Domestic Lettermail Volume Declines Nearly 5% in the Quarter
Aug. 27, 2012
(Ottawa, ON) The decline in core Transaction Mail volumes continued in the second quarter of 2012, contributing to financial losses that add impetus to the need for Canada Post to transform its business and to address its labour costs without delay.
Canada Post's core Transaction Mail volumes have been steadily declining since 2007. Given the pace of electronic substitution, volumes are not expected to rebound.
Financial Results
The Canada Post Group of Companies reports a loss before tax of $10 million in the second quarter ended June 30, 2012. For the first two quarters of 2012, the loss before tax was $13 million, a deterioration of $17 million compared to the first two quarters of 2011.
The Canada Post segment consists of the Group of Companies' core mail, parcel and digital delivery business. The segment had a loss before tax of $34 million in the second quarter and $23 million in the first two quarters.
Volume Decline
Because of the large impact of the June 2011 labour disruption, comparing this year's second-quarter results to last year's second-quarter results has the unintended effect of minimizing the severity of the continuing volume decline and the resulting pressure on the Canada Post segment's revenue.
Transaction Mail volume fell by 4.4% or 31 million pieces in the second quarter and by 4.5% or 88 million pieces in the first two quarters, compared to the same periods last year. Transaction Mail generates most of the segment's revenue. Its erosion is primarily driven by the shift to electronic substitution. In the largest product category, domestic Lettermail, volumes decreased by 33 million pieces or 4.8% in the second quarter and by 90 million pieces or 4.9% in the first two quarters, compared to the same periods last year.
Direct Marketing mail volumes were flat on a year-to-date basis when compared to the first two quarters of 2011, but compared to the same period in 2010, volumes declined by more than 140 million pieces or 5.5%. Direct Marketing results remained below expectations as corporate customers reduced their marketing spend and shifted to electronic media.
Not all volumes declined. Canada Post's Parcel volumes reflected strong growth in e-commerce orders in the second quarter. However, this growth is not sufficient to offset poor performance in the rest of the business.
Challenging Pension Obligation
The Corporation continues to face a volatile solvency deficit of approximately $4.7 billion in its pension plan. However, the seriousness of the challenges facing the plan is better represented using the market value basis, which results in a deficit of approximately $6.6 billion. As the plan sponsor, Canada Post is responsible for funding shortfalls in the plan. The Corporation must be viable in order to meet this obligation, and remaining viable means transforming the business in order to remain relevant, affordable and competitive. However, the growing obligations to fund the pension plan and post-retirement benefits continue to be a major financial challenge to Canada Post.
Risks Surrounding Labour Costs
With labour costs at 71% of spending, Canada Post must secure collective agreements that enable it to respond to an increasingly competitive business environment. In an effort to reach an agreement with the Canadian Union of Postal Workers for urban employees, the Corporation tabled a new offer on July 19, 2012, which aims to reduce costs and positions the company for a very different future.
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.
To access the full report in PDF, visit canadapost.ca/aboutus and select “Quarterly Financial Reports” from the Corporate menu.
The Canada Post Group of Companies, or the Group of Companies, refers to the Canada Post Corporation and its subsidiaries Purolator Inc., SCI Group Inc. and Innovapost Inc.
The solvency deficit to be funded is based on a three-year average solvency ratio basis.
