I welcome Ms Vivienne Jupp, chairman designate of CIE, and invite her to make an opening statement.
CIE: Chairman Designate
Ms Vivienne Jupp
I thank the Chairman and members of the committee for inviting me to attend the meeting today. I have served as chairman of CIE since July 2011 and am honoured that the Minister for Transport, Tourism and Sport, Deputy Leo Varadkar, has nominated me to continue in the role for a second three-year term. Along with my colleagues in the CIE subsidiaries, we were the first appointees to the chairmanship of a State-owned body to present to an Oireachtas committee under the new arrangements back in 2011. In that context, I will briefly summarise my career history before focusing on the challenges and achievements of the past three years and the future challenges for and ambitions of the CIE group of companies.
My background is that I have a bachelor of commerce degree and a masters in business studies from UCD. I have worked full-time in business since I graduated and had a 32-year career with Accenture, the global leader in consulting, technology and outsourcing. I started my working life as a management consultant and worked with many organisations across various industry sectors and Government Departments in Ireland. During that time, I led and delivered a succession of successful technology-enabled business change initiatives in both public and private organisations, initiatives which drove business success for those organisations. I was elected an Accenture partner in 1988 - the first woman in Europe to reach that level in the company. I ran Accenture's public service business in Ireland for several years prior to being promoted to my first role outside Ireland within the Accenture global network. I held operational managing director responsibility for profit and loss divisions at Irish, European and global levels. I spent the latter 12 years of my career with Accenture as a global executive director reporting to the global CEO.
I chaired the tourism recovery taskforce between 2011 and 2013 and led the development of the Great Britain Path to Growth strategy. This enshrined a new way of looking at and driving business from our key markets. In 2014, we have seen significant growth in visitor numbers - particularly from Britain, which is our largest market. My experience as a management consultant working in diverse industries enables me to understand CIE and the things that must be done exceedingly well if we are to succeed in achieving our vision.
CIE's vision is aligned to its statutory mandate, which is to provide socially necessary bus and rail transport in a well-functioning, integrated manner which contributes to balanced regional economic development and social cohesion at a reasonable cost. CIE has devolved certain of these functions to its three operating subsidiaries, namely, Bus Átha Cliath, Bus Éireann and Iarnród Éireann. Strategic direction, control and overall co-ordination is provided by CIE, but each subsidiary and business unit has a high degree of operating autonomy in its day-to-day business. CIE also owns CIE Tours, an innovative and highly respected tour operator in North America, the UK and mainland Europe. Indeed, CIE Tours is the largest single generator of inbound tour customers to Ireland from North America. The CIE holding company provides centrally a number of services that support the transport companies in their day-to-day operations. These include treasury, IT, property and legal-investigations services, as well as the management of the commuter advertising network contract.
In the early stages of my term as CIE chairman, it became apparent that the group was in the midst of what the Minister described at the time as a "perfect storm", arising from the cumulative effect of reduced Exchequer funding, reduced demand as a result of the severe decline in economic activity domestically, and increased fuel costs. My absolute priority was to help guide CIE through that storm, working with my board, the chairmen and boards of the subsidiaries, the management teams, the Minister and Minister of State with responsibility for public transport, and key stakeholders. In all our efforts to deliver reforms, we also kept in mind the needs of our customers.
It is incumbent on me to point out that the cumulative reduction in Exchequer-funded public service obligation, PSO, payments to the CIE group since the onset of the economic crisis in 2007 is more than €110 million, or 35%. To put this in context, funding in that period to the health sector has declined by just over 10%, to education by 9%, and to the Garda and the defence budget by 16%. CIE and its subsidiaries continue to play their part in trying to solve the equation of delivering the same level of public transport services on this reduced level of PSO funding. Much of what we have achieved in this regard has been delivered through additional efficiencies in work practices and reduced payroll costs. Now, as the economy recovers, there is a need to revisit what is an appropriate level of PSO funding for the services provided. In very simple terms, it is not possible for CIE and its operating subsidiaries to continue delivering current service levels in return for the current level of PSO and capital funding. This is especially so in the case of Irish Rail, as delegates have heard from Mr. Gaffney. I very much welcome the opportunity to work with the Minister, Minister of State and the Department to try to solve this difficult issue.
When the chief executive officers of the subsidiaries and I appeared before the committee last July, we outlined the immediate steps taken to address our cash issues in early 2012. Additional actions we have taken include a continued focus on cost reduction, including the successful implementation of pay and productivity measures with staff in all three companies, with a further process concluding in Iarnród Éireann; strengthened board committee oversight of cash management; improved central governance function over key financial risks; enhancing the central group finance function; developing an appropriate inter-company funding structure; and enhancement of information technology tools. We are beginning to grow our business again, with an increase in passenger numbers recorded in 2013. In fact, the group has exceeded ministerial targets to grow public transport users by 2% to date in 2014. Crucially, we successfully completed negotiations on a five-year €160 million bank facility with a consortium of banks, demonstrating objectively that the group is moving in the right direction in terms of creating a long-term financially sustainable business.
