Chairman’s Message
THE ENVIRONMENT IN WHICH WE OPERATE CHANGED DRAMATICALLY IN 2008. LATE IN THE YEAR, WE SAW A PRECIPITOUS FALL IN REVENUE AS THE EFFECTS OF THE FINANCIAL CRISIS BEGAN TO BE FELT AROUND THE WORLD. AS A RESULT, WE FACE MANY CHALLENGES IN 2009.
On behalf of the Board and our Shareholder, I am pleased to present The Canada Post Group’s financial results for the 12-month fiscal period ending December 31, 2008.
Despite the fact that 2008 was a challenging year at Canada Post, the Group ended the period with net income of $90 million. Income before taxes was $161 million against a plan of $127 million. Although this extends the Group’s record of profitability to 14 consecutive years, our profit is very slim and is becoming increasingly difficult to achieve. In 2008, Canada Post paid a dividend of $22 million to its Shareholder, the Government of Canada. Our return on equity reached only 6.1 per cent, reflecting the challenging market conditions in 2008.
The Canada Post Group’s profitability in 2008 was largely due to some very aggressive cost-cutting measures that were put in place in March of last year by the Canada Post segment, well before the recession started. If it had not been for this timely and proactive effort, the Group would have lost money for the first time in 14 years.
To remain successful and profitable, the Board recognizes that Canada Post must continue to transform, improve delivery services across all media, and deliver real value to all its customers — businesses and consumers alike.
To meet customer needs in these challenging times and remain profitable, the Board and management agree that significant investments must continue to be made in renewing our network and equipment, and upgrading our infrastructure. We must also invest in our people. Management and the Board will continue to work closely together to ensure that these important investments are made prudently and that the ensuing benefits to employees, customers and all Canadians are realized.
In 2008, we started work on a new state-of-the-art, environmentally friendly mail processing plant in Winnipeg. The plant, which is expected to be up and running in 2010, will be equipped with new technology and ergonomically sound, next-generation mail processing equipment. A model for the Modern Post and other facilities across the country, the plant will give Canada Post’s customers the service they need to compete in the marketplace, and its employees a new and efficient working environment with more safety features.
In October 2007, after much study and review, the Board approved a five-year plan to renew the aging infrastructure of Canada Post. This decision was taken in order that we may be able to continue to serve Canadians in the manner they deserve. At the time of this approval, it was anticipated that Canada Post would be able to finance its requirements mostly from internal sources. Unfortunately, with the severe economic downturn in 2008, and the impact this is having on both our revenues and pension funding requirements, Canada Post no longer has the internal resources to fully fund the renewal of its infrastructure. In its submission to the Canada Post Strategic Review, Canada Post recommended a number of changes to our existing financial framework, including greater flexibility for the company to price its products and timely access to capital markets, in order to protect service and allow for Postal Transformation. These changes are now more important than ever. We look forward to working with our Shareholder over the coming months to see these recommendations through.
With some 72,000 employees, The Canada Post Group has a presence in every community across the country. As a result, our operations can have far-reaching effects on Canadians from coast to coast as well as on the environment and our economy. The Board recognizes that Canada Post must take a serious approach to its corporate social responsibility and is pleased to play a key oversight role in these crucial activities.
It is clear that 2009 will be even more challenging than 2008 and that we will face tremendous uncertainty in many key areas. In January 2009, our Shareholder, the Government of Canada, tabled a Budget that forecasts a steep deficit for the first time in more than a decade. The government also made clear that it does not expect the recession to end in the near future. For Canada Post, there is another very specific problem; even before the financial crisis, the postal sector was in decline around the world. The declining Lettermail volumes we experienced in 2007 continued into 2008. The current recession and financial uncertainty is causing businesses to curb spending. Any reduced spending will put pressure on Canada Post’s revenues in 2009, especially in direct mail. We must further reduce our cost base if we are to weather the continuing revenue declines caused by this recession. We must also continue our evolution into a dynamic, forward-thinking organization if we are to prevail over the new and ongoing challenges that 2009 will bring.
On behalf of the Board of Directors, I would like to say that I am convinced that we have the committed management team and dedicated employees we need to continue to operate successfully and profitably even during this economic downturn. These people did a great job in 2008 and will do so again in 2009. Eventually the economy will improve and, as the only company that touches every Canadian and every community daily, we can help that recovery by focusing on our customers and being sensitive to the hardships that many Canadians will endure. The Board is committed to continue to work with management and employees to transform Canada Post into a Modern Post that is prepared and able to meet the needs of Canada and all Canadians — today and tomorrow.
Marc A. Courtois
Chairman of the Board of Directors