NZ Post Delivers $71.8m Profit In Challenging Year

23 September 2009

New Zealand Post Delivers $71.8m Profit In Challenging Year

New Zealand Post has delivered a net profit of $71.8 million in a year of mixed results across its diversified group of companies.

Announcing the financial results for the year ended 30 June 2009, the Chairman, Rt Hon Jim Bolger ONZ, said that while parts of the Group, particularly Kiwibank, continued to thrive, others including Postal Services, Datamail and the courier joint ventures had been affected to varying degrees by the economic downturn.

The current year’s profit compares with the $110.2 million net profit delivered in the 2007/08 financial year, however the two results are not directly comparable because of the unprecedented economic situation during 2008/09 and one-off gains in 2007/08, he said.

Normalised earnings, after adjusting for various one-off items, amounted to $77.2 million 2008/09, a 16 per cent decline on a normalised 2007/08 result of $91.9 million.

The adjustments include restructuring costs, mainly within Postal Services, of $11.0 million compared to $3.8 million last year, a $5.2 million adjustment for proceeds from the partial sale of the Australian courier business associated with the creation of the new Australian courier joint venture with DHL, compared to $24.8 million last year, and various accounting adjustments of $4.2 million compared to $5.5 million last year.

Mr Bolger said the current result also reflected lower revenues due to declining economic activity, as well as substantial costs incurred in the challenging economic environment. These included higher bad debt provisioning for Kiwibank of $12.2 million, compared with $2.9 million in the previous financial year.

“While the New Zealand Post Group has not been able to achieve its financial performance targets, taking into account the most difficult trading conditions we have seen in six decades, the Group overall has performed reasonably well,” he said.

Mr Bolger said dividends of $6.9 million are payable for the 2008/09 financial year, compared with $23.5 million in the previous year, and that continuing economic uncertainty in the coming year would have an impact on the Group’s performance.

“I’m confident that the business diversification strategy we have successfully implemented since 1987 positions us strongly to ride out the challenges ahead and will continue to help the New Zealand Post Group deliver positive results. However, in the short term, a lower level of profitability is likely compared to previous years.”

He said the highly successful offer during the year of $150 million of unsecured, subordinated interest-bearing Notes, which were oversubscribed to $200 million, demonstrated the strength of the New Zealand Post Group brand and the support it had from New Zealanders.

Acting Group Chief Executive Sam Knowles said Kiwibank had continued its high levels of growth. It was well positioned for future growth and had increased staffing levels to service its expanding customer base.

Kiwibank now forms part of Kiwi Group Holdings, a new holding company established during the year in an internal change to the ownership structure of New Zealand Post Limited’s interests in Kiwibank, Kiwi Insurance Limited and New Zealand Home Loans. Kiwi Group Holdings delivered a net profit of $51.0 million in the 2008/09 financial year.

By contrast, the Postal Services business operated in increasingly difficult conditions. Continued erosion of traditional postal volumes in New Zealand and internationally by electronic substitution and competition was worsened by the significant impact of the global recession on mail flows as business activity and associated mailings slowed. Over the 2008/09 year, the Postal Services Group experienced a 6.7% decline in total addressed mail volumes – or over 65 million items.

Mr Knowles said the earnings contribution from the Postal Services business, which includes New Zealand Post’s retail network of PostShops and PostCentres throughout New Zealand, declined from $67.3 million in 2007/08 to $25.4 million.

“This has required us to broaden measures to strengthen the sustainability of this part of the Group’s business,” he said.

“During the year, we have taken further steps to align our people and other resources with the declining level of mail passing through our processing and delivery networks. We have also halted weekend clearances of street posting boxes due to fewer people using them at these times, rationalised our transport network, closely managed discretionary spending and have increased the price of international postage for the first time in seven years.

“We remain focused, too, on ensuring we operate an efficient retail network, with our PostShop Kiwibanks located in places, and offering the services, that effectively meet the requirements of the majority of our customers now and in the future.”

Mr Knowles noted that most of the 26 changes made to PostShop Kiwibanks during the year involved new or upgraded stores offering improved levels of service. The network of 953 PostShops and PostCentres, as at 30 June 2009, significantly exceeded the 880 retail outlets to which the Company was committed under its Deed of Understanding.

“Over time, we will continue to make changes to our PostShop network to meet customer needs.”

The business downturn had also impacted parcel and freight volumes carried by the two 50:50 joint venture courier and express companies – Express Couriers Limited in New Zealand and ParcelDirect Group (formerly Express Couriers Australia) in Australia.

The wholly-owned Datamail Group had also seen a softening in demand for bulk print projects, but was achieving significant progress with its more diversified portfolio, including online products, paperless accounts services and customer relationship tools.

Looking ahead, Mr Knowles said that as well as continued growth prospects for Kiwibank, the Postal Services, Datamail and courier businesses would continue to meet market and economic challenges through the development of innovative products and services.

“In the current climate, a profitable company with strong brands, strong distribution networks and a strong balance sheet is well placed to weather the recession and grow in the next economic surge. We are such a company,” he said.

In addition to its financial performance, the New Zealand Post Group would maintain a strong focus on its award-winning corporate responsibility programmes in support of its business vision to be ambitious for New Zealand and to help the country grow in a sustainable way.

New Zealand Post Group: Key Results

Year ended 30 June

$ Millions
2009 2008 % Change
Operating revenue 1,253.8 1,290.0 -2.8
Operating expenses 1,163.4 1,175.6 -1.0
Operating profit 90.4 114.4 -20.9
Net profit 71.8 1 110.2 -34.8
Normalised Net Profit 2 77.2 91.9 -16.0

Assets 11,304.0 8,036.7 +40.6
Economic value added (EVA) 8.6 33.9 -74.6
Dividends 6.9 23.5 -70.6
Total equity 669.2 666.6 +0.4

1 Includes $24.8 million gain on partial sale of Australian courier businesses associated with the establishment of the Australian 50:50 joint venture with DHL
2 Adjusted for 1 (above), restructuring costs and other one-off accounting adjustments.
s include software
** Earnings before interest, tax, depreciation and amortisation

Non-financial
%

Standard letter on-time service performance 94.3 96.5
Customer engagement (customers rating New Zealand Post as “excellent” or “very good”
59.0
62.0
People engagement (employee survey) (Percentile) 41.0 *N/a
Lost time injury frequency rate reduction 43.4 25.0
Corporate Responsibility Index 68.0 58.0

* Measure changed during the year

Dead of Understanding

The Deed of Understanding is an agreement between New Zealand Post Limited and the Government which defines New Zealand Post Limited’s social obligations

Obligation
Actual
Maintain a network of 880 retail outlets,
including 240 PostShops PostShops
PostCentres 326
627
Total 953

Provide 6-day per week delivery to
more than 95% of addresses 96.92%

Provide a 5 or 6-day per week delivery to
At least 99.88% of addresses 99.90%

No Rural Delivery fee No fee

ends

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