Why NZ Post is struggling – Kiwibank!

Brian Gaynor writes at NZ Herald:

Why does New Zealand Post continue to flounder while Deutsche Post, the German postal provider, has significantly outperformed the Frankfurt sharemarket in recent years and Royal Mail, the UK mail operator, has just had an extremely successful IPO?

A brief assessment of the three post providers shows that the two European companies have clear e-commerce driven parcel and logistics growth strategies whereas New Zealand Post has been adversely affected by the requirement to contribute substantial capital to Kiwibank, its 100 per cent owned subsidiary.

Kiwibank has never paid a dividend, off memory.

Royal Mail’s core operation is the collection, sorting, transportation and delivery of parcels and letters in the United Kingdom. This service operates under a “one price goes anywhere” principle on letters and parcels within the domestic market.

It also owns GLS (General Logistics Systems) which operates a substantial parcel business in 22 European countries.

Royal Mail, like Deutsche Post, has taken advantage of the huge increase in online purchases by individuals and businesses.

That is the future. Not letters.

Royal Mail’s share price closed at 5.96 on Thursday giving IPO participants a capital gain of over 80 per cent and resulting in a sharemarket value of 5.9 billion.

Austrian Post, PostNL in The Netherlands, bpost in Belgium and SingPost in Singapore are also listed on stock exchanges.

Unfortunately the story in New Zealand is far less optimistic even though New Zealand Post reported net earnings, before one-off gains from the sale of assets, of $45.4 million for the June 2013 year. The problem is that the group’s core postal services reported a net loss of $51.5 million for the latest twelve month period (see table).

The focus is on Kiwibank:

No one would argue against the importance of parcels but what investments has NZ Post made in this area? What has it done to capture the e-commerce trade?

For example, parcels were mentioned only thirteen times in the group’s 2011 annual report whereas Kiwibank was referred to 197 times.

One of the problems with NZ Post is that Kiwibank is soaking up most of the group’s surplus cash and seems to be squeezing out the traditional postal services.

A possible solution:

The reality is NZ Post is asset rich but cash poor because Kiwibank, the group’s best performing operation, doesn’t pay a dividend and will require $100 million of additional capital. As a consequence NZ Post does not appear to have invested heavily in its parcel business, which has the best long-term postal growth prospects.

Thus the company has two choices. It can either focus on Kiwibank and let its postal operations decline with more and more branch closures and staff layoffs.

The other alternative is to partially monetise its Kiwibank shareholding by selling a minority stake to the Crown, a trade buyer or through an IPO. This would give NZ Post cash to invest in its parcel business, fund its ongoing commitment to Kiwibank and pay a higher dividend to the Crown.

Sadly, will never happen.