Australia Post profit slumps as price increase fails to offset less letters sent

Australia Post is reeling from the decline in people sending letters in favour of technology to keep in touch.

Australia Post said it remained on track to deliver a ‘marginal’ profit for the 2020 financial year.

Australia Post chief executive Christine Holgate is confident she can defend profitability this year despite the decline of its letters business, after delivering a near-50 per cent slump in first-half profit.

Ms Holgate said she had noticed a fall in parcel volumes from China to Australia in the wake of the coronavirus outbreak, but this was being countered by a pick-up in parcels going the other way, suggesting packages of disinfectant wipes and masks were now flooding into China.

Where previously tins of infant milk formula were once wrapped up and dispatched to China from Australian homes and small businesses, the coronavirus was now stimulating mass demand for other Australian products, particularly around personal hygiene, Ms Holgate said.

“We have seen a slowdown in parcels coming in from China but it is matched, almost, by a growth in outbound parcels going to China,” Ms Holgate told The Australian as Australia Post on Monday posted 4 per cent revenue growth for first half to $3.8bn as net profit fell 47 per cent to $58m.

Ms Holgate said she was aware that the coronavirus could start to disrupt the supply chain for retailers, with a knock-on effect on parcel volumes.

“We are cognisant that many of our big customers are retailers, e-commerce customers, and it is just how long their supplies of products are going to last.”

Australia Post relies heavily on its parcels business, which drives profit, and makes up for the decline in the letters business.

The government-owned organisation’s profit before tax dropped to $83m for the six months to December 31.

Last year’s interim result was bolstered by a $37m benefit from the Aramex and AGS deals.

Australia Post’s parcel and services revenue growth was up almost $300m or 13 per cent on the same period last year to $2.69bn, underpinned by strong growth in parcels, financial and international services, supporting both business and consumers.

Australia Post chief executive Christine Holgate. Picture: Mark Cranitch

In contrast, letter revenue was down 9 per cent and letter losses rose a further $46m or 112 per cent to a total loss of $87m for this half.

Ms Holgate said the strategy to diversify the business and focus on the customers was working well, evidenced by their record underlying performance.

“However, the costs to operate the letter business continue to rise, as our people are still required to deliver to every home or business every day, process and collect the mail, while letter volumes and revenues fall.”

She said Australia Post would still deliver a marginal profit for the full year, with the 10c per letter increase in January supporting the letters business, but more restructuring and cost-cutting was necessary.

“Australia Post and the services we provide are highly regarded in the community, particularly in rural and regional Australia, where often we are the last remaining service provider with a physical presence. In order to ensure we are able to continue to provide these community services and remain sustainable, the time has come when we must transform our delivery network.”

She said November and Christmas volumes were at a record again, bolstered by the growth in popularity of Black Friday sales, with Australia Post delivering over 50 million parcels in December - up 23 per cent on last year.

“We had something like 22 days on the run where every single day we delivered more than two million parcels and in that period of about six weeks there were 32 days where we delivered more than two million parcels.

“I think what it has given us is the confidence and reassurance that we can grow our business. What we now need to do is insure that we really look at areas where we can continue to drive efficiencies in our delivery network so can we protect those community services but still support growth.’’