Canada Post segment reports operating loss of $269 million in 2013 as Transaction Mail volumes erode

Loss before tax reduced to $125 million, mostly from the sale of plant in downtown Vancouver

OTTAWA, May 5, 2014 /CNW/ - The Canada Post segment today reported an operating loss of $269 million for 2013 as Transaction Mail volumes continued to erode, falling 30 per cent per address¹ since they began to decline in 2007. The Canada Post Group of Companies² reported an operating loss of $193 million for 2013.

These operating losses were reduced by gains, mostly from the sale of corporate real estate. The sale of the downtown Vancouver Mail Processing Plant in January 2013 accounted for $109 million of these gains. As a result of these gains, the Canada Post segment reported a loss before tax of $125 million and the Group of Companies reported a loss before tax of $58 million for 2013.

These losses are driven by the historic shift from paper to digital communications. The shift reduces Canada Post's revenue from Transaction Mail, while its cost base remains largely fixed. Canada Post recognized the urgent need for fundamental changes in order to secure the future of the postal service for Canadians. In December 2013, Canada Post released the Five-point Action Plan. This comprehensive plan will transform the business to better meet the changing needs of Canadians. Once fully implemented, four of the plan's initiatives are expected to contribute an estimated $700 million to $900 million a year to the Corporation's bottom line.

Canada Post segment results
Canada Post is a key enabler of e-commerce. Through its innovative product offerings such as Delivered Tonight same-day service and a strong focus on on-time performance, it is winning market share in this highly competitive space. As a result, parcel revenues increased by $93 million or 7.2 per cent compared to 2012, and volumes increased by 5 million pieces or 2.8 per cent compared to 2012. Domestic Parcels revenue increased by $68 million or 7.5 per cent and volumes increased by 7 million pieces or 6.9 per cent. Fourth-quarter parcel revenues increased by $42 million or 9 per cent and volumes increased by 3 million pieces or 2.4 per cent year over year, reflecting a successful holiday season. Continuing to succeed in the parcel business will be crucial to the success of the Group of Companies.

The Parcels growth, though encouraging, was not enough to offset larger declines in Transaction Mail and Direct Marketing volumes. Transaction Mail, which is mostly letters, bills and statements, generates 50 per cent of the Canada Post segment's revenue. As mailers continue to shift to digital alternatives, Transaction Mail volumes fell by 230 million pieces or 5.3 per cent compared to 2012. Reflecting intense competition, Direct Marketing revenues were down by 2.8 per cent and volumes were down by 1.5 per cent compared to 2012.

A focus on cost savings initiatives reduced the cost of operations by more than $60 million compared to 2012 (excluding employee benefit costs and amortization). Labour costs decreased by $46 million or 1.5 per cent when compared to 2012, mostly due to productivity improvements. The safety of employees continues to be a priority: in 2013, Canada Post reduced its lost-time injury frequency by 19 per cent compared to 2012.

The challenge of pension plan sustainability
In 2013, the Canada Post Corporation Registered Pension Plan (the Plan) achieved strong investment returns of 16.9 per cent. However, revised life-expectancy assumptions negatively affected the going-concern deficit and the solvency deficit. As at December 31, 2013, the going concern deficit to be funded is estimated at $296 million, and the solvency deficit to be funded is estimated at $6.3 billion. The actuarial valuations for the Plan as at December 31, 2013, will be filed by the end of June 2014.

Addressing the sustainability of the Plan is of major importance, given how large the defined pension obligations are compared to Canada Post's operating results, as well as the volatility caused by investment returns and changes in interest rates. Faced in 2013 with the need to make an estimated $1 billion in special payments to address the pension deficits in 2014, Canada Post had an immediate need for additional liquidity. The Government of Canada introduced regulations in February 2014 that relieve Canada Post from the need to make special payments into the Plan from 2014 to 2017. During those four years, Canada Post will work with its unions and other Plan members to evaluate all options, including changes to plan design, to make the Plan financially affordable and sustainable. The Corporation expects to resume special payments in 2018 at the end of the temporary relief period.

To read the full report in PDF, visit canadapost.ca/aboutus and select "Annual Report" 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. This figure excludes Outbound Letter-post.

2. 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

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