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Environment and Communications Legislation Committee
23/05/2018
Estimates
COMMUNICATIONS AND THE ARTS PORTFOLIO
Australian Postal Corporation

Australian Postal Corporation

[12:02]

CHAIR: We will now move to Australia Post. For the information of committee members and officers, the intention of the committee is to deviate slightly from the program as set out. We will continue until 1 pm in an effort to finish our examination of Australia Post. So if there are no problems with that, we will do that. Welcome back, Ms Holgate. Would you like to make an opening statement?

Ms Holgate : Thank you, I do. When I was last here in February I shared with you my early views on our strategic priorities, what I felt we should be doing to grow the company and some of the challenges and risks in the months ahead. I am pleased to say that we have been focusing on reshaping our business. Just last week we shared with our minister progress so far, at the end of the nine months. I am pleased to share with you that we have seen some encouraging signsearly shoots. But we have a lot more work to do.

Our profit for this year is tracking ahead of my previous forecast. I have increased confidence that our profit before tax at this stage will deliver modest growth on what was a reported profit. You may recall that in February I said that, if we stripped out unusual one-off items and the benefit of property sales, then our underlying profits the previous year were around $36 million. We are confident as a teamunless something is going to happen in the next five weeks that I am at this moment unaware ofthat we will deliver double that figure back for the people of Australia. We have some early signs of our strategic focus and momentum in the business beginning to pay some dividends. I am pleased to report that the Australia Post domestic parcel business is growing strongly. It is up 10 per cent year-on-year in revenue, and volume is up 11 per cent. That is an improved trajectory from our first half result, where our revenues were up 8 per cent. Our international inbound revenues and parcel growth continue to be strong, growing at 46 per cent. Our outbound parcels grew in the third quarter by 10 per cent, up from a trajectory of six per cent; again, an encouraging sign.

We have now brought together our business sales and services capability teams, which was a clear recommendation from the Ombudsman report and one I strongly personally believe in. We are beginning to see early positive signals of improved sales coming through. Our net promoter scorefor those who are not familiar with that term, it is a sort of test of the sentiment that your customers have for youachieved a record high in April. We are leveraging our existing assets to develop more opportunity for our e-commerce customers because we believe this is an important area to support future growth for parcels. We have done soft launch so far on on-demand deliveries, which enables merchants to have deliveries now, tonight and on Saturdays. We have launched our Fulfilio service, enabling merchants to leverage our warehousing capability to support faster deliveries. We are commencing our temperature-controlled trials which I spoke about last time, and we have launched new services for receivers.

We continue to drive efficiencies in the business. So far this year we have delivered over $200 million in additional efficiencies to the $600 million we delivered over the three previous years. Although these achievements fuel the team with encouragement, we still have significant challenges. The first of these is addressing customer service. Seventy per cent of the complaints at Australia Post are to do with trackingwhere is my parcel and when will it arrive? We are investing significantly in automation and capacity in our sites and ahead of Christmas we should be able to have 90 per cent of all our small parcels and Express Post fully tracked and scanned.

Our letter volumes are our second biggest challenge. They are down 10 per cent continuously, and that puts enormous pressure on our revenues. For every $1 of letter revenue we miss or lose, we have to grow $2 of parcel revenues. To put that into context, in the year ahead we think letter revenues could be down as much as $150 million; that means we have to grow $300 million in parcels just to stand still. Our letters are critical to our community post office network, which is currently estimated to be losing over $130 million. I am very aware and incredibly supportive of the high value the community puts on our post office network. I am also very conscious that many of our licensed post office partners like Angela are small business operators, often mortgaging their homes to support and carry our brand. In order for these businesses to thrive and survive, it is important that we grow at Australia Post.

We are updating our licence agreement, which has not been renewed for 25 years. We are reviewing the payment structure to ensure that licensees are paid fairly for the work they do in a changing market. We are working with our banking partners as they close branches to see what more work we can do to support the community. I ask senators to encourage our banking partners to ensure that we are remunerated fairly for that work.

I am pleased to report that we have again secured our passport service from the government. You may be aware that we do 95 per cent of all passport applications. This is an important service for our community post office network. In June, we will start trials with 20 post offices, 10 of which are licensed, on renewed pricing to enable our licensed post office network to start engaging in the booming e-commerce outbound trade internationally.

Finally, we continue our transformation. I want to impress that our first priority must be the safety of our employees. I am pleased to report that in the coming 12 months we will be investing an additional $25 million predominantly in technology to help secure the workforce of our people and to secure their safety. I want to thank our extended workforce, including our posties, our contractors, our post office workers and all their families for their hard work, enabling us to achieve these encouraging first nine months' results. Senators, I now welcome your questions.

