As a government business enterprise, we are a self-funded commercial company that is focused on delivering services to communities all over Australia. With the global shift to digitisation, it has been clear for a number of years that we needed to plan a very different future for Australia Post, to ensure the survival of our iconic institution.
We needed to carefully manage the community’s declining use of the letters service while simultaneously building new services for the digital economy, leveraging our trusted brand and nationwide community networks.
The value we create incorporates how we manage the impact of change on many individuals’ lives right across Australia. As we continue to power eCommerce growth by creating cross-border networks and markets, we also continue to prioritise support for our community.
A changing business landscape
Addressed letter volumes have declined by 43 per cent per letter box since 2008. During this period, letters have gone from being a lead indicator of Australia’s economic growth, to being a lead indicator of digital disruption. As a result, Australia Post has been delivering a shrinking volume of letters to an ever-expanding network of addresses.
This was an unsustainable situation, as evidenced by the $1.3 billion of losses that we have incurred in our letters business over the past eight years.
During 2015/16, a number of reforms were required to address declining letter volumes and to ensure we are part of tomorrow’s world. Our financial position is stronger as a result of these reforms.
The solid performance of both our parcels services and trusted eCommerce solutions businesses is evidence of the opportunity to create new revenue streams for our business. We already provided passport applications, identity checks, banking, information management and payment services through our network. Working with our corporate and government customers we are increasingly co-designing solutions around their policy and business outcomes, drawing from our demonstrated capabilities. The Western Australia Police electronic National Police Check, which won a government innovation award in 2015/16, is an example of the strength of our new value proposition (see Our innovation Our expertise for details).
We recorded a profit before tax of $41.0 million in 2015/16, following a loss the previous year. Our return to profit was largely driven by the reform of our letters services, which reduced the magnitude of the loss that we incurred in the delivery of traditional mail services.
The main drivers of the profit result were the continued solid performance of our parcels business, investment in online partnerships and further development of our portfolio of Australia Post trusted eCommerce solutions.
Our total cash investment across strategic projects and asset replacement and acquisitions was $298.1 million. Looking to our future, as we adopt a portfolio approach to investments centred around capability, we will tailor our investments to future capacity.
Addressing our risks
Australia Post has a Group Risk Management Framework (GRMF) in place that describes the core components that support the business to effectively manage risk. The GRMF has been developed in consideration of the size, scale and scope of the Australia Post Group and includes the establishment of core risk categories that are currently considered material to the Group. These core risk categories are: Strategic; Governance; Financial; Market; Third Party; Environmental; Corporate Social Responsibility; Regulatory and Operational (including. cyber and industrial relations).
A key component of the GRMF includes the Board Risk Appetite Statement that is aligned to the core risk categories and describes the principles relating to the level of risk that Australia Post is prepared to seek, accept or tolerate in pursuit of our objectives.
|Mail volumes (m)||4,843.0||4,580.2||4570.2||4,314.2||4,023.5|
|Profit/(loss) before Tax ($m)2||366.7||210.7||103.0||(352.1)||41.0|
|Profit/(loss) after Tax ($m)2||281.2||177.4||116.2||(221.7)||36.4|
|Profit/(loss) from reserved services2 ($m)||(114.4)||(198.0)||(242.6)||(284.3)||(14.3)|
|Profit/(loss) from regulated mail services2 ($m)||(186.9)||(280.3)||(303.7)||(407.1)||(114.4)|
|Return on equity (%)1, 2||16.8||10.5||6.7||(14.9)||2.3|
|Return on average operating assets (%)2||11.5||6.2||3.4||(8.2)||1.8|
|Debt to debt plus equity||29.1||27.3||28.8||27.2||27.8|
|Dividends declared ($m)||213.7||192.7||78.8||-||20.0|
|Interest cover (times)2||10.8||7.7||3.6||(10.2)||2.2|
|Capital expenditure ($m)||227.0||386.8||523.1||342.0||298.1|
1 Return on equity is calculated as Profit/(loss) after tax as a percentage of equity. Equity has been adjusted to remove the impact of the Group’s net superannuation liability/asset.
2 Changes to AASB 119 Employee Benefits took effect on 1 July 2013. 2013 has been restated for like-for-like comparison. Years prior to 2013 have not been adjusted to reflect the changes as a result of this change in accounting standard.
A partnership to build future success
In May 2016, we partnered with Qantas to provide an exclusive domestic air-freighter network for Australia Post and StarTrack customers. The partnership further strengthened our position as Australia’s leading parcels and logistics provider and reinforced our mail delivery network. It builds on the strong relationship that has existed between the national carrier and the nation’s postal service since 1922, when Qantas first started flying airmail.
