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POST OFFICE BOARD
Minutes of the meeting held on 10 March 1998
Present
Sir Michael Heron
MrP Allen
Mr RC Close
Mr J E Cope
Dr D Grieves
Sir Christopher Harding
Mr AJ Roberts
Mr RC Adams
Mr S Childes
Also Present
at 148 Old Street, London
—Sereet, London
Chairman
Managing Director Finance
Managing Director Strategy & Personnel
Chief Executive
Secretary
Notes
Mr R Dykes, Managing Director Royal Mail
Mr S Sweetman, Managing Director Post Office Counters Limited
Mr K Williams, Managing Director Parcelforce Worldwide
Others Attending
Mr K Wright, Assistant Managing Director, Royal Mail and Mr K Barker, Director &
General Manager, Royal Mai! North Wales & North West, for PO98/23
Ms J Irvine, Group Personnel Strategy Director & Mr D Courtier, Pensions Strategy
Manager, for PO98/24
Mr A Novak, Director & General Manager, Royal Mail National, for PO98/26
MINUTES OF
PREVIOUS MEETING
CHIEF EXECUTIVE’S
REPORT POB(98)15
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PO98/21
The Board APPROVED the minutes of its meeting of 10
February 1998
PO98/22
The Board noted Mr Roberts’ report and the
presentation by Mr Close, the main points from which
were that
Royal Mail had achieved a profit of £37m in January
against a budget of £41m. Cumulatively, profit was now
£527m against a budgeted £470m. Counters had
achieved a protit of £5m against a budgeted loss of £1m
which was entirely due to overhead underspends which
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vere £7m better than budget. Parcelforce’s recent good
Pp ormance was maintained in January with a loss of
£2m against a budgeted loss of £4m;
Royal Mail was maintaining its full year profit forecast at
£540m with expenditure savings of £31m now brought
into the forecast, compared with £25m reported last
month (PO98/). Additionally, a further £3m of
expenditure had also been advanced from 1998-99.
Consideration was being given to a potential payment to
employees, which would in total cost £25m. This had
been taken into the forecast although some doubt still
existed over whether such a payment should be made.
Opportunities considerably outweighed risks through
higher inland volumes, further expenditure savings and
the delayed implementation of the REIMS II agreement,
the original Employee Agenda provision of £31m could
now be released with a new provision of £3 im almost
certainly being allowed. This new provision was in
respect of several new employee initiatives which had
been pursued in the wake of the Agenda, including a
conduct and attendance agreement, new bonus scheme,
pay restructuring, which had still to be discussed by the
Executive Committee, and delivery trials. Internally, the
focus was very much on delivery and productivity
improvements
noted in discussion that
Royal Mail’s strong profit position provided a £25m
opportunity which, if not taken to profit might potentially
be paid to employees in recognition of the increased
volumes that Royal Mail had successfully handled. If a
payment were to be made it would be at a flat rate of
£150 and would only be within Royal Mail. Alternatively,
the £25m could be used to plug the £40m capital
shortfall that existed in next year’s budget or help fund
future joint ventures. Mr Roberts would decide this with
Mr Dykes within the following week
noted further that
January had been a good month for Parcelforce with
income £0.5m over budget and expenditure £0.9m under
budget, although the majority of this was from ‘other
costs rather than staff costs which were £0.8m adverse,
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Prospects for February appeared good with provisional
volumes 5% higher than last year against a budget
assumption of 3% higher. However, the likelihood was
that in response to the increased volumes, manpower
would outturn above budget and that international
performance would once again be weak;
Parcelforce’s likely full year forecast was a loss of -£18m
although this did not include a £2m pensions benefit;
Counters’ full year forecast had been held at £30m. It
had previously been thought that only £7m-£8m of the
£12m Horizon provision would be agreed with the
auditors. However, a recent review of the cost of
Preparing offices for Horizon had shown an increase
from £300 to £900 per office and in total this resulted in
a potential provision of £16m;
the cost implications of the conversions programme
being suspended had been provided to DTI, as had its
implications for 1998-99 and 1999-00
noted in discussion that
the original cost assumptions for preparing offices for
Horizon were now two years old and the review just
completed with ICL Pathway had been based on a new
office profile. The impact on POCL’s business case had
still to be confirmed and would be presented to the April
Board
noted further Mr Roberts’ report and in particular that
it was hoped that Terms of Reference for the next stage
of the Post Office Review would soon be available. Once
they were, it would be necessary for the Board to
consider the stance it wished to take against various
options. The political sensitivities would also need to be
addressed at this time;
Mr Roberts and Mr Sweetman had recently met Mr
McCartney, The Post Office Minister, to outline the
current position with regard to Horizon. Work was
currently in hand with the DTI to prepare a case which
Mr McCartney could send to his colleagues reaffirming
the key features and benefits of the programme, as well
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as encompassing the wider benefits that could occur
through Government Direct and social banking. It was
known that the DSS were not seeking to withdraw
unilaterally from the programme or press for a more
rapid adoption of automated credit transfer through
banks. However, should withdrawal result, the direct
