NZ Post pays $2.5M interim dividend while warning year-end targets will be 'challenging'
By Paul McBeth
Feb. 23 (BusinessDesk) - New Zealand Post will pay its government shareholder a $2.5 million interim dividend next month, despite warning its year-end financial targets will be a stretch as the core mail delivery operates at a loss and it derives a smaller earnings stream from a diluted stake in Kiwibank.
The board, chaired by Jane Taylor, declared an unchanged dividend from a year earlier, which will be paid on March 29, half the maximum $5 million targeted by the Wellington-based state-owned enterprise. The mail delivery service reported a net profit of $6 million in the six months ended Dec. 31, tumbling from $89 million a year earlier, due largely to its smaller stake in Kiwibank.
NZ Post now owns 53 percent of the country's fifth-biggest lender having sold stakes to the New Zealand Superannuation Fund and Accident Compensation Corp, and derived $19 million from its share of Kiwibank's earnings. That helped offset a loss of $13 million on the mail delivery operation, which it blamed on a "marked acceleration" in the decline of letter volumes, even as parcel volumes rose 9.9 percent.
"Our largest sending customers are increasingly moving to online communication for their own customers, as this is now what many of us expect in a digitised world," chief executive David Walsh said in a statement. "This is a significant challenge for NZ Post, and cannot be underestimated in terms of loss of revenue as we seek financial sustainability for this valued service."
NZ Post is expected to generate a dividend yield of 0.4 percent in the 2018 financial year, with the year slated to offer the skinniest operating margins in the statement of corporate intent over the 2017 to 2020 period.
Walsh said meeting the year-end financial targets will be challenging, with the business "having to adapt to rapidly changing customer preferences and the ongoing complexity of operational transformation."
NZ Post kicked off a five-year transformation in 2013 to dramatically cut staff numbers and scale back the frequency of letter delivery as the need for regular physical mail services declined.
Over that period, NZ Post's salary and wage bill has more than halved to $152 million in the six months ended Dec. 31, from $313 million in the 2013 first half result, although the SOE incorporated Kiwibank and other businesses that have since been divested, as well as slashing its workforce. The cost of delivery services has dropped to $161 million in the latest period from $187 million five years earlier. The latest period also includes $29 million of other personnel costs that weren't reported in 2013.
The SOE said it will need to make further changes to maintain service levels and will focus on "the ongoing need to make the letters business financial sustainable, maximising the opportunities from continued growth in parcels and furthering plans for e-commerce partnerships" in the second half of the financial year.
NZ Post noted a contingency over an agreement to extend $40 million of capital to Kiwi Group Holdings, Kiwibank's holding company, to complete the replacement of the core banking system, which is still under review. NZ Post said Kiwibank's board considers it unlikely the current project will meet its objectives, raising an uncertainty as to whether any of the $40 million will be called upon.
The SOE has $200 million of bonds listed on the NZX's debt market, paying annual interest of 6.35 percent. The notes, which mature next year, last traded at a yield of 4 percent.