Post Office Limited ~ Strictly Confidential
POLB 14(7")
POLB 14/87-14/102
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POST OFFICE LIMITED
(Company no. 2154540)
(the ‘Company')
Minutes of a Board meeting held on 16 July 2014
at 148 Old Street, London EC1V 9HQ.
Present:
Alice Perkins Chairman
Neil McCausland Non-Executive Director
Tim Franklin Non-Executive Director
Virginia Holmes.
Alasdair Marnoch
Richard Callard
Paula Vennelis
Non-Executive Director
Non-Executive Director
Non-Executive Director
Chief Executive
Chris Day Chief Financial Officer
In Attendance:
Alwen Lyons Company Secretary
Sir Charlie Mayfield Chairman & CEO John Lewis Partnership (minutes 14/87-88)
David Ryan Business Transformation Director (minute 14/89)
Chris Aujard General Counsel (minute 14/90)
Martin George
Kevin Gilliland
Chief Marketing and Commercial Officer (minute 14/90)
Network & Sales Director (minute 14/90)
Neil Hayward Group People Director (minute 14/90)
Nick Kennett Director, Financial Services (minutes 14/90-91)
POLB 14/87 INTRODUCTION
(a) A quorum being present, the Chairman opened the meeting and
welcomed Sir Charlie Mayfield, Chairman and CEO John Lewis
Partnership.
POLB 14/88 SIR CHARLIE MAYFIELD
(a) Sir Charlie Mayfield explained the governance structure within John
Lewis Partnership and its effect on decision making and people
engagement.
(b) The Board thanked Sir Charlie Mayfield for an excellent session.
(c) Sir Charlie Mayfield left the meeting.
POLB 14/89 STRATEGIC AWAY DAY FOLLOW UP ON OPERATING MODEL
(a)
AND STRATEGIC COST REDUCTION
The Board welcomed David Ryan, Business Transformation Director,
to the meeting.
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(b) The CEO reported that since the Board Away Day the Business had
taken the SLT population through a similar market analysis and review
of the mails strategy. The SLT now understood how the market was
changing and the challenges which the Business faced. The CEO was
pleased with their feedback and recognition that the Business had less
than a year to respond to this challenge with agility and pace. The
next stage of this cascade into the Business would take place on the
24" July when 2500 colleagues would hear the same message face to
face around the country, with the CEO key note speech transmitted
from London.
(c) -The CEO shared the 10 accelerators which the Business had
produced to cascade the strategy. She explained that the actions to
support the accelerators had been finalised and targets with timelines
would be agreed by the end of July. The Board would be updated on
ACTION: the progress being made on: channel extension; mails; Business
David Ryan Transformation and People at the September meeting. The Board
recommended that the Business focus on 4 or 5 areas and make the
actions specific with commercial measures.
(d) The CEO promised, as part of her report, to review performance and
actions against the accelerators at each Board meeting starting in
September.
(e) David Ryan explained the actions being taken to deliver the cost
reduction target, the enterprise wide business and operating model
(TOM) and the 2014/15 incremental cost saving initiatives.
(f) David Ryan reported that the in-year cost reduction challenge, which
had increased from £46m to £53m, was being managed by identifying
specific initiatives with an ExCo member who was accountable.
Weekly tracking and trend information would be available by the
beginning of August. It was recognised that the Business needed to
protect the costs which deliver revenue and accelerate these where
possible.
(g) David Ryan recognised the need to increase the cost reduction target
to help mitigate the likely shortfall in 2014/15 revenue and to that end
was planning to deliver a stretch target of £100m, within the next 12 to
18 months. The CFO and Board supported this approach and
emphasised the need to maintain and hit the EBITDAS target and to
ensure that the savings are sustainable.
(h) The Board discussed the work underway in the design phase for the
enterprise wide business and operating model, and debated the key
questions being considered by the Business. David Ryan explained
that the emerging model had three layers:
* alight corporate centre;
¢ amiddle core of operating companies; and
* an utility provider for HR, Finance Customer contact etc.
Once the model was established it would be clearer which work could
be outsourced or done with a partner.
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(i) I David Ryan assured the Board that nothing had emerged in the work
to date which should be put on hold whilst the TOM is finalised.
(j) IThe Board had some questions about the emerging model and the
creation of separate operating companies and asked the Business to
ensure it considered the opportunities and risks of such a model,
including the risk that the interdependencies between the different
businesses might receive too little focus. The Board discussed the
ACTION: Public Purpose and how it could relate to the different operating
David Ryan companies and it was suggested that the POAC could be used to
input into this debate.
