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POB(99)4th
PO99/37 to 52 POST OFFICE BOARD
Minutes of the meeting held on 27 April 1999
at 148 Old Street
Present
Dr Neville Bain Chairman
John Roberts Chief Executive
Richard Close Managing Director Finance
Jerry Cope Managing Director Strategy & Personnel
Mike Kinski Non-Executive Member
Dr John Lloyd Non-Executive Member
Miles Templeman Non-Executive Member
Rosemary Thorne Non-Executive Member
Scott Childes Notes
Richard Dykes, Managing Director Royal Mail
Stuart Sweetman, Managing Director Post Office Counters Limited
Kevin Williams, Managing Director Parcelforce Worldwide
Others attending: Mick Linsell, Managing Director POSG and Malcolm
Kitchener, Finance Director Royal Mail, for PO99/46
Dick Wheelhouse, Lottery Director, for PO99/48
Adam Novak, Director & General Manager Royal Mail
National, for PO99/49
RICHARD ADAMS PO99/37
The Board noted that Richard Adams was
recovering from a motor accident and asked that his
colleagues’ best wishes for a speedy recovery be
forwarded in a letter from the Chairman.
MINUTES OF PO99/38
PREVIOUS MEETING
The Board approved the minutes of proceedings from
its meeting of 23 March 1999.
MATTERS ARISING POSg9/39
POB(99)13
The Board noted the matters arising from the meeting of
23 March 1999.
FINANCING PO99/40
POSTCAP
GUERNSEY :
POB(99)30 (i) Postcap Guernsey Ltd had been established as a wholly
40
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POST
IMPLEMENTATION
REVIEW (PIRs)
POB(99)31x
APPOINTMENT OF
CHAIRMAN OF
SUBSCRIPTION
SERVICES LIMITED
POB(99)32x)
(ii)
(iii)
(ii)
(i)
(ii)
(iii)
(iv)
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owned subsidiary of The Post Office in 1995 to operate
as a captive insurance company to underwrite selected
Post Office risks. A recent review of deductibles had
determined that the £1m carried by The Post Office no
longer represented catastrophe level risk in the areas of
crime, property and liability. It was therefore Proposed that
the level be raised to £5m, a move that would require re-
capitalisation. Additionally, it was proposed that the
authorised share capital be increased to £25m with £8m
issued.
Agreed and authorised establishing an authorised capital
structure for Postcap Guernsey Ltd of £25m.
Agreed that a further £6m be paid up, making a total paid
up share capital of £8m, with any further increase being
first agreed by the Board.
PO99/41
PIRs formed part of the approval, monitoring and control
process for project investment and as such they were
taken very seriously and used as a useful learning
exercise.
Whitbread operated a similar process although
performance was tracked over time in order to establish if
year on year performance was improving or deteriorating.
PO99/42
Noted that Jerry Cope would resign from the Board of
Subscription Services Limited with immediate effect.
Agreed the appointment of Stuart Sweetman as an ‘A’
Director and Chairman of the Board of Subscription
Services Limited, with immediate effect, but subject to
formal confirmation from the Secretary of State.
Noted that Brian Strange, Managing Director Subscription
Services Limited, would resign from the Board at a date to
be determined.
Agreed that Paul Rich would be appointed as a Director
and Managing Director of Subscription Services Limited
with effect from Brian Strange’s resignation.
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CHAIRMAN’S PO99/43
RHSINESS
(0) The Chairman had four key issues to raise:
* Horizon;
+ New Zealand Post;
* Board effectiveness; and
* the underlying financial performance of the
Businesses.
(ii) The Chairman had visited New Zealand Post recently and
had been impressed by the approach and attitude of the
organisation. He had discussed some of the key leaming
points with John Roberts.
(iii) A number of issues had been identified from the
questionnaires on Board effectiveness and a summary of
the key points, together with some additional material on
PDV, Values, Goals, Commercial direction and matters
reserved to the Board, would be circulated to Members.
The issues would be discussed more fully at the June
meeting.
(iv) Whilst the year end financial results would be viewed as
satisfactory, the underlying performance of the
businesses was of concern and the reasons for this would
need to be understood.
(vy) (Secretary's note: The remainder of this minute has
been circulated to Members on a personal basis).
Action Circulate a chronological brief which set out the key
Stuart Sweetman events and issues related to Horizon.
Secretary Circulate the summary of information and questionnaire
results together with information on matters reserved to
the Board, our Values, PDV, Goals and Commercial
Direction. Ensure a 30 minute slot on the next agenda.
