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Chairman's Statement

 

FOR THE YEAR ENDED 31ST DECEMBER 2015

 

Ms Vicienne Jupp, Chairman CIÉ Group 

I am pleased to report that during 2015 CIÉ continued to  grow the number of customer journeys being taken across its services by 6.5 million (2.8%), leading to a €20.9 million (2.5%) increase in the Group's fare revenue.

Our goal is to support the growth of the Irish economy, and social cohesion, through the provision of attractive public transport services. We do this by meeting and exceeding the travel needs of our customers, which in turn stimulates increased demand.

All three operating companies have made real progress in the quality of services they provide. I acknowledge and appreciate the contribution of our management and staff towards the provision of these excellent public transport services.

CIÉ is pleased to note the strong performance of Bus Átha Cliath, which had a successful year from both a customer and financial perspective. Our challenge here is to continue to meet the growth in demand in an efficient manner.  

Iarnród Éireann continued to deliver rail services safely and reliably during 2015. Strong punctuality, the delivery of a comprehensive range of safety initiatives and the commencement of key investments which will yield journey time benefits for customers are the building blocks for furthering the good progress that has been achieved in developing the business during 2015.

Bus Éireann generated passenger growth across all its service offerings. However, it is facing a challenging operating environment. Expressway has experienced further increases in competition during the year. The negotiated 19-month pay reduction ended at the beginning of 2015 leading to an increase in operating costs for the year. A reduction in contract income resulted in a loss on the PSO business for 2015.

CIÉ Tours experienced a decline in volume and margin during 2015. Negative consumer sentiment towards European travel generally during the principal booking period adversely affected volume, while greater competition for lower numbers gave rise to margin pressure. Nevertheless, CIÉ Tours continued to be profitable in 2015.

Since 2012, our key focus has been on improving the Group's short-term liquidity position, while maintaining our quality services. Through a combination of increased passenger volumes and cost reduction initiatives, as well as additional funding for essential recurring maintenance, the CIÉ Group has made good progress in addressing its short-term liquidity requirements. The Group moved from a net debt position of €18.6 million at the end of 2014 to a net cash position of €5.1 million at the end of 2015. However, the Group's medium-term financial stability and liquidity remain challenges.

Exchequer support for public transport remains critical to the long-term financial viability of the Group. The Exchequer has made supplementary funding available for essential maintenance in both 2014 and in 2015. However, under the EU Stability and Growth Pact mechanism, the capacity to fund essential expenditures through this mechanism may be restricted in the future. 

Overall Exchequer funding increased in 2015. Yet, the essential costs and investment required to maintain the scope of public transport services continue to exceed the funding available. In 2014, the joint National Transport Authority (NTA)/ Iarnród Éireann rail review identified this as a significant issue.

During 2015, the Group invested €16.8 million more in the essential maintenance of its railway infrastructure than had been provided in Exchequer Funding. This essential investment had an adverse impact on the Group's EBITDA performance in the year. There is a requirement to develop a committed, multi-annual approach to funding the maintenance of public transport infrastructure. This is vital to ensure the long-term financial sustainability of the CIÉ Group. 

A funding gap has re-emerged in the provision of Public Service Obligation bus services outside Dublin. The availability of multi-annual funding, to secure the provision of transport services, which are both financially and operationally sustainable, remains a principal concern of the CIÉ Board. CIÉ is fully committed to working with its stakeholders to develop a long-term plan, which balances the requirements of service provision with the objective of achieving funding sustainability.

While CIÉ Group traded well generally during 2015, it is clear that considerable challenges remain. The most significant of these are:

 

A strategy for the sustainable development of public transport: CIÉ's mandate is to provide socially necessary bus and rail transport in a well-functioning, integrated manner. The provision of public transport services requires an appropriate medium-term planning horizon within which clear objectives are identified.  Ongoing development and provision of services must be framed in the context of available funding. We will seek support so that funding will be committed on a multi-year basis, as this will allow the achievement of cost-effective outcomes for the travelling public, and contribute to balance regional and economic development at a reasonable cost.

