UKGI00001444
UKG100001444
@® Shareholder
Executive
HM Government
Post Office Limited (“POL”)
Quarterly Review
September 2012
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POL Quarterly Review — Follow-Ups to August Quarterly Review
+ On 15 August the Post Office Mutualisation Programme Board met for the first time
— internal oversight for mutualisation, reporting and making recommendations to a sub-committee of the POL Board
— chaired by Paula Vennells, with membership drawn from POL senior management and ShEx
— first meeting focused on a review of key mutualisation workstreams (e.g. Governance, Finance, Culture and Policy) and proposals for
the Stakeholder Forum
+ The meeting was constructive, and provided an opportunity for senior management to share views and concerns around the
draft workplan that had been proposed
— following this it was agreed that some changes would be made to the draft workplan, to emphasise the role of the Stakeholder Forum
(and stakeholder engagement more generally) and to integrate — and exploit the synergies between — different workstreams
+ Ameeting has also been held with two “Expert Advisers” — David MacLeod and Marjatta Van Boeschoten — who have been
asked to support the POL Stakeholder Forum process
— discussed the approach being taken to the Stakeholder Forum, including its membership, objectives, sequencing and logistics
+ POL has since developed a structure and timeline for the Stakeholder Forum
— individual meetings will be held with stakeholders during September, with the forum expected to convene for the first time after
conference season and during the week commencing 15 October
— the forum will be supported by three working groups, tasked with exploring “a potential vision, purpose and values of the Post Office”
from the perspective of (i) POL’s customers; (ii) POL’s direct / indirect employees; and (iii) social, political and environmental interests
— in parallel with this, other key mutualisation workstreams will also be progressed. ShEx will be closely involved from both a shareholder
monitoring perspective and from our position as a key stakeholder
31 Aug. / 3 Sept. During Sept. During Sept. I wic 15 Oct.
MUTUALISATION
Stakeholder Contact Expert Adviser CWU and NFSP I First Meeting of the
Meetings with
and Announcement Meeting Stakeholder Forum
Stakeholders i
+ POL CEO invites + One-on-one meetings + Facilitated meeting to I + First meeting to focus
stakeholders, and to discuss proposed share concerns and I on structure (e.g.
sets out ambition and forum structure and to seek to secure i working groups)
enthusiasm for the to identify key issues their constructive i scope, timescale,
forum up front participation in the i parameters / ways-of-
process and forum i working
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Executive
HM Government 2
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POL Quarterly Review — Follow-Ups to August Quarterly Review (conta)
GOVERNMENT
SERVICES PIPELINE
"weighting factor
Total = £960m 59.5% Total = £572m
100% 708 28
22 iz
75% a iS
I 129 3 76
I 189 47.4%
50% »
72.4% 377
25%
0% +
Unw eighted Pipeline Weighted Pipeline
mDVLA PS DwpP HMRC UKBA Other
250
I [Cumutative (2012/13 ~ 2016/17) Target
Target = £525m £200m
200 - I Unweighted Pipeline = £577m (1.1x) Target
Weighted Pipeline = £275m (0.5x) £150m
150 Target
£100m
Target
100 £50m
Target
£25m
50
79 7
76 36 68
24
o-
12113 13/14 14/15 15/16 16/17
mm Unw eighted Pipeline
Weighted Pipeline
POL has recently introduced a structured approach to
business development in Government Services, which
is summarised by its “Prospect List”, or pipeline
— scope ranges from known tenders to new areas /
services where POL is actively marketing to OGDs
— still in development, with POL continuing to identify new
opportunities, and audit aged ones
POL’s Government Services pipeline is currently valued
at £960m unweighted, and £572m weighted
— split across a number of Government departments,
including DVLA (£377m or 66% weighted), IPS (£75m or
13% weighted) and DWP (£72m or 13% weighted)
— key individual contracts include: DVLA front office
services (£240m or 42% weighted); UKBA IPS online
passport applications (55m or 10% weighted)
For POL to meet the targets set out in its business plan,
it needs to deliver new Government Services revenue of
£100m p.a. by 2014/15 and £200m p.a. by 2016/17
— management are conscious that the current pipeline is
not sufficient to meet these targets
— current focus is on increasing the “weighting factor”
across the pipeline and not the number of opportunities
— do not expect to meet this year’s target of £25m revenue,
however as a division Government Services is trading in
line with budget (i.e. stronger sales in existing areas)
The pipeline is dynamic, with new wins / losses
expected to impact weighting factors and the landscape
of future opportunities
— e.g. benefit of reference projects for customers /
technologies, framework agreements available to OGDs
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Executive
HM Government
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POL Quarterly Review — Follow-Ups to August Quarterly Review (conta)
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ANALYSIS OF
FINANCIAL
SERVICES
DEPOSITS
Total = 1.4m
Total = £17.1bn
~ - TRE
100%
18.4%
75%
50%
25%
0% po
# Deposits # Depositors
m< £50,000 £50,000 - £85,000 > £85,000
i eee
Deposits Depositors Avg. (mean) Avg. (median)
(£) (# customers) (£ ‘000 per cust.) (£ ‘000 per cust.)