CHIEF EXECUTIVE'S PO99/44
REPORT (POB(99)24
@ CWU Presentation. The Chairman and Chief Executive
had recently given a presentation to the CWU Postal
Executive on the future direction of The Post Office. The
presentation continued the development of an improved
relationship with the union and had been well received
Encouragingly, the CWU were themselves keen to
develop a collaborative relationship through which knee-
jerk reactions to change could be avoided.
(i) Strategic Partnerships. Representatives from Fedex, La
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Poste (France), An Post (Ireland) and the Belgian Post
Office had, or were keen to, discuss potential
Partnerships. The smaller postal administrations, such as
An Post, recognised the need to develop a relationship
with one of the major European Postal administrations
and they would therefore be reviewing Opportunities with
the German, Dutch and UK administrations. The Board
had been advised of the potential alliance with Fedex and
La Poste in February (PO99/16). Following preliminary
discussions it had become clear that Fedex were seeking
a contractual relationship, something that The Post Office
was not as keen to pursue.
I (iii) Obtaining access to an air based partner was an essential
i requirement for the long term development of The Post
Office’s international strategy and Fedex, who would
require volume to support their network, would therefore
be approached again with La Poste, to see if a way
forward could be developed.
(iv) Talks with UPS had also been held and further
discussions were planned.
(v) Quality of Service. Year end results confirmed that
Parcelforce’s Express streams had performed well with all
Next Day services achieving target. Royal Mail’s Second
class traffic had also performed well achieving 98.6%
against a target of 98.5%. Royal Mail’s First class traffic
stream had failed to reach its challenging target of 92.5%,
outturning at 91.3%, slightly below that achieved the
previous year. International performance was also
disappointing and improvements were being sought. A
new international charging system would take effect this
year based on quality of service and it was therefore
important for improvements to be made. Notwithstanding
the disappointing First Class result, Royal Mail's customer
satisfaction rating had actually increased.
(vi) American Express. Royal Mail had recently been awarded
a global Silver award for service from American Express.
Royal Mail was to be congratulated on this achievement.
FINANCIAL PO99/45
OVERVIEW
(i) Provisional full year results were:
« Royal Mail £484m;
« POCL £38m;
« Parcelforce Worldwide £(25)m; and
SSL £3m
(ii) The provisional full year Group profit result was £610m,
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compared with a budget of £601m and last year’s outtum
of £651m. The full year result had benefited from a
Pension adjustment of £63m and income of £35m from
the sale of KEB and Quadrant.
(iii) Although the 1997-98 profit figure was higher than that
provisionally calculated for 1998-99, it had been distorted
by a Royal Mail price increase.
(iv) For Parcelforce it was significant that a number of its
competitors were already signalling profit warnings.
(v) The EFL target of £310m had been achieved with a
rollover of up to £32m possible. Achievement had been
assisted through the advanced receipt of income from
Girobank and £88m from key Royal Mail customers who
had brought forward cash settlements for contracts.
(vi) With the exception of Parcelforce’s profit target, all other
Government targets had been achieved.
(vii) A new measure which compared the Businesses’ results,
expressed as a return on shareholder funds, earnings
growth and PBIT margin, to those of the best Postal
administrations world-wide had been produced. The
results showed that improvements in all three areas were
necessary.
(viii) Compared with the 1997-98 result, Royal Mail's
expenditure on pay and inflation had increased by
£140m. This could lay the business open to accusations
of having ‘bought’ industrial relations peace.
(ix) Horizon remained the only key audit issue with a possible
need to reverse a provision of £14m.
(x) Capital Expenditure had outturned just under budget with
the alignment of forecast and actual spend greatly
improved compared with previous years.
(xi) The full year profit target for 1999-00 was £525m.
(xii) A review of the Business budgets for 1999-00 showed
that Royal Mail's risks had increased to £36m and
Parcelforce’s had increased to £5m. POEC would be
reviewing recovery plans at its May meeting.
I
I
I
Noted further that
I (xiii) Royal Mail had seen early signs that the control of costs
was beginning to improve. However, management of
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: change would have to be carefully monitored to ensure
i that attention was not diverted away from the control of
j costs. Risks existed predominately around revenue.
f
(xiv) Whilst Parcelforce’s UK revenue was performing well the
international streams were very disappointing . Debt
recovery was progressing well and the full year loss of
£(25)m incorporated £2m of bad debt. Overhead costs
had for no clear reason worsened and this was being
investigated.
(xv) SSL had performed strongly at the finish of 1998-99 and
had made an encouraging start to the new financial year.
