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POLB 15(1%)
POLB 15/01 - 15/23
POST OFFICE LIMITED
(Company no. 2154540)
(the ‘Company’)
Minutes of a Board meeting held on 28 January 2015
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
Alasdair Marnoch Non-Executive Director
Richard Callard Non-Executive Director
Paula Vennells Chief Executive
Alisdair Cameron Chief Financial Officer
In Attendance:
Alwen Lyons Company Secretary
Neil Hayward Group People Director (minute POLB 15/4-15/6)
David Ryan Business Transformation Director (minute POLB 15/5-15/7)
Martin Edward Head of Financial Strategy (minute POLB 15/5-15/6)
Lesley Sewell Chief information Officer (minute POLB 15/7 only)
Jane MacLeod General Counsel (minute POLB 15/9 only)
Chris Aujard General Counsel (minute POLB 15/9 only)
Arnout Van Der Veer Head of Risk & Assurance (minute POLB15/9 only)
Martin George Commercial Director (minute POLB 15/10 only)
Mark Siviter Head of Mails (minute POLB 15/10 only)
Kevin Gilliland Network & Sales Director (minute POLB 15/11 only)
Mark Davies Communications & Corporate Affairs Director (minute POLB
15/12 only)
Tony Smith Head of CPNI (minutes POLB15/8 only)
POLB 15/01 INTRODUCTION
(a) A quorum being present, the Chairman opened the meeting.
POLB 15/02 CHANGE OF DIRECTORS
(a) The Board approved the appointment of Alisdair Cameron and noted
that Chris Day would cease to be a director with immediate effect.
ACTON: (b) The Company Secretary was authorised to make all the necessary
CoSec filings with Companies House.
POLB 15/03 CEO’S REPORT
(a) The CEO introduced her report and focussed on the following key
areas for discussion with the Board:
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(b) Cost Reduction The CEO was pleased to’ report the excellent progress
made by the Business - the forecast 'was to overachieve the £60m
target by £1.7m. She recognised the work done by David Ryan,
Business Transformation Director, and stressed that the focus on cost
reduction would continue into the new financial year. The first wave of
staff efficiencies was taking place and planning for the second wave,
focussed on managerial role was underway.
ACTION:
CEO ; i.
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ACTION: I
Pete Markey I . H i
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ACTION: .
Nick Kennett.
POLB 15/04 2014/15 FINANCIAL PERFORMANCE AND SCORECARD
(a) The Board welcomed Neil Hayward, Group People Director, to the
meeting. 4 . ' r
(b) The CFO gave the Board an update on:
«the financial performance in December 2014 and YTD;
e the expected financial outcome for 2014-15; and
e the expected outcome on the performance scorecard.
(c) The CFO considered that in his opinion, the £880m revenue forecast
still contained a degree of optimism. The Board discussed the
revenue trajectory and the Q4 revenue required to achieve the
forecast.
(d) The Board asked when the new FS incentive scheme would be
launched. Neil Hayward explained that the detail had been sent to the
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CWU on 18" December. The Board discussed the importance of
retaining the focus on Treating the Customer Fairly as well as
incentivising sales and agreed that the ARC should continue to
monitor the FS sales risk measures.
ACTION: (e) The Board recognised the importance of Q4 for iSA sales and asked
Kevin Gilliland the Business to ensure that they had the necessary sales focus in
place.
(f) The Board discussed the telephony revenue and asked if the contract
ACTION: had been changed to rectify the revenue/cost disparity for increased
CFO customer usage. The CFO agreed to circulate a note to clarify.
(g) The CFO highlighted that Q3 was the first quarter of the year to deliver
an EBIT above plan and he was hopeful that the Business would be
able to close the EBIT gap further in Q4.
(h). The Board discussed the scorecard and the poor performance on
ACTION: ‘easy to do business with’. The CEO acknowledged the significant
Pete Markey drop against target and last year’s result. It was agreed that a note
would be circulated to explain the change.
(i) I The CFO explained that Q4 still contained some big one-off risks and
opportunities and that the EBIT could range from £83m to £103m,
although he was comfortable with the £95m currently being forecast.
Likewise the Bonus could range between 12.5% and 70%, with a
current forecast of 50%.
(j) The. Board discussed the Crown P&L target and agreed to the
principtle-that the initial 373 Crown branches be analysed to produce a
like for like breakeven analysis.
(k) . The Board noted the performance and improved full year forecast.
The: Board further noted that there were a number of key
dependencies for this improved full year forecast to’be achieved.
