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Contents Page
Core Induction Material
Corporate History
Post Office Group Structure Chart
Post Office Group Business lines
Post Office Group Regulators
Boards & Executives
Company Secretariat
Entrustment Letter
Funding Agreement
Directors’ Duties & Conflicts of Interest
10. Glossary of Terms
11. Guidance for Decisions Made Outside of Board Meetings
12. Code of Conduct for Board Members
ass Director Applicable Group Policies
- Conflicts of Interest
- Anti-Bribery & Corruption (incorporating Gifts &
Hospitality)
e Anti-Money Laundering & Counter Terrorist Financing
- Travel & Expense Policy
PONAMawWNe
Post Office Limited Induction Material
1. Company Constitutional Documentation
- Articles of Association
Pe Governance Documents
- Matters Reserved to the Board (pending review)
- Audit, Risk & Compliance Committee Terms of Reference
- Remuneration Committee Terms of Reference
- Nominations Committee Terms of Reference
- Group Executive Committee Terms of Reference
- Delegated Authorities & Authorised Signatories
- Structure Chart (pending review)
- Board Effectiveness 2018
3 Accounts
- Post Office Limited Annual Report and Accounts for 2018/19
4. Insurance
- Group Insurance
5. Practical Matters
- 2020 Meeting Dates
- Board & Executive Contact list
Additional Induction Materials/ Background Papers
No Oe
Induction Briefing Note
Initial funding request to Government 14 February 2020
The Network Report
The PSG papers to Board in 26 November 2019 and 28 January 2020
The LTIP and STIP papers that went to RemCo on 11 November 2019,
including the appendices
The cash and facility management paper that went to Board on 26 November
2019
The Starling papers to Board in July 2019 and January 2020
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CORPORATE HISTORY
1635
King Charles I issued a proclamation in 1635 allowing the public to
use his Royal Mail. The mail was carried by mounted post-boys
between inns which acted as staging posts. Selected innkeepers also
acted as postmasters taking the mail from one post-boy and handing
it on to the next. The postmaster also accepted mail brought in for
posting by local residents.
1680
In 1680 William Dockwra, a London Merchant, introduced a penny
post to collect and deliver letters and parcels in London. He used over
400 receiving houses at shops, taverns and other small businesses to
take in the mail. The service was forced to stop in 1682 as it infringed
the Post office monopoly, but was re-opened shortly afterwards as an
official Post Office service. Many of the receiving houses were
retained as they offered a convenient place for people to post letters.
1765
An Act was passed in 1765 allowing local penny post networks in ley
towns outside London. It took a while for towns to adopt the scheme,
but when they did many letter receiving houses sprang up. Inns were
seen as less desirable locations, particularly by women, so reputable
shops or even the local schoolmaster would take on the task of
offering facilities for people to post and collect their mail.
1792
A money order service was introduced in 1792 allowing people to
transmit money safely. An order could be purchased from a post
office, sent to the recipient who would then take it to a designated
post office to exchange for cash.
1840
The introduction of a uniform penny postage and postage stamps, in
1840, greatly increased the number of letters posted, and more and
more sub-post offices were established to meet demand.
1861
The Post Office Savings Bank began in 1861, offering savings facilities
for ordinary wage earners. At that time there were few banks outside
major towns. Initially 700 post offices provided a place to save
money, but within 2 years this had risen to 2,500 offices. By 1901
there were over 8 1/2 million accounts with deposits of over £140m.
1870
The monopoly of running the telegraph service was given to the Post
Office in 1870 and post offices were set up throughout the country to
allow people to send and receive telegrams.
1883
The introduction of the parcel post service in 1883 meant that 15,000
post offices had to be enlarged.
1897
The National Federation of Sub-Postmasters was formed in 1897.
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CORPORATE HISTORY
1900 In 1900 there were 906 head post offices, 255 branch offices, 4,964
town sub offices and 15,815 country sub-offices. A total of 21,940
offices.
1909 From 1 January 1909, Old Age Pensions became payable at post
offices.
1912 The Post Office took over the National Telephone Company in 1912 to
offer a united telephone system throughout most of Britain.
wwi During both World Wars, post offices played a vital role displaying
WWII I general notices and instructions, issuing forms and ration books.
Post- After the Second World War, state benefits (e.g. family allowance etc)
WWII I became payable nationwide via the Post Office counter network.
1968 The Post Office’s new banking service, National Giro, (later called
National Girobank) began in 1968.
1969 On 1 October 1969, The Post Office ceased to be a Government
department and became a nationalised industry. Control of national
Savings Bank was lost when it became a separate Government
Department, but post offices continued to act as an agent on its
behalf.
1986 The Post Office was re-organised in 1986 into 3 separate businesses
- Royal Mail Letters, Royal Mail Parcels and Post Office Counters.
1990 Girobank was sold to the Alliance and Leicester Building Society in
1990.
2000 The Postal Services Act 2000 converted the Post Office from a
statutory corporation to a public limited company wholly owned by
Government. The Act established an independent regulator
(Postcomm) and a new consumer council.
2002 In 2002 the Government announced £450m to support the rural
network over 2003-06.
2003 In 2003 the loss of income from the Benefits Agency began as
payments were automated along with the start of universal banking
services, POCA and basic bank accounts at post offices.
2003- I Between 2003-05 the Post Office Urban Reinvention programme took
2005 place which saw the compensated closure of 2,500 urban branches.
By 2005 the Post Office network stood at 14,600 branches.
2
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CORPORATE HISTORY
2004
In 2004 the Government extended the Rural Network payment to
2008.
2007
In 2007 the Government announced a package for the future of the
post office network which included £1.7bn in subsidy (including the
Social Network Payment) and a programme of closures. The Network
Change Programme (2007-09) saw the closure of 2,500 post offices
with the introduction of 500 outreach services on an area plan basis.
2008
The extension of the POCA contract was announced in 2008.
2010
In 2010 the Government announced funding of £1.34bn over 4 years
to support the transformation of the Post Office Network (including
the Network Subsidy Payment). The Government policy document
‘Securing the Post Office Network in the Digital Age’ made a
commitment to ‘no programme of closures under this Government’
and set the platform for the Post Office Network Transformation
Programme.
2011
Following enactment of the provisions of the 2011 Postal Services Act.
In April 2012 Post Office Limited ceased to be a subsidiary of Royal
Mail Group Limited began operating independently, as sister
companies under Royal Mail holdings plc.
2012-
2018
Under the Network Transformation Programme between 2012 and
2018 over 7,700 Post Offices branches were modernised. Opening
hours overall were increased significantly and more than 4000 Post
Offices now open on a Sunday.
2013
In November 2013 the Government announced a further £640m in
funding (through to 2018) for the Post Office to complete the Network
Transformation programme and to support the network.
2016
In 2016/17 the Post Office moved to profitability for the first time in
16 years. In January 2017 the Post Office signed the Banking
Framework agreement with all the major UK Banks meaning that
personal and business banking customers can use local post offices to
access a range of banking services.
2017
In December 2017 the Government announced funding of £370m for
the Post Office through to March 2021 to modernise services and
technology and protect village post offices.
2018
In 2018 Post Office acquired Payzone’s bill payment business,
providing customers with around 25,000 Payzone and Post Office
locations to pay their bills.
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@ re o1ce croup structure chart
Fist Rats tc ove I
[caste seme = ae
I First Rate Exchange Services
I ited
TE cers nomen
DD recs cone ater mnt
I ee
Notes
(1) 50% Owned Joint Venture with te Bark of reand (UK) ae
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POST OFFICE GROUP BUSINESS ACTIVITIES
Pi ffi ed
Government Identity Services
Mails
Banking Framework
Post Office Money
Retail & Post Office Network
Telecoms
Post Office Management Services Limited (trading as Post Office Insurance)
¢ Insurance Intermediary
Payzone Bill Payments Limited
* Payment solutions (phone, online, EPOS)
First Rate Exchange Services Holdings Limited
¢ Holding Company of First Rate Insurance Services Limited
* Joint Venture (50% each owned by Post Office Limited and Bank of Ireland (UK) plc)
First Rate Exchange Services Limited
¢ Supply of foreign currency in the UK
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Post Office’s Regulatory Universe
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®
The Post Office group is directly and indirectly subject to the oversight of 17 [78] regulators/agencies, some focused on
specific business areas (e.g., the FCA) and others covering the whole organisation (e.g., the ICO). The table below sets
out the list of authorities, their areas of responsibility and whether Post Office is directly or indirectly supervised by them.
Regulator Jurisdiction Direct i Regulator Jurisdiction Direct i
Indirect Indirect
on 7 : om Information Commissioner's Upholding information rights and
Advertising Standards Agency Ensuring responsible advertising D Offi data privacy for individuals. D
Civil Aviation Authority a Goods air freight 1- TBC National Audit Office Scrutinising public spending D
. Business competition and Communications regulator a
a & Markets preventing/reducing anti- D Ofcom covering (inter alia) telephony, He Tae
competitive practices broadband and postal services
Environment Agency Fishing/rod licensing D Payment Systems Regulator Overseas HM treacury, i"
designated payment systems
Promotion and Enforcement of Prudential regulation rules
Equality & Human Rights equality and non-discrimination ‘ , F require financial firms to hold 7
Commission laws. Promoting and protecting Prudential Regulation Authority sufficient capital and have rete
human rights adequate risk controls in place
Conduct of firms authorised DFO Ph Paid Services Auth Regulate i te call: D
Financial Conduct Authority D-FRES ione-Paid Services Authority eat: PES OM Tae CAs,
under FSMA I-FS
7, 7 Regulates the private security
; - Arbiter of complaints between D-T™M Security Industry Authority industry -for Post Office, this D
Financial Ombudsman Service financial businesses and their D-POl covers Cash in Transit
customers 1-FS
Ensuring Solicitors meet high
Gambling Commission Regulates gambling, including 1 Solicitors Regulation Authority standards and acting when risks D
lotteries are identified
Anti-Money Laundering & Wironmecon a
stupid 243 ? mercial pom
HM Revenue & Customs Financial Crime D ese coed Fan services accessible from the UK TBD
Taxation must have age-verification tools
Post Office®
HIGHLY CONFIDENTIAL
‘This is may change following the Access to Cash review (2019)
a
Ne
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POST OFFICE GROUP
BOARD DIRECTORS & EXECUTIVES
Post Office Limited - Board
(Veronica Branton acts as Secretary to the Board)
im Parker, Chairman
Joined the Board in October 2015
Chairman of the Nominations Committee and
Member of the Remuneration Committee
\Tim has been CEO of several well-known companies: Kenwood,
(Clarks, Kwik-Fit, the AA and Samsonite. He has served as a Non-
Executive Director on a number of FTSE 100 companies: Legal
and General, Alliance Boots and Compass Group, and has been a
Board member of the Audit Commission and the South West
Regional Development Agency. He has been an Industrial Partner
at CVC Capital Partners.
\Tim is the Non-Executive Chairman of Samsonite Corporation,
INon- Executive Chairman of National Trust and Chairman of
[HM Courts & Tribunals (HMCTS).
(Tom Cooper, Non- Executive Director
Joined the Board in March 2018
Member of the Audit, Risk and Compliance
(Committee and Remuneration Committee
\Tom Cooper was appointed a Director at UKGI and started
lin November 2017.
Prior to joining UKGI he was Global Co-Chairman of M&A at
[Deutsche Bank where he spent 8 years. In addition to advising
clients and working with them on transactions, he chaired the
Fairness Opinion Committee in EMEA and was a member of the
committee responsible for approving franchise lending to
[Deutsche Bank’s corporate clients in EMEA. Before joining
[Deutsche Bank, he worked at UBS Investment Bank for 21 years.
He had various roles including working with UK clients, Nordic
Coverage, Transport, Utilities and M&A. He finished his career at
UBS as Head of European M&A.
He started his career at KMPG.
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POST OFFICE GROUP
BOARD DIRECTORS & EXECUTIVES
Nick Ri - Gr thief Ex. ive Officer
Joined the Board in September 2019
Nick joined Post Office as Chief Executive Officer in September
2019. Nick was most recently Group CEO at Extra Energy and
prior to that CEO at Nisa Retail Limited where he led the
stabilisation and transformation of the business ahead of its sale
jto the Co-Op in 2018.
INick has over 25 years of consumer and commercial experience
land has previously held senior roles at Tesco, Vodafone, HBOS,
Lloyds Banking Group and Thomas Cook. In his earlier career,
Nick was a Consumer and Retail Strategy Manager at Deloitte
(Consulting, a Purchasing Director for Aldi UK and spent 4 years
jas a Captain in the 4'*/7 Royal Dragoon Guards, H.M. Forces.
ALC: =G Chief Fi Officer & Interi
Operations Director
Joined the Board in January 2015
Al became the Chief Financial Officer of Post Office in January
2015, subsequently becoming Chief Finance & Operations Officer.
'He served as Interim CEO from April to September 2019. He is
jalso a Non-Executive Director of the Dover Harbour Board. From
2002 to 2014, Al worked in a variety of roles for Centrica plc, a
FTSE 100 company, including Director of Audit & Risk, Group
Financial Controller, Finance Director of British Gas and Managing
Director of British Gas Enterprise. Previously he was a partner
ith Arthur Andersen. He has served as a non-executive on the
Board of Oxford University Hospitals and the e-Learning
Foundation.
Ken McCall, Senior In indent Non-Ex ive Dir:
Joined the Board in January 2016
(Chairman of the Remuneration Committee and Member of the
Audit, Risk and Compliance and the Nominations Committees
‘Ken was Deputy Chief Executive of Europcar Mobility Group until
March 2019. Formerly, he was Chief Executive of DHL Express UK
land Ireland, instrumental in achieving a full business turnaround
land transformation. Previous positions include Chief Executive of
ITNT Asia, Middle East, African and Indian sub-continents. Ken has
extensive experience in mails, logistics and business
transformation.
Ken holds no other Non-Executive appointments.
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POST OFFICE GROUP
BOARD DIRECTORS & EXECUTIVES
La nt, Non-Ex Dir r
Joined the Board in January 2016
(Chair of the Audit, Risk and Compliance Committee
(Carla, a qualified Chartered Accountant, has held a number of
senior positions in banking, private equity and in retail industries.
She has had direct responsibility for corporate finance and post-
merger integration, strategy, business operations, brand
development and management and business transformation.
(Carla has worked at Board level for organisations including
Barclays Bank plc and Virgin Group.
(Carla is currently a Non-Executive Director of JPM Morgan Elect
plc, Smith and Williamson Group, Power to Change Trust
and Marex Spectron Group (which she also chairs).
\Zarin Patel
Joined the Board in December 2019
Member of the Audit, Risk and Compliance Committee
Zarin is currently on the Board of Anglian Water Services Limited
here she chairs their Audit and Risk Committee and sits on
Nominations Committee. She sits on the Board of Trustees of the
National Trust and chairs its Audit & Risk Committee. She is also
jan Independent Member of the Audit & Risk Committees of both
HM Treasury and John Lewis Partnership plc.
Zarin was most recently the Chief Operating Officer of The Grass
Roots Group PLC, a customer and employee engagement
specialist. She was the BBC’s Chief Financial Officer and member
lof its Board from 2004 to 2013 during which time she helped to
transform the BBC into a fully digital broadcaster. Prior to the BBC
she spent sixteen years at KPMG working on FTSE quoted
conglomerates in a variety of sectors. Zarin is a chartered
jaccountant.
Lisa Harrington, Non-Executive Director
Joined the Board in April 2020
Member of the Remuneration and Nominations Committees
Lisa is a tech executive and diversity advocate. She has spent
25 years growing and transforming business across the
Professional Services, Education, Technology, Utilities and
[Telecommunications sectors.
‘She started her career Accenture in Ireland and UK. Later, she
joined British Telecom (BT) where she spent 10 years in a range
jof leadership positions including Divisional CIO, Group Managing
3
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POST OFFICE GROUP
BOARD DIRECTORS & EXECUTIVES
Director of Transformation, and Managing Director Service
(Operations. In her final role she was Chief Customer Officer BT
(Group, reporting to the CEO. Most recently, Lisa was Managing
Director of QA Ltd, the biggest tech and cyber skills provider in
jthe UK.
Lisa is a well-known advocate for diversity in STEM (Science,
Technology, Engineering and Maths) and founded the BT
ITechWomen programme to reframe the diversity dynamic in BT.
‘She is an industry advocate for mental health in the work-place
and was recently invited to become a mentor for the UK Cabinet
(Office REACH programme.
(Currently, Lisa provides independent, business advisory services.
She specialises in digital transformation and is particularly
interested in high growth/ fast turnaround businesses. Lisa has
held a number of non-executive posts including terms on the
boards of Southern Water and West London NHS Mental Trust.
Post Office Limited - Group Executive
(Owen Woodley - Group Chief Commercial Officer
(Owen is Group Chief Commercial Officer overseeing all the Post
\Office’s product businesses across, Mails, Banking, Financial
Services & Insurance, Digital Identity, Government Services,
\Travel Money, Telecoms and Payments. He joined the Post Office
lin 2016.
Prior to this, Owen spent four years as Managing Director of the
retail business at Lloyds Bank with responsibility for the branch
network and customers. Owen had previously launched and run a
inew UK bank in the wake of the financial crisis, Shawbrook, which
focuses on commercial property and asset finance lending. He
started his career at Barclays where he undertook a number of
senior roles in the UK in retail and commercial banking. He also
jorked extensively in risk management and business development
lacross sub-Saharan Africa. He was at different points responsible
for the joint venture business in Barclaycard and was UK Regional
Director for Barclays in the Midlands and London.
(Owen has held a number of other board positions and has been aj
Board Governor the Board at Nottingham Trent University since
2014,
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POST OFFICE GROUP
BOARD DIRECTORS & EXECUTIVES
Ben Foat - Group General Counsel
Ben is the Group General Counsel of Post Office Limited and an
executive member of Post Office Limited and Post Office
Management Services Limited. He is responsible for managing the
legal, compliance and company secretariat departments across the
organisation and works with executive management and boards to
shape strategy, maximise commercial opportunity and mitigate
legal, regulatory and governance risk.
Prior to joining Post Office, he was employed at Zurich Insurance
plc in the UK and was previously a Senior Associate in private
practice in Australia. He has spoken at various industry events in
relation to leadership and legal operations including emerging
technology and resource models. He is a Leadership Fellow at St
(George's House, Windsor Castle. In 2018, he was awarded Solicitor
jof the Year — Inhouse by the Law Society, shortlisted for Diversity
[Hero at the 2019 British LGBT+ Awards as well as being listed in
ithe Financial Times OUTstanding 2017 -2019 lists for his leadership
lin Diversity and Inclusion. Ben holds a Master of Laws, Bachelor of
Laws (Hons) and Bachelor of Arts with a double major in Political
Science.
Lisa Cherry - Group Chief People Officer
Lisa was appointed Group Chief People Officer in January 2020,
lhaving been the Interim Group HR Director since October 2019. She)
had previously held a series of HR Director roles since arriving at the
Post Office in September 2018.
Lisa's career has span PLC and Private Equity organisations such asI
‘Sainsbury's, WHSmith and most recently as HR Director at Wyevale
(Garden Centres (a Terra Firma owned business). These senior level
y roles have been largely held during times of transformation and}
expansion in both domestic and international markets. Lisa has more
than twenty years’ experience in large multi-site retail organisations
lin both operational and HR focussed roles.
Lisa is a Chartered Fellow of the Chartered Institute of Personnel
land Development (FCIPD) and holds a Master’s Degree in HR
Management.
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POST OFFICE GROUP
BOARD DIRECTORS & EXECUTIVES
ff Smyth - Interim Gri hief Information Officer
Aman: nes — Interim Gri Retail & Franchise Networ'
rector
Amanda joined Post Office in 2018 as Retail Director and has
recently stepped up to the GE as Group Retail & Franchise Network
[Director (interim). Amanda has 30 years’ experience in the Retail
sector, operating in the Grocery, Drinks and General Merchandise
sectors in Public and Mutual Companies. Previously Chief Operating
(Officer of the Franchised Off License Chain, Bargain Booze (part of
(Conviviality Plc) and Chief Operating Officer of the Wholesale
Grocery Distributor Nisa. Amanda has held various senior roles
including Customer Strategy Director at Conviviality Plc, Head of
Format Development at Waitrose and International Franchising
roles at Marks and Spencer covering Europe and the Middle East.
Amanda is a Princes Trust Business Mentor.
Emma Springham - Group Marketing and Brand Director
—mma joined the Post Office in September 2018 as the Chief
Marketing and Digital Officer and was appointed Group Marketing
jand Brand Managing Director on the Group Executive in January
2020.
[Emma is responsible for overseeing the planning, development and
execution of Post Office’s marketing, brand and advertising
strategy. Emma’s background includes 25+ years of B2C and B2B
client side marketing leadership experience. Emma has held global
land regional marketing leadership roles at RBS, Barclays, Allianz
land Royal Mail prior to joining the Post Office.
Emma has lead a number of customer and digital transformation
projects in previous roles to drive new growth revenue streams.
Emma has a Business and Management Bachelor of Science and
(Chartered Institute of Marketing Postgraduate degree.
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POST OFFICE GROUP
BOARD DIRECTORS & EXECUTIVES
Rich Taylor ___- ir por: Affair:
Richard joined the Post Office in January 2020 after four years as
(Communications Director at ScottishPower and six years as
(Corporate Affairs and Communications Director at the supermarket
chain Morrisons.
Richard has over 25 years of political, media and commercial
experience having previously worked for the CBI, the Labour Party,
as Special Adviser to the Secretary of State for Defence and as a
Partner at Portland Communications. He holds an MPhil in
Environment and Development from the University of Cambridge.
in_Zi r=. hief_Stri ind_Transfor'
Officer
Dan joined Post Office in July 2019 as Chief Transformation Officer
land in January 2020 was appointed Group Chief Strategy and
Transformation Officer. As Chair of the Investment Committee,
Dan is responsible for all investments across the Post Office Group
and ensuring these are linked to the overall Group strategy. Dan
brings more than 20 years’ experience across the retail, consumer
goods, hospitality, healthcare and pharmaceuticals industries
working in strategic development, commercial and operational
improvement, change management, and acquisition integration.
Prior to the Post Office, Dan worked in the UK as the
\Transformation Director for The Restaurant Group and as Trading
and Marketing Director for Wyevale Garden Centres. Prior to this,
Dan was in South Africa, working for Clicks Group as Corporate
Business Development and as Retail Commercial Head of
Heathcare.
[Dan has an M.B.A. from the University of Virginia’s Darden School
jof Business and spent a number of years as a management
consultant with McKinsey & Company’s London office.
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POST OFFICE GROUP
BOARD DIRECTORS & EXECUTIVES
(Sarah Koniarski acts as Secretary to the Board)
(Tim Franklin - Non-Ex. ‘ive Chair
Joined the Board in March 2018
Member of the POMS Audit, Risk & Compliance Committee
‘Also a Non-Executive Director of the Post Office Limited Board)
\Tim Franklin was appointed Chairman in April 2019. Tim’s executive
career spans both building societies and banking. Prior to his board roles
in the mutual sector, he was Director of Customer Programmes and
Loyalty and Managing Director of Savings at Barclays. Tim’s experience
extends across the private and public sectors too. He is Senior
[Independent Director at HM Land Registry where he chairs the Audit
(Committee and was previously on the Boards of Reclaim Fund Limited,
Mutual Plus Limited and the Link Cash Machines Network.
(Amanda Bowe - Non-Executive Director
Joined the Board in September 2015
(Chair of the POMS Audit, Risk & Compliance Committee
Amanda joined the Board of Post Office Insurance in September 2015,
shortly after its authorisation by the Financial Conduct Authority.
(Amanda is also on the Board of the Phoenix Life Companies (which
includes Standard Life Assurance Limited), British Gas Insurance where
she chairs the Risk Committee, and the Prince Philip Gordonstoun
Foundation.
\Amanda’s executive career included four years at Aegon UK where she
as Regulatory Risk Director. Prior to working at Aegon, Amanda spent
\21 years with the Financial Services Authority and other predecessor
regulators to the PRA and FCA, holding various supervisory and policy
roles.
[Ed Dutton- Executive Director - appointment is pending regulatory
joined the Board in September 2019
nterim Managing Director
[Ed started his career in retail as a merchandise buyer at Marks and
pencer, before working in e-commerce in both an international start up
ind launching Kingfisher’s Health and Beauty business Superdrug. He
joined AXA Insurance in 2001 working in strategy and distribution before
becoming Underwriting Director of Personal Lines. His previous role
before joining the Post Office was as CEO of British Gas Insurance which
lhe helped launch and develop as Centrica converted their £1bn Home
ervices division into a regulated Insurance business in 2010.
He is also an advisor to Ventureprise Ltd, a growing Home Services
business.
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POST OFFICE GROUP
BOARD DIRECTORS & EXECUTIVES
Simon Parr - Executive Director
Joined the Board in June 2017
(Chief Financial Officer
Simon became the Chief Financial Officer in June 2017. From 1997 to
[2007 Simon worked in a number of roles for Barclays Bank plc, including
Finance Director of Barclays Insurance, Financial Controller —- Barclays
Private bank, and Head of Finance for Barclays Private Bank in America.
Since leaving Barclays Simon was Finance Director of RiskFirst (a
technology start-up) and divisional Finance Director at Slater & Gordon
(law firm).
ndrew Torrance - Senior In indent Non-Ex ‘iv
Director
Joined the Board in March 2018
Member of the POMS Audit, Risk & Compliance Committee
Andrew joined the Post Office Insurance Board in March 2018 as Senior
[Independent Director. He is also a Non-Executive Director of Allianz
[Insurance Plc and Tokio Marine Kiln Syndicates Ltd.
(Andrew brings in depth experience of leadership roles in insurance. From
11999 to 2015, he worked in a variety of executive roles in the Allianz
Group, the world’s largest general insurer. He was successively the CEO
jof the Group’s UK and US general insurance subsidiaries. Prior to joining
(Allianz, Andrew spent 6 years with London & Edinburgh Insurance Group
Ltd, the latter 3 as CEO. Previously he was a partner in the London office
pf The Boston Consulting Group where he focused on the financial services
industry.
(Owen Woodley - Non-Executive Director (not independent)
Joined the Board in June 2018
Member of the POMS Audit, Risk & Compliance Committee
(Owen is Group Chief Commercial Officer for Post Office Limited overseeing
fall the Post Office’s product businesses across, Mails, Banking, Financial
Services & Insurance, Digital Identity, Government Services, Travel
Money, Telecoms and Payments. He joined the Post Office in 2016.
Prior to this, Owen spent four years as Managing Director of the retail
business at Lloyds Bank with responsibility for the branch network and
customers. Owen had previously launched and run a new UK bank in the
jake of the financial crisis, Shawbrook, which focuses on commercial
property and asset finance lending. He started his career at Barclays
here he undertook a number of senior roles in the UK in retail and
commercial banking. He also worked extensively in risk management and
business development across sub-Saharan Africa. He was at different
points responsible for the joint venture business in Barclaycard and was
UK Regional Director for Barclays in the Midlands and London.
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POST OFFICE GROUP
BOARD DIRECTORS & EXECUTIVES
Owen has held a number of other board positions and has been a Board
Governor the Board at Nottingham Trent University since 2014.
Owen has held a number of other board positions and has been a Board
(Governor the Board at Nottingham Trent University since 2014.
Fr — appointment is pending
joined the Board in September 2019
javing started his career with Eagle Star John has accumulated 40 years’
xperience in the financial services sector. John has held senior
management and executive level positions with Liberty Life, Aetna, BUPA,
homas Cook, Legal & General Insurance (MD), GAB Robins (CEO),
‘quity Direct (MD Retail) and Cardif Pinnacle (a BNP Paribas Company).
john is currently a Director of Simple & Open Ltd and a Non-Executive
[Director of Tesco Bank. Previously John was a Non-Executive Director of
ritish Gas Insurance, British Gas Services, Equity Direct, Hastings Direct
ind Chairman of YRFree, a video technology business.
Internal
10
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POST OFFICE GROUP
BOARD DIRECTORS & EXECUTIVES
Pe ffice M: ment rvi Limi Pr In: ni - Ex ‘iv
Committee
Russell Tavener - Chief Operations Officer
Russell has worked for Post Office Insurance for over 7 years, initially
ith Bank of Ireland, then playing a major role in the transfer of the
business to Post Office in 2015.
Previously Head of Commercial for POI, Russell become Chief of
Operations in 2017 reflecting the business growth or POI and also the
increased scope of services under direct control.
Prior to Post Office Russell was Head of Business Development at
[Tesco Bank, having previously set up Tesco Compare. Russell has
also has held various roles with RBS and Direct Line Group.
an Holloway - Dir r, Risk mplian
Tan is a Chartered Accountant and holds an MBA from the university
of Bath. Following qualification he held a variety of financial
management roles before moving into Risk Management roles.
He was Vice President of the International Petroleum Exchange, and
project managed the demutualisation of the exchange before moving
into AXA to head up general insurance risk management. He then
headed risk and compliance at Aviva’s general insurance arm before
moving to Post Office insurance in October 2017. He has headed up
fa number of industry forums including the ABI’s conduct committee,
and liaised with the FCA on behalf of the industry in respect of PPI,
notably in respect of remediation processes.
Ryan Griffin - Product Director
Ryan joined Post Office Insurance in January 2016 and has over 20
ears’ experience in insurance businesses, encompassing marketing,
commercial and corporate partnerships roles. His career spans all
parts of the distribution chain from marketing agency to reinsurer and
includes spells at household name companies such as Aviva,
Prudential, News International, Ageas and Swiss Re.
He lives in East Sussex with his wife Jane and daughter Aurelia.
Outside of work his interests include playing the guitar, travel, fine
dining and fine wine.
11
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POST OFFICE GROUP
BOARD DIRECTORS & EXECUTIVES
Michelle Downs - Head of Change Management
Michelle joined Post Office in 2014 working within the Commercial
directorate supporting Mails, Telco, Government Services, Digital and
Marketing. In 2016, she moved into Post Office Insurance to head up
ithe Change Management Function. Working with the wider POI team,
her and her team take ideas and help turn them into working
solutions and products that realise the benefits and support business
plan.
Previously, Michelle held a number of global roles within Reckitt
Benckiser and DHL where she gained extensive experience in delivery
of all elements of the full change life cycle in large multinational
transformation programmes.
Ben Foat - General Counsel (Post Office Limited), delegates
to Sherrill Taggart, Interim Legal Director (Post Office Limited)
Ben is the Group General Counsel of Post Office Limited and an
executive member of Post Office Limited and Post Office Management
Services Limited. He is responsible for managing the legal,
compliance and company secretariat departments across the
organisation and works with executive management and boards to
shape strategy, maximise commercial opportunity and mitigate legal,
regulatory and governance risk.
Prior to joining Post Office, he was employed at Zurich Insurance plc
in the UK and was previously a Senior Associate in private practice in
Australia. He has spoken at various industry events in relation to
leadership and legal operations including emerging technology and
resource models. He is a Leadership Fellow at St George’s House,
indsor Castle. In 2018, he was awarded Solicitor of the Year -
[Inhouse by the Law Society, shortlisted for Diversity Hero at the 2019
British LGBT+ Awards as well as being listed in the Financial Times
OUTstanding 2017 -2019 lists for his leadership in Diversity and
Inclusion. Ben holds a Master of Laws, Bachelor of Laws (Hons) and
Bachelor of Arts with a double major in Political Science.
in - H. f HR (Pi
mes H:
James joined Post Office in January 2019 as Head of HR, FST&I. Prior
to joining Post Office, James spent time at ERS Specialist Insurance
las Sr. HR Business Partner partnering with the Executive Team across
multiple disciplines. Prior to ERS James spent 8 years at BTG
International PLC, a FTSE 250 speciality healthcare company where
he supported the company through significant acquisitive and organic
growth both locally and into new territories through various roles his
most recent leading the HR Business Partner function across global
R&D and Corporate Finance.
12
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POST OFFICE GROUP
BOARD DIRECTORS & EXECUTIVES
Rebecca Whibley acts as Secretary to the Board.
wen Wi ley —- Chairman
Joined the Board in April 2020
(Owen is Group Chief Commercial Officer for Post Office Limited
pverseeing all the Post Office’s product businesses across, Mails,
Banking, Financial Services & Insurance, Digital Identity, Government
Services, Travel Money, Telecoms and Payments. He joined the Post
Office in 2016.
Prior to this, Owen spent four years as Managing Director of the retail
business at Lloyds Bank with responsibility for the branch network and
customers. Owen had previously launched and run a new UK bank in
[the wake of the financial crisis, Shawbrook, which focuses on
commercial property and asset finance lending. He started his career
jat Barclays where he undertook a number of senior roles in the UK in
retail and commercial banking. He also worked extensively in risk
management and business development across sub-Saharan Africa. He
as at different points responsible for the joint venture business in
Barclaycard and was UK Regional Director for Barclays in the Midlands
and London.
Andrew Goddard ‘ector
Joined the Board in October 2018
Managing Director, Payzone Bill Payments Limited
(Cathy Mayor - Director
Joined the Board in October 2018
Finance Director, Commercial, Post Office Limited
\Cathy joined the Board of Payzone Bill Payments Limited when it was
lacquired by Post Office in October 2018. She is also a Non-Executive
Director of the Post Office’s joint venture with The Bank of Ireland,
First Rate Exchange Services Holdings Limited & First Rate Exchange
Services Limited.
(Cathy is the Finance Director for the Retail strategic business unit at
Post Office Limited. A Chartered Accountant, Cathy joined the Post
(Office in 2017 with over 10 years extensive senior commercial finance
13
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POST OFFICE GROUP
BOARD DIRECTORS & EXECUTIVES
experience within a number of large wholesale/retail organisations
including Yankee Candle and Timberland.
14
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POST OFFICE GROUP
BOARD DIRECTORS & EXECUTIVES
‘irs Ex. ri Hol: First Ri Ex. rvi Li
(Directors remain the same on each board in accordance with the Joint Venture Agreement
between Post Office & Bank of Ireland)
Rebecca Whibley acts as Secretary to the Board.
Ben Foat - Chairman (Post Office Representative)
Joined the Board in May 2020
Member of the Remuneration & Nomination Committee
[Ben is the Group General Counsel of Post Office Limited and an executive
member of Post Office Limited and Post Office Management Services
Limited. He is responsible for managing the legal, compliance and
company secretariat departments across the organisation and works
ith executive management and boards to shape strategy, maximise
commercial opportunity and mitigate legal, regulatory and governance
risk.
Prior to joining Post Office, he was employed at Zurich Insurance plc in
[the UK and was previously a Senior Associate in private practice in
Australia. He has spoken at various industry events in relation to
leadership and legal operations including emerging technology and
resource models. He is a Leadership Fellow at St George’s House,
indsor Castle. In 2018, he was awarded Solicitor of the Year - Inhouse
lby the Law Society, shortlisted for Diversity Hero at the 2019 British
ILGBT+ Awards as well as being listed in the Financial Times OUTstanding
\2017 -2019 lists for his leadership in Diversity and Inclusion. Ben holds
ja Master of Laws, Bachelor of Laws (Hons) and Bachelor of Arts with a
double major in Political Science.
Lisa Cherry - Non-Executive Director (Post Office Representative)
Joined the Board in May 2020
Lisa was appointed Group Chief People Officer in January 2020, having
been the Interim Group HR Director since October 2019. She had
previously held a series of HR Director roles since arriving at the Post
\Office in September 2018.
Lisa's career has span PLC and Private Equity organisations such as
Sainsbury's, WHSmith and most recently as HR Director at Wyevale
Garden Centres (a Terra Firma owned business). These senior level roles
have been largely held during times of transformation and expansion in
both domestic and international markets. Lisa has more than twenty
ears’ experience in large multi-site retail organisations in both
joperational and HR focussed roles.
Lisa is a Chartered Fellow of the Chartered Institute of Personnel and
[Development (FCIPD) and holds a Master’s Degree in HR Management.
15
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POST OFFICE GROUP
BOARD DIRECTORS & EXECUTIVES
haron Cri = Ex ive Dire
Joined the Board in June 2019
[IT & Operations Director, First Rate Exchange Services Limited
Sharon joined First Rate Exchange Services in December 2016 to lead
[the IT function as we continue to develop and expand our digital
offering. Prior to First Rate she was CIO for Santander Consumer Finance
UK as well as holding a number of senior roles in IT within various
organisations mainly in the Financial Services sector. Sharon holds a BSc
in Software Engineering from the University of Birmingham.
Fitton - Ex ive Dir
Joined the Board in June 2012
(Chief Executive Officer, First Rate Exchange
\Gary was appointed Chief Executive Officer for First Rate in August 2017.
Gary originally joined the business in October 2009 as Retail Director
before being appointed Managing Director in July 2014. During his 25+
‘ear career Gary has held a number of senior marketing and
management roles in the UK cards industry. Gary headed up the cards
business at Egg plc during its key period of growth and innovation. Past
employers also include the Lombard Group, People’s Bank, Post Office
Financial Services and the Bank of Ireland. Gary has served on a number
lof VISA / MasterCard boards and committees.
Neil Fuller - Non-Executive Director & Interim Chair of the
Remuneration & Nominations Committee
Joined the Board in January 2018
‘Bank of Ireland Representative)
[Interim Chief Executive Officer & Chief Risk Officer, Bank of Ireland
UK
Neil was appointed Director of Bank of Ireland (UK) plc and Chief Risk
(Officer in October 2015. Neil joined BOI (UK) plc from GE Capital UK,
here he held the role of Chief Risk Officer since 2011. He has over 30
ears of financial services experience, having previously worked for
Royal Bank of Scotland & NatWest, where he held the role of Chief Risk
(Officer, UK Retail Division, and having previously held a number of
senior management roles in UK Retail Banking across Credit Risk,
Enterprise & Operational Risk and Operations.
16
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POST OFFICE GROUP
BOARD DIRECTORS & EXECUTIVES
.w Hardie - Ex ive Dir
ni
wy 1) boined the Board in May 2011
(Chief Financial Officer, First Rate Exchange Services & Managing
Director, BOIFCS, Finance
Andrew joined First Rate in March 2007 and was appointed Finance
Director in May 2011. Andrew is a member of the Chartered Institute of
Management Accountants and has significant experience across several
sectors including retail financial services, FMCG, and business services.
Prior to joining First Rate, Andrew worked for Citibank for a number of
years, holding senior management positions in both Retail and
[International Banking. He was able to broaden his experience during this
time by also holding a number of roles outside Finance including heading
jup the Retail Products team. Previous to this Andrew worked for Rentokil
[Initial and Rank Hovis MacDougall.
(Cathy Mayor - Non-Executive Director (Post Office Representative)
Joined the Board in July 2019
Member of the FRES Audit & Risk Committee
Finance Director, Commercial, Post Office Limited
(Cathy joined the Board of First Rate Exchange Services Holdings Limited
& First Rate Exchange Services Limited in July 2019. She is also a
\Director of Payzone Bill Payments Limited.
(Cathy is the Finance Director for the Retail strategic business unit at the
Post Office. A Chartered Accountant, Cathy joined Post Office Limited in
\2017 with over 10 years extensive senior commercial finance experience
ithin a number of large wholesale/retail organisations including Yankee
(Candle and Timberland.
John Tudor - Non-Executive Director
Joined the Board in May 2014
Bank of Ireland Representative)
(Chairman of the FRES Audit & Risk Committee
John joined Bank of Ireland Group in 1998 and has worked in a variety
pf Finance, Strategy and Operational roles within the UK business,
including working extensively with the Bank’s financial services
partnerships with the Post Office and the AA. He was appointed
Partnership Director in February 2018, having previously held the role
lof Chief Operating Officer.
Before joining Bank of Ireland, John worked as a Chartered Accountant
ith Moore Stephens (Bath) having qualified with BDO Binder Hamlyn
(Manchester).
17
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POL-BSFF-WITN-015-0007142_0023
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POST OFFICE GROUP
BOARD DIRECTORS & EXECUTIVES
ohn is a graduate of the University of Manchester and is a Member of
the ICAEW.
(Amanda Jones Alternate Director
ee sy For Cathy Mayor and Owen Woodley
Interim Retail & Franchise Network Director, Post Office
Joined the Board in July 2019
[Henk Van Hulle Alternate Director
3) For Cathy Mayor and Owen Woodley
Group Digital and Innovation Managing Director, Post Office
Joined the Board in August 2016
18
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POL-BSFF-WITN-015-0007142_0024
Veronica Branton
COMPANY SECRETARIAT
For Post Office Limited Board, Remuneration Committee, Nomination Committee and
Group Executive
Sarah Koniarski
Senior Assistant Company Secretary
‘For Post Office Management Services Limited Board, Audit & Risk Committee and Executive
Committee.
David Parry
_Senior Assistant Company Secretary
“For Post Office Limited Audit, Risk & Compliance Committee and Risk and Compliance
Committee
Rebecca Whibley
company Si
y' ited, First Rate Exchange Services Holdings Limited Board,
First Rate Exchange Services Limited Board, Remuneration & Nomination Committee
Di Blanchard
PA Chairman & General Counsel
For all queries and enquiries related to the Tim Parker, Post Office Limited Chairman and
Ben Foat, General Counsel.
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Entrustment Letter
Funding Agreement
Services of General Interest
Entrustment Letter
The letter contains overarching ministerial instructions entrusting Post Office Limited with
the provision and delivery of certain services of general economic interest.
The letter can be found at Appendix 1.
Funding Agreement
Details of the funding provided from the Secretary of State for Business, Energy and
Industrial Strategy to Post Office Limited to enable it to continue to provide services of
general economic interest across the network for financial years 2018/19, 2019/20 and
2020/21.
The Agreement can be found at Appendix 2.
Services of General Economic Interest
Category of Service Service Provided
social benefit and tax - Cash payment of state benefits including state pension, child benefits and tax credits.
Credit payinents to the public. + Issuing of vouchers to eligible asylum seekers.
Providing passport application forms for customers to complete and return
Processing of netionel entity «Checking and authentication of passport applications and supporting documentation
2 andiicensing scheme + Capturing biometric data for Biometric Residence
applications : Froviding velile cence sppiicaton fone for Costorners to complete
Receiving payment for vehicle licences and Photocard Licences
Services for the sale of Rod Fishing Licences,
facies + Provision of facilities for payment of electricity, gas, telecommunications and water bill.
2 public uulty services. Payment options include pre-payment and other budgeting schemes (@.9. savings stamps).
+ Provision of facilities for payment of tax bills and social housing rents
+ Provision of access to postal services which the universal service provider (Royal Mail Group
Limited) is required to provide under regulatory conditions and directions issued by OFCOM in
accordance with section 36 of the Postal Services Act 2011 and the designated Universal
Service Provider Conditions issues by Ofcom 27 March 2012
4 Access to postal services
Universal access to, basic cash * Provision of basic community banking facilities (cashing of cheques, cash deposit, Post Office
and banking facilities and ‘card account and automated cash withdrawals and deposits) and cash transmission facilities
S Government savings instruments, (postal orders), in particular to socially excluded customers. This includes deposits and
epecialty for rural customers and withdrawals of cash by businesses local to Post Office branches.
benefits. + Access to certain Government savings instruments
1
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POL-BSFF-WITN-015-0007142_0026
Paula Vennells
Post Office Limited
20 Finsbury Street
London
EC2Y 9AQ
Dear Paula,
ENTRUSTMENT OF POST OFFICE LIMITED WITH THE DELIVERY OF
CERTAIN PUBLIC SERVICES
Commencement
This letter has effect from the later of: (i) the date on which the European Commission
confirms that the requirements of this letter are compatible with the requirements on
State Aid of the Treaty on the Functioning of the European Union; and (ii) 1 April 2018
(the "Effective Date").
Existing Entrustment Letter
Notwithstanding the signing of this letter, in respect of the period prior to the Effective
Date, the provisions of the letter from the Government to Post Office Limited entitled
"Entrustment of Post Office Limited with the delivery of certain public services" and
dated 23 January 2015 (the "Existing Entrustment Letter") shall continue in full
force and effect and the provisions of this letter shall be without prejudice to any rights,
remedies, obligations or liabilities of any party accrued under the Existing Entrustment
Letter.
The Existing Entrustment Letter shall be terminated on the Effective Date.
Entrustment
This letter contains an overarching ministerial instruction entrusting Post Office
Limited with the provision and delivery of certain services of general economic interest.
This instruction is legally binding on Post Office Limited and Post Office Limited has
signed this letter in agreement and acknowledgement of this.
(a) We confirm that Post Office Limited is under a public service obligation (as set
out here and also contractually in the Post Office Limited Funding Agreement
dated April 2018, (the "Funding Agreement"')) to maintain, from the
Effective Date until the end of its financial year ending on or around 31 March
2021, a network of post offices beyond its optimal commercial size (the
"Network SGEI"). That network must meet the following minimum access
requirements:
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e Nationally, 99% of the UK population to be within 3 miles and 90% of
the population to be within 1 mile of their nearest post office outlet.
© 99% of the total population in deprived urban areas across the UK to be
within 1 mile of their nearest post office outlet.
« 95% of the total urban population across the UK to be within 1 mile of
their nearest post office outlet.
e 95% of the total rural population across the UK to be within 3 miles of
their nearest post office outlet.
In addition, the following criterion will apply at the level of each and every
individual postcode district, establishing a minimum level of coverage at a very
local level.
¢ 95% of the population of the postcode district to be within 6 miles of
their nearest post office outlet.
Post Office Limited is required to provide this network of post office branches to make
available the services of general economic interest detailed in Annex A ("Product
SGEI") on the basis set out in the Funding Agreement. This Network SGEI obligation
therefore extends the provision of the Product SGEI over a network which may be
beyond that required under individual Product SGEI contracts entered into on a
commercial basis between Post Office Limited and relevant Government departments
or bodies (whether public or private). The delivery of the Product SGEI by Post Office
Limited across its network will be governed in accordance with contracts or other
agreements under which the terms of the provision of the individual product SGEI are
specified.
The entrustment of the delivery of the Network SGEI set out in this letter to Post Office
Limited does not replace or change in any way any contracts or other agreements under
which the terms of the provision of the individual Product SGEI are specified. Post
Office Limited is expected to use reasonable endeavours to enter into contracts with
Government departments or bodies (whether public or private) contracting with Post
Office Limited in respect of the provision of one or more Product SGEIs. A list of the
current individual contracts and agreements held by Post Office Limited to deliver the
Product SGEI is provided in Annex B.
Method of Calculating Compensation
As soon as reasonably practicable following publication of its audited accounts for the
Financial Year ending on or around 31 March 2021, Post Office Limited will be
required to provide, in accordance with the Funding Agreement, a statement (the
“Cumulative SGEI Statement"). The Cumulative SGEI Statement must be
accompanied by a supporting statement from an independent financial adviser, to
confirm that the aggregate amount of the SGEI compensation payments made by the
Government to Post Office Limited under the Funding Agreement (the "Cumulative
SGEI Payment") did not exceed the difference between the actual net costs incurred
by Post Office Limited and the net profits that would have been incurred in connection
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with the provision of a network that Post Office Limited would maintain on a purely
commercial basis (as specified by the relevant European Commission decision(s)),
during the financial years covered by the Funding Agreement (the "Cumulative SGEI
Cost").
This is to be calculated using the net avoided cost methodology, in accordance with the
principles in paragraphs 21-32 of the 2012 Community Framework for State aid in the
form of public service compensation (“Framework”) and in precedent Commission
decisions, which calculates the SGEI net cost as the difference between:
¢ the expected net cost for POL when providing the SGEIs; and
e the expected net cost / profit for POL when operating without any SGEI
obligations.
For the purposes of this net avoided cost methodology the costs shall include, without
limitation, all variable and fixed costs associated with delivery of the SGEIs including
contributions to pension funds, interest costs, central costs, depreciation and
amortisation costs of any employee incentivisation arrangements and the costs of
transforming the network, in each case whether such costs are recurring or exceptional.
Recovery of Overpayment
Notwithstanding clause 5.3 of the Funding Agreement, in the event that the Cumulative
SGEI Payment exceeds the Cumulative SGEI Cost, Post Office Limited will be required
to repay to the Government, within 10 Business Days ofa request from the Government,
an amount equal to such excess,
It is possible that Post Office Limited may during the period of this entrustment cease
to provide an individual Product SGEI, the provision of which over the post office
network beyond its optimal commercial size is compensated by the Government. In
those circumstances, the Government may in its absolute discretion, provided that the
provision of the Network SGEI will be maintained, withhold such reasonable
proportion of that compensation (if any) which corresponds to the net direct costs of
providing that Product SGEI.
Yours sincerely...
“GRO
TAS” CHEATS, Exteu nd Ditkeren, UC beNhtantrr Aw tirmtars
Post Office Limited acknowledges that the instructions set out in this letter are legally
binding. f
sineaty GRO I
for and on behaif of Post Office
Dated 2018
POL-BSFF-WITN-015-0007142_0029
Annex A
SCHEDULE OF SERVICES OF GENERAL ECONOMIC INTEREST
PROVIDED BY POST OFFICE LTD AT POST OFFICE BRANCHES
Category of Service Provided Service Provided on
Service Behalf of
Processing social Cash payment of state benefits I The Department for Work
benefit and tax including state pension, child I and Pensions
credit payments to I benefits and tax credits E P
the public. The Social Security
Issuing of vouchers to eligible I Agency - Norther Ireland
asylum seekers Her Majesty’s Revenue &
Customs
The Home Office
Processing of Providing passport Her Majesty’s Passport
national identity application forms for Office
and licensing customers to complete and The Cabinet Office
scheme return
applications .
Checking, authentication and I UK Visas and
processing of passport Immigration
applications and supporting —_I Driver and Vehicle
documentation Licensing Agency
Processing of identi
e ty The Environment Agency
verification applications
Capturing biometric data for
Biometric Residence Permits
Providing vehicle licence
application forms for customers
to complete and return
Receiving payment for vehicle
licences and photocard licences
Services for the sale of Rod
Fishing Licences
Universal payment
facilities for public
utility services.
Provision of facilities for
payment of electricity, gas,
telecommunications and water
bills. Payment options include
pre-payment and other
budgeting schemes (e.g.
including savings stamps)
Financial Institutions
Individual Utility Service
Providers
Billing Service Providers
Her Majesty’s Revenue
and Customs
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Category of
Service
Service Provided
Service Provided on
Behalf of
Provision of facilities for
payment of tax bills and social
housing rents
Local Authorities
Housing Associations
Access to postal
services
Provision of access to postal
services which the universal
service provider (Royal Mail
Group Limited) is required to
provide under regulatory
conditions and directions
issued by Ofcom in accordance
with section 36 of the Postal
Services Act 2011 and the
Designated Universal Service
Provider Conditions issued by
Ofcom on 27 March 2012
Royal Mail Group
Universal access to
basic cash and
banking facilities,
especially for rural
customers and those
on social benefits.
Provision of basic community
banking facilities (e.g.
including cashing of cheques,
cash deposit and cash
withdrawals and deposits) and
cash transmission facilities
(e.g. including postal orders),
in particular to socially
excluded customers and
businesses local to post office
branches
Financial Institutions
Her Majesty’s Treasury
POL-BSFF-WITN-015-0007142_0031
Annex B
POST OFFICE CONTRACTS TO DELIVER SGEI
AS AT THE DATE OF THIS LETTER
Category 1: Processing Social Benefit and Tax Credit Payments to the Public
Description of Services
Contracting Entity Opposite Post
Office Limited
POCA Card Account The Department for Work and Pensions
Asylum Seekers Benefits Payments Sodexho Pass
Payout (Emergency Payments) Contracts _I Blackpool Council
Payout (Emergency Payments) Contracts I Cornwall Council
Payout (Emergency Payments) Contracts_I Derbyshire Council
Payout (Emergency Payments) Contracts_I Greenwich Council
Payout (Emergency Payments) Contracts_I Merton Council
Payout (Emergency Payments) Contracts I Reading Council
Payout (Emergency Payments) Contracts_I Torbay Council
Payout Contracts Autism Initiatives
Payout Contracts Durham and Darlington NHS
Payout Contracts Financial Services Compensation
Scheme
Payout Contracts Buckinghamshire Council
Payout Contracts Cumbria Council
Payout Contracts Hampshire Council
Payout Contracts Hull Council
Payout Contracts Lambeth Council
Payout Contracts Lancaster Council
Payout Contracts Manchester City Council
Payout Contracts Newham Council
Payout Contracts Redbridge Council
Payout Contracts St Helen’s Council
Payout Contracts Wirral Council
Payout Contract Capita
Payout Contract Eon Energy Limited
Payout Contract RWE Npower ple
Payout Contract Scottish Power Energy Retail Limited
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Category 2: Processing of National Identity and Licensing Scheme Applications
Residence Permit applications
Description of Services Contracting Entity Opposite Post
Office Limited
Passport Applications ‘Check & Send’ Her Majesty’s Passport Office
Driving Licence Applications Driver and Vehicle Licensing Agency
Services for the sale of Rod Fishing The Environment Agency
Licences
Capture of photograph in support of Security Industry Authority (The Home
applications Office)
Biometric data capture for Biometric UK Visas and Immigration
Identity Assurance Services (for access to
online public services)
Government Digital Services (The
Cabinet Office)
Document checking in support of a
Vetting and Barring Scheme application
(formerly CRB)
Care Quality Commission
Agreement for the Provision of Identity
Verification Services: Public Carriage
Office Services
GB Group
Agreement for the Provision of Identity
Verification Services: Generic Services
GB Group
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Category 3: Universal Payment Facilities for Public Utility Services
Description of Services
Contracting Entity Opposite Post
Office Limited
Bill Payments Santander (A&L Commercial Bank ple
as was)
Bill Payments The Co-Operative Bank ple
Bill Payments Allpay.net Ltd
Bill Payments Airtricity Holdings Limited (Republic of
Ireland company)
Bill Payments EON Energy Limited
Bill Payments EDF Energy
Bill Payments RWE Npower ple
Bill Payments Scottish Power Energy Retail Limited
Bill Payments Scottish & $ Southern (SSE)
Bill Payments British Gas Trading Limited
Bill Payments Phoenix Gas
Bill Payments BT ple, novated to BT Payment Services
Limited
Bill Payments South West Water Limited
Bill Payments Northern Ireland Electricity ple, novated
to NIE Energy Ltd
Bill Payments United Utilities
Bill Payments Yorkshire Water
Bill Payment Bristol and Wessex Billing Services Ltd
Bill Payment Siemens Energy Services (a
Management Division of Siemens PLC)
Bill Payment Capita
Travel Tickets Neath Port Talbot Council
Travel Tickets Scotland Improvement Service
Travel Tickets Strathclyde Council
Travel Tickets Transport for London
Council Tax and Other Related Council
Services
The Lord Mayor & Citizens of the City
of Westminster
Council Tax and Other Related Council
Services
London Borough of Hammersmith and
Fulham
Face to face payment services
The Lord Mayor & Citizens of the City
of Westminster
Agreement for Provision of Online and
E-Bulk Services
Atlantic Data Limited
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Category 4: Access to Postal Services
Description of Services Contracting Entity opposite Post
Office Limited
Master Distribution Agreement - Mail Royal Mail Group Limited
support services from Post Office
Limited to Royal Mail Group Limited to
assist Royal Mail Group Limited in meeting
its designated Universal Service Provider
conditions
POL-BSFF-WITN-015-0007142_0035
Category 5: Universal Access to Basic Cash and Banking Facilities for Business
and Retail Bank customers, and Government Savings Instruments, Especially
for Rural Customers and Those on Social Benefits
Description of Services Contracting Entity opposite Post
Office Limited
ATM Services Bank of Ireland
Provision of Basic Banking Facilities Lloyds Bank PLC — including Bank of
under the Banking Service Framework Scotland and Halifax
Provision of Basic Banking Facilities
under the Banking Service Framework
HSBC Bank ple — including First Direct
Provision of Basic Banking Facilities
under the Banking Service Framework
Santander UK PLC- including Cahoot,
Abbey National and Alliance+Leicester
Provision of Basic Banking Facilities
under the Banking Service Framework
Barclays Bank PLC
Provision of Basic Banking Facilities
under the Banking Service Framework
Royal Bank of Scotland PLC —
Including NatWest, and Ulster Bank
Provision of Basic Banking Facilities
under the Banking Service Framework
Nationwide Building Society
under the Banking Service Framework
Provision of Basic Banking Facilities TSB Bank PLC
under the Banking Service Framework
Provision of Basic Banking Facilities Virgin Money PLC
Provision of Basic Banking Facilities
under the Banking Service Framework
Northern Bank Limited — including
Danske Bank
Provision of Basic Banking Facilities
under the Banking Service Framework
Bank of Ireland (UK) PLC
Provision of Basic Banking Facilities
under the Banking Service Framework
AIB Group (UK) PLC — including First
Trust/
Provision of Basic Banking Facilities
under the Banking Service Framework
Metrobank PLC (currently Business
Customers only)
Provision of Basic Banking Facilities
under the Banking Service Framework
Cooperative Bank PLC — including
Smile
under the Banking Service Framework
Provision of Basic Banking Facilities Svenska Handelsbanken AB (publ)
under the Banking Service Framework
Provision of Basic Banking Facilities CAF Bank Limited
Provision of Basic Banking Facilities
under the Banking Service Framework
Clydesdale & Yorkshire Bank
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April 2018
THE SECRETARY OF STATE FOR BUSINESS, ENERGY AND INDUSTRIAL
STRATEGY
AND
POST OFFICE LIMITED
FUNDING AGREEMENT
POL-BSFF-WITN-015-0007142_0037
‘THIS AGREEMENT is mado on I6 April 2018,
BETWEEN:
(1) THE SECRETARY OF STATE FOR BUSINESS, ENERGY AND INDUSTRIAL
STRATEGY of I Victoria Street, London SW1H OET, (the Secretary of State); and
(2) POST OFFICE LIMITED, a company incorporated in England and Wales (registered
number 2154540), and whose registered address is 20 Finsbury Street, London EC2Y
9AQ (POL).
‘WHEREAS:
(A) The Parties entered into the 2013 Funding Agreement (as defined below) in respect of
funding for certain post office services during the 2013 Funding Period. On 30 March 2017,
the Parties entered into a funding agreement in respect of certain funding for the Financial Years
2018/19 and 2019/20. This Agreement is the further funding agreement contemplated by the
March 2017 funding agreement which is automatically terminated on the Parties entering into
this Agreement.
(B) The Secretary of State has requested that POL continues to provide a national network
of post offices across the United Kingdom and wishes to entrust to POL the provision of
services of general economic interest over that network.
(C) The Secretary of State has agreed to enter into this Agreement in order to provide
funding to POL to enable it to continue to provide services of general economic interest across
that national network in respect of the Financial Years 2018/19, 2019/20 and 2020/21. The
Secretary of State makes this funding available to POL under the Post Office Network Subsidy
Scheme Order 2007 (SI 2007/962), as amended.
NOW THIS AGREEMENT WITNESSES as follows:
1. INTERPRETATION
Ll In this Agreement, including the recitals, Schedules and Appendices, unless the context
requires otherwise:
2013 Funding Agreement means the funding agreement entered into between the Parties dated
26 November 2013 as amended and restated on 27 January 2015.
2013 Funding Period means the period commencing at the start of the Financial Year 2015/16
and ending at the end of the Financial Year 2017/18.
Actual SGEI Cost means POL’s net cost of: (i) maintaining a network of Branches in
accordance with the Network Access Criteria; and (ii) ensuring the provision of SGEI Services
over that network, calculated in accordance with Schedule 3 (Calculation of Actual SGEI Cost).
Annual Strategic Plan has the meaning given to it in Schedule 4 (Milestones).
Branch means any retail outlet of POL, including any post office counter or means of
transacting some or all SGEI Services at a third party premises and any other facility (including
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an “outreach” facility) designated for the transaction of business with members of the public by
or on behalf of POL.
Business Day means a day (not being a Saturday or a Sunday) on which banks are open for
general non-automated banking business in the City of London.
Code of Practice means the Code of Practice on Public Consultation and Communication with
respect to change in the Post Office network published in December 2012 as amended, varied,
supplemented or substituted from time to time.
Cumulative SGEI Cost has the meaning given to it in clause 5.9 (Government Funding for
SGEI Purpose).
Cumulative SGEI Payment means the total aggregate amount of all SGEI Payments made by
the Secretary of State under clauses 5.5 and 5.6 (Government Funding for SGEI Purpose):,
Cumulative SGEI Statement has the meaning given to it in clause 5.9 (Government Funding
Jor the SGEI Purpose).
Deprived Urban Areas means:
(a) the most deprived fifteen per cent. (15%) of super output areas in England;
(b) the most deprived fifteen per cent. (15%) of data zones in Scotland; and
(c) the most deprived thirty per cent. (30%) of super output areas in Wales and Northern
Treland,
based upon each country’s then current index of multiple deprivation.
Entrustment Letter means the letter in the form set out at Appendix A (POL Entrustment
Letter’) from the Secretary of State to POL and countersigned by POL.
Financial Quarter means the period commencing on one Quarter Date and ending on the day
before the next Quarter Date.
Financial Year means an accounting period of POL commencing on or around 1 April in any
calendar year and ending on or around 31 March in the following calendar year.
Fundamental Change means the occurrence of any of the events listed in Part A of Schedule 2
(Fundamental Change).
Funding Period means the period commencing at the start of the Financial Year 2018/19 and
ending at the end of the Financial Year 2020/21.
Government means Her Majesty’s Government.
March 2017 Entrustment Letter has the meaning given to it in clause 11 (Entrustment Letter).
Milestone means, in respect of each Financial Year of the Funding Period, the requirements set
out in Schedule 4.
Network Access Criteria means the criteria set out in Schedule 5 (Network Access Criteria).
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Network Investment Payment means an SGEI Payment made pursuant to clause 5.6
(Government Funding for SGEIPurpose).
Network Subsidy Payment means an SGEI Payment made pursuant to clause 5.5 (Government
Funding for SGEI Purpose).
Parties means the parties to this Agreement.
PO Group means POL and its subsidiaries from time to time.
POL Credit Facility Agreement means the credit facility agreement provided to POL pursuant
to the terms of the credit facilities agreement between the Secretary of State and POL dated 17
October 2003 (as amended from time to time).
Potential Fundamental Change has the meaning given to it in Part B of Schedule 2 (Potential
Fundamental Change).
PSA2000 means the Postal Services Act 2000.
PSA2011 means the Postal Services Act 2011.
Quarter Date means each of I April, 1 July, 1 October and 1 January.
Relevant Payment has the meaning given to it in clause 3 (Delayed payment).
Remedy Period has the meaning given to it in clause 3 (Delayed payment).
Required Payment Date has the meaning given to it in clause 3 (Delayed payment).
Rural Areas means those areas which are not Urban Areas.
‘SGEI Payment means a payment by the Secretary of State of an amount calculated to
compensate POL for the net cost of the SGEI Purpose.
SGEI Purpose means (i) maintaining a network of Branches in accordance with the Network
Access Criteria; and (ii) ensuring the provision of SGEI Services over that network, in each
case during the Funding Period.
SGEI Services means the services of general economic interest entrusted to POL set out in
Annex A of the Entrustment Letter.
SGEI Statement has the meaning given to it in clause 5.9 (Government Funding for SGEI
Purpose).
SGEI Supporting Statement has the meaning given to it in clause 5.9 (Government Funding
Sor SGEIPurpose).
State Aid Clearance means, in respect of any payment to be made to POL under this
Agreement, confirmation by the European Commission that such payment is compatible with
the requirements on State Aid of the Treaty on the Functioning of the European Union.
Strategic Plan means POL’s strategic plan covering the period from 1 April 2018 to 31 March
2021, which has been delivered prior to the date of this Agreement and which is in a form and
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substance satisfactory to the Secretary of State (acting reasonably), or any variation of such
document as agreed between the Parties.
Urban Areas means communities with ten thousand (10,000) or more inhabitants in a
continuous built up area.
VAT Amount has the meaning given to it in clause (Government Funding for SGEI Purpose).
12 In this Agreement, except where the context otherwise requires:
(a) a reference to a person (which shall include any individual, firm, company, corporation
or other body corporate, government, state or agency or any association, trust, fund or
partnership (whether or not having separate legal personality)) shall include, as
appropriate, its successors, permitted assignees or transferees and, in the case of the
Secretary of State, persons appointed to act on his behalf}
(b) a reference to an enactment or statutory provision shall include a reference to any
subordinate legislation made under that enactment or statutory provision and is a
reference to that enactment, statutory provision or subordinate legislation as from time
to time amended, consolidated, modified, or re-enacted;
© words in the singular shall include the plural and vice versa;
(d) references to one gender include other genders;
(e) a reference to any agreement or other instrument (other than an enactment or statutory
provision) shall be deemed to be a reference to that agreement or instrument as from
time to time amended, varied, supplemented, substituted, novated, assigned or restated;
( a reference to a clause, Schedule or Appendix shall be a reference to a clause of, or
Schedule or Appendix to, this Agreement;
(g) a reference to “includes” or “including” shall be construed without limitation to any
events, circumstances, conditions, acts or matters specified after those words;
(bh) references to dates which do not fall on a Business Day shall be construed as references
to the immediately subsequent Business Day;
jw the headings are for convenience only and shall not affect its interpretation; and
0) references to this Agreement include this Agreement as amended or supplemented.
13 The Schedules and Appendices form part of this Agreement and shall have the same
force and effect as if expressly set out in this Agreement, and any reference to this Agreement
shall include the Schedules and Appendices.
2. CONDITIONS
21 The obligation of the Secretary of State under this Agreement to make any SGEI
Payment is conditional on:
(a) all necessary State Aid Clearances having been obtained for the making of that
payment; and
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(b) the relevant Milestone having been achieved.
2.2 The obligations of POL under clauses 5 (Government Funding for SGEI Purpose), 7
(POL Strategic Plan), 9 (Employee Incentive Arrangements) and 12 (Public Consultation,
Commumication and Equality) of this Agreement, and under the Entrustment Letter, in each
Financial Year of the Funding Period are conditional on the conditions in clause 2.1 having
been met and the relevant SGEI Payments having been received. If the condition in clause
2.1(b) is not met and the Secretary of State reduces the SGEI Payments for the relevant
Financial Year pursuant to clause 2.3, then POL shall for such Financial Year perform such of
its obligations under this Agreement and the Entrustment Letter as shall be correspondingly
adjusted by POL and the Secretary of State.
23 If POL fails to achieve any Milestone by the date specified or referred to in Schedule 4
(Milestones), the Secretary of State shall have no obligation to make SGEI Payments until POL
has achieved the Milestone. Should POL not achieve the Milestone by the end of the Financial
Year in which the SGEI Payments are due to be paid, the Secretary of State may reduce the
relevant SGEI Payments by an amount which, in the absolute discretion of the Secretary of
State, reflects the extent to which the failure to achieve the Milestone relates to the SGEI
Payments.
Deliverables
24 On execution of this Agreement, POL shall deliver (or ensure that there is delivered)
all those documents listed in Schedule 1 (Deliverables) in a form and substance satisfactory to
the Secretary of State (acting reasonably).
Fundamental Change
2.5 Without prejudice to the accrued rights and remedies of the Parties, the obligations of
the Secretary of State to make or facilitate any payments in accordance with this Agreement,
the obligations of POL under clauses 5 (Government Funding for SGEI Purpose), 7 (POL
Strategic Plan), 9 (Employee Incentive Arrangements) and 12 (Public Consultation,
Communication and Equality) of this Agreement and the obligations of POL under the
Entrustment Letter, may be terminated with immediate effect by written notice of the Secretary
of State upon the occurrence of a Fundamental Change.
2.6 If on the date on which any payment is due to be made by the Secretary of State to POL
under this Agreement a Potential Fundamental Change exists, the Secretary of State shall be
entitled to withhold such payment until such time as:
(a) a Fundamental Change occurs, whereupon clause 2.5 shall apply and the
Secretary of State shall have no obligation to make that payment; or
(b) the Potential Fundamental Change ceases to exist, whereupon the payment shall
become immediately due and payable, together with interest from the due date
until the date of actual payment at a rate equivalent to the rate of interest then
applicable to drawings by POL under the POL Credit Facility Agreement.
at Until the date on which the last SGEI Payment is due to be made by the Secretary of
State to POL under this Agreement, POL shall promptly disclose to the Secretary of State any
matter or thing of which its board of directors becomes aware after entering into this Agreement
which constitutes, or which in the reasonable opinion of its board of directors is reasonably
likely to give rise to, a Fundamental Change or a Potential Fundamental Change.
