POLB 14(10")
POLB 14/127 14/141
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POST OFFICE LIMITED
(Company no. 2154540)
(the ‘Company’) -
Minutes of a Board meeting held on:29 October 2014 *
Present:
Alice Perkins
Neil McCausland
Tim Franklin
Virginia Holmes
Alasdair Marnoch
Richard Callard
Paula Vennells
Chris Day
In Attendance:
Alwen Lyons
Mark Davies
Neil Hayward
David Ryan
Nick Kennett
Paul Havenhand
Kevin Gilliland
Lesley Sewell
POLB 14/127
POLB 14/128
ACTION:
CEO
(a)
(a)
at 148 Old Street, London EC1V 9HQ
Chairman
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director
Chief Executive
Chief Financial Officer
Company Secretary
‘Communications & Corporate Affairs Director (minutes POLB
14/128 - 129)
Group People Director (minutes POLB 14/1 28 ~ 129)
Business Transformation Director (minute POLB 14/128)
Director, Financial Services (minute POLB-14/433)
General Manager POMS (minute POLB 14/133) ©
Network & Sales Director (minute POLB 14/134)
Chief Information Officer (minute POLB 14/139)
INTRODUCTION
A quorum being present, the Chairman opened the meeting.
CEO’S REPORT
The CEO introduced her report and thanked the Board for convening
for the additional Board call on the 21% October. The CEO focused on
three key areas for discussion with the Board:
1. There was agreement that the Royal-.Mail Group (RMG)
.«meeting taking place on the 30" October was vital and an
opportunity to debate the changes in the market and each
-business’s priorities. The Board recognised the changes
~ required by Post Office would require a radical restructure for
RMG, and asked the Business. to ensure that if RMG was
committed to these changes they understood the aggressive
timeline that was required. The Board asked for an update
after the RMG meeting.
2. The CEO emphasised that, whilst the Business remained
committed to the existing plan, work was underway on an
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alternative pian (Plan B) which would include operating as an
aggregator for other mails providers. It was acknowledged that
this would need a renegotiation of the RMG MDA and that
whilst the Business did not start from a strong negotiating
position it needed to; protect sales volumes from RMG and not
trigger a renegotiation from them; and reduce the complexity of
the RMG product suits which would not switch easily to
another provider.Plan B was also dependent on changes to the
Network which would require Government support. The Board
asked if the Business had the right resource working on Plan
B. The CEO reported that she had approached Sue Barton,
Strategy Director, currently on a sabbatical, but that she was
unavailable until the New Year and that Martin Edwards was
currently leading this work. Plan B was on the agenda for
discussion at the November Board meeting.
3. The Board noted the improvement in the FS video mystery
shopping to 80% compliance, and asked the FS sub
ACTION: committee to continue to monitor. The Board asked for an
Nick Kennett update on the mortgage sales and pipeline to give them
comfort that the full year forecast was robust. The CEO
explained that from next month Financial Services would be
monitored as a key change programme in section 3 of her
report.
(b) The CEO updated the Board on Sparrow and an antagonistic
conversation with James Arbuthnot MP about the Business’ approach
to the Mediation Scheme. She reiterated that the investigations were
progressing well. The Business was refusing to progress all cases into
mediation, although it was offering to meet and go through each case
ACTION: with the applicant. The Chairman offered to reconvene the Sparrow
Chris Aujard Board Sub Committee if required.
POLB 14/129 CEO RISK REPORT
(a) The Board welcomed Neil Hayward, Group People Director, Mark
Davies, Communications & Corporate Affairs Director and David
Ryan, Business Transformation Director, to the meeting.
(b) The CEO introduced the risk paper and explained that the Business
intended to have the necessary systems in place before the end of the
financial year to enable it to comply with the UK Corporate
Governance Code as it applies to risk management and report this in
next year’s Report & Accounts.
(c) The CEO explained that her report focussed on the areas highlighted
in Sir Christopher Kelly's report on the Co-operative Bank, using his
themes of Culture; Governance; Risk Management; and Capability.
She believed that Capability was the biggest area of risk for the
Business followed by the Culture of the organisation. In many areas
these two themes were linked for example in risk management where
the Business was increasing its capability at a senior level to lead the
change in attitude and culture.
