Why NZ Post is struggling – Kiwibank!

December 7th, 2013 at 7:39 am by David Farrar

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 , 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 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.

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41 Responses to “Why NZ Post is struggling – Kiwibank!”

  1. flipper (3,269 comments) says:

    860,000,000 dollars, [borrowed or stolen from taxpayers].

    NOT a single cent paid in dividends.
    Source: J. Key, HoR

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  2. duggledog (1,111 comments) says:

    The future is going to be great under Labour / Greens

    Kiwibank, Kiwirail, Kiwiassure, Kiwibuild…. then Kiwiwater… Kiwisewage… Kiwifarms… they’ll never stop.

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  3. ChrisB (5 comments) says:

    If this was a private business I am sure the directors would seriously consider hocking off the unprofitable part. Perhaps the Labour and Green parties would like to buy it!!

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  4. Pauleastbay (5,030 comments) says:

    http://www.courierpost.co.nz/about-us/

    NZ Post own 100% of Courier Post which is their parcel brand and some smaller courier as well.

    If the entire article has been posted DPF its a bit disingenuous of Gaynor not to mention the Courier arms

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  5. Sam (493 comments) says:

    Didn’t they strike a deal with DHL some time back – basically handing over the only future growth option, and retaining the failing letters business?

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  6. OneTrack (1,963 comments) says:

    “If this was a private business I am sure the directors would seriously consider hocking off the unprofitable part”

    But it’s an “asset”. And the mantra is you dont sell assets, no matter how badly they are doing.

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  7. Pauleastbay (5,030 comments) says:

    Sam

    DHL are in the mix- I assume they are their international transport partners, There nothing on the web site about DHL owning.

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  8. davidp (3,320 comments) says:

    It’s odd creating a company that has two main functions: banking, and logistics. There is no synergy there… it is just two random activities thrown together. It’ll be even odder if Cunliffe tells them to become an insurance company as well.

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  9. virtualmark (1,421 comments) says:

    DPF,

    Gaynor’s off the mark. Last year NZ Post bought out DHL’s 50% interest in their courier joint-venture. (NZ Post and DHL had merged their courier businesses back in 2004 or 2005). Off the top of my head NZ Post paid something like $80m for the 50% they bought of DHL. Now that NZ Post own the courier business outright they can grow it faster than DHL was interested in doing, and they can better integrate it with the postal delivery network. So probably more investment to come there.

    NZ Post has also setup YouShop in the USA and the UK, to profit from Kiwi’s buying stuff online. And you’ll find a lot of online shopping purchases shipped from overseas actually come as mail packages, rather than as courier packets from the likes of FedEx (international mail tends to be cheaper + faster than courier).

    So NZ Post is certainly investing in its parcels businesses. I think Gaynor’s core concept is wrong.

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  10. burt (7,085 comments) says:

    So now we see the real reason Dr Cullen is at post. The incoming government… We’ll sell KiwiBank…. Opposition…. No no it’s an asset… Incoming government … Put up or shut up Dr…. Go run post into the ground trying to prove your failed ideology… So he did !

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  11. Manolo (12,624 comments) says:

    We must blame the socialist dinosaur Jim Anderton, Neanderton is more appropriate, for the creation of Kiwibank.
    Labour Lite should sell it as fast as it can.

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  12. burt (7,085 comments) says:

    Virtualmark

    Garners core concept is that post invests into a bank – which is not core post office business. What is wrong about that. His detail of post’s investment in parcel infrastructure might not be accurate ( or perhaps balanced ) but his core concept is spot on.

    Furthermore, why us it that other banks in NZ make good profits while KiwiBank still sucks capital and lays no dividend ? Oh… That’s right it’s political ideology right, it’s not really an asset is it…. It’s a liability for political popularity of socialist state owned propaganda.

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  13. Kea (10,451 comments) says:

    Are private banks any better when the tax payer has to bail them out ?

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  14. burt (7,085 comments) says:

    Kea

    I think the question should be – is it any different when the Government bail out a private bank?

