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Post Office Limited — Strictly Confidential
POLB 13(3")
POLB 13/14-13/25
POST OFFICE LIMITED
(Company no. 2154540)
Minutes of a Board meeting held on 20 March 2013
at 148 Old Street, London EC1V SHQ
Present:
Alice Perkins Chairman
Neil McCausland Senior Independent Director
Tim Franklin Non-Executive Director
Virginia Holmes Non-Executive Director
Alasdair Marnoch Non-Executive Director
Susannah Storey Non-Executive Director
Paula Vennells Chief Executive
Chris Day Chief Financial Officer
In attendance:
Kevin Gilliland Network and Sales Director (item 13/14)
Nick Kennett Financial Services Director (item 13/15)
Paul Havenhand Head of Insurance and Travel (item 13/15)
Jeremy Law Head of FS Sales Strategy (item 13/15)
Sue Barton Strategy Director (item 13/16)
Sarah Hall Head of Financial Control and Compliance (item 13/18)
Alwen Lyons Company Secretary
POLB 13/14 INTRODUCTION
(a) A quorum being present, the Chairman opened the meeting and
welcomed Kevin Gililland.
The Board congratulated and thanked Kevin Gilliland and his team for
delivering the 1200 Network conversion target. Kevin Gilliland accepted
the thanks on behalf of his whole team and recognised the support of the
Board through what had been a challenging year.
Kevin Gilliland left the meeting
Susannah Storey informed the meeting that she had resigned from her
role in the Department of Business, Innovation and Skills (BIS) to take up
the position of Director of Strategy and Change at the Department of
Energy and Climate Change (DECC). Her new role would not affect her
position on the Post Office Board, but she would relinquish her role at the
ARC after today’s meeting.
POLB 13/15 FINANCIAL SERVICES 2020 STRATEGY
Nick Kennett, Paul Havenhand and Jeremy Law joined the meeting.
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(a) Nick Kennett introduced the Financial Services 2020 Strategy with the
objective of creating a challenge brand in the FS market place. He
recognised that the plan was ambitious, but in his view achievable, and
explained that the strategy was built in separate steps each of which
would return to the Board for sign off as appropriate. His ambition is to
build the capability in the Business and take more control of the value
chain for products as existing contracts expire and therefore create
additional customer benefit and profitability for the Post Office.
(b) The Board discussed the phasing approach using changes in the Travel
Insurance model to establish the foundation for the strategy.
(c) Phase 1
The proposal to bring Travel insurance ‘in-house’ as opposed to
outsourcing was debated and the CFO explained that the decision would
be part of the wider outsourcing work. The Board discussed and agreed
that it might make sense to bring the work in house to resolve any issues
before out-sourcing. The Board stressed the need to retain ownership of
ACTION: Nick the Brand and customer but asked the CEO to consider fully whether
Kennett running such operations were a core competence of the Business, to be
reviewed at sign-off for phase 1.
(d) Phase 2
Nick Kennett explained the process for any buy-out of Bank of Ireland's.
(Bol) interest in insurance which had been agreed as part of the Eagle
ACTION: Nick negotiations. The Board supported early exploratory discussion with the
Kennett Bol and using KPMG to establish the possible value. Nick Kennett would
return to the Board in July having explored the options.
(e) Phase 3
Paul Havenhand explained the advantages of using a standard
technology insurance platform and integrating general insurance onto
that platform and away from the Junction contract. The Board supported
the Insurance phasing and asked for more pace where possible. The
Board was disappointed that more cross- pillar products would not be
included and asked for more work to undertaken to accelerate the
customer database which was planned for 2020.
ACTION: It was acknowledged that this was a wider IT and Horizon issue and the
Sue Barton/Lesley Board asked for a paper on IT Architecture and Customer Database
Sewell/ Nick Kennett Development, with particular focus on future FS requirements.
(f} I Sales Capability
Jeremy Law updated the meeting on the new sales structure and the
progress made with mortgage specialists and the sales process. He is
confident that the new structure will drive the sales capability in the
Business. The Board asked for reassurance that the line management
structure will still be focussed on compliant sales. It was explained that
although the first line manager was part of the FS sales structure and
therefore a trained FS specialist, the second line compliance oversight
was outside the FS structure and accountable to Susan Crichton, HR and
Corporate Service Director
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(g) Regulation
The Board asked if the changes in the Travel insurance structure would
change the regulatory environment for the Business. Paul Havenhand
explained that the Post Office is not a regulated principal in its own right,
and that the plan would not change this position. Tim Franklin stressed
that the regulator landscape was not clear and that regulators may at
some point deem distributors to be covered by regulation, at which point
the Post Office would be included. However any change in regulation
would affect the Business irrespective of the proposed plan.
