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POLB 13(12")
POLB 13/80-13/96
POST OFFICE LIMITED
(Company no. 2154540)
(the ‘Company’)
Minutes of a Board meeting held on 25 September 2013
at 148 Old Street, London EC1V 9HQ
Present:
Neil McCausland In the Chair
Tim Franklin Non-Executive Director
Alasdair Marnoch Non-Executive Director
Susannah Storey Non-Executive Director (items 13/80 - 13/89)
Paula Vennells Chief Executive
Chris Day Chief Financial Officer
In Attendance:
Alwen Lyons Company Secretary
Sue Barton Strategy Director (items 13/80 - 13/86)
Kevin Gilliland Network & Sales Director (items 13/80 - 13/84)
Lesley Sewell Chief Information Officer (items 13/82 - 13/86)
Apologies for Absence:
Alice Perkins Chairman
Virginia Holmes Non-Executive Director
POLB 13/80 INTRODUCTION
(a) A quorum being present, the Chairman opened the meeting and
welcomed Sue Barton, Strategy Director and Kevin Gilliland,
Network & Sales Director.
POLB 13/84 PROGRESS REPORT ON GOVERNMENT FUNDING AND
STRATEGIC PLAN
(a) The Board noted the progress report on the Government Funding
and Strategic Plan.
(b) Sue Barton reminded the Board of the device of an explicit cliff in
the original strategy and its importance in driving branches to
convert in the Network Transformation (NT) programme. She
explained that it was now clear that a new approach of a mandated
exit with enhanced compensation alongside an implicit cliff, post
2015, should gain NFSP support and enable the Business to
deliver the NT.
(c) The Board discussed the new approach and their concern that post
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the 2015 election a new government may reconsider the
introduction of the cliff. Sue Barton explained that the Business and
the Shareholder Executive were discussing the possibility of a three
year funding deal which would help reduce any political changes
ACTION: post-election and allow the cliff to come into force if required. The
Sue Barton/ Board supported this but suggested an exchange of letters with the
Susannah Storey Secretary of State to explain the Board’s position.
(d) The Board discussed the relationship with the NFSP and their
support for the new proposal. Sue Barton explained the
Memorandum of Understanding (MoU) being proposed which
would require the NFSP not to mobilise a campaign against NT or
ask for more money for compensation. However, in return, the
NFSP would be looking for financial support from the Business.
She described the NFSP’s request for a 15 year sponsorship
arrangement and explained what services the Business would
expect in return.
(e) The Board were very uncomfortable with the longevity of what was
being proposed and the level of financial support but recognised
the need to be pragmatic and the part the NFSP plays in delivering
the NT and funding.
(f} The Board supported the approached outlined in the paper as a
mandate for Sue Barton to continue negotiating the MoU, taking
into account the Board discussions and their desire fo reduce the
longevity of the deal or tie it to the timescales for funding with exit
ACTION: clauses if the services provided by the NFSP did not reach desired
Sue Barton standards.
(g) The Board discussed the plans for delivering the new NT
programme and the speed with which they could be deployed.
Kevin Gilliland explained that the time constraints were both
internal and externa! and that finding the right new sub-postmasters
was critical to the programme. He assured the Board that he
understood and shared their desire to deliver the NT programme as
quickly as possible. Sue Barton stressed that the Business was
focussing both on delivery of the existing programme whilst
planning the new approach, supporting the sub-postmaster by
centralising as much of the process as possible.
ACTION: (h) The CEO asked Alasdair Marnoch if he would work with Sue
Alasdair Marnoch/ Barton and Kevin Gilliland to critique the delivery plans, on behalf
Sue Barton/ of the Board, to ensure they were robust and had taken into
Kevin Gilliland account any unintended consequences for the wider strategy. The
detailed plan would be brought back to the Board in October.
(i) The Board asked for an update to the schedule in 4.3 of the paper,
ACTION: showing the number of sub-postmasters in each category of the
Sue Barton table.
(j) The Board asked for confirmation that legal advice supported not
paying retrospective enhanced compensation to sub-postmasters
who had already exited on the existing scheme. The CEO
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confirmed that this was the advice the Business had been given,
although this did not preclude a judicial review of the decision.
(k) The Board noted the progress report on the Government Funding
and Strategic plan, endorsed the work plan that was underway and
thanked Sue Barton and Kevin Gilliland for their work to date.
POLB 13/82 COST FOCUS/VALUE FOR MONEY
(a) Lesley Sewell, Chief Information Officer, joined the meeting.
