plant and equipment is recognised as an asset when it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably.

Property, plant and equipment is initially measured at cost including any cost directly attributable to bringing the assets to the location and condition necessary for it to be capable of operating as intended by management. Land is not de-preciated. Where any item comprises of major components with different useful lives, these major components are ac-counted for as separate items.

Expenditure incurred subsequently for major services, ad-ditions to, or replacements of parts of property, plant and equipment are capitalised if it is probable that future eco-nomic benefits associated with the expenditure will flow to the group and the cost can be measured reliably. Day to day servicing costs are included in profit or loss in the year in which they are incurred.

Depreciation of an asset commences when the asset is available for use as intended by management. Depreciation is charged to write off the asset’s carrying amount over its estimated useful life to its estimated residual value, using a method that best reflects the pattern in which the asset’s economic benefits are consumed by the Group. Leased as-sets are depreciated in a consistent manner over the shorter of their expected useful lives and the lease term. Deprecia-tion is not charged to an asset if its estimated residual value exceeds or is equal to its carrying amount. Depreciation of an asset ceases at the earlier of the date that the asset is classified as held for sale or derecognised.


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The assumptions regarding estimated useful lives of items of property, plant and equipment have been assessed as follows:

The residual value, useful life and depreciation method of each asset are reviewed at the end of each reporting year. If the expectations differ from previous estimates, the change is accounted for prospectively as a change in accounting estimate.

Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item is depreciated separately.

The depreciation charge for each year is recognised in profit or loss unless it is included in the carrying amount of an-other asset.

Impairment tests are performed on property, plant and equipment when there is an indicator that they may be im-paired. When the carrying amount of an item of property, plant and equipment is assessed to be higher than the estimated recoverable amount, an impairment loss is rec-ognised immediately in profit or loss to bring the carrying amount in line with the recoverable amount.

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are ex-pected from its continued use or disposal. Any gain or loss arising from the derecognition of an item of property, plant and equipment is included in profit or loss when the item is derecognised. Any gain or loss arising from the derecog-nition of an item of property, plant and equipment is de-

termined as the difference between the net disposal pro-ceeds, if any, and the carrying amount of the item.

1.7 Site restoration and dismantling costThe Company has an obligation to dismantle, remove and restore items of property, plant and equipment. Such ob-ligations are referred to as ‘decommissioning, restoration and similar liabilities’. The cost of an item of property, plant and equipment includes the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, the obligation for which an entity incurs either when the item is acquired or as a consequence of having used the item during a particular period for purposes other than to produce inventories during that period. These assets are individually considered and depreciated over the expected lease term rather than the actual lease contract.

The related asset is measured using the cost model:

• changes in the liability are added to, or deducted from, the cost of the related asset in the current period;

• if a decrease in the liability exceeds the carrying amount of the asset, the excess is recognised immediately in profit or loss; and

• if the adjustment results in an addition to the cost of an asset, the entity considers whether this is an indication

that the new carrying amount of the asset may not be fully recoverable. If it is such an indication, the asset is tested for

Item Depreciation method Average useful life

Assets under construction Straight line Not depreciated until asset is complete and in use

Buildings Straight line 30 – 100 years

Data processing equipment Straight line 3 – 8 years

Furniture and fixtures Straight line 3 – 12 years

Land Straight line Indefinite

Leasehold improvements Straight line Term of the lease

Motor vehicles Straight line 3 – 20 years

Machinery and equipment Straight line 3 – 20 years

Site restoration Straight line Expected term of the lease


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impairment by estimating its recoverable amount, and any impairment loss is recognised in profit or loss.

1.8 Intangible assetsIntangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortisa-tion and accumulated impairment losses. Amortisation is recognised on a straight-line basis over their estimated use-ful lives. The estimated useful life and amortisation method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. The Company does not have intangible assets with indefinite useful lives.

An intangible asset is recognised when:

• it is probable that the expected future economic ben-efits that are attributable to the asset will flow to the entity;and

• the cost of the asset can be measured reliably. Intangi-ble assets are initially recognised at cost.

An intangible asset arising from development (or from the development phase of an internal project) is recog-nised when:

• it is technically feasible to complete the asset so that it will be available for use or sale. there is an intention to complete and use or sell it.

• there is an ability to use or sell it• it will generate probable future economic benefits.

• there are available technical, financial and other re-sources to complete the development and to use or sell the asset.

• the expenditure attributable to the asset during its de-velopment can be measured reliably.

The amount initially recognised for internally-generated in-tangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recog-nition criteria listed above. Where no internally generated intangible asset can be recognised, development expendi-ture is recognised in profit or loss in the period in which it is incurred.

Expenditure on research activities is recognised as an ex-pense in the period in which it is incurred. The amortisation period and the amortisation method for intangible assets are reviewed regularly

Derecognition of intangible assets

An intangible asset is derecognised on disposal, or when no future economic benefits are expected from use or dis-posal. Gains or losses arising from derecognition of an in-tangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognised in profit or loss when the asset is derecognised.

Amortisation is provided to write down the intangible as-sets, on a straight line basis, to their residual values as fol-lows:

Item Useful life

Intangible assets under development Not amortised until asset is complete and in use

Licenses 1 – 3 years

Software 2 – 8 years

Software – personal computers 1 – 3 years


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1.9 Interests in subsidiaries

Company annual financial statements

In the Company’s separate annual financial statements, in-vestments in subsidiaries are carried at cost less any accu-mulated impairment.

The cost of an investment in a subsidiary is the aggregate of:

• the fair value, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the select entity; plus

• any costs directly attributable to the purchase of the subsidiary.

1.10 Financial instrumentsFinancial instruments held by the Group and Company are classified in accordance with the provisions of IFRS 9 Finan-cial Instruments.

Broadly, the classification possibilities, which are adopted by the Group and Company, as applicable, are as follows:

Financial assets which are equity instruments:

• Mandatorily at fair value through profit or loss; or• Designated as at fair value through other comprehen-

sive income. (This designation is not available to equity• Instruments which are held for trading or which are

contingent consideration in a business combination).

Financial assets which are debt instruments:

• Amortised cost. (This category applies only when the contractual terms of the instrument give rise, on speci-fied dates, to cash flows that are solely payments of principal and interest on principal, and where the instru-ment is held under a business model whose objective is met by holding the instrument to collect contractual cash flows);

• Fair value through other comprehensive income. (This category applies only when the contractual terms of the instrument give rise, on specified dates, to cash flows that are solely payments of principal and interest on principal, and where the instrument is held under a business model whose objective is achieved by both collecting contractual cash flows and selling the instru-ments); or

• Mandatorily at fair value through profit or loss. (This classification automatically applies to all debt instru-ments which do not qualify as at amortised cost or at fair value through other comprehensive income); or

Designated at fair value through profit or loss. (This clas-sification option can only be applied when it eliminates or significantly reduces an accounting mismatch).

Derivatives which are not part of a hedging relationship: Mandatorily at fair value through profit or loss.

Financial liabilities:

• Amortised cost; or• Mandatorily at fair value through profit or loss. (This ap-

plies to contingent consideration in a business combi-nation or to liabilities which are held for trading); or

• Designated at fair value through profit or loss. (This classification option can be applied when it eliminates or significantly reduces an accounting mismatch; the liability forms part of a group of financial instruments managed on a fair value basis; or it forms part of a con-tract containing an embedded derivative and the entire contract is designated as at fair value through profit or loss).

Note 45 Risk management presents the financial instru-ments held by the Group and Company based on their spe-cific classifications.

All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.

The specific accounting policies for the classification, rec-ognition and measurement of each type of financial instru-ment held by the Group and Company are presented below:

Trade and other receivables

Classification

Trade and other receivables, excluding, when applicable, VAT and prepayments, are classified as financial assets sub-sequently measured at amortised cost (Note 16).

It has been classified in this manner because the contrac-


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tual terms give rise, on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding, and the Group and Company’s business model is to collect the contractual cash flows on trade and other receivables.

Recognition and measurement

Trade and other receivables are recognised when the Group and Company becomes a party to the contractual provisions of the receivables. They are measured, at initial recognition, at fair value plus transaction costs, if any.

They are subsequently measured at amortised cost.

The amortised cost is the amount recognised on the receiv-able initially, minus principal repayments, plus cumulative amortisation (interest) using the effective interest method of any difference between the initial amount and the matu-rity amount, adjusted for any loss allowance.

Trade and other payables

Classification

Trade and other payable, excluding VAT and amounts re-ceived in advance, are classified as financial liabilities sub-sequently measured at amortised cost.

Recognition and measurement

They are recognised when the Group and Company be-comes a party to the contractual provisions, and are meas-ured, at initial recognition, at fair value plus transaction costs, if any.

They are subsequently measured at amortised cost using the effective interest method.

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating inter-est expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transac-tion costs and other premiums or discounts) through the expected life of the financial liability, or (where appropriate) a shorter period, to the amortised cost of a financial liability.

If trade and other payables contain a significant financing component, and the effective interest method results in the

recognition of interest expense, then it is included in profit or loss in finance costs.

Trade and other payables expose the Group and Company to liquidity risk and possibly to interest rate risk. Refer to Note 45 for details of risk exposure and management thereof.

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and de-mand deposits, and other sho||rt-term highly liquid invest-ments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These are initially and subsequently recorded at fair value.

bank overdraft and borrowings

Bank overdrafts and borrowings are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. Any difference be-tween the proceeds (net of transaction costs) and the set-tlement or redemption of borrowings is recognised over the term of the borrowings in accordance with the Group and Company’s accounting policy for borrowing costs.

Offsetting

Where a legally enforceable right of offsetting exists for rec-ognised financial assets and financial liabilities, and there is an intention to settle the liability and realise the asset si-multaneously, or to settle on a net basis, all related financial effects are offset. Otherwise it is not allowed.

1.11 TaxationCurrent tax assets and liabilities

Current tax for current and prior periods is, to the extent unpaid, recognised as a liability, If the amount already paid in respect of current and prior periods exceeds the amount due for those periods, the excess is recognised as an asset.

Current tax liabilities (assets) for the current and prior pe-riods are measured at the amount expected to be paid to (recovered from) the tax authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.


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Deferred tax assets and liabilities

A deferred tax liability is recognised for all taxable temporary differences, except to the extent that the deferred tax liabil-ity arises from: the initial recognition of an asset or liability in a transaction which:

• is not a business combination; and• at the time of the transaction, affects neither account-

ing profit nor taxable profit (tax loss).

A deferred tax liability is recognised for all taxable temporary differences associated with investments in subsidiaries and branches, except to the extent that both of the following conditions are satisfied:

• the parent, investor or venturer is able to control the timing of the reversal of the temporary difference; and

• it is probable that the temporary difference will not re-verse in the foreseeable future.

A deferred tax asset is recognised for all deductible tempo-rary differences to the extent that it is probable that taxable profit will be available against which the deductible tempo-rary difference can be utilised, unless the deferred tax asset arises from the initial recognition of an asset or liability in a transaction that:

• is not a business combination; and• at the time of the transaction, affects neither account-

ing profit nor taxable profit (tax loss).

A deferred tax asset is recognised for all deductible tem-porary differences arising from investments in subsidiaries, branches and associates, to the extent that it is probable that:

• the temporary difference will reverse in the foreseeable future; and

• taxable profit will be available against which the tempo-rary difference can be utilised.

A deferred tax asset is recognised for the carry forward of unused tax losses to the extent that it is probable that future taxable profit will be available against which the unused tax losses can be utilised.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the as-set is realised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively en-acted by the end of the reporting period.

Tax expenses

Current and deferred taxes are recognised as income or an expense and included in profit or loss for the period, except to the extent that the tax arises from a transaction or event which is recognised, in the same or a different period, to other comprehensive income.

Current tax and deferred taxes are charged or credited to other comprehensive income if the tax relates to items that are credited or charged, in the same or a different period, to other comprehensive income.

Current tax and deferred taxes are charged or credited di-rectly to equity if the tax relates to items that are credited or charged, in the same or a different period, directly in equity.

1.12 LeasesA lease is classified as a finance lease if it transfers sub-stantially all the risks and rewards incidental to ownership. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership.

Operating leases – lessor

Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term.

Operating leases – lessee

Operating lease payments are recognised as an expense on a straight-line basis over the lease term. The difference between the amounts recognised as an expense and the contractual payments are recognised as an operating lease asset. This asset is not discounted.

1.13 InventoriesInventories are measured at the lower of cost and net realis-able value.

Net realisable value is the estimated selling price in the ordi-nary course of business less the estimated costs of comple-tion and the estimated costs necessary to make the sale.

The cost of inventories comprises of all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition.


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The cost of inventories is assigned using the weighted av-erage cost formula. The same cost formula is used for all inventories having a similar nature and use to the entity.

When inventories are sold, the carrying amount of those inventories are recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realisable value, are recognised as a reduc-tion in the amount of inventories recognised as an expense in the period in which the reversal occurs.

1.14 Impairment of non-financial assets

The Group assesses at each end of the reporting period whether there is any indication that an asset may be im-paired. If any such indication exists, the Group estimates the recoverable amount of the asset.

The recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use.

If the recoverable amount of an asset is Jess than its car-rying amount, the carrying amount of the asset is reduced to its recoverable amount. That reduction is an impairment loss.

An impairment loss of assets carried at cost less any accu-mulated depreciation or amortisation is recognised imme-diately in profit or loss. Any impairment loss of a revalued asset is treated as a revaluation decrease.

An entity assesses at each reporting date whether there is any indication that an impairment loss recognised in prior periods for assets other than goodwill may no longer exist or may have decreased. If any such indication exists, the recoverable amounts of those assets are estimated.

The increased carrying amount of an asset attributable to a reversal of an impairment loss does not exceed the carrying amount that would have been determined had no impair-ment loss been recognised for the asset in prior periods.

A reversal of an impairment loss of assets carried at cost less accumulated depreciation or amortisation is recognised immediately in profit or loss. Any reversal of an impairment loss of a revalued asset is treated as a revaluation increase.

1.15 Share capital and equity

An equity instrument is any contract that evidences a re-sidual interest in the assets of an entity after deducting all of its liabilities.

1.16 Employee benefitsShort-term employee benefits

The cost of short term employee benefits, (those payable within 12 months after the service is rendered, such as paid vacation leave and sick leave, bonuses, and non-monetary benefits such as medical care), are recognised in the period in which the service is rendered and are not discounted.

The expected cost of compensated absences is recognised as an expense as the employees render services that in-crease their entitlement or, in the case of non-accumulating absences, when the absence occurs.

The expected cost of profit sharing and bonus payments is recognised as an expense when there is a legal or construc-tive obligation to make such payments as a result of past performance.

Defined contribution plans

Payments to defined contribution retirement benefit plans are charged as an expense as they fall due.

A defined contribution plan is a pension plan under which the Group pays fixed contributions. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. Contributions are recognised as an expense as incurred.

Defined benefit plans

A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. Defined benefit schemes are funded through payments to trustee adminis-tered funds, determined by periodic actuarial calculations.

The benefit costs and obligations under the defined benefit funds are determined separately for each fund using the projected unit credit method.


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The service cost and net interest on the net defined benefit liability or asset are recognised in profit or loss.

Where the benefits of a plan are amended or curtailed, the change in the present value of the net defined benefit ob-ligation relating to past service by the employees is recog-nised in profit or loss in the period of the amendment.

Past service costs are recognised immediately.

Remeasurements of the net defined benefit liability or as-set, comprising actuarial gains and losses, the effect of changes in the asset ceiling where applicable, and the re-turn on the plan assets other than interest are recognised in other comprehensive income in the period in which they arise.

The post-benefit obligation recognised in the statement of financial position represents the present value of the de-fined benefit obligation less the fair value of any plan assets. An asset resulting from this calculation is recognised only to the extent of any economic benefits available to the Post Office in the form of refunds or reductions in the future con-tributions (asset ceiling).

Actuarial gains or determined through annual actuarial valu-ations by independent consulting actuaries using the pro-jected unit credit method and remeasurements recognised as stated above.

1.17 Provisions and contingent liabilities

Provisions are recognised when:

• the Group has a present obligation as a result of a past event;

• it is probable that an outflow of resources embodying economic benefits will be required to settle the obliga-tion; and

• a reliable estimate can be made of the obligation.

The amount of a provision is the present value of the ex-penditure expected to be required to settle the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the pre-sent value of those cash flows (where the effect of the time value of money is material).

When some or all of the economic benefits required to set-tle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably

Provisions are not recognised for future operating losses.

If an entity has a contract that is onerous, the present ob-ligation under the contract shall be recognised and meas-ured as a provision. A provision for onerous contracts is rec-ognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract.

Management applies its judgment to the fact of patterns and advice it receives from its attorneys, advocates and oth-er advisors in assessing if an obligation is probable, more likely than not, or remote. This judgment application is used to determine if the obligation is recognised as a liability or disclosed as a contingent liability.

Contingent assets and contingent liabilities are not recog-nised.

1.18 Government grantsGovernment grants are recognised when there is reason-able assurance that;

• the Group will comply with the conditions attaching to them;

• and the grants will be received.

These are included in subsidy received in advance until they are utilised.

Government grants are recognised as income over the pe-riods necessary to match them with the related costs that they are intended to compensate for.

Government grants are recognised in profit or loss on a sys-tematic basis over the periods in which the Group recog-nises as expenses the related costs for which the grants are intended to compensate. Specifically, government grants whose primary condition is that the Group should purchase, construct or otherwise acquire non-current assets are rec-ognised as deferred revenue in the statement of financial position and transferred to profit or loss on a systematic and rational basis over the useful lives of the related assets.

A government grant that becomes receivable as compen-sation for expenses or losses already incurred or for the purpose of giving immediate financial support to the entity


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with no future related costs is recognised as income of the period in which it becomes receivable.

Government grants related to assets, including non-mone-tary grants at fair value, are presented in the statement of financial position by setting up the grant as deferred income or by deducting the grant in arriving at the carrying amount of the asset.

Grants related to income are deducted from the related ex-pense.

1.19 ComparativesDuring the financial year the Group elected to present the costs recognised in the statement of profit and loss in the format of the management results as this is considered to provide more reliable and relevant information. The com-parative figures were also adjusted accordingly.

1.20 Borrowing costsBorrowing costs that are directly attributable to the acqui-sition, construction or production of a qualifying asset are capitalised as part of the cost of that asset until such time as the asset is ready for its intended use. The amount of borrowing costs eligible for capitalisation is determined as follows:

• Actual borrowing costs on funds specifically borrowed for the purpose of obtaining a qualifying asset less any temporary investment of those borrowings.

• Weighted average of the borrowing costs applicable to the entity on funds generally borrowed for the purpose of obtaining a qualifying asset. The borrowing costs capitalised do not exceed the total borrowing costs in-curred.

The capitalisation of borrowing costs commences when: expenditures for the asset have occurred;

• borrowing costs have been incurred, and • activities that are necessary to prepare the asset for its

intended use or sale are in progress.

Capitalisation is suspended during extended periods in which active development is interrupted.

Capitalisation ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete.

All other borrowing costs are recognised as an expense in the period in which they are incurred.

1.21 Translation of foreign currenciesForeign currency transactions

A foreign currency transaction is recorded, on initial recogni-tion in Rands, by applying to the foreign currency amount the spot exchange rate between the functional currency and the foreign currency at the date of the transaction.

At the end of the reporting period:

• foreign currency monetary items are translated using the closing rate;

• non-monetary items that are measured in terms of his-torical cost in a foreign currency are translated using the exchange rate at the date of the transaction; and

• non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recogni-tion during the period or in previous separate and consoli-dated annual financial statements are recognised in profit or loss in the period in which they arise.

When a gain or loss on a non-monetary item is recognised to other comprehensive income and accumulated in equity, any exchange component of that gain or loss is recognised to other comprehensive income and accumulated in equity. When a gain or loss on a non-monetary item is recognised in profit or loss, any exchange component of that gain or loss is recognised in profit or loss.

Cash flows arising from transactions in a foreign currency are recorded in Rands by applying to the foreign currency amount the exchange rate between the Rand and the for-eign currency at the date of the cash flow.

1.22 IFRS 15 Revenue from contracts with customers

Revenue recognition

Revenue from contracts with customers is applied using a single model which is a five step-Model. The five-step mod-el consist of the following steps:


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• Identify the contract(s) with a customer• Identify the separate performance obligations (PO) in

the contract• Determine the transaction price• Allocate the transaction price to the separate perfor-

mance obligations (PO)• Recognise revenue when the entity satisfies a perfor-

mance obligations (PO)

Revenue is recognised when (or as) the entity satisfies a performance obligation by transferring a promised good or services (i.e an asset) to a customer. An asset is transferred when (or as) the customer obtains control of that asset.