< £50,000 9.9bn 1,336k 7k 2k
£50,000 - £85,000 4.1bn 66k 62k 57k
> £85,000 3.2bn 24k 131k 100k
Total 17.1bn 1,426k 12k 3k
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HM Government
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POL Quarterly Review — Follow-Ups to August Quarterly Review (conta)
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2012/13 BUDGET
REFORECAST
+ POL have recently provided us with a reforecast of their 2012/13 budget, based on P1 — P4 trading performance
— management remain confident of meeting POL’s operating profit target of c.£84m for the 2012/13 year, although based on P1-P4
performance we believe that there is material upside risk to this - both in terms of revenue and cost performance
— forecasting net income to be c.£6m above budget (representing a c.£1m “gain” on P4 YTD). This is expected to be driven by stronger
performance in Financial Services (c.£2m ahead of FY budget and c.£6m ahead of P4 YTD) partially offset by 2Q-4Q results in Mails &
Retail (c.£5m below P4 YTD due to unwind of strong Q1 stamp revenues, but still c.:£3m ahead of FY budget)
- forecasting operating costs to be c.£4m above budget (representing a c.£12m “loss” on P4 YTD). This is understood to include c.£5m
“contingency” in Staff Costs and c.£2m “contingency” in Non-Staff Costs (i.e. suggesting upside-risk to the FY outturn)
— project costs, which are currently c.£11m ahead of budget are expected to finish 2012/13 c.£2m ahead of budget. Management expect
to reprioritise a number of initiatives in 2Q-4Q emphasising revenue generating projects ahead of internal improvement projects
2012/13 2012/13 Variance
Budget Forecast eect hmmm @P4vs. Budget [I YTD-to-Forecast
Mails & Retail 403.8 407.2 34 84 (.0)
Financial Services 274.7 276.9 2.2 (4.2) 65.
Government Services 139.9 140.2 03 0.2 O41
Telephony 45.7 45.7 (0.0) (0.0) 0.0
Other 33.8 33.8 0.0 1.0 (1.0)
POL Net Income 897.9 903.8 5.9 5.3 06
Memo: Staff Costs (268.9) (269.5) (0.6) 60 (6.6)
Memo: Non-Staff Costs (166.2) (169.8) (3.6) 28 (6.3)
POL Operating Profit (120.9) (118.8) 24 13.8 (11.7)
Financial Services JVs 32.6 32.6 0.0 (0.8) 08
Group Operating Profit (pre-POOC) (88.3) (86.2) 24 13.0 (10.9)
Project One-Off Costs (37.7) (39.8) (2.1) (11.3) 94
Group Operating Profit (post-POOC) (126.0) (126.0) 0.0 18 (1.8)
Network Subsidy Payment 210.0 210.0 0.0 0.0 0.0
Group Operating Profit (post-NSP) 84.0 84.0 0.0 18 (1.8)
Memo: Net Income (incl. NSP) 1,107.9 1,113.8 5.9 5.3 0.6
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HM Government
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POL Quarterly Review — Follow-Ups to August Quarterly Review (conta)
+ POL is currently appointing the final non-Executive Director to its Board
— Tim Franklin has been identified (via ShEx - he has recently been appointed to Land Registry)
- he has financial services experience from Britannia and Co-op Bank (and therefore also a helpful background in mutuals)
— he met ShEx officials on 16 August, and we have recommended his appointment to Ministers
+ In the past week POL has parted company with its HR Director, Pauline Holroyd, who had been in her position since the start of
BOARD AND 2012. / = ~ SRO aoe es saa a
MANAGEMENT
+ In addition to her day-to-day role, Pauline was leading a number of workstreams related to cultural change, stakeholder relations
and finance which have now been reallocated to other members of POL’s senior management team
and reshuffle of — day-to-day talent management and the human resources elements of mutualisation have passed to Susan Crichton, Legal Counsel and
selected management Compliance Director
roles — stakeholder relations (e.g. CWU, Unite, NFSP) and people engagement have passed to Kevin Gilliland, Network and Sales Director, and
members of his team
— internal audit has passed to Chris Day, Chief Financial Officer, and his Finance team
+ ShEx believes that this reallocation of roles is a satisfactory interim solution, however we will monitor the performance of POL
closely to ensure that capability and / or resourcing gaps do not emerge — both in relation to ongoing talent management issues
but also key mutualisation and Crown transformation workstreams
Appointment of NED,
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Executive 6
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POL Quarterly Review — Update on Current Trading
YTD % YTD % 2011/12 2012/13 2013/14
Budget Variance Prior Year Variance FY Actual FY Forecast FY Forecast
Mails & Retail 128.0 6.5% 128.3 6.3% 387.5 407.2 407.2
Financial Services 95.3 (4.5%) 89.7 1.5% 261.5 276.9 262.4
Government Services 49.3 0.4% 50.3 (1.5%) 135.7 140.2 151.7
Telephony 15.6 (0.3%) 14.3 8.3% 414 45.7 53.7
Other 12.6 7.9% 12.3 10.5% 39.3 33.8 40.2
POL Net Income 300.8 18% 294.9 3.8% 865.3 903.8 915.3
General
+ Year to date Net Income performance is currently tracking c.2 per cent. ahead of budget for the year to July 2012 (i.e. first four months) and c.4 per cent. ahead of prior year
