POLB 14(8")
POLB 14/103-14/117
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POST OFFICE LIMITED
(Company no, 2154540)
(the ‘Company’)
Minutes of a Board meeting held on 25 September 2014
Present:
Alice Perkins
Neil McCausland
Tim Franklin
Virginia Holmes
Alasdair Marnoch
Richard Callard
Paula Vennells
Chris Day
In Attendance:
Alwen Lyons
Nick Kennett
Sameer Gulati
Zubin Taraporevala
Martin George
Kevin Gilliland
Kim Lindsey
David Ryan
Neil Hayward
Chris Aujard
Belinda Crowe
POLB 14/103
POLB 14/104
(a)
at 148 Old Street, London EC1V 9HQ
Chairman
Non-Executive Director
Non-Executive Director
Non-Executive Director (minutes 14/103 — 14/105)
Non-Executive Director
Non-Executive Director
Chief Executive
Chief Financial Officer
Company Secretary
Director, Financial Services (minute 14/105)
Partner, McKinsey & Co (minute 14/105)
Partner, McKinsey & Co (minute 14/105)
Chief Marketing and Commercial Officer (minute 14/106)
Network & Sales Director (minute 14/106)
Product Manager (minutes 14/106)
Business Transformation Director (minute 14/107)
Group People Director (minute 14/107)
General Counsel (minute 14/109)
Programme Director, Project Sparrow (minute 14/109)
INTRODUCTION
A quorum being present, the Chairman opened the meeting.
CEO’S REPORT
The CEO introduced her report by recognising the number of complex
and immediate challenges facing the Business. She focused on three
areas for comment:
1. The Business remained committed to delivering the in-year
profit target and recognised the importance of cost reduction to
mitigate the reduction in income.
2. Transformation in our heavily unionised business would
inevitably cause disruption and the CEO emphasised the risks
that the Business would have to manage.
3. Improving the partnership with Royal Mai! Group (RMG) and
ACTION:
CEO
ACTION:
David Ryan/
Neil Hayward
POLB 14/105
ACTION:
Nick Kennett
ACTION:
Nick Kennett
ay
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aligning the both Businesses’ visions and strategies was vital
and urgent.
(b) ~The CEO explained that the new style report was not intended to be a
risk management report and that she would provide her view on risk
management at the October Board.
(c) :. The. Board’ welcomed the new-style Chief Executive's report and
discussed. the challenges faced by the Business taking into
consideration the IR, political, stakeholder environment and the
“2.prdfound.changes taking place in the external market place. The CEO
‘-L explained that Board would receive the full Business Transformation
proposal:.at the November meeting, which would include the
“stakeholder and IR plan. However, before November there could be
s+ unrest.from the CWU and NFSP as the Business progresses its plans
for Supply Chain and Network Extension.
(oy
(oy
Irrelevant ©
e)
(f)
ACTION:
Nick Kennett
ACTION:
Nick Kennett
POLB 14/106
thy
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OF
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ACTION:
Martin George
ACTION:
Martin George
ACTION:
Kevin Gilliland
ACTION:
CFO
ACTION:
Richard Callard/
Martin George
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@)
() I
oO)
@ I
‘ Irrelevant.
I
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POLB 14/107 BUSINESS TRANSFORMATION UPDATE
(a) The Board welcomed David Ryan, Business Transformation Director,
and Neil Hayward, Group People Director to the meeting.
(b) David Ryan presented an update on the key findings from Stage II of
the Business Transformation design phase; next steps to conclude the
design phase; and progress with the delivery of immediate cost
savings for 2014/15.
(c}) The Board discussed the near and mid-term savings projected to be
£100m by the end of 2015/16. David Ryan explained that there was
still a gap of £10.2m to find in the £60m savings for 14/15, but that he
expected the Business to reach this target. The CFO stressed the
importance of finding at least £53m recurring savings as part of this
ACTION: target. The Board agreed this priority and asked for a regular update.