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2 DELAYED PAYMENT
If any SGEI Payment to be made by the Secretary of State to POL under this Agreement (a
Relevant Payment) is not made on, or by the date on which it is required by clauses 5.5 and 5.6
(Government Funding for SGEI Purpose) to be made (the Required Payment Date), then
during the period between the Required Payment Date and the end of the tenth (10) Business
Day thereafter (such period being the Remedy Period), the Parties shall continue to comply
with their respective obligations under this Agreement and the Secretary of State shall make
the Relevant Payment within the Remedy Period.
4. STATE Alp CLEARANCES
4.1 [Subject to clause 4.2 below, the Secretary of State agrees to:
(a) prepare as soon as reasonably practicable, in consultation with POL, an
application for State Aid Clearance for all arrangements under this Agreement
requiring such State Aid Clearance, including any payments to POL under
clauses 5.5 and 5.6 (Government Funding for SGEI Purpose), in respect of each
of the Financial Years 2018/19, 2019/20 and 2020/21;
(b) pursue such State Aid Clearance application in good faith and expeditiously;
(©) keep POL informed as to the progress of such State Aid Clearance application;
(d) permit representatives appointed by POL to attend meetings with the European
Commission in respect of such application, to the extent permitted by the
European Commission and deemed appropriate by the Secretary of State;
() discuss with POL any written notifications to the European Commission in
respect of such State Aid Clearance application before they are submitted; and
() discuss with POL any written notifications from the European Commission in
respect of such State Aid Clearance application promptly upon their receipt.
4.2 Asat the date of this Agreement, the Secretary of State is targeting the obtaining of the
State Aid Clearance referred to in clause 4.1 by the start of the Funding Period and the Parties
shall use their reasonable endeavours to obtain the State Aid Clearance by such date, it being
acknowledged however that: (i) the Secretary of State will not and is not obliged to take any of
the steps under clause 4.1 until the date on which POL delivers its Strategic Plan in accordance
with clause 7 (POL Strategic Plan); and (ii) a mere failure to achieve that target is not of itself
a breach of this clause 4.2.
5. GOVERNMENT FUNDING FOR THE SGEI PURPOSE
5.1 Subject to clause 5.2, POL undertakes to the Secretary of State that it will for the
duration of the Funding Period: (i) maintain a network of Branches in accordance with the
Network Access Criteria; and (ii) provide across that network the SGEI Services.
5.2 The Parties acknowledge and agree that:
(a) the Secretary of State expects POL to maintain a network of at least eleven
thousand five hundred (11,500) Branches for the duration of the Funding Period.
Should the number of Branches fall below eleven thousand five hundred
(11,500), POL shall within 20 Business Days develop a plan to remedy the
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shortfall, which shall be subject to the Secretary of State’s approval (acting
reasonably);
(b) subject to clause 5.2(c), at least eleven thousand (11,000) of the Branches
referred to in clause 5.2(a) (to be determined by POL in its absolute discretion)
shall be required to provide all of the SGEI Services set out in Annex A of the
Entrustment Letter and that the remaining Branches referred to in clause 5.2(a)
shall be required to provide only the SGEI Services set out in rows 2, 3 and 4 of
Annex A of the Entrustment Letter; and
(©) POL may from time to time withdraw or cease to offer some categories of SGEI
Services from Branches, such that some or all of the SGEI Services are provided
in fewer than eleven thousand (11,000) Branches, provided that: (i) POL notifies
the Secretary of State of its intention setting out the category of SGEI Services
and the applicable Branches, and having considered and outlined the potential
impact on local communities; and (ii) the Secretary of State consents to POL’s
proposal.
53 Subject to clause 2.1 (Conditions), the Secretary of State agrees to make to POL in each
of the Financial Years 2018/19, 2019/20 and 2020/21 SGEI Payments in the amounts specified
in clauses 5.5 and 5.6, to enable POL to meet its obligations in clause 5.1.
5.4 The SGEI Payments for each of the Financial Years 2018/19, 2019/20 and 2020/21
shall be made in a manner or manners to be determined by the Secretary of State in his absolute
discretion (but having consulted with POL as to the impact thereof (if any) on their profit and
loss accounts and the tax treatment of such payments).
38 The Network Subsidy Payment payable in:
(a) the Financial Year 2018/19 shall be up to sixty million pounds (£60,000,000);
(b) the Financial Year 2019/20 shall be up to fifty million pounds (£50,000,000);
and
(©) the Financial Year 2020/21 shall be up to fifty million pounds (£50,000,000),
in each case, made by way of payment to POL in instalments on each Quarter Date in
the relevant Financial Year during the Funding Period for the amounts set out in the
relevant Annual Strategic Plan or as otherwise agreed between the Parties.
5.6 The Network Investment Payment payable in the Funding Period shall be two hundred
and ten million pounds (£210,000,000), with a maximum of one hundred and sixty eight million
pounds (£168,000,000) being available in 2018/19 and the remainder available in 2019/20.
Payment shall be made to POL in instalments on each Quarter Date throughout 2018/19 and
2019/20 for the amounts set out in the relevant Annual Strategic Plan and in each report
delivered in accordance with clause 7.2(a), or as otherwise agreed between the Parties.
57 In ascertaining for any purpose of this clause 5 the amount or maximum amount of any
SGEI Payment no account shall be taken of: (i) any VAT Amount which may be payable under
clause 5.13; or (ii) the benefit of any interest receivable on any amount held by POL prior to its
expenditure.
5.8 It is acknowledged by the Parties that any part of the SGEI Payments received by POL
under a network subsidy scheme pursuant to section 103 of the PSA2000 (currently expected
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to be the amounts specified in clause 5.5 above) would be treated as revenue in POL’s accounts,
which has an impact on POL’s operating profit. Should any SGEI Payment (or part thereof) be
made in any Financial Year in any manner which would result in it not being treated as revenue
in POL’s accounts then any target operating profit applicable for any purpose to POL, or the
PO Group as a whole, in such Financial Year shall be reduced by the amount of any SGEI
Payment (or part thereof) received in any such manner in that Financial Year.
5.9 Within three months following the signature of POL’s accounts in respect of each of
the Financial Years 2018/19, 2019/20 and 2020/21, POL shall provide to the Secretary of State
a statement (the SGEI Statement) setting out in writing the Actual SGEI Cost for that Financial
Year and a cumulative statement (the Cumulative SGEI Statement) setting out the cumulative
amount of all Actual SGEI Cost for the Funding Period up to and including the relevant
Financial Year (the Cumulative SGEI Cost), together with supporting calculations and a clear
explanation of how the amounts of each have been calculated. Each SGEI Statement shall be
accompanied by a statement (the SGET Supporting Statement) from an independent firm of
financial advisers confirming:
(a) that the SGEI Statement has been properly prepared in accordance with the
requirements of Schedule 3 (Calculation of Actual SGEI Cost) and any
additional conditions imposed by any relevant State Aid Clearance; and
(b) that while carrying out its financial analysis for the purposes of providing the
statement referred to in paragraph (a) above, they did not discover any
inconsistency of POL’s use of the SGEI Payment as against the terms of this
Agreement or of any applicable State Aid Clearance.
POL agrees to use reasonable endeavours to engage such independent firm of financial advisers
on the basis that, if requested by the Secretary of State and on such terms as the financial
advisers may agree:
(a) an accountancy firm nominated by the Secretary of State shall be entitled to
discuss directly with the financial advisers the manner in which the SGEI
Supporting Statement has been prepared; and
(b) the financial advisers shall provide to the Secretary of State all notes and other
work products produced by them in the preparation of the SGE! Supporting
Statement.
5.10 If following the end of the Funding Period the Cumulative SGEI Statement (for the
entire Funding Period) shows that the Cumulative SGEI Cost is less than the Cumulative SGEI
Payment, POL shall, within ten (10) Business Days of a request by the Secretary of State,
reimburse to the Secretary of State, without deduction, an amount equal to the difference.
5.11 POL shall use each SGEI Payment only to meet the direct and indirect costs associated
with: (i) maintaining a network of Branches in accordance with the Network Access Criteria;
and (ii) ensuring the provision of SGEI Services as described in Schedule 3 (Calculation of
Actual SGEI Cost) (or to make any reimbursement required to be made by POL pursuant to
clause 5.10), and only for purposes permitted by any State Aid Clearance applicable to it.
5.12 The Parties acknowledge that once received by POL, each SGEI payment is not
hypothecated against any specific activity or expenditure forming part of the SGEI Purpose.
POL shall not use the SGEI Payment for the purposes set out in paragraphs (a) — (h) below.
However the Parties acknowledge that POL may undertake these activities provided they are
funded from current or retained profits or non-public third party funding:
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(a) to fund lobbying (via an external firm or in-house staff) in order to undertake
activities intended to influence or attempt to influence Government or political
activity or attempting to influence legislative or regulatory action;
(b) to directly enable one part of Government to challenge another on topics
unrelated to the SGEI Purpose or SGEI Services;
(c) to petition for additional funding;
(d) for entertaining, in particular any entertainment aimed at exerting undue
influence to change Government policy;
(e) payments for activities of a party political or exclusively religious nature;
9) for the giving of gifts;
(g) to pay statutory fines, criminal fines or penalties; or
(h) for payments for unfair dismissal.
5.13 It is the mutual opinion of the Parties that the SGEI Payments received by POL will
not (and POL agrees not to take any steps with the intention of procuring that they will)
constitute, for VAT purposes, the consideration for any taxable supply and that, accordingly,
the receipt by POL of such SGEI Payments should not give rise to any liability of POL (or any
other member of the PO Group) to account for VAT in respect of any such receipt.
Notwithstanding the foregoing opinion, if it should, at any time (whether or not a time falling
within the duration of this Agreement), be determined by Her Majesty’s Revenue and Customs
that such SGEI Payments (or any of them) must be treated as the consideration for taxable
supplies made by POL (or, as the case may be, by any other member of the PO Group) and that
in consequence POL (or such other member of the PO Group) is liable to account for VAT in
respect of the receipt of any of such SGEI Payments (the VAT Amount), POL shall notify the
Secretary of State of that determination within five (5) Business Days of being so advised by
Her Majesty’s Revenue and Customs and the Secretary of State shall, as soon as reasonably
practicable following notification of such determination, make a payment to POL, in addition
to all amounts otherwise payable by the Secretary of State to POL under this Agreement, of a
sum equal to the VAT Amount, against production of a valid VAT invoice.
5.14 If Her Majesty’s Revenue and Customs issues a determination as referred to in clause
5.13 the Parties shall (acting reasonably) consult as to what action to take regarding such
determination. If the Secretary of State disagrees with the determination he may, within ten (10)
Business Days of being notified by POL of such determination, give written notice to POL that
he requires POL (or any other member of the PO Group) to obtain a review by Her Majesty’s
Revenue and Customs of that determination; and POL (or such other member of the PO Group,
as the case may be) shall promptly request (the form of that request being subject to reasonable
review by the Secretary of State) Her Majesty’s Revenue and Customs to undertake such
review. In the event that the review results in POL obtaining a refund of any VAT Amount, or
not being required to pay a VAT Amount, in each case in respect of which the Secretary of
State shall have made a corresponding payment under clause 5.13, POL shall promptly refund
to the Secretary of State the amount of such corresponding payment.
5.15 The Secretary of State acknowledges the expectation of the Parties that ongoing SGEL
Payments may be required to be made to POL following the end of the Funding Period to the
extent that POL may be requested to continue to provide the SGEI Purpose or SGEI Services
following the Funding Period.
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6. ‘WITHHOLDING, SUSPENDING OR REPAYMENT OF GOVERNMENT FUNDING
6.1 Without prejudice to the Secretary of State’s other rights and remedies, the Secretary
of State may at his discretion reduce, withhold or suspend payment of any SGEI Payments due
to POL and/or require POL to repay all or part of the SGEI Payments if:
@)
()
(©)
@
@
Gi)
(iii)
(iv)
”)
subject to clause 5.12, POL uses the SGEI Payments for a purpose other than the
SGEI Purpose or fails to comply with any of the other terms and conditions of
this Agreement;
POL receives funding from a third party for part or all of the same purposes as
the SGEI Purpose (in which case, the Secretary of State’s recovery will be
limited to an amount equal to the third party funding for the relevant SGEI
Purpose);
the Secretary of State has incorrectly paid money to POL as a result of an
administrative error or other reason; or
any of the following events arise:
POL is, in the reasonable opinion of the Secretary of State, delivering the SGEI
Purpose in a negligent manner, provided that the Secretary of State has given
POL written notice that he believes that the SGEI Purpose has been provided
negligently and POL has failed to remedy the provision of the SGEI Purpose
within 20 Business Days of such notice; or
POL obtains debt funding from a third party which, in the reasonable
opinion of the Secretary of State, undertakes activities that are likely to
bring the reputation of the SGEI Purpose or the SGEI Services or the
Secretary of State into disrepute, provided that the Secretary of State
shall have no right to reduce, withhold or suspend payment where POL,
has obtained such debt funding from a third party which is regulated by
any arm of the Government or which has the right to do business in the
United Kingdom by reason of the European Union passporting system
or other equivalent system enabling such third party to trade freely in
the United Kingdom. The Parties acknowledge that any equity funding
is likely to constitute a variation of rights attaching to the special share
in POL held by the Secretary of State and therefore will require prior
written consent in accordance with POL’s articles of association.
POL knowingly provides the Secretary of State with any material information
relating to the provision of the SGEI Purpose that is materially misleading or
inaccurate;
POL is involved in any illegal activity in the provision of the SGEI Purpose;
the Secretary of State is required to exercise its rights under this clause by an
order of a court or a decision of the European Commission relating to State
Aid.
6.2 The Secretary of State may also have the right to impose reasonable additional terms
and conditions to the SGEl Payments if any of the events set out in clause 6.1 occur, or if the
Secretary of State has reasonable grounds to believe that it is necessary to protect public money.
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7. POL STRATEGIC PLAN
7A Unless otherwise agreed by the Secretary of State or required by the terms of any State
Aid Clearance, POL shall not apply any SGEI Payment for a purpose inconsistent with the
Strategic Plan or make any material deviation from the Annual Strategic Plan.
72 In order for the Secretary of State to monitor POL’s progress in delivering the Strategic
Plan:
(a) POL shall provide, in a form and substance satisfactory to the Secretary of State (acting
reasonably), a report approved by POL’s board of directors setting out an overall
assessment of POL’s activities during the previous Financial Quarter. Subject to POL’s
board of directors having reviewed and approved the report, such report shall be
provided no more than 30 Business Days after each Quarter Date in the Funding Period,
and shall include:
(i) asummary of POL’s performance over the Financial Quarter and its expected
future performance as compared to the Annual Strategic Plan;
(ii) for each business case approved by POL’s board of directors in the Funding
Period, an update on delivery against that approved business case. Where the
activities associated with a business case have been implemented, POL will
agree with the Secretary of State, whether and for how long, it will be relevant
to continue reporting; and
(iii) information on expected drawings by POL of the SGEI Payments for the
remaining duration of the Strategic Plan and the Annual Strategic Plan.
(b) the Secretary of State may request information on a routine and an ad hoc basis. The
Secretary of State will ensure that information requests are not overly onerous and POL,
will use its reasonable endeavours to satisfy all information requests.
8. FINAL CONTRIBUTION
POL acknowledges that the SGEI Payments to be provided by the Secretary of State pursuant
to this Agreement represent the Secretary of State’s final funding contribution in respect of
POL’s obligations over the Funding Period to: (i) maintain a network of Branches in accordance
with the Network Access Criteria; and (ii) ensure the provision of SGEI Services in accordance
with the Strategic Plan.
be EMPLOYEE INCENTIVE ARRANGEMENTS
9.1 POL shall continue to maintain an incentive scheme, approved by the Secretary of
State, for its senior executive team in a manner which is designed to ensure, and is consistent
with ensuring, the delivery of the Strategic Plan.
9.2 POL confirms that:
(a) the terms of any bonus arrangements specific to POL (or those parts of any
group-wide arrangements which are related to the performance of POL) are
designed to incentivise and reward the performance of POL;
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(b) the terms of such bonus arrangements are robust, subject to annual review and
designed not to provide rewards where POL’s business has not performed
satisfactorily against the relevant target; and
(c) accordingly, no such bonus arrangements will pay out in respect of any Financial
Year during the Funding Period in which POL seeks and obtains new funding
from the Secretary of State, over and above that anticipated in this Agreement,
as a result of a failure by POL to perform in accordance with the requirements
of the Strategic Plan (other than as a result of a change in Government policy or
other reasons beyond POL's control). Any future bonus arrangements following
any such Financial Year will be discussed with the Secretary of State at the time.
10. JOINT VENTURES
Unless otherwise agreed with the Secretary of State, POL agrees that it shall only enter into
joint ventures with third parties for purposes consistent with the delivery of the Strategic Plan
and provided that the joint venture is structured on the basis that it would not (according to
Government advice) be classified as part of the public sector under the relevant rules of Her
Majesty’s Treasury.
11. ENTRUSTMENT LETTER
The letter from the Government to POL entitled "Entrustment of Post Office Limited with the
delivery of certain public services" and dated 30 March 2017 (the March 2017 Entrustment
Letter) is superseded by the Entrustment Letter and the Parties agree that the March 2017
Entrustment Letter shall be terminated with immediate effect on the date the Entrustment Letter
is signed by both Parties.
12. PuBLIC CONSULTATION, COMMUNICATION AND EQUALITY
12.1 POL shall at all times comply with the Code of Practice.
12.2 POL acknowledges the commitment recorded in the resolutions made during its board
meeting of 21 January 2008 that any individuals taking any decision or exercising any other
function on POL’s behalf should do so having due regard to the need to observe factors which
comprise the statutory equality duties and that appropriate steps be taken to inform all people
making decisions or exercising functions on POL’s behalf of these equality duties. POL shall
ensure that this commitment is maintained in the performance of its obligations under this
Agreement.
13. CONSENTS
The Secretary of State hereby consents, for the purposes of POL’s articles of association and
any other document or arrangement under which its consent or approval is required, to the
execution and performance by POL of this Agreement and the documents and arrangements to
be entered into pursuant to, or otherwise contemplated by, this Agreement (other than any
agreement contemplated in clause 10 (Joint Ventures)). The Secretary of State agrees that such
consents will take effect notwithstanding any failure to comply with any procedural
requirements of such articles or other documents in connection with the obtaining of such
consents,
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14, CONFIDENTIALITY
14.1 Each Party undertakes to the other Party that, subject to clause 14.2, it shall treat as
strictly confidential all confidential information. For the purposes of this clause 14, confidential
information shall mean:
(a) the provisions of this Agreement, and the Strategic Plan; and
(b) the negotiations relating to this Agreement, the Entrustment Letter and the
Strategic Plan.
14.2 Clause 14.1 shall not prevent the disclosure by a Party of any confidential information:
(a) to those of its officers (including auditors), employees and agents as it considers
have a need for such information in the performance of their respective functions
and who shall in each case be made aware by such Party of its obligations under
this Agreement and shall be required by such Party to observe the same
restrictions on the use of the confidential information as are contained in this
clause 14;
(b) to its professional advisers who are bound to such Party by a duty of confidence
which applies to the confidential information disclosed;
(©) to the extent required by applicable law or by the regulations of any regulatory
or supervisory authority to which such Party is subject or pursuant to any order
of court or other competent authority or tribunal;
(@d) which shall have entered the public domain or ceased to be confidential other
than as a result of a breach by such Party of its obligations under this clause 14;
[O} which was already known to such Party prior to its disclosure to such Party other
than as a result of a breach by such Party of an obligation of confidentiality;
@ as such Party, acting reasonably, considers necessary in connection with any
investigations, inquiries, or actual or threatened proceedings in connection with
POL or any of its directors;
(2) in the case of POL, to the extent that its board of directors acting reasonably,
considers disclosure necessary from time to time in its statutory accounts;
(h) to the extent that the Secretary of State, acting reasonably, considers disclosure
necessary from time to time in the published accounts of the Department of
Business, Energy and Industrial Strategy or Her Majesty’s Treasury;
@ to the extent required by any Parliamentary obligation;
@) to the extent required for the purposes of any examination pursuant to section
6(1) of the National Audit Act 1983 of the economy, efficiency and effectiveness
with which the Secretary of State has used his resources;
(kK) to the European Commission for the purposes of obtaining State Aid Clearance;
or
@ with the prior written consent of the other Party.
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14.3 Ifa Party becomes required, in circumstances contemplated by clause 14.2(c), (f), (g)
or (h) to disclose any confidential information, such Party shall, to the extent permitted by law,
give to the other Party such notice of such disclosure as is practicable in the circumstances and
shall, to the extent permitted by law and practicable in the circumstances, consult with the other
Party as to the extent of such disclosure.
15. NOTICES
15.1 A notice to be served pursuant to or in connection with this Agreement shall be in
writing and, unless otherwise stated, served in person or sent by pre-paid first class post, e-mail
or any other electronic method of communication as agreed by the Parties to the relevant Party
at its address or e-mail address set out below, or such other address in England or Wales or e-
mail address notified by it to the other Party and marked for the attention of the person or
department therein specified.
15.2 The address and addressee of each Party at the date of this Agreement are:
Name of I Attention Address
Party
Secretary of I UK 1 Victoria Street,
State Government I London SW1H 0ET
Investments
POL Company 20 Finsbury Street,
Secretary London EC2Y 9AQ
15.3 Notice shall be deemed to be received on the date and time specified below (save that
where such notice would otherwise be deemed to be received after 17:00 London time on a
particular day, it shall be deemed to have been received at 9:00 London time on the next
Business Day):
(a) in the case of a notice served in person, upon delivery at the address of the
addressee;
(b) in the case of a posted letter, on the second Business Day after posting; and
(3) in the case of e-mail or any other electronic method of communication agreed by
the Parties, when actually received in readable form.
15.4 Each Party undertakes to notify the other Party by notice served in accordance with this
clause 15 if the address specified by that Party herein is no longer an appropriate address for
the service of notice or if it is desired to substitute any individual addressee of that Party named
in clause 15.2.
15.5 In proving service of any notice under or in connection with this Agreement it will be
sufficient to prove:
(a) in the case of a letter, that such letter was properly stamped or franked, addressed
and placed in the post or in the case of personal delivery, was left at the correct
address; and
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(b) in the case of an e-mail, that e-mail was duly transmitted to the e-mail address
of the addressee referred to in clause 15.2.
16. ENTIRE AGREEMENT
16.1 I This Agreement and any documents referred to in it or annexed to it constitute the
whole and only agreement between the Parties relating to its subject matter and, for the
avoidance of doubt, supersedes any other prior arrangement, understanding or agreement
between the Parties relating to the subject matter of this Agreement.
16.2 Each Party acknowledges that in entering into this Agreement, it is not relying on any
pre-contractual statement, which is not set out in this Agreement.
16.3 Except in the case of fraud, neither Party shall have any right of action against the other
Party arising out of or in connection with any pre-contractual statement except to the extent that
it is expressly provided for in this Agreement.
16.4 For the purposes of this clause 16, pre-contractual statement means any draft,
agreement, undertaking, representation, warranty, promise, assurance, forecast, estimate or
arrangement of any nature whatsoever, whether or not in writing, relating to the subject matter
of this Agreement made or given by any person at any time prior to the date of this Agreement.
17. GENERAL
Secretary of State
17.1 Nothing in this Agreement fetters the powers conferred on the Secretary of State by the
PSA2000 and the PSA2011.
Costs
17.2 Save as expressly provided for elsewhere in this Agreement, each of the Parties shall
at its own expense do all such things as shall be necessary to give full effect to the obligations
imposed on it under this Agreement.
Third parties
17.3 For the purposes of the Contracts (Rights of Third Parties) Act 1999, no person other
than a Party shall have any rights in respect of this Agreement.
Counterparts
17.4 This Agreement may be executed in any number of counterparts and by the Parties on
separate counterparts, each of which when so executed and delivered shall be an original, but
all the counterparts shall together constitute one and the same instrument.
Partial invalidity
17.5 If any term or provision in this Agreement is held to be illegal or unenforceable in
whole or in part under any enactment or rule of law, such term or provision or part shall to that
extent be deemed not to form part of this Agreement but the enforceability of the remainder of
this Agreement shall not be affected,
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Rights, variations and waivers
17.6 The rights and remedies of the Parties shall not be affected by any failure to exercise
or delay in exercising any right or remedy or by the giving of any indulgence by the other Party
or by anything whatsoever except a specific waiver or release in writing and any such waiver
or release shall not prejudice or affect any other rights or remedies of the Parties. No single or
partial exercise of any right or remedy prevents any further or other exercise thereof or the
exercise of any other right or remedy.
17.7 No variation of this Agreement shall be of any effect unless it is agreed in writing by
or on behalf of each Party.
17.8 Any waiver of any right, power or remedy under this Agreement must be in writing
and may be given subject to any conditions thought fit by the grantor. The person seeking the
waiver shall disclose to the grantor all material facts then in that person’s knowledge relevant
to the subject matter of the waiver. Unless otherwise expressly stated, any waiver shall be
effective only in the instance and only for the purpose for which it is given.
Remedies
17.9 Without prejudice to any other rights or remedies that either Party may have, each Party
acknowledges and agrees that damages alone would not be an adequate remedy for any breach
by a Party of the provisions of this Agreement, and that the remedies of injunction and specific
performance as well as any other equitable relief for any threatened or actual breach of the
provisions of this Agreement by a Party may be more appropriate remedies and that no proof
of special damages shall be necessary for the enforcement of this Agreement.
Governing law and jurisdiction
17.10 This Agreement and any non-contractual obligations arising out of or in relation to this
Agreement shall be governed by and construed in accordance with English law.
17.11 Each Party hereby submits to the exclusive jurisdiction of the courts of England.
EXECUTED by the Parties on the date first written above.
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SIGNED by
for and on behalf of
THE SECRETARY OF STATE FOR BUSINESS, ENERGY AND INDUSTRIAL
STRATEGY
Signature: I
Name:
Title: cutive Director, UK Government Investments
SIGNED by
for and on behalf of
POST OFFICE LIMITED
Signature:
Name: Paula Vennells
Title: Chief Executive
Signature:
Name: Alisdair Cameron
Title: Chief Financial & Operating Officer
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SCHEDULE 1
DELIVERABLES
A certified copy of a resolution of the board of POL:
(a) approving the terms of, and the transactions contemplated by, this Agreement and any
amendments agreed by thé Parties relating to the POL Credit Facility Agreement and
resolving that it execute and perform this Agreement and any agreed deed of
amendment relating to the POL Credit Facility Agreement;
(b) authorising a specific person or persons to execute this Agreement on its behalf; and
(©) authorising a specified person or persons, on its behalf, to sign and/or dispatch all
documents and notices to be signed and/or dispatched by it under or in connection with
this Agreement and any agreed deed of amendment relating to the POL Credit Facility
Agreement.
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SCHEDULE 2
Part A
Fundamental Change
A Fundamental Change will have occurred if:
VE
an order has been made or resolution has been passed for the winding-up of, or a
provisional liquidator to be appointed in respect of, POL;
an administrator has been appointed in respect of POL;
a receiver (which expression shall include an administrative receiver) has been
appointed in respect of POL;
POL has stopped paying its debts as they fall due;
a moratorium is declared in respect of the indebtedness of POL or POL enters into a
moratorium or a composition, assignment or similar arrangement with its creditors
generally;
a scheme of arrangement is approved, or proposed by POL, under Part 26 of the
Companies Act 2006 with a view to rescheduling or restructuring POL’s indebtedness;
a voluntary arrangement has been proposed by POL under section 1 of the Insolvency
Act 1986 in respect of POL; or
an event analogous to the foregoing has occurred in relation to POL in any jurisdiction
outside England.
PartB
Potential Fundamental Change
A Potential Fundamental Change exists.at any time if at that time a Fundamental Change shall
not have occurred but:
1
a petition has been presented or a meeting has been convened for the purpose of
winding-up POL or appointing a provisional liquidator in respect of POL and such
petition has not been discharged or such meeting has not been held; or
POL is currently taking steps with a view to appointing an administrator or agreeing a
moratorium, composition, assignment or similar arrangement with its creditors
generally.
20
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SCHEDULE 3
CALCULATION OF ACTUAL SGEI COST
The amount of the Actual SGEI Cost shall be equal to the difference between the actual net
costs incurred by POL and the reasonable net profits that would have been incurred in
connection with the provision of a network that POL would maintain on a purely commercial
basis (as specified by the relevant European Commission decision(s)), during the relevant
Financial Year(s).
‘This is to be calculated using the net avoided cost methodology, in accordance with the
principles in paragraphs 21-32 of the 2012 Community Framework for State aid in the form of
public service compensation (“Framework”) and in precedent Commission decisions, which
calculates the SGEI net cost as the difference between:
the expected net cost for POL when providing the SGEIs; and
© the expected net cost / profit for POL when operating without any SGEI obligations.
For the purposes of this net avoided cost methodology the costs shall include, without
limitation, all variable and fixed costs associated with delivery of the SGEIs including
contributions to pension funds, interest costs, central costs, depreciation and amortisation costs
of any employee incentivisation arrangements and the costs of transforming the network, in
each case whether such costs are recurring or exceptional.
2
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SCHEDULE 4
MILESTONES
Network Size
Subject to clause 5.2 (Government Funding for SGEI Purpose), POL’s network continues to
meet the Network Access Criteria as reported by POL in each report delivered in accordance
with clause 7.2(a). ‘
Anaual Strategic Plan:
POL has provided an annual report to the Secretary of State prior to the start of the relevant
Financial Year, setting out the steps that it will take in respect of the Strategic Plan (or any
variation to it, agreed by the Parties where material) during that forthcoming Financial Year
(the Annual Strategic Plan).
Each year the Secretary of State (acting reasonably) will agree with POL a timetable for POL
to provide a draft and final version of the Annual Strategic Plan. This timetable will, among
other things, allow sufficient time for the Secretary of State to review the draft Annual Strategic
Plan and to agree its final form prior to the start of the relevant Financial Year.
This Annual Strategic Plan should include:
(a) POL’s annual budget;
(b) a reconciliation of any differences between POL’s annual budget and the projected
income statement, statement of cash flows and balance sheet in the Strategic Plan;
(©) information on the network of Branches, including its planned size and confirmation
of POL’s intention to continue to comply with the Network Access Criteria;
@ the proposed quarterly drawings by POL of the SGEI Payment;
(e) information on the investment activities that POL plans to undertake;
(63) an update on POL’s forecast financial performance for the current Financial Year; and
(g) information on any other outcomes set out in POL’s Strategic Plan that do not form
part of (a) to (f) above.
SGEI Statements:
POL has presented the SGEI Statement, the Cumulative SGEI Statement and the SGEI
Supporting Statement for the applicable Financial Year in accordance with the requirements of
clause 5.9
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SCHEDULE 5
NETWORK ACCESS CRITERIA
1. POL’s network of Branches must enable the following criteria to be met:
a. nationally, ninety per cent. (90%) of the UK population are within one (1) mile of the
nearest Branch;
b. nationally, ninety-nine per cent. (99%) of the UK population are within three (3) miles
of the nearest Branch;
c. in Urban Areas, ninety-five per cent, (95%) of the total population are within one (1)
mile of the nearest Branch;
d. in Deprived Urban Areas, ninety-nine per cent. (99%) of the total population are
within one (1) mile of the nearest Branch; and
e. in Rural Areas, ninety-five per cent. (95%) of the total population are within three (3)
miles of the nearest Branch.
In addition, the following criterion will apply at the level of each and every individual
postcode district, establishing a minimum level of coverage at a very local level:
f. in each postcode district, ninety-five per cent. (95%) of the population to be within 6
miles of their nearest Branch.
2. In applying the above criteria POL shall in addition take account of geographical
constraints such as rivers, mountains and valleys, motorways and sea crossings to islands,
and public transport infrastructure, so as not to impose undue hardship when considering
the appropriate Branch network.
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APPENDIX A
POL ENTRUSTMENT LETTER
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DIRECTORS’ DUTIES & CONFLICTS OF INTEREST
1. Directors’ Duties
Directors’ general duties are set out under sections 171-182 Companies Act 2006
(CA2006). Directors must act in accordance with the Company's constitution and
The general duties are owed to the company, and not to its shareholders.
1.1. Section 171: Duty to act within Powers
This section sets out a director’s duty to comply with the company’s constitution and only
exercise powers for the purposes for which they are conferred.
A director should exercise their powers only in accordance with the terms for which they
were granted and for a proper purpose. What constitutes a proper purpose must be
ascertained in the context of the specific situation under consideration.
Practical Guidance: Formal procedures should always be following when a meeting of
the Board is held. There is a schedule of matters reserved to the Board. Always be aware
of your delegated authority and duties in the Articles of Association and situations that
require shareholder approval. If in doubt, always consult the Company Secretary.
1.2. Section 172: Duty to promote the success of the company
The overriding duty, as set out in s172, is that a director is required to act in the way he
or she considers, in good faith, will be most likely to promote the success of the company
for the benefit of its members as a whole. In doing so, he or she must have regard
(amongst other matters) to the six factors below.
1. The likely consequences of any decision in the long term
2. The interests of the company’s employees
3. The need to develop the company’s business relationships with
suppliers, customers and other
4. The impact of the company’s operations on the community and the
environment.
5. The desirability of the company maintaining a reputation for high
standards of business conduct.
6. The need to act fairly between members of the company
The Companies (Miscellaneous Reporting) Regulations 2018 require that Company's
(meeting certain thresholds) must include a statement in the strategic report of how
directors have complied with their duty to have regard to the matters in Section 172
companies Act 2006.
At times some of the factors may be in conflict but the key issue for decision making is
that the directors should choose the action that will promote the success of the company
for the benefit of members as a whole.
1.3. Section 173: Duty to exercise intendent judgment
This section reflects the principle that a director must exercise his judgment independently
of the influences of others.
Internal
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The provision explains that this duty would not be infringed by a director if he or she is
acting in:
(a) accordance with an agreement or previous collective board decision which has
duly been entered into by the company or board; or,
(b) a way authorised by the company’s constitution.
Practical Guidance: Where someone if an executive director, they must not promote a
collective executive line, but should give the board the benefit of independent judgment.
Directors may seek legal or other professional advice but, ultimately, the director's final
judgment would need to be independent.
1.4. Section 174: Duty to exercise reasonable care, skill and diligence
Section 174 was modelled on the provisions of s214 of the Insolvency Act 1986, which
relates to wrongful trading.
A director owes a duty to the company to exercise the same standard of care, skill and
diligence that would be exercised by a reasonably diligent person with:
(a) the general knowledge, skill and experience that may reasonably be expected of
a person carrying out the functions carried out by the director in relation to the
company (an objective test); and
(b) the general knowledge, skill and experience that the director has (a subjective
test).
1.5. Section 175: Duty to avoid conflicts of interest
A director must avoid a situation in which they have, or can have, a direct or indirect
interest that conflicts, or may conflict, with the interests of the Company. This duty
includes both a conflict of interest and a conflict of duties and applies in particular to the
exploitation of property, information or opportunity.
The duty does not apply if the situation cannot reasonably be regarded as likely to give
rise to a conflict of interest. Or if it has been authorised by the Directors.
Practical jidance: For Private Companies (those currently in the Post office Group)
Directors who are independent of the conflict may authorise it (as the Articles of
Association allow for it).
Directors should consider if they have a conflict of interest through a connected person.
1.6. Section 176: Duty not to accept benefits from third parties
A director must not exploit his or her own position for personal benefit. However, only
those benefits which could reasonably be regarded as likely to give rise to a conflict of
interest fall within the scope of this duty.
The Act does not permit the acceptance of benefits which fall within the ambit of this
section to be authorised by the Board. It has to be approved by the Company‘s members.
There is a Post Office Gifts and Hospitality register to include any details. Always advise
the Company Secretary.
Internal
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1.7. Section 177: Duty to declare an interest in a proposed transaction or
arrangement
Directors must declare to the other directors any interest, whether direct or indirect, ina
proposed transaction or arrangement with the company. The extent of the interest must
be declared. However, it needs to be regarded as likely to give risk to a conflict of interest.
This duty may still apply even if the director is not party to the transaction. For example
in their spouse was entering into the transaction, this would be an indirect interest in the
transaction.
1.8. Section 182: Declaration of interest in existing transaction or
arrangement
Directors are required to declare an interest, whether it is direct or indirect, in an existing
transaction or arrangement into which the company has entered. If that director has
already declared an interest in the transaction or arrangement and that information has
not changed then he will not need to make a further declaration. This also applies to
indirect interests.
It is a criminal offence if the director fails to comply with this requirement.
1.9. Non-Compliance Consequences
There are civil consequences if directors’ duties are breached.
CA2006 Section 183 provides for criminal sanctions for the director if they fail to comply
with Section 182 (declarations of interests).
2. Conflicts of Interest Declaration
On appointment, directors are requested to complete a declaration of conflicts of interest.
The information is kept on a conflicts of interest register, managed by Company
Secretariat.
It is the directors’ responsibility to ensure that the Company Secretary is informed of any
changes to interests, direct or indirect. It is also the directors’ responsibility to inform the
Company Secretary and the Board of an interests in existing or proposed transactions.
The conflict of interest register is noted by the Board annually.
3. Connected person
A person connected with a director means:
(i) Members of the director's family:
(a) his/her spouse, or civil partner, his/her children and step-children and
his/her parents;
(b) a person with whom he/she lives as partner in an enduring family
relationship and any children or step-children such person under the age of 18;
Internal
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(ii) A body corporate with which the director and his/her connected persons (as above)
together are interested in and control more than 20% of the voting power at a general
meeting of that body corporate;
(iii) I A person acting as the trustee of a trust, of which the director or his/her connected
persons (as above) are beneficiaries; and
(iv) A person, or firm that is a legal person, that is a partner of the director, either
directly or, indirectly through his/her connected persons (as above).
4. Extract of Pinsent Masons LLP Post Office Limited Conflicts of Interest
Advi Receivi 4.06.201
4.1.
4.2.
Regulators across all sectors (pensions, finance and charities) have been very
engaged with conflicts of interest in the last few years. The sponsoring minister
has also showed an interest in the matter, which demonstrates the level of
scrutiny in the current climate and, therefore, the importance placed on getting
conflicts of interest management right.
Under section 175(1) of the Companies 2006 Act (the "Act"), a director is
under a duty to avoid a situation in which he or she has, or can have, a direct
or indirect interest that conflicts, or possibly may conflict, with the interests of
the company. “Conflict of interest” is defined as including a conflict of duties,
so if a director has duties to two separate bodies which may potentially conflict,
the section is engaged.
Extract from the 2016 BEIS Guidance for Directors of Companies Fully
or Partly Owned by the Public Sector: For a Director who is a public servant,
a conflict of interest might occur where e.g.:
There are conflicts between different professional duties (“professional
conflicts of interest”). For example where a Director is a member of two
boards, or where a Director has competing loyalties to their public sector
employer and the commercial venture to which they have been appointed
director; or
There are conflicts between Director duties and private interests, for example
a financial or family interest (“personal conflicts of interest”).
There will be situations, determined on a case by case basis, in which conflicts
of interest can be managed. For example, there may be scope within the
organisation’s constitutional documents (in its current form or as properly
amended) to:
Reserve certain issues to be decided by specific participants only, rather than
the entire board
Impose a restriction on directors from voting on issues where they may have
a conflicting interest
Expressly allow a director to vote on a matter in which they have a conflicting
interest, provided that the nature and extent of the conflict is fully disclosed
to the board.
Note that the duty is not infringed if the situation cannot reasonably be regarded as likely
to give rise to a conflict of interest (section 175(4)(a) of the Act).
Internal
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DIRECTORS’ DUTIES & CONFLICTS OF INTEREST
There is a specific safe harbour in section 180(4)(b) of the Act which provides that, where
a company’s articles contain provisions for dealing with directors’ conflicts of interest,
directors’ general duties are not infringed by anything done (or omitted to be done) by
them when following those provisions.
4.3.
4.4,
(A)
(B)
(Cc)
(D)
Internal
Post Office Limited (POL) Articles of Association The articles of POL permit
such authorisation of a conflict of interest and duty pursuant to any terms that
the board considers to be appropriate and which the director undertakes to
comply with Article 82. When directors, acting collectively, decide whether to
authorise a conflict or potential conflict, they must act in a way they consider,
in good faith, will be most likely to promote the company’s success (in line with
section 172 of the Act). In other words, the board may feel able to authorise a
conflict if, on balance, it concludes that it is in the interests of POL.
POL Articles of Association Article 82 & 83
The board may, subject to the quorum and voting requirements set out in this
article, authorise any matter which would otherwise involve a director breaching
his duty under the Act to avoid conflicts of interest (a "Conflict")
A director seeking authorization in respect of a Conflict shall declare to the board
the nature and extent of his interest in that Conflict as soon as is reasonably
practicable The director shall provide the board with such details of the relevant
mailer as are necessary for the board to decide how to address the Conflict
together with such additional information as may be requested by the board
Any director (including the relevant director) may propose that the relevant
director be authorised in relation to any matter the subject of a Conflict Such
proposal and any authority given by the board shall be effected in the same way
that any other matter may be proposed to and resolved upon by the board under
the provisions of these articles save that
() the relevant director and any other director with a similar interest shall
not count towards the quorum nor vote on any resolution giving such
authority, and
(I) the relevant director and any other director with a similar interest may,
if the other members of the board so decide, be excluded from any board
meeting while the Conflict is under consideration
Where the board gives authority in relation to a Conflict
(I) the board may (whether at the time of giving the authority or
subsequently) (a) require that the relevant director is excluded from the
receipt of information, the participation in discussion and/or the making
of decisions (whether at meetings of the board or otherwise) related to
the Conflict, and (b) impose upon the relevant director such other terms
for the purpose of dealing with the Conflict as it may determine,
(I) the relevant director will be obliged to conduct himself in accordance with
any terms imposed by the board in relation to the Conflict,
(III) the board may provide that where the relevant director obtains
(otherwise than through his position as a director of the company)
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information that is confidential to a third party, the director will not be
obliged to disclose that information to the company, or to use or apply
the information in relation to the company's affairs, where to do so would
amount to a breach of that confidence,
(Iv) the terms of the authority shall be recorded in writing (but the authority
shall be effective whether or not the terms are so recorded), and
(Vv) the board may revoke or vary such authority at any time but this will not
affect anything done by the relevant director prior to such revocation or
variation in accordance with the terms of such authority
83. OTHER CONFLICTS OF INTEREST
(A) If a director is in any way directly or indirectly interested in a proposed contract
with the company or a contract that has been entered into by the company, he
must declare the nature and extent of that interest to the directors in accordance
with the Act
(B) Provided he has declared his interest in accordance with article 83(A) a director
may
(I) be party to, or otherwise interested in, any contract with the company or
in which the company has a direct or indirect interest,
1659) hold any other office or place of profit with the company (except that of
auditor) in conjunction with his office of director for such period and upon
such terms, including as to remuneration, as the board may decide,
(III) act by himself or through a firm with which he is associated in a
professional capacity for the company or any other company in which the
company may be interested (otherwise than as auditor),
(IV) _ be or become a director or other officer of, or employed by or otherwise
be interested in any holding company or subsidiary company of the
company or any other company in which the company may be interested,
and
(V) be or become a director of any other company in which the company does
not have an interest and which cannot reasonably be regarded as giving
rise to a conflict of interest at the time of his appointment as a director
of that other company
(C) A director shall not, by reason of his office or of the fiduciary relationship thereby
established be liable to account to the company for any remuneration, profit or
other benefit realised by reason of his having any type of interest authorised under
article 82(A) or permitted under article 83(B) and no contract shall be liable to be
avoided on the grounds of a director having any type of interest authorised under
article 82(A) or permitted under article 83(B)
As not all conflict situations can be anticipated and each situation will be different,
the GC100 considers that most companies will want a general power to authorise
conflicts. There are safeguards that will apply when a board decides whether to
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DIRECTORS’ DUTIES & CONFLICTS OF INTEREST
authorise a potential conflict in accordance with the articles of association. When a
board is making this decision, each authorising director will need to have regard to
his own duties including the duty to act in a way he considers, in good faith, will be
most likely to promote the success of the company. Shareholders therefore have
the assurance that the board will only use the power to sanction conflicts where it
is in the interests of the company.
4.5. Extract from GC100 Guidance on Conflicts of Interest
Currently when a material conflict of interest arises, the director concerned will
take steps to mitigate the conflict by, for example, absenting himself from board
discussions and, in extreme cases, standing down from the board. Under section
175 however, a director must not let the situation arise in the first place unless
the board has given prior authorisation. This change in the law will require
companies to operate more formal procedures regarding conflicts of interest but
provided a potential conflict has been authorised, the change should not result in
the relevant director behaving in a different way than he would at the moment
when a real conflict arises.
The 2006 Act also preserves the effect of provisions in a company’s articles dealing
with conflicts. A director will not be in breach of section 175 (and the other general
duties in Chapter 2 of Part 10) for anything done or omitted by the director in
accordance with provisions in the articles dealing with conflicts. Where a
company’s articles include a power for the purposes of section 175 for a board to
authorise conflicts, this will supplement any other general provisions in the articles
dealing with conflicts.
The safe harbour in section 180(4)(b) provides that where a company’s articles
contain provisions for dealing with conflicts of interest, the general duties are not
infringed by anything done (or omitted to be done) by the directors, or any of
them, when following those provisions. Section 232(4) of the 2006 Act is also
relevant in this context as it allows a company’s articles to protect directors from
liability by continuing to include provisions dealing with conflicts of interest where
they were previously lawful. This means that companies can continue to rely on
provisions in their articles dealing with conflicts (for example article 85 of Table
A).
Where a company is amending its articles to reflect section 175(4) and
incorporating the power for the board to authorise conflicts, it may want to
consider how directors can take advantage of the section 180(4)(b) safe harbour
in relation to conflict situations authorised by the board. A company may for
example want to make it clear that a director will not be in breach of duty in
respect of an authorised conflict situation:
a) if he receives confidential information as a result of the conflict situation
from a third party and does not disclose this to the company or use it for
the company’s benefit; or
b) where he takes mitigating action when the actual conflict arises by, for
example, not attending board meetings or reading board papers.
Internal
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Internal
A company may want wider provisions in its articles, for example sanctioning
conflicts that may arise as a result of directors’ involvement with other companies
in the group or joint venture companies.
Each director's situation needs to be considered by the board and the board must
decide whether to approve any conflict situations taking account of their general
duties set out in Chapter 2 of Part 10 of the 2006 Act. Where the board is asked
to approve a potential conflicting position that brings clear benefits to the
company, for example access to industry or sector expertise, it will usually not be
an issue in deciding that they are acting in the interests of the company in
approving the conflict. A board should be able to approve a matter if on balance
the directors think it is in the interests of the company for the company to retain
(or appoint) that director. A board should consider whether the matter they are
approving would affect the relevant director's ability to act in accordance with his
wider duties.
A board should consider how far the authorisation should go in relation to each
matter it is asked to approve to avoid the director being in breach of section 175.
Taking the example of a director seeking sanction for his role as a non-executive
director of another company, the board may decide to approve his continuing in
this role but may not want to sanction all consequences that flow from the role,
for example if Company B decides to acquire the company or becomes a
competitor. So in sanctioning any matter that gives rise to a conflict, a board
needs to consider what consequences could flow from that matter and the stage
at which the authorisation should no longer apply. Part 5 considers some of the
consequences that could flow from various situations of conflict that a board may
want to address when considering the extent of its authorisation of any particular
matter.
A board also needs to consider what should happen if a real conflict arises post
authorisation and the director has clearly conflicting interests. The options are:
a) exclude the director from the relevant information and debate;
b) exclude the director from the board (suspension); or
c) require the director to resign.
Where a director is on the board of, is a significant shareholder in, or is
himself, a supplier to or customer of the company. The board may decide
to approve this relationship but will not want the director to be able to disclose
“company” information to the supplier or customer or to use it for the supplier or
customer's benefit. They also will not want him to be involved in board discussions
concerning the relationship.
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AE
AR
ARC
API
ATM
BACS
BAU
BEIS
BOI
BPMA
CAGR
cDP
CEIRF
CFS
CMA
COSA
cPl
CRM
CVviT
CWU
DA
DMB
DPC
DPO
DRO
DVLA
DVSA
DwP
EBITDAS
GLOSSARY & PROJECT LIST
Application, Enrolment and Identity
Appointed Representative
Audit, Risk and Compliance Committee
Application Programming Interface
Automated Teller Machine
Bankers' Automated Clearing Services
Business as Usual
Department of Business, Energy & Industrial Strategy
Bank of Ireland
British Postal Museum and Archive
Change Approval Group
Compound Annual Growth Rate
Common Digital Platform
Collective Engagement & Industrial Relations Framework
Core Financial System
Community Managers Association
Crown Office Staffing Arrangement (agreement with CWU)
Consumer Price Index
Customer Relationship Management
Crown Transformation Programme
Cash and Valuables in Transit
Communication Workers Union
Distribution Agreement between POL and POMS (since we have MSA listed)
Directly Managed Branch (previously referred to as ‘Crowns’)
Direct Product Contribution
Data Protection Officer
Departmental Records Officer
Driver and Vehicle Licensing Agency
Driver and Vehicle Standards Agency (formerly VOSA — see below)
Department of Work & Pensions
Earnings Before Interest, Tax, Depreciation, Amortisation and Subsidy
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eKYC
EPOS
EUC
FBU
FCA
FOoG
FRES
FRESH
FS
FSC
FSJVA
FST&I
GDPR
GE
Horizon
HRSC
IDA
IDD
IDV or ID &V
IPA
IPS
JIC
Junction
LDF
TIP
MDA
MSA
MtsF
ND
NDA
GLOSSARY & PROJECT LIST
Enhanced Know Your Customer
Electronic Point of Sale
End User Computing
Fair, Balanced and Understandable
Financial Conduct Authority
Front Office of Government
First Rate Exchange Services Limited
First Rate Exchange Services Holdings Limited
Financial Services
Financial Services Centre
Financial Services Joint Venture Agreement between Bol and POL dated
[2012]
Financial Services, Telecoms and Identity, Group Marketing and Group Digital
& Innovation Business Unit
General Data Protection Regulation
Group Executive
IT in branch counter system supplied by Fujitsu. Versions include HNGX,
HNGA, HNGT
Human Resources Service Centre
Identity Assurance (Services)
Insurance Distribution Directive
Identity verification
Information Protection and Assurance Team
Identity and Passport Services
Joint Insurance Committee
Travel Insurance JV between [BGL and POMS]
Leadership Development Forum
Long Term Incentive Plan
Master Distribution Agreement between RMG and POL
Master Services Agreement between POL and POMS
Managing the Surplus Framework (Agreement with CWU)
Network development — plan to expand the size of the network with more,
smaller branches including whitespace.
Non Disclosure Agreement
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Network Tower __ IT contract with Verizon (previously BT) providing IT telecoms services in
GLOSSARY & PROJECT LIST
Contract POL offices and across the branch network
NFSP National Federation of SubPostmasters
NS&I National Savings & Investments
NSP Network Subsidy Payment
PsD2 Payment Services Directive 2
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NT
NTP
PCI
PID
PO
POAC
POCA
POEM
POFS
POL
POLIC
Polo
POMS
POSH
RemCo
RM
RMG
RMHB
RMPP
RMSEPP
RMDCP
RBS
RPL
SGEI
ShEx
SIA
SLP
SLT
SMCR
SPMO
State Aid
GLOSSARY & PROJECT LIST
Network Transformation
Network Transformation Programme
Peripheral Component Interconnect - used in the Payment Card Industry
(MasterCard data security standard)
Project Initiation Document
Purchase Order
Post Office Advisory Council
Post Office Card Account
Post Office Ethnic Minority
Post Office Financial Services
Post Office Limited
Post Office Investment Committee
Current Account
Post Office Management Services Limited
Postal Services Holdings Limited (In Liquidation)
Remuneration Committee
Royal Mail
Royal Mail Group
Royal Mail Holdings Board
Royal Mail Pension Plan
Royal Mail Senior Executive Pension Plan
Royal Mail Defined Contribution Plan
Royal Bank of Scotland
Retail Price Index
Services of General Economic Interest
Shareholder Executive (now replaced with UKGI)
Security Industry Authority
Senior Leadership Population
Senior Leadership Team
Senior Managers and Certification Regime
Strategic Project Management Office
a European Commission (EC) term which refers to forms of public
assistance, given to undertakings on a discretionary basis, which has the
potential to distort competition and affect trade between Member States of
the European Union
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STIP
UKBA
UKGI
VOSA
Project List:
Project Name
Almond
Athena
Atlas
Boost
Crescent
Cronus
Customer Hub
Darwin
Eagle
Edgware
Enyo
EUM
Everest
Falcon
Finch
Gamma
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GLOSSARY & PROJECT LIST
Short Term Incentive Plan
UK Borders Agency
UK Government Investments (owned by HM Treasury and is the successor
to the Shareholder Executive)
Vehicle and Operator Services Agency
Date
2016
2018
2018
2017-18
2015
2018
2018
206/17
2012
2018
2018
2016-18
2017
2016-17
2016-17
2007
Company
POL
Pol
Pol
POL
PO!
POL & PO!
POL
POL
POL
PO!
POL & POI
POL
POL
Explanation
Mails strategy and possible acquisition of
Parcel2Go.
Insurance Distribution Directive
Senior Managers & Certification Regime
Broadband fibre upgrade
Review the terms and conditions of all Post Office
employees
Travel Q3/4 Project Delivery
Post Office Digital App
Discussions with key reseller, Allpay, regarding
forming a joint venture to protect and grow the bill
payments business.
Sale of POFS to the Bank of Ireland, restructure
commission rates for personal financial services
and extend the contract to 2023.
WH Smith contract negotiations
Term life on aggregators via Scottish Friendly.
Enhanced User Management — a project to ensure
that Post Office can ensure that only properly
vetted and trained persons have access to Horizon.
Re-negotiation of contract with Fujitsu to increase
variability of IT cost base.
Implementation of Financial Services strategic plan.
Removal of in branch Financial Services specialists.
A contract variation with POFS generating £100m
cash and income over a number of years in return
for a series of commitments through to 2020.
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Galaxy
Hawk
tris
Jaguar
LEO
Maypole
Mercury
Morpheus
Musgrove
Nemesis
Nike
Paddington
Panther
Peregrine
Plutus
Robin
Solar / HNGT
2018/19
2015
2016-17
2017
2018
2017-18
2018
2017
2018
2018
2015
2017
2016-17
2018
2017-18
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GLOSSARY & PROJECT LIST
POL
POL & POI
POL
Group wide
POL
Pol
POL
PO!
Pol
POL
POL
POL
PO!
POL
POL
Strategic response to changes within home phone
only market, driven by BT’s announcement of a
voluntary agreement with Ofcom of a £7 reduction
in home phone only charges. POL’s response was
to upgrade our HomePhone Only customers to
Broadband at no additional cost to the customer,
whilst also making available a new, reduced cost
HomePhone only option.
Acquisition of the 50% of the Insurance business
jointly owned by POL and Bol and which was
injected into POMS.
Review and restructure of the Supply Chain
operations.
Acquisition of New Call telecoms customers.
Evaluation of the Group’s corporate structure and
subsequent restructure as required.
The procurement project leading to the
implementation of POCA.
Development and Roll-out of HNGT-Lite.
Insurance Pricing & CVM
Telecoms Strategy
Creation of a new home insurance business model.
Proposed acquisition of Ancile (a specialist
providers of Over-SOs and impaired life travel
insurance).
WH Smith negotiations
Proposed acquisition of clients and customers in
the payments market from [Payzone].
Re-negotiation of the Bol FSJVA.
MI Self Service Reporting Suite
Ade-risking project in respect of pensions which
removed the link to final salary in respect of pre-
2008 defined benefit pension accrual.
Astrategic initiative to deliver greater access to
Post Office products and services through a range
of devices owned and operated by retailers,
customers and the Post Office.
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Sparrow
Starling
Titan
Trinity
Ultra
Wave
2013-15
2018
2015
2015
GLOSSARY & PROJECT LIST
POL
PO!
POL
POL
Initial Complaint Review and Mediation Scheme
(regarding complaints concerning Horizon
reliability).
PO Limited received ACAS notification on 2 April
2018 that the CWU will bring a claim to establish
“worker rights” for at least 120 Postmasters.
Project Starling is looking at these issues.
Project to activate POMS as a trading company as
distributor of travel insurance.
IT Review
Review of the viability of moving agents to
corporate structures and contracts.
The project to introduce a mobile service offering.
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GLOSSARY
Internal
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Guidance for Decisions made outside of Board Meeting
Schedule
Any decisions required outside of meetings are made via Diligent (the system used to
access Board and Committee papers). A Written Resolutions of the Company are uploaded
and these can be reviewed and signed by you within Diligent.
In order to use this functionality on Diligent, each Director of a Company and member of
a Committee must include their signature on Diligent. Only you have access to use your
signature in the secure Diligent environment.
Instructions to add your signature
You can add your signatures yourself using your iPad or Surface Pro.
A video and more detailed instructions can be accessed here.
Pibo eee NEs
Log into Diligent on your iPad or surface pro
Go to the Contacts section
You will see your own name highlighted in blue. Select this.
Click edit in the left hand corner
Select Signature
A white box will appear that you can sign with a stylus
Click save
Your signature can now be used to sign documents on Diligent. You will be sent a
notification each time there is a proposal, just like when you receive your board
and committee papers.
If you do not have an iPad, Surface Pro or just require assistance, please contact the
Company Secretariat.
Voting on a proposal in Diligent
dy
Zs
No oF BG
You must already have saved your signature in the contacts section of your Diligent
account.
You will receive a notification from Diligent to your email address that there is new
material to review and vote on in Diligent (this is the same as the notification you
receive to confirm that board and committee papers are available).
Log on to Diligent in the usual way.
You will see that there is a new board book (this appears in the same way and the
same place as usual board and committee papers).
You will know there is a document to vote on as it will have a green tick on the
board book.
Download the board book, review the reports and written resolution.
You will see 3 options on your page - agree, disagree, abstain. Click the one you
are voting. If you agree it will put your signature correctly on the document, and
you can see this once completed.
Once you have voted, you are no longer able to change your decision. Just as if
you had signed a hard copy resolution.
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ae
Cabinet Office
June 2019
Code of Conduct for
Board Members of Public Bodies
» *
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Forewor
The Government expects all holders of public office to work to the highest personal and
professional standards. In support of this, all non-executive board members of UK public bodies
must abide by the principles set out in this Code of Conduct. The Code sets out, clearly and
openly, the standards expected from those who serve on the boards of UK public bodies and
should form part of individual members’ terms and conditions of appointment. It also makes clear
that harassing, bullying or other inappropriate or discriminatory behaviour is not consistent with
what is expected of a board member of UK public bodies and will not be tolerated. Any breach
‘of the Code should be viewed as a breach of the terms of appointment.
The principles set out in this code apply to all non-executive members on the boards of
government departments, non-ministerial departments, executive agencies, non-departmental
public bodies (NDPBs) and national public corporations.
The Code complements a public body's governing documents (legislation, memorandum and articles
of association, royal charter) and any administrative documents (framework agreements, memoranda
of understanding) which may set out the responsibilities and obligations of its board members. The
Code’s provisions must be observed alongside the provisions set out in these documents.
This Code replaces the Code of Conduct for Board Members of Public Bodies issued by the
Cabinet Office in 2011. This Code can be found online at https://www.gov.uk/public-bodies-reform
In the first instance any propriety and ethics issues should be raised with the senior responsible
Official within your sponsoring department, or the Permanent Secretary as necessary. If additional
advice is required, anv.questions should be directed to the Cabinet Office on:
pbpropriety, RO i
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1. Introduction
As a public office holder, your behaviour and actions must be governed by the principles set out in
this Code of Conduct. It is your responsibility to ensure that you are familiar with, and comply with,
all the relevant provisions of the Code.
2. Key principles of public life
2.1 The key principles upon which this Code of Conduct is based are the Seven Principles
of Public Life." These are:
Selflessness
Holders of public office should act solely in terms of the public interest.
Integrity
Holders of public office must avoid placing themselves under any obligation to people or
organisations that might try inappropriately to influence them in their work. They should
not act or take decisions in order to gain financial or other material benefits for themselves,
their family, or their friends. They must declare and resolve any interests and relationships.
Objectivity
Holders of public office must act and take decisions impartially, fairly and on merit, using
the best evidence and without discrimination or bias.
Accountability
Holders of public office are accountable to the public for their decisions and actions and
must submit themselves to the scrutiny necessary to ensure this.
Openness
Holders of public office should act and take decisions in an open and transparent manner.
Information should not be withheld from the public unless there are clear and lawful
reasons for so doing.
Honesty
Holders of public office should be truthful.
Leadership
Holders of public office should exhibit these principles in their own behaviour. They should
actively promote and robustly support the principles and be willing to challenge poor
behaviour wherever it occurs.
2.2 These principles should inform your actions and decisions as a board member.
1 https://www.gov.uk/government/publications/the-7-principles-of- public-life
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3. General Co
luct
Use of Public Funds?
3.1 You have a duty to ensure the safeguarding of public funds* and the proper custody of
assets which have been publicly funded.
3.2 You must carry out these obligations responsibly — that is, take appropriate measures to
ensure that the body uses resources efficiently, economically and effectively, avoiding waste
and extravagance. It will always be an improper use of public funds for public bodies to
employ consultants or other companies to lobby Parliament, Government or political parties.
Allowances
3.3 You must comply with the rules set by the board and the public body regarding
remuneration, allowances and expenses. It is your responsibility to ensure compliance
with all relevant HM Revenue and Customs’ requirements concerning payments, including
expenses.
Gifts and Hospitality
3.4 You must not accept any gifts or hospitality which might, or might reasonably appear
to, compromise your personal judgement or integrity or place you under an improper
obligation.
3.5 You must never canvass or seek gifts or hospitality.
3.6 You must comply with the rules set by the body on the acceptance of gifts and hospitality.
You should inform the Chief Executive (or equivalent) of any offer of gifts or hospitality and
ensure that, where a gift or hospitality is accepted, this is recorded in a public register in
line with the rules set by the body.
3.7 You are responsible for your decisions on the acceptance of gifts or hospitality and for
ensuring that any gifts or hospitality accepted can stand up to public scrutiny and do not
bring your public office and the public body into disrepute.
Use of Official Resources
3.8 You must not misuse official resources‘ for personal gain or for political purposes.
Deployment of such resources must be in line with the body's rules on their usage.
Use of Official Information
3.9 You must not misuse information gained in the course of your public service for personal
gain or for political purpose.*
3.10 You must not disclose any information which is confidential in nature or which is provided
in confidence without authority. This duty continues to apply after you have left the board.
For more guidance on how to handle public funds, please refer to Managing Public Money https://www.gov.uk/
gevernment/publications/managing-public-money
This should be taken to include all forms of receipts from fees, charges and other sources.
This includes faciities, equipment, stationery, telephony and other services.
Board members who misuse information gained by virtue of their position may be liable for breach of confidence
under common law or may commit a criminal offence under insider dealing legislation
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Political Activity
3.11 In your public role, you should be, and be seen to be, politically impartial. You should not
occupy a paid party political post or hold a particularly sensitive or high-profile role in a
political party. You should abstain from all controversial political activity and comply with
the principles set out in Cabinet Office rules on attendance at party conferences® and on
conduct during the period prior to elections and referendums, whether local or national.’
3.12 On matters directly related to the work of the body, you should not make political
statements or engage in any other political activity.
3.13 You should inform the Chair, Chief Executive and/or the parent/sponsor department before
undertaking any significant political activity. Subject to the above, you may engage in
political activity but should, at all times, remain conscious of your responsibilities as a board
member and exercise proper discretion.
3.14 If you are an MP, [MEP*], member of the House of Lords, member of a devolved legislature,
directly elected mayor, local councillor or police and crime commissioner, you are exempt
from these requirements. There is no bar on such representatives taking a political party
whip relating to their political role. You must exercise proper discretion on matters directly
related to the work of the body and recognise that certain political activities may be
incompatible with your role as a board member. You should not allow yourself to become
embroiled in matters of political controversy.
3.15 In your official capacity, you should be even-handed in all dealings with political parties.
Employment and Appointments
3.16 If you wish to take up additional employment or appointments during your term of office,
you must inform the Chair and/or the relevant parent department in advance, and allow
‘them the opportunity to comment. Care should be taken if you accept additional public
appointments to ensure that you are not being paid twice from the public purse for the
same time.
3.17 On leaving office, you must comply with the rules of the body on the acceptance of future
employment or appointments. Each body should have its own rules on this.
Conflicts of Interests
4.1 When accepting an appointment to the public body you should consider if any conflicts of
interest arise from your private interests or by virtue of any other roles you hold. You should
consider, with advice from the appointing department how these should best be managed,
and agree these with the organisation.
4.2 You must ensure that no conflict arises, or could reasonably be perceived to arise, between
your public duties and your private interests, financial or otherwise.
6 _ wwwgov.uk/government/publications/civil-servants-and-party-conferences-guidance
7 www.gov.uk/government/publications/election-guidance-for-civil-servants
8 For the period which the UK remains a member of the European Union.
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4.3 You must comply with the rules of the body on handling conflicts of interests. As a
minimum, these will require you to declare publicly, usually in the body's register of
interests, any private financial or non-financial interests of your own, or of close family
members, which may, or may be perceived to, conflict with your public duties.® The rules
will also require you to remove yourself from the discussion or determination of matters in
which you have a financial interest. In matters in which you have a non-financial interest,
you should not participate in the discussion or determination of a matter where the interest
might suggest a danger of bias.’°
4.4 tis your responsibility to ensure that you are familiar with the body's rules on handling
conflicts of interests, that you comply with these rules and that your entry in the body's
public register of members’ interests is accurate and up-to-date.
Responsibilities as a board member, including non-executive
chairs
5.1 You should play a full and active role in the work of the body. You should fulfil your duties
and responsibilities responsibly and, at all times, act in good faith and in the best interests
of the body.
5.2 You should promote an inclusive and diverse culture in the body and your actions should
help create an environment where different perspectives and backgrounds are encouraged
and valued.
5.3 You should deal with the public and their affairs fairly, efficiently, promptly, effectively and
sensitively, to the best of your ability. You must not act in a way that unjustifiably favours
or discriminates against particular individuals or interests.
5.4 You must not harass, bully or act inappropriately towards or discriminate towards others.
Such behaviour is not consistent with what is expected of you as a board member and
will not be tolerated.
5.5 You must comply with any statutory or administrative requirements relating to your post."
5.6 You should respect the principle of collective decision-making and corporate responsibility.
This means that, once the board has made a decision, you should support that decision.’
5.7 You must not use, or attempt to use, the opportunity of public service to promote your
personal interests or those of any connected person, firm, business or other organisation.
5.8 You must inform the sponsor department of the body of any bankruptcy, current police
investigation, unspent criminal conviction or disqualification as a company director in
advance of appointment, or should any such instances occur during your appointment.
9 In general, all financial interests should be declared. When considering what non-financial interests should be declared,
you should ask yourself whether a member of the public, acting reasonably, would consider that the interest in
{question might influence your words, actions or decisions.
10. These are common law provisions.
11__ Inthe case of a body incorporated under the Companies Act https://www. legislation. gov. uk/ukpga/2006/46/contents
or the Companies (Norther Ireland) Order http://www. legislation. gov. uk/nisi/1986/1032, you will also be subject to the
duties of directors under company law. in the case of a body that has charitable status, you will also be subject to the
duties of trustees under charities law.
12 This does not apply to departmental non-executive board members, whose role is to advise and challenge the board
and department.
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5.9 You must also inform the sponsor department of the body of any change in your
circumstances which results in you becoming bankrupt, subject to a police investigation,
convicted of a criminal offence or disqualified from being a company director.