+ The main driver of performance compared to both budget and prior year has been the strong results in Mail & Retail and Other (i.e. High Value Mail, Cash in Transit and “Swindon
Stores”). Telephony has performed broadly in line with budget, however it is performing much stronger than prior year
Mails & Retail (£8.4m ahead of budget)
+ ¢.40 per cent. of the outperformance to budget was driven by 1st and 2nd Class stamps, which benefitted from the April price increases as customers “stockpiled”. This is expected
to unwind during the course of the year (management expect the main impact to be seen in the run up to Christmas, although signs have started to emerge in P4 / P5)
+ Labels, Special Delivery and Parcels also benefitted from higher than expected volumes, as did retail which experienced a higher than normal number of Lottery rollovers during the
period and strong demand for Jubilee and Olympic collectibles
Financial Services (£4.2m behind budget)
+ The delay to the signing of Project Eagle has been the main contributor to the underperformance of Financial Services compared to budget, although with this now signed, Bol will be
making a c.£2m settlement payment to POL in September to make up some of the year-to-date net income shortfall
+ Asmall number of other areas also underperformed (e.g. ATM Withdrawals, Moneygram and Postal Orders) although these were more than offset by strong results across much of
the rest of the portfolio — and in particular in Bill Payments and Counter Withdrawals
Government Services (£0.2m behind budget)
+ Broadly trading in line with budget and prior year although this masks a mix-effect where strong performances in Motoring Services (benefitting from an early price increase) and
Passports (which have seen strong volumes) have been offset by weakness in POCA (due to a fall in the number of accounts compared to budget, and weaker than expected LIBOR)
and AEI (where weak DVLA volumes are triggering minimum payments under POL’s contract)
+ However, despite weakness in the current year, AEl is still trading c.15 per cent. ahead of 2011/12
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POL Quarterly Review — Update on Current Trading (conta)
YTD YTD % YTD % 2011/12 2012/13 2013/14
Actual Budget Variance Prior Year Variance FY Actual FY Forecast FY Forecast
POL Net Income 306.1 300.8 1.8% 294.9 3.8% 865.3 903.8 915.3
Staff Costs (86.1) (92.1) (6.5%) (83.7) 28% (251.3) (269.5) (265.5)
Agents Costs (165.2) (163.7) 0.9% (167.7) (1.5%) (482.9) (484.9) (489.4)
Non-Staff Costs (49.4) (62.2) (5.3%) (48.5) 1.9% (149.2) (169.8) (184.9)
Interbusiness Expenditure (27.8) (28.3) (1.6%) (29.1) (4.5%) (84.9) (83.1) (83.8)
Depreciation (0.3) (0.3) 19.9% (0.1) 150.5% (0.4) (0.8) (0.5)
Group Overhead allocations (6.0) (5.8) (13.8%) (6.8) (26.7%) (19.6) (14.6) (15.0)
POL Operating Profit (27.8) (41.6) (33.2%) (41.0) (32.4%) (123.0) (118.8) (123.9)
Financial Services JVs 13.4 14.2 (5.5%) 12.8 4.7% 30.8 32.6 38.0
Group Operating Profit (pre-POOC) (14.4) (27.4) (47.5%) (28.3) (49.1%) (92.2) (86.2) (85.9)
Project One-Off Costs (18.6) (7.4) 152.8% (2.9) 532.8% (26.5) (39.8) (22.1)
Group Operating Profit (post-POOC) (33.0) (34.8) (5.1%) (31.2) 5.8% (118.7) (126.0) (108.0)
Network Subsidy Payment 71.3 71.3 0.0% 62.3 14.5% 180.0 210.0 200.0
Group Operating Profit (post-NSP) 38.3 36.6 4.8% 314 23.2% 61.3 84.0 92.0
Memo: Net Income (incl. NSP) 377.4 372.1 1.4% 357.2 5.7% 1,045.3 1,113.8 1,115.3
General
+ Year-to-date Group Operating Profit (post-NSP) performance is currently tracking c.6 per cent. ahead of budget for the year to July 2012 (ie. first four months) and c.23 per cent.
ahead of prior year (excluding the c.£9m increase in the NSP, it is tracking c.6 per cent. below prior year)
+ Compared to budget, this performance is due to a combination of higher than expected sales, and costs coming in below budget, mostly offset by high levels of Project Costs
Costs
+ Year-to-date total costs are currently c.£8m below budget and c.£2m below prior year, with performance compared to budget explained by lower Staff Costs (high number of
vacancies in Central and “Strengthening”) and Non-Staff Costs (low Consumables, Legal and IT spend)
+ The performance of Agents Costs compared to budget is mainly the result of higher contracted payments to sub-postmasters due to the strong performance in Mails & Retail
Project Costs
+ Project Costs are currently materially ahead of budget, as momentum established behind a variety of initiatives during 2011/12 has continued into 2012/13. However, management are
able to control this spending and they expect to reprioritise a number of initiatives, to focus on revenue generating projects, later in the year
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Executive 8
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POL Quarterly Review — Crown Income Statement
YTD YTD % YTD % 20112 2012/13 2013/14
Actual Budget Variance Prior Year Variance FY Actual _ FY Forecast__ FY Forecast
Attributable Variable Net Income 36.2 34.0 3.4% 344 12.0% 91.4 98.5 na.
