Today is the deadline for submissions to the postal sector's independent regulator on segmental accounts and the apportionment of costs at An Post. Although technical in nature, the discussion document will accelerate the movement towards deregulation of our postal service. The deadlines for submissions on two other consultation papers - quality of service and compliance monitoring - are June 8th and June 15th respectively.
An Post's last annual report (1999) only gave a breakdown of its turnover for its main business areas - letters, post offices, SDS and other services - but in the opinion of the directors, fuller compliance with the disclosure requirements of SSAP 25 "segmental reporting" would have been seriously prejudicial to the group's interests.
However, under an EU directive, it was obliged to provide a transparent cost accounting system by the end of 1999. The regulator, Ms Etain Doyle, has noted that, while the detailed accounting information must be treated in confidence, there is a need for transparency to ensure that profits earned from letter services reserved to An Post are not used to finance unfair competition in competitive parcels and non postal services.
That is essential. An Post is facing a tough time ahead. It is under extreme pressure from its main corporate clients and the Phil Flynn report has warned that it has been forced to forgo price increases and accept price reductions to retain its current levels of business.
The largest corporate clients include the Department of Social, Community and Family Affairs, which pays An Post to distribute social welfare payments; the National Treasury Management Agency, which manages funds invested in An Post's savings products; and RTE (An Post collects the licence fees).
The report also suggested it would require £83.2 million (€105.1 million) by 2005 if it had to keep all its sub-offices open. While that might be taking a pessimistic view, it points to a very threatening scenario. In a nutshell, An Post, which in the past should have competed head-on with the banking sector, will have to shake itself up in the countdown to deregulation of the EU postal industry. Already it is way behind others - such as Deutsche Post in Germany and Consignia in the UK.
Legislation introduced early last month will allow the 9,000 employees of An Post to participate in an employee share ownership plan under which they would each receive shares valued at nearly £2,600 (€3,301) and would give them collective control of 14.9 per cent of the company. In return they have agreed to changes in work practices aimed at shaving £27 million per annum off costs.
It also allows the company to enter into a share-based strategic alliance with another postal company. With 30 per cent of its mail handled outside the State and with its small economy of scale, that could be a sensible move. However, it would want to be careful which company it chooses for a partner. Obviously it should avoid having two partners, like Eircom had (Telia and KPN). As amply proved in Eircom's case, two partners can have very different agendas, which can prove disastrous.
The possible partners for An Post include Deutsche Post, TNT Post Groep and Consignia (formerly Royal Mail). While the make-up of these groups will have changed when, and if, An Post decides on an alliance, Consignia is the least developed of the three and is nursing labour problems.
Deutsche Post is a strong international company showing good growth with an aggressive acquisition programme. It floated 29 per cent of its equity last November. Some analysts say it will have to justify its acquisition strategy, which expanded it into express deliveries and logistics. It gets just a 2 per cent margin on its new business compared with 16 per cent on mail - hardly a situation that can continue. There is also pressure on its banking business to move from deposit accounts into products with higher profit margins.
TPG, the holding company of TNT, also publicly quoted, is riding high. Some 56 per cent of the shares is held by investors, and the Dutch Government, which holds the remainder, also has a golden share to protect the company.
It is Europe's most efficient postal company. It delivers 116,000 pieces of mail per employee, well above Deutsche Post's 80,000. Looking at An Post's latest figures, it appears to deliver less than 1,000. While these figures may not be directly comparable, they do show that, in terms of mail deliveries, An Post is well behind.
Economies of scale partly explain the discrepancy but the method of handling the mail is the real culprit; most of it is manual with little automation. Clearly major changes are needed.
The main bugbear is the politically charged issue of the sub-offices. Mr John Hynes, the group's chief executive, has said half of its 1,911 outlets generate 95 per cent of revenue. The post offices made just £10,000 in 1999 on revenue of £78.9 million and some reports said they could lose £10 million this year.
An Post's preferred option - according to the Flynn report, commissioned by Ms O'Rourke, Minister for Public Enterprise - is to close 1,500 sub-offices and maintain just 400 of its 800 automated outlets. However, Ms O'Rourke has ruled out closure and last June told the Cabinet to look at the position and "put its money where its mouth is".
Keeping the sub-offices open will be a costly exercise: £10 million this year and £83 million in total by 2005. There would be a further drain thereafter. . .
That is hardly a sensible way to plan a modern post office operation. And the uncertainty of an annual subsidy would make it more difficult to attract the best equity partner. bmurdoch@irish-times.ie Bill Murdoch's column appears on the first Friday of every month.
