254 Post office inside by gyvwpsjkko

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									Over more than 200 years the Post Office has certainly come a long
way, but more so now than ever before, providing a wide range of
services to the broader population




             CONTENTS
              2   Board Members

              3   Vision, Mission, Values

              5   Achievements

              6   We’ve come a long way

              8   Chairperson’s Review

             13   Executive Committee

             14   Group CEO’s Review

             18   Chief Financial Officer’s Review

             22   Chief Operating Officer’s Review

             25   Review of Operations

             48   Corporate Governance Report

             56   Employment Equity
THE CHALLENGE
to maintain and improve
OUR PERFORMANCE
has never been greater.
In the last year we’ve WORKED HARD to create new revenue
streams, restructure our business and RAISE SERVICE LEVELS.

For just a moment we can TAKE PRIDE that the Group again
reports a NET PROFIT.

Thanks to all stakeholders for their PASSION, DEDICATION AND
INNOVATION. We still have a long way to go, but CONTINUING
WITH PURPOSE makes it clear the sky is the limit.




   1   South African Post Office Annual Report 2006
1       2                  3                 4                 5              6            7




8           9                  10             11                   12         13               14



                                                 BOARD MEMBERS
                                                   1 PRE Tsukudu        Chairperson of the Board
                                                   2 KI Mampeule*       Group Chief Executive Officer
                                                   3 NJD Buick*         Chief Financial Officer
                                                   4 MM Lefoka*         Chief Operating Officer
                                                   5 HP van Staden      Company Secretary
                                                   6 VA Christian       Non-executive Director
                                                   7 MJ Crous           Non-executive Director
                                                   8 AJ Hendricks       Non-executive Director
                                                   9 P Dzingwe          Non-executive Director
                                                 10 PE Pokane           Non-executive Director
                                                 11 V Mahlati           Non-executive Director
                                                 12 V Mhlongo           Non-executive Director
                                                 13 SMA Malebo          Non-executive Director
                                                 14 BMH Tsita           Non-executive Director
                                                     J Lange            Non-executive Director

                                                 (*Executive Directors)




    2       South African Post Office Annual Report 2006
VISION

To be RECOGNISED among the
top 10 providers of POSTAL and
RELATED SERVICES in the WORLD
MISSION
We will enable the nation to EFFICIENTLY CONNECT with the world
by distributing INFORMATION, GOODS, financial and government
services; leveraging our BROAD REACH and embracing CHANGE,
TECHNOLOGY and INNOVATION.



VA L U E S
• A PASSION for CUSTOMER EXCELLENCE
• Contribute POSITIVELY to our communities and environment
• Treat each other with RESPECT, DIGNITY, HONESTY and INTEGRITY
• RECOGNITION of individual contributions
• Embrace DIVERSITY in the way we do business




     3   South African Post Office Annual Report 2006
Professionalism and service are part of the values the Post Office knows
underpin the daily experience of our customers. We constantly strive to
improve and know it will continue to filter through to the bottom line.
AC H I E V E M E NT S


• R486 million net profit

• 26% increase in operating profit before employment

  benefits

• 28,2% market share of mass market banking

• 80% of total Government Bonds sold

• 173 443 pension beneficiaries registered at Postbank

• 10 independent awards to recognise our efforts

• 92,8% delivery performance target achieved

• 24/7 operational monitoring on key operations

• 306 document exchanges throughout the country

• 14 051 affordable burial and life insurance plans sold

• 52 image stores created to increase retail

• 772 stores extended their trading hours

• 24% reduction in fraud in retail

• 69% reduction in internal theft losses

• R33 million funding received from Services Seta




   5   South African Post Office Annual Report 2006
W E ’ V E C O M E A L O N G WAY




       1995      The first retail postal agency was        in postal crimes of all nature, ranging from
       opened in Bloemfontein in August 1995.              mail violation to armed robberies at Post
       Where there is not enough Post Office               Office outlets.
       business to justify a full-blown Post Office,
       the company appoints another business to            1998-2001         The Post Office adjusts its
       do business on its behalf. The shop owner is        strategy to survive in a world where the
       paid for each transaction he or she does on         focus must be on the customer and
       behalf of the Post Office.                          business, not on internal procedures as was
                                                           the norm in a government organisation.
       By the end of 1995 the Witwatersrand mail
       sorting activities were moved into the              2002      A world first for the Post Office, as
       Witspos     mail   centre  in    Ormonde,           South African President Thabo Mbeki
       Johannesburg. The largest mail centre in the        electronically    signs      the    Electronic
       Southern hemisphere, it made possible the           Communication and Transaction Act into law.
       elimination of many processes, since mail           This was the first Act in the world to be
       processing is now done on one level.                signed into law by an electronic signature.
                                                           The signing was enabled using the Post
       1996     The post office administrations of the     Office authentication service. The Act
       former independent ‘homelands’ (Transkei,           defines the Post Office as the "preferred
       Bophuthatswana, Venda and Ciskei) were              authentication     service      provider"    of
       incorporated into the South African Post Office.    identification procedures necessary for the
                                                           issuing of advanced electronic signatures.
       1997       The Post Office gets a security
       division dedicated to combating postal crime        2003      The Post Office launches its
       in all forms. This leads to a measure decline       Paymaster to the Nation project. In terms of




       6    South African Post Office Annual Report 2006
this project, recipients of social grants can       the Year. We received three awards from
open a Postbank account. The bank card              CPSI/SBSA for Innovative use of IT and two
contains a chip with the beneficiary's photo,       first runner-up awards: one for Innovative
digital signature and fingerprints encoded on       Enhancements on Internal Systems within
it. His or her social grant is now paid into the    Government and the second for Public Sector
Postbank account, eliminating the need to           Innovator of the Year.
queue on payout days. This brings these
people the freedom to withdraw their grant          2005      Postbank, the Post Office’s banking
when it suits them – at any Post Office,            subsidiary, takes the lead with Mzansi
without any transaction charges, or at the          accounts. Postbank currently has more
ATM of any Saswitch-linked bank. Every              Mzansi account holders than any other bank,
social pensioner can now enjoy the status           including the Big Four. This is attributed to
and confidence that a bank account brings.          Postbank’s unrivalled coverage – every Post
                                                    Office is a Postbank, and there are more than
2004       The Post Office posts the first          2 000 Post Offices all over South Africa.
operating profit in its history. This was
achieved without any negative effect on its         2006      Postbank improves its lead with
universal service obligation. In 2004 we again      Mzansi accounts to 40% of the total market.
won four World Mail Awards: Technology              The Post Office issues a miniature sheet to
Award, E-Commerce finalist award for the            commemorate the handover of the soccer
EBPP postbox solution, Innovation finalist          World Cup from Germany to South Africa,
award for the eBDN solution and the Award           where the next Soccer World Cup will be
for Security for our Code of Ethical Conduct        hosted in 2010. The annual Congress of
campaign. We also won two X-Pert awards:            Commonwealth Postal Administrators is held
Sponsor of the Year and Project Manager of          in South Africa for the first time in history.




7    South African Post Office Annual Report 2006
CHAIRPERSON’S REVIEW


   We empowered numbers of
communities, assisting them to
     participate in the economy,
    by enabling them to access
government services as well as
private sector financial services
    and electronic networks for
                exchanging data.



         The past year has certainly been a                  This improved financial performance
         rewarding period of progress and                    enables us to invest in infrastructure and
         achievement for the South African Post              provides a better platform for us to deliver
         Office. This has laid the foundation for            on our mandate. Within the regulatory
         further advancement towards meeting the             environment, our delivery standards
         shareholder mandate while broadening and            improved by a marginal 0,3% up from last
         improving the delivery of postal and related        year, with an approved tariff of 4% below
         services to the people of South Africa.             inflation. We have met and surpassed our
         Progress encompasses expanding the Post             target for rolling out new addresses in this
         Office’s footprint, and harnessing                  financial year, from 1,5 million addresses to
         technology as an important driver for future        2,3 million. This has given an additional
         growth and service delivery.                        2,3 million people of this country an
                                                             opportunity to participate in economic
         Significant strides were taken towards              activities, from which they would have
         uplifting the sustainable profitability of the      been barred without an address. The
         organisation. The SA Post Office has seen a         expansion of our footprint has increased by
         steady but solid growth over the last three         55 new retail network outlets as well as
         years. I take great pleasure in presenting          expansion of financial services and
         this year’s excellent growth where the              products to the previously unbanked
         income rose by 6%, and profit from trading          masses of our country. We have seen a
         operations went up by 112%, while the               good turnaround in our logistics business,
         expenses only increased by 2%.                      which has been a challenge to date.




         8    South African Post Office Annual Report 2006
    The gains made by the Post Office that have briefly referred to and that
have materially enhanced the value of our brand were independently recognised
   by several national and international awards received by the organisation.




     The shareholder’s clearly defined objectives        achievements that have enabled the Post
     provide a fantastic ongoing opportunity for         Office to look forward with a new degree
     the SA Post Office to be among the major            of confidence.
     catalysts of change that drives our economy
     and our nation. We continue to expand our           Postbank, has continued to lead the pack
     services and support economic activities            with the opening of 848 784 new Mzansi
     across the country.                                 accounts – a growth of 253%. This makes
                                                         Postbank a market leader in this sector.
     In this age of hope in our country, we are
     now well positioned to partner with                 SA Post Office has strengthened its
     Government and contribute meaningfully to           strategic relationships with a number of
     ASGISA (Accelerated Shared Growth                   regional and international bodies. We are
     Initiative for South Africa) which lies at the      currently privileged to host the office of
     heart of the government’s plan to grow the          Southern Africa Postal Operators Association
     economy in a balanced way that brings               (SAPOA). We also play a leading role in a
     benefits to all the people of South Africa.         number of committees within the Pan
                                                         African Postal Union. A number of initiatives
     The past year was extremely rewarding on            are underway to support the postal
     a number of fronts. We achieved global              operators in countries such as Mozambique,
     recognition through the World Mail Award            Angola, Lesotho and the DRC.
     for customer service. We also made
     considerable progress in the broadening of          One of the other major strides we have
     services and products to our customers. It          taken – one which opens up vast
     is perhaps worth reflecting on some of the          opportunity for growth – is partnering




     9    South African Post Office Annual Report 2006
CHAIRPERSON’S REVIEW
(continued)




              national government, provincial                     Through projects implemented over the
              governments and local municipalities to fulfil      past year and those currently underway, we
              their roles. This includes enabling people to       are demonstrating our commitment to
              receive social grants, collect licences,            ensuring that the Post Office continues to
              register motor vehicles and pay various             be a vibrant, dynamic and productive
              utility accounts.                                   national asset. Many challenges lie ahead,
                                                                  but we are well on the way in our business
              Corporate governance continues to enjoy a           transformation initiatives that will make
              high priority. The SA Post Office Board             ours an internationally competitive world-
              brings a wide range of experience from              class organisation. Our traditional postal
              different sectors. We continue to apply best        services will remain core to our business as
              practice recommendations from the King              we build on our widely recognised and
              Code on corporate governance. The Board             accepted brand.
              sub-committees provide independent advice
              and drive strategy.                                 I take this opportunity to thank the CEO,
                                                                  executive team and my Board colleagues for
              People are a key theme for SA Post Office           their contribution and commitment during
              in this highly competitive, ever-changing           this past year. I would also like to
              world. We invest an enormous amount of              acknowledge and thank our Shareholder,
              time and resources into training and                Regulator, customers and suppliers for their
              equipping our people throughout the various         continued support. A special feature of the
              levels of management and staff. This will           SA Post Office is the employees who take
              continue to be a high priority because we           ownership and responsibility for the
              understand that people make the difference.         excellent results we have achieved as they
                                                                  continue to deliver whatever it takes.
              Another important factor of our progress            I pay tribute to them for their dedication in
              has been our ability to maintain an effective       ensuring the SA Post Office contributes to
              working relationship with our labour union.         the national vision of creating a better life
              We are committed to build on this                   for all.
              relationship.

              Our commitment extends to supporting the
              communities in which we do business. The
              Post Office Choral Eisteddfod, is growing in
              popularity. Furthermore, we have continued
              to support activities aimed at combating            PRE Tsukudu
              HIV/Aids, cancer and illiteracy.                    Chairperson




              10   South African Post Office Annual Report 2006
The Post Office is playing and will continue to play a vital role in assisting the
government to carry out its mandate, to uplift previously disadvantaged communities
and to be an efficient and cost-effective enabling force in the economy
The friendly new attitude and stores make the Post Office experience
rewarding in meeting the everyday needs of its varied customer base.
Our staff are committed to assistance, guidance and support.
1        2                 3                4               5                  6    7




8              9                    10                11                 12         13




    EXECUTIVE COMMITTEE

     1 KI Mampeule                       Group Chief Executive Officer
     2 S Radebe                          Chief Information Officer (Acting)
     3 M Molosiwa                        Group Executive: Strategy and Marketing
     4 L Thebe                           Group Executive: Human Resources
     5 TE Xiphu                          Group Executive: Corporate Services
     6 NJD Buick                         Chief Financial Officer
     7 MM Lefoka                         Chief Operating Officer
     8 JS Kotsi                          Senior General Manager: Mail Business
     9 T Memela-Khambule Managing Director: Postbank
    10 L Plaistowe                       Group Executive: Shared Services
    11 T McKeown                         Senior General Manager: Retail
    12 M Mathibe                         Managing Director: Courier Freight Group
    13 D Foster                          Chief Relationship Officer (Acting)




    13       South African Post Office Annual Report 2006
G RO U P C E O ’ S R E V I E W


   The 2005/2006 financial year
         was one of outstanding
            achievement for the
    Post Office. Not only did we
        turn in a strong financial
   performance but we reached
 some significant milestones in
   service delivery and meeting
 our universal service obligation.

          Overview                                            year, at a 92,8 percent average for the year,
                                                              we failed to meet our target of 95 percent.
          The 2005/2006 financial year was one of             On the other hand, we created 2,3 million
          outstanding achievement for the Post                new addresses, far exceeding our target of
          Office. Not only did we turn in a strong            1,5 million.
          financial performance but we reached some
          significant milestones in other aspects of          Consistent with our shareholder’s mandate
          our business. In particular, we were able to        to increase the public’s access to postal
          fulfil our shareholder’s mandate in the             services, we also expanded our network of
          regulatory environment and aligned our              retail outlets, completing 28 new branches,
          operational focus with our shareholder’s            starting construction on a further 27 sites
          programme of action.                                and commissioning 20 mobile post offices.

          Delivering on shareholder                           Increasing access to financial services
          mandate
                                                              Our Postbank operations showed pleasing
          The Post Office licence agreement was               progress. Postbank opened 848 784 new
          amended by the Regulator in October                 Mzansi accounts, an impressive growth of
          2005, the licence fee being changed from a          253 percent for the year, and attracted new
          fixed fee of R16 million a year to                  funds invested of R269 million, a growth of
          0,55 percent of regulated turnover. The fee         279 percent. This brought the total of
          amounted to R18 million for the year. The           Postbank’s depositors’ funds to
          Regulator allowed a tariff increase of              R2,29 billion.
          4,3 percent, which is below the official rate
          of inflation. Although we improved our              Postbank also contributed to the National
          delivery standards by 0,3 percent over last         Savings Drive by launching its Visa branded




          14   South African Post Office Annual Report 2006
We shall intensify our drive to discharge our mandate from Government and the
people of South Africa to provide postal and related services in order to improve
               the country‘s competitive economic performance.




     Postbank card and sold retail bonds worth           Partnering with Government
     R1,4 billion, exceeding target by R400 million.     On behalf of the Department of Home
                                                         Affairs, we began delivering identity
     Similarly the Post Office Group contributed         documents in 2005 and will seek to grow
     some R900 million to SMME and BEE                   this business. Similarly, we conducted
     development through our procurement                 various transactions on behalf of certain
     programmes.                                         provincial departments of transport. For
                                                         example, we transacted 30 000 renewals
     We helped increase the competitiveness of           and new registrations of motor vehicles in
     the South African economy in a number of            the Eastern Cape; we renewed the
     important respects. For example, we                 registrations of 150 000 vehicles in KwaZulu-
     broadened the country’s ICT skills base by          Natal and we renewed 85 000 licences in
     training just over 1 000 new learners and           the Free State. We have also reached
     18 e-Cadres, whose task it will be to instruct      agreement with roughly a third of all
     members of the public in the use of Post            municipalities country-wide to collect
     Office’s new technology at our outlets.             service payments on their behalf.


     We broadened the country’s IT infrastructure        It is our intention to continue to grow such
     by beginning a project for a new Point of           government-related business as vigorously
     Sales system, which is to be completed in           as possible into the future.
     the financial year 2006/07. We have also
     registered biometric recognition indicators         Modernising our facilities
     for more than 217 000 pension beneficiaries         During the year we completed our mail
     of social grants as we increasingly move            sorting automation programme and
     into the business of conducting such                successfully completed the implementation of
     transactions on behalf of various                   Truebill, our electronic bill presentment
     government departments.                             system, as well as a Hybrid Mail pilot project.




     15   South African Post Office Annual Report 2006
G RO U P C E O ’ S R E V I E W
(continued)




              Financial performance                               In addition, we initiated two major corporate
                                                                  cultural processes in the move to transform
              The Post Office Group increased operating           the organisation into a technology-driven
              income by 6 percent to R4,65 billion, while         company, which is vital for our future. These
              it managed to contain operating expenses to         were to embrace innovation and increase
              a rise of only 2 percent compared with              the application of technology. So we are in
              6 percent last year. As a result, we improved       the process of rolling out a new Point of
              operating profit from trading operations by         Sale system throughout our post offices, an
              112 percent compared with last year, to             initiative that started during the previous
              R286,8 million (2004/5: R135,1 million).            financial year. We are also re-implementing
                                                                  our SAP application to ensure that we
              Group net profit before tax was                     integrate the management of our processes,
              R736,49 million, made up of profit from             our people and our customers to meet our
              trading operations of R286,8 million and            financial objectives.
              R437,16 million from non-trading items.
                                                                  Last year the emphasis was on adopting a
              Pension fund assets rose by R354 million,           new strategy of how to manage our
              and Group cash and short-term investments           business and implementing it, a process
              by R686,9 million. As already noted,                that we had started in the previous financial
              Postbank’s deposits rose by R269 million.           year. The key areas of focus were thus on
                                                                  operational excellence and cost control;
              A new strategic focus                               customer care and growing our business;
                                                                  positioning the organisation as a preferred
              We started this financial year with a clear         customer for Government in the provision of
              mandate from the Board of implementing the          all government services where we have
              new strategy that the Board adopted for the         never before played an active role; the
              Company for the next five years. This               creation of a performance orientated
              represents a road-map of how the post office        corporate culture; and finally everything
              is to move forward from being a turned              necessary, internally and externally, to
              around, marginally successful operation into a      ensure that we build the Post Office brand.
              world-class one. It also signposts new areas
              of growth involving a shift in the emphasis of      Building a new team
              the organisation from reducing costs towards
                                                                  One of our most important achievements
              improving efficiencies and gaining new
                                                                  during the year was to assemble a complete
              revenue streams.
                                                                  and first-rate executive team, half of which
                                                                  is new, to take the organisation forward.
              These new areas of indicated growth will            This process is now in its final stages and
              compensate for the natural decline in our           I am confident that it lays a solid foundation
              traditional business, letter mail, that has         for future growth.
              been seen so clearly in other countries
              around the world.                                   For this reason we have devoted a great deal
                                                                  of attention to training our leaders and
              It is remarkable, in the light of global            potential leaders. Over 50 percent of Post
              experience, that we were able to increase           Office’s executives are new and we have
              our volumes of mail by more than eight              started at that level, rolling all the way down
              percent, more than twice the inflation rate.        to middle management, to ensure that our
              The growth was mainly in the areas of direct        people have the right skills to manage the
              mail and transactional mail (invoices,              business within the context of a new and
              accounts and the like).                             ever changing environment.




              16   South African Post Office Annual Report 2006
“Building” a dynamic and flexible                   • the Group-wide installation of SAP and
organisation                                          Track & Trace;
We have focused on issues around the                • three new mail centres;
necessity to eliminate the grip of                  • new outlets;
bureaucracy that paralyses action, without          • IT infrastructure and equipment
weakening internal controls. The competitive        • Point of sale systems;
environment in which we operate requires            • further mail sorting equipment
quick decision-making and execution if we           • upgrading buildings
are to survive. It will not be easy to shift the
                                                    Through these projects we shall intensify
habits and the mindset that have become
                                                    our drive to discharge our mandate from
entrenched over generations, but it is
                                                    Government and the people of South Africa
essential if we are to achieve our vision of
                                                    to provide postal and related services in
becoming recognised “among the top 10
                                                    order to improve the country’s competitive
providers of postal and related services in
                                                    economic performance. We will also focus
the world” .
                                                    on bringing a growing number of previously
Outlook                                             disadvantaged communities into the ambit
                                                    of the economy by continuing to roll out
Our attention going forward is to build a
                                                    new addresses.
truly all-round, world class organisation.
For the 2006/7 financial year, we have
                                                    Lastly, the 2006/07 financial year will also
budgeted for an increase in the operating
                                                    see the launch of a number of new strategic
profit margin to 7,1 percent, compared with
                                                    offerings, as well as proper positioning of
5,8 percent in 2005/6. Our target is a profit
                                                    the organisation as an innovative, dynamic
margin of 15 percent, a prerequisite for
                                                    and critical national asset.
financial self-sustainability.
                                                    Thanks
We are aiming at improving operating profit
by 31% to R354 million and a growth of              Sincere thanks must go to the thousands of
R500 million in cash and short-term                 hard-working employees of the Post Office
investments. Profit will be re-invested in          who are after all the lifeblood of our service-
schemes to improve rewards for                      oriented organisation. Thanks must also go
performance and working conditions for our          to the government for placing its confidence
employees, and to increase our expenditure          in our ability to meet our national mandate
on corporate social responsibility projects.        and most importantly to all of our customers
                                                    – from the smallest to the biggest – for
The Post Office Group has budgeted an               utilising the various services we provide
increase of 7 percent in revenues to                throughout the length and breadth of South
R4,9 billion. The subsidy for the current year is   Africa. I remain grateful for the support and
R300 million, while an amount of R131,20 was        wise counsel I continue to enjoy from the
rolled over from last year’s subsidy.               dedicated Board.


Investing in the future
We will be investing an estimated
R529 million in improving the post office           Khutso Mampeule
infrastructure around the country. Projects         Group Chief Executive Officer
include:




17   South African Post Office Annual Report 2006
CHIEF FINANCIAL OFFICER’S REVIEW


     Overall, in the year under
      review we were able to
   consolidate profitability and
assume our share of the social
 burden with increasing vigour.




        In the reporting year the Group continued           The main reason we have managed to
        the process of moving the organisation to           maintain the upward profit trend is cost
        the desired levels of performance and               control. Our costs for the year rose by some
        profitability. We are conscious that we             two percent, which is highly commendable,
        have come a long way but we also know               especially in light of the fact that our largest
        that we still have a long way to go.                cost elements are transport and people. We
        Certainly we are clear about where we               have shown a six percent revenue growth,
        want to go and we have a large measure              mainly because of growing mail volumes,
                                                            which went up by a very encouraging
        of clarity about what we want to do and
                                                            3-4 percent, mainly as a result of the current
        how we intend to do it.
                                                            economic boom. This growth in our
                                                            traditional business contrasts with the trend
        In everything we are guided by the
                                                            world-wide, where volumes of post are
        requirements and the priorities of
                                                            declining, perhaps indicating that we have
        Government, especially in the socio-
                                                            an inherent capacity for considerable growth
        economic field. Overall, in the year under          in this area as a result of our developing
        review we were able to consolidate                  economy.
        profitability and assume our share of the
        social burden with increasing vigour.               This year we are exceeding our social
                                                            mandate by rolling out millions of new
        It is pleasing that we were able to double          addresses. These are people in informal
        last year’s trading profit of R135 million to       settlements or townships who previously
        R286 million.                                       didn’t have addresses at all. This has huge




        18   South African Post Office Annual Report 2006
          Revenue has shown healthy growth and the costs have
         been maintained which has allowed us to show double the
                     profitability we showed last year.




significance in terms of promoting economic         market that has been traditionally
and social development and at the same              underserviced by the banks. In the new
time promises future growth. There was              Mzansi account, we have a larger market
also strong growth in bulk mail, another area       share than any of the banks. We have a
of traditional business.                            huge market opportunity in this area
                                                    because of our incomparable geographic
Thus revenue has shown healthy growth and           reach and the related economies of scale
the costs have been maintained which has            which allow us to be extremely
allowed us to show double the profitability         competitive in our product offerings. Our
we showed last year. Tariffs went up by             bank charges, interest on investments and
4,3 percent, which is within Treasury’s             deposit book have grown at 12-15 percent.
permitted CPIX band.                                We are traditionally a savings bank but are
                                                    gradually migrating towards providing
Our four main businesses are:                       more mainstream financial services such
• Mail                                              as insurance and investment products
                                                    where we see significant growth
• Courier services
                                                    possibilities.
• Retail
• Financial Services                                Retail has just commenced as a profit
                                                    centre and has introduced complementary
Financial services has shown remarkable             communication products such as cellular
growth over the year. The target market is          products, pay-a-bill and business services to
largely rural and below a certain LSM – a           fulfil its mandate.




19   South African Post Office Annual Report 2006
CHIEF FINANCIAL OFFICER’S REVIEW
(continued)




              Revenue growth in the courier business has          We measure our transport and our people
              been disappointing. The counter to counter          costs as a percentage of total income and
              side grew satisfactorily by about 15 percent        benchmark the results against other postal
              although revenues in the door to door               operators internationally. We feature
              business declined slightly.                         surprisingly well in relation, even, to some
                                                                  major developed economies.
              This will be the first year in which we will
              be liable for taxation, for which we have           We have improved our balance sheet and
              provided.                                           are back to a being a going concern.
                                                                  There has been very strong growth in
              We still receive a targeted subsidy from            investments, mainly from the bank but also
              Government directed at encouraging certain          on the post office side. We have improved
              initiatives such as improving our universal         the cash reserves immensely, debtor control
              service obligations and projects to improve         is strong and we’ve maintained our current
              our infrastructure and operational efficiency       ratio to 1:1.
              going forward . Our trading profits are
              calculated before any subsidy claims.               From the perspective of the Group it is
                                                                  rewarding to see the upward trend in the
              Service delivery continues to improve and           profit graph over the past 4-5 years. Very
              we are continually engaged in a campaign to         few companies of a comparable size can
              improve the mindset of our people towards           have registered quite so spectacular a turn-
              a more commercially orientated view                 around. This has been underlain and driven
              focused on serving customers.                       by a culture change in the organisation
                                                                  towards commercialisation.
              Public perceptions, as measured by
              independent surveys, about the quality of           We are also extremely conscious of what
              our customer service show that service              we are doing for the country and its people
              continues to improve. Quarterly customer            in the socio-economic sense. We are
              opinion surveys, which will become a                investing more than R500 million this year
              regular feature of our operations, will ensure      on various capital projects, which have
              that we are on the right track in this vitally      enormous spin-offs in terms of generating
              important endeavour. They measure delivery          economic activity, boosting black economic
              performance (cross-town, national and               empowerment and improving the lives of
              international); and performance in our              the people through the infrastructure the
              outlets, such as queue waiting time and             projects create. The effect of the spin-offs is
              similar quality measurables. Service                magnified by the fact that some of these
              providers conduct random surveys and give           projects are in rural areas or smaller
              us monthly reports so that we can keep              metropolitan areas like Bloemfontein, Port
              track of our customer service performance.          Elizabeth and East London, which
                                                                  historically have not had significant
              Our personnel costs have gone up by                 investments of this nature.
              around 4 percent, lower than the increase in
              revenues, demonstrating that efficiencies in        Our operations have generated strong cash
              this area continue to improve.                      flows of approximately R500 million, which




              20   South African Post Office Annual Report 2006
are important for strengthening the balance
sheet and generating the resources to
spend on capital projects.

Our new vision is to be among the top
10 postal organisations in the world and we
have a targeted operating profit rate of
15 percent within the next five years. We
are confident of achieving these results.




Nick Buick
Chief Financial Officer




21   South African Post Office Annual Report 2006
C H I E F O P E R AT I N G O F F I C E R ’ S R E V I E W


  We have continued to control
expenditure and in fact improve
     on our cost structure in the
      mail business despite the
  challenges of rising fuel costs
   that have had a major impact
         on transportation costs.




         There was phenomenal growth in the                  We have also seen the growth of the use of
         normal postal business last year, especially        our electronic bill presentment and payment
         in the business to consumer sector, fuelled         system which we introduced as a payment
         by the booming economy, Overall, there              channel for customers to pay box rentals.
         was a 4,32 percent growth in mail volumes,
         largely in domestic mail. In fact, we               We have continued to control expenditure
         experienced a decline in our international          and in fact improve on our cost structure in
         volumes with a significant fall in incoming         the mail business despite the challenges of
         mail from overseas. This had a negative             rising fuel costs that have had a major
         effect on international revenues.                   impact on transportation costs. Our cost
                                                             increases in this area were in fact kept
         In the mail business we have introduced a           below the increases in fuel costs. Whereas
         new product, Hybrid Mail. This consists of          the cost of diesel rose by an average of
         electronically transmitting data, print the         11,75 percent per litre and in petrol by
         information, insert it in an envelope, address      32,29 percent per litre, our average
         it, and deliver it. This process provides a         transport costs increased by to
         full end to end service for clients in which        10,95 percent for the year.
         they are able to improve the efficiency of
         their own systems of mailing to reduce              In the mail business, our compliance with
         costs. We successfully launched this                our licence conditions is measured against
         innovative product in February and we now           our service delivery performance and our
         have a site in Witspos where we are                 performance in rolling out addresses to
         printing for our customers.                         communities in terms of our mandate from




         22   South African Post Office Annual Report 2006
                Our concerns for the future include a focus on
                 revenue growth and product diversification.




government. In both areas we performed              new business to this small unit after
well. We improved our service delivery              entering an agreement with DTI Cipro, on
standard to 92,8 % this year. We have rolled        behalf of which we handled more than
out 2,293 million new addresses to                  R33 million worth of company documents
outperform our target of 1,555 million              lodged for registration.
addresses. In line with government’s
intentions, the majority of these new
                                                    The Post Office is proud to serve the
addresses (68 percent) were in rural and
                                                    SANDF by seconding personnel to operate
less developed areas.
                                                    the 11th Field Post Office in the DRC for
                                                    the South African military personnel
We believe that this is a huge achievement
which will enable large numbers of                  stationed there on peace-keeping duties.
relatively disadvantaged people to enter the        The 11th Field Post Office which
economic mainstream more easily. It will            communicates with us through the
also enable other stakeholders and service          Waterkloof Air Force Base handles about
providers to conduct larger amounts of              100 000 kg of packages annually. The
business more easily.                               SANDF has paid tribute to the Post Office as
                                                    being the only parastatal that supports the
The operating income of Docex, the                  Army with personnel of its own.
specialised courier unit, grew by
13,9 percent to R39,9 million compared with         The challenge for the future is revenue
last year and net profit grew by about              growth and cost efficiencies. The
300 percent to R3,23 million. We introduced         introduction of Truebill and Hybrid Mail will




23   South African Post Office Annual Report 2006
C H I E F O P E R AT I N G O F F I C E R ’ S R E V I E W
(continued)




              enable us to diversify our product offering.
              We will also be focusing strongly on
              operational efficiencies, transport
              consolidation and infrastructure
              rationalisation. These initiatives will
              contribute to improved service delivery and
              cost reduction.

              We are in the course of reviewing our
              infrastructure and consolidating it as far as
              possible, which will lead to huge cost
              savings. We are also looking at upgrading
              our facilities and will be upgrading three
              major mail centres at Witspos, Bloemfontein
              and Port Elizabeth.




              MM Lefoka
              Chief Operating Officer




              24   South African Post Office Annual Report 2006
R E V I E W O F O P E R AT I O N S




              We created more than two million new addresses, bringing
             some two million family units from previously disadvantaged
                    communities into the economic mainstream.




        Mail distribution, logistics, and                   We were also able to assist the economic
                                                            growth of the country by deploying our
        international mail
                                                            services to assist some of our very large
        The salient occurrence in                           customers to realise their business
                                                            objectives and grow their business. Thus
        mail operations during the                          Edcon reported recently that it had
        year was the growth in                              succeeded in increasing its sales volumes
        volumes by 4,3 percent,                             using our direct mail services. Again, many
        a rare occurrence across                            of these new customers are from previously
                                                            disadvantaged communities and new
        the world.                                          arrivals on the economic scene.

        The other salient fact was that we
                                                            We were also successful in establishing the
        successfully discharged our social
                                                            Post Office as a preferred government
        responsibility in terms of our mandate from
                                                            partner by assisting, for example, in the
        Government to roll out 1,5 million new
                                                            delivery of some 200 000 identity books,
        addresses during the year. In fact, we
        created more than two million new                   which had not been collected by their
        addresses. This brought some two million            owners and had accumulated in storage at
        family units from previously disadvantaged          the Department of Home Affairs. We
        communities into the economic mainstream,           succeeded in delivering them to individuals
        allowing them to receive and send written           of the public at reduced price by creating a
        communications, transact business and               new product for the purpose. This enabled
        open bank accounts, for example.                    people to receive their IDs and acknowledge




        25   South African Post Office Annual Report 2006
R E V I E W O F O P E R AT I O N S
(continued)




              receipt by signing a card which was sent to         This enables us to verify and clean, or alter,
              the Department of Home Affairs and                  addresses for customers, matching
              reduced the distribution costs of IDs from          postcodes to suburbs, for instance.
              R15 to R5,75 each.
                                                                  In terms of growing volumes in the future,
              The installation of new sorting machines in         we will focus on increasing direct mail,
              mail centres at Johannesburg (Witspos),             advertising mail and knock-and-drop
              Cape Town (Cape Mail) and Durban (Durmail)          sectors, which together offer the most
              has improved our sorting efficiency and             promising prospects.
              increased our mail sorting capability, even in
              respect of hand-written letters. These state-       We have developed a postal delivery
              of-the-art machines are able to sort some           database that will enable customers to
              35 000 to 40 000 letters an hour.                   segment the market, into LSMs and the
                                                                  like. The database improves our service to
              In our transport and logistics operations           customers because it includes cell
              involving the conveyance of internal mail,          numbers, fixed line numbers, e-mail
              we succeeded in reducing the number of              addresses and so forth and goes a long way
              vehicles while continuing to meet service           to ensuring that our customers’ letters will
              delivery standards.                                 reach their destination.

              We are busy rationalising our three main            Our focus next year will be on our mail
              line contractors doing the national line haul       management service, in terms of which we
              for our mail delivery and are calling for           offer large corporate customers and
              tenders to reduce the number to one                 government departments (eg the
              contractor and to develop a long-term               Department of Home Affairs) full mailroom
              relationship with the organisation.                 facilities and services that we perform on
                                                                  their premises on their behalf. We started
              We have a revenue protection division               this service for Telkom, where its
              dealing with customers, through which we            effectiveness has been amply proved in
              have developed a postal delivery database.          more than two years of operation.




              26   South African Post Office Annual Report 2006
               Postbank now leads the high-street banks with
                 a provisional market share of 40 percent.




Postbank                                            have opened more than 850 000 accounts
                                                    since the time of its launch in October 2004.
Postbank’s mission is to                            This growth has exceeded all expectations
                                                    and Postbank now leads the high-street
make banking affordable and                         banks with a provisional market share of
                                                    40 percent.
to bring it to the majority of
South Africans who were                             Our capital inflow for the year grew by
                                                    13,9 percent, or R269 million, to R2,29 billion
historically unbanked. Since                        and our asset base by 16,5 percent, or
it was repositioned in 1994                         R394 million, to R2,78 billion. Our contribution
                                                    of operating profit to Post Office was
its business has grown at a                         R74,9 million compared with a budgeted
                                                    R36,9 million but down from last year’s
phenomenal rate. Over the                           R93,7 million as a result of an adjustment of
last three financial years it                       R44,3 million to the internal charge payable
                                                    annually to the retail division as well as an
recorded an average growth                          accrual for marketing expenses amounting to
of 24 percent in its asset                          R3,7 million. Net profit for the period was
                                                    R88,7 million against a budgeted
base while increasing its                           R36,9 million and our cost to income ratio
customer base to                                    was below 50% before taking into account
                                                    the adjustment referred to.
3,81 million.
                                                    We now have 3,81 million accounts, an
Postbank performed well in the 2005/6               increase of 363 000 during the year despite
financial year, especially in terms of our          cleaning out some 250 000 dormant
growth in the Mzansi Account, where we              accounts.




