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POST OFFICE LTD BOARD MEETING (Company Number 2154540)
Meeting to be held at 09.00 on 23 January 2013
at 148 Old Street, London, EC1V 9HQ in the Board Room
Network Transformation/ Crown Transformation Progress
and Crown Pay Proposals
Kevin Gilliland
Digital strategy: results of Javelin report
Martin Moran/Sue Barton
BREAK
Update on cost reduction and business efficiencies
Chris Day (with Sue Barton)
Financial Performance Update, including Q3 results and
full year forecast
Chris Day
Chief Executive’s Report
Paula Vennells
LUNCH
Minutes of Previous Meeting and matters arising Alice Perkins
Minutes for noting: ARC, Pensions Committee,
Remuneration Committee
Corporate governance review Alwen Lyons
Any Other Business: Alice Perkins
Items for Noting
e Mails update including collections and returns Martin Moran
e Significant Litigation Report Alwen Lyons
° Sealings Alwen Lyons
BREAK
MUTUALISATION SUB COMMITTEE
Please see separate agenda
Present:
Alice Perkins (Chairman)
Neil McCausland (SID)
Tim Franklin (NED)
Virginia Holmes (NED)
Alasdair Marnoch (NED)
Susannah Storey (NED)
Paula Vennells (CEO)
Chris Day (CFO)
Alwen Lyons (Company Secretary)
In Attendance:
Kevin Gilliland (item 1)
Sue Barton (items 2 and 3)
Martin Moran (item 2)
CLOSE
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POST OFFICE LTD BOARD
Update on Network Transformation Programme
1. Purpose
1.1 The purpose of this paper is to update the Post Office Ltd Board on progress against
the current financial year target for the Network Transformation Programme.
2. Progress against this year’s target —- and confidence statement
2.1 An update was issued to the Board on 18" December. The last page of this report
shows the latest report at the 11” January.
2.2 Progress has been maintained for the last four weeks, although in a limited way as
expected over the Christmas period. Overall, the programme is in line with the
minimum targets for mid-January. Our position has therefore not changed from the
18" December: the programme believes that the 1200 target is still possible.
2.3 Progress against the 1" January targets:
e Sout of 5 targets met for independent agents
e¢ 3 out of 4 targets met for new applicants
e 2 out of 4 targets met for multiples
¢ 3 out of 3 summary targets met.
2.4 There are three key risks. The first remains that independent agents will not sign
contracts according to our timetable. In particular, some agents will be unwilling to
sign until sure of the schedule and cost of their building works — yet this relies on
agents’ ability to secure their own building contractors. We have strengthened our
field-based efforts to help agents obtain quotes, while encouraging agents to sign
contracts before every last detail has been confirmed.
2.5 The second major risk concerns our multiple partners’ behaviour over contracts. To
simplify the process and try to eliminate delays in reviewing each individual contract,
we are negotiating framework agreements with each partner. These are
supplemented by a simple preface and appendix for each converting branch. Once
the framework agreement is in place, it will speed up the process to secure contract
signatures for each branch. McColls have just signed the framework agreement, so
we are confident it should be acceptable to our partners. Through January, however,
we will likely receive fewer multiple contract signatures than planned while the
framework agreements are finalised. There is no reason why we should not catch up
in February and March, but we are behind the target we set.
2.6 The third risk area relates to new applicants. Although leavers are a key part of our
approach, they are very time-consuming conversions as we are bringing new
operators into the Post Office. This year we are focusing on 115 branches with single
applicants already confirmed as interested. Despite this, we are reliant on them
moving ahead to our timetable and passing the application process. This group has
moved into consultation in line with plan, but they are not submitting their applications
and business plans as quickly as hoped. We have strengthened the field-based
support and guidance for new applicants but are also planning for how any shortfall
below 100 would be made up from independent conversions and/or multiples.
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3. Handling the physical implementation volume through Q4
3.1 In the November board meeting the Chairman requested that the later stages of the
conversion process should be stress-tested to ensure that prospective failure points
were identified and mitigated. This has been addressed from two aspects:
« Capacity testing of internal Post Office implementation processes
e Capacity analysis of suppliers.
3.2 Internal Post Office processes that have not previously been subjected to high
volumes have been modelled to identify capacity failure points and, where possible,
subjected to capacity testing to validate the likelihood of failure at peak order volume.
Capacity testing has been carried out by passing high volume test orders through the
existing teams to analyse performance under pressure and both the quantity and
quality of the outputs. This activity identified two key potential points of failure:
e The property scheduling/ admin teams and the equipment team are not resourced
up to accommodate our peak target of 70 branches per week
e The number of issues with equipment and services orders is higher than in
business-as-usual, putting further pressure on existing resource. Diagnosis has
identified the route cause as a lack of Post Office-specific experience of the
project managers from our property supplier, RLB, who are responsible for placing
the orders. Training sessions have been completed to address this issue, followed
up by ongoing support.
3.3 Resourcing is under way for an additional 14 temporary administrative staff to cover
the peak period this quarter across the property and equipment teams.
3.4 An engagement session was held with senior members of key suppliers in December
to demonstrate the arrival of orders at high volumes in Q4 and confirm suppliers’
commitment to deliver against our plan. An approach to evaluating their capacity and
the constraints within their areas of the supply chain was agreed. Scenario testing
has been taking place through January with all key suppliers. Outputs to date include:
¢ Through transparent run-through of processes and resourcing, suppliers have
demonstrated capacity to meet a demand of between 70-80 orders per week with
a daily peak of 15-20 orders when considering more complex mains branches
e Stock levels of signage have been built to a level which will satisfy the full 1200
target for this financial year
e Management information is now being shared with suppliers on a weekly basis to
provide them with greater visibility of upcoming order volumes.
4. Planning for years two and three
4.1 We are aware the Board asked for a year 2/3 projection. We have modelled the
effect on the programme of the latest forecasts of the mix and distribution of Post
Office income. Further information will be shared at the Board strategy meeting on
the 17".
5. Action for the Board
5.1 The Post Office Ltd Board is requested to note the progress of the programme
towards its first year target.
Kevin Gilliland
16" January 2013
Network Transformation Update Kevin Gilliland Page 2 of 3
16" January 2013
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NT Summary Report 11" January
NT programme progress since October baseline
“Actuals Targets
Independents 9th Nov 11th Jan I ByfithJan ByendJan I ByendFeb ByendMar RAG
Scoped 650 1153 885 1000 1150 [Signstcanty shed of minimum target
Financial assessments received 375 625 605 690 800 rarget met. 40 received since last update
Financial assessments approved 260 547 490 550 640 rarget met. 80 approved since last update
Passed to Property 70 489 400 550 640 rarget met
IContract signed 50 262 200 290 430 556 rarget met 91 signed since lastupdate
New applicants for leavers
Visited 200 444 260 [Significantly ahead of minimum target.
Scoped 200 253 20 Sage eon cpa ono pp eo AIO ETT
Moved into consultation 0 98 91 115 rarget met. 6 since last updete
Passed to Property 0 a 20 5 Too = pan rot arn a hy He. Past Pope na Sao
Contract signed Q u u 9 50 100 sinianion sage tie esennd jan bawinineioaachup. nn nn
Multiples
Scoped 135 419 350 Scoping continue as pariners put forward further branches for consideration
Partner confirmation to proceed 30 196 195 260 = 40 received since last update
Passed to Property 20 168 160 260 etn ieioto cial pat mie pare as conioss are rneder a
NT programme progress towards 1200 target
[Main and local branches open at mid-Oct 284 284 284 284 284 284 —_I [rete vow adds 204 ono a toto rofect he branches open athe tn fhe 12.0 baseline
Summary 9th Nov 11th Jan I Bydithan” By end Jan I Byend Feb By end Mar
iScoped 1269 2109 1759 1874 2024 2024 [Significantly ahead of target. 255 completed since last update.
Permission to proceed* 689 1203 1175 1349 1459 1459 [Targets met for all three conversion types. 84 since last update.
Contracts signed 334, 594 539 674 944 1200 [Target met. 122 contracts signed since last update.
“Agent gives a good indicator of commitment: independent f inancial assessment received; multiple partner written confirmation to proceed; leaver and new applicant give permission for public consultation.
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POST OFFICE LTD BOARD
Update on the Crown Transformation Programme (CTP) — January 2013
Purpose and summary
1.1 This paper provides an update to the Post Office Ltd (POL) Board on the CTP. It focuses on
the increased shortfall in income identified through the recent budgeting round and the
proposed response to it. It also addresses the two Crown Transformation Programme (CTP)
actions agreed at the previous Board meeting in November 2012."
Background
2.1 The funding agreement with the Government requires Post Office to ensure the Crown
Network is breaking even by April 2015. The CTP will achieve this through: additional
income generation; staff cost reductions; reduced property costs; and divestment of 50-70 of
the worst performing branches.
Current situation
3.1
3.2
The CTP will meet its target of improving the Crown P&L to a c£40m loss for 2012/13.
However, despite having a clear path to achieving better than forecast cost reductions, the
budgeting round for 2013-15 indicates the risk to the programme has now increased
markedly to c£9m (from a previous estimate of £5m). This is primarily a result of further
reductions in projected income, particularly for Front Office of Government.
It is important to note that whilst the c£9m benefits shortfall is subject to change, as the
current budgeting round will not complete until March 2013, it is unlikely to be significantly
reduced. We are therefore highlighting this increased risk and our proposed response to it.
Our proposed response
41
4.2
43
To address the gap in benefits we propose to enact ‘Plan B’. This involves implementing
cost-cutting measures which are more radical than existing planned activity. Elements of
these measures have been noted in previous Board updates and are all set out in Section 5.
Delivering the additional staff productivity savings elements of ‘Plan B’ requires the support
and buy in of our colleagues in the Crown network and the unions. Our franchising
programme would also be at increased risk without union agreement. Colleagues and
unions will expect recognition for their support in the form of a consolidated pay deal.
However, the size of the shortfall precludes Post Office from meeting union demands for
such a deal.
As we are highly dependent on colleagues and unions understanding the challenge and
working with us to solve it, we propose instead to offer the unions a deal providing
unconsolidated transformational payments conditional upon securing their assistance and
support in delivering the CTP. As part of the agreement Post Office would give a guarantee
of not franchising more than 70 branches in the life of the programme. The detail of the
proposed offer and conditions is referred to at Section 6 and set out in full in the ‘Pay
Approach for Crown Network 2012/13’ paper submitted to the January 2013 Board.
* POLB12/118 (h) “KG was asked to plan for both scenarios in terms of closing the potential gap for Crown profitability, with ¢ lear trigger points
for switching to the more radical solution.” and POLB12/1 18 (i) “The Business would carry out risk assessments (re profit gap) for each Crown
workstream, highlighting sensitivities and milestones which might trigger a move to plan B (to be available for the January Board)"
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4.4 Union agreement to the full ‘Plan B’ would help to de-risk c£12m of recurring savings in
return for a one-off investment of £17m, providing a return on investment by the end of the
programme. Industrial action is highly likely if we cannot reach an agreement. This would
put those savings at risk.
4.5 Industrial action may still occur as a result of the staff perception that Post Office tends to
capitulate after industrial action. A reasonable pay offer on the table, supported by a robust
communications plan, will help mitigate the scale of the industrial action, retain the co-
operation of staff and reduce the impact on savings.
4.6 Additional franchising would be the only remaining option to exercise. Aside from the
difficulties in effecting the additional franchising, the increased benefits from it are limited.
The programme would remain inherently high risk in either event.
5. Plan B activity and risks
5.1 ‘Plan B’ involves more radical cost-cutting than previously planned. It will bring the plan to a
break-even position through implementing the components listed below.
5.2 People: An additional £7m has been identified from the following:
e Delivering an additional 75 FTE saving from automation, over and above the 345 FTE
envisaged in the original plan, would generate an additional £2m pa. The Post and Go
pilots suggest that this can be achieved without damaging customer service;
* Reducing branch management numbers by a further 75 FTE which would realise
savings of £3m pa above the original plan;
* Introducing a new, lower starting salary for counter colleagues would save £0.5m pa if
introduced from 2013/14;
e Introducing a new operational role in branch so counter colleagues can focus on sales
and lower-skilled, non-customer facing duties can be transferred to an entry-level grade.
Based on the current churn rate of 5.4%, this could realise a saving of £0.5m pa; and
e Increasing the proportion of flexible, part-time contracts by recruiting new staff and
agreeing new working arrangements could save £1.0m pa, eg. through less overtime.
If we do not secure union and colleague agreement, then a proportion of these savings are
at risk, mitigated by the success of our staff communications and a reasonable pay offer.
5.3 Property: The lease on 148 Old Street expires in May 2015. We could use the office space
within Crown branches in Greater London to accommodate staff currently based at 148 Old
Street. This would enable Post Office to avoid leasing a large Head Office building but more
importantly allow the Crown branches to offset around £1m of property costs. We do not
believe this is at risk if we are unable to secure union agreement, although taking forward
some future property-related activity such as mergers could be more difficult.
5.4 Product: We can expect an additional £2.5m income from Financial Services by driving
strong sales performance through targeted conversations, cross-selling and up-selling. A
proportion of this may be at risk if we do not secure support from the unions.
5.5 Divestment: Franchising 62 branches to realise c£8m of recurring savings remains a key
element of the plan. We do not need union agreement for this, but there is a risk that the
more franchising we embark upon the greater the likelihood unions could gain support for
industrial action and reduce the staff cooperation. Furthermore, we may be unable to secure
franchise partners within the programme timescales for those branches where divestment is
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identified as the preferred outcome. This is being mitigated by recruiting and strengthening
the franchising team to conduct market testing and to explore potential partners’ appetite
ahead of a formal selection process.
5.6 This consideration, and the need to provide certainty and consistency to our colleagues,
means we propose to stick to our original plan and commit to franchising no more than 70
branches as part of the CTP.
5.7 The table below summarises: the initial projections for the CTP; the latest view of benefits
based on the budget round; the impact of ‘Plan B’ (assuming we have union agreement);
and an assessment of the risk if we do not secure union and staff agreement and are unable
to achieve all the planned franchising. Cost savings (people, property and divestment) are
£3m higher in the latest view than the initial plan. This is offset significantly by a £11m
reduction in projected product (income) growth.
Table 1: Projections for Crown Transformation savings and income growth
Initial Plan Latest View - If ‘Plan B’ projections are I If no union and
—Mar 2012 I budgetround I realised (assuming union I staff agreement
(£m) (£m) agreement) (£m) (£m)
People 12 13 20 13
Property 4 3 4 4
Product 18 7 10 7
Divestment 6 9 8** 6
Other* 1 -1 -1 -1
TOTAL 40 31 41 29
Target 40 40 40 40
GAP. = 9 1 11"
*Other’ includes reduction in Gamma income from original Bank of Ireland deal, offset by business wide
efficiencies.
** Benefit from divestment would be reduced if income increased as savings are based on total losses per
branch franchised. Additional product (income) in this scenario would mean less total loss from those
branches franchised.
*™ c£12m of proposed Plan B savings at risk if no union and staff agreement but c£1m additional
property savings could still be achieved.
5.8 Securing union agreement would allow ‘Plan B’ to progress and help bring the Crown
network to break-even. If we do not secure union agreement we will be faced with a c£11m
shortfall. This could, in principle, be addressed by franchising more branches. However, we
believe the number of branches able to be franchised is constrained by two factors:
e Limited branch property lease breaks or expiries occurring before March 2015; and
* The commercial consequence if we were seen to ‘flood the market’.
5.9 Franchising additional branches would limit our ability to realise other savings e.g. with a
smaller Crown network we would have fewer branches to deliver income growth and to
realise staff savings pro rata. For example, current budget projections show that franchising
100 rather than 62 branches (a 61% increase) would only increase total savings by c£2m to
c£11m (a 22% increase) due to these diminishing returns.
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6. Proposed Pay Deal
6.1 Pay discussions regarding employees working in the Crown network have been on-going
with CWU and Unite CMA for a number of months. We have been trying to engage with
unions in a more collaborative way to get them to understand and jointly own the challenge.
The CWU has submitted a formal pay claim for fully consolidated and pensionable pay
increases and also wants a commitment that we will not undertake any franchising. Unite
CMA has also submitted a claim for a 1 year consolidated pay rise of 3.5%.
6.2 The CWU has stated that it will ballot members for industrial action if pay is still unresolved
at the end of January 2013. Please refer to the ‘Pay Approach’ paper for full details.
7. Recommendations
7.1 The Board is asked to endorse the proposed approach of:
« Enacting ‘Plan B’ in order to realise further savings to the Crown P&L; and
e Seeking a pay deal with unions which will offer unconsolidated transformational
payments in return for union and colleague support to the full range of CTP activity.
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POST OFFICE LTD BOARD
Pay Approach for Crown network 2012/13 — 2015/16 & Middle Managers
1. Purpose
The purpose of this paper is to seek approval of:
1.1. A pay approach to engage the support and co-operation of the unions and
Crown colleagues and managers in delivering the transformational change
required as part Crown Transformation Programme (CTP) plan enabling the
Crowns to get to profit by April 2015.
1.2 Apay approach for non-Crown middle managers.
1.3 Request for funding of £21.5m to facilitate the delivery of the Crown
Transformation Programme made up of £17m over 3 years 12/13 — 14/15 for
unconsolidated transformational change payments and cf£4.5m for a
consolidated pay agreement in year 4.
2. Background
2.1 Pay discussions have been on-going with the unions, CWU and Unite CMA for a
number of months in respect of a pay agreement for employees working within
the Crown network. The agreed pay review dates are 1st April 2012 for CWU
Crown employees; 1st June 2012 for Middle Managers; 1st July 2012 for Senior
Managers (not under a collective agreement but traditionally there has been a
read across from the middle managers).
2.2 The discussions to date have been difficult as they have been in the context
of the Crown losses in 2011/12 of £46m and the need to close this gap and
break even by March 2015. The unions have been working closely with us and
have supported significant change this year, resulting in savings of c£8m in staff
costs achieved through improved ways of working and voluntary redundancy.
2.3. Both unions support the principle of a profitable Crown network and have actively
supported our plans this year to improve the Crown P&L. This co-operation has
been given in the expectation of agreeing a pay deal this year.
2.4 We have publicly acknowledged the co-operation of the unions and our Crown
colleagues and managers in reducing the losses this year and we have said that
we are keen to recognise their contribution in a way that doesn’t make the task
of achieving break-even even harder.
2.5 CWU has submitted a 2 year pay claim for a 3.5% fully consolidated and
pensionable pay increase from 1 April 2012 and a further 3.3% fully consolidated
and pensionable pay increase from 1 April 2013. If this level of pay rise were to
be applied to CWU and Unite CMA - represented grades in Crowns, this would
equate to c£23m for a 3 year deal and have a c£11.5m adverse impact
on the Crown P&L over this period.
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2.6 Unite CMA has submitted a 1 year pay claim for a 3.5% consolidated pay rise
in respect of middle managers in Crowns and the rest of the business.
2.7. CWU has stated that if pay is unresolved by January 2013 they will ballot their
members for industrial action.
3. Recent POL and RMG Pay Agreements
3.1 Despite separation from Royal Mail the trade unions continue to pursue a read
across approach to RMG and therefore their expectation is aligned to recent pay
agreements.
3.2 CWU - represented grades in POL (Supply Chain and Admin functions), Royal
Mail and Parcelforce have all received a 3.5% consolidated pay rise this year.
This is the benchmark that CWU is using to justify their pay claim. Furthermore,
as a result of different pay agreements over the years, the counter colleague
salary is now c£2k less than the equivalent grade in Supply Chain.
4. General External Market Pay Overview
4.1 The external pay market has seen median salary increases of 2.0 — 2.5% in the
UK in the last 6 months, pay freezes in public and private sectors and Treasury
guidelines of 2 years pay freeze followed by 2 years of 1% average increase.
4.2 The unions’ driver for their pay claim and expectation is what has already been
agreed in POL and RMG for their respective members rather than what has
happened in the external pay market. So, whilst £21.5 million is a large sum of
money, the unions claim this is a pay cut as it erodes the value of the base salary.
5. Current Situation
5.1 The POL budgeting round for 2013-15 indicates the risk to the programme has
now increased to c£9m (from a previous estimate of £5m). This is primarily
a result of further reductions in projected income, particularly for Government
Services. To address the resultant c£9m gap in benefits the CTP proposal is to
implement more radical cost-cutting measures (Plan B) than existing planned
activity. These measures have been noted in Board CTP updates and are
set out in Appendix B.
5.2 Delivering the additional savings in ‘Plan B’ relating to staff productivity requires
the support and buy in of our colleagues and managers in the Crown network and
the unions. Crown colleagues, managers and unions will expect recognition for
their support in the form of a consolidated pay deal. The size of the shortfall,
however, precludes POL from meeting union demands for such a deal.
5.3 With the £9m gap in benefits we are now dependent on our Crown people
and unions to understand the challenge and work with us to solve it. We propose
therefore to offer the unions a deal providing unconsolidated transformational
payments conditional upon securing their assistance and support in delivering the
CTP. As part of the agreement POL would give a guarantee on the size of the
network.
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6. Proposal
Crown Colleagues and Crown Managers
6.1 Our proposed approach is to break with the past and develop a different way of
rewarding and incentivising colleagues in line with mutualisation and shared
ownership principles. This will be difficult for our unions as this is a radical
departure from previous pay deals; we have not previously done a deal that is
wholly conditional on meeting business targets and involves extremely unpalatable
elements for the unions such as franchising and unconsolidated payments.
6.2 We want to change what has gone before and demonstrate that we want to work
together in a shared problem approach and not seek to negotiate a lower
settlement but offer a credible deal upfront rather than as we have in previous
years negotiated for a number of weeks; put our final offer on the table; the unions
have balloted members for industrial action (IA); unions have got a yes to IA vote;
at this point we've either met their demands to avoid a strike or when they have
gone out on strike we have agreed to their demands to get a return to work - this
was as a result of RMG direction.
6.3 The proposal therefore is to shape a deal of unconsolidated (below the line)
payments offered in return for union and Crown employees’ support of the full
range of Crown Transformation activity in years 1, 2 and 3 with the commitment
to a consolidated pay deal in year 4 subject to 6.4 below. The transformational
change required is detailed at Appendix A. The additional stretch elements
required are detailed at Appendix B.
6.4 Achieving break-even in March 2015 is the gateway to a consolidated pay rise in
year 4, the value of which would be determined as part of our pay discussions with
the unions. The proposal is that this is linked to RPI but capped at 5% but is
self-funding ie if the value of the pay deal is circa £4.5m then profit in the Crown
network would need to hit this level before the pay increase was triggered.
6.5 The proposal therefore is that our offer of c£21.5m is our final position and is a
credible offer to our Crown employees in the context of the current external
climate; that POL is loss making without the Government subsidy and that the
Crown network contributes heavily to that loss making position. We would need to
be fully committed to this position and be prepared to successfully deal with IA.
Non-Crown Middle Managers
6.6 For our non-Crown Middle Managers our proposal is a 2 year deal with the same
principle of an unconsolidated award linked to transformational changes (within
their respective work area) and based on individual performance. The average
award is calculated as 2.5% of salary. The cost of this is c£2m in each of the 2
years and budget has already been allocated. The same rationale given above
for the Crown population applies to the non-Crown Managers for an
unconsolidated increase.
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7. Risks/Mitigation
7.1
7.2
7.3
74
Given that CWU colleagues in POL and RMG have received a 3.5% consolidated
pay rise in this year, our offer may not be sufficient to secure union agreement.
We do believe however that the level of our offer does demonstrate that we are
doing all we can to secure a deal with the unions. Should we fail to reach
agreement with the unions our communication plan is to appeal directly to our
front line staff to engage their support in building a sustainable Crown network for
the future in exchange for transformational change payments.
There is a risk that if we did settle on an agreement worth £21.5 m over 4 years
this could attract negative press and PR if positioned as a % pay increase. We
need therefore to be clear in our communication that this agreement was a 0%
pay rise and that lump sum payments were being made for achievement of
significant on-going savings and P&L improvements being made to the Crown
network.
Industrial action could be avoided by meeting the demands of the unions and
agreeing a consolidated pay award; however, this would add significant risk to
the Crown Transformation Programme and worsen the P&L by circa £11.5m by
2014/15 if a 3.5% consolidated pay rise were to be agreed. This would require
the CTP to flex the implementation plan to recover the additional cost to the
P&L. This would be in addition to the identified circa £9m risk against the
projected benefits of £40m.
The effect of a strike by Crown colleagues would be mitigated by the Crown
contingency plan that involves keeping 71 strategically and geographically
placed Crown post offices open and staffed by Crown managers and other non-
Crown managers from within the business.
8. Conclusion
8.1
The CTP plan whilst achievable is high risk and has been received by the unions
with their usual scepticism (based on previous plans to get the Crown network to
breakeven not being successful). The stretch initiatives to meet the income
shortfall will not be palatable to the unions, particularly given that the shortfall
makes it impossible to meet union demands for a consolidated pay deal.
Delivering the additional savings we have identified such as more staff exiting as
a result of automation and more flexible and part-time working will be extremely
difficult without union, Crown colleague and manager support.
8.2 The deal we are therefore proposing to offer the unions is in return for help in
8.3
delivering the Crown Transformation Programme. This would include union
agreement to our franchising programme, subject to a guarantee that we would
not franchise more than 70 branches (the unions will demand a guarantee of
some kind in exchange for agreeing a deal).
Union agreement to the full CTP plan including stretch would de-risk circa £12m
of recurring savings in return for a £17m of one-off investment and would
therefore show a return on investment by the end of the Programme. No
agreement is highly likely to lead to industrial action and put at risk those
savings.
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8.4 Industrial action may well still occur as a result of the staff perception that POL
tends to capitulate after industrial action. A credible pay offer on the table,
supported by a robust communications plan, will help mitigate the scale of the
industrial action, retain the co-operation of staff and reduce the impact on
savings.
9. Recommendations
The Board is asked to:
9.1 Approve the pay approach to enlist the support and co-operation of the unions
and Crown colleagues and managers in delivering the transformational change
required as part of the Crown Transformation Programme (CTP) plan, enabling
the Crowns to get into profit by April 2015.
9.2 Approve the pay approach for non-Crown middle managers.
9.3 Approve the funding request of £21.5m to facilitate the delivery of the Crown
Transformation Programme, made up of £17m over 3 years 12/13 — 14/15 for
unconsolidated transformational change payments and c£4.5m for a consolidated
pay agreement in year 4. £3.5m is accrued this year, hence £17m is the funding
request.
Kevin Gilliland
16 January 2013
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Appendix A
Crown Transformation to Profit Plan and Transformational Payments
The CTP plan was predicated on a degree of co-operation from the CWU and Unite CMA. The
Crown P&L and the ‘to profit plan’ showing projected savings have been shared with both
unions since early September with a view to engendering their support for the plan to close the
2011/12 £46m loss in the Crown P&L.
Both unions have stated they share the aim to make the Crown network profitable however both
have said they object to franchising on any scale. Despite this they have however actively
worked with us to realise circa £8m in staff savings from the voluntary redundancy exercise this
financial year although they have done this on the expectation that they would get a pay rise
this year; both have independently said that without reward for their co-operation in this regard
they will not co-operate in respect of further activities.
The proposal is to make transformational payments to incentivise the unions and employees to
co-operate in delivering the benefits in each year of the CTP plan with the ultimate goal of profit
by April 2015. Clear line of sight from the deliverables of the Plan to the benefits needs to be
established and be easily understood by Crown colleagues and managers — confidence in the
do-ability of the plan is critical to the successful delivery of the Plan as is line of sight to the
transformational change payments.
Four phases are proposed to structure the deal focusing on savings where union co-operation
is important and also assumes colleague co-operation in delivering income growth in branch.
These are:
¢ 2012/13: Shared vision — the unions agree the detail of the plan and sign up to publicly
declaring their support for the Crown Transformation Plan, the identified component
parts of the plan and the goal of breakeven by March 2015.
An average payment of £1400 per colleague and £2000 per middle manager would be
paid in recognition of the savings made this year and for signing up to the delivery plan
that takes us to breakeven. Payments in year 1 total c £7.3m.
e¢ 2013/14: Joint implementation — union co-operation in benefit realisation including
delivery of 50 — 70 franchises over the course of the programme; agreement of Crown
operating model with new operational and branch manager roles and a more flexible
combination of full and part-time working (current ratio 55:45); delivery of agreed
property savings from mergers, relocations and 2 in to 1s.
An average payment of £1000 per colleague and £1400 per middle manager would be
paid on achieving the target savings for year 2. To continue to incentivise the delivery of
the savings through the activities planned for year 2 we will need to keep the
transformational payment in sight for colleagues by agreeing to make the payments
when we are confident that the savings will be realised eg if our forecast position at end
of Q3 is to clearly achieve the target savings then we should agree to make the
payments to Crown staff in January. Making the payments at the end of the year will
erode commitment to the delivery of the plan as the payment will be too far into the
future for it to incentivise. Payments in year 2 total c £4.9m.
e 2014/15: Guaranteeing sustainability: delivery of remaining branches to be franchised
in yr. 3, remaining staff savings (up to 450; original plan assumed 345) from Post & Go
migration and income which would result in the Crown breaking even by March 2015.
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An average payment of £1000 per colleague and £1400 per middle manager would be
paid on achieving the breakeven position in year 3. As in year 2 the proposal is to agree
to make the payments when we are confident that the breakeven will be achieved eg if
our forecast position at end of Q3 is to clearly achieve then we should agree to make
the payments to Crown staff in January. Payments in year 3 total c£4.7m.
e 2015/16: Profit share: on condition that breakeven is achieved by March 2015 a
consolidated pay deal (mechanism for % amount agreed on signing the pay agreement
in 12/13 year — recommendation is RPI capped at 5%) is triggered at the point at which
the Crown P&L can fund from profit generated the cost of the pay rise in the 15/16 year
ie if the half year positioned showed a profit of more than the value of the consolidated
and from the forecast we were comfortable of the profit to flow through to year end we
could make the payments in Q3 or Q4 if we were not so confident. Payments in year 4
total c£4.5m.
e The overriding principle of the proposed pay approach is that if the savings are not
delivered then the transformational payments are not made.
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Appendix B
Additional savings & income generation opportunities identified
Saving/Income Summary Saving/Income Dependence on union
Generation Explanation generation p.a. support
(£m)
Additional Post I Exiting 420 FTE as High —- CWU has
& Go savings a result of expressed support for this
automation rather in principle but was with the
than the 345 expectation of a pay rise
currently budgeted
Branch Reducing branch 3 Medium — would need to
Managers managers by c. 75 re-negotiate current
through re- agreement with CMA.
organisation Consultation period
required for VR
Operational Introduction of a 0.5 Medium — Crown Office
Role new, lower-skilled Staffing Agreement would
and lower-paid role need to be renegotiated
in branch with CWU
More part-time Better aligning 1 High — Crown Office
working duties to work Staffing Agreement would
through flexible need to be renegotiated
and part-time with CWU and duties would
working (and less need to re-aligned
overtime)
Lower starting Introduce a lower 0.5 High - would need to re-
salary starting salary for negotiate current
new joiners agreement with CWU
Re-location of Moving Head 1 Low - other than H&S site
staff to Crown Office staff to assessments not
Offices vacant space in dependent on unions
Crown Offices
Stretch income I Push to deliver 3 High - staff in branch need
targets stretch targets on to proactively cross and up
income in FS sell
Franchising Delivery of agreed 2 Medium — unions could
target of £9m actively deter potential
savings based on partners and brief against
62 branches POL approach to staff exit
or transfer as part of any
deal
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POST OFFICE LTD BOARD
Digital Strategy Update (Javelin Report)
1. Purpose
The purpose of this paper is:
1.1. To update the Board on the three month project, conducted in collaboration with
Javelin Group, to review our current digital capability to assist us in developing a
digital and multi-channel vision and strategy for the Post Office; and
1.2 To note and agree the baseline and roadmap for the delivery of the building
blocks to assist Post Office in becoming a multi-channel business over the next
three years. This multi-channel vision will be further developed as part of our full
strategic review.
2. Context
21 As a result of the Board Strategy away day in June 2012, it was agreed that Post
Office should work with an external expert consultancy to help us develop a
digital and multi-channel strategy.
2.2 In September 2012 Post Office engaged the Javelin Group to assist in the
development of the digital and multi-channel strategy. The terms of reference
were to analyse our current digital capability and produce a baseline and
roadmap to assist us in becoming a multi-channel business over the next three
years.
3. Background
3.1 Customers’ use of the Internet continues to increase, with 84% of the UK adult
population using the Internet. Over half of UK adults access the Internet every
day and over 90% on a broadband connection.
3.2 The rapid increase in smartphone and tablet penetration has driven significant
growth in mobile Internet use. 45% of UK adult internet users access the web via
a mobile device.
3.3 Customers are significantly shifting to online channels for pre-purchase
information and to transact. By 2020 this is expected to account for at least two
thirds of activity for Financial Services, Telecoms and Insurance.
3.4 By 2020 Government is aiming for 30-50% of transactions to take place via
online channels, driven by their clear “Digital by default” agenda.
3.5 Retail is undergoing a multi-channel revolution driven by customers who are
empowered by greater choice, better information and who are demanding
improved experiences. Online retail sales in the UK have grown by 15% in 2012.
[source IMRG]
3.6 Multi-channel customers are at least twice as valuable as those using only one
channel.
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4. Current Situation
44 Post Office is wholly underrepresented in the provision of digital channels to
customers, with limited capability to provide information, purchase products or to
service products.
4.2 The Post Office digital offer is trailing the competitive market and we need to
move quickly to compete. Companies that fail to embrace multi-channel trends
will quickly lose market share.
4.3 If we do not change to operate in a more multi-channel way, potentially between
60% and 90% of our income will be at risk as customers switch channels,
competitors improve their capabilities and clients move a greater proportion of
their business online. (See slide 5)
4.4 From a total Post Office income of £983m in 12/13, only £9m is generated
through our website channel and £9m through our contact centres. 83% of the
website income comes from just 9 products.
4.5 The previous strategy of using white label versions of our partners’ digital
services has led to a disjointed and confusing customer experience and is
operationally unmanageable.
4.6 All parts of the business require improvement and there is not a single simple
action that will make a significant difference. To get the Post Office to an upper
quartile position will take three years of activities and significant investment.
47 Implementing a digital and multi-channel strategy will deliver a personalised,
integrated proposition which offers seamless multi-channel customer journeys.
