Australia Post: Despite the green shoots, there are still fundamental structural challenges

Australia Post: Despite the green shoots, there are still fundamental structural challenges
Australia Post has reported an interim profit of $33.6 million, an increase of $10 million on the prior corresponding period.

The overall performance improved, in part, due to a record peak period with almost 100 million parcels delivered across Australia. However, ongoing losses in the Letters business of $182.1 million in the first half, as well as declining customer visits to Post Offices as online services replace over-the-counter transactions, continue to impact the long-term viability of the business.

Performance for the half year to 31 December 2023:

  • Group revenue $4.71 billion, up 0.6% on same period last year (1H23)
  • Group profit before tax $33.6 million, up $10 million from $23.6 million in 1H23
  • Letters revenue $857.9 million, down 2.7% on 1H23, with Letters volumes down 11.9% during the same period
  • Letters losses of $182.1 million, down 4.0% from 1H23
  • Parcels and Services revenue $3.86 billion, up 1.3% on first half last year
  • Business efficiencies of $140.8 million achieved

While Australia Post’s Post26 strategy to simplify the business is starting to deliver financial benefits, significant structural headwinds remain. Australia Post’s Letters revenue declined by 2.7% to $857.9 million compared to 1H23. This result would have been more than $90 million weaker without the $0.10 increase to the Basic Postal Rate (BPR). At the same time, the Parcels and Services business recorded a revenue increase of 1.3% to $3.86 billion, highlighting the two-speed nature of the business.

Through disciplined cost management, $140.8 million in efficiencies was achieved in 1H24, which included further simplification of the support office, product portfolio and broader network productivity improvements.

Consultation has now been completed on the first phase of the modernisation reforms announced by the Federal Government in December 2023. While the regulations are yet to be issued, Australia Post expects to see further financial performance improvement once they are implemented. However, further reform is required for Australia Post to become a financially sustainable business.

Parcels and Services
Australia Post’s domestic parcel volumes were largely flat, increasing 0.9% in 1H24, as Australians continued to embrace eCommerce. In 1H24, Australia Post launched a new next-day delivery service, Australia Post Metro, to retailers in Sydney, Melbourne and Brisbane. This is a direct response to changing customer needs and provides greater speed, reliability and convenience. Australia Post Metro is due to be expanded into other cities during the remainder of FY24.

Letters
Letter volumes have decreased 11.9% over the past 12 months and Letters losses were

$182.1 million for the half. The continuing structural decline of the Letters business is unstoppable, with Australians now receiving on average just two letters per week.

Australia Post commenced a New Delivery Model trial, which sees Postal Delivery Officers delivering priority mail, express letters and parcels to addresses every day and standard letters and unaddressed mail every second day. This allows Posties to deliver more parcels during their rounds, and supports the growing eCommerce sector, while continuing to ensure Australians receive an appropriate letter service aligned with declining volumes.

In August 2023, Australia Post lodged a draft notification with the Australian Competition and Consumer Commission (ACCC), proposing an increase in the Basic Postage Rate (BPR) from $1.20 to $1.50 to help address the rising cost of delivering letters and reducing letter losses. Last month, after carefully assessing the draft notification, the ACCC published a preliminary view proposing not to object to the increase. Australia Post has now lodged its formal price notification, and this change is subject to finalising regulatory processes. The new price will take effect from 3 April 2024.

Retail and Post Office Network
The move away from over-the-counter transactions in favour of digital services continues to undermine the performance of the Corporate Post Office network. In 1H24, over-the-counter transactions fell by 4.1% and foot traffic across the Corporate Post Office network continued to decline. However, Australia Post is trialling new retail formats, like the Community Hub @ Post concept launched in Orange last year, which offers a range of expanded services and a focus on eCommerce.

Late last year, Australia Post commenced a voluntary licence handback program for eligible Licensed Post Offices (LPOs) in metropolitan areas, where there is a significant oversupply of postal outlets.

Outlook
Group Chief Executive Officer and Managing Director, Paul Graham said while the improved performance in 1H24 was welcome, he cautioned Australia Post is anticipated to record ongoing full year losses.

“I am pleased to see green shoots from the Post26 strategy starting to emerge. We have been very disciplined in managing our costs in a high-inflationary environment, we’re focusing on simplifying our operations and making the changes needed to build a sustainable business.

“I’m proud that we delivered a record peak period, and I would like to thank the millions of Australians who placed their trust in Australia Post at Christmas to deliver their gifts around Australia and the world.

“On behalf of the Leadership team and the Board of Australia Post, I would like to thank our 63,000 team members for their dedication and hard work over the record peak period, where almost 100 million parcels were delivered.

“We are in the early stages of the modernisation of Australia Post and now more than 18 months into our Post26 business simplification strategy. Post26 is delivering significant benefits to the business and, subject to approval, I am confident the modernisation reforms announced in December will also strongly enhance the business. We look forward to the continuing support of the Government, union partners and community stakeholders.

“Despite the green shoots, there are still fundamental structural challenges confronting Australia Post as letters use continues to decline and fewer customers utilise our retail network. The New Delivery Model we are trialling will help address the decline in our Letters business, but our outsized retail network will need to be addressed.

“Importantly, Australia Post remains as relevant as ever to the lives of millions of Australians and with our modernisation and simplification journey under way, we are in a stronger position to continue supporting the nation than we were 12 months ago,” Mr Graham said.

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