An entity transfers control of a good or service over time and, therefore, satisfies a performance obligation and rec-ognises revenue over time, if one of the following criteria is met:

a) the customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs;

b) the entity’s performance creates or enhances an asset (for example, work in progress) that the customer controls as the asset is created or enhanced; or

c) the entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforce-able right to payment for performance completed to date.

If a performance obligation is not satisfied over time in accordance with the above, an entity satisfies the perfor-mance obligation at a point in time.

Measurement

When (or as) a performance obligation is satisfied, Post Of-fice recognise as revenue the amount of the transaction price (which excludes estimates of variable consideration that are constrained) that is allocated to that performance obligation.

bulk mail revenue

Bulk-mail is a mail sorting and delivery service offered to customers with large mailing lists such as retail clothing companies. Bulk-mail revenue also include bulk parcels. Revenue from bulk-mail services is recognised at a point in time upon delivery of the mail to its destination (Postbox or physical address).The time of delivery is based on our mail delivery performance statistics. Bulk-mail revenue also includes collection services that is recognized at a point in time after collection.

Franking mail revenue

Franking refers to any devices, markings, or combinations thereof (“franks”) applied to mails of any class which quali-fies them to be postally serviced. Franking mail revenue is recognized at a point in time when the mail is delivered to its destination. The time of delivery is based on our mail de-livery performance statistics. Franking mail revenue also in-clude license fees. License revenue is recognised at a point in time when Post Office and the customer becomes par-ties to a contract because the over time criteria are not met.

Hybrid mail revenue

Hybrid mail involves digital data being transformed into physical letter items at distribution print centres located as close as possible to the final delivery addresses. Hybrid mail revenue is recognised at a point in time when the mail is delivered to its destination (Postbox or physical address).

Photocopy, scan, printing and fax revenue

Revenue is recognised at a point in time when the prom-ised goods/services (making photocopies, printing, scan-ning documents and faxing documents) are transferred to the customer.

box revenue

These are amounts paid by customers for the rental of pri-vate post boxes (2nd postal addresses).The key deposit amount is recognised as a refund liability because it is re-fundable upon cancellation by the customer. Revenue is recognised on an accrual basis over the rented period. Box revenue also include the sale of locks which is recognized at a point in time when keys are transferred to customers.

Registered and domestic letters revenue

Registered letters are postal services in which a receipt is issued to the sender of a mail and the mail’s destination ad-dress is recorded in a register. Upon its delivery, the recipi-ent’s signatures are taken on a form as proof of delivery to the specified addressee. Domestic letters will be delivered without any signature or receipt taken by the recipient and cannot be tracked. In case the addressee is not found, the mail is returned to the sender. Registered and domestic let-ter revenue is recognised at a point in time when the letter is delivered to its destination. The time of delivery is based on our mail delivery performance statistics.


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Agency revenue

Agency revenue is commission due to Post Office for col-lecting money on behalf of 3rd parties. Revenue from ren-dering of agency services is recognised at a point in time when funds collected are transferred to the customers.

Sale of philatelic products

Philatelic products are stamps or any other product issued during the year to commemorate special events in the coun-try. Revenue is recognised at a point in time when the prom-ised goods/services (sale of philatelic products) revenue are transferred to the customer. Philately revenue also includes the sale of stamps used for postal services which is recog-nised at a point in time when letters reach their destination. The time of delivery is based on our mail delivery perfor-mance statistics.

Retail revenue

Retail revenue includes sale of airtime, scanning services and other products. Revenue is recognised at a point in time when the promised goods/services are transferred to the customer.

Courier service revenue

Courier services refers to parcel/mail delivery. Revenue from courier services is recognised at a point in time when the parcel/mail is delivered to its destination. The time of de-livery is based on our mail delivery performance statistics.

Expedited Mail Service (EMS) revenue

Expedited Mail Service is an international priority mail ser-vice that provides a fast and reliable door to door service for the dispatch of urgent goods as tender documents, busi-ness papers, merchandise and samples. EMS revenue is recognised at a point in time upon delivery of the parcel to its intended destination. The time of delivery is based on our mail delivery performance statistics.

Terminal and transit dues (International revenue)

Terminal dues are amounts due to Post Office Limited for mail received from foreign postal administrators whose destination is South Africa. Transit dues are amounts due from international postal administrators for international mail which passes through Post Office Ltd in transit to its destination out of South Africa. Revenue from terminal and

transit dues is recognised once the mail has been delivered to its destination in the case of terminal dues, and once it has been sent off to its next stop with regard to the latter. The time of delivery is based on our mail delivery perfor-mance statistics.

Stamps and envelope revenue

Stamp and envelope revenue is the sale of stamps and envelopes that will be used by customers when they post letters. Revenue from sale of stamps and envelopes is rec-ognised at a point in time when the mail is delivered to its destination. The time of delivery is based on our mail deliv-ery performance statistics.

Service charges

Service charges income is the revenue taken in by Postbank from account-related charges to customers. These charges often relates to charges in respect of personal current ac-count and they include monthly charges for the provision of an account. Therefore revenue from service charges is recognised at a point in time (transactional fees) when the customer makes use of the account and over time (normal provision of an account) when the bank account is kept ac-tive.

Delivery address check revenue

This is the commission received from the postal address management service suppliers. The Postal Address Man-agement Service Suppliers (PAMSS) is a group of compa-nies who offer address quality checking services to cus-tomers on behalf of the entity. Revenue from licenses is recognised at a point in time when Post Office and cus-tomer become party to a contract. The license does not limit the number of records customers should perform quality checks on. For Commission and certification administration revenue, the performance obligation is satisfied at a point in time when Post Office provides the PAMSS (Client) with the certification to confirm that address quality checks were performed.

business reply service revenue

With the BRS, businesses can offer their customer or pro-spective customers the incentive to reply without having to pay postage. Revenue from licenses will be recognised at a point in time when Post Office and customer become par-ties to a contract because the over time criteria are not met. The license does not limit the number of letters customers


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send to their addressees. BRS revenue also includes sale of envelopes for addressee to reply to customers. Revenue from the sale of envelopes is recognised at a point in time when envelopes are sold to customers.

Subscription fees

Subscription fee revenue is recognised on an accrual basis over the contract period.

bar code roll revenue

Revenue is recognised at a point in time when the promised goods are transferred to the customer.

Secure mail revenue

This is the service provides a water-tight and cost effective security for credit cards, retail cards, share certificates, cell-phones or any other item of value using advanced technol-ogy. Secure mail revenue is recognised at a point in time when the mail/parcel is delivered to its destination. The time of delivery is based on our mail delivery performance sta-tistics.


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Notes to the Consolidated Financial Statements Accounting Policies2. Changes in accounting policy

The separate and consolidated annual financial statements have been prepared in accordance with International Finan-cial Reporting Standards on a basis consistent with the prior year except for the adoption of the following new or revised standards.

Application of IFRS 9 Financial Instruments

In the current year, the Group has applied IFRS 9 Financial Instruments (as revised in July 2 014) and the related con-sequential amendments to other IFRSs. IFRS 9 replaces lAS 39 Financial Instruments and introduces new requirements for 1) the classification and measurement of financial assets and financial liabilities, 2) impairment for financial assets and 3) general hedge accounting. Details of these new require-ments as well as their impact on the Group’s financial state-ments are described below.

The Group has applied IFRS 9 in accordance with the transi-tion provisions set out in IFRS 9.

Additionally, the Group has adopted consequential amend-ments to IFRS 7 Financial Instruments: Disclosures that are applied to disclosures about 2019 but have not been gener-ally applied to comparative information.

Recognition and initial measurement

Trade receivables and debt securities issued are initially recognised when they are originated. All other financial as-sets and financial liabilities are initially recognised when the Group becomes a party to the contractual provisions of the instrument.

A financial asset (unless it is a trade receivable without a significant financing component) or financial liability is ini-tially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisi-tion or issue. A trade receivable without a significant financ-ing component is initially measured at the transaction price.

Classification and measurement of financial assets

The date of initial application (i.e. the date on which the com-pany has assessed its existing financial assets and financial liabilities in terms of the requirements of IFRS 9) is 1 March 2018. Accordingly, the Group has applied the requirements of IFRS 9 to instruments that have not been derecognised as at 1 March 2018 and has not applied the requirements to instruments that have already been derecognised as at 1 March 2018. Comparatives in relation to instruments that

have not been derecognised as at 1 March 2018 have not been restated.

All recognised financial assets that are within the scope of IFRS 9 are required to be subsequently measured at amor-tised cost or fair value on the basis of the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets.

The measurement requirements are summarised below:

Debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal amount outstanding, are subsequently measured at amortised cost.

Debt investments that are held within a business model whose objective is both to collect the contractual cash flows and to sell the debt instruments, and that have con-tractual cash flows that are solely payments of principal and interest on the principal amount outstanding, are subse-quently measured at fair value through other comprehen-sive income.

All other debt investments and equity investments are sub-sequently measured at fair value through profit or loss, un-less specifically designated otherwise.

All other debt investments and equity investments are sub-sequently measured at fair value through profit or loss, un-less specifically designated otherwise.

The Group may irrevocably designate a debt investment that meets the amortised cost or fair value through other comprehensive income criteria as measured at fair value through profit or loss if doing so eliminates or significantly reduces an accounting mismatch.

When a debt investment measured at fair value through other comprehensive income is derecognised, the cumu-lative gain or loss previously recognised in other compre-hensive income is reclassified from equity to profit or loss as a reclassification adjustment. In contrast, for an equity investment designated as measured at fair value through other comprehensive income, the cumulative gain or loss previously recognised in other comprehensive income is not subsequently reclassified to profit or loss.

Debt instruments that are subsequently measured at am-ortised cost or at fair value through other comprehensive income are subject to new impairment provisions using an

106


expected loss model. This contrasts the incurred loss model of lAS 39.

The directors reviewed and assessed the Group’s existing financial assets as at 1 March 2018 based on the facts and circumstances that existed at that date and concluded that the initial application of IFRS 9 has had the following impact on the Group’s financial assets as regards to their classifica-tion and measurement:

Impairment of financial assets

In relation to the impairment of financial assets, IFRS 9 re-quires an expected credit loss model as opposed to an in-curred credit loss model under lAS 39. The expected credit loss model requires the company to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition of the financial assets. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognised.

Specifically, IFRS 9 requires the Group to recognise a loss allowance for expected credit losses on debt investments subsequently measured at amortised cost or at fair value through other comprehensive income, lease receivables, contract assets and loan commitments and financial guar-antee contracts to which the impairment requirements of IFRS 9 apply. In particular, IFRS 9 requires the Group to measure the loss allowance for a financial instrument at an amount equal to the lifetime expected credit losses if the credit risk on that financial instrument has increased signifi-cantly since initial recognition, or if the financial instrument is a purchased or originated credit-impaired financial asset. On the other hand, if the credit risk on a financial instru-ment has not increased significantly since initial recogni-tion (except for a purchased or originated credit impaired financial asset), the Group is required to measure the loss allowance for that financial instrument at an amount equal to 12 months expected credit losses. IFRS 9 also provides a simplified approach for measuring the loss allowance at an amount equal to lifetime expected credit losses for trade receivables, contract assets and lease receivables in certain circumstances.

The additional loss allowance is charged against the respec-tive asset or provision for financial guarantee, except for the investments at fair value through other comprehensive in-come, the loss allowance for which is recognised against the reserve in equity. The application of the IFRS 9 impair-ment requirements has resulted in additional loss allowance of R16 million to be recognised in the current year.

Classification and measurement of financial liabilities

One major change introduced by IFRS 9 in the classifica-tion and measurement of financial liabilities relates to the accounting for changes in the fair value of a financial liability designated as at FVTPL attributable to changes in the credit risk of the issuer.

Specifically, IFRS 9 requires that the changes in the fair value of the financial liability that is attributable to changes in the credit risk of that liability be presented in other com-prehensive income, unless the recognition of the effects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss.

Changes in fair value attributable to a financial liability’s credit risk are not subsequently reclassified to profit or loss, but are instead transferred to retained earnings when the financial liability is derecognised. Previously, under lAS 39, the entire amount of the change in the fair value of the fi-nancial liability designated as at FVTPL was presented in profit or loss.

Apart from the above, the application of IFRS 9 has had no impact on the classification and measurement of the Group’s financial liabilities.

Financial assets – business model assessment:

The Group makes an assessment of the objective of the business model in which a financial asset is held at a portfo-lio levels because this best reflects the way the business is managed and information is provided to management. The information considered includes:

• the stated policies and objectives for the portfolio and the operation of those policies in practice. These include whether management’s strategy focuses on earning contractual interest income, maintaining a par-ticular interest rate profile, matching the duration of the financial assets to the duration of any related liabili-ties or expected cash outflows or realising cash flows through the sale of the assets;

• how the performance of the portfolio is evaluated and reported to the Group’s management;

• the risks that affect the performance of the business model (and the financial assets held within that busi-ness model) and how those risks are managed;

• how managers of the business are compensated – e.g. whether compensation is based on the fair value of the

• assets m4anaged or the contractual cash flows


107



collected; and• the frequency, volume and timing of sales of financial

assets in prior periods, the reasons for such sales and expectations about future sales activity.

Transfers of financial assets to third parties in transactions that do not qualify for derecognition are not considered sales for this purpose, consistent with the Group’s continu-ing recognition of the assets. Financial assets that are held for trading or are managed and whose performance is evalu-ated on a fair value basis are measured at FVTPL.

Financial assets – Assessment whether contractual cash flows are solely payments of principal and interest:

For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset on initial recognition.

‘Interest’ is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as a profit margin.

In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms of the instrument. This includes assess-ing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making this assessment, the Group considers:

• contingent events that would change the amount or timing of cash flows;

• terms that may adjust the contractual coupon rate, in-cluding variable-rate features;

• prepayment and extension features; and• terms that limit the Group’s claim to cash flows from

specified assets (e.g. non-recourse features).

A prepayment feature is consistent with the solely pay-ments of principal and interest criterion if the prepayment amount substantially represents unpaid amounts of princi-pal and interest on the principal amount outstanding, which may include reasonable additional compensation for early termination of the contract. Additionally, for a financial as-set acquired at a discount or premium to its contractual par amount, a feature that permits or requires prepayment at an amount that substantially represents the contractual par amount plus accrued (but unpaid) contractual interest (which may also include reasonable additional compensa-tion for early termination) is treated as consistent with this

criterion if the fair value of the prepayment feature is insig-nificant at initial recognition.

Financial assets – Subsequent measurement and gains and losses: Financial assets at FVTPL

These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognised in profit or loss. However, see Note 36 for derivatives designated as hedging instruments.

Financial assets at amortised cost

These assets are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses. Interest income, foreign ex-change gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recog-nised in profit or loss.

Derecognition

Financial assets

The Group derecognises a financial asset when the contrac-tual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are trans-ferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.

The Group derecognises a financial asset when the contrac-tual rights to the cash flows from the financial asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all of the risks and rewards of ownership of the financial asset are trans-ferred or in which the Group neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.

Financial liabilities

The Group derecognises a financial liability when its con-tractual obligations are discharged or cancelled, or expire. The Group also derecognises a financial liability when its terms are modified and the cash flows of the modified liabil-ity are substantially different, in which case a new financial liability based on the modified terms is recognised at fair value. On derecognition of a financial liability, the difference between the carrying amount extinguished and the consid-

108



eration paid (including any non-cash assets transferred or liabilities assumed) is recognised in profit or loss.

Offsetting

Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group currently has a legally en-forceable right to set off the amounts and it intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.

Impairment of financial assets

IFRS 9 replaces the ‘incurred loss’ model in lAS 39 with an ‘expected credit loss’ (ECL) model. The new impairment model applies to financial assets measured at amortised cost, contract assets and debt investments at FVOCI, but not to investments in equity instruments. Under IFRS 9, credit losses are recognised earlier than under lAS 39 – see Note 45.

Application of IFRS 15 Revenue from contracts with customers

In the current year, the group has applied IFRS 15 Revenue from Contracts with Customers (as revised in April 2 016) and the related consequential amendments to other IFRSs. IFRS 15 replaces lAS 11 Construction Contracts, lAS 18 Revenue, IFRIC 13 Customer Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from Customers and SIC-31 Reve-

nue-Barter Transactions Involving Advertising Services.

IFRS 15 introduces a 5-step approach to revenue recogni-tion. Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios. Details of these new re-quirements as well as their impact on the group financial statements are described below. Refer to the revenue ac-counting policy for additional details.

The group has applied IFRS 15 with an initial date of applica-tion of 01 April 2018 in accordance with the fully retrospec-tive transitional approach, by recognising the cumulative effect of initially applying IFRS 15 as an adjustment to the opening balance of equity at 01 April 2018. The comparative information has therefore not been restated.

Based on the transition assessment performed by the group, there were no material changes relating to revenue recognition and measurement resulting from the application of IFRS 15.

109


Notes to the Consolidated Financial Statements Accounting Policies3. New Standards and Interpretations

3.1 Standards and interpretations not yet effective

The following standards and interpretations have been pub-lished and are mandatory for the group’s accounting periods beginning on or after 01 April 2019 or later periods but are not relevant to its operations:

IFRS 16 Leases

IFRS 16 Leases is a new standard which replaces lAS 17 Leases, and introduces a single lessee accounting model. The main changes arising from the issue of IFRS 16 which are likely to impact the group are as follows:

group as lessee:

• Lessees are required to recognise a right-of-use asset and a lease liability for all leases, except short term leases or leases where the underlying asset has a low value, which are expensed on a straight line or other systematic basis.

• The cost of the right-of-use asset includes, where ap-propriate, the initial amount of the lease liability; lease payments made prior to commencement of the lease less incentives received; initial direct costs of the les-see; and an estimate for any provision for dismantling, restoration and removal related to the underlying asset.

• The lease liability takes into consideration, where ap-propriate, fixed and variable lease payments; residual value guarantees to be made by the lessee; exercise price of purchase options; and payments of penalties for terminating the lease.

• The right-of-use asset is subsequently measured on the cost model at cost less accumulated depreciation and impairment and adjusted for any re-measurement of the lease liability. However, right-of-use assets are measured at fair value when they meet the definition of investment property and all other investment property is accounted for on the fair value model. If a right-of-use asset relates to a class of property, plant and equipment which is measured on the revaluation model, then that right-of-use asset may be measured on the revaluation model.

• The lease liability is subsequently increased by interest, reduced by lease payments and re-measured for reas-sessments or modifications.

• Re-measurements of lease liabilities are affected against

right-of-use assets, unless the assets have been reduced to nil, in which case further adjustments are recognised in profit or loss.

• The lease liability is re-measured by discounting revised payments at a revised rate when there is a change in the lease term or a change in the assessment of an op-tion to purchase the underlying asset.

• The lease liability is re-measured by discounting revised lease payments at the original discount rate when there is a change in the amounts expected to be paid in a residual value guarantee or when there is a change in future payments because of a change in index or rate used to determine those payments.

• Certain lease modifications are accounted for as sepa-rate leases. When lease modifications which decrease the scope of the lease are not required to be accounted for as separate leases, then the lessee re-measures the lease liability by decreasing the carrying amount of the right of lease asset to reflect the full or partial termina-tion of the lease. Any gain or loss relating to the full or partial termination of the lease is recognised in profit or loss. For all other lease modifications which are not required to be accounted for as separate leases, the lessee re measures the lease liability by making a cor-responding adjustment to the right-of-use asset.

• Right-of-use assets and lease liabilities should be pre-sented separately from other assets and liabilities. If not, then the line item in which they are included must be disclosed. This does not apply to right-of-use assets meeting the definition of investment property which must be presented within investment property. IFRS 16 contains different disclosure requirements compared to lAS 17 leases.

group as lessor:

• Accounting for leases by lessors remains similar to the provisions of lAS 17 in that leases are classified as ei-ther finance leases or operating leases. Lease classifi-cation is reassessed only if there has been a modifica-tion.

• A modification is required to be accounted for as a sep-arate lease if it both increases the scope of the lease by adding the right to use one or more underlying assets; and the increase in consideration is commensurate to the stand alone price of the increase in scope.

• If a finance lease is modified, and the modification would not qualify as a separate lease, but the lease would have been an operating lease if the modification was in effect from inception, then the modification is accounted for as a separate lease. In addition, the car-

110



rying amount of the underlying asset shall be measured as the net investment in the lease immediately before the effective date of the modification. IFRS 9 is applied to all other modifications not required to be treated as a separate lease.

• Modifications to operating leases are required to be ac-counted for as new leases from the effective date of the modification. Changes have also been made to the disclosure requirements of leases in the lessor’s finan-cial statements.

