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NZ Post FY profit falls 29% on dwindling demand for letters

NZ Post FY profit falls 29% as traditional letters continue to decline

By Tina Morrison

Aug. 27 (BusinessDesk) – New Zealand Post, the state-owned postal service, reported a 29 percent fall in annual profit as its traditional letters business weakened and it wrote down the value of some postal assets.

Profit dropped to $121 million in the year ended June 30, from $170 million the year earlier, as stronger earnings from the company’s Kiwibank and Express Couriers units failed to make up for a slide in its core postal service. Revenue from ordinary activities rose 29 percent to $1.69 billion.

The result included postal restructuring costs of $23.4 million, from $3.7 million the year earlier, and a $30.6 million write down of postal assets including processing centres that will be closed. Year-earlier profit included a $96.2 million accounting gain from buying DHL’s 50 percent stake in their Express Couriers joint venture, while earnings in the latest year included $71.1 million from the sale of Datacom.

New Zealand Post is closing some mail sorting centres, moving to self-service postal kiosks, outsourcing its services to stores provided by other business, developing digital services and trying to relax a government agreement on delivery days in an attempt to reduce its labour and store costs and arrest the slide in profits as its customers increasingly favour the use of mobile phones and computers over postal mail.

“We believe there is a future for mail for many, many decades but it is at a level substantially different to what it was 20 years ago,” chief executive Brian Roche said at a briefing in Wellington. “It’s very difficult for us to run the network on social mail, ie Birthday cards and Christmas cards. It is very much around major customers, they tend to be banks and major utilities, and as they move their customers online, we have a challenge.”

The letters business is “still struggling” with revenue down by $30 million in the past year, Roche said. The company doesn’t explicitly split out its postal service results.

The pace of decline accelerated as the company delivered 7.5 percent fewer items in 2013, compared with a drop of 6.7 percent the year earlier, he said. The unit carried about 770 million items during the year, 63 million fewer than the year earlier, he said.

“We see significant challenges for that business,” Roche said. “We have already taken action around the rationalisation of our operating centres and we think there is more to be done there. Both the delivery network and the store network are going to have to be modernised and revolutionised if we are to maintain a sustainable business.”

New Zealand Post expects further significant job losses as it restructures the business, Roche said, without giving details. In June, the company said it would reduce its processing centres to three from six, shedding a net 120 jobs over 18 months, to save as much as $30 million.

The company loses about $30 million a year on its retail network of 880 stores, which it cannot afford to carry, Roche said. While some stores had closed over the past few years, the company needs to maintain postal volumes and preferred to move services to outlets owned by other businesses and expand its nascent self-service offering where customers can weigh, label and send their own mail as well as pay bills.

New Zealand Post has asked the government to reduce the number of days it is required to deliver mail to households to three from as many as six. The company is still waiting for feedback on the proposal, he said.

“We will eventually get to three days a week but the timing of that is very unclear, it is determined very much by how the market wants to use mail,” Roche said.

Excluding one-time items, New Zealand Post recorded a 41 percent increase in operating profit of $111 million in 2013, the company said. The letters business broke even at an operating level on tight cost management.

Meanwhile, the company’s Express Couriers business, which competes with Freightways, made an after-tax profit of $17 million as volumes increased between by 2-3 percent to 40 million. The company is betting a drop in traditional mail services may boost demand for its higher priced fast delivery offering.

New Zealand Post’s Kiwibank business increased after-tax profit by 23 percent to $97 million as customer numbers increased to about 850,000 customers. The unit, which requires an injection of capital to support its growth, has “great potential” in a competitive market, Roche said.

Kiwibank’s earnings, planned market issuances and support from the group will meet its capital demands in the short-to-medium term and talks are underway about its needs for long-term capital support, Roche said.

It will pay an unchanged dividend to the government of $5 million.


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