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  15. burt (7,085 comments) says:

    Why is abhorrent that public money props up private business yet some think its fine to use public money to compete with them. It’s still public money…. The commercial operators are still posting profits …

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  16. gazzmaniac (2,269 comments) says:

    NZ Post also own a courier company in Australia called Couriers Now or something. You wouldn’t know except for the NZ Post logo on the back of each van. It is a pity they haven’t made an effort to reduce the costs of sending parcels trans-Tasman.

    Also – Auspost have made record profits on the back of parcels, and I have read that it took them a bit by surprise. Why hasn’t that happened with NZ Post?

    Finally – kea, governments never have to bail out banks, they do because they love corporate socialism.

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  17. Alan (910 comments) says:

    Kiwibank is not designed to function as a normal bank, it’s purpose is to act as a anchor on other bank charges, whilst losing as little as possible. It was politically conceived and born to perform this role, which it does fairly well.

    I’ll make no comment on the rights or wrongs of it, but it’s not a bank in the normal sense of the word.

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  18. burt (7,085 comments) says:

    Alan

    It’s a no fees bank for struggling New Zealanders – Doh !

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  19. burt (7,085 comments) says:

    DPF

    The proposed solution… Change the ownership structure – you say Sadly, will never happen. Have you too given up hope on National having any balls ?

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  20. Keeping Stock (9,788 comments) says:

    God help us if Labour ever got in and set up Kiwiassure under NZ Post. The only thing that would be assured would be another burden on the long-suffering taxpayer.

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  21. Ross12 (927 comments) says:

    Virtuemark is right in that I think NZ Post are trying “to make up for lost ground” in the parcel area. A simple example –
    my local dairy has a NZ Post agency. It used to just sell stamps , prepayed envelops/bags/boxes and had the collection bag. But yesterday I was able to get an international courier bag and complete all the paperwork etc to send some samples to an overseas customer –saved me going across town to the courier office. A small step for NZ Post, but in the right direction. They also have some good online features for businesses sending parcels.

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  22. Reid (15,531 comments) says:

    It’s odd creating a company that has two main functions: banking, and logistics. There is no synergy there…

    The reason they did it in Post is because Post had a huge branch network which at the time it was setup was a requirement for a bank. So they simply leveraged off that. That’s why Anderton set it up inside Post.

    As some have pointed out Post owns courier companies and it has for decades, have a look at its annual report.

    The issue at Post is that it has huge fixed costs in its delivery network which do not adjust downward even as the mail volume declines. It is or used to be till recently the biggest employer in the country mostly because of all its Posties. It’s also required by legislation to offer the delivery service x days per week and it was only when the politicians agreed to change this legislative requirement that it was able to reduce its delivery schedule and rationalise the number of its mail and parcel processing centres.

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  23. Dirty Rat (377 comments) says:

    Why is it necessary for a 100% subsidiary to pay a Dividend to its parent ?

    BTW..According to the segment report, Kiwibank has the highest NPBT ($32m)…more than eight times Postal Service ($4m). The combined other segments are running at a $70m loss. So its Kiwibank that is propping up NZPost

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  24. gazzmaniac (2,269 comments) says:

    The reason they did it in Post is because Post had a huge branch network which at the time it was setup was a requirement for a bank.

    ASB set up Bank Direct in 1997 and it still has no branches. That was a full two years before Labour even came to power.

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  25. burt (7,085 comments) says:

    gazzmaniac

    Don’t forget also that KiwiBank was to be a no fees bank. Jim Anderton must be mighty proud that his Peoples Bank has delivered exactly what socialism always delivers. A popularity boost short term and a money pit long term.

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  26. gazzmaniac (2,269 comments) says:

    Kiwibank rates and fees

    ASB have a better fee structure for their online banking account – I never paid a fee at all when I used to use it all the time (and still don’t even though I hardly use it). Commbank and Westpac (and probably the other two) have a similar fee structure in Aussie.

    ASB had that account even before Kiwibank came along.

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  27. dime (8,752 comments) says:

    Kiwi bank is an asset! A glorious asset! Owned by all of us! I feel a sense of pride knowing I own a tiny piece of kiwi bank!