5.10 You have additional responsibilities as the chair of the body in leading the board/pody
and in ensuring that the principles covered in the Codes of Conduct for Board Members
and Staff (where applicable) are upheld.
6. Responsibilities towards employees
6.1 You will treat any staff employed by the body with courtesy and respect. It is expected that
employees will show you the same consideration in return.
6.2 You will not ask or encourage employees to act in any way which would conflict with their
own Code of Conduct.
7. Social media
7.1 Social media is a public forum and the same considerations, including the provisions of
this Code, apply as would to speaking in public or writing something for publication, either
Officially or in a personal capacity. When engaging with social media you should at all times
respect confidentiality, financial, legal and personal information.
7.2 Where any personal social media accounts used by you make reference or link to your
Public role, you should take care to ensure that it is clear in what capacity you are acting.
8.1 You should ensure that the body has an open, transparent and safe working environment
where employees feel able to speak up and raise concerns, and complaints procedures
are clearly communicated to them.
8.2 If you have a concer about a possible breach of this Code, a concern that you or any
staff of the body are being asked to act in contravention of their own code of conduct,
or a concern about misconduct or wrongdoing in any other areas, then you have a
responsibility to raise that internally with the chair of the body or the Permanent Secretary
of the sponsor department as appropriate.
7
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GROUP POLICIES
Conflicts of Interest Policy
Version —- 2.0
Chief Executive’s Endorsement
The Post Office Group is committed to doing things correctly. Our values and behaviours
represent the conduct we expect. The Conflicts of Interest Policy supports this by ensuring
that high standards of conflict of interest risk management are maintained.
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1. Overview
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1.2. Purpose
1.3. What are Conflicts of Interest
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1.5. Application
1.6. Legislation, Regulation & Industry GUIdANCE........ecseeseseseseseseeeseseeesteeeteteteeaee 5
2, Risk Appetite and Minimum Control Standards
2.1. Risk Appetite .
2.2. Policy Framework
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2.5. Minimum Control Standards
3. Definitions
4. Where to go for help
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4.2. How to raise a concern
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5. Governance
5.1. Governance Responsibil
6. Control
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1. Overview
1.1. Introduction by the Policy Owner
The Company Secretary has overall accountability to the Post Office Group* Boards for the
design and implementation of controls to prevent and manage the risks associated with
conflicts of interest. The Conflicts of Interest Policy (the “Policy”) is reviewed annually and
agreed by the Post Office Limited Board.
1.2. Purpose
This Policy has been established to set the minimum operating standards related to the
management of any conflict of interest risks throughout the Group?. It is one of a set of
policies which provide a clear risk and governance framework and an effective system of
internal control for the management of risk across the Group. Compliance with these
policies supports the Group in meeting its business objectives and to balance the needs of
shareholders, employees and other stakeholders.
1.3. What are Conflicts of Interest?
A conflict of interest is a situation in which the concerns or aims of two different parties
are incompatiable. Conflicts of interest can take many forms including the following:
i) Actual
There is a real conflict of interest between an employee’s® private interests and
their duties. A real conflict of interest can also exist between two or more Post
Office Group directorships.
ii) Potential
An employee has private interests that could conflict with their duties and
decisions at work. This refers to circumstances were it is foreseaeable that a
conflict may arise in the future.
Conflicts of interest can either be a direct interest or an indirect interest.
iii) Direct interest
Includes an employee's own conflicts of interest.
iv) Indirect interest
Includes the interests of individuals, groups or companies that the employee is,
or was, closely associated.
* In this Policy "Post Office” and “Group” means Post Office Limited, Post Office Management Services Limited and Payzone Bill
Payments Limited
= The same process applies for Post Office Management Services Limited and Payzone Bill Payments Services Limited,
33 In this Policy the term “employee” means statutory directors, permanent staff, temporary staff, agency staff, contractors,
consultants and anyone else working for or on behalf of the Post Office Group.
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When employees are considering any conflicts of interest regard should be given
to the conflicts of interest of related parties of an employee, which includes:
Spouse or civil partner;
Children;
Other relatives who share their residence;
Trust of which they are a Trustee or Beneficiary;
Partnership of which they are a partner;
A business entity of which they are a director or officer or in which they hold a
siminalr position; and,
A business entity of which they own or control, directly or indirectly 5% or more.
1.4. Core Principles
In order to manage the legal, regulatory and reputational risks associated with conflicts of
interest and establish processes for the identification and management of them, the
governance arrangements included in this Policy are based upon the following core
principles:
i)
ii)
iii)
iv)
v)
vi)
vii)
vili)
Promote individual responsibility and a culture of honesty and integrity;
To be open and honest about relationships and personal interests that could be
seen to be influencing independent judgement. Employees’ personal interests
should never influence decisions at work;
Conflicts of interest cannot always be avoided. Unavoidable conflicts of interest
need to be identified, disclosed and effectively managed;
Conflicts of interest must be managed fairly and effectively. To achieve this, the
process for identifying, disclsoing and managing conflicts of interest must be
transparent;
Ensuring that employees are not open to (or perceived to be open to) improper
influence through the acceptance of gifts and hospitality;
Committed to providing clear guidance on how to report conflicts of interest or
concerns related to them;
Committed to providing appropriate training and awareness of the Policy; and,
The Post Office Group is committed to and oversees the implementation of a
policy in line with the Group’s risk appetite. The policy and associated
procedures (set out or referred to in this document) are proportionate to the
risks and complexity of the Group.
1.5. Application
This Policy is applicable to all areas within the Group and defines the minimum standards
to control financial loss, customer impact, regulatory breaches and reputational damage
in line with the Group’s Risk Appetite.
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This Policy is applicable to all employees* which also includes statutory directors,
permanent staff, temporary staff, agency staff, contrators, consultants and anyone else
working for and on behalf of the Post Office Group.
1.6. Legislation, Regulation & Industry Guidance
The Post Office Group seeks to comply with all relevant legal and regulatory requirements
including, but not limited to, the following (as amended or supplemented from time to
time):
. Companies Act 2006;
. Articles of Association of each Post Office Group entity;
. Financial Conduct Authority Handbook;
. Public Contract Regulations 2015;
. Nolan Seven Principles of Public Life.
The Companies Act 2006
Post Office Group statutory directors must comply with Section 175 of the Companies Act
2006.
S. 175 - Duty to Avoid Conflicts of Interest
$175(1) - A director of a company must avoid a situation in which he has, or can have, a
direct or indirect interest that conflicts, or possibly may conflict, with the interest of the
company.
S175(2) - This applies in particular to the exploitation of any property, information or
opportunity (and it is immaterial whether the company could take advantage of the
property, information or opportunity).
Articles of Association of each Post Office Group entity
The Articles of Association of each Post Office Group entity sets of the procedures and
exceptions for statutory directors, which includes authorisation of certain conflicts of
interest by the appropriate Boards.
Public Contract Regulations 2015
The Post Office Group is subject to the Public Contract Regulations 2015.
Regulation 24
Public Contract Regulations 2015, Regulation 24 “(1) Contracting authorities shall take
appropriate measures to effectively prevent, identify and remedy conflicts of interest
arising in the conduct of procurement procedures so as to avoid any distortion of
competition and to ensure equal treatment of all economic operators.
“In this Policy the term “employee” means statutory directors, permanent staff, temporary staff, agency staff, contractors,
consultants and anyone else working for or on behalf of the Post Office Group.
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“(2) For the purposes of paragraph (1), the concept of conflicts of interest shall at least
cover any situation where relevant staff members have, directly or indirectly, a financial,
economic or other personal interest which might be perceived to compromise their
impartiality and independence in the context of the procurement procedure.
“(3) In paragraph (2) ‘relevant staff members’ means staff members of the contracting
authority, or of a procurement service provider acting on behalf of the contracting
authority, who are involved in the conduct of the procurement procedure or may influence
the outcome of that procedure; and ‘procurement service provider’ means a public or
private body which offers ancillary purchasing activities on the market.”
Nolan Seven Principles of Public Life
The Nolan Seven Principles of Public Life apply to anyone working to deliver public services.
The seven principles are listed below. These principles are at risk if conflicts of interest are
not managed effectively.
¢ Selflessness
e Integrity
« Objectivity
e Accountability
« Openness
« Honesty
* Leadership
Financial Conduct Authority Handbook
Post Office Management Services Limited is regulated by the Financial Conduct Authority,
and as such must adhere to the Financial Conduct Authority Handbook that includes
particular regulations related to conflicts of interest.
The FCA Handbook (Chapter 10, 10.1.3):
A Firm must take all appropriate steps to identify and to prevent or manage conflicts of
interest between:
1) The firm, including its managers, employees, and appointed representatives (or
where applicable, tied agents), or any person directly or indirectly linked to them
by control, and a client of the firm; or
2) One client of the firm and another client;
That arise or may arise in the course of the firm providing any service referred to in
SYSC 10.1.1R including those caused by the receipt of inducements from third parties
or by the firm’s own remuneration and other incentive structures.
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2. Risk Appetite and Minimum Control
Standards
2.1. Risk Appetite
Risk Appetite is the extent to which the Group will accept that a risk might happen in
pursuit of day to day businesses transactions. It therefore defines the boundaries of
activity and levels of exposure that the Group are willing and able to tolerate.
The Group takes its legal and regulatory responsibilities seriously and consequently has:
e Tolerant risk appetite for Legal and Regulatory risk in those limited circumstances
where there are significant conflicting imperatives between conformance and
commercial practicality
e Averse risk appetite for litigation in relation to high profile cases/issues
e Averse risk appetite for ligation in relation to Financial Services matters
e Averse risk appetite for not complying with law and regulations or deviation from
business’ conduct standards for financial crime to occur within any part of the Group
e Averse Risk Appetite in relation to unethical behaviour by our staff
The Group acknowledges however that in certain scenarios even after extensive controls
have been implemented a product or transaction may still be outside the agreed Risk
Appetite. In this situation, a risk exception waiver will be required.
2.2. Policy Framework
The Post Office Group has established a suite of policies and procedures on a risk sensitive
approach that are subject to an annual review. The policy framework is designed to ensure
compliance with applicable legislation and regulation. This Policy should be considered and
read in conjunction with other policies, where relevant. These may include the Anti-Bribery
and Corruption Policy, the Gifts and Hospitality Policy, the Financial Crime Policy and HR
policies.
2.3. Who must comply?
Compliance with this Policy is mandatory for all Post Office employees and applies
wherever in the world the Group’s business is undertaken. All third parties who do business.
with the Group, including consultants, suppliers and business and franchise partners, will
be required to agree contractually to this Policy with their own equivalent Policy.
Where non-compliance is identified the matter must be referred to theGeneral Counsel.
Any investigations will be carried out in accordance with the Investigations Policy. Where
is it identified that that an instance of non-compliance is caused through wilful disregard
or negligence, this will be treated as a disciplinary offence.
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2.4. Reporting
All employees and statutory directors must:
Receive written authority from the Company Secretary to engage in any transaction
or pursue any activity, directly or indirectly, in competion with the Post Office
Group;
Receive written authority from the Company Secretary before accepting
employment, a position as a director or officer of, or acquire a substanital
ownership interest (5% or more) in any other company or business;
Make all business decisions in the best interest of their employer. Except in certain
limited cases, the best interests of Post Office Limited, Post Office Management
Services Limited and Payzone Bill Payments Services Limited will be aligned. Where
such conflict exists, please discuss this with your Line Manager and/or the Company
Secretary;
Avoid engaging in any private or personal business interest that may conflict with
the duties and responsibilities owed to the Post Office Group;
Declare to your Line Manager and the Company Secretary any transactions or
potential transactions in which you, or a related party, have an interest or potential
interest;
Declare to your Line Manager and HR Services (or the Company Secretary for
statutory directors) any existing outside employment, directorship or material
shareholding; and,
Review your situation regularly to avoid becoming involved in activity that could
give rise to a conflict of interest.
The Articles of Association of each Company in the Post Office Group includes details of
the process for statutory directors to notify conflicts of interest to enable the respective
Boards to determine whether and how to manage the conflict.
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2.5. Minimum Control Standards
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A minimum control standard is an activity which must be in place in order to manage the risks so they remain within the defined Risk
Appetite statements. There must be mechanisms in place within each business unit to demonstrate compliance. The minimum control
standards can cover a range of control types, i.e. directive, detective, corrective and preventive which are required to ensure risks are
managed to an acceptable level and within the defined Risk Appetite.
The table below sets out the relationships between identified risk and the required minimum control standards in consideration of the stated
risk appetite. The subsequent pages define the terms used in greater detail:
Risk Area Description of Risk Minimum Control Standards Who is responsible I When
Approval & I Failure to manage conflicts of I Contract approval and execution process. Company Secretary I Ongoing
execution of I interest in the approval and I The process requires separation between the
contracts execution of agreements contract owner who approves the agreement
for execution and the authorised signatory
who signs the agreement.
Statutory Failure to manage Statutory I All statutory directors are required to disclose I Directors & Company I Ongoing
Directors’ Directors’ potential conflicts of I any outside interests on appointment. I Secretary
conflicts of interest arising from external I Directors are required to update Group
interest and I appointments and interests. Secretariat when changes to these interests
register of occur, and the conflicts of interest register is
conflict of confirmed annually.
interest
Directors are asked to declare any new
interests at the beginning of each Board
Meeting.
If a transactional conflict of interest arises
during a Board Meeting, the Articles of
Association may permit the interest, or the
Director will absent themselves from that
particular item. Any decision and action
surrounding conflicts of interest is recorded in
the minutes of the meeting.
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I Failure to manage conflicts of
Gifts and I interest related to gifts and
hospitality hospitality
All “statutory directors and employees are I
required to comply with the Post Office
Group’s gifts and hospitality procedures set
out in the anti-bribery and anti-corruption
policies. Training is provided to all employees.
Company Secretary
and HR _ Training
Manager
Ongoing
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conduct
incentive
monitor
with
Failure to
associated
payments
Incentive
Payments
If incentives are made to staff, systems and
controls must be put in place to assess the risk
and monitor behaviours and conduct.
HR
Ongoing
I Failure to manage conflicts of
I interest related to procurement
Procurement
Processes
During procurement activity, conflicts of
interest declarations are issued and reviewed.
Any conflicts of interest risks are mitigated
and recorded.
Suppliers are contracted to comply with anti-
bribery and corruption laws. The Post Office
Supplier Code of Conduct is provided to new
and prospective suppliers.
Procurement Director
Ongoing
Reporting Failure to report potential or
actual conflicts of interest
All employees and directors are required to
report immediately in writing any potential or
actual conflict of interest with the Post Office
Group and an external appointment or
activity.
Group Secretariat hold a register of interests
for statutory directors.
Employees must report to their Line Manager
who will contact the Company Secretary
regarding any potential or actual conflicts of
interest.
Company Secretary &
HR
Ongoing
Training & I Failure to provide appropriate
Competence I training and awareness of the
Conflicts of Interest training is a mandatory
part of employee inductions.
Company Secretary &
HR Training Manager
Ongoing
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- I policy to effectively manage Directors’ duties and conflicts of interest
conflicts of interest training is provided to statutory directors.
Contractors and suppliers are required to
comply with this policy where they are
engaged to participate in a procurement
Process.
Governance Failure to ensure effective I The Policy is reviewed annually and presented I Company Secretary I Ongoing
oversight of the policy and its I to the appropriate Boards.
I effectiveness
Conflicts of Interest registers are annually
reviewed by Boards.
Post Office Internal Audit retains independent
third line oversight of the Policy.
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3. Definitions
1. FCA - Financial Conduct Authority
2. Grapevine - 24/7 Security Support Centre provided by Kings Ltd. Grapevine
provides security advice and records all security incidents across the business
including burglaries, robberies and suspicious activity.
3. Speak Up Service - Can be accessed by telephoni or via a secure
online web portal: http://www.intouchfeedback.com,
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4.
Where to go for help
4.1. Additional Policies
This Policy is one of a set of policies. The full set of policies can be found at:
htt
H luk.sharepoint.com/si jostoffice/Pai olicies.aspx
4.2. How to raise a concern
Any Post Office employee who suspects dishonest or fraudulent activity has a duty to:
Discuss the matter fully with their Line Manager; or,
Report their suspicions by telephoning Grapevine on
If either or both are not available, staff can contact the Post Office’s General
Counsel, who can be contacted by email at: whistleblowing<
Alternatively staff can use the Speak Up service available oni__
or via a secure on-line web portal: http://www. intouchfeedback.com/postoffice
4.3. Who to contact for more information
If you need further information about this policy or wish to report an issue in relation to
this policy, please contact Veronica Branton, Secretariat.
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5. Governance
5.1. Governance Responsibilities
The Policy sponsor, responsible for overseeing this Policy is Veronica Branton.
The Policy owner is Veronica Branton who is responsible for ensuring that the Company
Secretariat conducts an annual review of this Policy. Additionally the Company Secretary,
is responsible for providing appropriate and timely reporting to each Companies’ Board.
The Board of each Company are responsible for approving the Policy and overseeing
compliance.
The Board of each Company is responsible for setting the Group’s risk appetite.
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6. Control
6.1. Policy Version
Date Version I Updated by Change Details
01/07/2016 I 1.1 Victoria Moss Initial draft
06/07/2016 1.2 Mark Rodgers/Mike Policy standards and Head of Risk
Morley-Fletcher review
06/07/2016 I 1.3 Susie Hayward/Victoria POMS review and review of proposed
Moss changes in v1.2
7/11/2016 1.4 Jane MacLeod Comments following RCC review
04/10/2018 I 1.5 Veronica Branton Annual review
28/05/2019 I 2.0 Elizabeth Hallissey Re-draft to align with Post Office
Group Key Policies template
6.2. Policy Approval
Group Oversight Committee: Risk and Compliance Committee and Audit and Risk Committee
Committee Date Approved
Post Office Limited Board 28/05/2019
Post Office Management Services Limited Board TBC
Payzone Bill Payments Limited Board TBC
Policy Sponsor: I Veronica Branton,
Policy Owner: Veronica Branton,
Policy Author: Elizabeth Hallissey, Senior Assistant Company Secretary
Next review: May 2020
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Company Details
Post Office Limited is a company registered in England and Wales. Registered Number: 02154540. Registered Office: Finsbury
Dials, 20 Finsbury Street, London EC2Y 9AQ. Post Office Limited is authorised and regulated by Her Majesty's Revenue and
Customs (HMRC), REF 12137104. Its Information Commissioners Office registration number is 24866081
Post Office Management Services Limited is a company registered in England and Wales. Registered Number: 08459718.
Registered Office: Finsbury Dials, 20 Finsbury Street, London EC2Y 9AQ. Post Office Management Services Limited is authorised
and regulated by the Financial Conduct Authority (FCA), FRN 630318. Its Information Commissioners Office registration number
is ZAO90585.
Payzone Bill Payments Limited Is a company registered in England and Wales. Registered Number: 11310918. Registered Office:
Finsbury Dials, 20 Finsbury Street, London EC2Y 9AQ.
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GROUP POLICIES
Anti-Bribery and Corruption Policy
Version — V4.0
Chief Executive’s Endorsement
The Post Office Group is committed to doing things correctly. Our Values
and Behaviours represent the conduct we expect. This Policy supports these
to help us ensure the highest standards of financial crime prevention,
detection and management are maintained.
Internal and External Page 1 of 21 ABC Policy v4.0 Sept 19.docx
POL-BSFF-WITN-015-0007142_0102
1. Overview...
1.1. Introduction by the Policy Owner.
1.2. Purpose ...
1.3. Core Princ
1.4. Application ..
1.5; Types Of Bribery Sid Corruption RISK sessssusccssccsrccsasspasrensasocsnssandeeaaviseaas 4
1.6. Legislation
1.7. FCA Rules
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2.5. Minimum Control Standards
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3.1. Definitions
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5. Governance
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1 » Overview
1.1. Introduction by the Policy Owner
The Genera! Counsel has overall accountability to the Board of Directors for the design and
implementation of controls to prevent or deter Bribery and Corruption. Anti-Bribery and
Corruption is an agenda items for the Audit and Risk Committee and the Post Office board
is updated as required.
1.2. Purpose
This Policy has been established to set the minimum operating standards relating to the
management of our Bribery and Corruption risks throughout the Group?. It is one of a set
of policies which provide a clear risk and governance framework and an effective system
of internal control for the management of risk across the Group. Compliance with these
policies supports the Group in meeting its business objectives and to balance the needs of
shareholders, employees? and other stakeholders.
1.3. Core Principles
To offer a bribe is a criminal offence; bribery is an offer, promise, payment, request, or
agreement to receive anything of value from any person or entity in order to induce that
person to perform their roles improperly.
In order to prevent Bribery and Corruption the governance arrangements described in this
Policy are based upon the following core principles:
* The Group is committed to and oversees the implementation of a Policy of zero
tolerance, recognising that bribery is contrary to fundamental values of integrity,
transparency and accountability and undermines the Group’s effectiveness;
e Post Office has devised a robust Policy and associated procedures (set out in this
document) which are proportionate to the risks and complexity of the Group;
« A bribery risk assessment is an integral part of our Group’s overall and ongoing risk
management process;
« Post Office must assess the risk associated with entering into joint ventures,
partnerships or contracting arrangements with other entities and must carry out
periodic due diligence based on that risk assessment. This includes ensuring that these
organisations have policies and procedures which are equivalent to the Group’s own
procedures;
« The Group undertakes a training and awareness program to ensure employees are
aware of the potential risks, how bribery might affect them, what they should do if
they are offered a bribe, and the consequences should they be found to have made or
received a bribe;
e« The interests of Policyholders and other stakeholders are protected by ensuring that
excessive powers are not delegated to individuals;
st Office” and “Group” mean Post Office Limited and Post Office Management Services Limited
? In this Policy “employee” means permanent staff, temporary including agency staff, contractors, consultants and anyone else
working for or on behalf of Post Office.
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e Decisions taken by management are consistent with the Group’s strategic objectives
and risk appetite, which are approved by the Board;
e Appropriate conduct is demonstrated in executing the requirements contained within
the Policy;
« Every member of staff is responsible for understanding and managing the risk they
take on behalf of the Group and for ensuring that they act within accordance to them;
e All employees are required to comply with Group Policies.
1.4. Application
This Policy is applicable to all areas within the Group and defines the minimum standards
to control financial loss, customer impact, regulatory breaches and reputational damage
in line with the Group’s Risk Appetite.
In exceptional circumstances, where risk sits outside of the Group’s accepted Risk Appetite
a Risk Exception can be granted. Further information in relation to the risk exception
process, together with a template can be found here.
While Post Office does not tolerate events that are criminal in nature and which may give
rise to unacceptable and illegal behaviour, it recognises that despite its many endeavours,
it is not possible to eliminate all risks of internal and external Bribery and Corruption. As
a result Post Office may incur losses, and therefore takes a risk based approach to Bribery
and Corruption.
For definitions please see section 3.1.
The risk to the Group in relation to Bribery and Corruption is reviewed by the board ona
regular basis.
1.5. Types of Bribery and Corruption Risk
Post Office is exposed to a number of the above risks relating to Bribery or Corruption.
These risks include, but are not limited to, the following:
1, Payment Risks -for example, facilitation payments, gifts & hospitality, client
training programmes, charitable or political donations, ex-gratia payments/ legal
settlements. This would also include the offer of sponsorships or grants.
2. Third Party/Associated Party Risks -third parties who provide services on
behalf of the Post Office Group engaging in bribery or corruption while performing
such services. The scope of this could include agency operators within the Post
Office network and suppliers procured through the business or through the
Procurement Team. Examples of Associated Parties include agents, consultants,
suppliers, introducers, and intermediaries.
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3. Employment Risks -Post Office employees requesting or receiving something of
value from a third party in exchange for providing employment or work
opportunities at the Post Office or offering or providing work opportunities, paid or
unpaid, to Connected Individuals?, or otherwise using employee connections to
improperly obtain business or secure an advantage for Post Office. Employment
opportunities (including work experience, secondments, etc.) have a value to the
recipient and/or their close family members and may be considered to be bribes if
used to improperly obtain or retain business or secure an advantage for Post Office.
4, Inducement Risks - Post Office must take reasonable steps to ensure that it, and
any person acting on its behalf, does not:
o Offer, give, solicit or accept an inducement; or
© Direct or refer any actual or potential business in relation to another person
on its own initiative or on the instructions of an associate; if it is likely to
conflict to a material extent with any duty that Post Office Management
Services owes to its customers in connection with an insurance mediation
activity or any duty which such a recipient firm owes to its customers in
connection with an insurance mediation activity.
5. Gifts & Hospitality -The offer of Gifts & Hospitality by or to third parties
represents a clear risk of inducement or facilitation and Post Office therefore has
clearly defined minimum control standards and procedures for reporting and
approving Gifts & Hospitality (both received and offered). Appendix A sets out the
specific policy requirements and details of the process to be followed can be found
on the Gifts & Hospitality reporting homepage here.
1.6. Legislation
The Group seeks to comply with all relevant UK legal and regulatory requirements
including (but not limited to):
« The Bribery Act 2010
¢ The Criminal Finances Act 2017
e Financial Conduct Authority (FCA) Rules and Guidance (to the extent that these apply
- see 1.8 below)
Under the Bribery Act, it is an offence to:
« Directly, or indirectly offer, promise or give a financial or other advantage with the
intention of inducing any person to perform a business activity improperly or to reward
any person for doing so;
e Request, agree to receive or accept a bribe, i.e. to receive a financial or other
advantage with the intention of performing a business activity improperly;
e Bribe a foreign public official;
« Fail to prevent bribery by any person who perform services for or on behalf of a
mpany (“corpor: ffence”).
Post Office is subject to the Bribery Act 2010 (Bribery Act) and could become criminally
liable as a result of an act of bribery or corruption by its employees or a third party
operating on our behalf.
The Bribery Act has extra-territorial effect which means that the actions of Post Office or
a third party operating on our behalf outside of the UK may fall within the scope of the
Act. In the context of Post Office, this could apply in scenarios such as where a Post Office
° Connected Individuals means those individuals who are known to have close connections to existing or prospective clients or
suppliers, Public Officials, Politically Exposed Persons (PEP) or using employees’ connections to improperly obtain business or
secure an advantage for Post Office.
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contractor or supplier resides outside the UK. The Criminal Finances Act also includes a
‘failure to prevent’ (strict liability) offence on the Group, where failure to prevent criminal
facilitation of a tax evasion offence, by a taxpayer, takes place and there are no reasonable
procedures put in place to prevent such facilitation, or it cannot show that these
procedures would have been unreasonable.
Post Office can be held liable unless it can demonstrate that it has in place “adequate
procedures” designed to prevent this type of misconduct. The controls outlined in this
Policy, including appendices, assist Post Office in preventing and detecting corrupt conduct
and form an essential component of Post Office’s adequate procedures.
1.7. FCA Rules
Post Office Limited is an Appointed Representative of the Bank of Ireland and Post Office
Management Services Limited (POMS) and is contractually required to comply with certain
regulatory requirements. As such the Group as a whole is obliged to ensure there are
adequate systems and controls are in place to mitigate Financial Crime risks.
POMS is a directly regulated firm with the FCA is directly exposed to regulatory fines and
censure if the FCA determine that the systems and controls associated with this Policy are
not effectively implemented.
This Policy contributes to Post Office’s compliance with these regulatory and contractual
obligations.
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2. Risk Appetite and Minimum Control
Standards
2.1. Risk Appetite
Risk Appetite is the extent to which the Group will accept that a risk might happen in
pursuit of day to day businesses transactions. It therefore defines the boundaries of
activity and levels of exposure that the Group are willing and able to tolerate.
The Group takes its legal and regulatory responsibilities seriously and consequently has*:
¢ Tolerant risk appetite for Legal and Regulatory risk in those limited circumstances
where there are significant conflicting imperatives between conformance and
commercial practicality
e Averse risk appetite for litigation in relation to high profile cases/issues
« Averse risk appetite for ligation in relation to Financial Services matters
e verse risk appetite for not complying with law and regulations or deviation from
business’ conduct standards for financial crime to occur within any part of the
organisation
e Averse Risk Appetite in relation to unethical behaviour by our staff.
The Group acknowledges however that in certain scenarios even after extensive controls
have been implemented a product or transaction may still sit outside the agreed Risk
Appetite. In this situation, a risk exception waiver will be required>.
2.2. Policy Framework
Post Office has established a suite of financial crime policies and procedures, on a risk
sensitive approach which are subject to an annual review. The Policy suite is designed to
combat money laundering, terrorist financing, bribery and corruption and adhere to
relevant Sanctions regimes. These have been developed to comply with applicable
legislation and regulation and covers the following specifically:
« The identification of potential financial crime risks
¢ Ona risk sensitive approach, performing due diligence at on-boarding, periodic
basis and payment on third parties who perform services for or on behalf of us.
e Maintaining appropriate records for at least the minimum UK prescribed periods.
¢ Completing compliance oversight monitoring to test the Group’s controls and
confirming effectiveness and adherence to financial crime policies.
e Establishing and maintaining Standards for Management Information on Financial
Crime. This includes, but is not limited to, record keeping, reporting of suspicious
activity and details of staff training.
The Anti-Bribery and Corruption Policy is a key Policy under the Financial Crime Policy
framework and should be considered and read in conjunction with the overarching
Financial Crime Policy where relevant.
+ The Risk appetite was agreed by the Groups Board January 2015
5 For more information in relation to Risk Exception waivers please see section 1.4
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2.3. Who Must Comply?
Compliance with this Policy is mandatory for all Post Office employees and applies
wherever in the world the Group’s business is undertaken. All third parties who do business
with the Group, including consultants, suppliers and business and franchise partners, will
be required to agree contractually to this Policy with their own equivalent Policy.
Where non-compliance is identified the matter must be referred to the Director of
Compliance and the Group Legal Director. Any investigations will be carried out in
accordance with the Investigations Policy. Where is it identified that that an instance of
non-compliance is caused through wilful disregard or negligence, this will be treated as a
disciplinary offence.
All Post Office employees are required to report any knowledge or suspicions in relation to
Bribery or Corruption to Grapevine. As such all business units are required to have a
process in place for reporting Bribery or Corruption incidents to Grapevine by telephone
on 0345 603 4003. For more information in relation to reporting knowledge or suspicions
please see section 4.2.
The next page sets out the minimum control standards that the Group has implemented
to control these risks.
2.4. Gifts and Hospitality Tool
The purpose of the Gifts and Hospitality Tool is to make it easy for our employees to
accurately record the offering and acceptance of gifts and hospitality throughout the
Group. For more information in relation to the tool and how to use this, please see the
below links:
The Gifts and Hospitality Tool can be found here.
Instructions on how to complete the tool can be found here.
The procedure for completing the Gifts and Hospitality Tool can be found here.
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2.5. Minimum Control Standards
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A minimum control standard is an activity which must be in place in order to manage the risks so they remain within the defined Risk
Appetite statements. There must be mechanisms in place within each business unit to demonstrate compliance. The minimum control
standards can cover a range of control types, i.e. directive, detective, corrective and preventive which are required to ensure risks are
managed to an acceptable level and within the defined Risk Appetite.
The table below sets out the relationships between identified risk and the required minimum control standards in consideration of the stated
risk appetite. The subsequent pages define the terms used in greater detail:
requests that Post Office makes
a charitable donation, or offers
to make a donation to Post
Risk Area Description of Risk Minimum Control Standards Who is responsible When
Appointment and Failure to ensure that Preventative Control:
Activities of Consultants and Contractors I Our contracts require Procurement Ongoing where
Consultants and comply with the Group’s Consultants and Contractors to required
Contractors anti-bribery and corruption comply with the Group’s anti-
policy may lead to criminal bribery and corruption policy.
prosecution and damage to
the Post Office brand or A clause is included within
reputation. Consultants and Contractors
contracts requiring them to
comply with the Group’s anti-
bribery and corruption policy.
Charity Donations and I Insufficient controls may Preventative Control:
Sponsorship lead to the donation of Where the Group, a team or an_I All employees Ongoing
money to an unregistered individual has selected a
charity, or the acceptance of I particular charity to support,
a donation by Post Office they are required to validate
which could be interpreted that charity against the Charity
as bribery and result in Commissions website. More
reputational damage. information can be found here.
Where a supplier or third party All employees
Internal and External
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Risk Area_
Description of Risk
Minimum Control Standards
Who is ‘responsible -
When _
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Office, Post Office ensures that
the donation is not linked to any
business or services provided to
or by that supplier or third
party.
Any donations or sponsorship
(cash or otherwise) should be
approved by the relevant GE
member to ensure
appropriateness and the details
recorded on the central
donations register
Post Office has a Group wide
training programme to ensure
that all customer facing staff,
back office staff and contractors
receive adequate training. Staff
and contractors are required to
complete training within 30 days
of joining Post Office and
annually.
Outsource providers, clients &
suppliers must maintain records
to evidence that staff have
received adequate and regular
training.
Detective Controls:
Pass rate and number of test
attempts is monitored to identify
risk areas and any additional
training or guidance required.
GE are responsible for
approval of donations and
sponsorship
The Financial Crime team
maintain the donations
register
Human Resources is
responsible for any
incidents where further
action is required and
ensuring completion of
mandatory training
Financial Crime Team is
responsible for reviewing
training effectiveness
Ongoing
Internal and External
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Risk Area Description of Risk Minimum Control Standards Who is responsible When
Conflicts of Interest The acceptance of Preventative Control:
hospitality or gifts from third I The Group operates a procedure I All employees Ongoing
parties could lead to bias or I to ensure Gifts and Hospitality
undue influence, or the may not be offered or accepted
perception of such, in how where they could bias or
individuals exercise their influence how individuals
duties and responsibilities. I exercise their duties and
responsibilities.
All employees are made aware
of and are expected to comply
with the gifts and hospitality
procedures.
Employment Risks Failure to identify Preventative Control:
employees requesting or Any form of employment or All employees Ongoing
receiving something of value I work opportunities (paid or
from a third party in unpaid) must be reviewed and
exchange for providing approved in accordance with HR
employment or work policies and procedures prior to
opportunities may result in employment.
the loss of Group
stakeholder support.
Gifts Inadequate controls may Preventative Control:
lead to employees accepting I All employees must report Each employee is Ongoing
gifts that are not correctly all gifts of £20 and responsible for ensuring
appropriate, proportionate I over which they receive or offer I that all gifts offered or
or within policy resulting in using the Gifts & Hospitality received are recorded.
reputational damage or tool, whether accepted or
criminal prosecution. declined. Ongoing
No employee may accept cash
(or cash equivalent) gifts.
Line managers are
responsible for ensuring
Internal and External
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Risk Area Description of Risk Minimum Control Standards Who is responsible When
the gift complies with Ongoing
Post Office has a Group wide policy and is reasonable
training programme to ensure and for approving or
that all customer facing staff, declining the acceptance of
back office staff and contractors I a gift
receive adequate training. Staff Ongoing
and contractors are required to I Group Executive are
complete training within 30 days I responsible for approving
of joining Post Office and or declining any offers over
annually. £100
Ongoing
Financial Crime Team is
responsible for reviewing
Corrective Control: and monitoring the Gifts
Where discrepancies of non- and Hospitality register.
conformance with gifts and
hospitality reporting are Human Resources is
identified, line management responsible for any
should consider action under the I incidents where further
Conduct Code action is required and
ensuring completion of
mandatory training
Hospitality Inadequate controls may Preventative Control:
lead to employees accepting I All employees must report Each employee is Ongoing
hospitality that is not correctly any hospitality which responsible for ensuring
appropriate, proportionate they receive or offer using the that all hospitality
or within policy resulting in I Gifts & Hospitality tool, whether I offered/received are
reputational damage or accepted or declined. recorded
criminal prosecution.
Before accepting or giving Line managers are Ongoing
hospitality an employee must responsible for ensuring
receive written approval from the hospitality complies
their line manager. with policy and is
reasonable and for Ongoing
Internal and External
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Risk Area Description of Risk Minimum Control Standards _I Who is responsible When
The hospitality must be approving or declining the
reasonable (not lavish or acceptance of hospitality
extravagant), proportionate to
its purpose and must ordinarily Group Executive are
be below £200 per person in responsible for the Ongoing
value. approving or declining of
any offers of hospitality
Post Office has a Group wide over £200
training programme to ensure
that all customer facing staff, Financial Crime Team is Ongoing
back office staff and contractors I responsible for reviewing
receive adequate training. Staff I and monitoring the Gifts
and contractors are required to I and Hospitality register
complete training within 30 days
of joining Post Office and Human Resources is
annually. responsible for any
incidents where further
Corrective Control: action is required and
Where discrepancies of non- ensuring completion of
conformance with gifts and mandatory training
hospitality reporting are
identified, line management
should consider action under the
Conduct Code
Payment Risks Offering facilitation Preventative Control:
payments, gifts & All employees are required to Each employee is Ongoing
entertainment, client comply with the conflicts of responsible for ensuring
training programmes, interest policy which can be that all hospitality and gifts
charitable or political found here. offered or received are
donations, ex-gratia recorded
payments or legal All employees are required to
settlements that are not comply with the Gifts and Line managers are Ongoing
justifiable or proportionate
responsible for approving
Internal and External
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Risk Area Description of Risk Minimum Control Standards _I Who is responsible When
may result in reputational Hospitality procedure which can I or declining the acceptance
damage or criminal be found here. of a gift or hospitality.
prosecution.
The acceptance of discounted or I Group Executive are Ongoing
complimentary training courses I responsible for the
which would usually incur a cost I approving or declining of
are classified as Gifts and any offers of gifts or
Hospitality and employees are hospitality over the agreed
required to report these using amounts
the Gifts & Hospitality Tool.
Financial Crime Team is
The payment of ex-gratia responsible for reviewing Ongoing
payments or legal settlements and monitoring the Gifts
are strictly controlled and must I and Hospitality register
be submitted to the Group Legal
Director for approval. Group Legal Director is
responsible for reviewing Ongoing
Post Office has a Group wide and signing off as required
training programme to ensure any ex-gratia payments or
that all customer facing staff, legal settlements as
back office staff and contractors I requested from the
receive adequate training. Staff I Business.
and contractors are required to
complete training within 30 days I Human Resources is
of joining Post Office and responsible for any
annually. incidents where further
action is required and
ensuring completion of
mandatory training
Political Employees making or Preventative Control:
Donations/Lobbying soliciting political donations I Before giving or offering Each employee is Ongoing
on behalf of Post Office may
result in criminal
prosecution.
Hospitality to or from a political
party, approval must be
obtained from a GE Member.
responsible for ensuring
that all Gifts & Hospitality
offered or received is
recorded
Internal and External
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contracts or reputational
damage.
ensure that there is no risk of
conflicts of interest. This
includes ensuring that all parties
involved are aware of
Procurement Lockdowns.
Risk Area Description of Risk Minimum Control Standards Who is responsible When
The giving of political donations
or gifts on behalf of the group to I Group Executive are Ongoing
a Politician or a Political Party is I responsible for the
strictly prohibited. approving or declining of
any offers of hospitality by
Post Office has a Group wide a political party
training programme to ensure
that all customer facing staff, Financial Crime Team is Ongoing
back office staff and contractors I responsible for reviewing
receive adequate training. Staff I the Gifts and Hospitality
and contractors are required to register
complete training within 30 days
of joining Post Office and Human Resources is
annually. responsible for any
incidents where further
action is required and
ensuring completion of
mandatory training
Procurement/Third Inadequate monitoring may I Preventative Control:
Party Risk lead to third parties Post Office ensures that any fees I Chief Financial Officer Ongoing
engaging in bribery or paid are proportional to the
corruption while performing I services being rendered or
services on behalf of the consistent with the market.
Post Office Group. This
could result in criminal New and existing contracts are Procurement
prosecution, loss of key reviewed on an ongoing basis to Ongoing
The Group completes Annual Risk Assessments reviewing its bribery and corruption exposure and its compliance with the above key risk
areas.
Internal and External
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3. Definitions
3.1. Definitions
Bribery
Bribery is defined as the offer, promise, payment, request, agreement to receive anything
of value whether directly or indirectly to or from any person or entity in order to induce
that person or entity to perform their roles improperly or, in the case of a Public Official,
in order to influence them with the intention of obtaining or retaining business or an
advantage in the conduct of business.
Examples include an offer or promise to give anything of value to anyone to obtain or
retain business for or on behalf of the Post Office or to obtain or fulfil a legal or regulatory
requirement in furtherance of the Group’s business. A bribe can take the form of a “reward”
and be paid after the improper performance of the relevant duty or obligation.
Corruption
Corruption is defined as the misuse of entrusted power or public office for private gain.
Educational courses/conferences
Events that are offered by third parties without charge do not amount to hospitality.
However, free places to attend courses or conferences that would otherwise attract a
charge are covered by this procedure.
Facilitation Payment
A Facilitation Payment is a type of bribe and should be seen as such. A common example
is where a government official is given money or goods to perform (or speed up the
performance of) an existing duty. Within the UK these are strictly prohibited.
Gifts
Gifts refers to a physical gift and includes the offer to a specific individual or team with the
exception of low value promotional items costing under £20 each, such as pens, calendars,
diaries, notepads and paperweights.
Hospitality
Invitations to attend events which have a social element (whether or not they are at the
same time as or linked to a business meeting) and where the cost of a ‘ticket’
(participation) is free of charge or reduced in price when otherwise there would be cost
attached to it. This would include things such as tickets to a sporting event, tickets to a
concert or a corporate dinner.
Inducement
An inducement is a benefit offered to a firm or any person acting on its behalf, with a view
to that firm, or that person, adopting a particular course of action. This can include, but is
not limited to, cash, cash equivalents, commission, goods, hospitality or training
programmes.
Third Party funded trips
Travel/accommodation that is funded by third parties is covered by this procedure as a
form of ‘hospitality’.
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4. Where to go for help
4.1. Additional Policies
This Policy is one of a set of policies. The full set of policies can be found at:
luk.sharepoint.. i heh i %o2
h
4.2. How to raise a concern
Any Post Office employee who suspects that there is a breach in this Policy should report
this without any undue delay.
In case of bribery or corruption concerns or whistleblowing, staff may contact:
.
.
.
their line manager,
a senior member of the HR Team, or
if either or both are not available, staff can contact the Post Office’s General
Counsel, who can be contacted by email at: whistleblowing,
telephone on:
Alternatively staff can use the: Speak Up service available on
or via a secure on-line web portal: https://wrs.expolink.co.uk/postoffice
Post Office encourages members of the public or people not employed by us who suspect
bribery or corruption to write, in confidence, to the Chief Executive’s Office, Finsbury
Dials, 20 Finsbury St, London EC2 9AQ.
4.3. Who to contact for more information
If you need further information about this Policy or wish to report an issue in relation to
this Policy, please contact the Policy sponsor or Policy owner.
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5 a Governance
5.1. Governance Responsibilities
The Policy sponsor, responsible for overseeing this Policy is the General Counsel of Post
Office Limited.
The Policy owner is the Director of Compliance who is responsible for ensuring that the
Financial Crime Team conducts an annual review of this Policy and tests compliance across
the Group. Additionally the Director of Compliance and the Financial Crime Team are
responsible for providing appropriate and timely reporting to the Risk and Compliance
Committee and the Audit and Risk Committee.
The Audit and Risk Committee are responsible for approving the Policy and overseeing
compliance.
The Board is responsible for setting the Group’s risk appetite.
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6 a Control
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6.1. Policy Version
Date Version _I Updated by Change Details
November 2016 1 Georgina Blair Roll out of Final version
June 2017 1.2 Thomas Richmond Updated in line with comments from
stakeholders
July 2017 1.3 Sally Smith POL R&CC approval
September 2017 2 Sally Smith Final Version approved by ARC
June 2018 2.1 Sally Smith Annual revisions
July 2018 22 Sally Smith POL R&CC approval
duly 2018 2.3 Sally Smith POL ARC approval
September 2018 2.4 Sally Smith POMS ARC approval
September 2018 3 Thomas Richmond Final Version approved by ARC's
July 2019 3.1 Sally Smith Annual review
July 2019 3.2 Sally Smith POL R&CC approval
September 2019 3.3 Sally Smith POMS ARC approval
September 2019 4.0 Sally Smith Final version approved by ARC's
6.2. Policy Approval
Group Oversight Committee:
Risk and Compliance Committee and Audit and Risk Committee
Committee Date Approved
POL R&CC 4 July 2019
POL ARC 29" July 2019
POMS ARC 19" September 2019
Policy Sponsor:
Policy Owner:
Policy Author:
Next review:
Company Details
Group Director of Legal, Risk & Governance
Director of Compliance
Head of Financial Crime
July 2019
Post Office Limited and Post Office Management Services Limited are registered in England and Wales. Registered numbers
2154540 and 08459718 respectively. Registered Office: Finsbury Dials, 20 Finsbury Street, London EC2Y 9AQ.
Post Office Management Services Limited is authorised and regulated by the Financial Conduct Authority (FCA), FRN 630318. Its
Information Commissioners Office registration number is ZAOSOSES.
Post Office Limited is authorised and regulated by Her Majesty's Revenue and Customs (HMRC), REF 12137104. Its Information
Commissioners Office registration number is 24866081
Internal and External
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Appendix A
GIFTS AND HOSPITALITY POLICY
All gifts and hospitality received and offered by Post Office employees must be reported
on the central register and pre-approved prior to acceptance*. This to ensure that
Post Office is transparent in its dealings with third parties and suppliers and to enable
senior management and the GE to monitor the level of gifts and hospitality both received
and offered across the business.
All employees receive annual training as part of the Anti-Bribery & Corruption module
within 30 days of joining Post Office and annually.
Gifts:
« All employees are responsible for ensuring that full details of gifts are accurately
recorded including the recipients details and a description of the gift, dates of offer and
the amount - if a gift is received by a Post Office employee, then an approximate value
can be recorded, if known, or the offeror must be contacted and asked the amount so
that this can be properly recorded.
«All gifts of £20 and over which are received or offered must be recorded using the Gifts
& Hospitality tool, whether accepted or declined by the receiver.
e Line managers must review and approve all gifts over £20. If a gift is over £100, then
this must also be reviewed and approved by the GE member for that area
« Before any gift is offered by a Post Office employee, they must refer to the relevant
cost centre budget holder for approval before proceeding
« No employee may accept cash (or cash equivalent) gifts (including gift cards).
e The value of the gift must be appropriate and proportionate for the roles and
relationship with the client
« Any offer must have a clear and demonstrable link with a legitimate business purpose,
gifts must never be accepted from a third party who is tendering for business with Post
Office.
e Recipients or offerors must consider if an offer could be viewed by an external party
as inappropriate. Guidance.can_be sought from line management or by raising a query
via gifts.hospitality, _
Hospitality:
« All employees are responsible for ensuring that full details of hospitality are recorded
including the recipients details and a description of the hospitality, details of
venue/event, dates of offer and event and the amount - if the amount is not known
the offeror must be contacted and asked the amount so that this can be properly
recorded
e All hospitality which is received or offered must be recorded using the Gifts &
Hospitality tool, whether accepted or declined by the receiver.
e Line managers must review and approve all hospitality. If hospitality is over £200,
then this must also be reviewed and approved by the GE member for that area
e Before any hospitality is offered by a Post Office employee, they must refer to the
relevant cost centre budget holder for approval before proceeding
* The value of the hospitality must be appropriate and proportionate for the roles and
relationship with the client
* Any offer must have a clear and demonstrable link with a legitimate business purpose,
hospitality must never be accepted from a third party who is tendering for business
with Post Office.
«Recipients or offerors must consider if an offer could be viewed by an external party
as inappropriate. Gui ought from line management or by raising a query
via gifts. hospitality: GRO
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« Small offers of hospitality such as tea, coffee, sandwiches, etc. do not need to be
recorded via the gifts and hospitality tool, but the recipients details must be recorded
fully on the expenses claim via Selenity Expense reporting tool
* Where it is not possible to record gifts and hospitality received prior to receipt, for
example where a gift is received unexpectedly, or where a client offers to pay for lunch,
then this must be recorded on the next available day and the reasons for late approval
should be added in the comments box. For offers of hospitality verbal approval from a
more senior manager should be obtained.
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GROUP POLICIES
Anti-Money Laundering and
Counter Terrorist Financing
Policy
Version — V6.0
Chief Executive’s Endorsement
The Post Office Group is committed to doing things correctly. Our Values
and Behaviours represent the conduct we expect. This policy supports these
to help us ensure that wherever possible use of Post Office systems and
products for money laundering or terrorist financing is prevented, and the
highest standards of financial crime prevention, detection and management
are maintained.
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1. Overview
1.1. Introduction by the Policy Owner
The General Counsel has overall accountability to the Board of Directors for the design and
monitoring of controls to prevent or deter Financial Crime which includes Anti Money
Laundering (AML) and Counter Terrorist Financing (CTF). Financial Crime is an agenda
item for the Audit and Risk committees and the Post Office Board is updated as required.
1.2. Purpose
This Policy has been established to set the minimum operating standards relating to the
design and implementation of controls to prevent or deter Money Laundering and Terrorist
Financing throughout the Group’. It is one of a set of policies which provide a clear risk
and governance framework and an effective system of internal control for the mitigation
of risk across the Group. Compliance with these policies supports the Group in meeting
its business objectives and to balance the needs of shareholders, employees? and other
stakeholders.
1.3. Core Principles
Money Laundering and Terrorist Financing are criminal offences and everyone working in
the business has a personal obligation to prevent them taking place and conduct business
in accordance with applicable AML laws, rules and regulations set out by the business. The
governance arrangements described in this Policy are based upon the following core
principles:
« Post Office has devised a robust Policy and associated procedures (set out in this
document) which are proportionate to the risks and complexity of the Group;
« The Group ensures that its policies reflect the principles of the AML and CTF
regulations and legislation;
« The Group’s overall and ongoing risk management process includes a risk based
assessment of the financial crime risks to which the Group and its business are
exposed, and the quality of its AML and CTF controls and monitoring;
* The Group undertakes a training and awareness program to ensure employees are
aware of the risks of money laundering and terrorist financing, what they should
do if they are suspicious, and the consequences should they fail to comply with the
law;
« The Group promotes ethical and professional standards to prevent it from being
used, intentionally or unintentionally by criminals;
« Decisions taken by management are consistent with the Board’s approved strategic
objectives and Risk Appetite;
« Every member of staff is responsible for understanding and managing the risks
they take on behalf of the Group;
* In this policy “Post Office” and “Group” mean Post Office Limited and Post Office Management Services Ltd
2 In this policy “employee” means permanent staff, temporary including agency staff, contractors, consultants and anyone else
working for or on behalf of Post Office.
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e Clear accountabilities are delegated by management to staff who have the right
level of skill, competency and experience;
« All employees are required to comply with Group Policies.
1.4. Application
This Policy is applicable to all areas within the Group and defines the minimum standards
to control financial loss, customer impact, regulatory breaches and reputational damage
in line with the Group’s Risk Appetite.
In exceptional circumstances, where risk sits outside of the Group’s accepted Risk
Appetite, a Risk Exception can be granted. Further information in relation to the risk
exception process, together with a template can be found here
While Post Office does not tolerate events that are criminal in nature and which may give
rise to unacceptable and illegal behaviour, it recognises that despite its many endeavours,
it is not possible to eliminate all risk of Post Office being used to facilitate Money
Laundering or Terrorist Financing activities, and therefore takes a risk based approach.
Failure to comply with the requirements of this policy by any employee will be regarded
as a significant breach impacting on the Group’s risk and control environment and may
lead to disciplinary action up to and including dismissal and possible prosecution.
The risk to the Group in relation to Money Laundering and Terrorist Financing is reviewed
by the Board as part of its wider commitment to Financial Crime on a regular basis.
1.5. The Risk of Money Laundering and Terrorist Financing
Money Laundering
Money laundering is the process criminals use to hide, disguise and dispose of cash and
assets obtained from criminal activity. Criminals want to disguise the source of their money
and remove any link to the original crime. This allows them to avoid prosecution and
confiscation of funds.
Terrorist Financing
Terrorist financing involves dealing with money or property that may be used to fund
terrorism. The funds and property may be from legitimate sources (e.g. personal funds,
charities, sponsored trips, etc.) or criminal sources.
Failure to manage these risks can result in financial loss, customer impact, terrorism,
regulatory breaches, fines, prosecution, prevention from selling a particular product, loss
of existing or future contracts/relationships and damage to reputation.
1.6. Legislation
There are a number of relevant UK legal and regulatory requirements which are applicable
including (but not limited to):
e The Money Laundering, Terrorist Financing and Transfer of Funds (Information on
the Payer) Regulations 2017 (known as Money Laundering Regulations 2017)
The Proceeds of Crime Act 2002
The Criminal Finances Act 2017
Policing and Crime Act 2017
The Terrorism Act 2000
Counter-Terrorism Act 2008
eeeee
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The Group monitors and takes into consideration guidance and other assistance offered
by regulatory, industry and other specialist bodies, for example the Joint Money
Laundering Steering Group (JMLSG), Wolfsberg Group, UK Finance (which incorporates
BBA, UK Payments and Financial Fraud Action UL), Link, etc. publish trends and analysis
on current threats and issues.
Oversight of compliance with the Money Laundering Regulations by the Group is
undertaken by HMRC in the case of Post Office Limited and the Financial Conduct Authority
(FCA) is the case of Post Office Management Services Limited (POMS).
Post Office Limited is an Appointed Representative of the Bank of Ireland and POMS and
is contractually required to comply with certain regulatory requirements. As such the
Group as a whole is obliged to ensure there are adequate systems and controls in place to
mitigate risks.
1.7. Offences
The Money Laundering regulations set out five offences for which the Group or a member
of its staff can be prosecuted under:
1. Concealing - where an employee conceals, disguises, converts or transfers criminal
proceeds, or removes them from the UK
2. Arrangement - where an employee allows the Group to enter into or become involved
in an arrangement where an employee knows or suspects that it involves the proceeds
of crime.
3. Acquisition, use or possession - where an employee acquires, uses or takes
possession of criminal proceeds.
If found guilty of these offences an individual can be given an unlimited fine or up to
14 years in prison or both. The only defence is that an employee had completed and
submitted a Suspicious Activity Report to the Money Laundering Reporting Officer
(MLRO), apart from ‘acquisition’ where the Group or a relevant individual would need
to evidence that the proceeds had been acquired at fair market price and that they
were not aware that they were criminal proceeds.
4. Failure to disclose - where an employee fails to report to the MLRO their suspicions
or knowledge that someone is involved in Financial Crime.
If found guilty of this offence an individual can be given an unlimited fine or up to five
years in prison or both. There are two defences to this offence; training did not cover
how to complete a SAR or “a reasonable excuse” such as that an employee was rushed
to hospital just prior to completing the report. The reasonableness of the excuse will
be tested in court.
5. Tipping Off - an offence will be committed if an employee discloses to a third person
that a SAR has been made to a relevant authority and that said disclosure may
prejudice any future investigation from the SAR. In addition an employee commits the
offence if they disclose the fact that an investigation into a money laundering offence
is being contemplated or carried out and the disclosure of this information is likely to
prejudice this information. This information must have come to the employee in the
course of business while in the regulated sector..
If found guilty of this offence an individual can be given an unlimited fine or up to five
years in prison or both. The only defence is if an employee did not know or suspect
that what was said would prejudice the investigation
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2. Risk Appetite and Minimum Control
Standards
2.1. Risk Appetite
A Risk Appetite is the extent to which the Group will accept that a risk might happen in
pursuit of day to day businesses transactions. It therefore defines the boundaries of
activity and levels of exposure that the Group is willing and able to tolerate.
The Group takes its legal and regulatory responsibilities seriously and consequently has*:
¢ Tolerant risk appetite for Legal and Regulatory risk in those limited circumstances
where there are significant conflicting imperatives between conformance and
commercial practicality
« Averse risk appetite for litigation in relation to high profile cases/issues
e Averse risk appetite for ligation in relation to Financial Services matters
e Averse risk appetite for not complying with law and regulations or deviation from
business’ conduct standards for financial crime to occur within any part of the
organisation
e Averse risk appetite in relation to unethical behaviour by our staff.
The Group acknowledges however, that in certain scenarios even after extensive controls
have been implemented, a product or transaction may still sit outside the agreed Risk
Appetite. In this situation, a risk exception waiver will be required (See section 1.4 for
further details).
2.2. Risk Assessment
The Money Laundering regulations require that Post Office completes Group wide risk
assessments with a clear rationale to prevent and detect money laundering and terrorist
financing.
Risk assessment must include:
« Identifying the inherent money laundering risks that are relevant to the Group,
product and/or service
e Assessing customer type, customer behaviour, normal product/service activity,
delivery channels, etc.
+ Assessing controls to manage and reduce the impact of inherent risks
« Assessing how the Group will monitor controls and improve their efficiency
e Keeping records of key decisions
The Group requires risk assessments to be completed for individual products and services
to ensure that sufficient controls are in place to detect and prevent money laundering or
terrorist financing, and for these risk assessments to be refreshed at least annually for
high risk products and services and where an issue is highlighted, significant risk is
identified, an incident occurs or the regulations change.
3 The Risk appetite was agreed by the Groups Board January 2015
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2.3. Policy Framework
Post Office has established a suite of financial crime policies and procedures, on a risk
sensitive approach which are subject to annual review. The policy suite is designed to
combat money laundering, terrorist financing, bribery and corruption, fraud and ensure
adherence to relevant sanctions regimes.
The Anti-Money Laundering and Counter Terrorist Financing Policy is a key Policy under
the Financial Crime Policy framework and should be considered and read in conjunction
with the overarching Financial Crime Policy and the Fit & Proper Policy where relevant.
2.4. Who must comply?
Compliance with this Policy is mandatory for all Post Office employees and applies
wherever in the world the Group’s business is undertaken. All third parties who do business
with the Group, including consultants, suppliers and business and franchise partners, will
be required to agree contractually to this Policy or to have their own equivalent Policy.
Where non-compliance is identified the matter must be referred to the MLRO. Any
investigations will be carried out in accordance with the Investigations Policy. Where an
instance of non-compliance is caused through wilful disregard or negligence, this will be
treated as a disciplinary offence.
2.5. Minimum Control Standards
A minimum control standard is an activity which must be in place in order to manage the
risks so they remain within the defined Risk Appetite statements. There must be
mechanisms in place within each business unit to demonstrate compliance. The minimum
control standards can cover a range of control types, i.e. directive, detective, corrective
and preventive which are required to ensure risks are managed to an acceptable level and
within the defined Risk Appetite.
The table below sets out the relationships between identified risk and the required
minimum control standards in consideration of the stated risk appetite. The subsequent
pages define the terms used in greater detail
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highlighted, significant risk is identified, an incident occurs
or the regulations change.
Risk Area Description of Risk I Minimum Control Standards Who is When
responsible
Oversight Group does not Directive Control:
comply with its The regulations require a member of the Board of Directors I General Counsel Ongoing
I AML/CTF regulatory I or equivalent management body to be appointed as the
responsibilities. officer responsible for overseeing compliance with
regulations. For Post Office this is the General Counsel
Preventative Control:
The Group appoints an appropriate individual within the MLRO Ongoing
Compliance area as MLRO. With the assistance of the
Financial Crime Team, the MLRO’s main responsibilities
include:
« To receive reports of suspected money laundering or
terrorist financing and to disclose to the NCA where
required
« Keep the Group up to date in relation to Financial Crime
legislation
« Putting in place and then monitoring compliance with
the AML/CTF regime
e Reporting to the ARC and R&CC all instances of non-
compliance and any regulatory concerns or issues
e Reporting to the regulators instances of non-
compliance, where required
e Annual MLRO reports for the Board (for Post Office MLRO Annual
Management Services Limited and for Post Office
Limited) covering: the governance framework;
operation and effectiveness of the control framework
(including documentation of policies and risk
assessments); external threats/ landscape; summary
of business issues and recommendations.
Corrective Control: MLRO Issue,
Risk assessments must be undertaken at least annually for incident or
high risk products and services and where an issue is change
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Risk Area Description of Risk I Minimum Control Standards Who is When
responsible
Proposed Products, services or Preventative Control:
product or relationships with third I As part of the design of a new product or service: Product Manager During design
service parties may rely on e A Product Information Pack (see 2.6 below) must be phase
systems or processes completed.
where prevention or e Product or service risks must be considered and
detection of money documented using the Risk Assessment Tool (see 2.6
laundering or terrorist below).
financing has not been
considered in the Prior to launch, the Product Information Pack (PIP) must Financial Crime Prior to
design, which may be reviewed and approved by the Financial Crime Team. Team Launch
result in facilitation of I The Financial Crime Team adopts a risk based approach
laundering or terrorist I to determine when the full risk assessment should be
financing leading to completed, and the PIP will provide them with key
reputational damage information to make an informed decision. If the product
and/or regulatory is deemed high risk, the assessment will be completed
sanctions. prior to launch.
Existing Due to changes in law, I Preventative Control:
products and I regulation, incidents, Risk assessments must be undertaken at least annually Product Manager Annually, or
services threats or practices for high risk products and services, any changes to the at any time
over time, there is a product or service (including supplier changes) and where there is a
risk that the controls _ I an issue is highlighted, significant risk is identified, an change
to prevent and detect I incident occurs or the regulations change
money laundering or
terrorist financing are Prior to changes being implemented, the Product Product Manager Any time
no longer adequate. Information Pack (PIP) must be reviewed and approved there is a
by the Financial Crime Team. The Financial Crime Team change
adopts a risk based approach to determine when the full
risk assessment should be completed, and the PIP will
provide them with key information to make an informed
decision. If the product is deemed high risk, the
assessment will be completed prior to change going live.
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Risk Area Description of Risk Minimum Control Standards Who is When
responsible
Existing Where no initial risk assessment was undertaken, product I Product Manager Any time
products and management must agree a timescale with the Financial there is a
services Crime Team to complete an assessment and a Product change
(continued)
Information Pack.
Where the reassessed risk is considered by the Financial
Crime Team to rest outside of the Groups Risk Appetite,
then the risk exception process must be followed.
Corrective Control:
Additionally, risk assessment must be undertaken where
Product Manager
When there is
an issue is highlighted by monitoring or an incident a material
occurs. issue or
incident
Financial Inadequate controls Preventative Controls:
settlement and audit trails Relevant business areas must assess and assure risks Chief Financial Ongoing
and relating to financial relating to financial settlement and reconciliation and are I Officer
reconciliation I settlement and responsible for maintaining documented processes and
reconciliation may procedures and deploying adequate monitoring and
result in facilitation of I control to prevent and detect money laundering or
laundering or terrorist I terrorist financing.
financing leading to
reputational damage Detective Control:
and/or regulatory Audit trails must be maintained so that system access can I Chief Information I Ongoing
sanctions. be monitored. Officer
To ensure that the Group’s controls remain effective, the I Internal Audit Ongoing
Group undertakes internal audits to test and assess their
effectiveness, as agreed by the Board.
Monitoring The Group fails to Preventative Control:
undertake adequate Where the Group is directly regulated for products or Product Ongoing
I transaction monitoring I services, sufficient transaction monitoring must be Manager/MLRO
and fails to prevent
and detect money
undertaken to ensure that suspicious activity, non-
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Risk Area Description of Risk Minimum Control Standards Who is When
responsible
Monitoring laundering and conformance and breaches can be identified, and provide
(continued) terrorist financing. assurance that customer data capture and due diligence
I thresholds have been set at a level commensurate with
the risk exposure and to ensure compliance with money
laundering regulations.
Due Group fails to I Preventative Control:
Diligence undertake appropriate I The Group takes a risk based approach and considers: Financial Crime Annually, or
due diligence of ajIe The product or service Team/Product at any time
customer and fails toI* Its intended customer market base and normal I Manager there is a
I identify criminal transaction activity change
activity. e Any other risks relating to the product
Detective Control:
The extent to which the Group will gather due diligence I Financial Crime As required
information varies depending upon the risk that the I Team/Product
product or service poses however must be considered I Manager
when:
¢ a business relationship is established with a customer
* money laundering or terrorist financing is suspected
¢ there are doubts about a customer's identification at
the time of the transaction or from information
obtained previously
Politically Post Office fails to Preventative Control:
Exposed appropriately manage I All products and services are required to have in place Product Manager I Ongoing
Persons the risks associated identification procedures, commensurate with the
(PEP)* with doing business underlying risk assessment to ensure that it can identify
with PEPs. where the product and service is being used by a PEP.
Where a product or service is maintained by a partner or
4 PEPs are those who have or are seen to have access to public influence and/or public money and as such are seen as being at higher risk of corruption.
A PEP is someone who is: An individual who has or has been in a prominent public role in the UK or abroad such as Heads of State, MPs, Heads of Armed
Forces, etc. An immediate family member or a known close associate of such as person,
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Risk Area _I Description of Risk
Minimum Control Standards
I Who is.
responsible
When
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Politically
Exposed
Persons
(continued)
third party, the obligations of the parties to identify a
service user as a PEP must be documented and agreed.
Determine the level of identification and assess if PEP
checks are required.
Detective Control:
Ensure sufficient information is captured to undertake
PEPs screening where deemed appropriate.
Ensure controls in place to undertake Enhanced Due
Diligence is required on any PEP relationship identified.
Corrective Control:
Where PEPs screening identifies PEPs, ensure that
sufficient due diligence is undertaken to manage the
risks.
Product Manager
Product Manager
Product Manager
Product
Manager/MLRO
Ongoing
Ongoing
Ongoing
Ongoing
Sanctions® The Group transacts
I with a customer who is
sanctioned, resulting
I in the Group breaching
international
sanctions, reputational
I damage and/or
regulatory sanctions.
Preventative Control:
All products and services are required to have in place
sufficient identification procedures, commensurate with
the underlying risk assessment to ensure that the product
and service is not used by a customer who is sanctioned.
Detective Control:
Ensure sufficient information is captured to undertake
Sanctions screening where deemed appropriate prior to a
transaction occurring.
Product Manager
Product Manager
Ongoing
Ongoing
> Sanctions are restrictions put in place by a government or a multilateral organisation (such as the United Nations) that limit a person, company or
countries access to financial services or financial markets, funds or economic resources in order to achieve a specific foreign policy or national security
objective.
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Risk Area Description of Risk Minimum Control Standards Who is When
responsible
Sanctions Corrective Control: Product Ongoing
(continued) Where screening identifies a transaction that maybe going I Manager/MLRO
to or from a sanctioned entity the Post Office will ensure
that transactions are declined and the transaction is
reported via SAR to the authorities.
In the event that an employee becomes aware or All employees Ongoing
suspects that a Sanctioned party is conducting business
within the Group this must be reported immediately to
i the MLRO.
Premises I The Group fails to Directive Control:
Registration I maintain up to date Business rules must be agreed with HMRC in respect of MLRO Ongoing
premises registration the premises types that must be registered (e.g. Mobile
leading to penalties Vans).
and sanctions.
Preventative Control:
(The Group must I Premises registration business rules are reviewed Financial Crime Ongoing
maintain an up to date I annually and any potential changes to premises type are I Team
register of premises I discussed and agreed with HMRC.
addresses that
undertake directly I Branch premises data is reviewed fortnightly and changes I Data Centre of Fortnightly
regulated activity with I submitted to HMRC. Excellence and
HMRC —- any changes Financial Crime
must be registered and Team
the relevant fees paid
within 30 days)
Training Through inadequate Preventative Control: Financial Crime Annual
training, staff allow
money laundering or
terrorist financing to
take place, resulting in
I reputation damage
and regulatory fines.
Post Office has a Group wide training programme to
ensure that all customer facing staff, back office staff and
contractors receive adequate training tailored to business
risk areas.
Team/HR/MLRO
Internal and External
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the HMRC Fit I undertake a role.
& Proper test
(Please see
Fit & Proper
Policy
Standard for
details of full
controls)
Internal and External
Post Office completes pre-employment screening to
ensure that an individual is fit and proper for their role.
For further information please see the employee vetting
policy.
Detective Control:
The Group completes ongoing screening to ensure that an
individual continues to remain fit and proper for their
role.
Page 14 of 20
Risk Area Description of Risk Minimum Control Standards Who is When
responsible
Training Outsource providers, clients & suppliers must maintain Product Ongoing
(continued) records to evidence that staff have received adequate and I Manager/MLRO
regular training.
