Post Office Limited — Strictly Confidential
POLB 13(4"")
POLB 13/26-13/30
(Company no. 2154540)
Minutes of a Board meeting held on 9 April 2013
at 148 Old Street, London EC1V 9HQ
Present:
Alice Perkins Chairman
Neil McCausland Senior Independent Director
Tim Franklin Non-Executive Director
Virginia Holmes Non-Executive Director
Alasdair Marnoch Non-Executive Director
Susannah Storey Non-Executive Director
Paula Vennells Chief Executive
Chris Day Chief Financial Officer
In attendance:
Kevin Gilliland Network and Sales Director (item 13/27)
Sue Barton Strategy Director (item 13/27)
Mark Davies Communications Director (item 13/27)
Robin Nuttall McKinsey (item 13/27)
Jules Seeley McKinsey (item 13/27)
Gill Catcheside Assistant Company Secretary
POLB 13/26 INTRODUCTION
(a) A quorum being present, the Chairman opened the meeting.
POLB 13/27 NETWORK TRANSFORMATION
Kevin Gilliland, Sue Barton, Mark Davies, Robin Nuttall and Jules Seeley
joined the meeting.
(a) Robin Nuttall tabled a paper on Transforming the Post Office Network
which outlined the conclusions from Phase 1 of the programme and an
assessment of the changes required to make the next phase of Network
Transformation a commercial success, which the Directors noted and
discussed.
(b) The Board discussed the declining environment for many Post Offices,
and the probability that without transformation to counter economic
realities, the Business would continue to decline further. The Chairman
suggested that was the right time to modernise the Business, even if this
meant difficult changes for people.
(c) Kevin Gilliland advised the Board that as long as fixed pay continued for
Sub Postmasters (“SPM”), the Business would not be able to convert the
bulk of the network by 2020 and that the 2015 conversion target was no
longer viable.
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(d) _It was noted that at the March board meeting, the Directors had accepted
the recommended approach, and the need to move to a mandatory
programme.
(e) Kevin Gilliland undertook to prepare a commercial analysis of the
conversions completed to date. It was agreed that, although data varied
from branch to branch, it would be good to be able to gain a sense of
what had been achieved so far.
(f) Assessment of new approach
Kevin Gilliland reported that the different new models i.e. Mains, Locals,
Basics, Community and Outreach had been tested to ensure that they
gave the business flexibility to response to changes in market conditions.
ft was noted that it was economically better for a SPM to have a Main
model, but that the Business would benefit (on a P&L basis) from more
Local models. Susan Barton advised that current SPMs were used to
over generous fixed pay remuneration, but that the Business needed to
change this to become more competitive. The Board agreed that this
would be a painful transition, but that it was necessary to achieving a
successful commercial retailing Business going forward.
(g) The Directors discussed the strategic approach to partnering with
Symbol Groups and Multiple convenience retailers, and the appetite that
these retailers had for the new models. The latter had not yet expressed
their views on these and Kevin Gilliland advised that the Business was in
the early stages of engaging with these retailers at a senior level. The
Board recognised the risk that these retailers might not sign up to the
new models. Virginia Holmes suggested that the Board would feel more
comfortable once meaningful discussions were held with the Multiples
and Symbols Groups, and the Board agreed this needed to progress as
quickly as possible.
(h) Neil McCausiand raised his concerns that SPMs were being incentivised
to leave the business rather than to convert their branches to new
models, and that this could lead to a serious loss of experience in the
network. Susan Barton outlined the approach that would be taken which
would include helping businesses to produce business cases which
would be tested to ensure commercial viability before conversion. If the
SPM could not produce a viable business case, the business would
consider either an OnSite conversion with a different retailer, or a move
to a new site. However, the Directors were advised that no business
would be closed until another Local was open and trading.
(i) I Susan Barton advised that it might be positioned to consider enhanced
compensation for OnSite conversion as these were easier to deliver.
However, it was noted that this could possibly lead to back-dated
challenges from other branches who had already converted as part of
phase 1. The Board also discussed the probability of making more
help/advice available to those who were going to convert to support them
in making a success of it.