This drives commercial benefits, through an increased share of wallet, improved
retention of existing customers, attracting new customers and serving customers
in the most appropriate channel for their needs.
5. Proposal
5.1 The digital and multi-channel project proposes a set of deliverables and a
roadmap for implementation. The strategy aims to provide hugely enhanced pure
digital capability combined with digitally enhanced branches.
5.2. The proposal is based on six critical enablers and six customer-facing digital
strategies.
5.3 The six key enablers are the changes required to the business to ensure the
successful delivery of the digital strategy recommendations:
Organisation to reflect a more digital customer focus
Sophisticated digital marketing strategy for acquisition and retention
Single view of customer data enabling insight and development
Partner management to enable and implement change
Technology solutions that are fully integrated
Branch engagement to advocate our digital proposition
eooeeee
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5.4 The six principles of the digital strategy set out the future requirement we want
customers to experience and a series of best practices we should adopt:
Leading website user experience
Optimised mobile device experience
Digital product range strategy
Innovative digital delivery of services and products
Digitally enabled customer support
Digitally enabled branches for customer and staff
eooceeee
5.5 These components of the strategy form the basis of 11 workstreams, with the
two branch initiatives grouped together as one. Within these workstreams, there
are 56 activities, of which 27 can be considered business as usual and 29 to be
set up as projects.
5.6 Four options have been considered to reflect differing levels of investment and
degrees of change. Our recommendation is for option 1, which forecasts
incremental digital income above the plan of £40.5m in FY16, with a cumulative
investment of £8.8m Opex and £6.4m Capex. The other options are detailed on
page 14 of the attached pack.
5.7 _ The first steps in the strategy are as follows:
5.7.1 Establish a digital transformation programme to drive through the changes
required across the business. During January 2013, appoint a Programme
Director and create a programme board with cross functional representation.
5.7.2 Review the ExCo responsibility, to agree whether our overall customer
proposition should sit under one directorate, with a single director and
whether we have the right person internally to focus and lead the change
required. This is not a critical dependency to progress the programme at this
stage.
5.7.3 Agree the funding and projects for FY13 to build momentum.
6. Conclusion
6.1 If we do not change to operate in a more multi-channel way, a critical amount of
our income will be at risk.
6.2 Implementing the roadmap of deliverables is expected to enable us to reach a
minimum incremental income of £40m through our digital channels by 2016.
63 This baseline and roadmap of deliverables gives us multi-channel capabilities but
does not make us a multi-channel business. The vision of a Digital Post Office
and the impact on all of our channels is being developed as part of the full
strategic review.
6.4 The baseline and roadmap of deliverables supports our strategy to move from a
channel to a retailer.
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7. Recommendations
The Board is asked to:
7.1 note the details of the review of the Post Office digital strategy conducted in
collaboration with Javelin Group and the proposed projects set out above; and
7.2 agree to the project initiation activities and to support the implementation of the
programme.
Martin Moran
23" January 2013
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Post Office Digital Strategy Update
Board presentation
23'¢ January 2013
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Agenda
1. Executive Summary -— slide 3
The issues — slides 4 - 7
The opportunity — slide 8
Enablers to deliver — slides 9 — 11
The roadmap — slide 12
The commercials — slides 13 - 14
a @e@ fg >= S WN
Next steps — slide 15
2
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Digital Strategy Update * Executive Summary &
Executive Summary
* This baseline and roadmap of deliverables gives us multi-channel capabilities but does not make us a multi-channel business.
This will be developed as part of our full strategic review.
* If we do not change to become more multi-channel, a critical amount of our income will be at risk as customers switch
channels and clients move a greater proportion of their business online. (See page 5)
* The change required to our digital position is significant as we are behind our competitive market. (See page 6)
* All parts of the business require significant improvement and there is not one single action that will make a significant
difference.
+ To get the Post Office Digital proposition to an upper quartile position will take 3 years and significant investment.
* The strategy draws out 12 focus areas that translate into 56 projects. 27 are business as usual, 29 are projects. These are a
mixture of transformation projects in train as well as structural developments in product development and customer marketing.
» Review EXCO responsibility to ensure we have the right person to lead these changes to our customer proposition.
* Four options have been considered, our recommendation is option 1. (see page 14)
* The forecast incremental digital income is £40m in 2016, with a cumulative £8.8m Opex and £6.4m Capex spend.
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Digital Strategy Update * The Issues &
Five drivers behind the need to develop and implement this digital & mult-channel strategy
FESCUE (2) Customer shift (s) hannel shift (+) Revenue risk (s) Cove Clete
strategy agenda
become a more
commercially
sustainable I= i Ee me my I...
business, the 2008” 2009” 20102011 2012
future ambition is Source: ONS UK Internet Access, 2012
to shift the
balance towards
being a retailer
transactional
online.
84% UK adult population are Online research pre-purchase 89% of PO income at risk if II * By 2020,
a Post Office — internet users (2012) no action taken Government
predominantly aiming for 30-50%
acts as a channel Seem) oes = ©2012 6% t : ti :
= he » ‘om g , ransactions via
oi er peop les ne: . 2020 12% online channels
products = 40 sa 8 co% & >
, g 4 2 i
services i, ant 55 2012 jm Currently limited
i aII 62 21% Government
* In order to F 20 rom § ° sa ° Services fully
3 2
i
:
Travel
money
2012 25%
2020 46%
2020 72%
Digital inclusion
agenda
Personal
finance
rather than 45% UK internet users access : Fy _ 20% New digital
‘i web via mobile (2011) as strategy reflects
predominantly a Os 74% fad
channel for other . 7 our digits
le’ i ambitions &
Peoples ; 3? oe 61% signals clear
products/services 28 —__— roadmap to
28 2020 11% work with depts.
. to achieve
8 2012 64% digital goals’
S - Exec. Director,
3 2020 85% Govt. Digital Service
0% 50% 100%
Source: Post Office Source: Ofcom Internet Usage, 2011 Source: Javelin Group analysis Source: Javelin Group analysis Source: Forrester
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Digital Strategy Update * The Issues
BAU presents med or high risk for 89% of Post Office income due to changing marketplace
Market channel shift
Business area
Competitive pressures
% of Post Office income at risk
Transactional Financial * Shift to online & mobile + Suppliers e.g. MoneyGram
Servi 8% it transactions / management develop own D2C
ARSE LE state) + Decline in cash & cheques online/mobile services
High 39% Es . + Government strategy for + Government will retain
pt ment Services lower cost ‘digital by default’ control of direct channel
(nea) shifting transactions online + PayPoint key competitor
Pp L Fi + Increasing shift of sales and + Banks & direct specialists
esha ) Wents2 servicing to digital channels innovating and developed
TaCome) + Mobile now key channel multi-channel strategy
Medium 50%
I + Majority of market shifted to + Extremely high
istiteliy direct channels: margin competition driven by
(@slieaaD) pressure with transparency dominance of aggregators
Tele a + Shift of direct sales from call * Concentrated market:
athe Tks centres to online large full service brands
Low 1% (Exsinetd) + Majority of research online with high marketing spend
Tray I Mo! - + Further shift of pre-ordered + Growth of low cost direct
, bist yoney) currency sales online for firms offering better rates
(Cxstineti9) delivery or click & collect + Branch remains important
+ Small online growth for
Not 11% * SMEs * Collections competitors
() A
assessed ese TTL Tiel scrimetesdalvetog
technologies at branches
Retail Sales + Limited growth online due to + B2C market remains
(1% ir ll ) low value and distressed fragmented with large
*Includes lottery, DWP, A&L business banking, misc FS come nature of purchase number of small players
Source: FY11/12 net income, POL Performance Pack Sept 2012 5
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Digital Strategy Update * The Issues &
PO digital offer is trailing the competitive market and we need to move quickly to compete
* Few companies are close to multi-channel and digital best practice and those that fail to embrace multi-channel
trends will quickly lose market share
Advanced
Digital offer
Majority of high
‘street retailers
Evolving
Advanced
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Digital Strategy Update * The Issues
Digital & multi-channel strategy will also support Post Office to address BREC
Impact of digital &
Four key customer challenges to address as part of future strategy (BREC) multi-channel
strategy
Beyond mails: awareness of PO product range beyond mails declining — average
association down from 47% to 44% for secondary products over last 12 months,
static at 13% for tertiary products in same period
Relevance: consumers who think PO brand is forward thinking down from 23% to
19% over last 12 months (mainly older, lower SEGs), those who think it is not
relevant up from 15% to 19% in same period
Effort: number of people who consider PO difficult to deal with increased from 19%
to 24% over year to June, number of people who disagree down from 48% to 39% in
same period
Credibility: just 13% of consumers believe PO to be a credible Financial services
brand, down from 16% at the start of Q2 2012
7
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Digital Strategy Update * The Opportunity &
Realising this opportunity can ensure Post Office is a winner in the new, digital world
* Implementing the strategy detailed here will deliver a strong multi-channel customer proposition at Post Office
— This will drive significant benefits:
Increased share of wallet of existing customers
Improved loyalty and retention of existing customers
Additional revenue from Digital Front Office of Government
Attracting the new generation of customers
Serving customers in the most appropriate channel(s)
Better knowledge of the customer through data
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Digital Strategy Update * Enablers to deliver &
6 critical enablers & 6 components of digital strategy comprise the future digital &
multi-channel proposition. These form 11 implementation workstreams.
Post Office digital & multi-channel strategy
6 critical enablers 6 components of digital strategy
s 1. Organisation 1. Website user experience strategy
a 2. Digital marketing
——-
3 =] 3. Customer data & single view
@~
(I 4. partner management a 4. Delivery strategy
2. Mobile strategy
3. Digital product range strategy
5. Technology 5. Customer support strategy
6. Branch engagement 6. In branch digital strategy
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Digital Strategy Update * Enablers to deliver
6 key enablers to ensure the successful delivery of digital strategy recommendations
1.Organisation
PO needs to become customer I
focused organisation
1. Organisational restructure;
- ExCo role: responsible for customer
experience
- Changes to working processes: e.g. virtual
teams, data use, compliance & partners
- Upskill Digital team
2. Culture change: shift towards mult-channel
- Appropriate funding
- Increased agility etc.
2. Digital marketing Ps
Sophisticated digital marketing sical
strategy will drive acquisition & retention
1. Improve customer acquisition; boost
awareness, drive traffic, facilitate purchase
- Search & visibility improvements
- Affiliates strategy
- Multi-channel messaging/advertising
2. Improve cross-sell & retention; engage
customer, merchandise, re-activate lapsed
- Email & CRM capability
- Mobile marketing
- Social media presence
3. Customer data
atte
wy
Single customer view is critical, ver
enabling development & sharing of insight
1. Improve data collection
- Full loyalty scheme vs. digital account data
2. Improve data management
- Eg. hamess existing PO technology, Logica
IDA, or third party data partner
3. Analyse data to create insight/inform BUs
- Data culture, new analytical expertise &
appropriate technology key enablers
4. Utilise targeted marketing campaigns
4. Branch engagement oa
Need to communicate strategy to I
branches & acquire critical network buyin
4. Develop communications plan to sell need
2. Project to review branch incentivisation and
identify best long-term solution to drive
multi-channel behaviour
5. Partner management a
Partners are critical enabler and oe
implementer of majority of changes
1. Ensure relevant PO teams involved from 1. Web platform
& value of digital strategy to branches contract initiation stages 2. Mobile optimised site
- Required to compete in digital world 2. Build in additional PO requirements to 3. Branch technology
~ To provide new support to branches existing contracts where possible, & all 4. Post Office account / single customer view
future contracts 5. Single sign-On
3. Retain contract management within product}
teams
4. Look to rationalise partners longer term
6. Technology
Technology team to identify best
technology solution in 5 areas
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6 principles of the digital strategy set out best practices we want customers to experience
Customers should be able to have
products and services delivered
1. Digital delivery of documentation
2. Appointment booking
3. Tracking of application / delivery
4. _In-branch collections
through the channel of their choice.
Continued optimisation of existing I i I
operating model recommended
1. Optimise existing customer support
operating model
2. Improve help & support content on Post
Office website
3. Essential to ensure customer support is ke’
consideration in future partner negotiations
4. Transfer of Royal Mail managed contact
centre to Post Office in 2014
1. Website Experience 2. Mobile G 3. Product range 5 step
Must support all customer journey Aim to launch basic mobile site by Apri All Post Office branded products to
stages via changes in 7 key areas 2013, add full transactional version in 2014 be offered digitally and saved for re-access
1. Quick win changes 4. Greate a mobile site to satisfy basic ‘le po poarees avaliable for digital purchase
2. Customer account customer demand and understand its use ene post parortase vicina
3. Search and navigation 2. Customers should be able to save and re-
4. Application journeys 2. Develop a transactional mobile site in line access application / purchase in any
5. Merchandising with the new web platform and build cross channel
6. Content and community channel journeys
7. On-site help and support 3. Digital channels will support Post Office
3. Develop targeted mobile apps to satisfy migration to Customer Value Propositions
customer demand without creating a high
street of apps
4. Delivery 5. Customer support 6. In branch digital strategy
3 strategic requirements in branches
to support implementation of digital
& multi-channel strategy
1. Customer & staff information
- Will drive enhanced staff & customer
interaction
2. Customer self-service
- Opportunity to expand in branch self-service
3. Staff-assisted customer access
- Support wider range of digital customer
missions with assistance from staff
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Digital Strategy Update » Roadmap &
7 projects are immediate priorities for Post Office, 5 quickwins could deliver benefits in Y1
* Majority of 56 projects / activities will require large scale change with concerted effort to drive high potential benefits
— 7 immediate projects required to establish footing to drive strategy forward
* 5 projects are quick-wins which could drive tactical benefits whilst larger projects are ongoing
7 immediate priorities for Post Office digital & multi- 5 potential quick win benefits
channel strategy
1 P1. Transformation programme 1 P7. User experience quick wins
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Digital Strategy Update » Commercials &
Digital income and costs have been modelled for 4 potential scenarios
Scenario 2:
Scenario 1: Fun lermentation Scenario 3: Scenario 4:
Full implementation P ae Medium implementation Minimum implementation
(exc. branch digital)
All 56 initiatives All 56 initiatives Med-high critical initiatives Only high critical initiatives,
implemented implemented implemented associated lower costs
All costs included Except no interim digital Interim digital solution only No interim digital solution in
solution launched in in Crowns and Mains branches
branches
+ Services income (Savings, Lending, Insurance, Telecoms) = year on year digital income from
sales in each individual year
* Transactional income (Mails, Retail, Government, Travel Money) = digital income from sale
each year
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Digital Strategy Update » Commercials &
Cumulative 4 yr Opex of £8.8m and £6.4m Capex drives £40.5m digital income in FY16
Option 4
All changes implemented, All changes implemented apart Med-high critical changes High critical changes implemeni ted,
: from interim digital solution in implemented, interim digital costs stripped back, no interim
all costs included fen} i i ie
branches solution in Crowns and Mains digital solution in branches
£8.8m £6.4m £4.0m £2.2m £5.5m £3.8m £1.6m £2.2m
Cumulative 4}] Cumulative 4 Cumulative 4 II Cumulative 4 ‘Cumulative 4 II Cumulative 4 Cumulative 4 II Cumulative 4
year Opex year Capex year Opex year Capex year Opex year Capex year Opex year Capex
Underlying CAPEX, to serve the broader Post Office strategy, not included here:
— Digital & multi-channel strategy (FY12-16) dependent on:
x I CRM/ data warehouse solution
* Messaging hub
* Roll-out of Post&Go machines in branches (c.650 by FY2014/15)
* Roll-out of FS specialist areas to more Crowns & Main agency branches (feasibility study planned in Q1)
- Digital & multi-channel strategy (FY12-16) not dependent on:
* Branch POS solution
* Changes to current contact centre operations
x In-branch collections project technology & process changes
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Digital Strategy Update » Next steps &
Establish Digital transformation board in Feb
Identify an appropriate, experienced Programme Director by end Jan
Continue Javelin Group involvement and build plans with relevant teams
Discuss organisation restructure at EXCO
Agree funding and start projects for 1314
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POST OFFICE LTD BOARD
Cost Reduction Update January 2013
1. Purpose
The purpose of this paper is to provide the Board with an update of cost reduction activity
against each area of the cost reduction framework, and delivery against current year cost
reduction targets.
2. Background
The total cost base of the Post Office is c£1bn, of which around 70% has historically been
considered fixed. A high-level breakdown of POL’s overall cost base is shown below:
Cost Base
Post Office has developed an overall approach to cost reduction, aiming to optimise
operating efficiency across its business, comprising three strands of activity:
¢ Transformation programmes
e Tactical in-year cost reduction
« Strategic cost reduction
Previous Board papers have described the overall framework and each of these areas in
more detail.
At the October Board meeting it was agreed that progress within the cost reduction
framework would be reviewed by the Board on a quarterly basis.
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3. Current cost reduction agenda
The summary targets of the three pronged approach are presented in the table below:
Targets 2012/13 I 2013/14 I 2014/15 I Comment
3 year transformation On track to deliver.
y £8m £30m £67m_I Annualised benefit when
programme targeted savings completed of £70m on-going.
c£20m_ I 2012/13 on track for delivery;
Tactical in-year £20m £20m TBD 13/14 target in the process of
Mar-14 I being finalised.
c£15m_ I Aspirational target to be
Strategic cost reduction N/A N/A TBD verified through Strategy
Mar-13_I Review.
The subsequent sections present additional information on each cost area, and performance
against these targets for the current year.
4. Transformation programmes
The transformation programmes are largely focused on the retail network and the IT estate.
They seek to address c75% of the £1bn cost base with the objective of reducing it by 9%
whilst variablising a further 9%.
The breakdown and profile of the expected savings is as follows:
Forecast 2012/13 I 2013/14 I 2014/15 I Comment
Network Transformation Full year on-going benefit is £20m
Programme 2m £6m e 16m per annum.
5 Includes efficiencies from
crown Transformation £6m £17m £28m__I automation and restructuring of
9 estate.
IT Transformation - £3m £21m Delivered through more
economical supply model.
Full year on-going saving of £2.2m
Finance Transformation -- - £1m by targeting a c20% reduction in
finance core process cost.
Total £8m £28m £65m
The business strategy requires additional on-going IT activity, resulting in additional costs of
c£14m per annum if left unchecked. In response to this, and to derive greater value from IT
expenditure overall, the IT Transformation Programme seeks to reduce the new cost base
by c£21m per annum.
The changes from the previous update are:
¢ aslight re-profiling of the savings under the Network Transformation Programme
« a risk to the Finance Transformation benefits, as we review our approach to
separation in order to de-risk the delivery of the overall plan.
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5. Tactical cost reductions — current year delivery
The whole £1bn cost base is considered in scope for in-year tactical cost reduction.
However, due to the programme activity already in the front office, in practice further tactical
savings are limited in this area.
As part of the 2012-13 budget process, ExCo targeted an additional £20m of tactical cost
reduction for the current year. Our latest (Q3) forecast confirms that these targets are highly
likely to be achieved through the following elements:
Cost area 2012/13 I Delivery
Management of resource to avoid filling
Staff related costs £5.0m I vacancies, use of temporary contracts.
On-costs of system enhancements delivered
Computers & telephones £8.9M I below budget, or implementation delayed.
Supplier contract management I ¢5 g,,_I Efficiency improvements and penalties
(Other non-staff) : enforced.
Other (Other non-staff) £4.1m__I Locally delivered initiatives.
In addition, staff costs will be a further £4.2m under budget due to lower than budgeted LTIP
payments.
6. Tactical cost reductions — programmed savings for 2013/14
For 2013-14, ExCo adopted a ‘zero based’ approach to the budget with each Directorate
required to justify each element of their projected spend for the year.
This has resulted in a £20m cost challenge inherent in the 2013-14 budget:
e Further year on year staff cost reduction of £10.8m
« Year on year reduction in agents’ pay of £3.7m (mainly DVLA), after removing the
impact of volume-related changes
« Year on year increase in non-staff costs of £6.1m (net of £3m_inter-business
reduction). A cost increase of £11m was required to cover additional separation and
strengthening activities, as well as RPI increases on supplier contracts. Therefore, a
cost challenge of £5m has been put in place to mitigate this increase, resulting in the
reduced £6m overall increase.
Additionally, ‘one-off’ project expenditure has been reduced from a peak of £41m in 2012/13
(per Q3 forecast) to £28m next year.
7. Radical cost reduction for beyond 2014
In addition to the above activity, ExCo has identified and prioritised four additional strategic
cost areas for review. These cover all elements of the operating model and related support
structure. The evaluation of these opportunities will be presented to the Board when
finalised and incorporated into the Strategic Plan submission to Government by March 2013.
In the meantime, we continue to pursue opportunities to reduce costs in each of the four
areas whilst recognising the need to align with our evolving strategic review. The aim of the
wider piece is to align the cost base of the business with the future strategy. This involves
looking for new ways to deliver things differently in a more cost effective manner, but is also
likely to involve the need to invest in certain areas (e.g. sales capability, CRM) to achieve our
ambitious revenue growth goals.
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Front office and IT costs are covered under the current Strategic Programmes and along
with Cash Services have been ring-fenced for consideration under the Strategy Review.
This leaves £250m under immediate consideration for strategic cost review opportunities.
Progress under the four work-streams identified as critical independent of the strategy
review is as follows:
1.
Ways of Working: Examining the governance and day to day processes to identify
opportunities to be a leaner organisation with more efficient use of time/resource and
reduced bureaucracy.
We are currently in discussion with PA Consulting to look at how they can most cost
effectively support us to deliver this, ensuring knowledge transfer into the business, so
that this practice becomes engrained in the business. We anticipate formal
engagement during Q4.
A review of accommodation alternatives to the Head Office at 148 Old Street is also
being undertaken, focusing on utilising spare office space above Crown offices. A
recommendation will be made by the end of February, depending on cost to transition
and other practical considerations.
. Support Services Strategy: Evaluating which support functions could be supplied
through alternative models such as shared services, outsourcing, and integrated back-
office, and the related cost benefit.
A focused review to provide a high-level evaluation of the options for three specific
areas is in progress working in partnership with a leading BPO organisation; the scope
includes call centres and HR and Finance back office activity. This will be used as a
template for extending the approach into other areas. The review of these first three
areas will be complete in early February, with resulting recommendations available
shortly thereafter.
Organisation Structure: Focusing on the grade, remuneration model and staff pyramid
in place across the business and considering options to improve its effectiveness.
This area is also in the scope of the work supported by PA Consulting.
Stakeholder Engagement: Opportunities to streamline relationships with third parties
and the extent to which we could improve our engagement model.
The scope of the call centre review above will be extended to understand what
synergies could be gained by applying the same approach to the call centres that our
suppliers provide on our behalf, for example Bank of Ireland for personal financial
services products, AON for travel insurance.
Conclusion
This focused, rigorous and co-ordinated programme of tactical, programme and strategic
cost reduction will result in a more efficient and flexible cost base to underpin a more
competitive commercial business.
Chris Day/Sue Barton
16th January 2013
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Appendix A - Breakdown of the current cost base
The table below breaks down Post Office’s overall cost base, to demonstrate which areas
are being considered under each of the 3 strands of cost reduction activity.
2012-13 2013-14 2014-15
mae Cost Cost cost Comment
reduction reduction I reduction
Some cost reduction but the main
Fixed agents’ focus is to improve flexibility of costs
£138m Secon Fe
costs through converting fixed pay to
variable.
Variable agents’ By 2014-15 fixed agents’ costs are
costs £345m expected to be halved as c£70m will
be converted to variable costs.
Includes efficiencies from
Crown Costs £163m automation and restructuring of the
estate.
On-going cost assumed to increase
by £14m for new IT Delivery.
IT infrastructure £89m Reduction of this new cost base
delivered through more economical
supply model.
Finance £17m Delivered through improved
automation and processes.
RM Central Independence & Separation ;
Charge £16m Progparrene in place to transition
these services at the lowest net cost.
Network Support Retail line, equipment and contact
£57m
Costs centre costs.
Supply Chain £89m Excludes cash holding costs.
Includes Commercial, HR, Comms,
Remaining Head £104m Legal & Compliance, Security,
& Back Office Property, Procurement and
Managed Services.
Project One-Off £38m
Costs
TOTAL COST
BASE / £1,056m £28m £48m >£100m
REDUCTION
Key:
Transformation programme
deliverables
Tactical benefits
Radical cost reductions under
evaluation
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Performance Report
December 2012
Produced By : Financial Control and Compliance Team
For Queries & Comments Contact : Sarah Hall or Kam Bassra
CONFIDENTIAL
It should not
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( Contents )
Page
Headlines 3
Profit & Loss Statement 4
Cashflow Analysis & Balance Sheet Summary 5
Net Income By Pillar vs Budget 6
Net Income By Pillar vs Prior Year 7
Crown Profit & Loss Statement 8
Business Scorecard 9
Progress Against Funding Plan Commitments. 10
Cost Management Report
Staff Cost by Directorate 12
Non Staff Cost by Directorate & Type 13
Transformation Summary 14
Transformation Delivery 15
Project Costs (OpEx) 16
Project Costs (CapEx and Exceptionals) 17
Appendices
Cashflow Statement 19
Income By Product Groups & Pillar 20
Ne S
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Headlines Strictly Confidential
December 2012
(Financials - YTD >)
Profit
Period 9 YTD operating profit was £98.9m against the budget of £71.5m, giving a favourable variance of
£27.4m.
* Net Income was £676.7m which was £6.9m favourable to budget and £21.9m favourable to prior year -
this is driven by the stamp sales ahead of the May price increase, which have still not eroded significantly,
as well as strong Mails pillar performance from premium products - Special Delivery and Parcelforce.
Lottery and retail sales are all ahead of budget. Financial Services has recovered and is ahead of budget.
«Staff costs were £11.1m favourable to budget and £4,6m adverse to prior year. Versus budget the
variance is due to strong cost control with the majority of efficiencies identified. There also remain a
number of vacancies, specifically in the Network. The variance against prior year is due to pay awards.
* Agents’ costs were £7.6m favourable to budget due to a provision release and the reversal of last year's
accrual relating to Core Tier Payments, and £6.3m favourable to prior year mainly due to the one off
payment to agents in the prior year.
Non people costs were £9.0m favourable to budget, but £12.2m adverse to prior year. The underspend
is driven by the reduced costs for Mails Dangerous Goods work not required this year and the delay to the
committed Eagle sales capability expenditure, but a small favourable variance remains so the efficiency
task is being covered. This is through a combination of active cost saving and a delay to costs being
incurred. The increase since last year is as a result of a one off provision write back last year, increase in
marketing related costs as well as contracted Fujitsu RPI increases.
* Interbusiness expenditure was £1.0m favourable to budget and £2.9m favourable to prior year due to
lower property costs as a result of contract renegotiations this year and separation impacts versus prior
year.
+ Project costs were £8.6m over spent against the budget. The forecast was reviewed in September and
the full year position is still on track
Cashflow
The YTD cashflow was an inflow of £137m which was £43m favourable to the £94m budget (period 8
was £130m favourable).
The £43m favourable variance was due to the higher than budgeted profit, lower than budgeted Network
Transformation costs and lower working capital due to a one off timing variance. Network cash was
adverse driven by the proximity to Christmas, but has since improved.
Crown Profit - YTD
The Crown profit is ahead of plan with income £1.5m favourable to target. Staff, property and
infrastructure related costs drove the overall favourable variance of £6,7m, although this favourable
variance is expected largely to reverse by year end.
Non financials - YTD
* Queue time in branches (less than 5 minutes) is 2.4% favourable, This follows strong results leading up to
Christmas.
‘* Network conversions are now 48 ahead of plan, with 149 conversions in the period.
Ne wy
Cumulative EBIT pre exceptionals
400 Actual judget
80
60
40
20
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Total Net Income - Budget to Actual Bridge
20 47
43 pe
I — 676.7
(47)
669.7
2012-13 YTD Malis & Reta Financial Government
‘Net Income Services Services
Budget
Financials
Total Revenue (excluding NSP) £m (Bonus)
Operating profit £m (Bonus)
Free cashflow £m
Crown Profit (Loss) £m (Bonus)
Non Financials
Queue time % < 5 minutes - Top 1k branches (Bonus)
Network Conversions (Mains & Locals) (Bonus)*
Period 9 Performance Pack - Chris Day 15th January 2013
Telephony
SS
SE ESESEEES
&
‘ther "2012-13 YTD
‘Net Income
‘Actual
Year to Date
Act Target Var
765.4 757.3
98.9 715
136.6 93.8
(22.5) (29.2)
79.8% 77 AG
507 459
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Profit & Loss Statement
December 2012
Strictly Confidential
Current Month Prior Year Period Year to Date Prior Year YTD Full Year Prior Year
lem ‘Actual Budget Variance I Actual Variance I Actual Budget Variance I Actual VarianceI Q2 Forecast Budget Variance I Outturn
External Income 3i3 wT To 73 39 Wee «G2 WET 275 I 6723 668.6 2rd
interbusiness Income 39.8 43.0 (3.3) 417 (1.9) 271.2 266.1 273.2 (2.0) 346.2 347.2 358.6
TOTAL GROSS INCOME 91.4 92.7 (1.7) 89.0 20 765.4 757.3 739.9 25.5 1,018.5 1,015.8 979.7
Cost of Sales (9.7) (9.5) (0.3) (9.4) (0.3) (88.8) (87.6) (85.1) (3.7) (119.8) (117.9) (114.4)
TOTAL NET INCOME 813 83.2 (29) 796 17 6767 669.7 6548 219 I 8987 897.9 8653
Staff Costs (19.2) (208) 17 (21.2) 20 (189.2) (200.4) (184.6) (4.6) (263.8) (268.9) (251.3)
Agents Costs (423) (45.4) 28 (42.4) 00 (355.6) (363.2) (361.9) (4835) (4828) (482.9)
Non-Staff Costs (12.7) (14.4) 17 (10.8) (1.9) (112.7) (121.7) (100.5) (163.6) (166.2) (149.2)
interbusiness Expenditure (6.0) (63) 03 (6.4) 04 (606) (61.6) (63.4) (63.3) (63.3) (84.9)
Depreciation (03) (01) (02) (00) (03) (0.7) (0.6) (03) (08) (08) (0.4)
Total Expenditure (pre POOC) (80.4) (86.7) 6.2 (80.8) O4 (718.9) (747.4) (710.8) (995.1) (1,002.0) (968.7)
POFS ~- Share Of Operating Profits 00 0.0 0.0 (1.5) 15 (0.6) 0.0 02 (0.4) 0.0 (0.6)
FRES - Share Of Operating Profits 13 13 (0.0) 13 (0.0) 277 28.7 273 31.5 32.6 314
IEBIT Pre Overhead Allocations 22 2a) 43 a3) 35 15.0) (49.0) (28.5) (65.2) T15) 72.6)
Group Overhead allocations (1.2) (1.4) 0.2 (4.7) 05 (10.7) (12.8) (14.6) (19.6)
[EBIT - BAU 10 (3.4) 45 (3.0) 40 (25.8) (61.7) 192.2)
[One off Project costs (POOC) (2.2) (2.9) O7 (2.0) (0.2) (29.9) (21.3) (26.5)
JEBIT - Post Project Costs (2.2) (6.4) 5.2 (5.4) 3.9 (55.7) (83.0) (418.7)
[Network Payment, 158 158 0.0 13.8 20 154.5 154.5 180.0
EBIT pre exceptionals items 47 95 52 88 59 98.9, 745
interest (0.4) (03) (0.2) (0.2) (03) (0.9) G5)
impairment (1.6) (7.2) 5.6 (4.8) 31 (40.0) (71.0)
Exceptionals & Redundancy & Severance Costs (05) (143) 13.8 09 (05) (39.4) (680)
Government Grant Utilisation 52 187 (23.5) i) 5.2 554 110.2
Profit/(Loss) On Asset Sale (04) 00 (02) (00) (04) (28.0) 00
[Colleague Share/ Business Transformation Payments 00 0.0 0.0 0.0 0.0 0.0 0.0
‘otal Profit/(Loss) Before Tax 273 mo ECKI 39 Be 759 382 (6.0)
(Period vs. Budget
Operating profit (EBIT) of £14.7m was £5.2m favourable to budget.
BAU variance of £4.5m was mainly due to:
* Lower staff cost of £1.7m due to the number of vacancies/
efficiencies,
* Lower agents costs of £2.8m due to a £m WHS provision
release and VAT recovery impacts, and
+ Lower non staff costs of £1.7m due to lower IT expenditure and
lower Telephony costs,
offset by
* Lower net income of £1.9m mainly due to Government Services:
POCA. ID Services and FO0G and due to lower Mails income in
the period.
One-off variance of £0.7m favourable was all due to:
* Lower project costs,
Below EBIT
‘The main adverse variance is the grant utilisation due mainly to
slower spend on Network Transformation (NTP) than planned.
(‘10 vs. Budget
Operating profit (EBIT) of £98.9m was £27.4m favourable to budget.
BAU variance of £36.0m was mainly due to:
‘Higher net income of £6.9m mainly due to Mails and Financial Services income,
* Lower staff cost of £11.1m due to the number of vacancies and efficiencies
being delivered so the contingency budget has not been required,
* Lower agents costs of £7.6m due to the WHS a provision release and the
reversal of last year’s accrual relating to Core Tier Payments,
+ Lower non staff costs of £9,0m due to no Dangerous Goods cost and the delay
to the committed Eagle sales capability expenditure, and
+ Lower IB and overhead allocations of £3.0m,
offset by
* Lower JV income of £1.6m.
One-off variance of £8.6m adverse was all due to:
+ Higher project costs.
Below EBIT
The main variance remains the anticipated loss on sale of Midasgrange (POFS)
recognised in P6 at £29.7m. The other variance is the underutilisation of the
IX
ant due to slower spend on programmes and capex, mainly NTP.
vy,
(ri
D vs. Prior Year
Operating profit (EBIT) of £98.9m was £17.8m favourable to prior year.
Like for lke variance of £18.1m was mainly due to:
* Higher net income of £21.9m primarily due to Mails and Financial Services,
+ Lower agents costs of £7.5m mainly due to a one off payment made to
agents last year, and
+ Lower IB and overhead allocations of £6.5m due to separation
offset by
+ Higher staff cost of £4.6m due to pay awards, and
* Higher non staff costs of £12.2m due to higher property, IT and marketing
costs
Non like for like variance of £0.3m adverse was due to:
'* Higher project costs of £19.8m, offset by
‘+ Higher Network payment of £19.5m,
Below EBIT
The main variance was the anticipated loss on sale of Midasgrange (POFS) and
the spend and grant for Transformation.
