Government Operations Committee on Nov. 3rd, 2016

[Kelly McCauley, Conservative, Edmonton West, AB]

When you say not in line with the cost, do you mean with competitors, or do you mean with previous business costs?

[Françoise Bertrand]

No. From what they bring in as revenues, they don't contribute as much as the transactional mail was contributing. The mail is really in decline, and it has in the last few years, and it will keep on declining. With the parcel business, which has kept up with the marketplace, you cannot play with it in a way where you would lose market space, because then you will have a problem of not having a real equilibrium between the two.

[Kelly McCauley, Conservative, Edmonton West, AB]

Great. Thanks.

We have heard a lot over the last couple of months about postal banking. We heard it earlier today again. We only have about two minutes. Could you give us your thoughts, a final wrap-up on postal banking—

[Françoise Bertrand]

Definitely.

[Kelly McCauley, Conservative, Edmonton West, AB]

—and its viability?

[Françoise Bertrand]

We've heard it, we questioned it, and we investigated it. It's not something that we had a preconceived idea about. We really dug on that one.

We heard the Canadian Bankers Associations, callers, and stakeholders. We spoke also with organizations from France and from Great Britain that have those postal banking services. We've been told if they were to start today, they couldn't do it because there have been so many conformity obligations put on banking that they cannot conceive you could start it today.

In Canada, yes, you have only five chartered banks, but you also have credit unions, you have Desjardins, you have FINTRAC, and all the other types of financial institutions that constitute access. From the World Bank survey, 99% of Canadians are covered with the services of banking.

From the point of view of our criteria that we spoke about earlier, is there a space in the market? We didn't see space in the market.

[Kelly McCauley, Conservative, Edmonton West, AB]

Thank you very much for your commentary.

[The Chair, Conservative, Tom Lukiwski]

Mademoiselle Trudel, sept minutes, s'il vous plaît.

[Karine Trudel, NDP, Jonquière, QC]

Thank you, Mr. Chair.

Ms. Bertrand, once again, welcome to the committee.

It's been a long road. I know this has been a lot of work for both you and all the committee members. For us, it has meant many long hours listening to stakeholders across the country and gathering valuable input. Retired people and those with mobility issues shared with the committee their fears and concerns about the disappearance of this public service. This is an issue we all care deeply about. Canada Post is a public service that is part of our everyday lives in our communities

As I have already told you, I was disappointed by the report. I was expecting more. I realize you were bound by a specific framework. I also realize that the committee could build on your suggestions to produce a more thorough and perhaps more in-depth report.

From everything I have heard and read, I can't seem to get the image of a pyramid out of my mind. You have Canada Post, the postal workers, and the public being served, a public that has a certain expectation of public service. Everyone has to do their part to make sure that Canada Post has a future. I'll come back to the service issue in a moment.

Given the information in your report and the input you gathered from the stakeholders you questioned, it is clear that the numbers don't match. What's more, they are based on data from 2011, when Canada Post went through a lockout and had to pay out huge sums for pay equity reasons. As far as the deficit goes, you came up with an average estimate and some forecasts, but, as we speak, the numbers we have show that Canada Post is profitable.

Earlier, you said that it wasn't possible to hypothesize too much on new solutions or ways of doing business, particularly as regards postal banking. Conversely, the report contains hypothetical figures for the future, specifically, for the next 10 years. The stakeholders we have met with have told us that those figures do not add up.

I'd like to hear your take on that. I appreciate that the firm did its job and that it was possible to make changes afterwards. I can't get into the nitty-gritty since I'm not an accountant like Ms. Ratansi, but why the difference in the data? Why are there different sets of numbers? Furthermore, and this question bears repeating, why were the financial results of 2011 taken into account despite the fact that it was an unusual year expenditure-wise?

[Françoise Bertrand]

Thank you for the question.

We worked very rigorously in a number of respects. First, basic figures come from Canada Post and its data. We also have figures that have been checked by an extremely responsible and recognized firm, KPMG. Ernst & Young, with whom we worked, analyzed those figures. It did not redo the audit, but it worked with the figures.

Forecasts are just that, but as we said in our report, we did decide to go with the most conservative hypotheses. It can be said that 2011 was an exceptional year because of costs related to pay equity, but 2014 was also exceptional. In fact, the price of the stamp went from 62¢ to $1. That generated an influx of about $200 million, and it inevitably helped Canada Post somewhat catch its breath.

Moreover, I want to remind you of the issue of the pension plan's solvency. Some may say that it's only a matter of $6 billion or $8 billion, depending on the assessment. According to the latest assessment, the amount was $8 billion. In addition, solvency payments have been suspended for the time being. When a $6-billion company makes a profit of $100 million, it's not huge. In the private sector, that kind of a profit would not be considered extraordinary, quite the contrary. Moreover, that profit will quickly be lost once solvency payments resume.

There is also the obligation to continue to invest in the company. It needs modernization and must move toward new niches and new technologies. That is what our forecasts are based on. It's rather conservative—and we won't argue over $50 million or $100 million—but when we establish the medium to long-term trend, we see that the situation is very delicate. We have to remember what is at the basis of all this. In other words, we are no longer receiving or sending the letters to which we are so attached. In addition, we are receiving and paying our bills online. Sixty-nine percent of Canadians feel that this trend will continue to grow.

Moreover, we will be less and less favourable to marketing initiatives and advertising distributed through the mail, as we are increasingly aware that, in many ways, that is a waste of paper and we could just as well use the Internet.

Finally, when it comes to package delivery, which is experiencing considerable growth, the prices cannot be raised at will, as there are constraints, not in terms of legislation, but in terms of market forces. That is why the only worthwhile possibility to consider would probably be for a regulatory organization to set a floor price that would be applied to our competitors. That would give Canada Post some breathing room.