New branch staff are required to complete AML/CTF HR Ongoing
training before they transact on Horizon, and back office
staff and contractors within 30 days of joining.
Detective Controls: Financial Crime Ongoing
Pass rate and number of test attempts is monitored to Team
identify risk areas and any additional training or guidance
required.
The MLRs Due to inadequate Preventative Control:
require that I screening, there is a All Board members, GE, the MLRO and designated roles MLRO Within 30
impacted risk that key must pass the HMRC Fit & Proper test to ensure that the days of
direct individuals involved in I Group has employed individuals who are suitable to appointment
employees money service perform their roles. A register of completed and up to
undertake business are unfit to date Fit & Proper tests is maintained.
Director of Human
Resources
Director of Human
Resources
Pre-
employment
Ongoing
where
required
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Risk Area Description of Risk Minimum Control Standards Who is When
responsible
The MLRs Failure to ensure and Preventative Control: Group Human Ongoing
require that I evidence that those All agents and ‘responsible persons’ as defined by HMRC Resources Director
impacted I individuals operating must complete on-boarding screening, vetting and & MLRO
direct Post Offices that are training. Records must be maintained for the duration
employees ‘responsible persons’ that the ‘responsible person’ is party to the contract
undertake are ‘fit and proper’ to I between the agent and Post Office, and details provided
the HMRC Fit I undertake Post Office I to HMRC, as required. Network Ongoing
& Proper test I regulated activity Operations
(Please see All impacted ‘responsible persons’ are required to Director
Fit & Proper complete an annual declaration that they meet the
Policy requirements of the fit and proper test
Standard for
details of full
controls)
Record Customer and Preventative Control:
Keeping transactional data is For products and services where the Group is directly Product Managers I Ongoing
not retained resulting regulated, records must be kept of all transaction data
in the Group being and data obtained for the purpose of identification for a
unable to identify minimum of 5 years from the date of
suspicious or out of creation/transaction.
character transactions,
leading to the Group The MLRO also ensures that documents relating to money I MLRO Ongoing
being used to launder I laundering topics (e.g. files on suspicious activity reports
money. and investigations) are maintained for a minimum of 5
years.
Suspicious Failure to report Preventative Control: All employees,
Activity suspicions to the The Group provides training to all employees, agents and I agents and agent I Ongoing
Reports National Crime agent assistants and provides easily accessible methods _I assistants
(“SAR”) and I Agency® results in the I to report a suspicion to the MLRO and the Financial Crime
Reporting Team.
® The NCA receives all SARs reported in the UK and their role is to investigate in conjunction with other intelligence. Where appropriate the NCA may
provide copies of SARs to other intelligence bodies and investigation services (Law Enforcement, HMRC, etc.).
Internal and External
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the report is monitored for a minimum of three months to
ensure that the appropriate decision was taken. Audit
trails are maintained so that reports made can be
monitored.
Team
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Risk Area _— Description of Risk Minimum Control Standards Who is When
responsible
Suspicious Group being used to Where there are suspicions or concerns, the MLRO can MLRO As required
Activity fund terrorism. apply to the NCA for a defence to money laundering or
Reports terrorist financing in regards to a specific transaction or
(“SAR”) and set of transactions.”
Reporting
(continued) Corrective Control: Financial Crime Ongoing
Where issues are identified additional training and Team
guidance is provided to increase employee understanding
of the SAR regime.
Appropriate mechanisms are in place to protect Post Financial Crime Ongoing
Office and de-risk where concerns are identified relating I Team
to a specific individual or Group undertaking transactions
in the Post Office network.
Detective Control:
Where a SAR is not disclosed to NCA, it is reviewed and
assessed by a senior manager, and the subject matter of I Financial Crime Ongoing
7 Where defence is requested, this can take up to seven working days for the NCA to review and during this time customers must not be advised that
defence is being applied for as this would constitute ‘tipping off’.
Internal and External
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2.6. Product and Service Risk Tools
Risk Assessment Tool
The Risk Assessment Tool has been created by the Financial Crime Team to assist Product Managers to determine the level of risk exposure
and engagement required for new products and services. The Risk Assessment Tool takes into account inherent risks (e.g. payment method,
channel, customer demographic etc.), UK regulations and legislation and industry best practice.
The Risk Assessment Tool can be found here.
Product Information Pack
The purpose of the Product Information Pack (PIP) is to provide an overview of the product or service, including customer/transactional
journey, parties involved, any contractual responsibilities, monitoring and control requirements. It should consider the inherent risks the
product is exposed to from a Group and customer perspective and the framework for the effective risk mitigation of the product.
The existence of detailed operating policies, procedures and processes may be referred to throughout this document and is to be used to
illustrate how the risks associated with the product are reduced.
The Product Information Pack can be found here.
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3. Where to go for help
3.1. Additional Policies
This policy is one of a set of policies. The full set of policies can be found at:
3.2. How to raise a concern
Any Post Office employee who suspects that Post Offices products, services or processes
have been used to facilitate money laundering, terrorist financing, or dishonest or
fraudulent activity has a duty to:
Discuss the matter fully with their Line Manager; or,
Report their suspicions by telephoning Grapevine on:
Report the matter directly to the Money Laundering Reporting
Staff can contact the Post Office’s Whistleblowing Officer,
Counsel who can be contacted by email at: whistleblowing:
telephone of
« Alternatively st peak Up service available on
«or via a secure on-line web portal: https://wrs.expolink.co.uk/postoffice
ceee
icer (MLRO)
l
GRO r by
3.3. Who to contact for more information
If you need further information about this policy or wish to report an issue in relation to
this policy, please contact financial.crime'
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44. Governance
4.1. Governance Responsibilities
The policy sponsor, responsible for overseeing this policy is the General Counsel of Post
Office Limited.
The policy owner is the Director of Compliance who is responsible for ensuring that the
Financial Crime Team conducts an annual review of this policy and tests compliance across
the Group. Additionally the Director of Compliance and the MLRO are responsible for
providing appropriate and timely reporting to the Risk and Compliance Committee and the
Audit and Risk Committee.
The Audit and Risk Committee are responsible for approving the policy and overseeing
compliance.
The Board is responsible for setting the Groups risk appetite.
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5. Control
5.1. Policy Version
Date Version I Updated by Change Details
November 2016 3 Georgina Blair Final Version approved by ARC
August 2017 3.1 Thomas Richmond Version updated to reflect legislation
changes
September 2017 3.2 Thomas Richmond POL R&CC approval
September 2017 4.0 Sally Smith Final Version approved by ARC
October 2018 4.1 Sally Smith Annual review and update
October 2018 4.2 Sally Smith POL R&CC approval
October 2018 4.3 Sally Smith POL ARC approval
December 2018 4.4 Thomas Richmond POMs ARC Approval
December 2018 5.0 Thomas Richmond Final Version approval by ARC
September 2019 5.1 Sally Smith Annual review and update
September 2019 5.2 Sally Smith POL & POMS RCC Approval
September 2019 6.0 Sally Smith Final version approved by ARC's
5.2. Policy Approval
Group Oversight Committee: — Risk and Compliance Committee and Audit and Risk Committee
Committee Date Approved
POL R&CC 3'¢ September 2019
POMS ARC 19‘ September 2019
POL ARC 23'4 September 2019
Policy Sponsor: General Counsel/Group Director of Legal, Risk & Governance
Policy Owner: Head of Financial Crime
Policy Author: Head of Financial Crime
Next review: September 2019
Company Details
Post Office Limited and Post Office Management Services Limited are registered in England and Wales. Registered numbers
2154540 and 08459718 respectively. Registered Office: Finsbury Dials, 20 Finsbury Street, London EC2Y 9AQ.
Post Office Management Services Limited is authorised and regulated by the Financial Conduct Authority (FCA), FRN 630318. Its
Information Commissioners Office registration number is ZA0SO585.
Post Office Limited is authorised and regulated by Her Majesty’s Revenue and Customs (HMRC), REF 12137104. Its Information
Commissioners Office registration number is 24865081.
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@
Travel and Expense Policy
14 August 2019
Version - V1.7
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1.0 IMtroduction.............ccsccssssscsessesssssssnsssccesssessessecnsssecnssssnssnssasssssaesssssessseaessseasenseaneene 4
1.1 Purpose And SCOPE... ccccccessssesseseetsseeessesessesesssessssesessesnsessnsesenseeenseseneenee 4
1.2 Alternatives to Travel...........c.cscccscsssssssessscnssscssssesscssesassseasssescssssessssessseeseseeses 5
1.3. Where Travel is Necessary...
1.4. Approved methods of booking travel .................ccccccccseseeseseeeeeeeeeeeeteeeeenenee 5
2.0 Business Travel to include Publi
Accommodation and Meeting Space...........
2.1. Rail Travel
2.1 Road Trave
2.2.1. Vehicle Hire. '
2.2.2. Mileage Rates Company (personal contract, job need, pool or
Transport, Road Travel,
Do: 7
2.2.3. Private Car
2.2.4. Claiming business Mileage..................ccccccceseeeeseseseseseseseseseseseseseeeseeneeseene 8
Bis QUICKEST ROUTE... g-5-5-0no ssn eon nsessnsissnsnsvesesnsessesnonsosissneesnastoresteanensnesnsenensnesesusnnensssst 8
b. Passenger Mileage Allowance
c. Parking / Tolls
d. Damage and fines
e. Fueland VAT Receipts innciccnnncnsnsmsmmenconnnonnannananamananconant 9
f. Tax JOU! NN CYS xen ea 9
2.35 Ale Tra Vel seccsscesscseseviversancesssarcreneversursvscovorevsrevceoveservansvansvcauserscersstavaeessemseavavseasasa 9
2.4. International Travel .
2.5. Ferries
2.6. Overnight ACCOMMOAALION ©... cece ccc ecses cece eeeeeeteeestesesteneeteeseereseeseeee 10
2.7. M@@tING SPACE... eececessesesseseseseeseeeeneeteneeesnenesnsaesnesesesusatsnsatensneetsateneneeeense 11
2S. EMMETQSNCY TRAE secsussssceersscnsnsssessnyesnrasnssansumnpuncoussreasensursacaasessasnsnspansnseasesesens 1
3.0 Cancellations, Refunds and Delays
3.1. Refunds for unused tickets..
3.2. Compensation for delays...
M0 EiMplo VES BOW eine ccsisss.cecsrenascsarssasessoencsescsevsacninsnenensnyrananseancecsarapessscscoassossessseaess 14
As1 SEASON TICKELS, ......-..000:cocsssosesscovseosseersiersssnosenrresastsovensinvenseopsousvesnreoveseenesestevonsene 14
4.2 Tax Free Cycle Scheme...
4.3. Personal Loyalty Schemes
5.0. Expense Policy
5.1. Expense Exemptions. ....
5.2. Approval of Expenses Claims ...............cceccceseeeseseseseseseseerseeneneneeeneneneneneee 16
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5.3. Her Majesty’s Revenue & Customs (HMRC)
6.0. Policy Guidelines...
7.0. Where to go for help
7.1. How to raise a concern
7.2. Governance Responsibilities ....
8.0. Control
8.1. Policy Version
4In this Policy “Post Office” and “Group” mean Post Office Limited and Post Office Management Services Limited.
In this Policy “employee” means permanent staff, temporary including agency staff, contractors, consultants
and anyone else working for or on behalf of Post Office.
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1.0 Introduction
Travelling regularly on Post Office business may for some be a requirement of
their role. For others there may be the odd occasion when travelling may be
necessary e.g. Christmas making. Regardless of the frequency of that travel we
all have a responsibility - whether as a traveller ourselves or as an approving
manager - to operate within the Post Office Travel Policy. We also have a
responsibility to consider the cost of that travel and balance that with feeling safe,
comfortable and appropriately reimbursed for the costs incurred when travelling
on post office business.
1.1 Purpose and Scope
This policy sets out the procedures that must be followed when travelling and
claiming expenses incurred in connection with Post Office business:
When is travelling for business necessary?
What are the alternatives to travelling?
Business travel expenses that can be reimbursed
Complying with the requirements of the HMRC rules and requirements for
tax dispensation,
« Making an expenses claim
e Authorising an expenses claim as a Post Office Manager
« When exceptions to this policy may be justified
This policy applies to;
« Employees of the Post Office,
Contractors (where agreed in advance)
As a traveller, we expect you to:
e Read and fully understand this policy
« Behave responsibly and within the guidelines of this policy. Any persistent
or deliberate non-compliance may result in disciplinary action
As an approving manager, we expect you to:
e Check all bookings comply with the policy and challenge if non-compliant
e Check receipts, ensuring they are provided where a claim is made. The
image of the receipt needs to be readable. If it’s not the claim should not
be authorised and should be returned for re-submission.
As a SLP approver, we expect you to:
e Check that the reason given for non-compliant booking is acceptable
e Approve or reject promptly - travel arrangements can then be confirmed
« Where reason for non-compliant booking is not reasonable, challenge and
request to re-book compliantly
Whilst these guidelines are intended to be comprehensive, it is impossible to
anticipate every situation encountered by a traveller. The traveller therefore is
expected to exercise good business judgement, where necessary. Expense claims
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not compliant with this policy may be reimbursed by exception and only where the
rationale is justified and clearly documented in Selenity.
1.2 Alternatives to Travel
Before you book that train ticket or reach for your car keys consider whether that
journey is absolutely necessary or whether there is another way for you to have
that discussion or meeting. Do you really need to incur the time and cost of
travelling? Is a conference call or Skype an option for that 1:1 discussion or even
a smallish meeting? Could you use video conferencing for that larger gathering?
By making better use of technology we can have a positive impact on the
environment; our health and well-being; our work life balance; and reduce our
travel costs without reducing our effectiveness. For Video Conferencing links
please refer to Policy Guidelines section 6.0.
1.3. Where Travel is Necessary
Where travel is absolutely necessary we are expected to exercise sensible business
judgement and to consider the following prior to making arrangements;
« Are colleagues travelling to the same meeting? Is car-sharing an option?
e Are you able to maximise the value of the trip by, for example, arranging
your itinerary to include multiple tasks on the same visit?
e Are only necessary people travelling to the meeting?
« Can your meeting or event be arranged in such a way to minimise the travel
requirements for participants, i.e. a more economical location?
Wherever possible hold your meeting outside of peak times, certain days of the
week and busy periods? As a guide, start your meeting after 10am so that off-
peak train tickets can be used. Check the events and exhibition calendar to ensure
your choice of location/date does not clash with a major sporting event etc., which
can also increase costs.
1.4. Approved methods of booking travel
When booking travel, exercise sensible business judgement and remember the
objective is to get to your destination in the safest and most cost effective way.
Travel by air, rail, accommodation* and meeting space is to be booked through
our appointed Travel Management Company Capita via the booking portal Capita
Travel and Events. Car hire should be booked via Capita/Nexus Rental.
Utilising this contract and adhering to policy aims to ensure that we are able to;
. Safeguard the wellbeing, comfort, safety and security of
employees
° communicate our commitment to sustainability issues
. secure enhanced supplier service levels at the lowest possible cost
. consolidate expenditure to obtain discounted rates
* For accommodation only: with effect from 21.01.2019 the traveller is able to book
direct with a hotel of their choice providing certain conditions are met - see 2.6 below.
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2.0 Business Travel to include Public Transport,
Road Travel, Accommodation and Meeting Space
2.1. Rail Travel
Rail travel is to be pre-booked online via the booking portal. Tickets can be
printed on-site in Finsbury Dials and Chesterfield offices only, otherwise Tickets
should be booked as a TOD (Ticket on Departure) and collected from the ticket
machine/Ticket booth at the train station. Where travel is required to the same
destination over the course of several days (3 or more consecutive days), please
request a weekly season ticket as this is in most cases a more cost effective
option than purchasing daily tickets. Business Season Tickets can only be
purchased via Capita Travel and Events directly by emailing
fficeltd Tickets will be delivered by post.
Travel by rail is standard class only and should be reserved at least seven days in
advance of travel in order to benefit from the lowest possible fares.
The outbound ticket should be fixed (Advance Single) to a specific train time which
is aligned to your meeting start time. The return ticket may be left open (Anytime
Single) to provide flexibility around your meeting end time if required. This process
which should be made as one booking, and is known as ‘dual single’ ticket
purchasing, which offers the most cost effective solution. If you are able to fix the
outward and return journey, further savings will be made.
The purchasing of an ‘Anytime Return’ ticket is considered unnecessary and is
deemed non-compliant to policy. Any Anytime return ticket purchased will be
flagged as an exception via the monthly ‘exception to policy’ reports received by
the relevant SLP member and business unit Finance Director.
Any changes required to a rail ticket can be directed via Capita Travel and Events,
or via the Online Rail Exchange Service page on the booking portal. Exchanging
the original ticket is more cost effective than purchasing a new ticket entirely. The
new ticket can be collected at the train station prior to your new departure time.
Where Railcards are held entitling the traveller to discounts on rail travel, tickets
are purchased on the relevant discounted basis, achievable on the booking portal.
For travel on the London underground or London bus network, please use an
oyster or contactless card as payment and make an expense claim. See Claiming
Expenses. A full journey history can be downloaded from www.tfl.gov.uk once
you have set up an online account to utilise in the claim.
For more details on Contactless click here
For mor ils on r click her
Rail Booking Guide provides further information.
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2.2 Road Travel
Public transport is to be used wherever it is the most practical and most cost-
effective option. Hiring a car should be considered if travelling over 100 miles in a
24 hour period as it could be more cost effective than using your own car.
2.2.1. Vehicle Hire
Daily Vehicle Hire is to be booked via the contracted supplier via Capita, Nexus
Vehicle Rental. Before making a reservation, please ensure this method of
transport is the most cost effective and convenient solution for your business
journey.
The POL Nexus Vehicle Rental Portal can be accessed by clicking here or via the
link which can be found on the Capita Travel and Events booking portal.
The policy for vehicle hire is as follows;
Policy Mileage per day Notes
Group B/C <200 7
Group D >200 and/or:
3+ employees travelling together/
carrying large equipment
All hire vehicles will be provided with a full tank of fuel and are to be returned
with a full tank of fuel. The fuel receipt is to be claimed via Selenity.
Before hiring a vehicle the driver’s driving licence will need to have been
checked via Selenity and approved by the line manager as being appropriate for
the class of the vehicle being hired. It is advised that the driver has over 12
months driving experience.
Any Post Office employee driving a hire vehicle will be covered by the Post
Office’s insurance, whilst the vehicle is being used for the purpose of
undertaking Post Office business and only during the designated period of hire.
The Post Office's insurance will not extend to provide indemnity for any personal
use.
For Daily Vehicle Hire links please refer to Policy Guidelines section 6.0
2.2.2. Mileage Rates Company (personal contract, job need, pool or hired)
cars
Ordinarily Post Office reimburse fuel as per HMRC advisory fuel rates for Company
cars and, with effect from 1 October 2015, for all senior managers who have a
personal contract at 3A or above who receive a cash alternative to a company car.
These rates are reviewed each quarter and are updated in line with the published
HMRC Advisory Fuel Rates.
However a recent study conducted internally (Fleet Manager, May 2018)
concluded that the cost of fuel for vehicles in this category was significantly
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outweighing the amount being reimbursed. As a result with effect from April 2018
business mileage rates for company and job needs cars will be 3p above the HMRC
advisory rate. This additional amount is subject to tax and NI so needs to be made
through payroll rather than Selenity. Retrospective payments will be calculated
and grossed up (so amount received will be equivalent to 3ppm) and paid twice a
year - in Oct (for Apr - Sept) and in April (for Oct - Mar). This approach will be
kept under review
HMRC advisory fuel rates can be found below;
https://www.gov.uk/government/publications/advisory-fuel-rates
2.2.3. Private Car
If you are using your own car for Post Office business then you must make sure
that it is roadworthy and is adequately insured for business use - you are not
covered by the Post Office’s insurance.
You cannot claim mileage for commuting from your home to your normal place of
work.
2.2.4. Claiming business mileage
All permissible road travel claims to be submitted via Selenity. Please refer to
Policy Guidelines section 6.0.
a. Quickest Route
The Selenity expense system is set to calculate reimbursement of mileage based
on the quickest route. However if this does not adequately reflect the actual
journey the mileage travelled should be input with the reason for the
amendment being adequately explained when prompted by the system.
b. Passenger Mileage Allowance
Sharing a car with work colleagues on official business, rather than travelling
separately is cost effective and reduces the environmental impact of business
travel. A passenger supplement of 4p per mile can be claimed regardless of
number of passengers.
c. Parking / Tolls
The actual cost of parking and bridge tolls incurred whilst travelling on Post Office
business will only be reimbursed on the production of receipts.
d. Damage and fines
Any accidental damage to a hire vehicle will be charged back to the cost centre
used to hire the car.
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In the event of an “at fault” claim against Post Office, if the claim is not disputed
within two working days, the hire car company will be instructed to proceed and
charges will be sent back to the cost centre.
Any fines, including traffic, speeding, and parking charges, plus any administrative
fees levied by the supplier are the responsibility of the driver, and will be deducted
via payroll.
e. Fuel and VAT Receipts
To support mileage or fuel claims, VAT receipts for fuel purchased need to be
provided as this enables the Post Office to reclaim the VAT. It is not sufficient to
provide credit card receipts or other such documents. The fuel receipts must be
originals and dated prior to the date of the journey/s they relate to. The amount
of fuel purchased is unlikely to tally exactly with the amount claimed and there
may be a need to supply more than one receipt.
f. Taxi Journeys
Taxi fares will only be reimbursed in the following circumstances and where a
receipt or proof of payment has been obtained:
« For safety reasons e.g. travelling late at night/early morning when still
dark
Where judged economic due to numbers travelling together
For journeys where there is no other suitable method of public transport
Where heavy luggage has to be transported
Where the saving of official time is important
Where the traveller has mobility issues and is not able to use other modes
of transport
2.3. Air Travel
Air travel should only be used when there is a business justification either because
of cost, official time saving or if urgency justifies the additional cost.
Air Travel is to be booked in Economy class, using Low Cost Airlines where possible
and reserved at least 14 days in advance of travel to take advantage of the lowest
possible fares.
Any single air fare journey booked which exceeds the rate cap limit shall require
SLP approval. Travellers and managers should refer to the Air Fare Cap listed in
the policy guideline section.
Air miles and similar benefits earned through official travel should be used for
business purposes where possible.
Changes to an air ticket must be directed via Capita Travel and Events. This will
ensure any amendment costs associated to the change will be invoiced centrally.
The following charges are non-permissible via expenses and if chosen are
personably payable;
. Excess baggage (unless business-need requires)
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. Pre-booked seats (including extra legroom, unless medically certified)
. Speedy boarding
If you require any further help for booking air travel, please refer to the Air Online
Booking Guide Air booking quide.
2.4. International Travel
If there is a requirement to travel outside of the UK, you must seek pre-approval
from Alisdair Cameron, Chief Finance & Operational Officer, prior to purchasing an
international air ticket. International travel once approved, needs to be requested
via the Capita offline team via postofficeltd¢_ Ri
Please refer to the Policy Guidelines, for details regarding any Passport, Visa and
Medical assistance.
2.5. Ferries
Bookable vi:
postofficelt
calling or emailing booking request to
2.6. Overnight Accommodation
The Post Office preferred method of booking overnight accommodation is online
via the Capita Travel and Events booking portal. Preferential rates have been
agreed at hotels in our key locations, and are there purely as a guide. The cost
per room, per night, whether a preferred or non-preferred property is not to
exceed the location rate cap.
For any bookings over cap, which should be regarded as exceptional, SLP approval
is required in advance, with the rationale being properly documented. All over cap
bookings will be monitored on the monthly exceptions report provided to
SLP/Finance Director.
For longer stays (minimum 2 nights) you may prefer to stay in an apartment. Post
Office has access to preferential rates to stay at an apartment located close to
London Headquarters, and are bookable by calling or emailing the Capita Travel
and Events offline team.
For accommodation links please refer to Policy Guidelines section 6.0.
With effect from 21.01.2019 travellers are offered more flexibility when booking
overnight accommodation. Post Office preferred process is:
1. First check the capita portal for a suitable hotel - this can show ALL
available hotels (POL rates, CAPITA rates, Best Available rates)
2. If a suitable hotel is not available and traveller sources elsewhere, to
contact Capita Offline team immediately for them to work with the hotel
direct to secure same rate.
3. Booking accommodation of their choice direct themselves providing:
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o the cost is within the existing travel policy (cap rates and allowances)
Note: over cap hotels need to be booked through Capita. Only claims
up to the location cap rate are permitted to be claimed via Selenity.
o the traveller settles the bill with the hotel and claims back via Selenity
othe traveller accepts that there will be no support from Capita for this
booking either in or outside operating hours
o the traveller provides their whereabouts detail via Hotel Direct
Booking App in advance of their stay. For the App installation guide
click here. This is an important condition (for health & safety
reasons) of not using Capita to book overnight
accommodation. Non-compliance with this requirement will
lead to the relaxation of the hotel booking approach being
reversed
2.7. Meeting space
External meeting space is to be booked only when internal meeting space isn’t
available.
All external venues, including meeting, event and conference space is to be
requested via the Capita Travel and Events online via the booking tool.
Preferential rates have been agreed at venues in our key locations, and are there
purely as a guide. The cost per delegate, whether at a preferred or non-preferred
venue should not exceed the location daily delegate (DDR) rate cap.
External meetings require a minimum of 6 delegates. If no internal meeting space
is available, the meeting should be conducted via audio/skype/video conference.
Any external meeting space booking which exceeds one or more of the following,
shall require pre-approval via SLP;
a) The Day Delegate Rate cap
b) The 24 Hour Rate cap
c) £3,000 Total meeting costs
It is the responsibility of the Post Office meeting organiser to sign any terms and
conditions levied by the external venue adhering to contract time-lines and
delegate numbers. Capita are not contracted to sign on Post Office behalf. Post
Office will be financially liable for any breach of T&C's.
For Meeting Space links please refer to Policy Guidelines section 6.0.
2.8. Emergency Travel
During times of unprecedented situations (i.e. weather disruptions, serious
incidents/acts of terrorism) which occur outside of normal working hours (9am-
5.30pm), we adopt a “safety first” policy, whereby it will not be necessary to gain
pre-approval for over cap hotel bookings and over cap air bookings.
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Please contact Capita Travel and Events directly on L GRO. _I for any
emergency assistance outside office hours.
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3.0 Cancellations, Refunds and Delays
Where business trips are cancelled, the traveller is responsible for notifying Capita
or the supplier directly (i.e. hotel booked direct). This should be done as soon as
possible either online or by telephone, to avoid cancellation charges.
3.1. Refunds for unused tickets
Unused tickets must never be destroyed as refunds are usually possible (subject
to the type of ticket purchased and any ticket rules / restrictions).
Please contact Capita Travel and Events in order for them to organise a refund via
postofficelt
3.2. Compensation for delays
Train operators and airlines usually compensate passengers for significant delays.
The compensation amount will depend upon the length of the delay. Information
about the amounts payable can be found on the operator’s website.
For Advance Rail Tickets only - Capita Travel & Events have partnered with
Railguard, a specialist compensation provider who assist customers to
automatically track and repay compensation for delayed rail journeys and Capita
will then pay the compensation due directly back to Post Office. As of 5° August
2019 we will no longer request travellers to submit a delay repay form directly to
the train operation company.
For All Other Rail Tickets and Flights - Please contact the approved supplier
(Train Operating Company/Airline) in order for them to organise the
compensation. The original ticket will need to be returned to them, so they can
verify the length of delay and issue the appropriate compensation. The
compensation amount should be requested as a voucher, which once received,
should be returned to Capita Travel and Events, making note of the original
booking reference, in order for them to arrange a credit against the original
invoice.
Please review the Delay Repay document by clicking here.
Address for compensation voucher to be sent;
Capita Travel and Events
Meridian Court
18 Stanier Way
Wyvern Business Park
Derby
DE21 6BF
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4.0 Employee Benefits
There are a number of benefits open to all employees who are required to travel.
4.1 Season tickets
Post Office offers interest free loans to help with the purchase of a season ticket
up to the value of £7,500, which are then paid for over 12 months, through
deductions from net pay.
In order to be eligible to apply, you need to meet the following criteria:
« You are employed directly by Post Office.
« You are not in your probationary period.
e You are not in your notice period.
To apply, visit: https://postoffice.fastrailticketing.com/
Notification will be sent upon an outcome to an application. Capita will send the
ticket in the post to the applicant’s home or work address.
A season ticket will require a photo-card which can be uploaded as part of the
online application process.
This is available for:
« National Rail
« London Rail only
« London Travel-card /Oyster
« Outside London Travel-card
Should the season ticket exceed the loan limit of £7,500, this can be paid as a
lump sum via a debit or credit card at the point of applying.
4.2 Tax Free Cycle Scheme
Colleagues can apply for a new bike and accessories up to the value of £1,000.
Post Office offers two tax free cycle schemes:
Cycleplus: to get your bike from an independent bike shop.
Cycle2Work: to get your bike from any Halfords store instead.
The bike and safety equipment remain the property of the Post Office for the
duration of the agreement. At the end of the hire period, colleagues are given the
opportunity to take ownership of the bike at fair market value.
The tax free cycle scheme is a salary exchange arrangement, which means
colleagues can give up some of their pay in exchange for this non-cash benefit
and do not pay the tax and National Insurance on the amount. By choosing to
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participate, applicants sign a salary exchange agreement which is part of the
application form. This changes the terms and conditions of the employment
contract.
Apply by visiting www.mypostofficeplus.co.ukk and select ‘Tax free cycle scheme’.
Colleagues can apply at any time, the deductions from salary will usually begin
the following month.
4.3. Personal Loyalty Schemes
Personal loyalty membership schemes are available to all travellers to gain points
when travelling on a certain supplier. Whether the travellers hold any rail, air or
hotel loyalty card, they must not allow the loyalty scheme to influence their choice
of booking, particularly if this falls outside policy. Any points accumulated by the
traveller as a result of booking business travel should be used to offset the cost of
future business journeys.
Please note that the Post Office will not reimburse the fees for frequent traveller
membership schemes.
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5.0. Expense Policy
The expense portal can be found on the homepage of PeopleHub, and can be
accessed from anywhere with an internet connection, through www.sel-
expenses.com. The system will recognise your email, and send you a message
with your User ID and password. There is a useful help section once you’re logged
into the system, including user tutorials and a ‘frequently asked questions’
document via our intranet.
Once a claim is submitted, it will automatically be forwarded to the appropriate
authoriser for approval. Staff are permitted to submit a maximum of one claim
per week, and if submitted and approved by your Manager by 3pm on a Thursday,
will be paid into your bank on Friday.
It is the responsibility of the claimant and the authoriser to ensure claims are
valid, properly documented and compliant with this policy. Additionally the
traveller is responsible for obtaining all VAT invoices for travel related expenses.
5.1. Expense Exemptions
For the avoidance of doubt, the following may not be claimed as expenses and
costs must be borne by the employee;
e Motoring offence fines e.g. speeding, parking (and any associated
administration charges)
e Car wash / valeting
« Laundry
e Subsistence food costs whilst at the employee’s normal place of work
e Gifts for employee birthdays etc.
« Lounge passes/access
5.2. Approval of Expenses Claims
Approval of expenses is not simply an authorisation to pay; it is confirmation by
authorising Manager that the expenditure has been incurred wholly, necessarily
and exclusively for business and in accordance with company policy and within
their budget authority. The authorising manager needs to ensure that receipts are
provided to support expense claims. Any claims deemed to be outside of policy
will be queried for satisfactory resolution before payment.
A random sample check is done by HRSC on a monthly basis to ensure claims are
compliant with the Travel Policy.
5.3. Her Majesty’s Revenue & Customs (HMRC)
All expense spend may be subject to review by HM Revenue & Customs on an
individual basis. Each employee is wholly responsible for being explicit as possible
in completing their expense submissions
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6.0. Policy Guidelines
Service / Expense
Policy
Additional Notes
Audio/Video-
conferencing
Alternative choice to travel.
Audio-conferencing
Video-conferencing
Rail Travel (UK) /
Transport for London
(Tube/Bus)
Rail Travel - Bookable online
via the Capita Travel and
Events online booking portal.
Standard class only.
Book at least 7 days in
advance, fixing outbound train
and combining dual singles
(Advance single out/Anytime
single on return).
Any ‘Standard Anytime Return’
tickets purchased will be
flagged as an exception to
SLP.
TFL - Oyster and contactless
payments reimbursable via
expenses.
nlin king Px i
Only in exceptional
circumstances will rail
travel booked via an
alternative method be
reimbursed.
Vehicle Hire / Fuel
Bookable online via Capita
Travel and Events, using the
portal of their third party
supplier, Nexus Vehicle Rental.
The standard class of hire is a
small-size (Group b) 1.4
vehicle. Mid-size (group d)
should only be hired to
accommodate 3+ passengers
and/or large equipment.
Nexus Booking Portal
Fuel is reimbursable to
the actual cost of re-
filling vehicle.
Receipt required.
Business Mileage
The business mileage for
company and job need cars is
reimbursable as per HMRC
advisory fuel rates.
This also applies to all senior
managers who have a personal
Exceptionally for
company and job need
cars an additional 3p
per mile has been
agreed to address the
gap between the
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contract at band 3A or above
who receive a cash alternative
to a company car. This has
been in effect from 1 October
2015.
HMRC Fuel rates can be found
here;
hi ://www.gov.uk/governm:
nt/publications/advisory-fuel-
rates
When using a private car,
mileage for commuting from
your home to your normal
place of work cannot be
claimed.
HMRC advisory rate
and the actual cost of
fuel used.
This additional amount
is subject to tax and
NI so needs to be
made through payroll
rather than Selenity.
Retrospective
payments will be
calculated and grossed
up (so amount
received will be
equivalent to 3ppm)
and paid twice a year
- in Oct (for Apr -
Sept) and in April (for
Oct - Mar). This
exceptional approach
will be kept under
review.
Selenity Expenses
Passenger Mileage
When transporting 1+
colleagues to a business
meeting in a private car, the
vehicle owner can claim a
passenger allowance.
Allowance: 4p / mile
regardless of number
of passengers.
Parking charges
Please submit claim for actual
expense incurred.
Parking fines will not be
reimbursed.
Receipt required.
Selenity Expenses
Tolls and congestion
charges
Pease submit claim for actual
expense incurred.
Congestion charge penalties
will not be reimbursed.
Receipt required.
Selenity Expenses
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Fines for Road Traffic
Offences
Claims will not be reimbursed.
Drivers responsibility
and will be deducted
via payroll.
Taxi Journeys
Please submit claim for actual
expense incurred.
Receipt required with
reason for use detailed
in Selenity.
Selenity Expenses
Air Travel
Bookable online via the Capita
Travel and Events online
booking portal.
Economy class only.
Book at least 14 days in
advance to benefit from the
lowest available fares.
Any flight request should not
exceed the maximum air fare
limit of £200.00 return. (£100
one way).
Online Booking Portal
Any booking request
which exceeds the air
fare cap, shall require
pre-approval via SLP.
Only in exceptional
circumstances will air
travel booked via an
alternative method be
reimbursed.
International Air
Bookings, please refer
to the ‘International
Travel’ section.
Air - non-permissible
items
The following claims will not
be reimbursed;
Excess baggage, Pre-booked
seats, speedy boarding, Extra
leg room, Lounge access.
Ferries Bookable via Capita Travel and I Email Booking Request
Events. Please call or email - .
booking request. Only in exceptional
circumstances, any
Ferry which is booked
via an alternative
method shall be
reimbursed.
Accommodation Bookable online via Capita Online Booking Portal
Travel and Events, using the
portal.
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POL Preferred Hotel Properties
should be used wherever
possible.
However travellers are able to
book hotels themselves
outside the preferred hotel list
where there are good business
reasons do so e.g. remote
location with no preferred
hotels. The cost per room per
night however must not
exceed the locations cap limits
set out in the programme
located in right hand column.
Note: over cap hotels need to
be booked through Capita.
Only claims up to the location
cap rate are permitted to be
claimed via Selenity. See
section 2.6.
Preferred Hotel
Programme
Any Capita booking
request which exceeds
the location rate cap,
shall require pre-
approval via SLP.
All preferred rates
include Breakfast
(exception of Portland,
Chesterfield), and
Dinner is on a bill-back
arrangement.*
If you are staying
room only, you may
claim the cost of
breakfast within the
meal allowances set
out in this policy.
* Refer to meal
allowance section.
Staying with
friends/family
You may submit receipts to
reclaim costs associated with
your evening meal and
breakfast only.
Receipt required.
Selenity Expenses
Meals delivered
room
in-
If a ‘tray charge’ is levied by
the hotel it will be reimbursed
in addition to the meal
allowance to a limit of £5.
Receipt required.
Selenity Expenses
Wi-Fi If Wi-Fi is chargeable by the Receipt required.
hotel, and is used for Post .
Office business it will be Selenity Expenses
reimbursed. Most preferred
rates include Wi-Fi.
Accommodation - I The following claims will not Non-permissible.
non-permissible
items
be reimbursed;
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Minibars, Gyms/Spas, Movies,
Room upgrades, tipping
(unless included in the bill),
Laundry, Newspapers.
Meal Allowances
Breakfast: Where not
included in room rate, please
submit claim for actual cost
incurred up to the value of
£7.50 per day.
Lunch: When staying away
from home in a hotel the actual
cost of lunch up to the value of
£7.50 can be claimed for the
second day if arrival home that
day is after 2pm.
Dinner:
London: Please submit claim
for actual cost incurred up to
the value of £25.00 per night.
Rest of UK: Please submit
claim for actual cost incurred
up to the value of £20 per
night.
If you are dining in-house at
your chosen hotel, the cost of
your meal will be billed-back
centrally and no claim is
necessary.
Claims can be consolidated i.e.
£15 on evening 1, £25 on
evening 2. Total spend is £40
for the two evening meals.
N.B. please see ‘tray charge
explanation in ‘meals delivered
in rooms’ section above.
Receipt required for
breakfast, and non-in-
house dinner claims.
Recognises no facilities
to prepare own lunch.
Receipts required
Selenity Expenses
Personal IncidentalI The cost of Breakfast and I Receipts required.
Expenditure Dinner may be claimed if;
P ¥ t Claims will not be
a) A business trip requires you I reimbursed if you are
to leave home before 6am, I staying away overnight
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you may submit a claim up
to the value of £7.50.
b) A business trip means you
arrive home after 9pm you
may submit a claim for
evening meal up to the
value of £15.00
c) A business trip means your
total end to end travel time
is in excess of 14+ hours,
(but does not involve an
overnight stay), you may
submit a claim up to the
value of £15.00.
and your
accommodation rate
includes the cost of
breakfast / dinner etc.
Selenity Expenses
Alcoholic Drinks
Only permissible as part of a
dinner expense claim.
Please note: Whilst there are
strict legal limits governing the
amount of alcohol that is
permissible in the bloodstream
whilst driving, any amount of
alcohol impairs judgement.
Accordingly, drivers must
never drive whilst under the
influence of alcohol.
Other drinks/snacks
whilst travelling
Only permissible as part of a
breakfast/lunch/dinner claim.
External Meeting /
Conference Space
Always utilise internal meeting
space before requesting
external meeting space.
All external venues, including
meeting and conference
space, must be requested via
the Capita Travel and Events
online booking tool.
Any external meeting requires
a minimum of 6 delegates. If
the meeting has fewer than 6
and no internal meeting space
is available, the meeting
Online Booking Portal
Preferred Meeting
Venues
DDR - per person,
including room hire,
tea/coffee
refreshments, buffet
lunch, stationery,
audio/visual
equipment, Wi-Fi.
24 Hour Rate - per
person, including the
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should be conducted via
audio/video conference.
Where possible the POL or
Capita preferred venues
should be utilised, however
not mandatory.
The cost ‘per delegate’ should
not exceed the maximum Day
Delegate Rate (DDR) cap
limits set out in the
programme, right column.
The ’24 hour’ rate should not
exceed the maximum rate cap
limits also set out in the
programme, right-hand
column.
above, plus dinner and
one night’s
accommodation.
Any booking request
which exceeds one or
more of the following,
shall require pre-
approval via SLP;
a) The Day
Delegate Rate
cap
b) The 24 Hour
Rate cap
c) £3,000 in total
meeting costs
It is the responsibility
of the POL’s meeting
organiser to sign any
terms and conditions
levied by the external
venue adhering to
contract time-lines and
delegate numbers.
Capita are not
contracted to sign on
POLs behalf. POL will
be financially liable for
any breech of T&C's.
External
Space —
Meeting
non-permissible
items
The following claims will not
be reimbursed;
Additional audio equipment
such as, PA systems,
microphones etc., where
delegate numbers are less
than 50 (unless included in
DDR/24 Hour rates),
Alcohol/soft-drinks outside
agreed rates and/or meal
allowance claims.
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International Travel
All international travel requires
prior approval from Alisdair
Cameron, CFOO.
Once authorisation has been
granted, please arrange travel
requirements via the Capita
Travel and Events offline
team.
Air - Economy class.
Accommodation - Rate must
not exceed maximum rate cap
limit of £100.
Scheduling can be
viewed via the online
portal, and bookings
requested via once
approval is given
(approval email to be
sent to Capita team);
Travel Insurance
Claims will not be reimbursed
as all business travellers are
covered by Post Office
business travel insurance.
Passport, Visa and
Vaccinations
Passport and Visas can be
obtained via Capita Travel and
Events and enquiries can be
emailed directly. If requesting
a visa, please complete the
‘Visa Request Form’ and attach
to your email.
Claims will be reimbursed
where the visa or vaccination
is required specifically for a
business trip. Please submit
claim for actual expense
incurred.
Email vi
request
Visa Request Form
Foreign Travel Advice
Receipt required for
visa and vaccination
claims, however
passport costs are the
responsibility of the
traveller and are non-
reimbursable.
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7.0. Where to go for help
There may be instances where you require additional information - see below;
7.1. How to raise a concern
Any Post Office employee who suspects dishonest or fraudulent activity has a
duty to:
e Discuss the matter fully with their Line Manager; or,
e Report their suspicions by telephoning Grapevine oni.
«If either or both are not available, staff can contact the Post Office’s
General Counsel, who can be contacted by email at:
whistleblowingI
* or via a secure on-line web portal:
http://www. intouchfeedback.com/postoffice
Post Office encourages members of the public or people not employed by us who
suspect [activity in breach of policy] to write, in confidence, to the Chief
Executive's Office,
7.2. Governance Responsibilities
The GE policy owner is Alisdair Cameron, CFOO. The SLP owner, with delegated
authority for ensuring that the Travel Policy Working Group conducts and annual
review of this policy and tests compliance across Post Office Group is Angela Van
Den Bogerd, Business Improvement Director.
The Travel Manager, Lindsay Cook is responsible for overseeing this policy,
supported by Anita Turner.
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8.0. Control
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8.1. Policy Version
Date Version I Updated by Change Details
01/10/2018 1:3 Lindsay Cook Revised Policy
17/01/2019 1.4 Angela Van _ Den I Updated with Direct Hotel Booking
Bogerd App details
03/04/2019 15 Angela Van DenIUpdated with clarification of
Bogerd Business mileage rates for
personal contract 3A or above
senior managers who receive cash
alternative to company or job
needs car
28/05/2019 1.6 Angela Van DenIEmphasised Hotel cap_ rate
Bogerd instruction re directly booked
hotels for expenses purposes.
14/08/2019 127 Angela Van _ Den I Introduction of Railguard,
Bogerd automated delay/repay service
Policy GE Owner
Policy SLP Owner:
Travel Manager
Next review:
‘Company Details
Alisdair Cameron, CFOO
Angela Van Den Bogerd, Business Improvement Director
Lindsay Cook, Travel Manager
Nov 2019
Post Office Limited and Post Office Management Services Limited are registered in England and Wales. Registered numbers 2154540 and
08459718 respectively. Registered Office: Finsbury Dials, 20 Finsbury Street, London EC2Y 9AQ.
Post Office Management Services Limited is authorised and regulated by the Financial Conduct Authority (FCA), FRN 630318. Its Information
Commissioners Office registration number is ZA090585.
Post Office Limited is authorised and regulated by Her Majesty’s Revenue and Customs (HMRC), REF 12137104. Its Information
Commissioners Office registration number is 2486608
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Item 1.2 Induction Briefing
Induction briefing
1. I Purpose, Strategy and Growth (PSG)
Nick Read, Group CEO, joined Post Office on 16 September 2019 and initiated work on shaping the
future Purpose, Strategy and Growth (PSG) of Post Office. The work is being driven by the Group
Executive, with input from the wider organisation and Postmasters, supported by McKinsey. There have
been a number of discussions at Board. The work includes:
- Defining the purpose of Post Office now and in the medium term?
- Reducing the cost base to be appropriate for the size of the business
- Determining our “Big Bets”* and translating these into business initiatives. Deciding what to stop or
pause as well as what to resource.
The Board had previously asked for a stripped back view of the ideal retail network, recognising that we
have a commercial business but also operate branches which make a loss and are supported by
Government to deliver an agreed set of Social General Economic Indicators (SGEls)*. The Board wanted
to consider any obstacles to achieving the desired network, for example, the requirement to maintain a
branch network of 11,500 particularly as the use of cash declines; how other business lines support the
network; and, where business lines are not prime contenders for investment where we could consider
“selling out, getting out, licensing, ticking over or cash cowing”.
The main outputs of the PSG work were considered by the Board at its meeting on 28 January 2020
(please see below). The 5 Year Plan‘ is weaving through the financial requirements for delivering PSG,
including the reduction in the cost base.
PSG insights and outputs
Post Office strengths:
~ Trusted institution (58% of consumers give it a rating of 8+ out of 10). Strong ratings on reputation, service
and convenience in parcels
- Branch network convenience for mails and parcels (65% of participants in our customer survey agreed or
strongly agreed that they had a PO branch close to their home/office vs. 50% for our best competitor)
- Access to basic banking services (8 million customers annually)
~ Businesses outside our core (financial services, insurance, telecom) that make a large contribution and
which, delivered through digital channels, are a proof of concept of our ability to deliver platform plays,
leveraging our brand and access to customers.
External challenges:
- Competition in parcels
- Decline in use of cash (UK cash payments fell by 16% from 2017 to 2018)
- Difficulty of attracting and retaining younger customers and SMEs (relevance of Post Office and trust in it
is lower for younger customers. There is a gap for SMEs in the ease of service offered and quick access to
staff.)
- Aside of travel money and travel insurance Post Office has not established financial services as a medium.
term growth engine for consumers or SMEs. Credibility needs to be established on expertise, ease of use
and an awareness of the products and services being offered by Post Office. There is also a “negative
* Beyond the next few years, income from the Banking Framework is set to decline as the use of cash declines,
income from government services has already declined and maintaining a network of 11,500 branches is
challenging.
? McKinsey has advised that most businesses will not back more than ten “Big Bets” at one time. These will be
the main initiatives selected by a business to drive value (ranked by highest to lowest NPV) and evaluated for
selection by financial returns, ease of capture and fit with company purpose.
2 The SGEls are set out in the Funding document and Entrustment letter and delivery set out in the Annual
Network Report laid before Parliament. These documents are included in the induction materials.
“To be discussed at the additional Board meeting on 10 March 2020 and approved at the Board meeting on 24
March 2020.
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Item 1.2 Induction Briefing
3 of 5907
halo” associated with poor branch experience which makes consumers sceptical about Post Office’s digital
services
~ Digital and gig economy competitors with a low cost base, agility and focus on volume over profitability.
Imperative to modernise Post Office as an organisation
- high-cost operating model, with limited deployment of process digitisation or analytics. This means that
there are currently ~3,850 FTEs in POL against a potential target state of ~1,600.
- Post Office isn’t a compelling proposition for retailers with processes and systems seen as onerous while
trust needs to be improved with Postmasters
- Diversification has led to a complicated set of products. Mails & Parcels, Cash & Banking and Financial
Services account for 76% of FY2019/20E direct contribution (including PayZone), but managerial focus,
best PO team capabilities and change budget do not reflect this, with topics such as BillPay (including
PayZone) and Identity (respectively 1% and 3% of FY2019/20E direct contribution) taking disproportionate
oversight and investments
- Bottom quarter organisational health index compared to relevant peers with particular gaps in clarity of
strategic direction, role clarity, personal accountability, external/competitor orientation and innovation.
dependence on third parties for technological needs with low maturity in vendor management capability
(Horizon costs = ~£90m vs. initial benchmarks of ~£50-60m)
- _ Unsustainable physical branch network to self-fund. The loss-making part of the network has an estimated
support cost of predominantly driven by the need to support out geographic and access criteria,
alongside some legacy fixed agent pay contracts
- reduction in change funding (fromis FY2018/19 to {m=} excluding GLO reserve funding in
FY2020/21). There is an envelope o} for change in FY2020/21 after delivering projects required to
“keep the lights on”.
Claetyig ote purpose
Thriving postmasters a) increasing our efficiency to offer valuable, competitively priced services b)
focusing and innovating to maintain our lead in core markets in the face of competitive disruption c) re-
thinking our support and franchise model for our postmasters to better serve their needs.
- Ease and access (a) Services and products that are easy to use and make our customers lives easier. b)
access to services they wouldn't otherwise have access to without Post Office’s physical and digital
presence (esp., mails & parcels and banking)
- Service oriented central support.
Strategy — core: Mails & Parcels; Cash and banking (to support market share where it matters for postmasters and
customers). Digital platforms: Financial Services; Identity; Travel Money (to deliver additional cash flow for
investment).
Pillars of the strategy:
1. Simplify to increase agility and to deliver to customers and postmasters: remove the complexity that creates
barriers to change, freeing cash for reinvestment
2. Defend the core: double down on and consolidate our position in Mails & Parcels and in Cash & Banking to give
us a strong platform for the future
3. Use platform plays as a means to fund our core and to deliver purpose: support highly-contributing
opportunities consistent with our brand that can be used to drive cash flow to reinvest in our core services for our
postmasters and customers.
Implementation:
Pillar 1: right size central functions; re-define network and formats; improve supply chain efficiency; overhaul
technology; reimagine postmaster experience and support; enable management information.
Product rationalisation vs project rationalisation. Products bring a profit contribution and their removal wouldn’t
allow us to simplify the underlying operating model. Roles can be removed without getting rid of products.
Change projects and spend will be rationalised, bringing the total down to 20-30% of the current 130 projects.
We won't invest to grow in: Digital Identity under the current model; Government Services (including POCA, but
excluding Identity); Bill payments; Insurance.
Pillar 2: We will start to invest in initiatives to support the core from FY2020/21. Mails & Parcels: digitising the
parcel journey; automating in-branch mails; achieving the best possible deal with Royal Mail; reviewing the shift to
multicarrier options. Cash & Banking (3 ~ 5 year timeframe): launching local marketing campaigns targeting SMEs;
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launching the tendering process for cash automation machines; preparing for negotiations for the Banking
Framework 3.
Pillar 3: Explore next platform opportunities: FOREX debit card; option to partner to create a new SME proposition;
option to provide a “democratised” investment proposition; explore a platform play in Identity. To help generate
funds for investment we aim to sell our Telecoms business. Sequencing will clearly be critical to delivering these
opportunities to manage both cash and management bandwidth. The focus of the next 12 months will be on
simplification and investment to defend the core in FY2020/21. We will limit ourselves to exploration of growth
options rather than delivery. Depending on the confidence built in each initiative, more focus will be given to them
from FY2021/22. Furthermore, no new opportunities will be added in the next year.
Finance
Funding (The Funding Agreement and Entrustment letter are included in induction materials)
Under the funding agreement for 2018-2021, Government agreed to invest up to £210m in Post Office
(and has done). There has been significant expenditure on replacing or upgrading infrastructure. Post
Office is required to submit a quarterly change report to the Shareholder. The latest position was set
out in the January Quarterly Change Plan Report:
“\n our original Three Year Plan, we planned for a cash spend of including brought forward spend
from 2017/18{mssivmr), non-cash spend {masm), GLO litigation spend fmsan) and GLO settlement spend
i both of which are not funded by UKGI but by POL, the equivalent total change spend now sits at
versus a previously agreed baseline ot with the only movement being the agreed GLO
settlement:
Current3Yr © Agreed 3 Yr
I Previously
T SH
17/18 Carry Forward
Non-Cash Element
Current Scope (excl. Litigation)
Current Scope Subtotal
Litigation
Investment Subtotal
GLO Settlement
Total Spend
IRRELEVANT }
B
‘was originally predicated on the assumption that we would spend all our incoming cash (net profit
plus investment funding) but would not borrow significantly to fund investment. Whilst this logic is still
being adhered to, further incoming cash opportunities and investment opportunities, beyond the scope
of the original Three Year plan are being discussed and presented through the current 20/21 planning
and 5 year plan processes, which also discuss affordability.
IRRELEVANT I
We are not requesting any funding for Q4, as all funding for the current funding period has been
requested and received.”
A Network Subsidy Payment (of up toi" for 2018-2021) is received for providing access to an
agreed set of SGEls (including state benefits, passports, bill payments, postal services, access to cash and
basic banking facilities) through a network of at least 11,500 branches. Provision of the SGEls is
stipulated in the Entrustment Letter and Funding Agreement. POL also has a set of access criteria such
as the percentage of the population that should be within x miles of a Post Office which helps to support
rural and urban deprived communities.
ited to the costs associated with delivering the SGEls (or
.a. Please see funding request section below). This
Funding for the next period is likely to be li
somewhat less with the funding request
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means that prioritising change spend (links to the “Big Bets” work and what to invest in and what to
stop) and governance around testing business cases and assessing delivery of benefits through the
project cycle is @ particular focus, as is the management of cash which is likely to become part of the
targets against which STIP and LTIP are measured.
A paper on cash and facility management was included in the November Board papers and some cash
flow examples were appended to the action log for the January 2020 Board meeting. This shows the
challenges we face as our security headroom tightens (exacerbated by less cash in branch driven by the
cash efficiencies we have been implementing and the GLO settlement). One ask in the Funding Rt "
to Government will be to amend the security headroom toi
from the calculation.
2.2 I Five Year Plan/ Funding Request
The Board reviewed the draft Five Year Plan at its meeting on 28 January 2020, will discuss this again at
additional Board meeting on 10 March 2020 and is due to approve the Plan for submission to the
Shareholder at its meeting on 24 March 2020. The Board also discussed the initial funding plan and
request, the first iteration of which was sent to UKGI on 14 February 2020. The funding request needs
to align with the Government wide spending review cycle. Key points included:
The proposed assumptions in the 5 Year Plan (questions to be addressed include: are the product and
revenue assumptions credible and reliable? What are the planned outcomes for Telecoms, Insurance
and Identity? Do we have a credible plan for Horizon and the Fujitsu contract? Are our plans for reducing
our cost base credible? What scale of marketing and brand investment is required? Do we have enough
cash between earnings and facility to deliver these plans? What Government support are we
assuming?).
The focus of the plan is the next four years but if the Spending Review runs to 2025 we will include
figures through to March 2025 but request a mid-term review. The initial funding plan and request to
Government seeks a broader discussion than funding, including the following:
* Anetwork subsidy of: er annum for three more years to March 2024.
* A renewal of the working capital facility, with amended security headroom t.
“from the calculation
© A guaranteed borrowing facility of up tof I on commercial terms, repayable
* Request for a conversation across government on developing an effective UK digital identity service
with Post Office central to this, possibly brokering third party commercial support.
« Confirmation that we can retain and re-use the benefits from asset sales.
« Amendments to the SGEls to enable new cash-less Post Offices with some limited flexibility to exit
from cash for some existing Post Offices.
No investment funding — and no dividends for this period.
* Exclusion for Postmasters from any legislative tightening of worker status definitions
Request to discuss the future of the Post Office and the best approach to align our interests with
Postmasters through a partial or complete change of ownership.
Following Board approval for submission to UKGI/ BEIS on 24" March 2020, the plan will be reviewed by
the Shareholder and agreement sought on the funding settlement after March 2021, with BEIS targeting
the end of May 2020 for submitting a recommendation to Ministers which would then form part of
BEIS’s spending review with HMT. The spending review may run into the autumn which may mean that
we cannot sign off the Annual Report confirming that we are a going concern until November/
December 2020, running up against our December filing deadline. Approval of State Aid will also be
required and we have asked BEIS to consider seeking this approval as early as feasible.
5 Dan Zinner has been appointed as Chief Transformation and Strategy Officer reporting to Nick Read.
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2.3 I in-year cost challenge
The EBITA target for 2019/20 is £74m. Achieving target at the end of the financial year is not certain; we
are vulnerable to a decrease in interest rates (a 0.25% cut would cost us seen) and there are
headwinds in insurance (which is not delivering against its 4" quarter forecast in what is a back loaded
plan), travel money and telecoms. Work has been taking place over the last few months on spans and
layers (circa 140 roles have gone) and discretionary spend has been minimised.
3. _I Litigation — subject to legal privilege
3.1 I Group Litigation
N.b. ~ the case was settled in December 2019 at a cost to Post Office Limited of £57.75m, inclusive of
the £5.5m Common Issues Judgment costs. There are ongoing implications and the background,
summarised from the Herbert Smith Freehills paper to the Postmaster Litigation Subcommittee on 13
November 2019, is set out below:
In 1999/2000 Post Office introduced a computerised electronic point of sale system, Horizon, which
Postmasters were required to use in their branches. The Horizon System requires sub-postmasters
(SPMs) to account for stock, sales and takings and, as part of the balancing process, identifies shortfalls
or discrepancies. Under the terms of their contracts, SPMs are required to make good any shortfalls out
of their own funds. Some Claimants repaid their shortfalls; others hid them through false accounting.
Post Office implemented robust audit and collections procedures to minimise losses. Some SPMs had
their contracts terminated, some summarily for breach and others on notice. Until 2013 PO sought to
prosecute in appropriate cases for theft, fraud and false accounting. Some settlements were paid under
a mediation scheme in 2013 and under the Network Transformation Scheme leavers were offered 26
months’ worth of earnings.
The claimants are a group of 555 individuals (61 of whom were prosecuted by Post Office through the
criminal courts) who allege that Post Office's policy of seeking recovery of shortfalls was wrongful
because shortfalls were generated by "bugs" in the Horizon System. They also allege that Post Office
failed in its "good faith" duties to provide proper training on the use of the Horizon System, to assist with
queries or complaints, to disclose the existence of known bugs in the system, to conduct adequate
investigations into the cause of disputed shortfalls and to allow suspended SPMs access to records to
enable them to challenge Post Office's assumption that unexplained shortfalls were the result of theft or
error. As a result of these breaches, they claim damages for the wrongful recovery of shortfalls, the
wrongful suspension and termination of their contracts and associated wrongs including harassment,
stress related illness and stigma.
The cases
The claims [were] funded by litigation funders, Therium. Mr Justice Fraser [was] the Managing Judge
and [ordered] that Group Litigation Order (GLO) [was] heard as a series of trials on issues of relevance to
the claims.
The Common Issues Trial was the first trial and considered the meaning of the contracts between Post.
Office and SPMs. The judgment issued in March 2019 was critical of Post Office’s operating practices and
also found that the contract was “relational” and implied a number of onerous “good faith” terms which I
are at a variance with Post Office’s understanding of the contractual framework it had in place. Post
Office sought leave to appeal (the application was heard on 12 November 2019) but this was not
granted.
The Horizon Issues Trial was the second trial, focussing on whether the Horizon system was robust. The
case concluded in July 2019 and the judgment was issued on 16 December 2019. This found the current
Horizon system to be reasonably robust but the legacy systems not to be robust. The first and second
trials did not concern Post Office’s liability for individual claimants’ claims. A mediation process started
on 26 November 2019 and a settlement was reached on 11 December 2019. As well as the financial
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settlement, the following material non-financial aspects of the settlement include (email from Ben Foat,
General Counsel on 11 December 2019):”
a. The establishment of a historic shortfall group which will manage future claims in respect of legacy
horizon and HNG-X;
b. Agreement to resolve outstanding issues with insolvent claimants (e.g. withdrawal of proof of
debt/ discontinuance);
c. Complete release save for future potential malicious prosecution claims if those claimants have
their convictions overturned;
d. Obligation to follow leading criminal QC advice in dealing with convicted claimants;
e. Undertaking by Freeths and Therium not to act or solicit for future claimants;
f. Parties to follow the joint press statement and not to make any defamatory remarks. This was a
fair and balanced statement which also includes a number of favourable comments about Post
Office.
There are of course further issues that will need to be managed following the above settlement
including:
1. Operationalising the Common Issues Judgment to ensure compliance with that judgment;
2. Establishing and operationalising a historic shortfall group to manage new claims in respect of
the legacy horizon and HNG-x (see my note to Board last night);
3. Managing issues arising from the convicted claimants including disclosure obligations and
referral to the CCRC in accordance with our advice...”
The Board receives an update at each meeting (now focussed on the post Group Litigation operational
plan but also the position with the criminally convicted cases some or all of which could be referred by
the Criminal Cases Review Commission to the Court of Appeal in March 2020) but has delegated
authority to a Board Subcommittee to take strategic decisions.) The Subcommittee is chaired by Tim
Parker and Tom Cooper (the Non-Executive Director appointed as the Shareholder’s representative) and
Ken McCall (Senior Independent Director). The Group CEO and CFO attend Subcommittee meetings.
Herbert Smith Freehills are supporting the Board on the case together with the in-house legal team (Ben
Foat is General Counsel).
3.2 I Starling
Project Starling concerns a case brought by 121 agent postmasters claiming that they are Post Office’s
workers and are due worker rights, such as holiday pay and pension contributions. The case is funded by
the CWU. Post Office is considering the case from a commercial perspective as well as a legal perspective
as the consequences of losing the claim would be significant. Whilst the claim itself is worth up to £1.6m,
adverse findings or changes to the law could result in a group of ‘higher risk’ Post Masters establishing
worker status and POL could be exposed to back pay claims of up to £96m plus £16m p.a. A paper
setting out the background to the case went to Board in July 2019 and this in included in the induction
materials. A further paper went to the Board in January 2020 and the Board agreed that informal
discussions should be held with the CWU to understand better what they are seeking to achieve. An
update will be provided to the 24°" March Board meeting.
4. I Legacy issues - IT systems, back office, processes and procedures
Post Office has the challenge of dealing with legacy issues while seeking to modernise its offer to
customers and agents through the development of online and digital services, moving from products to
propositions, breaking free of some of the constraints of the previous Bank of Ireland and Royal Mail
contracts and developing an attractive franchise proposition.
The legacy issues include our systems and procedures. A network transformation programme was
completed this year which modernised over 7,700 branches. PO Limited’s financial processes were
migrated from POLSAP to Transtrack CWC but there were some cash reconciliation issues which had to
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be worked through®. We have yet to move to the cloud (Azure) from two data centres operated by
Fujitsu in Belfast. The project had been deferred last May in order to focus on other priorities but re-
started in February 2020 because the version of the database that underpins the Horizon application will
no longer be supported by the vendor, Oracle, from December 2020. This means that the vendor would
no longer provide patches for the database to address any new operational or security vulnerabilities.
The Common Issues judgment was critical of Post Office policies and its approach to Postmasters.
Procedures and processes relating to how we support branches, recover losses, manage loss disputes,
suspend and terminate Postmasters have been overhauled. A programme of activity to reduce
Transaction Corrections through Horizon screen changes and further process system and restructuring
activity is underway. Operation Transformation & Agent Relationship Programmes were already
underway to improve support to Postmasters, including hothousing’ (by the end of November this had
been rolled out to 700 branches across four regions), engagement, increases in remuneration (please
see below), improvements to the Horizon system and in the information provided to branches. The work
within operations and the network will continue to be a strong focus on 2020/21 and cultural change,
not just changes in processes and procedures, is seen as vital to the successful delivery of the Post GLO
strategy.
Staff contracts: Post Office has a 90 day consultation process for roles that are at risk and by most
standards generous redundancy arrangements. Staff in DMBs which are franchised receive two years’
salary if they take voluntary redundancy. The DMB franchising process continues with 114 DMBs due to
be operating at the beginning of the 2020/21 financial year, 75 targeted for franchising in 2020/21 and
the remainder in 2021/22.
5. I External environment: stakeholders
Shareholder
Post Office is 100% owned by BEIS. Its day-to-day reporting route is through UKGI, with Tom Cooper as
the Shareholder appointed representative on the Board. The Chairman and Group Chief Executive meet
periodically with the Post Office Minister and the Permanent Secretary. A Framework Document has
been agreed with UKGI/ BEIS effective from 1 April 2020°, which sets out the accountabilities and
reporting requirements for each party and refers to the Government guidance we must adhere to. We
have also agreed changes to the Articles of Association which extends some Shareholder consent
requirements from POL to the group.
Government, with HMT in the lead, has been seeking to drive consistency of approach in Arms’ Length
Bodies and Government owned companies to remuneration arrangements, such as not providing private
medical insurance as a benefit in kind. There have been ongoing discussions about which elements
should or should not apply to Post Office Limited. Post Office obtained legal advice that the Public
Sector Pay & Terms Guidance (PSG&TC) did not apply to POL currently, on the other hand we are 100%
owned by Government and need to take account of our Shareholder’s views. The Board has agreed to
follow UKGI’s interpretation of which elements of the PSG&TC should apply to POL. The immediate
implication is that PMI should not be offered as a benefit in kind to new employees (and will not be from
1 July 2020). Consideration has also been given to how we treat cash perquisites for new Group
In the testing phase CWC was correctly recording the value of cash in supply chain but there were problems
with how that value was being reported through to SAP CFS. Nevertheless, as the differences could be identified
automatically and a process had been agreed to explain, resolve and rectify these differences, it was felt that the
risks could be managed and a “go live” decision was taken.
7 Developing the capability of area managers to build relationships using a “trust” model which aims to deliver
improved MI, increase knowledge of business finance and strengthen retail capability in branches.
® Subject to ministerial approval.
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Item 1.2 Induction Briefing
Executive members, and base salary has been increased and other benefits such as car allowances
removed.
The Group Litigation, bank closures and the pressures on the high street have focussed attention on Post
Office. The Daily Mail has been running a campaign to “Save our Post Office” and a BEIS Select
Committee Network Enquiry Hearing was held on 21 May 2019°. Al Cameron gave evidence on behalf of
Post Office. Written evidence, the hearing and the Committee’s 1* report can all be found at:
https://www.parliament.uk/business/committees/committees-a-z/commons-select/business-energy-
industrial-strategy/inquiries/parliament-2017/post-office-network-17-19/publications/
Further calls for a public inquiry or a further Select Committee hearing have followed the announcement
of the settlement and Post Office has referred back to the Joint Statement issued with the claimants and
our focus on re-setting the relationship with Postmasters. However, at Prime Minister’s questions on 26
February, the PM agreed in response to a question from Labour MP Kate Osbourne seeking an
independent public inquiry that “...! am happy to commit to getting to the bottom of the matter in the
way she recommends.”
Partners
Royal Mail, Bank of Ireland and Fujitsu are key partners for Post Office.
We are negotiating a new contract with Royal Mail. Nick Read has appointed Jack Bertram from
McKinsey on an 8 week project to work with him and Mark Siviter, the MD for Mails, to secure a deal
lle! work on our medium term strategy. The! land
IRRELEVANT ___} annually. Jack Bertram was the former Royal Mail Strategy Director (please see
below).
We concluded a new deal with Bank of Ireland late last year (please see below).
The Fujitsu relationship is complicated because they provide IT support for our Horizon system, run the
two data centres in Belfast, support our digital innovation work and also support our Telecoms Business
(please see below). Fujitsu were required to provide witness evidence for the Horizon Issues Trial and
were criticised by the Judge. It also transpired that we had breached our disclosure requirements to the
court because Fujitsu had informed us that the Known Error Logs (KELs) were overwritten which turned
out not to be the case. The additional KELs released proved not to be material to the trial but has caused
concern about the reliability of data provided by Fujitsu.
Competitors
Board reports usually contain some analysis and information about competitors but feedback from the
Board and low scores on our focus on competitors in the Organisational Health Index survey suggest that
this needs additional focus.