Staff Costs (40.1) (41.1) (2.4%) (40.8) (1.7%) (119.2) (117.5) na.
Property Costs (11.5) (12.8) (10.0%) (13.0) (11.5%) (41.8) (39.0) na.
Non-Staff Costs (2.0) (2.3) (14.7%) (2.4) (16.2%) (6.3) (68) na.
Infrastructure Costs (2.9) (9.8) 1.6% (0.8) 1.0% (29.0) (31.8) na.
POL Crown Operating Profit (28.4) (31.9) nm. (34.6) nm. (104.9) (96.6) na.
Financial Services JV Income 35 37 (5.4%) 38 (9.2%) 92 98 na.
Group Crown Operating Profit (24.9) (28.3) nm. (30.8) nm. (95.7) (86.8) na.
Allocated Costs (2.5) (2.3) 9.6% 14 nm 12.6 (7.0) na.
Allocated Fixed Net Income 13.4 12.9 1.9% 13.3 (1.5%) 40.2 42.3 na.
Retention Income 24 42 (50.9%) 14 85.2% (3.5) 12 na.
Group Crown Operating Profit (pre-POOC, exceps.) (12.2) (13.8) nm. (14.9) nm. (46.4) (40.3) na.
General
+ Year-to-date Group Crown Operating Profit (pre-POOC, exceps.) performance is currently tracking c.£1m ahead of budget for the year to July 2012 (i.e. first four months) and £3m
ahead of prior year (Note: No NSP allocation is made to the Crown P&L)
+ Attributable Variable Net Income (i.e. excluding allocation of Allocated Fixed Net Income, which is accounted for at POL level) is stronger year-on-year, due to increased Mails & Retail
revenue and a shift between Allocated Fixed Net Income and Attributable Variable Net Income. This shift has mainly come about due to the terms of the new contract between POL and
Royal Mail, which has increased emphasis on variable earnings
+ Compared to budget, the performance of Crown Net Income (i.e. Attributable Variable and Allocated Fixed Net Income) is broadly in line with POL Group performance (i.e. c.3 per cent.
ahead of budget)
+ Costs have been managed carefully with all key categories, excluding Infrastructure spend (due to a marked increase in Network Equipment and Helpdesk Contact costs), coming in
under budget. These cost categories were also below the level at the same time in 2011/12
New Crown Strategy
+ ShEx has been working closely with POL to develop its strategy to bring the Crown network to break-even before March 2015. The developing strategy focuses on 5 key areas: new
income generation (c.£19m); product retentions / renewals (c.£5m); staff cost savings (c.£18m); property savings (c.£4m); and targeted franchising (c.£6m)
Shareholder
Executive
HM Government
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POL Quarterly Review — July Key Performance Indicator “Scorecard”
7 Current Month Year to Date Full Year 2011-12
Key Performance Indicators
Act Target Var Act Target Var IPriorYear} Ficast Target Var Outturn
Growth
Total Revenue (excluding NSP) £m (Bonus) 96.0 95.8 346.1 340.5 334.5 1,023.4 1,015.8 7.6 979.7
Total Net Income (excl NSP) £m 84.2 85.0 306.1 300.8 294.9 903.8 897.9 5.9 865.3
Operating profit £m (Bonus) 10.2 12.3 38.3 36.6 34.1 84.0 84.0 (0.0) 61.3
Free cashflow £m (122.2) (135.5) 2677 © 215.8 (59.3) I (85.3) (85.3) 0.0 (15.0)
Collections & Returns ability to serve RM (Milestones) 0 1 0 2 N/A 8 8 0.0 NIA
FOG bid wins (value won) (Rev £m) 0.7 1.0 2.0 3.9 N/A 10.7 11.7 (1.0) N/A
Customer
Customer Satisfaction 86.0% 88.0% 85.0% 88.0% 85.2% 88.0% 88.0% 0.0% 86.9%
IQueue time % < 5 minutes - Top 1k branches (Bonus) 83.2% 79.5% 76.8% 76.7% 75.1% 78.9% 78.9% 0.0% 77.8%
Welcome & Farewell - (mystery shopped) - Top 1k branches I 79.9% 85.9% 83.7% 85.9% 80.6% 85.9% 85.9% 0.0% 81.5%
Call Centres 3D (Bonus) 105.6% 100.0% 103.1% 100.0% 100.4% I 100.0% 100.0% 0.0% I 105.5%
Retail Standards (actual) - Top 1k branches 85.8% 84.9% 85.8% 84.9% 83.4% 84.9% 84.9% 0.0% 84.1%
Horizon availability 99.7% 99.6% 99.8% 99.6% 99.9% 99.6% 99.6% 0.0% 99.5%
Branch - Compliance (new basket) 96.9% 95.0% 97.5% 95.0% N/A 95.0% 95.0% 0.0% NIA
Modernisation
Crown Profit £m (Bonus) (3.9) (3.1) (12.2) (13.5) N/A (40.3) (40.3) 0.0 (46.4)
Engagement Index % (Once a year) 64% 65% 64% 65% 58% 65% 65% 0.0% 64%
Network Conversions (Mains & Locals) (Bonus) 14 10 225 230 N/A 1200 1200 0 184
IT Transformation (Milestones) 2 1 7 8 N/A 12 12 0 N/A
Bonus worthy metrics
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POL Quarterly Review — Traffic Light Analysis
Shareholder Relationship
There is a good and constructive relationship with the new Chair, and a strong relationship with the CEO who
has demonstrated her clear commitment to POL's strategic plan. The new NEDs are challenging
management, and this relationship will deepen further once the current recruitment process for a new NED
with financial services experience is complete.
