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POLB(06)6"
POLB 06/79 — 06/98
Post Office ited
(company no. 2154540)
Minutes of the meeting of the Board
held at 148 Old Street, London
on October 26" 2006
Present: .
Sir Michael
Hodgkinson Chairman, Post Office Limited
lan Anderson Human Resources Director
Alan Cook Managing Director
Peter Corbett Finance Director
David Glynn Sales Director
In attendance:
Crispin Beale Director of Customer Insight, Intelligence & Analysis
Richard Barker Acting Network Director
Rob Durrant Programme Office Director
David Smith IT Delivery Director
Neil Owen Notes
Apologies:
Adam Crozier Chief Executive, Royal Mail Group
Jonathan Evans Company Secretary
Ric Francis Operations Director
Allan Leighton Chairman, Royal Mail. Group
Sue Whalley Strategy. Director :
POLBO06/79 MINUTES OF PREVIOUS MEETINGS POLB(06)4™ + 5™
(a) The Board approved the minutes of the Board meetings of
June 28" 2006 and September 27" 2006.
POLB06/80 MINUTES FOR NOTING
(a) The Board noted the minutes of the Post Office Ltd
Executive Team meeting of 14" September and the
Investment Committee of 13" October 2006;
(b) the Board noted the minutes of the First Rate Exchange
Services Ltd Board meeting of 23 August 2006;
(c) the Board noted the minutes of the POFS Board meeting of
28" September 2006;
POLBO06/81 RESIGNATION AND APPOINTMENT OF DIRECTORS
(a) The Chairman reported that the appointment to the Board of
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POLB06/82
POLB06/83
(b)
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David Glynn had been approved by the Royal Mail Holdings
Nominations Committee, and his appointment would be
effective from 26” October 2006.
the Chairman reported that the appointment to the Board of
Gary Hockey-Morley had been approved by the Royal Mail
Holdings Nominations Committee, and his appointment
would be effective from 30" October 2006.
STATUS REPORT POLB(06)51
(a)
(b)
(¢)
The Board noted the report, and that-all actions had been
completed. In addition the Board noted that: ,
Luke March, Compliance Director Royal Mail Group had
agreed to join Post Office Ltd’s Compliance Committee, and
was now receiving formal invites to:each meeting;
Crispin Beale clarified that the CSI proposal had now been
discussed at the Remuneration Committee and that this
action. was now closed.
CHAIRMAN’S BUSINESS
(a)
(b)
(c)
(d)
Sir Michael Hodgkinson reported the following matters to the
Board:
the strategic plan, together with the options for reshaping
the network, had been;well received. by both the Royal Mail
Holdings Board and ‘Government. The outcome of the.
Government's decision concerning network numbers,
together with the start date for consultations on any
closures, had been deferred. Alan Cook stated that the likely
earliest date for'a decision was now the. third week in
November. Mike Hodgkinson pointed out that once a
decision had been reached the Board should expect another
two-stage approach consisting of an overarching principal,
followed by more detailed ‘small print’;
Peter Corbett informed the Board that.a large number of
different network scenarios had been modelled over the last
few weeks. One of the'key issues that had emerged was
whether urban and rural branches which could only break
even would form part of the rationalisation programme.
Other issues included devising a strategy to deal with force
majeure closures and formulating an appropriate funding
mechanism to increase the number of counter positions in
receiving branches. There was also a good case to amend.
the compensation scheme and make more use of POL Lite;
Miké Hodgkinson stated that a need existed for the Post
Office to help the Government with their methodology for
constructing a detailed framework. Considerable effort
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would need to be made to ensure the wording of any such
scheme was appropriate to the needs of the business.
(e) Alan Cook reported that a new manager had now been
recruited to manage the community network and help
provide it with its own identity. Nevertheless there were
considerable difficulties in effectively ‘re-launching’ POL
whilst simultaneously closing. branches. An attempt by
Natwest to undertake a similar exercise in the 1990s had
proved very damaging to them. The press had recently
focused their attention on Government, but this would soon
shift back to POL particularly if there was a further roll-out of
WH Smith branches.
