POLBO05(5")
POLB 05/70 — 05/91
Present:
David Mills
lan Anderson
Alan Cook
Peter Corbett
Ric Francis
Brian Goggin
Graham Halliday-
Allan Leighton
David Miller
Gordon Steele
In attendance:
‘Ann Adams
Apologies:
Sir Michael
Hodgkinson
Jonathan Evans:
POLBO05/70
POLBOS/71
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Post Office Limited
(company no. 2154540)
Minutes of the meeting of the Board
held at 80-86 Old Street, London
on August 17" 2005.
Chief Executive
Human Resources Director
‘Non-Executive Director
Finance Director
Operations Director
Non-Executive Director
Banking & Financial Services Director
Chairman, Royal Mail Holdings
Chief Operating Officer
Marketing & Direct Sales Director
Notes, .
Consultant — Transformation Programme (for POLB05/75:—
05/76)
Non-executive Chairman
Company. Secretary
MINUTES OF PREVIOUS MEETINGS POLB(05)4™
(a)
The Board approved the minutes of the Board meetings of 27"
April 2005. 7
STATUS REPORT POLB(05)57
(a)
(b)
(c)
The Board noted the report, ‘and in addition:
Inter-Business Charging Structure: David Mills reported that
good progress had been made, and one outstanding issue of
importance remained concerning whether the pricing should be
on an RPI or RPI minus 1 basis. Peter Corbett. stated that the
best solution would promote cost efficiency in a way which
would allow the benefits to.be shared between Post Office Ltd
and Group;
Camelot: David Mills reported that a paper would not now be
necessary, because if Camelot failed in its bid the issue would
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Action:
Peter Corbett
Acton:
Graham Halliday
POLBOS/72 -
POLBO5S/73
(d)
(e)
(f)
(9).
(h)
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end. Post Office Ltd was both a buyer and seller of stock and a
buyer of other stock. The Camelot shareholding was thought to
be worth £25m, although it was a diminishing asset;
Cashback to Customer: Graham Halliday reported that complex
‘discussionis were taking place with LINK and OFT. If Post Office
Ltd was to provide cashback across the network now, it would
undermine the positioning of Post Office Ltd as a free provider
of cash; . .
\ford Directly Managed Branch: David Miller reported that lIford
Directly Managed Branch had now been vastly improved;
Credit Card: Peter Corbett circulated a paper containing a
financial analysis illustrating the Cost to the business of different
payment methods..Gredit card charges were the most
expensive, and cash was cheapest at all levels up to around
£150. Peter Corbett would ensure Sir Michael. Hodgkinson was
provided.with a copy of the paper for when he returned from
leave.
Employee Scheme: Graham Halliday reported that there. was
currently no formal tracking system.in:place to monitor sales to
Bank of Ireland employees:. However,.preliminary investigations
suggested that total'sales:were less‘than-100:"A ‘formal tracking
scheme would-be-put in:place-before the next:Board-meeting..
Subject to. the above mentioned points, all’actions were
complete.
CHAIRMAN’S BUSINESS’ -POLB(05)58*
(a)
David Mills had no business to report.on behalf of Sir Michael
Hodgkinson. .
CHIEF EXECUTIVE’S REPORT
(a)
(b)
(c)
David Mills reported the following matters to the Board:
Barry Gardiner: A meeting between the Minister for
Competitiveness and Crispin Beale’s market research team had
taken place on 1* August. The tools and modelling techniques
used in. market research had been discussed;
Postcomm: A meeting had taken place with Denise Bagge of
Postcomm whose primary responsibility was Public Relations.
Initial thoughts were that a very useful relationship could be
built with her. A meeting had also taken place with Sarah
Chambers and Nigel Stapleton who had made it clear they
would be pushing hard to open up the counters business to
competition. Allan Leighton, stated that this was a more complex
area than Postcomm had suggested, and the Board agreed that
a legal view of this issue would. be investigated. It would also be
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important to establish Postcomm’s position on suggested terms
Action: of access. Gordon Steele would take this up under the Mails
Gordon Steele streams work;
(d) John-Roberts: A meeting had taken place with John Roberts
who. now represented Postmaster Net.