CHAIR: Thank you very much, Ms Holgate.

Senator URQUHART: We have seen commentary in the US about the US Postal Service and Amazon, including some views aired by the US President. I am sure you are aware of those. The concern is that the US PS is not making sufficient profit from those deliveries. We understand that in the US market Amazon uses the US Postal Service to deliver the last mile, with logistics and fulfilment largely managed by Amazon. Does Australia Post have any arrangements here with e-commerce partners to only deliver parcels over the last mile?

Ms Holgate : I would have to take on notice the question about delivery only on the last mile, but we work with many different e-commerce partners and merchants.

Senator URQUHART: The former head of the US Postal Service, Patrick Donohoe, recently observed that raising prices on Amazon's volumes risked a response where Amazon would accelerate its own creation of the last mile infrastructure. What are your reflections on this in terms of the Australian market?

Ms Holgate : It is a very interesting question. In the UK market that is exactly what has happened. Australia is a very different country. We cover a land mass larger than North America with only one-tenth of the population. So for someone else to set up in competition in the last mile it would be a very significant investment. Having met the CEO of Amazon here in Australia, they have not indicated any intention to do that and have said to me that there are many countries where they work very effectively with the post office group, including Canada, which is probably a more comparable market to Australia. They have a very successful relationship.

Senator URQUHART: Are we too small to see that scenario play out in any meaningful way?although there is the comparison with Canada. Is Amazon a partner or competitor, or both? Can you provide your thoughts on the key opportunities and risks and how Australia Post needs to position itself to ensure that it protects jobs and the capacity to continue delivering community service obligations?

Ms Holgate : Again, an interesting question. In my view, Amazon is a partner and overall for Australia and for Australia Post the presence of Amazon will encourage more e-commerce trade. Forgive me because I am not sure how familiar everybody is with e-commerce, but only about seven to eight per cent of Australia's retail sales are e-commerce. In the UK that is 18 per cent. In a typical Western market it would be double what it is here in Australia. So the view is that here in Australia there is a long way to go in growth for e-commerce. Amazon are helping build awareness of that, but they are only one player. There are many other players, and bigger players, in e-commerce here in Australia already.

Senator URQUHART: Where do drones and autonomic vehicles fit into the future of last mile delivery? What have your peers in international markets been saying about their thinking in this space?

Ms Holgate : That is also an interesting question. I spend a lot of time talking to my international peers. Very few of them are using drones to deliver at the moment because most countries do not allow it. However, some countries, including Switzerland, are using drones to carry blood to points of accident; Swiss Post are doing that. We are working with Swiss Postin just a few weeks' time I am meeting again with the CEO of Swiss Postto learn from what they have done and to see how we, too, can offer those accident and emergency services.

The time when drones replace people is probably some long way off. I am a great believer in automation. It brings efficiency; it enables us to deliver faster and track clearer. But it should not be at the cost of jobs. If we are able to provide a better service, we will be more competitive in the marketplace. Our competitors today are predominantly international delivery companies, such as Toll and TNT. If we are able to automate, we should be able to compete more effectively against them.

Senator URQUHART: In your opening statement you talked about the issue of parcels. What about the medium term outlook? Do you expect margins on parcels to increase, remain steady or continue decreasing in that medium term?

Ms Holgate : Margins are under pressure with parcels because there are now many parcel operators. However, we have refocused our business sales team with specific extra focus on the small and medium business. I think it goes back to your earlier question. We don't want to just have such a strong concentration on one or two large customers who can hold you hostage on margins. We want to have a much more balanced mix of revenues. Small and medium business customers are actually the backbone of this country and play a very important part in our licensed post office network as well. So they will be a large focus. Maybe a balance is where I would like to get to, really, by the exit of F19.

Senator URQUHART: Just following up on a couple of statements in your opening statement, can you just clarify one aspect? You said Australia Post is forecasting $70 million in earnings for this financial year; is that correct?

Ms Holgate : Underlying profit before tax we are aiming to have, yes. That is excluding property sales and unusual one-off items.

Senator URQUHART: So that excludes the property sales. Has that improvement been driven by the growing parcel volumes in that shorter term period?

Ms Holgate : It has most definitely been driven by growing parcel sales. As I said earlier, they are up. In the previous four years we had a compound average growth rate of 2.9 per cent. We are currently tracking on 10 per cent. Second, we have actually not seen the letters declinemany of our international peers haveso we are able to retain letters better than predicted, I think. They are still depleting our volumes by 10 per cent, but if we look at New Zealand Post, which I think is quite a good benchmark, their revenues are falling 14 to 15 per cent. We have got tight control on costs. I think it is a combination of all of those factors.

