I thank members for their invitation to address this committee. I am Donal Connell and I am the chief executive of An Post. I am accompanied today by John Daly, who is the company's retail operations director. The joint committee has invited us to this meeting to talk about the post office network and, in particular, about processes pertaining to our decisions regarding the closure or otherwise of post offices. Before I go into the specifics, I believe it would be useful to set the context in which these decisions are made. Our business at An Post comprises three distinct areas, namely, the core mails business, our post office retail business and our subsidiaries.
Our core mails business has seen a fall of approximately 30% in revenue since the peak in 2007. This coincides with the fall in domestic demand in the economy since then of approximately 25%. As the joint committee will appreciate, a fall of such magnitude in the core revenue of our business means we must make significant changes. This is driven by the reduction in mail volume caused by the recession and the move by some customers to electronic alternatives such as online communications. I am sure members are aware of the initiatives by communications and financial services companies to encourage their customers to receive their correspondence online. In response, An Post has continued to reduce its cost base, including non-pay elements of cost, as well as a continued reduction in employee headcount. We also continue to invest in the latest mail processing technologies, which already deliver significant efficiencies within our mail pipeline.
On the other hand, our retail business has performed strongly in recent years with increasing demand for post office-based financial services and this performance has in many ways helped to mitigate some of the worst effects of the downturn in the mails business. More people are coming through our doors than ever before. We have approximately 1.7 million customer visits every week throughout our network. Last year, customers invested an additional €1.4 billion in State savings products, which we sell on behalf of the National Treasury Management Agency. This is money the State receives at an interest rate well below the prevailing yield on international bond markets or, in other words, the savings products we administer are very good value to the State at present, as well as being great value for our customers. These products also are a very important part of business for the post office network, as is the work we do on behalf of the Department of Social Protection. In 2011 alone, we paid out approximately €10 billion in social welfare payments.
We are continually experiencing downward pricing pressure in all of our business lines in common with other retail operators in the economy. As members are aware, retail is a highly competitive market and we have responded well to these pressures. In order to enhance our revenue base, we have focused on developing post office services for the State, utility companies and other commercial entities, to expand the range of products and services available and to remain relevant to businesses and communities across the country. We have state-of-the-art post office counter technology, which was the platform on which the payment of the full range of social welfare benefits was established through the post office. This laid the foundations for additional services such as passport applications and renewals, bill payments for various utility companies, Garda fine payments, mobile telephone top-ups for customers and so on. The introduction in 2011 by An Post of foreign exchange sales in post offices has been a great success. Within 18 months of starting, we now account for 30% of the retail market. Postfone is a value-for-money mobile telephone service that we launched recently and which now has a growing customer base. Furthermore, as the banks in Ireland continue to rationalise their branch network, we have added many new services on behalf of Allied Irish Banks in particular and of National Irish Bank and we are continuing to develop such services.
The third leg of the An Post revenue base is the money we earn from subsidiary companies. These include, among others, our business subsidiary in the United Kingdom, which manages magazine subscription and fulfilment services, as well as the Gift Voucher Shop here, which produces the One4All gift cards. This strategy has been very successful for us and we have seen significant growth in profits and revenue coming from many of our subsidiary companies.
I will now turn to talking about our post office network in greater detail. We are, by a long way, Ireland's largest retail and services network and serve business and communities the length and breadth of this country. Our 1,150 post offices and 170 postal agencies deliver retail, mail and State services to communities nationwide. I am sure members will be aware that the vast majority of these offices, 95%, are operated by independent contractors, our postmasters and postmistresses, with just 57 offices being operated by An Post staff.
I outlined earlier the difficult trading environment in which An Post finds itself and the need to cut our costs. The retail business is no different in this respect. In so doing we have, for example, outsourced our cash centres and are changing the business model of some company-owned offices to independent contractor status. We also seek to make savings in all of our non-pay costs by going to the market regularly through competitive tenders. The post office network costs a lot to run. Not only must we pay our contractors, but we also incur significant costs relating to the delivery and security of cash and premises, training, merchandising, the counter technology and other operating costs. As I indicated earlier, 95% of the network is operated by independent contractors. Each year some of these contractors choose to terminate their contracts for various reasons, such as retirement, change in business focus or whatever. When this occurs, we take the opportunity to examine the need to retain a service in that particular location and consider if we can perform the business in neighbouring offices, thereby reducing our costs while maintaining our service to our customers. We examine each issue on a case-by-case basis. We look at the locality involved, the business volumes, the type and pattern of transactions and the proximity to neighbouring post offices and we make our decision accordingly.
