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POLB 14(4"")
POLB 14/48-14/63
POST OFFICE LIMITED
(Company no. 2154540)
(the ‘Company’')
Minutes of a Board meeting held on 30 April 2014
at 148 Old Street, London EC1V 9HQ
Present:
Alice Perkins Chairman
Neil McCausland Non-Executive Director
Tim Franklin Non-Executive Director
Virginia Holmes Non-Executive Director (minutes 14/49-14/51)
Alasdair Marnoch Non-Executive Director
Richard Callard Non-Executive Director
Paula Vennells Chief Executive
Chris Day Chief Financial Officer
In Attendance:
Alwen Lyons Company Secretary
Nick Kennett Director, Financial Services (minutes 14/48-49, 14/51 and
44/53)
Chris Aujard General Counsel (minutes 14/48-49 and 14/55)
Paul Havenhand Head of Travel and Insurance (minute 14/48-49)
Mark Davies Communications and Corporate Affairs Director (minutes
14/50 and 14/52)
Martin George Chief Marketing and Commercial Officer (minutes 14/53-54)
Kevin Gilliland Network & Sales Director (minutes 14/53-54)
Lesley Sewell Chief Information Officer (minute 14/55)
Gareth James Partner, Deloitte LLP (minute 14/55)
POLB 14/48 INTRODUCTION
(a) A quorum being present, the Chairman opened the meeting and
welcomed Nick Kennett, Director, Financial Services, Chris Aujard,
General Counsel, and Paul Havenhand, Head of Travel and
insurance.
POLB 14/49 eee I
(a) I
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ACTION: Nick
Kennett Hl
ACTION: Chris
Aujard
ACTION:
Company
Secretary
ACTION:
Nick Kennett/
Chris Aujard/
Chris Day
ACTION:
Chris Aujard
POLB 14/50
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(I
@ :
(e)
Irrelevant
(f)
@ I
(
- Irrelevant
(©)
ACTION:
Richard Callard
POLB 14/51
ACTION: CFO
POLB 14/52
(e)
(f)
(9)
@) I
(b)
(c)
(d)
(e)
(b)
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Irrelevant
PUBLICATION OF ANNUAL REPORT AND FINANCIAL
STATEMENTS
Mark Davies re-joined the meeting.
The Board considered the plans for publication of the Post Office's
Annual Report and Financial Statements for the financial year 2013-
2014. A detailed review would be carried out at the May ARC.
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(c) The Board discussed the themes to be included in the Chairman's
ACTION: Mark foreword and CEO's review and the desire to ensure that the whole
Davies/Chairman/ report is fair, balanced and understandable, in line with best practice
CEO in corporate governance. Mark Davies would draft and agree these
before the ARC meeting.
ACTION: CFO (d) The CFO agreed to circulate a more detailed timetable to the Board.
(e) Mark Davies left the meeting.
POLB 14/53
) I
(© I
@ I
o« » Irrelevant.
I
ACTION: Hi
Martin George
@) I
ACTION:
Martin George
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() Nick Kennett left the meeting.
POLB 14/54 NETWORK AND SALES
(a) The Board received an update on the progress of Network
Transformation, discussions with the NFSP and Crown
Transformation, together with an update on Project Ivy.
(b) NETWORK TRANSFORMATION a
The Board discussed the costs of onsite and offsite conversions and
the impact on sales. Kevin Gilliland explained that because of the
change of premises, offsite conversions were understandably taking
longer to: recover lost sales as a result of the change than onsite
conversions. The Business was trialling different initiatives to support
the new branches and he was very hopeful that this would improve the
sales.’ However, even with the initial loss of sales these branches
increased the profitability for the Post Office because of the savings in
fixed costs. The big opportunity for these branches was. their
availability outside core Post Office hours and the Business needed to
promote that more effectively, as well as provide the right products
such as collections and returns.
ACTION: Kevin
Gilliland (c) The Board asked for a further update on the economics of
transformed branches (onsite versus offsite) as part of the quarterly
Network update.
