2011 was marked by positive achievements for An Post, despite the great challenges posed to the Company, and its customers, by the difficult economic environment.
Falling mail volumes, increasing electronic substitution and new competition are now well established and continue to have an impact on our mails, retail and subsidiary businesses
The process of adapting the business to the commercial realities of the marketplace continued apace through ongoing change implementation, innovation, strategic investment and cost reduction programmes.
2011 saw the full liberalisation of the Irish mails market, opening it to full competition as laid down by the Communications Regulation (Postal Services) Act 2011, with An Post as the designated Universal Service Provider for a period of 12 years.
The Company continued to invest in those areas which are critical to the business and also in areas which have the potential to generate new revenue streams. We maintained our strategic focus, improving competitiveness, service quality and stimulating innovation throughout the organisation. We continued to adapt the Company’s structures and business model to deal with the changing business environment. We are determined to support our customers in developing and growing their businesses.
We continued our focus on improving domestic quality of service and once more exceeded our targets for delivery of international mail.
Operating Profit
The Company achieved a group operating profit of €2.2m in 2011 (down from €5.8m in 2010), a very solid outcome given the challenges outlined above. This performance resulted in large measure from the implementation of Change programmes. Savings of €15.4m in pay costs were achieved through more efficient working arrangements, automation and a Full-time Equivalent (FTE) average reduction of 300, bringing the total staff FTE reduction since 2008 to almost 1,100 within the core business. An additional staff FTE reduction of 1,500 will be complete by 2016. During 2011, non-pay cost savings totalled €10m, a 3.7 per cent reduction on the previous year’s result. A similar level of cost reduction will be achieved in 2012 to bring the total cost reduction to €100m since 2008.
Strong parcel, retail and subsidiary performances also contributed significantly to the achievement of Group Turnover of €806.7m, an increase on the previous year (€805.1m). Given that core mail volumes fell by a further 7 per cent in the same period, this was a strong performance.
It is anticipated that mail volumes will continue to decline internationally; responding to this trend remains the biggest challenge facing the Company in the year ahead.
Mails
We are proud to lead the way in postal quality and innovation. We have invested in the latest processing equipment and software for our Mails Centres. We have funded these projects from our own resources and they will enable us to capitalise on emerging opportunities within the letters and parcels market as well as ensuring the provision of a top quality service for all customers.
An Post’s Certificate of Excellence in the Management and Processing of International Letter Mail, first awarded for a three-year period by the International Postal Corporation (IPC) in early 2009, was extended for a further 18 months. This followed rigorous evaluation by the IPC of our Airmail unit at Dublin Airport and the Dublin Mails Centre, through which the majority of incoming foreign letter mail is initially processed. During 2011, we continued to exceed our performance targets and achieved 95.4 per cent next day delivery for incoming international mail and 88.6 per cent for outgoing mail reaching its destination country next day. We have maintained this quality level for seven successive years. The retention of this Certificate confirms An Post’s position as a quality leader in the European mails market.
Domestic quality improvement and customer service are at the centre of our business transformation and development strategy. We maintained our focus on sustaining progress within the context of ongoing operational change and investment in the mails and retail infrastructures. The building blocks for the next stage of the quality improvement process, which will enable the introduction of added-value letter and parcels services, are now in place. Investment during 2011 in new technology, staff training, process improvement and the consolidation of our Delivery Service Units will continue to bear fruit this year and in the years to come.
We achieved ISO9001 accreditation for our four automated Mails Centres in Dublin, Cork, Athlone and Portlaoise, together with our 120 large-scale Delivery Services Units and our national Customer Services unit, based at the GPO, Dublin.
As the designated Universal Service Obligation (USO) provider, we are fully committed to providing mails collection and delivery services five days a week to more than two million addresses for a uniform price – i.e. the same postage rate applies to a letter posted from Dublin 1 to Dublin 2 as applies to one posted from Cork to Letterkenny. The USO is a vital piece of national infrastructure, central to the business and community life of the country and a key facilitator of economic activity including new business innovation.