In managing the post office network, we must respond to Ireland's evolving society. Lifestyles have changed, people are more mobile and retail outlets are concentrated like never before. Our customers have followed these changes and they shop in towns increasingly rather than villages and in cities rather than towns. We must cut costs and continue to preserve the viability of the post office network as a whole. We are aware this may cause some minor inconvenience for some of our customers and we regret this. Our decisions are based on commercial criteria and founded in our knowledge of the business. We still have one of the most extensive post office networks in Europe. For example, a recent independent survey showed that we have 3.5 post offices per 10,000 of population, which ranks us third out of 31 European countries surveyed.
If a postmaster or postmistress decides to retire or to leave the business, this does not mean the post office will necessarily close - far from it. Since the start of 2011, we have seen 32 contractors resign, of which outlets 22 have reopened or will reopen soon. Nine have closed and one will close next week. Each of these decisions was made based on our examination of the relevant area and other factors I mentioned earlier, such as business volume and proximity to other offices. In most cases the customers experience an improved service, as many neighbouring offices upgrade their premises to facilitate their new customers with the additional business they get.
In essence, our approach has been one of maintaining an extensive post office network, driving additional customer footfall and increasing the diversity of our product offering for customers. At the same time, we must look at individual vacancies as they arise with a view to maintaining the best possible network and continuing to run it as a viable business for these same customers.
The joint committee has asked me to explain the process for filling vacancies once the decision is made to do so. The vacancy for the post office contract is advertised in the relevant post office and neighbouring offices. In many cases we notify the local retail multiples, such as SuperValu or Centra, and may directly contact other businesses in the area to notify them of the vacant contract. It is also advertised on our website. A detailed application form is then sent to any interested parties. This would include indicative payments, space needs and opening hour requirements. All applications received are reviewed and this includes an interview process and examination of the proposed premises. A recommendation on suitable candidates is submitted to a selection board for approval. Contracts are then signed and the successful applicant takes up the appointment at an agreed date when the premises are ready and have been inspected and approved. This is a comprehensive process that we take very seriously indeed.
The joint committee has also asked me to speak on strategic plans in place for the development of the post office network. Our strategy is to capitalise on the great strength of our footfall and the opportunity to cross-sell with real customer focus, anticipating customers' needs as they change in the new Ireland with the new economy we face, and ensuring that we cater for them. Our customers put their trust and confidence in us day after day, week after week, and year after year. By catering for their needs and by introducing value-for-money relevant services, we can maximise our revenue. That is a key part of our strategy.
It is worth noting that contractor fees are based on transaction levels and it is in their interest to maximise the amount of business we do in each office. If customers do not utilise their local post office, choosing instead to travel elsewhere or conduct their business in alternative ways, then that contractor's business shrinks with the inevitable consequences. Like our mails business, we fund all our development and investments from our own resources without any recourse to State subsidy or borrowings. We have been successful in maintaining that through some very difficult years in the economy.
It might be useful, at this point, if I was to go into our retail business in a little more detail. The mails business accounts for about 17% of post office revenue. In terms of externally earned revenues, the Department of Social Protection services account for 35%, State savings products we sell for NTMA account for 31%, bill payments for a range of different commercial companies account for 12%, licence services, 8%, money transmission - mainly Western Union - 7%, while banking and other services account for the remaining 7%.
The provision of Government services is one of our core competencies, and something we think we do very well. In addition, we have identified other areas of Government activity which we believe can be easily delivered through post offices at a cost benefit to the State. These include motor tax, household charges, septic tank registration and payments, as well as the provision of information services. We continue to engage with various Government Departments about this approach. We firmly believe that we have the network - in terms of size, IT capability and customer service expertise - to undertake these activities, and perhaps others as they arise, on behalf of the Government.
Our company, An Post, is unique in that it has retained a high level of trust among customers. We believe that utilising post offices in this regard would be successful for An Post and its employees, the Government Departments involved and, most crucially of all, our customer base. Each week, we welcome 1.7 million customers across our network. The post office is more relevant to these people today than perhaps at any previous time. Our customers can access mail services, welfare payments, pay a range of utility bills, purchase licences, passports, foreign exchange and even buy mobile telephones. They can do all of this within easy reach of their homes and businesses. We are proud to work with a group of motivated, highly trained, self-employed postmasters who want to be of service to their community now and well into the future.
The challenge for me and my management team is to maintain the largest possible viable post office network, which reflects changing lifestyles, changing shopping habits and business practices. It is a network which is vibrant and always remains relevant to satisfying our customers' needs.
I thank the Chairman and other members of the joint committee for listening to my presentation. I will be happy to take any questions members of the committee may have.