27   South African Post Office Annual Report 2006
R E V I E W O F O P E R AT I O N S
(continued)




              Another milestone in the year was the               The overall result is that our customers are
              launch of the Visa enabled card (Visa               able to benefit from other services through
              Electron debit cards) to our customers,             our relationships with these third parties.
              enabling them to purchase directly from             We intend to widen this network of
              merchants nationally and internationally            partnerships with both government and
              without having to carry cash.                       private sector institutions in the future since
                                                                  we will be able to generate transaction fees
              We issued just under 200 000 of these
                                                                  while our customers will be able to get
              cards to our customers to replace our
                                                                  access to the services they need.
              current ATM cards in the first six weeks
              after the launch.                                   Thuso Insurance offers a wide range of
                                                                  funeral insurance products with monthly
              Postbank transacts savings accounts for its
                                                                  premiums of R50 – R200 giving cover of
              members, where a minimum deposit of
              R100 per month allows contractual savings           R2 000 – R10 000 and up to R100 000 if a
              for individuals and for groups. We also             life component is included. We are paid
              operate deposit accounts for lump sums, a           commission on the sale of these products
              product that is used mainly by pensioners.          by Safrican, a division of Sanlam, who are
                                                                  the underwriters.
              Thus the three principal banking products
              we offer are Transactor accounts, Savings           We are currently piloting the Mothusi Loans
              accounts and Fixed Deposit accounts.                scheme, a system of credit loans where we
              Interestingly, 99% of the deposit base is in        will benefit from originator fees and earn a
              the Transactor and Savings accounts and the         share of the profit.
              remaining 1% in Fixed Term investments.
              The reduced Fixed Term investment base              The Umbono (unit trust) account permits
              (some twenty years ago it was about                 monthly investments in the range of R50 to
              R4 billion) is the result of a change in the        R180.
              tax regime and the withdrawal of the
              R100 000 tax free concession to post office         For the future, we believe that it is
              investors. I believe that this is an area that      necessary for us to continue to assist in
              the fiscus needs to re-think if we are to           inculcating a culture of savings among our
              encourage a savings culture in this country.        people, by, inter alia, reducing the minimum
                                                                  permitted investment amount to R30 from
              We have entered partnerships with three             the current R50 while finding ways of
              external providers, whose products we sell          profitably managing such a product.
              on an agency basis, ie insurance, credit and
              unit trusts. We sell Thuso funeral insurance        We are also seeking to find ways of
              policies on behalf of Safrican, while we have       increasing the number of pension payments
              also just rolled out Mothusi Loans, a credit        we make by expanding the process beyond
              product in conjunction with Bayport, a              the North West Province, where we currently
              micro-loan company, through which our               operate a system on their behalf, and by
              customers can access credit. (Our mandate           extending the range of payments into other
              from government, which is our guarantor of          areas such as social grants and the like.
              last resort, precludes us from taking risks,
              hence we need to team up with partners              To offer our customers a wider range of
              who can assume the risk.) Our partner in            access, we plan to move into internet and
              the unit trust product As’Investe (a minimum        cell-phone banking as new or alternative
              R50 investment) is Umbono Capital.                  delivery channels.




              28   South African Post Office Annual Report 2006
         Customer and staff satisfaction continued to be of critical
                importance for the retail business unit.




Retail                                              division’s performance
As the Post Office’s                                indicates that our customer
primary interface with its                          base continues to grow as
customers, the role of the                          customers’ confidence
Retail Division is to provide                       improves and our strategy
a channel to showcase,                              to improve customer
promote and sell Post                               intimacy begins to show
Office’s core products and                          positive results.
services, while strategically                       The post office counter is the
providing value added                               organisation’s primary interface with the
products and services to                            public and the quality of service provided
                                                    at the point of sale at its 2 550 outlets has
enhance the brand. In order                         a strong influence on public perceptions of
to perform this role                                the Post Office brand and its efficiency.
effectively, we continue to                         The task of a worker at this Post Office
                                                    front line is not easy. He or she has to be
focus on providing                                  conversant with some 390 different
improved customer service.                          processes and know something about
The latest analysis of the                          some 3 500 products. Thus training our
                                                    people and instilling a customer-centred




29   South African Post Office Annual Report 2006
R E V I E W O F O P E R AT I O N S
(continued)




              organisational culture are crucial. So, too,        R34,2 million more than budget. The
              is harnessing technology to simplify                combined result was a R54,5 million
              procedures, although of course this area            improvement on budgeted operating profit.
              itself demands a new set of skills.
                                                                  Philately revenue increased by 49 percent to
              Commitment to shareholder                           R38,2 million, exceeding budget by
              In accordance with our commitment in                R10,5 million and achieving an operating
              terms of our mandate from Government to             profit of R23,0 million. In 2005, philatelic
              continue to improve our customer care               services were added to the retail product
              standards, we renovated 110 branches.               portfolio. Viewing this as an important
              Improvements included upgrading the                 service to promote the cultural diversity of
              facilities for the disabled and making our          our country, we sought to increase
              outlets more customer-friendly.                     awareness of the general public and
                                                                  potential future collectors. We expanded the
              During the course of the financial year we          number of branches offering philatelic
              continued our undertaking to rebalance the          products to 520 from 240 and introduced a
              network by establishing 48 branches carrying        philatelic mail order catalogue for local and
              our new corporate identity and providing our        international distribution. This resulted in a
              customers with our full range of products           gain of 10 000 new local and international
              and services. Of these, 28 are additional new       customers and assisted in increasing the
              branches and 20 are existing branches               number of customers that purchased
              upgraded and/or relocated to more favourable        philatelic products by 63 percent.
              areas, 19 branches are in previously
              marginalised areas and 10 in rural areas.           The business of distributing government
                                                                  pensions at our retail outlets (ie post
              Improved risk management                            offices) increased by R7,0 million to
              Our continued focus on fraud prevention             R137,7 million, exceeding budget by
              had a positive impact on our goal of                R15,1 million.
              providing a safe working and shopping
              environment. The security and risk profiles         Revenue from business services (including
              of all branches were analysed and a risk            faxing and photocopying) improved by
              matrix was developed to ensure effective            R5,1 million to R16,1 million, exceeding
              planning and improvement of security at all         budget by 38 percent. This, combined with
              branches. An improved cash delivery and             the overall increase on all new retail
              collection service was introduced across            products and services, can be attributed to
              our branch network and the collection               improved awareness and acceptance by our
              times effectively re-scheduled, resulting in        customers of our expansion into new non-
              a 28 percent reduction in cash held                 traditional revenue streams.
              overnight.
                                                                  The Post Office handled 104 million
              Financial performance                               transactions at its retail outlets during the
              The retail division earned a total operating        year, an increase of 8,4 percent on last year,
              revenue of R815,2 million, exceeding budget         which means that our front line staff
              by R20,3 million. In addition, the division         handled transactions worth a total of
              reduced operating expenses by                       R20,3 billion.




              30   South African Post Office Annual Report 2006
New initiatives                                     Post Office TV
In expanding its services on behalf of              We launched a Post Office TV network
government, the retail unit provided a              channel for our high customer volume retail
pilot in-house cash collecting, banking             branches with the installation of plasma
and reconciliation services for the                 screens in 100 branches. This will be
Department of Trade and Industry’s                  expanded to 500 branches in the new
agency, the Company Information and                 financial year. This network is primarily used
Properties Rights Office (CIPRO).                   for advertising by our businesses partners,
The pilot was successful and CIPRO is               including Government, and is another new
expanding the service into a number of              non-traditional revenue stream. We also
selected retail branches in the new                 advertise Post Office products and services
                                                    and the network is invaluable for staff
financial year. Moreover, the pilot service
                                                    communication and training.
has generated a great deal of interest
from other government departments,
                                                    Strategic focus
which supports our commitment to
becoming Government’s preferred                     In line with the commitment we made last
retail partner.                                     year, customer and staff satisfaction
                                                    continued to be of critical importance for the
The retail unit signed agreements with              retail business unit.
seven municipalities for the collection of
municipal taxes and in November 2005 we
                                                    Improved customer service
launched a motor vehicle licence business in        The retail division initiated a number of
the Nelson Mandela Metropole in the                 training interventions to improve product
Eastern Cape. Encouraged by the successful          knowledge and to enhance the focus on
launch we continue to engage other                  customer service. A total of 24 956 training
provincial governments with a view to               sessions were held, resulting in an average
extending this service to them.                     of 3,6 training sessions per employee.
                                                    These included:
In January 2006 we launched the servicing
of angling and hunting licences on behalf                               ,
                                                    • “Winning Teams” a board game introduced
the Northern Cape Provincial Government.              to assist in teaching staff the details of
                                                      specific products as well as customer
Advertising space                                     service topics. 301 branches participated
                                                      with 717 teams and 3 055 employees. The
The division used the posters and public
                                                      initiative was highly successful with
space in our branches to capitalise on
                                                      knowledge levels improving to
available space and generate further
                                                      71,6 percent from 60 percent
revenue from non-traditional products.
The success achieved by distributing                • A new branch manager programme in
information booklets and posters on behalf            which all branch managers received full
of Government and external customers                  managerial and operational training
whilst generating income with no overhead           • All business analysis staff received
costs will be expanded in the new                     business analysis and management
financial year.                                       information system training




31   South African Post Office Annual Report 2006
R E V I E W O F O P E R AT I O N S
(continued)




              • A new guideline to effective queue                • Expanding and rebalancing the branch
                management was introduced to assist                 infrastructure, including the
                in the reduction of long queues and                 implementation of mobile and portable
                reduce customer waiting times                       branches in remote/under serviced areas
                                                                  • Implementing the staff redeployment
              Improved technology                                   plan to increase efficiencies and reduce
              We are currently developing and                       operating expenses, while reducing
              implementing an advanced and user friendly            dependency on external temporary staff
              point-of-sale system. The system is world           • Improving corporate image by
              renowned and used by many of the leading              implementing new, re-designed uniforms
              postal administrations globally.                      for front line staff
                                                                  • Maximising our competitive edge by
              Prospects
                                                                    continually introducing new products and
              Future growth will be secured by:                     services
              • Implementing the new point of sale                • Improving philately revenue by the
                system to increase productivity and                 continued expansion of philatelic
                improve customer satisfaction                       products to all branches




              32   South African Post Office Annual Report 2006
        Our main tasks as we go forward are to revisit our internal
     operational processes to ensure accountability and monitoring of
               both processes and promises to customers.




Courier & Freight Group (CFG)                        The improved results are attributable to a
                                                     concerted focus on the turnaround strategy,
The performance of CFG in                            backed by a strategy of pricing for profit
                                                     (including the termination of “consignment
the second half of the year                          pricing” for courier products), together with
                                                     other pricing and cost reduction initiatives.
showed the potential the
company has of being a                               The first half of the year was dedicated
                                                     largely to investigations and detailed
profitable and self-                                 planning for the turnaround strategy that
sustaining operation,                                was mentioned in last year’s annual report
                                                     and that preceded the appointment in
despite its having run at a                          October 2005 of the current managing
loss for some time.                                  director, Molefe Mathibe.


The group incurred a better than expected            Strategies that are being implemented to
operating loss of R55,0 million against a loss       improve the profitability of customers and
of R84,5 million, an improvement of                  product lines include:
R29,5 million, or 35,7 percent, on the               • Splitting the group’s courier and freight
previous year. CFG is budgeting for an                 service offering, involving clearly
operating profit of some R27 million in the            differentiated minimum weight and
2006/7 financial year.                                 pricing considerations




33    South African Post Office Annual Report 2006
R E V I E W O F O P E R AT I O N S
(continued)




              • Developing a high level costing model,            on what CFG is capable of doing, not simply
                which was used in the analysis of                 blanket promises made in order to secure
                customer accounts                                 the sale and grow volumes.
              • Identifying unprofitable accounts and
                disengaging from them if the customers            The various initiatives described above soon
                                                                  started yielding some seriously positive
                would not accept rate adjustments
                                                                  results and we began to score operational
              • Ceasing to accommodate consignment                profits. Cash flow remains a focus area.
                billing for courier products
                                                                  As a result CFG improved its record of on-
              From January the group revised its pricing          time deliveries by 3% and is striving to
              methodology, which had been the main                improve service levels still further. Our
              source of its poor profit performance.              efforts are often frustrated, however, by the
              Management quickly succeeded in initiating          operational difficulties and inconsistent
              a revival of the group’s fortunes and from          service of some of our major service
              February 2005 recorded some large gains             providers.
              in sales that were also now correctly
              priced. “We re-looked at our accounts, we           In a move to arrive at an operational
              re-looked at the prices we were charging            strategy that will yield sustainable profits
              and we looked more closely at the                   the business is determined to ensure that:
              relationships with some of our customers.           • We serve our customers properly
              As indicated above, we were often obliged
                                                                  • Our customers pay fair value for what
              to part with them when it was clear that
                                                                    we do
              we could not profitably perform business
              for them.” Molefe Mothibe said.                     • We grow with our customers in pursuing
                                                                    the new path
              In the last quarter of the year CFG started
              seeing some significant improvements as a           The main task going forward is to revisit
              result of several cost cutting initiatives. In      our internal operational processes to ensure
                                                                  accountability and monitoring of both
              the line haul business, for example, the
                                                                  processes and promises to customers. We
              business refined its initial goods sorting and
                                                                  are, for example, moving to a rebate
              classification procedures to ensure that it
                                                                  system based on monitored volumes
              was transporting items by the most
                                                                  actually moved and delivered instead of
              appropriate and cost-effective means.
                                                                  setting favourable prices in advance based
                                                                  on assurances from customers about what
              Internal staff started to look closely at
                                                                  the volumes will be.
              whether they were using transport cost-
              effectively and to rationalise vehicles. They
                                                                  Overall the issues of process and
              looked critically at product sets and
                                                                  monitoring (of volumes and hassle-factors,
              eliminated some of them from the product
              mix. Sales staff have been involved in              for example) are going to be critical on all
              performance of major accounts, which is             sides. It has been discovered, for instance,
              now linked to their commission earnings             that the costs of servicing some areas and
              and performance assessments. As a result,           customers have historically been up to
              undertakings to customers are now based             three times what is recovered.




              34   South African Post Office Annual Report 2006
This highlights that it is essential to understand   payslip every month. We are now targeting to
the business of our customers in depth to            offer similar solutions to provinces with similar
eliminate the hidden costs.                          geographic profiles (eg North West, Northern
                                                     Cape, Northern Province and Kwa-Zulu Natal).
In the current environment we intend
increasingly to emphasise our reach, which           We will also target to make use of our
is a great competitive advantage. We are             unequalled reach through the South African
also increasingly moving away from a rate            Post Office organisation to distribute
card approach to charges tailored to the job         antiretroviral medication to hospitals and clinics
requested. We intend to:                             throughout the country. CFG already has a
• Listen to customers                                working model in the distribution of medical
                                                     products including chronic medication.
• Customise processes to suit both parties
• Package solutions to their needs                   The above projects are an indication of our
• Fulfil according to promises                       commitment to helping Government to fulfil
                                                     its service delivery obligation.
We continue to partner government in
important respects, by for example, sending          To help ensure that we are able to deliver on
payslips for teachers in the department of           our ambitious plans and budget we have
Education and Training to remote localities.         started using advanced technology wherever
Sometimes they did not receive payslips for          we can – in such areas as electronic proof
months at a time and we have established a           of delivery systems via palmtops (PDA). We
system of delivery in Eastern Cape Province          intend to expand this trend as much as
which ensures that every teacher receives a          possible throughout our operations.




35    South African Post Office Annual Report 2006
R E V I E W O F O P E R AT I O N S
(continued)




     Human resources is being
             transformed from a
transactional and administrative
      function to a function that
  understands the business and
   partners with line to achieve
          the business strategy.




              HUMAN RESOURCES                                     promoting the well-being
              The 2005/6 year was an                              of employees; getting the
              important milestone for                             human resources basics
              SAPO due to the fact that                           right; inculcating a culture
              a, strategic value                                  that supports the company
              proposition for the Human                           brand; and building internal
              Resources function was                              capacity
              developed. The                                      Human Resources within SAPO comprises
              implementation of the                               420 employees countrywide. This figure will
              strategy commenced by                               be reduced over the next five years to a
                                                                  ratio of 1 HR employee for every 90 other
              dealing with six main
                                                                  employees, which is in line with the current
              themes, namely                                      benchmarks of the best companies in the
              positioning the Human                               country.
              Resources function as a
                                                                  Human Resources is being transformed
              partner to line functions;
                                                                  from a transactional and administrative
              building a high                                     function to a function that understands the
              performance culture;                                business and partners with line to achieve




              36   South African Post Office Annual Report 2006
the business strategy. To that end all              The Labour Relations climate in the Post
administrative functions were consolidated          Office continues to be harmonious. This is
and a HR call centre established to build           evident from the agreements reached in this
efficiencies.                                       financial year, through the substantive
                                                    negotiations, and various consultative forums.
SAPO’s new remuneration strategy will
enable it to attract and compete for talent         The Post Office reached agreements on the
in the labour market. The Post Office now           following items, amongst others:
grants market related benchmarked                   • Conversion of the Pension Fund from a
packages for employees on total cost to               defined benefit scheme to a defined
company, within certain principles and in             contribution scheme, with a 94%
line with the new remuneration strategy.              conversion rate.
The benchmarks are reflective of                    • Removal of the benefit on post
comparable positions in the external market           retirement medical assistance for active
and ensure that the remuneration of our               employees that resulted in a positive
employees is aligned to the market. This              impact on the Company’s balance sheet.
assists in retaining high-performing and            • The sick leave period of 120 days in a
talented employees and encouraging                    three-year cycle was reduced to 40 days
exceptional performance.                              in the same period.




37   South African Post Office Annual Report 2006
R E V I E W O F O P E R AT I O N S
(continued)




               GSS provides high quality services in respect of assurance services,
                which include risk management, internal audit, legal services, and
                                    security and investigation.




              Group Shared Services                               GSS provides high quality services in
                                                                  respect of assurance services, which
                                                                  include risk management, internal audit,
              This newly created Group                            legal services, and security and
              Shared Services Division                            investigation. They also provide professional
                                                                  services in supply chain management,
              (GSS) commenced                                     property and infrastructure management as
                                                                  well as retail business.
              operations in December
              2005, centralising a                                Supply Chain Management
                                                                  The Supply Chain Management (SCM) unit
              number of specialised                               is responsible for the acquisition of goods
              administrative and                                  and services; warehousing and distribution
                                                                  of stock; as well as the disposal of
              management functions                                unused, surplus assets. In line with
                                                                  Government policy, SCM is dedicated to
              to provide integrated                               promoting BEE spend.
              professional services in
                                                                  The total annual procurement spend
              selected disciplines for                            managed by SCM is some R1,4 billion.
              Post Office’s business                              SCM is mainly centralised and based at
              units spread around the                             Silverton, Pretoria, but is steadily increasing
                                                                  its regional footprint for more effective
              country.                                            service delivery.




              38   South African Post Office Annual Report 2006
The organisational structure which is more          the organisation and to report to
aligned with supply chain management best           stakeholders accordingly. Stakeholders
practice was approved in November 2005.             include the Board of Directors and Executive
Significant progress has been made in               Management.
populating the structure with specialist
supply chain skills.                                The unit reports administratively to the
                                                    Group Executive – Shared Services and
In addition, a skills audit of all procurement      functionally to the Audit Committee, a
staff was conducted in order to identify            sub committee of the Board of Directors.
specific procurement training requirements          The unit’s purpose, authority and
to design courses that will be fully                responsibility are defined in the Internal
implemented in the next financial year.             Audit Charter which was approved by the
                                                    Audit Committee.
The Procurement Charter for the
formalisation of the Procurement                    In carrying out its duties, the Internal Audit
Committee, which replaced the Tender                unit adheres to the requirements of the
Board, was approved by the Post Office              Public Finance Management Act and
Board of Directors. This ushered in a               related treasury regulations, together with
formally mandated committee, which will             The King II Report on Corporate
improve the effectiveness of procurement            Governance, and is guided by the
governance and awarding bids.                       Professional Practices Framework of the
                                                    Institute of Internal Auditors.
Project 10/10 was approved to prepare and
train SCM personnel to negotiate with               The unit adheres to a risk-based audit
suppliers to realise procurement savings of         approach in terms of a three-year rolling
R100 million in the next financial year. The        plan, including an annual plan for the
project will also identify inefficiencies within    first year of the rolling plan. This is also
supply chain processes.                             submitted to the Audit Committee
                                                    for approval.
The Group’s BEE spend for the current
financial year is 48 percent of total               The unit includes the former retail
procurement expenditure compared with               inspectorate, so that its field of activity
44 percent in the previous financial year.          covers all the 2 550 branches in addition to
                                                    the various head office business units.
The few governance related challenges
pertaining to procurement bids made                 It follows an established audit methodology,
during the year were decisively dealt with          planning and executing audit reviews in
through the cancellation of the bids in             accordance with the COSO (Committee of
question and some in progress. The bids             Sponsoring Organisations) control
have since been re-issued and some of               framework. The latter is part of best practice
them already awarded.                               audit techniques to enable comprehensive
                                                    audit scope and audit assurance.
Internal Audit
The Group Internal Audit unit provides              The unit conducted an internal quality
assurance and consulting services to the            assurance review during the year in parallel
Post Office Group of companies. The main            with an external quality assessment review
objective is to assess the adequacy and             which was concluded by the Institute of
effectiveness of governance, risk                   Internal Auditors during the same period.
management and control processes within             The latter is aimed at ensuring that audit




39   South African Post Office Annual Report 2006
R E V I E W O F O P E R AT I O N S
(continued)




              activities meet with the standards and              management process to identify possible
              requirements set by the Professional                areas of opportunity, such as where
              Practices Framework of the Institute of             effective risk management can be turned to
              Internal Auditors. All shortcomings identified      competitive advantage and enhance
              in the quality assessment review are                business and shareholder value.
              presently being addressed.
                                                                  To this end, a Group Risk Management
              Overall, as an assurance provider to the            function was established in order to roll out
              Group, Internal Audit aims to assist                ERM throughout the organisation. The Group
              stakeholders to achieve compliance and              Risk Management unit is still at its infancy
              secure financial and operational objectives         stages, however, given its strategic direction
              by assessing and communicating aspects of           it will continue the process of evolving with
              required improvement.                               the ultimate aim of having an integrated
                                                                  Enterprise Risk Management culture within
              Risk Management                                     the Group.
              The Group seeks to mitigate significant risks
              that could negatively impact the                    Risk strategies and policies have been
              achievement of its strategic intent. Risk           adopted and are continually being enhanced.
              management processes and controls have              The risk culture within the organisation
              been put in place to ensure that key risks          continues to improve with the various
              are being managed.                                  awareness interventions in place.

              The Board is ultimately responsible for the         The process of integrating risk management
              total process of risk management as well            into business processes and activities at all
              as internal controls within the Group. The          levels will continue in the coming year and
              Board, therefore, has to have an                    will also form part of the ongoing risk
              understanding of the significant risks              management focus within Group activities.
              faced by the Group. It also has to ensure
                                                                  As part of the risk management process,
              that management has adequately
                                                                  risk identification and assessment
              discharged their responsibility of
                                                                  workshops were facilitated strategically at
              designing the appropriate infrastructure,
                                                                  Board and Executive Committee level and
              systems as well as controls throughout
                                                                  operationally at business unit level. Key risks
              the Group and integrate risk management
                                                                  that could influence the attainment of the
              into day-to-day activities.
                                                                  Group’s strategic intent were identified,
              In pursuance of the above, a Risk                   sized and prioritised. Management
              Management Committee which reports to               strategies and action plans are implemented
              the Board of Directors on the risk                  to address these risks. These are assessed,
              management processes within the Group               managed and monitored on a regular basis.
              exists. Further, in order to enable the
                                                                  Legal services
              Board to execute their responsibilities
              with regard to risk management, it was              This unit consists of our in-house legal
              necessary to establish a comprehensive              counsel who provide, sometimes in
              Risk Management structure that not only             association with outside counsel, a wide
              reflects the Group’s intention to comply            range of legal services such as drafting and
              with the legislative/regulatory requirements,       reviewing agreements with outside parties,
              but also provides the Group with the                handling litigation, and are particularly active
              capacity to view risk from a positive               in labour law, where they are responsible for
              perspective – thereby utilising the risk            such matters as disciplinary hearings.




              40   South African Post Office Annual Report 2006
Security and investigation services                 SIS has continued to fulfil a leading role
                                                    within the structures of the Southern African
Post Office, in its drive to re-establish itself
                                                    Postal Operators Association (SAPOA) in
as a trusted brand, has sustained its
                                                    order to ensure the standardisation and
emphasis on the effective detection and
                                                    coordination of crime prevention strategies
prevention of crime. GSS runs a security            amongst postal administration within SADC.
and investigations unit to conduct
investigations on a de-centralised basis,           Properties and infrastructure services
with the main branches in Tshwane (the
                                                    The Properties and Infrastructure Division
head office), Cape Town, Port Elizabeth,
                                                    plays an important role of custodianship in
Bloemfontein and Durban. It also deals with         property, facilities and infrastructure
physical security issues.                           management within the Group. It enables
                                                    business units to retain their unique strategic
Its strong zero tolerance approach towards
                                                    capability by focusing on their core functions.
bribery, corruption, financial misconduct as
well as fruitless and wasteful expenditure          Compliance of our buildings, not only with
has enhanced the Company’s dedicated                the letter but with the spirit of relevant
efforts to ensure good corporate                    codes of governance, remains a priority for
governance.                                         the division. This is because the growth of
                                                    our business, more especially in the under-
Although steady progress has been made in           serviced areas, requires an even greater
stabilising the environment in respect of           focus on the safety and health aspects of all
the crime encountered in the Group,                 buildings, both rented and owned.
incidents of violent crime remain a matter
of serious concern.                                 Properties that are surplus to requirements
                                                    are generally held as investment properties,
The South African Post Office strongly              either to earn rental income or capital
supports and remains committed towards              appreciation. The division optimises their use
the government’s National Crime Prevention          by pursuing development opportunities
Strategy. It has in this regard established         wherever possible and often by way of
at national and provincial level effective          partnerships, a strategy aimed at contributing
partnerships with law enforcement                   towards a sustainable profit for the Group.
agencies such as the South African Police
                                                    In the year under review the division
Service, National Intelligence Agency and
                                                    secured approval from the Board to
the National Directorate of Prosecutions
                                                    refurbish the Church Square monument
(Scorpions).                                        building and to develop three new mail
                                                    centres in Port Elizabeth, East London and
Furthermore the unit also effectively
                                                    Bloemfontein.
participates in forums such as South African
Banking and Retail Intelligence Committee           It initiated the portable modular retail outlet
(SABRIC) and Business Against Crime (BAC).          concept and resuscitated the facilities
                                                    management tender process in line with best
As a standing member of the Universal               business practice in the property industry.
Postal Union’s (UPU) Security Action Group
(PSAG) and its effective working relations          Finally, the division took over and
with other postal administrations, the              incorporated the retail infrastructure unit in
Security and Investigation Service Unit has         order to streamline decision making
been able to effectively coordinate the             processes and to create a common and
safety and security of inward and outward           centralised platform for all businesses
bound mail and parcels.                             within the Group.




41   South African Post Office Annual Report 2006
R E V I E W O F O P E R AT I O N S
(continued)




   The prime focus areas for the
   division in the current year are
             improving operational
  performance to a standard that
  meets the benchmarks applied
              in commercial banks.




              Information Technology (IT)                         Security
                                                                  The division succeeded in largely
              During the year under                               eliminating the operating security risks that
              review, the IT Division                             had been identified and all that remains in
              successfully fulfilled its                          this area is to complete the implementation
                                                                  of the new RiPost POS system. It has put
              function of providing IT                            in place measures that will maintain the
              infrastructure and services                         highest levels of protection for our IT
              for the business and                                environment against threats from viruses
                                                                  and hackers.
              support departments of
              the Group. It continued to                          Project support office
              build on the foundation laid                        The IT Division established a project support
              during the 2004/5 financial                         office that keeps track of project
                                                                  documentation and progress reports. This
              year and has made great
                                                                  eliminates duplication of effort and
              progress in providing                               resources, as all projects are registered and
              infrastructure that enables                         monitored from a single point. It facilitates
              the business units to                               standardising the development project
                                                                  phases and enables management to access
              deploy new products and                             project progress reports through the
              services.                                           Intranet.




              42   South African Post Office Annual Report 2006
CFG                                                  The back-end PiT system was stable during
In undertaking IT services for CFG in the            the reporting period. In order for the status
place of outside consultants, the division           to be maintained, however, continuous
saved CFG about R600 000. The division               monitoring of both backups and capacity
also completed the business processes for            planning is necessary, as the system is
the procurement function, enabling the               heavily reliant on the databases, which
unit to correct shortcomings in the existing         continue to grow on a daily basis. The
process, which allowed managers to                   application, which was fully developed on
approve transactions on a line item basis,           .net platform, is equally stable.
which did not comply with formal lines of
delegated authority. It also changed the             PiT voucher sales
workflow of the procurement process to               A voucher based billing system was
minimise authorisation turn-around time.             deployed in April and revenue growth since
                                                     then has kept pace with the increase in the
SAP Best Practice implementation
                                                     number of operational sites. Encouraging
methodology
                                                     figures started to emerge in February and
Preparing the prototype began by loading             March 2006, with sales for the first week of
the document server with Best Practice               March amounting to R15 000. We are
Software from SAP AG on 14 February                  confident that our marketing strategy will
2006. The mySAP ERP system has also                  improve this performance significantly.
been loaded, as has the Solutions
Manager system, in connection with                   Financial Switch – Postbank
which the division is in the process of
                                                     All Postbank transactions, from the
sourcing the trainer. Project
                                                     counters as well as ATMs are routed via
documentation, standards, and templates
                                                     the Financial Switch to Flexcube, improving
are being prepared.
                                                     the reconciliation and balancing process
                                                     and allowing real time monitoring of
Public Internet Terminals (PiT)
                                                     transaction volumes, utilisation and peaks.
The implementation of the PiT system,
                                                     This in turn facilitates trends analysis and
which now has 700 installed terminals, was
                                                     problem detection.
not without its challenges. These ranged
from hardware failures to vandalism that
                                                     Hybrid Mail
resulted in the de-commissioning of at
least eight units to occasional reluctance           The implementation of the Hybrid Mail
on the part of branch staff to buy into the          infrastructure was a tremendous success.
idea of having Internet kiosks within their          The system was first demonstrated to the
environments.                                        Executive Committee and subsequently to
                                                     a number of key clients. Feedback from
Hardware failures led to the replacement of          the pilot was extremely positive and
600 power supplies and nearly                        business units are now able to progress
150 motherboards. By the end of March 2006,          towards introducing the new service into
672 out of a possible 692 PiTs were                  the marketplace in order to generate
operational.                                         additional revenues.




43    South African Post Office Annual Report 2006
R E V I E W O F O P E R AT I O N S
(continued)




              Third-party clients                                 The process eliminates the cost of
              Twenty more third-party clients have been           advertising in the press.
              activated within the 12 month period and
              long standing reconciliation discrepancies          Server consolidation
              between Post Office and Eskom were                  The Intranet Services, Internet Services and
              resolved. The problems of foreign money             Database Services units were successfully
              order posting were resolved.                        consolidated during the year.

              Online leave application system                     The way forward
              As part of the strategy to automate internal        The prime focus areas for the division in the
              business processes, an online leave                 current year are improving operational
              application system was developed in house           performance to a standard that meets the
              and has substantially improved HR                   benchmarks applied in commercial banks;
              processes. Because it is directly linked to         and completion of the POS and the SAP
              MANSAP, leave crediting and debiting is real        Upgrade projects.
              time and fraud proof, which results in major
              savings for the Group.                              At the same time, computerising and
                                                                  automating internal processes such as
              Supply chain management – tenders                   travel and purchase requests will continue,
              website                                             together with a focus on deploying
              This site has been designed to allow the            Intranet and Mobile technologies to
              administrator to capture all company tenders        improve service delivery to internal and
              online to be viewed by interested parties.          external customers.




              44   South African Post Office Annual Report 2006
The Group Executive: Corporate Services is the spokesperson for the company
  and conducted an average of two interviews a month with radio and other
       media on issues of interest to the public about the Post Office.




    Corporate Services                                  spokesperson for the company and conducted
                                                        an average of two interviews a month with
    During the course of the                            radio and other media on issues of interest to
                                                        the public about the post office.
    reporting year the division
    successfully managed the                            The success of Post Office’s initiatives in
    four main areas of its                              communications and marketing is to some
                                                        extent indicated by the results of the
    activities: corporate                               various divisions which are dealt with in
    communications,                                     other parts of this report. The organisation
                                                        was able to enlarge the existing market
    government relations,                               share of its products and penetrate new
    international relations and                         markets at least partly because of the
    social investment.                                  marketing campaigns that were able to
                                                        show its most important stakeholders – the
    The corporate communications unit carried on        public of South Africa – with clarity and
    its planned programme of interacting and            force the advantages offered by going the
    otherwise communicating with the main               Post Office way.
    groups of Post Office stakeholders: the public
    at large, customers, government, foreign            Government relations
    governments, subsidiaries and associates, the       Our interaction with our shareholder,
    media and the IT industry. The Group                Government, was as cordial as ever and
    Executive: Corporate Services is the                marked in particular by our penetrating




    45   South African Post Office Annual Report 2006
R E V I E W O F O P E R AT I O N S
(continued)




              submissions on various items of draft               The Head of Corporate Services is a member
              legislation that fall within the purview of our     of the Management Board of Post Office.
              activities – notably the ICASA Amendment
              Bill and the Electronic Communications Act.         Its activities and participation in these
                                                                  forums contribute significantly to promoting
              By full and frank disclosure of our activities,     and nurturing the aims of NEPAD.
              accompanied by reminders of the
              fundamental importance of Post Office as a          In respect of the UPU, which has two
              critical actor in the main theatres of South        major oversight bodies – the Council of
              Africa’s social and economic life, we were          Administrators (CA) and the Postal
              able to strengthen our relationships with the       Operators Council (POC) – we are active in
              three spheres of government – national,             four committees of POC: EMS Cooperative;
              provincial and local. An indication of this is      Telematics Cooperative and Philately;
              that the head of department was invited to          Direct Marketing; and the Postal Security
              address the executives of five of the               Action Group.
              provincial administrations about Post Office,
              its services and their importance to the            In addition to participating generally in
              people of South Africa.                             meetings of PAPU, Post Office is active in
                                                                  committees dealing with: quality of service;
              We are spearheading initiatives that will           mail security and integrity; contracts,
              bring Post Office closer to government in           philately; and marketing.
              the following particular areas:
                                                                  After acting as a convener of the last CCPA
              • Distributing identity documents for the
                                                                  conference held in Bucharest, South Africa
                Department of Home Affairs
                                                                  has been given the responsibility of
              • Initiating the Eastern Cape Vehicle               convening and hosting the CCPA conference
                Licence Renewal scheme                            for the year 2006, which the department
              • Cooperating with the Department of                head will chair.
                Health in the smartcard project
                                                                  Post Office plays a significant role in SAPOA
              • The traffic fines payment project with
                                                                  task teams dealing with security, IT, mail
                Ekurhuleni Local Authority
                                                                  circulation, service quality and philately. It
                                                                  also has a seat on the management board
              Relations with international postal
                                                                  of SAPOA and is a key driver of that
              bodies
                                                                  organisation.
              Post Office is a member of the following
              international bodies:
                                                                  Post Office actively participated in
              • Universal Postal Union (UPU)                      meetings and workshops of the Universal
              • Pan African Postal Union (PAPU)                   Postal Union and of the Pan-African Postal
                                                                  Union. Post Office is a key driver of the
              • Conference of Commonwealth Postal
                                                                  South African Postal Operators
                Administrations (CCPA)
                                                                  Association, which represents the SADC
              • Southern Africa Postal Association                countries, and on the board of which the
                (SAPOA), representing SADC countries              department head serves. This year Post




              46   South African Post Office Annual Report 2006
Office will be hosting the convention of            Government partner and have signed a
the Commonwealth Council of Postal                  Memorandum of Understanding with the
Administrators and he will be chairing it.          Department of Home Affairs to deliver
                                                    specified services to the public on their
Corporate social investment                         behalf, such as distribution of ID documents.
In its social investment programme, Post            We continue to have ongoing discussions
Office supports the Choral Eisteddfod,              with the Department of Social Development
which continues to grow in popularity and is        with the aim of assisting in state pension
well supported by its own employees.                payments to beneficiaries.
During the course of the year the Division
has sponsored activities aimed at combating         We have ongoing discussions with FIFA and
HIV/Aids, cancer and illiteracy.                    the local organising company about the 2010
                                                    Soccer World Cup, in which we recognise
We continue investing in the initiatives of         that we have a strategic part to play.
provincial governments and we are the main          Overseas we mount a stand at the annual
sponsors of the Director General’s Golf Day         Post Expo in Europe, the only postal
played at Sun City. We sponsor employees            organisation on the continent to do so.
in any sport, especially those who are
chosen for national teams.                          In terms of internal communications, we
                                                    sign off on general internal
Strategic marketing                                 announcements, normally in the form of a
In strategic marketing our focus has been           TakeNote , an internal newsletter, and are
international as well as national, notably          currently developing an internal radio
with Government. We continue with efforts           station in the Post Office, which will be
to entrench our position as preferred               launched shortly.




47   South African Post Office Annual Report 2006
C O R P O R AT E G O V E R N A N C E R E P O RT


        Introduction                                        shareholder. The roles and responsibilities of
                                                            the Board are defined in the Company's
        The Group is required to comply with the
                                                            Articles of Association, the Board Charter and
        King Reports on Corporate Governance,
                                                            in the Shareholder's Compact. The Board
        Protocol on Corporate Governance in the
                                                            reports to the Minister of Communications.
        Public Sector, Public Finance Management
        Act No.1 of 1999 and the Postal Services
                                                            Executive Committee
        Act No. 124 of 1998.
                                                            The Articles of Association provide for
        Ownership                                           certain powers of the Board to be
                                                            delegated and the Board has consequently
        In accordance with the Postal Services Act
                                                            delegated its powers pertaining to the day-
        No. 124 of 1998, ownership of the Company
        is vested in the State as the sole                  to-day operations of the Company to the

        shareholder. The parameters of the                  Chief Executive Officer. The Executive

        relationship between the Company and the            Committee assists the Chief Executive

        shareholder have been re-defined and are            Officer in executing these duties as a

        set out in a Shareholder's Compact                  forum to discuss and debate issues. The
        (performance agreement).                            other two executive directors, namely the
                                                            Chief Financial Officer and the Chief
        Governing bodies                                    Operating Officer, are also members of the

        Governance structures exist in accordance           Executive Committee. The Executive

        with the Postal Services Act, No. 124 of 1998.      Committee meets formally weekly and
                                                            additional meetings (formal and informal)
        Board of Directors                                  are scheduled on an ad hoc basis. The
                                                            Chief Financial Officer and the Chief
        The management of the Company is vested
                                                            Operating Officer report to the Board
        in a single board of directors (the Board).
        Details of members of the Board are                 through the Chief Executive Officer.

        disclosed in the Directors' Report. The Board       Decisions are taken in accordance with

        meets at least seven times in a year – one          the Company's delegation of authority.

        meeting every second month and one
        meeting to approve the annual financial
                                                            Corporate governance
        statements. An annual board workshop is             The Group is committed to Corporate
        held at least once a year to review business        Governance. A Risk Management
        strategy and the Shareholder’s Compact. The         Committee was established to report to the
        Board was chaired by Ms BM Mokone until             Board on the risk management processes
        31 December 2005. Ms PRE Tsukudu was                within the Company. A Chief Risk Officer
        appointed Chairperson of the Board effect           was also appointed and commenced with
        1 March 2006. Directors are appointed by the        her duties on 1 April 2004.