(e) . BITC:.A meeting had taken place with Vanessa Strauss of the
BITC, as a follow up to the ‘Seeing is Believing’ visit in
Cambridgeshire;
(f) I Scotland: A day had been spent visiting gold branches which
had underlined the potential benefits of the ‘core and outreach’
strategy. Graham Halliday and lan Anderson had visited
platinum and diamond branches..A Colleague Communication
Forum had taken place and a dinner had followed with
members of the Scottish Assembly who appeared supportive of
Post. Office Ltd's direction;
(g) Mentoring Prisoners: Visits would take place to Rochester
Young Offenders Prison, and, six volunteers, had put themselves
forward for mentoring.
BUSINESS PERFORMANCE POLB(05)59
(a) Peter Corbett provided the Board with a presentation on Period
te . 4 business performance. The Board noted the presefitation,
. vand in particularthat:
(b). period 4 P&L after Group Allocation and Pensions costs was.
loss of £40.5 million, which was £2.5m favourable to plan;
(c) income was £0.6m better than budget due.to higher postage
volumes. Staff costs were £1.3m higher than budget.due to
higher productivity costs and:pay award settlements. Non-staff
costs were £1.7m over budget due to higher EDS costs and
HomePhone™ costs of sales. These were being offset by lower
agents costs.(£0.8m) and higher profits posted by First Rate,
plus lower Group allocations (£2.0m); .
(d) period 4 YTD. P&L before tax was a loss of £50.9 million, which
‘ was £13.1 million favourable to budget. The favourable
variance was. due to the timing of exceptional items, mainly
severance (£2.9m) and impairment costs (£5.5m) and lower
interest expense (£2.1m);
(e) the cash flow year to date was an outflow of £93m. This was
£97m better than planned due to the reduction in debtors and
the on-going reduction:in network cash;
(f) _ the profit-target for this year was a£130.7m loss. The
components ofthis were:
(i) an Operating Loss of £79.8m;
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(ii) a£10.2m adjustment to Profits from Associates and
Joint Ventures (due to the adoption of International
Accounting Standards);
(iii) a £13.6m Pension Funding Adjustment;
(iv) £27.1m Group Allocations.
(g) the Focus Products were £3.6m below plan. Allan Leighton
expressed concern at the ‘run rate’ of the financial services
products. Peter Corbett explained that this was in part
symptomatic of the strategy of breaking into the financial
services market and positioning the products. However, it was
acknowledged that there would be difficult times ahead if the
assumed future benefits in terms of retention and renewals:
failed to materialise. The Board agreed that the following
additional information would be provided at the next Board
meeting to assist their understanding of the situation:
(i) revenue sensitivity data;
Action: (ii) an analysis of how risk would alter the shape of the
Peter Corbett numbers; both this year and next year;
: (iii) Financial Services Products renewal data.
(h) Alan Cook commented that Post Office Ltd's target of selling
1,400, GEBs per week was too ambitious, .given that NS&l, who
were the market leaders, .could only:sell-a maximum:of:1,200.
GEBs: per. week.during-the 8:week period. of their last GEB offer;
(i) I Gordon Steele‘remarked that despite: someiinitial difficulties .
with some:products, there had: been.notable:successes: : --
HomePhone™ customer sign-ups had:now:passed the :160,000.
mark and:were growing at‘a faster rate than:any-of the other
entrants to:the. market. The, target of 500,000. customers by the
end of the year was achievable, and Post Office Ltd could
become a major competitor to BT within 5 years. Field Sales
Agents. had been recruited to help build sales in the Directly
Managed Network. Alan Cook agreed this was a useful way
forward, as the success of Sales Agents may help to, inspire
staff.
