In Strictest Confidence
POB(97)6th Copy No
P097/65 to 75
POST OFFICE BOARD
Minutes of the meeting held on
10 June 1997, at Post Office Headquarters, London
Present
Sir Michael Heron Chairman
Mr P Allen
MrR C Close Managing Director Finance
Mr J E Cope Managing Director Strategy and Personnel
Dr D Grieves
Sir Christopher Harding
Mr AJ Roberts Chief Executive
Mr R G Osmond Secretary
Mr S Childes Notes
Also Present
Mr R Dykes, Managing Director Royal Mail, Mr K Williams, Managing Director
Parcelforce, for item PO97/68
Mr $ Sweetman, Managing Director POCL for PO97/68 and PO97/69
Mr P Rich, Development Director, POCL for PO97/69
MINUTES OF PO97/65
PREVIOUS MEETING
The Board APPROVED the minutes and separate
record of proceedings of its meeting of 13 May 1997
MATTERS ARISING PO97/66
POB(97)42
The Board noted the matters arising from the meeting of
13 May 1997
CHIEF EXECUTIVE’S PO97/67
REPORT (POB(97)43)
The Board noted Mr Roberts’ report and the
presentation by Mr Close the main points from which
were that
(i) the results to be published in the 1996/97 Report &
Accounts would show Group profit at £577m, a record
result driven by Royal Mail’s exceptional profit of
£518m,;
‘GRO
(ii) with the exception of Parcelforce’s budgeted loss of
£15m, targets for 1997-98 had now been cleared with
Government, with Royal Mail set to achieve a profit of
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(iii)
(iv)
(vy)
(vi)
(vii)
(viil)
(ix)
In Strictest Confidence
£526m and Counters £33m. Group profit, including
Parcelforce’s £(15)m, was budgeted at £616m;
in April all three businesses outturned ahead of budget
with Counters’ £2.3m over achievement the result of
variations in non-staff calendarisation which the business
was reviewing;
traffic growth in April was 2% below budget with
shortfalls in Streamline and International. Streamline was
known to be a volatile traffic stream in which marked
fluctuations had previously been seen. More worrying
was the performance of International traffic, with growth
in April outturning at 0.9% compared with a budget of
7.7%. A full review of International volume and quality
of service performance had been requested by POEC
and the Board would be updated on the outcome in July;
Counters risks and opportunities for the year were
balanced at £14m with risks associated with the Horizon
programme and the cessation of Crown office
conversions, which would result in lost franchisee fee
income, additional maintenance costs for offices not now
being converted and lost savings, offset by EVR costs
not now required. Of the £14m identified as management
initiative opportunities, half was certain to be achieved,
VAT remained an issue for Counters with the Tribunal
on Subpostmasters pay still to announce its ruling.
Additionally, Pathway had been granted authority to
charge VAT for the Horizon project. If Counters could
nct charge this back to the Benefits Agency, a £7m
charge would result,
Parcelforce’s £2.3m loss in April was better than that
achieved in April 1996 and £0.3m better than budget
Income at £41.1m was slightly down against budget,
with expenditure £0.4m ahead of plan mainly as a result
of central cost savings. Operationally costs were higher
than budget;
calendarisation of Parcelforce’s full year budget
showed that performance was due to continue its
downward trend before improving in August. This
mirrored the trends, seen in 1994-95 and 1995-96 albeit
at a lower level,
as with Royal Mail, International income in Parcelforce
was below budget, and given that this was one of the
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(x)
(xi)
(xii)
(xiv)
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business’s high revenue streams it was a worrying
aspect that would need to be closely monitored;
a good EFL result of £285m had been achieved
noted in discussion that
calendarisation of Parcelforce’s full year result was not
without risk, particularly as the April result continued
the downward trend seen in 1996/97. The key issue
remained when and how this decline would be stopped
and to this end it was important that Parcelforce’s
Managing Director had been able to assure the Chief
Executive that the regional General Managers were fully
associated with, and committed to achieving, the stretch
income and expenditure targets discussed at the May
Board (PO97/57)
noted further Mr Roberts’ report and in particular that
the Chairman, Chief Executive and Mr Cope had
recently met Ian McCartney, Minister of State, and his
full team of officials, presenting to them a number of the
key issues affecting the Post Office, including EFL,
International opportunities, Parcelforce, Industrial
Relations and Crown Office conversions
noted in discussion that
conversions apart, the presentation had been well
received and the Minister had intimated that he would
welcome an increase in The Post Office’s commercial
freedoms. He had also formally advised The Post Office
that Government was no longer seeking to sell
Parcelforce. In concluding, the Minister had agreed to
write formally to the Chairman setting out the issues