        48   South African Post Office Annual Report 2006
The Board is ultimately responsible for the         were identified, sized and prioritised.
total risk management process as well as            Management strategies and action plans are
internal controls within the Company, and           being implemented to address these risks.
therefore has to have an understanding of           These will be assessed, managed and
the significant risks faced by the Company.         monitored on a regular basis. The Risk
The Board also ensures that management              Management governance structure was
has adequately discharged their                     further reinforced with the formation of
responsibility of designing the appropriate         several specialist sub-committees which
infrastructure, systems, as well as controls        report into the Risk Committee, including an
throughout the organisation for the                 Asset and Liability Management Committee
integration of risk management into day-to-         (ALCO) for the management of treasury risks.
day activities. The Risk Management                 The various sub-committees, directly tasked
Committee advises the Board on the                  to ensure that the Company complies with all
identification and management of main risks         the relevant acts, are detailed below.
within the Company. Risk strategies and
policies have been formulated and will be           Audit Committee
implemented during the coming year. The             The committee
risk culture within the organisation has
                                                    • Acts in accordance with the
improved in the past year due to the
                                                       requirements set out in the Public
aggressive awareness campaigns that were
                                                       Finance Management Act
rolled out throughout the organisation to
                                                    • Reports to the Board and has the
ensure a common risk language. Ongoing
                                                       authority to make recommendations
education and monitoring will be embarked
on to ensure that risk awareness is                 • Meets at least three times a year
inculcated into the Company’s organisational
culture. The process of integrating risk            Representatives of the external and internal
management into business processes and              auditors have direct access to the
activities at all levels will continue in the       Chairperson of the Audit Committee.
coming year and will also form part of the          Representatives from management, external
ongoing risk management focus within the            audit and Internal Audit attend all meetings.
Company’s activities. As part of the risk
management process, risk identification and         Chairperson
assessment workshops were facilitated               Mr VA Christian
strategically at Board and Executive
Committee level. The risks identified at that       Members
level were further unpacked by second tier          Mr P Dzingwe
assessments at business unit level.                 Ms PE Pokane
Significant risks that could influence the          Mr AJ Hendricks
attainment of Company’s strategic intent            Mr BMH Tsita




49   South African Post Office Annual Report 2006
C O R P O R AT E G O V E R N A N C E R E P O RT
(continued)




              Remuneration Committee                                Chairperson

              The committee                                         Mr VA Christian

              • Makes recommendations to the Board
                                                                    Members
                   concerning appointments and salary
                                                                    Ms P Pokane
                   related issues of executives in accordance
                                                                    Ms VF Mahlati
                   with the articles of association
                                                                    Mr B Bothma
              • Ratifies the appointment and salary
                                                                    Ms PRE Tsukudu
                   issues of executives at general manager
                   level on benchmark salaries within the
                                                                    Human Resources Committee
                   approved salary range, and approves
                                                                    The committee
                   appointments and salary related issues
                   on benchmark salaries above the                  • Reviews all aspects relating to human

                   approved salary range                               resources
                                                                    • Monitors compliance with the relevant
              • Makes recommendations to the Board
                                                                       employment and labour legislation
                   regarding benchmark salaries for
                                                                    • Meets quarterly
                   executive levels

              • Meets at least twice a year and on an ad            The Head of Human Resources and his
                   hoc basis                                        direct reports also attend the meetings by

              • The Group Chief Executive Officer                   invitation.

                   attends the meetings by invitation
                                                                    Chairperson

              Chairperson                                           Ms V Mahlati

              Ms PRE Tsukudu                                        Members
                                                                    Mr AJ Hendricks
              Members
                                                                    Ms J Lange
              Ms PE Pokane
                                                                    Prof MJ Crous
              Mr BMH Tsita
                                                                    Mr P Dzingwe

              Postbank Committee                                    Risk Management Committee
              The committee
                                                                    The committee
              • Reviews performance
                                                                    • Advises the Board on the risk
              • Meets, on average, four times a year                   management processes
                                                                    • Develops risk strategies and policies
              The Managing Director: Postbank and other             • Meets quarterly
              direct reports also attend the meetings by
              invitation.




              50     South African Post Office Annual Report 2006
Representatives from Finance, Internal Audit        Evaluation of financial
as well as other business units attend              statements
meetings by invitation.
                                                    The Audit Committee has:
Chairperson                                         • Reviewed and discussed with the
                                                       external auditors and executive
Mr BMH Tsita
                                                       management the audited annual financial
Members                                                statements to be included in the annual
Ms J Lange                                             report

Adv V Mhlongo                                       • Reviewed the external audit management
Mr SMA Malebo                                          letter and management response
Prof MJ Crous                                       • Reviewed changes in accounting policies
                                                       and practices
Audit Committee responsibility
                                                    • Reviewed significant adjustments
The Audit Committee reports that it has
                                                       resulting from the audit
complied with its responsibilities, arising
from Section 38(1)(a) of the Public Finance         The Audit Committee concurs with and
Management Act and Treasury Regulation              accepts the conclusions of the executive
3.1.13. The Audit Committee also reports            management on the annual financial
that it has adopted appropriate formal              statements and is of the opinion that the
terms of reference as its Audit Committee           audited annual financial statements be
Charter, has regulated its affairs in               accepted and read together with the report
compliance with this charter and has                of the executive management.
discharged all its responsibilities as
contained therein. All weaknesses in                Corporate Secretariat
internal control reported by the internal           Mr HP van Staden is employed as the
and external auditors to the Audit                  Company Secretary. In addition to
Committee were considered for their                 performing statutory functions as stipulated
significance and potential for financial            in the Companies Act and the Public
losses and, based on these reports, the             Finance Management Act, the Company
Audit Committee is of the opinion that              Secretary supports the Chairperson and
whilst there are some control issues that           Chief Executive Officer in ensuring the
have been reported and are receiving                effective functioning of the Board and the
attention, generally the effectiveness of the       aforementioned Board committees.
internal controls of the Group is adequate.




51   South African Post Office Annual Report 2006
C O R P O R AT E G O V E R N A N C E R E P O RT
(continued)




              Internal control                                    implemented to address all of the issues
                                                                  raised in the report with progress of the
              Internal control is a process designed to
                                                                  actions being reported to the Board via the
              provide reasonable assurance regarding
                                                                  Audit Committee.
              the achievement of organisational
              objectives. The system of internal control,
                                                                  Business conduct
              which is embedded in all key operations,
              provides reasonable rather than absolute            The Group has a Code of Ethical Conduct,
              assurance that the Group’s strategic                approved by the Board, which addresses the
              objectives will be achieved. The Board has          following matters:
              the overall responsibility for internal
              control. The executive management, as               • Personal conduct
              mandated by the Board, has established an           • Security and trust
              organisation-wide system of internal                • Crime prevention
              control to manage significant risks.
                                                                  • Political interests
              Ongoing monitoring and reporting
                                                                  • Conflict of interest
              processes by Business Unit heads provide
              for high-level assessments on the status            • Gifts
              of internal controls. The Board also                • Hospitality and entertainment
              receives assurance from the Audit                   • Corporate clothing
              Committee, which derives some of the
                                                                  • Corporate governance
              information from regular internal and
              external audit reports.                             • Service to clients
                                                                  • Service to the community
              Internal Audit                                      • Caring about the environment
              The Post Office Group Internal Audit                • Suppliers and clients
              function provides an independent and
              objective assurance to the Board, through
              the Audit Committee to whom the
              department is functionally accountable. This
              assurance is provided through an evaluation
              and appraisal of the organisation’s risk
              management, processes, internal controls
              and governance processes.

              During the year under review an external
              Quality Assurance Review as defined in the
              International Standards for the Professional
              Practice of Internal Auditing was performed
              on the function by the Institute of Internal
              Auditors. Appropriate actions have been




              52   South African Post Office Annual Report 2006
Materiality framework
The Department of Communications reviewed the draft framework for acceptable levels of materiality and significance
and requested certain changes to be made. The Board endorsed the revised framework on 29 September 2005.

                                      PROPOSED                  RESULTING FIGURES                 UNDERLYING
                                     FRAMEWORK                     FOR 2005/06                    PRINCIPLES
Material for Section 55 –    Quantitative:                  Depends on the related         • Section 54, as identified,
Disclosure, in the Annual    Capital expenditure:           expenditure budget line item     will evaluate each loss due
Report, of:                                                                                  to criminal conduct,
                             10% of the capital                                              irregular expenditure or
• Losses due to criminal     expenditure budget line item                                    fruitless and wasteful
  conduct                                                                                    expenditure, in context of
                             Other expenditure:
• Irregular expenditure                                                                      the expense category to
                             10% of the related operating                                    which it relates to
• Fruitless and wasteful
                             expenditure budget line item                                    determine whether it
  expenditure
                                                                                             qualifies for disclosure in
                                                                                             the Annual Report as
                                                                                             required.
                                                                                           • The total value of any
                                                                                             identified fruitless or
                                                                                             wasteful expenditure will
                                                                                             also be reported as well as
                                                                                             cases due to criminal
                                                                                             conduct.
                                                                                           • In line with good business
                                                                                             practice, as well as the
                                                                                             requirements of the Act,
                                                                                             the SA Post Office is
                                                                                             committed to the
                                                                                             prevention, detection of
                                                                                             and taking appropriate
                                                                                             action on all irregular
                                                                                             expenditure, fruitless and
                                                                                             wasteful expenditure,
                                                                                             losses resulting from
                                                                                             criminal conduct and
                                                                                             expenditure not complying
                                                                                             with the operational
                                                                                             policies of the SA Post
                                                                                             Office (Sec 51(1)(b)(ii)).
                                                                                           To this end the SA Post
                                                                                           Office’s systems and
                                                                                           processes are designed and
                                                                                           continually reviewed to
                                                                                           ensure the prevention and
                                                                                           detection of all such
                                                                                           expenditure, irrespective the
                                                                                           size thereof.




           53    South African Post Office Annual Report 2006
C O R P O R AT E G O V E R N A N C E R E P O RT
(continued)




                                                PROPOSED                    RESULTING FIGURES            UNDERLYING
                                               FRAMEWORK                       FOR 2005/06               PRINCIPLES
        Significant for Section 54 –    Quantitative:                    Minimum                 • The PFMA is not intended
        Information and approval by                                                                to affect the autonomy of
                                        Qualifying transactions of an
        the Minister of “qualifying                                                                the organisation, but its
                                        operational nature:              R50 million
        transactions”, i.e.:                                                                       stated objectives are to
                                        • 5% of asset category                                     ensure transparency,
        • participation in a                                                                       accountability and sound
          significant partnership,      Qualifying transactions of a                               management of revenue,
                                        strategic nature:                R50 million
          trust, unincorporated joint                                                              expenditure, assets and
          venture or similar            • 5% of asset category                                     liabilities of the institutions
          arrangement;                                                                             to which the Act applies.
                                        Qualitative:                                               Therefore, the legislature
        • acquisition or disposal of                                                               could not have intended for
          a significant shareholding    A qualifying transaction may                               the public entities to report
          in a company;                 also be considered significant                             and seek approval on
        • acquisition or disposal of    based on considerations other                              matters of a daily basis.
          a significant asset;          than financial when, in the                              • The business of the SA
                                        opinion of the Board, it is                                Post Office is conducted
        • commencement or
                                        considered to be significant                               within the framework of
          cessation of a significant                                                               the mandate, objects and
                                        for the application of Section
          business activity; and                                                                   powers contained in the
                                        54. The decision on which
        • a significant change in                                                                  SA Post Office Act, as well
                                        non-financial issues may be
          the nature or extent of its                                                              as the business and
                                        considered at any time
                                                                                                   financial direction set out in
          interest in a significant     requires careful judgement at                              the corporate plan.
          partnership, trust,           a strategic level, and should
          unincorporated joint                                                                   • The SA Post Office also
                                        therefore rest with the Board                              has defined accountability
          venture or similar            as representative body of the                              and approval structures
          arrangement.                  shareholder. As an example,                                from the Board, as the
                                        the Board may consider a                                   shareholder representative,
                                        qualifying transaction as                                  to the CEO and
                                        significant when it could                                  management.
                                        impact significantly on a                                • The responsibility for the
                                        decision or action by the                                  day-to-day management of
                                        Minister such as a large                                   the SA Post Office vests in
                                                                                                   line management through a
                                        retrenchment of less than
                                                                                                   clearly defined
                                        R100 million.                                              organisational structure and
                                                                                                   through formally delegated
                                                                                                   authorities.

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

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




                   54    South African Post Office Annual Report 2006
Annual financial statements                         Approval of annual financial
                                                    statements
The Board of Directors is responsible for the
maintenance of adequate accounting                  The Board of Directors is of the opinion that
records and the preparation and integrity of        the annual financial statements for the year
the annual financial statements and related         ended 31 March 2006 and the information
information. The external auditors are              as recorded on pages 60 to 141 fairly
responsible for reporting on the fair               present the state of the affairs of the Group.
presentation of the annual financial                These annual financial statements were
statements. The annual financial statements         approved by the Board on 27 July 2006 and
have been prepared in accordance with               signed on its behalf by:
International Financial Reporting Standards
and in the manner required by the
Companies Act, as amended. The directors
are also responsible for the Group’s system
of internal financial control. These controls       KI Mampeule
are designed to provide reasonable but not          Group Chief Executive Officer
absolute assurance of the reliability of the
financial statements and to adequately
safeguard, verify and maintain accountability
of assets and to prevent and detect
misstatement and loss. The financial                PRE Tsukudu
statements have been prepared on the                Chairperson
going concern basis.

                                                    Secretary statement
                                                    In terms of section 268 G (d) of the
                                                    Companies Act, No 61 of 1973, as
                                                    amended, I certify that the Company has
                                                    lodged with the Registrar all such returns
                                                    as required by the Companies Act and that
                                                    all such returns are true, correct and up
                                                    to date.




                                                    HP van Staden
                                                    Company Secretary




55   South African Post Office Annual Report 2006
E M P L OY M E N T E Q U I T Y


         Learning Institute Annual Report                    • The public was trained on the customer
                                                               services for the eCadre project.
         The Learning Institute addressed a number
                                                             • Learning Institute took the initiative to
         of challenges during the past year.
                                                               approach the public and train them on
                                                               the Postbank products.
         • To achieve the objectives of the
           Employment Equity Act, the South                  • Retail and mail operations training was
           African Post Office has established                 offered to Swaziland.
           numerical goals as well as areas where
                                                             • Two training practitioners from Botswana
           affirmative action interventions need to
                                                               were trained on occupationally directed
           be implemented. Structures/forums have
                                                               education training and development.
           been formulated both at a corporate level
           and regional level where issues to
           address employment equity and                     Annual summary report on
           affirmative action are discussed. These           employment equity
           forums, which comprise labour
                                                             The South African Post Office is committed
           representatives, employees and
                                                             to comply with the requirements of the
           employers, engage in monthly/quarterly
                                                             Employment Equity Act (55 of 1998). It is
           meetings to meaningfully address issues
                                                             for this reason that the management of
           impacting on fair labour practice,
                                                             Employment Equity and Affirmative Action
           eradication of discriminatory practices,
                                                             is of high priority in the organisation.
           training interventions and other worrying
           issues between business and employees.
                                                             Consultative forums have been established
         • The first Post Office e-learning product          to monitor and consult on issues regarding
           guide was released.                               employment equity. These forums are
                                                             composed of labour and management and
         • All Mail Managers were trained in Total
                                                             are regionally based. They further monitor
           Quality Management (TQM).
                                                             the achievement of numerical goals as
         • For the first time women were trained as          well as areas where affirmative action
           drivers.                                          interventions need to be implemented.
                                                             Meetings are held to meaningfully address
         • The Post Office was awarded as one of
                                                             issues impacting on fair labour practice,
           the top groups on the FMP Programme
                                                             eradication of discriminatory practices,
           at UNISA.
                                                             training interventions and all other related
         • The senior managers on the EDP                    issues.
           programme were exposed to two
           benchmark trips overseas and their                The total number of employees as at
           findings are currently being implemented          31 March 2006 was 15 005. The
           in South African Post Office.                     breakdown of this figure reflects 13,66%
                                                             white females, 21,36% black females,
         • Several learnership programmes were
                                                             3,74% coloured females and 0,97%
           launched on the operational and
                                                             Asian females.
           professional levels.




         56   South African Post Office Annual Report 2006
The previously disadvantaged group
represents 91,4% of the total workforce.
The executive level, which includes general
managers and above, reflects a total of 32.
Of this figure, black females are under-
represented by 26,4% and white males are
over-represented by 18,2%. On the senior
management level there are 99 people, of
whom white males are over-represented by
14,43%, white females over-represented
by 5,79% and coloured males under-
represented by 4,72%. Middle
management account for 290 employees.
White males are over-represented by
12,19%, white females over-represented by
6,38% and black females under-represented
by 23,01%.

The overall company equity status reflects
white males over-represented by 1,81%,
white females over-represented by 8,32%,
black males under-represented by 2,45%,
black females under-represented by
14,41%, coloured males over-represented
by 5,02%, coloured females under-
represented by 0,96%, Asian males over-
represented by 2,82% and Asian females
under-represented by 0,15%.




57   South African Post Office Annual Report 2006
FINANCIAL STATEMENTS CONTENTS



 59   Auditors’ Report

 60   Directors’ Report

 64   Balance Sheets

 65   Income Statements

 66   Statements of Changes in equity

 67   Cash Flow Statements

 68   Notes to the Annual Financial Statements

139   Schedule 1 – Unlisted Investments

141   Group Three-year Review

142   High Level Performance Review




58    South African Post Office Annual Report 2006
REPORT OF THE INDEPENDENT AUDITORS



The annual financial statements set out on pages 60 to 140 for the year ended 31 March 2006 have been audited
in terms of section 188 of the Constitution of the Republic of South Africa, 1996 (Act No. 108 of 1996), read with
section 28 of the Public Audit Act, 2004 (Act No. 25 of 2004) and section 300 of the Companies Act of South
Africa. These financial statements are the responsibility of the accounting authority. Our responsibility is to
express an opinion on these financial statements based on our audit.

Scope
The audit was conducted in accordance with International Standards on Auditing read with General Notice 544 of
2006, issued in Government Gazette no. 28723 of 10 April 2006. Those Standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial statement presentation.

We believe that our audit provides a reasonable basis for our opinion.

Opinion
In our opinion, the annual financial statements presents fairly, in all material respects, the financial position of
South African Post Office Limited at 31 March 2006 and the results of its operations and its cash flows for the
year then ended in accordance with International Financial Reporting Standards and in the manner required by the
Public Finance Management Act, 1999 (Act No.1 of 1999) and the Companies Act of South Africa.

In our opinion, the performance information is fair in all material respects, on a basis consistent with the preceding
year, with the guidance set out in General Notice 544 of 2006.




KPMG Inc.                                                            KMMT Chartered Accountants Inc.
Registered Auditor                                                   Registered Auditor




Per S van den Boogaard                                               Per RM Kgosana
Chartered Accountant (SA)                                            Chartered Accountant (SA)
Registered Auditor                                                   Registered Auditor
Director                                                             Director

27 July 2006                                                         27 July 2006

KPMG Forum                                                           KPMG Crescent
1226 Schoeman Street                                                 85 Empire Road
Hatfield                                                             Parktown
Pretoria                                                             Johannesburg




59   South African Post Office Annual Report 2006
DIRECTORS’ REPORT



The directors present their 14th annual report, which is for the year ended on 31 March 2006. This report
and the audited annual financial statements have been prepared in compliance with the requirements of
the Public Finance Management Act No. 1 of 1999, as amended, and the Companies Act No.61 of 1973,
as amended.

Nature of business

The business of the Company is to operate a postal service and Postbank as defined by the Post Office
Act, No.44 of 1958, as amended, and the Postal Services Act, No.124 of 1998, and also to provide
courier and agency services.

Vision

“To be recognised among the top ten providers of postal and related services in the world.”

Mission

“We will enable the nation to efficiently connect with the world by distributing information, goods,
financial and government services; leveraging our broad reach and embracing change, technology and
innovation.”

General overview

The business of the Group is conducted through its operating divisions: Mail Operations/Mail Business,
Retail, Logistics and Postbank. These divisions are responsible 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 Human Resources,
Technology, Property Management, Finance, Security and Investigation Services, Sales and Customer
Services, Corporate Services, Marketing, Supply Chain Management, Internal Audit and Strategic
Planning. The organisational structure consists of four business units, namely Mail, Retail, Logistics and
Postbank. An overview of the Company's performance against its predetermined objectives is set out on
pages 142 to 144.

Financial results

The financial results of the Group are fully disclosed on pages 64 to 144. Turnover increased by
6,4 percent (2005: 8,2 percent). The Group realised an operating profit before post-retirement medical aid
liability of R367,6 million (2005: R290,6 million) which is an improvement of R77,0 million compared to
the previous year. During 2006, the Post Office finalised the conversion of the Post Office pension fund
from a defined benefit to a defined contribution. Most employees opted to convert to the defined benefit
scheme but pensioners and certain employees remained on the defined benefit scheme. An amount of
R353,8 million was recognised as a pension fund asset on the balance sheet.

The Group earned a net profit of R486,3 million in the year under review (2005: R1 190,0 million). During
2005 the net profit included a once-off reversal of R688,6 million of the provision previously raised to
meet future post-retirement medical benefits as well as the recognition of a deferred tax asset of
R253,6 million.

The shareholder has agreed with management to fund projects that are aimed at improving the
profitability and long-term results of the Company so that it can meet its universal service obligation.
The projects are approved by the shareholder before funding is received. Strict reporting guidelines have
been implemented to ensure that the funding is only used for these projects. The Company received
project specific funding of R300 million (2005: R300 million) for the year ended 31 March 2006. Total
funding to date amounts to R1,8 billion, of which R1,7 billion (2006: R267,8 million, 2005: R317,7 million,
2004: R397,6 million; 2003: R505,6 million and 2002: R180,2 million) has been spent. Project plans for
most of the remaining funds have been approved and specific projects have commenced, or will




60   South African Post Office Annual Report 2006
DIRECTORS’ REPORT



commence shortly. The shareholder has also committed itself to providing the Company with
R300 million per annum in funding for the 2006 to 2007 financial years, to be used for future projects to
be agreed upon with the shareholder. It is expected that the successful implementation of these projects
will substantially improve the Company’s performance and financial position.

During 2005 the shareholder provided the Company with a capital injection of R750 million to facilitate
the corporatisation of Postbank. The issue of the shares in this regard during the year under review is
however not permitted in terms of the Post Office Act and the share issue has subsequently been
rescinded. The funds have been disclosed under capital and reserves as “funds received from the
shareholder” until such time as the necessary changes have been made to the Post Office Act to permit
the issue of shares by the Company.

Conversion to International Financial Reporting Standards (IFRS)

The South African Post Office Limited Board approved that the Group would prepare its annual financial
statements in terms of IFRS. The Group has chosen its accounting policy from the different options that
are available and these will be applied prospectively. In terms of the conversion to IFRS the financial
position and results of the Group have been restated with the first balance sheet being prepared as at
1 April 2004. These annual financial statements are restated in terms of IFRS and the differences
between the previously reported financial position and results and that included in the annual financial
statements are set out in note 37.

Directors

The composition of the Board of Directors is as follows:

Chairperson
Ms PRE Tsukudu #§

Executive
Mr KI Mampeule (Group Chief Executive Officer) (Appointed 20 June 2005)
Ms MM Lefoka (Chief Operating Officer)
Mr NJD Buick (Chief Financial Officer)

Non-executive
Mr VA Christian §*
Prof MJ Crous +ˇ
Mr P Dzingwe *+
Mr AJ Hendricks *+
Ms J Lange @ˇ+
Ms V Mahlati §+
Mr SMA Malebo ˇ
Adv V Mhlongo ˇ
Ms PE Pokane *§#
Mr BMH Tsita #ˇ*

+ Members of the Human Resources Review Committee
  (Chairperson Ms V Mahlati)
* Members of the Audit Committee (Chairperson Mr VA Christian)
# Members of the Remuneration Committee (Chairperson Ms PRE Tsukudu)
§ Members of the Postbank Committee (Chairperson Mr VA Christian)
ˇ Members of the Risk Management Committee (Chairperson Mr BMH Tsita)
@ Members of the Stamp Advisory Committee

The directors do not hold any shares in the Company or any of its subsidiaries, neither in a beneficial nor
in a non-beneficial capacity.




61   South African Post Office Annual Report 2006
DIRECTORS’ REPORT



Emoluments paid to each director and executive reporting directly to the Chief Executive Officer during
the year are disclosed under note 35.

Details of the directors’ service contracts are as follows:

Name                  Position                         Commencing             Termination           Period

Ms PRE Tsukudu        Chairperson                      1 March 2006           28   February 2007    1    year
Mr KI Mampeule        Group Chief Executive Officer    20 June 2005           31   May 2010         5    years
Ms MM Lefoka          Chief Operating Officer          1 August 2004          31   July 2009        5    years
Mr NJD Buick          Chief Financial Officer          13 November 2001       31   October 2006     5    years
Mr VA Christian       Non-executive                    1 March 2006           28   February 2008    2    years
Prof MJ Crous         Non-executive                    1 January 2004         31   December 2006    3    years
Mr P Dzingwe          Non-executive                    1 January 2004         31   December 2006    3    years
Mr AJ Hendricks       Non-executive                    1 March 2006           28   February 2009    3    years
Ms J Lange            Non-executive                    1 January 2004         31   December 2006    3    years
Ms VF Mahlati         Non-executive                    1 March 2006           28   February 2009    3    years
Mr SMA Malebo         Non-executive                    1 March 2006           28   February 2009    3    years
Adv V Mhlongo         Non-executive                    1 March 2006           28   February 2009    3    years
Ms PE Pokane          Non-executive                    1 March 2006           28   February 2009    3    years
Mr BMH Tsita          Non-executive                    1 January 2004         31   December 2006    3    years

* Ms Tsukudu was appointed interim head of the Human Resources function from 17 January 2006 to
  30 March 2006. She also performed remunerative work for the Company relating to the recruitment
  and appointment of a new Group Chief Executive Officer.


Special resolutions

No special resolutions were taken in the year under review.


Share capital

The authorised share capital of the Company is R1 billion, divided into one billion ordinary par value
shares of R1 each, of which 200 939 821 have been issued to the shareholder.


Company Secretary

The Company Secretary is Mr HP van Staden:

Business address
Post Office Head Office
497 Schubart Street
Pretoria Central
0002

Postal address
PO Box 10000
Pretoria
0001




62   South African Post Office Annual Report 2006
DIRECTORS’ REPORT



Subsidiaries

Details of the Company's subsidiaries are set out in schedule 1 on pages 139 to 140. The holding
company's interest in income earned and losses after tax incurred by subsidiaries for the year is as follows:

                                                                                  2006                2005
                                                                               Profit/(loss)       Profit/(loss)
                                                                                  R’000               R’000

Sapos Properties (Proprietary) Limited                                                     –                –
Truebill (Proprietary) Limited                                                             –                –
The Document Exchange (Proprietary) Limited                                          3   226              284
Pensecure (Proprietary) Limited                                                            –             (163)
The Courier and Freight Group (Proprietary) Limited                                (55   092)         (84 484)
Sapos Properties (PE) (Proprietary) Limited                                              118               84
Sapos Properties (Rossburgh) (Proprietary) Limited                                        50             (352)
Sapos Properties (Erf 145018 Cape Town) (Proprietary) Limited                            275              291
Sapos Properties (East Rand) (Proprietary) Limited                                   1   119              756
Sapos Properties (Bloemfontein) (Proprietary) Limited                                     38               21
Centriq Insurance Innovation                                                         1   585              722



Events subsequent to balance sheet date

The directors are not aware of any matters or circumstances arising since the end of the financial year,
not otherwise dealt with in the annual financial statements, that will have a significant effect on the
operations of the Group, the results of the operations or the financial position of the Group.


Domicile

The Company is a public company registered in the Republic of South Africa and its registered address is:

Post Office Head Office
497 Schubart Street
Pretoria Central
0002


Auditors

KPMG Inc. and KMMT Inc. have been jointly appointed in accordance with Section 270(2) of the
Companies Act, as amended.




63   South African Post Office Annual Report 2006
BALANCE SHEETS
at 31 March 2006



                                                                    Group                          Company

                                                         2006                 2005           2006             2005
                                             Notes      R'000                R'000          R'000            R'000

ASSETS

Noncurrent assets                                    1 640 262         1 512 653         1 621 414     1 465 746

Property, plant and equipment                   2    1 083494          1 125    529      1 024   031   1 052886
Investment properties                           3        8810              9    002          8   810       9002
Intangible assets                               4       58164             50    844         53   960      46139
Available-for-sale assets                       5       48597             73    909         48   597      73909
Investments in subsidiaries                     6           –                     –         44   764      30223
Pension fund asset                              7     353 836                     –        353   836          –
Deferred taxation                               8      87 361               253 369         87   416    253 587

Current assets                                       3 981 265         3 337 370         3 761 305     3 151 253

Inventories                                     9       72   120          89      523       72 120        89 413
Trade and other receivables                    10      560   502         588      786      423 733       496 866
Available-for-sale assets                       5       59   167          56      523            –             –
Cash and cash equivalents                      11    3 289   476       2 602      538    3 265 452     2 564 974


Total assets                                         5 621 527         4 850 023         5 382 719     4 616 999

EQUITY AND LIABILITIES

Equity and reserves                                   888 204               425 918       877 418       440 733

Share capital                                  12     200    940         200      940     200 940        200 940
Foreign currency translation reserve           13     (10    123)         (10     123)          –              –
Available-for-sale reserve                     14      19    334           43     319      19 334         43 319
Accumulated loss                                      (71    947)       (558      218)    (92 856)      (553 526)

                                                      138 204           (324 082)         127 418       (309 267)
Funds received from shareholder                15     750 000            750 000          750 000        750 000

Noncurrent liabilities                                719 832               755 712       694 293       723 389

Interest bearing borrowings                    16          22                 4   301          22         2    744
Deferred lease liability                       17      56 749                66   820      43 500        51    144
Employment benefit obligations                 18     659 924               681   772     648 241       667    222
Provisions                                     19       3 137                 2   819       2 530         2    279

Current liabilities                                  4 013 491         3 668 393         3 811 008     3 452 877

Trade and other payables                       20    1 339   177       1 331      965    1 142   162   1 122217
Funds collected on behalf of third parties              98   494         126      957       98   494     126957
Deposits from the public                       21    2 293   849       2 024      456    2 293   849   2 024456
Employment benefit obligations                 18       70   720          75      720       70   720      75720
Interest bearing borrowings                    16        4   001           7      447        2   722       4620
Taxation                                                76   081           2      941       71   892          –
Subsidy received in advance                            131   169          98      907      131   169     98 907


Total equity and liabilities                         5 621 527         4 850 023         5 382 719     4 616 999




64    South African Post Office Annual Report 2006
INCOME STATEMENTS
for the year ended 31 March 2006



                                                                    Group                          Company

                                                         2006                 2005          2006              2005
Continuing operations                      Notes        R'000                R'000         R'000             R'000

Revenue                                      22     4 519 487          4 246 637       4 070 256       3 752 978

Add: Other operating income                  23       134 689               112 515      114 048          84 375

                                                    4 654 176          4 359 152       4 184 304       3 837 353

Less: Consumables and inventory utilised             (254 090)          (189 040)       (254 090)       (189 040)

                                                    4 400 086          4 170 112       3 930 214       3 648 313

Less: Employee benefit expenditure                  (2 348   102)      (2 290   606)   (2 188   968)   (2 083   976)
      Transport expenditure                           (548   759)        (536   601)     (346   396)     (313   556)
      Property operating leases                       (144   529)        (150   326)     (128   548)     (130   256)
      Vehicle operating leases                         (52   695)         (55   111)      (51   508)      (53   705)
      Other expenditure                      24       (938   399)        (846   876)     (883   967)     (772   040)

Operating profit before employment
benefits                                              367 602               290 592      330 827         294 780

Less: Post-retirement medical benefits                (52 035)              688 637      (52 000)        688 475
Plus: Pension fund asset recognised                   389 855                     –      389 855               –

Operating profit                                      705 422               979 229      668 682         983 255

Finance income                               25       102 355                42 579       97 352           40 290
Finance cost                                 26       (71 290)              (78 137)     (67 308)         (75 135)

Net profit before taxation                            736 487               943 671      698 726         948 410

Taxation                                     27      (243 726)              251 535     (238 056)        253 908

Profit for the year – continuing
operations                                            492 761          1 195 206         460 670       1 202 318

Discontinuing operations

Loss from discontinuing operations           28         (6 490)              (5 285)              –               –

Net profit for the year                               486 271          1 189 921         460 670       1 202 318




65   South African Post Office Annual Report 2006
STATEMENTS OF CHANGES IN EQUITY
for the year ended 31 March 2006




                                                      Foreign                    Funds
                                                     currency     Available-    received      Accumu-
                                      Share         translation    for-sale       from         lated         Total
                                      capital         reserve      reserve     shareholder      loss        equity
                                      R'000            R'000        R'000         R'000        R'000        R'000


Group

Balance at 31 March 2004              200 940           (5 141)      68 445            –     (1 748 139) (1 483 895)
Funds received from shareholder             –                –            –      750 000              –     750 000
Foreign currency translation
reserve                                         –       (4 982)            –            –            –       (4 982)
Net loss on available-for-sale
investments                                     –            –      (25 126)            –            –       (25 126)
Net profit for the year                         –            –            –             –    1 189 921    1 189 921

Balance at 31 March 2005              200 940         (10 123)       43 319      750 000      (558 218)    425 918
Net loss on available-for-sale
investments                                     –            –      (23 985)            –            –      (23 985)
Net profit for the year                         –            –            –             –      486 271     486 271

Balance at 31 March 2006              200 940         (10 123)       19 334      750 000       (71 947)    888 204


Company

Balance at 31 March 2004              200 940                –       68 445            –     (1 755 844) (1 486 459)
Funds received from shareholder             –                –            –      750 000              –     750 000
Net loss on available-for-sale
investments                                     –            –      (25 126)            –            –       (25 126)
Net profit for the year                         –            –            –             –    1 202 318    1 202 318

Balance at 31 March 2005              200 940                –       43 319      750 000      (553 526)    440 733
Net loss on available-for-sale
investments                                     –            –      (23 985)            –            –      (23 985)
Net profit for the year                         –            –            –             –      460 670     460 670

Balance at 31 March 2006              200 940                –       19 334      750 000       (92 856)    877 418




66    South African Post Office Annual Report 2006
CASH FLOW STATEMENTS
for the year ended 31 March 2006



                                                                  Group                         Company

                                                         2006                2005          2006            2005
                                            Notes       R'000               R'000         R'000           R'000

Cash inflow/(outflow) from operating
activities                                            232 992               8 752       253 731        (68 573)

Cash received from customers                         4 699 702        4 288 302        4 201 276     3 768 253
Cash paid to suppliers and employees                (4 200 536)      (3 904 223)      (3 684 505)   (3 463 879)
                                                    ]]]]]]]]        ]]]]]]]]          ]]]]]]]]      ]]]]]]]]

Cash generated from operations               29.1     499 166             384 079       516 771       304 374
Expenditure offset against project
specific subsidy                                      (267 738)       (317 728)         (267 738)     (317 728)
Finance income (excluding discounting of
trade and other receivables)                           85 113              28 469        80 852        26 951
Finance cost (excluding discounting of
trade and other payables)                              (54 964)           (58 201)       (52 154)      (56 295)
Dividends received                                     (24 000)           (25 875)       (24 000)      (25 875)
Normal taxation paid                                    (4 585)             (1 992)            –             –

Net increase in operating funds

Increase in deposits from public             29.2     288 164             231 135       288 164       231 135

Cash outflow from investing activities                (126 493)       (210 424)         (136 797)     (163 491)

Proceeds on disposal of property, plant
and equipment                                29.3        4 701              7 749           121           2 023
Replacement and renewal of property,
plant and equipment                                    (97 978)       (167 738)          (94 768)     (154 609)
Replacement and renewal of intangible
assets                                                 (31 906)           (32 125)       (30 846)      (32 104)
Net acquisition of noncurrent investments                    –                  –        (12 638)      (16 965)
(Acquisition)/disposal of bonds                         (1 310)           (18 310)         1 334        38 164

Cash inflow from financing activities                 292 275        1 044 650          295 380      1 046 083

Decrease in interest bearing borrowings                (7 725)              (5 350)      (4 620)        (3 917)
Funds received from shareholder                             –             750 000             –       750 000
Subsidy received                                      300 000             300 000       300 000       300 000


Increase in cash and cash equivalents                 686 938        1 074 113          700 478      1 045 154

Cash and cash equivalents at beginning
of year                                              2 602 538       1 528 425         2 564 974     1 519 820

Cash and cash equivalents at end of year             3 289 476       2 602 538         3 265 452     2 564 974




67   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



1.   ACCOUNTING POLICIES

     The principal accounting policies adopted in the preparation of these annual financial statements are set out below.
     The accounting policies have been applied consistently to all periods presented in the annual financial statements.