Sale and leaseback transactions:

• In the event of a sale and leaseback transaction, the requirements of IFRS 15 are applied to consider wheth-er a performance obligation is satisfied to determine whether the transfer of the asset is accounted for as the sale of an asset.

• If the transfer meets the requirements to be recognised as a sale, the seller-lessee must measure the new right of-use asset at the proportion of the previous carrying amount of the asset that relates to the right-of-use re-tained. The buyer-lessor accounts for the purchase by applying applicable standards and for the lease by ap-plying IFRS 16.

• If the fair value of consideration for the sale is not equal to the fair value of the asset, then IFRS 16 requires ad-justments to be made to the sale proceeds. When the transfer of the asset is not a sale, then the seller-lessee

continues to recognise the transferred asset and recog-nises a financial liability equal to the transfer proceeds. The buyer-lessor recognises a financial asset equal to the transfer proceeds.

The effective date of the standard is for years beginning on or after 01 January 2019.

The group expects to adopt the standard for the first time in the 2 020 separate and consolidated annual financial state-ments.

Other standards

• IFRIC 23 (Uncertainty over Income Tax Treatments)• Conceptual framework – effective date: 1 January 2020• lAS 23 (Amendments resulting from Annual

Improvements 2015 – 2017 Cycle (borrowing costs eligible for capitalisation) – effective date:1 January 2019

• lAS 12 (Amendments resulting from Annual Improvements 2015 – 2017 Cycle (income tax consequences of dividends) – Effective date 1 January 2019

• lAS 1 & 8 (Amendments regarding the definition of materiality) – Effective date:1 January 2020

• lAS 19 (Amendments regarding plan amendments, curtailments or settlements) – Effective date 1 January 2019.

111



4. Property, plant and equipment

group 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Cost or revaluation

Accumulated depreciation

Carrying value

Cost or revaluation


Carrying value

Land 609 065 - 609 065 609 064 - 609 064

Buildings 1 467 663 (119 355) 1 348 308 1 460 902 (69 538) 1 391 364

Machinery and equipment 388 994 (330 113) 58 881 381 132 (322 241) 58 891

Furniture and fittings 61 644 (43 202) 18 442 61 210 (41 652) 19 558

Motor vehicles 54 346 (30 972) 23 374 54 712 (29 448) 25 264

Data processing equipment 559 982 (414 749) 145 233 475 812 (381 474) 94 338

Leasehold improvements 344 051 (322 411) 21 640 345 025 (316 157) 28 868

Assets under construction 2 720 - 2 720 2 616 - 2 616

Site restoration 74 854 (50 788) 24 066 132 675 (96 603) 36 072

Total 3 563 319 (1 311 590) 2 251 729 3 523 148 (1 257 113) 2 266 035

Company 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Cost or revaluation


Carrying value

Cost or revaluation


Carrying value

Land 609 065 - 609 065 609 064 - 609 064

Buildings 1 467 663 (119 355) 1 348 308 1 460 902 (69 538) 1 391 364

Machinery and equipment 363 443 (304 737) 58 706 353 459 (294 868) 58 591

Furniture and fittings 59 004 (40 605) 18 399 58 570 (39 078) 19 492

Motor vehicles 33 323 (12 205) 21 118 33 323 (10 360) 22 963

Data processing equipment 546 796 (402 422) 144 374 462 751 (369 827) 92 924

Leasehold improvements 343 459 (321 824) 21 635 344 433 (315 573) 28 860

Assets under construction 2 720 - 2 720 2 616 - 2 616

Site restoration 73 334 (50 788) 22 546 131 076 (96 603) 34 473

Total 3 498 807 (1 251 936) 2 246 871 3 456 194 (1 195 847) 2 260 347

112



4. Property, plant and equipment (continued)

Reconciliation of property, plant and equipment – group – 2019

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Opening balance

Additions Retire-ments

Transfers Change in estimate

Deprecia-tion

Total

Land 609 064 - - - - - 609 065

Buildings 1 391 364 7 254 (342) (49 968) 1 348 308

Machinery and equipment 58 891 11 475 (169) - 437 (11 753) 58 881

Furniture and fittings 19 558 987 (32) (2 071) 18 442

Motor vehicles 25 264 - (43) - - (1 847) 23 374

Data processing equipment 94 338 88 173 (239) 2 883 (39 922) 145 233

Leasehold improvements 28 868 - (241) - 581 (7 568) 21 640

Assets under construction 2 616 105 - - (1) - 2 720

Site restoration 36 072 72 023 (14 124) - (11 245) (58 660) 24 066

2 266 035 180 017 (14 848) (342) (7 345) (171 789) 2 251 729

Reconciliation of property, plant and equipment – group – 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Opening balance



Deprecia-tion

Total

Land 630 314 - - (21 250) - - 609 064

Buildings 1 476 672 8 (117) (31 222) - (53 977) 1 391 364

Machinery and equipment 71 892 854 (418) - - (13 437) 58 891

Furniture and Fittings 21 541 136 (98) - - (2 021) 19 558

Motor vehicles 27 019 - - - - (1 755) 25 264

Data processing equipment 49 350 63 994 (224) - - (18 782) 94 338

Leasehold improvements 36 705 - (1) - - (7 836) 28 868

Assets under construction 1 167 4 110 (2 661) - - 2 616

Site restoration 10 220 32 089 (1 934) 6 492 (890) (9 905) 36 072

2 324 880 101 191 (2 792) (48 641) (890) (107 713) 2 266 035

113




Reconciliation of property, plant and equipment – Company – 2019

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Opening balance



Deprecia-tion

Total

Land 609 064 - - - - - 609 065

Buildings 1 391 364 7 254 - (342) - (49 968) 1 348 308

Machinery and equipment 58 591 11 475 (168) - 437 (11 629) 58 706

Furniture and fittings 19 492 987 (32) - - (2 048) 18 399

Motor vehicles 22 963 - - - - (1 845) 21 118

Data processing equipment 92 924 88 041 (239) - 2 883 (39 235) 144 374

Leasehold improvements 28 860 - (241) - 582 (7 566) 21 635

Assets under construction 2 616 105 - - (1) - 2 720

Site restoration 34 473 72 023 (14 124) - (11 166) (58 660) 22 546

2 260 347 179 885 (14 804) (342) (7 265) (170 951) 2 246 871

Reconciliation of property, plant and equipment – Company – 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Opening balance



Deprecia-tion

Total

Land 630 314 - - (21 250) - - 609 064

Buildings 1 476 578 8 (116) (31 129) - (53 977) 1 391 364

Machinery and equipment 70 961 854 (260) - - (12 964) 58 591

Furniture and fittings 21 455 136 (97) - - (2 002) 19 492

Motor vehicles 24 808 - - - - (1 845) 22 963

Data processing equipment 47 446 63 908 (211) - - (18 219) 92 924

Leasehold improvements 36 692 - (1) - - (7 831) 28 860

Assets under construction 1 167 4 110 - (2 661) - - 2 616

Site restoration 7 731 32 089 (1 934) - 6 492 (9 905) 34 473

2 317 152 101 105 (2 619) (55 040) 6 492 (106 743) 2 260 347

Property, plant and equipment encumbered as security

No property, plant and equipment has been pledged as security for liabilities.

114




Changes in estimates

The Group reassesses the useful lives and residual values of items of property, plant and equipment at the end of the reporting period, in line with the accounting policy and lAS 16 Property, plant and equipment. These assessments are based on historic analysis, benchmarking and the latest available and reliable information.

borrowing costs capitalised

There were no borrowing costs that required capitalisation during the period.

Fair value

Land and buildings are carried at revaluation model, the fair values were obtained from an independent valuer.

Further disclosure on fair value information as it relates to land and buildings is provided in note 47.

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Fair value of land and buildings 2 013 949 2 300 836 1 937 941 2 224 734

115



group and company reconciliation – 2019 Cost Accumulated depreciation

Carrying value

R ‘ 000 R ‘ 000 R ‘ 000

Buildings 90 502 (27 677) 62 825

Data processing equipment 180 (180) -

Furniture and fixtures 206 (206) -

Leasehold improvements 275 895 (275 006) 889

Machinery and equipment 103 344 (72 280) 31 064

Motor vehicles 490 (490) -

Total PPE by means of government grants 470 617 (375 839) 94 778

group and company reconciliation – 2019 Cost Accumulated depreciation

Carrying value

R ‘ 000 R ‘ 000 R ‘ 000

Buildings 90 502 (27 677) 62 825

Data processing equipment 180 (180) -

Furniture and fixtures 206 (206) -

Leasehold improvements 275 963 (275 075) 888

Machinery and equipment 103 344 (72 280) 31 064

Motor vehicles 490 (490) -

Total PPE by means of government grants 470 685 (375 908) 94 777

Properties not recognised at year end

During the split of South African Post Office and Telkom, some assets were not allocated to either of the entities. An assessment to determine Post Office’s interest in these as-sets is underway. It was impractical for Post Office to quan-tify the value of these assets as at year end.

Property, plant and equipment obtained by means of government grants

The following assets that are financed through project spe-cific funding are recorded in the asset register and included therein at R1 in accordance with the accounting policy for government grants. If these had been recorded at cost and depreciated over their useful lives, their carrying value would be as follows:


116



5. Investment property (continued)

group 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Cost/ValuationAccumulated depreciation

Carrying value Cost/ValuationAccumulated depreciation

Carrying value

Investment property 283 548 - 283 548 280 202 - 280 202

Company 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Cost/ValuationAccumulated depreciation

Carrying value Cost/ValuationAccumulated depreciation

Carrying value

Investment property 195 493 - 195 493 192 147 - 192 147

Reconciliation of investment property – group – 2019

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Opening balance Additions Transfers Total

Investment property 280 202 3 004 342 283 548

Reconciliation of investment property – group – 2018

R ‘ 000 R ‘ 000 R ‘ 000

Opening balance Transfers Total

Investment property 225 163 55 039 280 202

Reconciliation of investment property – Company – 2019

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Opening balance Additions Transfers Total

Investment property 192 147 3 004 342 195 493

Reconciliation of investment property – Company – 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Opening balance Transfers Total

Investment property - 137 108 55 039 192 147

Fair value of investment properties

205 577 203 684 193 530 191 637

The fair values of investment properties were obtained from an independent valuer.

Further disclosure on fair value information as it relates to investment property is provided in note 47 below.

117



Pledged as security

No investment property has been pledged as security for liabilities.

Investment property obtained by means of govern-ment grants

The following assets that are financed through project

specific funding are recorded in the asset register and in-cluded therein at R1 in accordance with the accounting policy for government grants.

If these had been recorded at cost and depreciated over their useful lives, their carrying value would be as follows:

group and company reconciliation 2019

CostAccumulated depreciation

Carrying value

R’ 000 R ‘ 000 R’ 000

Investment property 217 (62) 155

group and company reconciliation 2018

CostAccumulated depreciation

Carrying value

R ‘ 000 R ‘ 000 R ‘ 000

Investment property 217 (62) 155

5. Investment property (continued)

118



6. Heritage assets

group 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Cost/Valuation


Carrying valueCost/

ValuationAccumulated depreciation

Carrying value

Work of art 7 697 - 7 697 7 697 - 7 697

Stamps 36 348 - 36 348 36 348 - 36 348

Documents 259 - 259 259 - 259

Philatelic stationery 510 - 510 510 - 510

Other assets 1 433 - 1 433 1 433 - 1 433

Total 46 247 - 46 247 46 247 - 46 247

Company 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Cost/Valuation


Carrying valueCost/

ValuationAccumulated depreciation

Carrying value

Work of art 7 697 - 7 697 7 697 - 7 697

Stamps 36 348 - 36 348 36 348 - 36 348

Documents 259 - 259 259 - 259

Philatelic stationery 510 - 510 510 - 510

Other assets 1 433 - 1 433 1 433 - 1 433

Total 46 247 - 46 247 46 247 - 46 247

119



6. Heritage assets (continued)

Reconciliation of heritage assets – group – 2019

R ‘ 000 R ‘ 000

Opening balance Total

Works of art 7 697 7 697

Stamps 36 348 36 348

Documents 259 259

Philatelic stationery 510 510

Other assets 1 433 1 433

46 247 46 247

Reconciliation of heritage assets – Company – 2019

R ‘ 000 R ‘ 000

Opening balance Total


Stamps 36 348 36 348

Documents 259 259



46 247 46 247

Valuations

Fair value revaluations are made at intervals such that the carrying amount does not differ materially from that which would be determined using fair value at the end of the re-porting period.

The last valuation was performed at 31 March 2017. The revaluation was performed by independent valuers that are not connected to the Group.

The valuation was based on current market values and no discount rates were used.

Other information

In terms of the ICASA license agreement, the South Afri-can Post Office (SOC) Limited is required to own a muse-um which contains assets of a historical nature, including stamps, paintings, artefacts and machinery.

A register containing the information required by Regulation 25(3) of the Companies Regulations, 2011 is available for inspection at the registered office of the Company.

120



7. Intangible assets (continued)

group 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Cost/Valuation

Accumulated amortisation

Carrying value

Cost/Valuation


Carrying value

Computer software, other 468 230 (372 892) 95 338 401 484 (338 872) 62 612

Intangible assets under development 60 310 - 60 310 60 310 - 60 310

Total intangible assets 528 540 (372 892) 155 648 461 794 (338 872) 122 922

Company 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Cost/Valuation


Carrying value

Cost/Valuation


Carrying value

Computer software, other 464 856 (369 518) 95 338 398 110 (335 498) 62 612

Intangible assets under development 60 310 - 60 310 60 310 - 60 310

Total intangible assets 525 166 (369 518) 155 648 458 420 (335 498) 122 922

121




Reconciliation of intangible assets – group – 2019

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Opening balance

Additions AmortisationChange in

estimateTotal

Computer software, other 62 612 72 702 (42 098) 2 122 95 338

Intangible assets under development 60 310 - - - 60 310

Total intangible assets 122 922 72 702 (42 098) 2 122 155 648

Reconciliation of intangible assets – group – 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Opening balance

Additions Transfers Amortisation Total

Computer software, other 86 291 10 756 2 914 (37 349) 62 612

Intangible assets under development 57 721 5 503 (2 914) 60 310

Total intangible assets 144 012 16 259 - (37 349) 122 922

Reconciliation of intangible assets – Company – 2019

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Opening balance

Additions AmortisationChange in

estimateTotal

Computer software, other 62 612 72 702 (42 098) 2 122 95 338

Intangible assets under development 60 310 - - - 60 310

Total intangible assets 122 922 72 702 (42 098) 2 122 155 648

Reconciliation of intangible assets – Company – 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Opening balance

Additions Transfers Amortisation Total

Computer software, other 86 286 10 755 2 914 (37 343) 62 612

Intangible assets under development 57 721 5 503 (2 914) - 60 310

Total intangible assets 144 007 16 258 - (37 343) 122 922

122




Individually material intangible assets

There are no individually material intangible assets that re-quire specific disclosure.

Pledged as security

No intangible assets have been pledged as security for li-abilities.

borrowing costs capitalised

There were no borrowing costs that required capitalisation during the period.

Other information

There were no impairments of intangible assets during the year.

Intangible assets obtained by means of government grant

Intangible assets that are financed through project specif-ic funding are recorded in the asset register and included therein at R1 in accordance with the accounting policy for Government grants. If these assets had been recorded at cost and depreciated over their expected useful lives, their carrying value would be as follows:

group and company reconciliation – 2019 Cost Accumulated amortisation

Carrying value

R ‘ 000 R’ 000 R ‘ 000

Computer software 249 220 (249 220) -

group and company reconciliation – 2018 Cost Accumulated amortisation

Carrying value

R’ 000 R’ 000 R’ 000

Computer software 249 220 (249 220) -

123



8. Investments in subsidiaries (continued)

The following table lists the entities which are controlled by the group, either directly or indirectly through subsidiaries

group

Name of company Held by %holding %holding %holding

2019 2018 2017

The Courier and Freight Namibia (Pty) Ltd – In deregistration process

The Courier and Freight Group (Pty) Ltd

100,00% 100,00% 100,00%

Postbank SOC Limited (Registered 1 April 2017) *


100,00% 100,00% 100,00%

* Postbank has been accounted for as a division of Post Office in this set of financial statements. However as part of supporting the application for the banking license, a separate entity Postbank SOC Limited has been registered with its own board of directors.

Company

Name of company Place of incorporation %holding %holding

2019 2018

SAPOS Properties (Rossburgh) (Pty) Ltd South Africa 100,00% 100,00%

SAPOS Properties (Cape Town) (Pty) Ltd South Africa 100,00% 100,00%

SAPOS Properties (Bloemfontein) (Pty) Ltd South Africa 100,00% 100,00%

SAPOS Properties (East Rand) (Pty) Ltd South Africa 100,00% 100,00%

SAPOS Properties (PE) (Pty) Ltd South Africa 100,00% 100,00%

The Courier and Freight Group (Pty) Ltd South Africa 100,00% 100,00%

The Document Exchange (Pty) Ltd South Africa 100,00% 100,00%

SAPOS Property (Pty) Ltd South Africa 100,00% 100,00%

Truebill (Pty) Ltd* South Africa 100,00% 100,00%

124



8. Investments in subsidiaries (continued)

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Name of company Carrying amount

Carrying amount

Carrying amount

Carrying amount

SAPOS Properties (Rossburgh) (Pty) Ltd - - 8 564 8 564

SAPOS Properties (Cape Town) (Pty) Ltd - - 5 976 5 976

SAPOS Properties (Bloemfontein) (Pty) Ltd - - 1 314 1 314

SAPOS Properties (East Rand) (Pty) Ltd - - 14 358 14 358

SAPOS Properties (PE) (Pty) Ltd - - 1 885 1 885

The Courier and Freight Group (Pty) Ltd - - 1 053 1 053

The Document Exchange (Pty) Ltd - - - -

SAPOS Property (Pty) Ltd - - - -

Truebill (Pty) Ltd* - - - -

33 150 33 150

Impairment of investment in subsidiaries (1 217) (1 217)

31 933 31 933

*Truebill (Pty) Ltd remains dormant.

The investments in subsidiary companies listed above are unlisted.

125



9. Inter-group loans and receivables

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Loans

SAPOS Properties (Rossburgh) (Pty) Ltd - - 3 056 1 188

This loan is interest free and has no fixed terms of repayment. The full amount has been impaired.

SAPOS Properties (Cape Town) (Pty) Ltd - - 59 212


SAPOS Properties (bloemfontein) (Pty) Ltd - - 120 56


SAPOS Properties (East Rand) (Pty) Ltd - - 1 141 93


SAPOS Properties (Port Elizabeth) (Pty) Ltd - - 248 401


The Courier and Freight group (Pty) Ltd - - 219 322 219 322


The Courier and Freight group (Pty) Ltd - - - 77 802


- - 223 946 299 074

126



9. Inter group loans and receivables (continued)

The property companies do not have a separate bank account and the loan amounts arose as a result of transactions which Post Office administered on behalf of the companies.

All the above loans are interest free and have no fixed terms of repayment. The loans have been fully impaired except for those held with property companies.

The South African Post Office (SOC) Limited does not anticipate the recovery of the above mentioned loans within the next 12 months.

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Receivables

The Courier and Freight Group (Pty) Ltd - - 485 203 393 652

All the long term receivables above accrue interest at the prime rate.

The South African Post Office {SOC) Limited does not anticipate the recovery of the above mentioned receivables within the next 12 months.

Impairment

Impairment of Inter group loans and receivables - - (704 524) (689 380)

Split between non-current and current portions

Non-current assets - - 4 625 3 346

Current assets - - - -

- - 4 625 3 346

127



10. Other financial assets (continued)

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

At fair value through profit or loss

Investment at fair value: Post retirement Medical Aid 1 100 659 1 064 970 1 100 659 1 064 970

At fair value through other comprehensive income (OCI)

Unlisted shares – Centriq Insurance Innovation (Pty) Ltd 122 645 113 514 122 645 113 514

Negotiable Certificates of Deposit 1 386 488 1 729 576 1 386 488 1 729 576

Promissory Notes 442 421 591 927 442 421 591 927

1 951 554 2 435 017 1 951 554 2 435 017

At amortised cost

Fixed deposit 2 270 509 3 429 219 2 270 509 3 419 419

Total other financial assets 5 322 722 6 929 206 5 322 722 6 919 406

128




group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Non – current assets

At fair value through profit and loss 733 295 747 232 733 295 747 232

At fair value through OCI 122 645 113 514 122 645 113 514

855 940 860 746 855 940 860 746

Current assets

At fair value through profit and loss 367 364 317 738 367 364 317 738

At fair value through OCI 1 828 909 2 321 503 1 828 909 2 321 503

At amortised cost 2 270 509 3 429 219 2 270 509 3 419 419

4 466 782 6 068 460 4 466 782 6 058 660

5 322 722 6 929 206 5 322 722 6 919 406

Investment balances held by the entity that are not available for use by the group

4 099 418 4 739 856 4 099 418 4 730 056

The Group owns an equity stake of 10 ordinary shares in lthuba Holdings (Pty) Ltd which represents 5,00% holding. The fair value of the shares was determined by the Post Of-fice management to be zero at year end. The shares were allocated to the Post Office by the Department of Trade and Industry.