POLBO5/75 STRATEGIC PLAN POLB(05)60
(a) Peter Corbett provided the Board with a presentation to update
the Board on the strategic plan. The Board noted the
presentation, and in particular that:
(b) _ the dates of key importance were the Royal Mail Holdings
Board on September 6", the. submission to the DTI on
September 30", the detailed plan and transformation planning
during October to December, and Communication and
Execution in early 2006. Allan Leighton requested that the
Board further note the date'of 14" October, which was when Sir
George Bain was expected to complete his report to the
Secretary of State;
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" POLBOS/76
(c)
(d) after some discussion, the Board agreed that the plans would
be-submitted to: Government. . a
TRANSFORMATION PROGRAMME $POLB(05)61
(a)
(b)
(c)
.(@)
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there were three plan scenarios: the old Plan, the commercial
plan and the overlay to the commercial plan:
(i)
(ii)
(iii)
- provided for funding up to a maximum of £450m. A ™:
the old plan essentially represented ‘transformation on a
shoe-string budget’. It would involve no major change to
the network and central costs, and would be heavily
reliant on HomePhone™ and POFS income, steady
attrition of rural branches, a reduction in headcount of
2500 and 200 branch conversions. The result would be
a negative cashflow in year 5;
the Commercial Plan objective was a Return on Capital
Employed, and would involve a‘£300m PBIT turn-
.around to be achieved by year.5. This would involve
‘dramatic changes, including the closure of 7000
branches, 400 conversions and a 75% reduction in the
number of staff;
The ‘overlay’ to the Commercial Plan was a more
politically acceptable commercial plan, the objective of
which was for funding not to exceed the current
envelope. It would involve lower transformation costs,
reduced year 5 profit.and a higher working capital
requirement for network cash. The result would be a
network on 9,135 branches and 3,615 outreach
branches. The balance of the mails reserve would be:-
working capital loan would be provided of £1.5billion#but . &
the security requirements relaxed.
Peter Corbett:introduced Ann Adams to the Board who provided
an update on the Transformation Programme.
A review had. taken place of the strategic plan, and although it
was found to be basically sound the following critical issues had
emerged:
(i)
(ii)
(iii)
(iv)
(v)
urgency of balance sheet restructuring;
sustainability-of-new income streams;
heavy fixed costs;
network size and shape;
cultural transformation.
the Post Office. Ltd Executive Committee had agreed the scope
and structure of the project, and were in the process of
recruiting a Programme Director;
the objective ofthe programme would be to define and prioritise
the total programme of'activities required to deliver the
transformation, rather than the direct management of all
businéss activities. These activities would be broken down into.
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‘workstreams’;
(e) The Board agreed the transformation programme should
proceed along the lines outlined. Peter Corbett highlighted that
the timescales were important and execution would need to
start quickly or the projected financials would be put at risk. The
Board further agreed that only the top two key consultants
Action: should be-engaged in assisting the delivery of the programme.
David Mills ~- David Mills would communicate this decision to the constitants.
POLBOS/77 SOLVENCY POLB(05)62
(a) Peter Corbett reported that the key issues in relation to
solvency were to ensure:
(i) profit and cashflow were at least in line with budget;
(ii) the ‘route map process’ proceeded in line with the
agreed timetable.
(b) © profit and cash performance were on track, and were not
currently a matter for concern;
(c) the"route. map process’ was. proceeding.along the agreed line:
POLBO5/78 ‘RURAL: STRATEGY UPDATE: POLB(05)63
(ay David Miller presented a'Rural/Strategy Update: paper to the
Board:». Spee -
(b). the Government had requested.a report by December. 2005.o0n
how innovation could improve the rural network;
(c) the rural strategy programme team had developed a strategy
: dround three‘key.themes, and a full pilot programme was
underway to test these approaches
(d) Interim findings had suggested ‘that
(i) rural revenue growth opportunities existed in rural areas,
but these would only marginally impact the.£150m risk.
The: emphasis would therefore be on achieving less
costly ways of servicing rural areas or withdrawing from
‘them. The proposed ‘outreach’ channels were cheaper,
operationally feasible, better tailored to realistic
community needs and command general stakeholder
support;
(ii) a-varying mix‘of closing the very smallest rural branches
and converting to outreach a tranche of larger branches
could deliver rural network. scenarios with an
accompanying annual funding requirement range of
£75m to £120m;
' (iii) if there'was to be no funding beyond 2008, the only
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route available to Post Office Ltd would be to close at
least, 7000 branches;
(iv) the. Board noted the progress being made by the Rural
Strategy Programme.
(e) The Board agreed that the Business positioning to Government
Should be. that:
(i) if there was no funding agreement post 2008, Post
Office Ltd would have no option but to close at least
7000 branches;
(ii) the alternative was a long-term arrangement with
Government to provide specific future rural service
provision. Options to implement such an arrangement
involved combinations of rural closure and conversion to
outreach channels. The extent and pace. of change.