(h) Current Account update
Nick Kennett updated the Board that the Bol have now agreed three out
of four of the proposed measures for evaluating the Current Account
pilot. The only area still to be agreed is the commercial impact. The
Chairman reported a conversation with Christopher Fisher, Chairman of
Bank of Ireland UK pic., who explained that this is a big investment for
the Bank which still requires Group approval. The CEO stressed the
seriousness of the issue and reassured the Board that the Business
ACTION: realised the importance of drawing the negotiations to a speedy
Nick Kennett conclusion. Tim Franklin proposed that if the negotiations do not reach a
satisfactory conclusion, the Business should consider procuring at
alternative platform.
(i) Investment requirement
The Board asked for a paper for the July meeting setting out the
ACTION: investment required for the FS strategy, including any effect on self-
Nick Kennett funding and state aid.
The paper should cover; Brand; IT (including interdependencies with the
IT transformation); People and Compliance
ACTION: The seven year P&L would also be produced showing the investment
Chris Day milestones.
(j) FS strategy
The Board asked Nick Kennett what his level of confidence was in
delivering the strategy. He was over 80% certain of delivering the
strategy and the revenue targets.
(k) The Board:
(i) endorsed the overall 2020 Financial Services Strategic Vision;
(ii) requested that the strategy be refined taking into account the ideas
raised at the Board;
(ili) cor ed that the Business should progress step 1 of the Insurance
plan, albeit keeping in mind the out-sourcing option
(iv) asked the Business to work out their ‘Plan B’ to take effect if the
strategy became impossible to deliver.
Nick Kennett, Paul Havenhand and Jeremy Law left the meeting
POLB 13/16 MUTUALISATION
Susan Barton joined the meeting
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(a) The paper on Mutualisation was discussed by the Board. The Chairman
reminded the Board of the Government's policy on Mutualisation, as
enshrined in the Postal Services Act, which meant that any strategy and
funding request needed to acknowledge this ambition.
(b) The CEO explained that the strategy and funding document would
highlight three areas which needed the Government's support;
(i) funding to complete modernisation of the Network;
(ii) a long term funding agreement for unprofitable branches; and
(iii) a more planned non-voluntary approach to Network
Transformation
(c) She explained that the Post Office’s support for mutualisation could be
important for achieving the funding agreed. The Board believed that the
funding was needed to achieve financial sustainability and turn around
irrespective of mutualisation, but accepted the reason for linking the
funding and mutualisation.
The Board stressed the need for the Government to agree the definition
of ‘financial sustainability’, and the financial pre-conditions required
before mutualisation, and for these to be made public.
ACTION: (d) It was agreed, that the Business should ask Rothschilds to update their
Chris Day/ Susan report to include the new strategy and get their view on sustainability and
Barton balance sheet requirements in the light of this, within a tightly managed
set of Terms of Reference and budget.
Susan Barton explained mutualisation Option 2 in the paper and the
areas it covered:
(e) Internal Engagement
The Board agreed that the work on engagement should progress with
pace
(f) Stakeholder Forum — Public Purpose of the Post Office
Two draft definitions of the Public Purpose of the Post Office are to be
presented to the Stakeholder Forum on the 22" March for discussion.
The CEO assured the Board that the Forum would consider their
effectiveness for a successful commercial business. The Board stressed
the importance that the Public Purpose statement should not hamper the
ACTION: Business in driving the turn around and achieving financial sustainability.
Company Secretary The Board would need sufficient time to consider the proposal during the
summer, well before they were asked to agree the draft which resulted
from the consultation exercise.
(g) Governance
ACTION: The Business was asked to consider its future stakeholder engagement
Sue Barton and the most effective meeting structure to be put on place.
It was agreed that the word ‘Trust’ in Option 2 be replaced by an
‘oversight body’, which could possibly be the Board or the ARC.
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(h) The Board confirmed that the strategic plan should be developed around
a revised version of Option 2 taking into account the Board’s discussions.
POLB 13/17 FINANCIAL PERFORMANCE UPDATE
{a) The CFO presented the monthly finance and performance report for
February 2013, which continued to show a strong operating performance
in the current year.
(b) He explained that the Crown Offices were on track to deliver their target
for this year and that he was now more confident that the Crown loss
could be reduced to a breakeven exit rate by the end of 2014/15,
following adoption of the ‘Plan B’ measures.
(c) The Board noted that the Government grant was underspent and asked if
this had any implications. The CFO assured the Board it would have no
effect on receiving the next funding or the State Aid position.
