Financial Overview

Achieving an operating profit of €5.7m for the year has been a considerable task given the economic environment in which the Company had to operate. The Company reacted swiftly to the change in turnover which emerged very early in the year and succeeded in reducing its cost base so as to retain its profitable status.

Turnover

Turnover decreased from €850m to €804.2m in 2009 due mainly to a reduction in the volume of traditional mail. This volume decline is directly related to a number of variables in the economy including economic growth, the number of house completions and general expenditure. All of these factors moved adversely during the year and their cumulative impact was to reduce the traditional mail volume by 10%.

Turnover in the retail business grew during the year as a result of a very substantial increase in the financial services activity conducted with An Post. The value of the NTMA funds originating through An Post outlets, including Prize Bonds, increased by €1.8 billion. The volume of other transactions carried out in post offices on behalf of clients such as the Department of Social and Family Affairs, Western Union, the utility companies and others, also increased in the year. The Company also added some new income streams during the year and these contributed to mitigating the full impact of the decline in the volume of traditional mail.

Operating Costs

Wages, salaries and postmasters’ costs were reduced by 1.7% from €599m in 2008 to €589m in 2009. There was a follow-on impact in 2009 from pay arrangements implemented in 2008. Discounting this from the labour cost demonstrates a declining labour bill of 3.4%. This reduction is being achieved by reducing the Full Time Equivalent (FTE) number employed in the Company. Compared to December 2008, a reduction of 402 FTEs was achieved by the end of December 2009 and this has laid the foundation for significant cost savings in the future.

Other operating costs were reduced by 4.7% to €210m. This was a considerable achievement as the Company continued its investment in marketing and in the An Post brand.

Tangible Fixed Assets

Capital expenditure in the year amounted to €51.4m, reflecting significant expenditure on buildings, equipment and the transport fleet. The programme of renewal for the transport fleet continued with 650 replacement vehicles acquired during 2009. There were no significant asset disposals during the year. Further capital investment plans are in place for 2010-12, including investment in the next generation of mail sorting equipment, which will enable the sorting of 80% of all mail to delivery route level.

Treasury Policy and Cash Resources

The strong cash position on the balance sheet allows the Company to plan for investment. Both in capital expenditure and in the implementation of the change programme, this will set the foundation for providing world class mail operations into the future.

The Group’s treasury function operates under a Board-approved policy which is low-risk and non-speculative. In the past year, there has been considerable change in the Financial Services sector and, with Board approval, the treasury function took appropriate steps to protect the financial assets of the Group. The primary objective of the treasury function is to ensure the availability of funds for trading activities while optimising the return on available cash resources.

Pension Schemes

Pension schemes in the Group are accounted for under FRS17 and show an accounting deficit of €403m compared to €582m in 2008. In 2009, there was a recovery in the value of the assets of the schemes following a very disappointing experience in 2008 arising from the performance of the financial markets. At the end of 2009, the assets of the pension schemes amount to €1.7 billion, representing an increase of €206m over December 2008.

In common with the majority of Defined Benefit (DB) pension schemes, the An Post DB schemes do not meet the Minimum Funding Standards required by the Pensions Board. Discussions amongst all the interested parties have commenced with a view to formulating an agreed funding plan to address the requirements of the Minimum Funding Standards. The agreed plan must be submitted to the Pensions Board for its approval by the end of 2010.

Balance Sheet

The Group balance sheet shows fixed assets of €243m, cash balances of €288m and a net assets position before pension liability of €356m.

The Group’s balance sheet provides a stable financial basis on which to implement its strategy.

Economic Outlook

The economic environment for a national postal operator was very adverse in 2009. The Company has however, adjusted rapidly to the circumstance and remains profitable. Actions to mitigate this impact include vigorous cost control and further efficiency improvements. The full effect of the economic environment continues to be monitored and the business will react to this as the circumstances dictate. It is expected that the climate will be better in 2010 and the improvements in the cost base and the income generating developments underway will show benefits in the near future.