POLB06/84 MANAGING DIRECTOR’S REPORT
(a) Alan Cook explained that the. Top 50 managers had been
briefed successfully on. the strategic plan, and the next stage
would be to brief 1000 managers in two large tranches of
500. The plan now had additional credibility given what had
been achieved over the previous three years;
(b) negotiations continued to ensure Card Account customers
remained with POL. Current thinking was that the top one
million customers would be offered savings account, one te a
million would migrate to the banks, and two million may stay :
on with a new Card Account product with a different price 4
and functionality. Although the Card Account option would
earn POL less money, it would help prevent a total loss of
business; . ¥
(c) the Executive Team had agreed to abide by the voluntary
Banking Code Standards Board;
(d) under the revised system of delegated authorities, Post
Office Ltd was holding its own Investment Committee
meetings twice a month to consider investment cases;
(e) a trial roll-out of the car insurance ‘quote and sale’ system
was underway in 35 branches. Mike Hodgkinson informed
the Board that the Group Audit Committee’s main concern,
had been about the sales of ‘financial advice’ products.
Therefore the Royal Mail Holdings Board is required to
approve all new POL products to protect the brand by
ensuring any.new products launched were both within the
capability of its sales force and followed the principal of
being simple, good value products;
progress on commitments to Ofcom regarding mis-selling
(f) has been good and all actions had or would be delivered by
the end of October. Figures for September showed a slight
improvement and it was expected that October would show
the. benefit of remedial measures in both branch and field
sales. The measures were expected to deter mis-selling, but
the risk.remained that by mid-November the impact may not
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convince Ofcom that the root causes had been addressed
and thereby trigger.a formal investigation. Ofcom had also
been informed that new codes of practice concerning
information to be given.to customers on premium rate and
other services had not been put in place, as required by a
change to their rules that came into effect in August. This
- oversight has identified a weakness in the current reliance
‘on suppliers to inform POL of new ret juirements [a
a The problem
identified with the telephony products in respect of the Code
of Practice was being addressed, although this would take
6-8 weeks because of the logistics of getting new
documents printed and circulated to branches. It was agreed
e matter would be discusséd further at the next Risk
and Compliance Committee meeting.
POLBO6/85 FINANCE REPORT POLB(06)52A
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(b)
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(d)
Peter Corbett provided the Board with a presentation on the
Period 6 business performance results;
income was £14.2m lower than budget due to lower than
expected HomePhone and retail sales;
a new forecast had been submitted to Group Finance which
showed that Post Office. Limited would achieve its full year
loss target but by means of significant cost reductions to
counter a significant revenue decrease. This latest forecast
also included the £20m expenditure challenge as part of the
cost savings. The new company structure was now in place
and budgets had been reissued. The cost savings had been
partly achieved by making budget reductions as part of this
process. No savings were planned from the £20m
“transformational pot” — although recent:decisions ‘around
Field Sales and McKinsey costs had affected-the proposed
usage of the pot, so further consideration of how these
funds were utilised was required;
Ernst and Young had conducted their review of Post Office
Ltd's half year financial performance. The review concluded
without incident, and progress was demonstrated against all
management letter points from last year. An update to the
Audit and Risk Committee in respect of the IMPACT
housekeeping exercise had been prepared to demonstrate
the progress that had been made. Ernst and Young had
been requested to perform a limited scope audit of POLFS
during Period 8 to highlight further progress as the full audit
at year end approached. It was possible that before year
end some of the provision made in the accounts last year in
respect of the IMPACT balances may be written back; but
further analysis was needed to be certain of this and
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Peter Corbett
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Peter Corbett
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quantify any write back amount.
SOLVENCY AND FUNDING STATUS
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(b)
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As referred to in the MD's report, there had been intense
activity in modelling various network scenarios since the last
Board meeting and a letter had been sent to Stephen
Lovegrove;
based on the discussions that had taken place with the DTI
and Treasury, the Board continued to have confidence that
the funding issue would be dealt with prior to the end of
December 2006;
it was agreed that the funding position and going concern
status would be reviewed and agreed at each meeting;
RAPID RATIONALISATION OF POST OFFICE LTD
POLB(06)52B
Peter Corbett presented a. paper that outlined in detail the
necessary actions which would need to be taken if further
funding was not forthcoming. There would have to be a
rapid rationalisation of the organisation, including a
reduction in the agency network to 3,000 offices, a reduction
in the Directly Managed network to 100 branches, a
reduction in central costs and the sale of assets. Currently
there was sufficient funding in place for Post Office Ltd to
trade until March 2008 on a “manage for cash” basis.
