Bank profits to beat letters

By RICHARD BRADDELL

New Zealand Post expects its "quintessentially New Zealand" bank to contribute more over time to profits than mail.

Chief executive Elmar Toime made the prediction yesterday as he unveiled a net profit for the first half ended December 2000 of $22.4 million, up from $21.1 million for the same period in 1999.

The improvement is a much needed fillip after the state owned enterprise (SOE) turned in a $3.8 million dollar loss in the June 2000 quarter.

It is a helpful confirmation of NZ Post's management and diversification strategy, given a 3.3 per cent drop in letter volumes and the political heat generated by its move into banking.

Mr Toime said the banking strategy was an essential part of NZ Post's diversification as its core postal business was eroded.

Existing diversifications included international consultancy, courier operations and e-business initiatives.

Australian business Couriers Please, acquired at the beginning of the six months, was profitable and would help with positioning NZ Post as a trans-Tasman operation capable of tapping into corporate head offices moving to Australia.

Mr Toime said the banking project would have strong appeal to New Zealanders. Although a recent Colmar-Brunton TVNZ survey showed those who would switch bank to NZ Post was just 10 per cent of those surveyed.

Mr Toime reiterated NZ Post's view that the bank's break-even target of 100,000 customers in three years was readily achievable.

NZ Post's definition of break-even was an 11 per cent rate of return. NZ Post's own cost of capital is 10.3 per cent, while New Zealand banks typically return 20 per cent on equity.

So far, NZ Post has spent $2.2 million of its own money on the banking project, and is getting a further $72 million from Government.

Mr Toime agreed with commentators who have suggested that the bank would prove most attractive to older and lower income customers and said NZ Post's modelling had taken that prospect into account.