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Minutes of the meeting held on 12 January 1999
Present
Or Neville Bain
John Roberts
Richard Close
Jerry Cope
Mike Kinski
Dr John Lloyd
Rosemary Thorne
Richard Adams
Scott Childes
at 148 Old Street
Chairman
Chief Executive
Managing Director Finance
Managing Director Strategy & Personnel
Non-Executive Member
Non-Executive Member
Non-Executive Member
Secretary
Notes
Richard Dykes, Managing Director Royal Mail
Stuart Sweetman, Managing Director Post Office Counters Limited
Kevin Williams, Managing Director Parcelforce Worldwide
Others attending: Alan Williams, Director Communications and Corporate
Relations, for item PO99/6
Norlan Mcintyre, Director Year 2000, for item PO99/8
Apologies
MINUTES OF
PREVIOUS MEETING
MATTERS ARISING
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Miles Templeman was unable to attend.
PO99/1
The Board approved the minutes and separate record
of proceedings from its meeting of 8 December 1998.
PO99/2
The Board noted the matters arising from the meeting of 8
December 1998.
POS9/3
Since the previous meeting the political scene had changed
considerably with the resignation of Peter Mandelson as
Secretary of State, the appointment of his successor,
Stephen Byers and the appointment of Alan Milburn as.
Chief Secretary to the Treasury.
To a considerable extent Peter Mandelson had personally
enabied the acquisition of German Parcel (Sapphire
(PO98/131) to successfully proceed through Government
1
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and his influence within the top echelons of Government
would be missed. lan McCartney had not been affected by
the new appointments and he could therefore continue to
Provide a valued and supportive contribution,
(iii) The Trade and Industry Select Committee had met ong"
December 1998 and a report of the hearing had now been
Published. Helpfully, the report set out what the Committee
expected the White Paper on The Post Office to cover and
this included the key issues that The Post Office itself had
identified. It was now unlikely that the White Paper would
be published before March.
(iv) The acquisition of German Parcel (Sapphire PO98/131)
had been successfully concluded and announced publicly
on 11 January. The acquisition had taken considerable
management time and effort and the Board recognised the
work successfully carried out by a number of people and
Particularly Dom McKenna and his transaction team.
(v) Resultant media coverage had to a great extent
concentrated on the price of the acquisition as this had not
been declared. This was in line with the approach of
competitors who had acquired private companies. The price
paid had included a small premium but compared
favourably to similar transactions by Deutsche Post etc.
(vi) Media coverage in Germany had been very favourable.
(vii) Final negotiations had resulted in a slight improvement for
The Post Office with an NPV increase of £5m. Transaction
costs amounted to £10m and in some areas, such as legal
work, an improved scale of charges may have been
possible. These lessons would be learnt for future
acquisitions.
(vill) As a matter of urgency, a Post Completion Audit would be
undertaken with any key issues identified and monitored,
Performance targets would also need to be considered and
introduced. In the longer term the Managing Director of the
German Parcel would report to the Managing Director of the
proposed new International business unit, but meanwhile
he would report to the Chief Executive. His key role in the
coming year would be to assimilate the franchise
companies.
(ix) I The acquisition presented The Post Office with an
accounting challenge as not all of the franchisees operated
to recognised accountancy standards. Funding and
hedging issues had been considered and a note of the key
issues was circulated to Members.
2
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Action
Secretary
CHIEF
EXECUTIVE’S
REPORT POB(99)2
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The degree to which German Parcel was left to operate
independently from The Post Office was important, as was
introducing some form of ‘transition team’ through which
appropriate integration with The Post Office could be
channelled.
The impact of competitors responding to the acquisition had
been factored into the business case although it was not
thought that this would be significant.
A Ministerial meeting was today being held to consider the
future of Horizon. It was hoped that tne outcome would be
announced quickly. Updates on Horizon and German
Parcel would be provided to February's meeting.
The other major item of Chairman's business was concern
over the level of trading; Royal Mail cost over-runs and
Parcelforce performance both in profit terms and cash
generation. This was discussed in detail under performance
matters.