(d) The CEO reported that the recent PwC work to analyse the Business’
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risk management had concluded that the Business capability was
ACTION: ‘satisfactory’ in steady state but ‘inadequate’ as the Business moved
Chris Aujard into transformation. The Board asked for a summary of the report to
be circulated with the full report sent to those Board members who
were interviewed.
{e) The CEO recognised that, as the Business accelerated the
transformation and moved from design to implementation that the
structure of the transformation team would need to change. She
explained that the transformation office led by Alison Thompson would
move to work for David Ryan, who would then lead the whole
transformation agenda.
(f) The CEO assured the Board that the Business would only use
consultants when absolutely necessary and that the CFO monitored
this area. However, she recognised that especially in risk and change
there was an urgency to get these areas in the position to be capable
to deal with the transformation and this would need external resource.
(g) The CEO explained that enterprise risk, including the top 6+3
Business risks, would return to the January Board for discussion.
ACTION: (h) The Board asked for updated forward agendas for Board and Sub
Company Committee meetings
Secretary
(i) I The Board noted the Risk Report.
(j) I David Ryan left the meeting.
POLB 14/130 PEOPLE AND ENGAGEMENT UPDATE
(a) Neil Hayward, Group People Director, introduced the update on the
People and Engagement strategy, including the Plan for the next 12 —
18 months, changing the way that the Business works with the unions
and the NFSP and stakeholder analysis and critical path.
(b) The Board recognised the challenge of people engagement during a
period of significant transformation and cost reduction. Neil Hayward
accepted that this would be challenging but reassured the Board that
he had past experience of similar circumstances. He emphasised the
need for a compelling narrative to help people understand why the
changes were best for the organisation. Mark Davies explained that
the tone of internal communications had already changed and people
appreciated the honesty.
(c) Neil Hayward recognised that people needed to understand what the
Business would be in 2020. He acknowledged that, as yet, the
Business had not explained what a transformed and commercially
sustainable Post Office would be like. He recognised that people
would find the changes painful and agreed that the Business had to
remain honest and consistent .in its communication and paint a
compelling picture of the future.
(d) The Board asked Neil Hayward if he was constrained by the resource
in his team and which areas he would like to accelerate work on. He
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explained that he kept the resource in the Industrial Relations Team
under review, but acknowledged that his two areas of concern were
refreshing the Senior Leadership Team which took a lot of his and Fay
Healey's personal time and senior leadership development.
ACTION: (e) The Board asked for an update at the end of the Financial Year to
Neil Hayward review the roadmap for the next 12-18 months and the senior
leadership training and development.
(f) Neil Hayward explained that Wave 1 of the new organisational design
would be presented to the Nominations Committee on the 10!
November. He reported that the Business has also recognised that
retention may become an issue for specialist areas and that his team
was considering a very small number of people who may require
retention payments.
(g) The CEO emphasised the need to focus more on subpostmasters but
stressed the need fo keep them as agents and not employees. The
ACTION: Board were concerned that these definitions should not be blurred.
Chris Aujard The CEO agreed and promised a note to the Board from the General
Counsel (GC) to give them comfort.
(h) The Board discussed and supported the: proposed changes to
collective bargaining and was reassured by the Business’ plans. Neil
Hayward ‘stressed the need to get down to the right level of
representation for the Business with a formula that reduces in line with
headcount.
(i) The Board considered the detail of possible simultaneous CWU and
NFSP disputes and the likely reaction of. stakeholders. Mark Davies
explained the worst case scenario and although he did not
underestimate how difficult it would be, believed the Business had the
capability to handle both the operational and media battles. The Board
asked for assurance that the Business could manage the operational ' °
consequences of a strike. This issue would be raised with Kevin
Gilliland, Network Director later in the meeting.
(j) I The CEO assured the Board that the plans were already in place for
Christmas and that any NFSP dispute was likely to be after the
Christmas period. Neil Hayward explained that the next contentious
point of negotiation with the NFSP was likely to be the Memorandum
of Understanding and grant agreement, the principles and price of
which he was still discussing.
