POL00027601
POL00027601
Post Office Limited — Strictly Confidential
POLB (12)11""
POLB 12/115-127
POST OFFICE LIMITED
(Company no. 2154540)
Minutes of a Board meeting held on 21st November 2012
at 148 Old Street, London EC1V 9HQ
Present:
Alice Perkins Chairman
Neil McCausland Senior Independent Director
Tim Franklin Non-Executive Director
Virginia Holmes Non-Executive Director
Alasdair Marnoch Non-Executive Director
Susannah Storey Non-Executive Director
Paula Vennells Chief Executive
Chris Day (CMD) Chief Financial Officer
In attendance:
Alwen Lyons Company Secretary
Fay Healey (FH) Chief HR Officer (item 12/116)
Hugh Flemington (HF) Head of Legal (item 12/117)
Lesley Sewell (LS) Chief Information Officer (item 12/117)
Kevin Gilliland (KG) Network and Sales Director (item 12/118)
Martin Moran Commercial Director (item 12/119)
Sue Barton Strategy Director (item 12/119)
Tim Giles AON Hewitt (item 12/124 only)
Zoe Taylor AON Hewitt (item 12/124 only)
POLB 12/115 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.
POLB 12/116 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. [t 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.
Page 1 of 9
POL00027601
POL00027601
Post Office Limited — Strictly Confidential
{d) The Nominations Committee would also make proposals about Board
evaluation.
(e) 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.
(f) I Revised terms of reference for all committees, including the Nominations
ACTION: Company and Remuneration Committees, would be brought back to the Board for
Secretary final approval in January.
(g) 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.
(h) 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.
(i) I 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
ACTION: FH/SC performance were recognised and managed appropriately.
(j) I The Board requested an update on the people strategy and performance
ACTION: FH/SC management framework at the February Board meeting.
POLB 12/117 PROJECT RAINBOW
(a) 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.
(b) 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.
ACTION: HF/LS
POL00027601
POL00027601
Post Office Limited — Strictly Confidential
(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 focal 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 tisk 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.
Page 3 of 9
POL00027601
POL00027601
Post Office Limited — Strictly Confidential
Crown Transformation Update
(h) 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.
(i) I The Board recognised that the additional risk to the plan was driven by
revenue shortfall as FOoG income was squeezed by lower margin
contracts.
(j) I 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
ACTION: KG solution.
{k) The Board asked for assurance that the £5m gap was realistic and
unlikely to worsen. The CFO warned 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
ACTION: KG/CD 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.
POLB 12/119 POST OFFICE BASICS
(a) 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.
(b) 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.
(c) The Board agreed that more work should be undertaken in order to
ACTION: SB/MM provide an update at the February Board meeting.
(d) The Board formally congratulated Martin Moran and his team on winning
the DVLA and DWP contracts.
POLB 12/120 CHIEF EXECUTIVE’S REPORT
(a) The Board noted the CEO’s report and discussed the following specific
items:
POL00027601
POL00027601
Post Office Limited — Strictly Confidential
(b) 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.
ACTION:SB/ (c) Mutualisation: It was reported that the Stakeholder Forum was
Company Secretary 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.
(d) The Health and Safety report appended to the Report was noted.
POLB 12/121 MINUTES OF PREVIOUS MEETING AND MATTERS ARISING
(a) _ 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.
(b) The Status Report, showing matters outstanding from previous Board
meetings, was noted,
({c) 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.
(d) 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.
(e) 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
ACTION: Company released to the press on 22 November for publication on 23 November.
Secretary
(f) 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
ACTION: MD item, highlighting the five or six key messages.
Page 5 of 9
POL00027601
POL00027601
Post Office Limited — Strictly Confidential
POLB12/122 FINANCIAL PERFORMANCE UPDATE
(a) The CFO presenied 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.
({b) The Board asked for clarification on the headcount figures presented.
The CFO suggested that this was caused by the changes within functions
ACTION: CD but suggested he include an analysis in his January Board report.
(c) 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
ACTION: CD realisation analysis for the ARC which would give more detail.
POLB 12/123 PROJECT POLO AND BANK OF IRELAND GOVERNANCE
(a) 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.
(b) 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
ACTION: NK POLO and that they would report back to the Board in January.
(c) 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
ACTION: that the CFO would review with Tim Franklin (TF), Alasdair Marnoch and
CD/TF/AM/NK NK and report back to the ARC and then to the Board.
ACTION: (d) The CEO and TF would review the Financial Services sales strategy with
PV/TF/NK/SB NK and Sue Barton and report to the Board when available.
POLB 12/124 PENSIONS: INVESTMENT BELIEFS AND ASSET ALLOCATION
Tim Giles and Zoe Taylor joined the meeting.
(a) _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 behaif 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.
({b) TG summarised the strategy contained in the attached papers
recommending that extended hedging be put in piace 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.
POL00027601
POL00027601
Post Office Limited — Strictly Confidential
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) 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) IThe 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.
Page 7 of 9
POL00027601
POL00027601
Post Office Limited — Strictly Confidential
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) The 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 drinks with the Chairman.
(d) The Delegated Authorities paper was discussed and the Board
challenged the limit of £im 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:
Page 8 of 9
POL00027601
POL00027601
Post Office Limited — Strictly Confidential
(i) a letter in the form produced from The Royal Bank of
Scotland pic (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.
I Alice Perkins I
Page 9 of 9