{b) The CFO and Sue Barton gave the Board an overview of the
approach the Business was taking to reduce central costs. The
CFO recognised that the Business needed to build a bridge
between the tactical day to day cost reduction which continues in
the business and the future operating model. He pointed out that
there were already substantial savings built into this year’s plan and
that an estimated additional 200 people would be exiting before the
end of the next financial year.
(c) The Board recognised that a lot was being done to address the
profit gap left by the income decline and asked for assurance that
ACTION: the Business was exiting the right people. The CEO suggested that
Fay Healey the Chief HR Officer be invited to the Board to present the
approach to performance management below SLT level and the
statistics on exiting poor performers.
(d) The Board asked for a note setting out the underlying cost base in
ACTION: the strategic plan and the additional savings which have now been
CFO/ identified to compensate for the income decline. This should show
Alasdair Marnoch the changed trajectory for costs with additional papers filed in the
reading room.
(e) Sue Barton explained that our 25% cost reduction challenge had
been shared with six suppliers and that they had been asked for
their unconstrained ideas. The CEO also reported that a fact finding
trip to India to look at outsourcing possibilities was taking place in a
week's time.
(f) IThe CFO was asked to report back at the next Board as part of his
ACTION: CFO Financial report. The Board would then decide if it needed a ‘deep
dive’ on cost focus and value for money.
POLB 13/83 SUPPLY CHAIN STRATEGY
(a) The Board received a report on the Supply Chain net cost
management programme and future Roadmap.
(b) Sue Barton explained the findings of the independent consultancy
Elix-IRR. The Board supported the view that the Supply Chain is
not a core income pillar for the Business and were aligned with the
strategy to outsource. However, there were different views on the
timing of any outsourcing and the management bandwidth to
manage this alongside the other transformation programmes.
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(c) The Board asked the Business to continue its focus on outsourcing.
The CEO reported that she had already decided to bring in a new
ACTION: hire as General Manager for Supply Chain and would want this
Kevin Gilliland person to lead the strategic review, possibly to result in a
management buyout or outsourcing.
(d) The Board supported: recruitment of the new General Manager;
pushing ahead with controlling the levers which drive the Supply
Chain costs; and getting the Supply Chain to a position where it
could be outsourced.
ACTION: (e) The Board asked the CFO to check if the Supply Chain costs for
CFO ATMs were allocated to an ATM provision and charged to the Bank
of Ireland.
POLB 13/84 REPORT ON INDUSTRIAL ACTION
(a) Kevin Gilliland gave a verbal update on the current position
regarding Industrial Action. He explained the Business’ response to
both strike days and ‘action short of a strike’. He explained that he
had just notified the unions about the franchising agreement and
TUPE and the Voluntary Redundancy exercise the Business is
about to undertake.
(b) He also explained that the CWU had written to the CEO threatening
a strike ballot if they did not get agreement for an ‘inflation busting’
pay rise for the Supply Chain. The CEO explained that a response
had been sent to say we would not be opening these negotiations
until January. The Board were assured that contingency plans were
already in place for any Supply Chain industrial action.
(c) Kevin Gilliland reported that progress had been made with
CMA/Unite and the principle of no consolidated pay until 2015 has
been established.
(d) The Directors noted the Industrial Action update.
(e) Kevin Gilliland left the meeting.
POLB 13/85 SERVICE INTEGRATOR/SERVICE DESK CONTRACT AWARD
(a) The Board received an update on the procurement for a Service
Integrator/Service Desk (SISD) provider. It was noted that the
Executive Committee had approved the award of the SISD contract
to ATOS IT Services Limited.
(b) Lesley Sewell explained that a full governance structure had been
agreed as part of the procurement, that she had personally taken
references for ATOS, and that they were already engaged on
similar work for HMRC and the Ministry of Defence.
(c) She reported that Dave Hulbert would be accountable for the
contract management and that he had been through a selection
POLB 13/86
POLB 13/87
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process as well as an external assessment before being given the
role.
(d) tt was agreed that the SISD contract be awarded to ATOS IT
Services Limited, and that the CFO be authorised to sign on behalf
of the Company.
IT STRATEGY UPDATE SEPTEMBER 2013
(a) Lesley Sewell updated the Board on progress made against the
Business’ key initiatives within the 2020 IT Strategy, demonstrating
why it represented value for money and achieved the run-cost
reduction targets.
(b) The Board discussed the Fujitsu costs and the IP risks identified at
the July Board meeting. The CFO reported that the Business had
discussed the issue with Fujitsu on several occasions but had not
reached a satisfactory outcome, although the price had reduced
from the original £60m to £25m and was likely to end at between
£10 and £20 million pounds, depending on the outcome of a
possible offset of non-contractual change spend versus an agreed
IPR valuation.
