Mr. Dermot Divilly:

I thank the select committee for the invitation to come before it today. I was honoured to have been asked some time ago by the then Minister for Communications, Energy and Natural Resources, Mr. Alex White, to become chairperson designate of An Post. An Post is a company with a fine heritage and a strong and trusted brand. A recent RepTrak survey found that An Post is yet again the public sector company with the best reputation in Ireland.

I will give the select committee some background information on my career to date and, in particular, my specific experience relevant to this position. I was born and raised in the west where I attended secondary school. I attended University College Dublin where I graduated with a first class honours degree in agricultural science. I immediately completed a masters in business administration in Trinity College Dublin and was one of the first agricultural graduates to secure an MBA. That was a long time ago.

I joined the Industrial Development Authority, IDA, after graduating for two years and, thereafter, went into private industry as marketing and sales director of Gateaux, which in those days was a large exporter of cakes to Marks & Spencer and other such shops. In my late 20s I was appointed chief executive officer of Thorn Domestic Appliances and served as CEO of a number of other companies, including Toyota and Coal Distributors, over the following decade.

In 1993, I completed a management buy-out of Allegro limited which was Ireland’s largest distributor of grocery products at the time. The arrival of Tesco in the late 1990s and its central distribution model, which sought to bypass distributors, had a serious impact on Allegro but I successfully managed the transition for shareholders and the company continues to trade successfully.

For the past 15 years, I have been operating as a private equity investor in a wide range of private companies in Ireland and the United Kingdom. I have done this on a hands-on basis, in other words, I have not only put in money but have been an executive chairman of the companies in question. I have gained considerable experience in doing this and the investments have been reasonably successful.

In addition to my investments, since 1993 I have been a non-executive director of SIAC limited, a private family company, and was vice chairman of the company, which was one of the largest construction companies in Ireland. SIAC built many of the roads traversing the country, including the motorway from Dublin to Galway. I also served as a non-executive director of Hibernian plc, which was subsequently bought by Aviva Ireland. I was appointed chairman of the company's insurance business and I resolved its pension issue very satisfactorily. I have broad experience of boards, corporate governance, shareholders and pensions across diverse industries, from finance to logistics. These roles brought with them the need for an in-depth knowledge of industrial relations, marketing, financial management and strategic planning. I hope to be able to bring this general, specific and diverse experience to An Post.

As members will be aware, An Post posted reasonably good results at the end of April last. Despite many challenges, the company recorded a turnover of €826 million and made an operating profit of €5.2 million, which was €2.6 million higher than the previous year. This is a credit to the thousands of An Post employees, who number in excess of 9,860.

While the traditional mail business remains the largest revenue segment for An Post, it now represents 59% of total revenue, down from 69% in 2008. In response to the new normal of declining mail volumes, which declined by 34% between 2008 and 2015 and are projected to continue, the company has strengthened its position in other businesses both in Ireland and the UK. It also continues to develop opportunities presented by emerging trends in e-commerce. An Post is a significant player in financial services, gift cards, subscription management and fulfilment, and insurance. These businesses continue to increase their contribution to the profit line.

Growth in online sales will increase demand for domestic and international deliveries, creating further opportunities for the postal industry in general and An Post in particular. The company will have to respond quickly to changing market needs if it is to convert these opportunities into reality. To date, it has been successful in doing so.

While the An Post group is profitable, the current model whereby profitable retail and other group businesses subsidise loss-making businesses is becoming increasingly unsustainable and needs to be addressed urgently while the company is financially healthy.

The key issue here relates to the cost of providing the universal service obligation. The universal service obligation entails the provision of a five-day, next-day delivery of mail to every premises in the country. This, in itself, is loss-making, albeit that the company has been successful in reducing these losses through modest price increases and significant cost savings in the mails business. The company is now coming to the end of large-scale change within this aspect of its operations. This has implications for the provision of this service, given that, if the same five-day delivery service configuration is to be maintained, an alternative funding model is needed. This will involve the company continuing to reduce its cost base and pricing will have to increase to the average European level of 80 cent in the immediate term. In the medium term, the service specification - in other words, the delivery profile - will have to be reviewed if further major cost reductions are to be achieved.

The post office retail network continues to perform satisfactorily despite the unique challenges it faces. Government business makes up 74% of total post office revenue and is responsible for significant customer footfall within the network. The importance of this element of our business was highlighted in the Government-sponsored report chaired by Mr. Bobby Kerr. The report recognises the issues facing the network. It highlights some opportunities and makes a number of recommendations, which the company will consider and implement in its planning cycle. Notwithstanding this, our retail network has a unique reach within our diffuse population. Retail shopping patterns are changing and the move to a cashless society is continuing. All in all, if we, as a country, wish to maintain a post office network which matches the needs of modern-day commuters and customers, given its historical, community and social value, a radical rethink of the funding and business model is required. In my view, there needs to be deep engagement with all stakeholders, including the Government, in order to optimise commercial business opportunities as the company further transforms itself and restores an acceptable level of sustainable profitability, especially in the traditional core mail business.

In conclusion, I wish to reiterate that despite major cost reductions of close to €100 million in annualised savings, service quality improvements up to a standard of 98% and revenue increases due to innovation in product and service delivery, the mail business model needs to be addressed to enable it to maintain a level of profitability suitable for normal variations in revenue due to market movements. This should happen sooner rather than later; we should not proceed on the same basis that currently exists.

Ensuring that An Post is in a sustainable financial position will be the primary objective of my tenure as chairman of An Post. It will involve a combination of price adjustments and ongoing cost reduction, as well as further development of our portfolio of subsidiaries. I have outlined a number of big challenges facing An Post and I look forward to dealing with these and other strategic issues facing the company. In doing so, I look forward to working with the board, the chief executive, the management and the staff as they continue to deal with these difficult market challenges. I expect An Post to continue to adapt its structures and resources to face this challenging business reality. I thank the committee for giving me the opportunity to speak and I welcome any questions.