POLB(12)4"
POLB12/28-43
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Post Office Limited — Strictly Confidential
Post Office Limited
(company no. 2154540)
Minutes of the meeting of the Board of Directors
held at 148 Old Street, London EC1V 9HQ on 15" March 2012
Reid ates Vid sireet, Loncon By iV ark on ts Waren ae
Present:
Alice Perkins
Neil McCausland
Les Owen
Paula Vennelis
Chris Day
In attendance:
Alwen Lyons
Lesley Sewell
Kevin Gilliland
Nick Kennett
Susan Crichton
Sarah Hall
Martin Lacey
POLB12/28
(a)
(b)
(d)
Chairman, Post Office Ltd
Senior Independent Director, Post Office Ltd
Non Executive Director, Post Office Ltd
Managing Director, Post Office Ltd
Chief Financial Officer, Post Office Ltd
Company Secretary, Post Office Ltd
Interim Chief Operating Officer {item POLB 12/28)
Sales and Network Director (item POLB 12/29 & 30)
Financial Services Director (item POLB12/30 & 36)
Legal and Compliance Director (item POLB 12/39 & 40)
Financial Controller (item POLB 12/39)
Pensions Specialist (item POLB 12/39)
INFRASTRUCTURE (IT AND PROCUREMENT)
Lesley Sewell explained the IT Strategy for the next 3 years which
will support the wider business activity, procure circa 60 IT contracts
and deliver the cost reduction challenge. The Board discussed the
Strategy which involves the proposed introduction of a Service
Integrator (SI) to manage IT providers. Les Owen asked if the SI
would be allowed to provide any of the work towers in the
framework of suppliers. (POL(12)28 Appendix 2). Lesley Sewell
explained that the SI would only supply the service desk but no
other tower;
Lesley Sewell emphasised that the business lacked the capability
and maturity to manage the changes required to deliver the future
IT infrastructure. This work was not a core competency and it made
more sense to outsource. She stressed the importance of getting
the SI contract terms correct and getting good governance in place
to manage that contract;
Chris Day assured the Board that the SI and contracts would
include efficiency targets which were already assumed in the
budget;
Neil McCausland had suggested at a pre-meet that the SI approach
be tested to give the Board some assurance that it was the best
solution. Lesley Sewell reported that Berkeley Partnership had
reviewed the SI strategy and were supportive of the approach
agreeing that the SI would bring the required capabilities to the
business;
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(e) Paula Vennells questioned whether the SI would in fact raise
capability, as the same POL staff who were currently working in this
area of the business would be TUPE'd over to the SI. Lesley
Sewell assured the Board that the contract would insist on raised
capability and people would not be retained if they did not achieve
the required level. Paula Vennells flagged to the Board that the
redundancy cost could return to POL under TUPE rules;
(f) I Les Owen asked the business to ensure that POL retained the
procurement decisions for the tower contracts. Lesley Sewell
assured him this was the way the S! contract would be structured.
She emphasised that the SI contract negotiation was vital and the
business would need to buy-in consultancy support for this work;
(g) I Lesley Sewell assured the Board that the business would retain and
strengthen its in-house resource which would focus on the IT
changes needed for new products and services;
(h) the Chairman understood that Berkeley Partnership had challenged
the concept of the towers within the framework, Lesley Sewell
explained that the Berkeley Partnership have suggested other
solutions and proposed that the framework could be structured
around the business applications. She would take a further look at
ACTION: a different approach but thought it would be too radical a change for
Lesley Sewell the business in one go. However, Lesley Sewell assured the Board
that changes could be made to the proposal as it developed and the
team would keep an open mind;
(i) I Les Owen asked if the model had been successfully deployed in
other organisations. Lesley Sewell reported that she had visited
Rolls Royce who were currently moving to the model. She agreed
ACTION: to find a business who are already successfully using the SI and
Lesley Sewell similar structure to benchmark. She would look at retail / services
sector as well;
(i) Neil McCausland asked for an explanation of the Financial overview
(POL(12)28 APPENDIX 1) and why the costs were so high for
13/14 and 14/15. Lesley Sewell explained that the optimised
baseline was based on existing contracts including RPI increases
and also included the projects involved in business transformation.
