Mr. David McRedmond:

The view Deputy Lowry paints of An Post is not inaccurate. The Deputy might be going a little bit too far but it is not inaccurate to say that it is a very challenged entity. The whole purpose of doing the strategy work is to carry out a very fundamental redesign of the business. In particular, we must recognise the need for the different elements in the business. The post office network is a very different element from the mails business and from the packets business. Each of these areas need to be very tightly defined and operated in order that there is clear accountability for those businesses. My own observation is that it is quite difficult to manage as a very large single entity with a single centre. We will certainly be looking at that very carefully.

The Bobby Kerr report is at the basis of what we are doing with McKinsey when it comes to looking at the post office network. It is a very important input. I cannot say for certain that it is the absolute basis. We are in agreement on the financial envelope being in the area of €56 million to €58 million. The deficit currently incurred in the network is somewhere in the region of €10 million to €12 million a year. To that degree, I believe we are very much on the same page. I like many of the ideas in the Bobby Kerr report. The real issue is in bringing it down to a detailed local level.

The economic need can be defined. There are profits and losses for each post office. However, I believe we have to define social need. One of the things that is often said is that it serves a social purpose. We need to define what that is, whether it is the distance from a post office, being within 15 km of a post office, maintaining a community of 100 people or 500 people, and so on. That is the kind of detailed work we will do. Most importantly, we will provide solutions. We have to come up with solutions for postmasters and postmistresses whose businesses are struggling. We must make sure that they are solutions that can actually work. If there are some cases, as Bobby Kerr has identified, in which there is not a solution, then we need to work out how these people can work financially to be able to leave their businesses. That is the level of detail that we must work to.

There was a question about the impact and the volume and whether we have done the work. We have done considerable work on elasticities, which everybody is talking about, which essentially asks how much it will actually be for every percentage price increase. There is no doubt that price increases will accelerate volume reductions, particularly with regard to bulk mail. That is why we have to be very careful how we structure the increases and where we bring them in. We have done that work at a very detailed level. We are not proposing these price increases to reduce our revenue. We are proposing them to increase the revenue to provide An Post with certainty for the next couple of years. That work has been done in a lot of detail and has been shared with the Department. I believe it is a robust piece of work. We did it with Mr. Alan Gray of Indecon. It has since been checked by PwC and NewERA. Therefore, several groups have looked at it.

While talking about the areas of An Post that are very challenging and difficult, there are also areas that are really valuable and growing rapidly. That is the difficult piece in designing An Post for the future. The first is the parcels and packets business. These are the shovels for the goldrush of e-commerce. We grew our sales in the packets and parcels business by 24% in December. That is a business that will grow rapidly. It just so happens that over the next couple of years, it is insufficient to close the gap on the reduction in mails. That is a very important and substantial business and is the future of posts around the world. We have direct mail, which is advertising mail. In Ireland, we send a quarter of the direct mail that is sent in the US and half of what is sent in the UK. It is a business in which An Post is already substantially established. It is worth about €60 million in revenue and that could be doubled in a relatively short period to become a very big media company in the sale of direct mail. We are launching a current account in the financial services sector within the next few months. The current account will be followed up with other financial services. We have been very successful with Post Insurance. It is a fabulously-run company based in Athlone. There are several examples of good growth in An Post. The issue for me is simply trying to get it into a structure that is more coherent for the future and for the long term.

My final point on the future of An Post is that postal services throughout the world are not doing badly. Postal services in Europe are doing well. They have often taken very different models. In Denmark, there is a model which has almost eliminated mail. In Italy, there is a model in which the post office network is hugely driven by financial services and is the largest provider of credit card services, etc. There are different posts in different countries that are working and that have found a way through the issues of declining mail.

I am not here asking for two years to be able to do things. I fully believe the work we do will be designing a company that has a very strong future. It may a different size and it will be a different configuration, but that is what we will do.

Senator Lombard asked whether we are confident that the reforms can be delivered. He raised the issue of ComReg reporting the 2% of savings not delivered. I need to understand that issue a bit better. Mr. Fitzpatrick mentioned the reduction of 2,000 employees in An Post over the past eight years. We are continuing everyday to redesign our network and to make incremental reductions to tailor the network to meet the falling mail volumes. We also need to invest staff in our parcels and packets business, for example. With all of that, there will be huge challenges. There will be huge challenges for the employees, the unions, our customers and for everybody in terms of whatever changes we make. However, we will work our way through it. I am confident in what I have seen so far that there is a will to work our way through these issues and find a way to find an An Post of the future.

I believe it is very important for employees to have a sense of what that future is. It is not good enough just to say that we are going to remove X number of jobs. We have to show them what the future is, what the future of the post office network is, what the future of the mails business is, what the future of the parcels business is, what the future of financial services is and design the plans to do that. I believe it is incumbent upon us to do so as we look to restructure and reform within An Post. I believe it is quite reasonable for the employees to demand that.

With regard to the pay increases that happened, which representatives of ComReg mentioned, I have no issue with people who have been under a pay freeze for nearly ten years to be able to have what was a modest increase of 2.5% last July, with the Labour Court making that recommendation over the three years. I accept that. We have to work on that, but we also have to deliver the savings. I believe it is well-recognised by the unions and employees that those savings need to made and agreed targets need to be reached, and we will get to them. Those are the sorts of issues we are facing. It is not going to be easy for anybody. However, I would not be here if I did not think we could reform the company.