New Zealand Post Group records $15.8 million half year profit

25 February 2011

New Zealand Post Group has recorded a net profit after tax of $15.8 million for the half year ended 31 December 2010. This compares with a net profit of $42.5 million in the corresponding period last year.

Group Chief Executive Brian Roche said that, as anticipated, the Group’s result was generally impacted by the continuing effects of the economic downturn.

Operating revenue increased by $30.5 million to $652 million compared with the same period last year, with Kiwibank and Datam being the main contributors to the improvement.

The postal business and store network produced lower revenues due to the continuing customer trend towards electronic mail and online transaction use. However, overall the postal business has performed above expectations in the first half of the year.

While there is a continuing strong focus on cost management, expenditure was $49.8 million higher at $638.8 million, due mainly to a $26 million increase in bad debt provisioning (to $45.5 million) by Kiwibank, a one-off $5.7 million loss on sale of an Air Post aircraft, and ongoing cost pressures. The result was also affected by a $13 million reduction in fair value gains in Kiwibank.

Mr Roche said the loss on sale of the aircraft is expected to be recouped over time by avoiding the associated, uneconomic, maintenance and servicing costs.

The Directors have declared an interim dividend of $1.8 million for the period, compared with $5.7 million for the same period last year.

Mr Roche said that slow economic activity, digital substitution and competitive trading conditions remained immediate ongoing challenges, but he was optimistic about the longer-term future of the Group.

“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 developing digital products. Our efforts are being directed through a revised structure comprising three new divisions - Customer Solutions and Services, Innovation and Technology, and Operations – in addition to the existing Kiwibank and joint venture courier businesses.”

Mr Roche said that, excluding the higher debt provisioning, the core Kiwibank business continued to grow, although at a slower rate than in the corresponding period last year. The increased provisioning related largely to loans to a small number of business ventures that had proved unsuccessful. “Very few involve domestic homeowners and impaired assets represent just 0.49 per cent of Kiwibank’s total assets. The Kiwibank Board, however, is closely monitoring provisioning levels, as well as at-risk loans and credit policies.”

Domestic mail volumes for the period were down by 3.6 per cent, or 15.7 million items – a lower rate of decline than in recent years, with local body election mailouts offsetting an underlying annual volume decline of about 4.5 percent. This, combined with price changes from 1 October 2010 and close attention to cost management, had enabled the postal business to exceed expectations for the period.

Flat economic activity resulted in static courier and freight volumes for Express Couriers Limited (ECL), New Zealand Post’s 50:50 joint venture with DHL in New Zealand. However, with strong cost control and network logistics improvements ECL had again made a solid contribution to earnings.

Trading conditions were also challenging for Parcel Direct Group (PDG), the 50:50 joint venture with DHL in Australia.  Following the reported write down of PDG in the 2009/10 financial year, its future status had been reviewed and a decision made to start a divestment process for all or part of that business.

Mr Roche said he was very conscious of the challenges to maintain the performance of the business as it is today while progressing a deliberate strategy to position the Group for future success.

“The framework for the long term future of the New Zealand Post Group has been put in place and I expect the benefits of our strategy, which includes our commitment to growing Kiwibank into new levels of banking service, to accrue progressively over time,” said Mr Roche. “I am confident that this will lead to future value creation and improved returns for our shareholders and the country.

In the shorter term, the conditions affecting the first half results had continued into the second half of the financial year and he did not expect the Group to achieve its full-year net profit target of $60.8 million.

Mr Roche also recorded the Group’s support for the people affected by the devastating Christchurch earthquake on 22 February 2011. “It is with deep regret that I also report that among the tragic losses caused by this event has been the death of one of our own employees. Several others remain unaccounted for.”

He said the earthquake will have an impact on the Group’s business, but this had yet to be quantified.

New Zealand Post Group: Key Results

Summary of Financial Performance

$ millions 12 months ended
30 June 2010 (audited)
6 months ended
31 December 2010 (unaudited)
6 months ended
31 December 2009 (unaudited)
Revenue from Operations 1,204.20 652.0 621.50
Operating Expenditure 1,179.80 638.8 588.9
Operating profit 24.4 13.2 32.5
Profit before Income Tax 34.1 21.7 55.2
Net profit after tax 1.3 15.8 42.5
Share capital 192.2 192.2 192.2
Shareholders' equity 832.5 843.9 738.3