POLB 15/05 UPDATE.ON THE 2015/16 OPERATING PLAN AND THREE YEAR '
OPERATING PLAN
(a) The Board welcomed David Ryan, Business Transformation Director,
and Martin Edwards, Head of Financial Strategy, to the meeting.
(b) The CFO updated the Board on the preparation of the 2015/16 Annual
Operating Pian and introduced the proposed approach to the three
year plan, providing an interim update on the latest financial
projections through to 2017/18.
(c) An EBITDAS target of £35m was proposed for 2015/16, continuing the
improvement of the last three years but falling short of the breakeven
target in the strategic plan.
(d} The CFO explained that he believed that the Business was being over
optimistic on revenue, especially in Mails, which had not factored in
ACTION: RMG’s promotion of online postage. He did not think the level of over
Martin Edwards optimism was as significant as it had been in the 2014/15 budget but
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he wanted a more realistic approach in the budget and three year
plan. The Chairman stressed the need for realism.
(e) The CFO recognised the need for a £10m contingency to support the
£35m EBITDAS target proposed for 2015/16. This would be built into
the budgets agreed with individual functions. Neil Hayward reminded
the Board that an EBITDAS target of £35m would not hit the LTIP
target, the Business would need to deliver an outturn of £26m to
trigger the LTIP.
(f) The Board discussed the current risks and opportunities highlighted in
the plan and the need to continue to focus on reducing costs. The
CFO recognised the need to manage working capital to enable the
Business to deliver the plan without further borrowing.
(g) The CEO explained that the Business scorecard and bonus measures
would be discussed at the RemCom in February.
(h} The Board discussed the objectives for the three year operating plan,
the first year of which would be the budget for 2015/16. The CFO
promised a draft to the Board in March and the final plan in May.
(i) I The Board asked for a page showing the 2012/13 to 2017/18 strategic
plan against the outturn for past years and the forecast for future
years, to be included as a baseline in the three year operating plan.
{j) — Martin Edwards explained that the plan would contain milestones and
change activity, along with major events and a log of material risks
and opportunities. The Board asked that the plan showed the
assumptions being made so that they could understand the choices
available to the Business.
POLB 15/06 BUSINESS TRANSFORMATION
(a) The Board thanked David Ryan for the focus he had set the Business
on cost reduction and the performance to date.
(b) The Board received an update from David Ryan on the Business
Transformation Programme and the actions arising from the
November Board. David Ryan reported that he now believed a 20%
reduction in change resource was possible as part of wave 2, taking
the team down from its current 80 FTEs to circa 60.
(c) David Ryan proposed that the Back Office Application Tower (BOAT)
work, which had been suspended to consider alignment with the wider
back office outsourcing, should now go ahead. The added risks and
cost of any further delay to BOAT outweighed any possible small
advantage. The Board agreed that the risks outweighed any benefits
ACTION: and that the Business should focus on the front office changes. David
David Ryan Ryan would circulate a briefing note to the Board once the final BOAT
and back office timelines were agreed.
(d) David Ryan explained that he was focussing on three areas for
Business Transformation:
i. Driving the cost savings this year and next to get to a
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stretch target
ii. Delivering a 3 year plan, aligned with the operating
plan, with Business Transformation milestones, which
he agreed to report to the Board on in May
iii. Introducing joined up governance through design
authority and a Transformation Working Group,
escalating to the Transformation Committee to ensure
that all activity is considered through a transformation
lens.
(e) David Ryan stressed that the technology agenda was mission critical
and needed to take precedence,
(f} I The Board noted the update.
(g) Neil Hayward and Martin Edwards left the meeting.
POLB 15/07 IT STRATEGY
(a) The Board welcomed Lesley Sewell, Chief Information Officer, to the
meeting and received an update on: the progress against the key
initiatives within the 2020 Strategy; the progress on developing the IT
Strategy and alignment with Business Transformation; and the key
tisks, mitigations and contingency plans.
(b) The Board discussed the changes to the front office system and
Lesley Sewell stressed the need for the front office changes to be
given primacy over all other Business initiatives. It was recognised
that standardising and simplifying products and systems would reduce
cost and complexity for suppliers and risk for the Company. The CEO
assured the Board that the Executive recognised the need to simplify
products and processes and that the IT strategy was being managed
through the Executive.
{c) A preferred bidder (from Accenture, IBM and CSC) would be chosen
by the end of March.
(d) The Board asked the Business to consider the failures in other
ACTION: Business’ big IT projects to better understand the possible risks; and
Lesley Sewell to report back to the Board on their analysis and its relevance to the
Post Office.
