A Challenging but positive year

Our Retail business performed well during the year. Customers invested strongly in the State Savings Products which we sell, and manage, on behalf of the National Treasury Management Agency with the funds increasing by over €1.5 billion. Prize Bonds had a successful year with a fund increase of €269 million. The growth in these funds is largely due to the trusted nature of the An Post brand and the features of the State Savings Products. In addition, the number of other transactions, on behalf of clients such as the Department of Social and Family Affairs, Western Union and others, also increased. These welcome developments did not, however, fully compensate for the impact of declining revenue in our mails business. We intend to add additional Financial and Retail products to our product portfolio.

The reduction in operating costs was a major contributor to the Company’s financial performance. This was delivered by the ongoing successful implementation of the Company’s Change Programmes, particularly the Collection and Delivery Programme, which resulted in a reduction of 402 Full Time Equivalents (FTE); a company-wide pay freeze and a major reduction in non-pay operating costs. An additional headcount reduction of 1,375 FTEs over the next three years is planned in order to reduce the Company’s cost base still further.

An Post’s strong cash position allows the Company to plan further necessary investment in infrastructure. This investment, together with the ongoing implementation of change programmes, will set the foundation for providing world class mail operations into the future.

The Transformation Programme comprises a portfolio of the most important strategic projects throughout the organisation. This portfolio covers all aspects of the preparatory change required prior to full market opening and commands priority in resourcing and execution. Project execution and the delivery of benefits are monitored rigorously and substantial progress was achieved throughout 2009.

Revenue and profitability remain important measures of success for any commercial enterprise. However, there are other important parameters without which positive financial outcomes cannot be sustained. These include such measures as Quality of Service, reflected in the on-time delivery of mail; widening of the revenue base; demonstration of true customer focus and the use of information technology to enhance efficiency. I am pleased to report that we have demonstrated significant further progress in all these important areas.

Recently, An Post and BGL BNP Paribas, the joint shareholders of Postbank Ireland Ltd., decided to discontinue the joint venture by the end of 2010. A number of factors led the shareholders to this decision, including the unprecedented circumstances of the financial services sector, the highly competitive savings market within Ireland and the absence of any prospect of profitability in current market circumstances.

Arising from this decision, Postbank management will implement a professional and orderly wind-down of the bank. In the interim, it will be business as usual for existing Postbank, One Direct and PostPoint customers and they will be able to conduct their banking, insurance and related activities in the normal way.

Improved Mails Quality of Service

Consistency of performance and improved quality are vital to success in our core activity of mails collection, processing and delivery. Our target is 94% for next day delivery of domestic mail and 99.5% for delivery within three days. We continue to improve our performance at every stage of the process – from collection through to processing, distribution and delivery. 2009 saw further major improvement in respect of these  targets and was the third successive year of record quality results. The latest published full year data from ComReg, the Commission for Communications Regulation, confirms that 84% of domestic mail was delivered the following day and 98.3% within three days. This represents a highly significant five percentage points increase in the next day domestic delivery performance over that achieved in 2008.

We have, again, met and exceeded the international mail quality delivery targets as set in the European Union (EU) Postal Directives of 85% in three days and measured by the International Post Corporation (IPC) UNEX Measurement System. The Company achieved 96% on inbound Mail and 94.6% on outbound mail during 2009 and was awarded the IPC Certificate of Excellence in the Management and Processing of International Letter Mail. In addition, we were also presented with the Universal Postal Union EMS Co-operative’s Performance Award – “Gold Level”. An Post is now placed among a small leading group of companies which have received this award.

As part of a multi-year €150 million investment programme, we continued to focus on those areas which will help to drive further efficiencies and improve service quality. For example, the Board approved capital expenditure in the next generation of automated mail sorting equipment. At present, our equipment can sort 35% of all mail to the level of each delivery route. When completed, this investment will enable sortation of 80% of mail to this level.

In 2009, we completed our rollout of collection scanning to 100% of induction points nationwide which was a significant contributor to quality improvement. In addition, we launched our Six Sigma programme which will see the management within our mails operations trained to the highest standard. This proven approach to process management will be a major contributor to achieving our quality goals in the years ahead. 

Staff engagement

I regard the development and maintenance of good relationships with all employees as fundamental to our future.

Our relationship with our staff and their trade union representatives has remained open and constructive. This has ensured clarity of purpose and a genuine sense of co-operation at all levels concerning the success of the organisation. In this regard, I am pleased to report that the implementation of a number of change programmes continued successfully with the support of our staff and the trade unions which represent them.

Two years ago, I committed to building the capability of An Post by making a significant investment in the training and development of its people. Our senior management group finished a modular leadership development programme during 2009.

Staff from many other areas of the Company, including front-line management, commenced similar training and development programmes. In our retail business, for instance, we invested significantly in training our staff and postmasters in post offices, an initiative which is already achieving increased revenues. I firmly believe that, across the whole Company, this approach is pivotal to our future success.

Securing future revenue streams

The Company continued to demonstrate the effectiveness of direct mail as a marketing medium for businesses and undertook a range of promotional activities to help companies exploit their potential.

