Financial woes continue to weigh on the South African Post Office (Sapo) as it has recorded a R1.1 billion final loss for the year ended March 31 2016.

The state-owned company this week has published its financial results for its 2015/16 year, which further point to a 9% drop in revenues from R5.12 billion to R4.68 billion.

Results for the 2015/16 period mark yet more losses for Sapo as the state-owned company recorded a R1.4 billion loss for the previous financial year.

Falling revenues and financial losses have hit Sapo hard, said chair Dr Simo Lushaba in the company's latest annual report.

“A number of Post Offices, 221 to be precise, were closed due to outstanding rentals; those that operated had no paper, toner or other necessities to provide services to our customers,” said Lushaba.

“Computer systems and connectivity continued to underperform resulting in unacceptably high downtime for critical customer service.

“There were also instances where the company could not pay salaries on time to its employees and this caused major internal instability and reduced employee morale.

“Lack of funding, inadequate capacity and system downtime also affected internal controls,” said Lushaba as he summed up the period.

The 2016/7 financial year is expected to remain tough “with losses that may even exceed those of the past year”, said Sapo CEO Mark Barnes in the company’s annual report.

A return to profitability is not expected before 2018, added Barnes.

Financial challenges explained

Sapo’s acting chief financial officer, Nichola Dewar, further explained the challenges facing the company.

Revenues at the parastatal have come under pressure amid the value chain being hit by non-payment of suppliers and a lack of investment in new technology, said Dewar.

Barnes said in the annual report that other “primary inhibitors” for the Post Office include a lack of funding, unsettled labour agreements, little progress on the corporatisation and licensing of Postbank and a further decline in government business.

But Barnes, who took up the Sapo CEO post in January, said that progress has been made in several areas.

These include Sapo’s signing of a joint agreement with trade unions to settle previous wage issues, a R650 million capital injection received in April 2016 from National Treasury, raising debt funding of R2.7 billion, and investing over R1.5 billion in capital projects over the next three years.

The South African Reserve Bank (Sarb) has also approved Sapo’s Section 13 first-level application towards a fully-fledged banking licence for Postbank, added Barnes.

However, Barnes is cautiously optimistic about Sapo’s future.

“The Post Office’s ambitious growth plans are based on a diversification of revenue streams and focus, beyond mail and into the fields of e-commerce and financial services,” said Barnes.

“Both of these are competitive industries where market share will need to be regained from established, successful private sector offerings.

"Early results remain disappointing as the Post Office begins the long journey of restoring customer confidence. We will indeed need to deliver. If the backlog in revenues cannot be made up fairly early in the three year plan period then the Post Office will have little choice but to rationalise the cost base, simply in order to survive,” Barnes added.