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POLB 05/01 - 05/19
Present:
Sir Michael
Hodgkinson
David Mills
lan Anderson
Alan Cook
Peter Corbett
Graham Halliday
Allan Leighton
David Miller
Gordon Steele
In attendance:
Jonathan Evans
Neil Owen
Ric Francis
Apologies:
Brian Goggin
POLB05/01
Post Office Limited
(company no. 2154540)
Minutes of the meeting of the Board
held at 80-86 Old Street, London
Held at 50-86 Old Street, London
on February 23"° 2005
Non-executive Chairman
Chief Executive
Human Resources Director
Non-Executive Director
Finance Director
Banking & Financial Services Director
Chairman, Royal Mail Holdings
Chief Operating Officer
Marketing & Direct Sales Director
Company Secretary
Notes
Operations Director
Chief Executive, Bank of Ireland
APPOINTMENT OF DIRECTORS
(a) The Board noted that the Royal Mail Holdings Board of
February 2005 had agreed to the nomination of Alan Cook
Chief Executive, National Savings and Investments, as non-
Executive Director of the Company and that consent had been
obtained from the Secretary of State. The Board unanimously
agreed to the appointment of Alan Cook as Non-Executive
Director of the Company, with effect from 23 February 2005.
(b) The Board agreed that, consent having been received from the
Secretary of State for Trade and Industry, Allan Leighton be re-
appointed as a Director of Post Office Limited for a three-year
period with effect from 25 March 2005 until 25 March 2008.
(c) The Chairman reported that he had become aware that a
suggestion may have been made by a DTI Minister that Mr
Colin Baker, General Secretary of the NFSP, should become a
Non-executive director of Post Office Ltd. After careful
consideration the Board agreed that it would reject the
proposal, if made, for the following reasons:
(i) Colin Baker's position within the union would be.
compromised by his closer relationship with
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management;
(ii) a non-executive director would need to be
independent of the day to day executive affairs of
the Company, and Colin Baker would not be able
to satisfy this requirement;
(iii) the correct process would need to be followed to
nominate and authorise the appointment of a
director, including the involvement of the Royal
Mail Holdings Board Nominations Committee, and
adherence to the Nolan rules governing public
appointments;
POLB05/02 MINUTES OF PREVIOUS MEETING POLB(04)8™
(a) The Board approved the minutes of the Board meeting of 15"
December 2004.
POLB05/03 STATUS REPORT POLB(05)01
(a) The Board noted the report, and in addition:
(e) Financial Position of Post Office Lt ‘urther to the. Chairman's
correspondence the Shareholder Executive had accepted that
action needed to be taken to address Post Office Ltd’s urgent
balance sheet issues, but appeared indecisive. A meeting with
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Richard Gillingwater would take place the following week which
would attempt to agree an interim solution. The long-term
solution would be a bigger discussion and was unlikely to be
Action: agreed before the expected general election in May 2005. Peter
Peter Corbett Corbett would ensure that the appropriate correspondence
were made with Government to highlight the néed for action;
POLB05/04 CHAIRMAN’S BUSINESS
(a) Sir Michael Hodgkinson reported the following matters to the
Board:
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POLB04/05 CHIEF EXECUTIVE’S REPORT
(a) David Mills reported the following matters to the Board:
(b) Face to Face Event at Telford: A series of face to face events
had taken place over 3 consecutive days which had reached an
audience of over 1800 managers and colleagues. Another 524
smaller events would follow to communicate to 15,000
subpostmasters. The feedback had been very positive with over
83% expressing the opinion that it was a good use of their time;
(c) Post Office Ltd Budget: The budgets would be presented to the
Royal Mail Holdings Board on 2" March;
(d) Stakeholder Off-site: An off-site meeting with Treasury, DTI,
Postcomm and Postwatch would take place on 14" March;
(e) EC Off-Site: An Executive Committee off-site meeting would
take place on 11" April 2005 to discuss the 5 year aspirational
vision of Post Office Ltd achieving £150m PBIT;
(f) NESP Off-Site: On 25" April an NFSP off-site meeting would
take place between the Executive Committee and Colin Baker,
Cyril Jones, John Peberdy, Alan Butlin, Mervyn Jones and Sally
Reeves;
(g) NESP Conference: The NFSP Conference would take place in
Scarborough on 15" — 18" May.