The Negotiable Certificates of Deposit (NCDs), Promissory Notes and the unlisted shares held in the cell captive Centriq Insurance Innovation (Pty) Ltd are classified as subsequently measured at fair value through other comprehensive income, which are measured at fair value, with fair value gains and losses recognised directly in other comprehensive income.

The fixed deposit and Jibar linked notes are classified as subsequently measured at amortised cost instruments, us-ing the effective interest method, less any impairment, with revenue recognised on an effective yield basis. The fixed deposits and Jibar linked notes shown above are greater than 90 days and less than 12 months in time to maturity. The fixed deposit and Jibar linked notes that are less than 90 days in maturity are classified as cash and cash equiva-lents and are included under short-term deposit in Note 16.

129




Fair value information of assets at fair value through profit and loss

Financial assets at fair value through profit and loss are measured at fair value, which is therefore equal to their car-rying amounts

The following classes of financial assets at fair value through profit and loss are measured through fair value using quoted market prices:

• Local cash• Local bonds• Local equity• Foreign cash• Foreign bonds

Fair value hierarchy of financial assets at fair value through profit and loss

For financial assets recognised at fair value, disclosure is required of a fair value hierarchy which reflects the signifi-cance of the inputs used to make the measurements

Level 1 represents those assets which are measured us-ing unadjusted quoted prices for identical assets in active markets.

Level 2 applies inputs other than quoted prices included in level 1, that are observable for the assets either directly (as prices) or indirectly (derived from prices).

Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or li-ability that are not based on observable market data (unob-servable inputs).

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Level 1

Local bonds 207 504 273 336 207 504 273 336

Local equity 409 319 477 648 409 319 477 648

Foreign bonds 21 928 - 21 928 -

Total level 1 638 751 750 984 638 751 750 984

Level 2

Local and foreign investments & NCO’s 461 908 313 987 461 908 313 987

Total level 1 and 2 1 100 659 1 064 971 1 100 659 1 064 971

For the current and previous financial years, there were no transfers between levels 1 and 2.

Financial assets at fair value through profit or loss are denominated in the following currencies:

Rand 1 100 659 1 064 971 1 100 659 1 064 971

130




Fair value information of financial assets measured at fair value through other comprehensive income

Financial assets classified as subsequently measured at fair value through other comprehensive income are recognised at fair value unless they are unlisted equity instruments and the fair value cannot be determined using other means, in which case they are measured at cost. Fair value informa-tion is not provided for these financial assets. Management believes that cost approximates fair value.

The following classes of financial assets are measured to fair value using quoted market prices:

• Negotiable Certificate of Deposit• Promissory Notes

The carry value (based on the audited annual financial state-ments of Centriq) is used in the determination of the fair val-ue of unlisted shares for which no reference can be made to quoted market prices. Management believes that the car-rying value approximates the fair value of this investment.

Fair value hierarchy of other comprehensive income financial assets

For financial assets recognised at fair value, disclosure is required of a fair value hierarchy which reflects the signifi-cance of the inputs used to make the measurements.

Level 1 represents those assets which are measured us-ing unadjusted quoted prices for identical assets in active markets.

Level 2 applies inputs other than quoted prices included in level 1 that are observable for the assets either directly (as prices) or indirectly (derived from prices).

Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or li-ability that are not based on observable market data (unob-servable inputs).

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Level 2

Negotiable Certificates of Deposit (NCD) 1 386 488 1 729 576 1 386 488 1 729 576

Promissory Notes (PN) 442 421 591 927 442 421 591 927

Total level 2 1 828 909 2 321 503 1 828 909 2 321 503

Level 3


Total level 2 and 3 1 951 554 2 435 017 1 951 554 2 435 017

131




Management are of the opinion that the carrying value of the unlisted shares are more indicative of fair values derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs) and therefore for more accurate disclosure, the unlisted shares should be included in level 3.

There were no transfers in or out of Level 3 during the current year.

The carrying amount of these financial instruments is as follows:

Reconciliation of OCI financial assets measured at level 3 Opening balance gains or losses in other

comprehensive income

Closing balance

group 2019 R’ 000 R ‘ 000 R ‘ 000

Unlisted shares – Centriq Insurance Innovation (Pty) Ltd 113 514 9 131 122 645

Reconciliation of OCI financial assets measured at level 3 Opening balance gains or losses in other

comprehensive income

Closing balance

Company 2018 R ‘ 000 R ‘ 000 R ‘ 000

Unlisted shares – Centriq Insurance Innovation (Pty) Ltd 113 514 9 131 122 645

The SA Post Office is a holder of preference share in Centriq Insurance Company Limited (Centriq). In terms of the preference share agreement, Centriq operates a cell captive facility for the Post Office.

The financial position and results of the insurance operations conducted through the cell captive are presented in the form of management accounts. The management accounts include a balance sheet as at 31 March 2019, as well as an income statement for the period then ended.

The fair value of the preference share is determined with reference to the management accounts.

132




group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

At amortised Financial assets

Fixed deposits 2 270 509 2 418 353 2 270 509 2 408 553

Management believe that the carrying amounts of the above mentioned assets approximates fair value.

The Group has not reclassified any financial assets from cost or amortised cost to fair value, or from fair value to cost or amortised cost during the current or prior years.

There were no gains or losses realised on the disposal of amortised cost financial assets in 2019 and 2018, as all the financial assets were disposed of at their redemption date.

11. Operating lease asset (accrual)

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Non-current assets 5 958 4 202 5 817 4 052

Current assets 591 293 522 274

Non-current liabilities (40 705) (41 088) (40 344) (40 808)

Current liabilities (2 930) (4 155) (2 843) (4 079)

(37 086) (40 748) (36 848) (40 561)

The Group has entered into operating leases for buildings. It straight-lined its operating leases where it is the lessor over period of the lease contract. Refer to note 52 for the future minimum payments under non-cancellable operating leases.

133



12. Retirement benefits

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Post retirement benefits

Retirement benefit asset 38 756 35 551 38 756 35 551

Present value – Non-current liability (1 233 804) (1 272 143) (1 233 804) (1 272 143)

Present value – Current liability (173 117) (155 229) (173 117) (155 229)

(1 368 165) (1 391 821) (1 368 165) (1 391 821)

Post Retirement benefit

group 2019Post retirement

telephone subsidy

Post-retirement medical aid

subsidyProvident Fund Pension fund Total

Present value of obligation

Balance at the beginning of the year 3 459 1 423 844 1 549 5 729 072 7 157 924

Service cost - - - 1 425 1 425

Finance expense 268 120 277 106 520 008 640 659

Benefits paid (398) (160 255) (125) (537 313) (698 091)

Transfers - - - 168 971 168 971

Actuarial (gain) / loss (419) 20 145 (70) (488 310) (468 654)

Present value of obligation at end of the year

2 910 1 404 011 1 460 5 393 853 6 802 234

134



group Company

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000



telephone subsidy



Present value of assets

Balance at the beginning of the year - - 37 100 6 389 537 6 426 637

Expected return on assets - - 2 642 581 931 584 573

Contributions received - - - 2 217 2 217

Transfers - - - 168 970 168 970

Benefits paid - - (124) (537 313) (537 437)

Actuarial gains / losses - - 598 (304 485) (303 887)

Present value of assets at end of the year

40 216 6 300 857 6 341 073

Net present value (obligation) / asset

Present value obligation (2 910) (1 404 011) (1 460) (5 393 853) (6 802 234)

Present value assets - - 40 216 6 300 857 6 341 073

(Defit) / surplus (2 910) (1 404 011) 38 756 907 004 (461 161)

Asset ceiling - - - (907 004) (907 004)

Net present (obligation) Iasset (2 910) (1 404 011) 38 756 (1 368 165)

Included in other financial assets is a post retirement medical aid asset of R1,101 billion (2018: R1,065 billion) to support the post retirement medical aid liability. Refer to note 10.

12. Retirement benefits (continued)

135



group Company

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000


telephone subsidy





Service cost - - - 1 444 1 444

Finance expense 364 123 352 131 541 644 665 491

Benefits paid (409) (141 083) (291) (540 141) (681 924)

Transfers - - - 116 795 116 795

Actuarial (gain) / loss (649) 106 451 (81) 50 549 156 270

Present value of obligation at end of the year

3 459 1 423 844 1 549 5 729 072 7 157 924


136



group Company

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000


telephone subsidy




Opening balance at the beginning of the year

- - 34 121 6 268 510 6 302 631


Contribution received - - - 2 236 2 236

Transfers - - - 116 795 116 795

Benefits paid - - (290) (540 141) (540 431)

Actuarial gains / (losses) - - 560 (71 441) (70 881)

Present value of asset at end of the year

- - 37100 6 389 537 6 426 637

Net present value obligation / asset

Present value obligation (3 459) (1 423 844) (1 549) (5 729 072) (7 157 924)

Present value asset - - 37 100 6 389 537 6 426 637

(Deficit) I surplus (3 459) (1 423 844) 35 551 660 465 (731 287)

Asset ceiling - - - (660 465) (660 465)

Net present (obligation) / asset (3 459) (1 423 844) 35 551 - (1 391 752)

Included in other financial assets is a post retirement medical aid asset of R1,065 billion (2017: R998 million) to support the post retirement medical aid liability. Refer to note 10.


137



group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Post retirement telephone

subsidy



Company 2019




Service cost - - - 1 425 1 425

Finance expense 268 120 277 106 520 008 640 659

Benefits paid (398) (160 255) (125) (537 313) (698 091)

Transfers - - - 168 971 168 971

Actuarial (gain) / loss (419) 20 145 (70) (488 310) (468 654)

Present value of obligation at end of year

2 910 1 404 011 1 460 5 393 853 6 802 234



37 100 6 389 537 6 426 637

Expected return on assets 2 642 581 931 584 573

Contribution received - 2 217 2 217

Transfers - 168 970 168 970

Benefits paid (124) (537 313) (537 437)

Actuarial gains / (losses) 598 (304 485) (303 887)


40 216 6 300 857 6 341 073


138



group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Company 2019Post retirement

telephone subsidy



Net present value (obligation) / asset Present value of obligation

(2 910) (1 404 011) (1 460) (5 393 853) (6 802 234)

Present value of asset - - 40 216 6 300 857 6 341 073

(Deficit) / surplus (2 910) (1 404 011) 38 756 907 004 (461 161)

Asset ceiling - - - (907 004) (907 004)

Net present (obligation) / asset (2 910) (1 404 011) 38 756 (1 368 165)

Included in other financial assets is a post retirement medical aid asset of R1,101 billion (2018: R1,065 billion) to support the post retirement medical aid liability. Refer to note 10.

Company 2018



Service cost - - - 1 444 1 444

Finance expense 364 123 352 131 541 644 665 491

Benefits paid (409) (141 083) (291) (540 141) (681 924)

Transfers - - - 116 795 116 795

Actuarial (gain) / loss (649) 106 451 (81) 50 549 156 270

Present value of obligation at end of year

3 459 1 423 844 1 549 5 729 072 7 157 924


139




group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000


telephone subsidy





- - 34 121 6 268 510 6 302 631


Contribution received - - - 2 236 2 236

Transfers - - - 116 795 116 795

Benefits paid - - (290) (540 141) (540 431)

Actuarial gains / (losses) - - 560 (71 441) (70 881)


- - 37100 6 389 537 6 426 637

Net present value (obligation) I asset

Present value of obligation (3 459) (1 423 844) (1 549) (5 729 072) (7 157 924)

Present value of asset - - 37 100 6 389 537 6 426 637

(Deficit) / surplus (3 459) (1 423 844) 35 551 660 465 (731 287)

Asset ceiling - - - (660 465) (660 465)

Net present (obligation) I asset (3 459) (1 423 844) 35 551 (1 391 752)

Included in other financial assets is a post retirement medical aid asset of R1, 065 billion (2017: R998 million) to support the post retirement medical aid liability. Refer to note 10.

140




group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000


telephone subsidy



Post retirement telephone subsidy. The amounts recognised in profit and loss:

Finance expense - 268 364 268 364

The amounts recognised in other comprehensive income (OCI):

Remeasurements of post retirement telephone subsidy (actuarial (gains) / losses)

Changes in assumptions - (166) 26 (166) 26

Experience adjustment - (253) (675) (253) (675)

(151) (285) (151) (285)

The Group has undertaken to pay the telephone accounts for certain retired employees and their surviving spouses until either the time of their death, that of their spouse or when they change their phone numbers or addresses. The Group’s net obligation in this regard is the amount of future benefits that the employees have earned in return for their service in the prior periods. Any unrecognised actuarial gains or losses and past service costs are recognised immediately. There are no plan assets for this liability and the employer funds this as the need for settlement arises.

141



group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

The PA(90) mortality table was used to determine post retirement mortality, and there is no service cost as the liability only relates to pensioners and the liability is fully accrued. Allowance was made in the calculation for inflationary increases in respect of the subsidy.

Actuarial Assumptions

Discount rate 8.89% 8.25% 8.89% 8.25%

Long term price inflation 5.45% 5.90% 5.45% 5.90%

Post retirement medical subsidy. The amounts recognised in profit and loss:

Interest cost 120 277 123 352 120 277 123 352


Remeasurements of post retirement medical subsidy (actuarial (gains) /losses)

Change in assumptions (111 241) 59 773 (111 241) 59 773

Experience adjustment 131 386 46 678 131 386 46 678

140 422 229 803 140 422 229 803


142



group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000


Discount rate 9.81% 8.88% 9.81% 8.88%

Medical inflation increase rate 7.79% 7.90% 7.79% 7.90%


Provident fund

The amounts recognised in profit and loss:

Net interest cost I (income) (2 536) (2 578) (2 536) (2 578)


Remeasurements of provident fund (actuarial (gains) I losses)

Change in assumptions (2) (5) (2) (5)

Experience adjustment (68) 86 (68) 86

(2 606) (2 497) (2 606) (2 497)

During the 2008/2009 financial period, R456,8 million worth of assets were transferred to the South African Post Of-fice (SOC) Limited as a result of the Registrar for Medical Schemes’ decision on 12 November 2008. The relevant as-sets are specifically and exclusively utilised for the future funding of the South African Post Office (SOC) Limited’s Post Retirement Medical Aid (PRMA) liability and have con-sequently been ear-marked and invested according to a spe-cific unique investment mandate.

The Company has negotiated with bargaining unit employ-ees that employees retiring after 30 June 2005 will not re-ceive PRMA benefits. This curtailment of benefits was ac-counted for during the 2005 period. In addition, spouses and dependants of employees who passed away whilst in the

service of the South African Post Office (SOC) Limited after 2005 will also receive medical aid benefits as part of the Defined Benefit Plan.

The PA(90) mortality table was used to determine post re-tirement mortality, and there is no service cost as the li-ability only relates to pensioners, thus the liability is fully accrued. Allowance was made in the calculations for the liabilities of South African Post Office to increase in line with medical inflation. For CFG pensioners with a fixed subsidy, it was assumed that no future increases will occur. Should any increases in the fixed subsidy be implemented in future, this liability will increase.


143



The South African Post Office (SOC) Limited provident fund (the fund) was established on 1 August 1993 to hedge the leave liability beyond a specific threshold. The fund became dormant on 1 April 2004 when all leave entitlement and salaries were capped.

In terms of a surplus apportionment scheme conducted by the fund some years ago, an Employer Surplus Reserve was created within the ambit of the fund and in terms of the Pen-sion Funds Act, 1956 (Act No. 24 of 1956, as amended) for the benefit of the South African Post Office (SOC) Limited.

The fund is a separate legal entity, distinct from its mem-bers and is capable in law, in its own name, of suing and of being sued, and of acquiring, holding and alienating prop-erty, movable and immovable. The assets held by the fund are registered in the name of the fund.

As per the rules of the fund, the South African Post Office (SOC) Limited is required to meet the balance of cost of financing the benefits provided by the fund, which would include the any fund deficit. At year end, the South African Post Office (SOC) Limited met the balance of cost of financ-ing the benefits provided by the fund. The Employer Surplus Reserve is available to fund future deficits should they arise.

The SA85-90 (Light) table was used to determine pre-retirement mortality. This is a table reflecting mortality experience in South Africa. A retirement age of 59 years was assumed, and for employees currently over age 59, the immediate value of the benefit was provided for. The accounting standard requires that the liabilities are valued using the Projected Unit Credit Method. This method was therefore used to value the liabilities. The service in respect of the leave days was fully accrued for.


group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000


Discount rate 7.42% 7.13% 7.42% 7.13%

Expected return on plan assets 7.42% 7.13% 7.42% 7.13%


Pension fund

The amounts recognised in profit and loss:

Service cost 1 425 1 444 1 425 1 444

Net interest income - - - -

Remeasurements of post retirement fund (actuarial (gains) /losses)

Changes in assumptions (447 329) (214 393) (447 329) (214 393)

Experience adjustment (40 981) 168 719 (40 981) 168 719

Remeasurement of asset

Asset ceiling 907 004 665 341 907 004 665 341

420 119 621 111 420 119 621 111

144



The South African Post Office (SOC) Limited retirement fund (the fund) previously known as the Post Office Pension Fund, was established on 1 October 1991 in terms of section 9(1) of the Post Office Act, 1958 (Act No.44 of 1958, as amended). The fund only allowed for defined benefit members until 30 November 2005 when it was converted into primarily a defined contribution scheme. It then became known as the South African Post Office (SOC) Limited retirement fund.

The fund is a separate legal entity, distinct from its mem-bers and is capable in law, in its own name, of suing and of being sued, and of acquiring, holding and alienating prop-erty, movable and immovable.

The assets held by the fund are registered in the name of the fund which has as its objective the provision of retire-ment and ancillary benefits to all its beneficiaries, being pen-sioners and active members.

In terms of section 10A of the South African Post Office Act (Act No 44 of 1958, as amended), the financial obligations of the South African Post Office (SOC) Limited retirement fund in respect of its defined benefit members and pensioners are guaranteed by the South African Post Office (SOC) Lim-ited whilst the Government of the Republic of South Africa in turn guarantees the obligations of the South African Post Office (SOC) Limited in this regard.

In terms of a recent actuarial capital adequacy analysis, the fund was fully funded and the actuary concluded that it was in a sound financial position.

The PA(90) mortality table was used to determine post re-tirement mortality.

Given the small number of active DB members and their age profile, no specific allowance for withdrawals was made. This implies that the actuarial reserve value is avail-able to provide benefits on voluntary exit and retrenchment. It was assumed, on average, that active members will retire early at age 59 (the normal retirement age of the remaining active defined benefit members is 65 years). The account-ing standard requires that the liabilities are valued using the Projected Unit Credit Method, and this method was there-fore applied.

The Fund provides benefits of both Defined Benefit and De-fined Contribution nature. The liability in respect of active defined benefit members was based on the actual past ser-vice of Members in the active service of the Company. The liability in respect of current pensioners is fully accounted for.

The liabilities, assets and reserve accounts relating to the Defined Contribution section of the fund were excluded from the valuation. In aggregate, these liabilities (and as-sets) amount to approximately R8 billion.


Actuarial assumptions

Discount rate 10.35% 9.37% 10.35% 9.37%

Expected return on plan assets 10.35% 9.37% 10.35% 9.37%

Long term plan inflation 6.78% 6.79% 6.78% 6.79%

145



13. Deferred tax

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Deferred tax liability

Property plant and equipment (17 576) (17 576)

Other deferred tax liability (1 231) (991)

Total deferred tax liability (18 807) (18 567)

Deferred tax asset

Prepaid expenses 2

Tax losses available for set off against future taxable income

303 336

Total deferred tax asset 303 338

The deferred tax assets and the deferred tax liability relate to income tax in the same jurisdiction, and the law allows net settlement. Therefore, they have been offset in the statement of financial position as follows:

Deferred tax liability (18 807) (18 567)

Deferred tax asset 303 338

Total net deferred tax liability (18 504) (18 229)

Reconciliation of deferred tax asset I {liability)

At beginning of year (18 229) (18 544)

Reduction due to rate change (275) 315

(18 504) (18 229)

Recognition of deferred tax asset

An entity shall disclose the amount of a deferred tax asset and the nature of the evidence supporting its recognition, when:

• the utilisation of the deferred tax asset is dependent on future taxable profits in excess of the profits arising from the reversal of existing taxable temporary differ-ences; and

• the entity has suffered a loss in either the current or preceding period in the tax jurisdiction to which the de-ferred tax asset relates.