     1.1   Basis of preparation

           The consolidated financial statements are prepared in accordance with International Financial Reporting
           Standards (IFRS) including International Financial Reporting Interpretation Committee (IFRIC)
           interpretations. These are the Group’s first consolidated annual financial statements in terms of IFRS and
           IFRS 1: First Time Adoption of IFRS has been applied. An explanation of how the transition to IFRS has
           affected the reported financial position, financial performance and cash flows of the Group is provided in
           note 36.

           The consolidated financial statements are prepared under the historical cost convention except that the
           following assets and liabilities are carried at their fair value: available-for-sale financial assets, and financial
           assets and liabilities (including derivative instruments) measured at fair value through profit and loss.

           The preparation of annual financial statements in conformity with IFRS requires management to make
           judgments, estimates and assumptions that affect the application of policies and reported amounts of
           assets and liabilities, income and expenses. The estimates and associated assumptions are based on
           historical experience and various other factors that are believed to be reasonable under the circumstances,
           the results of which form the basis of making the judgments about carrying values of assets and liabilities
           that are not readily apparent from other sources. Actual results may differ from these estimates.

           Judgments made by management in the application of IFRS that have a significant effect on the financial
           statements and estimates with a significant risk of material adjustment in the next year are discussed in
           the relevant note.

           The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
           estimates are recognised in the year in which the estimate is revised if the revision affects only that year
           or in the year of the revision and future years if the revision affects both current and future years.


     1.2   Basis of consolidation

           Subsidiaries
           Subsidiaries are those entities in which the Group, directly or indirectly, has an interest of more than one
           half of the voting rights or otherwise has the power to govern the financial and operating policies. The
           existence and effect of potential voting rights that are currently exercisable or convertible are considered
           when assessing whether the Group controls another entity.

           The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group.
           The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and
           liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition.
           Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are
           measured initially at their fair values at the acquisition date, irrespective of the extent of any minority
           interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable
           net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the
           Group’s share of the net assets of the subsidiary acquired, the difference is recognised directly in the
           income statement.

           Subsidiaries are consolidated from the date on which effective control is transferred to the Group and
           consolidation ceases from the date of disposal or the date on which control ceases. All inter-company
           transactions, balances and unrealised surpluses and deficits on transactions between Group entities have
           been eliminated. Accounting policies have been applied consistently by Group entities.




68   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



1.   ACCOUNTING POLICIES (continued)

     1.3   Foreign currencies

           Functional and presentation currency
           Items included in the financial statements of each of the Group’s entities are measured using the currency
           of the primary economic environment in which the entity operates (the ‘functional currency’). The annual
           financial statements are presented in South African Rand, which is the functional currency of the parent
           company.

           Transactions and balances
           Foreign currency transactions are translated into the functional currency using the exchange rates
           prevailing at the transaction date (spot rate). At balance sheet date, monetary assets and liabilities
           denominated in foreign currencies are translated at the exchange rates prevailing at that date. Foreign
           exchange gains and losses are recognised in the income statement. Non-monetary assets and liabilities
           that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at
           the date of the transaction.

           Group entities
           The results and financial position of all Group entities (whose functional currency is not the currency of a
           hyperinflationary economy) that have a functional currency different from the presentation currency of the
           Group are translated into the Group presentation currency as follows:
           –   assets and liabilities are translated at the rates of exchange ruling at the balance sheet date;
           –   income and expenses are translated at exchange rates approximating to the foreign exchange rates
               ruling at the dates of the transactions; and
           –   all resulting exchange differences are recognised as a separate component of equity (foreign currency
               translation reserve).

           The results and financial position of all Group entities (whose functional currency is the currency of a
           hyperinflationary economy) that have a functional currency different from the presentation currency are
           translated into the presentation currency as follows:
           (i) all amounts (i.e. assets, liabilities, equity items, income and expenses, including comparatives) are
               translated at the rates of exchange ruling at the balance sheet date;
           (ii) comparative amounts are not restated if they have been translated into the Group’s presentation
               currency in previous financial years.

           On consolidation, exchange differences arising from the translation of borrowings that are deemed to be
           part of the net investment in foreign operations are taken to shareholders’ equity. When a foreign
           operation is sold, exchange differences that were recorded in equity are recognised in the income
           statement as part of the gain or loss on sale.

           Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and
           liabilities of the foreign entity in the Group financial statements and translated at the exchange rate at
           balance sheet date.


     1.4   Goodwill

           Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the
           net identifiable assets acquired at the date of acquisition of subsidiaries, associates and joint ventures.

           Goodwill is initially recognised at cost and is subsequently carried at cost less any accumulated impairment
           losses. Goodwill is tested annually for impairment. Impairment losses on goodwill are not reversed.




69   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



1.   ACCOUNTING POLICIES (continued)

     1.5   Property, plant and equipment

           Property, plant and equipment are stated at cost or deemed cost less accumulated depreciation and
           accumulated impairment losses. The cost of an item of property, plant and equipment includes all costs
           that are incurred in order to bring the asset into a location and condition necessary to enable it to
           operate as intended by management and includes the cost of materials, direct labour, and the initial
           estimate, where applicable, of the costs of dismantling and removing the item and restoring the site on
           which it is located.

           Where parts of an item of property, plant and equipment have different useful lives, they are accounted for
           as separate items of property, plant and equipment and are depreciated separately.

           Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of
           each part of an item of property, plant and equipment from when it is available to operate as intended by
           management. The estimated useful lives are as follows:
                                                       Years
           Buildings                                30 – 100
           Leasehold improvements                      3 – 10
           Machinery and equipment                     3 – 20
           Data-processing equipment                    3–8
           Motor vehicles                              3 – 20
           Furniture and fittings                      3 – 12

           Land is not depreciated as it is deemed to have an indefinite life.

           Residual values and useful lives are re-assessed annually.

           Subsequent expenditure relating to an item or part of an item of property, plant and equipment is
           capitalised when it is probable that future economic benefits associated with the item will flow to the
           Group and the cost of the item can be measured reliably. The carrying amount of the part that is replaced
           is derecognised in accordance with the principles set out below. Costs of repairs and maintenance are
           recognised as an expense in the year in which it is incurred.

           The carrying amount of an item or part of an item of property, plant and equipment shall be derecognised
           at the earlier of the date of disposal or the date when no future economic benefits are expected from its
           use or disposal. Gains or losses on derecognition of items of property, plant and equipment are included in
           the income statement. The gain or loss is the difference between the net disposal proceeds and the
           carrying amount of the asset.


     1.6   Investment properties

           Investment properties are properties held for the purpose of earning rental income or for capital
           appreciation or both, and are initially recorded at cost or deemed cost. Subsequent to initial recognition,
           investment properties are stated at cost less accumulated depreciation and accumulated impairment
           losses, and are accounted for in line with the policy on property, plant and equipment (refer accounting
           policy note 1.5).

           Depreciation is charged to the income statement on a straight-line basis over the estimated useful lives of
           each part of an item of investment property from when it is available to operate as intended by
           management. The estimated useful lives are as follows:

                                                       Years
           Investment properties                     30 –100




70   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



1.   ACCOUNTING POLICIES (continued)

     1.7   Leases

           The Group is the lessee
           Leases of property, plant and equipment, where the Group assumes substantially all the risks and rewards
           of ownership are classified as finance leases. All other leases are classified as operating leases.

           Assets acquired in terms of finance leases are capitalised at the lower of fair value and the present value
           of the minimum lease payments at inception of the lease, and depreciated over the estimated useful life
           of the asset on the same basis as owned assets, or where shorter, the term of the relevant lease.
           Minimum lease payments are apportioned between the finance charge and the reduction of the
           outstanding liability. The finance charge is allocated to each year during the lease term so as to produce a
           constant periodic rate of return on the remaining balance of the liability.

           Where leases contain both land and building components, each component is considered separately for
           classification purposes. At inception of the lease, the minimum lease payments are allocated to the
           components in proportion to the relative fair values of the leasehold interests in the land and buildings
           element of the lease. If this can not be measured reliably, then the lease is classified as a finance lease,
           unless it is clear that both elements are operating leases, in which case the entire lease is classified as an
           operating lease.

           Rental expense under operating leases is recognised in the income statement on a straight-line basis over
           the period of the lease.

           Lease incentives received are recognised in the income statement as an integral part of the total lease
           expense.

           The Group is the lessor
           Rental income from operating leases is recognised in the income statement on a straight-line basis over
           the lease term. Lease incentives granted are recognised as an integral part of the total rental income.


     1.8   Intangible assets (excluding goodwill)

           Intangible assets (excluding goodwill) are initially measured at cost and subsequently carried at cost less
           accumulated amortisation and accumulated impairment losses. Subsequent expenditure on intangible
           assets is capitalised only when it increases the future economic benefits embodied in the specific asset to
           which it relates. All other subsequent expenditure is expensed as incurred.

           The useful lives of intangible assets are assessed to be either finite or indefinite. Amortisation is charged
           to the income statement on a straight-line basis over the estimated useful life of the asset. The estimated
           useful lives are as follows:

                                                        Years
           Patents and trademarks                          10
           Licences                                      1–3
           Software – mainframe                          2–8
           Software – personal computers                 2–8

           Amortisation periods are assessed annually.

           Intangible assets with an indefinite useful life are tested for impairment at each balance sheet date. Such
           intangible assets are not amortised.




71   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



1.   ACCOUNTING POLICIES (continued)

     1.9   Financial instruments

           Financial assets and liabilities are recognised on the Group’s balance sheet when the Group becomes a
           party to the contractual provisions of the instrument. Financial instruments that are classified as measured
           at fair value through profit or loss are initially measured at fair value plus transaction costs that are directly
           attributable to acquisition or issue. All other financial instruments are initially measured at fair value.
           “Regular way” purchases and sales are accounted for at trade date. Subsequent to initial recognition
           financial instruments are measured as set out below.

           Trade and other receivables
           Trade and other receivables are initially recognised at fair value and subsequently measured at amortised
           cost using the effective interest rate method less impairment losses. At each balance sheet date, the Group
           assesses whether there is any objective evidence that trade and other receivables are impaired. Impairment
           losses for trade and other receivables are raised in the income statement, when there is objective evidence
           that the Group will not be able to collect all amounts due in accordance with the original terms agreed upon.
           The amount of the impairment is the difference between the assets’ carrying value and the present value of
           estimated future cash flows, discounted at the effective interest rate.

           Investments
           For the purpose of measuring investments subsequent to initial recognition, the Group classifies them as
           either held to maturity, available-for-sale or those that are measured at fair value through profit or loss.
           •   Investments classified as held to maturity represent those that the Group has the express intention and
               ability to hold to maturity and are measured at amortised cost using the effective interest rate method
               less impairment losses.
           •   Investments classified as available-for-sale are measured at subsequent reporting dates at fair value.
               Gains and losses on available-for-sale investments are recognised directly in equity, with the associated
               deferred taxation, until the investment is disposed of or impaired, at which time the cumulative gain or
               loss previously recognised in equity is included in the income statement for the period.
           •   Investments that are designated at fair value through profit or loss are measured at subsequent
               reporting dates at fair value. Gains and losses arising from changes in fair value of investments held for
               trading purposes or those designated as measured at fair value through profit or loss are recognised in
               the income statement in the period in which they arise.

           Where applicable, fair value is calculated by referring to Stock Exchange quoted selling prices at the close
           of business on the balance sheet date. Equity securities for which fair values can not be measured reliably
           are recognised at cost less impairment.

           Interest bearing borrowings
           Interest bearing borrowings are recognised initially at fair value less attributable transaction costs.
           Borrowings are subsequently stated at amortised cost using the effective interest rate method. Any
           difference between the cost and the redemption value is recognised in the income statement over the
           period of the borrowings as interest.

           All borrowing costs are recognised in the income statement in the year in which they arise.

           Deposits from the public
           Deposits from the public represent customers’ or the public’s funds held by Postbank. These are disclosed
           as current liabilities unless an investment period of longer than a year has been agreed. If a deposit from
           the public is classified as a dormant account, the deposit account is still charged a service fee and earns
           interest until the account balance is nil. The net liability is raised as a finance liability.




72   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



1.   ACCOUNTING POLICIES (continued)

     1.9   Financial instruments (continued)

           Funds collected on behalf of third parties
           Funds collected on behalf of third parties are initially recognised, and subsequently carried, at fair value.
           Funds collected on behalf of third parties are payable on demand and thus are classified as current liabilities.

           Trade and other payables
           Trade and other payables are initially measured at fair value and are subsequently measured at amortised
           cost, using the effective interest rate method.

           Financial guarantee contracts
           A financial guarantee contract is a contract that requires the issuer to make specified payments to
           reimburse the holder for a loss it incurs because a specified debtor fails to when due in accordance with
           original or modified terms of a debt instrument.

           Financial guarantee contracts are deemed to be insurance contracts.

           Foreign currency forward contracts
           The Group uses derivative financial instruments (primarily foreign currency forward contracts) to hedge its
           risks associated with foreign currency fluctuations relating to certain firm commitments and forecasted
           transactions. The derivatives do not qualify for hedge accounting and are initially recognised at fair value on
           the contract date. Subsequent to initial recognition, derivative financial instruments are measured at fair
           value. The resulting gain or loss is recognised immediately in profit or loss.

           Equity instruments
           Equity instruments issued by the Group are classified according to the substance of the contractual
           arrangements entered into. An equity instrument is any contract that evidences a residual interest in the
           assets of the Group after deducting all of its liabilities. Equity instruments issued by the Company are
           recorded at the proceeds received net of direct issue costs.

           Offset
           Where a legally enforceable right of set-off exists for recognised financial assets and financial liabilities,
           and there is an intention to settle the liability and realise the asset simultaneously, or to settle on a net
           basis, all related financial effects are offset.

           Derecognition
           Financial assets
           A financial asset or, where applicable, a part of a financial asset or part of a group of similar financial assets
           is derecognised where:
           •   the contractual rights to receive cash flows from the asset have expired;
           •   the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay
               them in full without material delay to a third party under a ‘pass-through’ arrangement; or
           •   the Group has transferred its rights to receive cash flows from the asset and either

               o has transferred substantially all the risks and rewards of the asset, or
               o has transferred control of the asset.

           Where the Group has transferred its rights to receive cash flows from an asset but has either retained
           substantially all the risks and rewards of the asset or control of the asset, the asset is recognised to the
           extent of the Group’s continuing involvement in the asset. Continuing involvement that takes the form of a
           guarantee over the transferred asset is measured at the lower of the original carrying value of the asset
           and the maximum amount of consideration that the Group could be required to repay.




73   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



1.   ACCOUNTING POLICIES (continued)

     1.9    Financial instruments (continued)
            Financial liabilities
            A financial liability is derecognised when the obligation under the liability is discharged or cancelled or
            expires. Where an existing financial liability is replaced by another from the same lender on substantially
            different terms, or the terms of an existing liability are substantially modified, such an exchange or
            modification is treated as a derecognition of the original liability and the recognition of a new liability, and
            the difference in the respective carrying amounts is recognised in profit or loss.
            Impairment of financial assets
            The Group assesses at each balance sheet date if there is objective evidence that a financial asset or a
            group of financial assets is impaired. In the case of equity investments classified as available-for-sale, a
            significant or prolonged decline in the fair value of the security below its cost is considered an indicator
            that the securities are impaired. If any such evidence exists for available-for-sale financial assets, the
            cumulative loss (measured as the difference between the acquisition cost and the current fair value, less
            any impairment loss on that financial asset previously recognised in profit or loss) is removed from equity
            and recognised in the income statement. Impairment losses recognised in the income statement for
            equity investments classified as available-for-sale are not subsequently reversed through the income
            statement. Impairment losses recognised in profit or loss for debt instruments classified as available-for-
            sale are subsequently reversed through the income statement if the increase in fair value can objectively
            be related to an event occurring after recognition of the impairment loss.
            Impairment testing of trade receivables is described under “Trade and other receivable” in this note.

     1.10   Inventories
            Inventories are stated at the lower of cost or net realisable value. Cost is determined using the weighted-
            average method. The cost of inventory includes all expenditure incurred in acquiring the inventories and bringing
            them to their existing location and condition. The cost of finished goods comprises raw materials, direct labour,
            other direct costs and related production overheads, but excludes interest paid. Net realisable value is the
            estimate of the selling price in the ordinary course of business, less the estimated selling expenses.

     1.11   Impairment of non-financial assets
            The carrying values of the Group’s assets other than inventory and deferred taxation assets are reviewed
            at each balance sheet date to determine whether there is any indication of impairment. An impairment
            loss is recognised whenever the carrying value of an asset exceeds its recoverable amount. Impairment
            losses are recognised in the income statement.
            For goodwill, intangible assets that have an indefinite useful life and intangible assets that are not yet
            available for use, the recoverable amount is estimated at each balance sheet date.
            The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs to
            sell and its value in use. In assessing value in use, the expected future cash flows from the asset are
            discounted to their present value using a pre-tax discount rate that reflects current market assessments of
            the time value of money and the risks specific to the asset.
            Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying
            amount of any goodwill allocated to cash-generating units and then to reduce the carrying amount of the
            other assets in the unit on a pro rata basis.
            A previously recognised impairment loss is reversed if the recoverable amount increases as a result of a
            change in the estimates used to determine the recoverable amount if related objectively to an event
            occurring after the impairment loss was recognised. An impairment loss is reversed only to the extent that
            the asset’s carrying amount does not exceed the carrying value that would have been determined, net of
            depreciation or amortisation, if no impairment loss had been recognised. The reversal is recognised in the
            income statement. After such a reversal the depreciation charge is adjusted in future years to allocate the
            asset’s revised carrying value, less any residual value, on a systematic basis over its remaining useful life.
            Impairment losses in respect of goodwill are not reversed.




74   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



1.   ACCOUNTING POLICIES (continued)

     1.12   Employee benefits

            Pension obligations
            Group companies operate various pension schemes. The Group has both defined benefit and defined
            contribution plans.

            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-administered funds,
            determined by periodic actuarial calculations.

            The liability recognised in respect of defined benefit pension plans is the present value of the defined
            benefit obligation at the balance sheet date less the fair value of plan assets, together with adjustments
            for unrecognised actuarial gains or losses and past service costs. An actuarial valuation is performed every
            three years using the projected unit credit method. The present value of the defined benefit obligation is
            determined by discounting the estimated future cash outflows using interest rates of government
            securities which have terms of maturity approximating the terms of the related liability.

            Cumulative actuarial gains and losses arising from experience adjustments and changes in actuarial
            assumptions in excess of the greater of:

            – 10% of the value of plan assets; or
            – 10% of the defined benefit obligations
            are recognised in income over the employees’ expected average remaining working lives.

            Past service costs are recognised as an expense on a straight-line basis over the average period until the
            benefits become vested. To the extent that the benefits are already vested, past service costs are
            recognised immediately.

            Defined contribution plans
            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.

            Other post-employment benefit obligations
            Healthcare benefits
            The entitlement to post-retirement healthcare benefits is based on the employee remaining in service up
            to retirement age for employees retiring up to June 2005. Actuarial gains and losses arising from
            experience adjustments, and changes in actuarial assumptions, are charged or credited to the income
            statement over the expected average remaining working lives of the relevant employees to the extent that
            they exceed the 10% corridor. These obligations are valued at least every three years by independent
            qualified actuaries.

            The expected cost of these benefits for past service is recognised immediately.

            Leave accrual
            Employee entitlements to annual leave are recognised when they accrue to employees. An accrual is
            made for the estimated liability for annual leave as a result of services rendered by employees up to
            balance sheet date. The Post Office leave liability is accounted for as a long-term benefit as a significant
            portion that has vested will most probably not be utilised or encashed within twelve months of year end.
            The annual leave obligations are valued at least every three years by independent qualified actuaries. Any
            unrecognised actuarial gains/losses and past service costs are recognised immediately. For other Group
            companies the leave liability is accounted for as a short-term benefit and is not actuarially valued.




75   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



1.   ACCOUNTING POLICIES (continued)

     1.12   Employee benefits (continued)

            Other long-term benefits
            The Group has other long-term benefits that accrue to employees and certain pensioners. These consist of
            telephone and long service awards. The Group’s net obligation in this regard is the amount of future
            benefit that employees or pensioners have earned in return for their service in the prior periods. The
            obligation is valued at least every three years by independent qualified actuaries. Any unrecognised
            actuarial gains/losses and past service costs are recognised immediately.

     1.13   Provisions

            Provisions are recognised when the Group has a present legal or constructive obligation as a result of past
            events, it is probable that an outflow of resources embodying economic benefits will be required to settle
            the obligation, and a reliable estimate of the amount of the obligation can be made.

            Where the effect of the time value of money is material, provisions are measured at the present value of
            the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current
            market assessments of the time value of money and the risks specific to the obligation.

            Onerous contracts
            A provision for onerous contracts is recognised 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.

            Decommissioning
            A provision for decommissioning leasehold improvements in respect of leased property is recognised
            when the lease contract is entered into.

     1.14   Revenue recognition

            Revenue comprises the fair value of the consideration received or receivable for the sale of goods and
            services in the ordinary course of the Group’s activities.

            Revenue from the sale of goods is recognised in the income statement when the significant risks and
            rewards of ownership have been transferred to the buyer. Revenue from services rendered is recognised
            in the income statement when the service has been delivered. Revenue earned from the provision of
            services over a fixed period, such as post box rental, is recognised in the income statement on a straight
            line basis over the period of the service.

            Interest is recognised on a time proportion basis, taking account of the principal outstanding and the
            effective rate over the period to maturity. When a receivable is recognised, the Group reduces the carrying
            amount to its present value for significant receivables or receivables with extended payment terms. The
            present value represents the estimated future cash flows discounted at original effective interest rates.
            The unwinding of the discount is recognised as interest income over the period.

            Dividend income is recognised when the shareholder’s right to receive payment is established.

     1.15   Taxation

            Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised
            in the income statement except to the extent that it relates to items recognised directly in equity, in which
            case it is recognised in equity.

            Current taxation comprises tax payable calculated on the basis of the taxable income for the year, using
            tax rates enacted or substantially enacted at the balance sheet date, and any adjustments of the tax
            payable for the previous year.




76   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



1.   ACCOUNTING POLICIES (continued)

     1.15   Taxation (continued)

            Deferred taxation is provided, using the balance sheet liability method, for all temporary differences arising
            between the tax bases of assets and liabilities and their carrying values for financial reporting purposes.
            Deferred income tax is determined using tax rates that have been enacted or substantially enacted at the
            balance sheet date. The amount of deferred tax provided is based on the expected manner of realisation
            or settlement of the carrying amount of assets and liabilities.

            A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be
            available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no
            longer probable that the related tax benefit will be realised.

     1.16   Government grants

            Grants from the government are recognised at their fair value where there is a reasonable assurance that
            the grant will be received and the Group will comply with all covenants. These are included in subsidy
            received in advance until they are utilised.

            Government grants are recognised as income over the periods necessary to match them to the related
            costs on a systematic basis. Government grants relating to assets are recognised as a reduction of the
            cost of the asset acquired.

            Government grants received as compensation for expenses or losses already incurred or for the purpose
            of giving immediate financial support with no future related costs are recognised as income in the period
            in which they become receivable.

     1.17   Non-current assets held for sale and discontinued operations

            Non-current assets or disposal groups are classified as held for sale if their carrying value will be recovered
            principally through a sale transaction rather than through continuing use. This condition is regarded as met
            only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its
            present condition. Management must be committed to the sale, which should be expected to qualify for
            recognition as a completed sale within one year from the date of classification.

            Non-current assets and disposal groups classified as held for sale are measured at the lower of the assets’
            previous carrying value and fair value less costs to sell.

            The Group adopted IFRS 5 from 1 April 2005 prospectively in accordance with the standard’s provisions.
            The noncurrent assets (or disposal groups) held for sale were previously neither classified nor presented
            as current assets or liabilities. Such noncurrent assets (or disposal groups) were not previously measured
            differently from other assets and liabilities.

            The application of IFRS 5 does not impact on the prior-year financial statements other than a change in the
            presentation of the results and cash flows of discontinued operations.

     1.18   Insurance contracts

            The Group issues short-term insurance contracts that protect the Group’s customers against the risk of
            loss or damage. These contracts transfer significant insurance risk. As a general guideline, the Group
            defines significant insurance risk as the possibility of having to pay benefits, on the occurrence of an
            insured event, that are at least 10% more than the benefits payable if the insured event did not occur.

            For all these contracts, premiums are recognised as revenue (earned premiums) proportionally over the
            period of coverage. The portion of premium received on in-force contracts that relates to unexpired risks at
            the balance sheet date is reported as the unearned premium liability which is included under other payables.




77   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



1.   ACCOUNTING POLICIES (continued)

     1.18   Insurance contracts (continued)

            Claims and loss adjustment expenses are charged to the income statement as incurred based on the
            estimated liability for compensation owed to contract holders. They include direct and indirect claims
            settlement costs and arise from events that have occurred up to the balance sheet date even if they have
            not yet been reported to the Group. The Group does not discount its liabilities for unpaid claims other than
            for disability claims. Liabilities for unpaid claims are estimated based on past experience.

     1.19   New accounting standards and International Financial Reporting Interpretation Committee (IFRIC)
            Interpretations

            The Group has elected to early adopt the following new accounting standards and interpretations:

            •   IFRIC 4 – Determining whether an arrangement contains a lease
            •   IAS 21 – Amendment – The effects of changes in foreign exchange rate – net investment in a foreign
                operation

            Certain new accounting standards, amendments and interpretations to existing standards have been
            published that are mandatory for accounting periods commencing after 1 April 2005, which the Group has
            elected to not early adopt. The following statements, amendments and interpretations that should have an
            impact on the Group’s results or disclosure in future and the impact are detailed in note 35:

            •   IFRS 7 – Financial instruments: Disclosures
            •   IAS 1 – Amendment to capital disclosures
            •   IAS 19 – Amendment: Actuarial gains and losses, group plans and disclosures
            •   IAS 39 – Amendment – Cash flow hedge accounting for forecast inter-group transactions
            •   IAS 39 and IFRS 4 – Amendment – Financial guarantee contracts and credit insurance

            The following standards and interpretations are considered not to be relevant to the Group’s operations
            and will therefore have no impact on the Group when they become effective:

            •   IAS 39 – Amendment – The fair value option (effective 1 January 2006)
            •   IFRS 6 – Amendment – Exploration for and evaluation of mineral resources (effective 1 January 2006)
            •   IFRIC 5 – Rights to interests arising from decommissioning, restoration and environmental rehabilitation
                funds (effective 1 January 2006)
            •   IFRIC 6 – Liabilities arising from participating in a specific market – Waste electrical and electronic
                equipment (effective 1 December 2005)
            •   IFRIC 7 – Applying the restatement approach under IAS 29 (Financial reporting in hyperinflationary
                economies (effective 1 March 2006))
            •   IFRIC 8 – Scope of IFRS 2 (effective 1 May 2006)
            •   IFRIC 9 – Reassessment of embedded derivatives (effective 1 June 2006)




78   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



2.   PROPERTY, PLANT AND EQUIPMENT

     Group                                               2006                                             2005
                                                       Accumu-                                           Accumu-
                                                        lated                                             lated
                                                       depreci-         Carrying                         depreci-        Carrying
                                         Cost           ation            value             Cost           ation           value
                                         R'000          R'000            R'000             R'000          R'000           R'000

     Owned                             1 960 878        (880 188)      1 080 690         1 916 503       (800 305)       1 116 198

     Freehold land and buildings         722   097       (28   275)        693   822       704   986       (14    752)    690   234
     Leasehold improvements              218   593      (118   451)        100   142       188   448       (97    989)     90   459
     Machinery and equipment             450   704      (334   497)        116   207       458   160     (316     899)    141   261
     Data-processing equipment           505   664      (365   454)        140   210       502   334     (338     328)    164   006
     Motor vehicles                       20   774        (7   113)         13   661        23   445         (9   179)     14   266
     Furniture and fittings               43   046       (26   398)         16   648        39   130       (23    158)     15   972

     Leased                               17 991         (15 187)            2 804          17 991          (8 660)          9 331

     Data-processing equipment            13 228         (10 862)            2 366          13 228          (6 452)          6 776
     Motor vehicles                        4 763          (4 325)              438           4 763          (2 208)          2 555


                                       1 978 869        (895 375)      1 083 494         1 934 494       (808 965)       1 125 529


     The movement in the carrying value of property, plant and equipment can be reconciled as follows:

                                                Opening                                                 Depreci-          Closing
                                                carrying         Additions/                              ation/           carrying
                                                 value           (transfers)           Disposals       impairment          value
     2006                                        R'000              R'000               R'000            R'000             R'000

     Owned                                     1 116 198              97 978               (305)        (133 181)        1 080 690

     Freehold land and buildings                 690   234            23   421              (29)         (19   804)       693   822
     Leasehold improvements                       90   459            32   047               (1)         (22   363)       100   142
     Machinery and equipment                     141   261             9   455             (116)         (34   393)       116   207
     Data-processing equipment                   164   006            26   743              (94)         (50   445)       140   210
     Motor vehicles                               14   266             2   315              (65)          (2   855)        13   661
     Furniture and fittings                       15   972             3   997                –           (3   321)        16   648

     Leased                                          9 331                   –                –           (6 527)            2 804

     Data-processing equipment                       6 776                   –                –           (4 410)            2 366
     Motor vehicles                                  2 555                   –                –           (2 117)               438


                                               1 125 529              97 978               (305)        (139 708)        1 083 494




79   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



2.   PROPERTY, PLANT AND EQUIPMENT (continued)

                                                   Opening                                              Depreci-         Closing
                                                   carrying         Additions/                           ation/          carrying
                                                    value           (transfers)         Disposals      impairment            value
     2005                                           R'000               R'000            R'000           R'000            R'000

     Owned                                      1 060 033            165 514               (5 981)      (103 368)      1 116 198

     Freehold land and buildings                   683 857              10 564              (438)         (3 749)        690 234
     Leasehold improvements                         32 550              77 545             (4 947)       (14 689)            90 459
     Machinery and equipment                       174 504               4 287                (32)       (37 498)        141 261
     Data-processing equipment                     136 850              66 381                59         (39 284)        164 006
     Motor vehicles                                 19 037                 633              (567)         (4 837)            14 266
     Furniture and fittings                         13 235               6 104                (56)        (3 311)            15 972

     Leased                                         13 608               2 224                   –        (6 501)             9 331

     Data-processing equipment                      11 070                  96                   –        (4 390)             6 776
     Motor vehicles                                   2 538              2 128                   –        (2 111)             2 555


                                                1 073 641            167 738               (5 981)      (109 869)      1 125 529

     A register of land and buildings is available for inspection at the registered office of each company in the Group.

     No assets in the Group have been impaired during the year.

     Details of the finance lease obligations and related security are disclosed in note 16.

     Company                                                         2006                                             2005
                                                        Accumu-                                          Accumu-
                                                            lated                                          lated
                                                         depreci-         Carrying                       depreci-       Carrying
                                            Cost            ation           value            Cost          ation         value
                                           R'000            R'000           R'000            R'000         R'000          R'000

     Owned                               1 835 466       (813 801)        1 021 665       1 788 650       (742 540)    1 046 110

     Freehold land and buildings           699 724          (27 755)        671 969         682 613        (14 482)      668 131
     Leasehold improvements                208 525       (110 461)           98 064         178 497        (91 223)          87 274
     Machinery and equipment               442 768       (332 233)          110 535         450 224       (315 762)      134 462
     Data-processing equipment             451 143       (323 038)          128 105         447 604       (303 384)      144 220
     Motor vehicles                           1 216           (1 096)             120          1 277        (1 092)             185
     Furniture and fittings                 32 090          (19 218)         12 872          28 435        (16 597)          11 838

     Leased
     Data-processing equipment              13 228          (10 862)            2 366        13 228         (6 452)           6 776

                                         1 848 694       (824 663)        1 024 031       1 801 878       (748 992)    1 052 886




80   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



2.   PROPERTY, PLANT AND EQUIPMENT (continued)

     The movement in the carrying value of property, plant and equipment can be reconciled as follows:

                                                 Opening                                        Depreci-       Closing
                                                 carrying       Additions/                       ation/        carrying
                                                  value         (transfers)     Disposals      impairment       value
     2006                                         R'000            R'000         R'000           R'000          R'000

     Owned                                      1 046 110          94 768            (240)      (118 973)     1 021 665

     Freehold land and buildings                  668 131          23 421             (29)       (19  554)     671 969
     Leasehold improvements                        87 274          31 930              (1)       (21  139)      98 064
     Machinery and equipment                      134 462           9 455            (116)       (33  266)     110 535
     Data-processing equipment                    144 220          26 239             (94)       (42  260)     128 105
     Motor vehicles                                   185             (12)              –             (53)         120
     Furniture and fittings                        11 838           3 735               –          (2 701)      12 872

     Leased
     Data-processing equipment                       6 776               –               –         (4 410)        2 366

                                                1 052 886          94 768            (240)      (123 383)     1 024 031

     2005
     Owned                                        980 527         154 513          (1 053)        (87 877)    1 046 110

     Freehold land and buildings                  661 484          10 564            (438)          (3479)     668 131
     Leasehold improvements                        23 955          76 425               (8)       (13 098)      87 274
     Machinery and equipment                      166 610           4 250              (32)       (36 366)     134 462
     Data-processing equipment                    117 578          59 642            (546)        (32 454)     144 220
     Motor vehicles                                    33             213                –             (61)        185
     Furniture and fittings                        10 867           3 419              (29)        (2 419)      11 838

     Leased
     Data-processing equipment                     11 070               96               –         (4 390)        6 776

                                                  991 597         154 609          (1 053)        (92 267)    1 052 886

     A register of land and buildings is available for inspection at the registered office of the Company.

     No assets in the Company have been impaired during the year.

     Details of the finance lease obligations and related security are disclosed in note 16.

     The directors’ valuation of freehold land and buildings is R672 million (2005: R668 million). Mail centres and hubs
     have been valued at depreciated replacement cost and all other fixed property at open market value.

     Freehold land and buildings as well as significant components to the buildings are stated at the deemed cost
     thereof, comprising the market value as assessed by an independent, professionally qualified valuer. The useful
     lives of buildings have also been estimated by the valuers. Freehold land and buildings not meeting the
     classification of investment property is classified under property, plant and equipment (refer to note 3 for
     assumptions used in the determination of investment property). The useful life of each building save for any
     reclassification thereof to noncurrent assets held for sale is deemed to equate its economic useful life, as
     management has taken a decision not to sell these buildings.




81   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



2.   PROPERTY, PLANT AND EQUIPMENT (continued)
     Assets that are financed through project specific funding are recorded in the asset register and included in the
     above 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 book value would be as follows:
     Group and Company                                    2006                                       2005
                                                        Accumu-                                     Accumu-
                                                         lated                                       lated
                                                        depreci-       Carrying                     depreci-      Carrying
                                           Cost          ation          value          Cost          ation         value
                                           R'000         R'000          R'000          R'000         R'000         R'000
     Freehold land and buildings             5  429        (1 207)        4   222        2 510           (426)      2 084
     Leasehold improvements                 41  003       (17 489)       23   514       39 945        (10 295)     29 650
     Machinery and equipment                44  176        (3 060)       41   116          837           (543)        294
     Data-processing equipment             177  070       (66 531)      110   539      159 701        (35 328)    124 373
     Motor vehicles                             490          (439)             51          489           (316)        173
     Assets under construction                  170             –             170          170              –         170
     Furniture and fittings                   1 134          (466)            668          747           (291)        456
                                           269 472        (89 192)      180 280        204 399        (47 199)    157 200

3.   INVESTMENT PROPERTIES
                                                          2006                                        2005
                                                        Accumu-                                    Accumu-
                                                         lated                                       lated
                                                      depreciation                                depreciation
                                                          and      Carrying                           and         Carrying
                                           Cost        impairment   value              Cost       impairment       value
     Group                                 R'000         R'000      R'000              R'000         R'000         R'000
     Freehold land and buildings              9 194           (384)        8 810          9 194          (192)       9 002
     Company
     Freehold land and buildings              9 194           (384)        8 810          9 194          (192)       9 002

     The movement in the carrying value of investment properties can be reconciled as follows:
     Group                                         Opening                                                         Closing
                                                   carrying        Additions/                     Depreciation/    carrying
                                                    value          (transfers)      Disposals      impairment       value
     2006                                           R'000             R'000           R'000          R'000          R'000
     Freehold land and buildings                      9 002               –                –           (192)         8 810

     2005
     Freehold land and buildings                      9 194               –                –           (192)         9 002
     The fair value of the investment properties
     is R20,1 million (2005: R8,5 million).
     Company
     2006
     Freehold land and buildings                      9 002               –                –           (192)         8 810

     2005
     Freehold land and buildings                      9 194               –                –           (192)         9 002

     The fair value of the investment properties is R20,1 million (2005: R8,5 million).
     Investment properties and significant components thereof are stated at the deemed costs thereof, comprising
     the market value as assessed by an independent, professionally qualified valuer having an appropriate recognised
     professional qualification and recent experience in the location and category of the property being valued. The
     estimated useful lives of the relevant properties have also been assessed by said valuers. Fair values and the
     related yields were determined having regard to recent market transactions for similar properties in the same
     location as the Group’s investment property and are thus supported by market evidence at the time the
     valuations were performed. The market value determination has been arrived at by applying the investment
     approach (income method). Fair values were obtained during March 2004 as well as March 2006.




82   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



3.   INVESTMENT PROPERTIES (continued)
     The following key assumptions were used in the determination of investment properties:
     –   Property is not capable of being divided into portions that can be separately sold or leased separately under a
         finance lease.
     –   The useful life of investment property has been estimated by the valuer.
     –   The useful life of each investment building save for any reclassification thereof to noncurrent assets held for
         sale is deemed to equate its economic useful life, as management has taken a decision not to sell these
         investment properties.
     –   Property is treated as investment property where the external lessees and vacant space amounts to at least
         80% of the specific property.