XN S
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Cashflow Analysis & Balance Sheet Summary
Strictly Confidential
December 2012
Network Cash related, with both cash centres and branch holdings exceeding budget due to seasonal volatility of Christmas.
Cashflow to period 9 is a cash inflow of £137m versus a budget of £94m resulting in a favourable variance of £43m (P8 £130m F). The movement from last month is mainly ]
S
(— D)
YTD Cashflow YTD Cashflow Variances
= II
£m
(125)
WOBuok —Opangpk_ Cans Haver Wenge pinged Aaundin,, DA
pon Goomscbe ti
Ne J )
Balance Sheet P9 Gon
ashflow
im Tae verde Actual Butget “erence The YTD cashflow was an inflow of £137m which was £43m favourable to the £94m budget (period 8 was
. £130m favourable).
Debtors 89 106 76 30 The £43m variance was mainly due to:
Cash 759 847 745 102 + EBIT £28m favourable to budget.
[Client Balances (194) (142) (166) 24 * Client balances and Network Cash combined were £125m adverse. Network Cash was overall £102m adverse
Trade Creditors (245) (459) (306) (153) to budget driven by a £58m adverse variance from cash centres, £20m adverse from branches (first adverse
Pension (deficit/surplus * I (206) 48 (199) 247 variance this year) and £20m adverse from cheque and debit card balances. Network Cash has improved post
Provisions (15) (16) (12) (4) Christmas.
Inwestments, Funding 48 65 114 (49) + Working Capital was £77m favourable to budget. This included a one-off timing variance of £60m as the
Loan (377) (255) (350) 5 budget assumption was the payroll would be run before the end of period 9, Trade debtors are also favourable
NeVAssct (40) 272 17 255 to budget due to the prepaying of a telephony balance to Fujitsu, also high Bank of Ireland indebtedness, offset
by high trade payable and Gamma creditors,
~ ‘© Capital expenditure includes the unbudgeted £11m investment in Midasgrange (POFS associate) offset by
Reserves Mar-12 Actual Budget_I Variance _I I ¢42r lower than budgeted other capital expenditure.
[Capital and Reserves 40 (272) (7) (255) y,
Cash Management Table
£m Prior Year I Mar-12 Po [Cash Management
9 Opening I Actual Budget Var I I* Retail and Cash Centre cash (manageable cost) - £78m adverse to budget, and £42m adverse to
Retail, Cash Centres 336 Sia 378 200 a) prior year. Of this variance, Cash Centres were £58m adverse to budget and branches were
Bureau 40 54 44 40 (4) E20 adverse,
le Bureau (manageable cost) - £4m adverse to budget and prior year.
Cheques, debit cards a 3 125 05, (20) Cheques and debit cards (customer driven) - £20m adverse to budget and £1m adverse to prior
Network Cash 800 759 847 745 (102) year.
[Opening [po I
Headroom (£m) 509 792
* The balance sheet includes a half year estimate of the accounting position on the pension post sectionalisation.
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Net Income By Pillar vs Budget
December 2012
Strictly Confidential
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Period Prior Vear Period Year to Date Prior Year YTD Faull Year Prior Year
Net Income (Em) Retual Budget] Variance I Actual_I Variance I Actual Budget_I Variance I Actual I Variance I @2Forecast I Budget I Variance I Outturn I Variance
Pats & Retail “38 thd (0) tad (03) 3045 3002 3 295.7 389 7083 7038 25 3875 188
Financial Services 225 222 03 204 24 2097 207.7 20 1984 116 2767 2747 20 2615 152
covernment Services I 83 96 (13) 94 (0) 984 1028 (47) 1019 (38) 135.7 1399 (42) 1357 00
[Telephony 38 35 03 33 05 344 338 06 316 28 45.2 457 (05) 414 38
other 30 36 (0.6) 28 o4 3 2 47 24 348 338 4.00 393 (4.5)
TOTALNET INCOME 81.3 83.2 9) 796 17 676.7 669.7 69 21.9 898.7 897.9 08 865.3 33.4
( Pilar Performance vs YTD Budget \
Mails & Retail Services sal Services beenecauceenon. bees oe
em 415 £m 7 Ast and 2nd Class Stamps £1.9m fav due to buy forward experienced
18 28 ior to the May price ncrease, There was litle erosion over Christmas
33 — — prio y
6 — — = I a) — ‘1st and 2nd Class Labels £0.2 fav driven by higher 2nd class volumes,
Ll (2.5) = as) but lower ‘st class volumes than in the plan.
II (4.3) (2.7) Ast class (both stamps and labels) YTD was £2.5m adverse, £1.6m of
which relates to P8.
207.7 208.7 PFW £1.8 fav driven by PF 26 & 48 - 39% higher volumes than plan and
34% higher than prior year.
Special Delivery £1.5m fav driven by 2.7% higher volumes than plan and,
0.1% higher than prior year
Retall& Lottery £3.3m fav Lottery £2.9m fav due to recent rollovers
and retail £0.4m fav due to Jubilee and Olympic collectibles
Other Mais - £4.3m adv due to Dangerous Goods income (and costs)
‘moving to next year.
Financial Services - £2.0m Fav
21213 idee” Feel PAW” Speci” tolelow “Olermele” 2012-19 : . . . : : FS £3.0m fav driven by insurance related additional commissions
WTO Net Lotery Dalvery WIDNet ae PFS BilPayment Barking Travel ATMs Baymont Fa BPs yan £25 fv dven by her lame rd ey awe
xe _ Budget ‘Retual Banking Services £2.1m fav driven by prior year adjustments and some
volume inereaces (RBS)
Travel (€1.3m) adv due to primarily to bureau (travel market down
generally). Moneygram and Travel Insurance volumes also down.
aia Telephony Services {ATMs (£1.3m) adv due to delayed 550 rollout and hence lower volumes.
Payment Services (£2.7m) adv due to the EU regulation relating to
1A 03 unused gift vouchers, extending their write back over a longer period of
£m 16 £m time. Also due to lower Postal Order and Post Office payout volumes.
— << —a
— (1.2) (0.5) Government Services - (4.7m) Adv
(2.2) II . Motoring £1.6m fav primarily due to higher than planned volume.
Pacsports £4,dim fav due to volumes and price inereace
(44) POCA (E2.2m) adv due to fewer accounts, greater ATM usage and
98.4 impact of lower LIBOR rate.
; ID Services (£4.4m) adv due to lower DVLA volumes, UKBA rollout now
complete, but volumes and income are still behind target.
Telephony Services - £0.6m Fav
Homephone £0.8m fav ~ Current customer numbers stand at 479k,
wihich 1s 13k higher than budget.
Phonecards £0.3m fav ~ Higher than budget due to provision release
related to previous provider
E Top ups. £0.5m adv ~ lower volumes which are at 93% of target.
201213 YTD’ Motorng Passports Other Govt" POCA "ID Services. 2012-19 YTD ne aegeire
Nt income Net income 2012-13 YTD Net HomePhone/Oual 8 PO Phonecarés E Topups 201243 YTD Net
Increased warehousing income from RM for Olympic stamps was €1m
! ‘ Income Actual
Sxcost few ‘room Coston rome Aca favourable. Remainder due to budget phasing of RM income changed
I post budget being set.
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Net Income By Pillar vs Prior Year
December 2012
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Prior Year Period
Year to Date
Prior Year YTD
Full Year Prior Year
Net Income (£m) Actual Variance Actual
Variance
Budget
Variance
Actual Variance I 2 Forecast,
Budget Variance Outturn, Variance
Mails & Retail
Financial Services
Government Services
Telephony
other
438
225
(0.6)
03
(a3)
03
(0.6)
44d
20.4
94
33
295.7
PFW
‘etclase Intemational Lotery
2011-12
YTO Net
Income
(Lett
‘2nd class Retail
Deiivery
Special “Other mails 2012-13,
(0.3)
21
(08)
os
ot
YTO Net
Income
‘Actual
3002
207.7
1028
338
25.3
2011-12
YTD Net
Income
‘Actual
a3
20
(4.7)
06
47.
15.9
PFS
02
Payment
Services
2957
198.1
101.9
316
89
116
(3.8)
28
24
4063
2767
1357
45.2
348
Financial Services vs. Prior Year
02
(0.3) (0.8)
ATMs Travel Banking
Services
Biting
(1.8)
4038
2747
139.9
487
25
20
(4.2)
(0.5)
10
3875
2615
1357
414
393
188
15.2
Pillar Performance - Year on Year Variances
Mails & Retail Services - £8.9m Fav
Overall strong volumes prior to the price increase
from Royal Mail which came into effect at the end
cof period 1. The distribution agreement has
reduced the fixed element and increased the
variable element of income.
‘Ast and 2nd Class £14.6m fav ~ driven by price
increases. Labels drive the majority of the
variance,
Other Mails £5.7m adv ~ driven by reduced fixed
payment.
(27)
209.7
Financial Services - €11.6m Fav
PFS £15.9m fav ~ driven by savings products
NS6i (E2.7m) adv - driven by NSBI withdrawing
products from POL to sell directly
Banking (€1.5m) adv - driven by lower DWP
Exceptions and lower Santander volumes,
Billing (£0.8m) adv - driven by lower Energy,
near I 2012413,
YTD Net
Income
‘Actual
Telecoms and Housing income.
Government Services vs. Prior Year
be
(1.3)
em (0.9)
(2.0)
2011-12 YTD Net
Income Actua
ID Services
Passports
Motoring
XL
"012-13 YTD Net
Tnoome Actual)
2ott-12 YTD
Act
Telephony Services vs. Prior Year
38
(tay
Travel (£0.3m) adv ~ due primarily to Travel
Insurance and Bureau (market down)
Government Services - (£3.8m) Adv
Passports £1.4m fav ~ due to both volume and
price increase.
POCA(E3.0m) adv - due to fall in number of
accounts and greater ATM usage.
ID Services (€1.3m) adv ~ due to one off service
level payment received last year.
Motoring (£0.9m) adv - due to volume falls
Telephony Services - £2.8m Fav
Homephone £3.8m fav - higher customer
numbers.
E-Top ups (£1.1m) adv - general volume
decrease and lower pricing
Other - £2.4 Fav
Net Income
fl
HomePhone/Dual &
broadband Customers
Top ups
‘Supply Chain - mainly increased warehousing
related to stamp storage before the price rise andI
CVIT income.
2012-13 YTD Net Income
‘Actual
Period 9 Performance Pack - Chris Day
46th January 2013
Page 7 of 20
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Crown Profit & Loss Statement Strictly Confidential °
December 2012
Period Prior Year Period Year To Date Prior Year YTD Full Year Prior Year
£m Actual Budget Variance I Actual Variance I Actual Budget Variance I Actual Variance [Q2Forecast_Budget Variance I Outturn
income and Distributions
Variable income
~ Mails 52 49 03 46 06 34.6 © 30.7 39 28.6 6.0 447 40.1 46 376
- Financial Services 25 23 01 25 (01) I 235 234 01 25.0 (1.5) 30.4 30.2 02 31.9
~ Government Services 18 18 0.0 13 05 188 © 19.5 (07) I 15.0 38 25.4 26.6 (1.2) 20.3
- Telephony 04 01 (0.0) 01 (0.0) 10 12 (0.2) 10 (0.0) 14 16 (0.2) 16
Fixed income 20 2.0 0.0 27 (07) I 212 9 207 04 30.0 (8.9) 286 30.0 (1.4) 40.2
Gamma/ Other 07 11 (0.4) 08 (0.1) 8.0 87 (07) 69 14 117 12.2 (05) 11.4
Renewals and Retentions 16 07 08 03 12 74 87 (13) 34 42 103 11.2 (0.9) 4a
[Total Income including Gamma/other_ I 13.8 13.0 08 12.4 a4 [443712815 [1096 47 1526 152.0 0.6 167.2
Direct Product Costs (04) (0.6) 02 (05) 01 (52) (5.6) 04 (3.9) (1.2) (7.4) (7.4) 0.0 (5.9)
Branch costs 0.0
- Staff (8.4) (8.7) 06 (9.0) 09 (86.4) (87.5) 44 (88.4) 20 (47.5) (417.5) 00 (119.2)
- Property (28) (3.0) 02 (3.0) 02 (25.9) (285) 2.5 (298) 39 (39.0) (390) 00 (41.8)
- Other branch costs (04) (0.5) 02 (0.4) 0.0 (41) (6.1) 09 (4.8) 06 (6.8) (6.8) 0.0 (6.3)
Infrastructure costs (18) (1.8) 0.0 (1.9) 01 (163) (170) 07 (176) = 13 (23.7) (244) 07 (23.4)
Allocated central costs (06) (0.7) 02 (o5) (oo) I 5.9) 5.9) (00) —I 4.2) (1.7) (7.0) (7.0) 0.0 (6.5)
[Total Expenditure (44) (45.4) 3 (45.4) 43 (443.9) (409.4) 5.6 448.7) 48 (201.4) (202.1) 0.7 (202.7)
JV Share of Profits 03 03 (0.0) 0.0 03 74 75 (0.4) 81 (1.1) 93 98 (05) 9.2
[Statutory PBIT o1 (24) ~~. 29 3.0 =I (225) (292) 67 I (310) 85 (39.4) (40.3) —aO0.8 (46.4)
(Summary >)
+ Income is higher than target:
+ Pillar income is £3.1m favourable driven by Mails £2.1m including stamp sales earlier in the year ahead of the price increaseand a strong performance on Priority Services £0.4m and Olympic
Retail/Philatelic items £1.4m. This is offset by a shortfall in Goverment Services Income £0.7m
+ Retention income - The impact on the back book due to the delay in signing the Eagle contract.
+ Costs are lower than plan
+ Crown Staff costs are £1.1m favourable due to savings being generated earlier than planned and in advance of the full duty reviews. This will reduce as the costs of the increase in London
Weighting and additional Productivity costs are absorbed,
+ Property costs are £2.5m favourable. This variance is due to the delay at the start of the year, when a full review of maintaance requirements for each branch was carried out
+ Other branch costs are £0.9m favourable due to savings in the Sales training team. This was as a result of a structure changes that took place earlier in the year.
+ Infrastructure costs are £0.7m favourable due to budget efficiencies delivered in Branch; Losses £0.3m and Cash Holdings £0..2m,
+ All other costs, including allocated costs and JV, net off to £0.4m adverse.
+ Forecasts:
+ There are a number of areas across both income and costs that are currently under review with the expectation that further oportunities will be taken to forecast , in line with the Q3
business forecast update.
XN yy
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Business Scorecard Strictly Confidential ®
December 2012
Key Performance Indicators Current Month Year to Date Full Year 2011-12
id Act Target. Var, Act Target. Var Prior YearI Q2 F'cast_ Target Var Outturn
911 92.7 765.4 757.3 739.9 I 1,018.5 1,015.8 27 979.7
813 83.2 676.7 669.7 654.8 898.7 897.9 08 865.3
14.8 95 98.9 715 81.0 90.4 84.0 64 61.3
Free cashflow £m (223.7) (136.4) 136.6 93.8 (38.6) (79.0) (85.3) 63 (15.0)
Collections & Returns ability to serve RM (Milestones) 0 1 4 5 N/A 8 8 0 N/A
F006 bid wins (value won) (Rev £m) 07 1.0 5.0 88 N/A 10.7 11,7 (1.0) N/A
Customer
Customer Satisfaction 87.7% 88.0% 86.7% 88.0% 86.8% 88.0% 88.0% 0.0% 86.9%
73.5% 62.7% 79.8% 774% 76.1% 78.9% 78.9% 0.0% 77.8%
Top 1k branches 81.0% 85.9% 83.7% 85.9% 80.8% 85.9% 85.9% 0.0% 81.5%
110.7% 100.0% 107.0% 100.0% 103.0% 100.0% 100.0% 0.0% 105.5%
Retail Standards (actual) - Top 1k branches 84.2% 84.9% 85.0% 84.9% 83.6% 84.9% 84.9% 0.0% 84.1%
Horizon availability 99.8% 99.6% 99.8% 99.6% 99.9% 99.6% 99.6% 0.0% 99.5%
Branch - Compliance (new basket) 100.0% 95.0% 98.6% 95.0% N/A 95.0% 95.0% 0.0% N/A
04 (2.4) (22.5) (29.2) N/A (40.3) (40.3) 0.0 (46.4)
64% 65% 64% 65% 58% 65% 65% 0% 64%
149 125 507 459 N/A 1200 1200 ie} 184
ie) 1 9 10 N/A 12 12 ie} N/A
The Network Conversion targets were rebaselined in period 9 with the full year target remaining at 1200
Period 9 Performance Pack - Chris Day 15th January 2013 Page 9 of 20
POL-0024198
Progress Against Funding Plan Commitments
December 2012
Key Performance Indicators
2012-13
2013-14
2014-15
End State
Mar-15
Maintain network of 11,500 offices
Performance against target
Maintain accessibility criteria
Performance against target
Eradicate loss in Crowns
Target £m
2012 Q2 Forecast £m
(40)
Conversions to new operating models
Mains
Target
2012 Q2 Forecast £m
Locals
Target
2012 Q2 Forecast £m
800
400
Customer experience
Target
December actual
(20)
1,600
800
1,600
800
3,830
2,000
86.6%
Grow net income *
Target £m
2012 Q2 Forecast £m
23
PBIT
Target £m
2012 Q2 Forecast £m
84
PBIT excluding NSP
Target £m
2012 Q2 Forecast £m
(126)
Cashflow
Target £m
2012 Q2 Forecast £m
(155)
102
(98)
(141)
(61)
(170)
* includes profits from Associates and Joint Ventures, and is as compared with the forecast 10/11 income of
£907m in the Fundina Plan.
Agreed outcome from page 3 of the Goverment Funding and Strategic Plan (2012/13 to 2014/15)
Internal Commitment
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11th December 2012
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Strictly Confidential ®
Cost Management Report
Period 9 Performance Pack - Chris Day 15th January 2013 Page 11 of 20
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Staff Cost by Directorate Strictly Confidential
December 2012
[Em Year to Date Prior Year YTD. Full Year YTD Headcount
ctaff Cost by Directorate Actual Budget Variance I Actual Variance I Q2 Forecast Budget Variance Actual Budget Variance
(Central incl. MD's office) [23] toy «83 2a) Or t0.7 (ss) —«38 FE] 8 6
Commercial (48) (4.9) 00 (37) (4.4) (68) (6.5) (03) 102 104 2
Communications (1.5) (1.4) (0.0) (0.6) (0.9) (1.9) (1.9) 0.0 33 25 (8)
[Human Resources (3.9) 3.7) (02) (36) (0.3) (4.9) (46) (0.3) 103 124 24
HR - Centrally Held Bonus Payments (134) (13.3) (122) (0.9) (18.0) (180) 00 - - -
Financial Services (1.4) (3.5) (1.2) (0.2) (3.4) (4.7) 13 62 46 (a8)
(7.4) (7.4) (69) (0.5) (10.0) (98) (02) 231 237 6
(140.9)
(289.
(140.8)
(141.8)
08 (189.7) (189.6) (0.1)
32
7,845
Network
74%
Period 9 Performance Pack - Chris Day
Financial Services
1%
‘Communications
1%
PY Actual] 7,720
PY Variance] (425)
* Includes CTP and NTP Heads
YTO Staff Costs are £11.1m favourable to budget.
£8.3m is held centrally and is made up of lower than budgeted LTIP payments and
the remainder is a favourable variance for the centrally held £5m staff cost
contingency budget. £2.1m is within the Financial Services directorate and is due to
the delay in implementing Eagle and the associated headcount. Crown staff costs
are favourable despite delays to the Crown Transformation duty reviews as
branches have been challenged to deliver their own efficiencies. The staff efficiency
task for Network is in the ‘other Network’ budget and is covered by the savings in
Crowns.
Vs, Prior Year
The staff costs are £4,6m adverse due primarily to pay awards and centrally held
bonus payments, but also to increased use of staff, both temporary and permanent
such as FO0G and the new communications directorate.
Headcount of 7,845 is 16 below plan and is due to vacancies with the Network
directorate, of which the majority of vacancies are within the Network
Transformation Programme (NTP). The adverse variance in Crowns is due to the
delay to the duty reviews. Tight control of recruitment has partially mitigated this.
Vs. prior year headcount has increased by 125 primarily due to NTP.
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Non Staff Cost by Directorate & Type Strictly Confidential ef
December 2012
Em Year to Date Prior Year YTD. Full Year Em Year to Date Prior Year YTD. Full Year
Non Sat Cost by Actual Budget Variance I Actual VarianceI Foncast Budget Variancel I. ttf Cost by Type ‘Actual Budget VarianceI Actual Variancel Fonncast Budget Variance!
(Central - Centrally Held incl. Computers & Telephones G2 Gis) 61 I 3 Ga I Wi) 0 Wan
strengthening a a 6) (6) 23) TT other Operating Costs (35) 433) (02) I G40) 05 I (06 0 (206)
commercial (2a) (73) 52 I @4 (6) I 64) (17) 53 Consultancy, Marketing & Legal Fees 99) (37) (62) I @o) (19) I (284 0 — (284)
Communications @a 42 01 I (4) (07) @s5) 00
Finance (6.0) (5.6) (0.3) (4.2) (2.8) (8.2) (0.8)
Financial Services 7 (5) 18 I 5) 08 (75) Finance (23) @16) (07) I 8) (25) I 472) (47.2)
Human Resources 26 (28) 02 I G6) 10 (3.7) (00) Property Facilities (60) (54) 02 I G8) 2) I (7a) (74)
Network (21.5) (24.2) 27 (20.5) (1.0) (32.3) Property Maintenance (44) (4.0) (0.5) I (3.3) = (2.4) (5.6) (5.6)
Vehicles (18) (1.7) (04) I (25) (0.3) (2.4) (2.4)
Compensation (07) (8) oo I 20 7 I ao (1.0)
Collection, Delivery & Conveyance Charges I (09) (05) (04) I (07) (02) I (09) (09)
Legal Staff & Agent Related Costs & Consumables I 0.9 (98) 107 I (77) 86 I (26) (26)
Programme costs
Strategy
(142.7) (422.7) 9.0] (400.5) (42.2)
Variance Non Staff by Type
YTD nan people costs were £9,0m favourable to budget and cnkar pangs,
£12.2m adverse to prior year. ta
By Directorate rroprty Mabcanance
Vs, Budget cy
The Commercial directorate was £5.2m favourable due
primarily to the planned dangerous goods costs net being
incurred this year
The Network directorate was £2.7m favourable due primarily
to Supply Chain equipment budget being higher than
required.
Financial Services was £1.8m favourable due to the delay in
Eagle implementation
Vs Prior Year
Central - last year included a £2.4m release relating to the
vst Senge WHS TUPE transfers. The remainder in central relates to
provision reassessment for personal injury and vacant
leasehold,
This year Commercial has increased spend for ‘point of sale’ 1%
and rebranding. Other marketing budgets have also been
athe Central directorate has & positive prfor year achial which relates tothe centralised under this directorate. * Skills group is the internal ‘consultancy’ providing project resource made up
WHS TUPE transfer provision release. of a mixture of employees topped with contractors. If demand is high the
By Type contractor spend increases but ths is offset by higher recharges to projects.
YTD versus budget variance was driven by lower IT costs
{Paystation), lower legal costs and lower consumables
{printing), wth the variance against prior year being driven by
higher compensation costs (one off relates to CWU TUPE
claim last year), marketing costs and higher legal costs
Period 9 Performance Pack - Chris Day 46th January 2013 Page 13 of 20
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Transformation Summary Strictly Confidential ®
December 2012
r
Summary
Good progress across a number of programmes but slippage in key milestones on a number of others.
- Specific focus being placed on assessment of alternative options to smooth impact of Separation on costs and delivery. Impact of these on related programmes
Finance Transformation and IT&C Transformation being assessed.
- Significant uncertainty on Capex spend (as well as exceptional spend) during balance of year remains with continued risk of underspend against forecast. Opex
spend more robust but requires tight management over Q4 to ensure costs remain supportive of P&L expectations.
- Headline funding in support of FY13-14 change plans agreed. Focus now turning to Capex spend and development of detailed planning and assessment of
delivery.
XY
(Key milestone hit in last month
- FOoG: DWP framework contract signed. Commercial discussions on IDA call off contract underway
- Crown Transformation: Preferred supplier for provision of automated Post and Go solution agreed in principle (subject to Programme Board ratification)
- Penguin: Agency route to market (with FRES) agreed in principle by programme board. Commercial discussions underway
- IT&C Transformation: SISD supplier process progressed to next phase with supplier shortlist reduced to three
- Separation: Four week options review started
XY S
(Key milestones missed in last month (see Transformation Delivery page for supporting detail)
- Crown: Finalisation of Post and Go supplier delayed to end January to allow completion of commercial discussions.
- Polo: Commercial negotiations agreed in principle but not signed off by ExCo / POL Board.
- Mails: Collections and Returns: Implementation moved from April to mid July due to prioritisation of Crown / Channel Integration activity.
- Telephony: Home Phone and Broadband integrated migration plan between Fujitsu and BT continues to be delayed.
- Finance Transformation: Supplier contract for Core solution implementation partner not signed.
X.
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Transformation Delivery Strictly Confidential °
December 2012
WUT) cerca veh vert month ening tarts naterlee sas cttue “PD pein sk oer et month tend ova ane el RG tae
Plan I Spend [Benefits® ] [Headlines
[Frearamme/Proea__]
DVLA contract for extended services signed with activity now moving into implementation. Key timings being confirmed with April target likely dependent on other DVLA supplier capacity to support
DWP framework contract signed, now progressing contract negotiations in relation to on call off contract (and related contract with Logica) agreement expected by end Jan in support of target service
lcommencement date of October. Significant spend on Logica in 4 at some risk
FOoG Sales Pipeline
Delivery of programme to FY12-13 targets (confirmed as 1200 contracts signed) remains very challenging, however progress continues with daily tracking against required programme beat rate with
Igood progress maintained over Christmas period resulting in delivery in line with “minimum” targets. FCA's continue to account manage Agents through process especially re completion of financial
lassessments / contract signatures, Multiples team continue to engage with Partners strategically to gain confirmation to proceed.
Decision on preferred Post and Go supplier currently being ratified by Programme Board. Commercial / contractual discussions now underway - target completion date by 21st January. Two strategic
pilots are now underway with a further three on track to go live 4th Feb (Chester, New Malden, Camden). Extensive planning work on Franchising workstream underway with overall approach agreed at
[December Programme Board,
Network Transformation
[Crown Transformation
Evaluation of SISD supplier submissions completed with shortlist (down to three) agreed and planned for communication to suppliers and internally on 8th January. Next phase of SISD dialogue due to
lcommence 15th January (for 6 weeks). Planning activity for towers procurement continues. Work on an integrated plan across IT&C. IT, Separation and Finance Transformation continues but being
impacted by activity in January on separation options. Potential bring forward of spend into 12-13 still under review.
[Channel integration: Phase 2a and_Post Office Managed Switch on plan and integrated plan with Crown Automation near completion. Channel Integration and Post and Go2 project boards to be
Jamalgamated to avoid duplication.
[Salesforce: Brands extract and further custorner e-mailing to be trialled to determine if expected benefits can be achieved. Discussions underway on transferring sponsorship to Financial Services.
Benefits forecast for this year now £0.4m, but future years contribution of £1.3m still expected
IT&C Transformation
IT Delivery
[Commercial terms for the current account business (PoC and wider rollout) have been agreed in principle between PO and BOI with endorsement to be sought at both businesses Boards in January.
FS: Polo N/A 12/13] IOperational and technical solutions in place and lve testing with colleagues underway.
Public proof of concept now due April 2013, with planning underway for full roll out in October.
Launch of Pre Paid card via an agency agreement with FRES agreed in principle by project board. Business case and contract due in February following commercial discussions with FRES. Launch of
PO branded card due September 2013,
FS: Penguin
(Collections: Decision to prioritise Fujitsu resource on Channel Integration has resulted in a delay in implementation of CBR to Mid July 2013. impact of delay on project spend and benefits is being
Jassessed with aim of maximising spend out of 12/13 budgets.
[Engagement with the 4k branches for out of hours services (needed for both Collections and Returns) cannot start until the RM business case is signed off and therefore at risk. Benefits green mainly
Jdue to Returns income above plan.
[2100 branches live with technical solution and 1554 active customers, Q4 marketing activity planned to increase customer take up, forecast to reach 7K of the 10k target by year end.
Now unlikely that income growth will be enough to enable £0.5m contribution this year due to slower than planned customer take up.
Mails Collections & Rtns
Mails: Drop & Go
Phase 1 and 2 feasibility studies due in January and April. Scope of phase one implementation (due April 13) to be determined through feasibility study.
[= Quick wins business case, covering Drop and Go product enhancements and promotions approved and activities currently being planned for Q4 12/13,
: Small Bus Club NA 12113
[Options currently being investigated for the separation of IT and Finance systems from RM, Potential solution could result in existing supplier (CSC) continuing to supply the services via a direct
fretrcmtinen e NA 12/13] Icontractual relationship with Post Office. Evaluation of options due to complete by end Jan.
Peseten Physical Security services extension to Ist March 13 required to agree new debarment register processes between RMG and POL.
(Core: The options under consideration for Separation and the potential wider support services strategy are impacting the programme, The programmes recommendation is to continue with a
been renee nat2igI_ [Controlled contract award (ensuring we only commit to limited activity) and complete the detailed design stage. This wil run in parallel wth the Separations analysis, fll discussion of options and
implications at FRP Board on 9th January. : April contract award at risk following detailed planning of Proof of Concept activities. Roll out of FMI is also impacted by any delay to the new Core Finance
lsystem and the support services strategy.
PBB: System and Call Centre build progressing to plan. Migration planning not agreed between PO, BT and Fujitsu, main issue is data extraction times, which is being escalated to challenge
[Telephony N/A 12/13] ILogica/BT's assumptions. If Logica/BT reduce data extraction times migration will be significantly easier and July rigration will be achievable.
Mobile: New programme board established where delivery plan was baselined and agreement was given to issue RFP on Sth January.
* figures represent in £m the contribution target for 2012-13 expressed as change from 2011-12
Period 9 Performance Pack - Chris Day 15th January 2013, Page 15 of 20
POL-0024198
Project Costs (OpEx) Strictly Confidential
December 2012
Opex costs continue to track below the baseline forecast mainly due to non-transformational projects, and is tracking towards the £40.0m overall
forecast.
Current Month Year To date Full Year
POLIC
Transformation Group Programme Actual 02 Baselined Actual 02 Baselined I 02 eV Budget Approved
Forecast Forecast Forecast fe oate
[Transformation FOoG 3) (03) Gay ay 00 0) Ga) e)
IT Delivery (01) (0) (17) (1.2) (0.5) (15) (16) (1.3)
IT Transformation (04) - (0.2) (0.0) (0) (00) (6.4) (6.2)
Independence & Efficiency (03) (0.3) (22) (24) (0.4) (3.0) (4) (27)
Mails (04) (0.6) (08) (24) 16 (4) (9) (2.1)
Telephony (0.2) (03) (15) (19) 04 G7) (6.6) (3.7)
Customer Engagement (02) - (9.6) (9.4) (0.2) (97) (7.5) (78)
Digital (0.0) - (0.0) (0.0) (0.0) 0.0 -
Financial Services (04) (0) (14) (0.9) (02) (3) (23) (1.3)
Finance Transformation (0.3) - (1.6) (1.4) (0.2) (1.5) (1.6)
Network (2.0) - (07) (12) 05 (1.2) (0.8) (1.0)
Property (2.0) (0.0) (1.0) (0.9) (04) (12) (1.0) (0.9)
Supply Chain (2.0) (0.0) (05) (0.4) (01) (0.4) (0.1) (07)
Network Total (0.4) (0.1) (2.2) (2.5) 03 (27) (2.9) (2.5)
Mails (04) (0.1) (07) (07) (0.0) (08) (18) (07)
Telephony 00 - (0.0) 00 (0.0) 0.0 -
Customer Engagement (0.2) (0.2) (03) (13) 0.9 a9) (2.0) (1.5)
Digital (0.0) - (01) (0.0) (0.1) (0.0) (0.0) (01)
Commercial Total (0.2) (0.3) (2.2) (2.0) os (2.8) (3.8) (2.3)
Legal & Compliance 0.0 (0.0) (0.4) (0.1) (0.0) (0.4) (0.2) (0.1)
Security (2.0) (0) (03) (0.5) 02 (07) (0.2) (0.5)
Legal & Compliance Total (00) (0.4) (05) (0.6) 04 (08) (0.4) (0.6)
IT & Change Mandatory IT 00 (0.0) (0.4) (0.5) 04 (0.6) (1.9) (0.1)
FS Financial Services (0.1) (03) (08) (1.6) 09 (17) (25) (05)
Finance Finance (2.0) (0.0) (0.6) (03) (03) (04) (0.2)
HR PO Story (01) (03) (1.2) (1.6) 05 (27) (3.2) (22)
Comms Communications (0.0) (0.) (0.5) (a7 oa (09) (0.4)
Crown Crown 0.0 - (0.0) (0.0) (0.0) (0.0) -
Client Funded oa - 02 - 02 - -
Old Programmes/Direct Posting I 0.0 - (0) - 0.0 - -
Central Centrally Held - (2.8)
Period 9 Performance Pack - Chris Day
418th January 2013
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Transformation
Resilience not yet started,
Transformation opex spend to date remains only
£0.7m below the baselined forecast.
Mails spend now £1.6m lower as cabinets for
collections and returns are still not yet required.
IT Delivery forecast includes £0.6m for Risk and
(‘ai other
baseline forecast.
rigorously reviewed.
forecast
Over programmed:
total budget could accommodate,
Ne
To date spending is now £3.0m less than the
Areas spending below Q2 forecast are now being
Main areas of focus are Customer Engagement
(Product Direct Response Communications £0.5m
and Customer Data Quality £0.2m) ; Financial
Services where a range of smaller projects have
not yet started; HR (talent management phase 2
not happened, £0.3m), and Network where London
games cost £0.4m less and is already reflected in
The baseline forecast assumed that not all the
planned costs of the projects would be required,
and so £2.6m more spend was included than the
Page 16 of 20
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Project Costs (CapEx and Exceptionals)
December 2012
Strictly Confidential
Uncertainty on the larger capex programmes continues, and there is also a £7.5m lag in the non-transformational capex, making the forecast uncertain.