that would be covered within the Post Office review
with an indication of the likely timescale. However, it
was likely that both Parcelforce and conversions would
form part of the review, with targetry being excluded;
although nothing formal had emerged in respect of
Counters conversions the underlying impression was that
Mr McCartney was in principle opposed to franchising
and it was therefore considered important that in
responding to the Minister’s letter that The Post Office
stressed that consumer interests were its main priority
and could demonstrate the customer benefits of its
conversion programme. It was also important for
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Government to appreciate fully the financial implications
for Counters. To compensate for lost savings and
franchisee fee income POCL would need to generate
£300m of new business at a 10% margin, an unlikely
scenario
noted further that
(xv) an extremely negative CWU conference had ended with
activists speaking out against the Parcelforce hub and
again seeking to introduce the Streaming of mail. The
two JWPs were due to conclude their work on 16 June
with discussions on Flexibility having progressed well,
although it was impossible to judge how this would be
reflected in negotiating an agreement. The ACAS JWP
Chairmen still had an important role to play in
concluding a successful deal and the Chief Executive
would seek to ensure their committed participation;
(xvi) Royal Mail had announced it mails strategy for
Liverpool and North Wales & North West and to date
offices had been operating as normal. The local
Liverpool press had covered the story but national
coverage had been very limited;
(xvii) Royal Mail had successfully brokered a deal with the
CMA on the Agenda for Leadership. A ballot of
members linked to a pay offer of 2.9% would now take
place,
(xviii) the moratorium on delivery revisions which had been in
place whilst the JWPs were progressing was now to be
lifted;
(xix) Government had agreed that the partial sale of Quadrant,
which would place 49% of the company in private :
ownership could proceed. An advertisement announcing
the sale would be published on 16 June,
(xx) the Chief Executive, together with internal and external
members of the Genesis project team, were due to meet
Mr David Clark MP, Minister in the Office of Public
Service, on 11 June to discuss Government Direct and
highlight the Post Office’s potential in this area,
(xxi) the IMPs project board had now authorised the release
of equipment and 15 machines had now been installed in
Mail Centres across the country. Royal Mail had set
a target of 50 to be operational by the year end;
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(xxii) quality remained of concern within Royal Mail with
remedial work now concentrating on basic core
processes. Work would also focus on specific poor
performing locations whose negative first class monthly
impact on national figures could be as high as 2%
AGREED that the following profit/loss forecasts be
released to the DTI: Royal Mail £526m, Parcelforce
£(15)m and POCL £33m
POST OFFICE PO97/68
CORPORATE PLAN
& IFR (POB(97)44) The Board noted Mr Roberts’ introduction, Mr
Cope’s report and presentation, the main points from
which were that
(i) _ this year’s Plan had been produced following the agreed
Strategy Development process and was built on the
individually agreed Business Plans, together with a
Group overview;
(ii) the Plan had been written in such a way as to form an
agenda for the new Government and thus
concentrated on the key issues The Post Office wished
the Government to focus on, rather than detailed specific
strategies. A short executive summary would be
included in the version forwarded to Ministers, and
circulated to Members when finalised;
(iii) in particular the Plan focused upon commercial freedom,
Parcelforce viability, including the need to re-structure
the balance sheet, Crown Office conversions, and, for
the first time, an acceptance, with caveats on uniform
price and the universal service obligation, of the phased
introduction of earlier market liberalisation,
(iv) _ the Plan did not assume at this stage any benefits from
commercial freedom or include the costs of any
structural reorganisation. It did however, highlight the
four key strategic agenda programmes and in addition
incorporated the major business programmes,
(v) _ the Plan detailed the importance of continued growth,
with Royal Mail’s performance underpinned by an
assumed 20% increase in traffic over 5 years, combined
with RUC reduction, manpower reductions flowing from
the introduction of the Employee together with a price
reduction in real terms. For Parcelforce, performance
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(vi)
(vii)
(viii)
(9)
(x)
(xi)
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was underpinned by a significant targetted increase in
weighted volume offset by the effects of competitive
price pressure. Counters’ volume was also planned to
increase through an increase in Bill payments
transactions and implementation of its retail strategy.