146



13. Deferred tax (continued)

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Unrecognised deferred tax asset

Trade and other receivables - 35 - -

Income received in advance 49 716 63 030 48 479 61 901

Trade and other payables (508) (3 886) - (3 378)

Provisions 510 932 523 069 509 742 521 151

Fixed assets 7 714 (14 078) 14 473 (7 477)

Estimated tax losses 1 504 460 1 295 320 1 323 063 1 112 279

Financial assets adjustments (8 562) (6 603) (8 562) (6 603)

Employee benefits 382 350 - -

Financial instruments 650 1 066 650 1 065

SASSA advanced payment 133 774 - 133 774 -

Government subsidy – Interest & Roll out 83 964 108 010 83 964 108 010

Government subsidy – Interest & Roll out - 7 396 - 7 396

2 282 522 1 973 709 2 105 583 1 794 344

14. Prepayments

IT solutions paid in advance

Services receivable within a year 2 761 10 194 2 761 10 194

Prepaid expenses are payments made in advance of the future performance of services. These amounts are recorded as assets in the financial statements until the related expenses have been incurred.

147



group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Merchandise 111 953 32 582 111 953 32 582

Consumables 35 835 44 429 35 505 44 243

Total inventories 147 788 77 011 147 458 76 825

Inventories (write-downs) (84 498) (15 512) (84 498) (15 512)

Total inventories net of write-downs 63 290 61 499 62 960 61 313

Carrying value of inventories carried at fair value less costs to sell

63 290 61 499 62 960 61 313

Inventory pledged as security

No inventory has been pledged as security for liabilities.

Inventory released to Income Statement

The amount of inventories and purchases of inventory items recognised as an expense during the period:

Merchandise 256 998 33 365 256 535 33 323

Consumables 24 548 27 755 24 444 27 662

Total Inventory expensed to profit & loss 281 546 61 120 280 979 60 985

15. Inventories

148



group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Financial instruments:

Trade receivables 696 963 262 131 686 163 250 089

Loss allowance (82 323) (125 188) (77 424) (121 333)

Trade receivables at amortised cost 614 640 136 943 608 739 128 756

Deposits 736 736 - -

Interest accrued on short-term investments 74 416 - -

International debtors (net of impairment) 259 896 242 943 259 896 242 943

Other receivable (net of impairment) 800 311 86 987 798 162 81 251

Non-financial instruments:

VAT 1 115 792 - -

Employee costs in advance 35 075 2 750 35 093 2 775

Total trade and other receivables 1 711 847 471 567 1 701 890 455 725

Split between non-current and current portions

Non-current assets - - - -

Current assets 1 711 847 471 567 1 701 890 455 725

Trade and other receivables measurement

Trade and other receivables are categorised as follows in accordance with IFRS 9: Financial Instruments:

At amortised cost 1 675 657 468 025 1 666 797 452 950

Non-financial instruments 36 190 3 542 35 093 2 775

1 711 847 471 567 1 701 890 455 725

Unclear Transactions at year end

Included in the current assets (Other Receivable) is an amount of R720 million relating to transactions which were not cleared/resolved at the year-end. Because of lack of systems integration, weaknesses in the internal controls during the early stages of the grants payments take over by the South African Post Office and the volume of manual payments transactions taking place at the cash pay points, capturing and reconciliation of the cash movements documents between Post Office and Cash In Transit companies was not completed by the year resulting in number of unresolved reconciliation issues.

16. Trade and other receivables

149



17. Cash and cash equivalents

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Cash and cash equivalents consist of:

Bank balances 5 776 856 3 223 826 5 757 380 3 212 380

Other cash and cash equivalents 410 000 17 385 410 000 17 385

6 186 856 3 241 211 6 167 380 3 229 765

18. Share capital

Authorised

1 000 000 000 Ordinary shares of R1 each 1 000 000 1 000 000 1 000 000 1 000 000

Reconciliation of issued shares:

Opening balance 5 217 116 693 116 5 217 116 693 116

Conversion of the shareholders loan into ordinary shares of R1 each (Postbank loan)

- 174 000 - 174 000

Recapitilisation funds - 4 350 000 - 4 350 000

Issue of shares – ordinary shares 2 947 000 - 2 947 000 -

8 164 116 5 217 116 8 164 116 5 217 116

Issued

Ordinary shares of R1 each issued at a premium 8 164 116 5 217 116 8 164 116 5 217 116

At year end, there are 306 884 118 unissued ordinary shares. This authority remains in force until the next Annual General Meeting.

150



Negotiable Certificates of Deposits (NCDs), Promissory Notes and the unlisted shares held in the cell captive Centriq Insurance Innovation (Pty) Ltd are classified as subsequently measured at fair value through other comprehensive income.

Financial assets classified as subsequently measured at fair value through OCI, with fair value gains and losses recognised directly in other comprehensive income as the equity revaluation reserve. Interest is calculated using the effective interest method. Where the financial asset is

disposed of or is determined to be impaired, the cumulative gain or loss previously recognised in the available for sale reserve is included in profit or loss for the period.

NCDs and Promissory Notes are measured to fair value using quoted market prices. The net asset value model is used in the determination of the fair value of unlisted shares for which no reference can be made to quote market prices.

19. Fair value adjustment for other comprehensive income reserve

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Promissory Notes 2 616 1 511 2 616 1 511


105 211 94 974 105 211 94 974

Financial liabilities at amortised cost consist of the advance payment of R541 million received from SASSA in the current financial year. This financial liability is an interest free liability which was fair valued at the average market interest rate of 9,21%. This advance payment is repaid through 10% deduction from the services charges payable to Post Office under each monthly invoice issued to SASSA as from 1st

October 2018, until such time that the advance payment is repaid in full. The difference between the fair value of the liability and the actual amount received was recognised as government grants. This government grant is recognised as income over the period of the financial liability.

20. Financial liabilities at amortised cost

Non-current liabilities 275 014 - 275 014 -

Current liabilities 126 468 - 126 468 -

401 482 - 401 482 -

151



21. Other financial liabilities

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

At amortised cost

Bank loans - 400 305 - 400 305

Term of loans (current portion)

The loans are secured by government gaurantee, bears interest at JIBAR linked rate payable monthly and quarterly. The capital amount is repayable on maturity with a renewal option.

Current liabilities

At amortised cost (Capital amount+ accrued interest) - 400 305 - 400 305

- 400 305 - 400 305

Exposure to currency risk

The carrying amounts of financial liabilities at fair value are denominated in the following currencies.

Rand amount

Rand - 400 305 - 400 305

152



22. Provisions

Reconciliation of provisions – group – 2019

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Opening balance

AdditionsUtilised

during the year

Reversed during the

year

Change in discount

factorTotal

Site restoration 301 091 86 716 (73 034) - (29 331) 285 442

Legal proceedings 3 000 - - (3 000) - -

General provision 136 014 39 - (134 693) - 1 360

Leave pay 110 342 47 490 (1 472) (8 967) - 147 393

Contractual 13th cheque 73 806 14 1 193 (147 409) - - 67 590

Long service cash awards 45 249 4 885 (7 782) - - 42 352

Long service leave awards 14 603 2 635 (2 312) - - 14 926

684 105 282 958 (232 009) (146 660) (29 331) 559 063

Reconciliation of provisions – group – 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Opening balance

Additions Utilised

during the year

Reversed during the

yearTotal

Site restoration 259 746 41 345 - - 301 091

Legal proceedings 3 971 - - (971) 3 000

General provision 119 615 18 537 (2 138) - 136 014

Leave pay 211 153 20 386 (263) (120 934) 110 342

Contractual 13th cheque 64 294 18 778 (9 266) - 73 806

Long service cash awards 47 687 11 473 (13 911) - 45 249

Long service leave awards 16 386 380 (2 163) - 14 603

722 852 110 899 (27 741) (121 905) 684 105

153



22. Provisions

Reconciliation of provisions – Company – 2019

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Opening balance

AdditionsUtilised

during the year

Reversed during the

year

Change in discount

factorTotal

Site restoration 299 492 86 716 (73 034) - (29 331) 283 843

Legal proceedings 3 000 - - (3 000) - -

General provision 134 663 39 - (134 663) - 39

Leave pay 109 249 47 364 (1 472) (8 967) - 146 174

Contractual 13th cheque 73 650 141 203 (147 409) - - 67 444

Long service cash awards 43 236 5 158 (7 782) - - 40 612

Long service leave awards 14 603 2 635 (2 312) - - 14 926

677 893 283 115 (232 009) (146 630) (29 331) 553 038

Reconciliation of provisions – Company – 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Opening balance

Additions Utilised

during the year

Reversed during the

yearTotal

Site restoration 257 257 42 235 - - 299 492

Legal proceedings 3 000 - - - 3 000

General provision 118 289 18 512 (2 138) - 134 663

Leave pay 214 247 16 199 (263) (120 934) 109 249

Contractual 13th cheque 64104 18 778 (9 232) - 73 650

Long service cash awards 45 842 11 102 (13 708) - 43 236

Long service leave awards 16 386 380 (2 163) - 14 603

719 125 107 206 (27 504) (120 934) 677 893

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Additions Utilised

during the year

Reversed during the

yearTotal

Non-current liabilities 294 278 311 008 290 485 307 396

Current liabilities 264 785 373 097 262 553 370 497

Total provisions 559 063 684 105 553 038 677 893

154



22. Provisions (continued)

Leave obligation

Employees are entitled to 22 days leave per annum. As at 31 March the remaining annual leave may be carried for-ward for a period of six (6) months after year end, otherwise the leave will be forfeited.

Any leave balance remaining when an employee leaves the service of the South African Post Office {SOC) Limited for whatever reason (e.g. resignation, death, retirement) is en-cashed at that time.

Capped leave

In addition to their “normal” current accrued leave some staff members also have an amount of “capped” leave. During 2001 and 2002 the South African Post Office (SOC) Limited negotiated with staff in different categories that leave accrued up till that date would in future only be en-cashed at the salary as at that time. This leave can be taken as leave or encashed, but only after all other accrued leave has been taken. Any remaining balance will be paid out as cash when the employee leaves the service of the South African Post Office (SOC) Limited.

Given these rules, the South African Post Office (SOC) Limited recognises that the balances in both the “capped” leave and “normal” accrued leave will not be settled in the 12 months following the date of calculation, and therefore some form of calculation is required. In performing these calculations, has been applied an assumption that 50% of the balance standing in the “normal” accrued leave will be taken as leave in the next 12 months. The remainder of the “normal” and the balance in the “capped” leave will be paid out in cash when the employee leaves the service of the South African Post Office (SOC) Limited by death, resigna-tion or retirement. In the case of the “accrued” leave, this will be based on the salary applicable at that date, and in the case of the “capped” leave, based on the current fixed rate.

A restricted number of employees are members of the leave provident fund. This provident fund provides for leave in excess of 60 days at a specific point in time. No additional employees may become members of this fund. Leave in this fund can only be encashed when the employee retires or resigns and cannot be utilised as leave. As provident fund assets are sufficient this leave is not accrued by the Com-pany.

Long service leave awards

The Group has a policy of increasing leave days when em-ployees reach ten years service within the South Afican

Post Office (SOC) Limited’s employment. The increase in leave days is from 22 to 24 days in the employee’s tenth period only.

Long service cash awards

The Group has a once off cash award policies in respect of long service. The Group has valued this benefit in the cur-rent period, and shall be valuing the benefit annually.

Site restoration

The provision relates to the decommissioning costs that are expected to be incurred upon the termination or conclusion of [ease agreements. These costs have been capitalised in terms of the relevant lease agreements. It is uncertain whether these leases will be extended or terminated ear-lier and this creates uncertainties regarding the amount and timing of the cash flows. There are no expected reimburse-ments for the costs that will be incurred.

The main assumptions used in the calculation of this provi-sion are as follows:

The Universal Service Obligations (USO) obliges the South African Post Office (SOC) Limited to expand its presence in South Africa (SA), especially in rural SA. This means that the South African Post Office (SOC) Limited would most probably not reduce the number of leasehold premises, but instead expand its presence to more buildings. The type of leasehold premises has been taken into account in arriv-ing at a conclusion regarding possible restoration. A vacant stand with a Mail Collection Point (MCP) would probably not require restoration should they ever wish to relocate.

The South African Post Office (SOC) Limited may not wish to relocate from shopping centres and malls. In the event that it does relocate the terms of the lease and the nature of its business are such that restoration of the premises would not be required. The date that the South African Post Office (SOC) Limited originally occupied the leasehold premises is also an indication of the chances of ever mov-ing out of the premises, thus negating the liability to restore such leasehold premises. During the year, the South African Post Office (SOC) Limited relocated from 50 sites (2018: 21) leasehold premises of which 15 sites (2018: 20) of the les-sors required restoration, thus further supporting the expec-tation that relocation and thus restoration would not occur in most instances.

155



23. Trade and other payables

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Financial instruments:

Trade payables 481 822 569 617 440 405 516 512

Accrued expenses 479 832 321 301 471 753 305 263

International trade payables 204 065 185 143 204 065 185 143

Deposits received 92 737 93 585 91 032 91 403

Employee benefit payments 180 797 134 383 178 937 132 679

Other payables 100 514 118 497 100 410 118 032

VAT 47 136 20 374 46 802 20 190

1 586 903 1 442 900 1 533 404 1 369 222

24. Deferred income

Deferred income consists of the following:

Bulk mail, Parcels, Hybrid, Mail Sundry & Registered letters revenue

621 1 792 621 1 792

Franking mail revenue 768 3 909 768 3 909

Box revenue 169 652 179 172 169 652 179 172

Stamp and envelope revenue 1 191 9 139 1 191 9 139

Speed services revenue 906 10 906 10

International revenue - 12 228 - 12 228

Electronic Bill Presentment and Payments revenue (EBPP)

- 710 - 710

XPS freight 3 17 - -

Subscription fees 5 802 5 757 - -

Total deferred income 178 943 212 734 173 138 206 960

156



24. Deferred income

Deferred revenue

Post Office recognises deferred revenue for income re-ceived in advance on Postal related Income. The valuation of the deferred revenue is based on sampling systems; for Domestic mail (Test post system) and International mail (Quality of Service system). Sampling results are drawn from these systems for mailing made mid-month to end of March to determine the progress of delivery as at year end.

bulk mail, parcels, hybrid, mail sundry and registered letters revenue

The deferred revenue calculation is based on the mail de-livery performance statistics for March. Revenue is recog-nised based on performance satisfaction obligation at the reporting period. Revenue received in the last ten days prior to year end is deferred based on the progress of delivery.

Franking mail revenue

The deferred revenue calculation is based on the assump-tion that ten (10) working days revenue is unearned. Rev-enue is recognised based on performance satisfaction obli-gation at the reporting period. Revenue received in the last ten days prior to year end is deferred based on the progress of delivery.

box revenue

The renewal cycle for the rental of the boxes is a calendar year from 1 January to 31 December however; the financial year for the Post Office is 1 April to 31 March. This means that only the revenue for three (3) months of the renewal cy-cle is earned for that financial year and the remaining nine (9) months of the renewal cycle is regarded as deferred revenue.

Stamp and envelope revenue

The deferred revenue calculation is based on the assump-tion that ten (10) working days revenue is unearned.

Revenue is recognised based on performance satisfaction obligation at the reporting period. Revenue received in the last ten days prior to year end is deferred based on the pro-gress of delivery.

Speed services revenue

The deferred revenue calculation is based on the courier delivery performance statistics for March. Revenue is rec-ognised based on performance satisfaction obligation at the reporting period. Revenue received in the last ten days prior to year end is deferred based on the progress of delivery.

International revenue

The sales report is drawn from the billing system (Inter-national Postal System) for all items billed in March. The unearned revenue computation is based on the Quality of Service system which measures the performance in aver-age days for the relevant month.

XPS freight

A sales report is drawn from the Management Information System showing all items billed in the period under review but not yet delivered. Deferred revenue is calculated based on all items whose delivery date is after 31 March as well as for those items without proof of delivery.

Relating to The Document Exchange (Pty) Ltd:

Subscription fees

Members pay the subscription fee annually, for twelve (12) month period. In cases where the membership overlaps between two financial years, the portion of the amount belonging to the subsequent financial year is the unearned revenue and is deferred to the next financial year.

157



25. Other deposits (grants)

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Other deposits (SASSA grants) 621 619 - 621 619 -

Other deposits represent the grants payment that has been deposited to the SASSA grant beneficiaries’ bank accounts (transactional and savings accounts) and the amount was not withdrawn by the beneficiary as at 31 March 2019. Transactional and savings accounts are all overnight depos-its which are all payable on demand.

All amounts owed to the beneficiaries are classified as finan-cial liabilities at cost. Interest payable on both transactional and savings accounts are capitalised monthly. All account holders are individuals within the Republic of South Africa.

Grant deposits are fully covered by investments and other financial assets as well as cash and cash equivalents, and these amounts are included in the total balances reflected in notes 10 and 17.

158



26. Deposits from the public

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Term deposits 216 444 124 453 216 444 124 453

Transactional and savings accounts 4 933 824 4 976 832 4 933 824 4 976 832

5 150 268 5 101 285 5 150 268 5 101 285

Deposit products include transactional accounts, savings accounts and term deposits. Transactional and savings ac-counts are all overnight deposits which are all payable on demand. Term deposits vary from one month to five years. All amounts owed to the depositors are classified as finan-cial liabilities at cost. Interest payable on both transactional and deposit accounts are capitalised monthly. All account holders are individuals within the Republic of South Africa.

Interest paid on overnight deposit accounts is fixed and varies from 0.00% to 4.65% per annum (2018: 0.00% to

4.65%) depending on the account balance. Term deposits attract interest that varies from 4.35% to 6.25% per annum (2018: 4.35% to 5.65%) and all rates are linked to prime rate.

Deposits from the public are fully covered by investments and other financial assets as well as cash and cash equiva-lents, and these amounts are included in the total balances reflected in notes 10 and 17.

159



27. Funds collected on behalf of third parties

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Agency services and collections 524 022 288 301 524 022 288 301

Money and postal orders 8 243 11 062 8 243 11 062

532 265 299 363 532 265 299 363

Funds collected from the customers of the Group third party clients are paid into their bank accounts within 24 hours following the collection at Post Office outlets. In terms of service level agreements with the clients, no interest will be paid to clients for the 24 hour period before the money collected is paid into the client’s respective accounts. Money and postal orders are unclaimed obligations that are payable on demand.

160



Post Office was allocated R 240 million to fund distribution of the set-top boxes and antennas for the Broadcasting Digital Migration Project in the 2017/18 financial year and R 240 million in the 2 016/17 financial year.

The R84 million in the current financial year relates to the SASSA advance payment.

28. government grants

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Current liabilities

Unutilised grants 383 984 422 357 383 984 422 357

Subsidy received

Government grants unutilised in prior year 422 357 266 126 422 357 266 126

SASSA Government Grant 84 114 - 84 114 -

Current period – Digital terrestial television - 240 000 - 240 000

Interest received - 26 414 - 26 414

government grants utilised

Utilised for DTT (99 370) (66 336) (99 370) (66 336)

Utilised for postal address roll-out (23 116) (14 373) (23 116) (14 373)

Value Added Tax (VAT) - (29 474) - (29 474)

383 984 422 357 383 984 422 357

161



29. Revenue

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Revenue from contracts with customers

Retail products 2 674 10 838 2 674 10 838

Services rendered – Postal 2 820 434 3 059 452 2 782 677 3 023 543

Postbank service charges 1 380 969 325 519 1 380 969 325 519

Services rendered – Courier 77 531 103 549 73 077 94 620

Services rendered – Agency and money transfer 610 794 524 227 610 794 524 227

4 892 402 4 023 585 4 850 191 3 978 747

Revenue other than from contracts with customers

Rental Income 122 473 59 778 120 231 57 651

Postbank interest revenue 422 777 457 256 422 777 457 256

545 250 517 034 543 008 514 907

Total revenue 5 437 652 4 540 619 5 393 199 4 493 654

Revenue comprises income from services provided and the sale of retail products, excluding VAT, rebates, and discounts as well as Postbank interest revenue excluding VAT.

These services include work performed as an agent for certain Government departments, other authorities and businesses. Refer to note 43 for more information.

