Sapo stronger but still needs cash boost

The balance sheet of the South African Post Office (Sapo) has strengthened considerably over the past year but the organisation still requires a “substantial” equity injection by the state, group CEO Mark Barnes says in the annual report. Sapo received a R650m capital injection by the state in April 2016, which it used to pay long outstanding invoices.

The balance sheet of the South African Post Office (Sapo) has strengthened considerably over the past year, but the organisation still requires a “substantial” equity injection by the state, group CEO Mark Barnes says in the annual report.

Sapo received a R650m capital injection by the state in April 2016, which it used to pay long outstanding creditors. It also depends on government guarantees valued at R7.7bn, which it utilises to secure loan funding.

The need for a further equity injection was highlighted by the finding of the auditor-general that a “material uncertainty exists on the Sapo group and company’s ability to continue as a going concern”. This was because Sapo did not generate sufficient revenue to finance its high cost base.

In the year to end-March, revenue fell to R4.5bn (R4.7bn in the previous year) and the operating loss to R807m (R973m). The loss for the year amounted to R959m, down from the previous R1.1bn. Employee costs amounted to R3.7bn.

Sapo directors, however, believe that the company has adequate financial resources and government support to continue operating for the foreseeable future.

The board has approved initiatives to boost revenue that will result in a R768m improvement in cash flow in the current financial year, according to the group’s annual report tabled in Parliament.

Sapo is hoping to play a role in the payment of social grants by the South African Social Security Agency as it takes over this function from the current service provider, Cash Paymaster Services.

Barnes said another equity injection by the state was needed to at least halve the annual interest bill of R350m that was required in 2016 to service bank borrowings guaranteed by the Treasury.