The impact of technology had not been taken into
account in Counters assumptions;
all three businesses planned significant quality
improvements;
the Plan met all Government targets except Parcelforce’s
profitability, which had still to be agreed. The benefits of
the Parcelforce hub would not impact positively until the
turn of the Century;
the Plan assumed that capital expenditure (capex) would
average £450m per annum with development capital
averaging £75m. Given that actual expenditure
over the last five years had averaged £350m and that no
firm expenditure plans existed for development capex,
The Post Office was vulnerable to the Treasury seeking
to increase the EFL by £175m, the sum of the gap
between actual and planned capex together with
development capex and should marshal arguments
against this eventuality;
in conclusion, the Plan was considered robust against a
significant level of financial risk, provided a more
coherent presentation of the strategic agenda,
highlighted the important viability issues for Parcelforce
and identified commercial freedom and employee
relations opportunities
noted in discussion that
although the introduction of IMP technology would
reduce manpower within the processing function it
would not alter delivery staffing levels. This underlined
the importance of securing an agreement on the JWPs
which would enable manpower improvements to be
made in this area;
some Members were concerned that without the benefit
of interest, Counters’ profitability remained relatively flat
over the plan period. However, Counters only
Government target was to achieve a set Return on
Turnover, with profit a secondary consideration. It was
therefore able to seek real improvements in profitability
only from the development of new, non-government
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(xii)
(xiii)
(xiv)
(xv)
(xvi)
In Strictest Confidence
based products, and this was its planned strategy over
the period of the Plan. In other Government based
products it sought to maximise performance as opposed
to profitability. Explicit reference to this strategy would
be considered for the final Plan document,
suspension of the conversion programme would
adversely effect Counters’ ability to reduce manpower;
however, it was considered prudent not to highlight this
within the Plan as this Government's attitude to
employment levels might differ from that of the previous
administration;
Counters’ involvement in the financial services market
was of concern to the Chairman who wondered whether
it restricted customers’ choice and left Counters
open to claims of exclusivity from competitors within the
insurance market whose products were not available
from POCL outlets. Against this view, Counters
believed it was providing a useful service which
customers had demonstrated was popular. It also
provided an alternative method of entry into the
insurance market, thereby complying with the Green
paper requirement that Counters had to ‘extend
market choice’. Nevertheless, it was important for
Counters to be able to defend its position should this
prove necessary. Counters Managing Director would
consider this and provide the Chairman with a briefing
note via the Chief Executive;
the positive wording of paragraph 3, in section 3.5 was
potentially misleading, giving the impression that an
alternative strategy already existed and could be
deployed without delay. The wording would be
reviewed and consideration given to incorporating a
statement on the action the union needed to take in
making a positive contribution to employee relations;
paragraph 2.2.1 highlighted The Post Office's
activities and aspirations with regard to joint ventures,
acquisitions and the creation of subsidiary companies,
but did not cover disposals, other than a brief :
reference in paragraph 3.11. Specific reference to this
would be considered. The wording and location of
references to VAT in paragraph 3.11 would also be
reviewed;
some Members felt it important to consider a more
aggressive presentation of commercial freedom issues
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and in particular a clearer indication of where The
Post Office would want to be in five years time. The
need to refer more directly to compulsory redundancies
should also be reconsidered as should the somewhat
optimistic references to manpower reductions in
paragraph 4.3.1;
(xvii) given the earlier Board discussion on customer and
consumer interests (PO97/67) it was important to
incorporate, wherever relevant, references to customers
and their expectations. There was no consistent
approach in referring to ‘staff and ‘employees’ and to
avoid any confusion references should be standardised;
(xviii) the Plan included a paragraph on The Post Office’s
freedom to borrow and in support of this it might be