Senator URQUHART: You also talked about the trial on improving LPO participation in outbound parcel trade. Can you expand on that trial?

Ms Holgate : The trial will commence next month. We have been able to negotiate much more competitive pricing for outbound parcels out of Australia to the rest of the world. We are going to be trialling inside our licensed post offices, as well as some of our own post offices. If we have far more competitive pricing, will that help them grow their parcel volume growth? I asked Angela, who I think we probably both agree is a bit of an expert on post offices

Senator URQUHART: She is a bit more than a bit of an expert.

Ms Holgate : on Monday evening and she said, "No, I think it's a very good idea." I am a strong believer that if we can drive good parcel growth, that will help compensate for some of the losses that we are getting in letters.

Senator URQUHART: So when is that trial starting? Next year?

Ms Holgate : This month.

Senator URQUHART: This month?

Ms Holgate : June; sorry. It is next month.

Senator URQUHART: Just before the end of the financial year. What is the period of time for that? How long do you expect that trial to run?

Ms Holgate : The trial will run for probably three months. We get sales reports. Dave will get sales reports every day, and I see them every week. So we will see very quickly if it is having a positive impact and we will share those results with our partners. If it does look to have a positive impact then we will launch it more nationally.

Senator URQUHART: I just want to turn to the retail post office footprint. Are visits increasing or decreasing?

Ms Holgate : Could I give the opportunity to our Post Office Network?

Mr McNamara : Our visits are decreasing. The over-the-counter traffic is decreasing about five per cent per annum. We are, however, seeing an increase in the number of people coming in to pick up parcels, whether that is around carded parcels or parcels that they are sending to a post office for collection. We are seeing it increase year on year.

Senator URQUHART: Are the margins on the financial service transactions increasing or decreasing?

Ms Holgate : At the moment they are not increasing or decreasing. We are talking with our banking partners and they have been very encouraging about how we are paid and rewarded for the work that we do. But today, really, all we do is transactions. We want to be able to offer to those banks, as they withdraw from communities, that we can do more of their services for them. This is a really important opportunity to leverage our landscape but also serve the needs of the community, who actually do not want to travel hundreds of kilometres to be able to transact in a more meaningful way.

Senator URQUHART: Is there a potential floor that letter volumes could hit, but not materially move belowthat is, some threshold level of demandthat will always exist in the economy, despite digitisation? What insights has the strategic review offered on this?

Ms Holgate : Unfortunately, I cannot predict the future, but what I can say is this: I believe that we should love and nurture our letter business. Although it will inevitably decline, there are still many opportunities. I think the same-sex marriage survey evidenced the power and the cut-through that postal surveys could do. But that really means letters in marketing. We are focusing on that. If we can focus on that areayou will not be able to stop the decline in lettershopefully we will be able to protect our letter volumes for as long as possible.

Senator URQUHART: I guess I'm seeing a number of challenges, as you probably are as well. We see that traditional letters are in decline, transactions across key financial service segments are in decline, parcel volumes are growingalthough competition is reducing margins and keeping earnings relatively flatand, of course, the closure of regional banks and other outlets has potentially increased the importance that some communities attach to the post office. We know that. The opportunities in Asia appear to be very encouraging. However, we do not have a clear sense of whether the upside opportunities are commensurate to the challenges facing the core business model. Can you offer any sense of proportion on that?

Ms Holgate : First of all, may I correct something, and I apologise if I did not articulate it clearly. I think we do an enormous amount of work on financial services, but unfortunately we do not get paid very much. They are not declining. In fairness to the banks, they are working with us very closely at the moment. They have been very supportive of our community networks, so I do not want to give the wrong impression there.

But we do face challenges. As I said earlier, if letters decline, and those revenues are likely to decline somewhere around $150 millionunfortunately, I can't see into the future, next yearit's really important that we grow our parcel business. International is a significant opportunity, but we have a bigger opportunity right here at home, which is addressing the e-commerce market and domestic parcel volumes.

I think you can already see that in the results that we have. As I said to you earlier, when we think about retail trade in Australia, there is probably an opportunity in the coming five years for the amount of e-commerce to double in Australia. So it is really important that Australia Post is able to address that market competitively and be able to serve those merchants.