Current Month, Year To date Full Year
POLIC
Transformation Group I Programme Actua 07 Baselined I pctuay 22 Baselined I a> Forecast FY Budget Approved to
Forecast Forecast Date
Transformation FOoG 00 09) a9 I 05) G7) %2 I oa) 7) @3)
IT Delivery (0.9) (8.7) 78 I (7.4) (164) 90 I (219) (22.4) (9.7)
IT Transformation (03) - (03) I 5) (03) (03) (03) (07)
Independence & Separation - (0.2) 02 - (0.4) 04 (05) (05) (05)
Network Transformation (0.2) 0 I 65) (168) 103 I (338) (44.5) (433)
crown Transformation (0.4) 04 I (0.4) (a7) 13 (40) (66) (20)
Mails (0.1) (0.2) oo I (02) (23) 14 (15) - -
Telephony - - - - - - - - -
Digital (0) - (oa) I ao (1a) 02 (15) (13) (09)
Financial Services (0.0) - (oo I ©) (03) 02 (06) (00)
Finance Transformation (07) - o7)_I a2) (3.4) 23 (6.6) (3.2)
Network (0.0) (0.0) 0.0
Property (0.2) (0.5) 03 I (24) 14 (63) (6.2) (2.9)
Supply Chain 04 (0.9) 1.2 (2.6) 15 (10.8) (30.9) (11.2)
Network 02 (2.3) 15 I (47) 29 (17.4) (36.0) (14.2)
Mandatory IT oa (13) 14 I 66) 27 I (203) (21.2) (9.7)
IT & Change oa (43) 14 I 66) 27 I (03) 12) (97)
Mails (0.0) - (00) I (1) (04) (00) -
Telephony (01) (01) (oo) I ao) (02) (1.0) (1.0) (2.0)
Digitat 0.0 - 0.0 (0.2) 06 (1.2) (0.9) (0.2)
[Commercial (04) (04) oo I (3) 03 (22) a9 a2)
FS Financial Services - (0.2) 02 I (04) 03 (08) (05) -
Finance Finance 0.0 - 0.0 (0.1) (0.0) (0.4) -
HR PO Story (0.0) (0.1) 01 I (2) 03 (08) (09) -
Legal & Compliance Security - (0.4) 04 - 07 (aa) (01)
Old Programmes 13 . 13 02 - 02 - =
central Centrally Held - - - (45.8)
(3.7)
03
Exceptional
[Transformation IT Transformation (08) (0.6) (02) I 63) 64) od Cz)
Financial Services 00 (02) o1 I (8) (26) 08 (3.0) (3.0)
Network Transformation (24) (6.4) 29 I (198) (36.9) 171 I (869) (96.3) (101.2)
Crown Transformation (0.4) (0.4) (16.1) (9.1) (20.2)
Period 9 Performance Pack - Chris Day
45th January 2013,
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Transformation
NT capex spend to date is lower than the Q2 forecast
because rollout costs did not ramp up so quickly and the IT
project requirements reduced.
F006 forecast costs of UKBA implementation not required
as more had been paid last year and remaining capex is for
DWP IDA
(ai other
Significant areas not spending to forecast, and rigorous
review of forecasts is underway,
IT spend on SAP upgrade project has been delayed (£1.5m
forecast to date).
Property projects across the network and cash estate are
behind forecast (£1.3m).
Supply Chain vehicles purchases are behind (£1.5m).
Security projects not started (£0.7m).
( Exceptionals ~ £31.5m underspent
NT costs continue well below forecast and Crown VR costs
not expected until Q4. IT&C have an expectation of bringing
forward some activities.
X
~\
7
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Appendices
Period 8 Performance Pack - Chris Day 11th December 2012 Page 18 of 20
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Strictly Confidi i
Cashflow Statement tnetly Confidential
December 2012
YTD Full Year
Actual Budget Variance Forecast Q2 Budget Variance
Operating Profit 99.0 715 ANS) 90.4 84.1 6.3
Depreciation 0.7 0.5 0.2 08 08 0.0
Working Capital (16.1) (80.1) 64.0 (47.4) (47.4) 0.0
Client Balances (52.0) (27.9) (24.1) 81.1 73.2 79
Network Cash (87.5) 14.2 (101.7) (162.7) (147.5) (15.2)
Dividends 28 (3.7) 65 (6.2) (7.6) 14
Capital Expenditure (40.0) (71.0) 31.0 (124.0) (132.7) 8.7
Government funding 200.0 200.0 0.0 200.0 200.0 0.0
NSP in advance 55.0 55.0 0.0 0.0 0.0 0.0
Exceptional Items (38.5) (71.0) 32.5 (124.2) (112.4) (11.8)
Pensions 0.6 13 (0.7) 1.8 1.8 0.0
Proceeds from asset sales 44 0.0 4.4 6.0 0.0 6.0
Free cashflow before interest, tax 128.4 88.8 39.6 (84.4) (87.7) 3.3
Interest (3.0) (4.5) 1.5 (5.0) (8.0) 3.0
Tax 11.2 94 1.8 10.4 10.4 0.0
Free Cashflow 136.6 93.7 42.9 (79.0) (85.3) 6.3
Period 9 Performance Pack - Chris Day 15th January 2013 Page 19 of 20
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Income By Product Groups & Pillar Favourable pillars: Mails is £4.3m favourable, Financial Services £2.0m favourable and Telephony £0.6m favourable.
December 2012 Government Services is £4.7m adverse due to POCA and ID Services
Other income is £3.7m favourable and represents the Mails (IB) calendarisation agreed post the budget setting process.
Net Income Current Month Prior Year Year to date Prior Year Full Year Prior Year
£m Actuals Budget Variance Period Month we Actuals Budget Variance IYTD Actual von oy Fon act Budget Variance ee fa
Parcelforce 25 22 04 25 0.0 19 wa 18 1 os 19.2 172 20 183
Special Delivery 47 54 (0.4) (0.6) 39.4 37.9 15 40.1 (0.7) 51.9 505 14 53.3
International Priority & Standard 5.22 54 O41 0.64 2677 27.9 (1.2) 23.20 3.57 3685 36.6 03 299
Stamps (Ast & 2nd Class plus other stamps) 74 76 (0.2) (0.0) 29.2 278 14 25.7 35 36.0 35.4 07 318
Labels (Ast & 2nd Class) 10.59 11.0 (0.4) 0.24 75.77 = 75.6 02 6458 1119 I 10144 100.4 1.0 83.9
RM Mail Fixed 44 44 0.0 (2.4) 42.6 45.5 (2.8) 66.1 (23.5) 57.9 63.6 (5.7) 88.1
Retail & Lottery 4.0 37 02 05 344 31.0 33 322 22 474 425 46 42.2
Mails Other 5.0 5.4 (0.3) 14 416 44.4 02 298 119 56.0 57.6 (1.6) 39.9
Total Mail Services 438 Gh b (06) 3) I 3045 3002 43 295.7 89 406.3 403.8 25 387.5
Total Telephony Services 38 35 03 0s Bah 33.8 06 316 28 45.2 45.7 (05) Wy
Motoring Services 17 19 (03) (0.3) 23.4 218 16 24.2 (0.9) 32.4 29.6 28 323
Card Account 5.0 54 (0.4) (05) 50.0 52.2 (22) 53.1 66.9 693 (2.4) 70.2
Passport 08 06 4 O41 168 13.4 14 13.4 19.0 10 18.8
JAEI (DVLA & UKBA) 6.6 11.4 (4.8) (0.2) 66 114 (4.8) 83 15.9 (3.3) 107
Other Government Services, (5.8) (9.8) 4.0 0.0 3.2 40 (0.8) 2.9 62 (2.4) 38
Total Government Services 83 96 3) (0.8) 98.1 1028 (4.7) 101.9 439.9 (4.2) 135.7
Bill Payment (incl Ticket & Travel) 31 31 0.0 0.0 30.4 27.9 25 34.1 37.7 19 40.5
Payout o4 O41 0.0 0.0 0.0 0.0 0.0 (0.3) 0.4 (0.4) 02
Postal Orders 18 18 (0.0) (0.2) 175 18.0 (0.5) 19.4 23.8 (1.2) 25.6
Fin Servs opportunities and projects 0 O41 (0.4) 0.0 0.0 07 (0.7) 0 1.0 0 0
MoneyGram 13 15 (0.1) (0.2) 115 119 (0.4) 10.9 158 (0.2) 14.4
Gift Voucher 0.4 12 (08) (0.3) 09 2.4 (1.4) 13 29 0 09
Banking Services 22 24a 4 (0.3) 206 193 13 19.2 25.9 23 25.3
Dwe 03 02 O41 (0.3) 34 2.4 07 57 27 13 79
NS&I 10 10 0 (0.3) 98 97 o1 126 13.2 01 166
AGL Business Banking 29 28 0.0 (0.0) 258 258 01 263 34.3 0 34.2
ATM 23 25 (0.2) (0.2) 225 24.0 (1.5) 223 32.4 (1.8) 293
Bureau (excl profit share) 16 14 02 01 188 © 193 (0.4) 19.2 23.7 (0.9) 244
Travel insurance 0.4 03 4 (0.0) 73 72 01 Th 85 06 89
POFS - Savings 43 32 4 372 (2.7) 15.7
POFS - Insurance 02 03 (0.1) 42 (0.2) 46
POFS - Lending 0.4 0.2 0.2 37 09 18
POFS Other 0.2 02 (0.0) 25 2.6 0.0
Miscellaneous (A&L - CLS, Debit Card, Bureau kiosks) O14 03 (0.2) 48 (0.4) 11.5
Total Financial Services: 225 22.2 03 274.7 2.0 261.5
(Other Income 07 12 (05) 35 0 10.9
Supply Chain
Period 9 Performance Pack - Chris Day
15th January 2013
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Quarter 3 Forecast
January 2013
(4
Post Office® YY
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me .®
Quarter 3 FYF Variances to
Budget
(2
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FYF Profit Performance - Lower staff and Agents costs drive the .
forecast over-performance but the last quarter forecast shows a
reversal of the YTD favourable position
2011-12 I 2012-13 I 2012-13 I 2012-13 I Difference I Difference 2012-13 2012-13 I Difference
Q3 vs Q3 FYF vs Q3 YTD FYF Q3 YTD var
=m Outturn Budget G2 FYE Q3 FYF Budget Q2 FYF Variance Variance I vs FYF var
TOTAL NET INCOME 865.3 897.9 898.7 901.2 SxS 25 6.9 3.8 (3.6)
Staff Costs (251.3) (268.9) (263.8) (260.8) 8.1 3.0 11.1 8.1 (3.0)
Agents Costs (482.9) (482.8) (483.5) (480.5) 23 3.0 7.6 28 (5.3)
Non-Staff Costs (149.2) (166.2) (163.6) (167.0) (0.8) (3.4) 9.0 (0.8) (9.8)
Interbusiness Expenditure (84.9) (83.3) (83.3) (82.8) 0.5 0.5 1.0 0.5 (0.5)
Depreciation (0.4) (0.8) (0.8) (0.9) (0.1) (0.1) (0.1) (0.1) 0.0
Total Expenditure (968.7) I (1,002.0)I (995.1) I (992.0) 10.0 El 28.6 10.0 (18.6)
POFS - Share Of Operating Profits (0.6) 0.0 (0.4) (0.6) (0.6) (0.2) (0.6) (0.6) (0.0)
FRES - Share Of Operating Profits 31.4 32.6 31.5 31.5 (4.1) (0.0) (1.0) (1.1) (0.1)
EBIT Pre Overhead Allocations (72.6) (71.5) (65.2) (59.9) 11.6 5.3 34.0 11.6 (22.4)
Group Overhead allocations (19.6) (16.8) (14.6) (14.6) 2.2 0.0 2.0 2.2 0.2
EBIT - BAU (92.2) (88.3) (79.8) ¢-o 13.8 53 36.0 13.8 (22.2)
One off Project costs (POOC) (26.5) (37.7) (39. 3 (41.0) (3.3) (1.2) (8.6) (3.3) 5.3
EBIT - Post Project Costs (118.7) (126.0) (114.6) (115.5) 10.5 41. 27.4 10.5 (16.9)
Network Payment 180.0 210.0 10.0 210.0 0.0 0.0 0.0 0.0 0.0
EBIT pre exceptionals items 61.3 84.0 90 4] 94.5 10.5 4.1 27.4 10.5 (16.9)
BAU loss is fi er b YTD Favourable variance of
£17.7m when compared to 2011-12 Bede Ne rete to esos ty
: P £16.9m in the last quarter
(3)
Post Office®
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®
The Q3 YTD favourable variance is eroded by £16.9m —
mainly non staff and agent costs
‘a *
5.3
fm - i
See next page
~ fi
Main Elements:
Eagle Marketing £3m “ > I
Fujitsu £5m (3.0)
Other Marketing £4m
YTD Variance One off Project costs Non-Staff Costs Agents Costs TOTAL NET Staff Costs FYF Variance
(POOC) INCOME
XY S
(4)
Post Office® YY
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®
Net income — YTD variance is eroded by £3.6m_ primarily
by Mails and Government Services
(— >)
4.4
— Dangerous Goods
2 I I a I Income £2.8m
; (matched by costs saved)
AEI volumes
expected to
remain low
(3.6)
"9012-13 Q3- Other Income Financial Telephony Government Mails & Retail 2012-13 FYF -
Income Variance Services Services Net Income
Variance
a yy,
(5)
Post Office® Y
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Net Income is greatly impacted by Government Services income °
not materialising as planned. This has been offset by a good
performance from Mails and Financial Services
~ >)
3.5
897.9 Ei i
(6.8)
£m
2012-13NetIncome Government Services Mails Services Financial Services 2012-13 Net Income
Budget excluding Dangerous FYF atQ3
Goods
Ne /
(6 >
Post Office® YY
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Operating profit budget to FYF bridge - £10.5m favourable °
But within this are the impacts of performance, some non
performance upsides and timing - these are analysed on the next
slide
(— >)
2.3
I
(1.7) =
(3.3)
£m
3.3
2012-13 - Budget Total Net Income Staff Costs Agents Costs Non-Staff Casts Share of Operating Project One Off Overhead 2012-13 -Q3 FYF
Proft from JV's Costs Allocations
Ne y,
(7
Post Office® YY
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Profit FYF — high level review indicates that most of the .
improvement in forecast is includes significant non performance
upsides and one off benefits
(— >)
a
Efficiency Task Bi (4.0) I]
£14.9m 62 0.8
Non Performance .
Ba 3.3)
£7.9m 33)
mm Performance 2.0 94.5
£7.9m
20
h a om J
Y
4
One-off/ timing
(3.8) £9.6m
©)
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Conclusion and next steps 2
¢ Forecast of £95m equates to net deficit of £115m.
¢ This result masks an underlying improvement as
£14.5m was freed up for additional project spend.
° To deliver next year’s strategic plan profit target
requires a further £17m improvement in the net
deficit.
¢ Work is well progressed in preparing the budget and
the intention is to update the Board at the February
meeting.
(2)
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Appendices
@
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®
FYF Staff Cost: £8.1m favourable
(— >)
£m
(4.2)
(2.3)
(1.7)
2012-13 LTIP costs not Contingencynot Fin Services- Bonus/Productivity Overtime Agency Staff 2012-13
Budget required required YTD savings FYF at Q3
banked
Ne ,
(11)
Post Office® Y
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FYF Agents Cost: £2.3m favourable
(— >)
414
go 7 480.5
0.6
(0.6) oo =
(0.6)
2012-13 WHS VAT rate VAT/ NI run Network Agents pay _ Increase in 2012-13
Budget Provision rate Locals ahead stamps Sales and FYF atQ3.
utilisation of plan Other
: a)
12
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FYF Non Staff Cost: £0.8m adverse
(— >)
£m 15.0
(5.6) 4.0
(6.1) ‘of @
_ =
(4.0)
2012-13 Dangerous VATrate Non Staff IT net Other O/HAllocs Marketing Efficiency 2012-13
Budget Goods Savings timing offset task FYF at Q3
service saving
delayed
XN /
©)
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POST OFFICE LTD BOARD
Chief Executive’s Report
1. Christmas (and youth employment)
Christmas is our busiest period, with the number of weekly customer sessions typically
increasing by around 25%, and the 8 weeks from the start of November accounting for
37% of our annual mails volumes. While the direct increase in income during this period is
less pronounced (because of the high number of low margin transactions), customer
research shows that it is a key driver in forming opinions about the Post Office. This
insight is particularly important for the customers who are central to our growth strategy —
at Christmas there is a 15% higher penetration of AB customers and an 11% higher
penetration of customers earning over £30k per year.
We therefore set out to provide our customers with the best Christmas ever, including by
extending branch opening hours (by 7.5% on average across the Crown network),
redeploying staff from head office and recruiting 60 unemployed young people for the
period. This was supported by additional brand communication activities.
These measures helped deliver an improvement in all our customer management metrics
compared with last year. 73.5% of customers were served in less than 5 minutes which
was 14.5 percentage points ahead of last year's performance (which itself was our best
year at that point). Feedback from customers has been very positive, including letters to
local newspapers, comments posted on Twitter and 'Voice of the Customer’ feedback.
This in particular showed that 86% of customers were satisfied with their experience at the
Post Office and 83% felt the waiting time was acceptable.
In commercial terms, the 5 week Christmas period was our best ever for Focus Mails
performance, with income of £8.1m, exceeding last year by over 3.8%. This figure
represents just over 12% of our total Focus Mails target for the year.
The recruitment of unemployed young people in central London and Manchester during
the Christmas period proved to be a significant success: feedback from their managers
confirmed that in general they were enthusiastic and committed, delivering excellent
standards of customer service - and in the process they gained valuable experience for
their future careers. We have now provided 14 of them with ongoing employment, and a
further 12 are on our waiting list for vacancies.
2. Government services and utilities
(See separate noting paper for update on mails)
The DVLA contract was signed on 24 December. DVLA have been supporting us in
marketing the services covered by the framework contract to other government
departments, including by establishing a senior level cross-Whitehall forum which met for
the first time on 21 December. This has helped generate specific interest from a number
of departments.
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The Passport Service (IPS) is looking to move across the existing ‘check and send’
contract when it expires later this year, creating the opportunity to move to a paperless
automated service at a later point which could potentially double our income to £30-40
million per year.
The UKBA is interested in using the framework to expand its services delivered through
Post Offices, including application checking and payments (with potential additional
income of £2-3m). We are also pursuing discussions with DWP in relation to Universal
Credit services, with the Cabinet Office in relation to voter registration, and with HM
Courts and Tribunals Service to support the rationalisation of its network.
e On 11 December we were advised by HMRC that we had been successful in our bid to
provide secure cash distribution services under the new Government Courier Services
Framework Agreement. It is estimated that this contract could be worth up to £2m over 4
years, with the Ministry of Justice expected to be the first users.
e In December we wrote to Danny Alexander, the Chief Secretary to the Treasury, setting
out our capabilities to deliver a wider range of front office services on behalf of
government, and his office has confirmed that he would like to meet with us before March.
e The Telecoms portfolio is on track to deliver its target of £45.7m of net income this year, a
10% increase on 2011/12 performance, with the HomePhone and Broadband customer
base reaching 480,000. This growth was primarily achieved through a specific marketing
campaign at the end of 2012 that enabled us to acquire 53,000 customers in three
months, largely driven from the branch network. We are running a further campaign this
quarter to continue to drive this growth. Preparations are also continuing to migrate the
product from BT to Fujitsu in August, which will enable us to improve customer service
and lower costs by around £47 million over the four year period of the contract.
e On 9Q January we formally launched the tender to procure a partner to provide a branded
mobile service, which we are aiming to launch prior to Christmas 2013.
e We are currently exploring two different options to launch an energy proposition to
complement our existing suite of utilities services - either partnering directly with a single
supplier to offer Post Office branded gas and electricity, or alternatively working with an
intermediary agent that helps customers find the cheapest deal for customers across the
full range of suppliers. Preliminary discussions have been held with a number of potential
partners, with positive feedback to date, and we will be continuing this dialogue over the
coming months so we are ready to evaluate our options in the context of the ‘customer
value propositions’ that are being developed as part of the strategy work.
3. Marketing
e — Initial indications from the marketing campaign launched in October remain encouraging,
with 38% of people surveyed last month saying that they recalled the campaign
(compared with an industry benchmark of 26% for campaigns with similar expenditure),
and 72% of people asked stating that it does an effective job in advertising that the Post
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Office offers more than just mails services. The next indication of how consumer
perceptions have moved will be available when the quarterly brand tracking analysis is
produced in early February, and our full econometric evaluation of the first six months of
the campaign will be completed in May.
e The brand advertising now moves to a high profile campaign in February focussed on our
mortgage products, covering press, outdoor, branch and digital outlets at a cost of £1.8
million, which is designed to both capture immediate mortgage sales and strengthen the
credibility of the overall Post Office brand. The Channel 4 weather sponsorship will remain
a continual presence through until March, reinforcing the campaign messages.
4. Media and communications
e Our media and stakeholder engagement programme to "tell the nation" about the
transformation of the Post Office is making good progress. Our evaluation report for
November (December was not available at the time of writing) shows us consistently
achieving over 900 pieces of media coverage per month, with 55% of the coverage
positive compared with 9% negative. Recent highlights include the DVLA contract win, half
year results and the CEO appearing on BBC Breakfast on 27 December.
e We have taken a number of steps to raise the profile of the network transformation
programme, particularly at the local level, and this now accounts for around a third of our
media coverage. Building on this, we are testing local press advertising and door drops to
support branch business, and are also developing a PR strategy to support the push on
mortgages sales.
« Engagement across Westminster and Whitehall is also increasing. 94 MPs (including Jo
Swinson) have confirmed their attendance at a ‘drop-in’ session we are hosting in
Parliament on 21 January to celebrate network transformation, the DVLA win and the
wider transformation story. Paula Vennells and Mark Davies are also hosting three private
dinners for smaller groups of MPs in February and March.
5. IT&C transformation
e We have successfully completed the first phase of dialogue with potential suppliers for our
Service Integrator and Service Desk contract, short-listing three companies (Atos, Cap
Gemini and CGI Logica) to proceed to the second phase of dialogue which starts this
month.
e Dialogue is also ongoing with potential suppliers for our Data Centre, Applications &
Infrastructure and End User Computing services. In addition, we are currently part way
through a 6 month planning exercise with Royal Mail for the physical separation of IT
services currently provided to Post Office. Alongside this process we are assessing
alternative sourcing options for the IT services currently provided by BT and CSC through
Royal Mail, including the option of contracting directly with these suppliers to reduce
execution risks and potentially costs. We will provide an update to the Board in March on
both this work and our progress in developing the Transitional Service Agreement with
Fujitsu, our main incumbent supplier, for the period 2015-17.
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6. Information security review
Deloitte is in the process of finalising its assessment of our information security (IS)
processes and capability against relevant industry standards. We have asked them to
develop a pragmatic transformation roadmap to address the areas where we need to
improve, including in the resourcing of our internal IS capability, governance frameworks
and oversight of supplier contracts. This report and our action plan will be presented to
the ARC in February.
We will provide an oral update on the status of Project Rainbow at the Board meeting.
7. Project Robin
Negotiations with both unions are ongoing, with no agreement to proceed with the
proposed reforms to the pension scheme reached at this stage. A meeting with Dave
Ward of the CWU has been set up for the end of January. Discussions are also in
progress with the trustees, both on the Project Robin reforms and the actuarial valuation.
The first proposal from the trustees on the assumptions and approach was considered
unacceptably cautious and a response has been sent to that effect. We plan to meet with
them again in February.
8. Stakeholder Forum, mutualisation and stakeholder engagement
A separate update on progress will be provided at the Mutualisation Sub-Committee.
Paula Vennells
16 January 2013
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POST OFFICE LTD BOARD
Health & Safety Report
1. Purpose
The purpose of this paper is to:
-1__ Provide an update on safety performance.
1.2. Outline risk reduction activities.
2. Current Situation
2.1 Injury accidents, up to and including period 9, are showing a marginal negative trend
against target and last year. The positive trend back towards the target reduction has
been adversely affected by the recent severe weather. Accidents involving absence
have also increased marginally against last year but continue tracking back towards
target.
Overall, the adverse performance is primarily due to a significant increase in slips,
trips and falls due to the wet weather and manual handling incidents which affected
Supply Chain performance, in particular, in previous periods. A manual handling
“work-time listen and learn” has been scheduled to mitigate the increase in numbers.
The “per 1000 staff in post” comparison indicator, which takes account of head count
fluctuation year on year, is showing a slightly less unfavourable increase for all
accidents.
Table 1 All Injury accidents and those resulting in absence (Cumulative)
350
300 a
250
2’ 2011/12 All
5m 8 2012/13 All
3 4150 = 2011/12 Absence
2 2012/13 Absence
100
‘ (ae
0
P1 P2 P3 P4 P5 P6 P7 PB PO P10 P11 P12
Period
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The number of days lost due to accidents is encouragingly ahead of target, showing a
19.5% reduction against a target reduction of 5%. (Table 2) This indicates that, while
there is a negative trend on the frequency of accidents, there is a positive trend on
the severity, or level of injury, of those accidents.
Table 2 Days lost resulting from injury accidents (Cumulative)
1400
1200
1000
800
E ow
400
200
0
2.3
—o— 2011/12
me 2012/13
Pi P2 P3 P4 PS P6 P7 P& PO PIO P11 P12
Period
The number of road traffic collisions (RTCs) cumulative to period 9 is down by 10.3%
on last year. ‘At fault’ collisions, where the Post Office driver is considered to be at
fault due to the circumstances of the accident, are showing a significant improvement
on last year, down 15.5% from 97 to 82. Road traffic collisions account for less than
3% of the overall number of injury accidents, but they have the potential for higher
impact in terms of injury and loss. Activities that are contributing to the improved
performance are identified in 3.1 below.
Table 3 Road Traffic Collisions (cumulative)
300
250
a
g 200 —o 2011/12 All
- a + 2012/13 All
. 2011/12 ‘at fault’
a 400 2012/13 ‘at fault’
2
50
()
P1 P2 P3 P4 P5 P6 P7 P8 P9 P10 P11 P12
Period
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2.4 Robberies on Post Office Cash and Valuables in Transit (CViT) crews are
significantly up on the same year to date period as last year, from 24 to 42. However
2011/12 was an atypical year and performance this year, while of concern and
attracting mitigating activities, is not adverse to Post Office’s percentage share of the
market. Physical injuries during robberies, of which there have been 13 compared to
11 last year, remain relatively minor in severity. Fire arms continue to play a relatively
minor, but more frequent, part in CViT robberies with 8 of the 42 robberies being
enabled by the presence and/or threat of use of fire arms. There have been no
occasions where the guns were discharged. Risk reduction activities are identified at
3.2. (Appendix 1 — Significant Incidents refers)
2.5 Robberies and attempted robberies on the Post Office network so far this year are up
marginally from 83 to 86 compared to last year. Supporting activities have been
introduced to mitigate this increased risk. Risk reduction activities are identified at 3.2.
(Appendix 1 — Significant Incidents refers)
Burglaries and attempted burglaries (which do not involve personal attack) are down
significantly from 108 to 72 compared to the same year to date period.
2.6 The majority of accidents currently fall into three main categories: lifting and handling,
stepping and striking and outdoor falls. These are high frequency events with, in the
majority, relatively low impact. The lower frequency types of incident carry the
potential for very high impact, for example, assaults and road traffic collisions.
Table 4. Types of accident
Assaults
Animals.
Handtools
Lifting/handling
Objects falling
DAccidents
Stepping/strikin:
appa ed @Accidents with absence
Falls outdoors
Falls indoors.
Fire, Elec etc.
Vehicles RTA
Machinery
3. Act
les
3.1 Current activities to mitigate Road Risk:
¢ Road risk forum established to scope and develop road risk reduction initiatives and
activities
e Analysis of effectiveness of face to face training given to top 50 high risk drivers has
indicated that accidents amongst this community have reduced significantly following
the refresher training
¢ Eye sight checks for operational drivers are in place
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¢ Technical accident reduction interventions on new vehicles e.g. Reversing aids
Analysis and evaluation of data (e.g. risk profiles) to determine further accident
reduction interventions
Piloting the introduction of high visibility seat belt sleeves
Safety team input and concurrence for vehicle specification and changes
Safe driver of the year award introduced
Weekly case conferences to ensure consistent approach to accident investigation,
follow up activity and sharing of best practice
3.2 Current activities to mitigate Robbery and Burglary risk:
e Active liaison activities with the police and increased police support activity
e Liaison with Met. Police on the increase in gun enabled robberies
¢ Introduction of new deterrent technologies e.g. Smartwater — a solution that contains
a unique identifier that is released automatically in the event of a robbery, spraying
those involved and enabling identification of the individuals involved in the robberies
e Significant reduction in opportunities for duress type robberies linked to the
introduction of single person vehicles
Increased security support visits to Post Offices in ‘hotspot’ areas
Increased use of crime alert communication techniques to Post Offices
Trialling new point of transfer arrangements to reduce exposure
Increased use of surveillance vehicles
3.3 Current activities to enhance Health and Wellbeing:
¢ Programme of visits to Crown offices to offer and encourage the use of health check
equipment that provides a wide range of indicators on physical wellbeing
e Programme of visits extended to Supply Chain units
e Plans in place to visit all Post Office Crown Branches and Supply Chain sites within
12 — 18 months
¢ Development of a wellbeing intranet landing page
e Development of a wellbeing booklet and associated communications
e Enhanced Occupational health service provision from January 2013
4. Residual Risks
4.4 Driving activities have the potential for high impact/loss and remain a significant
residual risk. However, the actions identified above are aimed at mitigating that risk
and improving performance.
5. Recommendation
The Post Office Ltd Board is asked to:
5.1 Note the overall safety performance
5.2 Note the risk reduction activities.
Susan Crichton
January 2013
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Appendix 1
Significant Incidents (Period 8)
Crowns and Network
Location
Loss
Circumstances
Physical Injuries
Any further details
Woodhouse, M33
£228.30
Two masked males entered the retail shop
(21:25hrs), the clerk slipped and was hit
with an axe requiring stitches. The retail till
was stolen containing paystation and lottery
money.
Cuts requiring stitches
Supply Chain (Cash, delivery and collection)
Holland on Sea, £25k Crewmember threatened with ‘taser’ type None
co15 weapon and forced to open the box.
Eastham Crescent, I Nil Escort forced back in to PO, demanded that I Electric shock
CM13 box be opened, when told it was empty, a
‘taser type weapon was used on his
shoulder/chest.
Baycliffe Road,L12 I Nil During scuffle, escort knocked to the Minor
ground, empty box was taken.
Health and Safety Report
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January 2013
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POST OFFICE LIMITED
(Company no. 2154540)
Minutes of a Board meeting held on 21st November 2012
Present:
Alice Perkins
Neil McCausland
Tim Franklin
Virginia Holmes
Alasdair Marnoch
Susannah Storey
Paula Vennells
Chris Day (CMD)
In attendance:
Alwen Lyons
Fay Healey (FH)
Hugh Flemington (HF)
Lesley Sewell (LS)
Kevin Gilliland (KG)
Martin Moran
Sue Barton
Tim Giles
Zoe Taylor
POLB 12/115
POLB 12/116
at 148 Old Street, London EC1V 9HQ
Chairman
Senior Independent Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Chief Executive
Chief Financial Officer
Company Secretary
Chief HR Officer (item 12/116)
Head of Legal (item 12/117)
Chief Information Officer (item 12/117)
Network and Sales Director (item 12/118)
Commercial Director (item 12/119)
Strategy Director (item 12/119)
AON Hewitt (item 12/124 only)
AON Hewitt (item 12/124 only)
INTRODUCTION
(a) A quorum being present, the Chairman opened the meeting. She
welcomed Fay Healey, Acting Chief HR Officer, who was deputising for
Susan Crichton, HR & Corporate Services Director.
PEOPLE UPDATE
(a) The Chairman updated the Board on the recent Nominations Committee
meeting (the minutes of which had been circulated in the Board papers).
(b) The Committee had discussed its Terms of Reference. It would focus on
appointments to the Board and to Executive Committee positions
reporting directly to the Chief Executive. The Remuneration Committee
would similarly deal with remuneration policy and packages at these most
senior levels.
(c) The Nominations Committee had noted that there was still a considerable
gap in succession planning at senior levels and had agreed to take a
broader interest in growing talent and diversity within the Business, until
the position was materially improved.
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(d)
(e)
(f)
(9)
(h)
(i)
()
(a)
(b)
The Nominations Committee would also make proposals about Board
evaluation.
Neil McCausland, Chairman of the Remuneration Committee, reported
progress from that Committee.
Their focus was on the interim STiP and LTIP, which were currently with
ShEx and Ministers for approval, as well as designing an appropriate
remuneration framework for the future, including benchmarking. The next
meeting in December would explore an updated proposal for the short
and long term incentive schemes.
Revised terms of reference for all committees, including the Nominations
and Remuneration Committees, would be brought back to the Board for
final approval in January.
Fay Healey gave an overview of the performance measurement exercise
which had been undertaken for the Senior Leadership Team (SLT) and
the results of the half year reviews for managers across the directorates
within the organisation. She explained that there had been a 30%
turnover in the last year and that this had led to fewer ‘critical issue’ 1
ratings in the SLT analysis.
The Board recognised the changes in the ExCo and SLT and asked if
this performance management was replicated throughout the
organisation. Fay Healey explained that the framework was in place for
all management levels, with levelling to ensure a normal distribution of
marks. However the business did not force the distribution, especially at
the extremes of excellent and critical performance.
The Board discussed the approach to performance appraisal and asked
the Business to ensure that it set clear objectives for delivery and
behaviours before the beginning of the next financial year and introduced
more rigorous performance management to ensure extremes of
performance were recognised and managed appropriately.
The Board requested an update on the people strategy and performance
management framework at the February Board meeting.
PROJECT RAINBOW
The Chief Executive gave an update on the current situation. She had
invited Hugh Flemington and Lesley Sewell to join the meeting to provide
further guidance on the legal discussions which had taken place and
which were continuing.
The ARC had discussed high risk contracts at its recent meeting and had
agreed to undertake a more detailed review at the next ARC meeting in
February. The Board requested that the contract review include any
liability caps in place and the pass through to subcontractors.