Despite the challenges we face, CIE is maintaining its comprehensive network of services through its subsidiaries, which continue to facilitate travel to all corners of the country in line with the group's mandate. In addition, CIE Tours had its best ever year in 2013, with revenues of €67.9 million and almost 50,000 passengers - a record number for the business. We continue to try to deliver a comprehensive level of services while receiving significantly less funding than in the past. My priorities for CIE reflect the challenges we face and include managing the group's debt and liquidity positions; a continued focus on reducing the group's cost base at a time when there is extraordinary pressure on the public purse; improving co-ordination of critical areas of common interest, including risk management, HR initiatives and stakeholder engagement; and an ambitious target for CIE Tours to be the leading tour operator to Ireland and Britain. It is important to note that the regulatory environment in which we operate removes control over many of the levers one might use in response to these challenges. In particular, the setting of levels of funding, fares, routes and timetables are all within the remit of the National Transport Authority.
A core responsibility of the CIE chairman is to ensure that our shareholder – namely, the Minister, as representative of the Irish people – is informed of the key strategic issues and challenges we face. We have been open and transparent with the Minister, Minister of State and their departmental officials and ensured they have all the necessary information to make policy decisions in the extraordinarily difficult environment they and the wider Government are facing.
I thank them for this support and am confident it will continue into the future.
In this regard we have been clear on the implications of the significant challenge of securing necessary capital investment by the Exchequer in public transport fleets and infrastructure. To maintain the current standard of the public transport fleet and rail network it is a significant priority of mine to work with the Ministers and the Government to secure the necessary investment to ensure that the nation's transport infrastructure, which is so vital to the country's economic well-being and recovery, does not deteriorate. This is a huge challenge for both the Government and CIE, given current constraints, and it includes the investment required by the national rail infrastructure network and the funding required to maintain the Iarnród Éireann rolling stock fleet at its current standard. Both of these issues were highlighted by Mr. Gaffney earlier today in greater detail. In the period from 2014 to 2016 all indications suggest there will be an acute shortage of capital available to the National Transport Authority, NTA, to fund the up-front purchase of new bus fleets for Dublin Bus and Bus Éireann. To assist with the purchase of new fleets the NTA and CIE are exploring options around leasing. While leasing may allow welcome investment in the bus fleets in that period, we must decide on a medium to long-term strategy for the funding for such investment.
Public transport facilitates a strong economy, environment and society. We must ensure that it is equipped to meet the needs of our economy and society as they emerge from the unprecedented upheaval of the past seven years. I look forward to working to ensure that public transport, as delivered by the CIE group of companies, is well equipped. Should our appointments be confirmed we, the chairpersons, boards, management teams and staff, Ministers, Departments and the NTA, will work collectively to this end with the elected representatives of the people, to whom we are all ultimately answerable.
I think I was here for the corresponding meeting last year, deputising for Deputy Ellis, who holds the transport brief, and here I am again. Last year I pointed out that I know Ms Jupp from her time working at Arthur Andersen many years ago. I knew then that she would go far and I know she is an exceptionally good chairperson of CIE so I have not been disappointed in any respect. I will not go through the same series of questions.
Is there anything Ms Jupp would like to happen at CIE that has not yet happened? Has anything occurred since she joined the board that she wishes had not occurred? It is good that the CIE group can access €110 million through a consortium of banks but will this meet revenue or capital expenditure?
Ms Vivienne Jupp
To answer the first question, I wish the perfect storm scenario, whereby we required additional funding, had not arisen and I wish that I could have predicted its occurrence. I am in a better position to make predictions on processes and procedures, strengthening treasury and finance functions at group level and this is how I can say that the situation now facing us is serious and must be addressed. There should be no surprises and if we carry on doing what we are doing there will be difficulties so we must make changes.
Obviously, some things happened that I wish had not. I do not like disrupting customers and on a couple of days, services were not provided. As we continue to win new customers I hope we avoid such situations. In terms of the €160 million, a great deal of work was done on the business plan to demonstrate to the banks that we were doing the right thing. We had to show them that putting money into CIE meant services would be delivered and the loan would be repaid. All of the money is being used to fund day-to-day operations at CIE and only surplus cash will be invested in capital projects.
Is the business case that CIE put to the banks the same as that which is routinely presented to the NTA? Does the NTA not need the same information?
Ms Vivienne Jupp
The NTA deals with the three operating companies individually so the collective position of those companies may not be as visible to the authority as it is to CIE. We now engage more with the NTA because of the scale of the problem and the fact that we were able to give warnings. The CIE group and Irish Rail are working closely with the NTA to find a solution to the problem to present to the Department and the Minister.