(Secretary's note: The remainder of this minute has been
circulated to Members on a personal basis)
Circulate to Members the Report from the Select Committee
held in December 1998.
Include updates on both Sapphire and Horizon for the
February Board meeting. Outside this, Stuart Sweetman
and John Roberts to feed information on key developments
through the Secretary for circulation to Non-Executives.
POS9/4
Financial Performance. Counters had performed well over
the Christmas period and with profit ahead of budget had
now to focus on successfully managing the year end.
Parcelforce, together with its main competitors, continued
to underperform and the revised full year loss of £20m was
not without some serious risk. Royal Mail was also facing its
most serious financial predicament for a number of years,
with traffic in Royal Mail National down 3.9% on the same
period last year. The performance of both Parcelforce and
Royal Mail was being taken extremely seriously with a
considerable amount of work being undertaken to ensure
that Royal Mail and POCL achieved their Government
targets and that the EFL was met.
A 5% overspend on Mails Operations costs in the year to
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Action
Kevin Williams
FINANCIAL
SUMMARY
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date was the key to Royal Mail’s financial difficulties with
the business trying to Process an increased workload, as a
result of a change in the mix of traffic, whilst seeking to
maintain customer service. Additionally, savings envisaged
from the introduction of automation had not been realised
and industrial relations difficulties had restricted the
introduction of efficiency projects.
A number of recovery actions were underway including
Divisional performance reviews, the introduction of
manpower controls and a weekly review of performance.
Further options, including laying off temporary and casual
empioyees, had also been identified but these could both
reduce quality of service and increase the Possibility of
industrial action. The Union was being consulted on these
options.
Royal Mail had agreed a new productivity deal with the
CWU Executive. A ballot, combined with the new pay
settlement, was due to close on 10 February.
Parcelforce was experiencing revenue reductions in two
key sectors - Europe and Customised Solutions where
costs remained fixed regardless of volume reductions.
Expenditure improvements had been achieved on vehicle
costs and 2,700 casual staff had left the company since
Christmas. The Activity Based Costing system now
Operating was providing useful information on market sector
Profitability and enabled Parcelforce to ensure that new
contracts were agreed at acceptable profit margins.
Noted further that
It was a matter for Royal Mail, in consultation with the Chief
Executive, as to whether service reductions were traded for
cost improvements.
A 5% efficiency improvements through automation could
significantly improve Royal Mail's financial Position and it
was also important that local managers sought
opportunities to reduce manpower where automation was
deployed. John Lloyd had first hand knowledge of just what
could be achieved through efficiency improvements and
commended any effort taken to realise improvements within
Royal Mail.
For February's meeting produce a short Paper on
Parcelforce’s debt recovery programme.
POSg/5
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Profit for November was:
* Royal Mail £31.7m
* POCL £5.2m
* Parcelforce £(1.8)m
* SSL £06m
Provisional results for December were:
* Royal Mail £28m
* POCL £23m
* Parcelforce £1.4m
© Group £61m
With the exception of POCL, which outturned £4m above
budget, December's provisional results were all below
budget.
In terms of targetry, Royal Mail was forecasting to achieve
its ROCE and RUC targets, and POCL its ROT. The
Parcelforce ROCE target of (5.3)% had not been officially
announced by Government and the business was currently
forecasting a full year result of (8.8)%.
Royal Mail's recovery plan aimed to close the £30m profit
gap and achieve its budget of £478m through increased
National income, reductions in discretionary spend and as a
consequence of delays to the introduction of REIMS II. This
plan was subject to risk, particularly should discretionary
Savings not be realised, and in the unlikely event of the
implementation date for REIMS II being backdated.
Parcelforce’s assessment of its full year loss was now
£(25)m with a best case of £(20)m and worst of £(30)m.
Risks still outweighed opportunities by £10m,
For Counters, opportunities considerably outweighed risk.
Achievement of the EFL reflected the financial difficulties of
Royal Mail and Parcelforce and a shortfall of between £38m
and £128m was currently forecast. Recovery action had,
however, identified opportunitiies to the tune of £120m.
