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POST OFFICE BOARD
CHIEF EXECUTIVE'S REPORT : MARCH 1999
{January Results)
KEY POINT SUMMARY
ROYAL MAIL
Profit in January was £22m, £8m below budget due to a disappointing
income performance in Royal Mail National, Expenditure was £1m
below budget, with tight controls on non staff costs more than
offsetting a £9m overspend in mail operations.
Volume in Royal Mail National fell by 3.4% compared to the previous
year, with falls in both First and Second class traffic. Performance in
Streamline was more encouraging, with a growth of 6.2% being 1.8%
over budget. International traffic continued its strong recent
performance, with growth of 1.8% compared to a budgeted figure of
0.4%.
January’s quality of service results were mixed. First class and
Mailsort 1 were down on the previous year, whilst Priority services,
Presstream and Mailsort 2 & 3 showed year on year improvements,
Second class performance of 99.7% remains above the full year target.
POST OFFICE COUNTERS LTD (POCL)
POCL showed a loss in January of £3.3m, which is in line with the
performance required to achieve their full year profit forecast. Income
was just over £2m below budget, whilst both core and development
expenditure exceeded budgets as the business began to catch up with
previous delays.
Quality of service in the 3 months to January 1999 was 93%, 2% below
the full year target. January’s result was 94.4% which was encouraging
since it showed the effectiveness of our improved planning processes in
ensuring that we did not suffer the negative impact on quality previously
associated with winter fuel payments.
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OVERVIEW OF PERFORMANCE
On the basis of these January results, each business remains on track to
meet its year end profit forecast, but with risks outweighing potential
opportunities in Royal Mail. Provisional February results suggests that
the January trends have continued.
As a result of these pressures, the year end EFL position remains tight,
although this will benefit from the settlement with Hewlett Packard and
the potential for the publishing industry to ‘buy forward’ presstream
services.
OTHER ISSUES
Shaping for Competitive Success
Managing Directors have been appointed to 11 of the 16 business units
that are to be created under Shaping for Competitive Success. A
selection process, considering both internal and external candidates, is
underway for the International, Network Banking and Logistics &
Contract Distribution businesses, whilst appointments to the New
Enterprises and Sales & Customer Support units are being held over
until further work has been completed on unit design.
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The formal communications cascade of the work to date begins on
Friday 19 March at a meeting of our top 70 managers. A presentation
on SCS will then be cascaded to our top 3,000 managers within the next
two weeks in order to ensure a common level of understanding amongst
this group.
Following discussions with ICL, the Treasury has produced a proposal
for the continuation of the Horizon project based upon:
™ scrapping the Benefit Payment Card, with the Benefits Agency
moving directly to the electronic payment of benefits;
@ establishment of Post Office ‘Benefit Accounts’ for those recipients
who receive their benefits over the counter, into which the Benefits
Agency would transfer money by ACT. These would be simple,
credit only accounts which could be accessed at any Post Office
using a Smartcard;
® Post Office developing a range of services over time which could be
offered via the Smartcard,
Intensive negotiations are now taking place between all the parties, to
establish the technical and commercial viability of this proposal. The
Treasury are tasked with producing a final report to go to the Prime
Minister by the end of April.
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Meeting with Stephen Byers
The Chairman and I had an initial meeting with Stephen Byers on
Friday S March, which covered progress on Horizon and the
Government’s White Paper on The Post Office on which we will
provide an oral update,
POUNC
in a poorly constructed and argued report, The Post Office Users
National Council (POUNC) has responded to our proposed price
changes by recommending that the reduction in Second class prices be
extended to higher weight items and the proposed price increases for
Presstream be delayed for 12 months. These proposals would cost
Royal Mail £7m and £5.5m p.a. respectively and are based on
POUNC’s mistaken assumption that the price changes will result in a
£50m p.a. benefit to Royal Mail. We have therefore rejected these
proposals. POUNC have also suggested that Royal Mail should make
proposals about improving compensation payments around lost mail, an
issue which we have indicated a willingness to address outside of the
context of this tariff round.