4.   INTANGIBLE ASSETS

     Group                                                2006                                     2005
                                                        Accumu-                                  Accumu-
                                                         lated         Carrying                   lated        Carrying
                                            Cost       amortisation     value          Cost     amortisation    value
                                            R'000        R'000          R'000          R'000      R'000         R'000

     Patents and trademarks                 18 045        (14 805)        3 240       18 045        (13 725)     4 320
     Computer software                     244 545       (189 621)       54 924      210 095      (163 571)     46 524

                                           262 590       (204 426)       58 164      228 140      (177 296)     50 844

     The movement in the carrying value of intangible assets can be reconciled as follows:

                                                    Opening                                                     Closing
                                                    carrying     Additions/                                     carrying
     Group                                           value       (transfers)      Disposals    Amortisation      value
     2006                                            R'000          R'000           R'000        R'000           R'000

     Patents and trademarks                          4 320                –              –        (1 080)        3 240
     Computer software                              46 524           31 906              –       (23 506)       54 924

                                                    50 844           31 906              –       (24 586)       58 164

     2005
     Patents and trademarks                          5 400                –              –        (1 080)        4 320
     Computer software                              34 524           32 125              –       (20 125)       46 524

                                                    39 924           32 125              –       (21 205)       50 844

     Company                                              2006                                    2005
                                                        Accumu-                                  Accumu-
                                                         lated         Carrying                   lated        Carrying
                                            Cost       amortisation     value          Cost     amortisation    value
                                            R'000        R'000          R'000          R'000      R'000         R'000

     Computer software                     235 056       (181 096)       53 960      201 666      (155 527)     46 139

     The movement in the carrying value of intangible assets can be reconciled as follows:

                                                 Opening                                                       Closing
                                                 carrying       Additions/                                     carrying
     Company                                      value         (transfers)       Disposals    Amortisation     value
     2006                                         R'000            R'000            R'000        R'000          R'000

     Computer software                              46 139           30 846              –       (23 025)       53 960

     2005
     Computer software                              32 419           32 104              –       (18 384)       46 139

     Included in intangible assets is computer software that is not considered integral to computer equipment.




83   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



4.   INTANGIBLE ASSETS (continued)
     Intangible assets that are financed through project specific funding are recorded in the asset register and
     included in the above 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 book value would be as follows:

     Group and Company                                     2006                                         2005
                                                         Accumu-                                      Accumu-
                                                          lated          Carrying                      lated        Carrying
                                              Cost      amortisation      value              Cost    amortisation    value
                                              R'000       R'000           R'000              R'000     R'000         R'000

     Computer software                       70 016        (19 098)       50 918         10 151         (5 546)       4 605

                                                                         Group                            Company

                                                                 2006               2005              2006             2005
                                                                R'000              R'000             R'000            R'000

5.   AVAILABLE-FOR-SALE ASSETS
     Unlisted investments:
      Uthingo Management (Proprietary) Limited                 13 500             37 500             13 500         37 500
      Centriq money market instruments                         59 167             56 523                  –              –

     Listed investments:
      Bonds                                                    35 097             36 409             35 097         36 409

                                                              107 764            130 432             48 597         73 909
     Less: Current portion                                    (59 167)            (56 523)                –              –

                                                               48 597             73 909             48 597         73 909

     Financial assets are classified as available-for-sale when the intention with regard to the instrument and its
     origination and designation does not fall within the ambit of the other financial asset classification. Available-for-
     sale instruments are typically assets that are held for a longer period and in respect of which short-term
     fluctuations in value do not affect the Group’s hold or sell decision.

     Uthingo Management (Proprietary) Limited
     The fair value of the investment in Uthingo Management (Proprietary) Limited ("Uthingo") is based on the Group's
     share of the indicative valuation of the value of the total company. The investment is 1 125 ordinary shares in
     Uthingo which represents a 15% shareholding. The income approach was used, which determines the value of
     the shares based on the present value of the cash flows that the business can expect to generate in future.

     The following key assumptions were used in the valuation:
     – No additional games will be launched during the forecast period.
     – In spite of Uthingo entering the final year of the current licence terms, its management assumes that Uthingo
        will continue as a going concern and have thus budgeted for training and development expenditure.
     – The consumer price index is estimated to be 5,7% for the 2006 year.
     – Uthingo will perform the required services according to the specifications and service levels of its Licence
        Agreement.
     – Uthingo will comply with the requirements of all other agreements governing its operations.
     – No additional capital expenditure will be incurred.

     The following uncertainties were not factored into the valuation:
     – The R25 million "suspended sentence" from the National Lottery Board relating to system problems.
     – The R25 million "suspended sentence" from the National Lottery Board in respect of problems relating to Mail
        Subscription Service.
     – Any negative view by the National Lottery Board on Uthingo's compliance with terminal distribution
        requirements.
     – The South African Revenue Service assessment that is being contested.
     – The potential realisable value of the network assets on technical de-installation on termination of the licence
        agreement.
     – The loyalty bonus that would be payable to Uthingo's staff on termination date, should the licence not be re-
        awarded to Uthingo.




84   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



                                                                      Group                          Company

                                                              2006             2005             2006             2005
                                                             R'000            R'000            R'000            R'000


6.   INVESTMENTS IN SUBSIDIARIES
     Unlisted investments
     (refer to schedule 1)                                        –                –          44 764           30 223

     Loans to subsidiaries amounting to R220,7 million (2005: R222,7 million) are subordinated in favour of creditors
     and investments amounting to R1,9 million (2005: R1,9 million) were impaired.

     Refer to note 10 for additional impairment of Group receivables.


7.   PENSION FUND ASSET
     The Post Office pension fund was converted from a defined benefit to a defined contribution scheme. Most
     employees opted to convert to the defined contribution scheme but pensioners and certain employees remained
     in the defined benefit scheme. The new fund is thus a hybrid scheme with both defined benefit and defined
     contribution elements. In the conversion of the fund a surplus arose estimated at R1,4 billion of which
     R800 million has been used to create all the required reserves in the fund to enhance members’ benefits and to
     remove all discriminatory practices in the existing rules.

     The Board of Trustees agreed to apportion the remaining balance between the employer and employees in the
     ratio of 65%/35% resulting in a further R217 million being allocated to members to enhance the value of
     transfers to the defined contribution plan by 8,5%. In total therefore approximately 72% of the total surplus was
     allocated to the benefit of members and R400 million will be channelled to the Company by way of contribution
     holiday. This was considered to be equitable to all stakeholders.

                                                                      Group                          Company

                                                              2006             2005             2006             2005
                                                             R'000            R'000            R'000            R'000

     Pension fund asset                                    353 836                 –         353 836                    –

     The amount recognised as a pension fund
     asset was:
     Value of assets                                     7 021 000                 –       7 021 000                    –
     Present value of obligations                       (6 229 000)                –      (6 229 000)                   –

      Defined contribution members                       2 746 000                 –       2 746 000                    –
      Reserves related to defined contribution plan        413 000                 –         413 000                    –
      Defined benefit members                            3 070 000                 –       3 070 000                    –


                                                           792 000                 –         792 000                    –
     Investment reserve                                   (392 000)                –        (392 000)                   –

     Surplus                                               400 000                 –         400 000                    –




85   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



                                                                          Group                           Company

                                                                2006                 2005         2006               2005
                                                               R'000                R'000        R'000              R'000

7.   PENSION FUND ASSET (continued)
     The amount that may be recognised as an asset
     is limited to the lower of the amount as determined
     above or the present value of any economic
     benefits available in the form of refunds from
     the plan or reductions in future contributions
     to the plan plus any cumulative unrecognised
     net actuarial losses and past service cost.

     Present value of contribution holiday                   353 836                     –     353 836                  –

     The principal actuarial assumptions used were as follows:

                                                                                              Expected
                                                         Future pension     Future salary       return         Discount
                                                            increases         increases       on assets          rate

     2006                                                    5,7%                 7,5%         10,5%            11%

                                                                          Group                           Company

                                                                2006                 2005         2006               2005
                                                               R'000                R'000        R'000              R'000

8.   DEFERRED TAXATION
     Balance at the begining of the year                     253 369                  (500)    253 588                 –
     Opening balance not provided for in previous year        59 996              674 728            –          632 477
     Restatement of opening balance                           (7 866)              (57 681)     (7 866)          (59 879)

     Restated balance                                        305 499              616 547      245 722          572 598
     Change in tax rate                                            –               (10 797)          –            (8 751)

     Current year movements recognised in the
     income statement:
     Deferred income tax liabilities:                       (107 511)         (267 591)       (108 683)        (266 082)

      Property, plant and equipment                            7 690               4 255         9 168              4 087
      Investment properties                                      (77)             (1 008)          (77)            (1 008)
      Leases                                                    (267)                529        (1 190)               687
      Trade and other payables                                 1 049               1 083         1 251              1 106
      Employee benefits                                     (126 068)         (224 037)       (124 556)        (222 958)
      Trade and other receivables                              5 798               2 514         2 496                 (45)
      Provisions                                               2 391                (135)        2 252              2 841
      Financial instruments                                   (1 189)             (6 448)       (1 189)            (6 448)
      Insurance                                                    –               9 138             –              9 138
      Revenue                                                  3 162            (53 482)         3 162           (53 482)

     Current year movements recognised in equity
     Available-for-sale investments                                 (7)              (321)           (7)             (321)

     Current movements                                       197 981              337 838      137 032          297 444
     Effect of utilisation of tax loss                       (33 352)              (24 548)    (49 616)          (43 856)

     Calculated balance at end of the year                   164 629              313 290       87 416          253 588
     Less: Deferred tax asset not raised                     (77 268)              (59 921)          –                –

     Balance at end of the year                               87 361              253 369       87 416          253 588




86   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



                                                                     Group                       Company

                                                             2006              2005         2006            2005
                                                            R'000             R'000        R'000           R'000


 9. INVENTORIES
     Consumable stores                                    23 956              23 292      23 956       23 182
     Merchandise                                          48 164              66 231      48 164       66 231

                                                          72 120              89 523      72 120       89 413


10. TRADE AND OTHER RECEIVABLES
     Trade receivables                                   488 089             503 236     323 927      389 852
     Group receivables                                         –                   –      72 662            –
     Sundry receivables                                  120 940             122 830     120 701      121 770
     Staff receivables                                       196                 667         191          634
     Taxation                                                  –                 352           –            –
     Impairment of trade and other receivables
     (excluding group receivables)                        (48 723)           (38 299)     (21 086)     (15 390)
     Impairment of group receivables                            –                  –      (72 662)           –

                                                         560 502             588 786     423 733      496 866

     Affected trade receivables are discounted at
     effective rate of 10,5% (2005: 11,0%).
     Impairment of trade and other receivables:
     Opening balance                                      (38 299)           (30 309)     (15 390)     (18 502)
     Net impairment raised in the current year            (20 943)           (15 918)     (13 335)       (4 816)
     Receivables written off during the year as
     uncollectable                                          5 117              4 182       5 117           4 182
     Unused amounts reversed                                5 402              3 746       2 522           3 746

     Closing balance                                      (48 723)           (38 299)     (21 086)     (15 390)


11. CASH AND CASH EQUIVALENTS
     Cash and cash equivalents consist of cash on
     hand and actual bank balances and investments
     in money market instruments. Cash and cash
     equivalents comprise the following:

     Cash at bank and on hand                            974 194           931 248        950 170      893 684
     Money market instruments                          2 315 282         1 671 290      2 315 282    1 671 290

                                                       3 289 476         2 602 538      3 265 452    2 564 974

     The effective interest rate of money market instruments is 6,94%.




87   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



                                                                      Group                        Company

                                                             2006               2005          2006             2005
                                                            R'000              R'000         R'000            R'000


12. SHARE CAPITAL

     Authorised
     1 000 000 000 ordinary shares of R1 each           1 000 000        1 000 000       1 000 000        1 000 000

     Issued
     200 939 821 ordinary shares of R1 each               200 940             200 940      200 940          200 940


13. FOREIGN CURRENCY TRANSLATION RESERVE

     Net investment in foreign operations                 (10 165)            (10 165)            –                –

      Opening balance                                     (10 165)             (5 141)            –                –
      Movement for the year                                      –             (5 024)            –                –

     Translation reserve                                       42                 42              –                –

      Opening balance                                          42                   –             –                –
      Movement for the year                                      –                42              –                –

                                                          (10 123)            (10 123)            –                –

     This is the reserve created in respect of the
     translation of foreign entitities into the
     Post Office Group’s functional currency.
     Included are exchange losses on loans that
     are designated as net investments in foreign
     entities.

14. AVAILABLE-FOR-SALE RESERVE

     Uthingo Management (Proprietary) Limited              13 499              37 499       13 499           37 499

      Opening balance                                      37 499              63 374       37 499           63 374
      Fair value adjustments                              (24 000)            (25 875)      (24 000)        (25 875)

     Bonds                                                  5 835               5 820         5 835           5 820

      Opening balance                                       5 820               5 071         5 820           5 071
      Movements                                                22               1 070            22           1 070
      Deferred taxation                                         (7)              (321)           (7)           (321)

     Balance at 31 March 2006                              19 334              43 319       19 334           43 319


15. FUNDS RECEIVED FROM SHAREHOLDER

     Funds received from shareholder                      750 000             750 000      750 000          750 000

     An amount of R750 million was received from National Treasury in order to recapitalise the SA Post Office. There
     is no intention to repay these funds which are viewed as being equity in nature.




88   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



                                                                        Group                    Company

                                                               2006               2005      2006            2005
                                                              R'000              R'000     R'000           R'000

16. INTEREST BEARING BORROWINGS
     Finance lease liabilities
     Secured
     Office equipment                                           783              1 677          –               –

     The lease agreement with Stannic Limited
     bears interest at a rate that approximates
     prime. The lease is secured by property, plant
     and equipment. The liability is repayable in
     monthly instalments of R115 000 (2005:
     R371 203) over the remaining period, which
     varies between 1 to 12 months (2005:
     6 to 36 months).

     Vuswa vehicles                                             496              2 707          –               –

     There are 51 vehicles being leased for a
     period of 27 months ending in July 2006. The
     vehicles have been leased at a fixed interest
     rate of 14% for the duration of the lease
     period. No amounts have been secured
     against this lease agreement. Lease liability is
     repayable in monthly instalments of R204 293
     (2005: R203 677) over the remaining period.

     Nashua photocopiers                                      2 744              7 364     2 744           7 364

     There are 1 267 (2005: 1 267) photocopy machines
     leased from Nashua for a period of 36 months.
     The liability is repayable in monthly instalments
     of R445 603 (2005: R443 688). 56% of the
     copy charge is the capital portion and will
     remain fixed for the duration of the lease.
     The balance, being the service portion,
     will be escalated annually with 15%. Interest is
     charged at at prime less 2%. No amounts have
     been secured against this lease agreement.

                                                               4 023            11 748      2 744           7 364
     Less: Current portion                                    (4 001)            (7 447)   (2 722)         (4 620)
            Office equipment                                    (783)             (616)         –               –
            Vuswa vehicles                                      (496)           (2 211)         –               –
            Nashua photocopiers                               (2 722)           (4 620)    (2 722)         (4 620)

     Noncurrent portion                                          22              4 301        22           2 744

     None of the contracts listed contain contingent rents.
     If there was an option to renew the lease in terms of the lease agreement, the assumption was made that
     management will exercise this option.




89   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



16. INTEREST BEARING BORROWINGS (continued)
     Reconciliation between the total minimum lease payments and present values:

     Group                                                      Within            1 to 5    More than
                                                               one year           years      5 years      Total
     2006                                                       R'000             R'000       R'000       R'000

     Vehicles and other equipment

     Minimum lease payments                                      4 218                23           –          4 241
     Future finance charges                                       (217)               (1)          –           (218)
     Present value of minimum lease payments                     4 001                22           –          4 023

     2005
     Vehicles and other equipment

     Minimum lease payments                                      8 791             4 241           –      13 032
     Future finance charges                                     (1 066)             (218)          –      (1 284)

     Present value of minimum lease payments                     7 725             4 023           –      11 748

     Company

     2006

     Vehicles and other equipment

     Minimum lease payments                                      2 842                23           –          2 865
     Future finance charges                                       (120)               (1)          –           (121)

     Present value of minimum lease payments                     2 722                22           –          2 744

     2005

     Vehicles and other equipment

     Minimum lease payments                                      5 347             2 865           –          8 212
     Future finance charges                                       (727)             (121)          –           (848)

     Present value of minimum lease payments                     4 620             2 744           –          7 364
                                                                          Group                     Company

                                                                  2006              2005        2006           2005
                                                                 R'000             R'000       R'000          R'000


17. DEFERRED LEASE LIABILITY
     The Group straightlined its operating leases where
     it is the lessee over the period of the lease contract.
     Refer to note 30 for the future minimum payments
     under non-cancellable operating leases.

     Noncurrent portion                                         56 749            66 820      43 500      51 144




90   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



18. EMPLOYEE BENEFIT OBLIGATIONS

     Group                                            Provisions
                                          Opening       made/        Benefits     Closing       Current      Total
                                          balance     (released)      paid        balance       portion    noncurrent
     2006                                  R'000        R'000         R'000        R'000         R'000       R'000
     Post-retirement medical aid
     contributions                        647 490        52 035      (74 087)     625 438        70 000      555 438
     Leave obligation                      82 421         3 655       (9 716)      76 360             –       76 360
     Long-service awards                   18 119         4 175       (2 790)      19 504             –       19 504
     Post-retirement telephone
     obligation                             9 462           532          (652)       9 342          720         8 622
                                          757 492        60 397      (87 245)     730 644        70 720      659 924
     2005
     Post-retirement medical aid
     contributions                      1 434 108      (718 367)     (68 251)     647 490        75 000      572 490
     Leave obligation                      84 176         7 377       (9 132)      82 421             –       82 421
     Long-service awards                   16 495         4 259       (2 635)      18 119             –       18 119
     Post-retirement telephone
     obligation                            10 731          (624)         (645)       9 462          720         8 742
                                        1 545 510      (707 355)     (80 663)     757 492        75 720      681 772
     Company
     2006
     Post-retirement medical aid
     contributions                        642 000        52 000      (74 087)     619 913        70 000      549 913
     Leave obligation                      74 161         6 424       (9 716)      70 869             –       70 869
     Long-service awards                   17 319         4 042       (2 524)      18 837             –       18 837
     Post-retirement telephone
     obligation                             9 462           532          (652)       9 342          720         8 622
                                          742 942        62 998      (86 979)     718 961        70 720      648 241
     2005
     Post-retirement medical aid
     contributions                      1 428 780      (718 475)     (68 305)     642 000        75 000      567 000
     Leave obligation                      77 235         6 058       (9 132)      74 161             –       74 161
     Long-service awards                   15 683         3 987       (2 351)      17 319             –       17 319
     Post-retirement telephone
     obligation                            10 731          (624)         (645)       9 462          720         8 742
                                        1 532 429      (709 054)     (80 433)     742 942        75 720      667 222
     Post-retirement medical aid contributions
     The fair value of the assets held in the external fund to be used to settle the medical benefits at the same date,
     amounted to R337,0 million (2005: R287,0 million). The monies in the off-balance sheet external fund were
     placed in a "contribution reserve" under the administration of Medipos Medical Aid Scheme (Medipos) to fund the
     post-retirement medical aid contributions. Uncertainty arose in the previous financial years as to whether the
     funds belong to the members of Medipos to further the aims and objectives of the scheme itself, or whether the
     funds belong to the current and future pensioners of the Company to fund their post-retirement medical aid
     contributions. The parties have agreed to split the funds between them and have re-negotiated the split. Only the
     Company's portion has been taken into consideration. The scheme's rules still need to be changed to effect this.
     The Company has negotiated with its employees that no employees retiring after 30 June 2005 will receive post-
     retirement medical aid benefits. This curtailment of benefits was accounted for during the 2005 year.




91   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



18. EMPLOYEE BENEFIT OBLIGATIONS (continued)
     The amount recognised in the income statement is determined as follows:

                                                                      Group                          Company

                                                              2006                2005         2006             2005
                                                             R'000               R'000        R'000            R'000

     Current service cost                                      367              64 337            –           64 000
     Interest charge                                        76 484            170 047        76 000         170 000
     Expected return on plan assets                        (24 000)            (30 000)     (24 000)         (30 000)
     Actuarial gain recognised                                (816)               (276)           –                –
     Actuarial gain on curtailment of benefits to
     active employees                                             –        (922 475)                 –      (922 475)

                                                            52 035         (718 367)         52 000         (718 475)
     Provision for additional benefits                           –           30 000               –           30 000

                                                            52 035         (688 367)         52 000         (688 475)

     The movement in the past service liability for the Company is as follows:

                                                                                             Plan         Net asset/
                                                                           Liability        assets         (liability)
     2006                                                                   R'000           R'000            R'000

     Past service liability at the beginning of the year                   (929 000)              –         (929    000)
     Value of plan assets at beginning of year                                    –         287 000          287    000
     (Interest charge)/expected return on plan assets                       (76 000)         24 000          (52    000)
     Contributions paid                                                      74 000               –           74    000
     Actuarial (loss)/gain                                                  (19 000)         26 000            7    000

                                                                           (950 000)        337 000         (613 000)

     2005
     Past service liability at the beginning of the year                 (1 732 000)              –       (1 732    000)
     Value of plan assets at beginning of year                                     –        303 000          303    000
     Current service cost                                                    (64 000)             –           (64   000)
     (Interest charge)/expected return on plan assets                      (170 000)         30 000         (140    000)
     Contributions paid                                                       68 000              –            68   000
     Actuarial gain as result of curtailment                                969 000               –          969    000
     Actuarial gain                                                                –        (46 000)         (46    000)

                                                                           (929 000)        287 000         (642 000)

                                                                                               2006             2005
                                                                                              R'000            R'000

     Provision at end of year                                                               619 913         642 000
     Less: Unrecognised portion of actuarial gains                                           (6 913)              –

                                                                                            613 000         642 000

     The principal actuarial assumptions used to determine the present value of the post-retirement medical aid
     contribution benefits are:
     Company                                                                              Discount           Medical
                                Year                                                        rate             inflation
                             2006 – 2011                                                   7,60%              6,70%
                               2012 +                                                      7,60%              5,61%
     Group
     For The Courier and Freight Group (Proprietary) Limited the BEASSA par yield curve as at 31 March 2006 was
     used. No medical inflation was used as the employees receive a fixed subsidy.




92   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



18. EMPLOYEE BENEFIT OBLIGATIONS (continued)

     Leave obligation
     Employees are entitled to 22 days per annum and are entitled to an additional two days in their tenth year with
     the Group. After this the employee is again entitled to 22 days. Per legislation employees have to take ten days
     leave per annum. Employees in the bargaining unit can encash leave once they have taken 15 days in a year. As
     from 1 April 2005 the Company has a “use it or lose it” policy in respect of leave.

     Leave that employees encash is valued at the employee’s pensionable salary plus housing allowance as at 2001/
     2002 whilst leave taken would be valued at total cost to company at the date leave will be taken. The following
     assumptions are relevant:
     – 50% of accrued leave will be encashed and 50% will be taken.
     – Capped leave accrues with service.

     The following assumptions were made in respect of accrued leave:
     – Accrued leave will be encashed or taken at an average rate of five days per annum.
     – 50% of accrued leave will be encashed and 50% will be taken.

     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 can not be utilised as
     leave. As provident fund assets are sufficient this leave is not accrued by the Company.

     Funded status
     The funded status of the leave obligation at 31 March 2006 was as follows:

                                                                         Group                           Company

                                                                 2006             2005             2006             2005
                                                                R’000            R’000            R’000            R’000

     Present value of funded obligations                       76 360            82 421         70 869            74 161

     Net liability in balance sheet                            76 360            82 421         70 869            74 161

     The amount recognised in the income statement
     is determined as follows:
      Current service costs                                     7 573             7 420           6 224            6 071
      Interest costs                                            6 110             7 346           6 110            7 346
      Actuarial (gain)/loss recognised in the year            (10 028)           (7 389)         (5 910)           (7 359)

                                                                3 655             7 377           6 424            6 058

     The principal actuarial assumptions used to determine the present value of the leave liability are:

     Year                                                                                     Salary             Discount
                                                                                             inflation              rate
     2006                                                                                     5,00%                9,90%
     2005                                                                                     5,00%                8,60%

     Long-service awards
     The Group provides employees with long-service awards for every five years’ uninterrupted service. The Group’s
     net obligation in this regard is the amount of future benefit that employees have earned in return for their service
     in future and prior periods. The obligation is valued at least every three years by independent qualified actuaries.
     Any unrecognised actuarial gains/losses and past service costs are recognised immediately. There are no plan
     assets for this liability and the employer funds this as it needs to be settled.




93   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



18. EMPLOYEE BENEFIT OBLIGATIONS (continued)
     Funded status
     The funded status of the long-service award obligation at 31 March 2006 was as follows:

                                                                       Group                          Company

                                                               2006             2005             2006             2005
                                                              R'000            R'000            R'000            R'000

     Present value of funded obligations                     19 504            18 119          18 837           17 319

     Net liability in balance sheet                          19 504            18 119          18 837           17 319

     The amount recognised in the income statement
     is determined as follows:
     Current service costs                                    1 609             1 564           1 421             1 401
     Interest charge                                          1 432             1 479           1 381             1 422
     Actuarial loss recognised in the year                    1 134             1 216           1 240             1 164

                                                              4 175             4 259           4 042             3 987

     The present value was determined using a yield curve at different durations as awards remain constant and will
     be sensitive to changes in the yield curve.

     Post-retirement telephone obligation
     The Group has undertaken to pay telephone accounts for certain retired employees until either the time of their
     death, that of their spouse or they change their address. The Group’s net obligation in this regard is the amount
     of future benefit that employees have earned in return for their service in the prior periods. The obligation is
     valued at least every three years by independent qualified actuaries. Any unrecognised actuarial gains/losses and
     past service costs are recognised immediately. There are no plan assets for this liability and the employer funds
     this as it needs to be settled
     Funded status
     The funded status of the post-retirement telephone obligation at 31 March 2006 was as follows:

                                                                       Group                          Company

                                                               2006             2005             2006             2005
                                                              R'000            R'000            R'000            R'000

     Present value of funded obligations                      9 342             9 462           9 342             9 462

     Net liability in balance sheet                           9 342             9 462           9 342             9 462

     The amount recognised in the income statement
     is determined as follows:

     Interest charge                                            692               878              692              878
     Actuarial gain recognised in the year                     (160)           (1 502)            (160)          (1 502)

                                                                532              (624)            532              (624)

     The actuarial value of the vested obligation is based on the past history. The principal actuarial assumptions used
     to determine the present value of the post-retirement telephone benefits are:
                                                                                              Inflation          Discount
     Year                                                                                        rate              rate
     2006                                                                                      5,00%              7,40%
     2005                                                                                      1,02%              8,60%




94   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



19. PROVISIONS

                                                                         Provisions
                                                                         (utilised)/
                                            Opening      Provisions       interest      Closing        Current      Total
     Group                                  balance        raised           cost        balance        portion    noncurrent
     2006                                    R'000         R'000            R'000        R'000          R'000       R'000
     Decommissioning                           2 819             –            318            3 137            –       3 137

     2005
     Decommissioning                           2 533             –            286            2 819            –       2 819

     Company
     2006
     Decommissioning                           2 279             –            251            2 530            –       2 530

     2005
     Decommissioning                           2 053             –            226            2 279            –       2 279

     The provision relates to the decommissioning costs that are expected to be incurred upon the termination or
     conclusion of lease agreements. These costs have been capitalised in terms of the relevant lease agreement. It
     is uncertain whether these leases will be extended or terminated earlier and this creates uncertainties around the
     amount and timing of the cash flows. There are no expected reimbursements for the costs that will be incurred.

                                                                         Group                             Company

                                                                2006                 2005              2006            2005
                                                               R'000                R'000             R'000           R'000

20. TRADE AND OTHER PAYABLES
     Trade payables                                          758   730           719   058           599968         578 902
     Other payables                                          201   813           247   920           205511         234 144
     Unearned revenue                                        223   985           210   430           199991         189 088
     Amount owing to shareholder *                           124   604           112   235           124604         112 235
     Outstanding insurance claims                             14   716            33   047                –               –
     Current portion of deferred lease liability              15   329             9   275           12 088           7 848
                                                           1 339 177           1 331 965          1 142 162       1 122 217

     The fair value of trade and other payables are
     based on cash flows discounted using a rate
     based on 10,5% (2005: 11,0%).

     *The liability arose as a result of the
      incorporation of the TBVC post offices. It bears
     interest at 10,5% (2005: 10,5%) in terms of the
     Public Finance Management Act.

21. DEPOSITS FROM THE PUBLIC
     Deposits from the public payable on demand            2 293 849           2 024 456          2 293 849       2 024 456

     Included in this amount are inactive accounts
     amounting to R14,2 million (2005: R23,9 million).
     These are accounts which have no transaction
     movements for at least four years. Interest is
     only paid and administration fees are levied on
     the accounts.

     Deposits from the public are covered by the
     following:
     Available-for-sale investments (refer to note 5)         35 097              36 409             35 097          36 409
     Cash and cash equivalents (excluding subsidy)         2 258 752           1 988 047          2 258 752       1 988 047

                                                           2 293 849           2 024 456          2 293 849       2 024 456

     In terms of Section 58 of the Postal Services Act No. 124 of 1998, the revenue and assets of the Company and
     thereafter of the State serve as security for the repayment of deposits in the Postbank.



95   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



                                                                          Group                         Company

                                                                 2006               2005           2006             2005
                                                                R'000              R'000          R'000            R'000

22. REVENUE
     Revenue comprises income from services
     provided and the sale of retail products,
     excluding value added tax, rebates and
     discounts. These services include work
     performed as agent of certain government
     departments, other authorities and businesses.
     Analysis of revenue by main business activity:
     Postal services                                        3 097 908        2 846 018        3 064 440        2 821 770
     Courier services (Logistical services including
     Speed Services)                                          686   612           708   351     270   849        238   940
     Agency and money transfer services                       381   481           384   103     381   481        384   103
     Retail products                                          122   646           106   890     122   646        106   890
     Postbank                                                 230   840           201   275     230   840        201   275
     Interest received                                        119 406              99 678       119 406           99 678
     Ledger fees and transaction charges                      111 434             101 597       111 434          101 597

                                                            4 519 487        4 246 637        4 070 256        3 752 978
     Unearned revenue assumptions
     •     Bulkmail, parcels and registered letters
           The Post Office has contracted the services of the Independent Standard Quality Monitor (ISQM) to measure
           the delivery standard. The results generated are based on the actual delivery statistics. The deferred revenue
           calculation was based on delivery performance statistics. Assumptions were used that 25% of all mail posted
           was delivered within the same region and 75% delivery between regions.
     •     Franking mail
           The deferred income calculation is based on an assumption that eight working days’ revenue is unearned. This
           period is formulated on a combination of the delivery standard and the holding time of customers after purchase.
     •     Box income
           The renewal cycle for the rental of the boxes is a calendar from 1 January to 31 December; however; the
           financial year for the post is 1 April to 31 March. This means that only the revenue for three months of
           renewal cycle is earned for that financial year and the nine months of the renewal cycle is regarded as
           deferred income.
     •     Stamp income and envelope income
           The deferred income calculation is based on an assumption that ten working days’ revenue is unearned. This
           period is formulated on a combination of the delivery standards and the holding time of customers after
           purchase.
     •     International
           As revenue has to be recognised when services are rendered and in terms of terminal dues, it will be
           recognised when items are delivered to their destinations. It was agreed that the Company use ISQM reports
           in terms of delivery standards and the calculation of the deferred revenue was based on performance
           statistics. The ISQM reports were applied for the different categories on a weighted average basis. • The last
           seven days’ sales were extracted and the statistics from ISQM reports were used to obtain the revenue to be
           deferred for those days.
     •     Courier (Logistical Services)
           Domestic items
           The assumption is that all items accepted on 31 March will only be delivered the next day and therefore this
           revenue is deferred.
           International items
           The assumption is that 80% of the revenue generated on 31 March is deferred to the new financial year.




96       South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



                                                                         Group                          Company

                                                               2006              2005          2006             2005
                                                               R'000             R'000        R'000            R'000

23. OTHER OPERATING INCOME
     Includes:
     Income from subsidiaries
       Administration fees received                                  –               –        1 200            1 200
     Net profit/(loss) on disposals of property,
     plant and equipment                                       4   396        1   768          (119)             970
     Dividends received                                       24   000       25   875        24 000           25 875
     Insurance premium revenue                                15   367        5   346             –                –
     Rental income from investment property                    4   391        4   338         4 391            4 338

24. OTHER EXPENDITURE
     Includes:
     Auditors' remuneration                                   13 745             7 541        8 110            6 406
     –   Audit fees – current year                             9 607             7 302        7 192            6 173
     –   Underprovision – prior year                           3 220                65            –               65
     –   Audit related services                                  768                66          768               66
     –   Expenses                                                150               108          150              102
     Directors' emoluments                                     7 295             7 093        6 184            7 093
     – Services as executive directors                         6 008             5 445        4 923            5 445
     – Services as non-executive directors                     1 287             1 648        1 261            1 648
     Depreciation on property, plant and equipment
     (refer note 2)                                          139 708        109 869        123 383            92 267
     –   Freehold land and buildings                          19   804        3   749        19 554            3 479
     –   Leasehold improvements                               22   363       14   689        21 139           13 098
     –   Machinery and equipment                              34   393       37   498        33 266           36 366
     –   Data-processing equipment                            54   855       43   674        46 670           36 844
     –   Motor vehicles                                        4   972        6   948            53               61
     –   Furniture and fittings                                3   321        3   311         2 701            2 419
     Net effect of project specific subsidy
     acknowledged as income                                          –               –              –                 –
     Subsidy received                                     267 739            317 728        267 739          317 728
     Less: Expenditure acknowledged                      (267 739)          (317 728)      (267 739)        (317 728)
     –   Early retirements                                           –       61 663                 –        61 663
     –   Retail operations                                    14   194        7 812          14   194         7 812
     –   Mail delivery and sorting agents                     43   385            –          43   385             –
     –   Universal Service Obligation                         86   657      133 415          86   657       133 415
     –   System improvements                                  21   246       90 226          21   246        90 226
     –   New point of sale system                             59   757            –          59   757             –
     –   Post Office restructuring                             5   658       24 612           5   658        24 612
     –   Other                                                36   842            –          36   842             –

     Included in the above expenditure is the acquisition of property, plant and equipment of R116,2 million (2005:
     R124,7 million) which was expensed immediately per the accounting policy for government grants.
     There are no unfulfilled conditions or contingencies.
     Certain projects such as the SAP Upgrade, Track & Trace and the Point of Sale have not been completed during the
     year under review. An amount of R131,2 million has been rolled over to the 2007 financial year for these projects.




97   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



                                                                        Group                           Company

                                                                2006             2005              2006                2005
                                                               R'000            R'000             R'000               R'000

24. OTHER EXPENDITURE (continued)
     Impairment and depreciation on investment
     properties (refer to note 3)                                192              192               192                192
     Amortisation of intangible assets (refer note 4)         24 586            21 205          23 025             18 384
     Operating expenses from investment properties               615             1 851              615               1 851
     Inventory write down                                      5 955             2 335            5 955               2 335

     Direct operating expenses relating to
     investment properties that:
     – Generated rental income                                   330              279               330                279
     – Did not generate rental income                            285              275               285                275
     Consultancy fees                                         66 758            55 521          60 988             52 041

     Technology                                                7 488             7 475            4 241               7 475
     Excel thru attitude                                       1 142                 –            1 142                   –
     Forensic audit                                              568              632               568                632
     Process re-engineering                                         –               58                –                 58
     Business restructuring                                   20 268            11 544          18 268                8 600
     Properties                                                   58             3 687               58               3 687
     Post-retirement medical aid valuation                       100              307               100                307
     IFRS conversion fees                                      6 945                 –            6 945                   –
     SA Post Office history project                                 –             403                 –                403
     Insurance                                                 1 275             1 150            1 275               1 150
     Occupational health and safety                            3 877             3 769            3 877               3 769
     Due diligence                                             1 320             1 958            1 320               1 958
     Treasury services                                              –            1 162                –               1 162
     Delivery standard measurement                            16 948            16 943          16 948             16 943
     Other                                                     6 769             6 433            6 246               5 897

     Net foreign currency losses                               4 590             3 409            4 590               3 409


     Service concessions

     Universal Service Obligation

     The universal service aims to ensure that basic postal services and financial transactions which are essential to
     social and economic inclusion are available to everybody in an appropriate way at an affordable cost. This is
     intended to ensure that people living in rural areas obtain the advantage of postal and financial services,
     irrespective whether the income generated is less than the cost of providing the service.

     Licence agreement

     In terms of Section 16(3) of the Postal Services Act, 1998 (Act No 124 of 1998) the Minister of Communications
     granted and issued a licence to the Post Office with a period of validity of 25 years, effective 1 April 2000.

     In terms of the licence conditions the Post Office must pay the National Reserve Fund (or SA Government) an
     annual licence fee of R16 million, escalating annually with CPI, but never lower than R16 million.

     The above obligation has been replaced in October 2005 with an annual licence fee equal to 0,55% of the Post
     Office’s annual regulated turnover.




