POLB05(7™)
POLB 05/116 — 05/147
Present:
Sir Michael
Hodgkinson.
David Mills
lan Anderson
Alan Cook
Peter Corbett
Ric Francis.
Brian Goggin
Graham
Halliday
David Miller
Gordon Steele
In attendance:
Neil Owen
Apologies:
Jonathan Evans
Allan Leighton
POLBO05/116 MINU
(a)
In Strictest Confidence
Post Office Limited ©
(company no;'2154540)
Minutes of the meeting of the Board
held at Bank of Ireland, Dublin
held at Bank of Ireland, Dublin
on December 14" 2005
Non-executive Chairman
Chief Executive
Human Resources Director
Non-Executive Director
Finance Director
Operations Director
Non-Executive Director
Banking & Financial Services Director
Chief Operating Officer
Marketing & Direct Sales Director
Notes
Company Secretary
Chairman, Royal Mail Holdings
TES OF PREVIOUS MEETINGS. POLB(05)6™
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The Board approved the minutes of the Board meetings of 19"
October 2005.
POLBO05/117 STATUS REPORT POLB(05)95
(a)
The Board noted the report, and all actioris were completed.
POLBO05/118 CHAIRMAN’S BUSINESS — POLB(05)96
(a)
Mike Hodgkinson explained that a number of critical issues
would have to be considered at the board meeting in relation to
Card Account and the effect on the Royal Mail funding issue.
The five year plan currently assumed that DWP income from
card account would decrease, but at a manageable rate.
However, subsequent discussions with Government (through
DWP) had made it clear that their intention would now be to
manage down the Post Office® card account customer base
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(b)
(c)
(d)
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with a target of zero by 2010. As a consequence a £100m
worsening in POL profit would result in year 5;
furthermore; if the.DVVP went ahead with their plans to manage
down Card Account, this would have very'serious implications
for'the rural ‘and social areas of the network. Current
‘understanding was that the Government were moving to firm up
their plans for the way ahead, and it was therefore critical that
Post Office Ltd moved quickly to highlight the implications to
both Royal Mail Group and Government;
Mike Hodgkinson also asked the Board to have in mind the 3
fundamental roles of the Post Office network, which were to
(i) provide.a postal front-end for Royal Mail Group
products;
(ii) distribute Goverment products at the physical ‘face-to-
face’ end;
(iii) sell commercial products.
the Board should also have in mind the current macro economic
background of the retail sector in their discussion. UK
consumers were increasingly turning to the internet to: buy
consumer goods, and many large retailers were now having to
reconsider whether the balance they had struck between ‘bricks
‘and clicks’ was appropriate;
The agenda items discussed at the Board meeting would need
to be considered against:the conceptual framework outlined
above.
POLBO05/119 CHIEF EXECUTIVE’S BUSINESS — POLB(05)97
(a)
(b)
Action:
Brian Goggin
(cy
Action:
David Mills reported the following matters to the Board:
Japan Post: Adam Crozier and David Mills had met the Chief
Executive of Japan Post, Mr Ikuta, who had expressed an
interest in entering into a Joint Venture with a European’
partner. The Japan Post Investment Bank was an huge player
in the Financial Services markets, and it therefore offered
interesting potential. If Royal Mail Group could strike a deal,
there was an opportunity for this potential to be realised.
Graham Halliday commented that Post Office Ltd’s relationship
with Japan Post had historically been positive. The Board
agreed that Brian Goggin would investigate the options;
Financial Inclusion: The Treasury Select Committee had
announced an enquiry on Financial Inclusion: In our submission
to the Inquiry, Post Office Ltd would raise the issue of LINK
“membership and Card Account.
The Board agreed that:
(i) a letter would be send to Mark Higson at the DTI (copied ea
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Peter Corbett
Action:
Graham
Halliday
Action:
Neil Owen
Action:
Peter Corbett
Action:
David Miller
POLBO05/120
POLBO05/121
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to Geoffrey Norris, James Sassoon and the Office of the:
Deputy Prime Minister) to outline both the macro issues
and the specific issues.
(ii) The DWP would be asked to confirm their position in
writing;
(iii) an additional Board meeting would take place in
January to replace the EC meeting, to consider progress
. in this area;
(iv) Peter Corbett would write a paper for the 10" January
Royal Mail Holdings Board to highlight the issues
involved;
(v) David Miller would seek assistance from the PR team at
“Royal Mail Group to consider the implications.
(d) Car. Tax Renewal: Gordon Steele also reported that the DVLA
intended to launch an online car tax renewal sérvice. As a
result, it had been estimated that renewal volumes at Post
Offices would drop by between 40% and 60%.
