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POLB(11)7
POLB11/53-66
Post Office Limited
(company no. 2154540)
Minutes of the meeting of the Board of Directors
held at 148 Old Street, London EC1V 9HQ on 10" November 2011
Present:
Alice Perkins Chairman, Post Office Ltd
Neil McCausland Senior Independent Director, Post Office Ltd
Les Owen Non Executive Director, Post Office Ltd (part meeting:
Papers 11/53-11/58)
Paula Vennells Managing Director, Post Office Ltd
Chris Day Chief Financial Officer, Post Office Ltd
In attendance:
Alwen Lyons Company Secretary, Post Office Ltd
Apologies:
POLB11/53 MINUTES OF PREVIOUS MEETINGS
(a) I The minutes of the meeting of 22°¢ September 2011 were agreed;
(b) the minutes of the POL Board Sub Committee — Project Eagle, 12
October 2011 were noted;
(c) the minutes of the POL Board Health & Safety Sub Committee were
noted;
POLB11/54 MATTERS ARISING - Status Report
ACTION:
Neil McCausland/
Les Owen
ACTION:
Paula Vennells/
Susan Crichton
ACTION:
Susan Crichton
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ACTION: (a)
Paula Vennells/ H
Martin Moran i
ACTION: (e) I
Chris Day/ i
Paula Vennells
Irrelevant
ACTION: (f)
Paula Vennells
ACTION: (9)
Nick Kennett
POLB11/55 RESIGNATION OF DIRECTOR
(a) The Board noted the resignation of Matthew Lester as Director of
the Board, with effect from 1 November 2011;
ACTION: the Company Secretary was authorised to file the necessary TM01
Alwen Lyons form with Companies House;
the Chairman said she had agreed with Donald Brydon that if any
issue arose, before separation, in which the Group Finance Director
should be involved, he would of course be invited to the Board.
POLB11/56 EAGLE UPDATE — HEADS OF TERMS
ACTION: (a) _ Nick Kennett provided an oral update to the Board on the progress
Alwen Lyons of the Eagle negotiations. The Board Sub-Group, (Minutes noted at
the POL Board), had agreed a negotiation mandate on 12" October
2011 which provided the basis of a proposal subsequently tabled
with the Bank of Ireland.
The proposal would generate a significant increase in fees to POL,
with a commitment by POL to invest in its financial services
capability; it also proposed that Bank of Ireland is granted a three
year contract extension beyond 2020, combined with granting POL
explicit termination rights in the event that the financial position of
Bank of Ireland (UK) deteriorates markedly. The proposal also
removed various obligations on POL that restrict flexibility in
implementing Network Transformation and impose unnecessary
investment requirements (eg in sales force numbers).
Meetings have also been held with Edward Davey MP and Stephen
Lovegrove, BIS to share the proposal.
Nick Kennett explained that in an initial, informal, response the
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(b)
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Bank of Ireland (UK) plc raised concerns regarding the use of rating
agency measures to act as the trigger for the contract extension
and termination. It proposed that the mechanism should be based
on the Bank maintaining a buffer above its target Core Tier 1
Capital Ratio, thereby confirming that it was meeting its regulatory
and stress test requirements.
Nick Kennett confirmed to the Board that, while this could be an
appropriate basis for setting the triggers, POL also needed a
measure of the Bank’s liquidity, suggesting that adherence to the
Bank’s Individual Liquidity Guidance (ILG) - a ratio set by the FSA -
combined with an active program of information sharing from the
Bank (in particular regarding its Recovery & Resolution Plan) should
be included in the trigger measure and monitoring.
POL received the Bank’s formal response on 9" November which
confirmed a significant increase in commissions to POL (broadly in
line with the minimum acceptable position approved by the Board —
a brief summary was tabled and attached to the Minutes), as well as
termination rights.
Nick Kennett advised the Board that POL will revert to the Bank
next week with an updated proposal.
The Board discussed the position with Chris Day challenging
whether abandoning the credit agency rating was appropriate. Nick
Kennett explained that in his view a capital-based measure was
acceptable as long as it was supported by the liquidity measures.
Neil McCausland questioned the issue further. Nick Kennett
explained that although credit rating agencies were transparent and
independent, their analysis is subjective and includes risks
associated with Bank of Ireland (UK)’s parent as well as the
sovereign rating of Ireland — this is despite the Bank of Ireland UK
being a separate entity with financial and operational ‘ring-fencing’
in place.
Les Owen emphasised that he would prefer a credit rating measure
but was happy to accept the alternatives being proposed. Paula
Vennells requested that the contract specifically required the Bank
to match the latest ‘best’ capital and liquidity measures as they are
upgraded by the FSA.
The Board noted the briefing and confirmed support for the
negotiating strategy being followed by management.
Nick Kennett advised the Board that, subject to the forthcoming
discussions with the Bank, he would request a Board Eagle Sub-
Committee in the next two weeks;
The Chairman asked if there was a possibility that the Bank’s
financial rating would impact the Post Office’s status regarding
Universal Credit development. Paula Vennells explained that there
had been some concern expressed by David Freud (Minister for
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Welfare Reform, DWP).
The Chairman stressed the need to ensure that POL’s legal and
operational relationship with the Bank of Ireland (UK), the ring-
fencing of its financial assets (including POL’s customers’ deposits)
and the operational protection from its parent, are clearly
understood across Whitehall. Nick Kennett confirmed that he had
prepared a note for Stephen Lovegrove as part of the briefing for
the meeting with Treasury that set out the protections in place;
ACTION: (c) I the Chairman asked that Nick Kennett and Kevin Gilliland present a
Alwen Lyons joint paper to the Board in the New Year covering the Financial
Services future sales plan.
