Focus on service and convenience for online shoppers drives record parcel deliveries; bills and letters decline by nearly a quarter billion pieces
OTTAWA – Solid efforts across the organization to improve service and deliver greater convenience for Canadian online shoppers led to unprecedented growth in the Parcels line of business in 2015. This growth contributed to a profit before tax of $63 million for the Canada Post segment in 2015, compared to a profit before tax of $194 million in 2014.
While positive, the profit is modest in comparison to the Corporation’s revenue and the significant challenges facing the Canadian postal system. These challenges include declining mail volumes, an increasing number of addresses to serve each year, significant pension obligations and the ongoing need to invest in our infrastructure to continue to serve Canadians.
In addition to the growth in Parcels, there were three other major factors in the 2015 results: the continued erosion of Transaction Mail volumes; improved earnings as a result of strategic initiatives to transform the business; and an increase in employee benefit expenses due to lower interest rates.
The Canada Post segment’s expanding role as an essential enabler for online shoppers and retailers drove parcel deliveries to new heights in 2015. Following an unprecedented back-to-school surge in online sales in the third quarter, deliveries reached new records for the Canada Post segment. To meet the growing demand for parcel deliveries to Canadians, Canada Post responded with 16 delivery days of one million or more parcels each, and delivery of 2.2 million parcels over eight weekends. The Canada Post segment Parcels revenue rose by 9.1 per cent in 2015 compared to 2014, reaching $1.65 billion and making Canada Post the largest parcel company in the country.
The $131-million decline in profit before tax for the Canada Post segment compared to 2014 was mainly due to Canadians’ ongoing migration away from paper bills and statements to digital alternatives and a substantial increase in employee benefit expenses. Volumes of Domestic Lettermail, the largest product category within Transaction Mail, declined by 5.2 per cent or 187 million pieces compared to 2014. Since Canadians’ use of paper bills, statements and letters peaked in 2006, Domestic Lettermail volumes have fallen by 32 per cent, or 1.6 billion pieces.
The decline in Transaction Mail volumes of more than 6 per cent represents a revenue shortfall of $207 million, based on the average revenue per piece in 2015. The volume decline was reduced by the influx of mailings during the federal election period. In all, it generated more than 25 million Transaction Mail pieces and more than 60 million Direct Marketing pieces.
Earnings included approximately $390 million in 2015 due to transformational initiatives taken in response to Canadians’ changing use of postal services. A strategic pricing adjustment in 2014, more efficient delivery and improved productivity across the network all continued to contribute in 2015.
Significant volatility in pension and other employee benefit expenses posed a continuing challenge. The cost of employee benefit expenses for the Canada Post segment rose by $189 million compared to the same period a year ago. This is the result of a decrease in the discount rates used to calculate benefit plan costs in 2015, partially offset by the positive impact of strong pension asset returns in 2014.
The Canada Post Corporation Registered Pension Plan had a solvency deficit to be funded estimated at $6.2 billion (using the three-year average solvency ratio basis) as at December 31, 2015. The large size and volatility of this obligation, compared to the Corporation’s cash position and profit, is an ongoing challenge.
In 2015, Canada Post’s strong delivery performance helped increase Parcels revenue by $137 million compared to a year ago. Volumes rose by 16 million pieces or 9.7 per cent compared to 2014 for the Canada Post segment. Revenue from our top 25 e-commerce customers grew by more than 30 per cent over 2014, thanks to new business and volumes from these existing customers. Revenue for Domestic Parcels, the largest Parcels category, rose by $113 million or 10.7 per cent, and volumes increased by 16 million pieces or 13.5 per cent over 2014. The Parcels line of business now exceeds 25 per cent of the Canada Post segment’s revenue.
Transaction Mail results
Volumes in Transaction Mail, the Canada Post segment’s largest line of business, continued to decline in 2015, falling by 6.1 per cent or 239 million pieces compared to 2014. Revenue fell by $13 million or 0.4 per cent to $3.2 billion compared to 2014. Transaction Mail generated 50 per cent of the Canada Post segment’s revenue in 2015. Meanwhile, the number of points of delivery have increased over the last nine years by an average of 169,000 per year, resulting in higher costs.
Direct Marketing results
In 2015, Direct Marketing contributed almost $1.2 billion in revenue to the Canada Post segment. Direct Marketing volumes rose by 0.2 per cent or 10 million pieces compared to 2014 while revenue fell by $11 million or 0.9 per cent.
Group of Companies
The Canada Post Group of Companies1 reported a profit before tax of $136 million compared to a profit before tax of $269 million in 2014. Purolator’s profit before tax fell to $56 million in 2015 compared to $74 million in 2014 due primarily to softness in the business-to-business market.
To read the full report in PDF, visit canadapost.ca/aboutus and select “Financial Reports” from the Corporate menu.
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.
1. The Canada Post Group of Companies consists of the core Canada Post segment and its three non-wholly owned subsidiaries, Purolator Holdings Ltd., SCI Group Inc. and Innovapost Inc.
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