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Despite a 10 per cent increase in revenue and earnings, New Zealand Post fell short of its financial performance targets during the June year, as the strong kiwi dollar took a bite out of overseas earnings and rising debt levels saw interest costs climb.
The group's net profit of $70.2 million was slightly ahead of last year's $68.7 million, but chief executive John Allen yesterday said the group's target was $78 million.
Improvements in operating revenue and earnings were "partly offset by the impact of the stronger New Zealand dollar and higher interest costs paid by the group", NZ Post said in its annual report, a lavish document which celebrates 20 years as a state-owned enterprise, and cost $110,000 to produce.
"We are in investment mode so our level of debt has gone up to reflect the investments we are making and therefore the interest rates are little higher," said chief financial officer Peter Schuyt.
Those investments, intended to see the group through a dramatic decline in letter volumes, include its $85 million, five-year "Future Post" upgrade of mail processing facilities which is now half complete, and NZ Post's Datamail data processing business.
Schuyt said NZ Post had $175 million in term debt on its balance sheet, up from $75 million a year ago. However, last year's figure did not include a further $50 million in debt that was about to mature so the actual increase was less substantial than first appeared.
Furthermore, NZ Post had substantial cash reserves which meant its net debt position, excluding subsidiary Kiwibank, was $86 million.
"We're still pretty conservatively geared in terms of our debt position."
Kiwibank also issued $75 million in subordinated notes during the year to meet capital requirements generated by its strong growth.
Kiwibank's $1.7 billion increase in total assets was responsible for virtually all the growth in NZ Post's assets to $5.5 billion but led to Standard & Poor's moving NZ Post's AA- credit rating from stable to negative early this year.
Kiwibank produced a $25.5 million net profit over the year, but NZ Post poured in a further $55 million of its own cash to support the bank's expansion.
About 9 per cent of NZ Post's earnings are derived overseas and Schuyt said they had been hit by exchange rate movements.
"We had a situation where the New Zealand dollar strengthened from slightly over US60c at the beginning of the year to close to US80c at the end and therefore we have a negative impact on our international earnings as a consequence of that."
However, much of that negative impact was unrealised and had been now been reversed since the group's balance date.
Schuyt also said the group bottom line was affected by increased payments to minority shareholders. Two years ago, NZ Post sold half of Express Couriers to DHL, and the business is now operated as a joint venture.
Meanwhile, the fall in domestic letter volumes continued to accelerate. They were down 4.6 per cent in the June year after falling 2.9 per cent in the December year.
But that was partly offset by 12 per cent growth in packet and parcel volumes associated with increased online shopping.
NZ Post paid a $30.8 million dividend to the Government for the year.