Parcelforce continued to bring down the level of
outstanding debts with a £17m gap between the ‘normal’
level of over 30 day debt and that currently recorded; 200
customers accounted for £6.5m and 750 for £12m. The
number of staff employed to recover the debts had now
trebled. A paper on the recovery programme would be
helpful for the Board to consider.
5
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COMMUNICATIONS
STRATEGY
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Parcelforce was currently talking to a leading mail order
company on a proposal which would result in Parcelforce
contracting for the distribution and delivery of all their home
shopping items and transfer of their courier arm. It was.
hoped that Heads of Agreement could be reached by the
Month end. The contract was valued at £150m. over 5
years.
It remained essential that the Businesses strived to achieve
their budgeted targets and this message should continue to
be communicated internally. For 1999-00 The Post Office
would be arguing for a simple approach to targets with one
profit target covering the whole organisation.
It would be important to review the full year profit/loss
targets at next month's meeting and make any appropriate
adjustments at that time. Until then it was agreed that
Richard Close would report to OT! forecast outturns of
£478m for Royal Mail, £(20)m for Parcelforce and £35m for
Counters.
PoS9s/6
A key aim of The Post Office's communications Strategy
was to ensure clarity in communications from the centre
across the organisation, through which it would then be
Possible to link communications activity with strategic
commercial direction.
Group Communications currently comprised National/media
relations, Corporate Relations, Community Affairs and I
sponsorship, Internal Communications Policy and Branding
Policy. Additionally, each business had a communications
unit which dealt with its own internal communications,
marketing communications, and external relations at
Regional and local level.
In total, Communications employed 560 staff with annual
staff costs of £17 5m, non-staff costs of £31.6m giving a
total budget of just over £50m. This was the equivalent to
£250 per employee per annum, compared with a cost of
£280 within British Telecom and £375 by National
Westminster Bank. The ratio of communications staff to
employees was one every 357 employees which was
compared with 452 in British Telecom and an industry norm
of one every 1,500.
Employee opinion surveys had generally scored internal
communications poorly and in response a number of new
initiatives had been introduced. With hindsight the
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Action
John Roberts
PENSIONS
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organisation had probably over reacted and there were now
too many messages being communicated in an
uncoordinated and ineffective way. A review of
communications strategy had therefore been initiated which
was looking at the communications Structure, branding and
identity policy, community activities and charitable giving.
The 1998/99 charitable budget was £2m but it was
questionable whether full PR value was being gained from
this outlay. It was certainly the case with regard to
community activities The Post Office did not extract
sufficient promotional value for itself. The Executive
Committee was due to review The Post Office’s charitable
Policy at its February meeting.
In reviewing communications it was important to consider
the activities of union representatives and in particular the
Cost of providing facilities time in an overall assessment of
communications costs. It was also essential to minimise the
number of mixed messages that circulated within the
organisation, examples of which could clearly be seen
when comparing Courier and Voice the respective employer
and union newspapers,
With the introduction of increased commercial freedoms
The Post office as a whole would come under greater
scrutiny and may have increased dealing with the City. It
would be important to develop any such relationship within
the context of an overall communications plan. This was
also true of Europe and the opening of an office in Brussels
for lobbying was an important first step.
It was acknowledged that Communications across the
organisation employed too many people at too high a cost.
It was also clear that the role of the Businesses and Group
Centre and channels of communication were confused. The
strategy to develop a co-ordinated and simplified approach
which gave value for money was therefore supported.
Phase one of the communications review would be
completed in March and the Board would welcome the
opportunity to review the outcome of this work in advance
of the 1999-00 communications budget being set.
Thanked Alan Williams for his informative paper.
Produce for the March meeting a paper on The Post ;
Office's policy on charitable giving and provide an interim
report on a co-ordinated communications review.
