NZ Post banking on further growth

Letter volumes have continued to increase this year, underpinning NZ Post profits, but new chief executive John Allen accepts the tide is turning. Replacing letters as the mainstream source of revenue for the state-owned postal service will be fully owned subsidiary Kiwibank. "If you go out a decade, then I would expect the banking business to be about the same size as the traditional core businesses of NZ Post," said Allen, a former head of the letters division. "We have seen continued growth in letter volume, but how long that will be the case is the significant question that confronts all postal businesses," said the 42-year-old, who took over at NZ Post last month. "We predict that letter volumes will decline over time, particularly financial services letters [bank statements, bills and payments], which is a significant proportion of the total." Last year NZ Post's core businesses had sales revenues of around $1 billion. Letter volumes in the three months to March 31 rose 1 per cent on the previous March quarter. "The billion-dollar question for postal businesses is what's going to happen to letter volumes and what are you going to do in the event that those volumes erode dramatically. "Kiwibank is important because its financial success will help underpin the financial success of the NZ Post group." The bank is still growing fast, although the pace it is taking on new customers has slowed from 500 a day to 300 to 350. Its faster-than-planned growth has strained NZ Post's profit targets because taking on new customers has substantial costs. Those targets will still be met, however. Allen, who joined NZ Post eight years ago, said mail volumes had reversed a downtrend this year because businesses recognised mail's superiority over email as a vehicle for marketing and sales. He rated NZ Post's performance in the nine months to March as a "credible achievement" in view of the stronger-than-expected growth of the bank and negative environmental factors such as Sars and the Iraq war. NZ Post has reported a profit of $19.6 million for the six months to December 31, 23 per cent up on the same period the previous year. As a lawyer acting for NZ Post, Allen negotiated with the Government the deregulation of the postal service, and as he had got to know the business so well his predecessor, Elmar Toime, asked him in 1994 to come on board as head of the letters division. He beat 90 other candidates to win the CEO job. Given that he has been a key member of the executive for eight years, Allen has no plans for big changes. He cites NZ Post's competitive advantages as threefold _ the extent and reach of its network (every household and 95 per cent of the population hit six days a week), a 150-year-old trusted brand, and a very tight focus on efficiency which allows New Zealand to have one of the cheapest letter rates in the world. His aim is to get even closer to customers to build on those strengths. Allen agrees that Kiwibank has been a diversion for management and staff but says it will also give fresh opportunities for the 10,000 employees. "We think it is appropriate for management to devote that attention to the bank because of the opportunity we think it represents for the future of the business." NZ Post had already diversified into express businesses and electronic transactions and the company had a culture of starting new businesses before it got into Kiwibank. NZ Post's problem child, Transend, was now slimmed down and cleaned up. The unit, established to develop international work, got into trouble because of poor management, profligate spending by executives and problems with a major contract managing the South African postal service. As well as running the letters division, Allen had to clean up Transend after its controversial manager, Drew Stein, left last year. While Transend still manages the postal services of Malta and Trinidad and Tobago, it is now pitching for operational improvement work rather than changes to management. It has just 16 staff, against ten times that number at its peak. "Clearly, the investigations into Transend and all of that element has been traumatic for NZ Post and for people who were involved in it," Allen said. "We recognised as a consequence of that that we hadn't done things as well as we would want to do." One area where it is looking for new business is from Britain's loss- making Royal Mail, where Toime is deputy executive chairman. Toime was New Zealand's highest paid civil servant, with a package of $775,000. Allen won't reveal his own salary, although he says it is less than Toime received. Asked if that still leaves him the Government's highest paid employee, he said: "I have absolutely no idea."