POLB11/57 FINANCE PERFORMANCE / HALF YEAR FORECAST
(a) The Board noted the Performance Report;
(b) Chris Day gave an overview of the half year results and an update
of Period 7. He explained that the Business was now investing at a
faster rate and major projects were being actively managed, whilst
maintaining business as usual cost control;
ACTION: (c) I the Board discussed the treatment of the Network subsidy payment
Neil McCausland/ and the use of the term ‘profit’ in the Report. The Chairman asked
Les Owen the Directors to feed their reporting suggestions into Chris Day;
ACTION: (d) I the Chairman asked Chris Day to arrange briefings for the Board on
Chris Day Working Capital;
ACTION: (e) I the Chairman emphasised that reductions in queuing times was one
Paula Vennells/ of the most important measures for the Business and should
Kevin Gilliland continue to be monitored carefully by the Board. Paula Vennells
stressed that it was an area on which the Business focussed
heavily and suggested a strategy paper comes to the Board on this
topic.
POLB11/58 MUTUALISATION — RESPONSE TO CONSULTATION
(a) I The Board noted the key considerations for POL in respect of
mutualisation;
(b) I Susan Crichton asked for authority to set up a sub-committee of the
Board to help give direction on the Post Office response to the
mutualisation agenda. The Chairman agreed that there should be
at least one non-executive director on the sub-committee with a
Terms of Reference to:
draft a private letter to the Minister setting out POL’s position;
© scope a study from first principles of the fundamental effect of
mutualisation for the Business and its governance.
Les Owen stressed that it is the Board’s job to highlight the
important issues with mutualisation to ensure we are still able to
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ACTION:
All
POLB11/59
POLB11/60
ACTION:
Paula Vennells/
Kevin Gilliland
ACTION:
Chris Day
ACTION:
Alwen Lyons
ACTION:
Paula Vennells
(c)
(a)
(a)
(b)
(c)
(a)
(e)
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manage and maximise success;
the Chairman emphasised the need to resource this work
effectively. Paula Vennells suggested that Susan Crichton would
look for an industry expert to be used as a consultant (in the same
way as the Business has used Susan Barton for the Distribution
Agreement);
the Board were asked to feed back any comments on mutualisation
to Susan Crichton.
DATA PROTECTION POLICY
The Board approved the POL Data Protection Policy (POLB(11)52)
MANAGING DIRECTOR’S REPORT
Network Transformation
Paula Vennells shared feedback on the Subpostmasters’ sessions
jointly hosted with NFSP. The Chairman asked that part of the
Strategy Day be spent on how we work with the NFSP and the
Unions.
Neil McCausland asked that the Board be informed of the financial
implications of the different Network Transformation models. Paula
Vennells agreed to ensure Kevin Gilliland includes this in his update
to the December Board;
Crowns
The issue of returning the Crown network to break-even will be
included in the December Board presentation;
irrelevant
Irrelevant
Irrelevant
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POLB11/61
POLB11/62
ACTION:
Chris Day
ACTION:
Chris Day
ACTION:
Chris Day/
Mike Young
ACTION:
Chris Day
POLB11/63
(a)
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(a)
(b)
(c)
(d)
(a)
ANY OTHER BUSINESS
The Board was very uncomfortable about the Pin Pad procurement
sign off process. Neil McCausland challenged why decisions had
been taken outside the process. Chris Day explained that since the
POL Board papers were circulated, another meeting had taken
place with Group Procurement at which agreement had been
reached over what had happened. Royal Mail Group/Group
Investment Committee (GIC) suggested Chris Day put a note on the
file explaining the Pin Pad value for money assessment used to
make the decision. Chris Day was asked to circulate the note and
the GIC agreement to the decision;
the Chairman asked for a lessons learnt paper along with a
timetable of how a similar case would be treated today;
Neil McCausland asked for the terms of the contract to be revisited
and Fujitsu to be challenged regarding the 17% margin as
highlighted in the Investment Appraisal. The Chairman stressed
that this was a very important issue and asked for a deep dive to be
Irrelevant
The Chairman reported that she had met with Donald Brydon, RMG
chairman, to discuss three areas of the Distribution Agreement
negotiations, Property, Tax Losses and Exclusivity. It looks as
though solutions would be found for Tax Losses and Property — but
Exclusivity was difficult for both Businesses.
Exclusivity was a particular issue in the collections and returns
market where RM would like POL to remain exclusive to them
despite RM’s relatively low market share. The Chairman asked
Mike Young, POL’s lead negotiator, to ensure POL has the
necessary analysis ready to discuss further with RM. Neil
McCausland stressed the size of the market opportunity and his
reticence to sign up to any exclusivity in the area.
The Chairman explained Donald Brydon’s view was that the
Businesses should remain wholly exclusive and that there was a
tisk to the whole contract if POL could not sign up to this.
The Chairman has another meeting with Donald Brydon in a week’s
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POLB11/64
POLB11/65
POLB11/66
(a)
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time to discuss further.
NOTING PAPERS
All the noting papers were duly noted.
« NS&l Strategy Update (POLB(11)53)
e Insurance Update (POLB(11)54)
¢ Fujitsu — Viability of introducing a SAS70 or (POLB(11)55)
Equivalent audit report
¢ Post Office Ltd —- Sealings (POLB(11)56)
CLOSE
There being no other business, the Chairman closed the meeting.
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