I believe that this organisation can grow and it will be through growth that we will protect and nurture our community post office network. I also believe that with growth we will protect the jobs of our workers. We have challenges. We have got challenges right now, but I want to reassure you, Senator, that we are facing them and we will do everything that we can, with the support of partners, to take them on.

Senator URQUHART: I understand what you are saying. You talked about the next five years. What types of difficult decisions do you envisage that government might be required to make in the next three to five years?

Ms Holgate : We do report very closely with government. The most important one is making sure that we don't make a loss, because if we make a loss then that impacts scarce government funding and it will also threaten jobs. We have been working on a plan to enable us to remain sustainable and profitable. Last time I was here with you, Senator, we talked about the outlook if we did not transform our business. We said that just within three to four years we could be losing as much as $400 million. These are figures validated by PwC; they are not my figures.

However, if we are able to grow our business and focus on the things that we believe we are able to do, we believe there is a pathway whereby we can remain profitable and grow the company. That is what I am focused on doing. As I said earlier, it is too early to give you absolute confidence, Senator, but there are early positive signs.

Senator URQUHART: That is good. I want to move to LPOs, but before I do that I want to touch on the debt held by Australia Post. The company has provided evidence to this committee that, as of 31 December 2017, it was carrying $705 million in debt. Where has that debt come from?

Ms Holgate : The debt was in the business prior to my being here. I am happy to pass that to the corporate secretary.

Senator URQUHART: I am not blaming you for it at all; I am just interested in where it has come from.

Ms Holgate : I don't know exactly where it has come from, so I would not want to give you the wrong answer. But I follow it very carefully.

Ms Kelly : We have a medium term note arrangement and we have a number of investors. I can provide further details on notice.

Senator URQUHART: It would be great if you could do that. Does the maturity of this debt pose any challenges to dividends, or anything else for that matter, over the next five years?

Ms Kelly : I can take that question on notice.

Senator URQUHART: Ms Holgate, I understand that you have now spent several months examining the prices and charges set out in the current LPO agreement. Can you provide an update on where the LPO agreement review is up to and what the key issues have come down to? You said in your opening statement that you have been having those discussions.

Ms Holgate : Absolutely.

Senator URQUHART: I am interested in a bit more detail.

Ms Holgate : I will pass that to Dave because Dave has spent the last two days prior to coming here in negotiations and consultation on that very subject matter.

Mr McNamara : We're currently working through the process of looking at our payment scheme, so working through with both our representative groups in understanding what the framework is that we are going to create for the future. Obviously we're looking at ensuring that it has the ability to go with the growth, obviously through our parcels network, and then decouple it from where it's been really aligned to the letters in the past.

We've been working with partners in performance, our independent consultants, and obviously with the rep groups, to look at: what does that framework look like? We are working through that with both groups currently and then we'll work through our next phases around: what does that look like as an impact?

Senator URQUHART: Can I drill down to get a bit more detail about what are the key issues that you are really focusing on with the LPOs?

Mr McNamara : We are really looking at the framework in ensuring that they have an income associated with opening each day. We are also working through how we make it more variable, so untying

Senator URQUHART: In what way?

Mr McNamara : That there is actually payment for that work. So it's working through today where much of it is tied up into buckets. We're trying to uncouple those buckets to make it easier for LPOs to understand the work they're required to do and the payment they get for that.

Senator URQUHART: It is sort of like a line item for a particular job: that is what the rate is rather than it all being part of a hidden sort of process?

Mr McNamara : Yes.

Senator URQUHART: Any other areas? That is a very key issue, obviously, that I am aware of.

Mr McNamara : It is a key area, and it is about getting those elements right. It's a complex process we're working through. It's about continuing that consultation with both groups to ensure we get the feedback and the key is to evolve that as part of the process.

Senator URQUHART: That has been going for several months now. Do you have a time frame on the process of when that will be finalised?

Mr McNamara : We are looking to hopefully have something in by the end of the year as a time frame that we are working towards. But obviously, depending on where we get to with some of the complexity in the issues, we can't say that that will be the final time of when it will be implemented, but we are working very closely with both groups to ensure that we get all of their issues resolved.

CHAIR: We will just swap over for five minutes or thereabouts and then we will come back to you. Senator Smith.

Senator SMITH: I have just got two sets of questions. The first goes to the relocation of the post office from the Garden City shopping centre to 276 Leach Highway in Booragoon. Could you just step me through the process that was undergone to shift that post office location?

Ms Holgate : Dave is very familiar with it; so I will pass to Dave.