[Jim Hopson]

Is there time for me to respond to that?

[The Chair, Conservative, Tom Lukiwski]

Yes, please.

[Jim Hopson]

I just want to add to that, using my business experience. When you are looking at the past, there is always a tendency for some to want to remove the good years and others to remove the bad years. That's why you have to look at the longer term. In my last five years in the business I was in, 2011 was a very bad year for us, but 2013 was a tremendous year. However, we have to leave them in. So you look at that five-year period. And then as you go forward, you are trying to do your best analysis of a realistic forecast, a conservative forecast. So I don't think it's fair to say, well, one year was this and we should exclude it. You have to take everything in totality, and I think, long term, the numbers indicate that there are going to be challenges as we go forward. Thank you.

[The Chair, Conservative, Tom Lukiwski]

Madame Ratansi.

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

Thank you for reiterating what your mandate was. Yours was a discussion paper. You didn't draw any conclusion. You just helped us to go forward and ask questions. Sometimes it was very hard to say whether the remarks you made were valid or invalid. We heard a lot of contradictory information to what you heard. What I'd like to do is read something that some of the witnesses said, and it was not the union.

One said that the task force paper on the Canada Post Corporation review is fundamentally flawed and ill serves the residents of Canada because it misses opportunities to take advantage of Canada Post's unique strengths. This is where the confusion comes for us. We're looking at it and saying, were you looking at it from an insolvency perspective, because you mentioned it, or were you looking from an ongoing concern that can't capitalize on opportunities?

I'll make a few statements, and please makes notes, because you'll answer the questions.

One of the things they also said, and you quoted it just now, was that 60% of Canadians do banking online. The person who was looking at the source said that the source you cited was Yahoo Canada, but readers of Yahoo Finance are in no way representative of the population of Canada. You can answer that question, as well.

In your analysis, Mr. Hopson, you said you do not look at one anomaly, but that for 19 out of 20 years that Canada Post has been in business, it has been profitable. If it has been profitable, then you and I know that when we project into the future, then you can project two years for accuracy. Even Ernst & Young told us that their projections are not that accurate.

You can see the confusion people are facing with viability, non-viability, and sustainability. What are some of the creative solutions?

We had Oliver Wyman here as well. You said you looked at the U.K. and France. Those are two densely populated countries. Even when we asked the question of Oliver Wyman, they didn't even look at Australia. If you don't look at Australia, which is really parallel population-wise and size-wise, how do you come up with conclusions that postal banking is not viable? We've had so many presentations that state that in certain instances postal banking has been viable, that you have to look outside the box, and there was no integrated thinking by Canada Post.

The reason I'm telling you this is that you're going to respond, and I'll be quiet afterwards.

One of the other things they said that you didn't look at was Canada Post shooting itself in the foot because it was creating competition for itself by opening up franchise stores while it had corporate stores. We learned from businesses that your analysis is flawed that ad mail will decrease because of technology. So here I am asking, who is right, who is wrong, and what do I do?

The floor is yours.

[The Chair, Conservative, Tom Lukiwski]

You had about a four-minute question or statement, so you have about three minutes left.

[Françoise Bertrand]

Let me remind you that in this analysis and this mandate, we had no interests. We're an independent committee. We worked really hard to understand the business and to really try to pull on everything we could in order to describe to you the facts. We were not trying to push any idea. As I said, we had some parameters that we had to respect.

For the 69% you referred to with the survey, this was a scientific survey. This is what we got. It was 69% of the people who told us they were getting their bills and paying their bills through the Internet. Now it could be—

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

You did it yourself?

[Françoise Bertrand]

No, it was—

[Marena McLaughlin]

Yes.

[Françoise Bertrand]

Well, with—

[Marena McLaughlin]

EKOS. It wasn't the Yahoo site.

[Françoise Bertrand]

Yes, it wasn't that site. I think it's very important that we understand that e-commerce is rising. It's not reached it's potential.

Regarding the solvency problem of the pension, it is not in our hands to present a solution. What we've presented are the options that you have to consider, but it is a big weight that you can for now forget. Of course, that's what the corporation has been able to do, given the holiday they were given, but it's there, and unless you change either the legislation, as they did in Quebec last year or in New Brunswick, you're caught with that. It has to be considered.

I'll let my friend talk about Australia.

Regarding the corporate stores versus franchises, we have considered the possibility that the moratorium that was once appropriate, because the areas were rural and had very little population, is not longer so because it is a different story today. Here we think of Brampton, Moncton, Halifax even. We thought, if we try to be imaginative, isn't there a possibility to use the corporate stores that remain in the rural and more remote regions as hubs? Canada Post could offer the possibility of partnering with banks, offering municipal, provincial and even federal services, and maybe even some private sector services, and to be the meeting place but also to provide

a single-desk system, as it is commonly referred to,

for all kinds of services. So we've tried to really balance the interests of Canadians with the possibilities.

Maybe you want to talk about Australia.

[The Chair, Conservative, Tom Lukiwski]

We'd like to hear Mr. Hopson talk about Australia. It's a big country, but we have no time, unless Mr. Clarke wishes to allow you the time to give your analysis of the Australian postal banking service.

Mr. Clarke, you have the floor for five minutes.

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

Thank you, Mr. Chair.

Mrs. Bertrand, I was not here the first time you came to testify before the committee. So I'm very happy to meet you.

My first question is about the solvency break instituted by the previous government. Canada Post's financial situation is precarious. Since our report may be made public in November, Canada Post will not have enough time to receive our recommendations and apply changes that would help its situation improve by 2017.

Do you think the government will have any other choice but to extend that solvency break?