Posta CEO on the state-firm's financial troubles and strategies it is banking on to recover

As it is, the corporation is on the brink of collapse and has already laid off hundreds of employees, and cut back some costs. But an overhaul is perhaps what could ultimately save it.

Postmaster-General and CEO John Tonui speaks about how the organisation landed in financial difficulty, and the raft of reforms it is banking on for recovery.

What exactly is the challenge facing Posta that necessitates a restructuring?

So basically, when I took over at the Posta, our standing liabilities were at Sh7.2 billion.

That much, vis-à-vis a revenue of Sh1.9 billion. So basically, what do you do? Because we really wanted to turnaround the business, one, we have to work on the liabilities because with liabilities you can’t do anything. So you really must put your efforts to make sure that you bring down those liabilities.

What liabilities are these?

These liabilities are largely unremitted pension deductions, which currently stand at Sh2.2 billion. We also have a debt of about Sh1.7 billion. This is mostly money owed to suppliers. Then we have accrued taxes to KRA standing at Sh2.7 billion. And debt to banks standing at around Sh600 million.

How did Posta accrue all these liabilities?

First of all, these are historical liabilities. We didn’t inherit them yesterday. They are a result of years and years of struggle. They’re basically deductions that weren’t remitted, bills that weren’t paid because of cash flow issues. And it all comes down to failing revenues.

So, what is the game plan?

What we’ve done is that we’ve prepared two Cabinet memos. The first is on restructuring of the balance sheet. On that, we feel that these liabilities need to be sorted out and we’ve sent a proposal on how to do that. This Cabinet memo is at an advanced stage. It’s currently going through our ministry right now, then it’ll go to Treasury and then to Cabinet. 

What we’re proposing in this memo is that we be allowed to use some of our assets to offset some of these liabilities. We have a lot of assets, amounting to about Sh11.2 billion, and some of them are just dormant.

The second memo is looking at the restructuring of the business model of the Postal Corporation of Kenya. Because what we want is a vibrant Post. Vibrant in the sense that the revenues we have continue to grow.

How bad are the revenues right now?

So, as you know, our revenues are basically from four business units. One is the mail, which gives us about 55 percent. Last year it was about Sh1.2 billion. Remember, this is a department that used to give us Sh2 billion.

It has come down because of changing user needs and technology. Then we have courier department, which gives us about 35 percent. 

Last year, it was Sh690 million, which was an increase from Sh415 million the previous year. This is a growth area. We want to grow it to Sh1.2 billion in the next financial year. Now, the other unit is financial, which gives us one percent. And the last one is assets, which give us about 12 percent.

So, how is Posta restructuring going to boost the revenues?

I have been talking about strategic partners. We want to open up the post. From what it was before that used to be a very closed entity. So we want to open it up to strategic partners that are able to invest substantial resources to make sure that Posta moves to another level. 

And the very key area that we’re looking at is the area of e-commerce. We feel that every Kenyan needs to be served by e-commerce.

Even in the rural areas. So we’re looking at developing a national digital address system. We want to come up with a digital address for every Kenyan, allowing them to order and receive goods wherever they are in the country. This will be able to boost our revenues. If we can be able to deliver parcels anywhere in the country, it will increase our earnings.

Anything else changing?

Yes, another area that we’re seeking to restructure is the courier. We have looked at the German Post, which was making losses.

The Royal Mail of Britain was making losses. The Japan Post was one of the worst performing postal networks in the world. But surprisingly, they’re the ones that have just recently donated to us. That means that there are so many things that they’ve done to reengineer their business models through new strategies.

What the German Post did, is the courier part of their business, they offered it to a strategic partner. And that’s what we’re doing as well.

We’re looking for a very serious strategic partner for the EMS part of our business, who is able to pump in not less than Sh2.5 billion in that area, subject to Cabinet approval. If we get that investor, we’ll shed some of the things we have been doing and then concentrate on the core business, which is mail.

The other thing we’re looking at is the financial unit. What Japan did is they came up with three subsidiaries, but managed by main Post. It’s the same thing Germany has done, and the same that the UK Royal Mail has done. And we’re also moving in the same direction even with our financial services unit.

And the assets?

We’re also looking at commercialisation of our assets. We have assets worth over Sh11.1 billion. Land alone is worth about Sh7.9 billion. That is what we want to commercialise. For example, we have a land at Yaya Centre.

But what we do we do with it? We’ve just leased them at a throw-away price. But we want somebody that can be able to look at the viability of that asset, and be able to generate revenue for Posta, and also for them as a strategic partner.

How soon do you expect this restructuring to kick off, then?

I can’t say for sure now, but we’re at an advanced stage. What I can tell you is that within the next three months, we should have gotten feedback from Cabinet and things will start moving.

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