(k) The Board asked Richard Callard for his opinion of the Minister's likely
response to any disputes. He explained that the Minister had already
been briefed regarding the CWU Supply Chain dispute and
considered it an operational issue in which she should not get
involved, although she was supportive of the Business and
understood the possible need to use compulsory redundancy. He
suggested that the relationship with the NFSP was more complicated.
The Minister understood the need to manage Network Transformation
within the current funding envelope, which.would be impossible if
additional compensation was paid to subpostmasters for network
extension. He could not promise how the Minister would respond but
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promised the Shareholder team, ShEx and the Treasury support.
(!) The Board asked Richard Callard to ensure that any Ministerial
briefing made clear the financial consequences of failure. The CEO
explained that she had a meeting with the Minister in the next two
weeks at which she would be able to explain the position.
ACTION: (m) The Board asked the Business to refresh the stakeholder plan, and
Mark Davies produce a high level heat map/stakeholder grid to keep the Board
updated. The Chairman recognised that the Board does not have a
meeting in December but asked the CEO to keep the Board informed
and if necessary call an emergency Board meeting
(n) The Board noted the update on People and Engagement, and
supported the proposals presented.
(0) Neil Hayward and Mark Davies left the meeting.
POLB 14/131 FINANCIAL PERFORMANCE UPDATE
{a) The CFO presented a financial performance update for September
2014,
(b) He explained that his report would cover the changes in forecast since
period 5; the full year outlook including key dependencies and
assumptions for H2 performance; a year on year comparison of H1
performance; and external messaging for the interim statements.
(c) The CFO full year forecast for income had worsened from the £890m
in period 5 flagged by the CFO at the last Board meeting, down to
£880m, £45m behind budget and £13m up on the previous year. This
was driven by two areas where the CFO had taken a more prudent
approach to the forecast.
(d) The Mails income had been reduced to include a more realistic return
for the ebay and mails coaching initiatives, but still contained growth
for the Christmas campaign which the Business supported.
In addition Government Services net income had been reduced by
(e) £10m to recognise the liability for deceased customers. The CFO
explained that the Business continued to hope it can offset this liability
with the income for ‘ting-fenced’ customers but this had not proved
possible to date so it was necessary to recognise the liability at P6.
The Board discussed the possible pricing true-up issues and
supported the CFO’s prudent approach in recognising the liability
whilst not including any benefit for the undercharging for ring-fenced
customers.
The CEO assured the Board that the inaccuracies caused by the DWP.
(f) and Business systems had not led to any customer detriment.
It was noted that Government Services income was down 10% on last
(g) year at the half year and likely to be similar at full year.
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The Board were concerned about the effect of the new telephony
(h) contract. The CFO explained that a new plan was now in place which
had taken down the expected customer numbers as well as the
average revenue per user. He considered that there was still £3m risk
in the telephony numbers despite a price rise in January which should
ACTION: improve the position by £2m. The telephony contract was due to corhe
Chris Aujard/ to the Risk & Compliance Committee as then the ARC for a deep
Alasdair Marnoch dive in the New Year.
The CFO explained that significant: challenge had gone into
(i) _ scrutinising the income numbers through a formal review process and
that the Commercial and FS teams were signed up to delivering the
new forecast.
The CFO reported the changes to the cost forecast and the current
(i) gap of £15m against the adjusted target of £60m required to protect
the original EBITDAS. He still believed the. Business would get near to
the £60m target if one off savings such as releasing the bonus accrual
were included. However, the forecast had been reduced to include the ‘
£45m he was certain the Business could deliver.
He stressed the importance of finding sustainable savings in the year
(k) — and was hopeful the Business would get to near its adjusted target of
£53m, which was required to underpin the £100m cumulative
sustainable saving required by the end of 2015/16.
The CFO concluded that, taking into consideration the changes to
(!) income and costs, he had reduced his EBITDAS forecast to £85m,
including a £5m contingency. He explained that the likely year on year
improvement in EBITDAS (after allowing for material one off
adjustments) was circa £20m, which would deliver a projected
EBITDAS of circa minus £75m this year and a likely trajectory to
breakeven in 2 to 3 years’ time, rather than 1 year indicated in the
2013 funding request.