(xvi) BT had agreed a new five year contract with POCL and
further opportunities with Lloyds/TSB were to be explored.
The DVLA had also agreed a new contract worth £53m.
(xvii) Royal Mail had received unjustifiable criticism from Legal
& General over an alleged delay of time critical year end
postings. Although the allegation could not be
substantiated the public argument, led by Legal &
General, continued. Ending the dispute was important
and writing privately to Legal & General's Chairman, Sir
Christopher Harding would help in this regard.
Action Send a ‘private’ letter to Sir Christopher Harding,
Richard Dykes Chairman of Legal & General, which sought to resolve the
public disagreement over alleged delays to significant
volumes of Legal & General’s year end postings.
COST REDUCTION PO99/46
APPROACHES.
(POB(99)25)
(i) From 2001/02, savings of £484m were projected to be
realised from major initiatives. These initiatives included
the Competitive Overhead Strategic Structure Programme
(COSSP) and the Finance Excellence Programme (FEP),
both of which were already well into deployment and had
already resulted in reduced staff numbers.
(ii) Support services currently cost £622m per anum. They
were located within stand-alone business units under the
umbrella of the Post Office Services Group (POSG).
Support services were defined as non-core activities
which could otherwise be provided through external
suppliers.
(iii) Under the Shaping for Competitive Success project /
POSG services would be tested against the upper quartile
of externally provided services in their respective markets.
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SCS would result in the establishment of Post Office
Consulting, comprising the internal consultants previously
located within Royal Mail and POCL. Cleaning services
would transfer into ROMEC, and some Financial
Accounting/personnel employees would transfer into a
Transaction Services unit and a number of smaller, as yet
unscoped changes, such as the transfer of Parcelforce
workshops into Vehicles Services, would occur. Together
these changes would result in POSG employing nearly
16,000 people and carrying costs approaching £900m.
i
noted further that
(iv) Work was underway to differentiate between those
employees who were fulfilling a genuine consultancy role
and those that were engaged in service activities. It was
estimated that only half of the 1400 employed in
consultancy provided actual consultancy services.
(vy) Considerable attention was being focused on ‘Knowledge
Management although it was recognised that the
application of these principles was not always as good as
might be expected. The personnel issues around better
deployment and utilisation of resource centrally and in the
line was being considered.
(vi) The Post Office employed its own cleaners to avoid a
VAT cost penalty.
(vii) Whilst in comparison to external organisations the
number of staff engaged in Training & Development
appeared high, it was in fact low as a ratio of total spend.
Research employees were engaged in highly specific
areas such as encryption, stamps and ink.
(viii) Thanked Malcolm Kitchener and Mick Linsell for their
helpful and informative input.
DEPLOYMENT OF PO99/47
EUROPEAN
PARCELS
STRATEGY
(POB(99)26)
(Secretary’s note: The minute of this discussion has
been circulated to Members on a personal basis)
THE NATIONAL PO99/48
LOTTERY PROJECT
(POB(99)27) S :
(Secretary’s note: The minute of this discussion has
been circulated to Members on a personal basis).
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SPECIAL STAMPS POg99/49
PROGRAMMES 1999-
2001 (POB(99)28)
(i) The Post Office Produced 5.3bn stamps annually of which
the majority were low value definitives and those sold in
retail books. The total value of the stamp market to Royal
Mail was £350m with income of £84m and a contribution
of £54m
(ii) There were estimated to be 3m stamp collectors in the
UK, half of whom were regular collectors although their
numbers were decreasing.
(iii) In terms of products 60%,or income of £50m, was
generated through the sale of special stamps. Of the
different sales channels open to the public ordinary sales
across post office counters provided by far the greatest
volume of revenue with 70% or £56m being generated.
(iv) Marketing of philatelic products was moving away from TV
advertising to more mail drops, promotions and
exhibitions.
(v) Harnessing the opportunity provided through the
Millennium, Royal Mail’s philatelic strategy was to
increase revenue from existing collectors, attract new
collectors, particularly the young, change the image of
stamp collecting and focus purely on core philatelic
products. Financially, the plan sought to increase income
during the period of the Millennium, peaking at £111m in
1999/00, and seeking a significant step change by
2001/02 with income increased to £95m.
(vi) A detailed process for the production and marketing of
philatelic products was undertaken and the Stamp
Advisory Committee (SAC), which had internal and
external representation, played an important role in the
selection of stamp subjects and their design.
(vii) The Millennium stamp programme ran from 1999 to 2001
with each year focused on one theme:
e the past;
« the present; and
e the future.