6. I Internal environment — newly appointed CEO, changes in the executive team and Board
Paula Vennells stood down as Group Chief Executive Officer at the end of April 2019 having been at Post
Office for 11 years and served as Group CEO for seven years (the separation from Royal Mail took place
in 2012). Al Cameron, the CFO, served as Interim Group CEO. Nick Read joined Post Office as Group CEO
on 16 September 2019.
3 “Scope of the inquiry. The Business, Energy and Industrial Strategy Committee will hold a one-off evidence hearing on
Tuesday 21st May on the Post Office network, examining issues such as the franchising of Post Offices, the reduction of
Government subsidies, and the long-term resilience of the service. The evidence session will examine the future of Post
Office branches, the moving of Post Office branches into retailers, the Post Office’s modernisation programme and the tie-
up with WHSmith, and the operation of Crown Post Offices.”
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There have been a number of changes to the Group Executive (GE) over the past year but Nick Read
announced his new GE structure at the Board on 28 January 2020 and to the organisation the following
day. The new structure includes a Network and Franchise Team (Amanda Jones as the Interim Director);
a ClO with particular focus on Horizon (Jeff Smyth as the Interim); bringing together the commercial
FST&I and Retail businesses to work as a single team (Owen Woodley, previously the CEO of FST&I); a
CFO (Al Cameron, who looks after Risk and Internal Audit as well as Finance and Procurement) an
Operations and Supply Chain lead at GE level (Al Cameron , the CFO, while a recruitment is taking place);
an elevated Marketing and Brand Team (Emma Springham); an integrated Communications and
Corporate Affairs Team (Richard Taylor, a new appointment); General Counsel (Ben Foat, who looks
after Legal, Risk and Governance) a Chief People Officer role (Lisa Cherry — recently promoted into the
role); a Chief Transformation and Strategy Officer (Dan Zinner, who joined Post Office a few months
ago).
Shirine Khoury-Haq stood down as a Non-Executive Director in July 2019 after being appointed as CFO of
the Co-op Group and deciding that the potential conflict of interest could not be managed.
Tim Franklin stood down at the end of 2019 after two terms as a Non-Executive Director. Tim is
continuing to chair the Post Office Insurance Board.
7. I Retail: Short-term stabilisation of the network; Agents’ remuneration; Developing as a franchise
(making running a Post Office simpler, better support systems, changes in how we engage and operate
as a business)
Figures: Post Office network customer sessions averaged 10.1m per week for the year to September, +1%
year on year, against a British Retail Consortium reported 3 month average High Street footfall decline of
-4%. Trading profit YTD in P10 was (including PayzoneI }
Retail network
The Board discussed proposals for the development of the network in July 2018, including new Post
Office Models. Since then work has taken place to develop the support to Postmasters through a
network of regional and area managers. A number of (particularly smaller) branches had not received a
visit for some years and this has been rectified. Engagement events and calls have been set up with
Postmasters. Postmasters have been engaged in the PSG work.
in tandem, work has been taking place to improve processes and procedures, partly a direct response to
the Common Issues judgment and partly work already underway but accelerated to improve IT support,
MI provided, on-boarding and training. The changes have looked at tone as well as content and letters
now include a number for Postmaster to call if they need further help or advice. Work is ongoing.
The Post Office franchise has been seen as unattractive in recent years and we have struggled to
and retain Postmasters and (in some cases) multiples (464 closures in 2018/19, with closures up
the same point last year, including in some previously stable parts of the network such as Mains).
Reduction in remuneration for Postmasters following simplification measures and increases in the Living
Wage have put pressure on Postmasters. The Board approved a furthe! for agent remuneration
and support for agents at its October Board meeting" which is in addition to the i==s"vlalready
announced this year which links primarily to the fee increases associated with Banking Framework 2.
These increases are seen as a short term fix and more work will be required to shore up and develop the
Post Office network. Strengthening the core is a fundamental part of the PSG.
ract
Churn costs are high iof churn relates to factors outside our
control). We lack information on the wider retail takings of Post Offices which makes it difficult to
understand the value of the footfall driven through running a Post Office. There remains a perception
that we underpay Postmasters (while our trading profits have increased) but the position is complicated
© An additional £10m is being held in the budget for potential further initiatives (subject to Board approval).
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because of our offer as a franchise (we pay for things like IT hardware etc.), because we overpay for
some transactions and underpay for others. We subsidise some Post Offices which either cannot support
a viable retail offer or do not have retail skill but which we want to maintain because of their value in
rural or urban deprived areas.
Royal Mail
We are negotiating a new MDA with Royal Mail as noted above. One of our key requirements is to be
able to sell RM products online on Post Office website.
Banking Framework 2
Banking Framework 2 came into force
IRRELEVANT
against an estimated all-in cost of our cash infrastructure of some the BF1 did not pay adequately
to cover the full costs of supporting banking transactions. The fee increases in BF2 supports the
standalone cost of supply chain, additional remuneration to Postmasters and reflects the true value of
the Post Office to the Banking industry.
January 2021
Barclays had originally decided not to allow their customers to use Post Office for withdrawals under BF2
but after pressure from MPs and Ministers, the press and consumer organisations (backed up by Post
Office) it reversed its decision on 25" October 2019.
Payzone Bill Payments Services Limited
Post Office completed the acquisition of Payzone Bill Payments (set up as a subsidiary) after clearance
from the Competition and Markets Authority in October 2018. This brought an additional 14,500
locations into the network. Payzone signed an exclusive contract with British Gas with came into force in
December 2019. This new deal is for a minimum of five years. Payzone’s focus is on the British Gas
contract, winning further client contracts and building strategic partnerships and whole estate deals with
major retailers (enabled by new retailer facing technology).
8. I Financial services — new deal with Bank of Ireland. New credit card partnership with Capital One
Figures (including FRES and Telecoms): Trading Profit YTD at P10im=
The travel market has been under pressure with exchange rate depression linked to Brexit and
reductions in package holiday bookings having a negative impact on travel money sales and travel
insurance. Companies gaining customers and market share (e.g. Revolut) have been pricing at a loss.
Post Office offers mortgages, savings, credit cards, personal loans, travel money and postal orders. Most
of our financial services are offered in partnership with the Bank of Ireland, with whom we have had a
long-term partnership and serve more than 2 million customers in the UK.
Anew deal was agreed with Bank of Ireland in September 2019. The deal was seen was positive in
aggregate set against the backdrop of a deteriorating market with lower margins on mortgages etc.,
however, sales have been tracking lower than the plan forecast.
The term of the agreement was extended from now the earliest
termination date of the partnership). The agreement was structured such that Post Office is able to exit
the arrangement periodically (every five years). interim review mechanisms have also been agreed.
An exclusive arrangement remains on residential mortgages, personal loans and personal savings
products. Bo! will maintain exclusivity on motor finance and point of sale finance. Post Office will be
able to explore other partnerships for transactional banking, retail investments and SME. An
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Item 1.2 Induction Briefing
improvement in the FRES divi s negotiated with.an additional fixed commission flow of
p.a.to 2022 (representing! IRRELEVANT !), and iRRELevaNTfrom 2023.
IRRELEVANT
9. I Insurance — market conditions. Attempting to secure more of the value chain
Figures: Trading Profit YTD at P10 . The travel insurance market is
very challenging with { /oY mainly due to exchange rate depression. PO Insurance has
been underperforming on sales of its protection policies.
Post Office Insurance offers travel, life and general insurance. The business has been seeking to increase
its share of the value chain by bringing key products in-house. Travel, home and protection insurance
are the main areas of focus for growth. An acquisition was considered last year to increase its share in
the impaired market but this did not come to fruition. PO Insurance changed its underwriter from TIF to
ERV during the year.
The Board discussed the short/ medium term strategy for Post Office Insurance at its strategy sessions in
July 2019. POI returned to the Board in January 2020. It set out options for the longer term strategic
development of the business but it was agreed that over the next 12 to 18 months the focus would be
on realising the returns on the investments already made. Ed Dutton, the Interim MD’s, approach for
the business is:
1. Cessation of its isolationist approach - collaborate and better integrate with POL
2. Reduce its operational expenditure through shared services, organisational design and smaller
company thinking
3. Radically transform its cost of change and speed of innovation
4. Support the creation of Post Office customer led propositions
5. Rationalise its product set where possible
6. Opportunities to invest for longer term value are available, but the short term focus is on 2019/20
plan delivery, completion of the Home Insurance transformation, a review of organisational design and
costs.
10. I FRESH/ FRES joint venture
FRESH/ FRES is Post Office’s joint venture with the Bank of Ireland for FX. Post Office receives a
dividend.
* FRES was established in 2002 as a joint venture between the Bank of Ireland and the Post Office Ltd.
* Originally established to provide on-demand and pre-order foreign currency and travellers cheques
to the POL branch network.
* FRES has since expanded its operations through Post Office to provide Travel Money Online and
Travel Money Card.
* Anumber of ‘white labelled’ services have been developed in the UK (e.g. John Lewis, Santander)
* Post Office has grown to be the largest provider of retail foreign currency services in the UK with
circa 11,500 branches.
+ FRES operates a whole: business, creating one of the five largest currency dealing rooms
in the world by volume In 2017, FRES completed the acquisition of American Express
Wholesale Currency Services which created a travel focussed Corporate Client portfolio (e.g. TU!)
* Regulated as a Money Services Business (MSB) by HMRC.
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* FRES is approved by the Financial Conduct Authority (FCA) as an Authorised Electronic Money
Institution (AEMI) and issued its own Multi-Currency Card in March 2017.
11. I Telecoms
Post Office Telecoms currently offers three core consumer products - Home Phone, Dual Broadband
(ADSL), and an emerging Dual Broadband (Fibre) offer. It delivered £26.5m DPC in FY18/19. Regulatory
pressure on consumer protection, increasing customer demand for high speed broadband services, the
emergence of new connectivity technologies, including 5G mobile networks and Ultrafast Fibre
broadband service direct to the home, mean that the Post Office needs to evolve its core proposition
away from ADSL to one focused on fibre and high speed services if it stays in the market. The market is
competitive with discounting being using and with declines in out of bundle calls looking set to continue.
We are currently behind plan on revenue: at P10 £122.m against a forecast of £132.7m.
The Board debated the Telecoms strategy in July 2019 and considered three options:
a) Continue with current supplier relationship with Fujitsu Telecoms (FJT)
b) Invest in a Request for Proposal (RFP) and migrate to optimised suppliers
c) Complete a sale of business.
The Board requested a “parallel approach” running the RFP and sales processes in tandem so that
returns could be compared.
PJT partners undertook a desk-based analysis on the Telecoms business and provided a valuation of
£160-210m (the business was valued at £150m in 2017).
The Board discussed the current state of play at the January 2020 Board meeting when the RFP was at an
advanced stage. TalkTalk and FirstSource were declared winners of their respective Lots and have been
progressed to contract approval with annual cost savings amounting to c£12m-£16m. Preparations for the
launch of the Sale process have progressed to plan, with the Vendor Assist (‘VA’) and Confidential
Information Memorandum (‘CIM’) documentation now complete. Sales advisors PJT have commenced
pre-marketing of the business, and expect to receive indicative bids by early April, and final binding bids
in June. The Board agreed that looking at the RFP outcomes and sales bids at the end of June 2020
remained the most advantageous approach whilst acknowledging the risks, given that trade purchasers
are also likely RFP bidders. The Board approved securing a 12 month extension to the contract with Fujitsu
to ensure security of supply after contract expiry which would have taken place on 17 August 2020.
12. I Digital Identity
Figures: Trading Profit YTD at; IRRELEVANT against a budget of inastevawr{upside driven by security
authorisation and Post Office Document Checking Service and increase in passport prices.)
Post Office Digital Identity provides services to DVLA, Home Office and the Government Verify service
through Digidentity. Government dropped its fee for Verify significantly in November 2018 and provision
of the service is running at close to cost. All providers apart from Post Office and Digidentity will drop
out as providers after March 2020. We are focussed on increasing customer numbers.
At the July Strategy Day a growth strategy for digital identity was discussed based on three broad phases
of market engagement: I
i. Now to end 2022/23: build a dominant position in the Government market in order to grow our
and users and start building our pipeline of FS clients.
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ii. 2022/23 onwards: leverage our ===) base for a major push into Financial Services (the largest
profit pool for ID verification), offering the banks rapid ‘one click’ customer on boarding with
reduced fraud and regulatory risk. Our go-to-market strategy will include the use of leading
channel partners such as MasterCard and Experian. The roll-out of Pensions Dashboards should
also expand our market during this period.
ili. 2023/24 onwards: extend into other high volume (but low margin) sectors for ID verification such
as travel and retail, where a large existing customer base is essential to gain traction.
In October the Board approved a short-term extension of the contract with Digidentity and noted that
the following options were being explored:
1) Establish end-to-end control of the supply chain. if the Group strategy review concludes that
Digital Identity is a long-term priority it would be better to migrate to a disaggregated supply chain
under our direct control. The net investment cost of doing so over the next few years if i
2) Establish a new profit-sharing relationship with Digidentity. A lower cost option of circa!
form a new profit-sharing partnership with Digidentity, with co-investment to address their
capability gaps and greater control (we are currently dependent on them as a monolithic supplier
and are already stretching their capabilities with delays with the current digital development
product). In that case, we could revisit the fully disaggregated model in 2023.
3) Franchise the brand and other assets to a strategic partner. if it is concluded that Digital Identity is
not a priority for investment there are partners who could take on the opportunity on a franchise
basis with modest returns for us but with limited strategic control. Greater strategic control might
be feasible with a major partnership.
it has become clear that the current arrangement with Digidentity is no longer fit for purpose technically
or commercially as their US shareholder (Solera) has adopted an aggressive approach to pricing
negotiations, threatening to pull the service if we do not cover their costs. POL has been exploring a
partnership with Yoti but the Board wants to make sure that all options are explored. Digital Identity is
not one of the “big bets” within the PSG but as part of the funding request to Government we have
asked for there to be a conversation across Government on developing an effective UK digital identity
service with Post Office central to this, possibly brokering third party commercial support.
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Item 1.3 Background Papers
Post Office Ltd
Preliminary Report on the future of the
Post Office after March 2021
February 2020
Executive Summary
Context
The purpose of this paper is to start the dialogue with Government over the
future purpose, targets, rules and support, both financial and non-financial, for
the operations of Post Office Limited (POL) after March 2021.
POL has been receiving material Government funding - financial support that is
not repaid - for many years, in addition to working capital provided by BEIS and
the Bank of England (BoE):
Government 2004-2018 2018- 2021-2024
Funding (£m) (Request)
Investment Funding 1,800 210 2
Network Subsidy 1,581 160 150
Total Funding 3,381 370 150
Average per annum 241 123 50
In 2020-21 POL will receive £50m of funding, the smallest amount in modern
times.
We are now in a process to determine the targets and support for POL for the
three years from 1 April 2021.
We have been in discussions with both BEIS and UKGI to make sure we fully
support and engage in their preferred process and we are very grateful to both
for the early clarity and timetable provided. We recognise that it is critical for us
to remain in step with the Government's spending review, details of which are
expected to be announced in the budget on 11 March. The duration of the
review period and the timetable for decisions may therefore change.
This paper was borne out of a request from BEIS on 26 November 2019:
"...we have set out three key questions based on the following scenarios:
1. Zero case;
2. Subsidy at the requested level; and
3. Subsidy at 50% of the requested level.
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The starting point needs to be zero as this is in line with Government's ambition
for POL to be self-sustaining following a decade of significant investment.
However, there is also clear public and stakeholder interest in a continued
subsidy for the uncommercial part of the network and to continue delivering the
social purpose. We would like to set a deadline of 14*"February for these
questions to allow POL sufficient time to take account of post GE
considerations.”
We have sought to answer these questions while also raising broader policy issues.
Financial outcomes will reflect policy outcomes and need to be considered together.
Our new leadership team has been undertaking a detailed, evidence driven
assessment of our purpose and strategy. This is nearing completion and informs this
paper. We are looking forward to debating these issues with BEIS, which has also
been assessing our purpose.
As a result of this work, we are not as far advanced in finalising plans for the final
year of the current Three-Year Plan (3YP) i.e. 2020-21 or the subsequent three years
to March 2024 (together, the 4YP). Specifically, we are finalising and prioritising
investment plans, finalising the implications of the combined GLO judgements and
agreeing the affordability, speed and depth of further cost reductions. Some of the
available financial analysis is therefore currently high level and the outcomes will
change over the next few weeks.
We are committed to providing detail behind these final proposals, enabling our Board
to recommend a 4YP in March. We are also committed to supporting UKGI and BEIS
to get a full understanding of and assurance over those plans, enabling their
recommendations to Ministers in June 2020.
We therefore see this as a start of a process which looks at the outcomes you are
targeting, the rules within which we operate and the support needed.
Questions addressed
What is our purpose and what Government outcomes are we delivering?
Are we delivering on our promises?
What has happened and what has changed?
Do we still believe £100m trading profit is enough to maintain the network?
What does our draft 4 Year Plan show (subsidy at the requested level)?
What financial support are we requesting?
What non-financial support are we requesting?
What are the material risks?
What happens if we get nothing beyond the existing working capital facility
(Zero case) or if we get half of what we have requested (50% level)?
10. When can Government expect a financial return?
PONAgayNnr
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Conclusions to Date
Purpose and Outcomes
In November 2016 BEIS valued the contribution of Post Office to the UK at £4.3-
9.7bn per annum. While this has not been updated, the increasing dependence on
Post Offices for free access to cash reinforces our unique role.
We have undertaken detailed customer, Postmaster and employee research to
underpin our purpose and strategy. Our emerging purpose reinforces the importance
of providing value to customers into the future, focused around three sets of
outcome:
« Providing easy, national, physical and digital access to customers for cash, parcels
and other key services;
e Supporting Postmasters to thrive through a combination of training, support,
simplification and pay; and
e Driving the business to be self-supporting through investment, cost reduction and
commercial progress.
We believe that ensuring the longevity of the network while using less taxpayers’
money remains profoundly important to the Government. In addition, we provide
benefits that support several Government outcomes:
e National access, providing a level playing field for customers, not just in city
centres and the affluent south-east;
Footfall to support high street retailers;
Support for the last shop in many rural and urban deprived communities;
The last, national source of free access to cash;
Trusted connections to digital services for customers;
Access to competitive markets for customers who do not use digital services;
Reduced car usage, operating within 1 mile of 90% of the population.
All of these are important but community and environmental goals are not assumed
to be as central to our purpose as customers, Postmasters and commercial progress.
Delivering on our promises
In the current 3YP period, we are focusing on the following specific targets:
A network of more than 11,500 Post Offices.
Meet national Network Access Criteria.
Reduce Funding over time, in line with the agreed plan.
Improve trading profit to £90m per annum in 2020-21.
Protect 3,000 Rural Branches.
After 22 months of a 36-month plan, we have continually delivered on all of these
targets, as set out in the Report that follows this Executive Summary and we are
forecasting that we will continue to do so through to March 2021. This should give
confidence that we deliver on our promises.
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What has happened and what has changed?
While the network has consistently met its targets, the pressure on Postmasters has
grown. Our partners are not immune to high street pressures, where many retailers
have failed. Business rates, the living wage and other inflationary pressures are
taking their toll and an increasing number of Postmasters are voluntarily giving up
Post Offices. As a result, the number of outreach branches, providing a service in
areas with limited customer need, has grown to 1,660 at the last year-end.
All comparisons with the 3YP include 14 months of forecast and the outcome will
change as we complete the 3 year period. Our current, draft budget is forecasting
that we will continue to deliver commercial progress ahead of the 3YP but often in
different ways:
20/21
Budget
(Draft) 3YP* Difference
Revenue
Cost Of Sales
Net Income
Agents Pay
Staff Cost
Non Staff Cost
FRES
Other Income
Trading Profit
* adjusted for accounting changes and network team impacts
To.help stabilise the network, compared to our 3YP we be spending an additional
"} per annum on Agents’ Pay next year and at leasti===n on other agent support,
recognising the need to build new relationships with Postmasters.
Overall, commercially we are performing better than our 3YP, albeit with a mixture of
ups and downs. Mails, Banking and Telco are ahead of expectations, Post Office
Money and Insurance behind. We are seeing some profound market shifts and
rapidly increasing competition in Telco and Insurance. Nonetheless, we are delivering
additional, commercial turnover, replacing lost Government Services and forecasting
next year to be some: head of the 3YP. Trading profit has consistently beaten
the 3YP and will continue to grow.
Investment spend will be bi in line with the 3YP overall, subject to the final
plans for next year. Out o' of currently forecast spend on investment, some
was undertaken to provide a financial return, with the other investments
ights on and gulatory changes. We will be delivering
next year, : fully annualised. This gives a reasonable
return on investment of 35% over the 3 year period, and a payback period of 5 years
across all spend. This is behind the planned ROI of 43% and we are strengthening our
change capability and learning the lessons. The final, proposed spend for next year
may increase.
In addition, we expect to incur some of spend on the GLO in this period, little
of which was forecast. We have managed this within our facilities and through
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Item 1.3 Background Papers
determined work on cash efficiency. Overall, efficiency work has enabled us to reduce
our working capital borrowings from Government and we are forecasting that we will
have reduced borrowings by some [i lover the 3YP period after funding GLO.
Nonetheless, the value of our Bank of England facility is reducing and security
headroom rules provide an increasing constraint.
Do we still believe trading profit is enough to maintain the network?
In a preliminary document to the 3YP in 2017, we had offered the view that with
extra borrowing rights, which were not forthcoming, we could get the 2021 business
to be at “BAU” by 2021, enabling us manage without investment funding or network
subsidy if we delivered } per annum trading profit.
This no longer appears possible for a number of reasons:
« Rising network churn is increasing the cost of maintaining the network, up 12%
last year to 464 branches.
¢ Rising agents’ pay offsets the benefit of lower central costs, leaving our losses
from loss-making branches relatively unchanged, rather than falling as expected.
e We have material change still to deliver. We almost certainly need to exit Horizon
and the Fujitsu relationship, digitise and open up our parcels business and replace
our contracts with Postmasters. These major interventions are being worked
through at the moment.
e Market competition is evolving continuously, as is the regulatory environment.
Competition from both big, well capitalised businesses, in Mortgages, Savings,
Telco and Insurance and from new entrants seeking to grow share, in Travel
Money, is increasing.
e Our strategic work is focusing us on our core businesses of Parcels (a growing
market) and Cash (shrinking) and while they will grow contribution during the 4YP,
there is likely to be real decline afterwards, especially in cash. It is not yet clear
where the long-term footfall will come from and we will likely have to invest in
other businesses and in branch automation to see a 5-10 year future for the
network.
What does our draft 4YP show?
Our 4YP is at a preliminary stage and does not yet include the outcomes of our
investment prioritisation, the full operational implications of the GLO or our fully
worked through plans to reduce costs. Any numbers must therefore be heavily
caveated and will change. The current, draft 4yP plan m size and
, more
than halving headcount for the second time since independence.
Losses from loss-making branches are c. Appendix 3 sets out why they are not
expected to change materially, in spite of ‘forecast commercial progress.
What financial support are we requesting?
In the draft 4YP, ou financial request is to continue to receive an annual
Network Subsidy of; In addition, we are requesting a continuation of the
current working capital facility. We are not requesting any change in limit but we are
requesting a change in the security headroom calculation to resolve an anomaly and
4
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3 Background Papers
nally, we are requesting an ability to borrow
We would pay interest and make repayments on normal commercial
‘als would go through formal governance.
It has been suggested that lending money which would be repaid can feel at the
forecast stage to be the same as funding without repayment, while repaying working
capital doesn’t “count”. We are keen to work with you to agree the underlying
cashflows and the rules around them to ensure that we have some flexibility to
operate while protecting your interests. Businesses do need to borrow sometimes. In
reducing borrowings, we have demonstrated an ability to manage cash and would
contractually commit to repayments. We would be happy to reinforce these disciplines
by borrowing commercially, although we understand that is not preferred.
What non-financial support are we requesting?
We are keen to debate with you the nature of the Services of General Interest
(SGEIs) and their relationship to the definition of a Post Office. Providing access to
cash, parcels, bill payments and, for example, rod fishing licences are all different
both in the number of outlets required and their location.
It may reflect customer needs to have more parcel shops in City Centres, to evolve
travel propositions that support Foreign Currency, Travel Insurance and Parcels but
not cash or bill payments. Multiple partners may be keener to provide smaller
numbers of services or a cash free offering: cash drives cost, complexity and risk.
These customer-oriented changes would all be difficult today because none of these
branches would be defined as a Post Office or contribute to the 11,500 target which
then becomes a burden rather than a boast. We are not asking to aim off, simply to
have a conversation to see how we can make the network more resilient by flexibly
meeting customer needs rather than falling back on outreach to maintain a numerical
target.
Secondly, we are requesting confirmation that if we sell assets or a business, we can
retain and reinvest the proceeds. We are, as you know, seeking to sell our Telco
business, reinvesting the proceeds and losing its cash contribution.
We are not proposing investing in providing Government Services which are being
progressively replaced with commercial turnover. Commercial partners trust us and
recognise our value more every year, growing our revenues, while our Government
revenues continue to decline, arguably increasing the risk of future and further
subsidy. We do recognise that this is the case and that there is no appetite for us to
fulfil our role as the “front office of Government”.
We want to flag one possible exception. The UK would benefit from an effective digital
identity service with ourselves remaining at its heart: we have always had the largest
market share in Verify. That does not appear possible as we stand today and we are
not assuming that digital identity will be investible. Nonetheless, our shared interests
are considerable and we are asking for a full conversation across Government to see
whether this opportunity can be revived, perhaps with third party, commercial
support which we could broker.
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Item 1.3 Background Papers
We are also seeking a conversation about alignment with Postmasters. Our current
financial targets make this harder because Postmasters are by far our largest cost. It
would be an excellent time to have a full discussion whether Post Offices would be
more resilient if Postmasters shared in its ownership and were able to trade shares
among themselves as they join, invest in and retire from the Network, supported by
meaningful Board representation and a different representative structure.
What are the material risks?
The commercial markets we operate in are changing fast, as is technology and the
changes in customer behaviours it enables. Funded as set out above, we believe we
can manage these commercial risks as we have done overall in recent years.
Even in this scenario, there are three non-trading risks that could push us outside our
funding:
e Ifthe future GLO costs, including in relation to the criminal cases that generally
predate our existence as an independent business, are very high.
e If through court action or legislative change a material number of Postmasters are
considered to be workers.
e If the Bank of England facility is materially reduced or withdrawn.
What happens if we get none or half of our requested financial support?
We strongly believe that national access criteria remains the right target and we are
aligned with the emotional power of the 11,500 target. Without the funding and
appropriate SGEI flexibility, we may not be able to contractually commit to retain it.
We need to generate enough value commercially for customers, for Postmasters and
for our commercial clients. If financial support reduces from that requested, we are
progressively more likely to disappoint in other ways:
e Failing to fund the GLO outcomes without direct financial support from
Government,
e Failing to invest in the business, so that more customers and Postmasters leave
the Network and there is no long term footfall driver,
e Falling back to recent history, when POL required systemic annual “blood
transfusions” of hundreds of millions of pounds just to stay open, a not uncommon
situation in Post Offices around the world.
When can Government expect a financial return?
We completely support a financial return for Government in recognition of its
generous support for Post Offices but the evidence is that the network is fragile and
the priority must be ensuring that we have a stable and resilient Postmaster group.
As you know, our particular concern about a dividend structure as discussed last year
is that it would undermine relationships with Postmasters who accept POL’s trading
profitability only because the money is reinvested.
We think the right return is reducing overall borrowings over time, while allowing
some flexibility to manage between years and to make some longer-term
investments. It may even be that a progressive reduction in the Government's role -
ownership by Postmasters, funded commercially - will drive the best outcomes?
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Next Steps
We recognise that this is merely a first contribution to a series of important debates
and that you will be challenging and assuring yourselves of the best approaches and
our likelihood of success. We fully support this process and will fund UKGI’s third
party assurance work. We remain very grateful for Government’s support and look
forward to delivering agreed plans for future success.
We will work with UKGI on our plans and forecasts over the next six weeks, enabling
the Board to recommend a 4YP to BEIS at the end of March.
We will work with professional advisors appointed by UKGI to test and assure our 4YP
during April and May, enabling recommendations to Ministers in June. After that, we
assume the path to a Government decision will follow the wider departmental
spending round. As a long stop date, we note that our Annual Report must be filed
with Companies House by end December and if a funding settlement is not formally
agreed by this point, we will have to publish accounts showing that we are not a
Going Concern: all funding, including working capital, ceases on 31 March 2021.
Our understanding is that these plans will need State Aid approval and we are in
discussions about timing: an earlier request might prove helpful for us, recognising
that this is an important area of Government policy.
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Item 1.3 Background Papers
The Report
a. What is our purpose and what outcomes are we seeking to deliver?
Our draft purpose is to maintain the network for customers while reducing
Government financial support. Our detailed work is focusing us on three priorities. We
believe that they are shared by BEIS as our shareholder and primary funder:
¢ providing easy, national, physical and digital access to customers for cash, parcels
and other key services;
e supporting Postmasters to thrive through a combination of training, support,
simplification and pay; and
e driving the business to be self-supporting through investment, cost reduction and
commercial progress.
These are consistent with our current priorities (set out in Section 2). In addition, we
operate within a set of rules and practices, including:
« we must deliver a variety of Services of General Economic Interest in the bulk of
the network, allowing little flexibility for local needs. If we do not provide SGEIs,
the locations cannot generally be considered a Post Office;
« we must be trading as Post Office in at least 11,500 locations;
* we may not borrow from anyone but Government;
¢ our current facilities with BEIS and the BoE have rules beyond facility limits to
ensure they are operated in line with their original purpose; and
e the Government must not directly fund GLO spend.
In addition, we have been in conversations with UKGI about how Government might
see a financial return on its generous, long term investment. In that context, we are
keen that reductions in working capital balances can be considered to offset any
borrowing.
Each rule and preferred way of working has a good reason but the combination of
rules in a commercial setting can be difficult to manage and we are keen for this to be
a broad-ranging and holistic conversation about purpose, priorities and ways of
working.
2, Are delivering on our promises?
We are 22 months into a 3YP that lasts from April 2018 to March 2021. It is important
to remember that comparison against that 3YP includes a significant element of
remaining forecasting and any final comparison will inevitably be different. In
addition, important work must be completed before we finalise the budget for next
year, which will also change.
When we quote the 3YP we are focusing on the documents approved by the Board in
October 2017.
In addition, there was an earlier and more detailed document setting out our requests
and proposals in June 2017. This document was not the same as the 3YP and in
particular, we did not receive a proposed loan facility of up to . We will
refer to that document where helpful but it did not represent final, agreed, funded
plans.
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Item 1.3 Background Papers
Our primary objectives for this three year period are as follows:
e Maintain a national network of more than 11,500 Post Offices.
e Meet national Network Access Criteria: over 90% of people in the UK live within
a mile of a Post Office.
e Reduce Funding over time, in line with the agreed investments.
e Protect 3,000 Rural Branches.
e Deliver commercial progress to;
accounting changes).
EBITDAS in 2020-21
We are successfully delivering these requirements and forecast that we will continue
to do so through to March 2021.
Our network has remained stable in overall size as set below:
With a latest branch number of 11,605:
Branch Type Number of Traded Branches
MAIN 3,416
LOCAL 4,086I
DMB 131
Traditional 2.312
Outreach 1,660]
Total 11,605
Alongside maintaining the network scale, we have continued to operate a network that
delivers the national access criteria as set out in our latest Network Reporting:
— —
cme [Tota oroaenwaI antes I Marae Rennes
= se
99% 90% o
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We do note however that the number of part-time outreach branches has grown,
reflecting limited customer demand and retailer appetite in specific locations. This is
expected to continue if we are managing the same Post Office, network and SGEI
definitions.
The goal of reducing funding requirements over time also continues to be met, with
total funding for the current funding cycle (18/19 to 20/21) being maintained at the
agreed level, which is 42% that of the previous three-year period:
This improvement has been possible by steadily improving our trading profitability:
EBITDAS profit/(loss)
IRRELEVANT
2012/13 -2013/ ross 2 2016/17 2017/18 2018/19 «2019/20 2020/22
‘Actual Actuat Actual Actual Actual Actual Actuat Forecast’ Target
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Whilst total revenues have remained relatively flat over the cycle, this trend belies
the growing of non-government revenues to offset the further decline in government
revenues:
IRRELEVANT
Against the backdrop of these relatively static revenues, profit improvement has
come from a more efficient cost base, increasing our trading profit and allowing us to
become more self-funding:
Whilst the above shows a draft increased cost base next year, this is driven
predominantly by revenue generating activities, with the shift to fibre in Telco adding
higher pass through cost of sales in
Identity, to offset currently loss making supplier arrangements. IT related Non-Staff
costs in will also increase next year, as the run costs for improvements in security,
analytics and compliance flow through, as well as those for product development such
as British Gas and Branch Hub. These are under review and may change.
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Item 1.3 Background Papers
Further to these objectives, the 3YP approved by all parties in October 2017 had a
series of financial objectives, which are discussed in further detail in section 3. To
date, we have delivered (and are forecasting to continue to deliver) these financial
targets: meeting or exceeding our trading profit aspirations and maintaining or
improving our borrowing.
3. What has happened and what has changed?
Whilst we have delivered against our core contractual and financial targets, as with
any business plan, external and internal factors have driven changes from the
underlying assumptions originally laid out in the current 3YP:
20/21
18/19 19/20 Budget
Actuals Forecast (Draft) 3YP* Difference
Revenue i i
Cost Of Sales i
Net Income H
Agents Pay Hl
se IRRELEVANT
Non Staff Cost i
FRES ;
Other Income Hl
Trading Profit . __d
* adjusted for accounting changes and network team impacts
Our top line trading is exceeding expectations, especially in Mails and Cash, partly
offset by a strong decline in Post Office Money. Other ups and downs largely net off:
20/21
18/19 19/20 Budget
Product Area Actuals Forecast Draft) CAGR 3YP* Difference
Mails i
Financial Services - PO Money )
Financial Services - MoneyGram, FX & Postal Orders )
Insurance )
Government Services (incl. POCA) )
IRRELEVANT
Telco
Retail, Lottery & Other
Banking & ATMs
Payment Services
Total
* Restated for divisional shifts.
¢ Mails is maintaining turnover, an improvement from forecast decline. We have
benefited from sales efforts around upgrade products such as Special Delivery,
growth in Home Shopping Returns and a strong combined market presence with
Royal Mail, limiting the growth of the competition. These have offset the
underlying and accelerating decline in letter volumes. We are seeing some
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emerging threat from Royal Mail’s online competition which we will have to
respond to.
e PO Money includes mortgages, savings, consumer lending and credit cards. We
are increasingly performing worse than the 3YP and materially worse than the
budget for this year. Ongoing low interest rates and ring-fenced bank capital
have significantly increased competition in mortgages, which also drive the
funding for savings propositions. This broader market shift, with Tesco Bank
withdrawing from the mortgage market, is recognised in the new Bank of
Ireland agreement. In addition, digital propositions are facing more competition
from new businesses like Manzo who are focused on growth not profitability and
we have therefore invested less in this space because we would not see a
return. The Bol reset will enable increasing future flexibility and a full
replacement of our partner by 2026: we have already changed credit card
partner.
« The FX and MoneyGram businesses are largely maintaining revenue but have
not achieved forecast growth, reflecting low margin digital competition in FX
and less money being sent to Eastern Europe due to the low value for sterling
and reduced net immigration.
e Insurance revenues have grown over the period, but behind plan and less
profitably. Change, including the re-platforming of the home business, has been
expensive. We are looking to harvest investments already made rather than
investing further.
e¢ Telco revenues have remained stable, better than forecast, in spite of
significant industry change both in regulatory pricing restrictions and the
accelerated decline of Home Phone. This requires ongoing investment in an
increasingly competitive market and we will now sell the business if the right
price can be achieved.
e Lottery and Gift Card sales have remained relatively stable robust over the
period, although future market share decline is still forecast in Retail Other.
e Banking revenue growth is very strong, reflecting the re-negotiation of prices
in Banking Framework 2 (BF2) and the culmination of a 5 year plan to set up,
stabilise and grow the cash business. We are seeing continued growth in
volumes.
e The acquisition of Payzone has boosted our Payment Services revenues and
enabled contact wins such as British Gas. The overall market continues to
decline as predicted, but we are building market share which drives material
footfall, stabilising the network.
Overall costs are r than plan, largely due to Agents’ Pay. Direct costs are
forecast to fall b per annum, less than forecast. This also reflects more agent
support of some larger field teams and other in year investments. This is an
area where our work on 2020-21 is not complete.
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Item 1.3 Background Papers
20/21 Budget
Cost Area 18/19 Actuals 19/20 Forecast Draft CAGR 3YP Difference
Cost of Sales
Sen IRRELEVANT
Non-Staff costs
Total
d support for the Telco business: we
turnover business.
Cost of Sales is very largely driven by out:
directly employ some 11 FTE to support a
Agents’ Pay is increasing by :: per annum
of three main factors: higher and different mix of revenue than forecast,
especially in Banking and Mails, of whic
network
Staff costs are reducing
the business but that is
Total employee numbers
categorised as follows: 2014 2015 2016 2017 2018
‘Administration / Head Office
I Directiy Managed Branches (OMB)
‘Supply Chain
I Payzone Bill Payment
Total employees
Part of this shortfall is the other side of investment in agents, with the network teams
increased as we moved away from a world where most Agents never met someone
from Post Office (£6m). As flagged earlier, staff cost is an area where our plans are
developing more slowly than assumed due to the focus on strategy. However, it is
absolutely agreed that reducing costs is a key strategic imperative that will be
embedded in the 4YP. In the last 5 years we have reduced BAU FTE from some 8,000
to around 3,500 today, and our benchmarking is targeting an outcome of c. 1,600-
1,700 FTE in the next phase. This is subject to the availability of investment funding
for redundancies.
Non-Staff Costs are broadly in line with plan and flat, with inflation increases
covered, We are facing renewed pressure on IT costs, which represent c. 30% of non-
staff costs. Again, these are under review, especially the future of Horizon and
Fujitsu.
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Investments played a signifi part in the 3YP discussions, and we originally
planned for a cash spend of excluding litigation), which was supported by
UR f investment grant alongside the reinvestment of our own profits. Including
brought forward spend from 2017/18
equivalent total investment spend envelope sits at u
Baseline 3 Yr
Total
17/18 Carry Forward
Non-Cash Element
Current Scope (excl. Litigation)
Current Scope Subtotal
Our stated policy for investment spend for this 3YP was to reinvest investment
funding and everything we earned but not to borrow for investment. In fact, we are
forecasting to have earned a further 7 through higher trading profit and lower
interest costs but this has been retained to fund GLO costs.
A more detailed view of the investment and litigation costs, along with associated
benefits can be found in Appendix 1 and is summarised below. This is also reported to
UKGI monthly and via the Board on a quarterly basis:
Current
Current 3YR Plan 3YR Plan
Programme (£m) Paci Cae ae Variance I Forecast I ore, I Variance
Benefits I oo I
Simplify the retailer proposition
‘Modernise our products and services
= IRRELEVANT
Modernise our skills, polices and processes
Non-UKGI Funded
Post Office Investments
No works beyond the currently agreed levels of ! have been committed to,
however, as we finalise the investment decisions from PSG, we may propose further
investments beyond the scope of the 3YP, whilst staying within our self-funded
cashflows. The finalisation of investment priorities will also mean that the detail in
Appendix 1 will evolve between this submission and the March Board.
We expect to end the 3YP plan period with 48 Directly Managed Branches, some 77
fewer than planned. This reflects some material deals with multiple partners such as
WH Smiths.
As noted above, we have invested less than planned in digital products in Mails and
Identity, as negotiated market and Government agreements are still taking longer to
develop.
We have spent more and got less for our money in digital investments in Financial
Services (as noted above competition for scale has made this less financially
attractive) and in some key IT projects such as Everest and Back Office
Transformation which stabilised our IT estate. We have learnt that changing 20 year
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old, undocumented IT across multiple technology generations is much harder than we
assumed. We have also found that Insurance investments are not yet producing the
expected returns and this is the focus of that leadership team.
Overall, we are producing an return over the period of 35% from the investments,
still within our limits but lower than the planned 47%. This is disappointing and we
have increased our change capability to ensure lessons are learnt. It is worth noting
that we included no contingency within the planned portfolio.
Cash and borrowing
During the period, we are reducing our borrowing from Government as follows:
3 Year
18/ 19/20 20/21 Total
EBITDAS
Interest & Tax
Investment Funding
Network Subsidy Payment
Change & Capital Spend
Cash (borrowed)/saved pre-GLO
GLO Spend
Cash (borrowed)/saved post-GLO
Cash Efficiencies
Net Cash saved/(borrowed) I
IRRELEVANT
We are now forecasting to spend some on the GLO, which was largely
unforecast. Our legal advice was optimistic on two fronts: that we would win in court;
and that by winning, second stage costs and activities such as next generation
claimants and appeals of criminal convictions would be avoided.
We are on course to reduce borrowing b' over the current cycle. We are
planning to spend less than we are bringing in for 19/20, in line with
expectation that we would part fund the cycle with previously built up free cash flows.
After spending
ANT} ver the 3 years, but
will have offset this with ¢ of cash efficiencies, all but f which we are on
course to deliver this year. se net cash efficiencies also ignore working capital
movements - with of extra working capital being funded in 2018-19.
Funding availability from BoE has fallen in line with cash withdrawals being sent out
from our cash centres. We are in discussions with BoE on whether this remains the
right mechanism given our importance to cash infrastructure nationally and the rising
deposit levels. BoE is undertaking a review with a proposal promised in 2020.
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GLO spend is also reducing security headroom, which fell to in December, and
this will operate as a constraint going forward, which cannot be improved by cash
efficiency in the network:
Security Headroom 19/20 F 18/19 17/18
£m
Total cash in use
Other assets
Total Security
Government Loan IRRELEVANT
I GRO I
Total Obligations
Headroom
4. Do we still believe
network?
trading profit is enough to maintain the
In the preparatory paper in 2017 that we thought that we could be financially
independent if we were delivering :! rading profit each year i.e. we would not
need investment funding or network subsidy. This was based on the idea that we
would be at the end of a period of significant change and be operating in BAU,
enabling broad annual re-investment as follows:
Approximate Investments I émI
Network and Product Maintenance & Investment
IT Maintenance
Regulatory and Customer Change
It is worth repeating the context: the paper dealt in detail only to March 2021 and no
work had been done on later periods; no assurance was requested or undertaken; it
did not form part of the approved plan; extending the Network Subsidy was also
discussed openly in that paper and no view was reached; and we did not receive the
requested borrowing that might have enabled us to get closer to BAU.
As an assumption it was also naive:
e The level of market and regulatory change affecting our business is increasing.
« We assumed that improving overall profitability would reduce losses in loss-making
branches and this is not proving to be the case. Details underpinning this are set
out in Appendix 3.
e We have not tackled the future of Horizon in this period and that will be a material
cost.
e Our most successful business, far above forecast, is cash. This must have a limited
shelf live and we will still need to invest either to bring on another generation of
commercial propositions or to materially reduce the network cost through further
automation - or both.
e Unforecasted GLO fees are reducing available cash for investment and make
security headroom a constraint.
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Most significant may be the decisions we make following the GLO judgements. If the
conclusion is that we should completely replace all of our Postmaster contracts and
completely replace Horizon and Fujitsu as well as making other operational and
cultural changes, then the investment will be profound over a number of years. We
are seeking to land recommendations to the Board for March.
5. What does our draft 4 Year Plan show?
As already noted, our work to ration investment priorities, on the full operational
impacts of litigation, and on costs are being finalised with an iterated 4YP due for
Board approval in March. These are significant, partly for the reasons above. In
addition, if we prioritise and reduce investment spend, benefits and trading profit will
reduce, limiting future funds available for investment in the following year.
Subject to that work and further reviews and challenges, our current view of the 4YP
is a positive one. However, we must stress that until we have got a unified plan that
enables us to fund the changes we need, these figures must be considered uncertain:
ALLE
Gross Income
Cost of Sales
Se IRRELEVANT.
Non-Staff Costs
Other income + Profit share _
EBITDAS
Our revenues grow and stabilise over the period, with the full impact of the new
Banking Framework (and associated costs) flowing through, although we then expect
this to fall after 23/24 as the declining market offsets our increased market share and
rates. There is also a clear expectation to target further reductions in staff costs
beyond those already actioned. Appendix 2 contains further detail of revenues and
contribution by area.
In particular, we a nstrained in investment funding in 2020-21. We expect to
generate around }" tiof free cashflow. However, forecast spend on the GLO,
exiting Horizon from its Belfast infrastructure, delivering on the DMBs and upgrading
PCI compliance is forecast to cost around i next year. With a certain amount of
keep the lights on and regulatory spend always required the amount we can invest in
reducing costs, in maintaining out Telco business or making commercial progress will
be very small.
Our plans therefore make the assumption that we will continue to be supported with a
network subsidy of er annum to keep loss-making branches open and
enabling us to use trading profits to fund change.
We fully appreciate that these business cases and priorities will be subject to material
further review and challenge by the Executive, the Board and by UKGI and its assurance
partners both before and after March Board.
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6. What financial support are we requesting?
We are requesting 3 items of financial support over the coming funding cycle:
e Continuation of the NSP payment at current levels.
e Achange in the current Security Headroom constraints.
e The option to borrow further funds under commercial repayment terms.
We are asking for a Network Support Payment (NSP) of £50m per annum. This is in
line with the currently agreed levels, and reflects the ongoing costs to support the
network size and SGEI requirements, which are not expected to materially change
over the next 3 year cycle (this logic, along with further detail, is discussed in
Appendix 3). Currently if our costs fall below £50m we would refund BEIS, and we
propose this continues, creating a clear incentive for us to continue to reduce the
actual losses which are currently some £74m. While reducing losses below £50m may
be difficult, we would suggest that we would be better incentivised to do so if there
was a profit share of reductions in future rather than a 100% return to BEIS within
year.
We are not asking for a larger working capital facility, because we accept the
efficiency challenge that we should continue to match any further investment with
reductions in usage. However, we are becoming increasingly constrained by the
Security Headroo: the reason for. We are asking to
amend the rules: ncluded in the calculation because
Id like thi luded. W king
IRRELEVANT _ a
IRRELEVANT I
Having to earn enough each year to invest drives us to be short-term and risk being
an ineffective shareholder for long-term growth businesses such as Insurance.
Businesses of our scale do borrow and this is different from investment funding: we
will pay interest at a commercial rate and repayment terms will be set. We assume,
based on previous Treasury guidance, that Government would prefer to be the lender
and the borrowing would net off in the whale.of Government accounts. We are
(independently verified) and with agreed repayment terms, perhaps over 5 years. It
is worth noting that while our current borrowing appears significant, it is cash backed
and our net borrowing is just 6% of our fixed assets, 28% of our net assets and 37%
of our trading profit forecast for next year.
We have heard it said that Government would, in spite of the balance sheet offset,
view lending money to POL as the same as investment funding. We believe that we
have demonstrated a willingness and an ability to manage our cash responsibly and
we would view repaying a loan as a contractual commitment that could be linked to
incentives as we do for network criteria. If all of these were to be agreed, we believe
this would allow us to continue to self-fund investment, support further litigation
costs, whilst also delivering the changes required commercially and deliver your
agenda.
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Pe What non-financial support are we requesting?
We believe that, subject to your better judgement, we should retain targets for
11,500 locations and national access criteria. However, we do want to engage in a
debate with you over making the SGEIs more flexible.
Every location is different and the places where we need cash may be different from
the places where we need parcels: cash is critical in rural locations but can be over-
supplied in city centres. By contrast more parcelshops would be worthwhile in City
Centres but not if they had to bear the full cost and complexity of a current Post
Office. Multiple partners in particular would find the proposition more compelling if
they didn’t have to train staff to manage rarely requested products such as Rod &
Fishing licences in every branch. Creating a more flexible network, more attuned to
local needs and therefore more resilient cannot be achieved today because any
significant variation to the SGEIs would mean that we could not define a location as a
Post Office and would breach 11,500.
Such flexibility would also be a potential solution to the levels of churn being seen,
and the related increasing numbers of Outreach branches that are used to maintain
the current network size in the face of increased levels of, which are not always the
optimal solution for postmasters and communities, and are also usually loss making
to maintain (churn is discussed further in Appendix 4):
No of Outreaches
ws SB
ne
Secondly, in our current plans we have de-prioritised any investment or activity to
support our ability to deliver Government Services. We continue to see a consistent
reduction and we accept that. The one potential exception could be digital identity
where having built a market share of over 50%, we are likely to lose money on new
pricing and are currently dependent on our only competitor. Given the lack of clarity
on the Government's plans we simply cannot invest and an historic and mutual
opportunity may pass us by. We are asking for a whole of Government grouping
including No 10, the Cabinet Office, DWP, HMT and of course BEIS to see if there is a
better way, potentially enabling third party partner investment.
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Finally, we would like to start a debate with you on the future of Post Office. In any
given period our drive to commercial sustainability conflicts with and must be
balanced with Postmaster needs: they are our largest cost as well as the people who
critically serve our customers, our biggest asset.
Many of the issues in recent years have arisen through a lack of alignment between
Post Office Ltd and Postmasters. Some of that has been cultural and deeply rooted in
the history. However, the drive to commercial sustainability has had the biggest
impact. Postmaster pay is a cost to POL and when rising Government revenue failed
to materialise, Postmaster pay fell. We have made commercial progress and have
used this progress to begin to reverse that process.
However, the fundamental imbalance remains and we know that we cannot build a
commercially sustainable Post Office without commercially and emotionally
sustainable relationships with Postmasters. We could make some symbolic changes —
a Postmaster on the Board or an Advisory Council - but these are hard roles to
perform well and can easily become lip-service. We also need to resolve the
We believe that in principle, ownership by Postmasters might resolve the
imbalance, secure the network, improve performance and be politically popular and in
line with the new Government's national agenda. It could also be done through
secondary legislation. We would like to work on this with you, recognising that it is a
complex issue.
8. What are the material risks?
We will continue to have and seek to manage the usual commercial trading risks as
customer needs, technology and competition change. For example, we are close to
but have not yet signed a new agreement with Royal Mail. We believe that we have a
good track record in delivering improvements in a changing world.
In addition, there are three non-trading risks which have the potential to seriously
damage us and which we might not be able to manage:
« The CCRC review of convicted Postmasters: If this results in a significant
further settlement or fines, we may not be able to fund them out of trading
profit. Clearly borrowing flexibility may be helpful here. It is worth noting that
the CCRC has been reviewing individual cases since 2015, we have not brought
private prosecutions against postmasters which relied on Horizon evidence since
mid-2013, and the large majority of the cases currently under review pre-date
Post Office’s separation from Royal Mail on 1 April 2012.
« Workers’ rights: If, either through the court case or changes in Government
rules (which you are considering), a significant number of Postmasters are
characterised as workers, with entitlement to pensions, sick pay and holiday
pay, our financial model will cease to work and we will become dependent upon
Government support again. At its theoretical maximum, the cost would be
tt w/ per annum and a one-off I to resolve the history, neither of which
we could fund ker status for the higher risk Postmasters might
estimated at i iper annum and a one-off historical payment of
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smaller, such costs would still put a strain on our cashflows, and impact
profitability. For the future, we will recommend that Postmasters are excluded
from worker or employee status in any legislation seeking to deal with gig
economy issues.
« The Bank of England facility: This is under review and if the available funding
continues to fall or is removed, we would only be allowed to access replacement
funding of some
9. What happens if we get nothing beyond the existing working capital
facility or half of what we have requested?
In these scenarios, we would have to materially reprioritise our investment portfolio,
slowing down organisational structure changes and PSG outcomes and commercial
development activities, along with their associated tangible and non-tangible benefits.
In the near term, we would focus on delivering against the DMB strategy, litigations,
BAU and Regulatory outcomes, and little else.
Almost inevitably, the lack of investment and support for Postmasters and customers
would reduce the stability of the business and make it harder to make the changes
required following the GLO. As a result, we do not believe that we would be able to
contractually commit to 11,500 branches with the current access criteria and SGEIs.
This could lead to a network reduction programme that would damage us publicly,
creating a vicious circle with the clients that fund trading such as the banks.
In addition, we would have no financial flexibility to manage shocks which might arise
from, say, the GLO. These could lead to a need to emergency government support.
We are not necessarily helpless and would press ahead with the proposed sale of our
Telco business. Another request is confirmation that we would be able to retain and
use the proceeds from any such sale. Whilst the sale of Telco would potentially
provide the ability to invest earlier, the values and timescales of such a deal are not
guaranteed.
We believe that the risks set out above are still largely true in a 50% Network
Subsidy world, but less likely to occur. We are not yet at a stage in our planning
where we can set out the impacts project by project and will work on this with you as
we finalise and assure.
In the longer term the higher and earlier levels of investment in automation would
potentially allow us to maintain the current network scale beyond 23/24, as we would
be incentivised to prioritise work to reduce the cost of the loss making branches down
to thei ilevel. However, a discussion on SGEIs would likely also be needed, in
order for us to be able to fully create a sustainable network of the current scale but at
such a reduced cost point, as some services (e.g. cash services) require relatively
fixed support costs, which would hinder such a goal.
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10. When can Government expect a financial return?
We have in the past discussed whether any network subsidy can be returned to
Government in the form of dividends, and we recognise the desire for a financial
shareholder to see returns. We do not, for the reasons above, believe this will be
affordable before 2023/24.
When approaching the topic of financial returns, it should also be considered, that
Post Offices across the world are largely subsidised, and often for a lower level of
services and network coverage.
More importantly, we believe that any such action would undermine our relationship
with Postmasters: we have managed to maintain the network through an
understanding that any profits we make are re-invested in the business. To therefore
create a financial shareholder would be deeply resented by Postmasters.
We do believe that borrowing less from Government over time, as we have done in
this 3YP, should be considered a financial return.
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1.3 Bac
Appendices
1. Further Detail on Current 3YP Investment Spend and Benefits:
Further franchising OMBS
Network Expansion
Horizon integration Hub
Multi-year Crown Project
self Service Kiosk (SSK)
Self Service Portal (Branch Hub)
Other Smaller Projects Simplify
‘Sienpify the retailer
Mails Projects
Customer Hub ~ Additional Verticals (Falcon)
Identity Services investments
Project Galaxy
Travel Hub
Digital Developments
Eagle
Reclassification from Capex to Opex
Sale & leaseback
Cash & Banking Services
Bill Payments
PO insurance Investments
Vehicles
Falcon - Peregrine
Other Smaller Projects Modernise
Modernise our products and services
Project Everest
Risk and Resilience
PC! Compliance
EUC Branch Deployment
End-of Life Replacements
Receipt Printers
I Service Transformetion Programme
COP eeprocurement
(Change Excellence (Project Trafalgar)
Security Programme
Other Smaller Projects Build
Bula flexible and secure
‘Supply Chain and Back Office improvement
Property
Date & Analytics Excellence - DAE (Arcow)
HR Programmes
Operational effectiveness
LCG Programmes
Other Smaller Projects Digitise
Digitive and optimive the busines,
Back Office Systems Transformation
‘Modernise our silt, polices and
General Dats Protection Regulation (GDPR)
Payzone (Panther)
Central
Other Smaller Projects Regulatory
Post Office investments
It is important to remember that 2020-21’s spending
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1.1. Simplifying the retailer proposition
We have delivered accelerated benefits in our DMB and Crown projects whilst remaining
within our original cost targets. Our technology projects in this space have been more
difficult, however, with the build-up and monetisation of HIH taking longer than
originally planned, and a similar story on the build of our Agents Self Service Portal.
The next version of Self Service Kiosk is still expected to deliver material benefits,
however, the work on this is only due to ramp up in 20/21.
1.2 I Modernise our products and services
A large amount of reprioritisation has gone on in this area, partly in a response to the
funding of litigation costs, and partly as new priorities have been identified.
In the Identity space, the pricing cuts on Verify have made the original investment
assumptions untenable, and on Travel and Customer Hub, initial works showed lower
than expected returns for the platform, and so these were deprioritised.
This funding has been reallocated to Bill Payments projects (e.g. British Gas), where
we are seeing delivery of both revenues and footfall. There is also material spend
flagged for next year on the Telco business, however, this is not fully committed yet,
and is being reviewed alongside the wider strategy for this business.
The Insurance project benefits are suffering from the difficult marketing conditions seen
across the wider Insurance market.
1.3. Build, innovate, flexible and secure IT
In this space we have broadly delivered against the infrastructure and security
upgrades that were targeted, with the exit of our Belfast Datacentre being taking longer
than predicted. This delay is related to agreeing a wider view on the long term future
for Horizon and the Fujitsu relationship, which will need to be one of priorities for the
next funding cycle.
1.4. Digitise and optimise the business
Whilst we have done less work than we might have liked to in Supply Chain
optimisation, this is a clear priority from the PSG outputs, and material improvements
have been done in this space - most notably improved cash efficiencies in the network
whilst also supporting the evolving Banking Framework with minimal changes to the
existing overall cost base. We also needed to fund more Property and Regulatory works
during the cycle than were originally envisaged.
1.5 Modernise our skills, policies and processes
The upgrade of our Back Office systems was a crucial and very complicated piece of
work that had to done, and whilst completed successfully, it took longer and was more
complicated that was originally scoped, and this is reflected in the costs.
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2. 5 Year Plan Further Detail
Currently forecasted future revenues by area are as follows:
Retail
FS&T
Identity
Pol
FS&qT (Telco)
Supply Chain
Central
Retail H
FS&T 1
Identity i
Pol i
FS&T (Telco) i
Supply Chain :
Central Marketing and Digital
Finance '
cio '
Comms i
HR i
Central i
ucc :
Network Operations (excl. Proper H
Property i
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3. Further Discussion on Costs of Loss Making Network
It should be noted that losses in this document are discussed from the perspective of POL
Ltd, unless otherwise specified. “Loss-making” and “uncommercial” branches are also treated
similarly.
3.1 How many branches are uncommercial? What is the branch-type breakdown of these:
outreaches, community, multiples, mains, locals. Regional breakdown. Urban v rural.
Deprived v non-deprived?
At the close of the last financial year (18/19) there were 5,392 loss-making branches and
193 uncommercial branches (i.e. DMB sites). These were broadly broken into the following
categories:
Profitable Loss Making
OmB 193) 193}
Temp Closed Branches 147 574I 721
Local 2,976) 1,008) 3,984
Mains 2,690) 705) 3,395)
Traditional 273) 2,153) 2,426)
Outreach 952! 952
Agency Sub Total 6,086) 5,392) 11,478)
Grand Total Total 6,086) 5,585] 11,671
These figures use the methodology agreed with UKGI and KPMG to validate NSP funding at a
total level, however, further improvements to the granularity of the data are ongoing, to help
further analysis and discussions in this area. Note that temporary closed branches in the
analysis were temporarily closed at the year-end snapshot, but traded during the year.
3.2 How does POL categorise loss-making branches and how many of these are in the
network? Is the number growing, diminishing or staying broadly the same year on
year?
A “loss-making branch” or “uncommercial branch” in this document is taken to be loss-
making from the perspective of POL Ltd, unless otherwise specified, with “loss-making”
referring to locations where no-one will run a model that is not loss-making (e.g. rural,
outreach) and “uncommercial” referring to branches that could be profitable but are
currently not (e.g. DMB’s).
As the methodology agreed with UKGI and KPMG in 18/19 requires full year data, there is
currently only one year of data, and so trends are hard to evidence. However, certain
extrapolations are discussed further in appendix section 3.5.
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3.3. What are the costs of sustaining these? How are these costs made up?
The latest calculated costs for sustaining these loss-making branches were:
Loss Making
Trading
QTY Profit
Temp Closed Branches 574 (4.4m)
Local 1,008 (10.3m)
Mains 705 = (17.7m)
Traditional 2,153 = (35.6m)I
Outreach 952 (5.7m)
Total Cost of Loss Making Branches 5,392 (73.7m)
Appendix section 3.11 has further detail on the make-up and logic of these costs, with the
above representing the fully allocated costs of sustaining these branches (both direct and
indirect).
3.4 Have POL made any assumptions regarding the number of branches that will no
longer be loss-making in the short-term due to recent measures including a) agent
pay review and b) area managers?
From a cost perspective the increased agents’ pay levels are likely to offset central cost
reduction impacts, leaving the fixed cost to run the branches relatively flat.
Appendix section 3.8 discusses the average product range sold through these branches, with
potential growth areas such as Deposits and Bill Payments only making up 12% of their
current business; therefore the revenues of these branches would not be forecast to
materially grow in the short term (also assuming no shift in local population density).
Network size and spread is also assumed to remain stable currently, and this along with the
above points means POL does not expect the number of loss-making branches to materially
change in the short term.
3.5 Are there losses made by branches that you think are avoidable? If so, what further
efficiencies can be generated in the loss-making network, where and how? Can POL
make any of these branches more profitable?
Excepting the DMB network, which we are making more profitable by franchising, the loss-
making agency branches are mainly loss-making to us because their share of overheads
outweighs any marginal contribution (revenue less variable or fixed renumeration) or they
are community branches with minimal revenue and fixed agents pay so loss-making before
overhead.
The first category therefore includes some avoidable losses, which we are working to reduce
by reducing overall overhead levels, thus reducing individual branch allocations of this
overhead.
For the second community category, there would need to be a targeting of the around 2,500
branches on traditional contracts that did not convert during Network Transformation. This is
unlikely to be done on mass now as there is not planned programme to do so, however, we
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will continue to deal with one by one as branches close and are replaced by modern
contracts.
Further analysis of the loss-making branches also shows that approximately 800 of the
5,392 only make a minor loss i.e. a loss less than 10% of their overall revenues. Therefore a
relatively modest net product revenue growth across the product range discussed in
appendix section 3.8 could potentially shift these 800 to become marginally profitable. The
cost saving impact of this would be relatively small, however, at approximately £3m.
3.6 How do you forecast the rise in NMW (National Minimum Wage) and potentially in
business rates will affect branches (including loss-making ones)? Are there any other
external factors that are relevant?
Whilst these factors may impact Postmaster P&L’s, it will not directly impact Post Office’s.
These factors were also taken in to account in the recent Agents’ Renumeration Review and
subsequent increases.
Other external factors that could impact loss-making branches include the continued decline
in Government services being provided through the network, general market trends from
physical to online delivery routes, and the shift over time from cash to digital payments.
3.7 London Economics/YouGov estimated the value of the Post Office network of between
£4.3bn and £9.7bn per annum. Have POL done any other estimates of this? If so, can
you quantify the benefits of the POL network on communities?”
This exercise was not originally undertaken by POL and we have therefore not sought to
update it. However, with the cash focus on Post Offices and the environmental need to
reduce journeys to towns and cities we expect the value to have increased rather than
decreased.
3.8 I Which services are the most relevant for customers of uncommercial branches? How
many customers regularly use these services?
Although there are a large number of loss-making branches, analysing them as a population
yields the following revenue drivers:
Royal Mail Labels 15%
Special Delivery 8%
Deposits 8%
Withdrawals 6%
Lottery & Other Retail 5%
ATM Withdrawal 5%
Post Office Card Account 4%
Home Shopping Returns 4%
Bill Payments 4%
Royal Mail Signed For 4%
Travel Money 4%
Intemational Standard Vol 3%
Moneygram 3%
Royal Mail Stamps 3%
Passports 2%
Mails Other 2%
Banking Other 2%
Intemational Priority 2%
Licensing 2%
Postal Orders 2%
Other Products 10%
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We are still reviewing customer sessions across these branches but hope to have this
information ahead of February discussions.
3.9 Is the supply of services in uncommercial branches meeting or exceeding customer
demand? Can you provide a breakdown of the spread of customer use/demand for
services by region?
Loss-making branches in uncommercial locations are usually considered to be meeting
customer demand as they are specifically kept open to support an uncommercial local
population density.
Our current regional split of demand is as follows:
Income %
Yorkshire and the HUnbey i 8%
Wet Mid TT 9%
15%
3.10 What else is the subsidy spent on? Can you provide a breakdown for the current funding
period? How does this compare to previous years i.e. 2012 - 2016/17?
The funding is ring-fenced to only be spent on supporting uncommercial branches and this is
adhered to. The latest calculated cost of this support was £74m versus a subsidy payment of
£50m for the same year, confirming that the subsidy is wholly consumed by uncommercial
branches.
3.11 Description of Loss-making Branch Calculation Methodology (NSP Model):
To calculate the full impact of the loss-making branches, we go through two steps on a
branch by branch basis, in line with the NSP (Network Subsidy Payment) modelling previously
agreed with UKGI and KPMG:
«¢ We calculate which branches are loss-making, and how much direct loss they generate
each year.
« Secondly we calculate how much of the income those branches receive would be
captured elsewhere in the network were they to be shut (i.e. as well as losing money,
loss-making branches also cannibalise income from profitable branches, that would be
even more profitable if the loss-making branches were not open).
Income and costs are aggregated at a branch level, based on 12 months’ worth of actual
performance, therefore it is only ever a historical view for the previous complete financial
year. The income is taken from our Credence system, and additional factors like profit share
and retention income are overlaid. The primary cost driver (agents’ pay) is taken from the
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pay system. The remaining costs are allocated based on cost drivers, developed and agreed
with KPMG by breaking down the entire budget into both fixed and variable costs, and
assigning drivers to these costs, with three levels of costs are allocated:
« Cost of goods sold - these are allocated at a product level.
« Variable costs - these are costs that directly change with the running of an individual
branch (e.g. we pay BT for the internet connection into the branch, or Visa/Mastercard
for interchange)
e Fixed costs - These are costs that do not vary directly with each branch, but in the
long term could be changed to reflect the number of branches (e.g. the Horizon
contract which is for a fixed annual amount for a fixed number of units). Note that
these do not inherently flex at a POL Ltd level with branch numbers or trading in the
short term.
Variable and Fixed Costs are allocated according to 4 main drivers:
« Customer sessions (how many customers the branches serve - card interchange fees
would be an example of one of these).
« Branch presence (purely the fact that a branch is open, regardless of scale - sending
payslips to branches is an example of these.
e Number of Horizon tills (this is the key element of technology costs)
* Cash usage (this drives the supply chain cost model).
With full income and cost allocation, Post Office is able to get a complete branch by branch
view of profitability, and assess the cost of all loss-making branches.
Note, not all loss-making branches are included in the NSP cost. The NSP is to cover POL
providing SGEI’s in uncommercial locations (i.e. loss-making models in locations where no-
one will run a model that is not loss-making). DMB’s operate in profitable locations, with
unprofitable models. If we were a fully commercial business, we would still want branches
there, and would still be taking the same steps to franchise them. So the Govt has given us
capital funding to address DMB’s, but that is separate to ongoing NSP funding. We also have
some loss-making agency branches in commercial locations (e.g. Mayfair, which is paid a
large overscale payment) that we would keep in a commercial scenario, and hence do not
include their losses in the NSP calculation
As well as the directly loss-making branches that are potentially are highlighted by the above
calculations, we also need to assess the amount that they reduce profitability in other nearby
branches, by effectively cannibalising income from those branches. The converse view would
be that if the unprofitable were to shut, we would save all of their costs, but would only lose
part of the income.
In modelling the retained income products were grouped according to different levels of
migration expected, depending on alternatives available (75%, 55%, and 35%). So bill
payment and cash withdrawals, which have many alternative providers have lower retention
rates, and POCA and postal orders, which have fewer direct alternatives or providers, have
higher retention rates. This saw a weighted average of 61% migration of income from the
loss-making branches, though for the sake of prudence, this was reduced to 50% retention in
the ANAPLAN model. This caution is because were we to close thousands of stores, the
retention might not be as high as other providers may emerge.
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4.
4.1
Further Discussion on Churn
What is the cost of churn?