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(c) The Board asked for the ARC papers on Project Rainbow to be circulated
ACTION: Company to the full Board for their information, and that the CEO keep the Board
Secretary informed of any major developments.
POLB 12/118 NETWORK TRANSFORMATION REPORT AND CROWN UPDATE
(a) Kevin Gilliland (KG) joined the meeting to provide the latest update on
the conversion rate and progress within the transformation programme
for the wider network and in particular the plans for turning around
financial performance within the Crown offices.
(b) Network Transformation Programme
KG reported that the new approach adopted by the team was having an
effect and the areas of concern such as property reviews and financial
assessments were no longer critical. Contract signature was still causing
concern, but he was cautiously optimistic that the Business could still
achieve the 1,200 target. He stressed that the voluntary nature of the
programme meant that no target could be assured but that he was
confident he would deliver at least 900-1,000 conversions, and was still
planning to deliver 1,200.
(c) The Board asked if any more could be done to incentivise sub-
postmasters to become early adopters. The CEO explained that the
Business was investigating a more creative approach, including helping
to fund new screens where possible and local PR and advertising for the
new branches. Some additional suggestions were made (eg a meeting
with the Prime Minister or Vince Cable for a number of subpostmasters of
newly-converted branches), which the Business would consider further.
(d) The Board asked if there was any opportunity to get more Multiples into
this year’s plan. KG explained that there may be a few more opportunities
than the 260 reported but he would not want to include them at this point.
(e) The Board asked if the Shareholder had been made aware of the risk to
the plan. KG assured the Board that ShEx and the Minister were aware
of the risk, and that the Minister had offered to support a communication
to the NFSP Branch Secretaries to attempt to get them to support the
programme more actively.
The Shareholder understood that the target was “contracts signed” but
had asked for an SLA to cover the time gap from signature to conversion
to give them some comfort.
(f) IThe CEO reassured the Board that everything possible was being done
to deliver the 1,200 conversions, and she had asked KG to undertake a
ACTION: KG failure-points analysis for the implementation plan.
(g) The Board thanked KG for the progress being made and asked for an
update report to be circulated in the week commencing 17" December
ACTION: KG and a full report at the next Board meeting in January.
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(h)
(i)
(k)
(a)
(b)
(c)
(d)
(a)
Crown Transformation Update
KG was confident that the Business would achieve this year's Crown
target but he explained the risk in the following two years of the plan, as
set out in the Board paper.
The Board recognised that the additional risk to the plan was driven by
revenue shortfall as FOoG income was squeezed by lower margin
contracts.
KG explained the possible approaches to the unions and the different
solutions to closing the £5m gap. The Board asked KG to plan for both
scenarios with clear trigger points for switching to the more radical
solution.
The Board asked for assurance that the £5m gap was realistic and
unlikely to worsen. The CFO warmed that the gap may widen to £10m
and the CEO agreed that the Business would carry out risk assessments
for each Crown workstream, highlighting sensitivities and milestones
which might trigger a move to plan B. This would available for the
January Board meeting.
The Board was comfortable with the approach but asked that KG keep in
mind the pay differential for front line staff, compared with the market.
POST OFFICE BASICS
Martin Moran and Sue Barton joined the meeting.
Sue Barton presented the Basics concept and explained that two
scenarios were being considered; basics as an addition to the 11,000
mains and locals, or basics as a replacement for some of the locals. The
Board was not convinced that this was a priority for the Business and did
not want it to be a priority for management focus.
The CEO supported the proposal to develop a Business case as the
model might be a good replacement for small branches where a local
would not be viable.
The Board agreed that more work should be undertaken in order to
provide an update at the February Board meeting.
The Board formally congratulated Martin Moran and his team on winning
the DVLA and DWP contracts.
CHIEF EXECUTIVE’S REPORT
The Board noted the CEO’s report and discussed the following specific
items:
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ACTION: Company
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ACTION: MD
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(b)
(c)
(a)
(b)
(c)
(e)
(f)
Royal Mail interaction: The CEO reported to the Board that changes in
the RMG product portfolio were likely to give the Post Office a windfall
income of circa £2m per annum.
RMG had asked to renegotiate the rate. This gave the Post Office an
opportunity to revisit other parts of the contract including ‘click and
collect’ and mails segregation. It was important to establish that, if RMG
could ask to renegotiate part of the agreement, so could the Post Office,
in the future.
Mutualisation: It was reported that the Stakeholder Forum was
progressing well. The CEO would like the Board and ExCo to have more
exposure to the people involved and the CEO would present a plan to
this effect.
The Health and Safety report appended to the Report was noted.
MINUTES OF PREVIOUS MEETING AND MATTERS ARISING
Virginia Holmes (VH), Chairman of the Pension Committee, asked for it
to be made clear in the minutes of the 23 October 2012 meeting, that
Project Robin was the responsibility of ExCo and not the Pensions
Committee. (POLB12/101 (b)). This amendment being made, the minutes
were duly approved for signature by the Chairman.
The Status Report, showing matters outstanding from previous Board
meetings, was noted.
The Board noted the minutes of the Pensions Committee meeting held
on 11 October 2012. The Board also noted the minutes of the
Nominations Committee meeting held on 7 November 2012.
Alasdair Marnoch (AM) provided an overview of the matters discussed by
the Audit, Risk and Compliance Committee meeting (ARC) held on 13
November. The minutes would, similarly, be included in a future Board
pack.
The CFO reported that, after taking into account the comments of the
ARC, the half year trading statement for the six months ended 23
September 2012 had been approved by a sub-committee of the Board
earlier that morning. Copies of the final statement and press release
would be circulated to all Board members. The statement would be
released to the press on 22 November for publication on 23 November.
The Board agreed that the process of agreeing the full year Trading
Statement would need to be much tighter and should be agreed in
advance. Time would be allocated at the February Board meeting for a
discussion on the tone and messages of the full year Trading Statement.
The Chairman asked that the Communication Director lead this agenda
item, highlighting the five or six key messages.
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ACTION: CD
ACTION: CD
POLB 12/123
ACTION: NK
ACTION:
CD/TF/AM/NK
ACTION:
PV/TF/NK/SB
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(a)
(b)
(c)
(a)
(b)
(c)
(d)
(a)
(b)
FINANCIAL PERFORMANCE UPDATE
The CFO presented the review of financial performance for October
2012, and reported that performance continued in line with the full year
forecast. Period 7 had seen an improved cashflow position as the
additional cash in the network caused by the Olympics was reduced.
The Board asked for clarification on the headcount figures presented.
The CFO suggested that this was caused by the changes within functions
but suggested he include an analysis in his January Board report.
He assured the Board that project spend was now in line with the full year
forecast of £40m and that he was producing a project spend benefits
realisation analysis for the ARC which would give more detail.
PROJECT POLO AND BANK OF IRELAND GOVERNANCE
The Board noted that POLO had not been included on the agenda and
asked for an update. The CEO explained that the negotiations were
progressing with Bol, but their new Chairman was scrutinising the
negotiations because of the high start-up costs for the Bank.
The CEO explained that she and the CFO, along with her Chief of Staff
and Nick Kennett (NK), were working on the negotiation strategy for
POLO and that they would report back to the Board in January.
The Board also discussed the governance and any early warning metrics
which could be used to monitor the strength of Bol (UK). It was agreed
that the CFO would review with Tim Franklin (TF), Alasdair Marnoch and
NK and report back to the ARC and then to the Board.
The CEO and TF would review the Financial Services sales strategy with
NK and Sue Barton and report to the Board when available.
PENSIONS: INVESTMENT BELIEFS AND ASSET ALLOCATION
Tim Giles and Zoe Taylor joined the meeting.
VH explained that the papers contained recommendations from the
Pensions Sub-Committee. These took forward the principles agreed at
the last Board in relation to the liability hedging element of the Post Office
sections of the RMPP in addition to recommendations regarding asset
allocation for the growth portfolio which would be proposed to the RMPP.
Trustee on behalf of the Post Office. It was suggested that authority be
delegated by the Board to the Pension Sub-Committee to finalise the
approach to RMPP on investment preferences.
TG summarised the strategy contained in the attached papers
recommending that extended hedging be put in place to protect against
the risks associated with pension benefits being accrued over the period
to the next valuation (31 March 2015) and the adoption of a “trigger-
based” strategy for subsequent extensions to the hedging.
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After discussion, the Board delegated authority to the Pensions Sub-
Committee to approve the recommendation to implement the strategy
and engage with the Trustee of the RMPP, through AON Hewitt.
(c) VH explained that, in order to meet the request of the Trustee of the
RMPP for the Board’s preferred asset allocation, it was important for the
Pensions Sub-Committee to establish the Board’s views on appropriate
investment objectives and asset types for the Post Office sections of
RMPP.
(d) It was agreed that the aim should be to build a growth portfolio alongside
the index-linked gilts portfolio, based on the following objectives;
achieving an expected return for the growth portfolio of around 8% (a
target real return of c.5% above cash); minimising the risk of not meeting
this objective; investing in assets consistent with the Board’s beliefs as
expressed through the Pension Sub-Committee; and managing the asset
cost effectively.
(e) The current asset allocation for the Post Office sections was discussed
further. TG demonstrated that it should be possible to increase current
returns without increasing unduly the risk characteristics of the growth
portfolio, by adopting a more diverse portfolio of return seeking assets.
(f) I After discussion of the merits of wider diversification, the long term nature
of the portfolio, and an appreciation of the value of active management, it
was agreed that authority be delegated to the Pensions Sub-Committee
to finalise the investment strategy to be presented to the Trustee of the
RMPP, to include diversifying return seeking assets and removing the
current restriction on investing in illiquid assets.
(g) It was noted that the Trustee of RMPP was under no obligation to do
more than note the Board’s preferences.
(h) Directors further acknowledged that the investment strategy proposed
depended on the implementation of Project Robin. If the buffer to be
produced by Project Robin was not forthcoming, the rate of contributions
would need to be very different and the investment strategy would be
rethought completely because of the different circumstances
Project Robin
(i) I The CFO presented the draft term sheet setting out the current basis
under which negotiations were progressing on Project Robin. The Board
expressed concerned about the 6 year moratorium on change and the
ability to agree effective triggers to end such a moratorium if necessary.
(j) I The CFO was asked to return to the Board if he needed to change the
mandate or if the negotiations broke down or there was a threat of
industrial action. The Board asked the CEO to cover the status of the
ACTION: CD negotiations in her future updates.
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POLB 12/125 ANY OTHER BUSINESS
(a) The Company Secretary confirmed that the dates for Board meetings in
2013 would now be as set out in the document presented to the meeting.
Some Committee dates (notably those for ARC) would be changed
ACTION: Company following further discussions with the respective Committee Chairmen.
Secretary
(b) IThe Company Secretary was asked to organise a follow up half day
ACTION: Company strategy workshop for January.
Secretary
(c) The Board dinner on 22 January was cancelled but Board members were
asked to keep the date in their diaries for dinner with the Chairman.
(d) The Delegated Authorities paper was discussed and the Board
challenged the limit of £1m unplanned spend delegated to ExCo
members. The Board asked the CFO to consider this specific limit further
and, in the light of that consideration, to send a note round to the Board
ACTION: CD with his recommendation.
It was noted that all unlimited indemnities needed to go to the
Shareholder. With these two amendments made, the proposal to update
and increase the limits of delegated authority was approved.
POLB 12/126 ITEMS FOR NOTING
(a) The Significant Litigation report was noted.
(b) The Board noted the Report on Sealings.
It was resolved that the affixing of the Common Seal of the Company
to the documents set out against items numbered 823 to 833
inclusive in the seal register is hereby confirmed.
(c) Uncommitted credit facilities
It was noted that the ARC had discussed the proposal set out at the last
Board meeting to set up two uncommitted loan facilities of up to £50
million each for short term funding flexibility, such that no more than £50
million would be able to be drawn down at any time.
The proposal had been approved by the ARC but would require a formal
resolution by the Board to satisfy the counterparties’ requirements.
It was agreed that the following approved wording should be included in
the minutes of the meeting:
After due and careful consideration of all the circumstances, the Board
expressed the opinion that it was satisfied that it would be most likely to
promote the success of the Company for the benefit of its members as a
whole to enter into:
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(i) a letter in the form produced from The Royal Bank of
Scotland plc (the “Bank”) in respect of the uncommitted
revolving credit facility of £50,000,000 made or to be made
available to the Company by the Bank; and
(ii) a similar letter to be issued by Citibank in respect of a
further uncommitted revolving credit facility of £50,000,000
to be made available to the Company by Citibank.
It was resolved that, in addition to and without amending, prejudicing or
revoking any Bank Mandate / Company Excerpt Minute or any other
instruction/s provided or to be provided by the Company to the Bank, the
CFO (Chris Day) and the Head of Corporate Finance (Charles
Colquhoun) be and are hereby authorised to enter into facilities and to
sign and deliver any documents required in connection with loan facilities
up to a maximum of £100 million, on behalf of the Company.
POLB12/127 CLOSE
There being no further business, the meeting was then closed.
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POST OFFICE LIMITED BOARD
Status Report
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their transformation and the benefits flowing from that investment.
No. I REFERENCE ACTION BY WHOM STATUS
I 1. Actions Appertaining to Network Transformation and Crown Offices
1a I July 2012 Alasdair Marnoch asked that a separate value for money NT scorecard be Kevin Gilliland/ Currently being developed.
POLB12/71(d) produced to show the number of branches converted; the investment made in Chris Day First draft will be available for
ExCo review in February.
Scorecard metrics will be
finalised in March. Report will
be effective from the start of
the next financial year, when
the outcomes from converted
branches begin to flow
through.
POLB 12/123(d)
back to the Board.
2a I September 2012 I The decision on whether to proceed with Project Polo (current account) would Nick Kennett POLO on agenda for January
POLB12/90(b) be discussed in November. Nick Kennett was asked to provide research on strategy meeting.
customer appetite for fees, more information on the implications of the change
(including on our partner banks); and to raise any contingency issues.
November 2012 I Work on the negotiation strategy for POLO to continue (PV, CD, ME, NK).
POLB12/123 (b) I Executive team to report back to the Board in January.
2b I November 2012 I CFO to review early warning metrics which could be used to monitor the strength I Chris Day/ Complete.
POLB 12/123(c) I of Bol (UK) with TF, AM and NK and report back to the ARC and then to the Nick Kennett Meeting took place 9 Jan;
Board. ARC Chairman to provide
update at ARC meeting on
13 Feb and Board as
appropriate.
2c I November 2012 I CEO and Tim Franklin to review the FS sales strategy with NK and SB and report} Paula Vennells/ FS sales strategy being
Tim Franklin
discussed in January 2013.
Will be discussed at Board
strategy session on 17 Jan.
Status Report 14Jan 2013
Alwen Lyons
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3a I November 2012 I The Board asked for clarification on the headcount figures presented. CFO to Chris Day CFO will cover headcount in
POLB12/122(b) include an analysis of headcount figures in the January Board report. his Financial Performance
update.
3b I November 2012 I CFO would produce a project spend benefits realisation analysis for ARC to give I Chris Day On ARC agenda for 13
POLB12/122(c) _I more detail on project spend against forecast. February
3c I November 2012 I Time to be allocated within the February Board agenda for a discussion on the Mark Davies Time allowed on February
POLB12/121(e) I tone and messages for the full year Trading Statement. The Chairman asked agenda
that the Communications Director lead this agenda item, highlighting the five or
six key messages.
3d I November 2012 I CFO to consider further the specific authority limit of £1m unplanned spend Chris Day Note to be circulated.
POLB12/125(d) delegated to ExCo members and send round a note to the members of the Board
with his recommendation.
3e I October 2012 The Board noted the cost reduction work to date and agreed that the CFO would I Chris Day Paper included in the
POLB12/104(a) _I include a quarterly update on cost reduction as part of this report to the Board. January Board pack
3g I October 2012 The Board resolved that a new dormant subsidiary be incorporated under the Chris Day/ Delayed pending Royal Mail
POLB12/110(a) name “Post Office Group Services Limited” Susan Crichton/ clearance.
Company
Secretary
tions Appe!
Strategy Evening
2012/3 onwards looking at investment and then organise a teach-in on what was
said before and what will now be different.
4a I November 2012 I Supply Chain paper to come back to the Board strategy session in January: 3” I Sue Barton Insufficient time within
Strategy Evening I party verification needed of cash cost base (in time to look at outsourcing as an strategy session for full
option). discussion. Paper to come to
February Board meeting.
4b I November 2012 More work should be undertaken on the business case for the “basics” concept, I Sue Barton/ “Shape of the network” on
Strategy Evening I with an update at the February Board meeting. Martin Moran agenda for February
and meeting.
POLB12/119(c)
4c I November 2012 I “Point person” to be identified for SME’s, across pillars Martin Moran By February Board meeting
Strategy Evening
4d I November 2012 I Strategy team to consider opportunities for different broker models eg becoming I Sue Barton/ To be included in 17 January
Strategy Evening I an “aggregator” for energy Martin Moran strategy session
4e I November 2012 I Finance to circulate revised base case showing position without NSP and from Chris Day Will be covered in 17 January
strategy session
Status Report 14Jan 2013
Alwen Lyons
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ining
POLB 12/116 (h)
framework at the February Board meeting.
5a I November 2012 I The Board asked the Business to set clear objectives for delivery and Susan Crichton Update on performance
POLB 12/116 (g) I behaviours before the beginning of the next financial year; and introduce more management on agenda for
rigorous performance management to ensure the extremes of performance are February.
recognised and managed appropriately.
5b I November 2012 I The Board requested an update on the people and performance management Susan Crichton On agenda for February.
6a
Feb 2012/
March 2012
POLB 12/32
Nick Kennett to investigate the flow of fees to ensure there is no inducement of
wrong behaviours, after which Paula Vennells would review to enable her to give
comfort to the Board. Neil McCausland to take ownership of this issue going
forward to ensure the business was getting the required information and
challenging Junction to ensure that the Post Office was beyond criticism.
Nick Kennett
Neil McCausland/
Nick Kennett
Post Office Insurance has
audited the processes at
ACM (BGL’s claims
management business).
(See update below)
ACM does operate an incentive program for the correct referral of PI claims. Management is confident that there are sufficient systems and controls in place to
highlight any inappropriate claim referrals, and is confident overall that the processes followed are consistent with Post Of fice’s customer and brand values.
From April 2013, referral fees for personal injury will be banned. Post Office Insurance will work with BGL to evaluate the i mpact on the business model (including
income and incentives) and management proposes to update the board later in 2013 of any changes.
7a_ I November 2012 I CFO to return to the Board if the mandate for negotiations on Project Robin Chris Day/ Update included in the CEO’s
POLB12/124(i) needs to change, or if negotiations break down, or if there is a threat of Martin Edwards Report.
industrial action. CEO to cover the status of the negotiations in her future
reports for the Board.
8a I November 2012 I CEO to keep the Board informed of any major developments re Project Rainbow I Alwen Lyons
POLB12/117 (c) _I (also called Antelope)
8b I November 2012 I A plan to be presented to enable members of the Board and ExCo to have Sue Barton/
POLB12/120 (c) _I greater exposure to the people involved in the Stakeholder Forum Alwen Lyons
8c I October 2012 A report is expected back to the Board in March 2013 on the work of the Susan Crichton Update to be presented to
POLB12/106(d) Stakeholder Forum the Board in the New Year
Status Report 14Jan 2013
Alwen Lyons
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8d I October 2012 The Board asked to see the reactive communication lines which would be used __I Mark Davies Not yet needed. Opportunity
POLB 12/106 by the Board if required (Project Rainbow). taken to revise further — will
be circulated.
8e I November 2012 I Company Secretary to update Committee dates following further discussions Alwen Lyons Committee meeting dates to
POLB12/125(a) with respective Chairmen. be reviewed as required..
eiAetionsd io Board Committees) il
9a I November 2012 I ARC to undertake a more detailed review of high risk contracts at its meeting in I Lesley Sewell/ On ARC agenda for 13
POLB12/117(b) February. The Board requested that the contract review include any liability Hugh Flemington February
caps in place and the pass through to subcontractors. for ARC
9b I October 2012 ARC to agree the arrangements for control of banking and treasury operations Alasdair On ARC agenda for 13
POLB12/108 (b) I and agree limits of authority and reporting arrangements. Marnoch/Chris Day I February.
Status Report 14Jan 2013
Alwen Lyons
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POLARC12 (2")
POLARC12/8-15
POST OFFICE LIMITED
(Company no. 2154540)
Minutes of a meeting of the AUDIT, RISK AND COMPLIANCE SUB-COMMITTEE
held on Tuesday 13 November 2012
at 2pm at 148 Old Street, London EC1V 9HQ
Present:
Alasdair Marnoch Chairman of Committee
Tim Franklin Non-Executive Director
Neil McCausland Senior Independent Director
Susannah Storey Non-Executive Director
In attendance:
Alice Perkins (AP) Chairman, Post Office Limited
Chris Day (CD) CFO
Paula Vennells CEO (item 12/11 only)
Sarah Hall (SH) Head of Financial Control and Compliance
Nick Kennett (NK) Financial Services Director (item 12/13 only)
Alwen Lyons (AL) Company Secretary
Hugh Flemington (HF) Head of Legal Services (item 12/11 only)
Lesley Sewell (LS) Chief Information Officer (item 12/11 only)
Malcolm Staite (MS) Interim Head of Risk Governance
Malcolm Zack (MZ) Head of Internal Audit
Stephen Collins (SC) Audit Manager, Royal Mail Group Internal Audit (item 12/12 only)
Angus Grant (AG) Audit Partner, Ernst & Young (item 12/12 only)
Jeremy Midkiff (JM) Audit Manager, Ernst & Young (item 12/12 only)
POLARC12/8 INTRODUCTION
(a) A quorum being present, the Chairman of the Committee opened the meeting
and welcomed all those present.
(b) The Chairman noted that the Committee would not be able at this meeting to
discuss Risk Management in detail, as the executive team were still working
through the processes and the necessary recruitments had not yet been
completed. The approach to risk management would be a matter for
particular focus at the next meeting in February.
POLARC12/9 GOVERNANCE
(a) The Chairman asked MZ to talk through the new format proposed for the
Terms of Reference of the Committee, including an outline schedule of
matters to be discussed and a form of standing agenda.
POL-0024198
ACTION: Company
Secretary
ACTION: CD
ACTION: MZ
ACTION:MZ/SC
ACTION: CD/SC
POLARC12/10
ACTION: CD
(b)
(c)
(d)
(e)
(f)
(g)
(a)
(c)
(d)
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Following discussion, it was agreed that the revised Terms of Reference for
the Committee, dated November 2012, are approved and adopted subject to
an amendment in 2.1 to clarify that the HR & Corporate Services Director and
the General Counsel were the same role.
These Terms of Reference would be included in the pack of corporate
governance documents to be approved by the Board in January 2013.
The Committee requested that the banking and treasury delegated authority
limits discussed at the Board meeting on 23 October 2012 should return to
the ARC in February for discussion and that outstanding balances and any
breaches by counterparties be brought to the attention of the ARC.
The Committee asked for sight of the internal audit reports completed since
April 2012, and a status report on the audit actions to be presented at the
February meeting.
The Committee requested discussion at the February meeting on:
(i) the policies in place to mitigate against key business risks (a paper to be
produced by the Head of Risk Governance); and
(ii) the process for establishing and ensuring compliance by the Business
with those policies and with regulatory requirements. It was recognised
that this exercise would take some time, with priority areas starting to
become clear over the course of 2013.
The CFO and HR & Corporate Services Director would then lead a session at
the Board to give comfort that the Business understands its regulatory risks
and has the policies in place to monitor and mitigate.
ANNUAL REPORT AND ACCOUNTS AND HALF YEAR TRADING
STATEMENT
CD presented the latest draft of the half-year trading statement. It was noted
that the DVLA decision had now been announced and could therefore be
included in the statement.
It was noted that the trading statement had not been reviewed formally by
Ernst & Young but it was confirmed that the basis of preparation was
consistent and that there had been no major changes in accounting policies
or practice.
The proposed date for release of the statement to the press and general
public was 22 November 2012. Discussions would be held separately with
the Shareholder.
The Committee discussed the tone of the statement and the comments
received to date from members of the Board and it was agreed that final
comments would be input by 14 November, after which the statement
would be re-circulated to the Board for final approval.
POL-0024198
ACTION: Company
Secretary
ACTION: Company
Secretary
POLARC12/11
(e)
(f)
(9)
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A copy of the final statement and press release would be circulated to the
Board.
The paper presented by SH, setting out an approach for preparation of the full
year accounts for 2012/13, was considered.
After discussion it was agreed that:
(i) Post Office should not take advantage of the exemptions from being a
wholly owned subsidiary of a UK parent producing group financial
statements;
(ii) Post Office should continue to report under UK GAAP but the
consolidated financial statements will be under IFRS;
(iii) the Post Office Annual Report and Financial Statements should be
prepared as one formal document for lodging at Companies House;
(iv) Post Office should include the additional Business Review disclosures
applicable to quoted companies where appropriate;
(v) Post Office should aim to meet the elements of the UK Corporate
Governance Code and DTR disclosure requirements on corporate
governance that are appropriate; and
(vi) Post Office should comply with legal requirements concerning the
disclosure of directors’ remuneration but would not seek to go beyond
the statutory level of disclosure for the financial year 2012/3.
A full analysis of Post Office’s compliance with the UK Corporate Governance
Code was under way and would be provided for discussion by the Committee
at its next meeting.
There appeared to be nothing which would prevent the Post Office from
confirming that it upheld the principles of the Code, even if some of the
detailed recommendations would not be applicable to a Government-owned
organisation.
RISKS — HIGH RISK CONTRACTS
The CEO, LS and HF joined the meeting to provide an update on the
information security issue which had recently been faced by the Post Office.
An approach to establishing the risk profile of customer data held within the
Post Office had been set out in the paper from LS and this was discussed.
The Committee thanked the CEO and the Business for the rigour with which
they had handled the issue and asked for a short update report in mid-
December followed by a formal report on information security for the next
ARC meeting in February, including a noting paper on High Risk Contracts.
POL-0024198
ACTION:LS
POLARC12/12
ACTION:MZ
(a)
(b)
(c)
(d)
(e)
(f)
(g)
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The Committee asked to be kept informed in the meantime of any actions
necessary to mitigate against any actual or perceived liability on the part of
the Post Office.
INTERNAL AND EXTERNAL AUDIT
SC, AG and JM joined the meeting.
MZ was introduced as the new Head of Internal Audit. He explained the
future audit team he was recruiting for the Business and that going forward
the audit plan would be based on the key risks which would be signed off by
the ARC. He confirmed the activity in the Audit plan for 2012/13 and that
Royal Mail’s Internal Audit Team would assist Post Office up to 31 March
2012.
The Committee agreed that there may be a need to monitor the increased
strategic risks driven by separation and transformation, but that there also
needed to be a focus on compliance within the Network.
The Committee asked for a summary of the areas covered by RMG Internal
Audit reports to be presented to the ARC in February.
Stephen Collins left the meeting
AG, the Ernst & Young Audit Partner responsible for the Post Office external
audit, reported that the previous year’s audit had been finalised. He expected
that 2012/13 would be a challenging year for the Business in several areas
because of separation and major change, and that the audit would need to
focus on separation, pensions, and taxation with an overlay of IT. He set out
the proposed approach to external audit of the full year accounts and the
outline timetable. The detailed focus of the audit would be:
(i) Revenue recognition and the accounting treatment across diverse
revenue streams;
(ii) Counterparty risk;
(iii) Pension valuation and accounting;
(iv) Separation accounting risks; including pensions and treasury;
(v) Valuation of accounting provisions;
(vi) Risk of fraud/burglary in the Network and Cash operations;
The ARC was comfortable with the approach, alongside the separate
ISAE 3402 IT audit which had been jointly commissioned by the Post Office
and Fujitsu.
The Chairman asked at what level of materiality the E&Y team would report.
AG explained that this would be similar to previous years. Although E&Y did
put a figure on P&L materiality, they would propose to report any identified
audit adjustments above £600k to the Committee and, as a general rule,
POL-0024198
ACTION:AM/CD
POLARC12/13
ACTION: NK
ACTION: NK
(h)
(i)
(b)
(c)
(d)
(e)
(f)
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Post Office Limited — Strictly Confidential
insist on changes to the accounts for any single item or accumulation of items
with an effect of over £5-6 million. This was accepted.
The Chairman informed the meeting that he would pick up the Ernst & Young
fees with the CFO outside the meeting
The external audit plan was agreed. The external auditors left the meeting.
MATTERS REFERRED TO ARC BY THE BOARD
Governance of the “Eagle” Contract
NK joined the meeting.
He presented the paper and explained the governance processes now in
place with the Bank of Ireland (Bol) following agreement of the new contract.
The Committee was informed of the arrangements and the governance
committees put in place to monitor performance. The Committee asked that
the minutes of future Regulatory Risk Committees (RRC) be provided for the
ARC.
NK noted the termination rights currently contained in the contract. Bol was
obliged to provide certification within 15 days of each quarter end to assure
Post Office that Bol was meeting its requirements in respect of:
(i) Tier One Ratio and Capital buffers
(ii) Liquidity
(iii) NSFR requirement
and that it had not breached any of the terms of the contract creating a
Termination Obligation.
The Chairman asked if this gave the Business sufficient warning of any
problems. NK assured the Committee that the Bank was obliged to give Post
Office early warning of any capital or liquidity problems and Post Office had a
buffer above the regulatory and statutory requirements set by HM Treasury
(HMT), the Bank of England (BoE) and the FSA.
Post Office had also established a system for tripartite meetings with HMT
and BoE, to which the FSA was also invited. The purpose of this meeting
was to give Post Office a medium to long term view of the banking
environment and how any developments might affect the Post Office.
NK explained that the FSA would soon be splitting to form two organisations:
the Prudential Regulation Authority (PRA) and the Financial Conduct
Authority (FCA). This should lead to a strengthening of regulatory
relationships and give the Business more comfort.
The Committee asked NK to provide an interim update on the regulatory
position in September 2013, 6 months after the changes had taken effect.
POL-0024198
ACTION:NK
ACTION:
CD/Company
Secretary
POLARC12/14
ACTION:
Company
Secretary
POLARC12/15
(9)
(h)
0)
(k)
(a)
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The Chairman noted that it would be useful at the same meeting to look at
scenarios in which Post Office would need to respond to a termination event.
NK reported that Post Office deposits had grown substantially above the
planned £16.6 billion target agreed with the FSA. The parties were working
together to agree a commercially sustainable position on pricing for Bol whilst
ensuring protection for Post Office customer assets and the Post Office
brand.
NK explained the securitisation of assets by Bol and noted that the new
contract required consent from the Post Office to securitise any Post Office
customers’ assets. The terms were designed to ensure that Post Office
customers’ assets were managed effectively but also ring-fenced in the event
that a transfer to an alternative provider became necessary.
NK then left the meeting.
Uncommitted Credit Facilities
The CFO asked for the Committee’s views on the proposals relating to
uncommitted loan facilities which had been put forward to the Board. He
noted that banking counterparties would require a resolution of the full Board.
The Committee discussed the proposals to enter into two loan facilities. CD
confirmed that these proposals had been discussed with the Shareholder and
no concerns had been expressed.
The Committee endorsed the following recommendations to the Board:
(i) approval for Post Office to enter into external borrowing facilities up to a
maximum value of £100m, such that external borrowing of up to £50m
may be drawn down at any one time;
(ii) approval for the CFO and Head of Corporate Finance to conduct
negotiations with counterparties and sign and deliver the loan and
related documentation
(iii) approval for the form of Board resolution included in the paper, subject
to review by Susan Crichton (Head of HR and Corporate Services).
ANY OTHER BUSINESS
It was agreed that the schedule of meeting dates for 2013 should be revised
to allow for meetings in February, May, September and November. The
Company Secretary was asked to recirculate the dates.
CLOSE
There being no further business, the meeting was declared closed.
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PC 12/16-22 POST OFFICE LTD
PENSIONS SUB-COMMITTEE
Minutes of a meeting of the Pensions Sub-Committee of the Board
held at 148 Old Street, London EC1V 9HQ on Wednesday 14 November 2012
Present: Virginia Holmes (VH) — in the Chair
Chris Day (CMD)
Susannah Storey (SS)
In Attendance: Sarah Hall (SH) Financial Controller
Ken Potter (KP) Pensions Consultant
Helen Perkins (HP) Secretariat
Tim Giles (TG) AON Hewitt (from item 12/10)
Zoe Taylor (ZT) AON Hewitt (from item 12/ )
PC 12/16 OPENING OF MEETING
A quorum of two directors being present, VH opened the meeting and
noted that apologies for absence had been received from Susan Crichton,
HR and Corporate Services Director.
PC 12/17 MINUTES OF PREVIOUS MEETING AND MATTERS ARISING
The minutes of the meeting held on 11 October 2012 were approved for
signature by VH, subject to the agreed deletion of one sentence.
The following matters arising from the minutes were not otherwise covered
under agenda items:
Meeting with Chairman of Trustees
CMD noted that he would be meeting Joanna Matthews, the new RMPP
Chair of Trustees, on 15 November.
Project Robin
The Chairman reported that it had been agreed, after the last meeting, not
to incur expenditure on detailed work looking at alternatives if Project Robin
was not implemented. The Committee noted that a “Plan B” might still
needed in future, in which case work would need to be done quickly.
Shareholder Views
KP commented that Project Robin had been outlined in discussions with
ShEx and the Shareholder had appeared to be supportive of the proposals.
SC would be asked to provide further details on discussions with the
Shareholder and any impact of the proposals for State Aid purposes at or
ACTION: SC before the next Pensions Committee meeting.
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Investment management and administration costs
SH had provided an outline of investment management and administration
fees incurred by the RMPP Trustees.
SH highlighted that Post Office currently paid a small proportion of the
overall costs through a recharging arrangement. Future costs could not be
predicted accurately and the amounts shown were therefore indicative
rather than invoiced costs. Administration costs were budgeted to increase
in the current year but to reduce in 2013-14, when a substantial decrease in
the Pension Protection Fund levy, set before the Pensions Solution was
implemented, was expected.
It was agreed that efforts should be made to keep track of these costs in
the context of the size of assets and to be aware of the size and capability
ACTION: SH/KP of the Trustee team.
