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NZ Post's contribution to economic transformation

Hon Trevor Mallard
Minister for State Owned Enterprises

16 October 2006 Speech Notes

Embargoed until:3.30pm

NZ Post's contribution to economic transformation
Speech to NZ Post leadership forum, James Cook


Thank you for the opportunity to address this important gathering of NZ Post's current and future leaders.

What I would like to do this afternoon is three things:

- To reflect a little on what it means to be an SOE, and my expectations of how an SOE should behave;

- Restate the policy change I announced in June relating to SOEs, and what this may mean for NZ Post; and

- Review NZ Post's recent achievements and consider its future prospects.

As you will be aware, as Minister for SOEs I am one of NZ Post's two shareholding ministers – the other being the Minister of Finance.

As a shareholding minister, I am accountable to the New Zealand Parliament (and ultimately, the people of New Zealand) for the performance of NZ Post and all other SOEs.

What does it mean to be working for an SOE?

It is worth reflecting on the primary objective of an SOE as specified in Section 4 of the SOE Act 1986, which states that the principal objective of every state enterprise is to operate as a successful business.

It then goes on to define what is meant by a successful business, namely to be:

- As profitable and efficient as comparable businesses that are not owned by the Crown; and

- A good employer; and

- An organisation that exhibits a sense of social responsibility by having regard to the interests of the community in which it operates.

Hopefully this is how you view NZ Post - certainly these characteristics are mirrored in the NZ Post vision statement.

While the Act makes it clear that SOEs are to operate in a manner equivalent to their private sector counterparts, it is important to acknowledge that being an SOE, NZ Post is subject to greater levels of scrutiny than an equivalent private sector business.

Mistakes or errors of judgement by SOEs tend to get amplified in the media, and SOEs do not always get the credit they deserve for performing well.

This does not mean that you should not behave like a private sector company, but it does mean that you should have in place robust risk management policies to support the "no surprises" approach.

I should note that this issue is already well managed by the NZ Post Group.

The change in policy that I announced in June aimed at encouraging SOEs to consider expanding their scope of business means that shareholding ministers are, in effect, inviting SOEs to be more adventurous in their commercial activity - although they must meet certain requirements.

Criticism of the policy change has been fairly predictable, given it has come largely from people who think state assets should be privatised.

I want to make it clear that the government - like every political party except ACT - is committed to long-term ownership of Crown companies - therefore selling off or selling down its shareholding is not an option.

The context for the announcement is the government's economic transformation agenda, one of its three current priorities. Economic transformation is about lifting New Zealand's economic performance, and thereby lifting everyone's living standards.

Essentially we are looking to transform our economy into one that is high wage, innovative, more productive, and export-led. We want our firms to flourish in the global environment.

SOEs are uniquely placed to contribute to New Zealand's economic transformation, given that they have a committed long-term owner, and a number - including NZ Post - have significant capacity and commercial capability to diversify.

This new policy environment does not however, provide a mandate for SOEs to be frivolous with taxpayer assets. Diversification proposals will be subject to strict criteria, and be assessed within a framework currently being developed by officials.

It is probably fair to say that the new SOE policy does not mean much change from NZ Post's business as usual.

I am in a sense already talking to the converted, given NZ Post's success at diversifying away from its traditional core postal services business, to the point where its non-domestic postal businesses are budgeted to contribute around half its total EBIT in the current financial year.

This is reflected in the number and diversity of the NZ Post Group's subsidiaries, which includes activities ranging from logistics to data management, and couriers to banking (amongst other things).

Since being corporatised nearly twenty years ago, NZ Post has well and truly been transformed into a diversified and internationally competitive company.

It is worth reflecting on some of your company's specific achievements, to appreciate how much progress has been made - in recent years in particular – despite the ongoing challenges faced by the core letters business.

In the past five years alone, the value of shareholders' equity has increased by 150 percent, to more than half a billion dollars as at 30 June 2006.

And since corporatisation NZ Post has paid to the government more than $1 billion in dividends and taxes.

Kiwibank has been a great success story since its launch close to five years ago. In that time it has signed up more than 450,000 customers and a home loan book in excess of $2.4 billion. Kiwibank was also recently named the supreme winner of the 2006 Sunday Star-Times Cannex Banking Awards.

These numbers disguise some of the less obvious (but no less compelling) benefits of NZ Post to the New Zealand economy and to New Zealanders.

NZ Post's vast network of retail outlets, currently estimated at around 995 (including 672 PostCentres), provides important postal and banking services and infrastructure to a large number of New Zealanders and businesses where alternatives are scarce or non-existent.

It is great to see investment of this kind in the more remote parts of New Zealand in particular, from Mangonui in the North, to Bluff in the South.

It is also important for customers that the retail outlets are in the right places. The recent changes in central Wellington are a good case in point. You closed an under-used PostShop in NZ Post House in Waterloo Quay so you could better serve customers with the big, bright new Kiwibank and PostShop in Lambton Quay.

I’ve seen for myself that it’s obviously proving popular with customers.

The Australian-owned trading banks have only recently woken up to the competitive threat posed by Kiwibank, by reviewing their fee structures and levels of service amongst other things.

This level of competition is good for the banking sector, for New Zealand's balance of payments and the economy as a whole.

I am pleased that NZ Post takes its social obligations seriously. While these activities may not be profitable in their own right, they are important for the NZ Post brand and make an important contribution to the community at large, whether it be providing support for the Pasifika Festival, providing free postage to community groups or sponsoring the NZ Post Book Awards for Children and Young Adults.

Despite all the progress that NZ Post has made in recent years, the bigger question remains as to what it hopes to achieve in the future, particularly given ongoing challenges posed by cost pressures, competition and falling letter volumes.

This is of course a question primarily for your Board, and you have no doubt touched on some of these issues today.

I will say in passing however, that I endorse the Business Plan, the key programmes identified and the increased profit forecasts in particular.

By focussing on being more productive and customer focussed with your existing core business, while actively looking at new business opportunities related to your core business, NZ Post is well placed to build on its recent gains and continue making a positive contribution to New Zealand's economic transformation.

In closing, I would like to congratulate you all for your efforts to make NZ Post the successful business that it is today.

I look forward to hearing more good news stories from NZ Post, and tracking your progress against the latest Business Plan.

With your energy and expertise, you can help to make a real difference to the economic and social wellbeing of New Zealand.


ENDS

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