(ij) — Robin Nuttall outlined competitors’ (PayPoint, CollectPlus and
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MyHermes) activities, advising that they were growing extremely rapidly
and constituted a real competitive threat. Jules Seeley outlined the
experience of other agency driven networks in other countries. The
Board recognised that the Business’ competitors were already
contracting with the Multiple and Symbol groups and the opportunity for
the Post Office might be time-constrained. Robin Nuttall advised that the
revised model could be executed even if a large retailer such as the
Coop were not involved. The Chairman pointed out that the Board did
not have time on its side. A decision on Network Transformation needed
to be taken as part of the funding request and therefore was being driven
by a tight external timetable.
(k) Mark Davies outlined the Communications strategy to support the
Government Funding Agreement and the McKinsey Proposals for a
switch to a mandatory network transformation programme. Virginia
ACTION: Mark Holmes asked that competitors’ activities should be included in the
Davies strategy to highlight the sense of urgency.
(Il) I Susan Barton, Kevin Gilliland, Mark Davies, Robin Nuttall and Jules
Seeley left the meeting.
(m) Paula Vennells advised the Board that if a decision were taken not to
approve the revised Network Transformation and continue with the
current conversion programme, the business would reach a position
where not enough volunteers would come forward, and the Business
would have to pay high levels of fixed fees to run inefficient offices from
public monies. She noted that this could then result in a large closure
programme in 4-5 years.
(n) Paula Vennells thanked the Board for their input. She believed that the
new approach was right for the Business, and that any other approach
would be sub-optimal. It was recognised that the transformation would
not be easy, but that the Board had to deliver the best outcome for the
Post Office.
(0) Chris Day advised the Board that, in his opinion, time was of the essence
and the window of opportunity was limited for implementing the
McKinsey Proposals; the Business was at a crisis point and needed to
take action. The funding and political cycles were noted. It was agreed
ACTION: Kevin that the McKinsey Proposal needed to address the expected competitor
Gilliland response.
(p) Whilst noting the high risk nature of the McKinsey Proposal, and the
flexibility that would be required throughout the process, the Directors
approved the approach to achieving network transformation and the
Business’ long-term objectives. It was also agreed that it would be useful
ACTION: Kevin to have Chatham House style conversations with a number of the large
Gilliland Multiples to assess their appetite for the Scheme as soon as possible,
and that the messaging to Government should be positioned as a
ACTION: Mark refinement of the existing strategy highlighting the consequences of not
Davies being implemented.
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(q) The Chairman thanked the Directors for an excellent discussion.
POLB 13/28 STRATEGY AND FUNDING
(a) The paper outlining the response to the actions from the Board Strategy
session on 27 February 2013 was noted.
(b) Chris Day tabled an update on funding requirements continuing revised
proposals which the Directors discussed.
(c) The Board agreed that part of the Investment funding could be used in
Community post offices to respond to growth (in areas such as packets).
This would be a presented to BIS as “more for the same investment”.
(d) The Directors agreed that an early statement on Mutualisation and the
definition of financial sustainability would be helpful. In answer to a
query from Alasdair Mamoch, Chris Day advised the Board that the
2015/16 was the earliest point at which the business could achieve
breakeven, but that this was the most optimistic case and would still
require on-going NSP at that point.
(e) The proposed funding levels, as outlined in the paper were accepted, it
being noted that the funding requirement should be presented as “more
for the same investment”. The strategy would only succeed if the
Government accepied the underlying assumptions contained In the pian;
amove to a mandatory NT programme; acknowledgement that our
financial projections assume an extension to the POCA contract by 2
years, and that Post Office would like to be positioned as the preferred
identity partner. It was also agreed that the messaging on mutualisation
ACTION: Susan should be clear i.e. that financial sustainability must be achieved before
Barton the Post Office be mutualised.
(f) I Sue Barton would be asked to submit a draft Strategy and Funding
document to Paula Vennells and Chris Day by 12 April, with the intention
ACTION: Paula of it being circulated to Board members by 17 April. Paula Vennells
Vennells undertook to propose a timetable for announcement of the Strategy.
(g) _ It was resolved that a Sub-Committee be formed to finalise the Strategy
and Funding Agreement, comprising Alice Perkins, Chris Day and Paula
Vennells.
POLB 13/29 ANY OTHER BUSINESS
(a) Paula Vennells advised the Board that CWU was visiting the offices on
10 April 2013 for further discussions. It was noted that a letter had been
sent to colleagues advising them of this development, whilst making it
clear that POL’s stance had not changed.
POLB 13/30 CLOSE
There being no further business, the meeting was then closed.
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