162



30. Other operating income

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Commissions received 6 148 3 042 6 148 3 042

Fees earned 4 197 3 995 4 197 3 995

Foreign exchange differences 12 706 8 109 12 706 8 109

Other income 36 262 14 074 36 187 13 367

Recoveries 36 039 18 449 35 484 18 112

Sundry income 6 021 - 6 021 -

Total other income 101 373 47 669 100 743 46 625

163



31. Operating loss

Operating loss for the year is stated after charging (crediting) the following, amongst others:

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Auditor’s remuneration – external

Audit fees 26 106 25 807 25 151 24 735

Remuneration, other than to employees

Administrative and managerial services 1 835 1 759 - -

Consulting and professional services 495 949 218 568 495 242 217 382

497 784 220 327 495 242 217 382

Employee costs

Salaries, wages, bonuses and other benefits 3 326 386 2 931 667 3 309 148 2 915 168

Home-Owner’s Allowance 16 183 17 648 16 023 17 473

Motor Scheme Management 12 447 12 344 12 435 12 331

Business Unit Training 9 9

Other short term costs 72 106 131 322 72 073 131 287

Retirement benefit plans: defined contribution expense 322 621 304 191 320 874 302 506

Long term incentive scheme 5 865 6 112 5 754 5 995

Total employee costs 3 755 608 3 403 293 3 736 307 3 384 769

Depreciation, amortisation & impairment

Depreciation of property, plant and equipment 137 043 107 966 136 208 106 745

lmpaiment – Inventory 2 933 (2 029) 2 933 (2 029)

Amortisation of intangible assets 39 979 37 349 39 976 37 344

Total depreciation and amortisation 179 955 143 286 179 117 142 060

164



32. Employee costs

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Employee costs

Basic 2 706 073 2 467 223 2 692 179 2 453 333

Bonus 149 158 153 502 147 409 152 281

Medical aid – company contributions 357 248 326 248 356 120 325 212

Unemployment Insurance Fund 27 740 28 767 27 606 28 623

Workers Compensation Assistance 21 107 21 176 21 107 21 176

Skills Development Levy 31 358 29 446 31 192 29 290

Other payroll levies 11 6 - -

Leave pay provision charge 33 691 (94 701) 33 535 (94 747)

Home-Owner’s Allowance 16 183 17 648 16 023 17 473

Motor Scheme Management 12 447 12 344 12 435 12 331

Business Unit Training - 9 - 9

Other short term costs 72 106 131 322 72 073 131 287

Retirement benefit plans 322 621 304 191 320 874 302 506

Long-term benefits – incentive scheme 5 865 6 112 5 754 5 995

3 755 608 3 403 293 3 736 307 3 384 769

165



33. Depreciation, amortisation and impairment losses

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

The following items are included within depreciation, amortisation and impairment losses:

Depreciation

Property, plant and equipment 137 043 107 966 136 208 106 745

Amortisation

Intangible assets 39 979 37 349 39 976 37 344

Inventory write down

Allowance for inventory write down 2 933 (2 029) 2 933 (2 029)

Total depreciation, amortisation and impairment

Depreciation 137 043 107 966 136 208 106 745

Amortisation 39 979 37 349 39 976 37 344

Impairment losses 2 933 (2 029) 2 933 (2 029)

179 955 143 286 179 117 142 060

166



34. Investment income

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Dividend income

Equity instruments at fair value through profit or loss:

Unlisted investments – Local 230 4 521 - 4 250

Interest income

Investments in financial assets:

Bank and other cash 797 024 788 746 795 819 787 194

Loans receivable at amortised cost (46) - (46) -

Other financial assets 36 168 36 714 36 044 37 231

Total interest income 833 146 825 460 831 817 824 425

Total investment income 833 376 829 981 831 817 828 675

Investment income on financial instruments which are available for sale or held to maturity are only presented for comparative purposes for financial instruments held in the prior reporting period but which were disposed of prior to the beginning current reporting period, which is the date of adoption of IFRS 9 Financial Instruments. Investment income on all other financial assets has been reclassified in compliance with IFRS 9.

167



35. Finance expense

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Postbank interest paid 96 607 97 956 96 607 97 956

Interest paid (bank) 689 2 297 621 -

Unwinding of site restoration provision 29 331 29 933 29 331 29 933

Term loan interest 64 104 309 911 62 036 307 794

Finance charges attributable to post-retirement employee benefits

645 482 670 934 645 316 670 776

Trade and other receivables discounting 30 814 24 307 30 814 24 307

Total finance costs 867 027 1 135 338 864 725 1 130 766

36. Fair value adjustments

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Fair value gains (losses)

Post Retirement Medical Aid asset and Provident Fund asset

43 969 70 784 43 969 70 784

The fair value gains and losses recognised in other financial assets are derived from financial assets subsequently measured at fair value through profit or loss and relate to the Post Retirement Medical Aid Asset as well as the Provident Fund Asset. Refer to note 12 for more detail.

168



37. Taxation

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Major components of the tax expense

Current

Local income tax – current period 425 378 - -

Deferred

Originating and reversing temporary differences - (282) - -

425 96 - -

Reconciliation of the tax expense

Reconciliation between applicable tax rate and average effective tax rate.

Applicable tax rate 28,00% 28,00% 28,00% 28,00%

Exempt income -13,19% -16,56% -13,03% -16,38%

Disallowable charges 14,19% 17,23% 14,07% 17,15%

Net deferred tax not raised 135,80% 139,41% -52,74% -54,02%

Effective tax rate 164,81% 168,08% -24% -25%

169



38. Other comprehensive income

Components of other comprehensive income group – 2019

R ‘ 000 R ‘ 000 R ‘ 000

gross Tax Net

Items that will not be reclassified to profit or loss

Remeasurements on net defined benefit liability/asset

Actuarial losses arising during the year 164 444 - 164 444

Asset Ceiling (246 541) - (246 541)

(82 097) - (82 097)

Items that may be reclassified to profit or loss

Other comprehensive income financial assets adjustments

Gains (losses) arising during the year 10 237 - 10 237

Total (71 860) - (71 860)

Components of other comprehensive income – group – 2018

R ‘ 000 R ‘ 000 R ‘ 000

gross Tax Net

Items that will not be reclassified to profit (loss)


Actuarial losses arising during the year (230 013) - (230 013)

Asset Ceiling 49 263 - 49 263

(180 750) - (180 750)

Items that may be reclassified to profit (loss)



Total (169 181) - (169 181)

170



38. Other comprehensive income (continued)

Components of other comprehensive income – Company – 2019

R ‘ 000 R ‘ 000 R ‘ 000

gross Tax Net

Items that will not be reclassified to profit or loss


Actuarial losses arising during the year 163 894 - 163 894

Asset Ceiling (246 541) - (246 541)

(82 647) - (82 647)




Total (72 410) - (72 410)

Components of other comprehensive income – Company – 2018

R ‘ 000 R ‘ 000 R ‘ 000

gross Tax Net

Items that will not be reclassified to profit (loss)


Actuarial losses arising during the year (229 917) - (229 917)

Asset Ceiling 49 263 - 49 263

(180 654) - (180 654)




Total (169 085) - (169 085)’

No tax figures are disclosed in this note as they are disclosed as unrecognised deferred tax items. refer to note 13.

171



39. Cash used in operations

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000


Adjustments for:

Depreciation, amortisation and impairment 179 955 143 286 179 117 142 060

Other non-operating income (138 352) - (138 352) -

Interest & dividends income (833 376) (829 981) (831 817) (828 675)

Finance paid 867 027 1 135 338 864 725 1 130 766

Fair value adjustments (43 969) (70 784) (43 969) (70 784)

Non-cash income for writing off leave pay (120 934) (120 934)

Fixed assets written off to P/L 14 848 2 792 14 804 2 619

(Increase) decrease in operating lease assets and accruals

3 662 34 627 3 713 35 567

(Increase) decrease in retirement benefits 23 656 (85 534) 23 656 (85 534)

Increase (decrease) in provisions (125 042) (38 747) (124 855) (41 232)

Interest free benefit (Non-cash government grant) (11 133) - (11 133) -

Asset acquisitions – non-cash movement (69 813) (73 305) (69 681) (73 156)

Discounting of Financial instruments (40 699) (55 076) (40 699) (55 076)

Other non-cash items (11 799) (14 046) (4 550) (17 085)

Changes in working capital:

Inventories (1 791) 8 502 (1 647) 8 662

Trade and other receivables (1 240 280) (58 856) (1 246 165) (69 740)

Prepayments 7 433 7 865 7 433 7 865

Trade and other payables 144 002 541 320 164 181 563 180

Other deposit (grants) 621 619 - 621 619 -

Deferred income (33 790) 12 723 (33 821) 15 815

Deposits from the public 48 982 69 561 48 982 69 561

Funds collected on behalf of the third parties 232 902 198 849 232 902 198 849

Government grants (38 373) 156 231 (38 373) 156 231

(1 543 610) (40 366) (1 541 831) (40 770)

172



40. Tax paid

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Balance at beginning of the year (438) (736) - -

Current tax for the year recognised in profit or loss (425) (378) - -

Balance at end of the year (31) 438 - -

(894) (676) - -

173



41. Commitments

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Authorised capital expenditure

Capital expenditure authorised by the board of directors at reporting date, but not yet recognised in the annual financial statements are as follows:

Contracted for and authorised:

Property, plant and equipment 42 542 12 100 42 542 12 100

Intangible assets 17 764 52 273 17764 52 142

Total commitments 60 306 64 373 60 306 64 242

Capital commitments treatment

This committed expenditure will be financed by existing cash resources.

Capital commitments are disclosed in respect of contracted amounts for which delivery is outstanding at the accounting date.

Capital Commitments represent goods or services that have been ordered, but no delivery has taken place at the reporting date. These amounts are not recognised in the statement of financial position as a liability or as expenditure in the statement of comprehensive income, but are how-ever disclosed as part of the disclosure notes. Management expects these capital commitments to be financed from in-ternally generated cash and other borrowing.

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Operating leases – as lessee (expense)

Minimum lease payments due

– within one year 153 659 220 662 151 808 218 820

– in second to fifth year inclusive 515 990 540 217 513 330 538 983

– later than five years 290 770 69 753 290 770 69 152

960 419 830 632 955 908 826 955

174



41. Commitments (continued)

None of the lease agreements contain any contingent rent clauses and it is assumed that there are no contingent rent payments. It is also assumed that there are no restrictions that would impose additional debts that are not covered in the minimum contract terms. Rental payments are based on a rate per square meter relating to the prevalent market rate at the inception of each contract. Escalation clauses vary from contract to contract averaging at 7% (2018: 8%). Contract renewal option is assumed to be exercised by the Company, unless decided otherwise by Management.

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Minimum lease payments due – Vehicles

– within on year 95 970 5 253 95 970 5 253

– in second to fifth year inclusive 117 431 117 431

213 264 5 253 213 264 5 253

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

The lease period ranges from two to five years at interest rates at Prime minus 2% to Prime plus 2,25%. The vehicles are being utilised for the delivery of parcels and mail.

Operating leases – as lessor (income)

Minimum lease payments due

– within one year 26 843 14 385 26 843 12 315

– in second to fifth year inclusive 55 978 31 497 55 978 27 956

– later than five years 2 911 6 146 2 911 6 146

85 732 52 028 85 732 46 417

Rental income has been based on a rate per square meter relating to the prevalent market rate at inception of each contract. Escalation clauses vary from contract to contract with an average of 8% (2018 : 8%}. Lease agreements are entered into for a minimum of two years to a maximum of three year period. Contract renewal option period is assumed to be exercised by the Company, unless decided otherwise by Management. None of the lease agreements contain any contingent rent clauses.

175



42. Contingencies

42.1 Contingent Liabilities

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

The following contingent liabilities were identified:

Civil and Service providers 312 536 288 610 310 943 287 832

Labour cases 49 482 28 691 49 482 28 691

Total contingencies 362 018 317 301 360 425 316 523

42.1.1 Civil and Service providers

Various proceedings were instituted against the Post Office Group during the 2019 and the previous financial years. The amounts being claimed from the Group total approximately R312 million (2018: R288,6 million). The Group’s legal advi-sors believe that the Group has reasonable defences against the claims and that the probability of loss will be minimal. Accordingly, no provision has been made in the consolidat-ed annual financial statements with regard to these cases.

Included above are the following individually material claims:

1.1. A R140,2 million being an alleged breach of contract by South African Post Office resulting in damages incurred by the claimant. This case alone constitutes approximately 40% of the total amount claimed under civil matters for the year under review

1.2. The Group also incurred various minor claims totalling approximately R171,8 million. The nature of these cases in-

clude amongst others the claims against Post Office relat-ing to lost parcels, motor vehicle accident claims by third parties and damages suffered by service providers for late payment by South African Post Office of invoices for ser-vices rendered or goods delivered.

South African Post Office is insured for motor vehicle ac-cidents and thus these possible liabilities will be reimbursed by the insurance Company.

42.1.2 Labour cases

The Group has contingent liabilities in respect of labour claims due alleged unfair dismissals and unfair labour prac-tices amounting to R49,4 million (2018: R28,6 million). lncludeded in these labour cases are cases which the CCMA has already ruled in favour of the South African Post Office however the former employee applied for the review of the award. The claims included are not individually material.

176



42. Contingencies (continued)

42.2 Contingent AssetsThe following contingent assets were identified:

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Civil claims 13 460 12 908 10 920 8 379

The contingent assets include various cases were Post Office is a plaintiff. The nature of the cases include amongst others the motor vehicle accident claims, employee’s fraud etc. These matters remain contingent as the probabilities of successfully defending the cases remains uncertain.

43. Related parties

Relationships

Ultimate holding company South African Government

Holding company South African Post Office SOC Ltd (Post Office)

Subsidiaries Refer to note 8

Members of key management Refer to note 44

Shareholders with significant influence The Department of Telecommunications and Postal Services

National Treasury

Post employment benefit plan for employees Post Office Retirement Fund

Other relationships SA Government Entities

177



43. Related parties (continued)

Inter group transactions and balances

Balances and transactions between the Company and its subsidiaries, which are related parties of Post Office, have been eliminated on consolidation. Details of transactions between the Group and other related parties are disclosed below.

Terms loans: Unsecured, interest free and no repayment date.

Terms receivables: Unsecured, interest at prime and no re-payment date.

Inter governmental transactions and balances

Inter governmental transactions and balances refers to transactions and balances between Post Office and other government entities.

Only individually significant transactions and balances are disclosed. According to the materiality framework of Post Office, the significant threshold is R100 million. Transactions and balances that are not at arm’s length are considered to be significant even if they are below the R100 million threshold. All inter governmental transactions have been made at arm’s length.

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Related party balances

Intercompany loans and long term receivables

Post Office Properties (Bloemfontein) (Pty) Ltd - - 120 56

Post Office Properties (Erf 145 018 Cape Town) (Pty) Ltd - - 59 212

Post Office Properties (East Rand) (Pty) Ltd - - 1 141 93

Post Office Properties (PE) (Pty) Ltd - - 235 401

Post Office Properties (Rossburgh) (Pty) Ltd - - 607 1 188

The Courier and Freight Group (Pty) - - 704 524 693 762

Ltd The Document Exchange (Pty) - - 337 1 637

Ltd Postbank SOC Limited - - 4 267 2 192

178




group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Amounts included in trade payables

Other public entities 122 661 72 052 122 661 72 052

South African Social Services Agency 485 596 - 485 596 -

Amounts included in trade receivables



Transactions with subsidiaries

The Document Exchange (Pty) Ltd - - 9 438 7 907

The Courier and Freight Group (Pty) Ltd – Sales - - 8 637 6 373

Postbank SOC Limited – Directors Fees - - 2 076 2 172

grant subsidy balance

Department of Telecommunications and Postal Services 299 870 422 357 299 870 422 357

179




group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Investments

Land & Agricultural Bank 442 421 591 927 442 421 591 927

Related party transactions

Other transactions

Department of Telecommunications and Postal Services – Grant subsidy (Movement)

- 240 000 - 240 000

Department of Telecommunications and Postal Services – Recapitalisation funds

2 947 000 3 700 000 2 947 000 3 700 000

South African Social Services Agency – Advance payment 541 000 - 541 000 -

Purchases from related parties

Telkom SA Limited 161 484 120 715 161 484 120 715


Sales to related parties

Universal Service and Access Agency of South Africa 99 386 116 151 99 386 116 151


South African National Roads Agency Limited 100 790 - 100 790 -


180




group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Transactions with authorities & regulators

South African Revenue Services (Employee Tax & other taxes)

674 371 645 325 674 371 645 325

South African Revenue Services (VAT) 705 873 659 794 705 873 659 794

Unemployment Insurance Fund 110 517 118 980 110 517 118 980


Funds collected on behalf of the related parties

South African Broadcasting Corporation Limited Post 262 236 320 614 262 236 320 614

Office Retirement Fund 478 445 449 648 478 445 449 648

Eskom 329 286 529 620 329 286 529 620

Other public entities 32 509 - 32 509 -

The remuneration of directors and other members of key management amounted to R24,961 million (2018: R26,488 million). Refer to Note 44 to details on directors’ and prescribed officers’ emoluments.

The assets and liabilities of the post retirement fund and the post-retirement medical aid are valued through an independent valuation. Refer to Note 12 for the detailed disclosure.

* Postbank has been accounted for as a division of Post Office in this set of financial statements. However as part of supporting the application for the banking license, a separate entity Postbank SOC Limited has been registered with its own board of directors. The amount disclosed in this note relates to the remuneration of Postbank SOC Limited’s board members.

181



44. Director’s and prescribed officer’s emoluments

The following emoluments were paid to the directors or any individuals holding a prescribed office during the year:

Executive 2019

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Emoluments Other benefits1 Compensation for loss of office

Total

Mr MA Barnes (GCEO) 2 4 516 - - 4 516

Ms NJ Dewar 3 608 6 184 798

Ms L Kwele 4 3 336 23 - 3 359

Mr J Dlamuka 5 1 678 7 - 1 685

10 138 36 184 10 358

Executive 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Emoluments Other benefits1 Compensation for loss of office

Total

Mr MA Barnes (GCEO) 2 4 240 - - 4 240

Ms NJ Dewar 3 2 423 28 - 2 451

Ms L Kwele 4 2 587 19 - 2 606

9 250 47 - 9 297

1. Other benefits include mainly telephone and various travel related reimbursements.2. Appointed as Group CEO 15 January 2016. Also a director of Document Exchange.3. Appointed as GCFO on 12 December 2016. Also a director of Document Exchange. Retired 31 May 2018.4. Appointed as GCOO on 5 June 2017.5. Appointed as Acting GCFO on 1 June 2018.

Retired implies resigned, retired or dismissed.

182



44. Director’s and prescribed officer’s emoluments (continued)

Non-executive 2019

R ‘ 000 R ‘ 000 R ‘ 000

Directors’ emoluments1 Other fees Total

Ms MLD Marole 2 277 - 277

Dr LM Molefi 3 283 - 283

Mr ZC Ngidi (Chair Person) 4 917 - 917

Mr PE Rabohale 5 286 - 286

Ms NV Simamane 6 274 - 274

Mr ME Zakwe 7 424 - 424

Mr K Matthews 8 254 - 254

Adv G Rasethaba 9 370 - 370

Dr C Nwaila 10 340 - 340

3 425 3 425

Non-executive 2018

R ‘ 000 R ‘ 000 R ‘ 000

Directors’ emoluments1 Other fees Total

Ms MLD Marole 2 354 - 354

Dr LM Molefi 3 372 - 372

Mr ZC Ngidi (Chair Person) 4 848 - 848

Mr PE Rabohale 5 285 - 285

Ms NV Simamane 6 270 - 270

Mr ME Zakwe 7 495 - 495

Mr K Matthews 8 377 - 377

3 001 3 001

1. Emoluments include both directors’ fees for meetings and annual I quarterly retainer fees. Travel and accommodation expenses for members outside the Gauteng province.