(k) The Board questioned whether the Business had the specific
capability to deliver the design. David Ryan explained that the
Business recognised the need to build its capability and to change the
organisation to deliver the change. PwC were commissioned to heip
with this diagnosis and the change capability would be enhanced
before October.
(1) I The Board recognised the significant challenge to deliver the Business
Transformation alongside the 2014/15 scorecard targets. David Ryan
was asked to give the Board early warning if he saw evidence that
driving the transformation was putting the performance delivery at risk,
(m) The CEO explained David Ryan had two separate teams running in
parallel to drive in year savings and drive business transformation.
ACTION: (n) The Board thanked David Ryan for the work to date and asked for an
David Ryan/. update on the Business Transformation work at the September Board.
Company An early draft of this update should be shared with Board members in
Secretary with the offer of individual or group sessions to discuss the detail
vty before the Board.
(0) David Ryan left the meeting.
(p) The CEO explained that David Ryan's contract ended in November
and that the Business was considering the right approach for the
delivery phase of the programme. The Board supported the Business
if it decided to extend his contact for an additional six months,
recognising that he was an expensive resource.
POLB 14/90 KELLY REPORT DISCUSSION
(a) The Board welcomed Chris Aujard, General Counsel, Martin George,
Chief Marketing and Commercial! Officer, Kevin Gilliland, Network &
Sales Director, Neil Hayward, Group People Director, and Nick
Kennett, Director, Financial Services, to the meeting.
(b) The CEO introduced the discussion by explaining the process that the
Business had undertaken to consider the lessons learned in the Kelly
report with particular focus on risk management, culture and
governance. It was noted by the CEO that a great deal of work had
been undertaken over the past year to put in place appropriate
systems and structures for managing risk. The CEO highlighted
aspects of this work but recognised that further work was required,
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especially in developing a risk appetite statement.
(c) The meeting considered the outcome of the ExCo discussion and
agreed that the areas highlighted were the-right ones on which to
focus.
(d) Neil Hayward, Group People Director, described his view of the
culture within the Business and its effect on how risk is managed. He
believed that, compared with other organisations, the Business: did
not lack realism; was beginning to focus on-the right risks as viewed
through the Transformation Committee; was encouraging bad news to
be brought forward (again at the same forum); but did not always
close risks down effectively and did have some skills gaps.
(e) It was recognised that in some areas of the Business there was a
significant focus on delivery risk but that this. is not consistent. Theré.”
was agreement that the risk appetite should vary depending on the
issue being considered.
ACTION:
General Counsel
Neil Hayward/
Company
Secretary
{g) The Board was concerned that there seemed to be number of other
areas where further quick progress needed to: be made. After some
discussion, it was agreed that it would be helpful for the Business to
consider its top 3 or 4 risk and assurance priorities categorised by
reference to the lessons learned from the Kelly Report and the
headings Culture, Capability and Goverhance. .These would be
ACTION: presented back to the Board in September. It was anticipated that risk
General Counsel appetite would feature amongst this priority list, as would training and
formal clarity over delegated authorities‘and decision making.
ACTION: (h) The ARC was also asked to review of the Risk Management process.
General counsel
(i) I Chris Aujard, Martin George, Kevin Gilitand and Neil Hayward left the
meeting.
POLB 14/91
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(c)
(d)
() I
0)
(9) I
(h) I
ACTION: '
Nick Kennett
POLB 14/92 FINANCIAL PERFORMANCE UPDATE
(a) The Board received the quarterly report from the CFO. He explained
that the full year revenue forecast was now more pessimistic than
budget with a £15m gap emerging. He still remained confident of
hitting the EBITDAS target but believed the Business needed to
deliver more cost savings in order to make this achievable.
(b) The Board discussed the Mails forecast and whether enough was
being done to accelerate the new initiatives. The CEO recognised the
need to move quickly and explained that there were three areas of
focus.
4. The new sales initiatives discussed at the Board away day.
2. The effect of pricing which Royal Mail now recognised as an
issue and one over which they were willing to approach the
regulator, albeit in the autumn. In the meantime the Post Office
would extend the customer discount until September.
3. The structural changes in the market and the need to respond
through product simplification and network extension
(c) The Government Services income shortfall was mainly due to POca.
