Canada Post Group of Companies reports pre-tax loss of $75 million in the third quarter

Declining mail volumes result in losses for a sixth consecutive quarter

OTTAWA, Nov. 26, 2012 /CNW/ - Accelerated mail volume declines have resulted in financial losses for a sixth consecutive quarter for the Canada Post Group of Companies.

The underlying cause is a historic shift from paper-based to digital communication by consumers, businesses and governments. Canada Post's core Transaction Mail volumes are likely to decline further and rapidly. The Corporation is accelerating the transformation of its business in order to meet the evolving needs of Canadians and avoid becoming a burden on taxpayers. As Canada's preferred home delivery company, the Corporation is meeting high service standards for all its products.

Financial results

The Group of Companies¹ reports a loss before tax of $75 million in the third quarter, which ended September 29, 2012. For the first three quarters of 2012, the loss before tax was $88 million.

The Canada Post segment is the core mail, parcel and digital delivery business. It had a loss before tax of $91 million in the third quarter and a loss of $114 million in the first three quarters of 2012.

Volume decline

Transaction Mail volume fell by 9.0% or 119 million pieces in the third quarter and by 5.9% or 207 million pieces in the first three quarters, compared to the same periods last year. Transaction Mail generates most of the segment's revenue. In the largest product category, domestic Lettermail, volumes decreased by 9.5% or 116 million pieces in the third quarter. Volumes fell by 6.3% or 205 million pieces in the first three quarters, compared to the same periods last year.

Direct Marketing mail volumes fell by 7.3% or 113 million pieces in the third quarter when compared to the third quarter of 2011. Year-to-date 2012 volumes have declined by approximately 285 million pieces compared to the same period in 2010. (A comparison with 2011, when a labour disruption occurred in June, would unintentionally minimize the severity of the decline). Direct Marketing volumes fell as corporate customers reduced their marketing spend and shifted to electronic media.

Canada Post's Parcels results continue to reflect strong growth in e-commerce orders. On a year-to-date basis, Parcel revenue is up by 7.0% and volumes are up by 6.8% or 7 million pieces, compared to the same period in 2011. However, this growth is not sufficient to offset losses from mail volume declines.

Risks surrounding labour costs

Canada Post must secure collective agreements that enable it to compete. On October 5, 2012, Canada Post reached tentative agreements with the Canadian Union of Postal Workers' bargaining units for urban employees and for rural and suburban mail carriers. Ratification voting is underway until December 19, 2012. Successful ratification would allow Canada Post and the 53,000 employees in these bargaining units to focus on transforming the business to face the digital economy. A failure to ratify could worsen Canada Post's significant challenges and make aspects of the tentative agreements unaffordable.

Challenging pension obligation

The Corporation continues to face a volatile solvency deficit to be funded of approximately $4.7 billion² in its pension plan, as at December 31, 2011. The serious challenges facing the plan are better represented by the deficit on a market-value basis, which is approximately $6.6 billion, also as at December 31, 2011. Canada Post is responsible for funding shortfalls in the plan and must be viable in order to meet this obligation and to fund post-retirement benefits.

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.

¹ 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.
² The solvency deficit to be funded is based on a three-year average solvency ratio basis.

SOURCE: Canada Post