However these funds did not allow for any investment inthe ~
Commercial segment so the rationalisation would need to
start earlier than March 2008 to produce savings because
the Commercial segment could not afford to “tread water”
until March 2008;
the Board noted the paper and agreed that refinement: was
required in certain areas. It was also agreed that further
iterations of the paper would be reviewed at each
subsequent ET meeting.
OTHER EXECUTIVE REPORTS
NETWORK REPORT POLB(06)53
The Board noted the report, and also noted that: -
VR: -detailed arrangements for VR had been deployed at
local level for Managers in Directly Managed network and
around 100 managers would be provided with a formal offer;
WH Smith: five of the six pilot branches had now opened
and these had been visited by the members of the WH
Smith Board. Their assessment of the integration had been
positive, and they had expressed a willingness to proceed
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Alan Cook
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with further initiatives. Huge efforts had been made by. WH
Smith to improve sales at Post Office branches, and
although this was going well, FRTS had noted that bureau
sales have been affected. Alan Cook reminded the Board
that this was a pilot scheme which would only be taken
further should the trial be shown to provide a clear benefit to
Post Office Ltd. Further discussions would take place with
Kate Swan from WH Smiths;
Commercial: sales targets and'scorecafd measures had
been issued to all new Heads of Business Development and
their teams. The sales focus was on closing the current
income gap by concentrating on Travel products, Credit:
Card, Car Insurance and Home Insurance;
Agency Development: terms of reference.had been
developed for the agents’ remuneration review and project
planning underway. The first programme team meeting had
takeh place on’18th October 2006;
Community: a customer measure would be developed for
the.top 1550 branches identified as having the highest sales
potential.
OPERATIONS POLB(06)54
The Board noted the report'and in particular that:
Stock Programme: the physical move of the stock centre
from Hemel to Swindon-had taken place. Full order
processing was now taking place from Swindon, but there:
were significant problems. Alan Cook emphasised that this
shared service with Royal Mail was critical to Post Office
Limited, and subpostmasters had continued to raise a large
number of issues. It was agreed that the matter would be
raised at the Royal Mail Holdings Board;
Horizon Next Generation: the Horizon Next Generation
contract was signed with Fujitsu Services in September.
This contract would provide Post Office Limited with the
platform to increase delivery capability at significantly
reduced costs.
PEOPLE & ORGANISATIONAL DEVELOPMENT
POLB(06)55
The Board noted the report.and in particular that:
Age Discrimination Legislation: discussions with the CWU
~over'the last year had failed to. reach agreement on Ceasing
the practi i
selection,
On 2"
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October the CWU were formally notified that seniority would
no longer be used for.annual leave allocation and a new
rotational.system had been circulated to DMB’s and Cash
Centres. The CWU had not.yet formally responded but local
representatives had instructed their members not to sign for
annual leave (from April 2007) on a rotational basis;
Have Your Say: I enjoy working here was 59% for
September and around 60% year to date, although this had
fallen from 64% at the same time last. year. I feel this
company values me is 28% for September and 27% year to
date, again down compared to the same time last year when
it was 33%. Response rates continued at 73% for
September, compared to 53% last year. Those attending a
WTL session were higher than last year at 71% year to date
but only 56% were finding them useful and this was down
slightly on last year. 48% had seen an improvement since
the last opinion survey, a similar result to this time last year
at 49%;
Pay Deal: the CWU pay deal had been agreed at ballot and
implemented in September. The CMA pay deal had-been
agreed at 3.15% (for 11 months) effective 1st July. Subject
to Yes ballot, it would be paid (with backdating) in
December;
Reward Structure: a project team had been established to
manage engagement'with Unions, Key Group Stakeholders, Pam
Colleagues and Development & Delivery of reward activities.
The Executive Team had agreed an approach to recognise
those with bigger roles as a result of new structural design.
This would be communicated by letter at the end of October
and implemented in November. The Group Executive Team
had approved a Group approach for broadband structure,
and there was a potential risk for POL timelines being
delayed by Group.
MARKETING REPORT .POLB(06)56 S *
The Board noted the report, and in particular that:
Pricing In Proportion: customer awareness of PiP continued
to increase slightly and was now at 92% among consumers.