The new network, servicing nine destinations across the east and west coast of Australia, consists of six dedicated freighter aircraft featuring StarTrack branding, as well as continued priority access to cargo space in the Qantas Group’s passenger fleet. Our partnership with Qantas creates a greater opportunity for Australia Post to be first to deliver for our customers, combining our unrivalled delivery network and existing freight network with a dedicated and flexible air network.
It means we now have a dedicated air-freighter network that enables us to support local manufacturers, wholesalers, retailers and eCommerce companies as they grow their business – both in Australia and overseas.
Trusted eCommerce solutions
Australia Post’s trusted reputation and nationwide Post Office network have always underpinned our track record as a provider of face-to-face identity and verification services. In October 2015, we established a new business unit, Trusted eCommerce Solutions, which focuses on connecting citizens to business and government by powering digitisation and co-designing omni-channel solutions that are accessible to Australians across all abilities, ages, socio-economic groups and regions.
During its first nine months, this business unit established its priorities and continued the momentum with our capabilities in banking, bill payments and payment processing, through successful products such as Bank@Post – now used by Australia’s four major institutions.
A key focus for this area of our business is co-designing solutions with government.
We partner with a range of government departments and agencies to support their policy outcomes in a way that makes it easier for citizens to access government services and opens up new opportunities for small and medium businesses to innovate and compete.
We have strengthened our focus on helping government departments and agencies deliver sustainable change across the core of their operations – providing the platforms, digital solutions and real-world help that organisations need to drive transformation.
To meet growing consumer demand for choice and convenience in accessing services, we have made substantial investments in growing our digital identity, payment, information management and back-office processing capability:
- enabling improved, inclusive access to government services via multiple channels
- making it easier for governments to connect with citizens with greater time and cost efficiency
- helping to digitise government services and deliver end-to-end solutions at scale through integrated physical and digital service models.
The online retail market continued to drive revenue in our parcels business. Operating in a fiercely competitive market, our products and services performed well, using innovation and our unrivalled physical network to advantage.
During the year, we increased the number of small parcels delivered by our posties and trialled new ideas including expanded delivery hours. This follows a $2 billion investment over the past four years, which included expanding our Melbourne and Sydney parcel facilities (see Our customer network for details).
We were pleased to once again exceed the on-time delivery standard set out under our Community Service Obligations, by delivering 96.2 per cent of letters on time or early (against the 94 per cent standard).
In January 2016, we made some key reforms to our business to reduce losses and better manage the costs associated with declining letter volumes. This included introducing the choice of Regular or Priority delivery for consumers. By introducing this two-speed delivery service, we effectively aligned our consumer letters service with the options introduced for business customers in June 2014. We also increased the Basic Postage Rate (BPR) from 70 cents to $1, which applied to the Regular service, to better reflect the actual cost of sending a letter. We’ve worked hard to maintain our service standards and performance and we continue to provide mail delivery five days a week across our network.
The reforms to the letters service were carefully crafted to minimise the impact on our community. As such, we maintained the price of the concession stamp at 60 cents and the seasonal greeting card price was frozen at 65 cents. Taken together, concession and seasonal greeting mail comprise around one-third of all the letters posted by consumers in Australia.
Total addressed letter volumes declined by 9.7 per cent compared to the previous year. The overall result reflects the continued trend towards alternative digital technology.
While the letters business again returned a negative result, the reform changes including the BPR increase helped reduce the loss and improve the sustainability of our letters service.
Our collaborative future
We continued building our eCommerce partnerships this year to help our customers buy and sell online and position them to meet prospective overseas customer demand – both in Australia and internationally. We believe one of our biggest growth opportunities involves supporting the growth of cross-border eCommerce by improving the integration between our domestic networks and services – and those of our global logistics partners.
To prepare for the unfolding future, we joined Asian eCommerce giants JD.com and Alibaba on some of their most popular online shopping platforms, including 1688.com and Tmall.com. Our presence on these Chinese marketplaces is giving Australian businesses direct access to the booming Chinese consumer market.
Through our joint venture with China Post (Sai Cheng Logistics International), we also offer logistics support to Australian companies doing business in China with end-to-end supply chain solutions.
In June 2016, we took this another step further by announcing a strategic eCommerce alliance with leading global provider of comprehensive logistics and transport solutions Aramex. The proposed joint venture will build on the service capability of StarTrack International, with Aramex investing in StarTrack International and contributing marketing and sales capability.
Under the terms of the agreement, Australia Post will provide last mile delivery in Australia for volumes generated by the joint venture, while we have extended the capabilities of StarTrack Courier by acquiring MailCall Courier from Aramex. This alliance helps us to compete domestically, while also positioning our business to capture more offshore parcel volumes to meet our customers’ growth projections.
Our future outlook
Through our positive financial performance we want to grow our business to create great experiences for our customers.
We work in a highly competitive industry so we are focusing on operational excellence to improve our cost to serve.
With a continued focus on cost control, we embrace this competitive market, with an emphasis on efficiency and providing great value for customers.