. would need to be negotiated with Government;
(iii), the Rural Strategy would be incorporated at the earliest
date into the Transformation Programme in order to
ensure. a fully integrated approach to the physical
network.For'example, Urban Deprived provision, DMB
provision and the applicability of some of the Rural
Programme approaches to other parts of the network as
ES ost a means of releasing. savings. Xe #
POLBO05/79 IMPACT PROGRAMME POLB(05)64 . a8
(a) Peter Corbett provided a,presentation ‘on the Impact . an]
Programme to the Board. Itwas explained that ‘Impact’ was: an ar)
abbreviation for. ‘Improved Accounting’.
ae
(b) the objective of.the programme was to save costs, replace
obsolete, back office systems, improve branch and client
accounting, improve debt recovery, save time in branches and
improve stock control;
(c) the.development:costs for the programme were £25m, but'the
benefits would include savings of £15m per annum in 2006/07;
This would be one of Royal Mail Group’s biggest IT
programmes.
(d) _ whilst the programme could not be regarded as state of the. art,
it would go a long way to modernise and improve the reliability
of the systems; .
(e) the rollout was not.expected to be ‘noise-free’, and potential
tisks included higher call volumes, a consequent impact on
service levels, and concern regarding debt recovery. Measures
to mitigate these risks were in hand, and included a call centre
plan, communication to branches, and stakeholder
management. Peter Corbett’s analysis suggested that the most
significant issues would be around data migration rather than
the system itself;
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(f) planned completion of the new finance system was 24" August
2005. A branch trading pilot would commence on 14"
September, and full branch roll-out was planned for 30"
November;
(g) Allan Leighton explained that it was imperative that the roll out
dates were achieved and that the programme was completed
before the Christmas period;
(h) the Board noted the presentation and agreed that the roll-out
should commence in accordance to the: planned timetable.
POLB05/80 CASH IN TRANSIT - UPDATE POLB(05)65
(a) Ric Francis provided a presentation to update the Board on the
progress of transforming the cash business:
. (b) ‘Cash In Transit was nota core activity of Post:Office Ltd, and
provided only 2.4% return on £21.5m income. The investment
fequired to remain in the external CIT market could not be
“sustained;
(c): the CWU would be likely to: strongly. oppose. exit'from the ~
market, as.it would be perceived.as:eroding theiripowerbase;
(d).. current cash strategy'over:the next.3 years involved.the:closure.
of Dartford and Leeds cash centres, removal of services .from
“2500; outlets and further Cash'Centre:Efficiencies. Furthermore,
offices: would ‘be’ funded‘ using alternatives to-Cash Services,:
such as Retail'side funding. and.surplus.to-deficit:office-supply;:
and'services reduced from 19,000 to'7,000 per. week. The use
of single man. soft skin vehicles was also being investigated,
and this would also include the replacement of the S200 cash
carrying case;
(e) Royal Mail were investigating the opportunity of introducing a
* high value mails product, with a speculative révenue projection
of £20m. Post Office Ltd would be in the position to deliver this
product, and this may significantly de-risk the exit from the
external market and provide redeployment opportunities for
surplus CIT staff. A decision would be made by Royal Mail
marketing in September 2005: The Board agreed that Gordon
Action: Steele would ensure he raised this matter at Group level with
Gordon Steele Alex Batchelor.
(f) Allan Leighton emphasised that staff culture within cash centres
remained an ongoing issue. Ric Francis outlined that the key
problems areas were:
- (i) overtime and rates of pay;
" (ii) local site management engagement;
(iii) poor working conditions and vehicles.
(g) lan Anderson added that management did not see development
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of their staff as a priority, and David Mills expressed dismay that
there was no robust system of performance management in
place.
(h) The measures.which should improve the situation included:
(i), increased engagement at face to face meetings;
(ii) work. time learning;
(iii) improvements to environment, equipment, security and
health and safety;
(iv) more effective use of Have Your Say results from cash
centres
(i) Allan Leighton explained that Royal Mail now had a policy
whereby new management appointees could not operate at
delivery offices where they had originally worked.as postmen.
This was designed to break down the culture of favouritism
Action: which had a negative impact on staff morale. The Board agreed
Ric Francis that a similar policy should operate a cash centres.
(j) IThe Board agreed the strategic direction proposed in the
presentation.