financial impact on Counters could be small although the
business would face legal action from ICL. The burden
of any legal action would, however, fall on the DSS and
this lessened the likelihood of the programme being
wound up;
since the previous Board meeting, the BBC had
published an OJEC notice seeking tenders for the
collection of TV licence revenue. Mr Roberts had spoken
to Mr Birt, Director General of the BBC, who had
confirmed that a cost efficient operation combined with a
good technical specification was being sought. He had
also confirmed that there was no predisposition against
receiving a tender from SSL and SSL subsequently being
the successful tenderer. This view had been confirmed by
other sources within the BBC, as had the view that
SSL’s technical operation might not be as forward
thinking as others within the market. In view of this, SSL
was considering a tender with an external IT partner who
could provide the expertise that the BBC sought. In
preparing the tender, it was probable that an individual
external to SSL would be appointed to lead a team that
would itself be divorced from SSL. The fact that the
BBC were seeking tenders would, as an uncertainty,
need to be qualified within the Report & Accounts;
provided the Chancellor’s forthcoming budget had no
adverse impact on The Post Office, a 12 month prize ;
freeze for first and second class mail would be
announced at the end of March
agreed that the following profit/loss forecasts be released
to the DTI: Royal Mail £530m, Counters £30m; and
Parcelforce -£20m
PO98/23
(Secretary’s note: the minute of this discussion has been
circulated to Members on a personal basis)
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PENSIONS 2000 -
A REVIEW OF
STRATEGY
(POB(98)18)
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PO98/24
we Board noted the paper by Mr Cope and in particular
that
a number of factors had influenced the recent review of
The Post Office’s pension arrangements. These factors
were: the opportunity to avoid an increase in the POPS
contribution rate for employees and the employer;
avoidance of inefficient POSSS investments caused by
the balance of pensioners to serving members; the desire
to inject the concept of a money purchase scheme,
maintenance of the POSSS contribution holiday,
avoidance of industrial relations difficulties, and
Government’s pension strategy, including the possible
move to compulsory pensions;
these factors had generated a strong imperative for
change and had led the review team to three conclusions:
that POPS and POSSS investment and administration
should be merged; that the POPS members’ contribution
rate should be fixed, with The Post Office paying the
balance of cost; and that a flexible low cost money
purchase option should be introduced;
avoiding an increase in POPS employer contributions
would produce measurable savings of £25m p.a. with
over the longer term (i.e. ten years and beyond), a
potential saving of a further £25m p.a being possible as a
result of an adjustment in the investment strategy
noted in discussion that
benefit issues were a matter for The Post Office and the
union, with the Trustees adopting a neutral position;
with regard to the fixing of the POPS employees’
contribution rate, the union was seeking a rate of 6%
which was the same as that for POSSS. The Post Office
was preparing costing models based on a rate of between
5.5% and 6%. Although fixing the contribution rate was
not without some degree of risk, the balance of risk was
heavily skewed in favour of The Post Office. It was also
possible to change the rate, although the 6% rate that
applied to POSSS had not been altered since 1971. From
a union perspective, the fixing of the contribution rate
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POST OFFICE GROUP
BUDGET 1998-99
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was a significant benefit as it protected members from
any future increases;
in Dr Grieves’ experience it was important that the
Trustees were well appraised on the work being
undertaken and that discussions, and in particular the
desired outcome, were fully minuted;
agreed the development of detailed proposals to support
the proposed strategic direction, and that costed and
benchmarked proposals would be worked up as the
strategy unfolded
PO98/25
The Board noted Mr Close’s report and presentation, the
main points from which were that
key drivers of the 1998-99 budget were achievement of
Royal Mail’s RUC target, successful progression of
Horizon and achievement of the ROT for Counters profit
target, and continued financial improvement within
Parcelforce;
the business budgets had been through a detailed review
process, both within the respective businesses and with
Group Executives. The 1998-99 budget presented to the
Board had been endorsed by POEC;
four of the key budget issues: cost of staff flexibility;
Royal Mail and Parcelforce productivity; project spend;
and Horizon, replicated those of 1997-98. New issues
included: Royal Mail’s growth forecast set significantly
above GDP(L); consolidation by Parcelforce and
Counters to maintain market share; uncertainty for SSL
over the BBC contract; and the need to drive through
transformational change funded by increased efficiency,
with regard to targets, Royal Mail had set a budgeted
profit of £478m, and inland volume growth of 5% which
for the first time was set significantly above GDP(L)
Whilst in headline terms manpower was set to increase,
in real terms, taking account of expected volume growth,
numbers in 1999 would actually be 3,200 lower than
March 1997. Productivity improvement would increase
by 1% to 3.5%,
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rounters 1998-99 profit had been budgeted at £30m
Ieee, om ore business was expected to be slightly
Sther a n -98, with growth resulting from the