(c) Lesley Sewell stressed that the Business would go to market in
October and that she and the CFO would continue to negotiate to
reduce the exposure.
(d) The Board noted the update and actions as set out in the paper.
(e) Sue Barton and Lesley Sewell left the meeting.
CHIEF EXECUTIVE’S REPORT
(a) The Board noted the Chief Executive’s report and discussed the
following specific items:
(b) I
Irrelevant.
Irrelevant
(d) The Board were disappointed with the take up of the Current
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Account. The CEO explained that she was meeting the Bank of
ireland on Friday to discuss, amongst other things, the account
opening process and further roll-out. The CFO also had agreed two
ACTION: deep dives organised with the Bank, the first of which would focus
Company Secretary on savings. It was suggested that these issues be reviewed by the
Board FS Sub Committee.
ACTION: «i nn ovant
Martin George
Irrelevant
POLB 13/88 HORIZON UPDATE
(a) The CEO updated the Board on the progress made against the list
of actions included in the Horizon update paper sent to the Board
on 27 July 2013.
(b) The CEO reported that she and Alasdair Marnoch had had a
meeting with Anthony Hooper, a former QC and candidate for the
role of Independent Chair of the Horizon Working Group. Subject to
agreeing fees they both agreed he would be an excellent choice.
(c) The Board asked how the Business intended to manage the project
after Susan Crichton, General Counsel, has Jeft the Business. The
CEO explained that an interim GC would be in place for a hand
over but that she also intended to put Belinda Crowe into the role of
Project Director to lead on coordinating the programme, with the
ExCo accountability sitting with the new GC. She also explained
that she had asked Alwen Lyons, Company Secretary, to keep an
oversight of the handover as the interim GC joined the Business.
(d) The Board noted the Horizon progress report.
POLB 13/89 FINANCIAL PERFORMANCE UPDATE
(a) The Board received a financial performance update for August
2013 from the CFO.
(b) The Board discussed the effect of the revenue shortfall on EBITDA
and the mitigating actions to support the underlying profit. The CFO
explained that the position should be clearer at the next Board
meeting with the Quarter 2 full year forecast but stressed that he
was expecting the full year to be broadly flat in revenue but with
reduced costs leading to an improvement in profit.
(c) Susannah Storey left the meeting.
ACTION:
CFO
POLB 13/90
POLB 13/91
POLB 13/92
POLB 13/93
ACTON:
CFO/
Alasdair Marnoch
POLB 13/94
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(d) The Board recognised that the Business was getting back on track
after a difficult first quarter period but stressed the need to hit the
required exit rate at year end and to keep the underlying costs
under control and within budget.
(e) The Board asked the CFO to consider how he could improve the
cashflow forecasting as the volatility is nowhere near best practice.
It was recognised that this was not a current priority but could
become so as the Business moves toward financial sustainability.
(f) IThe CFO reported that he had reached agreement for the sale of
tax losses to RMG for 50 pence in the pound. This was well
received by the Board who recognised the work of Charles
Colquhoun in this area.
RISK
{a) Alasdair Marnoch gave a verbal update on the discussions held at
the Audit & Risk Committee (ARC) on the issue of Risk and
explained that the Business was now distilling their risk register
after input from the ARC.
(b) The risks identified by individual Board members had been
circulated to the ARC and the Board and further work on risk would
be included in the November Board meeting.
MINUTES OF PREVIOUS MEETINGS AND MATTERS ARISING
(a) The minutes of the Board meetings held on 24 June, 1 July, 9 July,
16 July, 26 July and 31 July 2013 were approved for signature by
the Chairman.
COMMITTEE MEETING MINUTES FOR NOTING
(a) The Board noted the minutes of the Audit Risk & Compliance
Committee meetings held on 20 March, 21 May and 6 June; and
the Pensions Committee meetings held on 1 May, 6 June and 1
August.
STATUS REPORT
(a) The Status Report, showing matters outstanding from previous
Board meetings, was noted.
(b) The Board asked for a noting paper to clarify whether any claims
on the Business from the Horizon work would be covered by
Professional Indemnity or Directors & Officers insurance and
whether we had alerted our underwriters. The CFO, with input from
Alasdair Marnoch, would ensure the appropriate notifications were
made.
ITEMS FOR NOTING
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ACTION: (a) The Board noted the Health and Safety report and the Board asked
CEO the CEO to thank Simon Eldridge, National Safety Environment and
Wellbeing Manager, for the good progress being made.
(b} The Board noted the Significant Litigation report.
(c) The Board noted the Report on Sealings and resolved that the
affixing of the Common Seal of the Company to the documents
set out against items numbered 1059 to 1074 inclusive in the
seal register was hereby confirmed.
