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POB(99)SS
POST OFFICE BOARD
CHIEPR EXECU S REPORT : September 1999
(July 1999 Results)
KEY POINT SUMMARY
is ROYAL MAIL
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The profit result for July of £34m was £6m down on budget driven by the
income result which was £17m below budget as a result of lower volumes in
letter services across all the business units. RM National income was on
budget but due to an additional £10m of Ancillary income from the European
Commision, Welsh & Scottish Elections offsetting the £10m below budget
performance of Letter Services. RM Streamline income was £13m below
budget and International income was £5m below budget. Expenditure was
£9m below budget with mails operational expenditure representing £5m of
this, predominantly due to volume related savings. Cumulative profit is now
£15m behind budget.
RM National traffic volume for July was down 0,8% driven by a decline in
First Class of 2.4% which was partially offset by Second Class growth of
1.2%. RM Streamline growth was 7% below budget at 9.1% due to reduced
volumes of Mailsort 2 & 3. RM International showed a decline of 2.8%
against a budgeted growth of 3.8% with all sectors performing worse than
budget especially Inward Terminal Dues which was 18% down on last year,
Quality of Service in July for First Class was 91.7% which brings the year to
date performance up to 90%. The Second Class result was up on last month
to 98.7% and remains cumulatively above the full year target of 98.5%. There
are month on month improvements in virtually all streams and gains in most
of the key Customer Sorted streams.
POST OFFICE COUNTERS LTD (POCL)
POCL made a profit of £5.4m for July, but some £1.1m below the budgeted
target of £6.5m and this trend is expected to continue in August. Monthly
revenue was £7.8m below budget and, correspondingly, expenditure was £6m
below budget due to underspends in both Regional and Central cost centres.
Cumulative profit is now £7.4m ahead of budget
All services under-performed this month’s revenue targets with Licence Fees
being particularly low as a result of a revised agreement with Forbuoys.
The Quality of Service result stood at 94.2% against a target of 95%, a 1%
improvement on the previous month’s performance. Branch Offices improved
by 3.6% and Modified/Franchise Offices by 2.3% on last month even with the
‘o
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further extension of the Graduated Vehicle Excise and the continuing
emergency passport extension work.
PARCELFORCE WORLDWIDE
July’s financial result, including Special Delivery, was a profit of £03m, £3m
worse than budget. Special Delivery had another strong month producing an
additional £1.1m profit above budget (£3.1m cumulative). The underlying
Parcels performance though was £4.1m below budget comprising £3.1m
income shortfall and £1m expenditure overrun. Cumulative profit for Parcels,
including Special Delivery, is now £6.1m behind budget.
Parcel volumes are down against both the UK (-4.9%) and International
(-1.3%) markets. Within the sectors, however, Customised Solutions (+3%),
Rest of World (+1%) and Small Business (+2.5%) were all up. The largest
shortfalls were in the Home Shopping (-10%) and Business to Business
sectors. Standard volumes are down by 18% due to the loss of 4 contracts
and PF24 down by 28%. PF10 is of particular concern with 15 of the top 25
customers showing a marked decline in year on year revenues. The
International shortfall is mainly price reflecting the continued tough trading
conditions, and last month’s Euro 48’s strong performance has reversed
July’s Quality of Service improved markedly on last month with four targets
being achieved: PF12, Standard Day 2 and International Outward EMS &
Standard; nevertheless performance behind last year’s when 12 targets were
achieved.
OVERVIEW OF PERFORMANCE
All three business failed to meet their profit targets for the month: POCL for
the first time this year. Both Parcelforce Worldwide and Royal Mail continue
to experience performance problems. Parcelforce Worldwide’s revenue is still
below target compounded by staff costs above budget despite reduced
volumes. This cost overrun is being vigorously addressed. Quality of Service
has improved but still remains poor compared to last year. Royal Mail
continues to have significant revenue shortfalls but a good set of recovery
actions are in place with risk seemingly more balanced for the year through
the failure of the Way Forward ballot (see para. 5.5). Quality of Service has
continued to improve with the First Class cumulative figure now reaching
90%. Continued improvement in both business and service performance is
being vigorously pursued by both businesses
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OTHER ISSUES
COMMERCIAL DEVELOPMENTS
3.1
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The Lottery launch, following the announcement of our joint bid with
Camelot on the 6" August, has been regarded favourably both within the
press and with our employees and managers. As a consequence of joining,
Camelot require a member of The Post Office Board to join their board. The
Chairman and J have agreed that this should be Jerry Cope, with his
‘alternative’ being Dick Wheelhouse who heads up the Lottery project. This is
in fine with the other four company shareholders.
UK Passport Agency
Agreement has been reached on the charge for the emergency passport
extensions. An invoice of £2m (excluding VAT) has been sent which covers
the period of 7 July to 1* September. The passport emergency extension
service has been extended by one month to the 2" October at a proposed unit
price of £5.
Distribution of freebeeb.com CD
The BBC are offering a free ISP service called freebeeb.com which will be
available as a CD from post offices for the period 4" - 30th October. This first
contract of its kind is worth only £0.1m but is one of several such ISP
distribution contracts under discussion.
