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Post Office Limited — Strictly Confidential
POLB (13)2nd
POLB 13/02-12
POST OFFICE LIMITED
(Company no. 2154540)
Minutes of a Board meeting held on 23 January 2013
at 148 Old Street, London EC1V 9HQ
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:
Alwen Lyons Company Secretary
Sue Barton Strategy Director (items 13/04-13/06)
Harry Clarke Head of Customer Experience, Property and Modernisation (item 13/03)
Kevin Gilliland Network and Sales Director {item 13/03)
Martin Moran Commercial Director (items 13/04 &13/05)
Richard Surridge Head of Digital (item 13/04)
Angela Van-Den-Bogerd Head of Partnerships (item 13/03)
POLB 13/02 INTRODUCTION
A quorum being present, the Chairman opened the meeting.
POLB 13/03 NETWORK AND CROWN TRANSFORMATION PROGRESS AND
CROWN PAY PROPOSALS
(a) Kevin Gilliland introduced Harry Clarke and Angela Van-Den-Bogerd.
Network Transformation Progress
(b) The paper setting out the latest position on network transformation
was discussed. Kevin Gilliland felt more confident that the business
would hit the target of 1,200 conversions by the end of March 2013.
(c) He explained that the greatest risk remained with the multiple
partners. To mitigate this risk the business was negotiating
framework contracts with the multiples which would facilitate
individual office changes. Additional work was also being done with
the independents to make up any shortfall in the multiples.
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(d) Kevin Gilliland reported that the business had stress-tested the
implementation process, to ensure that it was robust as the volume
of changes increase to a peak of 70 per week. He explained that a
couple of areas had needed additional resource but this was now in
place and he was confident that the business and its suppliers were
ready for the higher throughput.
(e) Kevin Gilliland informed the Board that the 1,200 new branches were
planned to be fully inplemented by the end of June.
(f) The Board asked how the new models were performing. Kevin
Gilliland explained that the majority were seeing improvements in
retail sales, customer satisfaction and footfall with some excellent
coverage in the local and regional press. He recognised the need to
continue monitoring the new branches as core business declines and
the variable pay arrangements take effect.
ACTION: Chris Day (g) The CFO reminded the Board that he was undertaking analysis on
the remuneration changes in these branches which would be
reported back to the Board
ACTION:
Mark Davies (h) The Chairman asked about progress on the idea of a high profile
event suggested for early adopters. Kevin Gilliland explained that it
was being planned by the Communications Director.
(i) I The Board thanked Kevin Gilliland and his team for the excellent
progress, especially over the Christmas period.
Crown Transformation and Crown Pay Proposals
(j) _ Kevin Gilliland introduced the papers and explained that the Crown
transformation had made good progress this year, including job
reductions with union co-operation. However, the decline in FOoG
income had opened a gap of £11m in the Crown plan and this would
now mean moving to plan ‘B’ (which would rely heavily on staff co-
operation) to deliver the sales growth and savings.
(k) I The pay offer explained in the paper was constructed in a way to
minimise any adverse effect on the Crown P&L but to give the staff a
reward for delivering the transformational change.
Angela Van-Den-Bogerd emphasised that this would fall significantly
short of the unions’ expectations and might still lead to industrial
action. The unions and staff were used to receiving a consolidated
cost of living increase every year and these proposals would be a
move to unconsolidated payments in return for transformation.
(!) I The Board discussed the recommendation and questioned the
principle of a payment, as branch staff might appear to be overpaid
when compared with the market benchmark.
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(m) Angela Van-Den-Bogerd explained that the skills required were
changing. The benchmark being used was over simplistic.
If the pay deal being discussed was successfully implemented then
the staff base pay would be eroded over the three years in question,
leading to a consolidated self-funded pay rise only when the Crowns
were back to break-even.
(n) The Board asked if the fourth year of consolidated pay needed to be
included in the offer at this stage. Angela Van-Den-Bogerd explained
that this was a hook for the staff, to encourage their belief that if they
ACTION: supported the move back to profit, then they would be rewarded with
Kevin Gilliland a consolidated pay award. The Board asked the business to ensure
that clear and unambiguous commitments were laid out as part of
the pay deal.
(0) The Board enquired why the payment for transformation was being
paid in January before the year end, preferring a June payment after
the results of transformation were known. Angela Van-Den-Bogerd
explained that the January payment could be an interim payment but
felt that the staff would respond well to an offer which recognised
their effort.
(p) The Chairman stressed the need to ensure stakeholders (including
ACTION: RMG) understood the need for this approach to pay, and our resolve
Mark Davies/CEO not to change the offer under threat of industrial action. The CEO
Chairman suggested revisiting the Rainbow stakeholder plan, including a
conversation between the Chairman and RMG Chairman at an
appropriate time
(q) The Board asked if the business had a plan ‘C’ for the Crowns. The
CEO explained that plan ‘B’ already included circa 70 conversions
and that plan ‘C’ would probably push the business towards
closures.