worthwhile preparing information on alternative models,
such as that used by BNFL;
(xix) in short the Plan maintained or exceeded the high
standards of previous documents
AGREED
(xx) subject to the points of detail raised in discussions the
general direction of the 1997-2002 Plan, and the
financial performance projections it contained, and that
the Plan and IFR, amended as necessary, should be put
to Government
HORIZON UPDATE PO97/69
The Board noted Mr Roberts’ introduction and the
presentation by Mr Sweetman, the main points from
which were that
(i) since the previous Board presentation in January
(PO97/9) contracts had been signed with BA and
Pathway. Development delays within Pathway had made
I it necessary to produce a new programme
implementation plan which had consequently delayed
acceptance of system roll-out until January 1998 with
I the target of equipping 5000 offices delayed until March
1998, Negotiating the new Plan had at times been tense
with difficult commercial issues for both BA and
Pathway, nevertheless, these had been successfully
concluded and relationships were reasonably sound as a
result;
vk)
In Strictest Confidence
(ii)
(iii)
(iv)
(vy)
(vi)
(vii)
In Strictest Confidence
since the re-plan the original 10 trial offices had been
equipped and were working well, with three further
releases tested and accepted. 124 offices were now
operating automation equipment, carrying out 30,000
transactions each week;
a number of network issues had emerged including that
of premisis suitability with between 10-20% of offices
now assessed as requiring substantial alteration to
comply with Health and Safety legislation. It was
important for POCL to ensure that operational planning
at a local level improved and that the process for
migrating existing systems was robust;
notwithstanding the earlier delay and re-plan, Pathway
had recently signalled that a further delay would occur,
making yet another revision necessary. Acceptance of
the programme was therefore not now likely before
March 1998 with a maximum of 2,000 offices installed
by the end of 1997/98. In total the programme was now
9 months behind schedule, largely as a result of software
problems on the part of Pathway;
financially the NPV remained unchanged and still
justified POCL’s continued involvement. However,
risks surrounding regional costs to support the
programme and the loss of new business as a
consequence of the delays had emerged, totalling £49m,
the change of Government meant DSS were having to
review the number of offices and cards likely to be
covered by the programme. The impact on Counters’
other clients and other operational systems remained to
be assessed as did Counters’ legal position with regard
to recovering costs from Pathway as a consequence of
the delays
noted in discussion that
the Horizon project was crucial for the business and it
had therefore been necessary to restrict severely the
number of other projects in which the business might
otherwise have engaged. Resourcing the project had also
emerged as a major issue with between 350-400
employees required to act as a dedicated team for :
dealing with issues such as training and implementation
etc;
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(viii) Counters was committed to installing equipment across
(x)
KING EDWARD
BUILDING
PREPARING FOR
EUROPEAN
MONETARY UNION
(POB(97)45x)
PROGRESS AGAINST
1996-2001 CORPORATE
PLAN (POB(97)46x)
0)
(ii)
POFL PERFORMANCE
UPDATE ( POB(97)47x)
the entire network and in rural offices the prospect of
automation was likely to result in some early
retirements. In an effort to avoid this the experiences of
Subpostmasters in trial offices would be shared
nationally,
although unwelcome, further delays with the programme
were almost inevitable. The issue of obtaining
compensation through the courts would not be
considered at this stage in the interests of maintaining a
good working relationship, considered although it was
recognised that the Benefits Agency might take a
contrary view
Thanked Mr Sweetman for his informative presentation
PO97/70
The Board recalled its previous discussion (P097/58)
and noted _that the Board of Merill Lynch had now met
and agreed the sale of KEB
PO97/71
The Board noted Mr Close’s report
PO97/72
The Board noted Mr Cope’s report and in particular that
Members felt that for the future it would be useful to
replace the existing format with one that provided a
balanced review of were the Businesses where against
where they had expected to be rather than simply
identifying areas of progress
AGREED that
Mr Cope would ensure that future reports reflected the
changes the Board required and that it would be taken as
an above the line item in future years
PO97/73
The Board noted Mr Roberts’ report
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