The direct cost of churn was £22.5m, in 2018/19. How does this breakdown:
One off or
Cost of Churn Cost (£k) ongoing
Retrieving equipment from stores and making good. 1,368 I One off cost
Capital cost of replacement — the cost of new
branches and new vans. (Includes a mixture of physical
goods, store re-design, etc) 11,400 I One off cost
Project management of replacement — Cost of central
teams, Consultations, etc. 4,560 I One off cost
Lost sales —- Where the store is replaced, but there is a
lag 2,280 I One off cost
Lost sales: Permanent. If a Local / Community closes
and we open an Outreach, some sales are lost
permanently. 1,725 I Ongoing cost
Loss from increase in Outreach — The fixed cost of £6k
for Outreaches which serve very few customers. 1,150 I Ongoing cost
What is not included in the above:
4.2
Brand impact of closures: Inconvenience to customers and communities. Difficult to
quantify, but clearly has an impact on sales and our brand equity in those areas.
Senior leadership time: Closures take up a large amount of Management time
firefighting, responding to MP's etc.
Does not include cost of replacing Outreaches (79 in 2018/19): This is difficult to
cost, as it depends on replacement type. Generally, equipment is mobile and used
elsewhere, so only cost is £3k*79 to set-up new BT connections and sourcing different
locations, so ~250k.
Cash losses: Losses from branches that are shut due to suspension / fraud, whilst these
fluctuate and are not all churn related, branch losses average around £600k per month.
How much churn are we seeing?
Churn is increasing. Most worryingly we are seeing churn growing amongst Mains and Locals.
Increasing National Living Wage and other costs will put more pressure on this:
4.3
Churn by year 16 -17 17-18 18-19
Legacy 136 144 141
Local 108 165 186
Mains 16 45 58
Outreach 73 60 79
Total 333 414 464
Why are branches churning?
In 2018/19, 48% of churn was Involuntary (mainly fraud, death or retirement related) and
52% Voluntary (handing back the keys).
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4.4 What happens when branches churn?
For Locals and traditional branches, after 24 months:
« 50% have not re-opened,
© 30% have been replaced by an Outreach,
© 20% have been replaced by a Local.
For Mains:
* 40% have not re-opened,
e 30% are temporary run,
« 30% have been replaced by Locals.
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POST OFFICE BOARD PAGE 1 OF 6
Network Report and SGEIs
Author: Tracy Marshall Sponsor: Debbie Smith Meeting date: 23" September 2019
Executive Summary
Context
Post Office is proud of its social purpose, codified in our funding agreement with
government as maintaining a network of at least 11,500 branches providing access to
an agreed set of ‘services of general economic interest’ (SGEI). We currently receive a
Network Subsidy Payment on this basis. Post Office Ltd produces a Network Report
every year providing information about our network and customer accessibility. We
also monitor compliance against SGEI provision on a monthly basis and report
performance to UKGI. The purpose of this paper is twofold: to formally ask the Board
to approve the annual Network Report for 2018/2019 and to confirm compliance with
the Entrustment Letter and Funding Agreement in terms of SGEI provision.
Questions addressed in this report
1. What is the Annual Network Report?
2. What are our SGEIs and did we comply against them in 2018/2019?
3. What activity will take place to further assure SGEI compliance for future years?
4, What do we need to do next to progress?
Conclusion
1. The Annual Network Report provides information about the Post Office network and
customer accessibility for 2018/2019 as required under Provision 11 of the Postal
Services act 2011. It demonstrates compliance against the full suite of agreed
accessibility criteria and a growth in network numbers.
2. SGEI, or Services of General Economic Interest, include benefits such as pensions;
passports; bill payments; postal services, and universal access to cash. Providing
these SGEI products is a prerequisite of the Network Subsidy Payment (NSP) and
stipulated in the Entrustment letter and Funding Agreement. Post Office Ltd met its
SGEI requirements at the end of March 2019 and continues to do so.
3. An internal audit in March 2019 concluded that processes were in place to support
our assertion that we were meeting our SGEI requirements. A number of
additional recommendations were made to further improve processes and these
are already being implemented. Internal Audit have been asked to provide specific
assurance to the Board over the 18/19 SGEI provision.
4. Board sign off to both the 18/19 annual Network Report and SGEI compliance are
required. Following this, the Network Report can be laid before parliament and
published on our website.
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Input Sought
1. Approval to the 2019 Network
Report and confirmation of
compliance with the Entrustment
Letter and Funding Agreement with
respect to SGEI provision as at March
2019
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Input Received
. The draft Network Report has been
reviewed by UKGI, Retail and Post
Office Corporate Affairs. Internal
Audit have also reviewed our
processes
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The Report
What is the need or opportunity and why now?
The significance of our network numbers and SGEI criteria
1. Post Office is unique amongst commercial businesses in having a social purpose to
provide essential products and services to communities across the country, even in
the thousands of locations where it is not commercially viable. We are proud to do
so and have confirmed this position in our Funding Agreement with government.
This makes clear that "the Secretary of State expects POL to maintain a network of
at least 11,500 Branches for the duration of the Funding Period...[of which]...at
least 11,000...shall be required to provide all of the SGEI Services.“ SGEI, or
Services of General Economic Interest, include: benefits such as pensions;
passports; bill payments; postal services, and universal access to cash. A full list of
these services can be found at appendix two.
2. Providing these SGEI is a prerequisite of the (up to) £160m of Network Subsidy
Payment (NSP) for the period 2018-2021. Post Office ended 2018/2019 with a
network of over 11,600. Government clients can and do withdraw services from
branches on occasion, driving licences being one example.
3. We also have a set of ‘access criteria’ designed to ensure our network remains
representative of the communities we serve, particularly in rural areas. These
largely relate to x percent of the UK population being within y distance of a Post
Office, e.g. we need to ensure that, "99% of the population to be within 3 miles
and 90% of the population to be within 1 mile of their nearest Post Office outlet.’?.
Details of our access criteria can be found at appendix three.
4. Network numbers are calculated using a fully automated system that accesses two
key sources of information: The Master Data Management system (MDM) which
holds all branch information including open or temporarily closed status and what
products they sell, and the Arrow system which holds actual transaction
information for each branch. These two lists of data are combined to identify which
branches traded during any given reporting period. A number of additional
validations are then applied to ensure no duplication of branches. This confirmed
list of open branches is then used as a basis for further categorisation. We can
assess compliance against Government access criteria for example or produce
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regional information on network coverage. The list is also used to calculate our
compliance with Services of General Economic Interest as we can determine the
number of open branches that offer each specific product and service.
5. We consistently exceed our network numbers and network access criteria , as
demonstrated by the latest figures from the Network Report and at Appendix 2.7
We also assure actual availability of SGEI across our network through operational
monitoring and ongoing central analysis which identifies any issues and ensures
they are both resolved in branch and noted for reporting purposes. Details of SGEI
criteria and performance can be found at appendices four and five.
What do we propose to do and why?
Assurance processes for the Network Report and SGEI compliance
6. We will submit the annual Network Report to the Post Office Board each year for
formal sign off, in advance of it being laid before parliament and published.
7. For 18/19 we are asking the Post Office Board to approve compliance with the
Entrustment Letter and Funding Agreement with respect to SGEI conformance
based on network provision data referred to in appendices four and five. This
demonstrates that a sufficient number of branches are able to transact SGEI
products and services across our network.
8. The internal audit in March 2019 concluded that processes were in place to support
our assertion that we were meeting our SGEI requirements, and we have since
implemented changes to improve processes even further. Internal Audit have been
asked to further review the SGEI validation process and the work to date has not
identified any areas of concern that would result in the level of assurance provided
to UKGI being overstated. The Internal Audit Review is due to be completed at the
end of September. We will continue to have dialogue with UKGI regarding our
ongoing assurance processes for future years.
What do we need to do next to progress?
9. Our process around the publication of the annual Network Report has already been
audited and deemed robust. The internal audit on SGEI compliance is already
underway and will make recommendations for the future assurance of this area.
For 18/19 we are seeking approval on SGEI conformance and approval of the
Network Report, to enable it to be laid before parliament and officially published.
meet
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1. Annual Network Report for 2018/2019
See separate document.
2. Services of General Economic Interest provided by Post Office Ltd
category of Service Service Provided
1 Processing social benefit andtax - Cash payment of state benefits including state pension, child benefits and tax credits.
credit payments to the public. + Issuing of vouchers to eligible asylum seekers.
= Providing passport application forms for customers to complete and return
Processing of national identity - Checking and authentication of passport applications and supporting documentation
2 and licensing scheme + Capturing biometric data for Biometric Residence Permits.
applications + Providing vehicle licence application forms for customers to complete
{Receiving payment for vehicle licences and Photocard Licences
Services for the sale of Rod Fishing Licences.
+ Provision of facilities for payment of electricity, gas, telecommunications and water bills.
3 Pale minim! for Payment options include pre-payment and other budgeting schemes (e. savings stamps).
pre eS Provision of facilities for payment of tax bills and social housing rents.
+ Provision of access to postal services which the universal service provider (Royal Mail Group
Limited) is required to provide under regulatory conditions and directions issued by OFCOM in
A Aes ce eee Tyme: ‘accordance with section 36 of the Postal Services Act 2011 and the designated Universal
Service Provider Conditions issues by Ofcom 27 March 2012
Universal access to basic cash + Provision of basic community banking facilities (cashing of cheques, cash deposit, Post Office
and cing facilities and card account and automated cash withdrawals and deposits) and cash transmission facilities
5 Government savings instruments, (postal orders), in particular to socially excluded customers. This includes deposits and
especially for rural customers and withdrawals of cash by businesses local to Post Office branches.
those on social benefits. + Access to certain Government savings instruments.
3. Performance against Network Accessibility Criteria
‘Accessibility Performance
National Local
Total Total Deprived Urban — Postcode Districts with
Criteria Population I Population Population : less than 95%
aa aia Population " Population oe se
within 3 within 1 " within 1 + Population within 6
a within 1 i within 3 miles -
miles mile mile miles
mile
99% 90% 99% 95% 95% o
Target
Pasformince 99.7% 92.7% 99.4% 98.2% 98.7% 3
* we have never fallen below the target for the 6 main, proximity-based, criteria. In practice it is impossible to meet the postcode
criterion at all times but we act immediately to restore service in any ares covered by this requirement.
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4. SGEI product categories and performance against network coverage
requirements
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coverage of SGEls (Services of General Economic Interest)
[1 Processing soil benets nd tax ret paments othe pubic I 11000 I ‘114s
2 Processing of nalonal entity and cesng scheme appcaons I 11500 I Cient correct dependent
[rvs payer alte tpi uty series I 11500 11625
4 [Access to posta senices I 1150 11695
5 an ‘i ‘ai
5. Category 2 SGEI provision
MAIN 3,402) 29) 3,399 533) 2.115 3,000]
LOCAL 3,965, 0) 4,193 0) 12 3,238I
ome 191 74) 191 137) 191 74
Traditional 2,447 oI 651 3, 128 1,998
Outreach 1,633) 0) 678 0) 237 1,246
Total 11,638] 103) 6,112I 701) 2,683I 9,653]
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contents
Size and makeup of the network / 04
Accessibility of the network/ 08
Products and services available / 10
Further information on Post Office Limited can be found at corporate.postoffice.co.uk including the
Annual Report and Financial Statements.
corporate postoffice.co.uk
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Size and make-up of the network
The Post Office network serves communities, individuals, families
and businesses. It is a key element of the UK’s infrastructure;
meeting the need for postal, financial, government and telecoms
services.
Maintaining the size and accessibility of the
network is a key policy aim of Post Office
Limited and at the end of March 2019 there
were 11,638 branches, Based in local
communities, the Post Office has a unique
reach across all areas of society - for example
almost 93% of people in the UK live within a
mile of a Post Office branch, 99.7% within
three miles and 99.4% of those living in
deprived urban communities live within a mile
of a Post Office branch.
At the end of March 2019, there were 191
Directly Managed branches that are run by
Post Office Limited employees. The remainder
of the network is made up of 11,447 branches
that are run on an agency basis.
Amongst the Post Office branches operated
on an agency basis there are different Post
Office branch models. These range from
outreach services (typically small part-time
branches using a village hall or a mobile van
which enable services to continue to be
provided to communities which would not
otherwise receive them), through to Post
Office branches run by independent
postmasters alongside their retail offer, and
larger franchise branches (for example those
operated by the Spar or WH Smith).
In recent years the Post Office has opened
branches in communities where we do not
currently provide services, so that we can
reach new customers. In 2018/19 there were
328 new branches opened to help ensure the
network continues to meet customer needs
and expectations.
Number of Post Office branches
12,000
10,000
8,000
6,000
4,000
2,000
2014/15 2015/16
2016/17
2017/18 2018/19
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Quarterly change in network Change in Post Office branches
size over recent years by region in 2018/19
N
Net %of los
Variance _gain
Region
North East 7 1g
NorthWest aml “8 “07
Yorkshire and I ;
‘The Humber 951 951 o 0
‘ WestMidlands 900 7 0
30.06.15 SouthWest ‘1,268 1,283 6 12
30.09.15, South East 1,373 1,382 9 o7
311215 London 662 615 13 20
31.03.16 East of England 16 1134 8 16
30.06.16 East Midlands 2
30.0916 Northern Ireland I
3112.16 Sc
31.03.17 906
1,847
Percentage of Post Office
branches in rural, urban and urban
deprived areas out of the total
number of Post office branches
2014/15 to 2018/19
2014/15 2015/16 2016/17 2017/18 2018/19
ert Bue» [Bl rtan deprived
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Regional proportion of each type of Post Office branch at
the end of March 2019
North East 496 497 50.4 $0.3 30.8 31.6 196 187 389 372
North West 346 346 65.4 654 416 42.0 23.8 23.4 363 358
Yorkshire and the Humber 49.3 48.6 50.7 S14 33.4 33.6 172 178 340 346
West Midlands 407 40.0 59.3 600 418 42.3 176 7 296 295
‘South West
London ios 989990 ao 89 191 isi
East of England 610608 +300 + +392 +~«=«853°~=SCOSST SC 94-90
East Midlands 6861S ~—-<382~«SS ~—CSO1~SCOSSSC 211207
Northern ireland e64 657 ~~-«336~=SS3~=C«SY)~SCdMSS~=«S~=C«CBA~SC‘ A SC«*S
Scotland 656 656 344 ~~ 344 ~~ 240 ~~ 241 ~~ ~—=«dG~S=SC0A «30.1
Wales 663684 «S736 S7S SSCA SIO 4D
Total $29 627 471 ~—73—«35O—HBAA~SCdSCi SCD
Regional changes in rural Post Office branch numbers.
Rural at end of
Rural at end of
Region March 2018 March 2019 ——sNetchange — % of loss/gain
North East 243 247 4 16
North West 387 384 3-08
Yorkshire and The Humber 469 462 7 is
West Midlands 366 364 2 “05
South West 864 874 10 12
South East 692 691 A “01
London 7 6 Ja 14.3
East of England 681 689 o.. EE
East Midlands 543 541 2 70.4
Northern ireland 322 327 B 16
Scotland 917 710 7 08
Wales 419 636 7 27
Total 6110 6.131 21 03
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Regional changes in urban Post Office branch numbers
Re
40 247
i
North East 6 8 38 3) i 7 6 250 «3 12
North West 266-2602 6 S23 40 —siAST_—sisd])(SCS782TT BCT
Yorkshire and TheHumber 164 169 5 30 318 320 2 06 482 489 7 15
West Midlands 18 lssi‘S#:'=:=C—“‘iHC“<i«éSSSCtCtiC (iti CCSD
South West 2 60 2 -32 342 349 #7 20 404 409 5 12
South East 57 8d 18 624 638—iassistsiB]C(<iMSCtéiédSC‘id'S
London 1 128 2~=6 3S 80ST sCSSsCkTsS(it«t SSCS
East of England 440124394 OSs—Cia]C(itiSCBSSCBSC‘d:SCti«CS
East Midlands nN 70 1 14 25 268 3 1) 336 338 2 06
Northern Ireland 7 90 3 34 «76 8! 5 66 3 im 6 49
Scotland 4 44—~=<“‘SCSCHSCSC“(iC]:SCSCOSSAB]:C«éiTBSC:C‘“C!:C‘“‘«‘“C
Wales 0 2 16 189 4 5 31 287 294 +7 24
Total 1401 1403 2 01 «4,036 4104 68 17 5437 5507 70 13
Post Office branches by model types in 2017/18 and 2018/19
1,547
1,638
9.768
Directly Managed
Grand Total
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Accessibility of the network
The Post Office is committed to meeting the accessibility criteria
that were originally laid down by the Government in 2007, and
have been reconfirmed by successive Governments since.
The criteria cover UK wide accessibility for total,
urban, rural and urban deprived populations.
Moreover, they ensure a strong geographical
distribution of Post Office branches by including a
separate criterion that works at postcode district
level. There are around 3,000 geographic level
postcode districts throughout the UK (an example
would be the HP22 part of the postcode).
Wide coverage across the UK ensures that the
Post Office is accessible for al. This is the case for
the population as a whole, and also for specifically
analysed groups such as the elderly,
disadvantaged, those on low incomes and those
with disabilities. Itis also the case for small
businesses, where the Post Office acts as a key
national infrastructure supporting this important
and growing part of the economy.
Compliance with
Government's minimum
network access criteria, at
the end of March 2019
‘The Government's national access criteria are:
1. 99% of the UK population to be within three
miles of their nearest Post Office outlet
2. 90% of the UK population to be within one
mile of their nearest Post Office outlet
3. 99% of the total population in deprived urban
areas across the UK to be within one mile of
their nearest Post Office outlet
4, 95% of the total urban population across the
UK to be within one mile of their nearest Post
Office outlet
5. 95% of the total rural population across the
UK to be within three miles of their nearest
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Post Office outlet
In addition, the following criterion will apply
at a local level to ensure a minimum level of
access for customers living in remote rural
areas.
6. 95% of the population of every postcode
district to be within six miles of their nearest
Post Office outlet
The results against these access criteria are shown
in the table opposite.
The Post Office measures the performance of the
network against the Government access criteria by
breaking down the population across the country
into census Output Areas (OAs). Accessibilty i
calculated by measuring the distance of the centre
(population weighted centroid) of the OA to its
nearest Post Office access point.
The total national accessibility is then calculated
by adding the total population of each of the
census OAs deemed to meet the criterion divided
by the total population as a whole expressed as a
percentage.
Urban, Urban Deprived and Rural accessibility is
measured by taking account of OAs classified as
Urban, Urban Deprived and Rural respectively
only.
The Post Office provides Citizens Advice with the
location co-ordinates of all individual open and
trading Post Office branches. This is the same core
data upon which the accessibility results a
based.
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Accessibility Performance
Minimum requirement 99% 90%
92.7%
2018/19 Performance 99.7%
99% % 9%
99.4% 98.2% 98.7%
id
3
“The Postcode District (PCD) accessibility con be impacted by a single branch not providing service ot the time of the
reporting. In this instance there were service issues offecting 3 PCDs and the position on each isos follows:
H1S8 The service at Howmore is experiencing service issues. This iso very deep rural location which
makes serving the orea dificult but the Post Office continues to work on this.
PA2I Kames and Tighnabruich Post Offices were not trading at the time of the report, but both were then subsequently
covered with o mobile van service and @ new PO Local service has now opened ot Kames.
PH38 - Acharacle Post Office wos not able to provide outreach services to Glenfinnan and Lochailort atthe time of
the report. The locations for the outreaches are in hotels. At Lochailort, the hotel operates on a seasonal basis and the
service is now available. Glenfinnian is no longer aveilable for use for the Post Office outreach service.
Accessibility to the Post Office branch network for key groups
across the UK at the end of March 2019
The Postal Services Act 2011 (Provision Ml) also
requires reporting on Post Office network access
for anumber of user groups over and above the
established Government Access Criteria as
follows;
= Small businesses
+ Disadvantaged individuals
+ Individuals on low incomes
+ Individuals with disabilities
+ Individuals over the age of 65
The 2019 accessibility results for each of these
categories are shown in this chart:
‘Small businesses
Disadvantaged in
Individuals with
incomes (<1Ok)
Individuals with
incomes (<20k) 99.9%
Individuals with disabilit 99.8%
individuals over
the age of 65
CAMEO income dats Postcode level clssifeation ster
fer dentlying GBconsume's bared on lnely hovsehold income
This accessibility reporting is over
and above the Government
Network Access Criteria. The
analysis has been conducted by Post
Office Ltd's in-house Geographic
Modelling Team based on the
network of open Post Office
branches at end of March 2019. Key
data sets used in the analysis to
identify the key user groups were as
follows:
‘Small businesses
UK business locations from
SimpleGeo (201)
Disadvantaged individuals
Based on the various Indices of
Multiple Deprivation available for
England, Scotland, Wales and
Northern Ireland as of 2014 at
Output Area level.
Individuals on low incomes
Based on CAMEO Income data
which categorises each Output Area
within the UK as one of 8 income
bandings (8 = Less than £10k, 1=
More than £100k). (CAMEO Income
has been calibrated against key
market research reports such as the
Expenditure and Food Survey and
the New Earnings Survey).
Column A-
Individuals with disabilities
Based on data (for England, Wales &
Scotland) taken from the Office for
National Statistics ‘NOMIS' facility
which provides the November 2013
count of Disability Living Allowance
claimants lower Super Output Area.
For Northern Ireland, data was taken
from the Department of Social
Development's Northern Ireland
Neighbourhood Information Service
(NINIS) website at Output Area
level.
Individuals over the age of 65
Based on the 2011 Census
population broken down by age at
‘Output Area level.
With the exception of the Small
business data which is based on
actual locations (to the nearest 50
metres), the network accessibility
for these specific groups was
measured using the same
methodology as the measure of the
network against the Government
Access Criteria - by breaking down
the individual populations across the
country into census Output Areas
(OAs) and by calculating
accessibility by measuring the
distance of the centre (population
weighted centroid) of the OA to its
nearest Post Office access point.
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Products and services available at the Post Office
Government Services The Post Office offers a range of services for customers on behalf of Government
Departments and Councils including applications, payments, Identity verification, data capture and Information
services - available in a range of branches across the network
Service Availability Description
Post Office Card Allbranches A basic account for customers who are in receipt of state pensions, benefits or tax credits.
Account Payments are made into the account by the paying department and customers can withdraw
‘ash at all Post Office branches or the Post Office cash machine network.
[ocal council services Local Area based The Post Office provides services on behalf of over 300 local councils covering a wide range
of applications and payment services both from and to residents and customers. Services
include cash collection from residents for rents, rates, council tax, parking fines and licence
fees. payment services including asylum seekers allowances, emergency welfare payments and
rebates: form checking including benefits, planning and concessionary travel applications and
identity checking and verification services,
Car Tax ~ Motor "Selected Car Tax - Motor Vehicle Licence and Statutory Off Road Notification (SORN) services
Vehicle Licence Issue branches provided. Customers can have their documents checked and renew their car tax at over 5,000
Post Office branches nationwide.
Driving Licence Selected The photo on the DVLA photocard licence has to be renewed every 10 years. The DVLA
photocard renewal branches. Photocard Renewal service at the Post Office helps save time and makes sure the photocard
renewal application meets DVLA requirements by taking a photo to the required DVLA
standards, capturing an electronic signature and sending the data electronically and securely to
the DVLA.
“International driving Selected ‘Applications can be made in selected branches for an international Driving Permit which is
permit branches required to drive legally in many places overseas alongside a UK driving licence.
Passport Check & Selected ‘Customers can take their passport applications to a Post Office that provides the check and
Send branches send service where the application form and documentation are checked to ensure that
‘everything is correct. The application is then despatched by Royal Mail Special Delivery.
Passport application forms are available from Post Office branches offering the Passport Check
8 Send service.
identity checking
services
Customers who need to have photocopies of identity documents certified (for example when
applying for a mortgage, bank account or new job), can have original documents checked and
photocopies certified at the Post Offic
Biometric Residence ‘Customers who need to apply to stay in the UK who are from outside the European Economic
Permit branches ‘Area (EEA) may need to apply for a Biometric Residence Permit and can do so at selected
Post Office branches if they receive an invitation letter from the Home Office. The Post Office
‘captures the customer's biometric details by taking their photograph, fingerprints and digital
signature and sends the information securely to the Home Offic
Biometric Residence Selected Customers who have processed their application for a Biometric Residence Permit prior to
Permit collection branches ‘entering the UK can apply to collect the permit from selected Post Office branches.
fers Seeking access to Services on GOVLUK are able to do so via Post Office's Verify
service, The Post Office is one of eight companies offering this form of identity assurance.
Once verified customers are able to use a single username and password to access a growing
number of services across government. The service is only available online.
Cac cre ” ‘Selected "The Care Quality Commission (CQC) is the independent regulator of all health and social care
registration service branches services in England. Customers who need a Criminal Records Bureau (CRB) check from the
CQC can get
Rod fishing licences All branches ‘A range of rad licences can be paid for in branches where there is a local demand in England,
based on ‘Wales and the border region of Scotland,
Further info
or by calling”
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Products and services available at the Post Office
Mails A range of Royal Mail Group Limited and Parcelforce Worldwide services are available from
Post Office branches nationwide.
Service Availability Description
Letter and Allbranches UK and international letter and document delivery options available. Delivery options include
——— fast and secure with end-to-end tracking, a signature taken on delivery, or a standard delivery
for less urgent items,
UK Parcels Allbranches Guaranteed UK Parcel services are ideal for a valuable gift or important item that absolutely
Guaranteed has to be there tomorrow:
Royal Mail Special Delivery Guaranteed by 9am®
Royal Mail Special Delivery Guaranteed by Ipm®
Parcelforce Worldwide express24 (available in selected branches)
Parcelforce Worldwide express9 (available in selected branches), expressl0 and expressAM
{available in selected branches)
Irelandexpress (selected branches)
“UK Parcels Confirmed All branches ‘Confirmed UK parcel services provide extra peace of mind of proof of delivery with a
signature:
Royal Mail Signed For® Ist Class I Royal Mail Signed For® 2nd Class
Parcelforce Worldwide express48
Parcelforce Worldwide express48large - selected branches only
Ux Parcels Standard Allbranches Standard UK parcel services are reliable and easy to use and offer a range of delivery options
for non-valuable items:
Royal Mail 1st Class I Royal Mail 2nd Class
Parcelforce Worldwide express48
Parcelforce Worldwide express4Blarge - selected branches only
International Parcels Selected Guaranteed international parcel services are ideal for fast and secure international parcel
Guaranteod branches delivery, with the added security of end-to-end tracking and online confirmation of delivery:
Parcelforce Worldwide globalexpress I Parcelforce Worldwide globalpriority
International Parcels Allbranches Confirmed international parcel services for extra peace of mind with tracking or signature
Confirmed ‘on delivery: Royal Mail international Tracked®- Royal Mail International Signed®, Royal Mail
International Tracked & Signed
international Parcels All branches Standard international parcel services are reliable and easy to use and offer a range of delivery
Standard options:
Royal Mail International Standard I Royal Mail International Economy
Parcelforce Worldwide globalvalve (available in selected branches}
Parcelforce Worldwide globaleconomy (available in selected branches)
Drop 8 Go Mostbranches Drop 6 Go ~ a free, fast-track service aimed at small businesses, online sellers and anyone
sending mail regularly. Customers top-up a prepaid card online or in-branch, drop-off their
items in branch and ‘go. The branch will process their items on the same day they are
dropped-off, deducting funds from the customers’ card as they go and the customer can view
their transact
Allbranches Articles for the
HM Forces letiers (British Forces Post Office) etc.
Philatelic Selected Royal Mail special issue stamps and associated products, such as presentation packs and first.
branches day covers (stocked based on demand)
Local Colleet/ Most branches Undelivered postal items are taken to the nearest participating Post Office by the postal
Convenient Delivery delivery staf for later collection or customer has opted for the collection at their local Post
Office branch.
Click lect/ Most branches Online ordering
Convenient Collect
Home Shopping Allbranches Acceptance of Royal Mail Home Shopping Returns and Tracked Returns which can be
Returns accepted as a pre-printed label or GR code driven where the label is printed in branch
{selected retailers only).
All branches Mail redirection ser
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Products and services available at the Post Office
Telecoms The Post Office offers a range of telephony products including Homephone products and Broadband
services.
Service Availability Description
Home Phone Most branches Affordable line rental service with Unlimited weekend calls to UK landlines and low call rates.
12 month contract. Simple application process at most Post Office branches, online or by
phone.
Unlimited Broadband Most branches Totally Unlimited Broadband, Average peak time speed: 11Mb, Wi-Fi router and Unlimited
weekend calls to UK landlines. Choice of contract lengths available. Simple application process
at most Post Office branches, online or by phone.
Unlimited Fibre “Most branches Totally Unlimited Broadband, Average peak time speed: 36Mb, Fibre Wi-Fi router and
Broadband Unlimited weekend calls to UK landlines. Choice of contract lengths available. Simple
application process at most Post Office branches, online or by phone.
Uniimited Fibre Most branches Totally Unlimited Broadband, Average peak time speed: 63Mb, Fibre Wi-Fi router and
Broadband Plus Unlimited weekend calls to UK landlines. Choice of contract lengths available. Simple
application process at most Post Office branches, online or by phone.
Ui International Mostbranches UK International calling card offering cheap calls to national and international destinations.
Phone cards
Mobile E top-ups Allbranches __Top-up service for all pre-pay mobile providers.
Post Office Directory
Enquiries (118 855}
‘One flat rate service charge for one number enquiry.
‘Customers can save money by Using a more affordable alternative to more costly 118 services.
Financial Services The Post Office offers a range of financial services products including banking, foreign
exchange, bill payment and savings and Investment products
Service
Availability
Description
Personal banking
and Business
banking
Cash machines
Alll branches
Selected
Post Office offer a range of core services - cash deposit, cash withdrawal, change giving and
cheque handling - ina standardised and sustainable manner, to virtually every Personal, SME
and Business customer of almost every UK bank.
‘These services are provided through a “Banking Framework’ which has been established to
ensure continuity, standard service and consistent operational provision to each participating
bank.
Around 2,400 free-to-use cash machines are available at Post Office branches nationwide.
“Bureau de Change
Allbranches
‘A wide range of commission free currencies and the Post Office Multi-Currency card, 3,600
branches offer a range of currencies on demand. An additional 1,400 branches offer Euro and
Dollars on demand as well as Turkish Lira in the Summer with a further 4,000 offer Euros on
demand. Currencies can be pre-ordered in any Branch or Online for collection at any branch.
Travel Insurance
Selected
Branches
‘Single Trip, Annual Multi-Trip and Backpacker products available. Premier Travel Insurance
available in selected Post Office branches. The full Travel Insurance range. including Super
Economy, Economy, Standard, Premier and Premier Plus available on-line and over the phone
Travel Money Card
Selected
branches
Post Office MultCurrency Travel Money Card offers the security of travellers’ cheques with
the convenience of plastic making it a secure, convenient way to carry foreign currency. You
can load the card with up to 13 Currencies ~ including Euro, US Dollar and Sterling - and then
use it in restaurants and bars around the world that welcome Mastercard. The Travel Money
Card App makes it easy to Top up, check balances and recent transactions.
Moneygram
Selected
Payzone Bill Payments Limited which is now part of the Post Office Group.
International money transfer service, customers can send money to over 200 countries, with
i i br
ept ay! ay! rds y 16 £5, Ye
water, phone, council rent, mail order and insurance. (Some schemes available on an area basis
as agreed with local authorities) In October 2018 Post Office announced its acquisition of
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Products and services available at the Post Office
Service Availability Description
Paystation and All branches To charge electric keys. Quantum Gas Cards, and mobile phone top ups. (Stocks of electricity
charging of tokens for meters are also available in selected branches based on local schemes)
electricity and gas
meter tokens
Mortgages ‘On-line orby Post Office offers a comprehensive range of mortgages for first-time buyers, home movers and
phone re-mortgages, applications can be made on-line or by phone.
Credit Card Informationin The Post Office Money Credit Cards offers a range of credit cards offering a range of features
some branches. and benefits. Information is available in some branches and customers can apply online.
apply online
Personal Loans ‘Online only The Post Office Money personal loan offers flexible borrowing between £1,000 and £25,000
with fixed monthly payments.
Online Saver Online only The Online Saver offers easy access with no notice and no penalty and unlimited withdrawals.
Online Bond The Online Bond offers 1 ,2. 3 year terms with a guaranteed fixed return.
isa
‘The Post Office offers an Online ISA. an Easy Access Cash ISA, a Fixed Rate Cash ISA and a
Junior ISA.
instant Saver Selected Easy access variable rate product with a bonus for the first 12 months. Apply by post or at
branches selected Post Office branches. Access to over 60,000 LINK cash machines.
Growth Bonds Selected Fixed term bond product offering 1, 28 3 yr terms. Apply by post, or at main Post Office
branches branches.
Motor insurance ‘On-line and via Car, motorbike and van insurance can be purchased on-line and over the phone. Information
phone* is also available in branches, information and quotations are also available via price comparison
websites.
Home insurance ‘On-line and via Home Insurance can be purchased on-line and over the phone. Information is also available in
the phone* branches. Information and quotations are also available
“"Tife insurance and ‘On-line and via Li
Over 50s Life cover __the phone*
insurance can be purchased on-line and via the phone. Post Office branches hold
formation to introduce the service to customers
Pet insurance and ‘On-line and via Pet Insurance and Business Insurance can be purchased on-line and via the phone. Post Office
Business insurance the phone* branches hold information to introduce the service to customers.
* information available in branches
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Bank account services available at Post Office branches
Bank / Building S
Cashplus
Bank of Ireland
“Bank of Scotland Yes
Barclays Yes
eahoot Yes
Clydesdale Bank Yes
_ Yes N.Ireland
Danske Bank only
First Direct 7 Yes
First Trust Bank
Metro (business customers)
“Nationwide Building Society
NatWest
Santander
Smile
“The Co-operative Bank
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Item 1.3 Background Papers
Royal Mail Group Limited products, stamps and services available
at Post Office branches* (end March 2019)
Ist class stamps (individual)
Parcelforce Worldwide globalpriority
Parcelforce Worldwide Contract /
2nd class stamps (individual) Parcelforce Worldwide British Forces Prepaid?
Other stamps Post Office parcels Parcelforce Worldwide Contract /
Tit’clasecstamnps book Parcelforce Worldwide irelandexpress _PrepaidlO
Siete sir BIKE Parcelforce Worldwide consignment peenntee Worldwide Contract /
‘ sequent repai
Seamipa books arian Boel Sos fs Parcelforce Worldwide Contract /
Royal Mail Signed For® Stamp Prepaid24
Royal Mail Special Delivery Guaranteed® CO Covers Parcelforce Worldwide Contract /
Seamp Commemorative, Smiter Sheets Prepaidds
First Class Labels Test tapenvelopee Parcelforce Worldwide Contract /
Second Class Labels Mini Sheets Prepaid globalexpress
Royal Mail Signed For® Ist Class (sale and Presentation packs Parcelforce Worldwide Contract /
accept) Prestige Stamp Books Prepaid globalpriority
Royal Mail Signed For” 2nd Class (sale Special Stamps Retail Books Parcelforce Worldwide Contract /
and accept) Stamps Cards Prepaid irelandexpress
Royal Mail Special Delivery Guaranteed
by 9am® (sale and accept) - also with
Saturday Guarantee
Royal Mail Special Delivery Guaranteed
by Ipm® (sale and accept) - also with
Saturday Guarantee
International Standard
International Tracked® (sale and accept)
International Signed (sale and accept
International Tracked & Signed (sale and
accept)
International Economy
Redirection / International Redirection
= consumer
Redirection / International Redirection
= business
Special Circumstances redirection
Home Shopping Returns/parcel returns/
returns high volume/Labels to Go
HM Forces letters (British Forces Post
Office <2kg)
Parcelforce Worldwide express
Parcelforce Worldwide expressl0
Parcelforce Worldwide expressAM
Parcelforce Worldwide express24
Parcelforce Worldwide express48
Parcelforce Worldwide express48large
Parcelforce Worldwide Sundayexpress
Parcelforce Worldwide globalvalue
Parcelforce Worldwide globalexpress
Parcelforce Worldwide globaleconomy
Annual products including Yearbook /
Yearpack
Christmas Stamps Retail Books
Convenient Delivery
International Reply paid Coupons
(redemption only)
Local Collect
Poste Restante
On Line Postage (parcels)
On Line Postage (letter)
Ist class/2nd class letter stamped items
Ist elass/2nd class Small and Medium
Parcels Meters (franked) pouches
Ist class/2nd class letter (franked) mail
Ist class/2nd class Small and Medium
Parcels (franked mail)
Bulk postings franked mails
Bulk postings stamped mails
Postage Paid Impression bagged mails
Prepaid Stationery
Special delivery Business Response by
Jam
Special delivery Business Response by
lpm
Response services (FREEPOST &
BUSINESS REPLY)
International Business Response Service
(Outbound)
Column A-
Parcelforce Worldwide Contract /
Prepaid British Forces Post Office Parcels
Articles for the Blind
Parcelforce Worldwide europriority
return
Parcelforce Worldwide Contract
evroreturns
Parcelforce Worldwide contract
europriority (Parcelforce Contract
Globalpriority)
Overseas stamped mails
Overseas meter mails
* Some services are only available at
selected branches
corporate postofficecouk PAGE IS
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Purpose, Strategy and Growth
Board presentation
26 November 2019
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Contents
Where We Make Money
= Product profitability
= Channel profitability
Organisational Health Survey Results
Learnings from other post
Big Bets
Overall process update
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Executive summary — Where we make money
The PSG team has worked closely with Post Office Finance team to depict a picture of product and
channel profitability based on existing Post Office data
As per last Board meeting, we are presenting product profitability using “Contribution”, a new
profitability view developed by the PO Finance team, which splits total overheads between “True”
overheads (e.g., finance, HR and legal) and Allocated Indirects (e.g., CIO and DMB costs, which are
otherwise part of total overheads)
Channel profitability is presented on trading profit terms
The analysis drives several insights:
— AsofFY 2018-19, Post Office top rev
Services is top contribution driver (
4 while Financial
e.g. Mains, Locals, traditional and DMB), for a total POL
jtrading profit vs. a loss
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2
Contents
Where We Make Money
= Product profitability
= Channel profitability
Organisational Health Survey Results
Learnings from other post
Big Bets
Overall process update
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Executive summary — Where we make money: Product profitability
= In FY2018-19 the top 4 drivers of revenue
Telecoms (15%) and Financial Services (G
= Over the next 2 years, baseline forecasted revenue is expected to grow 3% CAGR with Mails remaining flat,
Cash & Banking growing at 24% CAGR and Financial Services shrinking at -10% CAGR
» An analysis of the Direct Contribution shows every product category made a positive direct contribution in
FY2018-19; FS the highest direct contribution margin at 71%
= Overall, Direct Contribution is expected to remain stable over next 2 years (+1% CAGR) in PO Finance
baseline forecast at as Cash & Banking growth is offset by shrinking Financial Services and Identity
* The POL Finance team worked to refine the profitability view by splitting Total Overheads between Allocated
Indirect Costs and “True” Overheads, providing a view on Contribution (GRo} of revenues)
* Allocated Indirect Costs include ClO, DMB, Network Ops, Agent Fixed Remuneration and Marketing. These
can be allocated to product categories using standard assumptions
@.
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REMINDER: In FY2018- 19, Post Office generated GRO of revenues anc GRO trading
FY 2018-19, £M @ “orrevenve
@
O
‘Direct costs? Direct contribution Total overheads Trading profit
f 42% @
jinclusion of FRES travel money
Revenue’
) frevenue driven by accounting adjustments: inclusion of POCA as revenue!
nue before network subsid
‘exclusion of Payzone’ )
variable costs, proce: ts, distribution and postage, postage costs, IT infrastructure & services, finance & losses, marketing; direct overheads and supply chain q
Source: POL Finance ¥
ment. Differential with reported
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Cash & Banking I
In FY2018-19 the top 4 drivers of revenues were Mai
GRO I
Telecoms GRO and Financial Service
°
fo)
raronanararanan San,
sy wun
Identity
FY2018-19
Revenues
1 Telecom and BGL insurance contribution margin appears lower as it operates on a full service income model rather than a 3" party commission model
2 Other relates to Supply Chain income predominantly for warehousing for Royal Mail stock, transport of high value mails, and the release of Bank of Ireland deferred income
Source: POL Finance 7
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Over the next 2 years, baseline foreca
Mails remaining flat, Cash & Banking).
£M, baseline forecast
CAGR (FY2018-19 to 20-21)
vowed O18
4y un
GRO
O
Identity
EY ZOTET ES PY ZUTSEZU BY BOZO T
Revenues! Revenues! Revenues?
inclusion of FRES travel money ({ exclusion q
Bank of Ireland deferred income
8
twork subsidy payment. Differential with reported "GRO. yevenue driven by accounting adjustments: inclusion of POCA as revenud,
Other relates to Supply Chain income predominantly for warehousing for Royal Mail stock, transport of high value mails, and the rel
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An analysis of the Direct Contribution shows every product category made a positive
direct contribution in FY2018-19; FS the highest direct contribution margin at
Direct Contribution
£M margin (% of rev)
siade
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Identity
—
rather than a 3 party commission model. 4 Other relates to Supply Chain income predominantly for warehousing for Royal Mail stock, transport of high value mails, and the release of Bank of Ireland deferred
income. Source: POL Finance
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GRO_jas Cash & Banking growth is offset by shrinking Financial Services and Identity
—M, baseline forecast
‘ iacceaeeiaaaaaaa
Mails direct
‘contribution
‘expected to
‘decrease as
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higher agents
muneration
Financial Services
Insurance
Payment services
FY2018-19 FY2019-20 FY2020-21
Direct Contribution’ Direct Contribution’ Direct Contribution’
1 Direct contribution calculated as revenue minus direct costs per major project group. Excludes Pazyone. 2 Telecom and BGL insurance contribution margin appears lower as it operates on a full service income model .
rather than a 3rd party commission model 3 Other relates to Supply Chain income predominantly for warehousing for Royal Mail stock, transport of high value mails, and the release of Bank of Ireland deferred income.
3 Other relates to Supply Chain income predominantly for warehousing for Royal Mail stock, transport of high value mails, and the release of Bank of Ireland deferred income, Source: POL Finance 10
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The POL Finance team worked to refine the profitability view by splitting Total
Overheads between Allocated Indirect Costs and “True” Overheads, providing a
view on Contribution 'GROI of revenues)
FY 2018-19, £M ; @ of reverve
rading profi
contribution —_ indirect costs*
Resulting
_ 14% ) “Contribution” view t 6% )
4.Rawqnue before network subsidy Rayment. Differential with reported [
{GRO}, exclusion of Payzone ¢G
S'RGaiit variable costs. piqcessing costs, distribution and postage, postage costs, IT infrastructure & services, finance & losses, marketing; direct overheads and supply chain
3 Agent fixed costs} GRO}, DMB costs, Marketing, network operations, ClO °
4 Staff costs, finance and operations, legal, risk & governance, HR & people & engagement, communications & central 2)
Source: POL Finance "1
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Allocated Indirect Costs include ClO, DMB, Network Ops, Agent Fixed Remuneration and ?
Marketing. These can be allocated to product categories using standard assumptions 2
FY 2018-19, £M @ orevenve
Direct clo DMB Network Agents fixed Marketing Contribution :
Revenue
operations? remuneration
contribution
3 Figures based on 18/19, and so excludes transfer of Retail Operations under Retail in 19/20 2)
Source: POL Finance 12
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proportion of Mails is sigi
~~ Gontribution
margin (% of rev)
I
EI
FY2018-19 Direct Cont. FY2018-19 Contribution
revenue driven by accounting adjustments: inclusion of POCA as revenue (£14m), inclusion of FRES travel mong 10 exclusion of
contribution margin appears lower as it operates on a full service income model rather than a 3" party commission model 5 Other relates to Supply Chain income predominantly for warehousing for Royal Mail stock, 43
transport of high value mails, and the release of Bank of Ireland deferred income Source: POL Finance
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Contribution to grow ..GRO_ICAGR by FY2020-21, at which point Cash & Banking expected
Identity increases GROI *
Other
Identity i
1 Contribution calculated as revenue minus direct costs and unallocated overheads per major project group 2 Telecom and BGL insurance contribution margin appears lower as it operates on
a full service income model rather than a 3rd party commission model 3 Other relates to Supply Chain income predominantly for warehousing for Royal Mail stock, transport of high value mails, i...
and the release of Bank of Ireland deferred income Source: POL Finance
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Contents
Where We Make Money
= Product profitability
= Channel profitability
Organisational Health Survey Results
Learnings from other post
Big Bets
Overall process update
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Executive summary — Where we make money: Channel profitability
siadeg punoiByoeg ¢°} wie]
= Channel split shows most product revenues driven at least partly by branches (vs.
non-branch, i.e. online and call centres), except for Telco and FS
= 7,400 of POL’s ~11,600 PO branches are Mains and Locals
= Online / non-branch channels
profits in FY2018-19; DMBs and Traditional branches
respectively drive GRO! and. GRO} of losses
= 50% of revenues driven by just‘
‘GRO ranches)
= Last quartile of branches (ranked by profitability) drive losses almost as great as
profits from first 2 quartiles
7]
f the top quartile branches (ranked by profitability) are Mains; 'GRO of bottom
quartile of branches are Traditional branches ~
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Channel split shows most product revenues driven at least partly by branches, except
for Telco and PO Money WS Ontneon-branch
£M revenue’, FY 2018-19 I Branch
Home Office
Payment Services
Banking Framework
POCA
Neal Brdors
Mails
Retail & Lottery
ATM.
Other Identity
Travel Money
Insurance
PO Money
Telco
Verify i
Other H
1 Revenue before network subsidy payment. Differential with reportes
SOURCE: POL, product split based on Credence database .
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7,400 of POL’s ~11,600 PO branches are Mains and Locals
As of end of FY2018-19
Description
Product / service range
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2
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2
5
PRELIMINARY =
a
Number of branches
Locals
Traditional
Outreach
Directly Managed
Branches (DMBs)
TOT:
POST OFFICE
Payzone
1 Core services include Mails, POCA, Banking, Bill Payments, Travel Money, Click and Collect
* Always situated within another shop, e.g., in a Nisa
* Usually just has a combi counter
* Branches not yet converted to Locals as per Network Transformation
* Have protected status — remain on old contracts due to POL social purpose
= Remain on old contracts, but are on notice until Local partner found
* Often run from public buildings, e.g., village halls, libraries
* Include mobile vans
* Operate under reduced hours
* Managed and staffed by POL
= Real estate may be owned or leased
* Provides card payment solutions
= Accessed face-to-face, online or via telephone
Larger branches with minimum of two counters
May be a dedicated Post Office or situated in another shop, e.g., WHSmith
Core services’
Exact range dependent on local
needs
Core services"
Exact range dependent on local
needs
Most services offered
Exact range dependent on local
needs
Core services!
Some do not offer full range of
Identity services
Card payment solutions
2 Full services include Mails, POCA, Banking, Bill Payments, Travel Money On Demand, Post Office Money, Broadband and Phone, identity services.
SOURCE: POL
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Online / non-branch channels I _GRO- as well as Mains: GRO “and Locals GRO I ‘ire the
engines of Post Office profits in FY2018-19 -
Revenue IRA Profit margin
= Online / non-branch..
channels drive } GRO
trading profit v:
loss from branches
= DMB, followed by
traditional branches,
(which include community
branches) are the main
loss drivers
I ») = Mains and Locals
branches are the engine
of profit in the branch
network
Online Main Local Outreach Traditional DMB Closed TOTAL relatively GR
/ non- branches i profits) ~
! ; GRO __ pftotal
1 Revenue before network subsidy payment. Differential with reportedi}
SOURCE: NSP model, POL Finance =
revenue driven by exclusion of Payzone!
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Detailed view of branch profitability shows DMB and Traditional accounting for the vast =
a 3
majority of all losses generated by the branch network a
FY2018-19
Key takeaways
Profit-making I Loss-making I Total = Online channel is
#ofbranches Trading I #ofbranches Trading i #ofbranches Trading Sea eee
As of end of Profit, I As of end of Profit, { As of end of Profit, B
Channel FY18/19 £m FY18/19_ I FY18/19 em FY18/19__I FY18/19 £m FY18/19 Excluding DMB,
POL physical
Locals network will have a
Shaheen positive profitability
Mains profile
Woo nnnn ene nweeencceeeeeen4 On average, loss-
Outreach making main and
To rrnnnrnnennencnnen local branches are
Traditional close to break-
—— even
DMB +85% of traditional
TOTAL2 branches are loss-
making driving
£22m of negative
profit
1 ~1,600 outreach branches are served by 500 units. These 500 units will be used in the analysis over the next pages; 2 Excludes profitability associated to closed branches @S
SOURCE: NSP model, POL Finance 20
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PRELIMINARY
50% of revenues driven by just 14% of branches (1,600 branches)
FY 2018-19
Analysis only includes open branches as of FY2018/19
SOURCE: NSP model, POL Finance
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Last quartile of branches (ranked by profitability) drive losses almost as great as profits
from first 2 quartiles
FY 2018-19
Profit, £m
First quartile Second quartile Third quartile Fourth quartile
Branches ranked by profitability '
Analysis only includes open branches as of FY2018/19
SOURCE: NSP model, POL Finance 22
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of bottom
GR of the top quartile branches (ranked by profitability) are Mains GR
q rtile of near are Traditional branches
Local traditional Outreach
8 MD Poitmargin
First quartile of branches Second quartile of branches Third quartile of branches Fourth quartile of branches
ranked by profitability ranked by profitability ranked by profitability ranked by —
Analysis only ‘ridadeu open branches as of FY2018/19 @
SOURCE: NSP model, POL Finance 23
POL-BSFF-WITN-015-0007142_0264
2
Contents
Where We Make Money
Organisational Health Survey Results
Learnings from other post
Big Bets
Overall process update
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Summary of OHI findings and their potential uses
Diagnostic headlines
= Impressive level of engagement with the survey
= Bottom quartile organisational health indicating significant opportunity for improvement
= Accountability, work environment and motivation relative strengths (though still third quartile): relatively more effective in creating a
sense of community and belonging; practices around openness, trust, engaging leadership and ownership amongst most emphasised
= Purpose and direction not clearly understood, reinforcing need for current work on Purpose, Strategy & Growth
= Lack of consistent measurement and management of business and risk, or acting to address problems
= Lack of institutional skills and talent, external orientation and innovation/learning
" Overall, senior managers’ views most critical (especially innovation and learning)
" Current values centre around community, being of service, care and respect, but also hierarchy and bureaucracy; whereas desired
values include competitiveness, accountability, efficiency and being well organised
= Main purpose themes at Post Office are about being a trusted brand, with access for all, serving customer's mails, parcel and cash
needs
Uses of the OHI findings
" Syndicate the results internally to increase understanding of the challenges (both generally and for particular parts of the organisation)
" Start to create a narrative about the required change building on the quantitative and qualitative detail of the survey results
" Use the detailed information about where practices need to change to inform concrete improvement initiatives
= Once Purpose, Strategy & Growth are clearer, use OHI results to inform what is needed to enable the new strategy
" Track progress and course correct where/if needed
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Organisational health is related to — but different from — organisational performance Fy
ci
Focus of the OHI survey
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Organisations that focus on Org Health outperform their peers at every level
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Within Companies
Across Industries Across Companies
Healthy Companies that focus on
companies across health show an
industries outperform
their unhealthy peers in 1 0
the stock market’ by 0
increase in EBITA
between surveys
1 Represents 9 year average Total Return to Shareholders (TRS) for healthy companies vs. unhealthy companies across survey database
2 Based on re-survey data, companies with “Moderate’, "Strong", and “Very Strong” recipe alignment
Health explains up to
30%
of performance variation
across units
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The OHI survey digs deep to understand what’s happening under the surface and
provide a detailed picture of organisational health
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Employee Engagement survey Organisational Health Index (OHI)
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= Evaluates individual employee happiness / Evaluates an organisation’s long-term
attitudes (e.g. how employees feel) capacity to perform
" Helps identify employee “hot buttons”. Identifies strengths and opportunities
(e.g., satisfaction, happiness, morale, across a robust set of management
practices proven to drive health
engagement, work environment)
« Allows customisation and comparison Enables benchmarking across industries,
based on unique questions / lines of inquiry regions and a global database
= Focuses on manager level reporting vs. Focuses on enterprise-wide, functional
enterprise-wide focus areas and business unit insights to inform
actions to improve health
In practice, employee engagement and the OHI are complementary; however a healthy
organisation is not justabouthappy.employeés, but also aligning the workforceand
behaviors with the organisation goals
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The Organisational Health Index (OHI) offers proven insights and expert support to
build an enduring organization that can sustain performance
Conducted an exhaustive
academic review
Interviewed key leaders
across our client base
Developed the
Organisational Health
Index (OHI) Survey
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if
800
books & articles
200
fact-based insights
~5m
participants surveyed
100
client executives
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.o%e, a=
wan £
oO) minute survey
Re 3-5
precise
recommendations
=1,900
companies
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LOGS 39 OL
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With 1+ billion data points, the OHI offers an unparalleled depth and breadth of
knowledge, across geographies and industries
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Global reach and relevance, Robust industry
% of OHI surveys benchmarks
= Global Energy & Materials
24% 27% ) * Banking
* TMT (High Tech-Media-Telecom)
= Consumer/Retail
= Advanced Industries
Healthcare Systems and Services
= Pharmaceuticals and Medical
Products
Public Sector
= Insurance
* Travel, Transport & Logistics
= Asset Management & Institutional
Investors
Zz 3 % * Infrastructure
8 % * Professional, Scientific, and
Technical Services
na - . * Social Sector
Surveys administered in 100+ countries
Multi-Sector Conglomerate
18%!
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OHI statistics at Post Office
2448
Employees invited to
participate in the survey
(excludes DMB)
Source: Post Office (n=1770}; Benchmark: Global (n=2,877,871, no. surveys=878)
Safed
73%
Employees provided
responses to the survey
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Individual comments,
recommendations and
opinions as provided
by employees at all levels
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Two major measurements in the OHI
9 Health Outcomes 37 Management Practices
= Interprets if what is happening on the = Identifies colleagues’ perceptions of
ground is working, and how well what's happening on the ground
= Agreement scale = Frequency scale, from “almost always”
= Example: “This Post Office colleague is to"alnant never
highly motivated" = Example: “Managers in Post Office
provide praise, thanks, or other forms of
recognition to high performers”
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Employees’ sense of community and belonging provide a foundation to build on once — >
direction becomes clearer
% of respondents who selected ‘agree’ or 'strongly agree’
Benchmark: Ml Top Quartile Ml Second Quartile §™® Third Quartile Bottom Quartile
Communicate a clear and compelling vision of
where the organisation is headed, how to get there,
and what it means for people Use effective leadership styles to shape
the actions of people in the organisation
to drive high performance
Direction
Ensure individuals understand what is 48
expected of them, have sufficient authority Consistently measure and manage
-—— business and risk, and act to
id feel accountable for deliverit Its
SU Tee Bees AED NEE OTS eae a Coordination & address problems when they arise
Accountability
62 Control —
48
Encourage and harness new ideas,
Engage with important external
supplers,parers, andothers) io — External Orientation Leadersip I Innovation & Leaming_ Pro wrt on an
more effectively create and deliver 56 62 38 so the organisation can effectively
value — both now and in the future evolve and grow over time
Motivation
52
Capabilities
Ensure the institutional skills and talent 63
are in place to execute the strategy
and create competitive advantage
Develop employee loyalty and enthusiasm,
- and inspire people to exert extraordinary
effort to perform at their very best
Work Environment
60
Cultivate a clear, consistent set of
values and working norms that foster
effective workplace behaviour
Source: Post Office (n=1770); Benchmark: Global (n=2,877,871, no. surveys=878) 2)
33
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LOGS 39 OL
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Direction, Capabilities and Innovation & Learning are lagging most vs. UK benchmark
Post Office results
% of respondents who selected
‘agree’ or ‘strongly agree’
United Kingdom
Difference between Post Office
and benchmark median, pp
Travel, Transport
& Logistics
Difference between Post Office
and benchmark median, pp
Public sector
Difference between Post Office
and benchmark median, pp
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Benchmark: 1 Top Quartile ‘Ml Second Quartile ll Third Quartile Bottom Quartile “
Difference: BB Significantly Stronger’ © Comparable I Significantly Weaker!
Retail
Difference between Post Office
and benchmark median, pp
OHI Score 54 5 I 8 a I 4 5 I
Direction 48 10 BS -20 a 5 I 14 BS
Leadership 62 1 5 4 5
Work Environment 60 6 1 13 1
Accountability 62 3 1 10 2
Coordination & Control 48 6 14 9 8
Capabilities 63 I +3 7H “i
Motivation (IS 52 } 1 fs) 6 0 ] 2
Innovation & Learning 38 -8 B -24 a 9 -20 [I
External Orientation 56 Io 8 a a 4 -10 =
4 The significance level is at p = .05. Statistical significance is calculated based on outcome distribution, size of population and size of point difference.
‘Source: Post Office UK (n=1770); Benchmark: Global (n=2,877,871, no. surveys=878); United Kingdom (n=50,623, no. surveys=26); Public Sector (n=96,288, no, surveys=37);
Travel, Transport & Logistics (n=136,237, no. surveys=36); Retail (n=155,238, no. surveys=39)
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Survey scores across 9 health outcomes and 37 management practices
% of respondents who selected ‘often’ or ‘almost always’
Benchmark:
Hl Top Quartile Ml Second Quartile
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© Third Quartile Bottom Quartile
kk Power practice — practice that needs to be prioritised if in bottom quartile
Direction
Accountability Coordination & Control
40 37 43
I 48 35 Shared Strategic Employee 55 52 56
Vision Clarity Involvement
Role Clarity Performance Consequence Personal People perf. Operational Financial Professional Risk
Contracts I Management Ownership review Management Mngmnt. Standards Management
External Orientation Leadership Innovation & Learning
Customer Competitive Business Gvt& Authoritative Consultative Supportive Challenging Top-down Bottom-up Knowledge —_ Capturing
Focus Insights Partnerships Conny, Leadership Leadership Leadership Leadership Innovation Innovation Sharing Extemal Ideas.
lations
Capabilities Motivation
o En
Process based Outsourced
Capabilities Expertise
49 a7
Talent Talent
Acquisition Development
Work Environment
Be oo
Values
4) Ee a Ee
Meaningful Inspirational
Leaders
Career Financial Rewards &
Oppor- Incentives Recognition
Open and Performance Operationally Creative &
Trusting Transparency Disciplined Entrepreneurial
‘Source: Post Office (n=1770); Benchmark: Global (n=2,877,871, no. surveys=878)
tunities
@ .
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Survey scores are supported by a set of related questions: “Accountability” example
Accountability outcome questions’
Employees clearly understand what is expected of them
Employees are held accountable for the results they are expected to deliver
Employees within Post Office have sufficient authority to make decisions
Accountability practice questions*
ROLE CLARITY
PERFORMANCE
CONTRACTS
CONSEQUENCE
MANAGEMENT
PERSONAL OWNERSHIP
1 Percent of employees
Source: Post Office (n=1770)
Post Office's organisational structure helps create clear accountability
Jobs in Post Office are designed to have clear objectives and accountabilities for results
Employees have written performance goals that clearly define what they are expected to
deliver
Post Office sets performance goals for individuals that are challenging
Post Office provides attractive incentives to high performing employees
Post Office has created clear links between performance and consequences
Line managers create a sense of belonging to Post Office
Line managers encourage employees to take a personal stake in their jobs
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1 Disagree ™ Neutral Ml Agree
I infrequently MM Sometimes Ml Frequently
&
v
©
z
8 I
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Gap between Post Office scores and next best quartiles is key in understanding scores
Percentage points
Shared Vision 40
Direction
48 Strategic Clarity 37
Employee Involvement 43
Authoritative Leadership 59
Leadership Consultative Leadership 47
62 Supportive Leadership
Challenging Leadership
2
8
Work
Environment Performance Transparency 4
60 Operationally Disciplined
&
&
Creative & Entrepreneurial
Role Clarity
Performance Contracts
&
2
Accountability
62
I
Personal Ownership
=
cE}
Talent Acquisition
Capabilities Talent Development
63 Process Based Capabilities
Outsourced Expertise
Ss
Source: Post Office (n=1770); Benchmark: Global (n=2,877,871, no. surveys=878)
MMB Point increase required to achieve next quartile
Benchmark: [} Top Quartile J} Second Quartile Third Quartile Bottom Quartile
ewer =n
Control Operational Management 5
48 Financial Management 52 —SPer
Professional Standards 7 m 6-10 I
Risk Management 5 a
Motivation Meaningful Values 2
52 Inspirational Leaders 43 Ez
Career Opportunities 11-15 I
=
Rewards & Recognition 24 mm 6-10 I
Innovation & Top-down Innovation 33 11-15)
Leeming Bottom-up Innovation 30 TE
38 Knowledge Sharing 3 6
Capturing External Ideas 213
Extemal Customer Focus a7 13-17 I
Orientation Competitive Insights 13-17 I
56 Business Partnerships a _z
Government & Community Relations 61 —~EZT
2)
e
Ss
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Next steps on OHI
= Continue sharing survey results with relevant Post Office groups
" Start shaping the interventions to improve organisational health by
identifying which management practices can be improved via
workshops with L40 (session on 10 December), GE, etc.
* As the strategy work continues to be refined, ensure focus on
improving the management practices that are most relevant to
delivering that strategy
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Contents
Where We Make Money
Organisational Health Survey Results
Learnings from other post
= Review of postal context
= Learnings
Big Bets
Overall process update
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S
Executive summary — postal market overview
siadeg punosByeg ¢"I wai!
= Postal players have been under increasing pressure. Several trends contribute to this:
= Structural and irreversible decline of the mail business
= Customers demanding higher convenience and service in the core products offered by postal
players, while often not being willing to pay higher prices (especially B2C e-commerce parcel
senders)
« Disruptors are winning the postal players’ natural new growth segments (e.g. parcels and
financial services), in particular Amazon
» Regulatory pressure to maintain retail network coverage and USO requirements continue
impacting postal players’ economics; although most European players still enjoy some form of
subsidy
@.
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Postal players have been under increasing pressure which impacts branch networks
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{
Qo
Volume
decline
Ss
O05
Declining volumes in both
cash and letters
due to e-substitution
I
12)
Growth products with
different customer
expectations
Q
Parcel volumes and postal
financial
service sales
are increasing
but customers require more
i service, higher convenience i
3)
Accelerating
competiton
©
New growth segments are
very competitive and
competitors are often
disruptors. Postal players
suffer from legacy costs and
innovation gap
I
4)
Performance
pressure
Increased pressure
from shareholders
to improve economics, but
high (USO) requirements
@.
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The world of post is changing fast in the face of megatrends that generate both threats F
and opportunities
Digitisation E-commerce (Ga) Disruptive innovators (@®) The gig economy ©)
of letters and parcels = Amazon: “Marketplace” = Much lower labour cost
= World going paperless growth and “Fulfilment by Amazon” structure
* Advertising going digital = Shopping at your fingertips * Different motivations from
‘lifestyle couriers’
a
Disruption in (=e) Digital
financial services government
= Cashless, online and = Online
mobile banking management of national and
= Trust deficit municipal services, benefits,
* Withdrawal from the high street and taxes
The mobile © The poly- () The privatisation wave @) Convenience ®
economy S retail
morphous world = European posts under
Megatrends impacting global postal
markets
= ‘Uberfication’ of services = Emerging social and economic private ownership = Growth in convenience and
* Changing customer interaction divides driving political * Peak in government sales discounter retail
models. disruption (Brexit, Trump) = Big box retailers entering the
market
@.
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Mail and parcel are set to reach volume parity by 2025 ?
2005 2015 2025
13:1 4:1 1:1
Overall market
MII p=!
S6sea © He @ 2
, 30:1 10:1 3:1
i RIBAIEXIGAIES xX
iecatacr SIEISISIESI P=
MIPIRIEIE MIE
DMIXICIEXIE< DXIEX) p=
PIRISISIES gp =n) =A ne!
MIAIAXIEIEX RIES BX
2065 40 LLL
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The decline of the mail business is structural and irreversible
Addressed domestic letter volumes in selected markets*
Indexed, 2003=100
120
110 I
100
90 I
80 -
60
50 SS UK
40 -
30 -
20
Germany
Denmark
2016
2014
2012 2018
10 ; ; ;
2002 2004 2006 2008
1 Austria, Belgium, Canada, Denmark, France, Germany, Ireland, Netherlands, Norway, Spain, Sweden, Switzerland, UK, US
SOURCE: Operators’ website and annual report; Regulators; UPU; Press
2010
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3
a
ESTIMATES ?
A few observations and
additional facts ...
= Drop in mail volumes in key
European postal markets —
speed of decline driven by local
habits and regulation
= 80% drop in mail volume in
Denmark since 2003 —
eGovernment initiatives since
2007 accelerated decline
= <20% drop in mail volume in
Germany — least affected market
in the analyzed set
= Most of key postal markets
increased stamp prices since
2010, only Switzerland kept
prices stable
@.
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E-commerce is currently a ~ USD 3 tr market, quadrupling to ~ USD 8 tr by 2025
E-commerce market worldwide USD trillions
Based on observation of historic growth of most mature e-commerce markets (e.g.,
UK, US), our assumption is that growth rate will decline from 2020 onwards and
further from 2025
1.5
2015
SOURCE: eMarketer 2016
A few additional facts ...
20X increase in global e-commerce
since 2000
5x growth differential between
online and brick and mortar retail
expected in 2016-21
30% share of total retail to happen
online by 2030
70-80% of all e-commerce
purchases delivered via networks
36bn e-commerce (B2C) parcels
handled globally p.a.
New geographies, consumer
segments, product verticals,
channels and occasions as drivers
@.
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Differences in e-commerce parcel penetration highlight growth opportunities
E-commerce relevant parcel' penetration
In parcels per capita, per year
suedeg punosByoeg ¢°I Wal)
<1 <1 1 1
Vietnam India. Malaysia Thailand Indonesia _—italy I Singapore Belgium Switzerland Sweden Netherlands Austria Ireland I US. UK Germany China?
H H (tier 1)
— H —_ ' LS
oc & ef OO *® 0 Oe FF UO & FF @ @
Less mature markets i Moderately mature markets I Mature markets
~ 1-2 parcels/capita ¥ ~ 10 parcels/capita —_—_ > 20 parcels/capita
1“E-commerce-televant" is defined as domestic B2C parcels, with speed typical for e-commerce shipments in the given country2 Shanghai and Beijing, assuming 70% B2C share 2)
47
SOURCE: Research, various reports
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4 universal truths
Competitive market
o%
(0)
of parcel market share for
typical incumbent
Australia with dominating
incumbent share in B2C1
parcel delivery (75%2),
particularly outside major
population areas
Competition is aggressive
and increasing, e.g., e-
tailers such as Amazon
are already insourcing
logistics
1. 30% market share in B2B; 2 Based on percent of total volumes in 2015; 3 Consumer survey across US, China and Germany (n= 4,700), conducted 2016
Source: IPC; APA/Branchenradar
Customer expectations
70%
prefer price over speed
44% of customers have
no willingness to pay extra
for same-day parcel
delivery, 40% only <1
EUR?
Currently 90% of parcel
deliveries are same-day or
next-day deliveries
Legacy costs
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Innovation gap
~30%
higher unit costs vs.
competitors in urban areas
Labor represents 80% of
parcel production costs
In urban areas labor cost
disadvantage of up to 30%
- without benefit of
network effects
10x
less IT jobs
No postal incumbent listed
in Forbes top 100 list of
digital companies 2018
Postal incumbents are
often stuck with rigid
corporate cultures that are
slow moving and risk
averse
@.