ACTION: The Board stressed the need to look holistically at both Project Robin
Kevin Gilliland/ and the pay negotiations. Kevin Gilliland recognised that both pieces
Susan Crichton of work affected the same population and assured the Board that the
business would ensure they were managed in a joined-up way.
The Board agreed:
(i) the implementation of the Plan ‘B’ measures set out in the
paper, to keep the Crown transformation on plan to
achieve break-even by March 2015;
(ii) the pay approach for Crown staff and managers, as set
out in the paper;
(iii) the pay approach for non-Crown middie managers, as set
out in the paper;
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(iv) the funding request of £21.5m, made up of £17m over the
3 years 12/13 — 14/15 for unconsolidated payments and
c£4.5m for a consolidated pay agreement in year 4,
subject to achieving breakeven commitments; and
(v) that a stakeholder and communications plan should be
ACTION: drawn up covering the key points.
Mark Davies
The Chairman thanked Kevin Gilliland and his team for their work so
far. It was clear from the discussion that the Board’s resolve on the
agreed pay strategy was firm and the Board members would support
this in whatever way they could.
Kevin Gilliland, Angela Van-Den-Bogerd and Harry Clarke left the
meeting.
POLB 13/04 DIGITAL STRATEGY
(a) Martin Moran, Sue Barton and Richard Surridge joined the meeting.
Martin Moran presented the results of the Javelin study into Post
Office’s progress in expanding its digital and multi-channel offering.
(b) The Board supported the work proposed to deliver the multi-channel
strategy, but emphasised the urgency required. They asked for the
ACTION:Sue Barton/ reliance on digital development to be made clear in both the FS
Nick Kennett strategy and the wider strategic plan.
(c) The Board recognised that the business needed more focus on the
digital channel. A member of the Executive Committee should take
responsibility for digital, driving the changes in IT infrastructure and
product development to enable the delivery of the strategy.
(d) Concern was expressed about page 7 in the Javelin report which
presented a decline in some brand customer perception measures.
Martin Moran explained that these were recognised measures, which
were reported quarterly. The results included in the report were for
June 2012. The business believed there would be improvements in
the next results. The CFO suggested that these measures be added
ACTION: Chris Day to the Business Scorecard reported to the Board
(e) The Board agreed to the implementation of the Digital Programme,
asking for; a Champion on ExCo; to proceed with all urgency; to
ACTION: work in alignment with the strategic plan; and to bring updates on
Martin Moran progress back to the Board.
Richard Surridge left the meeting
POLB 13/05 MAILS UPDATE — NOTING PAPER
The Board asked for a discussion on the Mails noting paper.
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(a) Martin Moran explained that Mails and Retail were showing good
growth year on year and the P&L was doing well. Two areas, Click
and Collect and Failed Deliveries, were less well developed than had
been planned.
The Click and Collect setback was caused by a delay in the Post
Office developing a capacity model for its branches to enable RMG
to know where to drop its packets. There had also been a business
decision to prioritise Post & Go development which was needed for
Crown transformation ahead of Click and Collect. The Failed
Deliveries hoid-up was due to RMG not going ahead with Enquiry
Office closures.
ACTION: ({b) The Board expressed disappointment at these delays and asked the
Martin Moran business to look again to see what could be done differently
(including escalation and ooking again at the MDA as necessary).
Martin Moran left the meeting.
POLB 13/06 UPDATE ON COST REDUCTION AND BUSINESS EFFICIENCIES
(a) Progress in reducing costs within the business was discussed. The
CFO reported that all the savings in the 2012/13 plan would be
delivered and that a rigorous budget planning process had closed
the £48m cost savings gap for 2013/14.
(b) He reported that Capita were analysing possible cost savings in HR,
Finance, IT and Call Centres to give the business an idea of the
magnitude of the possible opportunities, including outsourcing. The
business would then consider its options to go out to market to
procure the cost reduction work,
(c) The Board discussed the additional investment required in the
strategic plan and asked the CFO how he would ensure the business
continued to drive down the cost base. The CEO suggested that
introducing a P&L for each product area would help to instil the
ACTION: Chris Day required rigour. The CFO said it was his intention to start by
introducing a FS P&L.
(d) Sue Barton explained that IT was the most significant investment in
ACTION: Chris Day/ the plan and that she and the CFO were producing an IT P&L to
Sue Barton ensure cross pillar efficiencies.
(e) The Board asked how a culture of cost control could be strengthened
at all levels in the business. It was suggested that the business
benchmark itself against the Utilities, as they use cost control to drive
their profit.
The CFO would return to the cost base at the February Board as part
ACTION: Chris Day of the strategic plan.
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Sue Barton left the meeting.
POLB 13/07 FINANCIAL PERFORMANCE UPDATE AND QUARTER 3
FORECAST
Financial Performance Update
{a) The CFO presented the monthly finance and performance report.