Neil McCausland challenged the additional costs. He agreed the
expenditure of £13.38m to implement the programme, but stated
that this did not mean he agreed the targets for subsequent years.
The Chairman clarified that the Board were not being asked to
ACTION: approve the IT Budget for subsequent years and asked Lesley
Lesley Sewell Sewell and Chris Day to provide a breakdown and explanation of
Chris Day the optimised expected cost scenarios for the Board;
(k) the board endorsed the proposed strategy subject to the points
made and authorised expenditure of £13.8m for the implementation
of the programme.
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POLB12/29
ACTION:
Kevin Gilliland
Chris Day
POLB12/30
(a)
(b)
(d)
(e)
(a)
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NETWORK TRANSFORMATION
Agency
Les Owen asked if the business had the necessary skills to assess
Subpostmaster business plans submitted for Network
Transformation. Kevin Gilliland assured the Board that the
business was experienced in these assessments as 10% of
branches change every year and the business plans for alt these
changes were put through a retail assessment and then a financial
assessment led by Chris Day's team;
the Chairman emphasised the importance of the selection criteria
used to prioritise branches and the need for them to be fairly and
robustly applied. Neil McCausland suggested a further criteria to
look at the benefit for the Subpostmaster as this could provide
advocacy for the change;
Kevin Gilliland explained that most of the negative press for
Network Transformation was focused on locals and a previous
‘down-grading’ of service. He reported that ‘locals’ could carry out
98% of the core business carried out by the whole Network which
would move closer to 100% once a manual solution was in place
for business banking.
Crowns
The Chairman congratulated Kevin Gilliland on the progress being
made. Neil McCausland encouraged the business to push for more
trials. Kevin Gilliland explained that the most difficult area of the
plan was the staff savings and that achieving the targets would rely
on engaging the front line staff. This was why more time had been
spent on the initial trial at Birmingham. Some of the staff at this
office are now being used as advocates in the next trial offices. The
Chairman reiterated that the Board was pleased with what it had
seen and understood that cultural change was needed, but
encouraged the business to keep pushing for faster deployment.
Paula Vennelis agreed and suggested that six to ten pilots are now
needed instead of the couple which are planned;
Neil McCausland asked for a reconciliation between the numbers in
the paper and the Crown P&L.
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Neil McCausland
ACTION: i
Kevin Gilliland i i
(d) ;
POLB12/31 MINUTES OF PREVIOUS MEETINGS
(a) The minutes of the meeting of 9" February 2012 were agreed;
(b) _ the Minutes of the POFS Board Meeting (POFS(12)1") were noted.
Paula Vennells challenged the minuting of the MDA Commercial
Contract; she will ensure it is challenged at the next Midasgrange
Board.
POLB12/32 MATTERS ARISING — Status Report
ACTION: I i
— I r re e V a n I
ACTION: I i
POLB12/33 MANAGING DIRECTOR’S REPORT
(a) Paula Vennells updated the Board that cheques would now be
acceptable at ‘locals’ as a new manual process had been agreed;
(b) Paula Vennells told the board about the successful BIS week where
500 Senior Civil Servants attended meetings and seminars with the
Front Office of Government (FOoG) team with very positive
feedback.
POLB12/34 HEALTH AND SAFETY UPDATE
(a) The Health & Safety Update (POLB(12)34) was noted.
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POLB12/35 FINANCE/PERFORMANCE REPORT
(a) Chris Day presented the period 10 performance which continued to
show strong sales in FS and Mails as well as accelerated spend in
key investment expenditure. He also reported that period 11
continued the strong performance. The Full Year interim forecast
was now £65 - £70m “profit” including the network subsidy payment
of £180m. Les Owen asked if there was a risk that the Government
would reduce the Network Payment because of the good
performance. Chris Day reported that this had been a concern
especially around cash flow, but was unlikely because the business
had already made the case for next year.
