President’s Message

AS THE ONLY COMPANY THAT TOUCHES EVERY CANADIAN, WE PLAY A VITAL ROLE IN THE ECONOMY. WE MUST MAINTAIN OUR FOCUS ON HELPING OUR CUSTOMERS CONNECT TO THEIR CUSTOMERS IN GOOD TIMES — AND IN BAD.

I am very pleased to report that Canada Post remained profitable in 2008 despite the difficult economic conditions that surfaced last fall. Like many other companies, Canada Post was affected by rising costs and decreasing volumes. The consolidated net income for The Canada Post Group was $90 million, a slim margin on the $7.7 billion of revenue earned.

Results were driven by a decline in transaction mail volume of 2% in 2008. While we are proud to deliver to every home every day, this drives high fixed costs, making us vulnerable to any volume decline. We cannot simply reduce our service when faced with reduced volumes.

To achieve these earnings, our people had to implement stringent cost-containment measures. In our core Canada Post segment, these steps reduced planned expenditures by $150 million. This was on top of already budgeted costs savings of $100 million, of which we achieved $90 million in actual savings. Without this, the Canada Post segment would have suffered an operating loss of well over $150 million in 2008. These results demonstrate the commitment of our people in what were clearly difficult circumstances.

In light of these and other challenges, in April 2008, the Government called the first independent review of our business in a decade. Our submission made a number of recommendations about key changes to our financial framework. These changes would enable us to continue to make the investments necessary to ensure Canada Post will always deliver the service Canadians expect and remain viable for years to come. I welcome the opportunity in 2009 for an open exchange about the panel’s recommendations and what is necessary to help our great company move forward successfully.

Like other large employers, one of the challenges we face relates to our Pension Plan. The Canada Post Pension Plan remains fully funded on a going-concern basis. That said, the economic downturn has had a negative impact on the Plan’s position. Moreover, solvency deficit rules have created uncertainty regarding future cash flows for operations. The combination of economic conditions and solvency-funding rules may require additional contributions as early as 2010. That is above and beyond the regular $270-million annual contributions.

Even as we manage all of these challenges, we know they also drive an urgent need for the modernization of our operations. We must continue to invest in our people and infrastructure, and we are ready with a detailed plan to do just that.

In 2008, we started implementing this plan to bring our vast network up to modern standards. We have made great progress. We are on schedule to open our first new mail processing facility in 20 years in Winnipeg by mid-2010, which will include new, faster, ergonomic processing equipment and will introduce a modern model for more efficient delivery.

This modernization is critical for our ability to continue to meet our service obligations. Contingencies in place are inefficient and costly. Existing, old equipment poses a health and safety hazard for our employees. Modern plants, equipment and technology will not only help us address these issues, but provide capabilities to enhance our service and remain relevant to Canadians in the future.

Given the uncertain economy, and until we can gain greater certainty regarding our financial framework going forward, phase one of our plan, estimated at $750 million, addresses only our most critical needs. We will adjust our spending according to our financial situation.

In 2008, we also made more progress building a workplace that is respectful and safe. Our independent employee survey again showed across-the-board improvements; we have seen an eight-percentage-point jump in our Employee Engagement Index in two years. We are also very proud to be named a Top 100 employer by Mediacorp for the third year in a row. Work will continue to connect our people’s daily efforts with corporate priorities and success.

We know that the health and safety of our people is a key part of engagement. Regrettably, we did not meet our target to reduce our high number of accidents in spite of our extensive efforts during 2008. Going forward, we will continue to raise safety awareness and focus on safety training and leadership, which, along with our focus on environmental sustainability, is a key component of our overall strategies to improve corporate social responsibility at Canada Post.

While many charitable organizations are being squeezed, in just six months, the newly created arm’s-length Canada Post Foundation for Mental Health surpassed its fundraising goal of $1 million. Our people’s generosity and enthusiasm made this campaign an incredible success. The Foundation will begin distributing funds in 2009 to raise awareness, and to support patients and families dealing with mental illness.

The past year was difficult but with great achievements. I would like to acknowledge the tremendous efforts of my colleagues on our executive team and Canada Post employees, and all our partners for this year’s results. I would also like to thank all of our loyal customers for their continued support.

This year will continue to be demanding. Like other companies, based on the current outlook, we are expecting continued volume decline. To counter this, we are seeking to aggressively cut planned costs in the Canada Post segment by another $250 million.

Looking forward, we understand our challenges and what we must do to overcome them. Even as we work to establish a new financial framework, we will continue to focus on our business priorities. We are confident that we will be able to maintain our role in connecting Canadians in the future.

Moya Greene
President and Chief Executive Officer