(e) Camelot Board: As a result of David Mills leaving the business,
a replacement would be required to sit on the Camelot Board;
PR.REPORT. POLB(05)98'
(a) The.Board noted the report.
BUSINESS & SALES PERFORMANCE POLB(05)99
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Action:
Action:
David Miller. '
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Mail Letter operations.
POLB05/122 STRATEGIC PLAN POLB(05)100
(a)
(b)
(c)
(d)
- Irrelevant.
(f)
(h)
(i)
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POLB05/423:
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SOLVENCY POLB(05)100
(a)
(b).
(c)
(d)
Peter Corbett reported that the key issues in relation to
solvency continued to be to ensure:
(i) profit and cashflow'were at least in line with budget;
(ii) the ‘route map process’ proceeded in line with the
agreed timetable.
Post Office Ltd continued modestly to exceed its profit target
and more clearly'to exceed its cash target;
sustained solvency would be dependent on a refinancing
agreement being reached, as set out in the interim funding
‘agreement signed at the previous year end;
the key focus for the plan would be to deliver a sustainable
commercial business by Year 5 (2010/11), and included:
(i) a PBIT of over £50m;
(ii) cashflow positive;
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(f)
(9)
(h)
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(iii) commercial ROCE or commercial segment;
(iv) Social segment being funded to profit and cash neutral
by a Social Network Payment contract for services;
(v) breakeven in the Directly Managed Branches and Urban.
Deprived segments.
the latest version of the plan incorporated feedback from the
Group Chief Executive, and had been reviewed in outline by the
Royal Mail Holdings Board. An updated plan would be
presented to the Royal Mail Holdings Board on 10" January;
a revised timetable had been agreed for the overall Group plan,
including the Post Office Ltd Plan, which targeted the end of
February for agreement on all the key points to allow funding
documentation to be concluded by the‘Year end. The key points
were as follows: .
(i) a Social Network Payment in the form of a contract for
services would be essential — value £100m p.a. from
April 2008 under the “Natural Attrition” scenario;
(ii) further funding of £300m would be required. This was
currently the subject of detailed discussions with the
Shareholder Executive;
(iii) the key outstanding risk was the fiiture of the Card
: Account post 2010 and the £100m per annum risk this I
represented. Mitigating actions were being worked up, ,
but in the. worst case significant network closures would
be inevitable.
‘subject to the satisfactory conclusion of the above, the Board
agreed that Post Office Ltd continued to be solvent.
a further key issue was that state aid clearance for the SNP
extension from 2006-08 had not yet been obtained. This would
need to be delivered within the same timescales;
without a. funding solution the. company-will have less than 12
months funding in April 2006 — and therefore this subject would
be the key focus of the February Board meeting.
HOMEPHONE UPDATE POLB(05)101
(a)
(b)
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weak Sk oe
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(c)
(d)
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(e)
(f)
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Action:
Gordon Steele
POLB05/126
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(c)
(d)
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(f)
(9)
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Action:
Gordon Steele
POLB05/127
(9)
(h)
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REVIEW OF THE EFFECTIVENESS OF SALES REORGANISATION
POLB(05)104
(a) I
(c)
(e)
(f)
Irrelevant
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(h)
i i oe
Action: 3
David Miller H I =
Action: I i :
lan Anderson i I
Action: H !
Graham : I
Halliday i
Action:
David Miller
Action:
David Miller
lan Anderson
Gordon Steele
POLB05/128 RURAL STRATEGY UPDATE POLB(05)105
(a) David Miller preserited the paper to the Board. The Board noted
that:
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Action:
David Miller.
Action:
David Miller
Action:
David Miller
POLB05/129
Action:
David Miller
POLB05/130
POLB05/131
Action:
Peter Corbett
POLB05/132
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(b) There was an expectation that the business would be. able to
secure £300m - £350m of funding over the next 3: years;
(c) Managing the PR and the brand would be very difficult during
this period, particular with the current lack of resource;
» (d) The Board agreed that:
(i) the Government would be provided with a suitable form "
of words which would suggest an approach on
formulating their Rural Strategy;
(ii) further work would be conducted to determine the scale
of the closures that would result from the decision to not
continue with Card Account;
(iii) ‘a physically real network closure plan would be
‘developed, and talks would be held with the Royal Mint
and Bank of Ireland. .
DIRECT PAY TO SUBPOSTMASTERS POLB(05)106
(ay The Board noted the paper.
(b) It had been forecast that a significant proportion of business
generally would be conducted online within 10 years. The-
Board agreed that a.paper would be written to. determine the
business opportunities that this would present Post Office Ltd.