POLBO5S/06 DIRECTLY MANAGED BRANCH STRATEGY
POLB(05)02
(a) David Miller presented the Board witha paper on Directly
Managed Branch Strategy. The Board noted the paper, and in
particular that:
(b) anumber of operational efficiency improvements had been
implemented including 67 sets of new branch duties (406_by.
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(c)
(d)
(e)
(f)
(g)
(h)
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March 2006), and a 10% staff hours saving. 30% of staff had
expressed an interest in voluntary redundancy;
18 large loss making branches were under scrutiny to improve
their Profit & Loss by utilising better staff/workload scheduling
and changes to operational processes within the branch;
trials were being considered at a small number of pilot sites with
a view to developing an “enterprise approach”. The aim would
be to inject‘a feeling of “local ownership” into Directly Managed
Branches;
a series of property initiatives were taking place including 10 re-
sites, compulsory purchase orders and merger solutions;
Franchise discussions have commenced with Tesco,
Sainsbury, Marks and Spencer, Budgens, Somerfield, WH
Smith, Woolworths and Wilkinsons. Contact had also been
made with existing multiple partners, including Co-Op and TM
Retail;
two meetings had been diarised with the CWU before the end
of February with the aim of putting forward a formal pay offer.
This would include the implementation of a sales-focused
incentive scheme;
The Board agreed that Dave Miller (Christopher Jonas) would
examine the possibility of extending the opening hours of
branches by refurbishing them in such a way as to allow part of
the branch to remain open outside normal hours. The possibility
of phasing in franchising over a period of time would also be «
explored.
RURAL STRATEGY UPDATE POLB(05)03
(a)
(b)
(c)
(d)
David Miller introduced Sue Huggins and Mike Granville to the
Board who circulated a presentation on Rural Strategy. The
Board noted that:
The Rural Strategy Programme had been set up to resolve the
post-2008 rural network and financing issues. The strategy had
been approved by the Post Office Ltd Board last year, and a
report would be required by Government that outlined the
available options by December 2005;
The intention would be for Post Office Ltd to develop a ‘flexible
framework’ for future rural service delivery comprising revenue
growth, infrastructure cost reduction and development of
customer access based on ‘core and outreach’;
Post Office Ltd would need to establish from Government the
level of rural provision required for policy reasons over and
above what could be provided commercially. A value for money
solution could then be developed to meet Government needs _
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(e)
(f)
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Current activity involved testing the strategy, producing a
financial model, and preparing the ground with stakeholders. A
high level report detailing the options would be required for
Ministers by June 2005.
The Board agreed that:
(i) all meetings and conversations with Government
regarding Rural Strategy would be recorded, and
Government would be provided with copies of
these records;
(ii) pilot activity would commence in uncontentious
areas to avoid results being skewed by the
heightened political sensitivities in the run up to a
general election;
(iii) a letter would be sent to Government explaining
that a reduced pilot scheme would be implemented
so as not to be politically controversial. However,
this could effect the quality information required by
the DTI in June 2005.
HORIZON — NEXT GENERATION POLB(05)04
(a)
(b)
(c)
(d)
(e)
(f)
(g)
Ric Francis circulated a presentation which outlined the strategy
being pursued for the development of the Next Generation of
Horizon. A.business case would be presented to the April Board
meeting. The Board noted that:
the current contract with Fujitsu was scheduled to. terminate in?
2010, and the replacement of existing Horizon could extend the
contract to. 2016;
a 30% reduction in IT costs would be required by 2008. This
would be a.key enabler for Post Office Ltd to meet its Rural and
Directly Managed saving targets;
Authority was provided in 2004 to complete the requirements
phase. Gartner have evaluated and reported and benchmarked
Fujitsu’s priced proposal;
Alan Cook commented that in practical terms contracts of this
scope.and length would require renegotiation every 2-3 years
because the business models changed so rapidly.
Assurance was provided to the Board that the new system
would have at least a similar standard of current capability.
The Board agreed that:
(i) the ‘proceed with caution’ approach should be
followed to help put pressure on Fujitsu in
negotiations;
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(ii) an estimate of thie reduction in technology costs
would be calculated, given the anticipated
reduction in branch network numbers.
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POLBO05/12 FINANCIAL REPORT POLB(05)08
(a) Peter Corbett circulated the Financial Report to the Board. The
Board noted the report.
(b) Profit/Loss from operations are both projected to be in line with
plan and target for the full year.