CFO The CFO confirmed this would now appear in his regular Performance
Report.
(d) David Ryan explained the key findings of the work to define the new
Target Operating Model (TOM) and the route to delivering the £200m
improvement to EBITDAS. He explained the effect of delivering the
new TOM, with projected figures of circa £233m EBITDAS by 2020.
(e) David Ryan clarified that the plan ring-fenced the funding for the social
network provision which could in the future be developed into a
commercial contract. The transformation would need to be delivered
within the existing funding envelope. The Board agreed that the
Business needed to be mindful of the funding envelope but asked that
any significant opportunity that needed capital beyond the current
ACTION: limits be highlighted and discussed with the Board before being
CFO discounted.
(f) The Board recognised the challenge and complexity in the
transformation plan and the need to coordinate the stakeholder
communications. The CEO stressed the need to understand the whole
picture before approaching the unions as it was likely this level of
savings would require the Business to move to compulsory
redundancy, which it had not done before.
(g) Neil Hayward explained that the Business managed any redundancy
through the Managing the Surplus Framework (MTSF) union
agreement. The Business had taken legal opinion from two sources
both of which supported the interpretation that MTSF allows for
compulsory redundancy after a 90 day consultation period. The unions
hold a different view based on custom and practice operated
previously (under RMG) so this move would be very unpopular and
likely to trigger industrial action, starting in Supply Chain.
(h) Neil Hayward reported that the leadership of the supply chain had
been a concern and that the Business had tested the market for a
replacement. Although the current incumbent had a good track record
of operational delivery, especially in times of IR unrest, he needed
more strategic support. Therefore, it had been decided to put Harry
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ACTION: Clarke in as the line management to oversee the supply chain. The
Neil Hayward/ CEO promised to provide an update on the Supply Chain IR
Kevin Gilliland contingency plans.
(i) Neil Hayward would return to the Board in October to discuss the
ACTION: broader IR challenge, the nature of the union agreements and
Neil Hayward possible changes to the relationship.
(j) I The Business would return to the Board in November with the ‘high
level’ implementation pian, with a recommendation on what the focus
for the next 18 months would be, in the context of the longer journey
to end state. This plan would include the narrative for the compelling
case for change to be used in stakeholder engagement. At that point,
when it fully understood the proposals in the round, the Board would
need to decide which aspects of them to pursue and which, if any,
needed to be modified or dropped.
() Neil Hayward and David Ryan left the meeting.
POLB 14/108 FINANCIAL PERFORMANCE UPDATE
(a) The CFO presented a financial performance update for August 2014.
(b) He explained that income continued to track below budget putting
additional pressure on the delivery of the EBITDAS target.
(c) The Board discussed the Mails initiatives which to date had not
produced the returns that had been hoped. The CFO recognised that
if the Mails income irend continued to decline there was a possibility
that the outturn would be lower than the 2013/14 number of £343m. It
was Currently projected to be in the £350- £354m range. The Business
was investing in sales training for the largest 4000 agency branches
which could deliver an additional £6m income, this additional £6m
income was included in the CFO report but depended on the effective
rollout of the initiative. Actions to boost income from Collections and
Returns by £7.2m were also in train. The CEO stressed that both
initiatives were not without a major delivery risk.
(d) Financial Services was tracking ahead of budget and although the
targets get more stretching in the second half of the year, the CFO
thought they were achievable. However scope to stretch the targets
further to compensate for underperformance elsewhere was limited.
(e) The CFO reported that the Business had been joined by a new senior
telecom professional. Despite a disappointing Q1 marketing campaign
and 30k fewer customers than anticipated, he was more optimistic
about delivering a turnaround in the economics of the Telephony in
the second haif of the year.
(f) The Government Services performance was also disappointing, with
the impact of POca issues, together with lower than anticipated
volumes on passports, likely to lead to a full year forecast reduction of
circa 8-9% compared with last year.