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  28. burt (7,085 comments) says:

    gazzmaniac

    The socialist have their hands over their ears screaming la la la la la …. But Jim…. He gave them the bank that…. That…. Is the second to join the class action on excess bank fees – and it still hasn’t paid a dividend … Bwaahahahaha

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  29. burt (7,085 comments) says:

    dime… Right… now pay your tax to pay for some more TV advertising telling you that you own it.

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  30. gazzmaniac (2,269 comments) says:

    I thought the actual owner was a little old lady in England.

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  31. burt (7,085 comments) says:

    gazzmaniac

    She just owns it … We’re the lucky ones because we get to fund it so it can overcharge us.

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  32. Mike Wilkinson (64 comments) says:

    Does anyone know why Bill English didn’t mention NZ Post when he said there were no other SOEs that might be suitable for the new mixed ownership model?

    Cheers,
    Mike

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  33. Fentex (656 comments) says:

    Royal Mail, the UK mail operator, has just had an extremely successful IPO

    Apparently a point of dispute in the UK, Goldman Sachs is accused of deliberately undervaluing the stock at offer so as to profit from it’s own, and it’s clients, investments.

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  34. MH (558 comments) says:

    the glue they use today just doesn’t taste the same,and delivery times have increased due to Council no longer cutting the grass berms. SOE or SAE.

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  35. burt (7,085 comments) says:

    MH

    I think the taste change you notice is actually chemicals injected into the water by your newly installed water meter effecting your taste buds…

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  36. wikiriwhis business (3,286 comments) says:

    ‘Apparently a point of dispute in the UK, Goldman Sachs is accused of deliberately undervaluing the stock at offer so as to profit from it’s own, and it’s clients, investments.’

    Libor scandal. The children of KB have not heard of it. This conspiracy is seeing huge banks being fined hundreds of millions and into the billions.

    Banker criminal cartel. Many should be in jail. Since 2008 actually.

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  37. labrator (1,691 comments) says:

    Can we just make sure, like dime has, that everytime we refer to these socialist pet projects that they’re prefixed with Glorious.
    - Glorious Kiwirail
    - Glorious Kiwibank
    - Glorious Kiwiassure
    So when next time Glorious leader announces how he/she is going to destroy wealth in NZ we can remember to bask in the glory.

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  38. labrator (1,691 comments) says:

    The children of KB have not heard of it.

    Go read back in the archives wikiriwhis business. Many here called for these banks to fall on their sword. However you and your socialist mates decided that “they’re too big too fail” and promptly destroyed large swathes of wealth from all the sensible people, thus ensuring that next time, they won’t waste their time saving because idiot profligate governments will bail them out. Except next time, without the savers to call on the whole house of cards might come down.

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  39. berend (1,600 comments) says:

    At least we don’t have to bother with waiting for leadership from John Key.

    Why on earth a government should own a bank is beyond me, but not beyond the National Socialist Party.

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  40. Akld Commercial Lawyer (138 comments) says:

    I also thought Gaynor’s was trying to make an idealogical point which he fumbled by missing some key facts (unusual for him even if I don’t always get which drum he is trying to beat).

    To my mind NZ Post is a large trucking firm (I think the same about parts of Fonterra’s domestic ops) with a courier firm that is the profitable part of its traditional business. The letters part of the traditional business is the handbrake, because we are posting fewer of them and it supports a large infrastructure footprint that is earning less and less and costing more. CBD rents, as a starter for ten are going to be an issue. As an aside, is it just me or have they improved the personal service a lot lately – the staff behind the counter are very good and I got back from kids’ sport this morning to find the postie delivering something to the front door so it would stay dry!

    But the problem with KB is the prudential requirements of owning a small and growing bank are such that it eats capital. The Basel II requirements being the latest to make it tough to start growing the home loan book aggressively without building the balance sheet. I understand that they are also seeking to grow their rural banking bus too.

    Possibly Gaynor is right about the need to de-couple the two parts of the business. They have different growth paths, management needs and capital requirements. The courier business may be a good one if they can capitalise their nationwide footprint and branding. And the KB brand may be a good one in a decade once the financial pain of building a balance sheet that can (say) support a large amount of the new home lending market in the growth areas of the country.

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  41. BR (78 comments) says:

    If they decouple the businesses, does that mean that Kiwibank will get kicked out of NZ Post’s premises?

    Bill.

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