The Letters Business Is Killing Australia Post, Which Just Had Its First 2nd-Half Loss Since Corporatisation

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Australia Post just managed to stay in the black for FY14, despite posting an overall loss in the first six months of 2014 – the first since corporatisation.

The postie’s result was down 34.5% on the previous year, with an after-tax profit of $116.2 million. The drop came despite lifting revenue by 8.3% to $6.4 billion.

The company’s thriving parcel business hasn’t been able to compensate for its suffering mail side, with the operating EBIT loss growing by 15.2% to $328.4 million. Internet shopping has helped see the profit from parcels double since 2010.

But we’re emailing, rather than sending thank you cards, and getting our bills the same way, while Australia Post is stuck with the old infrastructure of its letters business.

The letters side went backwards in the first six months of 2014, despite a 10% increase in the basic postage rate for three months, for an overall loss of $105.9 million and a trading loss of $42.9 million before restructuring costs.

Take out the boost from federal election campaign material and letters volume fell 5% over the year.

“This level of volume decline, coupled with the fixed cost nature of the network, means these losses will inevitably continue to grow,” Managing Director and Group CEO, Ahmed Fahour said.

And the losses could be massive, with a a government-commissioned external report estimating 10-year figures of $12.1 billion in cumulative losses in letters, and $6.6 billion for the enterprise.

The retail side was steady, delivering a handy EBIT of $175.6 million, but it’s feeling the pinch too, with lower post office visits as people pay bills online rather than over the counter.

Fahour called for the government to change the rules of the government-owned corporation.

“Unfortunately without significant and urgent reform of our community service obligations, the loss in the regulated mail business will overwhelm the entire company and result in the enterprise making a loss in the near future.”

It’s in the Abbott Government’s interests to act, because the declared dividend to the feds in 2014 is $78.8 million, down 59% on last year.

In June this year Australia Post axed 900 administration jobs from its Melbourne operations.

The letters business is also expected to introduce a major structural change to its delivery system, including a two-speed option, starting June 2015.

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