2. Appointed 15 August 2015.3. Appointed 15 August 2015. Also the Chairperson of Document Exchange.4. Appointed 15 August 2015. Chairperson of the Board from 13 March 2017 and director of Document Exchange.5. Appointed 15 August 2015.6. Appointed 01 April 2018. Also appointed to the audit committee from 20 September 20187. Appointed 15 August 2015. Also the Chairperson of the Audit Committee8. Appointed 1 October 2016.9. Appointed 01 April 2018. Also appointed to the audit committee from 20 September 201810. Appointed 01 April 2018. Also appointed to the audit committee from 20 September 2018


183




Prescribed officers 2019

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Emoluments Other benefits 1Compensation

for loss of officeTotal

Mr CA Phillips 2 1 662 23 1 685

Ms AR Seafield 3 1 370 20 59 1 449

Mr DMM Mncwabe 4 537 6 217 760

Mr NST Ndhlazi 5 431 2 27 460

Mr M Salojee 6 158 2 78 238

Mr Nl Tolom 7 278 4 142 424

Mr S Adam 8 2 666 23 - 2 689

Mr D Dada 9 1 138 23 - 1 161

Mr N Ruthnam 10 871 6 - 877

Mr JT Nanyane 11 427 7 - 434

Mr lA Nongogo 12 978 18 - 996

Ms S Myburg 13 216 1 - 217

Mr S Xaba 14 474 4 - 478

11 206 139 523 11 868

1. Other benefits include mainly telephone and various travel related reimbursements.2. Chief Audit Executive.3. GE: Human Capital Management. Retired 31 January 20194. Group CIO. Retired 30 June 20185. GE: Strategy and Sustainability. Also a director of Document Exchange. Retired 6 July 20186. GE: Governance and Regulation. Also a director of Document Exchange. Retired 30 April 20187. GE: Commercial. Retired 31 May 2018.8. Acting MD: Postbank.9. Company Secretary from 1 August 2017.10. Appointed as Acting GE: Strategy on 7 July 2018.11. Appointed as Acting GE: Governance and Compliance on 1 July 201812. Appointed as Acting CIO on 3 September 2018. Workflow appointment13. Appointed as Acting GE: Human Resources on 22 January 201914. Appointed as Acting GE: Operations on 1 November 2018. GE: Operations appointed on 1 April 2019


184




2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Emoluments Other benefits 1Compensation

for loss of officeTotal

Mr CA Phillips 2 1 562 23 - 1 585

Ms AR Seafield 3 1 543 23 - 1 566

Mr DMM Mncwabe 4 2 138 23 - 2 161

Mr NST Ndhlazi 5 1 591 21 - 1 612

Mr M Salojee 6 1 885 23 - 1 908

Mr Nl Tolom 7 1 659 23 - 1 682

MrS Adam 8 2 504 21 - 2 525

Mr JD Niewoudt 9 381 - 42 423

Mr D Dada 10 712 16 - 728

13 975 173 42 14 190

1. Other benefits include mainly telephone and various travel related reimbursements.2. Chief Audit Executive.3. GE: Human Capital Management.4. Group CIO.5. GE: Strategy and Sustainability. Also a director of Document Exchange.6. GE: Governance and Regulation. Also a director of Document Exchange.7. GE: Commercial. Appointed 1 November 2015.8. Acting MD: Postbank.9. Acting Group Company Secretary from 1 August 2016. Retired 31 May 2017. Appointed on Contract 1 June 2017. End

of contract 31 August 201710. Appointed Group Company Secretary from 1 August 2017

Retired implies resigned, retired or dismissed

185



45. Comparative figures and prior period errors

The comparative figures for the separate and consolidated annual financial statement has been restated due to reclassification corrections and adoption of new accounting standards. The effects of the restatements are as follows:

Non-Current Assets Audit AFS 2018 Restatement Restated amount 2018

R’ 000 R’ 000 R’ 000

Property, plant and equipment *1 2 260 857 (510) 2 260 347

Investment property *1 191 637 510 192 147

Intangible assets *2 122 430 492 122 922

2 574 924 492 2 575 416

1. A property that qualifies to be classified as an investment property was erroneously classified as property, plant and equipment in 2018 financial year. A correction of this misstatement resulted in a restatement above.

2. Intangible assets restated with an assets that was incorrectly expensed. The asset was available for use in 2016 financial year and had a carry value of R0,492 million as at 31 March 2018 (R6,396 million as at 31 March 2017).

These restatements had a similar effect on the group balances.

Current Assets Audit AFS 2018 Restatement Restated amount 2018

R’ 000 R’ 000 R’ 000

Other financial assets *1 5 047 794 1 010 866 6 058 660

Cash and cash equivalents *1 4 231 385 (1 001 620) 3 229 765

Trade and other receivables *2 464 128 (8 403) 455 725

9 743 307 843 9 744 150

1. The group previously classified short term financial investments with the maturity date of less than 90 days as cash and cash equivalents (short-term deposits) sighting the liquidity nature of those investments. These investments have been reclassified/ restated to other financial assets to comply with IFRS requirements. These reclassification also had the same restatement effect in 2017 financial year, Other Financial Assets increase by R983,7 million to R6,103 billion and Cash Equivalents decreased by R977,2 million to R3,056 billion.

2. Trade and other receivables was restated due to the change in accounting policy. The change in accounting policy was triggered by adoption of the new accounting standard (IFRS 9) for the first time in the current financial. 2017 balances also restated by R3,08 million.

These restatements had a similar effect on the Group balances.

186



45. Comparative figures and prior period errors (continued)

Liabilities Audit AFS 2018 Restatement Restated amount 2018

R’ 000 R’ 000 R’ 000

Provision for long service cash awards *1 45 249 (2 013) 43 236

Provision for leave pay *2 22 294 86 955 109 249

Deferred income *3 221 075 (14 115) 206 960

Trade and other payables *4 1 349 182 20 040 1 369 222

Funds collected on behalf of third parties *4 284 387 14 976 299 363

Net effect in accumulated loss 1 922 187 105 843 2 028 030

1. The provision for long service cash award for one of Post Office’s subsidiaries was erronously included in the provision for Post Office company. The Group’s provision remains correct and unchanged while the correction was effected between the companies. Restatement for 2017, R1.84 million.

2. The company used incorrect assupmtions to estimate leave liability provision in the prior year. The mistatement resulted in a material restatement of R86.9 million in 2018 financial year (R0, in 2017).

3. The deferred income was erronously misstated in the prior year. Restatement for 2018, R14.1 million and 2017, R23.5 million.

4. The adjustments made in trade and other paybles and funds collected on behlf of a third party and to a certain extent in trade and other receivables together with cash and cash equivalents was due to reclassification as a result of incorrect mapping in the prior years. These reclassification also has an impact in 2017 balances.

187




Profit & Loss Audit AFS 2018 Restatement Restated amount 2018

R’ 000 R’ 000 R’ 000

Revenue 4 401 564 92 090 4 493 654

Other income 43 949 2 676 46 625

Operating expenses (1 411 859) (98 564) (1 510 423)

Employee costs (3 296 634) (88 135) (3 384 769)

Transport costs (278 771) (2 678) (281 449)

Total depreciation, amortisation and impairments (140 496) (1 564) (142 060)

(682 247) (96 175) (778 422

188




The cash flow statement was restated to reflect the cor-rected mistatements in the balance sheet and the income statement.

These restatements had a similar effect on the group bal-ances.

DisclosuresRelated party note

Transactions with subsidiaries amounting to R16,5 million were omitted on the related party disclosure. There is no impact in the income statements, statement in changes in equity, statement of cash flow and the statement of finan-cial position.

The receivable balance with Postbank was disclosed at in-correct amounts because it was not updated with the final figures as per prior year financial statements. The extent of

the error is R0,7 million. There is no impact in the income statements, statement in changes in equity, statement of cash flow and the statement of financial position.

Transactions with other significant related parties were dis-closed at incorrect amounts. Telkom transactions were un-derstated by R65,8 million while Usassa was overstated by R100,5 million. The error occurred because they were not updated with final figures as per the trial balance. There is no impact in the income statements, statement in changes in equity, statement of cash flow and the statement of fi-nancial position.

Contingent liabilities

In the prior year bank guarantees were incorrectly treated as contingent liabilities. The nature of these bank guaran-tees did not meet the definition of contingent liabilities. The impact of the error is R8,6 million for the group and R6,5 million for the company.

Cash Flow Audit AFS 2018 Restatement Restated amount 2018

R’ 000 R’ 000 R’ 000

Cash used in operations (81 913) 41 143 (40 770)

Interest and dividend Income 824 425 (614 270) 210 155

Finance paid (1 130 924) 725 174 (405 750)

Movement in financial assets (2 574) 60 315 57 741

Movement in deposits from public 35 819 13 163 48 982

Movement in funds collected on behalf of third parties

195 292 37 610 232 902

Movement in intergroup loan (1 950) (1 395) (3 345)

Dividend received 4 250 (4 250)

(157 575) 257 490 99 915

189



46. Financial instruments and risk management

Capital risk management

Capital risk refers to the risk that the Group will become unable to absorb losses, maintain public confidence and support the competitive growth of the business. The man-agement of capital risk will ensure that opportunities can be acted on timeously while solvency is never threatened.

The group’s objectives when managing capital are to safe-guard the group’s ability to continue as a going concern in order to provide returns for shareholder and benefits for oth-er stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

The capital structure of the Group consists of debt which includes the borrowings (excluding derivative financial liabili-ties) disclosed in note 9,20,21&23, equity disclosed in note 18 and cash and cash equivalents disclosed in note 17 in the statement of financial position.

The group monitors capital on the basis of the gearing ratio.

This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including ‘current

and non-current borrowings’ as shown in the statement of financial position) less cash and cash equivalents. Total capital is calculated as ‘equity’ as shown in the statement of financial position plus net debt.

The group’s exposure to capital risk arises from primarily the following:

• Funds which are being received from the shareholder may cease before completion of the projects that they are intended to be financed; and

• Funds received from the shareholder are specifically for certain identified projects.

Capital risk is managed in terms of certain guidelines agreed between the group and shareholder. There are no externally imposed capital requirements.

There have been no changes to what the entity manages as capital, the strategy for capital maintenance or externally imposed capital requirements from the previous year.

The gearing ratio at 31 March 2019 and 31 March 2018 re-spectively were as follows:

190



46. Financial instruments and risk management (continued)

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Financial liabilities at amortised cost 20 401 482 - 401 482 -

Financial liabilities at fair value 21 - 400 305 - 400 305

Operating lease liability 11 43 635 45 243 43 187 44 887

Trade and other payables 23 1 586 903 1 442 900 1 533 403 1 369 222

Other deposits (grants) 25 621 619 - 621 619 -

Deposits from public 26 5 150 268 5 101 285 5 150 268 5 101 285

Total borrowings 7 803 906 6 989 733 7 749 959 6 915 699

Cash and cash equivalents 17 (6 186 856) (3 241 211) (6 167 380) (3 229 765)

Net borrowings 1 617 050 3 748 522 1 582 579 3 685 934

Equity 5 186 400 3 414 801 5 184 322 3 423 580

Gearing ratio 31 % 110% 31 % 108%

191




Financial risk managementOverview

The group is exposed to the following risks from its use of financial instruments:

• Credit risk;• Liquidity risk; and• Market risk (currency risk, interest rate risk and price risk).

The group’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk.

A comprehensive treasury policy has been compiled and approved by the board to ensure that all financial risks to which the group is exposed are understood and managed. The treasury policy covers all key areas of risk management namely identification, measurement, management and reporting of risk. Governance structures are in place to achieve effective independent monitoring and management of market risks through:

• The group’s Asset and Liability Management (“ALM”) function that is responsible for the day to day monitor-ing, evaluation and reporting of all market risks;

• The board’s Group Risk Committee which is responsi-ble for ensuring that from a strategic perspective, risk is handled as an area of competitive advantage and a key source of innovation.

Finance risk management objectives

The Group’s ALM function monitors and manages mar-ket risks relating to the treasury operations of the Group through internal risk reports which analyse the degree and magnitude of risks. These risks include fair value interest rate risk, currency risk, credit risk, liquidity risk and cash flow interest rate risk.

The Group seeks to minimize the effects of the negative im-pact of these risks by ensuring compliance with the treasury policy limits and benchmarks with regard to the following:

• Proposed money market investment strategies do not result in the breach of asset/liability mismatch gap limit; Ensuring that the net interest income volatility is within approved benchmark;

• Adequate overnight liquidity limit is complied with by having sufficient overnight callable balances;

• The South African Post Office (SOC) Limited’s credit ex-

posure in the investment portfolio is diversified across a range of acceptable counterparties and the maximum investment with a particular counterparty will be limited to 25% of the total counterparty should be limited to 50% + 1 of the total investment and not exceeding R25 million investments. Where the amount to be invested per counterparty is less than or equal to R50 million, the minimum investment with any one counterparty should be limited to 50% + 1 of the total investment and not exceeding R25 million; and

• Instruments limits are set to avoid excess concentra-tion in any given financial investment instrument.

Overall the Group’s main financial risk management objec-tive is to ensure enhanced return within the risk profiles or parameters approved by the Board.

Fair value assumptions of financial instruments

The fair value of financial assets and financial liabilities are determined as follows:

• The fair value of financial assets and financial liabilities with standard terms and conditions and traded on ac-tive liquid markets is determined with reference to quoted market prices;

• The fair value of other financial assets and financial lia-bilities (excluding derivative instruments) is determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions and dealer quotes for similar instruments; and

• The fair value of foreign currency forward contracts is measured using quoted forward exchange rates and in-terest rate differential between local and foreign rates derived from quoted interest rates matching maturities of contracts.

Valuation of unlisted shares in gidani Management (Propriety) LTD.

The group had previously owned an equity stake of 1 125 shares in Uthingo Management (Ply} Ltd. The liquidation of Uthingo Management (Ply} Ltd was finalised in the financial year ending 31 March 2010.

Subsequent to the liquidation of Uthingo Management (Pty) Ltd, the group had been allocated 100 ordinary shares in Gidani Management (Pty) Ltd, which represent 10% of

192




Gidani shares. The shares were allocated to the South Afri-can Post Office (SOC) Limited by the Department of Trade and Industry on 28 July 2010.

The fair value of the South African Post Office (SOC) Limited’s stake in Gidani was determined by management to be zero. The discounted cash flow model was used in the determination of the fair value of the South African Post Office (SOC) Limited’s shareholding in Gidani.

Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in the financial loss to the Company.

The Company’s exposure to credit risk arises primarily from credit sales to its clients and money market investment activities. Credit risk is managed in terms of the Board approved Company treasury risk policy, which in turn encompasses comprehensive credit procedures, limits and governance structure. Formal credit ratings are utilised in the credit evaluation process of the counterparties.

The minimum credit ratings for counterparties are Fitch Na-tional Long Term Rating ‘A’ and Fitch National Short term Rating ‘F1’ The credit quality of counterparties is monitored by the Company ALM function. The Company credit expo-sure is diversified across a range of acceptable counterpar-ties and the maximum investment with any counterparty is limited to 25% of total investments. All counterparty limits are reviewed in line with the balance sheet growth and at least on an annual basis.

It is the responsibility of the Company ALM function to monitor compliance with the approved counterparty credit limits and any breach is reported to the monthly Company ALCO meeting.

Activities in managing credit risk at Company ALCO meet-ings are reported to the Company Risk Committee of the board on a quarterly basis.

The carrying amounts of financial assets recorded in the financial statements represents the Company’s maximum exposure to credit risk. The Company is further exposed to the credit risk as a result of the housing guarantees that it issues on behalf of a certain category of its employees. At year-end the maximum amount the Company could have to pay if the guarantees are called on amounts to R0,37 million, (2018: R0,34 million).

All financial assets except for those that are measured at fair value through profit or loss are assessed to determine any evidence of impairment. Any deterioration in any counterparty credit rating is regarded as evidence of impairment. During the course of the year, there was no evidence of impairment observed in amortised cost financial assets and fair value through other comprehensive income (OCI) assets held by the Company.

The Company credit risk is considered to be limited because all its investment counter parties are major banks with high credit ratings and other investments are in Government and liquid corporate paper. The credit risk profile and quality of the Company’s investment counter parties is considered to be sound, well managed and commensurate with the risk appetite of the board.

The company’s credit exposure is a fair representation of the credit risk for the entire group. The subsidiaries account for less than 1% of the credit sales.

The maximum exposure to credit risk is presented in the table below:

193




Company 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

gross carrying amount

Credit loss allowance

Amortised cost / fair

value

gross Carrying amount

Credit loss allowance

Amortised cost I fair

value

Loans to group companies

9 709 149 (704 524) 4 625 692 726 (689 380) 3 346

Operating lease asset 11 6 339 - 6 339 4 326 - 4 326

Trade and other receivables

16 1 779 314 (77 424) 1 701 890 577 058 (121 333) 455 725

Cash and cash equivalents

17 6 167 380 - 6 167 380 3 229 765 - 3 229 765

8 662 182 (781 948) 7 880 234 4 503 875 (810 713) 3 693 162

Liquidity risk

Liquidity risk is the risk that the Group will not be able to meet both expected and unexpected current and future cashflow needs without negatively affecting either the daily operations or the financial condition of the Group.

The Group’s exposure to liquidity risk arises mainly as a re-sult of the following:

• Unexpected withdrawal of cash by Postbank clients;• Daily working capital requirements; and• The Group has signed contracts with third parties

where its retail network is used as a collection agent for municipalities and other institutions. All contracts stipulate that funds collected for third parties are paid over to them after 24 hours.

Liquidity risk is managed in terms of the board approved treasury policy with appropriate dashboard liquidity risk pro-files which are monitored by the Group’s ALM function. The management of liquidity risk and particularly the Group’s cash flows is strongly focused on the short to medium term to ensure that the Group ALM function and the Treasury are quick to respond to immediate cash flow requirements under different stress scenarios. On a quarterly basis, the

Group ALM function performs behavioural and stress analy-ses to identify business as usual as well as potential stress cash flow requirements.

The Group manages its daily liquidity by having cash reserves on overnight call balances of at least R250 million and maintaining overdraft credit facilities with all the major banks. The Group ALM function monitors the forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities of the banking division.

At year end, the Group had overnight call balances of R3, 333 million (2018:R1, 085 million).

The table below analyses the Group’s financial liabilities and net settled derivative financial liabilities into relevant maturity groupings based on the remaining period at the statement of financial position to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances as the impact of discounting is not significant.

The liquidity risk table below shows the contractual maturity gap at period end.

194




group 2019

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

OvernightLess than 3 months

between 3 and 12 months

greater than 1 year

Total

Cash and cash equivalents 17 6 186 856 - - - 6 186 856

Investments 10 1 074 531 3 024 887 - 4 099 418

Other financial assets (PRMA & Centriq) 10 1 223 304 - - - 1 223 304

Trade and other receivables 16 - 1 711 847 - - 1 711 847

Other deposits (grants) 25 (621 619) - - - (621 619)

Deposits from public 26 (5 036 554) (54 557) (29 423) (29 734) (5 150 268)

Funds received from third parties 27 (532 265) - - - (532 265)

Trade and other payables 23 - (1 586 903) - - (1 586 903)

Financial Liabilities at amortised costs 20 - - (126 468) (275 014) (401 482)

Retirement benefit obligation 12 - (43 185) (129 932) (1 233 804) (1 406 921)

1 219 722 1 101 734 2 739 064 (1 538 552) 3 521 968

group 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000



greater than 1 year

Total


Investments 10 1 195 754 4 554 967 - 5 750 721


Trade and other receivables 16 - 471 567 - - 471 567


Funds received from third parties 27 (299 363) - - - (299 363)


Financial liabilities at fair value 21 - - (400 305) - (400 305)

Retirement benefits obligation 12 (38 807) (116 422) (1 272 143) (1 427 372)

(852 926) 140 935 3 964 004 (1 281 254) 1 970 759

195




Company 2019

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000



greater than 1 year

Total


Investments 10 1 074 531 3 024 887 - 4 099 418


Trade and other receivables 16 - 1 701 890 - - 1 701 890

Other deposits (grants) 25 (621 619) - - - (621 619)


Funds collected on behalf of third parties 27 (532 265) - - - (532 265)


Financial liabilities at amortised cost 20 - - (126 468) (275 014) (401 482)

Retirement benefits obligations 12 - (43 185) (129 932) (1 233 804) (1 406 921)

1 821 865 1 145 276 2 739 064 (1 538 552) 4 167 653

Company 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000



greater than 1 year

Total


Investments 10 1 185 954 4 554 967 - 5 740 921


Trade and other receivables 16 - 455 725 - - 455 725


Funds collected on behalf of third parties 27 (299 363) - - - (299 363)


Financial liabilities at fair value 21 - - (400 305) - (400 305)

Retirement benefits obligations 12 - (38 807) (116 422) (1 272 143) (1 427 372)

(864 372) 188 971 3 964 004 (1 281 254) 2 007 349

196




Foreign exchange risk

Foreign exchange risk is the risk of the decline in the earn-ings or realisable value in the net financial asset position of the group arising from adverse movements in foreign ex-change rates. The Group is exposed to foreign exchange risk as a result of exposures that arise from rendering of international postal services and products as well as capital imports that are sourced offshore. The Group manages the foreign currency exposures relating to international postal services through the utilisation of Universal Postal Union (UPU) approved netting agreements between South Africa and debtor and creditor countries. In the event where the exposure after netting exceeds the limit specified below, a forward foreign exchange contract is taken to hedge the foreign exchange risk.

The Group has a policy that manages foreign exchange risk arising from capital imports sourced offshore by utilisation of forward foreign exchange contracts as documented in the

board approved treasury policy. The treasury policy stipu-lates the following in respect of utilisation of forward cover:

• No forward cover is required where the currency expo-sure is less than R1 million in value and a 1% adverse exchange rate move does not result in a R0,5 million currency loss.