(d) The Board noted the Financial performance report for February 2013.
POLB 13/18 2013/2014 BUDGET
Sarah Hall joined the meeting
(a) The Board considered the proposed budget for 2013/2014, and noted the
actions that had been taken in response to the challenges given to the
Business by the Board at the Budget meeting held on 13 February 2013.
(b) The CFO reported that the Business had accepted the additional
challenge of keeping income flat despite the 53 week year effect by
holding a central target of £5m which would be allocated after the first
quarter, and which was counterbalanced by an additional £5m of ring-
fenced cost.
(c) The CFO explained that the budget assumed 1800 NT mains and locals
conversions next year but that any changes brought about by the
McKinsey modelling would not have a significant impact on the 2013/14
profit target.
(d) The Board asked the CFO to consider a measure of the underlying
ACTION: profit/(loss) exit rate at the year-end which flows through into next year,
Chris Day as this would give a good measure of progress and show the size of the
challenge in future years.
(e) The Board discussed the fluctuations in the operating cashflow and the
ability to forecast future requirements. Sarah Hall explained the volatility
caused to network cashflows over Easter and month ends and the CFO
assured the Board that he continues to monitor the position.
(f) The Budget for 2013/2014 was approved.
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(g) The development of the Key Performance Indicators for 2012-2013 was
noted and would return to the Board for sign off. The Board discussed
their preference to use Net Promoter Score (NPS) as the customer
measure instead of Easy TO Do Business With. The CEO explained that
this was a holding position for 2013/14 and that NPS would be tracked
through the year for use in 2014/15.
Sarah Hall left the meeting
POLB 13/19 CHIEF EXECUTIVE’S REPORT
(a) The Board noted the CEO's report and discussed the following specific
items:
(b) Project Rainbow
The CEO updated the Board and informed them that no action was to be
taken by the ICO, because of the fow risk and the actions taken at the
time. She assured them that the Business remained prepared to respond
if any further action was required.
(c) The CEO shared a letter from a Branch Manager supporting the stance
on the Branch pay and possible industrial action. She had also had the
same reaction from branch staff during a visit with the Minister.
(d) The quarterly meeting with Moya Greene CEO RMG had taken place and
click and collect had been discussed.
(e) The Health and Safety report, which included risk reduction activities,
appended to the CEO's report was noted.
POLB 13/20 MINUTES OF PREVIOUS MEETING AND MATTERS ARISING
(a) The minutes of the Board meeting held on 23 January 2013 were
approved for signature by the Chairman.
(b) The Status Report, showing matters outstanding from previous Board
meetings, was noted.
(c) The Board noted the minutes of the Pensions Committee meeting held
on 22 January 2013.
(d) The Board also noted the minutes of the Nominations Committee
meeting held on 7 November 2012.
(e) Minutes of the Remuneration Committee meeting held on 5 February
2013 had been circulated to members of the Board who had no personal
interest in the matters discussed. The minutes were noted by the Board.
(f} It was noted that the minutes of each of the above Committee meetings,
provided for information, had been formally approved by the relevant
Committee.
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POLB 13/21 TREASURY RISK MANAGEMENT
(a) The Board considered the proposed framework, policies and authorities
for Treasury Risk Management, which had been reviewed by the Audit,
Risk and Compliance Committee (“ARC”) in February 2013 and was
being recommended for adoption.
(b) The Board approved:-
(i) the Treasury Risk Management approach;
(ii) the Treasury Governance and reporting framework, including the
delegation of authorities to enable efficient Treasury operations; and
(iii) the Treasury Policies and authorities
POLB 13/22 ITEMS FOR NOTING
(a) The Board noted the update on the Front Office for Government
Programme. It was reported that a full Board Presentation and
discussion would be included on the May 2013 Board agenda.
(b) The Significant Litigation report was noted.
(c} The Board noted the Report on Sealings.
It was resolved that the affixing of the Common Seal of the Company to
the documents set out against items numbered 840 to 864 inclusive in
the seal register is hereby confirmed.
POLB 13/23 ANY OTHER BUSINESS
(a) It was agreed that the Board away day on the 18" and 19" June should
commence with a Board dinner on the 18" including a pre-dinner
speaker.
The following day would look at three areas:
(i) People- organisational design; the structure of the new business
ACTION: model; resource/people and talent management
Company Secretary (ii) Mails- what the world will look like in 5 to10 years and how we will
respond to the challenges.
(iii) A stakeholder session — involving 4-5 guests including SME
representative. To discuss a customer focussed issue.
POLB 13/24 CLOSE
There being no further business, the meeting was then closed.
I Alice Perkins I
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