The CFO explained that negotiations were still underway to-try and
resolve the position and that following a meeting with the Pensions
Minister (Steve Webb) and further meetings with HM Treasury, the
business believe DWP has accepted this offer (including the £10m for
ring-fenced customers). However, late in the day, HM Treasury have
decided they would like to take a portion of the POca overnight
balances (50% or c£1bn) into the Government Banking Service. This
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has delayed formal acceptance of the business’ offer and a
subsequent announcement by the Minister. The Business has a way
forward but DWP and HM Treasury need to agree how the additional
tisk and any subsequent increase in price following the new HM
Treasury approach is budgeted within Government.
(d) The CFO explained that the Telephony gap was driven by lower
customer numbers and higher broadband usage, which was proving to
be an issue in the new contract. The Board asked for a note
ACTION: explaining the lessons learned, which the CEO said would-be
Martin George available after the Risk & Compliance Committee had considered the
issue.
(e) The Board supported the Business’ approach to a prudent revenue
forecast but were disappointed that a £15m risk had emerged so early
ACTION: in the year. The Board asked the Business to continue to aim for
CFO! £925m revenue but to increase its cost reduction target to mitigate the
Company £15m revenue gap and to provide a full update at the September
Secretary Board, inviting Martin George, Nick Kennett and Kevin Gilliland into
the Board for the debate.
(f) I The CFO presented the Crown P&L and explained the effect of the
reduced revenue on the Crowns. The Board discussed the importance
ACTION: of hitting the breakeven target and the initiatives in place to deliver this
Nick Kennett target. The Board recognised the importance of FS growth to this
channel and asked for a note to update them on the FS incentive
scheme.
ACTION: CFO (g) The Business was asked to look at the accuracy of the cash flow
forecasting.
(h) The Board were disappointed by the scorecard results at the end of
quarter 1 and encouraged the Business to focus on the few things
which will have the greatest impact in getting performance back on
target.
POLB 14/93 CHIEF EXECUTIVE REPORT
(a) Tim Franklin, Chairman of POAC reported on a very successful
ACTION: meeting on the 1 July. Richard Callard agreed to discuss with Jo
Richard Callard Swinson her attendance at a future meeting.
Irrelevant.
(c) Sparrow was progressing with two cases now through mediation, one
of which had been resolved but the other where no agreement was
reached. The Business was taking opportunities to make things clear
to the working group, the first being that no consequential loss would
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be paid.
POLB 14/94 MINUTES OF PREVIOUS MEETINGS AND MATTERS ARISING
(a) The minutes of the Board meetings held on 21 May and 10 June 2014
were approved for signature by the Chairman.
POLB 14/95 COMMITTEE MEETING MINUTES FOR NOTING
(a) The Board noted the minutes of:
« the Board Away Day held on 11 June 2014;
¢ the Annual Report and Financial Statements Sub-Committee
held on 18 June 2014;
¢ the Audit, Risk and Compliance Committee meeting held on 15
May 2014;
« the Financial Services Sub-Committee meetings held on 2
April and 10 June 2014;
« the Sparrow Sub-Committee meetings held on 30 April and 6
June 2014; and
« the Remuneration Committee meeting held on 13 May 2014;
POLB 14/96 STATUS REPORT
(a) The Status Report, showing matters outstanding from previous Board
meetings, was noted.
POLB 14/97 i
(@) I 1
ACTION: (b) I
Martin George H i
POLB 14/98 1
(a) I
POLB 14/99 PROPOSED BOARD DATES FOR 2015
ACTION: (a) The Board asked for the proposed Board dates for 2015, to be
Company circulated along with the forward agenda items, and they would then
Secretary confirm their availability to the Company Secretary.
POLB 14/100 ITEMS FOR NOTING
(a) The Board noted the Significant Litigation report.
ACTION: (b) The Board noted the update on Cyber Security and Information
Lesley Sewell Assurance paper and asked for more granularity on issues and risks.
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(c) The Board noted the Health & Safety report.
(d) 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 1168 to 1191 inclusive in the seal
register was hereby confirmed.
(e) The Board noted the current status of colleague offers.
(f} The Board noted the current status of the End User Compute
procurement as part of the new Towers based IT supply chain.
ACTION: (g) The Board noted the Internal Audit Action Status report and asked for
Malcolm Zack future reports to include a commentary on any outstanding actions.
POLB 14/101 ANY OTHER BUSINESS
the Report & Accounts.
ACTION: Company (c) The Company Secretary was asked to arrange a cyber-security guest
Secretary speaker to attend a future Board meeting.
ACTION: (d) It was agreed that the October Board meeting would be held at the
Martin George Post Office Design Lab at the Southbank University.
POLB 14/102 DATES OF NEXT MEETINGS
(a) It was noted that the next Board meeting would be held on 25
September 2014.
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