ONLINE DISCOUNT STRATEGY POLB(05)107
(a) The Board noted the paper.
THIRD PARTY ACCESS TO THE NETWORK
POLB(05)108
(a) The Board noted the paper, and particular that:
(b) ee Board agreed that all
enquiries concerning third party access would be referred to
Royal Mail Group for a decision;
(c) the Board further agreed that Peter Corbett would write a paper
for the next Board meeting to provide an analysis of the ‘price
per service’ and the ‘fixed fee’ for access. This information
would be required in the event that the question was asked by
either a third party or Postcomm.
HEALTH & SAFETY POLB(05)109
(a) The Board noted the paper, and agreed the proposed actions to.
continue to address the issues raised.
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(b) I The Board further agreed that the statistics on firearms
Action: incidents and iron bar attacks would be included in future
lan Anderson Health & Safety reports.
POLB05/133 HORIZON NEXT GENERATION UPDATE POLB(05)110
(a) The. Board noted the paper. Ric Francis reported that:
(b) the principles of the new deal had now been agreed which
included:
(i) the objectives of both parties, the cost curve:and strive;
(ii) ways of working (The SI Partnership);
(iii) key commercial principles, including IPR, market testing,
price variability, incentives and penalties, open book,
commitment to future improvements.
(c) The path to.contract would be subject to obtaining the various:
approvals and funding;
(d) The next steps would be to:
(i) release interim funding from Fujitsu;
(ii) commence production of a detailed contract; :
(iii) produce a businéss case for submission in January- e
. February 2006; es
(iv) sign the contract subject to approval and funding. _
POLB05/134. . INTERNET INFRASTRUCTURE IMPROVEMENT POLB(05)111
(a) The Board noted the paper.
POLB05/135 CARD ACCOUNT STRATEGY POLB(05)112
(a) The Board noted the paper. Graham Halliday emphasised the
following additional matters to the Board:
(b) - assuming a static state of 4.2m cards, Post Office Ltd’s annual
net contribution was c£80m. However, given Government's
intention-to wirid down card account, this would clearly not be
sustainable. It was therefore essential that work continued to
influence Government activity, whilst maintaining as large a
share of the current customer base for Post Office Ltd as
possible, and contribution through alternative products;
(c) The effect of an £80m loss of net contribution would have
serious implications for the current plan, and would affect the
due diligence of the proposal being considered by Royal Mail to
sell a 20% stake in the company to its employees;
(d) work continued with the Bank of Ifeland.on a Prepaid card, but
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Action:
Graham
Halliday
Action:
Gordon Steele
Action:
Peter Corbett
Action:
Gordon Steele
Action:
Graham
Halliday
POLBO05/136
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Action:
Graham
Halliday:
POLB05/138
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the initial interest expressed by POFS was waning because of
the expense and resources required;
The Board agreed that:
(i) alternatives would be explored with Government, which
would include the possibility of offering Post Office Card
Account.at half of the current price, subject to
investigation;
(ii) Gordon Steele and Crispin Beale would provide the next
Board meeting with the latest market research in this
area;
(iii) Peter Corbett would determine the number of branch
closures that would result from the loss of income, and
write a appropriate paper for the Royal Mail Holdings
Board on January 10th.
(iv) Gordon Steele would investigate the viability of a dual
currency card which used 2 magnetic strips.
(v) Discussions with the DWP could continue to.explore the
" way forward, but they would be advised of Post Office
Ltd’s intention to write regarding the impact on the
branch network. Post Office Ltd would be reluctant to
take the risk inherent of any contractual buy-out.
RISK AND COMPLIANGE COMMITTEE POL.B(05)113
(a)
The Board noted the’ Risk and Compliance Committee Minutes
of 29" September 2005.
ASSOCIATE COMPANY ITEMS FOR NOTING POLB(05)114
(a)
(b)
The unapproved FRTS Ltd minutes of 24" August'2005 and
FRTS Holdings Ltd minutes of 24 August.2005 were noted.
Gordon Steele explained that FRTS profit would be unlikely to
increase from £80m, and as a result the FRTS Board were
looking at diversifying with services such as International
Payments.
The uriapproved POFS minutes of 12" — 14" October were
noted. In addition, the Board agreed that Des Crowley would
succeed David Mills as Director and Chairman of POFS.
FUNCTIONAL REPORTS
FINANCE FUNCTIONAL REPORT POLB(05)115
(a)
(b)
The Board noted the report.
There were no further issues raised given Business
Performance and Solvency had already been discussed in
some detail.
