New Zealand Post Reports $110.2m After-Tax Profit

EMBARGOED: NOT FOR PUBLICATION BEFORE 12.00 NOON, WEDNESDAY 24 SEPTEMBER 2008

24 September 2008

New Zealand Post Reports $110.2m After-Tax Profit

New Zealand Post Group today announced a net profit of $110.2 million for the year ended 30 June 2008. This is a 26.9 per cent increase on the net earnings of $86.8 million for the previous year.

Other financial highlights of the 2007/08 year were:

- Revenues increased by 7.9 per cent to $1,290.0 million
- Operating profit was up 21.2 per cent at $114.4 million
- Asset value increased by 45.8 per cent to $8.0 billion
- Higher added economic value of $33.9 million, up 20.6 per cent

The net earnings for the previous financial year to 30 June 2007 have been restated under the New Zealand equivalents to International Financial Reporting Standards (NZ IFRS), adopted by New Zealand Post on 1 July 2007, from $70.2 million to $86.8 million.

The Chairman, Rt. Hon. Jim Bolger, said while the economic environment was challenging, 2007/08 has been a successful year for New Zealand Post, with most areas of the business performing at a high level.

“The result reflects the benefits of our diversified growth strategy and the exceptional performance of Kiwibank, which grew its net profit by $5.9 million to $36.8 million and continued to increase its share of the New Zealand banking market.”

The 2007/08 earnings also included other income before tax of $19.2 million, compared with $13.2 million in 2006/07. The major contributor to the 2007/08 amount was a non-recurring gain of $24.8 million from the creation in June 2008 of Express Couriers Australia Pty Ltd, a 50:50 joint venture between New Zealand Post and DHL Express.

Mr Bolger said that, overall, the Group met or exceeded its financial performance targets and the Board declared total dividends for the year of $23.5 million, payable to the Government as shareholder. The return on average shareholders' equity was 17.6 per cent, compared with 15.7 per cent in 2006/07.

Chief Executive John Allen said the financial result was achieved in the face of a number of negative economic trends, including high fuel prices, an international credit crunch and generally declining consumer activity across the economy.

In addition to the strong contribution from Kiwibank, the Group’s performance was well supported by a higher than expected contribution by the Datamail Group. The traditional postal and retail businesses however were impacted by the economic slowdown during the second half of the year.

Looking to the future, Mr Allen said that in spite of the current economic headwinds, which would impact the first half of 2008/09, he expected earnings growth from the substantial technology and capability investment by New Zealand Post over the past five years, as well as from the underlying strengths of the group’s distribution infrastructure and consumer brands.

Technology investments included state-of-the-art mail sorting machines and the commissioning of new mail centres in Auckland and Christchurch during the year.

“This improvement will build on our commitment to develop areas of the postal markets with the biggest growth potential, notably international mail and value-added services.”

Mr Allen also expected benefits to emerge from the attention during the year to improving the PostShop retail experience for customers. More PostShops had met their service performance thresholds, but not all customer service targets were achieved.

Steps had been taken to strengthen the retail performance and to develop a franchise model to enhance growth opportunities in this dynamic market.

“Over the past year we have looked closely at the best location for our PostShop Kiwibanks to meet the needs of our customers. In many communities we are the only financial and payment services provider that has chosen to remain with a bricks and mortar presence and we remain committed to maintaining a strong community presence and offering safe and convenient shops for our customers."

The retail market was characterised on one hand by increasing pressure from competitors and a decline in the use of traditional postal services, and on the other by growth in financial and agency services. Initiatives including the Loaded Card - a prepaid credit card - provide a strong basis for continued growth.

Mr Allen said electronic commerce, in all its forms, would continue to create opportunities for greater movement of physical goods.

“Many of our customers are becoming increasingly interested in high quality logistics services as their markets become more global and they have a greater need to connect with organisations and individuals over long distances.”

New Zealand Post saw the trans-Tasman market as increasingly important and had been building its Australian transport, logistics, business process and information technology services for a number of years. The Express Couriers Australia joint venture initiative was designed to further strengthen the networking capabilities of a number of already successful businesses, develop their competitive offerings to customers and achieve ongoing growth over the long term.

The New Zealand Post Group has reaffirmed its commitment to the concept and practice of corporate responsibility. Mr Bolger said that, in the modern era, it was not enough merely to operate as a profitable business.

“How we operate is also extremely important. As well as being a commercially sound business we must continue to be a good employer and demonstrate social responsibility.”