POLB12/36 ;
ACTION:
Les Owen H '
Nick Kennett [ I
(b))
ACTION: ; I
Nick Kennett ! i
POLB12/37 RESIGNATION OF DIRECTOR - LES OWEN
The Board noted the resignation of Les Owen as Non Executive
Director effective 15 March 2012 and the Company Secretary was
authorised to file the necessary TM01 form with Companies House.
ACTION: The Chairman thanked Les Owen for his contribution to the Board.
Alwen Lyons
POLB12/38 BUDGET AND OPERATIONAL PLAN 2012-13
(a) Chris Day took the Board through the budget and operating plan.
He explained that he had incorporated the feedback from the
budget workshop into the adjusted budget figures. He stressed that
the business was not building in costs for independence without
due scrutiny, but recognised the concern about the existing base
costs. He explained that the non-staff costs already included a
considerable stretch challenge of £15m unidentified savings and
suggested a stretch of £8m in the staff and agents costs to be held
centrally as a contingency;
(b) Neil McCausland challenged the increase in staff costs and Les
Owen supported his challenge as the 12/13 staff cost budget was
above the strategic plan agreed with SHEX. Chris Day explained
that the increase in costs driven by separation had been shared
with SHEX who accepted them but obliged the business to find a
way to cover the costs. Les Owen suggested that the business
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ACTION:
Paula Vennells
Chris Day
ACTION:
Chris Day
POLB12/39
ACTION:
Martin Lacey
ACTION:
Susan Crichton
(c)
(d)
(e)
(f)
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consider using a cost reduction firm to look at the staff costs in the
business. The Chairman agreed that the business should look hard
at its costs but noted that it would need to balance this work against
the importance of delivering Network change and revenue growth;
Chris Day emphasised the need for short term increases in costs
but also acknowledged the requirement for an efficiency agenda
with forward looking productivity measures. He explained that a
company called Vanguard are looking at working practices and re-
engineering processes in the Network;
the Chairman suggested that Paula Vennells and Chris Day discuss
the medium term cost reduction challenge with the Executive Team
to decide how they will improve productivity without jeopardising the
major transformation programmes, and report back to the Board.
Neil McCausland supported this approach;
Chris Day to circulate to the Board the updated budget figures
including contingency;
the 2012-13 budget was approved.
PENSIONS - NEXT STEPS
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ACTION:
Chris Day
.... lrrelevant
Susan Crichton
ACTION:
Martin Lacey
POLB12/40 BOARD GOVERNANCE UPDATE
(a)
Chris Day having
reviewed POL's financial position was content with the support from
SHEX. The Board took comfort from the assurance and deemed it
was not necessary to write to SHEX at this point;
° Po
(c)
ACTION:
Chris Day
Susan Crichton Susan Crichton and Chris Day were asked to update and circulate a
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proposal for Delegated Authorities below SHEX level;
(d)
ACTION: The Chairman was comfortable to leave Susan
Susan Crichton/ Crichton and Paula Vennells to come to a working accommodation
Paula Vennells on this with BIS;
(e) _ the Board resolved that a sub committee be formed to give effect to
the legal requirements necessary for the Transaction to move Post
Office Limited to become a sister company of Royal Mail Group
Limited (the “Transaction”). This sub committee comprising of Paula
Vennells and Chris Day would execute the documents required to
give effect to the Transaction including, but not limited to, the
secondment termination agreement; the new Articles of the
Company; the Shareholder approvals and the subscription letter in
ACTION: connection with the special share. Minutes of this sub committee
Alwen Lyons would be circulated to the Board;
(f) POL Sealing Authorities
The Board approved that the affixing of the company seal may be
authenticated by any current Director of the Company or the
Company Secretary or Assistant Company Secretary or the
following signatory:
¢ Susan Crichton