POSS/7
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STRATEGY
YEAR 2000 UPDATE
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(Secretary's note: The minute of this discussion has been
circulated to Members on a personal basis)
PO99/8
The key objectives of the Year 2000 project were to
prepare The Post Office fully for the Year 2000 and to be
seen to be doing so by Government, customers and
suppliers, benchmark with the best in the UK and to be
helpful to customers/suppliers needing advice or
assistance.
To date progress was generally Satisfactory with in
particular, Counters’ preparations proceeding well. In fact
The Post Office was regarded as a benchmark for other
organisations. A stretching target to have alll critical systems
compliant by December 1998 had originally been set and
87 of 122 critical systems had achieved this. The majority of
those outstanding were close to completion.
Work on embedded systems had progressed extremely well
and this was no longer an area of concern. Suppliers of
critical services could not all confirm that products and
services would be compliant, and in some international
Cases services would be withdrawn rather than risk service
problems.
Main internal risks revolved around the replacement of
Parcelforce systems and multiple faults occurring in small
systems. Externally, as well as concerns over suppliers,
there was real concern that The Post Office would be used
as a supplier of last resort which at an already busy period
could easily overload the mails network. Contingency
arrangements were being developed to address these
issues.
Capital spend of £88m was forecast, spread over a three
year period. To date 55% of this had been spent.
Noted further that
Key employees who would have to attend over the
Millennium period, and those needed to be on standby, had
all been identified and advised. For some key iT personnel
it had been necessary to provide a ‘golden handcuff’ to
ensure their expertise remained within the organisation.
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Action
Jerry Cope
PROJECTS
APPROVED BY
MaPEC - Parcel
Management
System - Phase IV
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MaPEC - Lotus
Notes 4.5 Migration
Programme
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Royal Mail had not yet confirmed what days it would be
Operational either side of the Millennium and had not
therefore commenced any pay negotiations with the Union.
The main area of concern was not necessarily agreeing a
Pay settlement but getting staff to attend.
Although only 55% of the capital budget had been spent
70% of the critical systems and 80% of embedded had
been completed.
The Board commended the work done by Norlan Mcintyre
and his team.
Provide a quarterly update, on an exception basis, within
the Chief Executive’s Report.
Posg/9
The Parcel Management System would provide Parcelforce
with the capability to track and trace parcels through every
stage of the network. In this respect it would bring
Parcelforce up to the level of its competitors.
The project produced recurring Savings of £22.9m and a
positive NPV over 6 years of £27.6m. Staff savings of 436
were forecast.
Endorsed MaPEC’s approval of expenditure of £40.7m, of
which £5.2m in respect of the trunking management strand
was given in principle, with full authority to proceed with this
strand devolved to Parcelforce.
Endorsed MaPEC’s approval for expenditure of £7.9m at
outturn prices to achieve migration of the next phase of
sites to Lotus Notes 4.5: and
MaPEC’s approval in principle for the continuation of the
deployment to further sites to complete the migration for
The Post Office at a cost estimated at £5.6m, making total
costs, including sunk costs, £16m.
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MaPEC - Property
and Facilities
Management Project
POB(99)7x
CHAIRMANSHIP OF
ROYAL MAIL US
INC. POB(99)8x
DATE OF NEXT
MEETING
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The removal of 600 Posts budgeted within the Paper would
be tracked using a system that was to be used in other
Projects across The Post Office.
Endorsed MaPEC’s approval at a total outturn cost of
£2.8m capital and £15.6m revenue, and DFEs for: EVRs at
£7.5m; relocation £0.75m, and general £0.4m, and in
principle authority for up to £15.6m, giving total Project
costs (inclusive of £7.5m sunk) of £50.2m.
PO99/10
Given his wider responsibilities, John Roberts was stepping
down as Chairman of Royal Mail US Inc. He was to be
replaced by Richard Dykes
Agreed to the appointment of Richard Dykes as an ‘A’
Director and Chairman of Royal Mail US Inc. with immediate
effect, subject to formal confirmation from the Secretary of
State.
PO99/11
The next meeting was scheduled for 15 February 1999 and
lan McCartney, The Post Office Minister at the DTI would
be joining the Board for lunch.
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