Digitisation puts pressure on Australia Post to reform

Australia Post has said that it will continue to focus on providing e-commerce-driven logistics and delivery solutions to cope with the decrease in traditional letter deliveries.

Australia Post today announced that its profit after tax for the 2013-14 financial year was AU$116.2 million, down 34.5 percent from last year's result.

A large part of the decline was due to its mail business seeing significant drop in letter volumes — of which 97 percent was the result of large corporations and government departments moving mail services online — and continued high fixed costs, resulting in operating earnings before interest and tax (EBIT) for its reserved services mail business jumping to a loss of AU$328.4 million.

Meanwhile, the company continued to deliver strong growth through its parcel services, which reported a record profit in operating EBIT of AU$337.5 million for the full year, up 20.8 percent on the previous year. The result was underpinned by domestically delivered parcels volume growing by 12.8 percent, coupled with the benefit of a full year of StarTrack Express trading.

This is the fourth consecutive year of growth for the parcel business, which has doubled profit since 2010.

Australia Post said despite the company seeing a brief three month benefit from its AU$0.10 increase to the basic postage rate, the profits from its parcels businesses were overwhelmed by losses in its reserved mail business, resulting in an overall loss of AU$105.9 million for the six-month period ending June 2014, and a trading loss of AU$42.9 million before restructuring costs in the second half.

Australia Post chief executive Ahmed Fahour said if urgent changes are not made to the company's operations, the losses made from its mail delivery service will consume the profits it makes from its parcel delivery business.

Fahour said that without changes to the mail delivery business, it could incur cumulative losses of AU$12.2 billion over the next 10 years.

"The issue we're facing now is imminent and large; the losses are huge," he said.

"The second-half loss really brings this point home very starkly. That second-half loss was the first since becoming a GBE [government-owned business]. Pre-31 June results, the volume decline we've had in 2010, 2011, 2012 was 2, 3, 4 percent declines, then in 2013, 2014 it became 4, 5, 6 percent. But our decline now is over 8 percent; this is how furious the problem is.

"What I'm arguing is we need to reform, and I'm truly opening up this financial year so I am able to begin the process of reforming product choices so we can deal with this problem in a gradual, careful, and methodical way over a number of years."

The pressure has been so great for the government-owned business that during the financial year, it was confirmed that up to 900 jobs will go over the next 12 months as part of the company's plans to restructure. The roles expected to be affected include managerial, administrative, and support from its Melbourne head office and a number of smaller offices in other states.

The union representing postal workers said the losses from Australia Post's letter delivery business should not be used as a reason to sack more Australia Post employees.

Communications Electrical Plumbing Union NSW Postal and Telecommunications branch secretary Jim Metcher said Australia Post's small after-tax profit showed that reforms could be made without resorting to job cuts.

"Today's profit announcement shows present decline in letter volumes and associated costs can be offset by the performance and returns with parcel volumes and retail revenues," Metcher said on Thursday.

The company said that as part of its reform strategy, it has managed to expand parcel facilities and doubled its process capacity, and has announced plans to introduce Saturday delivery options for its Express Post services, including parcel delivery, from this Christmas.

Australia Post has also recently linked its digital mailbox service with myGov online service to receive communications from Centrelink, Medicare, and the Child Support Agency. The digital mailbox was launched as an initiative by the company to store bills and other documents on a cloud storage service.

Westpac and Virgin Australia recently signed up to use the MyPost Digital Mailbox.

Fahour said the reforms will be focused around three categories of offering more product choices, price flexibility to match those product choices, and managing the organisation so that it can reduce resources in its declining areas and increase resources in growing areas of the business.

The slide in annual profit saw the company cut its dividend to the federal government by more than half, to AU$78.8 million.