NZ Post all out of 'short-term fixes'
NZ Post has warned 2012 is crunch time, with the state-owned enterprise needing hundreds of millions of dollars in capital for subsidiary Kiwibank as well as flexibility to cut store numbers and halt post delivery on some days.
In a toughly worded letter to State-owned Enterprises Minister Tony Ryall, NZ Post chairman Michael Cullen said most short-term fixes had been exhausted.
Cost-cutting and new products could no longer match the falling mail volumes.
In the letter, released under the Official Information Act, Cullen said 2012 "must be the year in which we take the first steps in making fundamental changes to our operational models".
A key element would be a review of the Deed of Understanding (DOU), which stipulates NZ Post must maintain six-day-a-week delivery to most of the 1.9 million "delivery points" and operate a network of no less than 880 outlets.
The core postal business was declining and needed fundamental change to meet customer needs and to be financially sustainable "with consequential implications for the store network".
Post last year closed or downgraded 14 of its PostShop and Kiwibank outlets, but it is understood it has no plans to close any this year.
However, mail volumes are in free fall. It had forecast a drop of 5 per cent a year as the long-term trend to electronic mail bit. But in the six months to the end of December 2011 the decline had steepened to 7 per cent; the fastest ever, "which may be the new norm", Cullen said. "The trend will not reverse and cannot be ignored."
Since the DOU was signed in 1998 the volume of priority mail had fallen from 46 million to eight million and was forecast to drop to five million by 2018.
In an interview Cullen said on current, probably optimistic, projections, by 2025 Post would deliver to a household in a week the same number of items it was delivering in a day in 2000.
It is understood the idea of scrapping Saturday deliveries, floated by former chairman Jim Bolger, is off the table because big customers prefer their mail to arrive at the weekend.
But while a cut to delivery days is not imminent, the NZ Post board is keen for planning to start. A shift to deliveries every second day could be on the table over the next two to three years. Cullen said the DOU, as it stood, limited the changes that could be made.
NZ Post has been trialling self-service kiosks and is revamping many outlets to reflect the growing importance of the Kiwibank business. But the expanding bank needs an injection of capital.
So far the NZ Post parent has poured $550m into the bank, but as its own profitability declines that is seen as unsustainable.
Cullen said while NZ Post had "some small capacity" to supply more capital, Kiwibank's needs – which included new capital levels required by the Reserve Bank – could not be met by NZ Post alone.
"Our preference would be for the Crown to inject capital, providing we are able to satisfy them that they will get a long-term return on that capital, which we believe they will, and that it fits with the Government's overall economic strategy."
One source of new capital could be the proceeds from partial asset sales.
The Dominion Post