This included workshops, events featuring expert speakers and master classes in all aspects of direct mail. We continue to support direct marketers and their agents by sponsoring the national Direct Marketing Awards.

We recognise the potential afforded to our mails business by e-commerce. Mails service providers have a vital role to play in the fulfilment of online and catalogue generated orders and this represents a growing opportunity for us. As a way of further stimulating this business, An Post’s Online Shopping Directory provides a comprehensive up-to-date internet portal, providing one-stop access to Irish and international online shops and e-fulfilment. We remain focussed on delivering new products to these growth sectors and will continue to produce customised solutions for our major clients.

Mails market opening

The competitive market is already a reality, as over 60% of the mails market revenue has been open to full competition for many years.

I believe the Company is well positioned to cope with the full liberalisation of the postal market in 2011. An Post welcomes competition; the liberalised market will benefit the customer and provide new opportunities to demonstrate, as a commercial State-owned enterprise, that An Post can compete and win on the basis of quality, cost and innovation.

An Post is proud to be the Universal Service Provider in Ireland. I believe that providing this service is a significant undertaking and the Company needs to ensure that the business model continues to be robust. Equally, the Company is committed to growing mail volume and developing markets where it can, such as parcels and direct mail, by providing value for money, further improving quality and by developing and introducing innovative new products.

During 2009, both the Department of Communications, Energy and Natural Resources and ComReg engaged in consultative initiatives regarding the structure of the liberalised market. We have participated fully in the process by preparing detailed positions in respect of all aspects of the future market structure. Our input included positions on issues ranging from the Universal Service Obligation and regulation of products, prices and quality, to infrastructure and downstream access, in order to ensure that we can provide the service that customers want on commercially viable terms.

Postcodes

Last September, the Minister for Communications, Energy and Natural Resources, Mr Eamon Ryan T.D., announced that the Government had approved the introduction of a postal code system for Ireland. Tenders will be invited for the implementation of this new system and the Government expects that these codes will be assigned and in use by the end of 2011.

An Post supports the introduction of postcodes and will play a key part in delivering to our diverse stakeholders the many and varied benefits of this important piece of national infrastructure.

Subsidiaries

The Company also strengthened its presence in a number of ancillary markets.

Air Business, a 100% owned subsidiary of An Post in the UK, is a distributor for publishers and direct mail clients. The company operates outside of the traditional postal terminal dues system and is now a leading quality provider of mailing services in the fully liberalised and highly competitive UK market. The company has seen significant growth and new opportunities during 2009.
 
In May, the company acquired a major competitor, Jordan and Co. International Limited, the mail and fulfilment service provider, based near Oxford, to produce a very successful business with a combined turnover of stg£30 million. Our involvement not only enables high quality international mails traffic but also provides first-hand experience of a liberalised marketplace.

An Post purchased a 53.6% shareholding in The Gift Voucher Shop (GVS) during the latter part of 2009. The GVS business commenced as a strategic partnership in 2002 and has continued to grow strongly. The company sells store gift vouchers through the Post Office network in Ireland as well as directly through its corporate sales team, online and through its call centre. A One4All, multi-store, electronic Gift Card, launched in 2007, has proved to be its most successful product to date and the product was launched in the UK last year. GVS demonstrates how An Post can develop strong franchises, working closely with partners at home and abroad, harnessing the strength of its long-established business relationships to deliver rapid growth.

Increasingly, businesses wish to deploy electronic document workflows enabling operational efficiencies and enhancing security. In partnership with Adobe Corporation, Post.Trust’s products allow companies to create electronic documents (in the areas of contract execution, invoice generation and general business correspondence) that have embedded, legally binding digital signatures. These products are available to both large and small businesses. This technology provides both verified author identity and document integrity. We are confident that this initiative anticipates and will fulfil the needs of customers in this growing market.

Innovation

I am committed to the development of a process to embed innovative, new ways of thinking and working which will deliver new products/services as a systemic component of how An Post operates. We will build on recent initiatives – for instance our full-service postal vending machines; postfone, a mobile phone service offering available soon through our retail outlets; the possibilities of the Gift Voucher Shop and others. We will also investigate opportunities available in the digital area including hybrid mail.

In the postal context, the opportunities for process innovation are limited only by technological developments and the benefits range from direct operational efficiencies to added-value offerings for major customers.

Such opportunities can also result in very visible and high profile initiatives as can be seen in our retail outlets. I intend to see this activity placed on a firmer footing across An Post over the coming year.

I would like to thank the Board for their assistance, support and guidance during 2009 and, in particular, I would like to thank our Chairman, John Fitzgerald for his contribution and support. I would also like to thank my management team, our staff and contractors for the dedicated and committed manner in which they carried out their duties. In conclusion, I wish to express our gratitude to all our business partners for the trust placed in us. Their confidence will spur us to continue to improve our performance and to ensure that we are reliable partners in all aspects of logistics, communications and financial transactions.

Both the financial and operational outcomes of 2009 illustrate how this fine Company can deal with significant challenges. We achieved this by working together, by focusing our efforts on those aspects of the business which deliver customer value and improve the quality of our service. As we enter a fully competitive market this approach can and must remain central to our efforts.

Donal Connell
Chief Executive
25 March, 2010