I would like to thank Ms Jupp, who I met previously, for coming before the committee and for her work on behalf of customers as chairperson of the CIE group. I note with concern the flags raised by Ms Jupp on the sustainability of the Irish public transport system. We must continually evaluate the arguments in this debate to see where our priorities lie. I do not have particular questions because Ms Jupp has spelled out the challenges facing the company. Regarding the alignment of the objectives of CIE, I presume there is constant engagement with stakeholders such as the NTA, the Department of Transport, Tourism and Sport, the workforce and the Minister. When challenges arise and a business model for funding is formulated I presume change management is required and it is challenging to get the unions and the workforce to engage in the process. Perhaps Ms Jupp can explain CIE's work in this area.
What is the state of pension funds in the CIE group at the moment? Are they healthy or has Ms Jupp concerns?
Ms Vivienne Jupp
Obviously we have been going through the challenges faced by each company and CIE is co-ordinating the effort to ensure the activities of each subsidiary company are aligned and that they contribute to the overall health of the group and each individual company. We cannot allow one company to do something that is detrimental to another. The bus companies are concerned that we deal with the challenge facing Irish Rail because it could impact upon their services. Since I took this job I have tried to be clear, concise and transparent in providing all of the necessary information to the board, which includes four worker directors, the management teams, the Department and the Minister. I do not believe in hiding things. We must be absolutely clear and transparent and ensure the evidence backing up our point of view is clearly communicated. I always answer questions from the worker directors on the seriousness of the situation because nobody would want to put people through the changes we are asking people at all levels to undertake if the situation were not deadly serious.
I welcome the witnesses and compliment Ms Jupp on the work she has done at CIE.
Ms Jupp's background is commerce and finance. Does she foresee a greater restructuring of the entire CIE Group taking place in the near future in order that it might achieve the greatest possible efficiencies and obtain the strongest possible competitive advantage with regard to the delivery of public transport services? There is not a country in the world whose public transport service does not operate without some form of state support or subvention. The concern of the committee is that the subvention to CIE should be used to deliver efficiencies and a competitive and safe service. In the context of its overall structure, is the group fit for that purpose? Ms Jupp stated that there is competition both without and within the group. Mr. Philip Gaffney outlined his aspiration in the context of reducing the journey time between Cork and Dublin to two hours. Inevitably, that is going to have an impact on bus services. Would there be some way of restructuring the entire group and perhaps of cutting parts of it loose, for want of a better phrase?
Ms Vivienne Jupp
The first point to make is that we always benchmark ourselves against international best practice in the areas in respect of which we can do so. We also try to learn from best practice elsewhere. There are international bodies which do this. We contribute to them and receive information back. This helps us to look at the services we provide and ensure that we operate them in the best possible way. There are certain services which are consolidated within the group itself and which are not replicated in the individual companies. That enables us to achieve some economies of scale across those services and to attract the skills that are required to operate those once rather than in three individual companies. The thing we need to do an awful lot more of is look at the processes and procedures the individual companies - which would be doing similar things - use to run their businesses and determine the services they operate in order to discover whether these are delivering the best outcomes and establish whether we can do anything from a process re-engineering perspective to deliver better services in a more competitive way. No matter what we have in terms of the money we receive from the PSO, the NTA, as the regulator, should always be demanding improved efficiencies and effectiveness from the organisations every year. We would always need to do that and we must make a much better effort in this regard.
Ms Jupp referred to benchmarking against international best practice. In her opinion, where does the CIE Group stand in the context of international best practice?
Ms Vivienne Jupp
We do very well in the context of international best practice.
Is Ms Jupp in a position to provide the committee with material which shows this to be the case?
Ms Vivienne Jupp
I can obtain some of the figures for the Deputy. I do not have them to hand but I can certainly obtain for him some of the reports we use as part of the benchmarking process. Those reports show where we are ranked in the context of some of the services we provide.
Ms Jupp also stated that the NTA should be encouraging the group to achieve efficiencies. Is that also her job?
Ms Vivienne Jupp
Yes. I see my job as ensuring that we have an efficient and effective organisation that delivers high-quality safe services to people. As the regulator, I would expect the NTA to demand that of us also. It is on our agenda.
I did not answer the question which Deputy Coffey posed in respect of pensions. Perhaps he would like me to deal with it now.
Yes.
Ms Vivienne Jupp
I apologise for the fact that I forgot to answer it. The deficit in the two CIE defined benefit pension schemes was €118 million at the end of 2013. This was €73 million less than the figure for 2012 as a result of the fact that the overall economy had done a little better. The deficit is more significant in what is termed the executive scheme and amounts to €301 million. In the regular wages scheme, the deficit is €116 million. The deficit is dependent on the discount raised and used to value the future pension liabilities of the scheme. That is influenced by bond yields, etc. We submitted a proposal to the Irish Pensions Board in the context of meeting the minimum funding standard and that has been approved.
On behalf of the committee I thank Ms Jupp for coming before the committee, for engaging with members so openly and for outlining her vision for the future in the context of the challenges and opportunities that exist. We will send a transcript of these proceedings to the Minister. We wish Ms Jupp well for the future in her post.
Ms Vivienne Jupp
I thank the Chairman.
The joint committee adjourned at 12.35 p.m. until 11 a.m. on Tuesday, 15 July 2014.