We expect to receive a response from Stephen Byers within the next
few days and unofficially, at least, believe that the DTI will support the
position we have adopted.
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Communications Review
The interim report on The Post Office wide review of
Communications, requested by the January Board (POB(99)3), is
attached as an Annex to this report.
Princess Royal Distribution Centre
Last May, the Board agreed a strategy for tackling poor productivity
and industrial relations at the Princess Royal Distribution Centre at
Willesden (PO 98/56), a vital element of Royal Mail’s national
distribution network. An agreement has now been reached within the
cost/benefit profile agreed by the Board which will deliver significant
improvements in efficiency, a net saving of £430,000 per annum, an
enhanced and more stable earnings package and a series of measurable
behavioural standards. The package was accepted in a ballot by 75% of
the 90% turnout and will now involve around 100 staff either taking
redundancy or transferring to another unit.
POCL Pay Authority
POCL propose to seek authority from the DTI to reach a pay settlement
for 1999/2000 of up to a ceiling of 2% on total pay bill (additional costs
of up to £17m p.a.) This is in line with the budget presented by POCL
and the Board is asked to note that I have agreed to this approach,
subject to the Board’s approval of that budget.
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CONCLUSION
The Board is invited to:
@ note the March Report
@ agree that the following, unchanged, profit/loss forecasts will be
released to the DTI:
Royal Mail £478m
=_no change
£35m = =~ no change
AJR
MARCH 1999
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ANNEX
Re-shaping Communications for the Complete Distribution Company
Interim Summary
m The principle recommendations for the future structure of the
communications function, under Shaping for Competitive Success, are
detailed below. In addition, over £3m of savings in the communications
budgets for 1999/2000 have been identified and agreed by the individual
businesses.
"Group communications will adopt a more pro-active, direction setting
approach involving:
an integrated external relations team;
* cross functional (press office/corporate relations) teams aligned to
each brand and to the corporate mark;
* a single field media relations structure operating out of seven
regional centres;
¢ corporate relations management of Westminster, Brussels, Scottish
Parliament, Welsh and Northern Irish assemblies;
* an integrated communications strategy, communicating corporate
capability and credibility, whilst reducing the amount of
communications about non-core activities currently co-ordinated by
Group Centre;
* building the capacity in the communications policy team to deliver
reputation and brand strategy.
MThis is likely to be achievable within current Group Centre numbers
assuming significant rationalisation to present Country Chairmen support
feams.
™ With each market unit, there will be a Head of Market Communications
responsible for communications direction within the specific market sector
and for internal communications - which at market unit level must be based
on market performance and characteristics and competitor information,
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m@ Lead communications accountability for each brand to be assigned to a lead
market unit.
™ Communications teams in the service delivery units will have a tactical and
deployment remit, setting key messages into context for our employees.
m There will be a minimal territorial communications function, reporting to
the national communications director, or equivalent, Communication at an
Area level (in the 2D service delivery unit) will be by flexible teams rather
than a permanent communications structure.
@ Throughout the structure, a level of functional accountability - to Group
Centre - will be applied in addition to unit accountability, to ensure that
consistency and coherence are maintained and to prevent the tribalism that
has arisen in the past.
@ Implementation of the principles recommended in this summary would
suggest a core template (within Group Centre and the new business units)
of around 190 posts at a likely staff cost of £8.1 million.
® Post Office Services Group will be asked to assess the viability of adding
key functions (regional communications services, public relations and
communications consultancy to market units, communications planning
support and distribution and fulfilment) to its portfolio to provide cost
effective (and flexible) support to the new structure. The net change in its
employee base is likely to be an increase of around 25 posts, making 150
posts in total at a likely staff cost of £4.6 million,
® Overall, these recommendations will reduce staff numbers from the present
level of 560 to around 340 (including an increased number of freelance and
contract staff managed through POSG Communications Services) with a
consequential saving in the region of £4,5 million. Such savings would
require us to consider compulsory redundancy.
@ Implementation needs to be complete before April 2000 to support the post
SCS Post Office.
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