(b) He reported that written confirmation had now been received from
ShEx that the NT target for this year was 1,200 contracts signed by
the end of March 2013.
(c) The Board discussed the underspend on NT and Capex because of
the phasing on the NT plan and the possible underspend of the
Government grant at the year end. The Board asked the CFO to
ACTION: Chris Day/ check with ShEx what has to be reported to Brussels and to update
Susan Crichton the Board by email on the actions being taken.
(d) The CFO explained that the variance in FOoG income would be
evident in the Annual Report & Accounts and he was working with
Mark Davies on the messaging, which would come back to the Board
for their input. The Chairman informed the Board that she and the
CEO were meeting Danny Alexander and would have an opportunity
to engage him in promoting the opportunities for FOoG.
(e) The Board noted the Financial performance update.
Quarter 3 Forecast
(f) I The CFO had also circulated the Q3 reforecast of full year
performance. He noted that current expectations were for Post
Office to show improved performance with net deficit of £115m at 31
March 2013. Further improvement would be needed in the coming
year to deliver the profit target included in the strategic plan.
(g) The CFO explained that effective management had given the
business a VAT recovery benefit and that this would continue until
the RMH group was dissolved.
ACTION: Chris Day = (h) The ARC Chairman asked for a breakdown of the £3m W H Smith
provision.
(i) I The Board noted the forecast.
POLB 13/08 CHIEF EXECUTIVE’S REPORT
(a) The Board noted the CEO's Report.
(b) The CEO highlighted the excellent Christmas performance and the
support provided for the branches by colleagues from Head Office.
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(c) She explained that, as yet, nothing had appeared regarding Project
Rainbow but that the communication and stakeholder plan was ready
when required. The Deloitte’s gap analysis would be reviewed at the
ARC.
(d) The Health and Safety report appended to the Report was noted.
POLB 13/09 MINUTES OF PREVIOUS MEETING AND MATTERS ARISING
(a) The minutes of the Board meeting held on 21 November 2012 were
approved for signature by the Chairman.
(b) A point of clarification was raised regarding the SLA with ShEx
(POLB 12/118 (e)) and whether this was in fact an SLA. The
ACTON: Company Secretary was asked to confirm and send a note round to
Company Secretary the Board.
(c) The Status Report, showing matters outstanding from previous
Board meetings, was noted.
(d) The Board noted the minutes of the Audit, Risk and Compliance
Committee meeting held on 13 November 2012.
(e) The Board also noted the minutes of the Pensions Committee
meetings held on 14 and 27 November 2012.
(f) I Minutes of the Remuneration Committee meeting held on 10
December 2012 had been circulated to members of the Board who
had no personal interest in the matters discussed. The minutes were
noted by the Board.
(g) It was noted that the minutes of each of the above Committee
meetings had been provided for information and would be formally
approved at the Committee meetings planned for February.
POLB 13/10 CORPORATE GOVERNANCE REVIEW
{a) The Chairman introduced the Corporate Governance papers.
(b) Roles and Responsibilities of the Chairman and CEO.
The paper was circulated as a straw man as the Chairman would like
ACTION: ALL/ any Board input before she and the CEO discuss. Directors were
Company Secretary asked to feedback any input to the Company Secretary.
(c) The Board requested that the paper ‘Delegated Authorities for
Remuneration Matters’ be amended to make it clear that ShEx only
ACTION: needs to authorise the implementation of changes in remuneration
Company Secretary for Directors of the Company.
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(d) The Board requested that the ‘Board Terms of Reference’ be
ACTION: amended to show, ‘Setting the strategic direction of the Post Office’
Company Secretary as the Board's first and responsibility.
(e) The Chairman of the ARC asked that the Company's “whistle-
blowing” arrangements be reviewed at the ARC and not at the
ACTION: Executive Risk and Compliance Committee, and that the ARC terms.
Company Secretary of reference be changed to take this into account.
(f) I These changes having been made, the Board approved the revised
terms of reference for the Board, the Schedule of Matters reserved
for Board decisions, and the Board Sub-Committees’ Terms of
Reference.
(g) The Board agreed that the ARC should review in more detail the
ACTION: ARC/ corporate governance position and disclosures for the Annual Report
Company Secretary and Accounts.
POLB 13/11 ANY OTHER BUSINESS
(a) The Chairman updated the Board on the work being undertaken by
2" Sight to investigate the claims made against the Horizon system.
A cut-off date of the end of February had been given to JFSA
(Justice For Subpostmasters Alliance) and individual subpostmasters
to send in any cases, with 2” Sight aiming to complete their work in
the summer. To date there was no evidence to suggest fault.
POLB 13/12 ITEMS FOR NOTING
(a) The Significant Litigation report was noted.
(b) 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 834
to 839 inclusive in the seal register is hereby confirmed.
POLB 13/13 CLOSE
There being no further business, the meeting was then closed.
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