“Urgent help is required” for Australia Post to protect letter post services (including large print post), Australia Post Group CEO and Managing Director Christine Holgate has said on releasing the service’s 2019 annual results.
Australia Post’s 2019 financial results
Australia Post recorded a group revenue of $6,990 million – an increase of two per cent on last year – and a profit before tax of $41 million, down from $126 million the previous year.
The Group said that the full year profit result is in line with that achieved three years ago, although masks the significant transformation from a letter business to a growing delivery and services organisation. The Group’s letter business includes large print post (under 500 grams), which magazines are categorised under.
Australia Post earned over $4,774 million in ‘Parcels and Services’ revenue in FY19, representing 68 per cent of total revenue. It said that the letters business now accounts for just 32 per cent of total revenue at $2,216 million, impacted by falling letter volumes.
Letter revenues declined by almost 9 per cent to $2,216 million, and losses from this business increased to $192 million.
The print post issue: rising costs, declining volumes
Australia Post said that the fixed costs to operate the letter business continue to rise with increasing delivery points, although there has been no increase to the ‘Basic Postage Rate’ in over three years, when the service delivered 822 million more letters.
The service also said that the losses in the letters business were after receiving the benefit from posties who are now carrying over 40 per cent of parcels. This significantly contributed to the $250 million of additional efficiency savings the group achieved in the year, which supported Australia Post remaining profitable.
Earlier this month, Australia Post submitted a proposal to increase the price of its ordinary letter service to the ACCC. If approved, the 10 per cent increase would start in January 2020.
Ms Holgate said that the increase is critical to offset declining volumes and increased delivery points.
“It is important letter pricing is addressed responsibly to ensure essential community post services are protected. Without an increase to the Basic Postage Rate, Australia Post will no longer be able to afford to fully subsidise the losses from the important post business, which would risk the closure of community post offices and a reduction in services.
“Australia Post is absolutely committed to honouring our community obligations and appreciates the essential role we play in communities, but urgent help is required.”Christine Holgate, Australia Post Group CEO and Managing Director
Australia Post has forecast that although Group revenue will grow in FY20, there will be continued pressure on profitability due to the ongoing impact of letter losses.
The print post problem for magazine publishers
In its submission to the ACCC, Australia Post points to the decline of large print post as a significant contributor to the request for a price increase, stating that large print post volumes have declined at an average annual rate of 5.8 per cent since 2007-08, and this decline looks to increase with volumes declining by 10.6 per cent in 2016-17, and by 9.9 per cent in 2017-18.
Magazine publishers are a large contributor to large print postage, and are likely a large contributor to the volume decline. The challenges of digital disruption and declining print revenues (for some) have meant a more stringent approach to subscriber management, or in some cases, the discontinuation of underperforming print publications.
Postage is a large contributor to magazine production costs, and a 10 per cent increase represents a significant impact to a publication’s bottom line. So the problem is circular: an increase in letter post services will likely compound Australia Post’s declining volumes of large print post.
The ACCC intends to release its preliminary view on Australia Post’s draft proposal in November 2019, and will soon release an issues paper providing further information on Australia Post’s draft proposal and its review by the ACCC with guidance for submissions.