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Domestic volumes dominated by local players — various competitor types attacking ?
ons 1H Postal Incumbent {ll 2 main competitors © Other
with sharp value proposi
Tough competition - postal incumbents are #1 in most parcel markets, but face
strong rivalry ... .:. with 3 types of competitors attacking with sharp value propositions
Domestic parcel & express market shares,
Selective markets’, Percent _ Competitor type Strengths Examples
@ Transferrable expertise from B2B operations © US UPS. Dos}
(eg., time-window delivery)
B2B-focused parcel
specialists and express Network synergies due toB2B baseloadand EU DPD. Sopa
integrators factor cost advantages
@ High agility and innovative power US Postmates
ital first’, '10X better’ mindset)
@ Ability to cherry-pick and tailor offering
coverage areas or verticals
@ Ability to buy market growth’ CN Ele.me ele.me
on the back of growth financing
B2C delivery startups
High agility and innovative power US Amazon @mazon
(‘digital first’, greenfield)
Forward-integrating © Superior consumer insight and access EU Amazon
e-tailers (what's inside the box’)
Ability to cross-subsidize with other revenue CN Alibaba #2
streams (e.g., commissions)
1 Revenue-based for BE, DK, FR; 2 Includes Coliposte, Chronopost, Exapaq; 3 Poste Italiane is not in top 3
‘Two main competitors include: DPD and DHL in SW; UPS and DHL in BE; GLS and local player in DK; FedEx and UPS in FR; Hermes and DPD in DE and UK; DHL and GLS in NL;
Top 3 in IT: Bartolini, FedEx and UPS 2)
SOURCE: IPC 49
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Legacy costs — parcel production costs are a function of labor costs on the last mile Fy
where incumbents have a major handicap vs. low-cost attackers © Low-cost attacker [ll Incumbent °
Legacy costs — parcel production costs are a
function of labor costs on the last mile ... ... Where incumbents have a major handicap vs. low-cost attackers
Parcel production costs by process step, Comparison of labor cost between incumbent and attacker, Labor costs per hour, selected global markets, EUR
Incumbent example (urban areas), EUR/percent
Material costs,
labor costs
on other processes, pti 6
other costs rae
Labor costs on
the last mile
Country 1 Country 2 Country 3
+ More rigid labor terms and conditions (working hours, scheduling flexibility, ...)
1 Case example for delivery of 1 parcel in Berlin through a parcel network with 125,000 parcels per day 2)
SOURCE: Press 50
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Innovation gap — postal incumbents find it harder to innovate than their ‘digital first’
attackers
0 Postal incumbents appear on Forbes'
Top 100 Digital companies list
#1 @) FedEx as first Postal/Parcel company
on most admired companies list
IT Jobs open worldwide for Deutsche
<200 Post DHL!
60 of Of FTEs are longer than 10 years with
O their firm
Capital expenditure as a share of total
4 T% revenue in 2017 by Postal companies
1 May 2019
SOURCE: Forbes, IPC, Fortune
3
#2
2,000
mn]
~6%
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Amazon, Alibaba and JD.com all listed
within Top 50
Amazon ranking
Jobs offered by Amazon within the
category of Operations, IT & Support-
Engineering’
Year median tenure at Amazon
and Google
Capital expenditure on average by
Amazon, Alibaba, JD.com
@.
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E-commerce and financial services are important drivers of growth in postal business
suadeg punosBypeg ¢°} Wo},
Industry revenue share *
Percentage
Other
Logistics & Freight
Financial Services
Parcels & Express
Mail
2012 2017
1 nshides IPC members poatal operators from Europe, North Arierca and the Asle-Pacite region}. Cotectvely, her operations deliver 80% of lob mal vokimes (oz) -
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E-commerce shoppers’ need for convenient receiving drives explosive growth of parcel
retail networks
Post and parcel retail network expansion
# of offices
Aye
alr 45,783
4,800
2,600
2,600
2,800
3,000
4,700
5,000
1,300
15,405
3,500 ee
11,905 11,547
2010 2018
Others
Amazon Locker
Parcelly
DPD
UPS Access Point
Hub-box
DHL Service Point
myHermes
CollectPlus
Post office
~7 new branches opened every day in the UK between
2010 and 2017
() 4,407
1,820
330
1,300
2005e 2018e
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2
g
3
a
Py
8
i
DPD
DHL
GLS/Mondial
Relais
Kiala/UPS
PostNL?
Kariboo"
bpost -
post points
bpost - POs
bpost increased its network relying on postal points
and non-exclusive parcel shops
1 Kariboo points serve as non-exclusive parcelshops (for bpost and some for competitor PostNL too); 2 PostNL relies on Kariboo and additional own points
SOURCE: UPU; Company Web sites; Press search
@.
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E-commerce supergiants are entering the battle for B2C logistics
Value pool
Size of the global e-
Starting to insource [J Insourcing at scale [J Offering to other parties
commerce revenue pool Supergiant activity
Alibaba, Cainiao JD.com
USD billions
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Amazon
; Web services
Enabling (web)
services
Payment/fraud
Outbound B2C
logistics
(incl. cross-
border)
1 Total costs of e-commerce merchants, both in- and outsourced
SOURCE: Industry experts
Already offering last
mile services at scale
to e-tailers
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Example Amazon: broad fulfilment network as basis for fast delivery across regions ?
Amazon's fulfilment network and delivery speeds >) Implications .
Amazon's footprint I Amazon has a broad network
of fulfillment center across
@ Fulfilment centers
Europe to enable both scale
© Current delivery stations
and speed
@ Current prime now hubs
Amazon's delivery speed
@ Same-day in
metropolitan areas, 32 Amazon already has a
otherwise next-day consistent same-day offering
Next day in metropolitan areas in main
4-2 days countries
2+ days
Br Amazon also leverages its
broad fulfillment network to
offer fast cross-border
deliveries (e.g., Belgium,
~ Portugal, Poland)
1 Best available delivery speed for Amazon Prime customers, delivery speeds for some products and areas may vary 2)
55
Source: Web search
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Amazon's value proposition is built on operational excellence, scale-induced quality ?
improvements and an integrated offering
What amazon offers... ...and what is needed to match it
Inventor * Distributed Order Management system with
Intelli u we integrated optimization algorithm for cost and
Ne gence Lee D speed in FC network
= Best-in-class fulfillment, fast
delivery and customer-friendly
returns fulfillment
Branding that drives end-
consumer trust in fast and
reliable service I
* Integrated fulfillment center network to allow fast
shipping and easy localization
Peeraions! Sent * Late cutoffs, rigorous cutoff manage-ment and
sa cas SACRE ES H service promise transparency
i SSSIMARGPTIGN MTNA MINa CORTE terrier aetanctentertntntertrmeennnmnnsoiniens
unavailable to eCommerce H * Direct Injections into foreign networks to limit
merchants i Int’l Mid quality losses
* Scale effects for eCommerce i * [T-Integration with and optimized use of
merchants i international deferred carrier network
Scale and H
I AE Parcel * Priority processes to ensure fastest delivery in
* Integrated domestic and i delivery ly deferred network (i.e. at affordable cost)
/% international carrier Tn
exes management ‘ : ;
* End-to-End tracking across HM Reverse ® Integrated white-label returns portal for direct
lire value chain I logistics DD connection between returns, inventory and
i payment
Integration
@.
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Logistics partners can enable a consistent next day service promise across Europe for
retailers — matching Amazon on fulfilment center density not a requirement
Amazon's current fulfilment center amazon Theoretical requirements for consistent Red
footprint in Europe = next-day-shipping in Europe x
# Number of fulfillment center per © Possible next day coverage via
country ground shipping per fulfilment center
wm
72 FF center ~9 FF center
~87% of Amazon‘s 72 fulfillment center in Europe are only required due to the immense scale of the business
and are strategically located to service high density areas
1 For ground shipping ee)
‘Source: MWPVL.com 57
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Governments are increasingly digitising their services, reducing the need for both mail ?
and a physical footprint
Public Sector examples
a) Strong digital agendas in social insurance and tax:
= Social insurance agency: eliminating paper forms and manual handling processes
* Tax : authorisation of annual tax declaration through text message response to pre-filled tax form
D k @ Top down digitisation agenda spearheaded by the central digitisation agency:
enmarI
Ss. Digitising 80% of all government communication: non-digital communications to citizens are banned except in rare exception cases
ad Service New South Wales developed a unified, single point of contact for residents and businesses for more than 800 transactions, including:
= Driver licenses
Australia " Birth certificates
= Seniors1 Cards
= Fair Trading licenses
Core services now predominantly online:
* Tax return submission
= Passport renewal
= Car tax renewal, including abolition of physical tax disc
= Renewal of driving licenses
= Booking driving tests (over 98% booked online)
* Parking fines payment
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As volumes decline, operators obtain more important USO scope modification. \5xAvPLe
eo Portugal:
reduced weight
to 10kg for parcels;
@ New Zealand: 3 day
urban delivery, 5 days
in rural; changed
service outlet specifi-
Denmark: D+1 mail
removed from USO
and becomes priority
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(& Finland: Postal Act was
approved which allows
discontinuation of
Bulgaria: removed postal money removed direct mail; cations (e.g., allow self- i i
4 t mail; ons (2.9., product delivered with Tuesday delivery of USO
srders' fais creck iat - Start of XY delivery service kiosks) parcels; shift to letters, advertisements
Slovenia: reduced parcel weight ( taly: changed from 6 pilot in deep rural © Netherlands: “flower” rolling model and magazines; Non
to 10kg to 5 days of delivery — adjustment to reduce for standard mail, USO mail delivery three
€ Croatia: changed existing services per week; removed 4B Iceland: Split into A- number of post offices now with D+5. days per week in large
scope and weight limits direct mail and B-Mail and letterboxes specification cities
T T T ———_]
I f I ——J
2000 2010 2011 2012 2013 2014 2015 2016 2017 2018
e e ‘© ‘@ ‘@. e. ‘@ ? e. ‘@
5 } J J J i}
I [ [ [
=) ‘Austria: reduced parcel limit
to 10kg, and included
newspapers
(& Finland: redefined coverage
of the USO scope
(France: added a new single
piece product in D+2 to USO;
deletion of second class letter
for outbound international
mail
© treiana: specified minimum
set of services
E UK: removed bulk mail
from USO
1 Coverage: 85% of the population. This measure is not yet implemented, 2 Delivery standard of 2-13 days depend on distance, product, and urbanization, 3 Halted after government change
and review
Czech Rep: reduced parcel
and insured items weight
to 10kg
Latvia: reduced weight
to 10kg for domestic parcels
@ Lithuania: removed bulk
and direct mail
(@ Poland: removed bulk mail
Romania: excluded direct
mail included mail
for the blind; new parcel
quality provisions
Source: Press, academic literature search, operators’ reporting
© Netherlands: reduced
delivery from 6 to 5
days a week (with minor
exceptions)
) Canada: will introduce
community mailboxes to
all households that stil
receive door-to-door
delivery over
5-year period?
& Australia: €
introduced
a2™ class
service
with slower
delivery times
for existing
USO service; (a)
existing delivery
times moved
to premium
service
&
te
Finland: discontinuation of two
mail classes (2nd class ended)
as of Jan, 2017. Plan to reduce
delivery from 5 to 3 days
in urban regions! mail
delivered to flat houses can
be left in boxes by the entrance
Italy: from 6 to 5 days, gradual
implementation of <5 delivery
days in alternate-delivery-day
system; staged implementation
plan, eventual impact on 25%
of population?
Norway: discontinuation of
mail delivery on Saturdays
Iceland: delivery in most rural
areas every other day
= Norway: discontinuation of two
mail classes with two day
delivery
Sweden: reduction in delivery
quality to D+2
(& Finland: delivery speed
requirement from D+2 to D+4
@.
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Though, regulatory pressures on network coverage have been increasing in some
markets
Portugal
Anacom reviewing minimum required coverage
on each municipality, likely to result in increased
(branch-like) coverage in 33 locations for CTT
SOURCE: Anacom
© Ab 2
vs
Netherlands
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The State allowed several USO modifications,
including halving number of post offices and
letter boxes
(—) pe, 1,000
offices
1,000 down
from 2,000
gi 8,700
4 postboxes
9,300 down from
18,000
@.
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Regulatory debate will stay key lever on the long-run
Regulatory
negotiation
stays key for
postal services
entrusted with
USO, branch
requirement
Themes to address in regulatory
management
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Peer examples
Optimization within the current
requirement
Renegotiation of constraint to
decrease service cost
Negotiation of the financing or
alternative delivery of the
public service
Stable network size, but
er
0. outsourcing of operation
LA POSTE
Network size adaption
Tax exemption for territorial
presence and joint post-
townhall operation of branches
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Regulatory requirement on network size and proximity is a key lever
siedeg punoiBypeg ¢°} wa})
Minimum branch number Distance criteria
12,000 fixed location facilities
Customers in any municipality with more than 4,000 residents or in adjoining built-up areas shail in general be able to reach a permanent facility within no more
teal loan rl ll hl ‘than 2000 m:Addtonaly.n every detict 1 permanent feciity shal be located per 80 km’ Al oer locations must be served by moble postal sence uns
AH Atleast 1 facility in each municipality’
Service points shall be placed so that users have access to a service point within a reasonable distance
Alt least 95% of the national population should have access to a complete assortment of postal services within a 5 km reach from where they live.
The distribution of service points, with a complete assortment outside residential areas of more than 5,000 inhabitants, shall provide access to at least 85% of
the non-urban population within a 5 km radius
Under the regulatory conditions, Royal Mail must ensure facilities are provided such that the premises of not less than 95% of users or potential users are within
a
ww i
sj
se x MH _5km of an access point capable of receiving the largest relevant postal packets and registered mail, and that the premises of not less than 95% of users in each
postcode area are within 10 km of such access points.
Atleast 90% of the population must be able to reach this network within 20 minutes on foot or by public transport (30 minutes if a doorstep collection service
exists). In addition, at least one post office in every For financial services included in the USO, at least 90% of the population must have access to the services.
within 30 minutes by foot or by public transport on average
Postal Law requires one facility by municipality
‘The Sixth Management Contract provides that
rea network SCE! fat x
A. bpost must mai
least 1,300 postal service points, including post
offices and third-party-run postal shops.
x «/ _Serces must be scoessible to everyone and be provided ata reasonable cstance from one's home or workplace. The density of the access points must take
Into account the needs of users
Atleast 99% of the national population and at least 95% of the population in each department must be less than 10 km from a post office branch. All
‘municipalities with over 10,000 inhabitants must have at least 1 post office branch per 20,000 inhabitants. Additional post office network requirements (following
( ) x ‘Hine requirements of La Poste’s public service mission of regional planning) do not permit more than 10% of a department's population to be further than 5 km or
‘more than 20 minutes by car under normal driving conditions for the area concerned from the closest La Poste point of contact, The 2010 postal act requires
that the postal network consists of at least 17,000 contact points
~ Density criteria newly introduced. Austrian Post must ensure that all municipalities with over 10,000 inhabitants as well as 90% of the people living in the urban
AM Resa bla se a aa A axeas ot all provincial capitals must have access to a postal service point within a radius of two kilometers, In all other regions, the prescribed maximum distance
w eee pe to a postal service point is ten kilometers
1 Service points shall be placed so that users of a universal service have access to a service point within a reasonable distance of their permanent residence. It is also possible to operate
service point that is not at a fixed location 2)
SOURCE: Regulators, Opretators’ reporting, Press 62
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In light of sector trends, postal players have been optimizing their retail network —
example of North American postal player
Key actions )) — EBIT impact, smn
I 7 Current
= Review of product portfolio
* Simplifications of retail products and processes New riiral
" Full clean sheet redesign of branch formats, pricing \ corporate offices
and third-party contracts '
— Urban office conversion/closure (~400) ' Outsourcing of rural
— Rural office conversion to co-located (~900) ' corporate offices
Optimized retail footprint exploiting new-gained ' Outsourcing of urban
flexibility in USO regulation H offices
Improved contract terms
' Incremental delivery costs
due to less density
Future retail vision
-100
75
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20
40
35
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Throughout Europe postal companies receive (in)direct subsidies for sustaining the ?
USO 3
National subisidies postal companies in Europe, NOT EXHAUSTIVE 2015 2016 M2017 M2018
EUR mn Description
Indirect subsidy through favorable pension arrangements; replacement of standard pension system for
C Deutsche Post system where government pays part of pensions
Indirect subsidy
Subsidies for providing services of general economic interest (SGEl), compensation based on net cost of
providing these serivces (e.g. Network density, press distribution, basic banking access)
SGEI subsidy for transport and distribution of press and to guarantee network for delivery of financial
products (latter given in the form of tax excepmtion)
General subsidy for providing USO, compensation based on reimbursement for loss-making services that are
required by the USO
3 Based on exchange rate of 0,10 EUR per NOK
1 Excluding compensation for providing banking services, 2 Based on exchange rate of 1,13 EUR per GBP; network subsidy payment to Post Office Limited 7
Source: Annual reports postal companies, national supervisors @ 64
POL-BSFF-WITN-015-0007142_0304
2
Contents
Where We Make Money
Organisational Health Survey Results
Learnings from other post
= Review of postal context
= Learnings
Big Bets
Overall process update
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Executive summary — learnings from postal players
siadeg punoiByoeg ¢°I way)
There are three pillars of learnings from other post players:
1. Winning in competitive growth areas requires adapting the retail network structure to better serve consumers
(e.g., DHL’s dense parcelshop network provides convenience to its e-commerce receivers)
— Multi-tiered networks allow for improved economics without compromising on sales and convenience
2. Growing the top-line through non-core, third-party products usually fails to create sizeable revenue
streams. Most sizable growth areas are parcels and financial services. Sales performance programmes as
well as targeted incentives can be effective growth levers
3. Remaining competitive with a lean cost base requires consolidating footprint and different approaches to
ownership (e.g., franchise, dealers)
— Automation in selected areas, both in customer-facing activities and in in-store operations, is a key
lever to improve customer experience in a cost-effective manner, culminating in the “unmanned branch”
(Singapore, Finland)
— Strong partnerships with retailers (e.g. in Canada) have been successful, based on standardised
master franchise arrangements and clear understanding of economic benefits of having a post office (e.g.
15% sales uplift for retail)
@.
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We have reviewed over 40 posts globally to identify learnings for postal retail networks
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Retail network strategy
Three main groups of questions to be addressed
Product & sales
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Operations & economics
siedeg punoiBypeg ¢°} wa})
(1) How can stores help win in
growth segments such as
e-commerce and FS?
What is the right branch
segmentation to ensure
appropriate and efficient
service?
3 ] What further products
should be commercialized
and how?
How sales in branches can
become more efficient?
What ownership model
work to control costs while
delivering excellence?
What is the ideal store
coverage and operational
model?
@.
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@ DHL is building a dense parcelshop network to provide convenience to its
e-commerce receivers
Deutsche Post Q
" Offers proximity access to parcel sending for individual
customers
= At target state, DHL aims to have 20,000 parcelshops
(today ~11,000 parcelshops, 13,000 retail outlets and
3,700 parcel lockers)
= Low and variable cost operations
= Basic product offering - parcel receipt, send and returns,
domestic stamps
= Only needs basic equipment (a handheld scanner, label
printer) and inventory is minimal
SOURCE: DP DHL; Press 2) 69
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@ SingPost redesigned branches to reflect e-commerce ambition
siadeg punosByeg ¢"I wai!
Ooi
From... » Tes
Change Alley Post Office ' Ocean Financial Center
Post Office as key customer touchpoint does not H New branch with 60% less overall space, but 24/7
reflect SingPost’s vision and transformation i self service zone occupies 48% of total space
SOURCE: SingPost
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@ Canada Post tests a concept store to meet online shoppers’ needs
siedeg punosByoeg ¢I, wei}
= Drive-thru parcel pickup
= All-in-one self-serve shipping station
= A fitting room where customers can try on the outfit they bought online and if needed, return it
immediately
= Self-serve vending kiosk
= Extended hours: self-serve 24/7, opening 9-9 on weekdays, 9-5 weekends
@.
SOURCE: Canada Post
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@ Poste Italiane has established a leading FS business through BancoPosta
BancoPosta starting position
= Large incumbent utility with 8m
customer, 150k employees and €0.5tn
in assets
= BancoPosta can offer a full suite of
products without a banking license
— BancoPosta cannot lend to the
public directly, but can be an
intermediary
= BancoPosta is, however, required to
maintain ring fenced capital
SOURCE: Poste Italiane
——————————e
Key developments
= Since 2001, BancoPosta has innovated and
grown its product range in a steady and
managed way
— They moved from current accounts and
payments, to prepaid cards, and on to mobile
payments
— Other products include lending, mutual
funds, insurance
BancoPosta has managed this growth through
numerous partnerships
Banking clients receive several advantages
— Priority postal branch services; Discounts on
postal and other products; Easier online
money transfers
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2
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3
BancoPosta
= In 10 years, BancoPosta more than
doubled the market share in terms of
number current accounts
= Moving to expand wealth
management and increase
distribution of loans, mortgages and
P&C insurance
— Strongly positive market
reception to renewed 5-year
strategic vision: double digit share
price increase
= The postal networks allows for nearly
3x the number of branches versus
the next largest bank
@.
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@ Poste Italiane created a competitive advantage in financial services with its large ?
branch network “
Posteitaliane
Coverage of Italian population, Branches / 100k
inhabitant » Italy’s leading customer distribution network
Italy ri & Te
Zs Payments, mobile &
North Italy 9 Mail & parcel digital Financial & insurance
Lm H * Unrivalled physical I © Italian payments * Market leading
i distribution network champion product distribution
20 I I= Advanced customer network
' ' data capabilities
8 ! = Leading financial
Center Ital '
ES web and app
' platforms
20 I
5 t Poste has nearly 50% of population as a customer, 18% share in savings
i == ' accounts, 8% in consumer loans and outperforms peers on ROE (~23%)
Poste 1st Italian I
Italiane Bank '
SOURCE: Poste Italiane investor presentation
@ 73
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@ Poste italiane : The FS play
2017
Key
financials
Commercial
figures
1 Total financial assets
Main business
units Mail and parcel
Financial services
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3
a
2
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2
5
a
a
8
a
, Posteitaliane
Payments, mobile
and digital Insurance
Revenues,
€Bn
€Bn
TFA!
= ~110m
parcels/year
= ~30% B2C
market store
= ~34m customers
= ~13k post offices
= 15m daily visits
"= ~25% = ~22% market
e-commerce share on life
payments GWP
= ~25m cards
issued
~104bn1 pay-
ments
transactions
= 3m Telco
customers
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@ La Poste is expanding financial product portfolio and adjusts the branch
environment
La Bangu Je a8. stale. Cest 75 cs
LA POSTE
I = La Poste Bank and BPE collaborate to offer private banking services
bide * targeting the postal bank’s 600,000 affluent clients
= Early 2019, BPE has 75 offices, BPE-spaces in 45 post offices
complement its own branches deploying private banking spaces in
some of its post offices
@ .
SOURCE: La Poste; Press
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@ Portugal’s CTT has moved up the FS value chain from distribution to creating
and broadening the product offering
Where CTT started
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» Outcome
= In 2015, Banco CTT was created as legal
entity with banking license provided by Bank
of Portugal
* Prior to this, CTT offered very limited
financial services
= CTT had a very strong existing mass market
postal customer base
= The initial approach was for a low risk
balance sheet strategy
Dedicated counter space
»)) Key developments
The bank focuses on the mass market,
offering simple, transactional products
— Principles of fairness, transparency,
low cost
Lending began as an intermediary, in
partnership with Cetelem
— Itis gradually increasing its
exposure to credit risk and
broadening the product range
The initial 51 branches have expanded to
~200, built off CTT’s postal network
— Branches have either multifunction
counters (with postal), dedicated
counters, or dedicated space
Digital focused
= Strong customer growth, and move to breakeven (2015
v 3Q16):
Net loans 3.0
€m i)
Net profits N/A
= Aggressive branch growth
Il Dedicated space
Il Dedicated counter
© Multifunctional counters
402 379
202
79 25
2016 2017E
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Fs
@Q Within FS we see different strategies for posts >
Radical moves 3
Traditional approach
a
© Classic Postal Bank
@ Last Mile Utility model with @ Digital Customer © Become @ Ecosystem covering
for all F2F needs Distribution only Interface provider Ethical Bank FS (Fintech) + non-FS
* Offer branch services = Expand current offering * Act as aggregator of all * Build a fair ethical bank = Become key gateway
for existing banks (e.g., credit cards, financial relationships based that spans FS
Seaciiition * Expand into KYC/ ID loans) (PSD2 play) ‘on brand trust and related sectors
Ri verification for credit * Negotiate * Offer 3° party and own * Fair and transparent * Partner with Fintech
checks etc best possible distributor products themed * Build ecosystem
terms
pountal * Fee-based partnership * JV with traditional Multiple models possible depending on product choice — opportunity
with banks banking to act to take origination revenues either directly as a bank or in JVs
operating
as intermediary
model
GD voney Fectt Books : E2 Alipay
Example PIM BancoPosta uc @rirees Building Society $8 ldeaBank
players
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@ Retail networks have to be adapted to maximize customer convenience
European post and parcel player example
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Key considerations
i
Full-range post offices
-680
Lt)
-50%
Traditional owned post
offices
+680
Agent based parcel
shops
+450
Smart parcel lockers in
partnership models
+ Maximizing convenience through
longer opening hours and
additional (community) services
+ Improving accessibility for
pickup and returns through more
access points
* Creating lock-in effect with e-
commerce customers through
parcel lockers
+ Providing attractive agent
incentives in a post-mail
environment
@.
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© Successful postal peers transformed their branches in multi- tiered networks to
allow sales, convenience and lower cost
siadeg punoiByoeg ¢°I way)
@Sales focus
Large offices with a wide range of services
Primary goal is to provide the highest quality service and ensure a positive
brand perception
@ Service focus
Mid-sized offices with an optimal set of services
Primary goal is to provide fast, efficient and high-quality of large volumes of
transactions
© Local Access
Small offices with a narrow range of core services
Primary goal is meet the accessibility criteria/social needs or provide a response
to the competition
@ Direct Channels
Aset of alternative channels provides more options to the customer and increases the
quality of customer service — mainly websites, mobile applications, call centers
@.
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© For example, La Poste has 3 outlet formats, to which DPD adds parcel
shop and locker network
Own operated office
3rd-party municipality outlet
3rd-party retail outlet
DPD Pickup (parcel shop)
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Fs
4
Z
2
2
Si
3
LA POSTE
DPD Pickup Station (parcel
locker)
= ~8,700 outlets
= 1-2, 3-5, 7-8 counters,
banking dedicated office or
counter in medium and large
offices
= Private customers, SME and
corporate
" Service offers
— Full range postal
— Full range financial
services
— Full range of mobile and
digital services
— Third party services
= ~6,500 outlets
* 1-2, 3-5 counter, banking
dedicated counter in medium
ones
* Municipality branches are
operated partnership with a
town hall or group of
municipalities
* Private customers1
Service offers
— Large scale of post,
parcel services
— Most commonly used FS.
1 Or SMEs behaving like private customers
SOURCE: La Poste; Press
~2,000 outlets
1(-2) counter at retailer
Framework agreements with
a few large retailers
(Franprix, Total, Carrefour)
but also individual retail
contracts
Private customers
Service offers
— Most commonly used
post, parcel and basic
financial service
* ~7,800 in France
(31,200 in Europe)
= 1 counter
= Equipment: handheld
scanner, label printer, scale
= Private customers, SME
" Service offers
— Parcel sending, return
and receiving (direct
order to shop or failed
home delivery)
— Product exchange,
sending and receipt of
equipment for repair
(e.g., set-top box)
— Parcel shop to parcel
shop sending France
and international within
DPD European network
~350 (250 in stations, 150 in
post offices)
Private customers
Service offers
— Parcel receipt on choice
of customer to order in
locker
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Retail network strategy
Three main groups of questions to be addressed
Product & sales
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Operations & economics
siedeg punoiBypeg ¢°} wa})
How can stores help win in
growth segments such as
e-commerce and FS?
What is the right branch
segmentation to ensure
appropriate and efficient
service?
(3 ] What further products
should be commercialized
and how?
How sales in branches can
become more efficient?
What ownership model
work to control costs while
delivering excellence?
What is the ideal store
coverage and operational
model?
@.
POL-BSFF-WITN-015-0007142_0321
© Postal players have attempted to sell various non-core, third-party products in
offices
Description
Mobile phones, prepaid cards and subscriptions
Fixed line and internet subscriptions
Stationery
Personal computers and other electronic items
Various items (e.g. consumer electronics) via mail order
Books/CDs/DVDs
Gift vouchers
Public transport tickets/subscription
Event tickets
Flight ticket booking & payment (Jetstar airlines)
Cinema ticket booking & payment
Toys and games
ID photo service
Copy and fax services
Drop off and pickup point for computer repair services
Travel services, e.g., rental car, airline and hotel booking
SOURCE: Press; Operators; Interviews
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siadeg punosByeg ¢"I wai!
Example operator
Various operators
UK Post Office
Commonly offered
Swiss Post in the past, Austrian Post
Poste Italiane
Commonly offered
UK
Czech Post
China Post for Expo
SingPost
SingPost
Australia Post
Australia Post
Austrian Post
SingPost
UK Post Office °
@ 82
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© What are the services you see being the most important to success over the next 5 i
years?
90%
Mails Parcels Digital and/or eCommerce Reverse Loyalty Financial
Hybrid mail logistics services
NOTE: Multiple answers were allowed .
‘SOURCE: Escher “e @ 83
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© EU peers offer varied level of government services and often decoupled INoTExHaustive
from branch network
ID verification, authentic-
cation, enrolment E-government services
Payment services
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/la/c Service provided outside post office
Official document
applications and renewals’ Other government services
* Notarial or judiciary certificates * n/a
* Real estate, civil or
commercial certificates
requests
Country
* Reimbursement requests
fe. concerning health expenses
ctt * Utility payments
Citizen * Toll road payments
Bureau Areas?
* Vehicle tax * PostelD application “Ww : ‘
* Social welfare payments to SPID, a single log!
* State pension payments mm for al
* Payment services for
Pos] unbanked citizens ministra s
* Cash transactions for
unbanked citizens
AH...
1 Typically, not all services offered in all States/Counties/Regions and all Pos, 2 In 300 POs
SOURCE: Operators’ websites and reporting; Press
* Scheduling appointments at the
hospital or healthcare center
* Driving license renewal
* Residence permit renewal
* Registering foreign
workers’ contracts
* Registering intellectual property
* Passport services © Int
* Health card application r
* Application for cards of welfare
benefits
+ 5700 offices operate citizen help * En
desk, which allows multiple services,
e.g. land registry, residence permit
personal certificates applications
* Fishing permit
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© “Lessons learned” from other postal services companies yield several insights for
POL direction
suedeg punoiByoeg ¢°I Wey]
@ Every post has made attempts to grow outside the core in “adjacent” markets. The vast majority of these
efforts has failed to create either sizeable revenue streams (more than £20m per annum) or profits. E.g.,
mailroom management, ID validation, secure email, digital letterbox, document archiving, warehousing, postie
add on services (meter reading) etc
@ The successes have been primarily from legacy assets, in particular growth of financial services and
successes in making acquisitions, especially in two areas:
= Rollup of other express or parcel operators (DHL Express in Europe, UPS and Fedex globally)
= Acquisition of businesses which have subsequently been run at arm’s length in order to preserve different
culture and people processes e.g. Deutsche Post acquisition of digital marketing boutiques Nugg and Admail
@.
SOURCE: Press; Operators; Interviews
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O Sales scripts, tools can boost in-branch sales
Best practices from retail and banking environment
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siedeg punosByoeg ¢I, wei}
Counter clerk trigger-selling chart example
= Standard and well-known to staff scripts for basic
products is use
= Aheatmap of potential cross and up-sell situation
identified and staffed trained on transitions if recognizing
any of the triggers
" Staff is coached on translating products knowledge to a
language understandable by any customer
Adequate training and coaching e.g., via role plays
providing experience on how to deal with different
customers
= Regular monitoring, feedback and performance
dialogues are provided to staff
SOURCE: POL; Postbank; Hitachi Dynamics CRM
BORROWING. INSURANCE.
SAVINGS PAYMENTS
Term curren]
im I (Ode)
haath
[se Prec] cat) II ome I
“acne -
Simple visual and IT tools help track process and progress
Visual sales performance
management board
Branch manager's CRM tool
@.
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@ Branch-specific incentive practices can lift sales [RETAILBANKING EXAMPLE
Best practices at retail banks
Examples at postal operators
= Pay out incentives frequently and more often to create
right frontline motivation
Create gradual incentives to drive growth — don’t create
strong step function
Ensure employees clearly understand how their
incentives tie to overall goals of the institution
Prioritize strategic objectives (e.g., tiered quotas)
Drive collaboration amongst sales teams (e.g., group
bonus)
= Use leverage in financial incentives to drive appropriate
employee behavior
Provide attractive non-cash incentives to conveys
importance and special appreciation
Build loyalty to the company through unique and culture-
specific awards
EU postal
incumbent
Incentivizes to postal clerks by providing possibility to become
financial advisor in case of stellar performance
Recruits and manages postal banking staff as in banks:
employees specialize in products, they are in charge of a client
portfolio, there is separation of staff for retail and corporate
banking staff, incentivized for sales
Luxembourgish Post provides incentive-pay for both financial
services and telecommunication sales staff
Team incentive for most successful office in sales of third-party
product
@.,
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Retail network strategy
Three main groups of questions to be addressed
Product & sales
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Operations & economics
siedeg punoiBypeg ¢°} wa})
How can stores help win in
growth segments such as
e-commerce and FS?
What is the right branch
segmentation to ensure
appropriate and efficient
service?
3 ] What further products
should be commercialized
and how?
How sales in branches can
become more efficient?
What ownership model
work to control costs while
delivering excellence?
What is the ideal store
coverage and operational
model?
@.
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(5) Typically only 1/3 of own-operated branches are profitable...
Profit (loss)
€ thousand
per branch’
200 4
(200) 5
(400) -
(600) 4
(800) 4
1 Net profit per branch includes income ry
SOURCE: Typical experience across mufiple European postal counters networks
Small group of relatively profitable outlets — typically
very busy commercial agency outlets
I
i ~60%-75%
can
I
Large number of “marginal branches”
~25%-40%
Long tail of highly loss- ————*
making branches —
typically rural areas
direct and attributable costs of network provision
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@.... which leads to a strong trend of outsourcing offices
Postal retail network size and ownership
Percent
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2
é
2
a
Z
"Outsourced Mh Own § @
2005
100%= 133 13.881 12.671
2017
100%= 124 12,822
Hong Kong Italy Spain Switzerland US France Austria Germany
1 PostNL owns offices, but provide services only to corporate clients and were excluded for benchmark purposes
SOURCE: Company websites and annual reports; Regulator reports; Press
4511
Australia
2.100
11.547
Sweden —_ Netherlands UK
@.
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[5] Achieving best strategy typically requires relocating many postal branches and
innovative approach to partnerships
Where different partners could support the network
MAJOR DEPARTMENT LARGE ware Rabica MAJOR SHOPPING GREENFIELD
SUPERMARKET ‘STORES STATIONERS CENTERS: BUSINESS PARK
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Sales Ses ST
focus
Service PIT: a
focus + ¥
=
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I - =
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@ Example - Canada Post has transitioned from a fully Direct to more of a Master
Franchise model over time
Overview of Canada Post
Overview of transition to Master Franchise model
* Canada Post i Directly managed {i Franchised
operates 6,200
branches
* 98% of Canadians
live within 15km
of a Canada Post
branch
= Canada Post
delivers mails and
parcels to around
~6,200
Before franchise model
(pre-1987)
~16M addresses
per year Directly-managed
= Canada Post branch = Canada Post managed
generates ~$8.2B 100% stores directly
annual revenue
= Canada Post sought
franchise model to:
— Improve customer
access
— Reduce costs
— Leverage the retail
know-how of the
private sector
Franchised branch
(store-in-store format)
Total number
of branches
SOURCE: Canada Post
Early years of
franchise model
Current state
= Franchisees were granted
exclusive territory rights
Canada Post opened a
franchised store for .
every directly managed
store it closed
Post offices were
standalone branches,
rather than store-in-stores
Removal of territory
rights
Consistent split of
franchised and directly
managed branches over
time (~40% franchised,
60% directly managed)
The organisation has
moved from owned stores
to a ‘store-in-store’
format, particularly in
urban areas
@.
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@ Example - Canada Post’s Master Franchise model enables a lean
organisation structure with standardised, fixed-period contract terms
Overview of Canada Post franchising model
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2
é
3
g
a
v
Ry
8
g
Relationship with Shoppers Drug Mart
" Sub-franchisee owns and operates a Post Office within an existing
retail store, e.g., a drugstore
* No exclusive territory rights
* Blended margin of ~20% for Master Franchisees and additional
economic benefits driven by increased customer footfall generated
by Post Office products (~15% sales uplift)
Contract term of 5 years with option for a further 5-year renewal
Minimum of 76 opening hours per week and 7 days per week
= No management of store operations, performance management of
stores conducted on a quarterly basis
Explicit preference for household brand names as partners, as
quality is perceived to be better
Example partnerships
SHOPPERS @ Wlobaws GBD obeys
SOURCE: Canada Post
Overview
Q
Insights
for POL
2
Shoppers Drug Mart, a franchised organisation itself,
owns ~50% of Canada Post franchised branches
Canada Post agrees a framework with Shoppers Drug
Mart but actual contract is signed on a store-by-store
basis — very specific formal contract with standard
terms and pricing
The Master Franchisee is responsible for paying most of
the setup cost, i.e., standard fit-out, staging and
equipment
The relationship between Canada Post and Shoppers
Drug Mart is renewed every 5 years
Although Master Franchise models create a leaner agent
servicing structure, larger contract management teams
are required to ensure consistency among franchisees
Fixed period contracts allow the franchised
organisation to update arrangement terms if desired,
making it easier to change franchise strategy
SHOPPERS
DRUG MART
@.
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(5) Increasing automation plays an important role in transforming network economics F)
and driving future customer satisfaction
Counter automation mentioned as #1 factor in branch Younger generations use significantly more automated delivery
productivity method
Escher postal survey responses’ Doddle survey
Mi Home Mi Lockers Ml Workplace [ll Store pick-up I Friend/family
TT
Millennials GEN X Baby Boomers Seniors
1 Survey conducted between July and September 2018. Online survey of Postal leaders worldwide, with 76 total responses from 32 countries 2)
SOURCE: Escher ~ Future of the post, 2019 report, Doddle - UK presentation on World Mail and Express Europe conference, June 2019 94
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@ Example - Singapore Post introduced self-service postal machines as early as 1997
and also built up the world’s densest parcel locker network
Self-service
Automated Machines
(SAM) were
introduced in 1997 by
SingPost
In 2010, two thirds of
the counter network is
composed of SAMs.
In 2016, only 3 post
offices were not
equiped with a SAM
SingPost introduced
Popstations
(automated parcel
terminals) in 2013 for
convenient parcel
receipt and return
Both services are
especially
appreciated by
younger generation
due to convenience
They allow easy
access to services
without queuing and
also outside of office
opening hours and
often 24/7
Wide range of
products and services
include: bill payments,
government services,
top ups and gaming
etc.
Network is composed
of 139 machines
today, with expansion
plan of doubling the
network on mid-term
In 2015, 29 Pos have
been renovated all
allowing digital
access, 24/7 letter, bill
payment and parcel
services
Source: Singapore Post; Press
SAM specially started
to be popular in the
early 2000s with
introduction 24/7
machines
Machines allow parcel
sending, receiving
and returning and
customers can also
rent a box for peer to
peer e-commerce
sending
SingPost retail Network
# of access locations
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sam
1 3rd party operated post office
I Popstations I") Own operated post office
2003
2005
2016 2017 2018
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@ Example - Posti starts roll-out of unmanned post offices
= Posti has completed its second unmanned
postal kiosk, located outside Posti’s
headquarters in Helsinki.
= The kiosk features parcel lockers for
collection of parcels and lodging e-
commerce returns. Customers can also
send domestic and international parcels.
= Customers can contact Posti customer
service personnel via a video link for help
and advice.
SOURCE: Posti, Press
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@ Parcel lockers gain in popularity and some operators make aggressive bet towards
this delivery mode
Overall trend towards expansion
of locker networks continues ...
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# of terminals of IPC members, ... with pronounced strategy towards lockers at a few operators
indexed Examples
— =
100
~3700
terminals
across
Germany
Lockers introduced as early as 2001
Multiple generations of technology tested
Over 10% of population are registered regular users
Plans to roll out 7,000 by 2021
2013 2017
SOURCE: IPC Global Postal Industry report, 2018, Operators’ website and reporting
~1,600
terminals in
2018
40% of the Finns are covered by a seven day parcel
distribution via lockers
Target of 1500 terminals by end 2019, most dense EU
network at target state
@.
POL-BSFF-WITN-015-0007142_0337
2
Contents
Where We Make Money
Organisational Health Survey Results
Learnings from other post
Big Bets
= Approach to building a portfolio of Big Bets
= Latest list of Big Bets considered and discarded
Overall process update
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g
g
g
REMINDER: Big Bets will help shape the future of the Post Office
Research found that a significant and flexible reallocation of
resources to support “big bets” is one of the most important
drivers of revenue growth and profitability improvement
“Big bets” are initiatives that require significant resources and
investment (£10m+ of total CAPEX and exceptional spend over the
entire duration of the project) and will materially impact the strategy
and/or operating model of the Post Office
We developed a methodology by which we propose to assess and
choose a portfolio of “big bets” using 3 dimensions: financial
returns, ease of value capture and fit with the purpose of the Post
Office
Since the previous Board meeting, we have:
— Further developed our long list of potential Big Bets
— Assessed the Big Bets against the 3 said dimensions
— Started ruling out some Big Bets on the basis of poor
financials or low feasibility
aonivens
j
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We are currently in the 3 and final stage of our approach to building a Big Bet portfolio
(0)
Ideation
Finish w/c/ 4 Nov
@
Evaluation
Finish w/c 25 Nov
Activities
Outputs
Generate Big Bet ideas
Structure into
categories
Refine Big Bet
definitions
Assign primary source
of content for evaluation
Agreed long list of Big
Bets
Build fact base to level needed to
decide on Big Bets:
- Financial estimates (benefits,
investment, terminal value when
insightful)
— Feasibility assessment
— Fit with PO Purpose
Cut Big Bets weak on financials,
feasibility or fit with purpose
Make decisions aggressively on
weak big-bets to focus on better
candidates
List of excluded Big Bets
List of shortlisted Big Bets with
summary 1-pager
(3) Selection
Continue to pressure test / refine
big-bets, maturing financial
estimates and feasibility assessment
Cut weakest individual projects by
financial / feasibility rankings
Select a portfolio from the
individual Big Bets based on:
affordability, timing, risk profile,
interdependencies, PO capacity and
capability for change
Step-back and test: can we make
these bolder, more ambitious?
Sequence of Big Bets that will
shape the Post Office for next 5
years
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© Big Bet selection is first done at a project level, then at a portfolio level
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Project-level assessment Portfolio-level assessment
Evaluate Big Bets under 3 dimensions:
High-level
financials
Feasibility
Fit with
POL’s
purpose
Investment required and contribution
Level of granularity: as much as relevant
for selection
Informed by external market view when
relevant
How likely is POL to succeed in
implementing and capturing the value
Informed by external market view when
relevant
Will it increase convenience, access for
all, ability to help our end customers
with everyday tasks, etc.?
= Bring all remaining potential Big Bets in a single list
= Refine high-level financial as relevant
= Construct Big Bet portfolio options taking into
account:
— Affordability of investment cash flows required
— Timing and Risk profile of overall portfolio:
© Does the portfolio offer a healthy balance
between higher-certainty and higher-
tisk/potential payoff Big Bets, and between
shorter- and longer-term payoffs?
2 What is the potential correlation between risk
profiles of the higher-risk Big Bets?
° PO capabilities and capacity for change
— Potential interdependencies between projects
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Big Bet are submitted to a “decision tree” that underlines a rigorous selection process
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Big Bets
considered
B1
B2
Completely
discard Big Bet
Move to
“Small Bet” list
* Preliminary Big Bet case is weak
* Any further effort on it should be stopped
Big Bet case is strong, but total investment
<£10m, therefore moved to “Small Bet” list to be
owned by relevant function lead
* Preliminary case is not sufficiently
developed at this stage to make a decision
* Clear next steps and owners to be identified
and Big Bet to be discussed again
* Preliminary case for Big Bet is strong
" Case to be further developed in next couple
of weeks in preparation for “Final Round”
" Big Bet is a “must do” that can be approved
without any further discussion 7
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The result is an iterative process that gets us progressively closer to the recommended:
Big Bet portfolio
Project-level Portfolio-level
© ieston > @)sataon sn
——* —— ——>
— ——> —>
—_> — > —_> g—
—_> g— — > —_— > gg
— yg” rd
= No decision at this = Rule out those Big Bets = Through an iterative = Select Big Bet portfolio
stage whose high-level process, reduce the options based on:
financials, feasibility or list to a manageable — Affordability
purpose fit are clearly size by ruling out .
Decision- weak those Big Bets that — Timing
making have the weakest — Risk profile
activities financials and — Interdependencies
feasibility
— POcapacity and
capability for change
# of
potential ~40 =25 ~15-20 ~10-15
Big Bets
104
POL-BSFF-WITN-015-0007142_0343
2
Contents
Where We Make Money
Organisational Health Survey Results
Learnings from other post
Big Bets
= Approach to building a portfolio of Big Bets
= Latest list of Big Bets considered and discarded
Overall process update
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4 Big Bet categories
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siedeg punoiBypeg ¢°} wa})
Examples of Potential Big Bets
Optimise the product portfolio and grow revenues from the
existing product categories
Transform the network and its operations to ensure its
sustainability
Build technology and digital capabilities to support the
business
Right-size the central functions
= Sell Telco business
= Digitise parcel journey
= Replace Bol ATMs with POL ATMs
= Redefine the network
= Improve customer experience through
branch automation
= Modernise Horizon
= Build digital and analytics capabilities to
support other Big Bets
= Right-size the central functions
@..
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Big Bets: Optimise the product portfolio & grow revenues from the existing product cat.
Big bets
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Example of initiatives
siedeg punoiBypeg ¢°} wa})
Mails and
parcels
Bill Pay
Cross-
product
categ.
Bu: SS
model
Optimise
the product
portfolio
and grow
revenues
from the
existing
product
categories
Digitise the parcel journey
Extend the PUDO network
Expand the Bill Pay network
Telco: divest or keep
Replace BOI ATMs with POL ATMs
Grow banking framework business
Grow Identity business
Build an FX transactional
proposition
Develop an online investment
service
Develop an SME proposition in FS
or more broadly
Develop Large Corporates’
proposition
Marketing / Branding investment
Enter the subscription drug
fulfilment market
Move to a platform business model
= Implement an online parcels business connected to the branch journeys
* Increase the PUDO points through Payzone and Parcelshop
= Expand the bill payment network through contract wins and whole estate convenience
retailers deals
= Divest Telco, or keep Telco & reduce cost base through RFP and potential supplier change
Invest in infrastructure to replace current Bol ATMs by POL ATMs
Invest in marketing campaign to increase awareness
Take a partnership lead approach to develop new services for banks
= Invest to develop Identify service and seek partnership with a bank
= Expand current FX offering to capitalise on market growth within travel Credit/Debit card
market
= Develop a white label investment service
Build an FS SME proposition offering (lending, working cap & invoice finance, international
payments, insurance)
Develop SME online platform
* Monetise customer relationships by introducing large corporates
Invest in developing a Post Office campaign to reinvigorate its brand
Develop a “click-and-collect” service for non-liquid renewal subscriptions
= Offer “community pharmacy” service
= Move the business towards a consistent white label platform business with maximum
outsourcing long term
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Big Bets: Transform the network and its operations to ensure its sustainability Fy
Big bets Example of initiatives
Redefine the . Continue DMB closure program at accelerated pace
network based on ° Continue Mains to Locals program
customerneeds Continue New Network Locations program
Transform the
network and its
operations to
ensure its
sustainability
In-branch cash
automation
In-branch mails
automation
Improve agents’
experience
Improve supply
chain efficiency
Develop agents’
capabilities
= Invest in cash automation through TCRs and automated
deposit machines
Invest in automating in-branch mails customer journey
through deploying SSKs
Modernise agent support (e.g., Branch Hub)
Digitise agent journeys (e.g., training)
Optimise the channel mix and ROI for the agent package
taking into account pay, alarms & security, building spend,
cash, field teams...
Change Horizon and processes to simplify customer journeys
in branches, reducing errors & queues
= Optimise supply chain efficiency, ownership and systems
Outsource cash supply chain
Apply advanced analytics to optimise supply chain logistics
“Super-size” hot housing
Build sales competencies of postmasters
@..
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3
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Big Bets: Build technology and digital capabilities to support the business yy
8
Big bets Example of initiatives
; = Invest to move the Horizon technology onto modern architecture and without
‘Modernise any supplier lock-in
Horizon = Review the business needs that drive complexity into what the future Horizon
must do
Enable
‘management = Build a MI strategy that enables data-led decision making
Build technology information
and digital across POL
capabilities to - =
support the Build
business customer data * Build a customer loyalty program underpinned by data & analytics capabilities
and loyalty
approach
Platform = Build a POL own platform that allows owning customer data across POL online
capability businesses
building
@..
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Big Bets: Right-size the central functions
siedeg punoiBypeg ¢°} wa})
Big bets Example of initiatives
= Zero-base lowest run cost for staff costs and non-staff costs that will support the business
* Leverage tools such as digitisation, automation and spans & layers to transform and right size
the central functions for:
pushieize ie -SLP-grade managers
corel -Supply chain
pmectione (not DMBs)
Right-size the
central functions
Undertake = Undertake review of employees Ts&Cs to close the gap with market average metrics
review of
Ts&Cs
challenges
such as MTSF
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Discarded Big Bets
siadeg punosByeg ¢"I wai!
Big bets Example of initiatives
= We should not divest insurance because it is an important profit contributor (13% of total
PO contribution in FY2018-19)
= Equally, there is currently no case to invest materially in Insurance given the Post Office
has recently done this
= Therefore the recommendation is to carry on growing Insurance as BAU
Insurance: divest or
grow faster
Build a retail banking * The feasibility of such an initiative is very low for the Post Office: the cost would be high,
customer hub new capabilities would be required, and the benefits are highly uncertain
* The feasibility of such an initiative is very low: This has been tried by multiple posts in
Build a B2B cash the past and none of them have succeeded. This is due in part by typically bespoke
handling business customer needs that are difficult to satisfy at scale
* High brand risk (e.g., wholesale price increase) with limited benefit upside
Enter the energy = An option to enter this market by playing the role of an aggregator (e.g., Uswitch) is also
market unattractive given a very high competitive space
= Post Office would not have strong delivery economics, especially when compared with
Stand up last mile dedicated delivery players, e.g. the Royal Mail
delivery proposition
@ 1
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Contents
Where We Make Money
Organisational Health Survey Results
Learnings from other post
Big Bets
Overall process update
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PSG: Overall Project Plan
Workstreams
egy and
Growth g
tional
capabilities
Organi
Technology
Board
meetings
PHASE I: Baseline and Theme
Phase II: Strategy Development
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Phase III: Syndication and Iteration
siadeg punoiBypeg ¢*} wo}
4 weeks (30 Sep to 25 Oct)
= Provide a fact base to assess POL’s
markets and customers
* Start assessing the “strategic balance
sheet” of POL
= Brainstorm alternative Purposes
" Identify emerging themes that would
inform the future strategic “Big Bets”
* Design a Customer Insight survey
* Launch the Organisational Health
Index (OHI) survey
" Provide targeted expert support to the
Zero-Based review of the organisation
* Identify major problems posing a threat
to continuity of the business (“lights
out” risk)
7 weeks (28 Oct to 13 Dec)
= Articulate Post Office purpose
" Define the future'strategy and start
answering the strategic questions listed
earlier, e.g.: :
— “Big bets” I
Markets should we play in
Attractive growth opportunities
— Strategy financials / economics
Launch the Customer Insight survey
* Playback the results of the OHI survey
Identify the leadership steps to shape
the actions informing the strategy
Continue ZBB acceleration
* Baseline technology
* Identify implications for the business
strategy :
5 weeks (6 Jan to 7 Feb)
" Syndicate and refine the strategic
choices, and finalise the answer to the
strategic questions
* Articulate the 2-3 “Big Bets”, including
resources needed to support them
* Prioritise initiatives to embed Purpose
and Strategy
" Integrate with 5 year plan
* Drive OHI survey results into target
behaviours and interventions
* Prioritise technology initiatives to
deliver strategy
= 29 October 2019
= 28 January 2020
@ 113
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Overall PSG plan: several workstreams come together to feed into Big Bets over next 4 weeks
Customers &
Postmasters
Financials &
Markets
Org capabilities
Technology
Output
Arefreshed statement of our
purpose that states what
POL stands for and...
Resonates with our
customers and our
Postmasters
Captures the coherent set of
services we will invest
money and effort into
Aligns us to where POL can
be profitable within our
investment envelope
Fits our capabilities and
motivates our people
Is supported by a funded set
of technology changes
Brings together all the above
in board papers + unified plans
November
Gather inputs from wide group
of stakeholders
Understand what customers
and postmasters think through
engagement and surveys
Create long-list with
estimated financials and
feasibility; shortlist best
Estimate product and channel
profitability; analyse markets
for difficult Big Bet decisions
Baseline the organisation to
understand changes needed to
deliver Big Bets
Diagnose issues with
technology and identify what it
takes to move forwards
Feed Purpose, Customers &
Postmasters and Financial &
Markets inputs into Big Bets
December
Test early purpose statements
Feed results into iterations of
the Big Bets
Iterate portfolio of Big Bets
with learnings from Purpose,
Customer and Financials
Improve financial forecasts and
feasibility assessments where
required for shortlisted Big Bets
Review ways to strengthen
effectiveness of Product and
Partnership
ITLT works on addressing
issues and designs project to
identify Horizon way forwards
Ensure coherence of Big Bet
iterations with Purpose and
Customers & Postmasters view
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January
Finalise purpose statement
Engage postmasters with
findings (may be later)
Select portfolio and engage
stakeholders to confirm
Build PO financial forecasts
Identify leadership actions to
shape the culture needed to
support Big Bets
ITLT starts project to under-
stand Horizon and identify a
costed way forwards Q1 2020
Feed Big Bet choices into
financial forecast
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We are engaging postmasters through “curry nights”, 1-on-1s and an online survey F)
side ee is
Engaged over 80 postmasters at “curry nights”, including: = Sent to ~6,000' postmasters at 18:00 on Friday 15 Nov
* Diverse blend of branch formats/ locations (rural, suburban, urban) = 6% response rate by end of first week of survey being live
Varying tenures ranging from <1 year to 33+ years = Reminder email sent Friday 22 Nov
The youngest postmaster in the UK at 22 years old
Postmaster for the only Post Office run by a town council « Area Managers will follow-up to encourage people to
Third generation postmaster, handed down in the family since 1932 complete survey during routine branch visits
= Close survey Friday 29 Nov and analyse results
= Final “curry night” with~15 London areapostmasters I ~~ we wn nnn nnn en nnn nnn nnn nnn en nen nnn
= 10+ 1-on-1 conversations with high performing postmasters Early results
scheduled for w/c 25 Nov
Current
progress
Current
pro-
gress
Sectaeetaeon Uae Bathe bt lela anc a Ci Se co aerate ita iia] Serving our communities 215
Location Date Atrusted brand 213
® Eastbourne Mon 4" v Part of the social fabric in our communities 203
‘® Burton-on-Trent Tue 12" v Care for our customers 135
Curry © _Weston-super-Mare Thu 14" v Consistent, friendly service 129
nights Cambodge Monies Middle 25 ranked themes
‘© Manchester Tue 19% v
~ Value for money 81
® Guildford Thu 21% v er 7
Enabling lives and businesses to move forward 82
© London Tue 26" - ~
~ Convenient online presence 122
@ England Helping businesses grow 125
One- @ Wales 10+ post-
on- masters; Ley Moving the UK forward 159
ones © _ Scotiand wie 25th
© Northern Ireland
1 ~6,000 represents postmasters that opted in to communications per GDPR restrictions; DMBs were excluded from this survey as their input was taken in the OHI survey @ 115
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Post Office Purpose, Strategy and Growth
24 January 2020
This paper seeks to reflect current progress in the process of defining the Post Office’s Purpose and future Strategy.
While there is more to do and cost and benefits need to be refined, I wanted to give full transparency on our thinking
at this stage of the process, for your input.
CONTEXT
As a commercial organisation with a social purpose, the Post Office faces complex dynamics. To chart a path forward,
the Purpose, Strategy & Growth (PSG) team has since October 2019 conducted quantitative research across
customers (4,000+ consumers; 800+ SMEs), postmasters (~900 survey participants), POL colleagues (OHI survey of
1,770 participants with a 73% response rate); the team has also built on learnings from other posts, from
transforming incumbents and from digital attackers. This paper sets out the findings from this work: the assets we
start with; the challenges we face; a revitalised purpose; the strategy including investments we need in our
postmasters, our customers, our people and our business; and finally the enablers to ensure successful delivery.
OUR STARTING POINT
The Post Office matters to the UK
What we do matters:
* To consumers, which we serve through the 10.3m customer sessions in branches and 1.3m visits on our
website every week
¢ To communities, through ~11,500 branches throughout the nation plus our digital presence (the
Government's own research has found this network delivers £4-10 billion of social value to the UK each year)
¢ To the vulnerable, whom we serve through ~4,000 community (traditional and outreach) branches
* Tosmall businesses, as 93% of the total 5.9m of them in the UK use the Post Office, over half of at least once
a month and almost a third at least once a week.
Strengths as our foundation
Our integral role in the fabric of the UK is based on a set of strengths:
* Post Office remains one of the most trusted institutions in the UK: 58% of consumers give the Post Office a
rating of 8+ out of 10 on how much they trust the organisation. We also have clear headroom to competitors
on reputation, service and convenience for parcels thanks to the care of our postmasters across our branch
network.
¢ Our branch network continues to deliver an advantage for mail and parcels customers, who value this
convenience over that of our next closest competitor (65% of participants in our customer survey agreed or
strongly agreed that they had a PO branch close to their home/office vs. 50% for our best competitor).
Our network also provides convenient access to critical banking services of major UK banks. Some 8 million
customers every year already turn to the Post Office for their everyday cash and banking needs, and the
convenience of our network promises to be increasingly important for the 58 million cash users in the UK
who see banks continuing to rationalise their own branches. Helped by the recent change in pricing, Cash &
Banking revenues are set to grow ~50% over the next two years.
© We have also created businesses outside our core (financial services, insurance, telecom) that make a large
contribution and which, delivered through digital channels, are a proof of concept of our ability to deliver
platform plays, leveraging our brand and access to customers.
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External challenges
However, we face a set of challenges in the markets where we play:
A growing imperative to modernise the Post Office as an organi
The parcels market is becoming intensely competitive given the growth of Amazon as a logistics player,
alongside aggressive rivalry from both low-cost players (Yodel, Hermes) and high-quality players (e.g., DPD).
While the parcel market is growing at 10% p.a. (according to Ofcom), the letter mail market continues to
decline at an accelerating rate (7-9% p.a.).
The Post Office’s Banking & Cash counter services have good momentum for the next three years, but will
inevitably decline in the long term (UK cash payments fell by 16% from 2017 to 2018), with volumes
potentially dropping faster over the coming years given re-negotiated prices.
There are competitive challenges to young customers and SMEs — two important segments for our parcels
and FS markets. Relevance and trust are notably lower for young customers, with other competitors rated
higher than the Post Office for core attributes. This challenge is even steeper for SMEs where POL is
perceived to be broadly in line with market average across many features (not leading, as it is for
consumers), with a large gap to other competitors on important ones (e.g.
easy”, “Always have staff available quickly to help me”).
With the exception of travel money and travel insurance, POL has not yet fully established Financial Services
as a medium-term growth engine within either the consumer or SME segment. Customer research highlights
that there is not yet a clear “right to play” in this category with more credibility needed on expertise and
ability to make customer financial transactions easy, relatively low overall awareness across many products
(including life insurance at 33%, credit card at 31% and mortgages at 20% prompted awareness) and a strong
negative halo driven by poor previous branch experience that leaves both consumers and SMEs assuming
that any digital experience would probably be poor or uncompetitive. In those areas of strength, e.g., forex
where we are #1 in physical transactions, we have not yet fully expanded our proposition to drive growth.
For example, within the debit card space which is growing at double the rate of our core cash market, we are
missing a proposition.
“Niakes the parcels drop-off
Finally, Post Office faces a range of digitally-enabled (e.g., Monzo, Tide) and gig-economy (e.g., Hermes,
Yodel) competitors who operate with a lower unit cost structure, greater agility and a primary focus on scale
rather than profitability, which creates a substantial competitive challenge affecting Post Office’s online
propositions, especially insurance, forex and savings.
tion
In the face of these market shifts, the need for the Post Office to modernise is significant. This means addressing a
number of organisational challenges:
.
Post Office has a high-cost operating model, with limited deployment of process digitisation or analytics. This
means that there are currently ~3,850 FTEs in POL against a potential target state of “1,600.
Trust needs to be re-established with postmasters (given, for example, the GLO). Retailers view Post Office
processes as onerous (e.g., training, onboarding, inventory ordering) and this means that the Post Office
format is not always compelling to them.
Diversification has resulted in a complicated set of products which make it harder for our talented people to
deliver leading positions and services. Mails & Parcels, Cash & Banking and Financial Services account for
76% of FY2019/20E direct contribution (including PayZone), but managerial focus, best PO team capabilities
and change budget do not reflect this, with topics such as BillPay (including PayZone) and Identity
(respectively 1% and 3% of FY2019/20E direct contribution) taking disproportionate oversight and
investments.
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© Collectively this means that we are challenged in supporting our people. We have bottom-quartile
organisational health overall relative to relevant peers, with particular gaps in: clarity of strategic direction,
role clarity, personal accountability, external/competitor orientation and innovation.
© Furthermore, the Post Office suffers from the combination of a total dependence on third parties for all
technological needs with very low maturity in vendor management capability. Horizon has contributed to
extremely high IT costs (running at ~£90m vs. initial benchmarks of ~£50-60m) as well as severely hampering
both technological change and our ability to deliver our postmasters’ demands for “easy” services and
journeys to offer to their customers. Post Office has the challenge of an unsustainable physical branch
network to self-fund. There is a significant portion of the network that is loss-making, with an estimated
support cost of £74m, predominantly driven by the need to support out geographic and access criteria,
alongside some legacy fixed agent pay contracts.
Finally, Post Office is facing a dramatic reduction in change funding (from I
excluding GLO reserve funding in FY2020/21E). There is an envelope of” for change in FY20
--flelivering projects required to “keep the lights on”. Finalising the DMB exit programme alone will absorb
GRO iof that spend. These numbers are preliminary and will be confirmed at a later Board meeting as part
Year Plan update.
Hin FY2018/19 to}
CLARIFYING OUR PURPOSE
A first step to orient the organisation is to set a clear purpose behind which we can rally. Informed by our research,
and reflecting our Business to Business to Consumer (B2B2C) nature, we believe there are three major “ingredients”
to the Post Office Purpose:
1. Thriving Postmasters
We put postmasters first because without them we have no business — we will be 100% franchised within 18 months.
They serve our shared customers. We need to improve our relationship and our trust. We are already increasing
remuneration, improving transparency and modernising operational processes. Beyond this we will discuss with
Government how we can align our interests with those of postmasters more permanently — for example through
greater postmaster involvement in Post Office governance, sharing of profitability and even change in ownership.
Serving our postmasters better means:
a) radically increasing our efficiency to offer valuable, competitively priced services
b) focusing and innovating to maintain our lead in core markets in the face of competitive disruption
c) rethinking our support and franchise model for our postmasters to better serve their needs.
2. Ease & Access
We need to deliver consistently on those attributes that we have seen matter to our consumers, ie.:
a) Services and products that are easy to use and make our customers lives easier. Customers, postmasters and
multiple partners alike overwhelmingly and consistently across categories emphasise the importance of this. It is
clearly a critical plank to remaining competitive.
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b) Access to services that they wouldn’t otherwise be able to tap into without our physical/digital support,
particularly in Mails & Parcels and Cash & Banking.
This speaks to the importance of our social purpose and providing services for all communities across the UK, not just
a subset of the population. By providing efficient models and formats, we can help communities access postal and
cash & banking services.
As we increase ease and access for our customers, we will equally focus on ease and access for our postmasters. We
must make it “easy” for our postmasters and multiple partners to work with us. Our technological and organisational
barriers have created layers of friction which we simply must remove. And our focus on access to postal services will
help our postmasters provide access to their communities.
3. Service-oriented central support. By simplifying what we do and addressing gaps in strategic direction and role
clarity, celebrating where our teams are taking personal accountability, and focusing our efforts on initiatives that
clearly move the needle on our competitive position (through efficiency or innovation) we will offer a much richer
and more rewarding environment for our most talented individuals and better serve both postmasters and
customers.
We will take forward further work to blend these ingredients into a single purpose statement.
STRATEGY
Economic foundations
To carry on delivering for our customers, we all have to be commercially sustainable — not just POL. This has to be
worth it for customers, for postmasters and for the clients who pay our bills.
Realistically, a branch network that aims to be everywhere, will not be able to support itself commercially. We will
have digital businesses, but their role is not to grow for the sake of it: their role is to make profits that turn into cash
and sustain the network. And if we need more money for investment, we will consider selling a business to fund the
changes we need.
We have to generate cash because that is what we can invest, and in rapidly-changing markets with changing
technology and customer needs, we need to keep investing. This virtuous flywheel is depicted in the exhibit below.
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Item 1.3 Background Papers
Digital Platforms
Core
Financial Mails & Parcels
services
Cash & Banking
Identity
oney
.. Support
market share
where it matters
to postmasters
and customers
Delivers
additional
cashflow for
investment
Pillars of the strategy
The strategy has three major components:
1. Simplify to increase agility and to deliver to customers and postmasters: remove the complexity that
creates barriers to change, freeing cash for reinvestment
2. Defend the core: double down on and consolidate our position in Mails & Parcels and in Cash & Banking to
give us a strong platform for the future
3. Use platform plays as a means to fund our core and to deliver purpose: support highly-contributing
opportunities consistent with our brand that can be used to drive cashflow to reinvest in our core services
for our postmasters and customers.
1. Simplify to increase agility and to deliver to customers and postmasters
In any given year, we have a limited amount of income to share with clients and postmasters. Every penny we spend
means less for customers and postmasters and it is our absolute duty to be as efficient as we can be. We will
therefore seek to become the world’s leanest post office, not just to hit our own targets but because it is critical to
delivering our purpose. This will create oxygen for investing in our postmasters, our people and our growth engines.
The major components include:
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Right-sizing the central functions: in the short term this means reducing central costs by streamlining the
commercial organisation. In the longer term there is further opportunity from digitising functions and the
overhaul of the franchising support model. The initiative can reduce costs by ~£33m per annum at run-rate
(FY2023/24E), freeing up cashflow and enabling faster decision-making through a more focused approach.
Redefining the network and formats: to ensure the network is fit for purpose, we will complete the DMB
franchising effort, convert Mains to Locals and review what is the sustainable size and structure of the branch
network going forwards.
Improving supply chain efficiency: we will determine which parts of supply chain are better outsourced than
retained in-house, and over what time period. Our high-level assessment suggests that as-is optimisation of the
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supply chain (e.g., by applying advanced analytics solutions to routing and footprint design) could unlock ~£5m
benefits p.a. at run-rate (FY2023/24E).
= Overhauling Technology: Horizon in its current form is a high-cost system (forming an important part of total IT
costs which run at ~£90m vs. initial benchmarks of ~£50-60m) with limited flexibility to deliver business needs
going forward. Clearly a robust and flexible system is needed to serve our postmasters and customers. The
current hypothesis is that delivering this will mean migrating at least some — if not all — use cases away from
Horizon, together with implementing a vendor transformation journey, to support our future strategy. However,
Horizon documentation is limited and so a first step should be a diagnostic sprint, which our supplier Fujitsu has
already indicated they would be interested in doing collaboratively with the Post Office, to determine the best
way forward.
= Reimagine postmaster experience and support: we will develop a clearer franchise model with better support to
the postmasters. The target franchise model will determine POL’s best structure of field support and level of
digitisation/automation.
* Enabling management information: in the short term we will build infrastructure to enable MI across POL,
paving the way to its consistent use in data-driven decision making. In the longer term we will also build our
digital and analytics capability to enable delivery of both efficiency and innovation objectives.