98   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



                                                                       Group                            Company

                                                             2006                2005            2006              2005
                                                            R'000               R'000           R'000             R'000

25. FINANCE INCOME
     Investments and current accounts                      85 113               28 469         80 341         26 149
     Subsidiaries                                               –                    –            511            802
     Trade receivables discounted                          17 242               14 110         16 500         13 339

                                                         102 355                42 579         97 352         40 290

26. FINANCE COST
     Postbank depositors                                   36   295             41   413       36   295       41   413
     Overdraft and banking facilities                       6   300              5   199        3   490        3   293
     Former TBVC states loan                               12   369             11   589       12   369       11   589
     Trade payables discounted                             16   326             19   936       15   154       18   840

                                                           71 290               78 137         67 308         75 135

27. TAXATION
     Normal South African income tax @ 29%
     – Current                                            78 378                 2 762         71 892               –
     – Secondary tax on companies                              –                                    –               –
     – Deferred tax                                      165 348           (254 297)          166 164        (253 908)

                                                         243 726           (251 535)          238 056        (253 908)

     Calculated tax loss                                 237 017               379 147                 –     198 211

     Tax rate reconciliation                                      %                    %              %              %
     Effective tax rate                                      33,7                    26,8           34,1           26,7
     Tax loss utilised                                      (11,5)                    (4,7)         (1,2)            5,2
     Dividend income                                          1,3                      0,8           1,0             0,8
     Disallowed expenditure                                  (5,2)                    (0,5)         (4,9)           (3,6)
     Change in deferred tax rate                              0,0                      1,2           0,0             0,9
     Net deferred tax asset not raised                       10,7                      6,4           0,0             0,0

     Standard tax rate                                          29,0                 30,0           29,0           30,0

                                                                       Group                            Company

                                                             2006                2005            2006              2005
                                                            R'000               R'000           R'000             R'000

28. LOSS FROM DISCONTINUED OPERATIONS
     The results of the discontinued operations
     are as follows:
     Revenue                                                    –                6 172                 –              –
     Expenses                                              (6 490)             (11 457)                –              –

     Net loss                                              (6 490)              (5 285)                –              –

     The results of the SADC operations which consist of Courier and Freight Zimbabwe (Private) Limited, Courier and
     Freight Botswana (Proprietary) Limited, Courier and Freight Swaziland (Proprietary) Limited and Courier and
     Freight Namibia (Proprietary) Limited have been disclosed as a discontinued operation. The SADC operations are
     a separate geographical operation and have been abandoned as from the 2006 financial year.




99   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



                                                                      Group                       Company

                                                             2006                2005        2006            2005
                                                            R'000               R'000       R'000           R'000

29. NOTES TO THE CASH FLOW STATEMENT
      29.1   Reconciliation of operating profit to cash
             generated from operations
             Operating profit                             705 422             979 229     668 682      983 255

             Adjustments for:

             Depreciation on property, plant and
             equipment                                    139 708             109 869     123 383       92 267
             Impairment and depreciation on
             investment properties                            192                 192         192          192
             Amortisation of intangible assets             24 586              21 205      23 025       18 384
             Increase/(decrease) in impairment of
             trade and other receivables                   10 424               7 521        5 696          (3 661)
             Increase in impairment of group
             receivables                                        –                   –      72 662               –
             Increase in provisions                           318                 286         251             226
             Net (profit)/loss on disposal of property,
             plant and equipment                            (4 396)            (1 768)         119        (970)
             (Decrease)/increase in impairment of loans          –                  –       (1 903)     73 001
             Provision for employment benefit
             obligations                                   60 397         (707 355)        62 998      (709 054)
             Employment benefits paid from
             provision                                     (87 245)           (80 663)     (86 979)     (80 433)
             Deposits from the public transferred
             to income                                     (18 771)           (18 730)     (18 771)     (18 730)
             (Decrease)/increase in deferred lease
             liability                                     (10 071)             (2 066)    (7 644)          35
             Dividends received                             24 000             25 875      24 000       25 875
             Loss from discontinued operations              (6 490)             (5 285)         –            –
             Pension fund asset recognised not
             received                                     (353 836)                 –     (353 836)              –
             SADC foreign currency                               –             (4 982)           –               –

             Operating profit before working capital
             changes                                      484 238             323 328     511 875      380 387
             Decrease/(increase) in working capital        14 928              60 751       4 896       (76 013)

              Decrease in inventories                      17 403                 531      17 293             322
              Decrease/(increase) in trade and other
              receivables                                  35 102             (78 371)     11 275       (75 949)
              (Decrease)/increase in funds collected
              on behalf of third parties                   (28 463)            23 241      (28 463)     23 241
              (Decrease)/increase in trade and other
              payables                                      (9 114)           115 350        4 791      (23 627)

             Cash generated from operations               499 166             384 079     516 771      304 374

      29.2   Increase in deposits from the public
             Increase per balance sheet                   269 393             212 405     269 393      212 405
             Increase in Postbank inactive accounts        18 771              18 730      18 771       18 730

                                                          288 164             231 135     288 164      231 135




100   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



                                                                        Group                    Company

                                                                 2006             2005       2006           2005
                                                                R'000            R'000      R'000          R'000

29. NOTES TO THE CASH FLOW STATEMENT
    (continued)
      29.3    Proceeds on disposal of property,
              plant and equipment
              Carrying value of disposals                         305             5 981       240          1 053
              Net profit/(loss) on disposal                     4 396             1 768      (119)           970

                                                                4 701             7 749      121           2 023

30. COMMITMENTS
      Capital commitments
      Capital expenditure authorised by the Board of
      Directors at the balance sheet date but not
      recognised in the financial statements is as follows:

       Contracted for                                         262 293           320 334   260 130     320 334
       Not yet contracted for                                  56 013           171 292    55 301     103 015

                                                              318 306           491 626   315 431     423 349

      The capital expenditure will be financed from
      funds generated by own operations and from
      external sources.

      Operating lease commitments – lessee
      The future minimum payments payable under
      non-cancellable operating leases are as follows:

      Buildings                                               325 611           447 767   245 795     347 022

      Not later than 1 year                                   106 428           157 986    84 969     101 227
      Later than 1 year and not later than 5 years            162 440           205 452   110 520     194 947
      Later than 5 years                                       56 743            84 329    50 306      50 848

      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 metre
      relating to the prevalent market rate at the
      inception of the contract. Escalation clauses
      vary from contract to contract averaging 8,0%.
      Contract renewal options are assumed to be
      exercised by the Company, unless advised
      otherwise by Management.

      Vehicles and other equipment                             62 813            46 682    56 527      46 682

      Not later than 1 year                                    36 384            29 093    32 711      29 093
      Later than 1 year and not later than 5 years             26 429            17 589    23 816      17 589

      The Group leases vehicles from Avis Fleet
      Services and Fleet Africa under FML agreements.
      The lease period ranges from two to five years
      at an interest rate of prime less 2 – 2,25%. The
      vehicles are being utilised for the delivery of
      parcels and mail.

      Total                                                   388 424           494 449   302 322     393 704




101   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



                                                                      Group                           Company

                                                               2006            2005              2006            2005
                                                              R'000           R'000             R'000           R'000


30. COMMITMENTS (continued)
      Operating lease receivables – lessor

      The future minimum payments receivable
      under non-cancellable operating leases are
      as follows:

      Buildings

      Not later than 1 year                                 11 967            11 847          11 967          11 847
      Later than 1 year and not later than 5 years          12 951            24 885          12 951          24 885
      Later than 5 years                                         8                41               8              41

      Total                                                 24 926            36 773          24 926          36 773


31. PENSIONS
      Company

      Benefits due to employees and related assets under the State Pension Fund were taken over by the Post Office
      Pension Fund, a defined benefit scheme, on 1 October 1991. During the 2006 financial year members were given
      the option to convert from defined benefit to defined contribution and 95% of active employees converted to
      defined contribution. The pension fund is thus a hybrid scheme at 31 March 2006.

      The financial position of the hybrid scheme is set out in note 7. The conversion to the hybrid scheme changed
      the manner in which the financial position of the scheme is managed and thus comparatives can not be done in
      the same manner. The financial position of the defined benefit scheme as at 31 March 2005 was as follows:

                                                                                                           Net asset/
                                                                          Plan asset      Plan liability    (liability)
      2005                                                                  R'000            R'000            R'000

      Asset/(liability) at 31 March 2004                                  5 002 654       (4 091 464)        911  190
      Company contributions                                                 139 890                 –        139  890
      Members’ contributions                                                 80 739                 –          80 739
      Current service cost                                                        –           (84 645)        (84 645)
      Benefit payments                                                     (329 110)         329 110                –
      Expected return on assets                                             425 226                 –         425 226
      Interest costs                                                              –         (345 729)        (345 729)

      Expected asset/(liability) at 31 March 2005                         5 319 399       (4 192 728)      1 126 671

      The last actuarial valuation was performed as at 31 March 2003. For funding purposes the funded level is 98,2%,
      which is regarded as being financially sound. The Company guaranteed the financial obligations of the Post Office
      Pension Fund.




102   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



31. PENSIONS (continued)
      The principal actuarial assumptions used in determining the cost of retirement benefits are:

                                                                                     Salary                   Pension
                                               Discount       Inflation            increase                   increase
                                                 rate           rate                  rate       ROI         allowance
      Year                                        %              %                     %          %              %

      2002/03                                   13,00            8,0                  9,5            12,5           7,6
      2003/04                                   11,00            6,0                  7,5            10,5           5,7
      2004/05                                    8,45            4,0                  3,6             8,5           5,7

      Group
      In addition to the Company defined benefit scheme, the Group has three defined contribution plans for the
      employees of the subsidiary companies, namely two provident funds and a pension fund. These funds are
      registered under and governed by the Pension Funds Act No 24, 1956. All of the subsidiaries' employees are
      members of one of these funds.

                                                                          Group                         Company

                                                                2006                2005         2006              2005
                                                               R'000               R'000        R'000             R'000

      Contributions paid to the pension fund                 219 524              233 391     203 014        219 504

32. CONTINGENT LIABILITIES
      South African Revenue Service                           28 178               27 039      28 178          27 039

       Taxation                                               10 850               10 850      10 850          10 850
       Accrued interest                                       17 328               16 189      17 328          16 189

      The South African Revenue Service issued an
      assessment in respect of the disallowance of
      the section 24C allowance claimed in the 1994
      tax return. The assessment is on appeal.

      Guarantees in respect of employee housing
      loans                                                   13 181               17 124      13 181          17 124

      Bank guarantees                                         25 468                8 895      25 468             8 895

      Service providers                                       41 200               41 496      41 200          41 496

      Employees                                                5 800                9 700       5 800             9 700

      Unsuccessful tenderers                                 514 000              514 000     514 000        514 000

      The tenderers ceded their rights to be a third
      party which sued the Company for the
      payment for the alleged non-award of the
      Biometric payment system tender. The
      directors do not believe that the claim
      against the Company will be successful.

      Third party customers                                   53 000               53 000      53 000          53 000

      Agency services rendered to the Stats SA
      Census.

      The plaintiff sued the Minister of Finance initially
      and the Post Office was invited by way of a
      third party. The Post Office has filed an
      objection plea.




103   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



33. FINANCIAL RISK MANAGEMENT
      33.1   Foreign currency risk management
             Foreign currency exposures arise from the rendering of international postal services and products, as well
             as capital import commitments. The Group manages the foreign currency exposures relating to
             international postal services through the utilisation of natural hedges and netting arrangements. Forward
             exchange contracts are utilised to manage exposures relating to confirmed commitments. There were no
             material foreign exchange contracts at 31 March 2006. The fair value of foreign exchange contracts at
             31 March 2005 was R42,8 million.

             The Group's exchange rate risk is managed by the Asset and Liability Committee (Alco) within limits
             approved by the Board. The currency exposure is managed by taking forward exchange contracts on open
             positions. All positions are marked to market daily with a standing stop loss limit placed to close positions
             limiting losses to five percent of gross exposure.

             Forward exchange contracts – recognised transactions
             No forward exchange contracts were entered into during the financial year ended 31 March 2006. The fair
             value of foreign exchange contracts that had not matured at 31 March 2005 was R42,8 million.

             Uncovered foreign exchange exposure

             At year end, the Group was exposed to the following material foreign currency denominated assets and
             liabilities for which no forward cover had been taken out due to the time frame involved in the current
             Universal Postal Union payment arrangements.

                                                                              Group                     Company

                                                                    2006               2005        2006            2005
                                                                   Foreign            Foreign     Foreign         Foreign
                                                                   amount             amount      amount          amount
             Foreign currency                                        000               000          000            000

             Great Britain Pounds         Assets                         79                 74          79                74
                                          Liabilities                     5                  3           5                 3
             United States Dollar         Assets                          1                  2           1                 2
                                          Liabilities                     –                  –           –                 –
             Botswana Pula                Assets                        137                174         137               174
                                          Liabilities                   726                334         726               334
             Special Drawing Rights*      Assets                   18   508           13   813    18   508        13     813
                                          Liabilities               8   392           13   465     8   392        13     465
             Zambia Kwacha                Assets                          –                  –           –                 –
                                          Liabilities              58   005           51   588    58   005        51     588
             Kenyan Shilling              Assets                          –                  –           –                 –
                                          Liabilities              11   131            5   311    11   131           5   311
             Canadian Dollar              Assets                          –                  –           –                 –
                                          Liabilities                     7                  6           7                 6

             * Accounting unit of the International Monetary Fund based on a basket of five currencies (US Dollar,
              German Mark, French Franc, Japanese Yen and Great Britain Pounds).




104   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



33. FINANCIAL RISK MANAGEMENT (continued)
      33.2   Interest rate risk management
             The Group is exposed to interest rate risk as it borrows and places funds in the money market at both
             fixed and floating interest rates. This risk is managed by maintaining an approximate mix between fixed
             and floating interest rates, and by matching the underlying profiles of borrowings and investments based
             on asset and liability principles.

             The Group's interest rate risk is managed by the Alco Committee within limits approved by the Board. The
             re-pricing mismatch between balance sheet assets and liabilities should not place more than five percent
             of annualised net interest income at risk given a one percent adverse movement in interest rates across
             the yield curve. The balance sheet is modelled on the interest rate assumptions by the Alco Committee
             based on the domestic and international trends.The net interest income at risk on 31 March 2006 was
             R14,9 million.

             The interest rate re-pricing profile at 31 March 2006 is summarised as follows:

                                                                                                              Total
                                                                                                          floating rate
                                                Floating         1–6           7 – 12          Beyond     borrowings/
             Group                                rate          months         months          1 year     investments

             Borrowings (R'000)                    14 836      2 024 681          69 010       173 268     2 281 795
             % of total borrowings                    1%            88%              3%            8%          100%

             Investments (R'000)                  974 194      2 315 282                –       48 597     3 338 073
             % of total investments                  29%            70%                 –          1%          100%

             Company
             Borrowings (R'000)                    14 836      2 024 681          69 010       173 268     2 281 795
             % of total borrowings                    1%            88%              3%            8%          100%

             Investments (R'000)                  950 170      2 315 282                –       48 597     3 314 049
             % of total investments                  29%             70%                –          1%           100%

             Borrowings includes deposits from the public.

      33.3   Liquidity risk management
             The Group manages liquidity risk through the compilation and monitoring of cash flow forecasts, as well as
             ensuring that there are adequate banking facilities.

             The Group's liquidity risk is managed by the Alco Committee within limits approved by the Board.
             Investments over three months are made on a matched basis with the maturity profile of the deposit
             base. This policy is there to protect the Group from being exposed to any liquidity concerns.




105   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



33. FINANCIAL RISK MANAGEMENT (continued)
      33.3   Liquidity risk management (continued)
             The maturity profiles of the financial instruments are summarised as follows:

                                                             0 – 12            1–5              Beyond
                                                             months            years            5 years           Total
             Group                                           R'000             R'000             R'000            R'000

             Financial assets

             Trade and other receivables                     560   502               –                  –         560   502
             Cash and cash equivalents                     3 289   476               –                  –       3 289   476
             Pension fund asset                              143   844         209 992                  –         353   836
             Other financial assets                           59   167          48 597                  –         107   764

             Financial liabilities

             Trade and other payables                      1 415   258                –                 –       1 415   258
             Interest bearing borrowings                       4   001               22                 –           4   023
             Funds collected on behalf of third parties       98   494                –                 –          98   494
             Deposits from the public                      2 293   849                –                 –       2 293   849

             Company

             Financial assets

             Trade and other receivables                     423 733                 –                  –         423   733
             Cash and cash equivalents                     3 265 452                 –                  –       3 265   452
             Pension fund asset                              143 844           209 992                  –         353   836
             Other financial assets                                –            48 597                  –          48   597

             Financial liabilities

             Trade and other payables                      1 214   054                –                 –       1 214   054
             Interest bearing borrowings                       2   722               22                 –           2   744
             Funds collected on behalf of third parties       98   494                –                 –          98   494
             Deposits from the public                      2 293   849                –                 –       2 293   849

      33.4   Credit risk management
             Potential concentrations of credit risk consist mainly of cash and cash equivalents, trade receivables and
             hedging instruments.

             The Group limits its counterparty exposures from its money market investment operations by only dealing
             with well-established financial institutions of high quality credit standing. The Group's credit risk is
             managed by the Alco Committee within limits approved by the Board. The credit exposure to any one
             counterparty is managed by monitoring transactions as well as setting exposure limits in terms of the
             formalised Treasury Policy.

             Trade debtors comprise a large number of customers, dispersed across different industries and
             geographical areas. Credit evaluations are performed on the financial condition of these debtors.
             Where appropriate, the necessary credit guarantees are arranged. Trade and other receivables are
             shown net of impairment.

             The Group is exposed to credit-related losses in the event of non-performance by counterparties. The
             Group continually monitors its positions and the credit ratings of its counterparties and limits the extent to
             which it enters into transactions with any one party.

             At 31 March 2006, the Group did not consider there to be any significant concentration of credit risk which
             had not been insured or adequately provided for.




106   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



33. FINANCIAL RISK MANAGEMENT (continued)
      33.4   Credit risk management (continued)
             The credit exposures by geographical region for trade debtors are summarised as follows:

                                                                        Group                           Company

                                                                2006              2005             2006             2005
                                                                  %                 %                %                %

             South Africa                                        97,5             98,7              97,4             98,6
             Other                                                2,5               1,3              2,6              1,4

             Total                                              100,0            100,0            100,0             100,0

      33.5   Fair value of financial instruments
             In the opinion of the directors the book value of financial instruments approximates their fair value. Long-
             term liabilities relating to Postbank deposits are matched by long-term investments as per the Group’s
             Alco policy.

             The following methods and assumptions were used by the Group in establishing fair values:

             Financial instruments not traded in an active market
             At 31 March 2006 the carrying amounts of cash and short-term deposits, accounts receivable,
             investments, accounts payable and short-term borrowings approximated their fair values due to the short-
             term maturities of these assets and liabilities.

             The fair value of other financial instruments that are not traded in an active market is determined by using
             valuation techniques. The Group uses various methods and makes assumptions that are based on market
             conditions existing at each balance sheet date.

             Financial instruments traded in an active market
             Financial instruments traded in an organised financial market are measured at the current quoted market
             price, adjusted for any transaction costs necessary to realise the assets or settle the liabilities.

             Interest bearing debt
             The carrying amounts of interest bearing debt approximate their fair values.


34. Combined risk policy
      As part of the self-insurance process, the Group has established a Cell Captive from Centriq Insurance Innovation
      (previously Nova Risk) and the contingency fund that was with Santam Insurance has been transferred to Centriq.

      This policy is actively managed. Premiums are paid when the capacity of the policy does not cover the assessed
      risk profile, and the premiums are expensed when paid.

                                                                                                       Company
                                                                                                   2006         2005
                                                                                                  R'000        R'000

35. RELATED PARTY TRANSACTIONS
      35.1   Current payable
             Amount owing to shareholder                                                        124 604          112 235

             This loan bears interest at 10,5% (2005: 10,5%) in terms of the Public Finance Management Act.




107   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006




                                                                                               Company
                                                                                           2006         2005
                                                                                          R'000        R'000

35. RELATED PARTY TRANSACTIONS (continued)

      35.2   Project specific subsidy received and related balances
             The government provided the Company with a subsidy to cover a portion
             of its operating expenditure and to fund specific projects. The balances
             and transactions can be summarised as follows:

             Subsidy balance – beginning of year                                         98 907      214 216
             Subsidy received                                                           300 000      300 000
             Subsidy acknowledged                                                       (267 738)   (415 309)

             Subsidy balance – end of year                                              131 169       98 907


      35.3   Public Information Terminals and Citizens’ Post Office subsidy
             The Department of Communication provides the Company with a
             subsidy specifically for the Public Information Terminals and Citizens’
             Post Offices

             Subsidy balance – beginning of year                                           8 956      18 448
             Subsidy received                                                                  –            –
             Subsidy acknowledged                                                           (258)      (9 492)

             Subsidy balance – end of year                                                 8 698       8 956


      35.4   Pension funds
             All the transactions with pension funds are disclosed under note 31.




108   South African Post Office Annual Report 2006
          NOTES TO THE ANNUAL FINANCIAL STATEMENTS
          for the year ended 31 March 2006



35.    RELATED PARTY TRANSACTIONS (continued)
35.5   Purchases from related parties

                                                                    Group                                            Company
                                                          2006               2005                           2006               2005
                                                            Balance            Balance                        Balance            Balance
                                                              out-               out-                           out-               out-
                                                 Purchases standing Purchases standing             Purchases standing Purchases standing
                                                   R'000       R'000       R'000       R'000        R'000     R'000       R'000     R'000

Major public entities
Airports Company South Africa Ltd                  18 428          47       18 153         91       18 393        47       18 118       91
Alexkor Ltd                                            30           –           27          –           30         –           27        –
Bonaero Park (Pty) Ltd                                 38           –           36          –           38         –           36        –
Eskom Holdings Ltd                                    113          17          113          9           38         –           38        –
 Arivia.kom (Pty) Ltd                               3 627         313        4 402          2           57         –            –        –
South African Broadcasting Corporation Ltd             26           –        1 185         97           22         –        1 185       97
Telkom SA Ltd                                      81 684       4 652       77 389      6 157       69 566     4 542       67 755    6 478
 Telkom Directory Services (Pty) Ltd                  218           –          943          –          218         –          943        –
 Vodacom Service Provider Company
(Pty) Ltd                                          34 416       5 220       22 006        341       33 520     5 166       20 877     243
Transnet Ltd                                       95 358      25 500      118 442     20 955           84         7          238       7
 Viamax Fleet Management (Pty) Ltd                     15          (1)         222          (1)          2         –           97       –
 South African Airways (Pty) Ltd                  105 403          43      104 048         15       90 175         –       84 210      15
 HSA Management Systems (Pty) Ltd                     373          27          431           –           –         –            –       –
Other national public entities
Commission for Conciliation, Mediation
and Arbitration                                        –            –           1              –         –         –           1            –
National Productivity Institute                      254           46         287              –       254        46         287            –
Performing Arts Centre of the Free State              58            –          40              –        58         –          40            –
Robben Island Museum                                   –            –           2              –         –         –           2            –
SA Excellence Foundation                               –            –          46              –         –         –          46            –
SA Medical Research Council                            –            –          10              –         –         –          10            –
SA Quality Institute                                  43           17          30              –        43        17          30            –
National government business enterprises
Council for Scientific and Industrial Research         1               –       17              –         1            –       17            –
Public Investment Corporation Ltd                      –               –      202              –         –            –      202            –
Sentech                                              438               –      662              –       438            –      662            –
South African Bureau of Standards                      2               –        (1)            –         –            –        –            –
National Departments
Department of Communications                       15 477       7 477       18 028             –    15 477     7 477       18 028           –
Department of Health                                    1           –            2             –         1         –            2           –
Department of Housing                                  18          14           18             –        18        14           18           –
Department of Public Works                             12           2           15             –        12         2           15           –
South African Revenue Service                           –           1            3             –         –         –            –           –
Subsidiaries
The Document Exchange (Pty) Ltd                            –           –           –           –          –        –            –        –
The Courier and Freight Group (Pty Ltd                     –           –           –           –      5 122    7 668        9 094    4 283

                                                  356 033      43 375      366 759     27 666      233 567    24 986      221 978   11 214

*Purchases include operating and finance lease rentals, and Value Added Tax.




          109   South African Post Office Annual Report 2006
          NOTES TO THE ANNUAL FINANCIAL STATEMENTS
          for the year ended 31 March 2006



35.    RELATED PARTY TRANSACTIONS (continued)
35.6   Sales to related parties
                                                                     Group                                 Company
                                                        2006                 2005                2006               2005
                                                          Balance              Balance             Balance            Balance
                                                            out-                 out-                out-               out-
                                                  Sales   standing     Sales   standing    Sales   standing   Sales   standing
                                                  R'000     R'000      R'000    R'000      R'000     R'000    R'000    R'000
Major public entities
Airports Company South Africa Ltd                      41       1          58         1         29       –         47        –
Armaments Corporation of South Africa                   2       –         166         –          2       –        166        –
Central Energy Fund (Pty) Ltd                          41       –           9         –         41       –          9        –
  Oil Pollution Control South Africa (Pty) Ltd          9       –           4         1          9       –          4        1
  Petroleum Agency SA (Pty) Ltd                         2       –           2         –          2       –          2        –
  SFF Association                                       5       –           5         –          5       –          5        –
Denel Ltd                                              86       1         133        34         86       1        133       34
  Irenco (Pty) Ltd                                      –       –           2         –          –       –          2        –
  Specialised Protein Products (Pty) Ltd                8       –           7         2          –       –          –        –
Development Bank of South Africa                       60       8          79         –         52       –         71        –
Eskom Holdings Ltd                                 14 322     872      13 632      658      12 928     363     12 247     380
  Eskom Finance Company (Pty) Ltd                      50      19          23         7          –       –          –        –
  Arivia.kom (Pty) Ltd                                 50      14          57        22         50      (3)        57        4
Land and Agricultural Bank of South Africa            226     (13)        342       (13)       221     (14)       327      (14)
South African Broadcasting Corporation Ltd         18 478     152      16 215      762      18 474     146     16 161     733
South African Forestry Company Ltd                      9       7          39         –          –       –          2        –
  Komatiland Forests (Pty) Ltd                         89      15         179        19         35       –         37        –
Industrial Development Corporation of
South Africa Ltd                                        –        –         28         –          –       –          –        –
  Foskor (Pty) Ltd                                    112        2        134        14         67       –         63        –
Telkom SA Ltd                                      65 814    6 989     68 443     6 189     65 242   6 604     67 938    6 137
  Telkom Directory Services (Pty) Ltd               1 604        –      1 663       271      1 604       –      1 663      271
  Vodacom Service Provider Company
 (Pty) Ltd                                         25 380    2 286     18 549     3 964     25 380   2 286     18 549    3 964
Transnet Ltd                                       19 509    7 230     14 498     3 976        451      23        577        5
 Protekon (Pty) Ltd                                    21        4         32         9          –       –          –        –
 South African Airways (Pty) Ltd                      163       15        190         1        150       2        172        1
 South African Express Airways (Pty) Ltd                2        –          5         –          2       –          5        –
 Viamax Logistics (Pty) Ltd                             3        1          9         2          –       –          –        –
 Viamax Fleet Solutions (Pty) Ltd                     113       23        135        42         39       7         29        3
Other national public entites
Agricultural Research Council                        453         –       461          –       453        –       461         –
Artscape                                              42         –        37          –        42        –        37         –
Asset Forfeiture Unit                                 64        29        60          –         –        –         –         –
Banking Sector Education and Training Authority        8         –         2          –         8        –         2         –
Clothing, Textiles, footwear and leather SETA          6         –         8          –         6        –         8         –
Commission for Conciliation, Mediation and
Arbitration                                         1 650     126       1 507        3       1 501       –      1 414       3
Competition Commission                                  8       –           –        –           –       –          –       –
Construction Industry Development Board                21       –           –        –          21       –          –       –
Council for Geoscience                                 95       2         251       61          82       –        118       –
Council for Medical Schemes                            57       –          42        –          57       –         42       –
Cross-border Road Transport Agency                     43       –          46        –          43       –         46       –
Education and Labour Relations Council                  6       –           2        –           6       –          2       –
Education, Training and Development
Practices Seta                                        21        –          –         –         21        –         –        –
Estate Agency Affairs Board                          530        –        676         –        530        –       676        –
Film and Publication Board                            54        1         17         4         54        1        17        4
Financial and Accounting Servces Training
Authority                                             49         –        25          –        49        –        25         –
Financial Services Board                             281         –       269          –       281        –       269         –
Balance carried forward                           149 587   17 784    138 041    16 029    128 023   9 416    121 383   11 526




          110    South African Post Office Annual Report 2006
          NOTES TO THE ANNUAL FINANCIAL STATEMENTS
          for the year ended 31 March 2006



35.    RELATED PARTY TRANSACTIONS (continued)
35.6   Sales to related parties (continued)
                                                                      Group                                   Company
                                                         2006                 2005                  2006               2005
                                                           Balance              Balance               Balance            Balance
                                                             out-                 out-                  out-               out-
                                                   Sales   standing     Sales   standing      Sales   standing   Sales   standing
                                                   R'000     R'000      R'000    R'000        R'000     R'000    R'000    R'000
Balance brought forward                            149 587   17 784    138 041     16 029     128 023   9 416    121 383   11 526
Other national public entities (continued)
Freedom Park Trust                                     10       24        114          80          –        –         –          –
Human Science Research Council                        419       16        117           (6)      419       16       117         (6)
Iziko Museums of Cape Town                             45       (1)        59           (1)       45       (1)       59         (1)
Legal Aid Board                                       764      380        718         (25)       137      (33)      306       (32)
Manufacturing, Engineering and Related
Services Seta                                          78         –           48        –         78        –        48         –
Media, Advertising, Publishing, Printing
and Packaging Seta                                      73       –          31          –          73       –         31        –
Mining Qualifications Authority                          –       1           2          1           –       –          –        –
National Arts Council                                   16       –          16          –          16       –         16        –
National Electricity Regulator                           6       –           –          –           6       –          –        –
National Health Laboratory Service                     416       –         789          –         416       –        789        –
National Home Builders Registration Council            238      15         187        20          238      15        187      20
National Museum                                         31       –          44          –          31       –         44        –
National Productivity Institute                         15       1          18          –          15       1         18        –
National Research Foundation                           125      (2)        129         (2)        125      (2)       129       (2)
National Student Financial Aid Scheme                2 656     252       1 252        44        2 656     252      1 252      44
National Youth Commission                               11       –           5          –          11       –          5        –
National Zoological Gardens of South Africa              8       –           6          –           8       –          6        –
Performing Arts Council of the Free State                4       –           6          –           4       –          6        –
Police, Private Security, Legal, and
Correctional Services Seta                             42        –          21          –         42        –         21        –
Railway Safety Regulator                                –        –          10          –          –        –         10        –
Road Accident Fund                                    554       (6)        600         (4)       488       (6)       538       (4)
Robben Island Museum                                   10        –          21          –         10        –         21        –
Services Sector Education and Training Authority       64       24          40          –         64       24         40        –
South African Blind Workers Organisation               47        –          32          –         47        –         32        –
South African Civil Aviation Authority                180        –         178          –        180        –        178        –
South African Council for Educators                    20        –          10          –         20        –         10        –
South African Diamond Board                             6        –          10          –          6        –         10        –
South African Heritage Resources Agency                26        –          19          –         26        –         19        –
South African Library for the Blind                     8        –           4          –          8        –          4        –
South African Local Government Association             18        –           5          1         18        –          5        1
South African Maritime Safety Authority                32        –          37          –         32        –         37        –
South African Medical Research Council                156        –         232          –        156        –        232        –
South African National Biodiversity Institute         101        –         123          –        101        –        123        –
South African National Roads Agency                    24        –          29          –         24        –         29        –
South African National Parks Board                    232        –         182          –        232        –        182        –
South African Qualifications Authority                 16        –          36          –         16        –         36        –
South African Reserve Bank                            687       32         604        15         687       32        604      15
  SA Mint Company (Pty) Ltd                            16       (3)         26        (3)         16       (3)        26      (3)
South African Tourism Board                             7        –          25          –          7        –         25        –
South African Weather Service                         322       48         243        33          66        –         61        –
Special Investigating Unit                             66        –          51          –          –        –          –        –
State Information Technology Agency                     2        –          19          4          1        –          5        –
State Theatre, Pretoria                                15        –          11          –         15        –         11        –
The Playhouse Company, Durban                          16        –          16          –         16        –         16        –
Transport Education and Training Authority             51       51          16          8          –        –          –        –
Unemployment Insurance Fund                           486       14       1 731        26         333        –      1 610        –
Universal Service Agency                               73        6          58          7         73        6         58        7
Water Research Commission                             133        –         166          –        133        –        166        –
Wholesale and Retail Services Education
Training Authority                                    293       37        544         42         293       37       544       42
Balance carried forward                            158 205   18 673    146 681     16 269     135 411   9 754    129 049   11 607




          111   South African Post Office Annual Report 2006
          NOTES TO THE ANNUAL FINANCIAL STATEMENTS
          for the year ended 31 March 2006



35.    RELATED PARTY TRANSACTIONS (continued)
35.6   Sales to related parties (continued)
                                                                     Group                                   Company
                                                       2006                  2005                  2006               2005
                                                         Balance               Balance               Balance            Balance
                                                           out-                  out-                   out-              out-
                                                 Sales   standing      Sales   standing      Sales   standing   Sales   standing
                                                 R'000     R'000       R'000    R'000        R'000     R'000    R'000    R'000
Balance brought forward                          158 205   18 673     146 681     16 269     135 411    9 754    129 049   11 607
National government business enterprises
Amatola Water Board                                   12        –          16           –         12        –         16         –
Aventura                                               –       (1)          –          (1)         –       (1)         –        (1)
Botshelo Water                                        29       19          23         15           –        –          –         –
Council for Mineral Technology                        62        –          42           –         62        –         42         –
Musuku Beneficiation Systems (Pty) Ltd                28        2          78         25           –        –          –         –
Council for Scientific and Industrial Research        46        –         115         11          28       (1)        44         1
Lepelle Northern Water                                25        4          23           3          4        1          –         –
Mhlathuze Water                                        8        –          11           –          8        –         11         –
Onderstepoort Biological Products                    557       60         575         41         557       60        575       41
Rand Water                                            93        –         216           –         93        –        216         –
Sedibeng Water                                        50        4          52           2         46        –         43         1
Sentech                                               62        7          71           5         43        –         53         –
Vivid Multimedia (Pty) Ltd                             –       (4)          –          (4)         –       (4)         –        (4)
South African Bureau of Standards                  1 084        –       1 297           –      1 084        –      1 297         –
South African Rail Commuter Corporation Ltd            2        –           3           –          2        –          3         –
Umgeni Water                                          31        –          42          (1)        31        –         42        (1)
Umsobomvu Youth Fund                                  49      (19)          3        (17)         49      (19)         3      (17)
Constitutional entities
The Commission on Gender Equality                     1         –             5        –          1        –          5         –
The Financial and Fiscal Commission                  74        11            75        9         74       11         75         9
The Human Rights Commission                           4         –            21        –          4        –         21         –
The Independent Communications Authority
of South Africa                                     228        –         378         37         228        –        378       37
The Independent Electoral Commission                 50        –          21          –          50        –         21        –
The Municipal Demarcation Board                      19        –          46          –          19        –         46        –
The Pan South African Language Board                 24        –           9          –          24        –          9        –
The Public Protector                                148        2         206          4         148        2        206        4
National departments
Department of Agriculture                          1 612       32       1 522        41        1 400       2       1 411       1
Department of Arts and Culture                       136        –          73         –          136       –          73       –
Department of Communications                         103       11          63        47          103      11          63      47
Department of Correctional Services                3 131      157       3 630       145        1 973      15       2 242      13
Department of Defence                                 22        3           –         –           13       –           –       –
Department of Education                            8 279    1 573       7 209       720        2 655      39       2 563      16
Department of Environmental Affairs and
Tourism                                              279      62          158        13          269      41         138       –
Department of Finance                                851      25        1 315        24          843       –       1 311       –
Department of Foreign Affairs                        715      13            1         5          186      (1)          –       –
Department of Health                               5 560     269        5 618       934        5 247     205       5 349     669
Department of Home Affairs                         4 981     367        5 518       228        3 242       4       3 645       3
Department of Housing                                175       5          140        11          161       1         131       –
Balance carried forward                          186 735   21 275     175 256     18 566     154 206   10 120    149 081   12 426




          112   South African Post Office Annual Report 2006
          NOTES TO THE ANNUAL FINANCIAL STATEMENTS
          for the year ended 31 March 2006



35.    RELATED PARTY TRANSACTIONS (continued)
35.6   Sales to related parties (continued)
                                                                     Group                                  Company
                                                     2006                    2005                 2006               2005
                                                       Balance                 Balance              Balance            Balance
                                                         out-                    out-                 out-               out-
                                               Sales   standing        Sales   standing     Sales   standing   Sales   standing
                                               R'000     R'000         R'000    R'000       R'000     R'000    R'000    R'000

Balance brought forward                       186 735      21 275     175 256     18 566    154 206     10 120    149 081   12 426
National departments (continued)
Department of Justice and Constitutional
Development                                     1 717         192       1 676       127       1 608        34       1 664        –
Department of Labour                            2 395         142       2 537        74       2 307       104       2 477       39
Department of Land Affairs                        212          37         170        23         106         –         136        –
Department of Minerals and Energy                 539          57         526         (2)       488        15         465      (14)
Department of Public Enterprise                    34           9          31        21          34         9          31       21
Department of Public Service and
Administration                                      2           3         133       134           2         1         131     132
Department of Public Works                      2 045         700       1 128       684       1 931       663       1 101     657
Department of Provincial and Local
Government                                          –           –           2          2          –         –           2        2
Department of Science and Technology               40           2           2          2          –         –           –        –
Department of Social Development                  553          76         360          2        545        75         358        –
Department of Sport and Recreation                135          35          41         14         61         –          27        –
Department of Trade and Industry                  647          99         186         11        580        72         176        1
Department of Transport                         3 586          (1)      2 398         92      3 586        (1)      2 398       92
Department of Water Affairs and Forestry        2 526         152       1 291       (558)     2 470       124       1 117     (637)
Government Communications and
Information Systems                                 628       (42)      1 903        193          628      (42)     1 903      193
Independent Complaints Directorate                   39         6          28          3           32        –         25        –
National Intelligence Agency                        155         9         124          5          155        9        124        5
National Treasury                               1   168      (645)      1 225       (632)     1   085     (682)     1 188     (684)
Public Service Commission                             9         –           –          –            –        –          –        –
Secretariat for Safety & Security                    17         3          25         11            –        –          –        –
South African Police Services                   5   706       271       6 531        157      4   596       72      5 029       92
South African Revenue Service                  28   131       796      28 124        559     27   742      796     27 833      559
South African Secret Service                          1         –           2          –            1        –          2        –
Statistics South Africa                         1   928       614       1 685        471      1   619      163      1 567      153
The Presidency                                       24        96          78         85           16       83         72       79

