Losses, volume decline reinforce need to transform business model
OTTAWA, Aug. 27, 2013 /CNW/ - Canada Post today reported a loss before tax of $104 million for the second quarter as Transaction Mail volumes fell by 6.3 per cent compared to the same period last year, putting the Canada Post Group of Companies* on track to record a substantial loss in 2013.
With the historic shift to digital communications eroding mail volumes at an accelerated pace, Canada Post is consulting with Canadians about their future postal needs. It has also embarked on a multi-pronged transformation to remain relevant in the digital age and avoid becoming a financial drain on taxpayers.
Consulting with Canadians
In the second quarter, The Conference Board of Canada issued an independent study, The Future of Postal Service in Canada, commissioned by Canada Post. It forecasted an annual financial loss of close to $1 billion by 2020. It also examined various options to serve Canadians in the future while reducing financial losses, including the conversion of households with door-to-door delivery to community mailbox delivery; alternate-day delivery for mail (but not parcels); the replacement of corporate post offices with dealers; price increases and relaxed delivery standards. Canada Post has been carefully reviewing the findings of the report and considering the options presented.
Since the report, Canada Post has been engaging Canadians in an important national conversation. It continues to accept public feedback online and by mail, and expects that it will have held more than 50 face-to-face consultations with a broad spectrum of leaders in communities across Canada and national organizations by the end of this September.
Ongoing efforts to transform
During this ongoing conversation, Canada Post has been active on numerous fronts to improve and maintain service while reducing costs and streamlining operations. Most notably:
- Securing changes to its collective agreements with the Canadian Union of Postal Workers, which will reduce labour costs. The agreements were signed December 21, 2012 and include reduced wages for new hires, replace banked sick days with a short-term disability program, set a one-year wage freeze starting in 2015 and for new hires, raise eligibility for an unreduced pension by five years of age, from 55 to 60, with 30 years of service.
- Implementing advanced technology to automate mail sorting and sequencing while motorizing delivery agents to have one delivery agent perform numerous roles, such as delivering both mail and parcels.
- Consolidating mail processing to larger facilities to drive efficiencies.
- Aligning the retail postal outlet offering with the demand for service in each area. In some cases, the number of postal outlets or hours offered have grown through franchise partners while in other areas the Corporation is better aligning hours and outlets with customer demand.
- Enhancing canadapost.ca to offer online and 24/7 almost every service that a physical post office offers, including ordering stamps and shipping and tracking a package.
Canada Post is also investing to support a dual growth strategy in its Parcels and Digital Delivery businesses. It is enhancing its position as the market-share leader in the fast-growing business-to-consumer e-commerce delivery market. In digital delivery of mail, Canada Post's epost service, which offers a free and secure digital mailbox for bills and other important documents, is also the country's leading bill consolidation solution. However, the decline in domestic Lettermail volumes of one billion pieces since 2006 is creating a serious strain on the Corporation's finances. Even with these transformational efforts, there is an urgent need to restructure the current business model.
Financial results and volume trends
The Group of Companies reported a loss before tax of $76 million for the second quarter ending June 29, 2013, compared to a loss before tax of $80 million in the second quarter of 2012. (Results for 2012 were restated due to the adoption of new or revised accounting standards). For the first two quarters of 2013, the Group of Companies' loss before tax was $25 million, compared to a loss before tax of $153 million in the first two quarters of 2012. The loss for the first two quarters of 2013 was mitigated by the $109-million gain from the sale of the downtown Vancouver mail processing plant in January 2013. Without the sale, the loss before tax for the first two quarters would have been $134 million.
The Canada Post segment's loss before tax of $104 million in the second quarter compares to a loss before tax of $102 million in the second quarter of 2012. The segment recorded a loss before tax of $36 million for the first two quarters, compared to a loss before tax of $161 million in the first two quarters of 2012. The sale of the Vancouver plant also helped reduce the loss over the first two quarters. Total volumes for the segment were down 32 million pieces in the second quarter and down 169 million pieces in the first two quarters, compared to the same periods last year.
Transaction Mail, which includes mostly letters, bills and statements, generates approximately 50 per cent of Canada Post's revenue. For the second quarter, Transaction Mail volumes fell by 51 million pieces, or 6.3 per cent, compared to the same period last year. In the first two quarters, volumes declined by 111 million pieces, or 4.1 per cent, compared to the same period last year. Direct Marketing volumes in the second quarter were essentially flat compared to the same period last year. In the first two quarters, volumes decreased 59 million pieces compared to the same period last year due to intense competition, reduced marketing budgets and falling demand for Publications Mail. The Parcels business is growing with the increasing popularity of online shopping. Domestic volumes in the second quarter were up by 5.1 per cent compared to the same period last year. Over the first two quarters, total parcel volumes increased by about one million pieces compared to the same period in 2012, which is not enough to offset larger declines in Transaction Mail and Direct Marketing volumes.
The need for additional liquidity in 2014
With the historic shift away from paper-based communications, the Corporation's current business model does not allow it to achieve profitability and cash flow to support its operations. Also, in early 2014, Canada Post expects to reach the maximum legislated pension relief from special payments to reduce the $5.9 billion solvency deficit in its pension plan (as of December 31, 2012), which is fully funded on a going-concern basis. In resuming its special payments, Canada Post will have to contribute an estimated $1.1 billion, on top of current service contributions, in 2014 alone. Canada Post believes it will require additional liquidity by the end of the second quarter of 2014, and is evaluating its options to address the liquidity challenge.
The operations of the Canada Post Group of Companies are funded by the revenue generated by the sale of its products and services, not taxpayer dollars. Canada Post has a mandate from the Government of Canada to remain financially self-sufficient and to provide a standard of postal service that is affordable and meets the needs of the people of Canada.
*The Canada Post Group of Companies consists of the core Canada Post segment and its three non-wholly owned principal subsidiaries, Purolator Inc., SCI Group Inc. and Innovapost Inc. To access the full report in PDF, visit canadapost.ca/aboutus and select "Quarterly Financial Reports" from the Corporate menu.
SOURCE Canada Post