Opinion/Bill Murdoch: An Post's last stand? An extreme question? Not if you believe the recent scary proclamation from that postal delivery company.

In this newspaper, just a few weeks ago, the new chief executive, Mr Donal Curtin, said there was no cash in the business in recent months, and for the first time in the company's history, overdraft facilities had been called upon.

Lets us deal with the last contention first; that does not correlate with the facts. The last published annual report was for 2002 and, wait for it, it showed bank overdrafts for €18.9 million!

Now that's out of the way, what about the depletion of cash, and the subsequent warning that the company was on a "knife-edge", and any "slippage" in its survival plan or "adverse market developments", could have serious implications?

An Post has not published 2003's annual results so testing the portrayed black view about the company, is not readily done. But there are plenty of clues; it has published budgets and forecasts for 2003, and budgets for 2004. Stitching these to the published 2002 accounts, and doing limited, pro-forma balance sheets for both 2003 and 2004, is revealing.

In 2002, shareholders' funds amounted to €188.2 million. In 2003, based on the projected net losses of €29.5 million, after property sales of €15.1 million, shareholders' funds, would come down to €158.7 million, and in 2004 shareholders' funds would drop to €129.2 million (even if proposed changes with the unions are not concluded, this would still amount to a very acceptable €123.2 million).

So on the most pessimistic projections, An Post would still be able to raise loans of at least €80 million and not cause many palpitations among bankers. That gearing of equity to shareholders' funds could be further enhanced by revaluing the properties which in 2002 had a net book value of €152 million.

Further, the projected property sales look very conservative. The figures tell the tale; asset disposals of €15.1 million forecast for 2003 and budgeted for €10.0 million in 2004. I would be surprised if the proceeds from disposals this year do not exceed the budgets. Also, if there is a cash flow problem, what about sale and lease back arrangements?

That all sounds fine but reality is very different. Financial institutions will only provide the ultimate finance, provided there is a future. And this is where the crux lies: has it a future?

Importantly it has a new enthusiastic team headed by Mr Curtin who hails from ESB and backed up by ex ESB colleague Larry Donald. Many of the old team headed by John Hynes which projected a profit of €1 million for 2003, contrasting with the now forecast net loss of €29.5 million, are gone.

Mr Ahern, Minister for Communications, talked about "serious inaccurate" information provided to the Government by the old team. But what about the board's culpability? Should there not have been other resignations?

The new team has a Herculean job ahead. Looking at the finances the most crucial change has been the rapid erosion of the cash balances. In 2001 the cash balances amounted to €155.2 million, these fell to €45.8 million in 2002 and are now near to zero. How anyone allowed such a rapid depletion is beyond belief.

Even the budget figures for this year illustrate all too clearly that An Post's basic problem is its unsustainably high cost base. Pay and pensions, for example, will account for a mind boggling 73.3 per cent of income this year, while total costs will represent 104.5 per cent.

Tackling costs (including 1,350 redundancies) is a priority under the new strategic plan drawn up by An Post. This goes further than other proposals as it envisages radically changed work practices.

That plan which envisages the getting rid of TV licence collection, sale of unprofitable units (SDL is under question), development of new products, makes no mention of previous aspirations such as strategic partners and the politically sensitive role of the sub-post offices. The focus now is more short-term: increase revenue and reduce costs against a background of little or no growth. The volume of letter post revenue, for example, is projected to fall by 2.1 per cent this year, followed by a fall of 0.1 per cent in 2005 when the group hopes to break even, and return to profitability in 2006-08 with growth rates of 2.7 per cent, 1 per cent and 2 per cent, provided the rationalisation goes according to plan.

Discussions with the unions are understood to be difficult. Given the scope of the plan that is understandable. But without major changes, An Post will just hobble along and its existing business will increasingly be picked off as the market is liberalised with a possible fully opened market by 2009. It has already lost the inward US parcel delivery business.

A more viable An Post would provide employees with greater security. Also, there was an enabling agreement in 2000 to transfer 14.9 per cent of the equity to staff provided saving of €35 million were achieved. It is understood the first 2 per cent of this is under discussion. Participation is essential.

An Post will have to improve its service. This week regulator ComReg warned that delivery targets would be reviewed as there has been no increase in service following price rises.

An Post also needs to get a better deal out of the foreign postal operators. It is ludicrous that a company such as First Active could pay the Royal Mail in the UK to dispatch multiple mail into this State which is then distributed by An Post at a loss. An Post only gets paid a proportion of its own stamp cost under the REIMS agreement which also obliges An Post to deliver mail originating outside the State.

This could partly correct itself as An Post increases postal charges further (every 1 cent increase boosts sales by €2.3 million. It has already made increases over a wide range with the standard internal going up from 41 cents to 48 cents. This is still half the EU average of 93 cents so it won't be surprising if this goes up to 55 cents plus in 2004 and over 60 cents the following year, but it will be a difficult balancing act; increasing prices without going down the road of diminishing returns.

No, it is not An Post's last stand, but it is close, and getting closer as time goes on.