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POLB05/139
POLBO05/140
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SALES.& SERVICE REPORT POLB(05)116
(a)
(d)
(e)
(h)
The Board noted bd report, and also noted that:
Service: The project to improve the recruitment process for
subpostmasters, and temporary subpostmasters was
progressing well. In Directly Managed branches, ten
refurbishments had been completed, security upgrade and
ventilation projects are being progressed and the new.
careerwear contract with Dimensions was in place. Work was
taking place with Property Holdings and the cleaning
companies to improve the standards in 122 branches where
identified improvements were required. David Flowers had
personally visited some of our worst sites;
Network Compliance and Conformance: A major piece of work. .
was underway to ensure that Post Office Ltd would achieve
compliance with the requirements of'the new Postcomm
Licence.
Crown Strategy: the forecast for this financial year stood at "45"
at an average steady-state benefit of £150k per annum per
branch. In terms of engagement by major high street retailers,
Boots had agreed to a trial of six branches on a hosted
("concession franchise") basis. This was a new approach, but
may be part of the answer to franchising large city centre
locations: The WHSmith ahd Woolworths Executive Boards had
also agreed, in principle, to trials, subject to acceptable deals
being struck.
Agents Pay Round 2005: The latest projection from Finance
confirmed that the likely outturn was below £525m for year end
as per the original plan. Final outturn will depend on sales
performance.
MARKETING & DIRECT SALES POLB(05)117
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Action:
Gordon Steele
Action:
Gordon Steele
POLBO05/141 BANKING & FINANCIAL SERVICES POLB(05)118
(a) The Board noted the report and in addition thi
“(b)
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POLBO05/142 OPERATIONS REPORT POLB(05)119
(a) The Board noted the report and in addition that:
(b) Service Specification Programme: Christmas services this year
would be a test for the fleet mix, generated as a result of the
revisions and cost reduction measures. The big issue would be.
whether the move from armour to soft skin and the resultant
loss in coin carrying capacity when coupled with RTR would
cause service tension, during this critical retailing period.
(c) Cags Strategy: Plans shared with the staff associations, the
frontline managers & staff and external customers. A period of
consultation is: now in progress. The CWU fundamentally
oppose the proposal to exit the external Cash in Transit market
and have prepared counter proposals.
(d) Impact:The Impact Programme remained on schedule. The roll
out.of Branch Trading had. been completed and the
decommissioning of legacy systems was at an advanced stage.
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The new POL FS (back-end branch and product accounting)
and MI-systems had suffered a brief period of performance
problems relating to both overnight batch procéssing and within
business day reporting. The systems were restored to
satisfactory performance levels and the process of fine tuning
continued. These performance related issues had frustrated
progress in getting to a reliable production of Sales MI.
, Irrelevant
Peter Corbett
POLB05/143 HUMAN RESOURCES REPORT POLB(05)120
(a) The Board noted the report and in addition that:
Conversions: The four conversions announced this week had
caused some anger from the CWU leadership, and ballots. for
industrial action were expected at these Directly Managed
Branches. The six conversions due to be announced on 6"
December would almost certainly initiate ballots for industrial
action. The earliest.any official industrial action could take place #
would be 28 December, although it was more likély to take bel
place in late January. Two of the six Directly Managed #
Branches, Dumfries and Irvine, had collocated with the RMUK .
sorting offices and there was the possibility of unofficial wildcat ae
industrial action. Gareth Evans had been supportive of the . 6
Company's situation. The large surplus that could result from 2
this exercise would be challenging to manage. .
(b) Have. Your Say: ‘I enjoy working here’ (IEWH) was down 3%
against last year — currently at 60%. Overall scores for Directly
Managed Branches were once again poor this month, with
IEWH down 11% compared to last November — this year
scoring 53%. Working Parties continued to focus on key issues
such as: facilities (all segments), sales.culture, and the future
for Cash Services.
(c) Headcount: Headcount reduced by 91 in November which
brought the annual total to 458 lower this year. This was well
ahead of plan. Full Time Earners were down by 119 (200 better
than target) which reflected the fall in overtime, casual and
agency staffing. Surplus numbers stood at 106, but solutions
were already in place for 50 of these cases. Staff Experiditure
had been brought back on Budget.
POLB05/144 SEALINGS POLB(05)121
(a) The Directors approved the affixing of the common seal of the
company to the documents set out against item number 184/05
and 232/05 inclusive in the seal register.
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POLB05/146
POLB05/147
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DAVID MILLS
*(a) David Mills would be leaving the company on the 31%
; December 2005. The Board conveyed their warmest thanks for
‘the excellent work he had done as Chief Executive of Post
. Office Ltd over the previous 4 years.
ANY OTHER BUSINESS
(a) None at this time.
CLOSE
(a) There being no further business, the meeting was closed.
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