The Company’s commitment to the provision of this service without recourse to grant or subsidy, underpins this ongoing programme of strategic investment, cost containment and innovation. However, the funding of the USO is now a business-critical issue. Last year An Post delivered to 100,000 more delivery points than in 2007 – the year in which the price of the basic stamp was last increased. In that same five-year time period, mail volumes fell by almost 25 per cent, and significant further decline is expected in 2012.
This trend has resulted in a serious and unsustainable shortfall in USO funding, jeopardising both the future of the service and the viability of An Post’s wider operation. The underlying loss in the USO in 2011 has increased on the €50m loss in 2010. In spite of significant cost reduction, mail volume decline means that without the necessary price adjustments, the situation will continue to deteriorate. Our European counterparts have recently made at least one price change, leaving Ireland as the second lowest basic tariff across the EU15 group of countries. This was confirmed recently when The Business, Innovation and Skills Committee of the UK House of Commons released a report dated March 1st on ‘Stamp Prices’. At paragraph 6 it notes that “The UK currently has the fourth lowest first class stamp price among EU-15 (pre-expansion EU) states. Only Spain (37p), Ireland (42p) and Luxembourg (45p) are cheaper”. Since then, Royal Mail has announced significant price rises of 30 per cent and 39 per cent respectively for its first and second class services effective from 30 April 2012. It is in this context that we have submitted an application to ComReg for a price adjustment across our USO products and services.
In February of 2012, ComReg served legal proceedings on An Post under the terms of the European Communities (Postal Services) Regulations 2002, seeking an order from the High Court that An Post comply with the 94 per cent next day delivery target for single piece mail and seeking to impose a financial penalty on An Post for alleged non-compliance with the quality of service standard.
Given the efforts we are making in relation to the quality of our service, we are surprised that ComReg has chosen this course after several years of steady and sustained improvement in mails quality. This performance is evidenced in our own data; corroborated by the ongoing quality of service monitor run independently by PWC,which have been shared with ComReg, as well as the independent international postalindustry monitors mentioned above. We will contest this action vigorously.
At the beginning of 2011, we issued new workwear-style uniforms to 4,500 mails collection & delivery staff. They are now equipped with state-of-the-art handheld scanning technology to confirm collection and delivery detail which is available tothe customer in real time. An Post is the first postal operator in the world to equip allits mails staff with this technology.
The Company has signalled its intention to participate in the tender for the Postcode Management Licence which is to be put to the market by the Department of Communications, Energy and Natural Resources during 2012.
Online and catalogue shopping directly increased the volume of packet and smallparcel mail. An Post will continue to invest in this market segment by providinginnovative supports and new products to stimulate growth while anticipating the needs of online sellers and shoppers alike.
Working closely with customers of all sectors and sizes, we concentrated resources on helping business to do more business. We engaged with start-up companies requiring assistance to drive online traffic, sales and service. We dealt with long-established businesses growing their product portfolio as well as large Irish and international brands with high volume, time-sensitive mail. Our focus is on understanding their needs so as to deliver service, reliability and added-value by putting our unique infrastructure and expertise to work for them in Ireland and through our UK subsidiary, Air Business.
Workshops with marketing experts, master classes and online direct marketing case studies were made available free-of-charge to business customers during 2011. We focused particularly on the SME sector, encouraging these businesses to combine mail campaigns and digital marketing techniques to drive sales growth and customer loyalty. An Post joined forces with Google, Blacknight Solutions and the County & City Enterprise Boards in the ‘Getting Irish Business Online’ initiative which helps SMEs to develop an optimal online presence to support sales and expand their business.
Retail Services
The retail arm of An Post performed very strongly in 2011. As other financial institutions continue to rationalise their networks, we continue to expand our product and service offerings. The size and configuration of our retail network, as well as the footfall of approximately 1.7m customers per week, hold many attractions for other financial organisations currently reviewing their operations.
There was a strong net inflow to State Savings in the earlier part of the year, and while they softened somewhat around mid-year, this trend was reversed during the autumn. The year ended with a net inflow of €1.4 billion. This fund now stands at over €14 billion (this amount covers 12 per cent of National Debt and equates to 14 per cent of household savings). These monies represent very good value to the State when compared with yields on the international markets.
