Annual Report 2016

25 May 2017

• Pre-tax loss of €15.6m due to global trend of mail decline
• Revenues flat but costs increased by 2.2%
• 2017 price step-change delivering yield 
• New strategy to focus on two business units
• E-Commerce major opportunity for parcels business
• Company in discussion with stakeholders on strategy

Letter volumes, down 5.2% on the prior year, continue to be impacted by e-substitution.  Since 2007, in line with global trends, letter volumes in Ireland have fallen by 40%.  An Post incurred a loss of €41.3m in delivering its Universal Service Obligation in 2016 while Quality-of-Service measures showed An Post to be among the best postal services in Europe. 
Post Office revenue declined €2.5m on the prior year to €161.8m. Welfare payments continue to reduce as unemployment falls; and the global move to electronic transfer is replacing cash transactions (BillPay transactions fell by 14%). Growth from products such as PostFX up 7% and banking transactions up 4.6% shows the potential for expanded financial services. The An Post-managed State Savings products attracted strong investment and the fund now exceeds €20bn.
The increasing losses, principally from the decline in mail volumes reflecting global trends, have consumed An Post’s cash reserves. The net cash balance of €26.0m at year-end was considered insufficient for the Company’s medium-term sustainability, as mail volume decline was accelerating and losses for 2017 were projected at circa €50m.  Consequently, the Company applied for the regulatory price-cap to be removed so prices could increase to fund the USO and be in line with peer companies across Europe. Prices were increased by 20% on average (39% headline price increase) on April 13th.  In the six weeks since the price increase, there has been no indication of any additional acceleration in mail volume decline. 

The projected yield from the price increase provides stability for 12-18 months when the Company will implement a new strategy to take advantage of global trends. Management has developed, with McKinsey & Company, a long-term strategy focused on two dedicated business units – the Retail Business, and Mails & Parcels - each with its own plan to close the projected deficits by 2021. Over half of the deficit will be covered by pricing and product growth initiatives, with the remainder addressed through cost-cutting and downsizing initiatives. Key growth areas include the burgeoning parcels market from increased online shopping; premium mail growth especially direct mail; and an increased range of financial products in the Retail business. 

Further details on the proposed strategy will be communicated once the ongoing discussions with stakeholders are concluded. 

Regarding the 2016 results, An Post Chairman Dermot Divilly said:
“It is my determination, with my Board colleagues, to face the challenges of a changing postal market. I will ensure that the nation has the appropriate postal operations and post office network for the longterm. There’s no doubt that challenging and testing times lie ahead for An Post but by harnessing the power of its expertise and brand I remain confident of its future”.

Chief Executive Officer, David McRedmond, who joined the Company in October 2016 said:
“The results for 2016 show that the direction of travel for An Post needs to change. The digital world is closing one door with e-substitution of mails and online banking, while opening another into the world’s largest industry of shopping through e-commerce.

We will price our services appropriately and deliver the best-in-class service in both our Mails and Post Office businesses for customers throughout Ireland.  Parcel delivery will be at the core of what we do to ensure that a customer in Ballina has the same global access to goods as a customer in Boston or Barcelona. 
I am confident that we have stabilised the immediate-term finances through the recent price adjustment, and done the detailed work to design sustainable strategies for both the Mails and Post Office businesses.  An Post is committed to providing a vital public service and to being a responsible employer, but the business will need to achieve a step-change in costs to ensure its mid and long-term financial viability.  This is not an easy task but I look forward to engaging with all our stakeholders to transform An Post for the new market realities.”