2007/08 Highlights

Other operational highlights for 2007/08 included:

Postal Services

 Parcel volume growth (around 1%) but the decline of traditional mail volumes (about 1.5% last year) continues
 Population growth, urban expansion and lifestyle developments increase delivery points by 27,300 to 1,869,575
 New pricing structure introduced for letters and parcels

Retail

 Four new PostShop Kiwibank stores opened
 12 PostShop Kiwibank stores relocated or refurbished
 In store lending introduced in 32 stores
 New offerings to make it easier for customers to choose the right products and services for their needs
 World Mail Award for retail transformation project

Kiwibank

 Loans and advances up 57% to $5.6 billion
 Retail deposits up 46% to $4.8 billion
 100,000 customer signing take total to approximately 650,000
 New product launches include the prepaid Load Card and launch of Portfolio Investment Entities (PIE) deposit accounts
 Multiple honours include the third consecutive Cannex Best Value Bank Award, Supreme winner of the Wellington Region Gold Awards and the Marsh Most Improved Performance – Deloitte Top 200 Awards,

Express Couriers

 Addition of Roadstar Transport to Express Couriers adds 141 trucks to existing transport operations
 Large new Contract Logistics warehouses open in Auckland and Christchurch
 Express Couriers supports sustainability new eco-packaging, package recycling for customers and lower emission vehicles.

Datamail

 5.7 million mail items produced to support October 2007 local body elections and upcoming 2008 general election
 Applications and payment processing activity increases
 Business recognition includes Hutt Valley Business Excellence Award for corporate responsibility activity; Vero Excellence in Business Support Award to direct marketing arm, Kinetic121

People

 Lost Time Injury Frequency Rate declines 23.3 per cent
 Slight improvement in survey of employee engagement

Corporate Responsibility

 Emission measurement regime introduced and energy strategy implemented to monitor and improve energy efficiency
 Waste reduction programmes actioned; Paraparaumu recycle centre opened to public
 Continued literacy focus for New Zealand Post Group community support programmes; 1.5 million postage-paid envelopes provided to approximately 4,600 non-profit organisations under the Community Post programme

Financial Performance at a Glance

$ millions: Year ended 30 June

2008 2007** % Change

Profit *110.2 86.8 +26.9
Revenue 1,290.0 1,195.2 +7.9
Expenditure 1,175.6 1,100.8 +6.8
Operating profit 114.4 94.4 +21.2
Assets 8,036.7 5,512.1 +45.8
Economic value added (EVA) 33.9 28.1 +20.6
Total dividend 23.5 30.8 -23.7
Total equity 666.6 585.1 +13.9

* Includes other income before tax of $19.2 million, including a non-recurring gain of $24.8 million relating to the establishment of Express Couriers Australia.

**New Zealand Post adopted New Zealand equivalents to International Financial Reporting Standards (NZ IFRS). The 2007 figures have been restated under NZ IFRS rules.

Performance Target Ratios

The performance target ratios are contained in New Zealand Post’s Statement of Corporate Intent.

Financial - %: Year ended 30 June 2008
Actual Target

Net profit/average shareholders’ funds 17.6 14.5
EBIT/Total tangible assets* 1.9 1.8
EBIT/total tangible assets* (excluding Kiwibank) 12.3 8.3
EDBITDA **/Turnover 15.9 14.6
EBITDA**/Turnover (excluding Kiwibank) 12.9 11.5
Total shareholders’ funds/total assets 8.3 8.3
Total shareholders’ funds/total assets
(excluding Kiwibank) 76.3 55.8

* Tangible assets include software
** Earnings before interest, tax, depreciation and amortisation

Non-financial - % Year ended 30 June 2008

Standard letter on-time service performance 94.7 96.5
Customer engagement 39.0 46.0
People engagement (employee survey) 3.89 4.0
Lost time injury frequency rate reduction 23.3 20.0

Deed of Understanding

The Deed of Understanding is an agreement between New Zealand Post and the Government which defines New Zealand Post’s social obligations.

Obligation Actual

Maintain a network of at least PostShops: 325
880 PostShops* and Post Centres Post Centres 656
* Corporate and franchise Total 981

Provide 6-day per week delivery to
more than 95% of addresses 96.62%

Provide a 5 or 6-day per week delivery to
at least 99.88% of addresses 99.89%

No rural delivery fee No fee

ENDS

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