‘HEALTH & SAFETY UPDATE .POLB(05)66
(a) lan Anderson presented the Health & Safety update paper to a
the Board. The Board noted that: a
(b) ° significant progress had been made in the reduction of absence
accidents and resulting days lost. The number of absence
accidents and days lost is expected to have fallen against target
by 10%: and. 37% respectively;
(c) The headlines.for 2005/06 against same period in 2004/05 were
as follows:
(i) absence accidents down by 36% against target — with
significant improvements in both the Directly Managed
and Network Support sectors;.
(ii) reportable (RIDDOR) accidents down 5%;
(iii) days lost due to accidents (including trauma from
attacks on cash'in transit crews) down 37%;
(iv) Have Your Say results above target of 67% at 69.4% for
responses to health and safety questions.
(d) The current key activities to help offset the risks included:
(i) NSS line manager face to face health and safety.
competency training commences in September;
(ii) new H&S audit process to focus on knowledge and
behaviours not just'compliance. Roll out August
onwards with key units. targeted at onset;
(iii), new simpler and more straightforward risk assessment
process agreed and ready for launch from September;
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(iv) .sales health and safety measures and redeployment of
Work ‘Time Learning modules;
(v) Health and safety audits.
(e) The Board noted the paper, and agreed the current approach to
Health and Safety.
POLB05/82 -ASSOCIATE COMPANY ITEMS FOR NOTING POLB(05)67
(a) The POFS minutes of April 2005 were noted at the Post Office
Ltd Board meeting in June 2005. There were no further
approved minutes for noting.
(b)* The last FRTS Board meeting was in April and the minutes
have yet to be approved by the FRTS Board. There were no
further minutes for noting at this time.
(c) The Board noted the POFS operating plan. Graham Halliday
reported that the numbers in the POFS operating plan were
higher than in the Bank of Ireland plan to help ensure the City’s
expectations were met. .
POLB05/83. * RISK AND:COMPLIANCE, COMMITTEE
(a) Peter Corbett reported that.dué to'the.London Bombings which
took place. on.7" July;2005, the Risk-Committee had'been
deferred until xx:September:2005.
FUNCTIONAL REPORTS ;
POLB05/84 FINANCE FUNCTIONAL REPORT POLB(05)68
(a) The Board noted the.report.
(b). There were no further issues raised given Business.
Performance, Solvency and the Impact Programme had already
been discussed in some detail.
POLBOS5/85 SALES & SERVICE REPORT POLB(05)69
: (a) I The Board noted the report, and also noted that:
(b). Sales Capability Training: Sales Capability training was now live
in the Directly Managed network with all branches undertaking
a full hour's training every Tuesday. A CWU ballot had strongly
supported a mutually agreed Code of Practice covering sales
behaviour, performance management and sales coaching
within our Directly Managed branches;
(c) Sales Agencies: Four Field Sales Agencies have now been
- appointed, subject to some minor contractual issues. 50 agents
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Action:
David. Miller
Ric.Francis.
POLB05/86
(d)
(e)
(f)
(a)
(b)
(c)
(d)
(e)
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were operational on a daily basis at the end of July. We
anticipate this will rise to around 200 by early September.
These agencies are focusing on HomePhone™ in the first
instance;
Credit Card: A comprehensive sales plan is in place for the
launch of Post Office Credit Card. The first event brings the
entire.sales team together in London for a motivational and
training day on 17 August; ©
Property: Property projects had been completed at Cambridge
Directly Managed Branch (DMB) and Pinfold St, Birmingham
The relocation of Sunderland DMB to a less expensive site was
on track for completion by February 2006. Lease details were
being finalised to émable the merger of Chelsea and Sloane
Square DMBs into a new site. £500k had been released for this
years Refurbishment programme which would be sufficient to
carry. out 15 Refurbishments. These would be coordinated with
the ISA:Postshop rollout;
Sales Prompts: Allan, Leighton reported that he had received
several’emails complaining that the implementation of sales
prompts.was confusing for front line staff. The Board agreed
that David Miller and Ric Francis would investigate and report %
back. x “BR
MARKETING & DIRECT SALES. POLB(05)70
:The, Board noted the report and in addition that:
HomePhone™: Customer sign-ups have now passed the 2 we
160,000, mark and were at.a faster rate than any of the other
entrants to the market including Carphone Warehouse, Tesco
and Caudwell;
Mails: A cross group monthly meeting has been established
with Royal Mail Letters and Parcel Force World Wide to review
joint progress and ensure that a Group view could be taken of
the retail mails programmes. Contract negotiations have
progressed well and there were. only two issues outstanding;
Post Campaign: Gordon Steele would be presenting a very
important Post Campaign to Alex Bachelor, which would involve
the up-selling of First Class mail at Post Office Branches during
the run up to Christmas. This activity would benefit the Group
as: a-whole rather than Post Office Ltd directly, and would help
push back against the comments from Postwatch last
Christmas.