PC12/18 PROPOSALS ON INVESTMENT BELIEFS AND ASSET ALLOCATION
The Post Office Board had agreed the high level principles for pension
investments at its last meeting but the strategic asset allocation would be
reviewed in more detail at its next meeting on 23 October.
The Committee agreed that a clear understanding of the Board’s
investment beliefs was essential to provide a firm basis for the decisions on
allocation. AON had suggested that directors complete an online survey to
identify common beliefs about types of investment and indicate where
further explanation and discussion of relative risks and reward might be
helpful. Although not all directors would complete the survey, ZT noted that
there were already indications of common views eg some distrust of high
yield credit.
AON’s assumption was that a return of at least 2% above gilts would need
to be generated to cover costs and allow for extended hedging. The
existing portfolio was producing a reasonable return but the analysis
showed that it would be possible to target a higher return, without
increasing risk, by eliminating the restriction against illiquid assets and by
using some absolute return funds with a low sensitivity to interest rate risk.
It was agreed that greater definition of absolute return funds would be
needed and the market context of how other funds were using this type of
investment might be useful. Some small presentational amendments were
ACTION: AON also agreed.
The Committee anticipated Board interest in the expected level of return
and how returns might be impacted by a change in interest rates.
It was, however, recognised that decisions on asset allocation did not need
to be rushed while the current portfolio was producing a satisfactory return.
While the strategic asset allocation for the Post Offices sections should be
reviewed at least annually, the Trustees would also have their own views
and could not be forced to accept the Board’s preferred asset allocation
strategy. AON noted that a higher return might provide some protection
against a need to increase contributions, thereby promoting the
sustainability of the scheme, which was a priority for the Trustees.
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The Committee then discussed different structures for investment
management. AON’s view was that the size of assets would certainly permit
a choice of single managers for different assets but a diversified portfolio
was also possible. The Board might indicate a preference and costs would
certainly be a factor, but this was likely to be a longer term decision for Post
Office, with the Trustees.
Trigger Mechanism for Extended Hedging
The Committee discussed the proposal set out by AON for the trigger
points at which index linked gilts would need to be purchased. The initial
period of protection would be three years, in line with the valuation cycle.
Reaching a trigger point at which bond prices reduced or yields increased
would prompt action to purchase further gilts to extend the protection by six
months.
AON confirmed that this was a standard approach within the industry and
would be familiar both to the Trustees and to the investment managers
(BlackRock) currently managing the gilts portfolio.
The Committee noted that an annual review process would also be put in
place to consider if any other action was necessary to protect the Post
Office sections against a potential increase in liabilities, if no triggers had
been activated during the year. The Committee also noted that this
mechanism relied on the buffer from Project Robin being available to
maintain the affordability of the Plan.
AON would prepare a recommendation for the Board on this basis, for
ACTION: AON distribution with the Board pack for the meeting on 21 November.
PC12/19 PROJECT ROBIN UPDATE
KP provided an update for information, it being noted that the investment
strategy was built on the assumption that the Project would be delivered by
the executive team. The Committee restated its need to have early warning
if it began to appear that the Project would not be implemented by 30 June
ACTION: SC 2013, the final date for the valuation.
A first meeting had been held with union representatives and a letter had
been sent to the Trustees to inform them of the proposed Rule Change.
The Board would discuss on 21 November a draft term sheet for
negotiations with the Trustees and with employee representatives.
PC12/20 REVIEW OF PROFESSIONAL FEES
TG and ZT left the meeting.
SH tabled a schedule of fees incurred and estimated by professional
advisers.
Towers Watson ~ actuary
The estimate of £50,000 for actuarial work up to the end of January 2013
was questioned by the Committee.
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It was agreed that costs should continue to be controlled carefully. CMD
would send a note to Towers Watson setting out expectations on the use of
ACTION: CMD actuarial time and asking for a fixed fee for completion of the valuation.
The Committee gave authority for expenditure of up to £50,000 for Towers
Watson but asked SH to raise purchase orders only as justified, in smaller
amounts, and to report back to the Committee on the time being spent on
ACTION: SH actuarial work over the next few months.
AON Hewitt — investment advisers
SH reported that £40,000 had been spent from the £100,000 initially
authorised. Authority was now sought for a further £24,000 for ongoing
monitoring of investments. This was agreed.
VH again stressed that Post Office would need to understand and monitor
investment management fees being incurred on its behalf by the Trustees.
PC12/21 ANY OTHER BUSINESS
Valuation
Towers Watson had asked for clarification of the key objectives of Post
Office in agreeing the basis of the valuation. KP and SH were asked to
produce a paper for the Pensions Committee on the key objectives, to be
ACTION: KP/SH circulated by email.
Closure of RMSEPP
The Committee noted that the process of closure of RMSEPP to future
accrual was underway. HR would manage the implications of this decision
for the two Post Office members of this Plan.
Date of Next Meeting
The next meeting of the Committee would take place on Tuesday 22
January 2013 at 3.30pm at 148 Old Street. The meeting would focus on
investment strategy, taking into account the feedback from the Board. An
update on Project Robin would be included for information only.
Separation of sections within the RMPP.
KP noted that a letter of comfort had been requested from Towers Watson
confirming that the assets held within the Post Office sections following
separation were in line with expectations. In fact, the value of assets was
slightly higher than originally anticipated.
PC12/22 CLOSE
There being no further business, the meeting was declared closed.
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POST OFFICE LTD
PENSIONS SUB-COMMITTEE
Minutes of a meeting of the Pension Sub-Committee of the Board
held by conference call on Tuesday 27 November 2012 at 10am
Present:
In Attendance:
PC 12/23
Virginia Holmes (VH) — in the Chair
Chris Day (CMD)
Susannah Storey (SS)
Susan Crichton (SC) HR & Corporate Services Director
Helen Perkins (HP) Secretariat
Ken Potter (KP) Pensions Consultant
Tim Giles (TG) AON Hewitt
Zoe Taylor (ZT) AON Hewitt
INVESTMENT STRATEGY
A quorum being present, VH opened the meeting, which had been
convened to finalise the preferred strategic asset allocation for the Post
Office Fund, for communication to the RMPP Trustee.
The Board had agreed the high level principles of allocating 50% of the
Fund to index-linked gilts, investing the remaining 50% in a growth
portfolio of return-seeking assets (removing the restriction on investment
in property) and using extended hedging of the gilts portfolio to protect
against increases in liabilities for an initial three year period. An indicative
expected return of around 5% above cash had been discussed.
Authority had been delegated to the Pension Committee to set the final
risk and return expectations and confirm in greater detail the preferred
strategic asset allocation with the RMPP Trustee.
The paper prepared by AON was discussed. The Committee clarified that
setting a target return was intended to help to maintain contributions at
the current level for as long as practicable, but not indefinitely and on the
assumption that Project Robin would be implemented.
Tim Giles explained that the figures for expected returns and volatility
were slightly different from those presented to the Board, as further
information had been provided by RMPP and the assumptions had been
updated to 30 September 2012.
The main differences between the existing asset allocation for return-
seeking assets and the alternative structure proposed were a new 20%
allocation to UK property investment and a significant movement from
duration hedged investment grade credit into absolute return funds.
Overall, the proposals were expected to increase the target return for the
Post Office Fund from 5.5% to 8% with volatility moving from 3% to 4%.
The likely rates of return from UK property and absolute return funds
were discussed. Investment in property had previously been excluded
from the Post Office portfolio for reasons of liquidity, rather than
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insufficient potential return. Property exhibited low correlation with other
asset classes, helping to diversify the portfolio. Yields of around 5%,
together with some capital appreciation, had been assumed.
It was agreed that the guidelines for the Trustee should remove the
restriction on investment in UK property but specify that property
investment should be in unitised form, to allow for easier transfer of
ownership or liquidation of assets if needed in the future. Post Office
would ask the Trustee to invest in appropriate open market property funds
ACTION:AON rather than unitising existing property holdings.
It was further agreed that the fundamental principle to be communicated
to the Trustee on investment on behalf of the Post Office would be that
“cost matters’. The Trustee should be comfortable that their investment
decisions were aligned with Post Office’s investment beliefs and its
ACTION: AON guidance on the importance of managing costs.
No restriction would be set on the types of absolute return fund to be
used but the Post Office would expect fund choices to take account of the
likely returns, net of cost. The extra layer of cost involved in fund of funds
structures was therefore likely to make them unsuitable for the Post
Office Fund.
Tim Giles confirmed that Aon’s assumptions had allowed for investment
management costs. Aon would circulate separately the return
ACTION: AON assumptions per asset class over a 5-10 year period.
It was agreed that a return of 5% above real cash returns was an
appropriate target for the growth assets and the Committee agreed that
ACTION: AON the revised asset allocation should be recommended to the Trustee.
The Committee noted the importance of timing in changing the
investment strategy. It was believed that the Trustee was already making
adjustments to the portfolio and the Fund was currently cashflow positive
so the changes should be able to be effected over a 3-6 month period.
Communicating with the Trustee
Chris Day noted that he would be presenting to the Trustee Board on
Post Office’s half year results on Thursday, with a further meeting
involving the Trustee due to take place in the following week. There would
therefore be an opportunity to talk informally to the Post Office Fund
manager, lan McKnight, about the proposals, with Post Office’s formal
instructions to the Trustee following in writing.
AON agreed to produce a revised paper to form the basis of instructions
to the Trustee, including the expected target return of 5% above cash and
statements about the importance of cost management and UK property
investments being in unitised form. The instruction would note that the
preferred asset allocation was based on information as at November
2012 and assumed no significant time delay before implementation of the
changes.
The document would be circulated to the members of the Committee in a
ACTION: AON form which could be shared informally with the Trustee.
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Once any comments had been received, the Committee delegated
authority to Chris Day to approve the final letter of instruction to be issued
ACTION: CD to the Trustee.
PC 12/24 VALUATION OBJECTIVES
The Chairman noted that Ken Potter (KP) had circulated a matrix of
objectives in respect of discussions with the Trustee on the Fund
valuation. Members of the Committee were asked to provide any
comments directly to KP.
PC 12/25 DATE OF NEXT MEETING
The next meeting was scheduled to take place on 22 January 2013 at
3.30pm. It was agreed that the Secretary would monitor items for the
agenda and consider whether the meeting could be held by conference
call.
PC 12/26 CLOSE
There being no further business, the meeting was declared closed.
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REMCOM
12/8-12/14
POST OFFICE LTD
REMUNERATION COMMITTEE
Minutes of a meeting of the Remuneration Committee of the Board
held at 148 Old Street, London EC1V 9HQ on Monday 10 December 2012
Present: Neil McCausland (Committee Chairman)
Virginia Holmes
Alice Perkins
In Attendance: Susan Crichton (SC) HR and Corporate Services Director
Jane Williams (JW) Interim Head of Reward
Karen Hamer (KH) Reward Manager
Alwen Lyons Company Secretary
Jonathan Hutchings New Bridge Street (item 12/11 onwards)
REMCOM 12/8 OPENING OF MEETING
(a) A quorum of two directors being present, the Chairman of the
Committee opened the meeting and welcomed those attending.
REMCOM 12/9 MINUTES OF PREVIOUS MEETING AND MATTERS ARISING
(a) The minutes of the meeting held on 4 October 2012 were approved for
signature by the Chairman of the Committee.
(b) Delegated Authorities and Terms of Reference (REMCOM 12/2)
The paper setting out the respective authorities of the Executive
Committee and the Remuneration Committee had been revised,
following discussion at the last meeting. The budget for advice had
been increased to £50,000 and the Terms of Reference had also been
reformatted. It was proposed that the revised paper and Terms of
Reference would be submitted to the Board for approval at its meeting
in January 2013.
ACTION: The Committee agreed that the paper should go forward to the Board in
pany the form presented to the meeting.
Secretary
(c) Current Remuneration Framework (REMCOM 12/3)
The Committee agreed that the CFO would retain his STIP PDR
multiplier for the current year 2012/13.
It was clarified that Susan Crichton should communicate the LTiP
ACTION:SC decision after ShEx approval had been obtained.
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(d) It was noted that the CEO had not been invited to the Committee
meeting as the majority of the agenda related to her own remuneration.
However, she had received the Committee papers, redacted where
appropriate.
(e) The review of New Bridge Street’s provision of remuneration advice
was carried forward.
(f) Alice Perkins gave an update to the Board on her meeting with the
Chief Executive of ShEx and their discussions regarding the current
pay environment. The Chairman described his meeting with the
Chairman of Royal Mail Group REMCOM, including an outline of their
approach to pay proposals. The Committee discussed the
Shareholder’s lack of appetite for major change and acknowledged the
need to develop the existing framework, ensuring a robust commercial
proposal.
(g) The list of Post Office employees with annual pay of £100k or over was
noted. The Committee acknowledged that the Communications
Director's pay was significantly less than that of other ExCo members.
Fay Healey explained the context and that his salary would be reviewed
after an appropriate time in the role.
REMCOM 12/10 UPDATE ON STIP/LTIP FOR 2012
(a) Karen Hamer gave an update on discussions with ShEx concerning the
STIP and LITP for 2012. The proposal had been progressed through
SROC and was currently with the Minister for consideration. Once
agreed, it would then pass to HM Treasury for final sign-off. It was
hoped that this would be completed before Christmas.
(b) The Chairman presented the recommendations in the paper,
highlighting areas where the approach could be improved by:
(i) closer dialogue with ShEx at the design stage of remuneration
packages for the CEO and CFO;
(ii) further understanding of the underlying challenges facing ShEx in
presenting proposals to SROC;
(iii) presenting a full, strongly-argued paper, supported by a business
case and a clear link to remuneration, with detailed examples
(iv) understanding the audience for the written proposal and ensuring
adequate detail is given.
The Remuneration Committee supported the approach going forward.
(c) The proposed rules and performance conditions for the LTIP, a
schedule of limits and a list of proposed awards to nominees were
noted.
(d) It was agreed that both the STIP and LTIP for 2012/13 should be
implemented on this basis. Arrangements should be made to
ACTION:SC communicate the awards to participants as soon as they are agreed
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REMCOM12/11 BENCHMARKING UPDATE AND RESULTS
(a) Jonathan Hutchings from New Bridge Street Consultants was
welcomed to the meeting.
(b) He presented the process and the findings of the benchmarking
exercise undertaken in respect of the CEO and CFO. The Committee
discussed the relevance of the companies chosen and confirmed that it
was comfortable with the selection. The Committee was informed that
ShEx had also agreed the benchmarking groups.
(c) The Committee agreed to adopt the set of benchmark companies and
the developed market median for benchmarking purposes.
(d) The Committee agreed to benchmark total, fixed and variable
remuneration which would allow for the relative market strengths and
weaknesses of individual elements to be taken into account in agreeing
the total remuneration package.
(e) Jonathan Hutchings explained that it was the industry's widely preferred
and practised approach to use a range around the market median
rather than an absolute measure. The Committee discussed the use of
a range around the market median and agreed on a range of 85% to
115%.
(f) I Members of the Committee were comfortable with the overall total fixed
pay proposed but asked that the benefits increase be reduced, with any
ACTION:SC balance being added to basic pay.
(g) The Committee asked Jonathan Hutchings to provide an updated
analysis for the CEO and CFO, showing the median total fixed pay and
a range of 85% to 115% and an explanation as to why this approach
ACTION: NBS would be rigorous and less generous than previous proposals.
(h) The Committee agreed that any pay increase should be effective from
April 2013, and asked for clarification of future annual pay revision
dates.
REMCOM 12/12 FUTURE EXECUTIVE REMUNERATION STRATEGY
(a) The Committee discussed the paper on future remuneration strategy
for the full Executive Committee, including the Chief Executive and the
CFO.
(b) The Committee agreed that the Business should retain both a STIP
and a LTIP and discussed ways of differentiating between the two
incentives.
STIP
(c) It was agreed to align the STIP approach for both the Executive
Director roles, with a split of 80% for scorecard measures and 20% for
personal objectives.
(d) It was agreed that the CFO’s bonus would sit between that of the CEO
and ExCo members and should increase to 37.5% for on-target
performance and 55% for stretch. With these changes in place, it was
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agreed that the PDR multiplier would no longer be applied to the CFO’s
STIP after 1 April 2013.
(e) The Committee discussed the scorecard measures. Members were
comfortable with using a PBIT threshold target as a gateway to the
STIP. There was support for the use of Revenue and Crown Profit as
measures along with a Customer Satisfaction measure (possibly a Net
Promoter Score). The Committee also supported more specific
bespoke scorecard measures for individual ExCo members.
(f) The business was asked to propose new scorecard measures for
ACTION: SC 2013/14 at the next REMCOM meeting on 5" February 2013.
(g) The Committee discussed the new disclosure requirements being
introduced in 2013/14 and asked NBS to provide a suggested
ACTION: NBS disclosure for the CEO and CFO.
LTIP
(h) The Committee was disappointed that there seemed little opportunity
for radical change to the LTIP but agreed to continue with the current
structure, including the gateways of Network Transformation and
Access Criteria.
(i) It was agreed that the CFO should move to an LTIP award level half
way between the CEO and ExCo members.
Deferral and Clawback
(j) The Committee agreed to strengthen the clawback clause in the
scheme rules by lengthening the time period to 12 months or the next
audit, whichever is the longer, and making a provision for the inclusion
ACTION:SC of material reputational damage or profit restatement.
(k) Jonathan Hutchings pointed out that the nature of the LTIP meant it
was already deferred for 2013/14. He recommended, and the
Committee agreed, that deferral should not be applied to the STiP for
2013/14.
Disclosure and transparency
(1) Jonathan Hutchings reported on the new disclosure and transparency
requirements, as put forward by BIS. The Committee agreed that the
Business should introduce some of the new policies in line with 48% of
ACTION: JH companies and asked NBS to help shape the disclosure policy.
REMCOM 12/13 ANY OTHER BUSINESS AND DATE OF NEXT MEETING
(a) The Chairman summarised the meeting and requested that the pay
proposals to be brought to the next meeting align with the budget
ACTION: SC principles for next year.
(b) The next meeting of the Committee was scheduled for Tuesday 5
February 2013, from 9-11am.
REMCOM 12/14 CLOSE
There being no further business, the meeting was then closed.
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POST OFFICE LTD BOARD
Corporate Governance Review
1. Purpose
The purpose of this paper is to:
1.1 Note Post Office’s current level of compliance with the UK Corporate
Governance Code which applies to listed companies;
1.2 Present updated terms of reference for Board sub-committees and for the Board
itself, including a Schedule of Matters reserved for Board decision;
1.3. Consider a more formal definition of the roles of the Chairman and Chief
Executive; and
1.4 Note that the Audit, Risk and Compliance Committee (ARC) will review in
February a draft statement on corporate governance for inclusion in the Post
Office Limited Annual Report and Accounts to 31 March 2013 and the
Remuneration Committee will consider the format for disclosure of directors’
remuneration at its forthcoming meetings.
2. Background
2.1 At the time of separation from Royal Mail, outline terms of reference for Board
committees were produced.
2.2 Following the completion of appointments of non-executive directors to the
Board, the composition for each Board sub-committee has been settled, all
committees are now in operation and the committees have discussed proposed
new terms of reference.
2.3. The revisions follow the recommendations of the Institute of Chartered
Secretaries and Administrators and the new formats will be very familiar to those
used to looking at corporate governance documents on listed company websites.
24 The Board’s own schedule of matters for decision has also been updated and is
presented for consideration. Terms of reference for the Executive Committee are
being developed as part of a recent review of ways of working. They will be
approved by ExCo at a later date and presented to the Board for information so
that the respective expectations of the two most senior management groups can
then be more easily compared.
2.5 A detailed study has also been undertaken of the areas in which Post Office
cannot, or does not currently, comply with the detailed provisions of the UK
Corporate Governance Code. There is no statutory obligation on the Post Office
to “comply or explain”, as listed companies must do in their annual reports, but
best practice would be for the Chairman to comment within the Annual Report
and Accounts on how Post Office has implemented corporate governance
principles in the year under review.
2.6 In the current environment, there is likely to be a high degree of interest in any
disclosures made on directors’ remuneration and on diversity. The Remuneration
Committee will review a draft form of disclosure on directors’ remuneration at its
meetings in February and March 2013; the ARC will review the draft directors’
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report, accounts and notes and a draft corporate governance statement before it
comes to the Board for final approval.
3. Documents
The following documents are included in the Corporate Governance Review pack:
e An analysis of Post Office’s compliance with the UK Corporate Governance
Code
e Terms of Reference for the Post Office Board, including a Schedule of Matters
reserved for Board decision
e Terms of reference for the Audit, Risk and Compliance, Pension and
Nominations Committees (revised Terms of Reference have not been included
for the Mutualisation Committee as, in practice, all Board members have
contributed to the discussions on mutualisation and are considered likely to
continue to do so)
¢ A paper setting out the respective authorities of the Board, ExCo and the
Remuneration Committee relating to remuneration decisions, which also contains
the Terms of Reference for the Remuneration Committee.
¢ A draft “roles and responsibilities” paper which confirms the separation of powers
of the Chairman and the Chief Executive
4. Publication of Documents
The UK Corporate Governance Code requires listed companies to make available to the
public documents such as the Schedule of Matters reserved for Board decision,
Committee terms of reference and letters of appointment for non-executive directors.
This is often done by publishing standard form documents on the Company's website.
The Board is asked to consider whether Post Office documents should be made
available for download directly from the website or whether a statement should simply
be made that they can be provided by the Company Secretary, on request.
5. Recommendations
The Board is asked to:
5.1 note the current level of compliance with the UK Corporate Governance Code;
5.2 approve the revised terms of reference presented for the Board, including a
Schedule of Matters reserved for Board decision, and for Board sub-committees;
5.3 provide any further comments on the draft “roles and responsibilities” document;
5.4 agree that the Remuneration Committee should recommend a format for
disclosure of directors’ remuneration and the ARC should review in more detail
the corporate governance position and any draft disclosures for inclusion in the
Annual Report and Accounts to 31 March 2013.
Alwen Lyons
16 January 2013
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UK Corporate Governance Code and DTR requirements"
January 2013
PRINCIPLE A1:
The Role of the Board
Every company should be headed by an effective Board which is collectively responsible for the long-term success of the company.
Code provisions
Explanation/areas for review
The Chairman
A114 The Board should meet sufficiently regularly to discharge its The Board meets regularly. The schedule of matters reserved
duties effectively. There should be a formal schedule of matters I for the Board will be confirmed as part of the corporate
specifically reserved for its decision. The annual report should governance review in January 2013 and can be made available
include a statement of how the Board operates, including a high I to the public on the website. An appropriate statement on
level statement of which types of decision are to be taken by the I decision making will be made in the Annual Report. Terms of
Board and which are delegated to management reference for ExCo are being considered as part of the Ways
of Working Review.
A.1.2. The annual report should identify the Chairman, CEO, SID and This will be done.
Chairmen and members of Board committees. It should also set
out the number of meetings held and individual attendance by
directors.
A1.3 The company should arrange appropriate insurance cover in D&O policy is in place.
respect of legal action against its directors.
PRINCIPLE A2: There should be a clear division of responsibilities at the head of the company between the running of the Board and the executive
Division of responsibility for the running of the company’s business. No one individual should have unfettered powers of decision.
Responsibilities
A.2.1 The roles of the Chairman and Chief Executive should not be The roles are clearly separated. The roles of the Chairman and
exercised by the same individual. The division of responsibilities I Chief Executive have not previously been documented. A
between the Chairman and Chief Executive should be clearly draft document is provided for Board consideration.
established, set out in writing and agreed by the Board.
PRINCIPLE A3: The Chairman is responsible for leadership of the Board and ensuring its effectiveness. The Chairman should set the Board’s agenda
and ensure that adequate time is available for discussion of all agenda items, in particular strategic issues. The Chairman should ensurg
that the directors receive accurate, timely and clear information and should also ensure effective communication with shareholders. The
Chairman should promote a culture of openness and debate by fa
building constructive relations between executive and non-executive directors.
cilitating the effective contribution of non-executive directors and by
A3.1
The Chairman should be independent on appointment. A Chief
Executive should not go on to become Chairman.
The Chairman is independent. The Government shareholder,
whose consent is required for any director appointment, would want
to maintain the independence of the Chairman.
1
Corporate Governance Code Requirements.
DTR requirements are shown only where they extend Code provisions
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PRINCIPLE A4:
Non-Executive
Directors (“NEDs”)
As part of their role as members of a unitary Board, non-executive directors should constructively challenge and help develop
proposals on strategy
NEDs should scrutinise management's performance in meeting agreed objectives and monitor the reporting of performance. They
should satisfy themselves on the integrity of financial information and the quality of financial controls and systems of risk management.
They are responsible for determining appropriate levels of remuneration of executive directors and have a prime role in appointing and
removing executive directors and in succession planning. (Note that Post Office Limited’s Articles of Association give further rights to
the Shareholder in respect of the remuneration and appointment and removal of directors).
Code provisions
Explanation/areas for review
A441 The Board should appoint a Senior Independent Director (as a Neil McCausland has been appointed as the SID.
sounding Board for the Chairman, an intermediary for other
directors and to be available to shareholders if necessary).
A4.2 The Chairman should hold meetings with the NEDs without the An informal “NEDs only” meeting was held on 23 October 2012.
executives being present. Led by the SID, the NEDs should NM will lead the process for evaluation of the Chairman. NomCo to
meet without the Chairman present at least annually, to appraise I agree process for evaluation of Board and Committees early in
the Chairman’s performance, and on such other occasions as 2013.
are deemed appropriate.
A4.3 Where a director has concerns about the running of the The Company Secretary will record concerns as they arise.
company or a proposed action, which cannot otherwise be
resolved, the concern should be recorded in the minutes. On
resignation, a NED with any such concerns should provide a
written statement to the Chairman for circulation to the Board.
PRINCIPLE B1: The Board and its Committees should have the appropriate balance of skills, experience, independence and knowedge of the
Composition of the
Board
company to enable them to discharge their respective duties and responsibilities effectively. The Board should be large enough to
manage business requirements but not so large as to be unwieldy. The structure should be such that no individual or small group can
dominate the Board’s decision-taking.
In considering Committee membership, the value of refreshing the membership and not placing undue reliance on particular
individuals should be taken into account. No one other than the Committee Chairman and members is entitled to be present at a
meeting of the Nomination, Audit or Remuneration committee, but others may attend at the invitation of the Committee.
Code provisions
Explanation/areas for review
B.1.1 The Board should identify in the annual report each NED it All current NEDs are independent and are so identified on the Post
considers to be independent. Office website. This will also be done in the Annual Report.
B.1.2 At least half the Board, excluding the Chairman, should The Board currently comprises two executive directors, five
comprise independent NEDs.
independent NEDs and the Chairman, who was independent at the
time of appointment.
Corporate Governance Code Requirements.
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PRINCIPLE B2:
Appointments to the
Board
There should be a formal, rigorous and transparent procedure for the appointment of new directors to the Board.
The search for Board candidates should be conducted and appointments made on merit, against objective criteria and with due regard
for the benefits of diversity on the Board, including gender. The Board should satisfy itself that plans are in place for orderly succession
for appointments to the Board and to senior management so as to maintain an appropriate balance of skills and experience and to
ensure progressive refreshing of the Board.
Code provisions
Explanation/areas for review
B.2.1 A nomination committee should lead the process for Board The Post Office Nominations Committee is made up of the
appointments and make recommendations to the Board. A Chairman and two independent NEDs.
majority of its members should be independent NEDs. The
Chairman or an independent NED should chair the committee. The terms of reference for Board committees will be
The Chairman should not chair the committee for the summarised in the Annual Report and can be made available
appointment of a successor Chairman. The committee should I by being published on the website, once the Board’s corporate
make available its terms of reference, explaining its role and the I governance review has been completed in January 2013.
authority delegated to it by the Board.
B.2.2 The nomination committee should evaluate the balance of skills, I All NEDs are independent and their appointments were based on
experience, independence and knowledge on the Board and, in I particular criteria (strong retail background, accounting and audit
the light of this evaluation, prepare a description of the role and I expertise, financial services experience, detailed knowledge of
capabilities required for a particular appointment. pensions and investments and understanding of Government).
B.2.3 NEDs should be appointed for specified terms. Any term All NEDs have been appointed for a specific term. The Chairman’s
beyond six years for a NED should be subject to particularly appointment is on a rolling 12 month basis. All terms of
rigorous review and take into account the need for progressive I appointment are subject to the consent of the Shareholder.
refreshing of the Board.
B.2.4 A separate section of the Annual Report should describe the A section can be included in the Annual Report. Diversity Is being
work of the nomination committee, including the process it has
used in relation to Board appointments. This section should
include a description of the Board’s policy on diversity, including
gender, any measurable objectives set for implementing the
policy and progress in achieving the objectives.
An explanation should be given if neither an external search
consultancy nor open advertising has been used in the
appointment of a Chairman or NED. Where an external search
consultancy has been used, it should be identified in the annual
report and a statement made as to whether it has any other
connection with the company.
considered by the NomCo. A form of wording will need to be
agreed about the Board’s objectives and progress towards
them.
The search for NEDs has not previously been conducted in this
way but new director searches and appointments will be
controlled by the Nominations Committee. All appointments
require the consent of the Government shareholder.
Corporate Governance Code Requirements.
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PRINCIPLE B3: All directors should be able to allocate sufficient time to the company to discharge their responsibilities effectively.
Commitment
Code provisions Explanation/areas for review
B.3.1 The nomination committee should prepare a job specification for I All directors complete a record of other commitments on their
any appointment of a Chairman, recognising the need for appointment. Biographies of all directors appear on the website and
availability in the event of crises. A Chairman’s other significant I will be included in the annual report.
commitments (and those of directors in B.3.2 below) should be
disclosed to the Board before appointment and included in the
annual report.
B.3.2 The terms and conditions of NED appointments should be made I Letters of appointment for NEDs are not currently made public.
available for inspection. The letter of appointment should set A set time commitment (number of days per week) is stated
out the expected time commitment. only for the Chairman. The standard form letter could be made
available for inspection on request (not including personal
information or remuneration).
B.3.3 The Board should not agree to a full time executive taking on No Post Office executive director is a director of a FTSE100
the Chairmanship or more than one non-executive directorship I company.
in a FTSE100 company.
PRINCIPLE B4: All directors should receive induction on joining the Board and should regularly update and refresh their skills and knowedge. The
company should provide the resources for developing and updating directors’ knowledge and capabilities. To function effectively, all
directors need appropriate knowledge of the company and access to its operations and staff.
Code provisions
Explanation/areas for review
B.4.1 The Chairman should ensure that new directors receive a full, An induction programme is arranged for all new directors.
formal and tailored induction on joining the Board.
B.4.2 The Chairman should regularly review and agree with each Specific topics are covered in workshops and briefing. Individual
director their training and development needs. needs may be addressed as part of future Board evaluations.
PRINCIPLE B5: The Board should be supplied in a timely manner with information in a form and of a quality appropriate to enable it to discharge its
Information and duties. Under the direction of the Chairman, the company secretary's responsibilities include ensuring good information flows as well
Support as facilitating induction and assisting with professional development as required. The company secretary should be responsible for
advising the Board, through the Chairman, on all governance matters.
Code provisions Explanation/areas for review
B.5.1 The Board should ensure that all directors have access to Independent advice can be arranged if required.
independent professional advice at the company’s expense
where they judge it necessary to discharge their responsi
as directors. Committees should be provided with sufficient
resources to undertake their duties.
ies
Committee terms of reference include provision for them to obtain
professional advice as needed.
Corporate Governance Code Requirements.
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B.5.2 All directors should have access to the company secretary who I Alwen Lyons is available to all directors. The appointment and
is responsible to the Board for ensuring that Board procedures _I removal of the Company Secretary is a matter for Board resolution.
are complied with. Both the appointment and removal of the
company secretary should be a matter for the Board as a whole.
PRINCIPLE B6: The Board should undertake a formal and rigorous evaluation of its own performance and that of committees and individual directors
Evaluation
Code provisions Explanation/areas for review
B.6.1 The Board should state in the annual report how performance It is suggested that a limited form of disclosure is included this
evaluation of the Board, its committees and its individual year, allowing the Board to have settled into its role before
directors has been conducted. making more detailed public statements about evaluation in
2013-14
B.6.2 Evaluation of the Boards of FTSE 350 companies should be Not applicable for 2012/13.
externally facilitated at least every 3 years.
B.6.3 The NEDs, led by the SID, should be responsible for The process of performance evaluation of the Chairman will be led
performance evaluation of the Chairman, taking into account the
views of executive directors.
by NM.
PRINCIPLE B7: Re-
election
Section B7 is not relevant to Post Office. It requires the annual re-election by shareholders of directors of FTSE 350
companies.
PRINCIPLE C1:
Financial and
Business Reporting
The Board should present a fair, balanced and understandable assessment of the company’s position and prospects. This
responsibility extends to interim and other price-sensitive public reports and reports to regulators as well as to statutory information.
The Board should establish arrangements to enable it to ensure that information presented meets the above criteria.
Code provisions
Explanation/areas for review
C11
The directors should explain in the annual report their
responsibility for preparing the annual report and state that they
consider it as a whole to be fair, balanced and understandable,
providing the information necessary for shareholders to assess
the company’s performance, business model and strategy.
There should be a statement by the auditor about their reporting
responsibilities.
Responsibility statements will be included in the annual report.
C.1.2
The directors should include in the annual report an explanation
of the basis on which the company generates or preserves
value over the longer term (the business model) and the
strategy for delivering the objectives of the company. (This
should be in the same section as the business review).
Wording will be developed for the annual report.
C.1.3
The directors should report in annual and half yearly statements
that the business is a going concern, with supporting
assumptions or qualifications as necessary.
Going concern status is monitored by Finance, is referred to in the
half year trading statement and will be discussed as part of the year
end process, with appropriate wording in the annual report.
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Alwen Lyons
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PRINCIPLE C2: Risk
Management and
Internal Control
The Board is responsible for determining the nature and extent of
the significant risks it is willing to take in achieving its strategic
objectives. The Board should maintain sound risk management and internal control systems.
C.2.1
The Board should, at least annually, conduct a review of the
effectiveness of the company’s risk management and internal
control systems and should report that they have done so. The
review should cover all material controls, including financial,
operational and compliance controls.
Note that this is defined as a Board responsibility. This is an
area for development for Post Office as an independent
business and will receive attention from the ARC over the
coming months.
