The devastating earthquake that hit Christchurch earlier this year and the country’s weakeconomy will wipe out a large part of New Zealand Post’s profits this year.
The New Zealand Post Group said today it now expects that it will not meet its net profit aftertax (NPAT) target for the year ended 30 June 2011 due to a number of significant one-off itemsincluding the Christchurch earthquake, and continued weak economic trading conditions.
CEO Brian Roche, who already said that the full-year NPAT target of NZ$60.8 million (€34.83million) would be “challenging” when announcing half-year results, confirmed that the target willnot be met. The February 22 quake alone is expected to reduce profits by about $35-40 million(€20.05 million – €22.92 million). The group’s half-year net profit (July – December 2010) alreadydropped nearly two-thirds to $15.8 million (€9.05 million).
Roche said the underlying performance of the Group remained solid, with the major businessesperforming on target, as a result of tight cost management. However continued flat economicconditions, combined with impacts arising from the Canterbury earthquake and a series of one-offcosts would impact significantly on the end year result.
“We foreshadowed a difficult time ahead in the half year result announcement when we bookedincreased bad debt provisioning in Kiwibank and a loss on sale of an aircraft,” he explained. “Following that announcement, the 22 February Canterbury earthquake struck. This impacted on ourpeople, customers and on our retail and postal businesses. In addition, further Kiwibank bad debtprovisioning has been made to address the impact that the earthquake may have on our lendingportfolio in Christchurch. The combined negative impact of the quake on the Group is currentlyestimated to be in the order of $35 – $40 million for 2010/11.”
He stressed: “While the quake had a commercial impact on New Zealand Post, it also had a deeplypersonal one, with the tragic loss of life of one of our staff. I am proud of the way New ZealandPost responded to the disaster. Despite many of our people being affected, they had operations upand running quickly. Postal deliveries resumed within seven days and our PostShop Kiwibank networkopened where it could within days,” he said.
Roche said the consequences of the earthquake will continue to be felt into the next financialyear as the people and businesses of Christchurch rebuild. In particular, bad debt provisioningcould remain an issue well into 2011/12 as the insurance climate and other uncertainties becomeclearer.
Aside from the earthquake impacts, New Zealand Post said it has been implementing severalinitiatives which will strengthen the group for the future, but which have resulted in a series ofone-off costs for the 2010/11 financial year. These include a restructuring process which has beenundertaken to address strategic challenges. The establishment of two new divisions – CustomerSolutions and Services, and Operations are simplifying the business and improving customerfocus.
“The flatter economic conditions are likely to give rise to some impairment in asset values,including investments in other businesses. As indicated at the half year, we are pursuing thepartial divestment of Parcel Direct Group, our 50:50 joint venture with DHL in Australia. This workis expected to be completed by 30 June,” said Roche. The full impact of impairments will not beknown until year end and when the divestments are finalised.
New Zealand Post is proactively meeting the challenges of declining physical mail volumes whichare forecast to continue to fall at the rate of 5% per annum, and significant costs have alreadybeen taken out of the business in the last two years. An action plan to ensure a sustainable mailprocessing and delivery network for the future will be prepared for presentation to the Board in2011/12.
Roche said the Group is confident of meeting rapidly changing customer behaviour includingprovision of digital solutions and markedly improved quality and access to services throughinvesting in technology.
“The past two financial years have been difficult ones for New Zealand Post. However thecontinuing effects of the weak economic environment and the Canterbury earthquake have not deterredthe group from taking the necessary and prudent measures which will see us in a stronger positionin the near future,” he concluded.