Subsidiaries
The Courier and Freight Group (Pty) Ltd               –          –            –        –     16 402     19 662     22 507    5 984
The Document Exchange (Pty) Ltd                       –          –            –        –      2 426        352      2 099      271

                                              238 972      23 886     225 462     20 044    222 626     31 629    221 513   19 371

*Sales include operating and finance lease rentals and Value Added Taxation




          113   South African Post Office Annual Report 2006
         NOTES TO THE ANNUAL FINANCIAL STATEMENTS
         for the year ended 31 March 2006



35.    RELATED PARTY TRANSACTIONS (continued)
35.7   Third party transactions – Group and Company
                                                                2006                                           2005
                                          Funds                                              Funds
                                         received                                           received
                                         on behalf   Commi-       Balance     Balance       on behalf   Commi-      Balance       Balance
                                          of third     sion       owed to     owed by        of third     sion      owed to       owed by
                                           party     received    third party third party      party     received   third party   third party
                                           R'000       R'000        R'000       R'000        R'000       R'000       R'000         R'000

Major public entities
Eskom Holdings Ltd                       570 446       5 525           3 119        25      519 320       5 431        2 876            23
South African Broadcasting
Corporation Ltd                           276 317     13 049        1 984           73       251 726     13 751        2 226           85
Telkom SA Ltd                           7 430 963     97 344       38 262        1 387     8 044 231    102 575       47 531        1 326

National government business
enterprises
Umgeni Water                                 941          27              3          –          980          34            5             –

Constitutional institutions
The Independent Communications
Authority of South Africa                 11 125         216             12          –         8 900        216            8             –

National departments
Department of Environmental Affairs
and Tourism                               14 480       3 303             74         13       13 132       3 083           35             5
Department of Housing                      8 682         268             29          1        9 700         306           52             1
Department of Water Affairs and
Forestry                                   3 496          47             30          –         3 292         50           11             –
National Treasury                        373 299         135            285          –     1 086 992        606        1 726             2
South African Revenue Service             61 909       3 244            702          –        62 820      3 292        2 384             –

Other
Uthingo Management (Pty) Ltd             117 056      10 274           4 003      238       128 166       8 817        2 451           160

                                        8 868 714    133 432       48 503        1 737 10 129 259       138 161       59 305        1 602

*Transactions include Value Added Tax

35.8   Pension payments – Group and Company

                                                                2006                                           2005
                                          Funds                                            Funds
                                        paid out on Commi-        Balance     Balance paid out on       Commi-      Balance       Balance
                                         behalf of    sion        owed to     owed by     behalf of       sion      owed to       owed by
                                        third party received     third party third party third party    received   third party   third party
                                           R'000      R'000         R'000       R'000      R'000         R'000       R'000         R'000

Major public entities
Transnet Ltd                                    –         24               –         –             –        180            –             –

National Departments
Department of Social Development        2 643 129    117 960       53 446            –     2 117 990     95 896       45 729             –
National Treasury                         112 571      2 542        5 839            –       120 270      2 729        5 111             –

                                        2 755 700    120 526       59 285            –     2 238 260     98 805       50 840             –

*Transactions include Value Added Tax




         114   South African Post Office Annual Report 2006
         NOTES TO THE ANNUAL FINANCIAL STATEMENTS
         for the year ended 31 March 2006



35.    RELATED PARTY TRANSACTIONS (continued)
35.9   Key management personnel compensation

                                                                       Expense                 Other     Total   Total
                                              Fees         Salary     allowance     Bonus     benefits   2006    2005
                    Position                  R'000        R'000         R'000      R'000      R'000     R'000   R'000

Ms PRE Tsukudu      Chairperson                   –           –            –            –          –        –       –    10


Ms BM Mokone        Chairperson                  65         314           22                              401     527    1


Mr KI Mampeule      Executive Director            –        1 387          51            –          2     1 440       –   2


Mr MB Manyatshe     Executive Director            –            –           –            –          –         –   2 803   3


Mr NJD Buick        Executive Director            –        1 560          30          323          1     1 914   1 883
Ms MM Lefoka        Executive Director            –        1 300          30          239          –     1 569     759   4


Mr MA Brey          Non-executive Director        –            –           –            –          –         –      64   5


Mr VA Christian     Non-executive Director      139            –           –            –          –       139     121
Prof MJ Crous       Non-executive Director       90            –           –            –          –        90      91
Mr TJ Dikgole       Non-executive Director       77            –           –            –          –        77      90   6


Mr P Dzingwe        Non-executive Director       92            –           –            –          –        92     113
Dr NN Gwagwa        Non-executive Director        –            –           –            –          –         –      80   7


AJ Hendricks        Non-executive Director        8            –           –            –          –         8       –   8


Adv N Jele          Non-executive Director      115            –           –            –          –       115     112   6


Ms J Lange          Non-executive Director       85            –           –            –          –        85      93
Mr V Mahlati        Non-executive Director        8            –           –            –          –         8       –   8


Mr SMA Malebo       Non-executive Director        8            –           –            –          –         8       –   8


Mr V Mlongo         Non-executive Director        5            –           –            –          –         5       –   8


Mr PE Pokane        Non-executive Director        8            –           –            –          –         8       –   8


Ms S Sebotsa        Non-executive Director        –            –           –            –          –         –      83   9


Mr BMH Tsita        Non-executive Director      143            –           –            –          –       143     141
Ms PRE Tsukudu      Non-executive Director       82            –           –            –          –        82     133   10




2006                                            925        4 561         133          562          3     6 184   7 093

2005                                          1 198        3 836         123        1 543       393              7 093
1
   Retired 31 December 2005
2
   Appointed 20 June 2005
 3
   Retired 15 October 2004
 4
   Ms Lefoka was appointed as an executive director on 1 August 2004
 5
   Retired 30 September 2004
 6
   Retired 28 February 2006
 7
   Retired 7 April 2005
 8
   Appointed March 2006
 9
   Retired 15 February 2005
10
   Retired as non-executive director 31 December 2005 & appointed as Chairperson March 2006




         115   South African Post Office Annual Report 2006
         NOTES TO THE ANNUAL FINANCIAL STATEMENTS
         for the year ended 31 March 2006



35.    RELATED PARTY TRANSACTIONS (continued)
35.9   Key management personnel compensation (continued)
The following emoluments were paid to executives reporting directly to the Group Chief Executive Officer and other key management
personnel during the year:

                                                                                                              Severance
                                                               Expense                  Other     Leave        and notice    Total      Total
               Position                             Salary     allowance    Bonus      benefits    pay            pay        2006       2005
                                                    R'000         R'000     R'000       R'000     R'000         R'000        R'000      R'000

JS Kotsi      Executive: Mail Business                   217        –             –           1         –           –          218          –   1


M M Lefoka SGM: Postal Business                            –        –             –           –         –           –            –        668   2


GO Mabote     MD: Retail                                 871       25           210           –        47           –        1 153      1 216   3


NH Madzunya Chief Information Officer                1   018       30           135           –         –           –        1 183      1 100
NM Maelane GE: Supply Chain Management                   451       14             –           –         –           –          465          –   4


SLB Mapisa SGM: Investigation Services                   635       26           118           –        26         261        1 066        977   5


H Mashele     Customer Relationship Officer              240        6             –           1         –           –          247          –   6


IF Matabane GE: Transformation                           771       23           148           –        34           –          976      1 212   7


TBJ Memela-
Khambule      MD: Postbank                               226        6             –           1        –            –            233        –   6


PP Mguye      GM: Supply Chain Management                444       22            84           –       25            –            575      300   8


TRJ Mkhize Commercial Enterprises Executive              211        5             –           –       75          241            532    1 589   9


BM Mobu       GE: Supply Chain Management                  –        –             –           –        –            –              –      154   10


MR Molosiwa GE: Strategy & Marketing                     233        6             –           1        –            –            240        –   6


DR Motsepe MD: Postbank                                  512       14           273           –       37            –            836    1 456   11


IM Mtshali    Executive: Sales and Customer Services     415       15             –           –       84          143            657        –   12


ST Nkese      GE: Human Resources                        788       25           156           –       43            –        1   012      650   13


DC Nyamazane MD: Sapos Properties                        113        5             –           –        –            –            118       14


CMM Nzo       MD: International Business                 433       15           121           –        –            –            569      990   15


LK Plaistowe GE: Shared Services/Chief Risk Officer      930       30           303           –        –            –        1   263      840
N Singh       GE: Internal Audit                         738       25           128           –       20            –            911      976   16


TT Tlhacoane Executive: Legal Services                   850       30           112           –        –            –            992      642   17


LA Tondi      MD: Sapos Properties                       693       22           134           –        –            –            849    1 100   18


HP van Staden Company Secretary                          886       30           124           1        –            –        1   041    1 042
TE Xiphu      GE: Corporate Services                 1   041       40           150           1        –            –        1   232    1 215

2006                                               12 716         414       2 196             6       391         645       16 368
2005                                               13 565         451       2 111             –         –           –                  16 127
1
  Appointed 1 January 2006                                                 10
                                                                              Appointed 1 November 2003 and resigned June 2004
2
  For the period 1 April 2004 to 31 July 2004                              11
                                                                              Resigned 16 September 2005
3
  Dismissed 2 February 2006                                                12
                                                                              Appointed 1 July 2005 and resigned 30 November 2005
4
  Appointed 10 October 2005                                                13
                                                                              Appointed 1 August 2004 and resigned 31 January 2006
5
  Resigned 31 December 2005                                                14
                                                                              Appointed 1 February 2006
6
  Appointed 16 January 2006                                                15
                                                                              Ceased reporting to CEO on 30 September 2005
7
  Resigned 8 December 2005                                                 16
                                                                              Resigned 31 January 2006
8
  Appointed 1 October 2004 and resigned 31 December 2005                   17
                                                                              Appointed 14 June 2004
9
  Retrenched 31 May 2005                                                   18
                                                                              Resigned 31 December 2005
Purchases
During the year R114 000 was paid to Tsukudu Associates for the recruitment of the Group Chief Executive Officer. Ms PRE Tsukudu has
an interest in Tsukudu Associates.

                                                                                              Group                          Company
                                                                                       2006            2005              2006         2005
                                                                                      R'000           R'000             R'000        R'000

Balances owing by key employees
Travel and subsistence advances                                                         81              61                   81             61
Other including study debt, remuneration adjustments and guarantees                    320             264                  320            264

                                                                                       401             325                  401            325




         116   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



36. NEW ACCOUNTING STANDARDS AND INTERNATIONAL FINANCIAL REPORTING INTERPRETATION
      COMMITTEE (IFRIC) INTERPRETATIONS
      The Group has elected to early adopt the following new accounting standards and interpretations:

      IFRS 7 – Financial Instruments: Disclosures
         IFRS 7 replaces the requirements of two previous standards: IAS 30 – Disclosures in the Financial Statements
         of Banks and Similar Financial Institutions, which is relevant for financial services, and IAS 32 – Financial
         Instruments: Disclosure and Presentation, which applies to all entities. The effective date of IFRS 7 is for
         annual periods beginning on or after 1 January 2007. The standard deals with the disclosure of financial
         instruments. as well as the disclosure of the related quantitative and qualitative risks associated with financial
         instruments. This will result in additional disclosure.

      IAS 1 – Amendment to capital disclosures
         The amendments with regard to the capital disclosure are effective for annual periods beginning on or after
         1 January 2007. There is no estimated financial impact on the Group. The amendment will result in additional
         disclosure in respect of capital.

      IAS 19 – Amendment – Actuarial gains and losses, group plans and disclosures
         This amendment to IAS 19 – Employee benefits introduces an additional recognition option for actuarial gains
         and losses arising in post-employment defined benefit plans. The effective date for the amendment is for
         annual periods beginning on or after 1 January 2006.

         There is no estimated impact, as the Group has elected to recognise the actuarial gains and losses using the
         corridor approach and the Group does not foresee a change in accounting policy in this regard.

      IAS 39 – Amendment – Cash flow hedge accounting for forecast inter-group transactions
         The amendment allows the foreign currency risk of a highly probable forecast intra-group transaction to qualify
         as a hedged item in the consolidated financial statements, provided that:
         (a) the transaction is denominated in a currency other than the functional currency of the entity entering into
               that transaction; and
         (b) the foreign currency risk will affect consolidated profit or loss.
         This amendment is not relevant to the Group’s operations, as the Group does not have any intra-group
         transactions that would qualify as a hedged item in the consolidated financial statements. The amendment is
         effective for annual periods beginning on or after 1 January 2006.
      IAS 39 and IFRS 4 – Amendment – Financial guarantee contracts and credit insurance
         This amendment requires issued financial guarantees, other than those previously asserted by the entity to be
         insurance contracts, to be initially recognised at their fair value and subsequently measured at the higher of:
         (a)   the unamortised balance of the related fees received and deferred, and
         (b)   the expenditure required to settle the commitment at the balance sheet date.

         Management considered this amendment and the estimated impact is unknown.
         The following standards and interpretations are considered not to be relevant to the Group’s operations and
         will therefore have no impact on the Group when they become effective:

      IAS 39 – Amendment – The fair value option (effective 1 January 2006)
         This amendment changes the definition of financial instruments classified at fair value through profit or loss
         and restricts the ability to designate financial instruments as part of this category. The Group believes that this
         amendment should not have a significant impact on the classification of financial instruments, as the Group
         should be able to comply with the amended criteria for the designation of financial instruments at fair value
         through profit and loss. The Group will apply this amendment from annual periods beginning 1 January 2006.




117   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



      IFRS 6 – Amendment – Exploration for and evaluation of mineral resources (effective 1 January 2006)

      IFRIC 5 – Rights to interests arising from decommissioning, restoration and environmental rehabilitation
      funds (effective 1 January 2006)

      IFRIC 6 – Liabilities arising from participating in a specific market – Waste electrical and electronic
      equipment (effective 1 December 2005)

      IFRIC 7 – Applying the restatement approach under IAS 29 – Financial reporting in hyperinflationary
      economies (effective 1 March 2006)

      IFRIC 8 – Scope of IFRS 2 (effective 1 May 2006)

      IFRIC 9 – Reassessment of embedded derivatives (effective 1 June 2006)




118   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



37. TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”)
      For the year ended 31 March 2005 the South African Post Office (the “Group”) prepared its financial statements
      under South African Statements of Generally Accepted Accounting Practice (SA GAAP) as effective at that date.
      The management of the Group has decided to prepare its consolidated financial statements in accordance with
      IFRS for the year ending 31 March 2006. As the Group publishes comparative information in its financial
      statements, the date for transition to IFRS is 1 April 2004, which represents the start of the earliest period of
      comparative information to be presented. The Group has restated information previously published under SA
      GAAP to the equivalent basis under IFRS. This restatement follows the guidelines set out in IFRS 1 – First-time
      Adoption of International Financial Reporting Standards.

      Basis of preparation
      Application of IFRS 1
      The date of transition to IFRS for the Group is 1 April 2004 and as required by IFRS 1, the Group’s opening
      balance sheet at 1 April 2004 has been restated to reflect all existing IFRS statements applicable at 31 March
      2006. However, IFRS 1 allows for a number of optional exemptions and mandatory exceptions from full
      retrospective application of IFRS.

      Exemptions from full retrospective application – elected by the Group
      The Group has elected to apply the following optional exemptions from full retrospective application in
      accordance with IFRS 1.

      (i)     Business combinations exemption
              The Group has applied the business combinations exemption in IFRS 1. It has not restated business
              combinations that took place prior to the 1 April 2004 transition date. No effect was noted from applying this
              exemption.

      (ii)    Fair value as deemed cost exemption
              The Group has elected to measure certain items of property, plant and equipment at fair value as at 1 April
              2004 and to use these fair values as the items deemed cost at 1 April 2004. The application of this
              exemption is detailed in notes (a) and (b).

      (iii)   Employee benefits exemption
              The Group has elected to recognise all cumulative actuarial gains and losses at 1 April 2004. The application
              of this exemption is detailed in note (l).

      (iv) Cumulative translation differences exemption
           The Group has elected not to apply the requirements of IAS 21 – Effects of Changes in Foreign Exchange
           Rates, retrospectively for cumulative translation differences of all foreign operations. The Group has
           therefore elected to set the previously accumulated cumulative difference to zero at 1 April 2004 and
           applied IAS 21 effective from this date. This exemption has been applied to all subsidiaries in accordance
           with IFRS 1. The application of this exemption had no effect on net equity, however, details of the
           adjustments are included in note (h).

      (v)     Exemption from restatement of comparative information for IAS 32, IAS 39 and IFRS 4
              The Group has elected to apply the exemption that allows it to apply the previous SA GAAP principles under
              AC 125 – Financial Instruments: Disclosure and Presentation, AC 133 – Financial Instruments: Recognition
              and Measurement, and IFRS 4 – Insurance Contracts to derivatives, financial assets and financial liabilities,
              hedging relationships and to insurance contracts for its comparative information relating to the financial year
              ended 31 March 2005. It therefore only applied IAS 32, IAS 39 and IFRS 4 with effect from 1 April 2005.

      (vi) Designation of financial assets and financial liabilities exemption
           The Group reclassified certain financial assets as available-for-sale investments. The adjustments relating to
           IAS 32 and IAS 39 at the opening balance sheet date of 1 April 2004, the IAS 32/39 transition date, are
           detailed in note (d).




119    South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



37. TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) (continued)
      Exemptions from full retrospective application – elected by the Group (continued)
      (vii) Insurance contracts exemption
            The Group has several insurance contracts that meet the definition of an insurance contract under IFRS 4.
            The Group has elected to apply the transitional provisions of IFRS 4. The adjustments are detailed in notes
            (f) and (o).

      (viii) Decommissioning liabilities included in the cost of property, plant and equipment exemption
             The Group recognises a provision in respect of liabilities relating to the installation of assets including those
             in respect to leasehold improvements required. The exemption provided in IFRS 1 from the full retrospective
             application of IFRIC 1 has been applied to determine the adjustment required to property, plant and
             equipment in respect of the obligation to decommission existing facilities. The application of this exemption
             is detailed in notes (a) and (b).

      Exceptions from full retrospective application – followed by the Group
      The Group has applied the following mandatory exceptions from retrospective application in accordance with
      IFRS 1.

      (a)   Derecognition of financial assets and liabilities exception
            Financial assets and liabilities derecognised before 1 April 2004 have not been re-recognised under IFRS.
            The application of the exemption from restating comparatives for IAS 32 and IAS 39 means that the Group
            recognised from 1 April 2005 any financial assets and financial liabilities derecognised since 1 April 2004 that
            do not meet the IAS 39 derecognition criteria. The Group did not apply the IAS 39 derecognition criteria to
            an earlier date.

      (b)   Hedge accounting exception
            The Group has not applied hedge accounting and as such there is no effect from applying this exception.

      (c)   Estimate exception
            Estimates under IFRS at 1 April 2004 are consistent with the estimates made for the same date under
            SA GAAP. The Group therefore did not adjust any estimates it had made under SA GAAP for information
            that was received subsequent to the date of the transition to IFRS.

      (d)   Assets held for sale and discontinued operations exception
            The Group applied IFRS 5 prospectively from 1 April 2005. Any assets held for sale or discontinued
            operations are recognised in accordance with IFRS 5 from 1 April 2005. The Group did not have any assets
            that met the held-for-sale criteria during the period presented and thus no adjustment was required. The
            Group did however have certain discontinued operations for certain operations abandoned during the year.

      Reconciliation from SA GAAP to IFRS
            The following reconciliations provide a quantification of the effect of the transition to IFRS. The first
            reconciliation provides an overview of the impact on equity of the transition at 1 April 2004 and 31 March
            2005. The following reconciliations provide details of the impact of the transition on:
            –   summary of equity (note 37.2.1)
            –   equity at 1 April 2004 Group (note 37.2.2)
            –   equity at 31 March 2005 Group (note 37.2.3)
            –   equity at 1 April 2004 Company (note 37.2.4)
            –   equity at 31 March 2005 Company (note 37.2.5)
            –   net income 31 March 2005 Group (note 37.2.6)
            –   net income 31 March 2005 Company (note 37.2.7)
            –   cash flow 31 March 2005 Group (note 37.2.8)
            –   cash flow 31 March 2005 Company (note 37.2.9)
            –   note 37.2.10 includes the notes to the reconciliations




120    South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



37.    TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) (continued)
37.2.1 Summary of equity

                                                                      Group                            Company
                                                       1 April            31 March          1 April         31 March
                                                        2004                 2005            2004              2005
                                                       R'000                R'000           R'000             R'000

Total equity under SA GAAP                           (1 515 020)           303 152        (1 517 307)        309 579
Adjustments                                              31 125            122 766            30 848         131 153

Restatement of property, plant and
equipment (including software under
intangible assets) due to the fair value
as deemed cost exemption and the
retrospective application of IAS 16                    229 480             245 098          208 101          224 621

Restatement of investment property
due to applying the fair value as deemed
cost exemption                                           (4 209)                  (656)       (4 209)               (656)

Fair value of Uthingo Management
(Proprietary) Limited investment                        63 374              37 500           63 374           37 500

Movement in the fair value of the bonds
reallocated from the income statement
to equity (2004: R5 million, 2005: R6 million).
No effect on net equity                                          –                   –                –                –

Reclassification of operating leases as
finance leases                                                (196)               (572)            (212)            (588)

Effect of discounting trade receivables                 (14   108)          (17   241)       (13   338)       (16   500)
Employee benefit obligation                           (145    868)           34   703      (145    056)        35   502
Straight lining of operating leases                     (74   465)          (75   844)       (56   688)       (58   574)
Effect of discounting trade payables                     19   935            16   326         18   839         15   155
Unclaimed Postbank deposits accounted
for as a liability                                      (39 825)            (16 744)         (39 825)         (16 744)
Unearned revenue adjustments                            (33 742)            (49 486)         (33 742)         (49 486)
Insurance adjustments                                    30 459                   –           30 459                –
Adjustments to opening balances of
subsidiaries                                              (300)              (8 704)              –                 –
Adjustment of provisions                                 3 142               (2 627)          3 142            (2 627)
Cumulative impact of other non-material
items                                                          (22)                (81)               3              (27)
Deferred tax on IFRS adjustments                         (2 530)            (38 906)                  –       (36 423)


Total equity under IFRS                              (1 483 895)           425 918        (1 486 459)        440 732




121   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



37. TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) (continued)
      37.2.2 Reconciliation of equity at 1 April 2004 – Group
                                                                                    Effect of
                                                                                    transition
                                                                     SA GAAP         to IFRS          IFRS
                                                          Notes        R'000          R'000           R'000
             ASSETS
             Noncurrent assets                                         923 780       237 034       1 160 814
             Property, plant and equipment                      a      842 367       231 274       1 073     641
             Investment properties                              b       35 902       (26 708)          9     194
             Intangible assets                                  c        5 400        34 524          39     924
             Available-for-sale assets                          d       38 055              –         38     055
             Investments in subsidiaries                                     –              –                  –
             Pension fund asset                                              –              –                  –
             Deferred taxation                                  e        2 056         (2 056)                 –
             Current assets                                          2 131 738        93 982       2 225 720
             Inventories                                                90 054              –         90     054
             Trade and other receivables                        f      505 018         (1 191)       503     827
             Available-for-sale assets                          d            –        98 872          98     872
             Cash and cash equivalents                          g    1 536 666         (3 699)     1 532     967

             Total assets                                            3 055 518       331 016       3 386 534
             EQUITY AND LIABILITIES
             Equity and reserves                                     (1 515 020)      31 125       (1 483 895)
             Share capital                                              200 940              –        200    940
             Foreign currency translation reserve               h             –         (5 141)         (5   141)
             Available-for-sale reserves                         i            –        68 445          68    445
             Accumulated loss                                        (1 715 960)      (32 179)     (1 748    139)
             Noncurrent liabilities                                  3 050 719     (1 498 636)     1 552 083
             Interest bearing borrowings                         j       2 143          8   731       10     874
             Deferred lease liability                           k            –         68   886       68     886
             Employment benefit obligations                      l   1 229 494        240   296    1 469     790
             Provisions                                         m       46 856        (44   323)       2     533
             Deposits from the public                           n    1 772 226     (1 772   226)               –
             Current liabilities                                     1 519 819     1 798 527       3 318 346
             Trade and other payables                           o    1 046 157       150 523       1 196 680
             Funds collected on behalf of third parties         p      204 363      (100 647)        103 716
             Deposits from the public                           n            –     1 812 051       1 812 051
             Employment benefit obligations                      l      75 000           720          75 720
             Interest bearing borrowings                         j       1 152         5 072           6 224
             Provisions                                         m       69 440       (69 440)              –
             Taxation                                                    2 530           248           2 778
             Subsidy received in advance                               116 635             –         116 635
             Bank overdraft                                              4 542             –           4 542

             Total equity and liabilities                            3 055 518       331 016       3 386 534




122   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



37. TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) (continued)
      37.2.3 Reconciliation of equity at 31 March 2005 – Group
                                                                                Effect of
                                                                                transition
                                                                  SA GAAP        to IFRS         IFRS
                                                          Notes     R'000         R'000          R'000
             ASSETS
             Noncurrent assets                                    1 314 608      198 045       1 512 653
             Property, plant and equipment                   a     919 969       205  560      1 125529
             Investment properties                           b       5 111         3  891          9002
             Intangible assets                               c       4 320        46  524         50844
             Available-for-sale asset                        d      92 932       (19  023)        73909
             Investments in subsidiaries                                 –              –             –
             Deferred taxation                               e     292 276        (38 907)      253 369
             Current assets                                       3 293 431       43 939       3 337 370
             Inventories                                             89 523             –         89    523
             Trade and other receivables                     f      614 356       (25 570)       588    786
             Available-for-sale asset                        d            –        56 523         56    523
             Cash and cash equivalents                       g    2 589 552        12 986      2 602    538

             Total assets                                         4 608 039      241 984       4 850 023
             EQUITY AND LIABILITIES
             Equity and reserves                                   303 152       122 766        425 918
             Share capital                                          200 940             –        200    940
             Foreign currency translation reserve            h            –       (10 123)        (10   123)
             Available-for-sale reserve                       i           –        43 319          43   319
             Accumulated loss                                      (647 788)       89 570       (558    218)
                                                                   (466 848)     122 766        (324 082)
             Funds received from shareholder                        750 000            –         750 000
             Noncurrent liabilities                               2 679 438    (1 923 726)      755 712
             Interest bearing borrowings                      j       1 061         3   240       4     301
             Deferred lease liability                        k            –        66   820      66     820
             Employment benefit obligations                   l     624 189        57   583     681     772
             Provisions                                      m       46 476       (43   657)      2     819
             Deposits from the public                        n    2 007 712    (2 007   712)              –
             Current liabilities                                  1 625 449    2 042 944       3 668 393
             Trade and other payables                        o    1 125 152      206    814    1 331 966
             Funds collected on behalf of third parties      p      239 192     (112    235)     126 957
             Deposits from the public                        n            –    2 024    456    2 024 456
             Employment benefit obligations                   l      70 000        5    720       75 720
             Interest bearing borrowings                      j         616        6    830        7 446
             Provisions                                      m       88 641      (88    641)           –
             Taxation                                                 2 941               –        2 941
             Subsidy received in advance                             98 907               –       98 907

             Total equity and liabilities                         4 608 039      241 984       4 850 023




123   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



37. TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) (continued)
      37.2.4 Reconciliation of equity at 1 April 2004 – Company
                                                                                 Effect of
                                                                                 transition
                                                                  SA GAAP         to IFRS         IFRS
                                                          Notes     R'000          R'000          R'000
             ASSETS
             Noncurrent assets                                      942 510       214 963       1 157 473
             Property, plant and equipment                   a      804 843       188    150      992   993
             Investment properties                           b       13 403         (4   209)       9   194
             Intangible assets                               c            –        31    021       31   021
             Available-for-sale asset                        d      124 264       (86    258)      38   006
             Investments in subsidiaries                                  –        86    259       86   259
             Current assets                                       2 013 736        98 610       2 112 346
             Inventories                                             89 735             –          89   735
             Trade and other receivables                     f      404 181          (262)        403   919
             Available-for-sale asset                        d            –        98 872          98   872
             Cash and cash equivalents                       g    1 519 820             –       1 519   820

             Total assets                                         2 956 246       313 573       3 269 819
             EQUITY AND LIABILITIES
             Equity and reserves                                  (1 517 307)      30 848       (1 486 459)
             Share capital                                           200 940             –         200 940
             Available for sale reserve                       i            –        68 445          68 445
             Accumulated loss                                     (1 718 247)      (37 597)     (1 755 844)
             Noncurrent liabilities                               3 039 737     (1 522 587)     1 517 150
             Interest bearing borrowings                      j           –          7   279        7   279
             Deferred lease liability                        k            –         51   109       51   109
             Employment benefit obligations                   l   1 224 166        232   543    1 456   709
             Provisions                                      m       43 345        (41   292)       2   053
             Deposits from the public                        n    1 772 226     (1 772   226)             –
             Current liabilities                                  1 433 816     1 805 312       3 239 128
             Trade and other payables                        o      971 966       155 038       1 127 004
             Funds collected on behalf of third parties      p      204 363      (100 647)        103 716
             Deposits from the public                        n            –     1 812 051       1 812 051
             Employment benefit obligations                   l      75 000            720         75 720
             Interest bearing borrowings                      j           –          4 002          4 002
             Provisions                                      m       65 852        (65 852)             –
             Subsidy received in advance                            116 635              –        116 635

             Total equity and liabilities                         2 956 246       313 573       3 269 819




124   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



37. TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) (continued)
      37.2.5 Reconciliation of equity at 31 March 2005 – Company
                                                                                 Effect of
                                                                                 transition
                                                                   SA GAAP        to IFRS         IFRS
                                                          Notes      R'000         R'000          R'000
             ASSETS
             Noncurrent assets                                     1 232 847      232 899       1 465 746
             Property, plant and equipment                   a      871 093       181    793    1 052   886
             Investment properties                           b        5 111         3    891        9   002
             Intangible assets                               c            –        46    139       46   139
             Available-for-sale assets                       d       66 633         7    276       73   909
             Investments in subsidiaries                                  –        30    223       30   223
             Deferred taxation                               e      290 010       (36    423)     253   587
             Current assets                                        3 158 160        (6 907)     3 151 253
             Inventories                                              89 413             –         89 413
             Trade and other receivables                     f       516 747       (19 881)       496 866
             Available-for-sale assets                       d             –             –              –
             Cash and cash equivalents                       g     2 552 000        12 974      2 564 974

             Total assets                                          4 391 007      225 992       4 616 999
             EQUITY AND LIABILITIES
             Equity and reserves                                    309 579       131 154        440 733
             Share capital                                           200 940            –         200 940
             Available-for-sale reserve                       i            –       43 319          43 319
             Accumulated loss                                       (641 361)      87 835        (553 526)
                                                                    (440 421)     131 154        (309 267)
             Funds received from shareholder                         750 000            –         750 000
             Noncurrent liabilities                                2 668 603    (1 945 214)      723 389
             Interest bearing borrowings                      j            –         2   744       2    744
             Deferred lease liability                        k             –        51   144      51    144
             Employment benefit obligations                   l      618 861        48   361     667    222
             Provisions                                      m        42 030       (39   751)      2    279
             Deposits from the public                        n     2 007 712    (2 007   712)             –
             Current liabilities                                   1 412 825    2 040 052       3 452 877
             Trade and other payables                        o      919 888       202    329    1 122217
             Funds collected on behalf of third parties      p      239 192      (112    235)     126957
             Deposits from the public                        n            –     2 024    456    2 024456
             Employment benefit obligations                   l      70 000          5   720       75720
             Interest bearing borrowings                      j           –          4   620        4620
             Provisions                                      m       84 838        (84   838)          –
             Subsidy received in advance                             98 907                –      98 907

             Total equity and liabilities                          4 391 007      225 992       4 616 999




125   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



37. TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) (continued)
      37.2.6 Reconciliation of net income for the year ended 31 March 2005 – Group
                                                                                      Effect of
                                                                                      transition
                                                                   SA GAAP             to IFRS         IFRS
                                                           Notes     R'000              R'000          R'000
             Continuing operations
             Revenue                                          q    4 259 064            (12 427)     4 246 637
             Add: Other operating income                              169 004           (61 471)        107 533
             Less: Consumables and inventory utilised                (194 538)            5 498        (189 040)
             Less: Expenses                                        (3 936 133)           51 328      (3 884 805)
                   Employee benefit expenditure                             –        (2 290   606)   (2 290   606)
                   Transport expenditure                                    –          (536   601)     (536   601)
                   Property operating leases                                –          (150   326)     (150   326)
                   Vehicle operating leases                                 –           (55   111)      (55   111)
                   Other expenditure                           r   (3 936 133)        3 083   972      (852   161)

             Operating profit before employment benefits             297 397           (17 072)        280 325
             Plus: Post-retirement medical benefits            s     512 000           176 637         688 637
             Operating profit                                        809 397           159 565         968 962
             Finance income                                   u       27 751             14 828          42 579
             Finance cost                                     v      (56 434)           (21 703)        (78 137)
             Net profit before taxation                              780 714           152 690         933 404
             Taxation                                                287 458            (36 244)       251 214
             Profit for the year from continuing operations        1 068 172           116 446       1 184 618
             Discontinuing operations
             Loss from discontinuing operations                             –            (5 285)         (5 285)
             Net profit for the year                               1 068 172           111 161       1 179 333

      37.2.7 Reconciliation of net income for the year
             ended 31 March 2005 – Company
             Continuing operations
             Revenue                                          q    3 763 212            (10 234)     3 752 978
             Add: Other operating income                              117 607           (33 232)         84 375
             Less: Consumables and inventory utilised                (194 538)            5 498        (189 040)
             Less: Expenses                                        (3 383 372)           29 839      (3 353 533)
                   Employee benefit                                         –        (2 083   976)   (2 083   976)
                   Transport expenditure                                    –          (313   556)     (313   556)
                   Property operating leases                                –          (130   256)     (130   256)
                   Vehicle operating leases                                 –           (53   705)      (53   705)
                   Other expenditure                           r   (3 383 372)        2 611   332      (772   040)

             Operating profit before employment benefits             302 909            (8 129)        294 780
             Plus: Post-retirement medical benefits            s     512 000           176 475         688 475
             Operating profit                                 u      814 909           168 346         983 255
             Finance income                                   v       26 952             13 338          40 290
             Finance cost                                            (54 985)           (20 150)        (75 135)
             Net profit before taxation                              786 876           161 534         948 410
             Taxation                                                290 010            (36 423)       253 587
             Profit for the year – continuing operations           1 076 886           125 111       1 201 997
             Discontinuing operations
             Loss from discontinuing operations                             –                   –               –
             Net profit for the year                               1 076 886           125 111       1 201 997




126   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



37. TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) (continued)
      37.2.8 Reconciliation of cash flow for the year ended 31 March 2005 – Group
                                                                                    Effect of
                                                                                    transition
                                                                      SA GAAP        to IFRS         IFRS
                                                                        R'000         R'000          R'000
             Cash inflow from operating activities                       21 139       (12 387)          8 752
             Cash received from customers                              4 318 730      (30 428)      4 288 302
             Cash paid to suppliers and employees                     (3 947 759)      43 536      (3 904 223)
             Cash generated from operations                             370  971       13 108        384     079
             Expenditure offset against project specific subsidy       (317  728)            –      (317     728)
             Finance income                                               26 681         1 788         28    469
             Finance cost                                                (56 434)       (1 767)       (58    201)
             Dividends received                                                –      (25 875)       (25     875)
             Normal taxation paid                                         (2 351)          359          (1   992)
             Net increase in operating funds
             Increase in deposits from public                           231 135               –      231 135
             Cash outflow from investing activities                    (243 244)      32 820        (210 424)
             Proceeds on disposal of property, plant and equipment        6 974             775         7 749
             Replacement, renewal and reclassification of property,
             plant and equipment                                       (204 075)       36   337     (167 738)
             Replacement and renewal of intangible assets                  7 664      (39   789)     (32 125)
             Net acquisition of noncurrent investments                   (53 807)      53   807            –
             Acquisition of bonds                                              –      (18   310)     (18 310)
             Cash inflow from financing activities                    1 048 382        (3 732)     1 044 650
             Decrease in interest bearing borrowings                      (1 618)      (3 732)         (5 350)
             Equity to be created                                       750 000     (750 000)               –
             Funds received from shareholder                                   –     750 000         750 000
             Subsidy received                                           300 000             –        300 000

             Increase in cash and cash equivalents                    1 057 412       16 701       1 074 113
             Cash and cash equivalents at beginning of year           1 532 124        (3 699)     1 528 425
             Cash and cash equivalents at end of year                 2 589 536       13 002       2 602 538




127   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



37. TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) (continued)
      37.2.8 Reconciliation of cash flow for the year ended 31 March 2005 – Company (continued)
                                                                                      Effect of
                                                                                      transition
                                                                      SA GAAP          to IFRS        IFRS
                                                                        R'000           R'000         R'000
             Cash outflow from operating activities                      (50 061)       (18 512)       (68 573)
             Cash received from customers                              3 768 253        (10 510)     3 757 743
             Cash paid to suppliers and employees                     (3 471 483)        18 114     (3 453 369)
             Cash generated from operations                             296    770         7 604      304    374
             Expenditure offset against project specific subsidy       (317    728)            –     (317    728)
             Finance income                                               25   882         1 069        26   951
             Finance cost                                                (54   985)       (1 310)      (56   295)
             Dividends received                                                  –      (25 875)      (25    875)
             Normal taxation paid                                                –             –               –
             Net increase in operating funds
             Increase in deposits from public                           231 135                –      231 135
             Cash outflow from investing activities                    (198 894)        35 403       (163 491)
             Proceeds on disposal of property, plant and equipment        2 007              16         2 023
             Replacement, renewal and reclassification of property,
             plant and equipment                                       (194 281)         39 672      (154 609)
             Replacement and renewal of intangible assets                  7 664        (39 768)      (32 104)
             Proceeds on disposal of investment properties                    16             (16)            –
             Net acquisition of noncurrent investments                   (14 300)         (2 665)      (16 965)
             Disposal of bonds                                                 –         38 164         38 164
             Cash inflow from financing activities                    1 050 000          (3 917)    1 046 083
             Decrease in interest bearing borrowings                          –          (3 917)        (3 917)
             Equity to be created                                       750 000       (750 000)              –
             Funds received from shareholder                                  –        750 000        750 000
             Subsidy received                                           300 000               –       300 000

             Increase in cash and cash equivalents                    1 032 180         12 974      1 045 154
             Cash and cash equivalents at beginning of year           1 519 820                –    1 519 820
             Cash and cash equivalents at end of year                 2 552 000         12 974      2 564 974




128   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



37. TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) (continued)
      37.2.10 Notes to the reconcilliations of equity and profit (continued)
      The Group made the following adjustments to its SA GAAP financial statements:

                                                                         Group                         Company
                                                               1 April           31 March        1 April     31 March
                                                                2004                2005          2004          2005
                                                               R'000               R'000         R'000         R'000

      (a)    Property, plant and equipment
            (i) Fair value adjustment of all buildings        155 311            151 770        147 037          146 845
            (ii) Retrospective application of IAS 16 –
                  Property, plant and equipment                72 117             91 727         59 011           76 580
            (iii) Decommissioning costs                         2 533              2 819          2 053            2 279
            (iv) Reallocation to investment properties
                  and other adjustments                        22 499              (4 547)             –           (4 547)
            (v) Reclassification of operating leases
                  as finance leases                            13 607              9 596         11 070             6 776
            (vi) Reclassification of software to
                  intangible assets                           (34 524)            (46 524)       (31 021)         (46 140)
            (vii) Prior year adjustments                         (269)                719              –                –

                                                              231 274            205 560        188 150          181 793

            The Group made the following adjustments to its SA GAAP financial statements:

                                                                               SA GAAP        Fair value             IFRS
                                                                           carrying value    adjustment     carrying value
            Company                                                                R'000          R'000             R'000

            Fair values adjustments as at 1 April 2004
            – Freehold land and buildings                                        514 446        147 037          661 483
            – Investment properties                                               13 403          (4 209)          9 194

                                                                                 527 849        142 828          670 677

            Group
            Fair values adjustments as at 1 April 2004
            – Freehold land and buildings                                        514 446        169 411          683 857
            – Investment properties                                               13 403          (4 209)          9 194
            – Motor vehicles                                                      10 866           8 171          19 037
            – Plant and machinery                                                  9 255            103             9 358

                                                                                 547 970        173 476          721 446

            (i) In terms of the requirements of IFRS 1 the Group is required to apply IAS 16 retrospectively. The Group
                has elected to apply the exemption under IFRS 1 whereby the fair value of certain assets at 1 April 2004
                is used as its deemed cost on the transition date. All buildings within the Group (apart from those carried
                as finance leases) were fair valued. The Group adjusted the carrying values of the individual items of
                property, plant and equipment for those items to which the exemption was applied. These items were
                fair valued by an independent valuator.