The potential to broaden our revenue base is evidenced by the steady growth of recently introduced services. postfone, our mobile phone service, continues to build its customer base in a highly competitive marketplace. We formed a strategic alliance with DHL to provide a new international premium overnight courier service, combining our respective infrastructural and global logistics expertise. During its first year of operation at 329 Post Offices nationwide the new Sterling and Dollars Foreign Exchange facility captured 23 per cent of this market. Our over-the-counter BillPay facility handled 25 million transactions in 2011 and provided an excellent platform to launch its online extension, mybills.ie. This free online bill payment and budgeting facility attracted more than 50,000 registered users within just 19 weeks of its August launch. It is a complementary addition to our suite of financial services products.
Security remained a top priority during 2011. While there was an increase in armed raids and attempted robberies, adherence to security protocols resulted in the vast majority being unsuccessful. An Gárda Síochána had considerable success in their subsequent investigations. Unfortunately, a small number of An Post staff, agents and their families were the target of ‘Tiger Kidnap’ raids. Again, adherence to security protocols, training procedures and close cooperation with the Gardaí are key to combating this type of criminal activity.
Subsidiaries
We have continued to broaden our revenue base through our subsidiary businesses. As planned, we will, over the coming years, reduce our dependence on mail-generated revenue. Turnover in subsidiary companies reached €84m, an increase of 24 per cent in the year.
UK-based subsidiary, Air Business, which specialises in international periodical and direct mail distribution, is now one of the UK’s fasting growing and most successful international mailing companies. Last year it acquired Quadrant Subscription Services (QSS), a leading subscription management and publishing services firm. Through Air Business we provide customised added-value international services for a growing number of large Irish-based customers.
The licence under which the An Post National Lottery Company operates has been extended to June 2013. The Minister for Public Expenditure and Reform, Brendan Howlin T.D., announced that his Department will hold a tender process which will include the payment of several hundred million euro by the successful bidder. The licence will be granted for an extended period of 20 years. An Post intends to actively participate in this process.
Reputation and Brand
An Post was recognised as the most reputable indigenous Irish company in the 2011 RepTrak survey conducted by the International Reputation Institute. We are very proud of our trusted position at the heart of Irish business and Irish communities, particularly at a time when the standing of so many organisations has been tarnished. Every employee and agent of An Post is fully aware of their role in maintaining and building on our standing in Irish society. This principle continues to inform all business transactions, brand activities and staff engagement initiatives. Significant progress was made in the areas of emissions reduction and waste management as new recording systems and cost management facilities were put in place. There was ongoing investment in the An Post brand including a new suite of successful, high-impact advertising and promotional campaigns, which ran across all media channels, to promote the increasing range of business and personal services available. We maintained our commitment to the provision of supports for improving Adult Literacy and Numeracy across the country, in tandem with NALA, the National Adult Literacy Agency.
There was increased community involvement by people of all ages and abilities in the An Post Cycle Series featuring five cycling events across the season. We took over title sponsorship of the An Post Rás, Ireland’s only international level cycling race, which attracts professional teams from all over the globe. This sponsorship complements our involvement with The Sean Kelly Racing Team which acts as a development team for young Irish riders. These events bring significant benefits to the local economies, including the tourism interests involved.
Looking to the future
An Post maintains a unique position at the heart of Irish society and we are committed to playing our part in the State’s economic recovery. We will do so by ensuring reliability, value for money and the provision of an expanding range of services for, and on behalf of, the Irish State, Irish business and local communities.
I would like to thank the Board for their assistance, support and guidance during 2011 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 spurs us to continue to improve our performance and to ensure that we are a reliable and innovative partner in all aspects of logistics, communications and financial transactions.
Ongoing change and adaptation are an inevitable part of the Irish and international postal, financial services and communications industries. Throughout the world postal administrations are reporting a significant decline in the volume of mail being processed. It is obvious that the pace of change must now be accelerated to deal with revenues lost due to mail volume decline. We will address this with determination during the coming year and thereafter. We will continue to align the Company, its structures and resources with the changing business reality that we face. We will ensure the development of innovative products and services. In short, we will continue to provide a high quality, value for money, relevant and customer-focused service. I have every confidence, and a strong belief, in our ability to deliver this at every level.
Donal Connell
Chief Executive