New Zealand Post needs regulatory reform, despite profit jump

New Zealand Post has bounced back into profitability thanks to a strong performance from its banking unit, and its recent buy-out of partner DHL from two parcel ventures. But the company said beneath the surface, its core postal business now needs “fundamental change” to respond to a continuing decline.

New Zealand Post Group issued its financial results for the 12 months to the end of June 2012 today, showing that it turned around a $35.6m loss the year before into a $169.7m net profit after tax.

Excluding the one-off gains from the year’s results, New Zealand Post said its net profit after tax would have been $79.8m, which still nearly doubled the underlying net profit from the previous year.

However, executives were cautious in outlining the achievement, warning that the core mail business was still being hit by declining letter volumes.

Brian Roche, the Group chief executive, said: “The net profit figure must be considered in the context of our core postal business, which continues to be in decline in both revenue and volumes.

“Kiwis posted 54m fewer letters in the past year, contributing to a decline in letters revenue of $17m.”

Roche said the postal business was benefiting from improvements to product and service offerings, as well as careful cost management, but he said “we have exhausted these short-term fixes”.

“The continuing volume and revenue decline in our traditional core business is further evidence we must proceed with fundamental change.”

Overal revenue at New Zealand Post Group grew by just over 3% to $1.3bn, while operating costs fell by more than 5.5%, to $1.22bn for the year.

New Zealand Post’s Kiwibank unit saw its net profit up more than 250% to $79.1m for the year, bouncing back from debt problems during the economic crisis and last year’s Christchurch earthquakes.

DHL pulled out of its joint venture express courier and parcel businesses with New Zealand Post back in June, which today the Post said added $96.2m to its profit, partly as the result of an accounting issue leftover from when the joint venture was set up in 2005.

Having the 100% owned courier and logistics company ECL will now allow New Zealand Post to take advantage of the growth parcels and logistics markets, Roche said.

Reform

New Zealand has been selling off some of its own non-core businesses, such as software firm ECN earlier this month, allowing it to focus on its priorities of strengthening its service delivery network and invest in postal and digital services.

But to fully realise the company’s potential, its chief executive said regulatory reforms were now necessary.

In particular, the company said the 1998 Deed of Understanding legislation needed reform, since in binding New Zealand Post to certain service obligations and the extent of its network, the regulations “pre-date the digital revolution”.

Roche said work was ongoing with the New Zealand government to secure changes to the legislation.

He said said: “If the necessary regulatory changes are made, New Zealand Post Group has the strategies to grow and prosper, benefiting businesses and communities.”