New Zealand Post's traditional business was eroding and the state-owned enterprise faced the challenge of how to respond, Craigs Investment Partners broker Chris Timms said yesterday.
"Their traditional business is decreasing, no doubt about it. It is being attacked by various parties. The challenge NZ Post faces is what to do about it and how to respond to those challenges," he said.
The postal group announced yesterday it expected its profit after tax for the year ended June to be "about break even" due to difficult trading conditions and a series of significant one-off items.
The estimated one-off expenses reflected in the revised profit were:
-• $20 million arising from a taxation change introduced in the Budget.
-• $19 million of write-downs and provisioning in its international mail business.
-• $4 million write-down of various assets, including property and aircraft, whose value had been affected by economic conditions.
-• A reduction of $28 million associated with ParcelDirect Group, New Zealand Post's 50-50 courier joint venture with DHL in Australia.
NZ Post expected its after-tax profit to be about $72 million for the June year, but the one-off costs added up to $71 million, Mr Timms said.
If the company was listed on the sharemarket, its share price would be battered by such a market announcement.
"There would be disappointment about where the company is, compared to what it had earlier forecast."
NZ Post chief executive Brian Roche said the group expected to confirm its annual result on August 20.
Given the non-recurring, largely non-cash nature of the one-off costs, the revised profit projection did not have a material effect on the group's commercial value or its ability to service debt. The group's cash position remained strong.
In keeping with ministerial expectations for transparency by state-owned enterprises, the board had decided to provide an early public indication of its revised profit outlook, he said.
NZ Post had earlier signalled that its operating profit for the 2010 year had been affected by reduced contributions from across the group, due primarily to declining mail volumes and generally tight margins in a competitive environment, especially in the banking sector.
"The impact on NZ Post's letters business of economic conditions and digital substitution is well understood. We will continue to work with our shareholders on a range of options to ensure a sustainable future for our mail processing and delivery networks," Mr Roche said.
Mr Timms said it appeared that NZ Post was taking the opportunity to tidy up its balance sheet in one go and the group had indicated that its 2011 profit was expected to return to levels projected in its 2010 statement of corporate intent. That envisaged an after-tax profit of $60.8 million next year, rising to $84.3 million in 2012 and $117.5 million in 2013.
However, the group was facing competition in its traditional areas of expertise. Recently, Freightways had announced it was increasing its presence in the consumer-to-consumer market, he said.
The recent announcement of its exclusive "pass the parcel" service for an online auction site and the "Stuck" service to cater for deliveries that were time sensitive, unusual, hard to solve or required a tailor-made solution, were examples of that strategy in action.
Both the online auction service and the international postal initiative were aimed at NZ Post's markets, Mr Timms said.