 

Continued pressure on Exchequer Funding. This year's PSO contract review shows that the cumulative deficit of PSO provision has increased during 2015 by €5 million to €208 million. In 2014, the Minister for Transport, Tourism and Sport earmarked a supplementary investment of €51m in Iarnród Éireann, which principally funded the Heavy Maintenance of its rolling stock fleet during 2015. Similarly, in the last quarter of 2015, €38m was provided on a supplementary basis, which will assist in funding 2016 Heavy Maintenance requirements.

This funding is most welcome as it improved our capacity to maintain quality rail transport services and the liquidity position of the Group on a year-to-year basis. However, given the continuous nature of the maintenance of the Rolling Stock fleet, it is essential to achieve a commitment to the annual funding of this maintenance.  

As detailed in the Department of Transport, Tourism and Sport's 2014 draft Strategic Framework for Investment in Land Transport, agreement exists between the Shareholder, the   NTA, CIÉ and Iarnród Éireann that the rail network is significantly underfunded for its scale and for the services we are contracted to provide. A clear path to a sustainable future for Iarnród Éireann is essential, in order to ensure it is equipped to provide a network and services which will generate a positive return for the economy.

 

Appropriate Bus Éireann PSO Compensation. Bus Éireann incurred a loss on the cost of the PSO services it provided in 2015. It was clear throughout 2015 that Bus Éireann Public Service Obligation contract was under-funded by c. €6m. The issue was finally resolved by the end of the year. The timing and manner of the resolution gave rise to considerable uncertainty throughout the year, which presented a significant on-going business challenge for Bus Éireann.

 

Expressway. The Expressway commercial service faces an extremely challenging market that requires the implementation of a change programme to position the company to meet competition effectively.

 

Luas Cross City Disruption. During 2015, the Luas Cross City presented a significant logistical hurdle to Bus Átha Cliath operations. This disruption will continue into 2016, and Bus Átha Cliath will continue to successfully meet this challenge. This can be seen by the strong growth in patronage despite the disruption. We would like to highlight the effectiveness of the traffic management plans put in place in conjunction with the NTA, Dublin City Council and An Garda Siochána to minimise the disruption.

 

Acknowledgments

CIÉ Group continues to work closely with the Department of Transport, Tourism and Sport and with the National Transport Authority. Collaborative engagement enables us to work with the Authority to deliver solutions which provide real value to customers. A notable example has been the success of LEAP, the Integrated Ticketing System. CIÉ actively supports the increased use of LEAP by customers, even though a consequence is that revenue is not growing at the same rate as customer journeys.

On behalf of the Board, I would like to express my thanks to the Minister for Transport, Tourism and Sport, Mr. Paschal Donohoe and to Ms. Ann Phelan Minister of State at the Departments of Agriculture, Food and Marine and Transport, Tourism and Sport with Special Responsibility for Rural Economic Development. Their support to the CIÉ Group during the year is recognised and appreciated. I would also like to thank the officials of the Department of Transport, Tourism and Sport and of the NTA for their assistance.

CIÉ is fortunate to be in a position to avail of the contribution of its Board Members who provide a valuable blend of expertise and experience to assist in the governance of the organisation. I wish to thank the Board for their service during the year and, in particular, to acknowledge the contributions of Professor P.J. Drudy and Ms Frances Meenan who retired from the Board during the year. I welcome the continued presence on the Board of Mr Aebhric McGibney, who was re-appointed by the Minister during the year and to welcome onto the Board Ms Christine Moran, Mr Ruairi O'Flynn and Ms Niamh Walsh.

In conclusion, I would also like to thank the Board Members and directors of all the subsidiary companies for their help and support to the subsidiary companies and to CIÉ and for giving of their time to serve on the Boards and on the many vital committees and advisory groups within the CIÉ Group.

 

Vivienne Jupp   
Chairman