In the red: NZ Post reports $121 million loss

NZ Post's parcels business turned a small profit, but not enough to keep it in the black. Photo / File

New Zealand Post's increasingly important parcels business turned a small annual profit, but that wasn't enough to avoid red ink with its mail service still in decline.

The state-owned enterprise (SOE) reported a loss of $121 million in the 12 months ended June 30, compared to a profit of $13m a year earlier when the bottom line was buoyed from its share of Kiwibank profits.

The latest period included a $51m impairment charge on the mail service assets, $38m being set aside to cover underpaid holiday pay, and a $15m settlement with ACC and the New Zealand Superannuation Fund over their purchase of 47 per cent of Kiwibank parent, Kiwi Group Holdings.

The mail service posted a loss of $49m on revenue of $376m, compared to a loss of $21m on revenue of $372m a year earlier. NZ Post's parcels division was just in the black with a profit of $1m on revenue of $417m, turning around a loss of $9m on revenue of $392m a year earlier.

"Our challenge is to juggle the cost of delivering mail and the reduction in the number of letters being sent, with the high value that New Zealanders place on the mail service," chair Rodger Finlay said in a statement.

"Providing a physical mail service for New Zealanders that meets the needs of both rural and urban New Zealand is part of NZ Post's DNA – but it must be financially sustainable on its own."

Global mail services - already facing shrinking mail volumes - are in for a shake-up after the 145-year-old Universal Postal Union will let high-volume importers of mail and packages impose self-declared rates for distributing foreign mail from 2021, with a five-year phase-in period. The international group held emergency meetings to broker the deal after the US threatened to pull out of the system, claiming it meant the US Postal Service was effectively spending US$300-500m to subsidise the cost of delivering imports.

NZ Post is positioning itself to latch on to e-commerce, saying it completes deliveries for more than half of the 1.8 million New Zealanders who shop online.

The SOE has been reorganising itself over the past five years to cope with the slump in letter volumes. That's meant changes in delivery schedules, shrinking its processing centres and dropping standalone post stores in favour of outsourcing to agents such as chemists, stationery stores and chemists.

Rival Freightways, which operates couriers and the DX Mail service, noted in its annual report that it has increased its postie fleet by 50 per cent to 220 over the past five years. It said the Commerce Commission has opened a preliminary investigation into NZ Post's recently announced "zonal pricing that appears to provide the lowest pricing in areas with DX Mail services, while areas that DX Mail does not service are priced higher."

The government eased up on NZ Post this year, letting it retain earnings rather pay a dividend, although the de-recognition of a $59m deferred tax asset contributed to the SOE facing a tax bill of $25m for the year compared to a $17m tax credit in 2018.

The SOE's turnaround also helped it report positive operating cash flow of $12m, ending a two-year spell of net cash outflows. It held cash and equivalents of $48m as at June 30.