(d) Kevin Gilliland explained that, despite the success of hitting both the
number of contracts signed and branches open targets for 2013/14,
there was still considerable risk in this year's target as the majority.of
both contract signatures and openings would be Locals, particularly
onsite independent Locals, where this approach was largely untested
and could potentially take longer to deliver. He reported that he was
also working with the NFSP on a trial of ‘guided leavers’ using a
representative sample of 50 subpostmasters to show how we will
manage compulsory exits.
(e) CROWNS
Kevin Gilliland explained that the Business was now very clear about
the run rate required at March 2015 to deliver the target of a
breakeven Crown network. He stressed that the main risk to delivery
was the income line in the P&L, which required a 7% increase year on
year.
(f) The Board recognised the ambition in the plans and asked the
Business to work on a contingency to cover the risk of not achieving
ACTION: CFO the income target. The CFO explained that work was already
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underway and a plan would be in place by the end of the first quarter.
The Board asked for sight of the work to date at the May meeting
{g) Chris Day reported that this methodology for calculating the exit run
tate for Crowns and therefore the breakeven point had been agreed
with BIS.
(h) PROJECT IVY
The Board noted the updates and the next steps for Project Ivy.
(i) I Martin George and Kevin Gilliland left the meeting.
POLB 14/55 HORIZON — DELOITTE REPORT
(a) The Board welcomed Lesley Sewell, Chief Information Officer, and
Gareth James, Partner, Deloitte, to the meeting. Chris Aujard also re-
joined the meeting.
(b) ‘The Chairman thanked Gareth James for his draft report and
explained that there were a number of people who were sceptical
about Horizon. The Board were concerned to know the truth about
the reliability of the system. Deloitte’s views would need to be
expressed in such a way that they would persuade reasonable lay
people.
(c) Lesley Sewell explained that the first piece of work Deloitte had been
asked to undertake was to give assurance that the control framework,
including the security and processes for changes in the system, were
robust from an IT perspective.
(d) Gareth James reported that all the work to date showed that the
system had strong areas of control and that its testing and
implementation were in line with best practice. Work was still needed
to assure the controls and access at the Finance Service Centre.
(e) — Chris Aujard explained that several of the subpostmasters who were
challenging Horizon had made allegations about ‘phantom’
transactions which were non-traceable. Assurance from Deloitte about
the integrity of the system records logs would be very valuable.
ACTION: (f) The Board asked what assurance could be given pre 2010 when the
Lesley Sewell! different Horizon system was in use. It was agreed that Gareth James
Chris Aujard would produce and cost a proposal for additional work to enable
assurance for the wider system, including pre 2010.
(g) Lesley Sewell, Gareth James and Chris Aujard left the meeting.
POLB 14/56 CHIEF EXECUTIVE’S REPORT
(a) The Board noted the Chief Executive's report.
(b) The CEO reported that an employee engagement score of 57% had
been achieved for the full year, which meant that the Business had
achieved its stretch target.
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POLB 14/57 FINANCIAL PERFORMANCE UPDATE
(a) The Board received a financial performance update for March 2014.
POLB 14/58 MINUTES OF PREVIOUS MEETING AND MATTERS ARISING
(a) The minutes of the Board meeting held on 26 March 2014 were
approved for signature by the Chairman.
(b) There were no matters arising
POLB 14/59 COMMITTEE MEETING MINUTES FOR NOTING
(a) The Board noted the minutes of:
« the Audit, Risk and Compliance Committee meeting held on 6
March 2014;
« the Nominations Committee meeting held on 11 February
2014;
« the Pensions Committee meeting held on 5 March 2014; and
e the Remuneration Committee meeting held on 11 March 2014.
POLB 14/60 STATUS REPORT
(a) The Status Report, showing matters outstanding from previous Board
meetings, including an update on the Wave programme, was noted.
(b) It was noted that the Sparrow Lessons Learned review would be
discussed in more detail at the May ARC.
POLB 14/61 ITEMS FOR NOTING
(a) The Board noted the Separation update.