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(g) The CFO acknowledged that there was now no contingency in the
£900m income forecast and stated that the underlying trend
suggested a likely P6 half year projection closer to £890m. He
explained the risk in the second half of the year if the income trend
continued but did at the moment feel that with the additional cost
savings planned that the Business could still deliver £95m EBITDAS.
(h) The CFO reported that he was now less confident about hitting the
Crown breakeven run rate by the end of the financial year. He
explained that the adverse income variance had had a significant
impact on the Crown P&L and despite additional staff cost savings the
target was become very challenging. He told the Board that the
Network team were still determined to deliver the target but that he
ACTION: personally thought it would be 6 to 9 months late. The CFO promised
CFO/ jo revisit the Crown P&L and provide a narrative to the Board to show
Kevin Gilliland how much has been achieved even if the target is narrowly missed
(i) The Board stated the challenging trading conditions, especially in
mails, compounded by the dependency on RMG to support any
product changes. Nonetheless they were disappointed that the
Business was failing so many of its financial targets and asked the
ACTION: CFO to provide a detailed forecast at the half year which would be
CFO used to support the challenging messages in the interim report and
accounts. The Board acknowledged the importance of hitting at least 2
of the 4 key financial/operational measures.
POLB 14/109 SPARROW UPDATE
(a) Chris Aujard, General Counsel (the GC), and Belinda Crowe,
Programme Director, Project Sparrow, joined the meeting.
(b) The GC and Belinda Crowe presented an update on progress under
the Initial Complaints Review and Mediation Scheme (the ‘Scheme’).
(c) The GC reported negotiations with Second Sight to move them onto a
much reduced payment arrangement based on a piece rate tied to
productivity and quality.
(d) The Board was encouraged by the recent progress and the fact that
all the Post Office investigations should be finished by December. The
Board members understood that the next few weeks could be
controversial as the Business was about to refuse to put cases
involving criminal convictions into mediation.
ACTION: Belinda
Crowe/General (e) The Board asked the Business to work with ShEx to update the
Counsel/Richard Minister on the Post Office position regarding the investigations, the
Callard Scheme and Second Sight.
(f) The Board noted the update on the Scheme.
(g) The General Counsel and Belinda Crowe left the meeting.
POLB 14/110
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POLB 14/111 MINUTES OF PREVIOUS MEETINGS AND MATTERS ARISING
(a) The minutes of the Board meetings held on 16 July 2014 were
approved for signature by the Chairman.
(b) There were no matters arising
POLB 14/112 COMMITTEE MEETING MINUTES FOR NOTING
(a} The Board noted the minutes of:
«the Financial Services Sub-Committee meeting held on 15 July
2014; and
e the Pensions Sub-Committee meetings held on 25 June 2014
and 22 July 2014.
POLB 14/113 STATUS REPORT
{a) The Status Report, showing matters outstanding from previous Board
meetings, was noted.
POLB 14/114 ITEMS FOR NOTING
ACTION: (a) The Board noted the update on Digital and asked for clarification on
Martin George the impact of the Common Digital Platform on the Horizon system and
any possible cost savings.
(b) The Board noted the update on SME and asked the Business to
ACTIONS: ensure that customer satisfaction was included as part of the
Martin George proposition which will come back to the Board, It was also suggested
Nick Kennett that changes in the pensions environment may offer an SME
opportunity for FS.
(c) The Board noted the Internal Audit Action Status report.
(d) The Board noted the Significant Litigation report.
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(e) The Board noted the Health & Safety report.
(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 1192 to 1222 inclusive in the seal
register was hereby confirmed.
POLB 14/115 i
(©) I
POLB 14/116 AUTHENTICATION OF THE COMPANY SEAL
{a) After due consideration, the Board approved that the affixing of the
Company seal could be authenticated by any one of the following: a
current Director of the Company; the Company Secretary; the Deputy
Company Secretary; the General Counsel; and Piero D'Agostino.
POLB 14/117 DATES OF NEXT MEETINGS
(a) _ It was noted that the next Board meeting would be held on 29 October
2014,