(d) The Board noted the update on the Post Office Payment
Services proposition to SMEs and confirmed the launch
strategy as outlined in the paper.
POLB 13/95 ANY OTHER BUSINESS
(a) Following his note to the Board on the tax consequences and
ACTION: impact on the RMG IPO the Board asked the Business to consider
CFO/ the wider effect of the RMG transaction on the Post Office and our
Hugh Flemington lines of defence for any dispute, and specifically any direct
obligations contained in the MSA/MDA.
ACTION: (b) The CEO explained that an internal ‘lessons learned’ review, led by
Belinda Crowe Belinda Crowe, would be undertaken for Project Sparrow over the
next few weeks.
ACTION: (c) The Board discussed the interim statement of accounts and asked
CFO the Business to formalise the process and circulate to the Board in
advance of the October Board meeting. The CFO recognised that
the Board favoured a lighter trading statement.
(d) The Company Secretary circulated the agenda for the next meeting
which would be held at Camden Crown Office and have input from
the Branch Manager, as well as include a visit to the Branch.
POLB 13/96 CLOSE
(a) There being no further business, the meeting was then closed.
POST OFFICE LIMI
Post Office Limited — Strictly Confidential
ITED 16 JULY 2013 BOARD ACTION LOG
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REFERENCE ACTION BY WHOM
.I Network Transfo! ices eae 5
September 2013 I Exchange letters with the Secretary of State to explain the Board’s position in relation to Government I Sue Barton/
POLB 13/81(c) funding, the strategic plan and the cliff in response to the Board’s concern that in 2015 any new I Susannah
Government will reconsider the cliffs introduction. Storey
September 2013 I Work with Alasdair Marnoch, who would critique the delivery plans for the NT programme on behalf of I Alasdair
POLB 13/81(h) the Board, to ensure they were robust and had taken into account any unintended consequences for I Marnoch/
the wider strategy. The detailed plan should be brought back to the Board in October. Sue Barton/
Kevin Gilliland
September 2013
POLB 13/81 (i)
Provide an update to the schedule in 4.3 of the paper, showing the number of sub-postmasters in each
category of the table.
Sue Barton
CFO/Alasdair
September 2013 I Circulate a note setting out the underlying cost base in the strategic plan and the additional savings
POLB 13/82(d) which have now been identified to compensate for the income decline. This should show the changed I Marnoch
trajectory for costs with additional papers filed in the reading room.
September 2013 I The CFO was asked to report back on cost focus and value for money at the next Board as part of his I CFO
POLB 13/82(f) Financial report.
September 2013 I Consider how the cashflow forecasting could be improved. CFO
POLB 13/89(e)
September 2013 I Formalise the process for the interim statement of accounts and circulate to the Board in advance of I CFO
POLB 13/95(b) the October Board meeting.
Strates See fe NEE
September 2013
The new General Manager for Supply Chain to lead a strategic review post-appointment.
Kevin Gilliland
POLB 13/83(c)
September 2013 _I Check if the Supply Chain costs for ATMs were allocated to a specific provision and charged to the I CFO
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Bank of Ireland.
September 2013 I Provide a noting paper for the next meeting covering the opportunities in the Energy market. Martin George
POLB 13/87(e)
eee
September 2013
POLB 13/81(f)
Cont ue negotiating the MoU between Post “Office and the NFSP, taki
g into account the Board
discussions and their desire to reduce the longevity of the deal or tie it to the timescales for funding
with exit clauses if the services provided by the NFSP did not reach desired standards.
Information Security — Aes
ee oe
September
POLB 13/93(b)
Produce a noting paper to clarify whether any claims on the Business from the Horizon work would be
covered by Professional Indemnity or Directors & Officers insurance and whether we had alerted our
underwriters. Ensure that the appropriate notifications are made.
September 2013
Undertake an internal ‘lessons learned’ review for Project Sparrow.
September 2013 Present to the Board on the approach to performance management below SLT level and the statistics I Fay Healey
POLB 13/82(c) on exiting poor performers.
September 2013 I The Board FS Sub-Committee should review the two deep dives organised with the Bank of Ireland, I Company
POLB 13/87(d) the first of which would focus on savings. Secretary
September 2013 I Thank Simon Eldridge, National Safety Environment and Wellbeing Manager, for the good progress I CEO
POLB 13/94(a) being made on Health and Safety.
September 2013 I Consider the wider effect of the RMG transaction on the Post Office and our lines of defence for any I CFO/Hugh
POLB 13/95(a)
dispute, and specifically any direct obligations contained in the MSA/MDA.
Flemington