POLB05/13 SOLVENCY POLB(05)09
(a) Peter Corbett circulated the latest cashflow figures and
schedule. The Business Plan presented to the Royal Mail
Holdings Board in December showed that Post Office Ltd would
become insolvent again unless balance sheet refinancing was
put into place. A solution with Royal Mail Group and the DTI
would be pursued along the following lines.
(i) agreement of a shared vision that Post Office Ltd
would become a profitable entity, earning a
commercial rate of return on.invested capital —
aspirational target circa £150m p.a.;
(ii) I agreement to pursue together a refinancing and
capitalisation of the business in accordance with
the vision above;
(iii) short to medium term cash outflows will be
covered by making available the “mails reserve” on
the Group balance sheet to POL, and by Group
paying POL for utilisation of its tax losses;
(b) The mechanics to ensure (i) — (iii) took place were
under development;
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POLB05/14
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POLBO05/15
(c)
(d)
(e)
(f)
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The solution assumed that RMG would have sufficient profits to
utilise Post Office Ltd’s tax losses and pay for them as per the
circulated schedule;
RMG would need to confirm that the Mails reserve would be
made available to Post Office Ltd and DTI consent would be
required;
The cashflow figures assumed State Aids clearance would be
obtained. As this clearance would not have been obtained
before the accounts were signed at financial year end, Post
Office. Ltd would need comfort that the mails reserve from
which these monies are funded would also be available for this
purpose in the event that State Aid clearance was refused;
Final confirmation regarding the position would be available at
the April Board meeting before the accounts had been finalised.
Jeff Triggs eae and om would attend the a to
CASH CYCLE PAPER POLB(05)10
(a)
(b)
(c)
(4)
Peter Corbett presented the Cash Cycle paper to the Board.
The paper provided an update on the impact of the cash
benefits payment migrating to bank transfers. The Board noted
that:-
for a number of years the branches had a net deficit of £20b in
cash. The major customer business which had driven this had
been encashment of benefits net of small business cash
deposits in Alliance & Leicester (Girobank) accounts.
as a result, of the changes to benefits payments, the profile had
changed from a deficit of £16.8b in 2004/05 to a surplus of
£7.9b in 2005/06. This surplus would be removed from the
balance sheet by selling it to other Banks. This is expected to
provide a resolution to the cash surplus issue for the
foreseeable future but will continue to be closely monitored.
An alternative strategy if required, would be to reduce the level
of the cash deposits business. This would require a
corresponding reduction in fixed overheads. Ric Francis would
review what level of fixed overheads could be eliminated if the
cash deposits business was reduced.
ASSOCIATE COMPANY MINUTES POLB(05)11
(a)
(b)
The Board noted the minutes of the Post Office Financial
Services Board meetings of 7" — 8" December 2004.
The Board noted the minutes of the First Rate Travel Services
Ltd and First Rate Travel Services Holdings Ltd Board meetings
sane.
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of 19"" August 2004.
FUNCTIONAL REPORTS
POLB05/16 FINANCE REPORT POLB(05)12
(a) The Board noted the report.
(b) The Board approved the Strategic Plan (as appended to the
Board papers).
POLB05/17 CHIEF OPERATING OFFICER’S REPORT POLB(05)13
(a) The Board noted the report. The Board further noted that:
(d) Surgery with MPs: At the request of Gerry Sutcliffe a surgery
had been held between MPs and key operational managers.
Although the surgery had gone well, the number of MPs that
Action: attended had been disappointing. Half-day surgeries would be
David Miller the norm in future.
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POLBOS/16 OPERATIONS REPORT POLB(05)16
(a) The Board noted the report. The Board further noted:
(b) Cash Logistics: 14 of the 29 route revisions in the cash in transit
depots had been implemented and the closure of Bristol Cash
Centre by the end of the year was on schedule. The Bureau
cash continued to drive retail foreign currency holdings down to
an acceptable level - currently £54m. Pay negotiations for
20005/06 were now underway and may threaten the stability of
the cash in transit efficiency work. An initiative to determine the
strategic direction for the cash operation would report by end of
March
(c) Chip and Pin: Chip and Pin had been delivered to the timescale
and success criteria set by Government. At the same time the
IBM banking engine had been replaced and had delivered a
£6m per annum bottom line benefit. The new engine had also
supported growing volumes of transactions.
(d) Impact: The accounting release was largely developed and the
testing phase was now underway.
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POLBO5/18 ANY OTHER BUSINESS
(a) No further business to report.
POLBO0S5/19 CLOSE
(a) There being no further business, the meeting was closed.
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