New Zealand Post has managed to lift revenue for the first time since 2015 as growth in sales from parcels delivery more than offset continuing falls in mail volumes.
Net profit for the six months ended Dec. 31 rose 16.6 percent to $7 million from $6 million in the previous first half while revenue rose 4.2 percent to $471 million from $452 million.
Revenue for the year ended June last year was down 2 percent after a 5 percent decline the previous year.
NZ Post says comparisons are difficult because of changes in the group structure but the last time the mail and logistics businesses managed to lift sales was in the year ended June 2015 when growth was 0.7 percent.
The bottom line result for the last six months was boosted by a $28 million contribution from 53 percent-owned Kiwibank, up from $19 million in the previous first half, but an already reported $15 million warranty settlement more than offset that improvement.
The settlement was with Kiwibank’s other two shareholders, the New Zealand Superannuation Fund with 25 percent and ACC with 22 percent, relating to NZ Post’s sell-down of Kiwibank in 2016.
Chief executive David Walsh says NZ Post’s strategy is to manage down its costs on the mail side of the business as letter volumes continue to decline while also investing in growing its “sweet spot,” the growing parcels delivery business, “which moved the dial a long way.”
Mail volume in the latest six months was 200 million letters, 30 million fewer than were delivered in the previous first half.
Costs rose by $2 million to $454 million in the six months compared with the year-earlier period.
“We’re always on this fine line, the right side of zero or not,” Walsh says, adding that the postal service is always looking at how to improve the efficiency and the economics of the mail business as volumes continue to decline – letter volumes peaked at about 1.1 billion about 15 years ago.
But parcel volumes rose to 40.7 million from 39 million in the year-earlier six months – that included a record 14.5 million parcels delivered over the November and December months.
Walsh reckons NZ Post can achieve more growth in the parcels business as online purchasing continues to grow – Bank of New Zealand data shows online retail spending rose 9 percent in the three months ended December compared with the same months the previous year.
December quarter data for retail sales through stores is due next Monday but the September quarter figures showed core quarterly growth, excluding fuel, vehicles and parts, of just 3.4 percent compared with the same quarter a year earlier.
Nevertheless, Walsh still emphasises the importance of the mail business.
“What I don’t want is for people to believe we’ve given up on letters, because we haven’t. While the decline has been significant, it’s still 400 million letters that are being moved that people care about,” he says.
Most of the mail business is coming from “the big end of town” with letters between individuals accounting for only about 10 percent of the volume, but most of it comes down to consumers making decisions about how they want to be connected to institutions such as banks, insurance companies and other companies.
Mail used in direct marketing and magazine volumes are more stable.
Walsh says looking out over the next two or three years, letter volumes will probably continue to decline but NZ Post still has a number of options as to how to respond to that – measures to date include increasing postal rates and halving deliveries to three days a week.
Maintaining high service levels is as important as keeping mail delivery economically sustainable – he says NZ Post is achieving more than 90 percent of deliveries within its time standard.
NZ Post monitors its delivery promise using independent assessors on a monthly basis.
But while a huge amount of cost has come out of the mail business, the growth of the parcels business does require continued investment – for example, the postal service hired 600 temporary staff to deal with the Christmas rush, put on 160 extra flights and several hundred more vans to meet parcel volume demand.
Parcel delivery targets are met between 95-98 percent of the time and Walsh says that’s 3-5 percent better than the next best competitor.
Kiwibank reported its results on Wednesday, including that its tier 1 equity ratio was 13 percent at Dec. 31, down from 13.4 percent at June 30 last year, reflecting strong growth in lending.
The Reserve Bank is consulting until May 3, with a final decision expected in the September quarter, on its proposal to lift the minimum equity requirement for second-tier banks including Kiwibank from 6 percent plus a 2.5 percent buffer to 15 percent.
Walsh wouldn’t be drawn on how NZ Post is likely to deal with that, saying it won’t be making any decisions until the Reserve Bank finalises the new capital requirements.