Mr McNamara : With the Booragoon post office, we went through a whole process with the landlord. The landlord is going through a program of actually upgrading its facilities over the next three years. We worked very closely in trying to find premises that would suit our needs for our customers and also for our drivers and everyone to access. We were unable to find a location inside the current shopping centre. And after that, we decided we would look outside the shopping centre, and we have now moved to the location that you mentioned. So we were really ensuring that our customers had access, making sure we met the requirement that everyone had accessibility. We had some issues associated with stairs where some of our customers were not able to actually enter if we were to take those premises and also the ability for us to get our actual trucks and mail in and out of some of the premises that were on offer. So in the interim, we have decided that we would move it to the location two kays away from the current shopping centre. But we are happy to review that once all the renovations have been completed in the future.

Senator SMITH: I have a couple of questions. How long had the post office been in the Garden City shopping centre?

Mr McNamara : I do not have that fact. I can take that on notice.

Senator SMITH: But I think for a long time.

Mr McNamara : For a long time, yes.

Senator SMITH: There are a couple of key points. You said that in the interim you have moved to the Leach Highway location. So is there an intention to shift again or to go back into Garden City if a suitable location becomes available?

Mr McNamara : We will look at that at the completion of what is available. We have a current lease with the current location. At the end of that we will have a look at all our options.

Senator SMITH: When does that lease expire?

Mr McNamara : It is five years.

Senator SMITH: Sorry?

Mr McNamara : Five years.

Senator SMITH: The Leach Highway lease expires in five years. At the end of that, you will then look at what other options are available and it may well be that there is an option available in Garden City?

Mr McNamara : Potentially, yes.

Senator SMITH: For those who are not aware, Garden City is a very, very significant shopping centre in Perth's southern suburbs and is undergoing a massive redevelopment. So I am just curious to know, if the Garden City shopping centre is getting bigger and there are more opportunities for tenants, why is it that that actually reduced Australia Post's opportunity to stay located somewhere in the shopping centre?

Mr McNamara : Because the locations that were on offer meant that we were unable to service all our customers. We are ensuring that we have got our DDA compliance, that our customers can enter the premises. The ones that were on offer did not meet that requirement. So we would have customers who would not be able to access our outlet. Part of what we do in every relocation that we look at is ensure that we can meet all our minimum requirements. And unfortunately at that point in time there were no properties that the landlord was able to offer that met those requirements.

Senator SMITH: The landlord made available to Australia Post a limited number of options. It is not as if Australia Post said, 'Well, show us the floor plan and this is where we would like to go'?

Mr McNamara : Correct.

Senator SMITH: That is curious. I would have thought that Australia Post would have been a very compelling tenant for any shopping centre. But for a major shopping centre redevelopment, why were you offered unsuitable places as opposed to offered suitable places? Disability access et cetera would not be unique to Australia Post?

Mr McNamara : I would have to take that on notice to actually have further conversations on what occurred with the landlord at that point in time. But knowing the fact that landlords move people aroundand sometimes through these you move multiple times through a relocationthat was also provided to us, to move twice. However, both those did not meet our requirements as part of the DDA.

Senator SMITH: So that option did not meet the requirements.

Mr McNamara : Yes, we investigated that option.

Senator SMITH: Again because of the access issues?

Mr McNamara : Correct.

Senator SMITH: What efforts did Australia Post undertake to survey its customers, before it shifted, about a suitable location? The new location is two kilometres away, has little or no public transport access. That area is an ageing part of the Perth south metropolitan area and is surrounded by many retirement villages et cetera. So first question is: what did Australia Post do to survey its customers about the change in location?

Mr McNamara : I would have to take that one on notice to find out. I do not have those details on me, if we did survey in that case. I know we have been doing some follow-up work with Transperth around transport and some different arrangements around how we can look at different options. So that is still underway, working with the transport department.

Senator SMITH: You are exploring with public transport officials in Western Australia how you can better improve public transport access to the Leach Highway location?

Mr McNamara : Correct. We know that there is one bus stop on one side that is 100 metres away from the outlet. The other one is 400 metres. We are working around how we can work

Senator SMITH: On the same side as the outlet?

Mr McNamara : The other side of the outlet.

Senator SMITH: And it is the Leach Highway?

Mr McNamara : Yes.

Senator SMITH: For those at home who do not know about the Leach Highway, it is a very, very busy road. I am curious about the disability access because my observation is that modern shopping centre developments in Western Australia have lift access but they also have escalator accessI am not an expertthat is not stepped but more gradual. And I think at the Galleria shopping centre in Perth's northern suburbs, if you want to get to the second floor, for example, you can take a lift or you can take one of these sort of graduated escalators.

Senator URQUHART: Travelators.