ISA: A pilot ‘Christmas Catalogue’ was being produced into
Postshops at.Directly Managed Branches. The goods would be
made available through web and telephone channels and
delivered by Parcelforce and Royal Mail Letters. If the pilot
proved successful, it would be repeated quarterly next year.
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Action:
Gordon Steele
POLBO05/87
POLB05/88
(a)
(b)
(c)
()
(a)
(b)
(c)
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The Board agreed that the delivery of Christmas Flowers should
be verified:
BANKING & FINANCIAL SERVICES POLB(05)71
The Board noted the report and'in addition that:
ATM Strategy: A joint Steering Group and project team had
been set up to manage this project following the partnership
agreement with Bank of Ireland. A press, announcement was
made on 18th July 2005. The pilot was scheduled for 6" and 7"
September, with full roll out would commence in October 2005.
Graham Halliday thanked Brian Goggin for his continued
support;
Alliance & Leicester ATMs: These ATMs Were currently being
replaced, and would eventually not feature in the network.
Although a significant number of A&L machines provided free
cash, these ATMs were often poorly maintained and not
marketed properly;
LINK: Following LINK’s decision to decline application for
membership, Post Office Ltd had: received an invitation to meet
with the OFT and assist with their-work on LINK.access and
governance arrangements. A meeting was scheduled for 16th
August, at which. thé OFT had.been:briefed.on the.difficulties
experienced in-joining.LINK.‘Post:Office Ltd now’attended the
LINK Access Working’Group, which wasia sub. committee of the
Payment. Systems«Task.Force (PSTF). Post Office Ltd’s
representative had ensured the:terms of ‘reference. ofthe Group. . .
had been modified to include: Post Office: Ltd's position. Ifthe:
Working Group failed to fulfil Post Office Ltd’s expectations, a
complaint to the OFT may. yet result.
OPERATIONS REPORT POLB(05)72
The Board noted'the report, and in, addition that:
Service Specification Programme: For Revision One activity
four depots had been carried forward into 05/06. For Revision
Two activity, Swansea and Peterborough depots had been.
implemented, and activity:;was being progressed on the other
depots. The delay on revision one activity had impacted on the
05/06 plan, but remedial action was being taken to recover the
situation. An agreement'has been reached to fast-track 5
depots (i.e. perform a desk top revision) to try to recover the
impact of the revision 1 activity on 05/06 plan;
Body Armour: An ergonomic assessment had been undertaken
for'both overt and covert body armour. it was determined that
the overt vest was likely to increase the risk of injury for some
tasks. The covert vest appears to be less likely to increase the
tisk of injury but it was highly recommended that the effects of
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POLBOS5/89
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(d).
(a)
(b)
(c)
(a)
(a)
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heat stress, comfort and hygiene were properly assessed;
Horizon Network Resilience: The-development of a backup
network service continued to plan, with Horizon changes
entering the testing phase. The service introduction date was
planned as April 06, and is expected to make a significant
impact on the problem of long-term branch outages, and nearly
all outages within our largest 2,000 branches.
HUMAN RESOURCES REPORT POLB(05)73
The Board noted the report.and in addition that:
Have Your Say: nearly all measures were scoring marginally
better than this time last year. ‘I Enjoy Working here’ scores
were still poor at 61% YTD,.down 5% on this time last year. lan
Anderson explained that the results were driven by the
Company being good at training, but not so good at the ‘hearts
and minds’ issues. Sales Account Managers had become
involved in help improve the results because of the potential
effect on Sales.
Industrial Relations: Unofficial action had taken place at
Bridgewater over plans to franchise the office.
SEALINGS POLB(05)74 +
The directors approved the affixing of the. common seal of thé
company to the documents set out against item number 101/01
and 136/05 inclusive in the seal register. =
CLOSE
There being no further business, the meeting was closed.
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