The Board’was concerned by the status of the Business scorecard
(m) and asked specifically about the Easy to do business with (ETODBW)
decline and whether this was a reflection’ on: cost cutting. The CFO
explained that very few front line jobs had been cut, but accepted that
there seemed to be a disparity between ETDBW and the customer
research undertaken after network transformation. The CEO explained
ACTION: that the two measures were very different and promised to return to
Martin George the Board for a discussion on ETDBW. :
POLB 14/132 INTERIM REPORT AND CONDENSED FINANCIAL STATEMENTS
FOR 2014-15
(a) Mark Davies joined the meeting.
(b) The Board reviewed the Company's draft interim report for the 2014-
15 half year.
(c) The Board agreed that the statement should explain the journey the
Business was on and the turnaround taking place. It should show that
the Business is doing the right things and has taken some pain in the
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first half of the year but that the rate of improvement is getting better. It
needs to explain the cost story, including necessary investment, and
why the Business needs to go harder and faster.
ACTION: (d) Mark Davies agreed to provide a revised draft for the Chairman and
Mark Davies CEO.
{e) Mark Davies left the meeting
POLB 14/133 ee
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ACTION:
Chris Aujard
@ I
{e) I i
Om
(9)
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OF
@)
ACTION:
Nick Kennett/
Chris Day
(i)
POLB 14/134 NETWORK UPDATE
(a) The Board welcomed Kevin Gilliland, Network & Sales Director, to the
meeting. and received an update on Network Transformation,
performance of the new models and progress on Crown
Transformation.
(b) The Board were encouraged by the progress and thanked Kevin
Gilliland for the strong Network Transformation performance.
(c) The Board discussed Crown Transformation and the likely profit and
loss run rate at year end. Kevin Gilliland explained that the Business
may miss the breakeven target by 6 months but that the Crown
Transformation was still a remarkable turnaround. The Board agreed
and was sympathetic to the position and discussed the additional
actions which could be taken. The Board asked the Business to
ACTION: ensure that all legitimate actions were delivered including recognition
CFO/Kevin of the additional profit in the franchise network. Kevin Gilliland was
Gilliland asked to provide a narrative to explain the transformation delivered in
the Crown network to be used to support the year end run rate.
(d) The Chairman explained the earlier Board discussion, POLB 14/13 (i),
and asked Kevin Gilliland to reiterate his contingency plans in the
event of Supply Chain industrial action, specifically to give the Board
comfort that the Business could manage both discontinuous and
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continuous action with little customer detriment.
(e) Kevin Gilliland explained the process of pre-funding the network and
the use of the rapid deployment force (250 trained managers) to
manage any difficult parts of the country.
(f) He believed that continuous action was highly untikely but in this event
the network would be pre-funded with the 3000 more remote branches.
getting 5-10 weeks cash. He remained confident that the Business
could manage any action with little disruption to customer service.
The Board asked the Business to be ready to handle the PR around
any closed branches.
(g) The Board affirmed its support for the approach to the Supply Chain
negotiations and any subsequent industrial action.
(h) The Board noted the Network update.
(i) Kevin Gilliland left the meeting.
POLB 14/135
(a) I '
ACTION: ; i
Chairman H
POLB 14/136 MINUTES OF PREVIOUS MEETINGS AND MATTERS ARISING
(a) The minutes of the Board meetings held on 25 September 2014 were
approved for signature by the Chairman.
POLB 14/137 COMMITTEE MEETING MINUTES FOR NOTING
(a) The Board noted the minutes of:
« the Audit, Risk and Compliance Committee held by
correspondence on 16 September 2014; and
e the Financial Services Sub-Committee meeting held on 16
September 2014.
POLB 14/138 STATUS REPORT
(a) The Status Report, showing matters outstanding from previous Board
meetings, was noted.
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(b) The Board noted the update on the Facilities Management and
Grapevine contract awards.
POLB 14/139 END USER COMPUTING (EUC) CONTRACT AWARD
(a) The Board approved the award of the EUC contract to Computacenter
and authorised the CFO to execute the relevant contracts.
POLB 14/140 ITEMS FOR NOTING
(a) The Board noted the Cyber Security update.
(b) The Board noted the Significant Litigation report.
(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 1123 to 1230 inclusive in the seal
register was hereby confirmed.
POLB 14/141 DATES OF NEXT MEETINGS
(a) It was noted that the next Board meeting would be held on 26
November 2014.
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