Releasing the interim financial results for the government-owned entity, Mr Walsh said the challenge could not be underestimated in terms of loss of revenue as NZ Post sought financial sustainability for the ''valued service''.
In the six months ended December, nearly 38million fewer letters were delivered than in the previous corresponding period.
Letter volumes fell nearly 14%, resulting in revenue decline of $20million.
NZ Post reported a net profit after tax of $6million for the period, down from $22million in the pcp.
However, the result for NZ Post's core business, excluding Kiwi Group, was a loss of $13million, which Mr Walsh said could be attributed to a marked acceleration in the fall of letter volumes.
Mr Walsh said responding to the fall, while maintaining service obligations, had resulted in a financially challenging six months.
Revenue from operations fell 3% to $452million from $467million.
Continuing operations represented NZ Post's core business plus its 53% share of Kiwi Group earnings from November 1, 2016, to December 31, 2016, and from July 1 to December 31, 2017.
Revenue from operations and expenditure no longer included revenue and expenditure from Kiwi Group's operations.
Mr Walsh said there was an increase in parcel volumes, up 9.9% on the pcp. More than 39million parcels were delivered.
''During the Christmas period, on our busiest day, we processed over 333,000 parcels, an increase of 15% from the previous seasonal record.
''The growth in parcels is evidence our e-commerce strategy is the right one.''
Focus in the second half of the financial year would be on the ongoing need to make the letters business financially sustainable, maximising the opportunities from continued growth in parcels and furthering plans for e-commerce partnerships, he said.
Meeting the year-end financial targets would be challenging. The business was having to adapt to rapidly changing customer preferences and the ongoing complexity of operational transformation, he said.
NZ Post will pay its government shareholder a $2.5million interim dividend next month, despite warning its year-end financial targets will be hard to achieve.