(b) The Board noted the Head Office relocation update. The Board asked
ACTION: CFO the Business to ensure it had negotiated the best rent available
including asking the landlord for rent free periods to vacant the old
building or for taking on the new lease. It was also suggested that the
Business should check the broadband capability of the new building.
(c) The Board noted the Significant Litigation report.
(d) The Board noted the Health & Safety report.
(e) The Board noted the update on Cyber Security and Information
Assurance.
(f} 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 1141 to 1159 inclusive in the seal
register was hereby confirmed.
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POLB 14/62 ANY OTHER BUSINESS
(a) There being no other business the meeting was closed
POLB 14/63 DATE OF NEXT MEETING
(a) It was noted that the next Board meeting would be heid on 21 May
2014.
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POST OFFICE LIMITED 30 APRIL 2014 BOARD ACTION LOG
REFERENCE ACTION BY WHOM
Strategy
April 2014 Provide more detail of the financial impacts of the proposed model for Project Titan. Nick Kennett
POLB 14/49(b)
April 2014 Explain the extent to which the MGA would in reality be free from restrictions imposed on I Chris Aujard
POLB 14/49(c) government entities, including procurement law.
April 2014 Miller report to be made available to the full Board Company Secretary
POLB 14/49(d)
April 2014 Provide a paper for the next Board meeting covering: Nick Kennett/Chris
POLB 14/49(e)
e the governance structure of the MGA. How the relationship, controls and oversights
between the MGA Board and the Post Office Board would operate and link through to
the Shareholder Executive;
e the implications for the Business of operating the MGA including the change in the risk
profile;
ean analysis of the financial impacts of the new operating model, including improved
margins and higher costs and how these relate to the additional risk, bearing in mind
all the other changes that the Business was committed to implementing; and
¢ an analysis of the Business’ current regulatory obligations compared to a position of
becoming directly regulated.
Aujard/Chris Day
April 2014 Provide independent advice on the efficacy of the governance proposals, and to invite the I Chris Aujard
POLB 14/49(f) advisors to the next Board.
April 2014 Provide a product profitability analysis for the next meeting. CFO
POLB 14/53(e)
April 2014 Lead a deep dive into mails at the May Board Martin George
POLB 14/53(f)
April 2014 Provide clarity on the reasons for the increase in the cost of sale versus the budget in the new I Martin George
POLB 14/53(h)
telephony contract and the reason why the Business has not been able to pass this on to the
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supplier.
Finance
April 2014. Draft and agree the themes to be included in the Chairman's foreword and CEO’s review and I Mark
POLB 14/52(c) the desire to ensure that the whole report is fair, balanced and understandable, in line with I Davies/Chairman/CEO
best practice in corporate governance before the ARC meeting.
April 2014 Circulate a more detailed timetable to the Board. CFO
POLB 14/52(d)
Network
April 2014 Provide a further update on the economics of transformed branches (onsite versus offsite) as I Kevin Gilliland
POLB 14/54(c) part of the quarterly Network update.
April 2014 Work to date on a contingency to cover the risk of not achieving the income target for the } CFO
POLB 14/54(f) Crown P&L to go to the May Board meeting.
Project Sparrow
April 2014 Gareth James to produce and cost a proposal for additional work to enable assurance for the I Lesley Seweil/Chris
POLB 14/55(f) wider system, including pre 2010. Aujard
Miscellaneous
April 2014 Feed back to BIS the Board's view that the emphasis in any statement be on the Community I Richard Callard
POLB 14/50(f) Funds and Public Purpose Statement, as these were the current issues.
April 2014 CFO to share the outcome of the Thomson Reuters report (on the current position and a I CFO
POLB 14/51(e) proposed approach to the Business’ relationship with the Co-operative Group) and the actions
he decides to take with Alasdair Marnoch, Chairman of the Audit Committee and the General
Counsel.
April 2014 The Business to ensure it had negotiated the best rent available for the head office relocation, I CFO
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including asking the landlord for rent free periods to vacant the old building or for taking on the
new lease and the Business should check the broadband capability of the new building.