Product rationalisation vs project rationalisation:
= We have reviewed opportunities for product rationalisation, for example of products with lower awareness (e.g.,
mortgages, life insurance). Our assessment is that stopping products is the wrong path forward: all products
make a positive financial contribution (average ~40%, and in many cases >70% in FY2018/19), so that
withdrawing them would immediately reduce the absolute profit that is needed to fund the branch network,
without allowing us to simplify the underlying operating model. Project Blueprint identified significant savings in
support costs (target potential of ~1,600 FTE) available even assuming an unchanged product portfolio.
= Conversely, we believe there is an opportunity to rationalise change projects and change spend. This year we
have been running 130 capex or exceptional change projects, ranging all the way from thought pieces to delivery.
Next year we will bring this number down to 20-30% of that figure. Projects not on the list will be placed on the
back burner and we will stop work on them. We will focus relentlessly on making fewer changes better. This
means projects such as Youth Strategy, Insurance acquisitions and replacing Swindon will be mothballed.
= We will consolidate the remaining change spend into fewer more material initiatives — as set out in the “big bets”
below.
= We will also focus where we spend time and energy within our product groups, investing marketing money and
resources against products where we have a clearer right to play and an opportunity to drive conversion, rather
than diluting our efforts by trying to move the needle across the full portfolio.
= Taken together, these steps will enable us to do change better and to strengthen our own core disciplines:
change delivery, managing our contracts and complying with our Regulators all have to be part of our focus.
What we will NOT START:
* Adjacent markets where we have no basis for winning (e.g., energy, other utilities): we reviewed an extensive
list of adjacent opportunities and concluded that economics and feasibility are low. Other post offices around the
world that have entered these adjacencies have overwhelmingly failed
= Adjacent operational services, e.g., cash for third parties: this is deprioritised due to low feasibility. This has
been tried by multiple posts globally in the past with no success, due in part to typically bespoke customer needs
that are difficult to satisfy at scale
= Last-mile delivery and pick up: here the Post Office would not have strong delivery economics, particularly when
compared with dedicated delivery players, e.g., Royal Mail.
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Item 1.3 Background Papers
What we will NOT invest in to grow:
* Digital Identity under the current model: benefits are highly uncertain (who will pay) and investment is
expensive
* Government services (including POCA, but excluding Identity): these offer a low contribution of product
category overall and diffuse organisational focus
* Bill payment: this is a driver for only 9% of visits to branches; bill pay is a commoditised market that offers low
profitability.
= Insurance: we have already invested substantially in this business in the last few years. We now are looking for
the business to deliver returns as BAU for the next two years without further investment. We will review
progress and confidence after a year to confirm the direction and whether any other option e.g., divestment
should be considered at this point.
2. Strengthen our core businesses of Mails & Parcels and Cash & Banking
We have an opportunity to shore up our competitive position in Mails & Parcels and Cash & Banking to increase
profits that will both support our return to our shareholders and create a robust bottom line on which we can build
for the future. Of £422m direct contribution (excluding PayZone) in FY2018/19, £153m (36%) comes from Mails &
Parcels and £52m (12%) from Cash & Banking. In the baseline this rebalances to £143m (33%) and £121m (28%) by
FY2020/21E. We will start to invest in initiatives to support the core from FY2020/21E.
Core components of supporting Mails & Parcels includes:
ing the parcel journey: setting up a POL online channel that provides the ability to sell postage
online, to track parcels and to pick POL locations for click and collect
© Automating in-branch mails: launching the tendering process for automated Self-Service Kiosks (SSKs)
across selected branches of the network
© Achieving the best possible deal with the Royal Mail in the context of the ongoing negotiations
o Reviewing the shift to multicarrier options.
We have launched a next phase to detail our mails strategy further.
Actions to maximise our position in Cash & Banking over the next three to five years include:
© Launching local marketing campaigns (e.g., local events in communities) targeting SMEs to increase their
awareness and consideration of POL cash services
© Launching the tendering process for cash automation machines including automated cash deposit
machines for customers inside branches, teller-cash recycling machines for postmasters and ATMs of
selected branches when they are due to be phased out by Bank of Ireland
© Preparing for negotiations for the Banking Framework #3 to share benefits as further high street
branches close.
3. Use platform plays to fund our core and deliver our purpose
We have made progress during the past decade in establishing platform businesses. We have 12 people running a
Telco business that generated £153m of revenues in FY2018-19, 10 in mails for £351m, 39 in cash & banking for
£175m, and SO in FS for £146m.
It is now time to start exploring our next platform options so that we have a continuing basis for continued growth
and relevance. These could include:
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Item 1.3 Bac
* Exploring opportunities to launch a FOREX debit card. Forex represented 42% of Financial Services revenues in
FY2018/19 and leads competitors on consumer perception of critical attributes. The opportunity exists to
develop a debit card proposition to defend the forex business
= Exploring the option to partner to create a new SME proposition: SME financial services represents a ~£3.8b
profit pool in the UK (2018). While there is much competitive activity to serve SMEs, we could see several
domains (e.g., working capital, near-prime lending) where Post Office could play. This would be in a “platform
play” with the Post Office providing access to customers and a partner manufacturing products and handling
regulatory compliance
= Explore the option to provide a “democratised” investment proposition. Partners have expressed interest in
providing Post Office with a set of investment products
* Exploring a platform play in Identity: Digital Identity is an area where we have chosen not to invest in given
challenging returns. However, we are exploring a potential partnership where we operate as a platform for other
providers.
A key success factor to delivering platforms will be building capability within the Post Office to work effectively and
efficiently with its existing and new corporate partners.
In the interest of enforcing simplicity, we will not investigate any further new initiatives in the next 12 months and
invest in any of the above only once the proposition and case is clear, proactively terminating options that do not
meet the bar.
FINANCIAL PROFILE AND SEQUENCING
Across these three pillars, investment would total up to! GRO fin
FY2020/21] for? GRO I of annual recurring benefits across the "big bets” identified against each of these themes.
[These number-are prenminary and incremental to substantive “keep the lights on” change spend in 2020/21 and
beyond. The net position and implication for funding will be confirmed at a later Board meeting as part of the 5 Year
Plan update.]
07
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Given the need for substantive spend to “keep the lights on”, spend that is expected to require a significant
proportion of the total spend envelope over the next several years (e.g., [£64m] in FY2020/21), to deliver this
incremental change we aim to sell our Telco business to co-fund change and — at least partly — loosen our current
cash constraints. A role for government will still be required, particularly given the ongoing (and growing) burden of
loss-making branches.
Sequencing will clearly be critical to delivering these opportunities to manage both cash and management
bandwidth. The focus of the next 12 months will be on simplification and investment to defend the core in
FY2020/21. We will limit ourselves to exploration of growth options rather than delivery. Depending on the
confidence built in each initiative, more focus will be given to them from FY2021/22. Furthermore, no new
opportunities will be added in the next year. Any new ideas will be added to a backlog and explored in one year’s
time to ensure focus.
Following through on this strategy in the next two years, we will declare success if we have:
© Rallied our postmasters and colleagues around our strategy and purpose
* Seen a material uptick in our organisational health and underlying key cultural components
¢ Delivered benefits of £50m from the “big bets”
Secured funding to support the investments required
* Agreed a clear path to dealing with our estate with our stakeholders
* Created a simpler, flatter organisation of ~2,000 FTEs with a clear path to achieve ~1,600
Completed DMB franchising and improved our network/franchising model/operations strategy
* Completed the RMG negotiation and started executing the remaining components of the Mails Strategy
Begun re-platforming Horizon with clarity on a path to building our digital capabilities
© Clarified the propositions to drive growth, stopping those that are unattractive and kicking off steps to deliver
the top priority that we identify.
OUR PEOPLE
Our people want and need to be part of the journey. These changes will enable us to create compelling roles, that
offer a clear part to play in the business, that have true accountability and that offer an opportunity to be part of a
journey of automation, digitisation and modernisation. As a leadership team, we will need both to equip our teams
to make this shift and to role model the change that we want to see.
We have already kicked off some important components of internal role modelling through the launch of the 10@10
and trading meetings to bring transparency and underline the need for accountability.
Anew GE structure will shortly be announced, and I will share this with you on Tuesday. We will work over the next
month to ensure clear accountabilities and role descriptions at GE-1. The structure will follow our strategic needs:
* A focus on postmasters in a dedicated Network and Franchise team
«¢ The commercial businesses brought together so we can focus on customer needs and work as a single team,
not individual product silos leading to suboptimal management time, talent and investment allocation
¢ An Operations and Supply Chain leader positioned on the GE, with specific accountability for the delivery of
our GLO strategy. Additionally, a focus on simplifying and consolidating operations, resolving the extent to
which we digitise operations and ensuring that we offer our postmasters robust, simple processes
¢ Anelevated Marketing and Brand team, reflecting the need for a step change in marketing activity to define
and deliver the brand promise, aligned with the purpose and strategy, and to define effective campaigns to
support priority products with clear RO!
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e Anintegrated Communications and Corporate Affairs team. A substantial communications effort will be
required to embed the new purpose and strategy. This must be consistent internally and externally, with a
clear mechanism for postmaster engagement and involvement
© Aclear Chief People Officer role to address the burning platform change in culture and organisation that we
require, immediately
* Our ClO ~ while an existing role — will have a particular focus on resolving outstanding questions around
Horizon to ensure we have a robust, flexible platform with which to serve our postmasters and customers
This represents a flat structure where each activity is carried out in one place and one place only for our whole
business. This will not only make us more efficient, but critically ensures the leadership team gets closer to
customers and postmasters. Our structure will enable us to ensure greater role clarity, clear accountability for
outcomes as well as improved consequence management. A priority for each GE member will also be to start
addressing our capability gaps throughout our organisation to ensure we are equipped to deliver the strategy.
As laid out above, we will need to be ruthless in our prioritisation. Again, we will role-model this from the top. In the
next 18-24 months we plan to dedicate:
= 35% of GE time to simplification
= 35% of GE time to strengthening our core businesses of Mails & Parcels and Cash & Banking
= 15% of GE time to exploring our next platform options
= 15% of GE time to other topics
Finally, we will kick off a comprehensive engagement and communications programme in February to explain our
strategy and to bring to life what it means for the different parts of the organisation including the individual
behaviour changes needed (and expected) for delivery. A critical part of this will be bringing to life our learnings from
the GLO and the imperatives for change this brings for our business, This will run in parallel to our programme of
ongoing engagement with postmasters and a customer campaign to start the process of modernising and re-
energising our brand.
Thriving Postmasters. Ease & Access. Service-oriented central support.
10
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Item 1.3 Background Papers
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POST OFFICE LIMITED DISCUSSION PAPER
REMUNERATION COMMITTEE PAGE 1 OF 7
Bonus Scheme Rules Review
Author: Maxine Cross / Laurence O'Neill Sponsor: Lisa Cherry Meeting date: 26 November 2019
Executive Summary
Context
Further to the 18/19 bonus approval cycle a high-level initial review and benchmarking
exercise was undertaken of our current STIP and LTIP scheme rules with specific regard
to POL's ability to apply discretion, malus and clawback to reduce or recover bonus
awards.
On 23 September 2019 RemCo agreed proposed changes to the discretion, malus and
clawback provisions in principle, subject to the question of to which grades of employees
the changes ought to apply. They agreed that any changes should be applied from 1
April 2020 and not earlier. Since 23 September the reward team have identified a
number of further routine changes that could be made to the STIP scheme to bring it
up-to-date and in line with POL’s existing practices. This paper sets out the
recommended changes to the LTIP and STIP scheme rules, suggests a procedure to
implement the changes in advance of 1 April 2020 and advises of the potential risks.
Questions addressed in this report
1. What are the final changes recommended to the Malus and Clawback provisions of
the STIP and LTIP?
2. Which employee populations (grades) should those changes be applied to?
3. What further routine changes are recommended to the STIP scheme rules to bring
them up-to-date and in line with POL’s existing practice?
4. What is the procedure recommended to implement the changes from 1 April 2020?
5. What are the material risks of implementing the changes?
Conclusion / Recommendation
1. The final changes to the STIP and LTIP are those shown tracked in the schemes
appended to this paper and summarised in the body of the Report. Broadly
speaking they improve POL’s right to make reductions to bonuses due under the
LTIP scheme, to align that with the STIP scheme. They also clarify the
circumstances in which POL might want to exercise discretion, such as where the
individual has contributed to damage caused to POL’s reputation or some other
exceptional event has occurred.
2. It would be possible for Remco to focus the changes to the discretion, malus and
clawback provisions on SLP grade and above, simply by limiting the changes to
LTIP only (the LTIP only applies to SLP and above). If, however, the committee
Strictly Confidential
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Item 1.3 Background Papers
POST OFFICE PAGE 2 OF 7
wishes to make these changes to the STIP too it is recommended that the
changes be applied to all grades who benefit from STIP. Having different rules
applying to different grades introduces complexity. It would also call into
question the extent of POL’s existing ability to apply discretion to all grades
(which we believe we already enjoy). If the proposed changes to the STIP are
met with strong resistance from Unite the Union (which is not anticipated) we
can consider a revised approach at that time.
3. The further, routine/additional changes recommended to the STIP scheme are
those shown tracked in the STIP scheme appended to this paper. The key
changes are summarised in the table in the body of the Report.
4. We do not believe we are obliged to agree the changes with the employees or
Unite. As a matter of good employee and industrial relations, however, and to
avoid claims in the future that the changes are void because they were made
without employees’ knowledge, we recommend we should notify Unite and the
employees of the changes. GE and senior management will be notified by Nick
and Lisa in December. Unite will be notified of the changes in mid-January 2020.
If employees or Unite challenge or resist the changes, POL will assess the
strength of any argument and respond accordingly. If we are concerned by the
arguments raised we will return to Remco on 11 February 2020 to obtain
Remco’s further instructions.
5. There are number of material risks in implementing these scheme rule changes.
They are as set out in the table in section 5 of this report.
Input Sought Input Received
1. RemCo is asked to approve the 4. Pinsent Mason (Legal advisers)
recommended changes to the STIP _‘5. Legal
and LTIP schemes. 6. Human Resources to include: Reward,
2. As far as the changes to the Employee Relations and Interim
discretion, malus and clawback Group HRD
provisions of the STIP are concerned
Remco is asked to confirm they
should apply to all grades (as
recommended) or just to specific
grades?
3. Remco is asked, in view of the risks,
to agree the proposed roadmap for
implementing these changes for 1
April 2020
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The Report
i What are the final changes recommended to the Discretion, Malus and
Clawback provisions of the STIP and LTIP?
The suggested improvements are:
Scheme Changes
« LTIP (Changes Amended the rules of the LTIP to provide for a
shown in the mark- I discretionary override to avoid formulaic outcomes in
up at appendix 1). I compliance with the requirements of the 2018 UK
Corporate Governance Code. Gives POL the same
discretion to reduce LTIP awards as POL enjoys for
STIP.
Included further triggers to the clawback provisions in
rule 11 of the LTIP, i.e. serious misconduct or fraud,
serious reputational damage, material corporate failure
and other exceptional events at the discretion of the
Remco. Given the expanded triggers for clawback, it
is now appropriate to include a malus provision in the
LTIP.
See in particular clauses 5.2 and 11.
« STIP (Changes Amended the STIP Terms and Conditions to include a
shown in the mark- I similar provision to LTIP.
up at appendix 2)
See in particular subheadings “Payment
calculation” and “Malus and Clawback”
% Which employee populations (grades) should the changes be applied to?
Since it is only the grades from CEO/CFO down to and including SLP who are primarily
responsible for implementing the material decisions of the company, Remco may take
the view that focus of any changes should be on those grades. This could be done by
making the changes to the LTIP only, as the LTIP applies to SLP and above. If Remco
does wish to make changes to the STIP then it would be open to Remco to specify
that the changes apply only to certain senior grades. If the changes were specified to
apply to grade 3a and above only, it would avoid potential for dispute with Unite
because Unite does not represent those grades.
There is however a benefit to ensuring the scheme rules are consistent across all
grades. The need for consistency should weigh heavily in any decision. Also, if we
were to say that the changes only impacted employees of, say, SLP grade and above
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it could be used to suggest that Post Office does not already have absolute discretion
to reduce awards in respect of other grades.
It is therefore recommended that any changes made to the STIP should apply to all
applicable grades. The consideration as to whether to exercise discretion in relation to
specific grades or all grades can be taken in the future in the event that a reduction or
clawback of awards is considered, in accordance with the necessary legal advice.
i. What further / additional changes are recommended to the STIP scheme
rules to bring them up to date and in line with existing practices?
It is also recommended that the following routine amendments are made to the STIP
scheme:
Change
Rationale
Salary date for purpose of
bonus calculation is 1 January
Change to 31 March of the
performance year
To ensure salary at end of
performance year is used
Treatment of changes during
the performance year
Propose that treatment of
salary / grade changes
during the year are treated
consistently
Current practice and rules
are inconsistent and
unexplainable
Clarification on “Good leavers’
Updated good leaver
provisions, including that
people “retiring” are not
considered good leavers
Wording is unclear and
complex. Also avoid age
discrimination claims from
younger employees who
would not be treated as
good leavers if resigning.
Treatment of colleagues who
are subject to disciplinary
warnings or process
Clarify that if a colleague is
subject to a disciplinary
process on the Payment
Date payment may be
delayed pending the
outcome.
This is to avoid paying in
circumstances in which we
might then seek to
clawback
Calculation method based on
365 days
Current rules state 260
days, whereas in practice
the calculation is done on
365 days.
365 days is typical and
allows more accurate
calculations for pro-rata
bonus payments.
2. What is the process recommended to implement the changes from 1 April 2020?
The route to implementing the changes depends on the current status of the bonus
scheme rules (in particular whether the rules are contractual or not), the response to
the proposed changes by the employees or their trade union, and POL’s appetite for
risk.
At one end of the spectrum, the changes might be implemented simply by making the
proposed changes to scheme rules unilaterally and communicating the changes to
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employees. At the other end of the spectrum, employees or Unite may argue that the
scheme rules have contractual effect and that, in order to effect the changes without
agreement, we would need to collectively consult with the employees or their
representatives and potentially dismiss and re-engage the employees on the new
terms (i.e. the amended scheme rules).
It is believed the changes can be implemented unilaterally by telling the impacted
populations that the changes will be applied. To avoid any negative implications of
doing this, however, we would propose to engage and inform Unite and the senior
populations of the changes.
Assuming that the recommended changes as outlined in this paper are agreed the
following timeline will be followed to implement the changes.
November I December I January February March April
Governance / I [rmsne > Ss
Key Dates saet SO lice is
Enpegemeet tngnes wince “ewreert
Groups a prooatns
Oo
comnet tenes wen une
core
na
Timeline will be subject to progress of discussions with Unite and Senior populations and we may need to revert back to RemCo in February if
amendments are suggested. Suggest 45 days s possible within the timeline, should the Unions argue that consultation / negotiation is required
<5 eeten i le ile SS teil cel cb
(en pat a a ll aia i yt
® conto ctengues ct changes wil be subject to agreement wth the unions. Thre maybe a holding statement which cons that changes
are being discussed
3. What are the material risks of implementing the changes?
In embarking on making the above changes a number of material risks should be
noted.
Risk Mitigation RAG I
1. I Based on known, standard We could perform an analysis
contractual documentation, it is of historic contracts to ou
understood the changes can be ascertain the likely risk.
made unilaterally. There may, However the level of
however, be different (historic) cost/effort required versus
employment contracts amongst the I the likelihood of occurrence
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workforce which do not permit
unilateral change. The risk is that
the changes we make might not,
for those contracts, be effective,
which could result in claims from
employees on those contracts.
is minimal. We would deal
with any individual anomalies
on a case by case basis
unless there is a widespread
issue
2. I There is mistrust amongst the
senior leadership populations in
terms of how the changes will be
applied in the future, especially
amongst the Group Executive who
were impacted by the STIP
reductions in the 2018/2019
payment process.
We (Nick and Lisa) engage
with the GE about the
scheme rules both as a group
and on an individual basis
3. I The employees or unions argue
that the bonus scheme rules are
contractual and that, to change
them, we must obtain their
agreement or must dismiss and re-
engage.
We approach the changes on
the assumption that we have
the right to unilaterally
amend them (which is most
likely). If we meet with
credible and robust
resistance we will revert to
Remco for further
instructions in Feb 2020.
4. I The unions could seek to turn this
into a story of POL trying to erode
employee benefits and could
conflate this with a number of
other adverse matters in the ER
space, to manufacture a ‘trade
dispute’ off the back of which they
could ballot for industrial action.
Early engagement and taking
into account their feedback
to shape our final thinking to
give assurances that this is
simply a better definition of
the discretion we already
enjoy rather than anything
which detracts from
employees current benefits.
5. I Even though we make the
changes, any future decision to
reduce bonus awards is likely to
meet with resistance and claims,
particularly if they are widespread
and impact Unite grades.
Remco to take legal advice
prior to implementing
reductions or clawback in
future.
6. I The changes could be seen as an
erosion of benefits/standards,
particularly when considered in
light of other things such as £95k
exit cap and no PMI for new
joiners.
Comms explaining that the
purpose of these particular
amendments is more about
aligning our schemes with
comparators, which include
similar provisions.
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Appendices
1. Appendix 1 - Long Term Incentive Plan 2012
2. Appendix 2 - Post Office Bonus Scheme Terms and Conditions
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WORKING DRAFT I: 18 September 2019. Suggested changes re
retion/malus and clawback.
Post Office Limited
LONG TERM INCENTIVE PLAN 2012
Adopted by the Remuneration Committee of Post Office Limited on[ _] 2012 and
amended by the Remuneration Committee of Post Office Limited on 1 May 2013 and on
2019.
Expiry date: 31 March 2022
The Plan is a discretionary benefit offered by Post Office Limited for the benefit of its group employees. Its main purpose is
to increase the interest of employees in the Post Office's long term business goals and performance. The Plan is an incentive
for employees’ future performance and commitment to the goals of the Post Office.
This Plan is being offered for the first time in 2012 and the remuneration committee of the board of Post Office Limited shall
have the right to decide, in its sole discretion, whether or not further awards will be granted in the future and to which
employees those awards will be granted. Eligibility under the Plan does not create an automatic right to eligibility under any
other plan introduced by either Royal Mail Holdings ple or Post Office Limited
Any cash received under the Plan is not part of salary for any purpose except to any extent required by statute,
‘The detailed rules of the Plan are set out overleaf,
newbridgestreet
An Aon Hewitt company
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CONTENTS
3.__GRANT OF AWARDS. esscenssconsscosss ose eoscoess -_ esessece: 3
4.__LIMITS. 4
5,__TIMING OF PAY OUT OF AWARDS. 4
G__ PAY QUT. scsasasssncsssasecsnsenssssssssssssssnssnssssssentsssssssesesssemnnsssssscnsmessssss mssssnamessssaes - 6
7.__LAPSE OF AWARDS... ss 6
8. 6
9.
10. CLAWBACK APPLYING TO AWARDS GRANTED PRIOR TO 1 MAY 2013 ........sssssssscccecesees a
Li CLAWBACK AND MALUS APPLYING TO AWARDS GRANTED AFTER 1 MAY 2013 AND [
2019 10
12.___ ALTERATIONS. 12
13. MISCELLANEOUS. _— — 2213
IN’
PLAN, OR AS TO ANY QUESTION OR RIGHT ARISING FROM OR RELATING TO THE PLAN, THE
DECISION OF THE COMMITTEE SHALL BE FINAL AND BINDING UPON ALL PERSONS. ..
EV-THE-EVENT- OF ANY DISPUTE-OR DISAGREEMENE-AS TO THE INTERPRETATION OF THE
PLAN, OR AS TO ANY QUESTION OR RIGHT ARISING FROM-OR RELATING TO-THE PLAN, THE
DECISION OF THE COMMITTEE SHALL BE FINAL AND BINDING UPON-ALL PERSONS. B
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PLAN,OR_AS TO ANY QUESTION OR RIGHT ARISING FROM.OR RELATING TO THE PLAN-THE
DECISION.OF THE COMMITTEE SHALL BE FINAL AND BINDING UPON ALL PERSONS.
9. CHANGE OF OWNERSHIP-AND-OTHER CORPORATE EVENTS cassie
10-—_-CLAWBACK-APPLYING-TO-AWARDS GRANTED PRIOR TO-1MA¥-2013
b2019—
12 ALTERATIONS wears . casein
PLAN-OR AS TO ANY QUESTION OR RIGHT ARISING FROM.OR RELATING TO THE PLAN. THE
6— PAYOUT = a . 7 =
F-—_LAPSE-OF AWARDS. = 6
&—LEAVERS. 6
9. CHANGE. OF OWNERSHIP AND-OTHER CORPORATE EVENTS reemrrnenmermmneemrereere®
10 CLAWBACK APPLYING TO AWARDS GRANTED PRIOR TO [0] 2093 o.oo
H.—CLAWBACK APPLYING -TO-AWARDS GRANTED AFTER [0] 2013 seccorseseeseeeveeveeveeer ed
42. ALTERATIONS. n
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Ld
DEFINITIONS AND INTERPRETATION
In the Plan, unless the context otherwise requires:
"Award" means a conditional right to receive a Cash Amount;
"Award Date" mcans the date on which an Award is granted;
"Board" means the board of directors of the Company or a duly authorised committee of the
Board or a duly authorised person;
"Bonus" means any amount payable to an employee under any bonus arrangement operated by any
Group Member;
"Cash Amount" means the amount of cash under a Pay Out;
"Clawback" means an obligation to repay the amount referred to in Rule 10.2 and Rule 11.2
(Amount to be subject to Clawback);
"Committee" means the remuneration committee of the Board or a person duly authorised by such
committee and, on and afler the occurrence of a corporate event described in Rule 9 (Change of
ownership and other corporate events) in circumstances where the Committee decides that
Awards Pay Out, the remuneration committee of the Board as constituted immediately before such
event occurs;
"Company" means Post Office Limited (registered in England and Wales with registered number
02154540);
"Control" means control within the meaning of section 995 of the Income Tax Act 2007;
"Deferral Period” means, for any Award, the period commencing on its Award Date and ending
on its Normal Pay Out Date;
"Early Pay Out Date" means either:
(a) in circumstances where Rule 8.3(a) (Death) applics, the later of:
(i) the date of cessation of employment or office of a Participant as a result of their
death; and
(ii) early determination of any Performance Condition relating to such cessation; or
(b) if Awards Pay Out under Rule %1 or 9.2 (Change of ownership and other corporate
events), the date of the relevant event in such Rules:
"Executive Director" means an executive director of the Company;
"Executive Committee Member" means the group of the most senior executives of the company
who are not Executive Directors of the Company and means any person who is eligible to be
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granted an Award under Rule 2 (Eligibility) whose remuneration is the direct responsibility of the
Committee on the relevant Award Date;
ancial Year" means a financial year of the Company;
"Group Member" means:
(a) the Company, any Subsidiary of the Company, a body corporate which is the Company's
holding company (within the meaning of section 1159 of the Companies Act 2006) or a
Subsidiary of the Company's holding company other than Royal Mail Holdings ple and its
Subsidiaries (with the exception of the Company and any of its Subsidiaries);
(b) a body corporate which is a subsidiary undertaking (within the meaning of section 1162 of
the Companies Act 2006) of a body corporate within paragraph (a) above and has been
designated by the Board for this purpose; and
(c) _ any other body corporate in relation to which a body corporate within paragraph (a) or (b)
above is able (whether directly or indirectly) to exercise 20% or more of its equity voting
rights and has been designated by the Board for this purpose
and "Group" shall be construed accordingly;
"Normal Pay Out Date" means the date on which an Award Pays Out under Rule 5.1 (Timing of
Pay Out: Normal Pay Out Date);
"Participant" means a person who holds an Award including their personal representatives;
"PAYE" means pay as you earn as it applies to income tax pursuant to Income Tax (Earnings and
Pensions) Act 2003 and the PAYE regulations referred to in it and as it applies for National
Insurance contribution purposes under the Social Security Contributions and Benefits Act 1992
and regulations referred to in it.
"Pay Out" means a Participant becoming entitled to have a cash sum transferred to them under an
Award subject to the Rules of the Plan and "Pays Out" shall be construed accordingly;
"Performance Condition" means a condition related to performance which is specified by the
Committee under Rule 3.1 (Terms of award));
"Plan" means the Post Office Long Term Incentive Plan 2012 including any Performance
Condition, as amended from time to time:
"Remuneration Committee Population" means any role eligible to be granted an Award under
Rule 2 (Eligibility) whose remuneration, specifically the LTIP award, is under the auspices of the
Committee on the relevant Award Date and who is not an Executive Director or an Executive
Committee Member;
"Rule" means a rule of the Plan;
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ERI
"Salary" means an employee’s base salary (excluding benefits in kind or any cash paid in licu of
any benefit in kind), expressed as an annual rate payable by the Group to the individual on the
Award Date (or such earlier date as the Committee shall determine). Where a payment of salary is
made in a currency other than sterling, the payment shall be treated as equal to the equivalent
amount of sterling determined by using any rate of exchange which the Committee may
reasonably select;
"Senior Leadership Population" means any role eligible to be granted an Award under Rule 2
(Eligibility) whose remuneration, specifically the LTIP award, is under the auspices of the
remuneration committee of the Board on the relevant Award Date and who is not an Executive
Director, an Executive Committee Member or a member of the Remuneration Committee
Population;
"ShEx" means the shareholder executive of HM Government or any successor to that body;
"Subsidiary" means a body corporate which is a subsidiary (within the meaning of section 1159 of
the Companies Act 2006); and
"Tax Liability" means the total of (i) any amount of PAYE , income tax or primary class 1
(employee) National Insurance contributions (or any similar liability to tax or social security
contributions in any jurisdiction) for which any Group Member or former Group Member is liable
to account for, or reasonably believes it is liable to account for, or would or may suffer a
disadvantage if it were not to account for, to any relevant authority as a result of an Award and/or a
Pay Out: and (ii) any interest and penalties that the relevant Group Member (or former Group
Member) is liable to account for together with any costs reasonably and properly incurred by the
relevant Group Member (or former Group member) as a result of'an Award and/or a Pay Out.
Any reference in the Plan to any enactment includes a reference to that enactment as from time to
time modified, extended or re-enacted.
Where the context admits, a reference to the singular includes the plural.
Expressions in italics and headings are for guidance only and do not form part of the Plan.
ELIGIBILITY
An individual is eligible to be granted an Award only if that individual is an employee of a Group
Member on the Award Date but nothing in this Plan shall be deemed to give any such employce a
right to participate in the Plan.
GRANT OF AWARDS
Terms of award
Subject to Rule 3.3 (Timing of award) and Rule 4 (Limits), the Committee may resolve to grant an
Award on:
(a) the terms set out in the Plan; and
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32
3.3
3.4
4.1
4.2
5.1
(b) such additional terms (comprising a Performance Condition and/or any other terms) as the
Committee may specify
to any person who is eligible to be granted an Award under Rule 2 (Eligibility).
For the avoidance of doubt, if Awards are granted on an annual basis then an Award may also be
granted at any later time in the following 12 months to an individual who becomes an employce of
a Group Member during that period and the size of such Award at grant may be pro-rated relative
to the size of Award which the relevant individual might have received if they had been employed
at the time of the annual grant of Award on such basis as the Committee decides.
Additionally, within the first 12 months, awards will be pro-rated based on any change of hours.
The pro ration formula will follow the same methodology as new starters and good leavers, in that
full months will apply on a 36ths basis.
Method of grant
Awards shall be granted by deed executed by the Company.
Timing of award
No Awards can be granted after April 2022 (that being, the expiry of the period of 10 years
beginning with the date on which the Plan is adopted by the Committee).
Non-transferability and bankruptcy
An Award granted to any individual:
(a) _ shall not be transferred, assigned, charged or otherwise disposed of (except on their death to
their personal representatives) and shall lapse immediately on any attempt to do so; and
(b) _ shall lapse immediately if the individual is declared bankrupt.
LIMITS
Individual limits
The Committee shall set limits on the maximum value over which any Award shall be granted to
any individual. The Schedule to the Rules shall set out these limits.
Effect of limits
Any Award shall be limited and take effect so that the limits in Rule 4.1 are complied with.
TIMING OF PAY OUT OF AWARDS
Timing of Pay Out: Normal Pay Out Date
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Subject to Rule 5.3 (Restrictions on Pay Out: regulatory and tax issues), an Award shall Pay Out
on the later of:
(a) if any Performance Condition and any other condition has been imposed on the Pay Out of the
Award, the date on which the Committee determines whether such Performance Condition or
any other condition imposed on the Award has been satisfied (in whole or part); and
(b) the third anniversary of the Award Date or such other date or dates as the Committee shall
determine on or prior to the Award Date
except where an earlier Pay Out occurs on an Early Pay Out Date under Rule 8 (Leavers) or Rule 9
(Change of ownership and other corporate events).
5.2. Extent of Pay Out
An Award shall only Pay Out to the extent:
(a) _ that any Performance Condition is satisfied on the Normal Pay Out Date or, if appropriate, the
Early Pay Out Date;
(b) as permitted by any other term imposed on the Pay Out of the Award;
(©) in relation to a Pay Out before the Normal Pay Out Date, as permitted by Rule 8.5 (Leavers:
reduction in Cash Amount) or 9.3 (Corporate events: reduction in Cash Amount); and
(d)__as permitted under any operation of Rule 10 (Clawback applying to Awards granted prior to 1
May 2013) and Rule 11 (Clawback applying to Awards granted after 1 May 2013.and
2019);
SAVE THAT, notwithstanding the above, the Committee, in its absolute discretion, may make
such adjustments, including a downward adjustment, to the level of a Pay Out as determined in
accordance with this Rule 5.2 in respect of any Award granted on or after the [J 2019, if it
considers such adjustment to be appropriate having taken into account all relevant factors. «
5.3. Restrictions on Pay Out: regulatory and tax issues
An Award shall not Pay Out unless and until the following conditions are satisfied:
(a) the Pay Out of the Award would be lawful in all relevant jurisdictions and in compliance with
any relevant UK or overseas regulation or enactment; and
(b) if a Tax Liability would arise by virtue of such Pay Out then the Participant must have entered
into arrangements acceptable to the Board that the relevant Group Member will receive the
amount of such Tax Liability in cleared and immediately available funds no later than the
business day preceding the day the relevant Group Member is required to pay the Tax Liability
to the relevant authority to avoid the imposition of interest or penalties. The relevant Group
Member will notify the Participant of the amount of any Tax Liability. The amount will be
calculated on the basis of the best estimate that can reasonably be made by the relevant Group
Member. Notification of the amount of liability shall not be a condition precedent to the
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6.1
6.2
6.3
(a)
(b)
8.
8.1
(a)
(b)
©
Participant's liability under this Rule 5.3, nor shall it limit the Participant's liability under this
Rule 5.3. If no such arrangement is made then the Participant shall be deemed to have
authorised the relevant Group Member to reduce the size of their Award or Pay Out (as
appropriate) and satisfy the Tax Liability on their behalf to ensure that the relevant Group
Member receives the amount required to discharge the Tax Liability.
For the purposes of this Rule 5.3, references to Group Member include any former Group
Member.
PAY OUT
Payment
Subject to Rules 6.2 (No payment if under notice) and 6.3 (Form and interest), on or as soon as
reasonably practicable after the date of Pay Out of an Award, the Board shall, subject to any
arrangement made under Rule 5.3(b) (Restrictions on Pay Out: regulatory and tax issues), procure
that a Participant's Cash Amount shall be paid to them by their employing company.
No payment if under notice
Subject to Rule 8.1 (Good leavers — other than death), if a Participant is under notice of
termination of employment (whether given or received by the individual) on the proposed date of
payment of a Cash Amount then their entitlement to the Cash Amount shall lapse immediately
prior to such date and no Cash Amount shall be paid to the individual.
Form of cash and interest
Any payment of cash under this Rule shall be made in sterling and no interest shall be taken into
account for the period from the Award Date to the time of payment.
LAPSE OF AWARDS
An Award shall lapse:
in accordance with the Rules; or
to the extent it does not Pay Out under these Rules.
LEAVERS
Good leavers — other than death
Ifa Participant ceases to be a director or employee of a Group by reason of:
ill health, injury or disability evidenced to the satisfaction of the Committee;
subject to Rule 8.2, redundancy (within the meaning of the Employment Rights Act 1996) or
any overseas equivalent;
the expiry of a fixed-term contract of employment;
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(d) im the case of Awards held by an Executive Director, an Executive Committee Member or a
member of the Remuneration Committee Population, retirement with the agreement of the
Committee and in the case of any other Participant, retirement with the agreement of their
employer;
(©) their office or employment being with either a company which ceases to be a Group Member or
relating to a business or part of a business which is transferred to a person who is not a Group
Member;
() for any other reason, if the Committee so decides
then, subject to Rule 5.3 (Restrictions on Pay Out: regulatory and tax issues) and Rule 9 (Change
of ownership and other corporate events), their Award shall Pay Out on the Normal Pay Out Date
and Rule 8.5 (Leavers: reduction in Cash Amount) shall apply.
8.2 Redundancy/Poor Performance
If a Participant ceases to be a director or employee of a Group Member by reason of redundancy
but the Committee is of the view that the redundancy is attributable in whole or in part to the
performance of the Participant then it may decide that the Participant's Award shall lapse on the
cessation of employment rather than Pay Out under Rule 8.1
8.3 Good leavers — death
Ifa Participant ceases to be a director or employee of a Group Member by reason of death then:
(a) subject to Rule 5.3 (Restrictions on Pay Out: regulatory and tax issues), their Award shall Pay
Out on the Early Pay Out Date and Rule 8.5 shall apply; unless
(b) the Committee decides, subject to Rule 5.3 (Restrictions on Pay Out: regulatory and tax issues)
and Rule 9 (Change of ownership and other corporate events), that their Award shall Pay Out
on the Normal Pay Out Date and Rule 8.5 (Leavers: reduction in Cash Amount) shall apply.
8.4 — Cessation of employment in other circumstances
Ifa Participant ceases to be a director or employee of a Group Member for any reason other than
those specified in Rules 8.1 and 8.3 then any Award held by the individual shall lapse immediately
on the earlier of (i) cessation of the individual's directorship or employment or (ii) the expiry of 7
days following the Participant giving notice of termination of their directorship or employment.
8.5 Leavers: reduction in Cash Amount
Where an Award Pays Out on or after a Participant ceasing to be a director or employee of a
Group Member, the Committee shall determine the Cash Amount of that Award by applying the
following steps:
(a) applying any Performance Condition and any other condition imposed on the Pay Out of the
‘Award; and
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(b)
8.6
8.7
91
9.2
applying a pro rata reduction to the Cash Amount determined under Rule 8.5(a) based on the
period of time commencing on the Award Date and ending on the date of cessation relative to
the Deferral Period
unless the Committee, acting fairly and reasonably, decides that the reduction in the Cash Amount
under Rule 8.5(b) is inappropriate in any particular case when it shalll increase the Cash Amount to
such higher amount as it decides provided that such amount does not exceed the amount
determined under Rule 8.5(a)
If an Award Pays Out under either of Rules 9.1 or 9.2 (Change of ownership and other corporate
events) when the holder of that Award has ceased to be a director or employce of a Group Member
then this Rule 8.5 shall take precedence over Rule 9.3.
Meaning of ceasing employment
A Participant shall not be treated for the purposes of this Rule 8 as ceasing to be a director or
employee of a Group Member until such time as the individual is no longer a director or employee
of any Group Member.
The reason for the termination of office or employment of a Participant shall be determined by
reference to Rules 8.1 to 8.4 regardless of whether such termination was lawful or unlawful.
Death following cessation of employment
If a Participant dies following cessation of employment in circumstances where their Award did
not lapse but it has not Paid Out by the time of their death, it shall Pay Out immediately on their
death to the extent determined by reference to the time of cessation of employment.
CHANGE OF OWNERSHIP AND OTHER CORPORATE EVENTS
Change of Control
If at any time any person (or group of persons acting in concert) obtains Control of the Company
then all Awards shall continue under the Plan subject to such amendments (including as to the
Performance Conditions) as the Committee may decide are appropriate in the circumstances unless
the Committee decides prior to such obtaining of Control that all Awards shall Pay Out on the
obtaining of Control, subject to the terms of any Performance Conditions and Rule 5.3
(Restrictions on Pay Out: regulatory and tax issues) and Rule 9.3 (Corporate events: reduction in
Cash Amount) shall apply.
Other Corporate Events
If at any time the Company is subject to a corporate reconstruction, merger, demerger, sale of a
substantial part of its business, mutualisation, scheme of arrangement or any event which the
Committee considers to be of a similar nature to any of those events or any event which the
Committee considers would change the structure or ownership of the Company then all Awards
shall continue under the Plan subject to such amendments (including as to the Performance
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9.3
@
(b)
10.
10.1
10.2
Conditions) as the Committee may decide are appropriate in the circumstances unless the
Committee decides prior to any such event that Awards shall Pay Out on the occurrence of the
event, subject to the terms of any Performance Conditions, Rule 5.3 (Restrictions on Pay Out:
regulatory and tax issues) and Rule 9.3 (Corporate events: reduction in Cash Amount) shall apply.
Corporate events: reduction in Cash Amount
Where an Award Pays Out under Rule 9.1 or Rule 9.2, the Committee shall determine the Cash
Amount of that Award by applying the following steps:
applying any Performance Condition and any other condition imposed on the Pay Out of the
Award; and
subject to Rule 8.5 (Leavers: reduction in Cash Amount), applying a pro rata reduction to the
Cash Amount determined under Rule 9.3(a) based on the period of time commencing on the
Award Date and ending on the Early Pay Out Date relative to the Deferral Period
unless the Committee decides that the reduction in the Cash Amount under Rule 9.3(b) is
inappropriate in any particular case when it shall increase the Cash Amount to such higher amount
as it decides provided that such amount does not exceed the amount determined under Rule 9.3(a).
CLAWBACK APPLYING TO AWARDS GRANTED PRIOR TO 1 May 2013
General
The Committee may decide at any time within five years of the date on which an Award Pays Out
that the individual to whom the Award was granted (the "relevant individual") shall be subject to
Clawback if the Committee forms the view that either:
(a) the Company materially misstated its financial results by reason of wilful wrongdoing by one
or more employees or former employees of the Company or any Group Member and that
such misstatement resulted either directly or indirectly in that Award Paying Out to a greater
degree than would have been the case had that misstatement not been made; or
(b) the relevant individual committed an act or acts during the period prior to the Pay Out of the
Award which would have entitled their employer to have summarily dismissed the relevant
individual from their employment.
This Rule 10 shall not apply after the Company is subject to an event described in Rule 9.1 or 9.2
(Change of ownership and other corporate events) where Awards Pay Out under those Rules.
Amount to be subject to Clawback
Where Rule 10.1(a) above applies, the Committee shall decide on the amount to be subject to
Clawback which shall be all or part of the net (post-tax) additional value which the Committee
considers has been received by the relevant individual as referred to in Rule 10.1.
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10.4
Where Rule 10.1(b) above applies, the Committee shall decide on the amount to be subject to
Clawback provided that it shall not exceed the net (post-tax) value which the relevant individual
received on the Pay Out of the relevant Award.
Satisfaction of the Clawback
The Clawback shall be satisfied as set out in Rules 10.3(a) and/or (b) below.
The Committee may reduce (including reducing to zero) any of the following elements of the
remuneration of the relevant individual:
(i) the amount of any future Bonus which would, but for the operation of the Clawback,
be payable to the relevant individual; and/or
(ii) the extent to which any subsisting Award held by the relevant individual Pays Out
notwithstanding the extent to which any Performance Condition and/or any other
condition imposed on any such Award has been satisfied.
The Committee may require the relevant individual to pay to such Group Member as the
Committee may direct, and on such terms as the Committee may direct (including, but without
limitation to, on terms that the relevant amount is to be deducted from the relevant individual's
salary or from any other payment to be made to the relevant individual by any Group Member),
such amount as is required for the Clawback to be satisfied in full. In the event that the relevant
individual does not pay such relevant amount in full by the date set out in the terms of payment
then that amount shall constitute a debt owed to the relevant Group Member and shall be
recoverable as a debt under the Courts and/or tribunals of England and Wales.
CLAWBACK-CLAWBACK AND MALUS APPLYING TO AWARDS GRANTED AFTER
1 May 2013 AND {I_I 2019
Scope of Clawback
The Committee may decide at any time within {three} years of the date on which an Award Pays
Out that the individual to whom the Award was granted (the "relevant individual") shall be subject
to Clawback if the Committee forms the view that either:
(a) the Company materially misstated its financial results for whatever reason and that such
misstatement resulted either directly or indirectly in that Award Paying Out to a greater
degree than would have been the case had that misstatement not been made; or
(b) __ in assessing any Performance Condition and/or any other condition imposed on the Award
such assessment was based on an error, or on inaccurate or misleading information or
assumptions and that such error, information or assumptions resulted either directly or
indirectly in that Award Paying Out to a greater degree than would have been the case
had that error not been made; or
(©) the relevant individual committed an act or acts during the period prior to the Pay Out of
the Award which would have entitled their employer to have summarily dismissed the
relevant individual from their employment; or
10
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Item 1.3 Background Papers
vin Awards made on or after 2019 only:
(d) __any act or omission by the relevant participant during the period prior to the Pay Out of
the Award:
a.__contributed to serious reputational damage to the Company. any Group Member or any
relevant business unit; and/or
b. amounted to serious misconduct, fraud, dishonesty or material wrongdoing by the
relevant individual; or
(c)__a material corporate failure has occurred to which the act(s) or omission(s) of the relevant
individual in the period prior to the Pay Out of that Award, has contributed; or
(e\()_some other exceptional event has occurred as determined by the Committee in_its
discretion.
This Rule 11 shall not apply after the Company is subject to an event described in Rule 9.1 or 9.2
(Change of ownership and other corporate events) where Awards Pay Out under those Rules.
11.2 Amount to be subject to Clawback
Where Rule 11.1(a) and/or Rule 11.1(b) above applies, the Committee shall decide on the amount
to be subject to Clawback which shall be all or part of the additional value which the Committee
considers has been received by the relevant individual as referred to in those Rules but if the
relevant individual is required to repay all or part of such additional value pursuant to Rule 11.3(b)
below then the Committee may consider whether that amount should take into account any income
tax and national insurance contributions paid by the relevant individual and any possibility of him
reclaiming such income tax and national insurance contributions.
I Where Rule 11.1(c), Rule 11.1(d),- Rule 11.1(¢) or Rule 11.1(f) above applies, the amount to be
subject to Clawback provided shall be such amount as the Committee decides is appropriate.
11.3 Satisfaction of the Clawback
The Clawback shall be satisfied as set out in Rules 11.3(a) and/or 11.3(b) below.
(a) The Committee may reduce (including, if appropriate, reducing to zero) any of the
following elements of the remuneration of the relevant individual:
@ the amount of any future Bonus which would, but for the operation of the
Clawback, be payable to the relevant individual; and/or
(ii) the extent to which any subsisting Awards granted on or after I May 2013 and
held by the relevant individual Pay Out notwithstanding the extent to which any
Performance Condition and/or any other condition imposed on any such Award
has been satisfied.
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Item 1.3 Background Papers
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114
115
(b) The Committee may require the relevant individual to pay to such Group Member as the
Committee may direct, and on such terms as the Committee may direct (including, but
without limitation to, on terms that the relevant amount is to be deducted from the
relevant individual's salary or from any other payment to be made to the relevant
individual by any Group Member), such amount as is required for the Clawback to be
satisfied in full. In the event that the relevant individual does not pay such relevant
amount in full by the date set out in the terms of payment then that amount shall
constitute a debt owed to the relevant Group Member and shall be recoverable as a debt
under the Courts and/or tribunals of England and Wales.
Any reduction made pursuant to Rule I 1.3(a)(ii) above shall take effect immediately prior to the
Award Paying Out.
Reduction in Awards to give effect to clawback provisions in other plans
The Committee may decide at any time to reduce the size of an Award (including, if appropriate,
reducing to zero) immediately prior to such Award Paying Out to give effect to a clawback
provision of any form contained in any incentive plan (other than the Plan) or any bonus plan
operated by any Group Member. The value of the reduction shall be in accordance with the terms
of the clawback provision in the relevant plan or, in the absence of any such term, on such basis as
the Committee, acting fairly and reasonably, decides is appropriate.
Application of Malus to Awards granted on or after [1] 2019
If prior to the Pay Out of an Award granted on or after [1] 2019 the Committee forms the view
that_an event as described in Rule 11.1(d), Rule 11.1(e) or Rule 11.1 (f) has occurred, the
Committee may determine at their discretion to reduce or cancel any outstanding Award held by
the relevant individual as it considers appropriate.
ALTERATIONS
General rule on alterations
Except as described in Rule 12.2 (ShEx approval) and Rule 12.4 (Alterations to disadvantage of
Participants) the Committee may at any time alter the Plan or the terms of any Award.
12.2 ShEx approval
(a) Except as described in Rule 12.3, no alteration to the advantage of an Executive Director to
whom an Award has been or may be granted shall be made under Rule 12.1 to the
provisions concerning:
(i) an individual's limits on participation;
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(ii) the basis for determining the individual's entitlement to, and the terms of, cash
provided under the Plan; and
(iii) the terms of this Rule 12.2
without the prior written approval of ShEx.
(b) No alteration to a Performance Condition applying to an Award held by an Executive
Director shall be made by the Committee pursuant to Rule 12.5 without the prior written
approval of ShEx.
12.3. Exceptions to ShEx approval
Rule 12.2(a) (ShEx approval) shall not apply to any minor alteration to benefit the administration
of the Plan, to take account of a change in legislation or regulatory treatment for the executive
directors of the Company or any Group Member.
12.4 Alterations to disadvantage of Participants
No alteration to the material disadvantage of Participants (other than a change to any Performance
Condition) shall be made under Rule 12.1 unless:
(a) the Board shall have invited every relevant Participant to indicate whether or not they approve
the alteration; and
(b) the alteration is approved by a majority of those Participants who have given such an
indication.
12.5 Alterations to a Performance Condition
Subject to Rule 12.2(b), the Committee may amend any Performance Condition if the Committee
reasonably considers that it would be appropriate to amend the Performance Condition.
13. MISCELLANEOUS
13.1 Employment
The rights and obligations of any individual under the terms of their office or employment with
any Group Member shall not be affected by their participation in the Plan or any right which they
may have to participate in it. An individual who participates in the Plan waives any and all rights
to compensation or damages in consequence of the termination of their office or employment for
any reason whatsoever insofar as those rights arise or may arise from them ceasing to have rights
under an Award as a result of such termination. Participation in the Plan shall not confer a right to
continued employment upon any individual who participates in it nor eligibility to participate in
any other incentive plan adopted by any Group Member. The grant of any Award does not imply
that any further Award will be granted or that a Participant has any right to receive any farther
award or any other award under any other incentive plan adopted by any Group Member.
13.2. Disputes
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In the event of any dispute or disagreement as to the interpretation of the Plan, or as to any
question or right arising from or relating to the Plan, the decision of the Committee shall be final
and binding upon all persons.
13.3 Exercise of powers and discretions
The exercise of any power or discretion by the Committee shall not be open to question by any
person and a Participant or former Participant shall have no rights in relation to the exercise of or
omission to exercise any such power or discretion.
13.4 Notices
Any notice or other communication under or in connection with the Plan may be given:
(a) _ by personal delivery or by post, in the case of a company to its registered office, and in the case
of an individual to their last known address, or, where the individual is a director or employee
of a Group Member, either to their last known address or to the address of the place of business
at which they perform the whole or substantially the whole of the duties of their office or
employment;
(b) in an electronic communication to their usual business address or such other address for the
time being notified for that purpose to the person giving the notice; or
(©) _ by such other method as the Board determines.
13.5 Third parties
No third party has any rights under the Contracts (Rights of Third Parties) Act 1999 to enforce any
term of the Plan.
13.6 Benefits not pensionable
Benefits provided under the Plan shall not be pensionable.
13.7 Data Protection
Each Participant consents to the collection, processing and transfer of their personal data for any
purpose relating to the operation of the Plan. This includes:
(a) providing personal data to any Group Member and any third party such as trustees of any
employee benefit trust, administrators of the Plan, registrars, brokers and any of their respective
agents:
(b) processing of personal data by any such Group Member or third party;
(©) transferring personal data to a country outside the European Economic Area (including a
country which does not have data protection laws equivalent to those prevailing in the
European Economie Area); and
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(d) providing personal data to potential purchasers of the Company, the Participant’s employer or
the business in which the Participant works.
13.8 Governing law
The Plan and all Awards shall be governed by and construed in accordance with the law of
England and Wales and the Courts of England and Wales have exclusive jurisdiction to hear any
dispute.
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Post Office Bonus Scheme Terms and Conditions
Introduction
Post Office Limited (the "Company") operates an annual bonus scheme
(the "Annual Bonus Scheme").
All managers are eligible to be part of an annual bonus scheme
appropriate to their grade (and, where appropriate, business area).
The bonus ("Bonus") is discretionary.
The Annual Bonus Scheme year runs from 1 April to 31 March (the
“Scheme Year”). Annual Bonuses are awarded at the discretion of the
Company on the Payment Date. Any Bonus will be calculated in
accordance with the applicable scheme for the manager. For the purpose
of these rules it will calculate based on 365 days in the Scheme Year.
The bonus payment will be based on salary during the scheme year and
pro-rated for periods where salary and/or grade changes.
Your salary will be calculated based on your salary as at 31 March of each
year, unless you experience a change in salary during the year, in which
case your salary at the end of each period of change will be used for the
purpose of calculating each period of bonus
Eligibility
Subject to the Special Cases detailed below, you will be eligible to
participate in an applicable annual bonus scheme for the area of the
business in which you work , provided the following conditions have been
met
ce that you are an employee of the Company;
ec that you will have commenced employment on or before 31
December of the Scheme Year ("Minimum Service Requirement");
ce that you remain employed by the Company on the Payment Date;
and
© your contract of employment allows you to participate in the
scheme.
Unless the Company, acting in its absolute discretion, decides
otherwise, you will NOT be entitled to ANY annual bonus payment for
the Scheme Year if you:
Have left the employment of the Company prior to the Payment Date for
any reason other than those listed in the Special Cases below;
Are under notice of resignation up until the payment date
Have been dismissed for any reason other than those listed in the Special
Cases below, prior to the Payment Date; or
Are a contractor, casual worker or any other type of worker who is not
deemed to be an employee
You do not meet the Minimum Service Requirement
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Special cases
In some cases you are not entitled to payment of a full year’s Bonus. These
special cases, together with the rules for calculating your actual entitlement to a
Bonus are as follows:
1. Eligible Leavers
* If you are no longer employed by the Company on the Payment Date,
because of the following reasons you will be eligible to receive a pro-rata
bonus based on the number of days you were at work for the Company
during the Scheme Year:
« You were made redundant
« You transfer to or from another employing entity that is part of Post
Office
« You were subject to TUPE transfer into or out of Post Office Limited
« If you have a death in service during the Scheme Year or prior to the
award of a Bonus for that Scheme Year being made, then your estate
will be entitled to receive a Bonus payment. In such a case the Bonus
will be pro-rated to the number of days service for the Company during
the Scheme Year.
« Any other reason determined by the company
2. Sick Leave
¢ If you are absent from work during the Scheme Year due to sick leave
then you will be entitled to receive a Bonus pro-rated to the number of
days you were at work during the Scheme Year prior to going on, and/or
on returning from sick leave.
« Additionally, if you are entitled to receive Company sick pay for your sick
leave then you will be eligible to receive a bonus pro-rated for this period.
A Bonus payment will not accrue for the remainder of any sick leave.
3. Maternity Leave
« If you are absent from work during the Scheme Year due to maternity
leave then you will be entitled to receive a Bonus pro-rated to the number
of days you were at work during that Scheme Year prior to going on,
and/or on returning from, maternity leave.
« Additionally, if you are entitled to receive Post Office Maternity Pay for
your maternity leave then you will be eligible to receive a bonus pro-rated
for this period. A Bonus payment will not accrue for the remainder of any
maternity leave.
4, Unpaid Leave
If you take authorised unpaid leave during the Scheme Year then subject to you
meeting the Minimum Service Requirements you will be entitled to a partial
Bonus, The Bonus will be calculated pro-rata to the number of days worked
during the Scheme Year.
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5. New Starters
You will be entitled to receive a partial Bonus provided that you join Post Office
on or before 31 December and are otherwise eligible for payment under these
rules. Any Bonus payment will be pro-rated to the number of days you have
worked during the Scheme Year.
6. Promotions to Management grades
If you are promoted (temporarily or permanently) to a management
position from a non-management position during the Scheme Year, you will be
entitled to a partial Bonus under this scheme. The Bonus payment will be pro-
rated to reflect the number of days worked as a manager during the Scheme
Year. You may also be entitled to a pro-rata bonus under any previous incentive
arrangements.
7. Changes of Management grade
* If you are permanently promoted to a higher management grade during
the Scheme Year you will be entitled to a partial Bonus under each
scheme in which you participate. The Bonus payments will be pro-rated to
the number of days worked at each management.
* If you permanently move from one branch within the network or area
within the Post Office group but remain at the same grade, you will be
entitled to a partial bonus under each set of results for the time spent
within each particular branch or area.
8. Demotion to Non Management Grades
e If you are re-graded to a non-management grade role during the Scheme
Year through no fault of your own, for example due to a business
reorganisation, you will be entitled to a partial Bonus pro-rated to the
number of days worked at your previous management grade during that
Scheme Year. If you are downgraded within management grades during a
Scheme Year through no fault of your own, for example due to a business
reorganisation, you will be entitled to a partial Bonus payment. The
payment will be pro-rated to the number of days you worked at each
grade during the Scheme.
9. Temporary transfers or promotions
e If you are temporarily transferred to a different business unit or third
party with a different bonus scheme during a Scheme Year the payment
will be pro-rated having regard to the number of days you worked in each
unit or third party during the Scheme Year.
« If you are temporarily promoted to a higher grade any Bonus payment will
be based on your grade immediately prior to the temporary promotion
and the annual bonus scheme in which you participated immediately prior
to the temporary promotion. Any Bonus payment will be calculated using
your salary excluding any additional payments for additional responsibility
/ acting up allowance. Your acting up payment takes this into account
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10. Change of Hours
« If you change the number of contracted hours worked during the Scheme
Year then, subject to all the other rules above, your Bonus will be pro-
rated to the number of days worked for each period of a change in
contractual hours.
12. Disciplinary procedure
If you have been subject to the Company's disciplinary procedure (for example,
you have received a verbal warning) during the Scheme Year, the Company may
decide to delay or withhold your payment
Terms and Conditions for Bonus linked to the Measures
Bonus will only be payable if the agreed gateway measure is achieved. If actual
performance falls between stretch and target or threshold and target the bonus
percentage payable will be pro-rated up or down in a straight-line sliding scale.
The maximum to be paid out at stretch is detailed in individual contracts or
within the appropriate negotiated scheme. The maximum should not be
exceeded unless otherwise stated within the individual annual bonus scheme
rules.
Payment date
The Payment Date will normally be in August or at the earliest possible pay cycle
provided that the financial results of the Company for the Scheme Year have
been subject to the necessary audit requirements and have been announced
and, where appropriate, performance appraisal ratings have been recorded.
Discretion
Notwithstanding any other provision of the Annual Bonus Scheme the Company
shall have the absolute discretion to make such adjustments, including a
downward adjustment, to any Bonus payment due under the Annual Bonus
Scheme if it considers such adjustment to be appropriate having taken into
account all relevant factors.
Malus and Clawback
e The Company may decide at any time within [three] years of the date on
which a Bonus payment is made that you shall be subject to clawback
("Clawback”) if the Company forms the view that either:
ce the Company materially misstated its financial results for whatever
reason and that such misstatement resulted either directly or
indirectly in the Bonus payment being greater than it would have
been if the misstatement had not been made; or
o in assessing any performance conditions applying to a Bonus such
assessment was based on an error or an inaccurate or misleading
information or assumptions and that such error, information or
assumptions resulted either directly or indirectly in that Bonus
payment being greater than it would have been had that error not
been made; or
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oc you committed an act or acts during the relevant Scheme Year
which would have entitled your employer to have you summarily
dismissed; or
© any act or omission by you during the relevant Scheme Year which:
» has contributed to serious reputational damage to the
Company, any other member of the group or any relevant
business unit; or
« has amounted to serious misconduct, fraud or dishonesty; or
o a material corporate failure occurs to which your act(s) or
omission(s) has contributed; or
e some other exceptional event has occurred as determined by the
Company in its discretion.
e Where a Bonus payment is made which is greater than it would have
been, the Company shall decide on the amount to be subject to the
Clawback which shall be ail or part of the additional value which the
Company considers you received. If you are required to repay all or part
of such additional value pursuant by way of a payment from either salary
or any other payment due to you then the Company may consider
whether that amount should take into account any income tax and
national insurance contributions you have paid and any possibility of you
reclaiming such income tax and national insurance contributions.
e Inall other circumstances, the amount to be subject to clawback shall be
such amount as the Committee decides is appropriate.
Satisfaction of the Clawback
e To satisfy the Clawback the Company may reduce (including, if
appropriate, reducing to zero) the amount of any future Bonus which
would, but for the operation of the Clawback, be payable to you; and/or
« The Company may require you to pay to such member of the group as it
shall direct, and on such terms as it may direct (including, but without
limitation to, on terms that the relevant amount is to be deducted from
your salary or from any other payment to be made to the relevant
individual by any member of the group), such amount as is required for
the Clawback to be satisfied in full. In the event that you do not pay such
relevant amount in full by the date set out in the terms of payment then
that amount shall constitute a debt owed to the relevant member of the
group and shall be recoverable as a debt under the Courts and/or
tribunals of England and Wales.
Application of Malus
If prior to the payment of the Bonus the Company forms the view that an event
which would trigger Clawback has occurred, the Company may determine at their
discretion to reduce or cancel any Bonus due to be paid to you under the Annual
Bonus Scheme.
Amendment
The Company reserves the right to amend, delete, add to or replace all or any of
the rules contained herein from time to time at its discretion. Notice of any such
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change will be given to all participating managers within one month of such
changes coming into effect.
Miscellaneous
e Your rights and obligations under the terms of your employment with any
member of the Post Office group shall not be affected by your
participation in the Annual Bonus Scheme or any right which you may
have to participate in it. If you participate in the Annual Bonus Scheme
you waive any and ail rights to compensation or damages in consequence
of the termination of your employment for any reason whatsoever insofar
as those rights arise or may arise from you ceasing to have rights under
the Annual Bonus Scheme as a result of such termination.
e Inthe event of any dispute or disagreement as to the interpretation of the
Annual Bonus Scheme (including the rectification of errors or mistakes),
or as to any question or right arising from or relating to the Annual Bonus
Scheme, the decision of the Company shall be final and binding.
e The exercise of any discretion by the Company shall not be open to
question by any person and you, whether you are a current employee or a
former employee, shall have no rights in relation to the exercise or
omission to exercise any such discretion.
« Any notice or other communication under or in connection with the Annual
Bonus Scheme may be given:
(a) by personal delivery or by sending the same by post to your last
known address, or, where you are an employee of a member of the
Post Office group, either to your last known address or to the
address of the place of business at which you perform the whole or
substantially the whole of the duties of your employment;
(b) in an electronic communication to your usual business address or
such other address for the time being notified for that purpose to
the person giving the notice; or
(c) by such other method as the Company decides.
e No third party has any rights under the Contracts (Rights of Third Parties)
Act 1999 to enforce any term of the Annual Bonus Scheme.
e The Annual Bonus Scheme shall be governed by and construed in
accordance with the law of England and Wales and the Courts of England
and Wales have exclusive jurisdiction to hear any dispute.
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Item 1
POST OFFICE PAGE 1 OF 7
THE BOARD OF DIRECTORS DISCUSSION PAPER
Cash and Facility Management
Author: Mark Dixon Sponsor: Al Cameron Meeting date: 26 November 2019
Executive Summary
Context
Post Office is funded by Government. We have been receiving investment funding to
pay for investment costs, network subsidy to keep unprofitable branches open and we
can borrow from BEIS and the Bank Of England to fund both our working capital and
branch cash holdings. Over recent years, as set out in the table below, there have
been a number of cashflow trends:
1. Trading profit has increased, offset by lower network subsidy.
2. We have deliberately invested more than our investment funding, especially in
2014-15 and 2015-16. Subsequently we have balanced this with cash efficiencies
and have reduced net borrowings in this 3YP period after a peak in 2017-18.
3. Working capital requirements have increased in each year.
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Going forward, investment funding will cease and network subsidy is not agreed. We
will be constrained in the amount we can invest. Managing our cash resources will
therefore become increasingly important.
Questions addressed in this report
1. How does cash and borrowing work?
2. What progress have we made?
3. What further efficiencies can be delivered?
4. Looking forward, what are the constraints and what can be done about them?
Conclusions
We supply the cash for branches as well as our own working capital.
Our borrowing capacity has three primary limits: a hard limit on what we can borrow
from BEIS, a security headroom limit which ensures that branch cash and client debtors
exceed borrowing from BEIS and a limit on BoE borrowing based on cash withdrawals.
This security headroom is important to Government as it means that our borrowing is
accounted for on their balance sheet as working capital not debt.
Previously, we increased borrowing significantly over a two-three year period by
investing more in the business than we were receiving in funding. In the current three-
year period to 2021 we are not seeking to borrow to invest and we have managed down
borrowing through efficiencies in supply chain.
Further efficiencies can be gained and these would enable us to fund a material GLO
settlement. This view is subject to completing funding agreements with Government
after March 2021 on the back of an agreed 5YP.
Looking forward, we should be able to manage ourselves so that trading profit and
network subsidy can be largely converted to investment spend. However, while we can
maintain a healthy facility headroom, security headroom will continue to fall, potentially
sharply and we will be operating on fine margins of headroom.
This needs to form part of the funding debate with Government for the period after
March 2021. Our focus is to
Seek to credibly incentivise the business on cash earned rather than profit
Deliver further cash efficiencies
Significantly improve our understanding and ability to forecast working capital
Significantly improve cash flow forecasting and strengthen the team. We are working
with Accenture on a proof of concept for cash forecasting. This will require some
investment funding.
e Consider the need to sell assets to increase capacity
coos
Input Sought
The Board is asked to note the progress made and comment on the next steps.
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The Report
How does cash and borrowing work?
1! GRO
“THE TEHG TS TOF TAMING Withdrawals aS GECINES IN POCA anid Casn Usage Exceed
increases in our share of banking withdrawals. Deposits values are rising through a
higher banking share.
1,.March 2019, a reasonably typical example day, we controlled
6. The working capital flows in the underlying business are much larger and more
volatile. We set our borrowing under the RCF 2 days in advance and can access an
emergency facility of £50m for issues which arise in that 2 days. The RCF is
capped in three ways: the limit we is formally £950m. However,
“reducing the limit to”
7. At different points in the cycle, either the facility headroom or the security
headroom can be a greater constraint. In earlier years, we were holding at lot of
cash in branches and borrowing to fund investments. This increased the amount of
cash held and the borrowing, reducing headroom against both limits. As we have
reduced cash usage, we have widened the facility headroom which is just the
difference between our borrowing and £750m but not security headroom, where
reduced cash and borrowing net off.
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What progress have we made?
9. The development in cash can be summarised by year-end numbers as follows:
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G)
AN
O
. can be tougher.on.branches not returning excess cash and we believe
this could be worthh GRO I
e We are working to take more ris “On “buffer stock” (i.e. the working stock
required (mainly coin because of lead times) to ensure that we can meet the
demands of the Network). Any reduction in this stock increases the risk that
a delay in obtaining stocks (due to stress in the industry or transport issues)
will result in branch orders not being fulfilled. The impact is expected to be
less significant than the first two actions above.
¢ We also need to understand working capital movements better so we can
refine our forecasts.
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Looking forward what are the constraints and what can be done
about them?
sharply. However, the overall impact on reducing withdrawals so materially is
not in itself disastrous.
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IRRELEVANT
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POST OFFICE PAGE 1 OF 7
POST OFFICE BOARD Update Pa
Legally Privileged and Strictly Confidential
Project Starling — “Worker” Claim
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