(e) The Board discussed Sparrow and any perceived or actual risk for
ACTION: sub-postmasters of the system change. The Business was asked to
Lesley Sewell ensure independent assurance of the system's integrity and security
before it goes live, with a forensic end to end assurance.
ACTION: (f) The Business was also asked to consider how it would manage the
Mark Davies PR implications of announcing the change whilst Sparrow is still
ongoing.
(g) Lesley Sewell explained that the plan was to run the new and old
systems in parallel for 6-7months and the need for the new supplier to
work closely with Fujitsu. The Board asked if the new supplier and
Fujitsu would have back to back contracts to mitigate the commercial
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risk for the Business. Lesley Sewell assured the Board that this was
the plan but still recognised the Fujitsu exit as a significant risk.
(h) The Board asked how the Business would future proof the new
system and were reassured that this would be as standard a system
as possible, enabling additional ‘plug in’ improvements for software
developments.
{i) I The Board noted:
e the progress against the key initiatives within the 2020
Strategy
e the progress on the IT Strategy and alignment with Business
Transformation
e the key risks, mitigations and contingency plans
« that the team would revert back to the Board as follows:
March 2015 — Strategy update and alignment to Operating
Plan
May 2015 — to seek authority for the Network Tower award
May 2015 —to seek authority for Front Office Tower award
(David Ryan and Lesley Sewell left the meeting.
POLB 15/08
(a)
POLB 15/09 RISK APPETITE
(a) The Board welcomed Chris Aujard, General Counsel, Jane MacLeod,
General Counsel and Arnout Van Der Veer, Head of Risk and
Assurance, to the meeting and received a request to approve the
Company's Risk Appetite Statement (RAS).
(b) Chris Aujard explained the process used to develop the RAS and the
discussions at ExCo and the ARC. The RAS established the ground
tules for the Business and would help to drive behaviours. Arnout
Vanderveer recognised that it would take time to embed risk into the
Business and ensure that decisions were aligned with the RAS.
(c) Alasdair Marnoch, Chairman of the ARC, acknowledged that the RAS
was a good step forward, albeit that the process had been slow. He
ACTION: was encouraged by the discussions at both ExCo and the ARC and
Arnout Van Der believed the RAS was a good basis upon which to build. He asked
Veer that the RAS, with risk metrics, be presented to the ARC and Board in
May. H
(d) Jane MacLeod recognised that the RAS would develop. She wanted
to develop a framework which would mature and change to drive
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business decisions.
ACTION: (e) The Board asked that ail future Board papers included a risk section
CoSec which related back directly to the RAS.
(f) I The Board agreed to adopt the RAS.
(g) Jane MacLeod, Chris Aujard and Arnout Van Der Veer left the
meeting.
POLB 15/10
(a) I
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Pete Markey ' :
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ACTION: \ I
Mark Siviter !
(h)
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(k)
POLB 15/11 NETWORK TRANSFORMATION, MODEL PERFORMANCE AND
CROWN TRANSFORMATION Q3 2014
(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) Kevin Gilliland was pleased to report that the Business had already hit
its target of 1650 NT branches opened in the year and was expecting
to have 4000 NT branches by March. He reported relative success
with the guided leaver programme and wanted every office to know
what was happening to their branch before the IT front office changes.
(c) Kevin Gilliland reminded the Board that the sub postmasters’ contract
requires the Business to give 3 months’ notice to sub postmasters but
that the proposed cliff would give 6 months. It was his intention to
have started conversations with all sub postmasters before May. The
September cliff had always been indicative and because NT was
ahead of plan the Business needed to bring this forward to keep up
the conversion rate.
(d) The Board agreed that the term cliff was unhelpful and that the
Business should try to smooth the changes as much as possibie.
(e) The Board asked how the NFSP and George Thomson are likely to
react to the change. Kevin Gilliland hoped that George Thomson
would understand the need to bring the date forward but he was
comfortable that this was the right thing to do irrespective of the NFSP
position. The Board noted that the MoU with the NFSP had still not
been agreed.
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{f) The Board discussed the Crown Office P&L and getting the 373
branches to breakeven. They recognised that some Crown branches
were still making a loss and that the Business would now deal with
these as Business as Usual. Kevin Gilliland was asked to set new
ACTION: targets for the next 3 years with a specific focus on the untapped
Kevin Gilliland potential in Financial Services.
(g) The Board noted the update, and thanked Kevin Gilliland and his
teams for the Network and Crown transformation results.