PRINCIPLE C3: Audit
Committee and
The Board should establish formal and transparent arrangements
for considering how they should apply the corporate reporting and
risk management and internal control principles and for maintaining an appropriate relationship with the company’s auditors.
recommendation on the appointment/reappointment/removal of
external auditors (FTSE 350 companies should put the external
audit contract out to tender at least every 10 years).
Auditors
Code provisions Explanation/areas for review
C.3.1 The Board should establish an audit committee of at least three I The Audit, Risk and Compliance Committee has been established
independent NEDs. In smaller companies the Chairman (if under the Chairmanship of Alasdair Marnoch, who has recent and
independent on appointment) may be a member of, but not relevant financial experience.
chair, the Committee. The Board should satisfy itself that at
least one member of the Committee has recent and relevant
financial experience (DTR 7.1.1R requires at least one member
to have competence in accounting and/or auditing).
C.3.2 and C.3.3 The main role and responsibilities of the Committee should be Terms of Reference for the ARC have been drawn up and include
set out in written terms of reference, which should be made the matters set out in more detail in Code provision C.3.2. The
available. Terms of Reference can be made available on the website.
C.3.4 Where requested by the Board, the Committee should provide The ARC will review the full Briefing Book before the annual report
advice on whether the Board can make the statement referred I is recommended to the full Board for approval.
to above in section C.1.1 (ie the report should be fair, balanced
and understandable).
C.3.5 The Committee should review arrangements for staff to raise This is currently reviewed at executive level by the Risk and
concerns and for concerns to be investigated (“whistle-blowing”) I Compliance Committee.
C.3.6 The audit committee should monitor and review the The internal audit team is being developed under the leadership of
effectiveness of the internal audit activities. The reasons for the I Malcolm Zack. Appropriate wording will be included in the
absence of such a function should be explained in the relevant I annual report to explain that this is a new function for the
section of the annual report. independent Post Office.
C.3.7 The Committee should have primary responsibility for making a_I The responsibility is included in the ARC’s Terms of Reference. The
ARC will keep under review the independence of the external
auditor.
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If the Board were to disagree with a recommendation on
external audit made by the Committee, an explanatory
statement would need to be made by the Committee.
DTR 7.1.3R requires the Committee to monitor the
independence of the statutory auditor and in particular many
provision of additional (ie non-audit) services.
C.3.8 A separate section of the annual report should describe the A report including the required details set out in provision C.3.8 will
work of the Audit Committee. be drafted for the annual report
PRINCIPLE D1: Levels I Levels of remuneration should be sufficient to attract, retain and motivate directors but a company should avoid paying more than is
and Components of necessary. A significant proportion of executive directors’ remuneration should be structured so as to link rewards to corporate and
Remuneration individual performance. Performance -related elements should be stretching and designed to promote the long term success of the
company. Remuneration Committees should use comparisons with caution to avoid an upward “ratchet” effect. They should also be
sensitive to pay and employment conditions elsewhere in the group, especially when determining annual salary increases.
Code provisions Explanation/areas for review
D.1.1 In designing incentive schemes for executive directors, a Post Office must receive consent from the Shareholder for any
remuneration committee should follow the detailed provisions changes to executive directors’ remuneration. Only basic pay is
set out in Schedule A to the Code. pensionable. The requirements for stretching performance criteria
to promote the long term success of the company, for rewards not
to be excessive and for remuneration incentives to be aligned with
risk policies and systems are noted. Consideration is being given
to including provisions to enable the company to reclaim variable
amounts in exceptional circumstances of misstatement or
misconduct.
Note: the Listing Rules set out the detailed requirements of a full I Post Office has not previously published a listed-company
directors’ remuneration report. The information to be included style directors’ remuneration report. A format for this year’s
differs from the statutory information required under the Large disclosure is being considered by RemCom. The structure and
and Medium-sized Companies and Groups (Accounts and wording for the 2012/3 Annual Report as a whole will take into
Reports) Regulations 2008 and would include each element of account recent BIS consultations on changes to narrative
remuneration, including basic pay, benefits, pension reporting and revised directors’ remuneration regulations
contributions and incentives. (FRC guidance on both is due to be published in Spring 2013
and consequent legal changes will take effect for Annual
Reports for financial years ending on or after 1 October 2013)
D.1.2 Relates to statements to be made about the earnings of an There are no current Post Office directors holding such a position.
executive director received from Non-Executive directorships
where the company has released a director for this purpose.
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D.1.3 NED remuneration should reflect the time commitment and NED remuneration is agreed by the Shareholder.
responsibilities of the role and should not include share options
or other performance-related elements.
D.1.4 RemCom should consider carefully commitments to directors in I The new form of director’s service contract will take account
the event of early termination, to avoid rewarding poor of these factors.
performance. They should take a robust line on reducing
compensation to reflect departing directors’ obligations to
mitigate loss.
D.1.5 Notice periods should be set at one year or less. Maximum notice period to be given by Post Office is 12 months (6
months’ notice to be given by director).
PRINCIPLE D2: There should be a formal and transparent procedure for developing policy on executive remuneration and fixing the remuneration of
Procedure individual directors. No director should be involved in deciding his or her own remuneration. The RemCom should consult the
Chairman and/or CEO about proposals relating to other executive directors. It should also be responsible for appointing any
consultants, in both of the above cases taking care to recognise and avoid conflicts of interest. The Chairman should ensure that
contact is maintained with principal shareholders about remuneration.
Code provisions Explanation/areas for review
D.2.1 The Board should establish a remuneration committee of at RemCom has been established under the Chairmanship of Neil
least three (for smaller companies, two) independent NEDs. McCausland. The terms of reference can be made available on
The Chairman may be a member of, but not chair the the website. Consultancy advice is under review. Appropriate
Committee if s/he was considered independent when statements can be made in the Annual Report about the
appointed. The Committee should make available its terms of I independence of any consultants used.
reference. Where consultants are appointed, they should be
identified in the annual report and a statement made as to
whether they have any other connection with the company.
D.2.2 RemCom should have delegated responsibility for setting RemCom’s terms of reference extend to direct reports of the Chief
remuneration for all executive directors and the Chairman, Executive.
including pension rights and any compensation payments. The
committee should also recommend and monitor the level and
structure of remuneration of senior management (as defined by
the Board but normally including the first layer of management
below Board level).
D.2.3 The Board itself, or the shareholders, should determine the ShEx sets the remuneration of NEDs. The limit in the Articles of
remuneration of the NEDs within the limits set by the Articles of I Association is £400,000 pa.
Association.
D.2.4 Shareholders should be invited specifically to approve all new I ShEx approves all changes in directors’ remuneration, including
long term incentive schemes and significant changes thereto.
incentive schemes.
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Principle E1: Dialogue
with Shareholders
There should be a dialogue with shareholders based on mutual understanding of objectives. The Board as a whole has responsibility
for ensuring that a satisfactory dialogue with shareholders takes place. While most shareholder contact is typically with the Chief
Executive and finance director, the Chairman should ensure that all directors are made aware of shareholders’ issues and concerns.
Code provisions E.1.1 and E.1.2 are designed with institutional shareholders in mind but the Post Office complies with the principles
eg the Chairman does ensure that the shareholder's views are communicated to the Board as a whole, NEDs cannot be appointed
without shareholder approval and the shareholder's views on key business matters are discussed with NEDs during induction meetings.
Principle E2: Use of
the AGM
This provision is not relevant to Post Office which, as a private
limited company, is not required to hold General Meetings.
FSA Disclosure and
Transparency Rules
(where they differ
from the Code)
The Listing Rules require a statement of whether a company
has complied throughout the period with all relevant provisions
of the Code and the company’s reason for any non-
compliance.
The DTRs require listed companies to produce a corporate
governance statement which must be included in the directors’
report, or in a separate document with the annual report, or be
published on the company’s website (DTR 7.2.1R).
The statement must contain a description of the main features
of the company’s internal control and risk management
systems in relation to financial reporting (DTR 7.2.5R and
7.2.10). It must also describe the composition and operation of
the main management and supervisory bodies.
Strictly the Code does not apply to Post Office. However, the
Company will be able to state that it complies with the
principles of the Code insofar as they apply to a government-
owned institution and can mention development areas for the
coming year (eg the development of internal audit).
Post Office intends to include a corporate governance
statement within the annual report and to publish this statement
on the website. An initial draft of the statement will be prepared
for the ARC for discussion in February 2013.
Expected regulation
changes
BIS has announced changes to narrative reporting (requiring
statements on diversity, production of a strategic report, to
replace the business review and removing the requirement for
some of the existing disclosures in the directors’ report) and
recommendations on the disclosure of directors’ remuneration
by listed companies. The changes will take effect for
companies reporting on financial years ending on or after 1
October 2013.
FRC’s recommendations on publication of a single figure for
directors’ remuneration paid during the period under review and
clarification of forward looking remuneration policy will be
taken into account as the Post Office prepares its next report
and accounts.
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Alwen Lyons
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POST OFFICE LIMITED
BOARD TERMS OF REFERENCE
Including the Schedule of Matters reserved for Board decision
The Board of Post Office Limited is collectively responsible for setting the Company's primary business
objectives, for establishing a proper governance framework to manage and monitor risk and for ensuring
that the Company has the resources and leadership required to achieve its stated objectives. Directors’
statutory duties are set out in the Companies Act 2006. The primary duty of the directors is to promote
the success of Post Office Limited as a Company for the benefit of its Government shareholder and the
wider stakeholder community.
The Board remains accountable for performance to the Shareholder Executive within the Department for
Business, Innovation & Skills (“ShEx"). The Board is required to notify ShEx of certain activities and
capital commitments and to seek the consent of ShEx, as Shareholder, for certain actions, as set out in
the Articles of Association.
A. BOARD COMPOSITION
1. The Board is made up of two executive directors and five non-executive directors, including the
Chairman.
ROLE INCUMBENT
Chairman Alice Perkins CB
(Chairman of Nominations Committee)
Senior Independent Director Neil McCausland (retail expertise)
(Chairman of Remuneration Committee)
Non-Executive Director Virginia Holmes (pensions expertise)
(Chairman of Pension Committee)
Non-Executive Director Alasdair Marnoch (financial expertise)
(Chairman of Audit, Risk & Compliance
Committee)
Non-Executive Director Tim Franklin (financial services expertise)
Non-Executive Director Susannah Storey (Government appointee)
Chief Executive Paula Vennells
CFO Chris Day
2. The Company Secretary (Alwen Lyons) will act as Secretary to the Board.
3. The composition of the Board will be monitored by the Nominations Committee, which will make
recommendations to the Board for the appointment or retirement of directors, taking into account
the need for a diverse board membership with a range of appropriate skills and experience. All
appointments will be subject to the consent of the Shareholder.
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4. Non-Executive directors will form the majority of the Board. The term of office of each Non-
Executive Director will be set by the Shareholder. Non-executive Directors will usually be appointed
for a minimum period of three years. The initial term of office may be renewed for a further period
but no Non-Executive Director shall serve for longer than [6] years.
B. BOARD MEETINGS
1. The Board shall meet as often as required. At least 8 Board meetings will be held each year.
2. In addition to regular Board meetings, separate Strategy sessions will be held twice a year.
3. The quorum for the transaction of business at a Board meeting shall be two directors (one
Executive, one Non-Executive).
4. The Board may meet in person, by telephone or by other electronic means, so long as each member
can contribute to the business of the meeting simultaneously.
5. Meetings may be convened by the Secretary, at the request of the Chairman, or by any director, a
any time.
6. Notice of each meeting shall be given to all directors and, unless there are special circumstances,
shall be given at least 3 working days before each meeting
7. The Secretary (or a nominated deputy) shall attend all Board meetings and keep minutes and
records of all decisions and actions.
8. Other Post Office employees and/or external consultants may attend for part or the whole of any
Board meeting at the invitation of the Chairman.
9. The Secretary will be accountable to the Chairman for the provision of relevant and timely
information to the Board and for ensuring regular reporting from Board Committees and the
Executive Committee to the full Board.
10. The Non-Executive Directors will meet twice at least once each year without the executive directors
being present.
C. DUTIES AND RESPONSIBILITIES
1, In addition to its legal duties, the Board has the following specific responsibilities:
¢ Establishment of the Post Office's vision and values
e — Setting the Company's risk appetite and ensuring a proper framework exists for the
management of risk
e — Maintenance of proper accounting and tax records, as required by the Companies Act 2006
e Maintenance of a sound system of internal control so that the Company can meet its statutory
and regulatory obligations
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e Maintenance of the reputation of the Post Office as a public institution, including consideration
of new products and activities which may attract public interest or have an impact on the value
of the Post Office brand
e — Ensuring regular and active communications with the Shareholder, particularly on the
Company's performance against the Strategic Plan and other key indicators
e Delegation of authority to Board Committees and to the Post Office Executive Committee,
according to their respective Terms of Reference
e Formal evaluation of the performance of the Board, Board Committees and individual directors
The Board may delegate authority to the Executive Committee or to any Board Sub-Committee to
deal with any particular matter or to complete a project or task on behalf of the Board. A Board
Sub-Committee shall include both standing committees such as the Audit, Risk and Compliance
Committee (ARC), the Nominations , Pension and Remuneration Committees and any ad-hoc sub-
committees. The Board shall set out clearly the terms of reference of all such committees and shall
receive reports on their activities, including copies of the minutes of committee meetings. Directors
of the Board shall constitute the majority of members of any Board Sub-Committee.
. SCHEDULE OF MATTERS RESERVED FOR BOARD DECISION
The following matters are reserved specifically for Board decision. Where indicated (*), the Board
may delegate authority to a Board sub-committee to bring forward a recommendation for approval
or to complete a project or task on behalf of the Board.
Section 1: Strategy and management
e — Approval of the annual operating plan and budget
e Approval of the Strategic Plan to be submitted to Government and any changes to it
e Approval of the Funding Agreement with Government and monitoring of the achievement of
milestones contained within the plan
¢ — Approval of the criteria for measurement of performance (Key Performance Indicators) and
annual review of such criteria
e — Ensuring that any necessary corrective action is taken in the light of reviews of performance
against budget and against the Strategic Plan and Funding Agreement
e — Setting the policy for diversity, talent management and succession planning within Post Office
e Approval of any extension of the Group's activities into new business areas or outside the UK
e Any decision to cease to operate all or any material part of the Group's business
Section 2: Ownership, capital structure and constitution
e Consideration of any recommendations for major changes to the Group's ownership and/or
control structure’(Mutualisation Committee)
e Approval of changes to the Group's capital structure including any proposal to issue new
classes of shares, to redeem, consolidate or redesignate existing shares or to reduce the share
capital,
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«Proposals for changes to the Articles of Association or other constitutional documents
applicable to the Post Office from time to time
e — Approval of the incorporation of any new Group company, partnership or joint venture entity,
including any subscription or application for allotment of shares
e Approval for the dissolution of any Group company, partnership or joint venture entity.
Section 3: Financial reporting and controls
e — Approval of the annual report and accounts, including any corporate governance statement and
any specific reports required by Company law’ (Board-appointed sub-committee )
¢ — Approval of any half year financial report or trading statement for publication” (Board-appointed
sub-committee)
e Approval and declaration of any dividends or other proposed distributions, subject to the
Articles of Association and confirmation of the sufficiency of distributable reserves
¢ — Approval of any significant changes in accounting policies or practices” (ARC)
e — Approval of treasury and banking policies, including methods of mitigating against foreign
currency exposure and any use of financial derivatives * (ARC)
« Monitoring of the independence of internal and external auditors * (ARC)
e Approval of the appointment or removal of the external auditor” (ARC)
e — Ensuring that an effective risk management system is maintained as part of a sound system of
internal controls and internal risk management” (ARC)
Section 4: Financial commitments
¢ — Approval of major capital projects (above £3m)
e Approval of material contracts in the ordinary course of business and included in the operating
plan (above £20m) and those arising which are not included in the operating plan (above
£10m)
e — Approval of all material contracts not in the ordinary course of business. including all strategic
acquisitions and disposals
e Proposals to enter into financial instruments, bank borrowings and any proposed loan facility
(above £20m).
e — Any commitment involving the registration of a debenture, mortgage or charge against Post
Office Limited assets (above £3m).
¢ Approval of major asset disposals (above £1m)
e Consideration of any material changes to pension arrangements for Post Office employees, in
particular affecting the rate of contributions required to be made’ (Pension Committee)
e Determination of the appropriate investment strategy for Post Office pension funds and
monitoring of performance by the investment managers’ (Pension Committee)
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Section 5: Appointments and Senior Remuneration
e Recommendation of the appointment of any person as a Director * (Nominations Committee)
e Following receipt of consent from the Shareholder, formal appointment of any person as a
Director, including the designation of an individual to serve as Chairman, Senior Independent
Director, Chief Executive, CFO or Chair of any Board Sub-Committee
e — Confirmation of the division of responsibilities between the Chairman and the Chief Executive
e Appointment and any termination of appointment of the Company Secretary
e Recommendations to the Shareholder on changes to remuneration policy and packages for
Executive Directors * (Remuneration Committee)
e Recommendations to the Shareholder on fees to be paid to Non-Executive Directors
e — Introduction of any long term incentive scheme and approval of the performance criteria and
the amount of any awards to be made under any long term incentive scheme * (Remuneration
Committee)
e — Approval of any annual bonus schemes involving participation by Directors" (Remuneration
Committee)
e Confirmation of the terms of any suspension or termination of service of an Executive Director
as an employee of the Company, subject to the law and their Director's contract *
(Remuneration Committee)
e Appointments to the Boards of subsidiary and joint venture companies
e Appointment of specified individuals to authenticate the Post Office Limited seal
e Appointment of the Group's principal professional advisers
Section 6: Governance
e — Ensuring delivery of the obligations on the Post Office set by the Postal Services Act 2011,
including the publication of an annual Network Report and Postal Heritage Report
. Approval of the Group’s overall corporate governance arrangements
¢ Performance evaluation of the Board, Board Sub-Committees and individual Board members
(or confirmation of why this has not occurred)
e Approval of Group policies including, but not limited to, the Health and Safety Policy, Anti-
Money Laundering Policy, Freedom of Information Policy, Whistle-Blowing policy and/or Code
of Conduct and Anti-Corruption Policy
e Approval of the overall levels of insurance for the Group, including directors’ and officers’
liability insurance and any arrangements for indemnity of directors
e Decisions on the potential prosecution, defence or settlement of litigation involving potential
costs of more than £1m or being otherwise material to the interests of the Group
e — Any proposal to make political donations
e Changes to the Schedule of Matters Reserved for Board decision.
January 2013
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POST OFFICE LIMITED
AUDIT, RISK AND COMPLIANCE COMMITTEE
TERMS OF REFERENCE
Purpose
The purpose of the Audit, Risk and Compliance Committee (“ARC” or the “Committee”) is to assist the
Board of Directors in fulfilling its fiduciary responsibilities by:
21
Contributing an independent view on the accounting, financial control and financial reporting
practices of the Company.
Taking all reasonable steps to ensure accurate and informative corporate financial reporting and
disclosures which meet appropriate accounting and corporate governance standards.
Providing oversight of the company’s risk management systems, operational controls and key
systems.
The responsibilities undertaken by the ARC under delegated authority from the Board will be
subject always to the powers and duties of the Board, as set out in the Articles of Association.
Composition, Terms of Office and Governance.
Composition and Terms of Office
The Committee shall serve as a standing committee of the Board. Its Chairman and members
will be appointed by the Board. It shall consist of at least two independent non-executive
directors.
Only non-executive directors shall be eligible for membership of the Committee. Members of the
Committee will normally serve for a period of three years. Their appointment may be renewed
on an annual basis thereafter with the consent of the Chairman of the Committee but no
director shall serve for more than six years.
The quorum shall be two directors, of whom one will have recent and relevant financial
experience.
The Committee shall meet as often as required but at least three times per year.’
The Company Chairman and executive directors may be invited to attend any meeting, or any
part of any meeting, by the Committee Chairman.
1 The Financial Reporting Council recommends a minimum of 3 meetings but suggests that more will be usually
required.
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e The CFO, the General Counsel, the Head of Risk Governance and the Head of Internal Audit (or
those holding positions with responsibility for such roles, howsoever named) will be permanent
invitees.
e The Company Secretary shall act as Secretary to the Committee and shall attend all meetings to
keep minutes and record actions.
e The Committee Chairman will report regularly to the Board. Minutes of each Committee
meeting will be circulated to all members of the Committee and, once agreed, to all members of
the Board
e = The External Auditors may attend all or part of any Committee meeting at the invitation of the
Committee Chairman. As a minimum the External Auditors will attend to present their external
audit plan for approval and to present their reports.
e ~The Company will provide current and new Committee members with any training, briefings or
induction required. The Company Secretary, Head of Internal Audit and the External Audit
Partner will keep members informed of relevant published guidance as necessary.
2.2 Governance of Auditing Services
The Committee will:
e — Review and recommend to the Board the nomination or discharge of the independent external
auditors, the proposed fees (in consultation with management) and the acceptance of the scope
and general extent of the engagement.
e — Formally review, challenge and approve the agreed annual external audit plans and approach.
e Periodically review the scope, resourcing and capabilities of the Internal Audit function.
e Review and re-approve the Internal Audit Charter on an annual basis.
e Approve each year in advance the Internal Audit plans and review both resources and any
proposed amendments that may occur through the following year. The review should include
methods employed by the internal auditors to assess risk and to prioritise the various audit
proposals identified in the annual plan.
e Assume a primary role in the appointment, assessment and if necessary the discharge of the
Head of Internal Audit.
e — Ensure the independence of the external and internal auditors including an annual review of any
non-audit services provided by either.
« — Ensure free and effective communication between the Committee, external auditors and internal
auditors and hold separate sessions, or informal meetings and contact as required.
These meetings may discuss matters that any of these groups believes should be discussed
privately with or without management.
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e — Ensure lines of communication are maintained with the Board.
2.3 Governance - Meetings
e Any member of the committee or the Company Secretary may convene a meeting. The External
and Internal auditors may request a meeting with or without management present.
e Meetings may be held in person or by telephone or other electronic means, so long as all
participants can contribute to the meeting simultaneously.
e Notice of each meeting shall be given to all those entitled to participate at least 2 working days
before the meeting.
e Meetings shall be planned in accordance with key reporting and financial planning dates.
2.4 Governance - Other
The Committee will:
e Review and update its terms of reference annually.
e =Conduct an annual evaluation of the performance of its duties and responsibilities and of its
effectiveness, and discuss the results with the Board of directors.
e Prepare an annual report on its activities for inclusion in the Annual Report and shall review and
approve on behalf of the Board statements to be included in the Annual Report concerning
financial controls, internal control and risk management.
e In the absence of express authority from the Board, the Committee will not, without the
concurrence of both management and the auditors, have either the responsibility or authority
for altering the financial statements or the accounting procedures of the Company.
3. Accounting, Financial Control and Financial Reporting and Disclosure
The Committee will:
e — Review, discuss and consider with the external auditors their approach to risk assessment and
the scope and plan of their audits
e Review the annual financial statements which are to be submitted to the Board, including
Management's explanatory notes. The review may include:
e Reports from the external auditors as to the results of their examination to date.
e Discussion of any problems regarding financial reporting which may need to be reported in
the annual report to the shareholders including any disagreements that may have arisen
between the auditors and management in any area.
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¢ Meeting(s) with the senior financial executives who shall outline any problems as to financial
policies, financial reporting or matters relating to internal control and any matters in
contention with or under consideration by the external or internal auditors;
e The appropriateness of existing accounting principles being employed and any change in
accounting policies or practices which the corporate auditors may refer to in their report to
the shareholders, and the impact on the Company's financial statements.
e Any proposed changes in the presentation of the financial statements or accompanying
notes which the auditors may recommend.
¢ Other matters related to the conduct of the audit communicated to the Committee under
generally accepted accounting standards.
e The Management Letter
e The Committee shall review with management any half yearly trading statements or
financial reports and the contents of any press release concerning the Company’s financial
performance or situation, before release to the public or to shareholders.
4. Risk Management, Operational Controls and Policies
4.1 Risk Management Framework
The Cornmittee will:
° Review the overall risk management framework in place for the Company including its
appetite for risk.
° Oversee the Risk and Compliance Committee activities and receive summary reports as
appropriate
e Review the Company's overall risk position and periodically invite management to outline
risk management strategy and status within their specific business units.
° Review management's assessment of the degree of risk the Company prudently incurs in
achieving a reasonable balance between the cost of managing risk and control systems and
the benefits derived.
. Consider and review areas of specific risk as highlighted by the Risk and Compliance
committee. This should include, but is not limited to, sufficient coverage of strategic risk,
financial risk, operational risk, technology risk, reputation, regulatory, major change
initiatives and people risks
° Review legal, regulatory and any other matters that may have a material impact on the
financial statements, related Company compliance policies, and programmes and reports
prepared to manage and monitor Company compliance policies.
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4.2. Contrals and Policies
The Committee will consider and review with the external auditors and the internal auditors:
° The adequacy of the Company's internal controls;
. Recommendations for the improvement of the Company's internal controls, processes and
systems.
. Significant findings (the “management letter” from external auditors) and recommendations
together with management's responses.
° Any reportable restrictions experienced regarding scope or access to required information
by either external or internal audit.
4.3 Fraud, Theft and Ethics
The Committee will
e Review with management their fraud assessment, detection measures and _ their
investigation of illegal acts, as appropriate.
. Review any summary of frauds, thefts and other irregularities of any size.
° Review with the internal auditors and the external auditors the results of any review of the
compliance with the Company's codes of ethical conduct and similar policies including
whistleblowing.
4.4 Risk Management - Other
e The Committee shall have the power to conduct or authorise investigations into any
company matters within the Committee's scope of responsibilities. The Committee shall be
empowered to obtain independentlegal advice, and engage counsel, accountants, or others
to assist it in the conduct of any investigation.
° The Committee shall perform such other functions as may be assigned or delegated to it by
the Board, and may review other items of an internal control or risk management nature
which may from time to time be brought before the Committee.
5. Committee timetable
A timetable shall be produced each year showing the current membership of the Committee and the major
annual activities of the Committee, in a similar format to that set out in the appendix.
6. Review
These terms of reference were last reviewed in January 2013
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APPENDIX?
ARC Membership November 2012
Chairman Alasdair Marnoch
Members Tim Franklin, Neil McCausland, Susannah Storey
Company Secretary Alwen Lyons
External Audit Emst & Young
Head of Internal Audit Malcolm Zack
Annual Timetable April
June
Nov
Feb
1. Governance items
Annual review of terms of reference and IA
charter.
External Auditor
review/appointment/reappointment
Minutes and actions of previous meeting v
Evaluation (annual)
Private meetings with auditors/management v
VN
2. Financial reporting and disclosure
Review and approve external audit plan
Financial statements full year v
Financial statements - half year
External audit management letter v
Approval of Committee report for inclusion in
Annual Report
3. Risk management and control
Internal Audit update report v
Risk and Compliance activity and highlights v
Strategic risk update
Financial risk update v
IT and systems risk update
Selected business risk review update v
Insurance review
Annual Timetable April
June
Nov
Feb
Other (Less frequent)
Fraud and Theft report
Security update
Ethics and Code of Conduct and Whistle-Blowing
policy
? The timetable sets out standing agenda items. It may be modified by the audit committee in light of specific
requests or actions arising from meetings. The months indicated are provisional and subject to change.
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POST OFFICE LIMITED
NOMINATIONS COMMITTEE
TERMS OF REFERENCE
PURPOSE
The purpose of the Nominations Committee is to recommend the appointment of individuals to the Board,
to its sub-committees and to Executive Committee positions which report directly to the Chief Executive.
The Committee will also consider and, if necessary, recommend to the Board any proposals to remove or
replace individuals holding office as a Director or reporting directly to the Chief Executive. It is
acknowledged that the actions of the Committee will be subject always to the Articles of Association of the
Company, under which any proposal for the appointment or removal of a director of the Company
requires the consent of the Shareholder.
A. COMPOSITION AND GOVERNANCE
1. The Nominations Committee is constituted as a sub-committee of the Board.
2. The Chairman and members of the Committee shall be appointed by the Board.
3. The Committee shall be made up of three members, including at least two independent non-executive
directors.
4. The Chairman shall chair the Nominations Committee except when the Committee is considering
succession to the Chairmanship; the Senior Independent Director shall chair any Nominations
Committee dealing with the appointment of a successor Chairman.
5. In the absence of the Chairman of the Committee at any meeting, the Committee members present
shall determine who shall chair the meeting.
6. Members of the Committee will normally serve for a period of three years. Their appointment may be
renewed for a further three year period but no director shall serve as a member of the Nominations
Committee for a period of more than six years.
7. Only members of the committee have the right to attend Committee meetings. The Chief Executive
and the HR and Corporate Services Director (or the holder of any equivalent position) shall be
informed of the date of each meeting and may be invited by the Committee Chairman to attend all or
part of any meeting, as and when appropriate.
8. The Company Secretary shall not be a member of the Committee but shall act as Secretary to the
Committee (or shall nominate an appropriate substitute) and shall keep minutes and records of each
meeting and ensure regular reporting by the Committee to the full Board.
9. Minutes of each meeting will be circulated to all members of the Committee and, once agreed, to
those members of the Board who have no personal interest in the matters discussed. Where a conflict
of interest exists, the Company Secretary will provide sufficient information to the full Board to provide
an understanding of the matter(s) considered.
10. If so requested by the Board or by the Shareholder, the Committee shall provide an annual report on
its activities.
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11. The Committee shall have access to sufficient executive time and resources in order to carry on its
duties, including access to the Company Secretary and members of the HR team;
12. The Committee shall have authority to appoint executive search consultants and to obtain, at the
Company's expense, legal or other professional advice on matters within its terms of reference as
required, up to a financial limit determined by the Board.
13. If there should be disagreement between the Nominations Committee and the full Board, the
Chairman of the Board shall make time available for discussion of the issue so that the matter may be
resolved.
14. Members of the Committee shall conduct an annual review of the Committee's performance.
B. MEETINGS
1. The Committee shall meet as often as required but not less than twice each year. The Committee
may meet in person, by telephone or by other electronic means, so long as each member can
contribute to the business of the meeting simultaneously.
2. The quorum necessary for the transaction of business shall be 2 members.
3. Meetings may be convened by the Secretary to the Committee, at the request of the Committee
Chairman, or by any member of the Committee, at any time.
4. Notice of each meeting shall be given to all members of the Committee and any other person
required to attend, at least 3 working days before each meeting.
C. DUTIES AND RESPONSIBILITIES.
The main duties and responsibilities of the Committee are:
1. to keep under review the structure, size and composition of the board (taking account of the skills,
experience, knowledge and diversity of its members), to ensure that the key roles of Chairman, Chief
Executive, Chief Financial Officer and Senior Independent Director are filled and to recommend
changes to the Board's composition as thought necessary.
2. to monitor the independence, and process for evaluation of, Board sub-committees and the skills and
experience available within the Board, in order to recommend new appointments to committees, or
the replacement of individuals on those committees, as required from time to time.
3. to review the results of the performance appraisal of executive directors and the results of any
committee evaluation process which may relate to the composition of the Board, any of its sub-
committees or the Executive Committee.
4. to lead the process for identifying and nominating candidates for appointment to the Board, including
the formulation and approval of appropriate role descriptions and specifications which seek to attract
a wide range of talent and promote diversity within the organisation.
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11
12
13.
14
15
16.
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in the case of the proposed appointment of a new Chairman, to work with the Shareholder to prepare
a full specification which reflects accurately the personal qualities, skills and experience and time
commitment needed by the Business
to consider for each proposed appointment the respective merits of open advertising and the use of
specialist advisers to facilitate the search for appropriately qualified candidates
to review the processes for the engagement of external search agents for senior appointments
to consider recommendations made by the Chief Executive on appointments to Executive Committee
positions which report directly to the Chief Executive and to ensure that a fair, open and transparent
process is followed in identifying and interviewing candidates for Executive Committee positions.
to ensure that the business puts in place plans for development of potential and succession plans for
key roles on the Board and on the Executive Committee, taking into account the challenges and
opportunities facing the company and the skills and expertise needed for leadership of the Post Office
in the future.
to review, on behalf of the Board, the progress of building talent and diversity within the Post Office
and to report to the Board progress against the targets set for performance measurement in this
area.
to ensure that any proposed appointee to the Board discloses other business interests and any
potential conflict of interest, in line with the recommendations of the UK Corporate Governance Code
and the precepts set by the Nolan Committee on Standards in Public Life.
to work with the Remuneration Committee in respect of new hires, to ensure that the proposed
package for new senior appointments reflects the responsibilities of the role and is designed to attract
talent but is not excessive.
to ensure that consent is sought from The Secretary of State for Business, Innovation and Skills for
the appointment to the Board of any new director on terms agreed between the Nominations
Committee and the Remuneration Committee.
to respond to any queries from the Shareholder on the processes for selection of candidates or the
contractual terms proposed for any senior appointment.
to consider on behalf of the Board any matters relating to the continuation in office of any director or
direct report of the Chief Executive, including the suspension or termination of any contract of
employment or contract for services, subject to the provisions of the law.
to undertake any other oversight function delegated to the Committee by the full Board.
ANNUAL REVIEW
The Committee will undertake an annual review of the Terms of Reference and recommend to the
Board any necessary changes
These Terms of Reference were last reviewed in January 2013.
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POST OFFICE LIMITED
PENSION COMMITTEE
TERMS OF REFERENCE
PURPOSE
The purpose of the Pension Committee is to make recommendations to the Board in respect of pensions
and pre-retirement risk benefits provision within Post Office Ltd and to put into effect appropriate
investment strategies for the Post Office Pension Fund (currently managed and administered within the
Royal Mail Pension Plan (“RMPP")) on behalf of the Board and in line with the Board's investment beliefs.
A. COMPOSITION AND GOVERNANCE
1. The Pension Committee is constituted as a sub-committee of the Board.
2. The Chairman and members of the Committee shall be appointed by the Board
3. The Committee shall be made up of three members, including at least two independent non-executive
directors.
4. The Chairman of the Committee shall have recent and relevant experience of pensions or investment
management.
5. In the absence of the Chairman of the Committee at any meeting, the Committee members present
shall determine who shall chair the meeting.
6. Members of the Committee will normally serve for a period of three years. Their appointment may be
renewed for a further three year period but no non-executive director may serve as a member of the
Pension Committee for a period of more than six years.
