apr-11.pdf (2.07 MB) - Crown Ownership Monitoring Unit

OperationsIn common with global trends, NZ Post continues to experience a declinein traditional mail volumes as customers’ preferences shift to electroniccommunications. At the same time, the number of delivery points is increasingowing to demographic changes. In 2010/11, mail volumes decreased by 4.5%and this trend is expected to continue. In contrast, its subsidiary, KiwiBank,continues to experience growth. In 2010/11, KiwiBank’s loans and advancesincreased 10% to $11.5 billion and it now has more than 750,000 customers.In this context, NZ Post is facing a number of key strategic issues. Theseinclude the future shape of its retail store network, continuing to growKiwiBank and developing digital solutions. As a result of this, NZ Post hasdeveloped, and is now implementing, new strategies to respond to theseissues. It is focused on building a sustainable physical network, diversifyingKiwiBank’s products and services and developing its offerings in the digitalspace. The company has also had a major internal reorganisation to alignwith these new strategies.Financial performanceOver the past two years, the financial performance of NZ Post has markedlydeteriorated. NZ Post reported a net loss after tax of $35.6 million for the2010/11 financial year, which compares with a small net profit after tax of$1.3 million for 2009/10. This is a disappointing result, particularly as the prioryear was also a poor result.The major reasons for this year’s adverse result were an increase in bad debtprovisioning of $67.6 million in KiwiBank reflecting the Canterbury earthquakesand economic conditions, a $35.2 million write-down of its Parcel Direct Groupinvestment (a 50/50 joint venture with DHL in Australia), and restructuringcosts of $11 million. We look forward to significantly improved results in theyears ahead as NZ Post implements its new strategies.Performance against planNZ Post reported a net loss after tax of $35.6 million in respect of the 2010/11financial year, compared with a budgeted profit of $60.8 million. Accordingly,NZ Post did not achieve a number of its financial performance targets. Thekey reasons for the variances to budget are similar to those described underthe financial performance section above.Major investmentsNZ Post Group is reinvestingits profits in order to growKiwiBank. It is also investing inbuilding sustainable postal andretail networks, and developingopportunities in the digital space.Non-financial performanceNZ Post continues to offer servicesin excess of the minimum requiredunder its Deed of Understanding. Itparticipates in formal internationalbenchmarking networks, andperforms creditably against itspeers. NZ Post was unable toachieve its people engagementtarget of 76% (its actual result was73%), which it attributes to thesignificant level of organisationalchange taking place in thecompany.Corporate social responsibilityNZ Post’s operations are intimatelyconnected to the communities theyare embedded in, and it engagesin various sponsorship activities,many based around literacy andliterature.NZ Post responded well to theCanterbury earthquakes and hadservices back up and runningquickly. It also launched appealsin association with the Red Crossto support those impacted by theearthquakes.DividendsNZ Post’s level of dividends has been on a declining path, as investment inthe business has been the priority, particularly to support KiwiBank’s growth.In the short term, the level of dividends is expected to remain low while thecompany makes the necessary investments to implement its key strategies.We consider that, as NZ Post’s financial performance improves, it shouldreturn higher dividends to the shareholder.page | 89