Canada Post segment reports $53-million profit before tax in second quarter

The Corporation remains focused on its Five-point Action Plan amid declining mail volumes

OTTAWA, Aug. 27, 2014 /CNW/ - The Canada Post segment reported a profit before tax of $53 million for the second quarter of 2014 compared to a loss before tax of $104 million in the same quarter of 2013. For the first two quarters of 2014, the segment reported a profit before tax of $26 million, compared to a loss before tax of $36 million for the same period in 2013. The results were primarily due to the impact of lower employee benefit costs, continued growth in the Parcels business and new pricing measures for Transaction Mail contained in the Corporation's Five-point Action Plan.

While Canada Post is encouraged by this result, Transaction Mail volumes continued their historic decline that began in 2007, falling by 38 million pieces or 2.3 per cent in the second quarter and by 117 million pieces or 4.7 per cent in the first two quarters of 2014, compared to the same periods in 2013. This further demonstrates the continued need to transform the business on a long-term basis.

The Corporation's Five-point Action Plan to return the postal service to financial self-sufficiency, announced in December 2013, will help the Crown corporation respond to its immediate and long-term challenges, including the cost of its employee pension plan.

In addition, a $58-million reduction in employee benefit costs for the Canada Post segment for the second quarter of 2014, when compared to the same period in 2013, resulted from strong pension asset returns in 2013 and an increase in the discount rates used to calculate benefit plan costs in 2014. Year-to-date, the net reduction in employee benefit costs is $113 million when compared to the same period in 2013. Employee future benefits, including pension, continue to be highly volatile and unpredictable, and remain a significant factor in the Corporation's operating results.

Parcels results

While online billing and payments are eroding Canada Post's mail business, online shopping is offering a tremendous opportunity to grow its parcel business. Canada Post delivers more parcels from businesses to consumers than any other company in Canada. Its service, innovations and ability to enhance the online shopping experience continued to generate growth in the second quarter.

For the Canada Post segment, second-quarter revenue of Domestic Parcels, the largest product category, increased by 10.9 per cent, and volumes grew by about 2 million pieces, or 9.7 per cent, when compared to the same period in the prior year. In the first two quarters of 2014, Domestic Parcels revenue for the Canada Post segment increased by 8.4 per cent, while volumes increased by more than 3 million pieces, or 7.3 per cent, compared to the same period last year.

Canada Post segment Parcels revenue grew in the second quarter by 11.3 per cent to $353 million, compared to the same period last year. Over the first two quarters of 2014, Canada Post Parcels revenue grew by 9.2 per cent to $694 million compared to the same period in 2013.

Transaction Mail results

Largely as a result of the Lettermail price adjustment, revenue from Transaction Mail, which includes mostly letters, bills and statements, rose by 14.3 per cent to $823 million in the second quarter of 2014, compared to the same period in 2013. Revenue for the first two quarters rose by 3.5 per cent to $1.6 billion, compared to the same period in the prior year.

Volume erosion in Transaction Mail in the second quarter was lower than expected due to the positive impact of the Quebec and Ontario provincial elections and the change in purchasing patterns from the re-issuance of the Permanent stamp.

Direct Marketing results

Canada Post continues to promote Direct Marketing to the industry as a proven performer in the multi-channel marketing mix, because it is both tangible and cuts through the clutter of digital messaging. Direct Marketing volumes for the Canada Post segment grew by 4 million pieces, or 2 per cent, in the second quarter when compared to the same period in the prior year. In the first two quarters of 2014,

revenues were $595 million, down $17 million or 2.1% from the previous year. Volumes declined by over 34 million pieces or 0.6% compared to the same period in the prior year. Revenue and volume growth in Unaddressed Admail was not sufficient to offset declines in Addressed Admail and Publications Mail.

The Canada Post Group of Companies

The Canada Post Group of Companies¹ reported a profit before tax of $86 million in the second quarter, compared to a loss before tax of $76 million for the second quarter of 2013. For the first two quarters of 2014, the Group of Companies' profit before tax was $49 million, compared to a loss before tax of $25 million for the same period in 2013.

Five-point Action Plan Update

Canada Post is focused on executing the various elements of the Five-point Action Plan and has made considerable progress so far this year. The largest financial benefit of that plan will come from the initiatives that reduce operational costs.

Community mailboxes
In February, Canada Post began the process of converting 100,000 addresses in 11 communities with door-to-door service to community mailboxes by the end of 2014. Planning for 2015 is also progressing. So far this year, the Corporation has made community announcements for a quarter million conversions that will be made in early 2015. A total of 1.17 million conversions will be made in 2015. The remaining one third of Canadian addresses with door-to-door delivery service will be converted to community mailboxes over a five-year period.

Lettermail pricing
On March 31, 2014, the one-time strategic pricing adjustment took effect. Price increases for future years are expected to revert to what the industry has seen in the past, reflecting inflation and operating costs.

Expanding convenience through postal franchises
Canada Post opened 31 new franchise postal outlets across the country so far this year.

Streamlining operations
Investments in high-speed automated mail and parcel processing equipment allow the Corporation to consolidate sortation and distribution across its vast national network. This is reducing operational costs while maintaining service standards for customers. The Corporation will transfer some mail processing from Ottawa, Hamilton and London to major plants in Montréal and Toronto; and the Saint John, N.B., mail processing plant (MPP) will move some mail processing to the larger Halifax MPP. In addition, some mail processing from smaller facilities in Alberta, Saskatchewan, Manitoba, Ontario and New Brunswick will be transferred to larger processing plants.

Addressing the cost of labour
During the second quarter, Canada Post signed a new four-year collective agreement with employees represented by the Public Service Alliance of Canada. New hires will receive a competitive but lower starting wage rate and be eligible for a defined contribution pension plan instead of a defined benefit pension plan. The agreement had no wage increase for the final two years, and shifted the cost-sharing for post-employment benefits to 65 per cent employer/35 per cent employee (previously 75/25).

Pension

Canada Post is moving forward in a thoughtful manner to develop options to restructure its pension plan. The pension plan imposes an unsustainable burden on the Corporation because the funding obligation is disproportionately large compared to Canada Post's revenue, profitability and cash flow.

The federal government granted Canada Post relief from the need to make special payments to its Registered Pension Plan from 2014 to 2017. During this time, Canada Post is working to make the Registered Pension Plan affordable and financially sustainable for the Corporation and for plan members. Canada Post is examining its options, studying the steps taken by other major public- and private-sector employers facing similar challenges and discussing the issue with its bargaining agents and stakeholders. During the relief period, Canada Post continues to make regular contributions estimated at $250 million per year to the pension plan.

To access the full report in PDF, visit canadapost.ca/aboutus and select "Quarterly Financial Reports" from the Corporate menu.

Background

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.

1. The Canada Post Group of Companies consists of the core Canada Post segment and its three non-wholly owned principal subsidiaries, Purolator Holdings Ltd., SCI Group Inc. and Innovapost Inc.

SOURCE: Canada Post

Media Relations, 613 734-8888, [email protected]