Implementation of Shareholder
Model
Generally strong application of a shareholder model, with appropriate monitoring structures in place — this
includes frequent dialogue with management. However, policy and shareholder roles are combined.
Quality of Management Team &
Board
POL's management team have a strong track record of defending revenues and managing costs. However, in
order to meet the business plan targets, they will need to deliver a transformational strategy, at scale, which
also includes generating considerable new revenues. It is not clear yet whether they have the right skillsets /
capabilities to achieve this.
ShEx are working closely with management to monitor the performance of the business, and provide support
where appropriate / possible. Also, a succession plan is currently being developed by Paula Vennels for areas
of POL where there is no clear replacement for senior management.
Strategy
HMG requires that POL maintains a network of 11,500 outlets - significantly in excess of what it would
maintain on a commercial basis - which means that the business has to rely on Government subsidy. Without
this external funding, and in its current form, POL would not be a going concern.
POL's strategy is credible but extremely ambitious, both in terms of its scale (e.g. transformation of the
Network) and focus (e.g. growth in new revenues). However ShEx is monitoring the business closely, and is
also working with management where appropriate to ensure that it has best possible chance of succeeding.
Financial Performance
The obligations placed on POL by HMG mean that the business is loss making at a net profit level (it is also
loss making at an operating profit level, pre-subsidy). As a result it is not considered to be a going concern, ex-
subsidy.
POL's financial performance is monitored closely by ShEx on a monthly basis, and sessions are held with
divisional management (both revenue and cost) to understand current trading and near term outlook in more
detail.
Balance Sheet and Risk
POL has a business plan in place, and it is funded to deliver this strategy. However POL is only a going
concern due to Government subsidy, and makes losses which means it is unable to pay dividends (both
today, and likely in the medium term also). ShEx monitors the business closely to ensure that it is meeting its
targets and that any issues are identified and addressed early on.
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Executive
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A Provisional Mutualisation
Stakeholder Groups
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POL Quarterly Review — Provisional Mutualisation Stakeholder Groups
Core Stakeholder Forum Customer Voice Working Group
Paula Vennels (Chair) CEO, POL Mike O’Connor (Chair) Chief Executive, Consumer Focus
Mervyn Jones Commercial Director, NFSP Tom Wright Chief Executive, Age UK
Andy Furey Assistant Secretary, CWU. *Gillian Guy Chief Executive, Citizens Advice Bureau
Brian Scott Assistant National Secretary, Unite tbc] British Youth Council
Will Gibson ShEx Kevin Gilliland Network Director, POL
Mike O'Connor Chief Executive, Consumer Focus Peter Couchman Chief Executive, The Plunkett Foundation
Tom Wright Chief Executive, Age UK Graham Biggs Chief Executive, Rural Services Network
Nicholas Kroll Director, BBC Trust Barney White-Spunner Executive Chairman, Countryside Alliance
Peter Hunt Chief Executive, Mutuo Justine Roberts Chief Executive, Mumsnet
Gillian Guy Chief Executive, Citizens Advice Bureau Liz Sayce Chief Executive, Disability Rights UK
Geoff Mulgan Chief Executive, NESTA Peter Vacary-Smith Chief Executive, Which?