Senator SMITH: I should get out more. I am just curious to know and explore that a bit. It may well be that the issue is how you actually get parcels then into the shop. Could you just explain that to me?

Mr McNamara : I would have to check the specifics around the shopping centre's travelators. I can come back to you on notice on that. But obviously it is important also to make sure, when we are taking product in and out of our outlets, we are doing it in a way that is safe. Taking it through shopping centres is also sometimes unsafe, especially when you have got customers walking through. So ensuring we have that access is also a key part from where we sit normally in shopping centres, to have that access through back of house, especially also for our PO boxes as well.

Senator SMITH: Is it a correct statement that it would have been Australia Post's preference to stay in the Garden City shopping centre?

Mr McNamara : Yes.

Senator SMITH: At the end of the five-year lease would it be correct to say that it is the aspiration of Australia Post to go back into the Garden City shopping centre?

Mr McNamara : We will review it at the end of the lease to understand what options are available and if they meet the needs of our customers, yes.

Senator SMITH: You are going to provide with me some additional information on notice. My second set of questions goes to the almost six-month anniversary since the postal survey. Australia Post has been written to in regard to some suggestions that it might like to use the 12-month anniversary of the postal survey to issue a commemorative stamp and I was just wondering where those conversations might be up to.

Ms Holgate : We have put your recommendations to our panel and they are in the process of considering them. Historically the time for people to consider new stamps coming along is actually somewhere between four and six months. It is actually a very long time. We are working with technology to see if we can speed that up. So we do have it. We will take on notice when we should have a definite decision for you. But I have raised it.

Senator SMITH: You have had plenty of time to prepare for the 65th anniversary of the Queen's coronation. What can we expect in terms of Australia Post commemorative stamps to mark that? I know you are a keen student of history, Senator Lines, and this is by anyone's measure a very, very significant milestone, even for Australian republicanism. Are there any plans for a 65th commemorative stamp?

Ms Holgate : I would have to take that on notice, but we have just had a special range of stamps for the Queen. They are in my business card.

Senator SMITH: It is specifically in regard to the 65th anniversary of the coronation.

Ms Holgate : I will pick it up, but we literally have a beautiful range out for the Queen right now for her birthday.

CHAIR: Senator Urquhart.

Senator URQUHART: From the Queen back to LPOs! How many regional LPOs have closed in recent times, and is there a risk that the rate of closures could increase over the next few years?

Ms Holgate : Dave.

Mr McNamara : Over the past 12 months we have had 23 closures of

Senator URQUHART: Twenty-three over the last 12 months. What was that, a calendar year?

Mr McNamara : Yes. Part of that is that we have had closures but we have also had a number of openings at the same time. So we have the

Senator URQUHART: How many openings?

Mr McNamara : At five locations.

Senator URQUHART: What is the difference between a closure and a termination?

Mr McNamara : A termination is where the agreement between Australia Post and the licensee has been terminated by Australia Post. A closure is normally when a licensee will hand back the licence and is unable to operate.

Senator URQUHART: Does Australia Post have a good sense, in advance, which LPOs are bordering on no longer being viable?

Mr McNamara : We have a number that actually, when they come and talk to us, we have discussions with them, very much to understand where their current business is operating. And we work through a number of issues with them to try and grow their business and to understand where they are at.

Ms Holgate : May I pick up on that question for one moment?

Senator URQUHART: Yes, of course.

Ms Holgate : Dave, do correct me but I was very inquisitive to find out a very similar answer myself on joining the organisation. We actually went through and looked at all the post officesrural, regional, metro. Are they in combination? How much do they earn? We estimate the number to be as low as 70, and that is including community post office pointsno it is not. There are 70 post offices that we estimate earn less than $50,000, between $30,000 and $50,000.

Senator URQUHART: That is POs and LPOs?

Ms Holgate : Licensed post offices, fewer than 70. I am not saying all 70 are at risk there, but it is just for me a threshold that we really need to have a watch out for. And those are the ones that we want to focus on. That is out of 4½ thousand.

Senator URQUHART: I know the number does not seem huge, but for those LPOs it is absolutely huge.

Ms Holgate : Absolutely.

Senator URQUHART: Because it is their livelihood, it is most probably what they have put their superannuation or something into. It is their lifeblood. So in terms of the termination, in what circumstances would Australia Post typically terminate an agreement?

Mr McNamara : We would normally terminate if there was a fraudulent activity and one whereby we are unable to resolve any of the issues. So we work very closely with our licensees to ensure that, if there are any discrepancies, they can work through that. We do not take terminations very lightly. It is very important for us to make sure, if we are doing it, there is a reason why and there is no way of mediating or working through that process.