More than 60% felt they.knew a lot.or something about the
changes. Work was currently progressing to ensure Post
Office Ltd supported Royal Mail’s campaign for Christmas,
and there would be brochures and posters in all branches;
Telephony: Post Office® HomePhone had now signed up
over 890,000 customer contracts, of which 400,000 were
live making calls. Approximately 300m calls have been
made since launch, generating £65m in revenue. The
business was. growing significantly, with 35m calls made in
September alone, generating over £7m in revenue. Current
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focus was on consolidating the significant growth this year
and resolving outstanding sales related compliance issues
and operational difficulties that had arisen as the business
has grown;
Financial Services: there were now over 670,000 POFS
customers and this was growing at the.rate of almost 50,000
a month. Total sales since April are 347,700. Post Office®
Instant Saver accounts have reached 108,300, with
balances of over £1bn which was 281% of target;
Posted Magazine: the renamed Sorted magazine had
received two awards and had generated huge responses
from its readership.
SALES REPORT
David Glynn provided the Board with an update:
Engagement Plan: an engagement plan had been drafted
and ‘would be presented to the Executive Team shortly for
approval;
Field Sales: the decision had been made to exit'field sales
by November 30" 2006 because of the hidden costs of
acquisition that had come to light when the issue was
reviewed;
Foreign Exchange: although growth had been less than
expected, the market in general had been declining. Some
of the recent new entrants into the market were already
experiencing declining volumes. However, Mike Hodgkinson.
pointed out that the supermarkets Would be offering this
product shortly and the situation would need to.be kept
under careful review. °
STRATEGY REPORT POLB(06)57
An integrated 5 year strategy to transform the business had
been signed off by the Holdings Board on October 3rd. High
level versions had been shared with the NFSP, CWU and
CMA. In:addition Andy Furey had received a personal copy
of the plan as part of the talks on the future of the Crown
Office network. The DTI and Treasury had also been taken
through the details and the implications of the strategy and
plan. Communications of the strategy would take place at
upcoming launch events.
PROGRAMME OFFICE REPORT
Rob Durrant provided a short update;
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Peter Corbett
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the year to date headcount reduction of 670 was
encouraging and suggested Post Office Limited would
achieve its full year target of 1000 despite the fact that there
had been fewer than expected conversions;
a much more detailed update was being provided at the
Executive Team meeting which would take place directly
after the Board meeting;
it was agreed that Peter Corbett would provide the Group
Finance Director with an update to incorporate within the
finance report to the Royal Mail Holdings Board to
demonstrate the progress that had been made by Post
Office Ltd, and the cost of delays brought about by the
Government's late decision on network size.
PAYSTATION BUSINESS CASE POLB(06)58
Crispin Beale presented the Paystation business case to the
Board;
approval for the extension of the Post Office paystation™
network by 3,000 terminals from 4,500 to 7,500 sites in
order to grow and defend our core bill payment service, and.»
to enable us to compete more effectively with other network
providers --such as PayPoint and PAYzone. This initiative is Fy
a vital part of Post Office Ltd’s Bill Payment Strategy to
arrest the decline in bill payment transactions, and to
become more pro-active in responding to market conditions
and competitor activities;,
the business case had been approved by the POL Executive
Team on 26" July and Group Investment Appraisal on 22"
August 2006;
the Board agreed the business case.
HEALTH & SAFETY POLB(06)59
lan Anderson presented a Health and Safety paper to the
Board. The Board noted the report and the following matters
were highlighted:
absence accidents were 25% down against 2005/06. Levels
remained extremely low in the DMBs and lower than in
Royal Mail Letters and Cash Services;
reportable (RIDDOR) accidents were down 20.6% on
2005/06;
days lost due to accidents (including trauma from attacks on
cash in transit crews) were down 11.6% although the
running rate was marginally over target. All accidents were
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down 13.1%; ;
Have Your Say results were at 73.4% against a target of
67% for responses to. health and safety questions in the
Directly Managed sector,
Branch Office Manager, Deputy Branch Manager and Cash
Services Operations Manager face to face health and safety
competency training had been completed;
Work Time Listen and Learn (WTLL) delivery at DMBs
remained a cause for concern at 65%, although
improvements had been made over 2005/06.
SEALINGS POLB(06)60
The directors approved the affixing of the common seal of
the Company to the documents set out against item number
110/06 and 180/06 inclusive in the-seal register.
CLOSE
There being no further business, the meeting was closed.
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