(h) Kevin Gilliland left the meeting.
() The Board recognised that ISA sales should be the focus for the next
ACTION: 3 months and Virginia Holmes agreed to discuss this with Kevin
Virginia Holmes Gilliland.
POLB 15/12 SPARROW
(a) Mark Davies, Communications & Corporate Affairs Director, joined the
meeting.
(b) The Chairman explained that the agenda item was to update the
Board on the BIS Select Committee on 3” February.
{c) Mark Davies described the Select Committee process and explained
that the Business had been asked to appear to give evidence. The
CEO would represent the Business. Other attendees were JFSA,
NFSP, CWU and Second Sight. He explained the work being done to
prepare for the Committee and the likely media activity.
(d) Mark Davies reported that the Business had received a letter from the
Criminal Case Review Commission (CCRC) asking for information on
the Criminal cases involved in Sparrow. The Business had 28 days to
respond to the CCRC.
(e) The Board discussed the possible outcomes from the Committee.
The Chairman explained that the Board Sparrow Sub Committee
would consider options and next steps at their next meeting.
(f) Mark Davies left the meeting.
POLB 15/13
(a)
...’ Irrelevant
CEO! Virginia
Holmes
iS
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(a)
ACTION:
Nick Kennett!
Chris Aujard
POLB 15/14
(a)
POLB 15/15
(a)
POLB 15/16
(a)
(b)
POLB 15/17
(a)
Irrelevant
MINUTES OF PREVIOUS MEETINGS AND MATTERS ARISING
The minutes of the Board meetings held on 21 October, 18 November,
26 November and 14 December 2014 were approved for signature by
the Chairman.
COMMITTEE MEETING MINUTES FOR NOTING
The Board noted the minutes of:
e the Sub-Committee to approve the interim report and accounts
meeting held on 19 November 2014
e. the Audit, Risk and Compliance Committee meeting held on 10
November 2014;
e the FS Sub-Committee meetings held on 14 October and 3
December 2014; and
e the Pensions Sub-Committee meeting held on 8 October and 3
December 2014;
e the Post Office Advisory Council meeting held on 12 November
2014; and
* the Sparrow Sub-Committee held on 12 January 2015.
STATUS REPORT
The Status Report, showing matters outstanding from previous Board
meetings, was noted.
The Board noted the update on Project Ultra and the draft forward
agendas.
UPDATE FROM THE AUDIT, RISK AND COMPLIANCE
COMMITTEE
Alasdair Marnoch, Chairman of the Audit, Risk and Compliance
POLB 15/18
POLB 15/19
ACTION: CFO
POLB 15/20
POLB 15/214
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Committee, updated the Board on the last Committee meeting.
(b) The ARC was more comfortable with the approach to risk, although
they wanted to continue to monitor Treating the Customer Fairly. The
Business had now set up a major incident team which it was in the
process of testing. The Internal Audit plan would need to come to the
Board in March.
(b)
Irrelevant
(a);
CHANGE OF REGISTERED OFFICE
(a) The Board:
¢ approved the change of registered office for the Company from
148 Old Street, London, EC1V 9HQ, to 20 Finsbury Street,
London EC2Y 9AQ;
* agreed to provide written consent for the change of registered
office for POMS in the form presented, giving a duly appointed
director or company secretary authority to sign the consent.;
* noted the change of registered office for Postal Services
Holding Company Limited; and
* authorised the Company Secretary to make all necessary
filings with Companies House.
ITEMS FOR NOTING
(a) The Board noted the IA status report summary as at 31 December
2014.
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(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 1241 to 1261 inclusive in the seal
register was hereby confirmed.
POLB 15/22 ANY OTHER BUSINESS
(a) The Board asked for an update on the appointment of the Business
ACTION: Transformation Director, and asked the CEO to check once more that
Neil Hayward/CEO David Ryan would not consider the post.
(b) Neil McCausland explained the process was underway to appoint a
new Post Office Chairman. The OCPA (Office for the Commission of
Public Appointments) had appointed Margaret Scott as the PAA
(Public Appointments Assessor) to lead the process which also
includes Neil McCausland as the Post Office Board SID. Russell
Reynolds had been selected as the head hunters and an advert would
be published in mid-February. The current plan was to interview in
May/June, with the new Minister interviewing in late June and an
appointment in July.
POLB 15/23 DATES OF NEXT MEETINGS
(a) It was noted that the next Board meeting would be held on 25 March
2015, to be preceded by a NEDs’ breakfast.