Kiwibank dragging down NZ Post

Kiwibank is dragging down NZ Post and Labour’s plans are to lumber it with a budget and likely to fail insurance company as well. Brian Gaynor at the Herald looks at the parlous state of NZ Post

Why does New Zealand Post continue to flounder while Deutsche Post, the German postal provider, has significantly outperformed the Frankfurt sharemarket in recent years and Royal Mail, the UK mail operator, has just had an extremely successful IPO?

A brief assessment of the three post providers shows that the two European companies have clear e-commerce driven parcel and logistics growth strategies whereas New Zealand Post has been adversely affected by the requirement to contribute substantial capital to Kiwibank, its 100 per cent owned subsidiary.

Around the world postal services are adapting and changing to the new global environment and some very successfully including Deutsche Post and Royal Mil, both successfully listed on the stock exchange and piling on the growth rapidly. Meanwhile in New Zealand.

No one would argue against the importance of parcels but what investments has NZ Post made in this area? What has it done to capture the e-commerce trade?

For example, parcels were mentioned only thirteen times in the group’s 2011 annual report whereas Kiwibank was referred to 197 times.

One of the problems with NZ Post is that Kiwibank is soaking up most of the group’s surplus cash and seems to be squeezing out the traditional postal services. ?

Kiwibank was established as a fully owned subsidiary of NZ Post in 2002 because the start-up bank could use over 200 postal outlets to service customers.

However, start-up banks are capital hungry and NZ Post has contributed $360 million of capital to Kiwibank over the past decade, without receiving any dividends. According to NZ Post’s annual report: “Changes in the Reserve Bank’s regulatory requirements and general market growth means that Kiwibank will require further capital. Kiwibank can meet some of this demand itself, while New Zealand Post plans to commit $100 million over the next two years”.

And they have NEVER paid a dividend.

Meanwhile the Crown has contributed capital of only $192 million to NZ Post. Thus NZ Post has had to bridge the gap between the $192 million contributed by the Crown and the $360 million it has had to invest in Kiwibank by selling assets. This includes the sale of New Zealand Post House in Wellington and 35 per cent of Datacom in the June 2013 year. These sales realised over $200 million.

The reality is NZ Post is asset rich but cash poor because Kiwibank, the group’s best performing operation, doesn’t pay a dividend and will require $100 million of additional capital. As a consequence NZ Post does not appear to have invested heavily in its parcel business, which has the best long-term postal growth prospects.

Thus the company has two choices. It can either focus on Kiwibank and let its postal operations decline with more and more branch closures and staff layoffs.

And the other option?

The other alternative is to partially monetise its Kiwibank shareholding by selling a minority stake to the Crown, a trade buyer or through an IPO. This would give NZ Post cash to invest in its parcel business, fund its ongoing commitment to Kiwibank and pay a higher dividend to the Crown.

A partial IPO of Kiwibank makes more commercial sense than a sell-down of Genesis Energy. It would also have a greater chance of success because The Treasury, which has made a terrible mess of the Mighty River Power, Meridian Energy and Air New Zealand sell-downs, would not need to be involved.

Imagine the wailing from the left about that…despite all the evidence around the world to the contrary thy would still oppose this idea. At least we wouldn’t have to listen tot he stupid line about “losing the dividends forever” from Labour…they have never paid one. You can’t lose what has never been given.