[tbc] British Youth Council [tbc] Local Government Representative
Susan Barton Strategy Director, POL [tbc] Central Government Representative
Business Design Working Group Other Context Working Group
Susan Barton (Chair) Strategy Director, POL %* Geoff Mulgan (Chair) Chief Executive, NESTA
& Mervyn Jones Commercial Director, NFSP © Will Gibson ShEx
& Andy Furey Assistant Secretary, CWU ® Nicholas Kroll Director, BBC Trust
% Brian Scott Assistant National Secretary, Unite * Clive Davenport National Federation of Small Businesses
it i it
tba ‘ “ ; * BO Haman Peter Couchman Chief Executive, The Plunkett Foundation
Will Hutton The Work Foundation
James Lowman Chief Executive, Assoc. of Conv. Stores David Erdal Independent Consultant
Dave Thomas Director McColls Chris Jones Finance Director, Welsh Water
Neil Blytheway Director, One Stop Graeme Nutall Independent Consultant
Barry Wallace Retail Development Controller, Spar UK Patrick Lewis Partners’ Counsellor, John Lewis
lan Sanders Comm. Development Director, WH Smith Ed Mayo Secretary General, Co-operatives UK
Patrick Burns Independent Consultant Peter Marks Chief Executive, The Co-operative Group
John Clough Director, The Eaga Partnership Trust
Belinda Crowe Independent Consultant Mark Davies Communications Director, POL
S h are’ A fe) I d er yk = member of “Core” Stakeholder Forum
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A Themes from
August Quarterly Review
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POL Quarterly Review — August Themes
NETWORK
TRANSFORMATION
POL must introduce
4,000 new “Main” POs
and 2,000 PO Locals by
March 2015
CROWN STRATEGY
POL must bring its
network of Crown POs
to break-even by March
2015
FRONT OFFICE FOR
GOVERNMENT
POL must deliver
£100m new HMG
services revenues by
March 2015
FINANCIAL
SERVICES
A range of initiatives to
grow in this market
Management remain confident that the Company is on track to meet its post office conversion targets for 2012/13 and future years
— >2,000 visits to post offices have already taken place, with the first on-site conversions expected to commence in September
Currently negotiating a MoU with Consumer Focus, who will monitor a community dialogue process for off-site relocations”
— Management have assured us that the risk of this delaying the implementation of the NTP is low
ShEx has an active dialogue with POL in relation to the NTP and, as the programme progresses, this will develop further
including:
— Monitoring the possible impacts of the NTP on POL’s mutualisation process and its stakeholders; and
Pol TS developing a new Strategy to eliminate Crown losses of CE8Om pa (RN pay deat an
rethink)
— Five key areas: additional income; product renewals/retentions; lower staff cost; property savings; targeted franchising
Currently downside risk on new income growth with some (probably lesser) upside potential around property
— Contribution from income growth of c£20m builds on Bank of Ireland pricing renegotiation but may rely on too much volume growth
mn POL-iS- reviewing. its. property. portfolio.and.is.in.touch.with.the.VOA (after.the last quarterly. review).—.c£4m.saving-may- be.pessimistic.
POL is currently working on a number of major initiatives to meet its strategic plan revenue growth forecast:
— DVLA: c.£60m pa framework tender in advanced stages (currently c.£30m pa) with announcement expected in September; open to
OGDs
— Identity Assurance: Result of first Cabinet Office digital delivery tender, IDA for Universal Credit, expected mid-September
— LA Pathfinders: Programme run with 25 LAs has had some success but management believe that the LA opportunity is currently limited
— Assisted Digital: Active dialogue with Cabinet Office regarding assisted digital; DVLA may look to launch a procurement soon
-— POCA/ Universal Credit: Uncertainty around POCA given Universal Credit developments; DWP delaying making decision on way
forward
New. business.development capability, led by a new.sales.director.and.a.team.of.proposition developers. /.relationship.managers.
On SAiigisst/ Qing igne dlasetywctmb@tttw ithpB oft wihit movitiapsres thes énietingng\is tr ubtueenimtn a Sdrlatesalvodntractual
relationship
— New terms include: more favourable commissions (up to £20m pa higher net income); an extension by 3 years to 2023; stronger
termination rights; a commitment from Bol to a fixed marketing budget; and a commitment from POL to improve its sales capabilities
POL is also developing pilots (expected launch in October), for budgeting, standard, and premium transactional bank accounts
— Critical capability for POL to develop, given the role these may play in relation to securing Universal Credit work
Shareholder
Executive
HM Government
(1) Consumer Focus also need to be made aware of on-site conversions although they will be no community dialogue process in relation to these
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POL Quarterly Review — August Themes (conta)
OTHER
COMMERCIAL
DEVELOPMENTS
STRATEGY
PLANNING AND
“KPI DASHBOARD”
MUTUALISATION
HMG’s consultation
response has been
published. Must now
build consensus around
POL’s purpose, define
financial stability and
foster cultural change
BOARD AND
REMUNERATION
POL’s Board is nearly
complete and pay
discussions are in
progress
Management continue to progress a number of strategic initiatives that formed part of the 2010 plan
— New telephony contract with Fujitsu enables POL to offer mobile (and potentially IPTV); sim-only offer expected to launch shortly
— Competing product to Collect+ (service from Yodel and PayPoint), in collaboration with Royal Mail, scheduled to launch in 2013/14
— Arange of IT programmes, including improved management information reporting and an open-architecture ePOS system
POL is expected to initiate the development phase for its new strategic plan in September
— ShEx will work closely with management, to ensure POL is developing a credible plan aligned to the needs of the Spending Review and
State Aid processes (e.g. outstanding NTP and Crown deliverables, and assessing alternative approaches to targeting funding)
As discussed in the last review, the ShEx team has also been working with management to develop a series of “Dashboards”.