INTERNATIONAL STRATEGY
5.4
Acquisitions
In line with the strategy and authority agreed by the Board in May, we expect
to finalise over the next week or so a deal to purchase the Williams Group,
the General Parcel partner in Ireland. The price is around £9m including a
delayed payment of nearly £2m, depending on results. We are also in
preliminary discussions with An Post to whom we might sell on a share of the
Williams Group, as part of a general alliance.
Competitors
Deutsche Post, through its subsidiary Danzas, finally won its battle with the
Swedish Post Office, Posten, for control of ASG following a court ruling.
Danzas now has 78.6% of issued ASG equity and 59.3% of all votes.
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INTERNAL
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5.6
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FDX Global, sister company to Federal Express, has acquired the specialist
Caribbean air freight forwarding business arm of GeoLogistics, GeoLogistics
Air Services.
EVELOPMENTS
Way Forward Agreement
The ballot of CWU members which closed on 1“ September resulted in the
Way Forward Agreement not being accepted, with 55.5% voting ‘No’ in a
high turnout of 64%, This was despite the unanimous endorsement by the
CWU Executive. This will be discussed at the Board.
National Minimum Wage - Subpostmasters
A test case on the application of the National Minimum Wage was heard at an
Employment Tribunal on the 27" August. Clarification has been requested by
the tribunal Chairperson and a decision is expected in early October. The case
depends on the definition of the word ‘worker’ and whether it applies to
subpostmasters, Previously, the status of a subpostmaster, as an independent
agent who has a commercial contract with POCL for the provision of
services, has been thoroughly tested in case law.
Birmingham Mail Centre
The previous negative impact on Quality of Service caused by the new mail
centre in Birmingham has now been remedied following implementation of a
recovery plan. Birmingham Mail Centre is now clearing mails to workplan and
mail diversions have ceased.
The new mail centre at Chester has been implemented with no operational
problems.
Re-branding SSL
Following a branding review, Subscription Services Ltd or Customer
Management Business Unit (under SCS) will be re-branded Post Office
Customer Management Ltd.
Horizon - ICL Pathway
The Acceptance Board for Horizon met on the 18" August and concluded
that while a great deal of progress had been demonstrated there were still a
number of issues needing further work before it could pass the system
acceptance test. As a result of this, the national roll-out programme could not
commence, The resolution of the problems are being undertaken through
facilitated workshops which commenced on the 25" August and will run to
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the 17 September. Contractually, the system must fully pass the acceptance
test by 1S" November at the latest.
As a consequence, it may not now be possible to write-off £550m at the half
year if system acceptance occurs in November,
Group Managing Directors - Unit Accountability Changes
As there has been no success in finding an external candidate for the position
of Group Managing Director, International Services, it has been decided that
the position would be filled by Jerry Cope, alongside his Group Centre
accountabilities, supported internally at Managing Director level. John Modd
has been appointed. This has necessitated freeing Jerry of some other units
leaving a new allocation as below:
Richard Dykes Business & Consumer Markets
Media Markets
Post Office New Enterprises (Electronic Services)
Service Delivery
Cash & Distribution
Post Office Services Group
Stuart Sweetman Network Banking
Post Office Customer Management
Stamps & Collectibles
Post Office Network
Kevin Williams Corporate Clients
Logistics & Contract Distribution
Packages & Express
Sales & Customer Support
Jerry Cope International Services
European Parcels
Post Office Strategic Plan Presentation to Government
The Post Office’s Strategic Plan was presented to Government on Monday 6
September by the Chairman and Jerry Cope. Along with Alan Johnson MP
and the DTI, representatives from the Treasury and No.10 Policy Unit were
present, The presentation was well received and we have been promised 4
definitive response from Government in the next 6 weeks.
Universal Postal Union Congress - Beijing
J attended a week of this Congress which, under the auspices of the UN,
meets every 5 years to bring together every postal nation in the world - some
128 countries. Around 2000 people attended.
Whilst the Congress itself has all the problems of a UN meeting, I had a wide
range of bi-lateral meetings with my opposite numbers from amongst others
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USA, Japan, Argentina, Switzerland and Ireland. I will bring the Board up to
date orally on some of the issues emerging,
6. CONCLUSION
The Board is invited to:
* note the September Report
* note the following businesses’ fuull year pre-tax profit/(loss) forecasts:
Profit/(Loss) (before 8S costs)
Budget June
Forecast Forecast
Royal Mail £44im £441m £441m
Parcelforce Worldwide
e without RM Special Delivery (£ 14m) {£ 14m) (£ 14m)
© with RM Special Delivery £16m £16m £16m
POCL £22m £22m £22m
‘SSL £ 0m 3m) £m
POSG (£ 4m) (£ 4m) «& 3m)
POPH © £33m £33m £33m
Group Centre £64m £67m £59m
Group Profit Before Tax £572m £572m £568m
* note the following comment on businesses’ full year profit/(loss)
forecasts:
Parcelforce Worldwide - Current indication would suggest an
outturn of £6m profit is most likely (budgeted £16m).
It is suggested to wait at least 2 months (half year) before
proposing a change in the report to the DTI thus reducing the
possibility of a second reported change.
* agree that the following full year post-tax profit forecast can be released
to the DEE
Post Office Group Post-Tax Profit (1999/00) of £ 368m,
Year Outturn Profit
Budget Last Forecast Latest Forecast
Post Office Group £ 368m £368m £368m
AJR
September 1999
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