7. Only members of the committee have the right to attend Committee meetings. The HR and Corporate
Services Director (or the holder of any position(s) equivalent to those of General Counsel and HR
Director), nominated representatives of the Finance and HR departments and the external Pensions
Investment Adviser shall be informed of the date of each meeting and may be invited by the
Committee Chairman to attend all or part of any meeting, as and when appropriate. A representative
of the Trustee will be invited to attend at least one Committee Meeting each year to discuss
investment management performance.
8. The Company Secretary shall not be a member of the Committee but shall act as Secretary to the
Committee (or shall nominate an appropriate substitute) and shall keep minutes and records of each
meeting and ensure regular reporting by the Committee to the full Board.
9. Minutes of each meeting will be circulated to all members of the Committee and, once agreed, to
those members of the Board who have no personal interest in the matters discussed. Where a conflict
of interest exists, the Company Secretary will provide sufficient information to the full Board to provide
an understanding of the matter(s) considered.
10. If so requested by the Board or by the Shareholder, the Committee shall provide an annual report on
its activities.
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11. The Committee shall have access to sufficient executive time and resources in order to carry on its
duties, including access to the Company Secretary and members of the HR team;
12. The Committee shall have authority to appoint executive advisers and consultants and to obtain, at the
Company's expense, actuarial, legal or other professional advice on matters within its terms of
reference as required, up to a financial limit determined by the Board.
13. Members of the Committee shall conduct an annual review of the Committee's performance.
B. MEETINGS
1. The Committee shall meet as often as required but not less than three times each year. The
Committee may meet in person, by telephone or by other electronic means, so long as each member
can contribute to the business of the meeting simultaneously.
2. The quorum necessary for the transaction of business shall be 2 members.
3. Meetings may be convened by the Secretary to the Committee, at the request of the Committee
Chairman, or by any member of the Committee, at any time.
4. Notice of each meeting shall be given to all members of the Committee and any other person
required to attend, at least 3 working days before each meeting.
C. DUTIES AND RESPONSIBILITIES.
The main duties and responsibilities of the Committee are:
1. to keep under review the funding levels of the Post Office sections within the RMPP (the “ Fund") and
the contribution rates required from the employer and employees to ensure that the Fund can meet
its liabilities and sustain the payment of benefits
2. to ensure that regular meetings are held with the Trustee and report to the Board on any significant
outcomes from those meetings
3. to provide regular reports to the Board on the financial position of the Fund, highlighting the need for
any changes to contribution levels, benefits or eligibility to participate and recommending strategies
for deficit recovery if required
4. to make recommendations to the Board on the design and structure of Post Office pension
arrangements and associated life assurance and income protection arrangements; specifically, the
introduction of new or significantly revised pension schemes will need to be investigated fully by the
Pension Committee before seeking Board approval
5. to review on behalf of the Board the strategic investment strategy for the Fund
6. to determine on behalf of the Board and review at least annually the preferred asset allocation within
the Fund and communicate any proposed changes of investment strategy to the Trustee
7. to communicate to the Trustee the Committee’s aims in recommending any particular investment,
strategy, including any required rate of return objective and/or risk profile
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11.
12.
13.
14.
15.
16
17.
18,
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to review with the Trustee the reappointment and/or replacement of investment managers to
manage the assets of the Fund
to monitor investment performance on a six-monthly basis, net of investment management costs, for
the active part of the portfolio
to monitor fees for investment management, custodianship and administration and professional
advice, including actuarial and consultancy fees and to make adjustments as deemed appropriate,
including making recommendations to the Board for re-tendering of contracts
to recommend the appointment of pensions advisers and consultants and agree their remuneration
(up to a maximum annual limit of expenditure of £1 million)
with the benefit of independent pensions investment advice, to take such steps as may deemed
necessary to protect assets of the Fund from increases in liability which might prejudice its long term
sustainability
to investigate, on behalf of the Board, the implications of any proposed additional discretionary
benefits
to review and recommend to the Board the pensions accounting assumptions to be used in
preparation of the annual accounts of Post Office Limited
to review any proposed amendments to trust deeds affecting Post Office Limited or the Post Office
Fund(s)
to ensure that proper arrangements are made for issuing invitations to join the scheme or making
automatic enrolments where required by law, for nominating employee representatives to fulfil
statutory requirements and for proper administration of members’ records for the Fund
to consider on behalf of the Board and in conjunction with the Remuneration Committee any matters
relating to proposed pension provision for directors or direct reports of the Chief Executive or any
other senior appointments which may involve atypical pension arrangements
to undertake any other oversight function delegated to the Committee by the full Board.
ANNUAL REVIEW
The Committee will undertake an annual review of the Terms of Reference and recommend to the
Board any necessary changes
These Terms of Reference were last reviewed in January 2013.
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Strictly Confidential
POST OFFICE LTD
Delegated Authorities for Remuneration Matters
(subject to Board approval)
1.0 Purpose
1.4
1.2
To confirm delegated authorities for decisions relating to remuneration for
Executive Directors and for Post Office employees below Board level.
This paper is predicated on the principle that the Remuneration Committee will
make recommendations on their responsibilities, the Board will approve the
decisions and ShEx will authorise their implementation.
2.0 Background
2.1
2.2
2.3
2.4
2.5
The Board will retain ultimate responsibility for approving the Post Office
remuneration strategy.
Remuneration decisions need to be made company wide and delegated
authorities therefore need to be updated to maintain fairness and to ensure that
responsibilities are clear at all levels.
Post Office will uphold the principle that no individual should be able to
determine his or her own remuneration.
For this reason, and in line with best practice in corporate governance, a
remuneration sub-committee of the Board (RemCom) has been formed to
recommend to the Board the remuneration strategy for the Senior Leadership’.
The latest version of the Committee’s terms of reference is attached as
Appendix 1.
The delegated authorities detailed in 3 and 4 below have been developed to
supplement the terms of reference agreed for the RemCom but not to replace
them.
3.0 I RemCom Authorities
3.1
3.2
Membership of RemCom will be restricted to non-executive directors so that
the Executive Directors will have no part in determining their own remuneration.
The remuneration of non-executive directors will be set solely by ShEx.
RemCom will have unrestricted access to the HR team and to the Company
Secretariat in relation to remuneration matters with the authority to obtain
advice from independent remuneration consultants up to a financial level of
£50,000 pa, or as otherwise determined by the Board.
' The Senior Leadership is defined as the Chief Executive, Executive Directors and Executive Committee
positions which report directly to the Chief Executive.
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3.3 RemCom shall:
3.3.1. recommend the total remuneration strategy for the Chief Executive,
Executive Directors and Executive Committee members, taking into
account the remuneration policy generally set for other employees.
3.3.2 with the consent of the Secretary of State for Business, Innovation and
Skills, determine each element of the total individual remuneration
package (see 5.1) of the Chief Executive and other Executive Directors,
both existing and for new hires, including increases in salary resulting
from company pay increases, pension provision and the outturn of
performance related pay arrangements and incentive schemes.
The Remuneration Committee will be informed of each element of the
remuneration package and the total remuneration for any new hires and
internal appointments proposed to carry a salary above the level of the
lowest salary within the membership of the current Executive
Committee. Pay increases which would result in an individual receiving
remuneration above the level of the lowest Executive Committee salary
will also be reported to the Remuneration Committee, for information.
3.3.3. determine each element of the total individual remuneration package of
the Executive Directors and any Executive Committee members
reporting directly to the Chief Executive, both for existing and for new
hires (arrangements for new hires will be proposed in conjunction with
the Nominations Committee).
3.3.4 recommend to the Board the design of new incentive schemes for the
Executive Directors, Executive Committee and any other senior roles’
eligible to be invited to participate in a Long Term Incentive Plan.
3.3.5 review and agree the total remuneration and the outturn of performance
related pay arrangements for the Senior Leadership and payments for
the Executive Directors and Executive Committee subject to ShEx
authorisation.
3.3.6 review the overall total remuneration packages for the Senior
Leadership.
3.3.7 approve any exit package for any Executive Director, Executive
Committee member and any other senior individual whose role carries a
salary above the level of the lowest salary within the Executive
Committee membership and where the exit package is in excess of
contractual obligations.
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4.0 ExCo and Executive Authorities
41 ExCo shall:
4.44
4.1.2
approve the remuneration strategy for all employees below the Senior
Leadership.
determine each element of the total individual remuneration
package of the Senior Leadership Population and all employees.
delegate to the appropriate level of management authority the
responsibility for base salary of their employees on recruitment,
promotion and any merit increases within the overall policies
determined by the Board
agree the outturn of performance related pay arrangements for all
employees below Senior Leadership Population and approve payments.
approve the settlement of pay mandates and collective bargaining
arrangements up to the limit of financial authority already delegated by
the Board
propose to the Board and, where required, seek Board approval to
propose to Shex, the adoption of longer term pay agreements outside
the limits of ExCo’s delegated authorities.
5.0 Total Remuneration Package
5.1 The elements that typically form an individual’s remuneration package include,
but are not restricted to:
e Base salary
e Short term incentive plan (annual bonus)
e Long term incentive plan
e Pension provision
e Benefits such as car, private health, holidays
e Contractual terms such as notice periods
6.0 Recommendation
6.1 The Board is asked to confirm the delegated authorities as described in 3 and 4
above.
Susan Crichton
January 2013
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Appendix 1.
POST OFFICE LIMITED
REMUNERATION COMMITTEE
TERMS OF REFERENCE
PURPOSE
The purpose of the Remuneration Committee is to recommend to the board the remuneration strategy
and any changes to individual elements of the remuneration package for executive directors of Post Office
Limited, members of the Executive Committee who report directly to the Chief Executive and other
significant senior level appointments with comparable remuneration, as determined by the Board.
Any changes in remuneration for directors of Post Office Limited must be approved in advance by the
Shareholder. The remuneration of the Chairman and of non-executive directors will be set by the
Shareholder.
A. COMPOSITION AND GOVERNANCE
1. The Remuneration Committee is constituted as a sub-committee of the Board and its Chairman shall
be appointed by the Board. If considered independent at the time of appointment, the Chairman of the
Company may be a member of the Committee, but shall not chair it.
2. Members of the Committee shall be appointed by the Board, acting on the recommendation of the
Nominations Committee and in consultation with the Chairman of the Remuneration Committee.
3. The Committee shall be made up of at least two independent non-executive directors. Only non-
executive directors shall be eligible to be members of the Committee such that no individual shall be
involved in determining their own remuneration
4. In the absence of the Chairman of the Committee at any meeting, the Committee members present
shall determine who shall chair the meeting.
5. Members of the Committee will normally serve for a period of three years. Their appointment may be
renewed for a further three year period but no director shall serve as a member of the Remuneration
Committee for a period of more than six years.
6. Only members of the committee have the right to attend Committee meetings. The Chief Executive
and the HR and Corporate Services Director (or the holder of any equivalent position) shall be
informed of the date of each meeting and may be invited by the Committee Chairman to attend all or
part of any meeting, as and when appropriate
7. The Company Secretary shall not be a member of the Committee but shall act as Secretary to the
Committee and shall keep minutes and records of each meeting and ensure regular reporting by the
Committee to the full Board.
8. Minutes of each meeting will be circulated to all members of the Committee and, once agreed, to
those members of the Board who have no personal interest in the matters discussed. Where a conflict
of interest exists, the Company Secretary will provide sufficient information to the full Board to provide
an understanding of the matter(s) considered.
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9. If so requested by the Board or by the Shareholder, the Committee shall provide an annual report on
its activities.
10. The Committee shall have access to sufficient executive time and resources in order to carry on its
duties, including access to the Company Secretary and members of the HR team;
11. The Committee shall be authorised to seek any information it requires from any employee of the
Company in order to perform its duties.
12. The Committee shall have authority to appoint remuneration consultants and to obtain, at the
Company's expense, legal or other professional advice on matters within its terms of reference as
required, up to a financial limit determined by the Board.
13. If there should be disagreement between the Remuneration Committee and the full Board, the
Chairman of the Board shall make time available for discussion of the issue so that the matter may be
resolved. Where any such disagreement cannot be resolved, the Remuneration Committee shall
report the issue as part of any annual report on its activities required by the Shareholder.
14. Training will be provided by the Company for members of the Committee, as required. Such training
may take the form of internal briefings, attendance at formal courses and conferences and/or sessions
with external advisers.
15. Members of the Committee shall conduct an annual review of the Committee's performance.
B. MEETINGS
1. The Committee shall meet as often as required but not less than three times each year. The
Committee may meet in person, by telephone or by other electronic means, so long as each member
can contribute to the business of the meeting simultaneously
2. The quorum necessary for the transaction of business shall be 2 members.
3. Meetings may be convened by the Secretary to the Committee, at the request of the Committee
Chairman, or by any member of the Committee, at any time.
4. Notice of each meeting shall be given to all members of the Committee and any other person
required to attend, at least 3 working days before each meeting.
C. DUTIES AND RESPONSIBILITIES.
The main duties and responsibilities of the Committee are:
1. to recommend to the Board the remuneration strategy for the Chief Executive, executive directors
and those members of the Executive Committee who report directly to the Chief Executive, always
taking into account the remuneration policy set for other employees;
2. with the consent of The Secretary of State for Business, Innovation and Skills, determine each
element of the total individual remuneration package of the Chief Executive and other executive
directors, both existing and for new hires, including any increases in salary (whether or not resulting
from company-wide pay increases), pension provision and the outturn of performance related pay
arrangements and incentive schemes.
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3. to determine the elements which will form the remuneration package for an individual in the above
group, which may include, but shall not be restricted to:
base salary
short term incentive (annual bonus)
Long Term Incentive Plan
pension provision
benefits such as car or car allowance, private health, holidays
contractual terms such as notice periods
4. to keep under review the contractual terms applicable to executive directors such that payments
made are fair to the individual and to the company, that success, rather than failure, is
rewarded and that the duty to mitigate loss is fully recognised;
5. to work with the Nominations Committee in respect of new hires, such that the Remuneration
Committee can recommend to the Board an appropriate level of remuneration which will attract
talent but not be excessive;
6. to receive information on each element of the remuneration package and total remuneration for new
hires and any internal promotions and appointments which are proposed to carry a salary in excess of
the lowest salary of any member of the current Executive Committee;
7. to review the overall total remuneration of the Senior Group (defined as the Chief Executive, executive
directors and members of the Executive Committee) compared both with external market
comparators and with the remuneration of other employees in the Group;
8. to review and recommend to the Shareholder the implementation of, or changes to, performance
related incentive schemes for the executive directors, Executive Committee members and senior
managers eligible to be invited to participate in the Post Office Long Term Incentive Plan;
9. to review and agree the criteria for, and the outturn of, performance related pay arrangements for
executive directors and Executive Committee members, subject to authorisation from the
Shareholder;
10. to review the total outturn of performance related pay arrangements across the business;
11. to approve any exit package for any individual with a salary above the lowest salary within the
Executive Committee membership, where the exit package would be in excess of contractual
obligations;
12. to undertake any other function delegated to the Committee by the full Board.
D. ANNUAL REVIEW
1. The Committee will undertake an annual review of the Terms of Reference and recommend to the
Board any necessary changes
2. These Terms of Reference were last reviewed in January 2013.
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POST OFFICE LIMITED
Roles and Responsibilities
Chairman
The principal duty of the Chairman is to lead the Board as an effective decision-making body,
collectively responsible for the long term success and sustainability of the Post Office.
The Chairman is responsible for:
* Leading the Board, challenging the effectiveness of the group as a whole and each director
individually
Encouraging the Board to adopt a clear strategy , with objective performance criteria against
which success can be measured
* Leading regular reviews of progress and achievement of strategic goals
* Building constructive relationships between executives and Non-Executive directors
Setting the agendas for Board discussions and ensuring relevant and timely information is
provided for all directors
© Managing Board discussions so that all present can make an effective contribution and no
single individual or clique dominates
@ Managing any conflicts of interest which may arise at Board level
Leading performance appraisals for the Chief Executive and setting clear objectives for
personal and corporate development
Ensuring that succession plans are in place for key leadership positions within the Post Office
Ensuring that all directors receive appropriate induction and ongoing training according to
their needs
¢ Managing the relationships with key stakeholders — in particular, understanding the
priorities of the Government shareholder and communicating to the Shareholder the action
being taken by the Post Office to respond to current challenges
© Ensuring close liaison with Royal Mail Group on matters concerning public service
obligations re mail deliveries and compliance with the Postal Services Act 2011
Providing access to professional advisers and mentors within the Chairman’s knowledge
¢ Promoting good corporate governance and taking all necessary steps to maintain high
standards and the public reputation of the Post Office
Leading an annual evaluation of Board performance and effectiveness and pursuing action
points arising from such evaluation.
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Chief Executive
The Chief Executive is responsible for delivery of the performance targets set by the Board and for
leading and inspiring the management and employees of the Post Office to achieve the actions
determined by the Board as being most likely to promote the long term success of the Post Office.
The Chief Executive is responsible for:
© Leadership of the Executive Committee and, through them , the Senior Leadership Team and
executive management of the Post Office on a day to day basis
¢ Continuing development of the Executive Committee to provide strong and effective
leadership for the business
e Setting, communicating and demonstrating the values and ethos of the Post Office, including
regular review of the Post Office “vision”
e¢ Developing a clear vision and operational business plans for approval by the Board to
achieve the financial and performance targets set in each financial and Government
reporting period
e Representing the Post Office in public
* Recruitment, development and retention of talented people to ensure the Post Office’s
capability to deliver its priorities of growth, modernisation, customer service and business
efficiency
Safeguarding the resources available to the Post Office and raising with the Board any need
for significant further investment or support from the Government shareholder
© Pursuing opportunities and initiatives to improve financial sustainability and business
efficiency within the Post Office
Reporting to the Board on progress against targets, implementing remedial action where
necessary and promoting any necessary changes to the Strategic Plan
¢ Setting operational standards which support and enhance Post Office’s brand value and
encouraging continuing improvements in customer service
Co-ordinating the activities of the different business divisions within the Post Office
e Building relationships with stakeholders, with Government, with the media and with a wide
range of interest groups and organisations to promote the long term success of the Post
Office
© Monitoring developments in government and market trends to maintain Post Office’s
business position
¢ Bringing to the Board concerns raised by stakeholders and key areas of risk for the business
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POST OFFICE LTD
Noting Paper
Mails Strategy Update
1. Purpose
The purpose of this paper is to:
1.1. Update the Board on progress against the Post Office Ltd (POL) Mails
Strategy and the ongoing commercial relationship with Royal Mail Group
(RMG).
2. Background
2.1. POL has an agreed Mails Strategy which focuses upon growth and retention
primarily through capitalising on the growth in the parcels market driven by the
increasing popularity of online shopping and offering increasing value and
service to our critical small business customer group.
2.2 The POL Mails Strategy is supported by a long term Mails Distribution
Agreement (MDA) with RMG. The 10 year mutually exclusive MDA
commenced on 26" March 2012.
2.3. Delivery of the POL Mails Strategy is dependent to some degree upon the
delivery of joint plans and developments with RMG.
3. Key messages
3.1. Progress against the overall strategy is positive, supported by a strong
financial performance in the first 9 months of the year. A comparison of mails
performance against the 2010 strategic plan is attached at Annex 1.
3.2 Technical developments and enablers continue for collections and returns and
small business propositions. The click and collect launch will be delayed by 3
months as a result of project scheduling priorities.
3.3. RMG is entering the click and collect market as a defensive measure and in
return for exclusivity given by POL within the MDA. It is possible that RMG will
not pursue the market to the extent which POL requires. If this proves to be
the case POL will need an alternative plan to ensure that it does not miss this
market opportunity.
3.4. This paper focuses mainly upon collections and returns and the commercial
relationship with RMG. The board should be aware that it does not cover all of
the potential challenges and opportunities in POL’s mails business.
4. Progress against the strategy
4.4 Progress on small business propositions and collections and returns enablers
has been broadly positive.
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4.2 Collections and returns - POL identified a market opportunity to grow its
mails business through leveraging its network size and reach to provide
convenient locations for consumers to collect and return items purchased
online.
POL has a joint programme of activities with RMG to develop the capability to
improve its offer in this area; progress is detailed below. 2012/13 forecast
performance against the collections and returns business plan volumes
agreed with RMG is attached at Annex 2.
e Click and collect: POL has been building a branch capacity database
and RMG has been building an application programming interface
(API) that will enable integration with retailer's websites. The POL
capacity database has now been delayed by 3 months as a result of
project scheduling priorities and will launch in July 2013. This will delay
the launch of the overall click and collect solution in line with the
revised timescales.
e Returns: POL and RMG have been working on developing the current
returns product to introduce tracking, starting with the scan at the POL
counter. This development is on track and due to be offered to all
retailers in February 2013; the product launched with Amazon on 7"
January 2013. There is already significant evidence supported by the
industry press that this development is being well received by retailers.
e Failed delivery, POL and RMG have a joint programme of work to
investigate the feasibility of POL outlets handling many more of these
items, allowing RMG to close its collections offices. There is still a
major doubt over whether this activity can be made to cost in for both
parties. RMG are currently offering a payment per transaction which
would not be desirable for POL.
4.3 There are a number of other activities underpinning the collections and returns
programme. POL is developing an out of hours solution which will allow 4,000
POL outlets to provide the three products mentioned above outside the
traditional 9am - 5.30pm POL counter hours. This is essential in order to
compete effectively in the market as key competitors like Collect+ (a joint
venture company between Yodel and Paypoint) major their marketing activity
on the convenience of longer opening hours. This project is in-flight but has
also been delayed until July 2013 by the Fujitsu capacity constraints. POL has
also talked to a number of companies which provide locker box solutions for
collections and returns with a view to a trial. These conversations continue but
low commercial returns combined with limited consumer desire for such
solutions make an imminent trial possible but unlikely.
44 Small business - POL has upwards of £100m worth of mails income alone
generated through the critical small business customer group. Despite this
POL has historically had little intelligence, data, relationships or bespoke
propositions for these customers. The mails team has been working on a
programme to address this opportunity to improve its offer. The Drop & Go
service was launched in 2,000 outlets in August 2012 allowing customers to
sign up to a pre-paid card which enables them to avoid queues by simply
dropping their mail at the branch for the staff to process later the same day.
POL is also working on extending its small business offer through product
bundling, extending its technical capability through online accounts and
introducing product specific and multi-product discounts. This work is based
upon extensive customer research.
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5. Commercial relationship with RMG
5.1. The long-term exclusive contract with RMG makes the commercial
relationship critical both to the delivery of the initiatives mentioned above and
to the Business As Usual commercial activity. The relationship has generally
developed well since the MDA commenced; there have been some
frustrations but also some significant achievements.
5.2 The successes have been numerous and demonstrated real collaboration.
POL supported RMG through a tariff change which was unprecedented in
terms of the scale of the price increases; this change was made without any
significant customer complaints or negative impact upon commercial
performance. POL and RMG worked very collaboratively on the big
commercial opportunity presented by the Diamond Jubilee and the Olympics
and Paralympics. POL has sold over £10m worth of gold medal stamps
generating more than £3m worth of income. POL has also had its best
Christmas ever for express and guaranteed product sales with a 10%
increase in volume since 2010. As mentioned above, progress against the key
strategic plans has also been good.
5.3 Frustrations have existed within the relationship where some potential
misalignments of commercial and operational interests have surfaced. POL
has struggled to achieve some of the key Service Level Agreements (SLAs)
contained within the MDA particularly on mail segregation. POL has
expressed concerns that efforts by RMG to improve the profitability of its
product range may impact negatively on its volumes and income.
5.4 RMG has asked POL to reduce its rates on some growth product areas as a
result of product changes which RMG is instigating. POL is only willing to
consider changes if it can protect and increase income and re-negotiate
segregation specifications with a view to guarding against potential SLA
penalty payments.
5.5 Competitor activity in the click and collect market is increasing rapidly. If POL
and RMG jointly prove unable to match this rate of activity then POL will need
to consider approaching RMG over its exclusivity in this area. POL is aware
that several major retailers would like to offer click and collect through the
POL Network but may only do so if POL can accept items from other mails
carriers. POL will make this decision based upon growth and penetration into
the market achieved or otherwise within the context of the current plans with
RMG.
6. Risks and mitigation
6.1 Working exclusively with RMG poses some risks which POL must be aware
of:
Risks
« POL and RMG fail to attract clients for the click and collect solution.
Ultimately prices for retail clients will determine the appetite for
retailers to come on board with the solution. There is a risk that POL
and RMG jointly price themselves out of the market and allow fast
moving competitors to gain market share.
e POL has experienced a delay in the delivery of the click and collect
solution. There is a risk that RMG will be ready on time and POL will
effectively be responsible for missing out on some market opportunity.
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« RMG is delayed in its click and collect developments which cause a
loss of share to competitors.
e POL is not successful in negotiating satisfactory rates for product
changes that are being made at the end of the year putting the delivery
of those changes at risk.
Mitigation
¢ POL will endeavour to agree a market rate with RMG which allows for
competitive pricing. POL will also request an open book approach to
the charges being applied to retail clients. POL has confidence that
RMG volumes should allow for a strong market share from the outset.
POL will consider renegotiating exclusivity if this cannot be achieved.
¢ The delay has been limited to 3 months and there is a real possibility
that RMG will suffer a similar length delay.
* RMG has informed POL that it is currently on track so a delay of more
than 3 months is deemed to be unlikely.
¢ POL will endeavour to ensure that acceptable rates are negotiated.
RMGs negotiating style is likely to push agreement to the eleventh
hour before acceptable rates are offered.
7. Conclusion
7.1. The Board is asked to note the good progress against the overall strategy,
financial performance and in the relationship with RMG.
7.2 The Board is also asked to note the risks and the potential for future
contractual discussion with RMG if growth markets are not adequately
addressed.
7.3. The Board is further asked to note that the POL Mails team is working on
scenarios based upon the likely sale of RMG in 2013/14, possible changes to
mails market regulation, and broader market developments and the potential
impacts on POL.
Martin Moran
10 January 2013
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Annex 1: Mails Financial Performance
390
370
350
320
20u/12_——-2012/13
Original 2010 Strat Plan
“ lll Property Movements -2.8
2013/14
Outturn and Current Forecast
Breakdown of variance (£m)
£384m
Sales Growth
Impact of MDA
revised rates
Collections & Returns
Dangerous Goods 4.0
MDA Efficiencies -5.0
2014/15 2015/16 —- 2016/17
Annex 2: Collections and returns: MDA agreed targets versus 12/13 forecast
Volume (m) 2012/13 I 2013/14 I 2014/15 I 2015/16 I 2016/17
Returns Target 16 18 20.75 23.45 25.45
Forecast 16.2 18.1 tbc* tbc tbc
Click and Collect Target 0.8 1.3 25 4 5
Forecast 1.06 1.9 tbc tbc tbc
Failed Delivery Target 47 9 15 22.2 30
Forecast 5.2 6.5 tbe tbc tbc
Total Target 21.5 28.3 38.25 49.65 60.45
Forecast 22.46 26.5 tbc tbc tbc
*The business should have a much clearer idea of forecast numbers by Sept 2013.
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January 2013
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JANUARY 2013
POST OFFICE LIMITED MATTERS — DISPUTE RESOLUTION
PRIVILEGED AND CONFIDENTIAL — CLAIMS OVER £500K OR THOSE OF A SENSITIVE NATURE
FILE NAME CASE BUSINESS UNIT & DESCRIPTION STATUS XSP
HOLDER CONTACT
Claim for Judicial I POL/HF/RW I Angela A former subpostmaster (SPM) sought “judicial I At an oral hearing on 16/11/12, the Court I DAC
Review Van-Den-Bogerd review” of POL's decision to terminate his SPM I gave the SPM permission to proceed to a full I Beachcrofts
contract. hearing. In doing so, the Court only found
the SPM's case to be arguable, and did not
The SPM claimed that POL’s termination I make any conclusive findings on his claim
process was flawed and infringed his Human
Rights. He asked the court to review POL’s I POL is finalising its evidence in response to
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decision and find that it was unlawful and/or I the SPM's claim. That evidence and detailed
an abuse of power. grounds of opposition will be filed by the end
of January 2013.
POL asked the Court to refuse to permit
judicial review of the decision on the grounds I The matter will then be listed for a hearing
that it was a commercial matter. during Q2 2013
On 27/09/12 the Court refused the SPM I POL has started settlement discussions with
permission to pursue judicial review. The Court I the SPM to see if a commercial resolution
did this on the papers without hearing from the I can be reached
parties.
Horizon claims POL/HF/RW I Rod Ismay POL has received various claims from former I Following consultation with MPs, Second I Bond Pearce
SPMs alleging wrongful termination of contract I Sight Support Services Ltd (an independent
based on alleged defects in POL's internal I investigator) is reviewing up to 16 cases
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system.
Shoosmiths.
progressed
claim.
from SPMs.
processes and alleged defects with the Horizon
These allegations were initially made in 5
claims brought through the SPMs’ solicitors,
To date, Shoosmiths have not
4 of the 5 claims,
successfully had the Court strike out the fifth
These allegations are also being made through
SPMs’ MPs, and in defences
proceedings brought by POL to recover debts
where SPMs allege that Horizon caused
them losses. That investigation is currently
underway.
Post Office Ltd has also reached an
agreement with Second Sight and Justice for
Subpostmasters Alliance (an organisation
“established to raise awareness of the issues
within the Post Office Horizon system’)
whereby individual subpostmasters can raise
concerns with Horizon within a “no blame”
framework, provided such claims are brought
by 28/02/13. Those concerns would be
considered as part of Second Sight's review.
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Susan Crichton
16 January 2013
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PART (B) — PRINCIPAL CRIMINAL CASES BROUGHT BY POST OFFICE LIMITED
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STATUS
Subpostmaster accused of theft of £85,872.07. Restraint order against
assets is in place.
Defendant pleaded guilty to theft of £67,000 and has been sentenced to 12 months’
imprisonment (suspended for 2 years) with supervision and 100 hours unpaid
community work. Defendant has repaid £51,000 through the sale of property,
leaving £16,000 to be recovered through confiscation proceedings. A final hearing
has been set for 20/05/13.
Post Office manager accused of theft of £27,824.51.
Defendant pleaded guilty on the basis that the money was used to pay a debt as
Defendant feared for his safety. The Court rejected this and on 07/12/12 sentenced
him to 200 hours unpaid community work (to be completed with 12 months) and
electronically monitored curfew for 2 months. POL has recovered the full sum of
£27,824.51.
Subpostmaster accused of fraud of £38,284.68.
Defendant pleaded guilty and was sentenced to 6 months imprisonments (suspended
for 2 years) and 250 hours unpaid community work. A timetable has been set for
confiscation proceedings to determine the sum payable to POL, with a final hearing
set for 11/02/13.
Two assistant sub postmasters accused of covering shortages by delaying
the processing of business deposits to Santander. Case concerned 40
deposit slips being suppressed with a total value of £34,115.50.
POL has served expert reports and notice of additional evidence in preparation for
trial on 21/01/13.
Sub postmaster accused of theft of £78,660.63.
Defendant pleaded guilty on 07/01/13 and will be sentenced on a date to be set by
the court.
Two brothers in partnership as subpostmasters accused of theft and/or
fraud of £237,240.64
On 09/10/12, the second day of trial, one Defendant pleaded guilty to theft/fraud of
£99,000. This was accepted by the prosecution and no evidence was offered against
the other defendant. On 20/11/12 the guilty Defendant was sentenced to 17
months imprisonment. A timetable was also set for confiscation proceedings to
determine the sum payable to POL, with final hearing set for 20/05/13.
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Subpostmaster accused of theft of £77,905.02
The Court is to set a date for the first hearing of this case to determine the details of
trial.
Defendant pleaded guilty and on 28/11/12 was sentenced to 9 months
imprisonment (suspended for 18 months) and 180 hours unpaid community work. A
timetable has been set for confiscation proceedings to determine the sum payable to
Subpostmaster accused of theft of £57,811.79 POL, with a final hearing set for 25/03/13.
POL has recovered £43,988.03 to date.
Defendant pleaded guilty and on 03/12/12 received a suspended sentenced of 9
Subpostmaster accused of theft of £49,245.19 months imprisonment.
POL has recovered £49,245.19 to date.
Defendant has not indicated a plea. A Crown Court hearing on 21/04/13 will give
Subpostmaster accused of theft of £25,860.66 case management directions for plea and trial.
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POST OFFICE LTD BOARD
Sealings 15 November 2012 - 15 January 2013
Seal Register
The Directors are invited to consider the seal register and approve the affixing of the Common
Seal of the Company to the documents set out against items numbered 834 to 839 inclusive in
the seal register.
“The Directors resolve that the affixing of the Common Seal of the Company to the documents
set out against items numbered 834 to 839 inclusive in the seal register is hereby confirmed.”
Alwen Lyons
Company Secretary
16 January 2013
Seal Register Alwen Lyons Page 1 of 2
Nos 834-839 January 2013
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POST OFFICE LIMITED REGISTER OF SEALINGS
Seal Date of Description of Document Persons Destination of
Number Sealing Attesting Document
To Document
834 22/11/2012 I Deed of Variation relating to Ground Floor Helen Perkins to Jean Reynolds
Lock Up Shop, 203 and 205 Manford Way,
Hainault (Chigwell)
835 27/11/2012 I Licence to use part of the car park at Biddulph Helen Perkins to Jean Reynolds
Council Offices for a temporary portacabin Post
Office
836 10/12/2012 I Second Supplemental Agreement pursuant to Alwen Lyons to Denise Reid,
Franchise Agreement re Barrow in Furness Franchise
branch at 10 Duke Street, Barrow in Furness, Contracts
Lancashire LA14 1XA between Post Office Ltd Manager, Leeds.
and J N Murray Limited (in duplicate)
837 03/01/2013 I Licence to occupy premises, St Helens Crown Alwen Lyons to Jean Reynolds.
Office, 39 Bridge Street, St Helens, Merseyside
838 07/01/2013 I Deed of Amendment for the Roya Mail Pension I Chris Day to Ken Potter,
Plan (tidy-ups, scheme pay and flexi- (Executed under I Pensions
drawdowns) between Royal Mail Group Ltd, hand)
Post Office Ltd and Royal Mail Pensions.
Trustees Limited.
839 15/01/2013 I Service Licence Agreement (temporary Helen Perkins to Jean Reynolds
appointment of subpostmaster) for Portacabin
Post Office at Council Offices Car Park, High
Street, Biddulph ST8 GAR
Seal Register
Nos 834-839
Alwen Lyons
January 2013
Page 2 of 2
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