Senator URQUHART: Are there exit strategies for LPOs which are considered unviable? What sort of assistance do they get from Australia Post in terms of you having looked at everything and they are not viable? Obviously there are lots of reasons. What are the exit strategies, if there are any?

Mr McNamara : At the moment we are really looking at making sure it is about growth. That is where all our energy is working through with our LPOs and around ensuring that they have access to all the services they needwhether it is growing different options and lines in their stores, how we can make sure their business efficiencies are actually at play. We do not really like to go down the path of buying back post offices.

Senator URQUHART: I understand thatand I think that is a positive actionbut in some areas and in some circumstances there will be LPOs which are unviable now and the time frame that it takes to put in some of those new processes will mean they probably cannot sustain that. So I guess the issue for me is: knowing there are exit strategies for LPOs which cannot basically get back to the surfacethey are drowning?

Mr McNamara : At this point in time that is not something we are focused on doing.

Senator URQUHART: I understand you are not focused on itand I know this is all positivebut the question is: are you looking at exit strategies for those that simply cannot resurface?

Ms Holgate : I think it is a really important question and I think going out focusing on those is important. We need to, in my view, in the coming years invest more into our licensed post office network. It is our brand in the High Street, apart from anything else. And they serve our community and our customers. So going out in the year ahead we do want to be increasing our investment and particularly focusing on those ones. And we do have a big transformation project team who are actually right at this moment in time meeting with our POAL partners while Angela is here with us.

Whilst I do not have the detailI think you are asking a really important questionI am happy to take on notice about what we need to put in place to help those licensed post offices who simply just cannot make it happen. And that can happen for many different reasons. We were looking at one just yesterday where the whole shopping community just moved and then they were out on their own. We do need to look at those cases.

Senator URQUHART: Is that something that you are looking at into the futurean exit strategy?

Ms Holgate : In the year that we are coming into, looking at funding to support it, yes.

Senator URQUHART: Are those the types of discussions that you are having with the LPO groups and POAAL?

Ms Holgate : Those discussions take place with Dave. Those are the type of discussions that take place with me, with Angela, with Marie from POAAL. It is more strategic: how are we going to build this community network and how are we going to face into it when sometimes, for whatever reason, they need help and support? Sometimes, with help and supportand Dave recently did this without having the processsomebody goes sick and they are a mum and dad; how do we go in and help them with relief staff? That has just happened recently.

Mr McNamara : Yes. It is really important that we are working through it. We have those discussions; we work with our rep groups around when we know there are people who are in distress, and we try to work through solutions, working with them.

Senator URQUHART: In light of banking closures in regional communities particularly, are you seeing the number of financial transactions increasing in regional LPOs?

Ms Holgate : Yes, we are seeing the number of transactions increasing in LPOs in rural communities, actually across the group. There are some different dynamics. In rural communities, many of the banks are leaving the small towns and, yes, they do pick up that work. We are grateful for the support of the banks to do that. Actually, in metro areas, we are also seeing quite a different shift happening. It is perhaps that the millennial generation no longer work with just one bank for everything. They might have their credit card with one bank, their mortgage with another and their current account, as I would call it, with another. When they want to go to a bank they often come to Australia Post so that they do not have to go to three different organisations. We are also seeing that change coming through in metro areas.

Senator URQUHART: Can I take you back to regional communities? I live in a regional area. I see small towns around me that continually lose their banks because the banks just pack up and go. The post office or the LPO is usually the lifeline of that community. It is the only place where people can go because of their circumstances in terms of their cash flow, their ability to get to a larger centre or whatever. So that is where they go. I suppose the issue is that that puts extra workload onto the LPOs, but is that being compensated for in terms of financial compensation from banks? We have seen through the banking royal commission how banks are happy to charge anyone for anythingeven people that have passed away. Are they providing proper compensation to Australia Post and is that being passed on to LPOs for the services that you provide for them? They make plenty of money.

Ms Holgate : My personal answer is that there is an opportunity for them to reward us more.

Senator URQUHART: They make plenty of money to do it.

Ms Holgate : I think you can stand back and say we probably do $30 billion of banking transactions and we get paid $40 million for doing it. That said, though, that is important. There is also another opportunity. I grew up in a village with one post office, a big rural community. I see it a lot. In every one of the other villages where my mother lives it has closed. The post office has gone. It actually isolates places. While the banks focus on their new strategy, it is an opportunity for Australia Post to take on more of their other work. We just need to be fairly compensated for it. Perhaps we could open and close accounts for them. The LPOs are more than experienced and capable of doing it. They are deeply trusted in their local communities, and that is what we are talking to our banking partners about.

