New Zealand Post has seen its net profits for the half year ended 31 December 2010 drop sharplydue to the economic slowdown and lower postal volumes. It also plans to sell off its stake in a
joint venture with DHL in Australia.The state-owned postal group recorded a net profit after tax of $15.8 million for July-December2010 compared with a net profit of $42.5 million in the corresponding period the previous year.Operating revenue increased by $30.5 million to $652 million compared with the same period lastyear, with Kiwibank and Datam being the main contributors to the improvement.
Group Chief Executive Brian Roche said that, as anticipated, the result was generally impactedby the continuing effects of the economic downturn. The postal business and store networkproduced lower revenues due to the continuing customer trend towards electronic mail and onlinetransaction use. However, overall the postal business has performed above expectations in thefirst half of the year.
While there is a continuing strong focus on cost management, expenditure was $49.8 millionhigher at $638.8 million, due mainly to a $26 million increase in bad debt provisioning (to $45.5million) by Kiwibank, a one-off $5.7 million loss on sale of an Air Post aircraft, and ongoing costpressures. The result was also affected by a $13 million reduction in fair value gains inKiwibank.
Roche said that slow economic activity, digital substitution and competitive trading conditionsremained immediate ongoing challenges, but he was optimistic about the longer-term future of theGroup.
“We have taken a variety of initiatives to address the underlying performance of the group,simplify the business and strengthen our customer focus, including our ongoing work in developingdigital products. Our efforts are being directed through a revised structure comprisingthree new divisions – Customer Solutions and Services, Innovation and Technology, and Operations –in addition to the existing Kiwibank and joint venture courier businesses.”
Domestic mail volumes for the period were down by 3.6%, or 15.7 million items – a lower rate ofdecline than in recent years, with local body election mailouts offsetting an underlying annualvolume decline of about 4.5 percent. This, combined with price changes from 1 October 2010and close attention to cost management, had enabled the postal business to exceed expectations forthe period.
Flat economic activity resulted in static courier and freight volumes for Express CouriersLimited (ECL), New Zealand Post’s 50:50 joint venture with DHL in New Zealand. However, withstrong cost control and network logistics improvements ECL had again made a solid contribution toearnings.
Trading conditions were also challenging for Parcel Direct Group (PDG), the 50:50 joint venturewith DHL in Australia. Following the reported write down of PDG in the 2009/10 financialyear, its future status had been reviewed and a decision made to start a divestment process for allor part of that business.
Roche said he was very conscious of the challenges to maintain the performance of the businessas it is today while progressing a deliberate strategy to position the Group for futuresuccess. “The framework for the long term future of the New Zealand Post Group has been put inplace and I expect the benefits of our strategy, which includes our commitment to growing Kiwibankinto new levels of banking service, to accrue progressively over time,” he said. “I am confidentthat this will lead to future value creation and improved returns for our shareholders and thecountry.
In the shorter term, the conditions affecting the first half results have continued into thesecond half of the financial year and the group no longer expects to achieve its full-year netprofit target of $60.8 million.
Roche also recorded the Group’s support for the people affected by the devastating Christchurchearthquake on 22 February 2011. “It is with deep regret that I also report that among thetragic losses caused by this event has been the death of one of our own employees. Severalothers remain unaccounted for.” He said the earthquake will have an impact on the Group’s business,but this had yet to be quantified.
In its latest update on the impact of the earthquake on operations, New Zealand Post saidlimited postal services will resume on Tuesday 1 March, primarily in the northern and western areasof Christchurch. It is continuing to hold mail destined for other parts of the second-largest cityin New Zealand.
