Curtin has to pull AN Post together and make profits
The cost of delivering mail throughout the country five days a week – with 70pc of costs represented by wages and salaries – is a key issue for a postal service facing more financial losses
AN Post's incoming chief executive, Donal Curtin, had to hit the groundrunning after taking up his position three weeks ago. Communications Regulator EtainDoyle has been considering the State company's application for an increase in the price of a stamp for domestic mail from 41 to 48.
The 18m in additional revenue which the stamp price increase will generate in a fullyear is unlikely, however, to pull the mail group back into the black in the current year.
Part of his hitting-the-ground-running plan has been to set up a top-level managementcommittee to review all the An Post operations. Mr Curtin will head the committee, whichwill also include former ESB company secretary and corporate affairs director Larry Donald.
Mr Curtin said recently that the bulk of the strategic review will be carried out in-house,but that assistance from outside would be sought where required.
It is likely that the review will examine An Post's principal activities of mail delivery, outpayments and bill payments services for third parties. Clearly the cost of delivery of mail throughout the country five days a week – with some 70pc of costs represented by wages and salaries – will be a key issue.
Even before the review has been carried out, Mr Curtin has made it clear that delivering a letter two miles up a farm lane is inefficient, no matter what the social desirability of thishuman contact might be.
"We will look at the optimum manner in which we can deliver a service. If there is a costfor providing an additional service we should be compensated for the cost of the service,"he says, referring to the price of a stamp.
The review committee will be mindful that 45pc of the mail business will be open to competition by the end of this year.
"Clearly the pace of change will have to be accelerated," Mr Curtin adds. He admits that the dove-tailing of automated mail sorting with manual sorting last Christmas left a lot to be desired.
"Obviously that was very embarrassing. But it will not happen again," he says in reference to the millions of Christmas cards which were not delivered until early January 2003.
The strategic review will also look closely at the 'outpayments' function of the country's post offices and sub-post offices. Last year, An Post's post offices processed over 41million transactions for the Department of Social and Family Affairs, principally in the form of unemployment assistance, child benefit and old age pensions.
The loss of this business to a rival such as the credit union movement would knock about 70pc off An Post's revenue from its post office network. Happily, the credit unionmovement does not have a computerised system in place to mount a serious challengefor this business.
There is also anecdotal evidence that most social welfare recipients do not want money paid into a bank or credit union account, and a significant proportion would insist on beingpaid in cash – something credit unions might not want.
Post offices, some of which were staffed by An Post employees, but which are being outsourced on a franchise basis, also provide a plethora of services from bill payments tomobile phone top-ups.
With An Post suffering a 17.5m operating loss last year and cash resources down to26m at end-2002, the review committee will be examining how well these ancillary services are chipping in to the bottom line.
SDS, the parcels division, is expected to come in for close scrutiny. Under former chief executive John Hynes, An Post acknowledged that staff-run parcels operations were not the only way of doing business and JMC Van Trans and Wheels Couriers were acquired. Their business has grown, while SDS has exited 15pc of its business which was considered unprofitable. SDS has also introduced 48 owner-drivers for the collection of parcel and courier items.
While in the ESB, Mr Curtin was responsible for the sale of its mobile phone business Ocean to co-shareholder BT (now Esat BT). So he will be in a strong position to ascertain how mobile top-ups in the UK and Spain fit into the An Post business plan.
The former ESB executive realises that An Post has a unique love-hate relationship withits public. "The trust and loyalty to our service is enormous, but there is no substitute for good customer service."
Universal delivery, the delivery of mail throughout the country on equal terms, is a basic tenet of the Irish mail system, he argues.
"An Post has a well-established partnership process, but partnership must be seen to deliver results".
Mr Curtin defines his role as bringing an end to the losses which have beset An Post inrecent years.
"Clearly, bringing an end to losses must be achieved within the shortest possible time frame," he says.
The losses have shown no sign of abating. Last week, An Post announced its biggest ever loss of 70.5m and it is likely the losses will continue in the current year.
Turnover was up 9.4pc to 683.7m in 2002, but operating costs rose by 10.8pc to almost 700m in 2002. This resulted in a 17.4m operating loss for 2002, which was augmented by a provision of 52.5m for a voluntary severance and early retirement programme.
Mr Curtin may find some room for manoeuvre in this 52.5m provision. It should cover redundancy costs in the current year and into 2004, part of which – the early retirementelement – will be funded through the group pension scheme.
The restructuring plan is running 18 months behind schedule and the full provision has been made for 2002, which suggests that the An Post board agreed to make full provision for an ongoing programme.
All An Post's major activities, including letter post, which was boosted to the tune of 13.6m through elections and referenda business, lost money last year. There was even a 376,000 loss from An Post's share of joint venture and associate business.
The cost of the post office network rose from 107.6m to 125.2m, while turnover at theSDS parcels business improved slightly to 80m.
The programme to restructure the post office branch network commenced with the conversion of 86 sub-post office contracts to postal agencies, which provide social welfare payments and postage stamps where a sub-post office cannot be sustained.
An Post also reached agreement on the conversion of 50 company-staffed post offices to contract status by 2005. PostTS, the outpayments service business, won a price increase for social welfare payments and increased volumes. As a result, losses were reduced from 13m in 2001 to 1.2m in 2002.
The cash position of An Post has deteriorated over the past few years from 203m in 2001 to 26.8m at the end of 2002, primarily as a result of capital investment of almost200m in automated mail centres in Dublin, Athlone, Portlaoise and Cork. Savings from these facilities should increase as the Cork facility becomes fully operational.
With most of the required capital investment completed, Mr Curtin will be hoping to turn this 700m business into a cash-generating profitable business by end 2004.
Copyright 2003 Irish Independent. Source: Financial Times Information Limited – Europe Intelligence Wire.
Copyright © 2003 Financial Times Information Services Limited. All rights reserved.