I do not have something conclusive to tell you today, but these are very active conversations. I have spoken to CEOs of the banks. My team met with Anna Bligh last week. This is a very active conversation. Hopefully, next time I see you I will have something more positive to share with you. But I do appreciate that many people have different views on the banks. I would say, though, that the talks have been encouraging. I believe that Australia Post can partner with them, take on more of that work for them and that will provide an important lifeline, as well as the parcel growth, for the community post office.

In my opinion, whilst I believe it is absolutely important to look at the payments for particular services for LPOs, just changing the payments around will not resolve the issue for those post offices today. We have to bring people back into the post office and regenerate them in those communities. Doing more in financial services is an important way to do that, and we can do that by partnering bigger and better with those banks. The other way is by driving parcel growth. I am sure Angela would be the first to say that parcel growth in her own store has helped compensate for the decline in letters.

Senator URQUHART: As part of the survey work that Australia Post undertakes, what differences, if any, have you observed in the views of regional Australians towards Australia Post compared to the views of Australians in the inner cities?

Ms Holgate : I missed the beginning of your question.

Senator URQUHART: As part of the survey work that Australia Post undertakes, what differences, if any, have you observed in the views of regional Australians towards Australia Post compared to the views of Australians in the inner cities?

Ms Holgate : We did a survey of over 5,000 people in the community. Of those 5,000 some very strong messages came back. I am pleased to report that no matter how old you are or whether you are rural, metro or regional, the fact is that over 83 per cent of all Australians said they believed it was either extremely important or very important that their local community post office remained. In regional Australia that figure increased to 91 per cent. I think that evidences to you how important the community post office is to communities in regional Australia.

Senator URQUHART: I have a couple of questions on the GPO sale. You have now provided evidence to this committee that the residual interest held in the Sydney GPO was sold for $155 million. Has the sale of the GPO been raised in the context of the dividend?

Ms Holgate : Not to my knowledge, but I will pass that to our corporate secretary.

Ms Kelly : Could you repeat your question?

Senator URQUHART: Australia Post has now provided evidence to the committee that the residual interest held in the Sydney GPO was sold for $155 million. Has the sale of the GPO been raised in the context of the dividend?

Ms Kelly : It would have been taken into consideration for our dividend calculations.

Senator URQUHART: Does Australia Post anticipate the proceeds of this sale will go towards a dividend payment to the government?

Ms Kelly : We have paid an interim dividend for the 2017-18 financial year, which was $43.5 million.

Senator URQUHART: I have a number of questions on revenue and parcel tax, but in light of the time, I will put those on notice, and I have about four others. Ms Holgate, are Australia Post's superannuation liabilities fully accounted for in the Australia Post annual report?

Ms Holgate : Yes, I believe they are.

Senator URQUHART: Do the current set of superannuation arrangements and liabilities pose any challenges for Australia Post which have not been explained or signalled publicly?

Ms Holgate : Not to my knowledge.

Senator URQUHART: The Australian Financial Review has reported that you have commenced a strategic review of superannuation arrangements. Was this commenced before or after the banking royal commission exposed misconduct by the AMP?

Ms Holgate : I can confirm that it was before.

Senator URQUHART: What is the scope of the superannuation review? What are the key issues that you want to test?

Ms Holgate : We have two superannuations, one which is about $7.7 billion, our old defined benefit fund, and the second one is with AMP, and that is a default fund for new starters, effectively. We have a number of others because people like me have worked elsewhere and we may choose to put our super somewhere else. For those two main ones, which are the ones that we work with, we are actually testing whether we are providing for our employees the best level of service, the best returns, the best engagementand how they feel about them.

The large one has a board with three members of our employee representationsthat is, union membersthree employees and an independent chair. With the other one, the AMP superannuation, we are, again, testing to see whether we are getting the best returns, and we do that always in consultation with our workforce.

Senator URQUHART: Can you tell me what the funds are? What are their names?

Ms Holgate : In what respect?

Senator URQUHART: You talked about two funds.

Ms Holgate : There is one called APSS, which is the one for $7.7 billion. I may get this wrong, so I will pass to Erin in a moment. The second one is our default superannuation. If you join us and you don't choose another one, we have a default superannuation, and that is the AMP one.

CHAIR: Thank you very much, Ms Holgate and colleagues. That concludes consideration of Australia Post. The committee will now break for lunch.

Proceedings suspended from 12 : 57 to 14 : 01