Appendix 2 sets out the Business Scorecard and Appendix 3 an example of an underlying programme dashboard (for NTP)
The Government’s 4 July consultation response received a broadly positive reception from stakeholders
— However some concerns were also raised following publication, including: the need for POL to be financially sustainable; the balance of
representation in a mutual POL’s membership; and the lack of a firm mutualisation roadmap
BIS Select Committee’s July report on the Network Transformation Programme (“NTP”) echoed similar concerns
— NTP may impact the ownership-mix across POL’s network, with implications for an “appropriate” mutualisation model
— Italso called for a “clear road-map for change”
The ShEx team is engaging with POL on next steps, with a first meeting of the POL Stakeholder Forum expected in September
— This will seek to define POL’s “Public Benefit Purpose” and will also engage stakeholders’ concerns on other workstreams (e.g.
governance, financial stability) being progressed over the summer.
POL is currently appointing the final non-Executive Director to its Board
— acandidate with financial services experience has been identified (via ShEx - he has recently been appointed to Land Registry)
— He is meeting ShEx officials on 16 August, following which we hope to recommend his appointment to Ministers.
We are also developing the executive remuneration framework — discussions focus on quantum with broad agreement on metrics
— Base pay: Norman Lamb has written to POL’s Chair suggesting this be held while execs demonstrate a track record post-independence
— LTIP: Metrics for POL MD's current LTIP are being changed from RM ones to POL ones. Discussions continue over LTIP from 2012.
— STIP: Discussions over potential payouts for 2012 continue.
Shareholder
Executive
HM Government
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A Supporting Financial
Information
Shareholder
Executive
HM Government
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POL Quarterly Review — Net Income Breakdown
Mail & Retail YTD YTD % YTD % 2011/12 2012/13 2013/14
Actual Budget Variance Prior Year Variance FY Actual FY Forecast FY Forecast
Parcelforce 62 55 12.8% 58 5.6% 18.3 18.1 na.
Special Delivery 18.1 16.9 6.9% 179 1.1% 53.3 514 na.
International Priority & Standard 11.3 115 (1.6%) 9.4 19.9% 29.9 36.8 na.
Stamps (1st & 2nd Class) 13.7 10.2 34.1% 9.3 47.1% 318 35.4 na.
Labels (1st & 2nd Class) 34.4 32.6 5.3% 27.5 25.0% 83.9 100.4 na.
RM Mail Fixed 19.7 19.7 0.0% 30.5 (35.5%) 88.1 63.6 na.
Retail & Lottery 15.3 13.5 12.7% 148 2.9% 42.2 43.1 na.
Mails Other 177 18.0 (1.3%) 129 37.3% 39.9 58.4 na.
POL M&R Net Income 136.4 128.0 6.5% 128.3 6.3% 387.5 407.2 407.2
Government Services YTD YTD % YTD % 2011/12 2012/13 2013/14
Actual Budget Variance Prior Year Variance FY Actual FY Forecast FY Forecast
Motoring Services 12.0 10.7 12.5% 124 (2.6%) 32.3 316 16.4
Card Account 23.0 23.8 (3.5%) 23.9 (4.1%) 70.2 68.4 63.3
Passport 9.2 85 7.9% 85 8.3% 18.8 19.5 in other
AEI (DVLA & UKBA) 42 5.0 (17.0%) 36 15.2% 11.0 17.2 18.8
Other Government Services 14 13 (10.3%) 19 (39.3%) 34 36 53.2
POL GS Net Income 49.5 49.3 0.4% 50.3 (1.5%) 135.7 140.2 161.7
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Executive
HM Government
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POL Quarterly Review — Net Income Breakdown (conta)
Financial Services YTD YTD % YTD % 2014/12 2012/13 2013/14
Actual Budget Variance Prior Year Variance FY Actual FY Forecast FY Forecast
Bill Payment (incl Ticket & Travel) 14.0 12.6 11.0% 14.3 (2.3%) 40.5 39.6 35.9
Payout 02 0.3 (45.4%) 0.1 54.7% 0.2 09 in bill paym.
Postal Orders 79 8.3 (4.8%) 8.4 (5.9%) 25.6 23.8 24.3
Fin Servs opportunities and projects 0.0 04 (100.0%) 0.0 na. 0.0 12 0.0
MoneyGram 49 5.2 (6.2%) 49 0.8% 14.4 15.6 15.0
Gift Voucher 0.5 05 (11.6%) 0.3 40.0% 0.9 2.9 in bill paym.