• Forward cover is taken where the exposure in respect of a specific foreign currency commitment is more than R1 million and 1% adverse move in the exchange rate results in the group experiencing a loss of more than R0,5 million. Actions taken in managing foreign ex-change risk at the group ALCO meetings are reported to the Group Risk Committee of the board on a quar-terly basis.

At year end the Group was exposed to the following foreign currency denominated financial assets and financial liabili-ties for which no forward cover had been taken out.

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Foreign currency exposure at the end of the reporting period

Financial Assets:

Euro 1 1 1 1

Special Drawing Rights 12 235 12 794 12 235 12 794

United States Dollar 80 90 80 90

Botswana 7 13 7 13

Financial Liabilities:

Euro 587 1 121 587 1 121

New Zealand Dollar - 20 - 20

Special Drawing Rights 9 390 11 031 9 390 11 031

Swiss Franc 3 3 3 3

United States Dollar 956 962 956 962

197




At year-end, the Group’s net income at risk from foreign exposure arose from the net asset currency position. A depreciation of 1% in the exchange rate would result in R0, 350 million foreign currency gain for the Group (2018: R0,40 million currency gain)

Interest rate risk

Interest rate risk is the risk that the Group’s earnings or eco-nomic value of the financial assets will decline as a result of changes in the interest rates.The Group’s exposure to inter-est rate risk arises primarily from the following:

Re-pricing risk (mismatch risk) – timing differences in the maturity and re-pricing of financial assets and financial liabili-ties; and

Investment risk on the Group’s surplus operational cash re-serves arising from adverse movements in the interest rates.

The interest rate risk is managed in terms of the board ap-proved treasury policy. The policy specifies a percentage gap or repricing mismatch between interest rate sensitive-financial assets and sensitive-financial liabilities which in turn is monitored and measured by the Group’s ALM func-tion. Interest rate limit breaches are reported at the ALCO meetings.

Appropriate interest rate risk dashboard indicators are compiled to provide the ALCO members with the necessary interest rate risk information on a monthly basis, including a measure of compliance with approved limits and benchmarks.

Cash flow interest rate risk

The table below reflect net interest income sensitivty for a given 1% up and downward shift in interest rates at year-end.

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Increase (Decrease)

1% increase in interest rates: 36 800 40 336 36 800 40 336

1% decrease in interest rates: (41 111) (40 480) (41 111) (40 480)

Fair value interest rate risk

The table below reflects the impact on the availalbity for sale equity reserve for a given 1% up and downward shift in interest rates at year-end.

Increase (Decrease)

1% increase in interest rates: (7 478) (9 447) (7 478) (9 447)

1% decrease in interest rates: 7 555 9 550 7 555 9 550

198




group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Loan Interest rate risk

The table below reflect net interest income sensitivity for a given 1% up and downward shift in interest rates at year-end.

Increase {Decrease)

1% increase in interest rates: - (4 000) - (4 000)

1% decrease in interest rates: - 4 000 - 4 000

Price risk

The table below reflects the impact on the Group’s income for a given 1% up and downward shift in market rates at period end:

1% increase in interest rates (10 381) (7 499) (10 381) (7 499)

1% decrease in interest rates 8 518 8 123 8 518 8 123

Method and assumptions: Sensitivity analyses of financial assets and liabilities

i. Fair value interest sensitivityOn Government and corporate bonds classified as avail-able for sale assets, the Group determines fair value interest sensitivity using quoted yield to maturity rates for specific Government and corporate bonds held by the Group. The Group calculates the fair value interest sensitivity for a one day horizon and is measured for a 1% parallel shift in the rates. For fair value sensitivity the Group treasury policy stipulates that a 1% adverse change in the rates should not result in a 0.75% capital loss in the portfolio over a one day period.

ii. Cash flow interest sensitivityThe Group calculates the cash flow interest sensitivity to determine interest at risk on held to maturity finan-cial assets and financial liabilities at amortised cost. The cash flow interest sensitivity includes all variable interest bearing financial assets and liabilities included in these categories. The sensitivity is calculated by in-terpolating along the Jibar and FRA quoted rates. The interpolation is performed to coincide with the maturi-ties and re-investments of the principal cash flows. The calculation of the cash flow interest sensitivity analy-sis is in line with the Group’s investment strategy. The cash flow sensitivity is measured for a 1% parallel shift in the rates.

iii. Equity risk sensitivityAt year-end, the Group had unlisted shares in Gidani Management (Pty) Ltd. The directors had used the dis-counted cash flow model to determine the fair value of the shares. The equity risk in the shares was con-sidered to be minimal as the equity holding was not exposed to the volatility of the stock market. On listed shares, the equity price risk is measured for 1% change in the share prices.

iv. Fair value of financial assets and financial liabilities recorded at a mortised costThe directors consider the carrying amount of financial assets and financial liabilities recorded at amortised cost and having a duration that is less or equal to twelve months as approximating their fair value. At year-end there were no financial assets and financial liabilities having a duration greater than twelve months that were carried at amortised cost.

v. Fair value measurements recognised in the state-ment of financial positionFor an analysis of financial instruments that are meas-ured subsequent to initial recognition at fair value, grouped into levels 1 to 3 based on the degree to which fair value is observable. See note 9.

199



47. Fair value information (property, plant and equipment, and investment property)

Fair value hierarchy

The table below analyses assets and liabilities carried at fair value. The different levels are defined as follows:

Level 1: Quoted unadjusted prices in active markets for identical assets or liabilities that the Group can access at measurement date.

Level 2: Inputs other than quoted prices included in level 1 that are observable for the asset or liability either directly or indirectly.

Level 3: Unobservable inputs for the asset or liability.

Recurring fair value measurements

group Company

2019 2018 2019 2018

Note(s) R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Assets

Heritage assets 6

Works of art 7 697 7 697 7 697 7 697

Stamps 36 348 36 348 36 348 36 348

Documents 259 259 259 259

Philatelic stationery 510 510 510 510

Other assets 1 433 1 433 1 433 1 433

Total heritage assets 46 247 46 247 46 247 46 247

Fair value through other comprehensive income (OCI)

10

Unlisted shares 122 645 113 514 122 645 113 514

Financial assets at fair value through profit (loss)

Other financial assets 733 295 747 232 733 295 747 232

Total 902 187 906 993 902 187 906 993

200



47. Fair value information (property, plant and equipment, and investment property) (continued)

Reconciliation of assets and liabilities measured at level 3

group 2019

R ‘ 000 R ‘ 000

Note(s) Opening balance Closing balance

Assets

Heritage assets 6


Stamps 36 348 36 348

Documents 259 259



Total heritage assets 46 247 46 247

Available for sale financial assets 10

Unlisted shares 113 514 113 514

Financial assets designated at fair value through profit (loss) - -

Other financial assets 2 747 232 747 232

Total 906 993 906 993

201




group 2018

R ‘ 000 R ‘ 000


Assets

Heritage assets 6


Stamps 36 348 36 348

Documents 259 259

Philatelic Stationery 510 510





Financial assets designated at fair value through profit (loss)


Liabilities

Financial liabilities at fair value through profit (loss) 21

Other financial liabilities 3 700 980 3 700 980

Total financial liabilities at fair value through profit (loss) 3 700 980 3 700 980

Total (2 862 465) (2 862 465)

202




Company 2019

R ‘ 000 R ‘ 000


Assets

Heritage assets 6


Stamps 36 348 36 348

Documents 259 259






Financial assets designated at fair value through profit {loss)


Total 906 993 906 993

203




Company 2018

R ‘ 000 R ‘ 000


Assets

Heritage assets 6


Stamps 36 348 36 348

Documents 259 259






Financial assets designated at fair value through profit (loss)


Liabilities

Financial liabilities at fair value through profit (loss) 21

Other financial liabilities 3 700 980 3 700 980

Total financial liabilities at fair value through profit (loss) 3 700 980 3 700 980

Total (2 862 465) (2 862 465)

204




Gains and losses recognised in profit or loss are included in Other income on the Statement of Comprehensive Income, except for gains and losses on financial assets and liabilities which have been included in fair value adjustments.

Gains and losses recognised in other comprehensive income are included in Gains and losses on property revaluation.

Valuation processes applied by the group

The fair value of standing timber is performed by the Group’s finance department and operations team, on a quarterly ba-

sis. The finance department reports to the Group’s Chief Financial Officer (CFO). The valuation reports are discussed with the Audit committee in accordance with the Group’s reporting policies.

The fair value of investment properties is determined by external, independent property valuers, having appropriate recognised professional qualifications and recent experience in the location and category of property being valued. The valuation Company provides the fair value of the Group’s investment portfolio every six months.

Post Office, as a state company, plays a strategic role in the provision of essential goods and services. The activities of Post Office impact on the quality, accessibility and afford-ability of services provided to the community, especially the poor and vulnerable.

In determining the appropriate basis of preparation of the financial statement, management are required to consider whether the group will continue in operational in the foreseeable future. The 2018/19 financial saw the group showing positive liquidity and solvency ratio (excluding Postbank). The group continues to show negative results from operation with the loss as at 31 March 2019 of R1,2 billion. Notwithstanding the loss from operation the group financial statement for the 2018/19 financial year were prepared on a going concern basis due to the following:

• Post Office signed a contract with SASSA for the pay-ment of social grants to approximately 11 million ben-eficiaries, based on the current forecasts gross revenue expected from this project is R1,9 billion per annual;

• During 2018/19 financial year the Department of Tel-ecommunications and Postal Services and National

Treasury approved the funding for the Universal Ser-vice Obligation/Public Service Mandate amounting to R1,5 billion over the MTEF period;

• During the 2018/19 mid – term budget adjustment Post Office was further allocated R2,9 billion to fund future capital expenditure, with more than R1,8 billion liquid assets at year end;

• During 2019/20 financial year Post Office will be lodging its E-commerce platform;

• During the 2019/20 financial year branch network will be rationalised to minimize rental costs, approximately 114 urban branches;

• Postbank: Granting of banking licence to Postbank is expected to be finalise during 2019/20 financial year;

Group restructuring and costs containment a phased ap-proach will be adopted to address the challenge of low pro-ductivity due to high staff numbers.

The directors believe that, the company will have adequate financial resources to continue in operation for the foresee-able future, and accordingly, the annual financial statements have been prepared on a going concern basis.

48. going concern

205



The Minister of Telecommunications and Postal Services has gazetted the incorporation of Post Bank SOC Ltd as separate state owned entity reporting to the South African Post Office SOC Ltd as a subsidiary with effect from 01 April 2019. Prior to this decision, Post Bank was a division of Post Office.

The directors are not aware of any other material event which occurred after the reporting date and up to the date of this report.

The effect of the separation in Post Office statement of financial position will be as follows:

49. Subsequent events and other significant events

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

AssetsPost Office (including Postbank)

Postbank Intercompany

transactions

Post Office (excluding Postbank)

Non-current assets 3 581 330 164 879 - 3 416 451

Loans to group companies - 137 784 137 784 -

Current assets 12 402 295 9 119 716 1 579 914 4 862 493

Total Assets 15 983 625 9 422 379 1 717 698 8 278 944

206



49. Subsequent events and other significant events (continued)

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

AssetsPost Office (including Postbank)

Postbank Intercompany

transactions

Post Office (excluding Postbank)

Equity and Liabilities

Equity and reserves 5 184 319 3 470 987 - 1 713 332

Loans to group companies - 137 784 137 784

Non-current liabilities 1 839 647 2 139 - 1 837 508

Current liabilities 8 959 658 5 949 253 1 579 914 4 590 319

Total Equity and Liabilities 15 983 624 9 422 379 1 717 698 8 278 943

Net Asset value

Total assets 15 983 625 9 422 379 - 8 278 944

Total Liabilities (10 799 306) (5 951 392) - (6 565 612)

Total Net Asset Value 5 184 319 3 470 987 1 713 332

Liquidity Test

Current assets 12 402 295 9 119 716 - 4 862 493

Less: Current liabilities (8 959 658) (5 949 253) - (4 590 319)

Net Liquid position 3 442 637 3 170 463 - 272 174

207



50. Fruitless and wasteful expenditure

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Reconciliation of fruitless and wasteful expenditure

Opening balance 311 082 295 794 293 493 280 008

Add: Fruitless & wasteful expenditure – current year 53 979 15 288 53 551 13 485

Add: Fruitless & wasteful expenditure – prior year 2 586 - 2 586 -

367 647 311 082 349 630 293 493

Analysis of waiting condonation per age classification

Current period 53 979 15 288 53 551 13 485

Prior years 313 668 295 794 296 079 280 008

Total 367 647 311 082 349 630 293 493

Fruitless & wasteful expenditure to the amount of R54 million relates to interest, fines and legal fees due to creditors not being paid as a result of Post Office’s financial constraints during the financial year.

208



51. Material losses due to criminal conduct

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Other incident (Fraud and theft) 36 501 11 037 36 501 11 037

The South African Post Office considers losses of R32 million and above to be material. There has been no single incident in the financial year where the materiality threshold was breached.

52. Irregular expenditure

group Company

2019 2018 2019 2018

R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Opening balance under investigation 1 049 515 940 948 1 000 291 891 724

Add: Current period irregular expenditure 182 761 109 500 182 097 108 567

Less: Amounts condoned – current year - (933) - -

Irregular expenditure awaiting condonation 1 232 276 1 049 515 1 182 388 1 000 291

Analysis of awaiting condonation per age classification

Current period 182 761 109 500 182 097 108 567

Prior years 1 049 515 940 015 1 000 291 891 724

Total irregular expenditure awaiting condonation 1 232 276 1 049 515 1 182 388 1 000 291

209



52. Irregular expenditure (continued)

Irregular expenditure is expenditure other than unauthor-ised expenditure incurred in contravention of, or that is not in accordance with, a requirement of any applicable legisla-tion, including

• the PFMA Act; or• the State Tender Board Act, 1968 (Act No. 86 of 1968),

or any regulations made in terms of that Act; or• any provincial legislation providing for procurement pro-

cedures in that Provincial Government.

Categories of irregular expenditure include:

• Irregular expenditure incurred as a result of non-compliance with a Treasury Regulation which required cognisance to be taken of a National Treasury de-termination. For example, a department, trading entity, constitutional institution or public entity procured goods or services by means of price quotations where the value of the purchase exceeded the threshold values determined by the National Treasury for price quotations;

• Irregular expenditure incurred as a result of institutions procuring goods or services by means other than through competitive bids and where reasons for de-viating from inviting competitive bids have not been recorded and approved by the accounting officer or accounting authority; and

• Irregular expenditure incurred as a result of non-com-pliance with a requirement of the institution’s delegation of authority framework issued in terms of the PFMA.

The South African Post Office (SOC) Limited started re-porting on irregular expenditure in the 2011 financial year in accordance with the PFMA requirement and continued accordingly. The South African Post Office (SOC) Limited is addressing the root causes resulting in irregular expenditure and it should also be noted that a total solution will only be achieved in the medium term due to the interventions con-sidered and currently being implemented.

The process to identify any other irregular expenditure is continuing in order to have these investigated and con-doned where relevant. Also, the expenditure was incurred or paid to address institutional requirements.

Post Office has an established Financial Misconduct Com-mittee (FMC) to review and to ensure that all “Financial Mis-conducts” within the Post Office Group of companies are managed in accordance with the requirements of the PFMA (Public Finance Management Act) and related regulations.

The process to identify any other irregular expenditure is continuing in order to have these investigated and con-doned where relevant. Also, the expenditure was incurred or paid to address institutional requirements. Investigations of irregular expenditure transactions revealed that

• All the transactions were legitimate business opera-tional expenses incurred in the interest of Post Office,

• No person/s are liable in law,• No losses/damages were incurred,• Post Office obtained value from these transactions• The non-compliance that resulted in Irregular expendi-

ture was and is currently being addressed,• Transactions of a similar nature were and are regularly

reviewed.

The amount of R1,232 million for the 2019 financial year relates to “irregular expenditure awaiting condonation” for Post Office Group, which includes an amount of R192,813 million that relates to the investigations of a particular con-tract which was one of the items in the SIU and Public Pro-tectors report.

Included in the group is an amount of R1,182 million (2018: R107,884 million) relates to “irregular expenditure awaiting condonation” for Post Office which includes an amount of R192,813 million that relates to the investigations of a par-ticular contract

The amount of R241k for the 2019 financial year relates to expenditure incurred in the prior years and the “irregular ex-penditure awaiting condonation” for CFG.

The amount of R423k for the 2019 financial year relates to “irregular expenditure awaiting condonation” for Docex.

210


Detailed Income Statement

group Company

2019 2018 2019 2018

Note(s) R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Revenue

Retail products 2 674 10 838 2 674 10 838

Service rendered: Postal 2 820 434 3 059 452 2 782 677 3 023 543

Rental income 122 473 59 778 120 231 57 651

Agency and money transfer services 610 794 524 227 610 794 524 227

Postbank interest revenue 422 777 457 256 422 777 457 256

Postbank net fee and commission revenue 1 380 969 325 519 1 380 969 325 519

Courier services 77 531 103 549 73 077 94 620

Total revenue 29 5 437 652 4 540 619 5 393 199 4 493 654

211



group Company

2019 2018 2019 2018

Note(s) R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Other operating income

Fees earned 4 197 3 995 4 197 3 995

Commissions received 6 148 3 042 6 148 3 042

Other recoveries 36 039 18 449 35 484 18 112

Skills development levy refund 6 021 6 021

Foreign exchange differences 12 706 8 109 12 706 8 109

Other income 36 262 14 074 36 187 13 367

Total other income 30 101 373 47 669 100 743 46 625

Expenses (Refer to page 209) (6 786 974) (5 357 912) (6 761 256) (5 318 701)

Loss before Interest and Taxation (1 247 949) (769 624) (1 267 314) (778 422)

Investment income 34 833 376 829 981 831 817 828 675

Finance expense 35 (867 027) (1 135 338) (864 725) (1 130 766)

Other non-operating gains (losses)

Other non-operating income 138 352 138 352

Fair value adjustments 36 43 969 70 784 43 969 70 784


Taxation 37 (425) (96)

Loss for the year (1 099 704) (1 004 293) (1 117 901) (1 009 726)

212



group Company

2019 2018 2019 2018

Note(s) R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

Other operating expenses

Administration and management fees 1 835 1 759 - -

Advertising 12 790 5 870 12 762 5 870

Amortisation 39 979 37 349 39 976 37 344

Auditors remuneration – external auditors 31 26 106 25 807 25 151 24 735

Bad debts (46 658) 26 747 (47 906) 25 452

Bank charges 581 934 72017 581 597 71 714

Cleaning 12 125 13 593 12 123 13 521

Commission paid 1 365 1 602 1 361 1 602

Consulting and professional fees (excluding security)

59 918 68 661 59 918 68 661

Consulting and professional fees – legal fees 24 573 32 077 23 917 30 905

Consumables 24 548 27 755 24 444 27 662

Depreciation 137 043 107 966 136 208 106 745

Ex gratia 417 365 417 365

Employee costs 3 755 608 3 403 293 3 736 307 3 384 769

Inventrory write-off 68 760 - 68 760 -

Other staff related costs 37 532 26 147 37 532 26 127

Leasing equipment 341 045 371 381 338 483 368 049

Storage fees 503 2 058 503 2 058

Transport cost 276 741 292 854 272 430 281 449

213



group Company

2019 2018 2019 2018

Note(s) R ‘ 000 R ‘ 000 R ‘ 000 R ‘ 000

General expenses 50 631 77 285 61 387 80 516

Fines and penalties 21 554 (2 989) 21 282 (3 011)

Impairment 2 933 (2 029) 2 933 (2 029)

Insurance 78 508 47 773 78 392 47 193

IT expenses 160 180 143 913 160 057 143 900

Municipal expenses 212 833 208 753 211 184 207 397

Merchantdise 256 998 33 365 256 535 33 323

Risk expenses 2 826 3 673 2 826 3 673

Repairs and maintenance 54 786 52 601 53 922 51 635

Royalties and license fees 13 851 14 446 13 806 14 445

Security 422 632 118 766 422 529 118 682

Telephone and network services 124 733 119 402 124 247 120 381

Training 239 1 355 231 1 355

Travel – local 23 360 20 300 23 244 20 222

Travel – overseas 4 746 3 997 4 698 3 991

6 786 974 5 357 912 6 761 256 5 318 701


Notes:

497 Sophie de Bruyn Street

Pretoria 0001

PO Box 10 000

Pretoria

0001

Customer contact centre: 0860 111 502

www.postoffice.co.za

Photographs:


Stamp images:

© South African Post Office:

Philatelic Services

Designed in-house by:

Rachel-Mari Ackermann and Thea Clemons

South African Post Office: Philatelic Services