To date the programme was ahead of forecast with
30,000 new customers seen at the British Philatelic
Bureau based in Edinburgh. Typically these customers
were also buying stamps over a two year period rather
than for just one year. Awareness of the Millennium
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programme was high.
I (viii) For the year 2000 the theme of ‘Time’ would be continued
i but be set in the context of the ‘Present’. Twelve sets of
four stamps would be issued with unusually 48 British
photographers being commissioned rather than the
normal artistic representation. In addition a First Class
Millennium definitive would be issued as would a stamp
celebrating the birthday of the Queen Mother.
(ix) In the final year of the Millennium programme it was
intended to continue with the monthly issue of four sets of
stamps with three compulsory subjects:
* the final Millennium stamp issue;
* PostEurop; and
¢ Christmas trees, celebrating the bi-centenary of
decorating trees in Britain.
Other categories for the year 2001 were:
family pets;
public transport;
British weather;
submarines;
cartography;
Nobel prize winners;
British writers;
puppets; and
« fashion hats.
Noted further that
(x) The issue of re-branding the Second Class product had
still to be addressed.
(xi) Involving schools was undertaken through a separate
youth programme.
(xii) Maintaining the policy of issuing twelve sets of four
stamps would need to be reviewed before being
progressed.
(xiii) The stamp designs were acknowledged as being :
exceptional and the work of the design team outstanding
(xiv) Thanked Adam Novak for his informative presentation.
Action Review the success of issuing twelve sets per year before
Richard Dykes deciding if this approach should continue in 2001.
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DEFINING & PO99/50
MEASURING THE
NATIONWIDE
NETWORK OF POST
OFFICES
(POB(99)28a)
(i) There was no statutory obligation for The Post Office to
Provide a “nationwide network” and certainly no objective
definition of “nationwide” existed, although maintaining
the number of post offices had tended to stand broadly as
a proxy.
(ii) The impending establishment of a Regulator had
heightened the need for greater clarity on how in future a
“nationwide network” might be defined.
(iii) The Post Office had worked constructively with the DTI on
a suitable definition which had as its measure the
percentage of the UK population living within a certain
distance of a post office. The following had been agreed:
¢ for 90% of the UK population to live no further than 1
mile of post office counter services;
© for 99% of the UK population to live no further than 5
miles of post office counter services.
(iv) At present 94.04% of people lived within a mile radius of a
post office and 99.9% within 5 miles. Under the agreed
measure the current network (18,774) could reduce to
12,500.
(v) POCL believed that the new measure could be supported
operationally and publicly.
Noted further that
(vi) The change would enable POCL to introduce a degree of
flexibility into its fixed costs but it was recognised that in
public terms it would need very carefully management.
(vii) Where sub-post offices were closed a compensation
payment equivalent to two years remuneration was
payable.
(viii) It was unclear why the DTI had wanted to include a
definition of the network within the White Paper; following
discussions with The Post Office it was now possible that
it could be excluded.
(ix) It was important to ensure that the approach taken to rural
and town locations was in line with the stance taken by
other parts of the organisation.
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(x) Endorsed the approach POCL was taking on the
definition of the Nationwide Network
;
Action Circulate a copy of the graph used to help explain the
Stuart Sweetman Proposed definition of the Nationwide Network.
POCL BUSINESS PO99/51
SERVICE
MANAGEMENT/SSL
CONTACT CENTRE
(POB(99)29)
(i) The paper sought agreement to the expansion of the
existing POCL regional helpline at Leeds, as an interim
Network Business Support Centre (NBSC), to be
managed by Subscription Services Limited (SSL). It
further sought the leasehold acquisition of a developer
constructed and fitted-out building in the Dearne Valley,
South Yorkshire as the fourth Contact Centre for SSL.
This centre would ultimately act as the main NBSC
supporting the roll-out of Horizon. Development of a
technical solution (‘tool-set’ ) was also required to support
the Horizon project .
noted further that
(ii) Before a final decision on Horizon was known it would be
important to ensure that no unnecessary expenditure was
incurred. It should also not be assumed that should
Horizon fail work from other areas could be used to offset
the loss.
(iii) In future the Board should be advised where
commitments had already been entered into.
Action (iv) Review planned expenditure on the project to ensure that
John Roberts/Richard further commitment based on the Horizon project was
Close/Stuart avoided.
Sweetman
Richard Close (v) Future papers to highlight what commitments have
already been made prior to the Board considering a
proposal.
DATE OF NEXT PO99/52
MEETING
The next meeting was scheduled for 8 June 1999.
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