Banking Services 9.8 88 11.8% 85 15.5% 25.3 28.2 24.7
DwpP 1.5 1.2 20.8% 26 (43.1%) 79 4.0 0.0
NS&l 46 44 2.7% 5.6 (18.1%) 16.6 13.3 5.0
A&L Business Banking 11.8 11.8 (0.1%) 11.9 (0.8%) 34.2 34.3 26.0
ATM 10.3 11.0 (6.5%) 10.2 1.5% 29.3 317 32.0
Bureau (excl profit share) 8.9 9.4 (5.2%) 9.0 (1.2%) 24.1 23.5 27.3
Travel Insurance 45 4.2 5.1% 5.0 (11.7%) 8.9 87 14.9
POFS - Savings 63 11.9 (47.2%) 5.1 22.2% 15.7 31.9 nm.
POFS - Insurance 15 1.2 24.3% 17 (11.4%) 46 49 nm.
POFS - Lending 09 1.5 (38.9%) 0.7 32.5% 1.8 44 nm.
POFS Other 2.2 08 169.9% 08 169.9% 0.0 4.0 52.3
Miscellaneous (A&L - CLS, Debit Card, Bureau kiosks) 1.2 1.5 (15.4%) 04 215.1% 11.5 4.0 5.0
POL FS Net Income 914 95.3 (4.5%) 89.7 1.5% 261.5 276.9 262.4
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HM Government
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POL Quarterly Review — Staff and Non-Staff Cost Profile
Staff Costs YTD YTD % YTD % 2014/12 2012/13 2013/14
Actual Budget Variance Prior Year Variance FY Actual FY Forecast FY Forecast
Central (inc MD's office) (15) 62) (71.7%) (1.5) (2.1%) na. (17.3) na.
Commercial (2.1) (2.2) (5.0%) (1.6) 29.1% na. (6.7) na.
Communications (0.6) (0.6) (2.9%) (0.2) 224.9% na. (1.9) na.
Human Resources (1.6) (1.7) (5.9%) (2.5) (35.5%) na. (6.2) na.
HR - Centrally Held Bonus Payments (5.9) (6.9) 0.0% (4.4) 33.3% na. (17.7) na.
Financial Services (0.6) (1.6) (59.1%) (0.5) 37.3% na (3.5) na.
Finance (3.2) (3.3) (2.3%) (3.2) 2.6% na. (9.9) na.
Network (64.8) (65.5) (1.1%) (64.5) 0.3% na. (189.2) na.
Supply Chain (18.9) (18.9) (0.1%) (17.8) 6.4% na. (54.9) na.
Crowns (39.3) (40.5) (2.9%) (40.1) (1.9%) na. (115.0) na.
Other Network (6.5) (6.0) 7.8% (6.7) (2.6%) na. (19.3) na.
Legal (1.6) (1.9) (13.6%) (1.4) 13.2% na. (5.4) na.
Programme costs (0.0) 0.0 na. (0.0) 11.1% na. 0.0 na.
Strategy (4.2) (4.3) (2.7%) (3.9) 6.7% na. (12.8) na.
C&IS / Managed Services (4.0) (4.0) (2.0%) (3.7) 7.7% na. (12.1) na.
Strategy / Programme office (0.2) (0.2) (16.2%) (0.2) (9.6%) na. (0.7) na.
POL Staff Costs (86.1) (92.1) (65%) (83.7) 28% (251.3) (269.5) (265.5)
Non-Staff Costs YTD YTD % YTD % 2011/12 2012/13 2013/14
Actual Budget Variance Prior Year Variance FY Actual _ FY Forecast _ FY Forecast
Computers & Telephones (238) (25.1) (4.9%) (255) (6.5%) na. (64.1) na.
Other Operating Costs (6.7) (6.0) 12.0% (6.5) 2.5% na. (20.7) na.
Consultancy, Marketing & Legal Fees (7.6) (6.3) 20.6% (3.4) 122.6% na. (18.4) na.
Skills Group external contractors (4.0) (0.7) 510.3% (0.0) nm. na. (1.4) na.
Remainder (3.5) (5.6) (37.0%) (3.4) 4.6% na. (17.0) na.
Finance (5.7) (4.7) 20.7% (6.5) 3.5% na. (16.7) na.
Property Facilities (1.9) (2.3) (16.6%) (1.7) 12.7% na. (7.2) na.
Property Maintenance (2.1) (1.8) 15.8% (1.7) 27.6% na. (5.5) na.
Vehicles (0.8) (0.8) 3.6% (0.6) 27.6% na. (2.3) na.
Compensation (0.4) (0.3) 6.5% 0.0 nm. na. (1.0) na.
Collection, Delivery & Conveyance Charges (0.4) (0.3) 28.0% (0.3) 46.3% na. (0.9) na.
Staff & Agent Related Costs & Consumables 0.0 (4.6) (100.4%) (3.3) (100.5%) na. (12.9) na.
Skills Group off-charges to projects 51 1.3 286.2% 17 200.4% na. 44 na.
Remainder (5.1) (5.9) (13.8%) (§.0) 1.1% na. (17.3) na.
POL Non Staff Costs (49.4) (52.2) (5.3%) (48.5) 7.9% (149.2) (169.8) (184.9)
Shareholder
Executive
HM Government
20