(g) Appointment of Alice Perkins to the Royal Mail Holdings Board
The Board noted the appointment of Alice Perkins to the RMH
Board;
it was noted that Alice Perkins had notified the Board in accordance
with article 89(B) of the Company's Articles of Association that she
was proposing to take up a position as a director of Royal Mail
Holdings plc (“RMH”) and that this could be regarded as reasonably
likely to give rise to a conflict of interest for the purposes of section
175 of the Companies Act 2006 (the Act”). The Board considered
this interest and position and noted the potential for certain
situations to give rise to a conflict of interest or conflict of duty. The
Board also noted the terms of the Letter Agreement from the
Department of Business, Innovation and Skills to Alice Perkins
dated 15" March 2012 regarding the structure of the RMH group,
corporate governance arrangements and the Crown indemnity in
favour of Alice Perkins;
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it was resolved that it would promote the success of the Company
for Alice Perkins to remain a director of the Company
notwithstanding her position and interest as a director of RMH and
accordingly that such position and interest shall be authorised for
the purposes of section 175 of the Act and in accordance with
article 89 of the Articles of Association, and that such authorisation
shall extend to any actual or potential conflict which may arise out
of the matter so authorised;
the Board may notify Alice Perkins from time to time of any
additional obligations or restrictions that it considers appropriate for
her to observe in order to manage the conflict situation;
in respect of a matter to which this authority relates, Alice Perkins
shall not be obliged to disclose to the Company any information in
respect of which she owes a duty of confidentiality to a person other
than the Company;
this authority may be terminated by the Board at any time;
subject to any duty of confidentiality, Alice Perkins shall be required
to notify the Board as soon as reasonably practicable if there occurs
any other material change of circumstances of which in her
reasonable opinion the Board should be aware if it were considering
granting or renewing any such authorisation;
it was noted that, pursuant to Article 89 and section 175(6) of the
Act, the meeting was quorate without counting Alice Perkins and
Alice Perkins did not vote on the foregoing resolution.
POLB12/41 ANY OTHER BUSINESS
Irrelevant
recommendation to the Shareholder Executive, Virginia Holmes had
been given Ministerial approval to become a POL Non-Executive
Director and would join the Board in April;
(c) the Chairman explained that she and the Company Secretary had
met James Arbuthnot MP, at his request to discuss the
Subpostmaster cases questioning the integrity of the Horizon
system. The Chairman hoped that she could find a way to convince
ACTION: him and other MPs that the system was not at fault. This might
Paula Vennells mean looking at a further independent study of the issues.
POLB12/42 NOTING PAPERS
(a) — Significant Litigation Report (POLB(12)42) was noted.
(b) Post Office Sealings (POLB(12)43) was noted.
(c) Communication Action Group Minutes (POLB(12)44) were noted,
(d) Olympics (POLB(12)45) was noted.
{e) Privacy Compliance Strategy (POLB(12)46) was noted.
(f) Verification of Telecoms Supplier (POLB(12)47 was noted.
(g) Treasury — Authority Levels (POLB(12)48) was noted.
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(h) I RMG Price Changes (POLB(12)49) was noted.
(i) I Horizon Update (POLB(12)50) was noted.
a) Lesley Sewell reported that a tactical review was underway to
understand the single points of failure within the system. A more
strategic review was also needed for re-visiting decisions made
on critical back-up for system failures. Lesley Sewell would
ACTION: return to the Board with the outcome of the two reviews and the
Lesley Sewell options available for the future.
b) the Chairman informed the Board that she and Paula Vennells
were meeting with Duncan Tait (CEO Fujitsu) and Rod Vawdry
(Vice chairman of Fujitsu) that evening.
POLB12/43 CLOSE
(a) I There being no other business, the Chairman closed the meeting.
10
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