Canada Post records $10m loss in second quarter

Canada Post Group has recorded a pre-tax loss of $10m for the second quarter of the year, with its core mail business making a $34m loss. The Crown Corporation said today that its financial performance is being hit by electronic substitution of mail, competitive pressures and the uncertain economic climate at the moment.

The company said given the pace of electronic substitution of traditional letters, its volumes are not expected to rebound.

In the second quarter, growth was seen in parcel volumes, but Canada Post said this was not enough to offset the “poor” performance in the rest of its mail business.

The latest results were 44% better than the $18m loss made by Canada Post in the second quarter of 2011, but the first half performance was worse, a $13m loss rather than a $4m profit.

Overall revenues were up 3.6% in the second quarter, to $1.8bn, and by 1.9% in first half of 2012 (to $3.8bn) compared to the same period in 2011. But Canada Post said this increase was because last year’s revenues were impacted to the tune of $167m by last year’s strike action and lockout.

Last week executives held a public meeting at which they suggested the Canada Post segment of the business would make a $100m loss this year.

Canada Post said it now has to transform its business to remain “relevant, affordable and competitive”.

Mail decline

The core Canada Post business increased its revenue by 4.8% to $1.42bn in the second quarter, compared to the same period last year. Its revenue was up 1.4% in the first half, to $2.97bn.

The comparison was improved by the pressure on last year’s figures from the strike and lockout in June 2011. If that industrial disruption had not been there, Canada Post said it would have seen a “significant decline” in revenue this year so far.

Transactional Mail volumes fell by 4.4% or 31m pieces in the three months to the end of June, with revenues down 4.8% or $12m. Volumes were down 120m pieces compared to the first half of 2010.

Direct marketing volumes remained at the same levels in the first half as last year, but compared to the same period in 2010 were down 5.5% or more than 140m pieces.

Canada Post said its corporate customers had been reducing their advertising spending and shifting to electronic media, leading to a “disappointing” results for direct mail business.

Parcels

Parcel revenue at Canada Post was up 8.7% to $621m in the first half of 2012, with the company stating it is “aggressively” pursuing growth from areas like ecommerce.

Parcel volumes were up 7m pieces, or 9.8%, compared to the first two quarters of 2011. However, margins look set to get tighter in the face of pressure from rivals in the market.

“In this highly competitive parcel industry it will be imperative for us to lower our costs to ensure we remain price competitive,” the company said.

Labour pressures

During the second quarter, Canada Post’s operational costs increased 5.5%, while in the first half its costs rose 3.5% compared to the same period last year.

With 71% of the company’s costs stemming from its workforce, Canada Post is hoping to cut its expenditure through a new collective bargaining process with the Canadian Union of Postal Workers.

However, 20 months of negotiations, including last year’s strike action and lockout, are still stuck in stalemate, with the two sides currently waiting for ministers to appoint an arbitrator to decide on a contract, the last two arbitrators being forced to quit.

Along with the decline in mail volumes and labour problems, Canada Post is also facing severe pressure on its finances from an insolvent pension plan – it has a solvency deficit of $4.7bn. Even if the rest of the business is transformed, the company said its pension problems would remain a “major financial challenge”.

Purolator

Canada Post’s Purolator subsidiary saw its net profit down 17% compared to the second quarter of 2011, to $15m, with net profit in the first half of 2012 down 57% to $6m.

Purolator’s revenue in the second quarter fell 1.3% (adjusted for the number of trading days) compared to Q2 2011, to $416m. For the first half, the company’s revenue grew 2.6% to $814m.