er Post Office businesses, new and recent products
and licence fees Efficiency savings of £46m had been
budgeted mainly from regional efficiencies and central
units cost reductions;
Counters’ budget assumed that conversions would
recommence in the second half of 1998-99;
Parcelforce had budgeted for a loss of £12m in 1998-99,
although this would be adjusted should a loss of £15m,
rather than the forecast £20m be achieved in the current
year,
the budget had assumed that the income decline from
Standard traffic had bottomed. Strategic investment and
other cost charges of £24m had been included within the
budget;
manpower was set to reduce over the period with a
reduction of $20 in March 1999, compared with the
March 1997 total;
SSL’s budget relied heavily upon its contract with the
BBC, producing 80% of the business’s income
noted in discussion that
in reviewing the Business budgets, the Executive had
tried to obtain a balance between risk and opportunities
and this was reflected in the budgets now submitted. In
adopting this approach, the net proceeds from the
disposal of KEB had not been taken into account. An
EFL target of £335m had been assumed, although this
had still to be confirmed by Government;
although some Members were not convinced that the
mechanics for correctly understanding the percentage
increase in manpower numbers were in place, it was
acknowledged that steps to improve understanding had
been taken through the separate reporting of planned
reductions and growth assumptions within the Chief
Executive’s report, and through the annual stocktake of
manpower which had been introduced last year;
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(xiii) under Government accounting rules the £105m shown as
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SPECIAL STAMP
PROGRAMMES
1999-2001 (POB(98)17)
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interest against past surpluses could not at present be
accessed by The Post Office although it was a vital
element of profit. Given current constraints the level of
surpluses was likely to rise;
although the budgeted growth in Royal Mail National
volumes reflected the success of recent advertising
campaigns, the budget was nevertheless challenging
agreed the Business budgets for 1998-99
P098/26
The Board noted Mr Roberts’ report and the
presentation by Mr Novak, the main points from which
were that
the Board had approved the three year Millennium
programme in 1997 (PO97/) and endorsed the overall
theme of ‘time’;
for the 1999 programme, the concept of using icons,
innovations and endeavours remained as previously
reported, but rather than have nine separate issues, it was
now intended to cover forty eight subjects in twelve
issues, with four stamps per issue. Themes would cover a
thousand years of history and be representations of the
way we live and think, brought alive by different tales
e.g. an inventors’ tale or a travellers’ tale. Different
artists would be commissioned for each stamp, with the
stamps being individually numbered to enhance their
collectability;
the 2000 stamp programme was intended to represent
the ‘Best of British’ portraying the British people as they
commemorated the year 2000. It would again be a forty
eight stamp set with twelve issues of four stamps per
issue. The theme was to be ‘routes’ with each stamp
representing a Millennium site, with the complete set of
stamps providing a ‘route’ along which the public could
travel, Routes would include: science, environment,
technology and travel. The programme would also front
Post Office activity for the year 2000;
as part of the year 2000 programme, a Millennium stamp
was to be issued which would replace the First class
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definitive stamp. Whilst its design had still to be
determined, it would aim to capture the mood of the
nation;
arrangements for the Stamp Show 2000, which would
take place at Earls Court Exhibition Centre, were well
underway and external Support for the show had been
good. The Queen had agreed to be patron of the show
Noted in discussion that
Members congratulated those concerned with the
Progress that had been made and were encouraged by the
design concepts that had been presented
approved the proposals for the Millennium Programme
PO98/27
The Board was extremely disappointed, but not
surprised, by Government’s recent decision on Board
Members pay, which had been set below the level of
awards to other Post Office Employees. In particular
Members were concerned at the insensitive way the
matter had been handled, the length of time taken to
make a decision, and the fact that the assurances given
when the review date was altered had been disregarded
noted in discussion that
Members thought it appropriate for the Remuneration
Committee to write to Government expressing the
Boards’ disappointment and concerns. Sir Christopher
Harding, as Chairman of the Remuneration Committee,
would discuss the timing of this with Dr Neville Bain,
Chairman Designate
PO98/28
The Board noted that the 1997-98 Report and Accounts
would be published as two separate documents, driven to
some extent by the need to publish a Welsh language
version of the Annual Report
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IMPLEMENTING THE = PO 98/29
EU POSTAL The Board noted Mr Cope’s report
DIRECTIVE (POB(98)19x)
MaPEC HALF YEAR PO98/30
REPORT (POB(98)20x)
The Board noted MrClose’s report
THE POST OFFICE PO98/31
PENSION SCHEME 6th
SUPPLEMENTAL DEED The Board noted Mr Cope’s paper
& THE POST OFFICE
STAFF SUPERANNUATION
SCHEME 27th SUPPLEMENTAL
DEED (POB(98)21x)
Agreed that the POPS 6th Supplemental Deed and the
POSSS 27th Supplemental Deed be executed
DATE OF NEXT PO98/32
MEETING
The Board noted that its next meeting was scheduled for
14 April at 148 Old Street
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