Government Operations Committee on Oct. 31st, 2016

[Pierre Lanctôt]

We looked at the financial statements for the last five years. We did assess the profitability, and we did some analysis to satisfy ourselves that we understood the financial situation.

On the last five years, of which three were negative and two were marginal-positive years, if I recall correctly, without adjusting, we did look at the one-time event, but in the report, we presented numbers the way they are stated in the financial statements, because that's the information that is known, public, and has been audited.

When we did the projections, though, we did not project the past.... Essentially, the projections for the future are based on a set of assumptions for the revenues for volume growth—or volume decline, in the case of letter mail—and for increases in costs, some of the measures Canada Post intends to implement, and the general direction of the economy, inflation, and so on and so forth.

It's not a projection where the last five years were such and the future years will be that. We went by type of revenue and by type of cost, and we looked at specific assumptions for each of them.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

I'm an accountant by trade, so I understand what you're talking about. When you were projecting it, were you taking into consideration any anomalies that took place in previous years that would guide your discretion or decision to project losses?

[Pierre Lanctôt]

Yes and no, in the sense that, very often, one-time information or a one-time event that occurred in the last five years is not necessarily going to be repeating in the future. To understand the past historical performance, we looked at the one-time information, but to project, we try to understand if there is any event that we can foresee. We obviously cannot forecast an unforecastable event. That's why often in financial statements there are differences between projections and the actual, because there are events that are not projectable or cannot be estimated.

[Yasmin Ratansi, Liberal, Don Valley East, ON]

Thank you.

Mr. Spear, you talked about different venues that Canada Post could adopt, and postal banking is out. We understand, with regard to the concentration in different parts of the world that have adopted it, that ours is a totally different phenomenon, but we have a rural and urban divide. If we were to have social cohesion, what in your presentation or in some of the recommendations—you said they were not recommendations, but suggestions—would be more profitable for Canada Post, with its wide network at the moment, for it to survive or to offer better services?

[Bruce Spear]

We did evaluate several different business models for postal banking, just to be clear, including going it alone, payday lending, going into postal banking as a consortium play, and more of a real estate play with Canada Post retail branches. By and large, what we found with regard to postal banking was that it required too many capabilities that were non-core to Canada Post and would require a significant amount of risk in terms of getting into the lending side of the business.

The one business model that might be worth discussing is as a real estate play, leveraging the footprint of Canada Post in markets where banks are retreating, but where there can be consolidation of branches and they can be served by the post office. We identified this as several hundred branches, not the thousands of post offices that exist, so we don't view that as inconsistent with the post office rationalization or footprint rationalization conversion to franchises, which is one of the more economically significant initiatives for Canada Post.

[The Chair, Conservative, Tom Lukiwski]

Mr. Clarke, you have seven minutes, please.

[Alupa Clarke, Conservative, Beauport—Limoilou, QC]

Thank you, Mr. Chair.

Good morning, gentlemen. Thank you for joining us today. We appreciate it very much.

I have a series of questions that I can ask in quick succession. Then I will have some more in-depth questions.

I really liked reading your report. On page 13, you say that the Canada Post mission has “a dual mandate”.

[The Chair, Conservative, Tom Lukiwski]

I have a question. If you're quoting from the report—

[Alupa Clarke, Conservative, Beauport—Limoilou, QC]

No, I mean the task force.

[The Chair, Conservative, Tom Lukiwski]

The task force report. Thank you, let's clarify.

[Alupa Clarke, Conservative, Beauport—Limoilou, QC]

In the task force report,

It says that part of Canada Post's mandate is to “provide the same basic and customary service to all Canadians”.

In reality, that has never been the case. Two-thirds of Canadians already pick up their mail at a mailbox and the other third receives it at their doors. So it might be said that the mandate has never truly been observed.

What is your opinion?

[Charles-Antoine St-Jean]

Thank you for the question.

Canada Post's services are provided in the entire country, from sea to sea to sea. There are different service levels, depending on population density. That is a business reality: Canada Post has to tailor its service to the demand. That is what we considered in our analysis.

[Alupa Clarke, Conservative, Beauport—Limoilou, QC]

Okay.

Is it normal that, for a workforce of 50,000 employees, there should be 2,500 senior managers? I’m just asking.

[Charles-Antoine St-Jean]

We didn’t really look into that specifically.

[Alupa Clarke, Conservative, Beauport—Limoilou, QC]

On page 4 of the task force report, there is this comment: “Since 2011, despite having reduced its headcount by about 10% or approximately 5,800 employees, the corporation’s overall labour costs have remained stable at $4.4 billion.”

What would explain that?

[Pierre Lanctôt]

Essentially, at Canada Post, salaries increase annually. The number of employees was also reduced. In the five-year period that we assessed, the dollar costs therefore were relatively stable.

[Alupa Clarke, Conservative, Beauport—Limoilou, QC]

Okay, I understand. Thank you very much.

If I am not mistaken, the study done a few years ago by the Conference Board of Canada forecast a deficit of $1 billion. Three years later, in your most recent study, you forecast a deficit of $700 million, give or take.

Would you say that the five-point plan allowed the forecast deficit to be decreased by $300 million? Is it the five-point plan that has made for savings of that magnitude?

[Pierre Lanctôt]

We did not really study that specifically. We did not compare Canada Post’s performance in the last five years to the Conference Board of Canada’s forecasts. That was not part of our mandate.

However, in our report, and in the working group’s report, it can be seen that the savings achieved in recent years brought with them a reduction in costs. Some actions were also taken that brought in additional revenue. That may explain the differences.

Whatever the case, we did not specifically study the difference between the two.

[Alupa Clarke, Conservative, Beauport—Limoilou, QC]

So you do not know exactly which steps—

[Charles-Antoine St-Jean]

May I add something?

[Alupa Clarke, Conservative, Beauport—Limoilou, QC]

Yes, I am sorry. Go ahead, Mr. St-Jean.

[Charles-Antoine St-Jean]

As we mentioned in our presentation, the figure of $700 million is at the optimistic end of the range of estimates. So it could be higher.

[Alupa Clarke, Conservative, Beauport—Limoilou, QC]

I understand.

I think that Ms. Ratansi partly addressed the topic I would like to talk about now. On what were your quantitative analyses based? Which figures, which sources, do they use? If I recall correctly, you said that you were dealing more with forecasts than with prior data.

Last week, in western Canada, most of Canada Post workers’ union representatives said that you used Conference Board of Canada figures. We heard that over and over again.

Are you able to confirm or deny that statement?

[Pierre Lanctôt]

We did not use the Conference Board of Canada figures.

We conducted two types of primary analyses. We used historical results from the last five years and 10-year forecasts up to 2026.

For the historical data, we used the corporation’s audited financial statements and internal management reports. We also validated some of the information with external public information or with some research that we conducted ourselves.

For the future data, once again, we took information that exists in Canada Post. We created our own information. We validated the figures, such as those dealing with projected revenue and projected volume, and compared them with some existing analyses or with analyses that we conducted ourselves, to confirm that the estimates were reasonable. The result is a mixture of Canada Post’s public information.

The Conference Board report was not used in our analysis at all.

[Alupa Clarke, Conservative, Beauport—Limoilou, QC]

Thank you.

The moratorium on rural Canada Post office closures has been in effect since 1996, if I am not mistaken. Do you think that, if the moratorium were ended, it would cause an erosion of Canada Post’s infrastructure and would be the beginning of the end of Canada Post?

Do you believe that the moratorium is a tool being used to preserve the very existence of Canada Post’s public service?