New Zealand Post and rival Freightways have improved their half-year profits thanks to new business activities but saw low growth in their core businesses.
NZ Post reported a modest increase in its half-year profits, attributable to financial business Kiwibank’s performance and proceeds from the sale of Australia-based subsidiary Converga. But its core postal services business (mail and parcels) result fell short of expectations.
Net profit after taxation (NPAT) totalled NZ $110 million for the six months to 31 December 2015 – up $10 million on the prior comparative period. Revenue totalled NZ$766 million – down from NZ$836 million in the December 2014 half year, which included the sale of Couriers Please.
CEO Brian Roche said Kiwi Group Holdings, including Kiwibank, Kiwi Insurance and Kiwi Wealth, was “progressing well and despite a volatile market put in a good performance to lock in its excellent growth in the previous equivalent period.”
However, he underlined that the postal services business (mail and parcels) had turned in a below-par result, giving rise to concerns as to its ongoing financial performance. “The postal services business continues to be challenged by tough market conditions. During the last 12 months, letter volume fell by about 60 million units and while we have significantly reduced costs we have not kept pace with the rate of decline.
“We will continue to make necessary changes so that the nationwide letters network runs sustainably, including pursuing further cost savings,” he explained. “On the other side of the equation, we need to do more to grow revenues to offset the NZ$20-30 million we are losing every year from lower letter volumes.
“We have made some progress in parcels in the last year but there’s a lot more we can do. A highlight was a 7% increase in parcel volumes during the pre-Christmas period (November and December) compared with the previous year.” Another highlight was the introduction into service of three jointly leased 737-400 aircraft.
Looking ahead, Roche said that as well as further cost reduction, the focus on strategic investment, automation and improving customer services will continue. “We also need to get better and faster at supporting our front line teams to secure more parcels business.”
Meanwhile, New Zealand express delivery group Freightways Limited has delivered what it describes as “a sound result” for the half year ended 31 December 2015, with the information management division helping to lift consolidated operating revenue by 5% to a record high of NZ$255 million.
Earnings (operating profit) before interest, tax, depreciation and amortisation (EBITDA) increased by 5% to NZ$51 million while net profit after tax (NPAT) increased by 5% to NZ$28 million.
In a statement, Managing Director Dean Bracewell, said that Freightways is "clearly benefitting from its diversification into the information management industry on both sides of the Tasman, with this division recording revenue growth of 20% and operating earnings more than 20% above the previous year. The division now generates approximately 30% of the group’s revenue and operating earnings."
The operating revenue for the core express package & business mail division for the half year ended 31 December 2015 increased by 1% to NZ$187 million but EBITDA of NZ$35 million and EBITA of NZ$32 million were both 1% lower than the previous year. This division operates a multi-brand strategy through its domestic brands of New Zealand Couriers, Post Haste, Castle Parcels, NOW Couriers, SUB60, Security Express, Kiwi Express, Stuck, Pass The Parcel, DX Mail and Dataprint.
An aircraft upgrade was recently announced that will see a transition from the existing Convair fleet to Boeing 737-400s. Bracewell said the project is "running to schedule with the first Boeing having arrived in time to assist with peak Christmas volumes." Two further Boeing 737-400 aircraft are expected to arrive and be fully operational by May 2016.
Negotiations have been completed with Christchurch International Airport to lease a new purpose-built facility to enable the consolidation of operations from three separate facilities into one, with airside access to the Boeing 737-400 fleet. This new facility will be fully automated, enabling a reduction in the manual handling and sorting of freight. The cost of approximately NZ$11 million for this project will be invested progressively throughout the next 14 months, with the completed facility expected to be fully operational early in the second half of the 2017 financial year.
In addition, during the last six months, branch relocations to larger premises occurred in Dunedin and Tauranga creating more capacity to accommodate current and expected future growth.
Business mail operator, DX Mail, continued to expand its postie network and now offers five 5 days a week delivery in an increasing number of locations across New Zealand. Freightways underlined that while the overall letter market continues to decline, the demand for DX Mail’s service is increasing. Dataprint, which provides physical and digital transactional mail house services, also increased market share in all its service lines, both physical and digital.
Looking forward, Bracewell said Freightways is well-positioned in markets that are expected to deliver long-term growth. But in the near-term and at least for the balance of the 2016 financial year, given the current volatility in markets around the world, it remains cautious in its outlook.
"However, we see the benefits of our diversification into the information management industry, where continued forecast growth is expected, increasingly underpinning the company’s performance, as the more cyclical express package & business mail sector enters a period where achieving year-on-year growth may be more challenging."