129   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



37. TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) (continued)
      37.2.10 Notes to the reconcilliations of equity and profit (continued)
      (a)    Property, plant and equipment (continued)
            (ii) IAS 16 differs in certain respects from the previous SA GAAP equivalent, AC 123 – Property, plant and
                 equipment, applied by the Group until 31 March 2005. IAS 16 states that an entity is required to measure
                 the residual value of an item of property, plant and equipment as the amount the entity estimates it
                 would receive currently for the asset if the asset were already of the age and in the condition expected
                 at the end of its useful life. The Group has previously accounted for residual values based on the
                 requirement of AC 123 that regards residual value as the net amount that the entity expected to obtain
                 for the asset at the end of its useful life. The Group has therefore reviewed its residual values for
                 individual items of property, plant and equipment and adjusted the residual values at each year end,
                 which affected the depreciation charge and carrying values.

                IAS 16 further requires that the useful lives of the individual components of property, plant and
                equipment items be reviewed at least annually, whereas the requirement under the previous SA GAAP
                equivalent, AC 123, was to review the useful lives of items of property, plant and equipment on a non-
                mandatory periodic basis. The Group has reassessed the useful lives of all individual components of
                property, plant and equipment and adjusted the carrying value of some items at the date of transition
                accordingly.

            (iii) In terms of IAS 16, decommissioning costs should be included in the cost of the item of property, plant
                  and equipment. IFRS 1 requires that the Group apply the requirements of IFRIC 1 – Decommissioning,
                  restoration and similar liabilities, retrospectively. As explained in the Basis of Preparation section, the
                  Group has elected to apply the exemption under IFRS 1 whereby the Group need not account for
                  changes in decommissioning, restoration and similar liabilities that occurred before the date of transition
                  to IFRS. As such the related liability for leasehold improvements was raised and discounted accordingly.

            (iv) Certain properties were reclassified under IFRS either from property, plant and equipment to investment
                 property or vice versa.

            (v) In evaluating the classification of certain of the leases in terms of IAS 17 – Leases, there were operating
                leases which were reclassified as finance leases under IFRS. Refer note (j) below for further
                information.

            (vi) The Group reclassified certain computer software from property, plant and equipment to Intangible
                 assets. Refer note (c).
            (vii) Prior year adjustments, refer to note (w).
      (b) Investment properties

                                                                          Group                           Company
                                                                1 April           31 March          1 April     31 March
                                                                 2004                2005            2004          2005
                                                                R'000               R'000           R'000         R'000

            (i) Fair value adjustment of buildings               (4 209)             (656)          (4 209)             (656)
            (ii) Reallocation between property, plant and
                 equipment and investment properties            (22 499)            4 547                 –            4 547

                                                                (26 708)            3 891           (4 209)            3 891

            (i) All investment properties were fair valued. Refer to note (a) (i) above for details on the relevant
                adjustments.

            (ii) Certain properties were reclassified under IFRS either from property, plant and equipment to investment
                 property or vice versa.




130   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



37. TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) (continued)
      37.2.10 Notes to the reconcilliations of equity and profit (continued)
      (c)   Intangible assets
            The Group reclassified certain computer software from Property, plant and equipment to Intangible assets
            on its balance sheet. Computer software is required to be classified as an intangible asset in terms of IAS
            38 – Intangible assets, unless the software is an integral part of the related hardware. The useful lives and
            residual values of the reclassified software assets have been reviewed and adjusted where necessary for
            each reporting period. Amortisation has also been recalculated after taking these adjustments into account.

      (d) Available-for-sale assets and Investment in subsidiary

                                                                        Group                          Company
                                                              1 April           31 March         1 April     31 March
                                                               2004                2005           2004          2005
                                                              R'000               R'000          R'000         R'000

            Available-for-sale assets
            (i) Reclassification of bonds as an
                  available-for-sale investment                     –                  –               –                 –
            (ii) Fair value determined for Uthingo
                  Management (Pty) Ltd                         63 374            37 500          63 374           37 500
            (iii) Insurance contracts                          35 498                 –          35 498                –
            (iv) Investment in subsidiaries                         –                 –         (86 259)         (30 224)

                                                               98 872            37 500          12 613            7 276

            The movement in financial assets is split
            as follows:
            Current                                            98 872             56 523         98 872                –
            Noncurrent                                              –            (19 023)       (86 259)           7 276

                                                               98 872            37 500          12 613            7 276

                                                                                                      Company
                                                                                                 1 April    31 March
                                                                                                  2004         2005
            Investment in subsidiaries                                                           R'000        R'000

            (iv) Investment in subsidiaries disclosed separately                                 86 259           30 223

            (i) Under SA GAAP the movement in the fair value movement of the bonds was previously recorded in the
                income statement. In converting to IFRS, these bonds are classified as available-for-sale investments and
                all movements in the fair value of the bonds are accounted for in equity. All previous movements in fair
                value have been reallocated from retained earnings to a separate reserve in equity.

            (ii) The fair value of the Uthingo Management (Pty) Ltd investment was determined and accounted for in
                 terms of IAS 39. This equity investment is now classified as an available-for-sale investment and all
                 movements in the fair value of the investment are accounted for in equity.

            (iii) On 1 April 2004, IFRS 1 requires all assets to be accounted for. The Group contributed to a Santam
                  insurance policy to which the Group had not contributed for several years as there was a significant
                  asset owing to the Group. This asset was not accounted for in the accounting records of the Company
                  as at 1 April 2004. This was adjusted for to ensure compliance with IFRS.

            (iv) Investments in subsidiaries in the Company's financial statements was not disclosed separately under
                 SA GAAP. A reallocation was done.




131   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



37. TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) (continued)
      37.2.10 Notes to the reconcilliations of equity and profit

      (e)   Deferred tax

            The adjustment to the effect of the transition of IFRS increased/(decreased) the deferred tax liability (asset)
            as follows based on a tax rate of 30% (CGT 15%) at 1 April 2004 and 29% (CGT) 14,5%) at 31 March 2005.

                                                                           Group                        Company
                                                                 1 April           31 March       1 April     31 March
                                                                  2004                2005         2004          2005
                                                                 R'000               R'000        R'000         R'000

            Property, plant and equipment and intangible
            assets                                                (2 530)           (64 948)            –         (62 468)
            Leases                                                     –             16 968             –          16 968
            Investment properties                                      –                 191            –              191
            Insurance contracts                                        –              (4 395)           –           (4 395)
            Employee benefits                                          –            (10 295)            –         (10 295)
            Financial instruments                                      –               4 856            –            4 856
            Trade receivables                                          –               4 786            –            4 786
            Revenue                                                    –             14 456             –          14 456
            Trade payables                                             –                (294)           –             (294)
            Provisions                                                 –                 (37)           –              (37)
            Other                                                      –              (2 365)           –             (191)
            Previously unrecognised temporary
            differences (refer note (w)).                              –              2 171             –                –

                                                                  (2 530)           (38 906)            –         (36 423)


      (f)   Trade and other receivables
            (i) Discounting of trade receivables            (14 108)                (17 241)     (13 338)         (16 500)
            (ii) Straightlining effect of operating leases        –                      (28)          –               (28)
            (iii) Other reclassifications                       423                    (719)         423             (608)
            (iv) Prior year adjustments                        (159)                 (4 837)           –                 –
            (v) Adjustment of impairment of debtors           2 196                  (2 745)       2 196           (2 745)
            (vi) Santam policy brought on the balance sheet 10 458                         –      10 458                 –

                                                                  (1 190)           (25 570)        (261)         (19 881)

            (i)     IAS 39 requires that trade receivables should be accounted for at amortised cost. The adjustment
                    reflects the effect of discounting current trade receivables.
            (ii)    In terms of IAS 17, the operating lease expense should be fixed for the period of the lease, if there
                    is a fixed rental escalation. The above adjustment is the resultant effect of this adjustment as the
                    Group had previously accounted for these lease payments on a cash basis. Refer note n) below for
                    further details.
            (iii)   Other reclassifications between relevant balance sheet line items.
            (iv)    Prior year adjustments, refer note (w).
            (v)     Adjustment of the debtors impairment provision.
            (vi)    Accounting for Santam insurance policy, Refer adjustment (d) (iii) above.




132    South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



37. TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) (continued)
      37.2.10 Notes to the reconcilliations of equity and profit (continued)

      (g) Cash and cash equivalents

                                                                          Group                        Company
                                                               1 April        31 March            1 April   31 March
                                                                2004              2005             2004         2005
                                                               R'000             R'000            R'000        R'000

            (i) Reclassification of balance sheet accounts          –           12 974                 –          12 974
            (ii) Prior year adjustments                        (3 699)              12                 –               –

                                                               (3 699)          12 986                 –          12 974

            (i) Reclassification of balance sheet accounts
            (ii) Prior year adjustments, refer note (w).

      (h) Foreign currency translation reserve
            In terms of the requirements of IFRS 1 the Group is required to apply IAS 21 – The Effects of Changes in
            Foreign Exchange Rates retrospectively. As explained in the Basis of Preparation section, the Group has
            elected to apply the exemption under IFRS 1 whereby all cumulative translation differences for all foreign
            operations are deemed to be zero at the date of transition. The Group has therefore reset its cumulative
            translation differences relating to foreign entities as previously recognised under SA GAAP. A corresponding
            entry was made to retained earnings.

            The foreign currency translation reserve under SA GAAP consisted of the deferral of the foreign exchange
            profit and losses incurred on intercompany loans with Zimbabwe and Botswana subsidiaries and accounted
            for as net investment in foreign entities with all gains and losses on the loans deferred in equity.

      (i)   Available-for-sale reserves

            Group                                                        Company
                                                               1 April        31 March            1 April      31 March
                                                                2004              2005             2004            2005
                                                               R'000             R'000            R'000           R'000

            Adjustment to available-for-sale reserve for:
            (i) – Uthingo Management (Pty) Ltd
                   investment fair value                       63 374           37 499           63 374           37 499
            (ii) – Bond reclassification                        5 071            5 820            5 071            5 820

                                                               68 445           43 319           68 445           43 319

            (i) The fair value of the Uthingo Management (Pty) Ltd investment was determined and accounted for in
                terms of IAS 39.
            (ii) Under SA GAAP the movement in the fair value of the bonds was previously recorded in the income
                 statement. In converting to IFRS, these bonds are now classified as available-for-sale investments and all
                 movements in the fair value of the bonds are now accounted for in equity. All previous movements in fair
                 value have been reallocated from retained earnings to a separate reserve in equity.
      (j)   Interest bearing borrowings
            The Group evaluated its leases against the requirements of IAS 17 to ensure that the classification of leases
            between operating and finance leases has been done accordingly. The Group reclassified certain of the
            operating leases as finance leases as substantially all the risks and rewards are transferred to the Group.
            The adjustments to interest bearing borrowings relate to these reclassifications.




133    South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



37. TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) (continued)
      37.2.10 Notes to the reconcilliations of equity and profit (continued)

      (j)   Interest bearing borrowings

                                                                          Group                             Company
                                                                1 April           31 March            1 April     31 March
                                                                 2004                2005              2004          2005
                                                                R'000               R'000             R'000         R'000

            Reclassification of operating leases to
            finance leases:
            Current                                               5 072             6 830              4 002        4 620
            Noncurrent                                            8 731             3 240              7 279        2 744

                                                                13 803             10 070             11 281        7 364

      (k)   Deferred lease liability
             The South African Institute of Chartered Accountants issued Circular 7/2005 during August 2005. The
             purpose of the circular was to clarify the requirements of IAS 17 in respect of operating leases which
             include fixed rental increases. IAS 17 and it's SA GAAP equivalent standard AC 105 – Leases require that
             lease payments under an operating lease should be recognised as an expense on a straight-line basis over
             the lease term unless another systematic basis is more representative of the time pattern of the user’s
             benefit. In South Africa most lessees, including the Group, have in the application of AC 105 recognised
             rental expenses with fixed rental increases on the basis of the cash flow in the lease agreements,
             interpreting that such an approach represented “another systematic basis” that was “more representative
             of the time pattern of the user’s benefits”. Circular 7/2005 however clarified that the way many South
             African entities, including the Group, applied the “other systematic basis” in terms of AC 105 is not
             consistent with the requirements of IAS 17 and AC 105 as applied internationally.

             IAS 17 only permits a treatment other than straight-line recognition when another basis is more
             representative of the time pattern of the user’s benefit, which is unaffected by the timing of payments.
             The Group applied the principles of IAS 17, as clarified by Circular 7/2005, to all its lease agreements with
             fixed rental increases on adoption of IFRS. The requirements of IAS 17 were applied retrospectively and an
             adjustment to retained earnings at the transition date was accounted for. The net profit for the years
             ended 31 March 2005 and 31 March 2006 was adjusted accordingly.

                                                                          Group                             Company
                                                                1 April           31 March            1 April     31 March
                                                                 2004                2005              2004          2005
                                                                R'000               R'000             R'000         R'000

            (i) Straightlining of operating leases –
                Noncurrent                                      68 886             66 820             51 109       51 144

               The current portion of the straightlining of the obligation is included in note (o).




134    South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



37. TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) (continued)
      37.2.10 Notes to the reconcilliations of equity and profit (continued)
      (l)   Employee benefit obligations

                                                                             Group                         Company
                                                                   1 April           31 March        1 April     31 March
                                                                    2004                2005          2004          2005
                                                                   R'000               R'000         R'000         R'000

            (i) IFRS 1 adjustment relating to Post
                  retirement medical obligations                  129    614          (46    861)   129 614            (46 861)
            (ii) Other employee benefits obligations               23    192           19    844     15 439             10 624
            (iii) Prior year adjustments                            (7   096)           (7   513)         3                735
            (iv) Leave pay                                         95    306           97    833     88 207             89 583

                                                                  241 016             63 303        233 263            54 081

               The movement in employee benefit
               obligations is split as follows:
               Current                                                720              5 720            720             5 720
               Noncurrent                                         240 296             57 583        232 543            48 361

                                                                  241 016             63 303        233 263            54 081

            (i) The Group elected to apply the IFRS 1 exemption therefore all unrecognised losses/gains and the
                remaining balance of the transitional levy were accounted for immediately.
            (ii) The long service awards and the post-retirement telephone obligation were not provided for previously
                 and these were provided for in terms of IAS 19.
            (iii) Prior year adjustments, refer note (w).
            (iv) Reclassification of leave pay from provisions to employee benefit obligations. These obligations are not
                 classified as provisions in terms of IFRS.
      (m) Provisions

                                                                             Group                         Company
                                                                   1 April           31 March        1 April     31 March
                                                                    2004                2005          2004          2005
                                                                   R'000               R'000         R'000         R'000

            (i) Decommissioning liability                            2 533              2 819          2 053             2 279
            (ii) Reclassification of early retirement provision    (95 306)           (97 833)       (88 207)          (89 584)
            (iii) Reclassification of leave pay provision          (20 990)           (37 284)       (20 990)          (37 284)

                                                                  (113 763)          (132 298)      (107 144)         (124 589)

               The movement in provisions is split
               as follows:
               Current                                             (69 440)           (88 641)       (65 852)          (84 838)
               Noncurrent                                          (44 323)           (43 657)       (41 292)          (39 751)

                                                                  (113 763)          (132 298)      (107 144)         (124 589)

            (i) Decommissiong liability raised for property, plant and equipment. Refer to note a) iii) for detail.
            (ii) Reclassification of early retirement from provisions to accruals. These obligations are not classified as
                 provisions in terms of IFRS.
            (iii) Reclassification of leave pay provision from provisions to employee benefit obligations. These obligations
                  are not classified as provisions in terms of IFRS. Refer to note (k).




135    South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



37. TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) (continued)
      37.2.10 Notes to the reconcilliations of equity and profit (continued)
      (n) Deposits from the public

                                                                               Group                          Company
                                                                     1 April           31 March         1 April     31 March
                                                                      2004                2005           2004          2005
                                                                     R'000               R'000          R'000         R'000

          (i) Deposits from the public                               39 825             16 744          39 825          16 744

                  The movement in deposits from the
                  public is split as follows:
                  Noncurrent                                      (1 772 226)      (2 007 712)       (1 772 226)     (2 007 712)
                  Current                                          1 812 051        2 024 456         1 812 051       2 024 456

                                                                     39 825             16 744          39 825          16 744

          (i) In terms of IAS 39 – Financial Instruments, the liabilities in respect of inactive/dormant accounts do not
              meet the derecognition criteria. The full liability for these obligations was thus accrued on 1 April 2004.
                  The deposits from the public were initially all classified as noncurrent but in respect of IFRS substantially
                  all of these deposits are repayable on demand and should be classified as current liabilities in terms of
                  IAS 39.
      (o) Trade and other payables

                                                                               Group                          Company
                                                                     1 April           31 March         1 April     31 March
                                                                      2004                2005           2004          2005
                                                                     R'000               R'000          R'000         R'000

          (i)      Discounting of trade payables                     (19   935)         (16   326)      (18   839)      (15   155)
          (ii)     Straightlining of operating leases – Current        6   724            7   860         5   579         8   377
          (iii)    Deferred revenue                                   33   743           49   487        33   743        49   487
          (iv)     Reclassification                                  (10   664)           1   992        (2   579)       10   101
          (v)      Reclassification from funds collected
                   from third parties                               100 647            112 235         100 647         112 235
          (vi)     Insurance accrual                                 15 497                  –          15 497               –
          (vii)    Early retirement reclassification                 20 990             37 284          20 990          37 284
          (viii)   Deferred tax balance                                 500                  –               –               –
          (ix)     Prior year adjustments                             3 021             14 282               –               –

                                                                    150 523            206 814         155 038         202 329

          (i)      IAS 39 requires that trade receivables should be carried at amortised cost. The adjustment reflects the
                   effect of discounting trade payables. The adjustment mainly relates to International payables.
          (ii)     Straightlining of operating leases. Refer note n) above.
          (iii)    The calculation of deferred revenue was reassessed under IFRS. Adjustments were made to ensure
                   compliance in this regard.
          (iv) Other reclassification of trade payables and accruals under IFRS.
          (v)      Reclassification to trade payables from funds collected from third parties. This amount relates to the
                   obligation in terms of the TBVC States.
          (vi) Accounting for Santam insurance policy. Refer adjustment d) iii) above.
          (vii) Reclassification of early retirement from provisions to accruals. This liability is not classified as a
                provision in terms of IFRS.
          (viii) Deferred tax balance, refer to note (e) above.
          (ix) Prior year adjustments, refer to note (w).




136   South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



37. TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) (continued)
      37.2.10 Notes to the reconcilliations of equity and profit (continued)
      (p) Funds collected on behalf of third parties

                                                                             Group                      Company
                                                                   1 April           31 March     1 April     31 March
                                                                    2004                2005       2004          2005
                                                                   R'000               R'000      R'000         R'000

            Reclassification to trade payables                   (100 647)           (112 235)   (100 647)       (112 235)

                                                                                                   Group        Company
                                                                                                    2005            2005
                                                                                                   R’000           R’000

      (q) Revenue
            Revenue was adjusted as follows:
            (i)      Discounting of trade receivables                                             (17    241)     (16    500)
            (ii)     Unearned revenue                                                             (15    744)     (15    744)
            (iii)    Postbank inactive accounts                                                    23    081       23    081
            (iv)     Other immaterial adjustments                                                   (2   523)       (1   071)

                                                                                                  (12 427)        (10 234)

            (i)      For detail on discounting of trade receivables, refer (f) above.
            (ii)     For details on unearned revenue, refer (o) above.
            (iii)    For details on the Postbank inactive accounts, refer (n) above.

      (r)   Operating expenses
            Operating expenses was adjusted as follows:
            (i) Property, plant and equipment and investment properties                           30 106          20 073
            (ii) Adjustment of impairment of debtors                                               (1 000)        (1 000)
            (iii) Reclassification of operating leases as finance leases                               56           (952)
            (iv) Discounting of trade payables                                                    11 791           9 657
            (v) Employee benefits                                                                   4 098          4 085
            (vi) Santam insurance policy                                                          (1 798)         (1 798)
            (vii) Other immaterial adjustments                                                       (226)          (226)
            (viii) Discontinued operations                                                         (5 285)             –
            (ix) Prior year adjustments                                                           13 586               –

                                                                                                  51 328          29 839

            (i)      Property, plant and equipment adjustments, refer to note (a) above.
            (ii)     Adjustment of impairment of trade receivables, refer to note (f) above.
            (iii)    Reclassification of operating leases as finance leases, refer note (j) above.
            (iv)     Discounting of trade payables, refer note (o) above.
            (v)      Employee benefits adjustment, refer to note (k) above.
            (vi)     Santam insurance policy. Refer to note (d).
            (vii)    Other immaterial adjustments
            (viii)   Discontinued operations disclosed separately on the face of the income statement
            (ix)     Prior year adjustments, refer note (w).

      (s)   Post-retirement medical benefits
            Post-retirement medical benefits were adjusted for:
            IFRS 1 adjustment relating to post-retirement medical benefits                       176 637         176 475

            The Post Office elected to apply the IFRS 1 exemption and all
            unrecognised losses/gains in respect of the transitional adjustment were
            accounted for immediately. Refer to note (k).




137    South African Post Office Annual Report 2006
NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 March 2006



37. TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRS”) (continued)
    37.2.10 Notes to the reconcilliations of equity and profit (continued)
      (t)   Deferred tax adjustments
                                                                                                   Group        Company
                                                                                                    2005            2005
                                                                                                   R’000           R’000
            Property, plant and equipment and intangible assets                                    (62 526)       (62 659)
            Leases                                                                                  16 968         16 968
            Investment property                                                                         191            191
            Insurance contracts                                                                      (4 395)        (4 395)
            Employee benefits                                                                      (10 295)       (10 295)
            Financial instruments                                                                     4 856          4 856
            Trade receivables                                                                         4 786          4 786
            Revenue                                                                                 14 456         14 456
            Trade payables                                                                             (294)          (294)
            Provisions                                                                                   (37)          (37)
            Other                                                                                         46              -
            Previously unrecognised temporary differences                                                  –             –
                                                                                                   (36 244)       (36 423)
      (u) Finance income
          Finance income was adjusted for:
          Other                                                                                       720              –
          Discounting of trade receivables                                                         14 108         13 338
                                                                                                   14 828         13 338
            For detail on the discounting of trade receivables, refer note f) above.
      (v)   Finance cost
            Finance costs were adjusted for:
            (i) Discounting of trade payables                                                      (19 936)       (18 840)
            (ii) Lease finance costs                                                                (1 767)        (1 310)
                                                                                                   (21 703)       (20 150)
            (i)    Reclassification of operating leases as finance leases, refer note (j) above.
            (ii)   For detail on the discounting of trade payables, refer note (o) above.
      (w) Prior year adjustments not related to IFRS (disclosed as net)
                                                                                                   Group          Group
                                                                                                    2004           2005
                                                                                                   R’000          R’000
            ASSETS
            Noncurrent assets                                                                         (269)         2 890
            Property, plant and equipment                                                             (269)           719
            Deferred taxation                                                                            –          2 171
            Current assets                                                                          (3 858)        (4 825)
            Trade and other receivables                                                               (159)        (4 837)
            Cash and cash equivalents                                                               (3 699)            12

            Total assets                                                                            (4 127)        (1 935)

            EQUITY AND LIABILITIES
            Equity and reserves
            Accumulated loss                                                                          (300)        (8 704)
            Noncurrent liabilities
            Employment benefit obligations                                                          (7 096)        (7 513)
            Current liabilities                                                                      3 269        14 282
            Trade and other payables                                                                 3 021        14 282
            Taxation                                                                                   248             –

            Total equity and liabilities                                                            (4 127)        (1 935)




138    South African Post Office Annual Report 2006
SCHEDULE 1 – UNLISTED INVESTMENTS
at 31 March 2006



The following unlisted investments incorporated in South Africa are included in investments (refer to note 6):

                                                                              Effective
                                 Nature of               Issued                holding                  Investment
                                 operation               capital         2006          2005         2006        2005
Name                                                          R            %             %         R'000       R'000

SUBSIDIARY COMPANIES
Directly held
The Document Exchange
(Pty) Ltd                        Letter and parcel delivery   1           100          100              –             –
Pensecure (Pty) Ltd              Pension payments           100           100          100              –             –
Sapos Properties (PE)
(Pty) Ltd                        Property letting           100           100          100         1 271          1 252

 Investment                                                                                        1 670          1 670
 Impairment of investment                                                                           (418)          (418)
 Loan                                                                                                 19              –

Sapos Properties (Rossburgh)
(Pty) Ltd                        Property letting              2          100          100         4 159          2 906

 Investment                                                                                        3 800          3 800
 Impairment of investment                                                                           (894)          (894)
 Loan                                                                                              1 253              –

Sapos Properties (Erf 145018
Cape Town) (Pty) Ltd             Property letting           100           100          100         4 112          4 085

 Investment                                                                                        4 085          4 085
 Loan                                                                                                 27              –

Sapos Properties (East Rand)
(Pty) Ltd                        Property letting           200           100          100        11 710         11 195

 Investment                                                                                       11 195         11 195
 Loan                                                                                                515              –

Sapos Properties (Bloemfontein)
(Pty) Ltd                       Property letting            100           100          100           123           108

 Investment                                                                                          750            750
 Impairment of investment                                                                           (642)          (642)
 Loan                                                                                                 15              –

Sapos Properties (Pty) Ltd       Dormant                       1          100          100              –             –
Truebill (Pty) Ltd               Dormant                       1          100          100              –             –
The Courier and Freight Group
(Pty) Ltd                        Parcel delivery        200 000           100          100              –         1 053

 Investment                                                                                        1 053          1 053
 Impairment of investment                                                                         (1 053)             –




139   South African Post Office Annual Report 2006
SCHEDULE 1 – UNLISTED INVESTMENTS
at 31 March 2006 (continued)




                                                                           Effective
                                  Nature of               Issued            holding                    Investment
                                  operation               capital       2006       2005       2006             2005
Name                                                           R          %          %       R'000            R'000

Indirectly held
ACE Express Group
(Pty) Ltd                         Express freight            100         100        100           –               –
ACE International (Pty) Ltd       International freight    5 000         100        100           –               –
Fancon (Pty) Ltd                  Dormant                  2 000         100        100           –               –
XPS Trucking (Pty) Ltd            Dormant                  4 000         100        100           –               –
SA Bunker Services
(Pty) Ltd                         Dormant                  1 100         100        100           –               –
The Courier and Freight
Botswana (Pty) Ltd                International freight      162         100        100           –               –
The Courier and Freight
Namibia (Pty) Ltd                 International freight    4 000         100        100           –               –
The Courier and Freight
Swaziland (Pty) Ltd               International freight        2         100        100           –               –
CFG Zimbabwe (Private) Ltd        International freight    3 012         100        100           –               –

Investment                                                                                  21 375          20 599
Centriq Insurance Innovation                          20 050 000    41 preference shares    20 050              50

                                                                                            41 425          20 649
Loan accounts – at cost less impairment                                                      3 339           9 574

 The Courier and Freight Group (Pty) Ltd                                                          –               –

  Loan                                                                                      219 322         219 322
  Impairment of loan                                                                       (219 322)       (219 322)

 The Document Exchange (Pty) Ltd                                                              3 339          9 574

  Loan                                                                                        3 339         11 604
  Impairment of loan                                                                              –          (2 030)

 Pensecure (Pty) Ltd                                                                              –               –

  Loan                                                                                        1 356           1 229
  Impairment of loan                                                                         (1 356)         (1 229)


Total investment and indebtedness                                                           44 764          30 223

Directors' valuation of unlisted investments                                                26 248          24 419




140   South African Post Office Annual Report 2006
GROUP THREE-YEAR REVIEW
for the years ended 31 March




Income statement (R'000)                                  2006            2005            2004

Revenue                                               4 519   487    4 246    637    3 954    847
Profit/(loss) for the year before general subsidy       736   487      943    671     (262    197)
Finance income                                          102   355        42   579        42   007
Finance cost                                            (71   290)      (78   137)      (58   035)

Balance sheet (R'000)
Funds supplied by:                                    5 621 527      4 850 023       3 448 726

Capital and reserves                                    882 204        425 918       (1 429 096)
Noncurrent liabilities                                  719 832        755 712        1 592 330
Current liabilities                                   4 019 491      3 668 393        3 285 492

Funds required by:                                    5 621 527      4 850 023       3 448 726

Noncurrent assets                                     1 640 262      1 512 653       1 232 649
Current assets                                        3 981 265      3 337 370       2 216 077

Cash flow (R'000)
Net cash inflow/(outflow) from operating activities     232   992        8    752     (161    985)
Net increase in operating funds                         288   164      231    135      212    263
Net cash (outflow)/inflow from investing activities    (126   493)    (210    424)      14    399
Net cash inflow from financing activities               292   275    1 044    650       93    000

Solvency and liquidity
Debt-equity ratio                                        5,9 : 1       10,7 : 1             N/A
Current ratio                                              1:1          0,9 : 1          0,7 : 1
Acid test ratio                                            1:1          0,9 : 1          0,6 : 1




141   South African Post Office Annual Report 2006
       HIGH LEVEL PERFORMANCE OVERVIEW


Operational excellence

                                   Key
       Strategy               Performance                       Objective                         Target                 Result
                                Indicator
Strong Post Office       Improved customer        To build a reputation as a trusted,      Improve baseline by    Survey to be
brand (image)            satisfaction results     neutral, reliable and friendly service   10% per annum          conducted during
                                                  provider                                                        2006/07

                         Reduced customer         Deliver value proposition for            Implementation of      Strategy to be
                         complaints               customers at the following touch         integrated Customer    formulated and
                                                  points:                                  Contact Centre –       implemented during
                                                  • Post Office outlets                    December 2007          2006/07
                                                  • Customer Contact Centre                Respond to customer
                                                  • Company web site                       complaints within
                                                                                           48 hours

                         Crime & fraud            Reduce crime and fraud in the Post       • 50% increase in      6% increase in
                         prevention               Office                                     reported cases       reported cases
                                                  • Improve on the 2004/05                 • 10% reduction in     44% decrease in
                                                    performance                              cases & R-value      cases (R10.7 million
                                                                                                                  to R6 million)

                                                  Benchmark crime prevention against Achieve industry             Benchmarking
                                                  other countries and local companies average                     exercise undertaken

Shareholder              Universal service        To meet shareholder’s expectations       1 555 012 addresses    2 293 290 delivery
satisfaction             obligations              of affordable, effective and efficient   to be rolled out       points rolled out
                                                  postal service
                                                                                           No target for PITs     700 Public
                                                                                                                  Information Terminals
                                                                                                                  rolled out to date

                                                                                           55 new outlets         55 – new stores
                                                                                                                  approved
                                                                                                                  28 – stores
                                                                                                                  completed
                                                                                                                  27 – construction
                                                                                                                  commenced

                                                                                           No target for portable 20 – portable post
                                                                                           offices                offices
                                                                                                                  commissioned

                                                                                           41 outlets to be       41 – Relocations &
                                                                                           upgraded or            Upgrades approved
                                                                                           relocated              20 - stores
                                                                                                                  completed
                                                                                                                  21 – construction
                                                                                                                  commenced

Internal Customer        BU satisfaction i.t.o.   To improve the levels of internal        Establish baseline     Service level
Satisfaction             service received from    satisfaction                             Improve baseline by    agreements between
                         other BU                                                          10% per annum          most business units.
                                                                                                                  Survey to be
                                                                                                                  undertaken during
                                                                                                                  2006/07




       142     South African Post Office Annual Report 2006
        HIGH LEVEL PERFORMANCE OVERVIEW


Developing our people

                                     Key
       Strategy                 Performance                      Objective                        Target                  Result
                                  Indicator
Investing in human        Investment value in    Improvement in the skills of our         Invest 2% of total       2,1% of staff
capital                   training & development employees                                staff expenses to        expenses
                                                                                          achieve:
Employee retention &      Entrance vs attrition    Recruit & retain the best who can      Less than 4% p.a.        1 502 entrants which
attraction                Rates                    thrive living the brand & serve the    attrition                equates to 9,41%
                                                   targeted markets                                                1 315 exits which
                                                                                                                   equates to 8,18%

Transformed workforce Employment equity            Strategic management of staff to       Refer to Equity plan     Equity plan in place
with regard to race and                            reflect diversity in the Company
gender

Competency profiling      Identification &         Re-skill employees to ensure they      100% profiling of        96% of all profiles
for needed skills,        documenting strategic    meet the organisation’s critical       strategic job families   completed
values & knowledge        job families             strategic needs




Money management

                                     Key
       Strategy                 Performance                      Objective                        Target                  Result
                                  Indicator
Improve cost structure    Reduced cash             To achieve a 90% total cost            9% reduction over        2004/05 – 97%
                          expenses                 structure to revenue                   three years              2005/06 – 94%
                                                                                          3% reduction per         3% reduction
                                                                                          annum

Increase asset            Return on total assets   Improve yield                          05/06 – 5%               5%
utilisation

Empowerment of            BEE                      Increase procurement to black          05/06 – 40%              48%
previously                                         owned and managed businesses
disadvantaged
individuals (suppliers)

Improved cash flow        Liquidity                Ensure ability to settle obligations   05/06 – 1:1              1:1
position




        143   South African Post Office Annual Report 2006
       HIGH LEVEL PERFORMANCE OVERVIEW


Growing our customer base

                                  Key
       Strategy              Performance                      Objective               Target               Result
                               Indicator
Revenue growth          Share of market           Increase market share        Improve baseline by   Increase by 8%
                        segment                   – Financial Services         10% p.a.              Decrease by 6%
                                                  – Parcel Business
Delighted customers     Customer Satisfaction     Focus on Customer Service    Improve baseline by   Survey to be done
                        Index                     improvements                 10% p.a.              during 2006/07




Creating our wealth

                                  Key
       Strategy              Performance                      Objective               Target               Result
                               Indicator
Diversified organisation Business portfolio mix   Increase revenue from non-   10% p.a.              Increase of 1%
                                                  traditional businesses




       144   South African Post Office Annual Report 2006
Printed by Ince (Pty) Ltd
Post Office Head Office
497 Schubart Street, Pretoria Central 0002, PO Box 10000, Pretoria 0001
Tel: 012 401 7000
www.postoffice.co.za

								
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