Big drop of mail volumes continues as Canada Post reports $13m profit

The Canada Post segment reported a profit before tax of $13 million in the third quarter compared to a loss before tax of $129 million in the same quarter of 2013. As they were in the second quarter, the results are mostly 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.

For the first three quarters of 2014, the Canada Post segment reported a profit before tax of $39 million compared to a loss before tax of $165 million for the same period in 2013 and is expected to report a profit for 2014.

Volumes in Transaction Mail, Canada Post’s core business, nevertheless continued to fall as mailers and consumers turn to digital alternatives. Volume erosion picked up speed in the third quarter after being lower than expected in the second quarter. Compared to the same periods in 2013, volumes decreased by 58 million pieces or 6.1 per cent in the third quarter and by 175 million pieces or 5.1 per cent in the first three quarters of 2014.

Employee benefit costs for the Canada Post segment decreased by $48 million for the third quarter of 2014 and by $161 million for the first three quarters of 2014, compared to the same periods in 2013. This is the result of strong pension asset returns in 2013 and an increase in the discount rates used to calculate benefit plan costs in 2014. Employee future benefits, including pension, continue to be highly volatile and unpredictable and remain a significant factor in the Corporation’s operating results.

The Five-point Action Plan, announced in December 2013, is realigning the postal service with Canadians’ changing needs and will return it to financial self-sufficiency. To date, approximately 800,000 households have either been converted from delivery at the door to community mailbox delivery or are in various stages of the conversion process for 2015. In addition, a strong focus on consolidating processing operations in light of the declines in mail volumes is delivering savings.

The Canada Post Group of Companies1 reported a profit before tax of $35 million in the third quarter, compared to a loss before tax of $109 million for the third quarter of 2013. For the first three quarters of 2014, the Group of Companies’ profit before tax was $84 million, compared to a loss before tax of $134 million for the same period in 2013.

Parcels results

Parcels revenue for the Canada Post segment grew by 8.2 per cent to $337 million in the third quarter, while volumes increased by close to three million pieces or 8.1 per cent, compared to the same period last year. Over the first three quarters of 2014, Parcels revenue for the Canada Post segment grew by 8.9 per cent to more than $1 billion, while volumes increased by four million pieces or 4.2 per cent, compared to the same period in 2013.

Transaction Mail results

Largely as a result of the Lettermail price adjustment put in place in the second quarter, revenue from Transaction Mail, which includes mostly letters, bills and statements, rose by 13.7 per cent to $750 million in the third quarter compared to the same period in 2013. Revenue for the first three quarters rose by 6.5 per cent to approximately $2.4 billion compared to the same period last year.

Direct Marketing results

In the third quarter, Direct Marketing volumes for the Canada Post segment decreased by 65 million pieces or 5.6 per cent and revenue fell by $15 million to $279 million, compared to the same period in the prior year. In the first three quarters of 2014, Direct Marketing revenue fell by $32 million or 3.1 per cent to $874 million, and volumes declined by 99 million pieces or 2.2 per cent, compared to the same period last year.

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

 

Five-point Action Plan update
Canada Post is making considerable progress in implementing the Five-point Action Plan, which is expected to contribute financial benefits of an estimated $700 million to $900 million a year to the Corporation’s bottom line, once fully implemented.

1. Community mailboxes

The Corporation is on track to convert the one third of Canadian addresses that receive mail at their door to community mailbox delivery.
The multi-step conversion process is designed to gather the feedback necessary to develop local solutions for each community.
As of November 25, 2014:Customers at approximately 100,000 addresses have been converted to community mailboxes.
Customers at approximately 700,000 addresses have been notified and are in various stages of the conversion process for 2015, with more than 200,000 to be notified in the coming weeks for conversion in 2015.
The process is now under way at various stages in every province.
This five-year initiative is forecasted to save $400 million to $500 million a year once fully implemented, the most significant savings of the plan.
2. Lettermail pricing

Following a one-time strategic pricing adjustment that took effect in 2014, regulated stamp prices will remain unchanged in 2015.
Buyers of Permanent stamps (“P” stamps), valid on Standard Lettermail (0-30 g) items mailed within Canada, will continue to pay $0.85 per stamp when purchased in booklets, coils or panes and $1 per stamp when they are purchased one at a time.
3. Expanding convenience through postal franchises

Canada Post opened 45 new franchise postal outlets across the country in the first three quarters of 2014. Typically, franchise outlets are conveniently located and offer better parking and longer hours than corporately managed post offices.
4. Streamlining operations

Throughout 2014 and in the third quarter, Canada Post has taken several significant steps to translate its investments in automation into streamlined operations, productivity gains and operational savings. Several mail processing operations have been consolidated to allow much greater use of our high-speed automated sorting machines as Lettermail volumes decline. The consolidations move some volumes from plants in such major urban centres as Ottawa, Hamilton and London to major plants in Montréal and Toronto and some volumes from Saint John to Halifax. Other transfers of work to streamline operations have occurred in more than 10 other smaller locales.
Sequencing refers to automated machines sorting mail to the delivery agent’s line of travel, achieving greater efficiency by reducing manual sorting. This year, Canada Post has restructured 112 depots that receive sequenced mail.
In early September, Canada Post officially opened the state-of-the art Pacific Processing Centre in Richmond, B.C. The high-speed automated sorting equipment for Lettermail, parcels and packets allows us to implement motorized delivery and other measures that have produced significant savings wherever they have been introduced across the network. To support the growth of our Parcels business, Canada Post has also invested in new automated parcel sorting at the processing plant in Montréal to achieve productivity gains while meeting the needs of the fast-growing e-commerce sector.
Remote address coding work has been consolidated from several cities to two locations to improve efficiency. All the work from western Canada now occurs at the Pacific Processing Centre and all the work from eastern Canada is done in Toronto.
5. Addressing the cost of labour

Labour costs for the Canada Post segment fell by $13 million in the third quarter and have fallen by $44 million in the first three quarters of 2014, compared to the same periods last year. This is as a result of Canada Post’s continuing efforts to streamline and modernize its operations, as well as one fewer paid day in the first three quarters.
On November 14, 2014 Canada Post and the Association of Postal Officials of Canada (APOC) announced that they had reached a tentative agreement. Before the tentative agreement can be finalized, it will be subject to a ratification vote by employees represented by APOC.
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

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