Mr. David McRedmond:

When I was appointed as chief executive of An Post in October, I said that it was an honour and a rare opportunity to lead such a major organisation. An Post is a much-loved company and brand. I had said that my job was to ensure that its future is as bright as its past, meeting the seismic market changes head-on. When I started - and only when I started - it immediately became clear to me that the scale of decline in the mails business was such that urgent action was required in order to provide certainty regarding cashflow for the next two years. It was also apparent that while An Post had done a magnificent job improving the quality of its service to become one of the best postal operators in Europe in terms of quality, there was no strategy to sustain its future against the global trends of electronic mail substitution and the move towards a cashless society. The scale of the problems facing An Post - both in our post office and mails business - is immense. The next few years - indeed the next year - will be a time of great change for An Post. It is necessary change to ensure that the company continues to play its central role in Irish life and business.

I presented to the Department of Communications, Climate Action and Environment the urgent need for An Post to have a step-change increase in its pricing in order to bring it into line with - not beyond - its European peers. The Minister for Communications, Climate Action and Environment, Deputy Denis Naughten, responded decisively by proposing the removal of the price cap, which was an anachronism in the age of e-mail and social media. Legislation to give effect to this is now working its way through the Houses of the Oireachtas. I also tendered for a global consultancy to undertake a comprehensive review of the postal market in Ireland and of An Post in the context of international best practice. Recently, the selected consultancy, McKinsey and Company, has installed a team at the General Post Office. Its work will be completed by May. In the last days of 2016, we took delivery of the final report of the post office network strategy group, which is Mr. Kerr's report.

I will now turn to the issue of pricing. The decision to increase pricing in the mails business was not a difficult one in the context of the global trends in post. The inexorable substitution of e-mail for physical letters is a well-established trend. Although Ireland had been slower to adopt e-mail, that trend is now catching on here. Mail volumes in Europe have declined by 41% on average in the past decade and in Ireland by 38%. We expect that by 2020 mail volumes in Ireland will have declined by at least 50% since 2007. An Post incurred losses of approximately €15 million in 2016. With current volumes, without price increases, losses of at least €40 million would be forecast for this year. To balance the loss of volume, letter prices in Europe increased by 36% from 2007 to 2015 and with further increases of up to 10% in 2016. In Ireland, over the same period, prices have increased by only 16%. The average stamp price across the EU15 is currently €1.06 and increasing. A price increase in line with peers will allow An Post to continue to meet its universal service obligation, delivering mail to every house in the State each weekday for a uniform price, with one of the highest next-day delivery rates in Europe. We expect to increase our prices as soon as the legislation is approved and signed. This will be a one-off increase in the range of 12% to 38% across our range of products and is urgently required for An Post’s sustainability without any recourse to State or taxpayer funding. It is the only means to provide financial certainty while An Post restructures its business following the strategic review to ensure its long-term viability.

Another issue of vital importance to the committee is the future of the post office network. This area of the business is also subject to inexorable global trends. The move to cashless transactions, electronic transfer and e-mail substitution is reducing the need for a physical post office network, not just in Ireland but across the world. In the past three years, the number of social welfare customers has declined by 17% and bill-payment transactions have fallen by over 20%. The latter reflects an increased number of electronic transfers. Simply put, fewer people need to visit post offices. Some of the decline has been mitigated by a range of new services. Our foreign exchange cash-and-card has become a significant income stream and has captured 30% of the foreign exchange market. Bank services that An Post operates for AIB, Ulster Bank and Danske Bank have captured some of the transactions from closed bank branches. State savings continue to grow impressively - now standing at over €20 billion, or 17% of savings in the State - through the post office network. Overall, however, the post office network will incur losses of over €10 million in 2016 and these losses will accelerate.

I am well aware that An Post has more than a financial imperative. The post office network is not just about making money, it is also - critically - about meeting a social need. I and my colleagues are committed to the dual task of commercial viability and public service. I have met several times with officials from the Department of Arts, Heritage, Regional, Rural and Gaeltacht Affairs and the Minister of State, Deputy Ring. I have also had meetings with Mr. Bobby Kerr and the Irish Postmasters’ Union. I received the final recommendations of the post office network strategy board in the closing days of 2016. That report has not yet been seen by the board of An Post. I have only just received it and it would be unfair to enter into too much detail on the report at this stage. My initial reaction is that while I agree with the broad thrust of the report in the context of the future viability of the post office network, it does not - and cannot reasonably be expected to - go far enough to be considered a plan capable of implementation. Nor does it provide a funding solution that maintains the integrity of An Post as an independent semi-State. These are issues that can be resolved, and I hope will be resolved, but they will take a matter of months to do so. My job, and the job of my team, is to complete the rigorous and detailed plan and professional work that will see a strengthened post office network that is commercially viable and meets social need. We need to review the current configuration or real estate at a unit level, local level and national level. We need to identify the future product set such as what will be sold through post offices and scour the globe for best practice elsewhere. We also need to properly size the overhead requirements. I am doing this work with McKinsey and Company and it will involve all stakeholders. This work will be completed by May. The Bobby Kerr report is an important and valuable input and I look forward to discussing it further with the Minister of State, Deputy Ring.

I wish to impress upon the committee the urgent and vital need for the price increases that will ensure the short-to-medium term future of An Post and bring it into line with its European peers. There is no alternative to these price increases if we wish to keep An Post as an independent semi-State and to ensure its future. These price increases must be made and An Post must be brought in line with its European peers. I must emphasise the importance of carrying out a rigorous and professional strategic review in order to provide the design for the long-term viability of An Post.

The price increases will provide cashflow for two years. I intend to work with the chairman, the board and all the stakeholders in An Post to redesign the company within those two years so that it has a long-term future. There is much else going on at An Post while I lead these initiatives. When I arrived, my assessment was that too much was going on. Since then, we have reduced our efforts from 120 ongoing projects to concentrate on six major projects of which pricing, the strategic review and the post office network are just three. The intention of this work is to ensure An Post’s commercial viability and, more importantly, its ability to meet and exceed its public service obligations. I look forward to sharing our progress with this committee in the year ahead.