Australia Post on prowl with $200M in war chest

Fresh from a record profit result, Australia Post has signalled it has at least $200 million to spend on expanding its business beyond the traditional snail mail.

Australia Post managing director Graeme John said the group was subject to confidentiality agreements, and refused to be drawn on whether Mayne Group’s Loomis operations were in its sights.

But chairman Linda Nicholls said: “When girls shop we look at everything.”

Australia Post’s expansion plans come on the back of a record $297 million after-tax profit for the year, up from $274.5 million the previous year.

Mr John said Australia Post was eyeing logistics and distribution businesses for its future growth.

This is the sector that is regarded as having some of the highest growth potential under Australia Post’s strategy of using its own skills and capabilities – branded in management jargon as its “core competencies” – to create new businesses and push its way into new markets.

“We are looking very strongly at expansion in areas through acquisition, not only within Australia but offshore,” Mr John said.

In particular, the corporation is believed to be eyeing opportunities in New Zealand and South-East Asia.

It has already acquired a Sydney courier company for an undisclosed figure and has also established a joint venture with Pickfords Records Managers offering outsourced mailroom operations and electronic document management.

And it now has distribution contracts with Microsoft for assembly, packaging and distribution of Microsoft’s Xbox video game system.

Mayne is looking at either a demerger or a trade sale of Loomis and will make its decision on which option to pursue by October 31.

Potential buyers of the $400 million-plus business include Lindsay Fox’s Linfox group, Toll Holdings and DHL.

Mayne has said it has already knocked back some buyers who only want specific parts of the business which has the Armaguard cash and contract business and express operations and trades in Australia, Asia and Canada.

Australia Post’s chief finance officer Peter Meehan said the corporation had plenty of firepower in its balance sheet but preferred to keep its gearing at around present levels of around 31.7 per cent.

“It would depend on the acquisition. . . but our preference is not to change the gearing too much at all,” Mr Meehan said.

Despite its push into new markets, most of the corporation’s profit still comes from letters and parcels which contributed 75 per cent of its pre-tax $407.2 million profit.

It is expecting a solid result for 2003 with its first-quarter figures already ahead of budget and 1.5 per cent growth in the same period for letter volumes which have surpassed the previous peak year of 1999-2000.

Even though the corporation posted its best-ever profit, this was still reached on revenues that remained flat – $3.758 billion compared with $3.747 billion the previous year.

However, this could change next year with Australia Post applying to the Australian Competition and Consumer to raise the price of the basic postage stamp to 50 cents from 45 cents.

It hopes this will come into effect from January, 2003.