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POLB 15(3")
POLB 15/45 — 15/63
POST OFFICE LIMITED
(Company no. 2154540)
{the ‘Company’)
Minutes of a Board meeting held at 9.00am on 21 May 2015
at 20 Finsbury Street, London EC2Y 9AQ
Present:
Alice Perkins Chairman
Richard Callard Non-Executive Director
Alisdair Cameron Chief Financial Officer
Tim Franklin Non-Executive Director
Virginia Holmes Non-Executive Director
Alasdair Marnoch Non-Executive Director
Neil McCausland Non-Executive Director
Paula Vennells Chief Executive
In Attendance:
Alwen Lyons Company Secretary
Neil Hayward Group People Director, HR (minutes POLB 15/48, 15/55 and
part 15/56 only)
Martin Edwards Strategy and Corporate Planning (minute POLB 15/50 only)
David Hussey Business Transformation Director (minute POLB 15/51 only)
Mark Davies Director, Communications & Corporate Affairs (minute POLB
15/54 only)
Lesley Sewell Chief Information Officer (minute POLB 15/52 only)
Nick Kennett CEO, POMS Ltd. (minute POLB 15/53 only)
Jane MacLeod General Counsel (minute POLB 15/53 only)
POLB 15/45 INTRODUCTION
(a) A quorum being present, the Chairman opened the meeting.
POLB 15/46 UPDATE ON THE NEW GOVERNMENT
{a) Richard Callard informed the Board that Sajid Javid MP had been
(b)
ACTION: ()
CEO
POL Board minutes, 21 May 2015
appointed as the Secretary of State for Business, Innovation and
Skills (BIS) and that Baroness Neville-Rolfe had been appointed as
Postal Affairs Minister responsible for the Post Office.
The Board discussed the likely change of emphasis of the new
Conservative Government and its effect on the Post Office. The
Board recognised the importance and opportunity afforded by the
first ministerial briefing on the Post Office and considered the areas
where a change of emphasis in the plan might be appropriate.
The Board agreed that any change of emphasis in the plan would
be discussed at the June away day before any discussions were
had with either Ministers or Officials. The CEO was asked to
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consider a number of areas where a different approach might be
possible including; future funding; access criteria and the size of
the network; and the remaining network transformation (formerly
described as ‘the cliff’).
(d) The Board touched on possible future ownership models for the
Business which would be considered again at the June away day.
ACTION: (e) Richard Callard explained that responsibility for the Shareholder
Richard Callard Executive would transfer from the Secretary of State for BIS to the
Chancellor of the Exchequer upon creation of a new government-
owned company (“GovCo”) , wholly owned by HM Treasury. GovCo
would oversee the activities of both the Shareholder Executive and
UK Financial Investments. The Shareholder Executive would retain
its current operating model whereby it acts directly for departmental
secretaries of state in its governance and corporate finance
activities. Richard Callard was asked to circulate a paper to the
Board to explain the new arrangements.
POLB 15/47 CEO’S REPORT
(a) The CEO introduced her report and focused on the following key
areas:
* The agreement with the Communication Workers Union (CWU)
which meant that the number of union reps would reduce from
nearly 100 to fewer than 20 and would have significant effect on
the Business particularly in Crown and Supply Chain. The Board
congratulated the business on the achievement.
ACTION: « The engagement with subpostmasters at the National
Neil Hayward Federation of SubPostmasters (NFSP) conference had been
very different to previous years with a positive and challenging
session. The Board discussed the NFSP Grant Agreement and
the CEO promised a note to the Board to explain the Agreement
and how it will be managed.
* The CEO was proud of the way the Business was managing the
headcount reduction and had seen no fall off in performance as
people left the Business.
* The volatility in the relationship with Fujitsu was an area of
concern, because of the impact it could have on the IT
programme and value for money if the Fujitsu contract needed
to be extended. The CEO explained that she had asked Kevin
Gilliland to act as the main internal sponsor, as he was the
internal customer with experience of big programmes. The
preparation was progressing well and at this stage she believed
the programme would be delivered.
ACTION: (b) The Board requested a regular update on Sparrow to set out where
General Counsel cases were in the process, including those referred to CCRC, along
with a note explaining any cost liability for the CCRC work and an
update on data subject access requests.
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(c) The CFO updated the Board on project IRIS and the opportunity it
provided either to outsource or leverage a change in employee
flexibility. The Board supported the work to date.
(d) The CFO informed the Board that Royal Mail Group (RMG) had
published their Report & Accounts which showed turnover as flat
with a slight decline in letters volume and slight growth in parcels
volume. They had also seen strong performance in GLS, their
German subsidiary. RMG forecast a future decline of 4.5% in the
letters market and growth in the parcels market, albeit a decline in
RMG market share.
(e) Having taken all of the discussion issues into account, the Board
noted the CEO’s report.
POLB 15/48 PEOPLE AND ENGAGEMENT ROADMAP NEXT 12 — 18 MONTHS
(a) The Chairman welcomed Neil Hayward, Group People Director, to
the meeting.
(b) Neil Hayward explained the progress in improving the recruitment
processes in the Business with the use of technology to attract and
filter a different population of candidates. The Business was
running its first Financial Services recruitment fair at the end of May
2015 at the new Customer Support Centre.
(c) Neil Hayward reported the work underway to retain key talent and
fill the 12 SLT roles which were vacant. He explained the blueprint
being written for the Post Office Academy which would consolidate
the training and development throughout the Business.
(d) The Board asked what was being done to improve the speed of
decision making. Neil Hayward explained that decision making had
been highlighted as a key issue in the engagement survey and that
this could have been a reaction to the cost controls during last year
which had left people feeling disempowered. However, several
actions were underway to help change processes and perceptions.
¢ The General Counsel and the Transformation Director were
reviewing the structure of the decision making process including
delegated authorities.
¢ This work would also include the governance architecture for
Business Transformation and the authorisation of business
cases,
« The Group Executive (GE) had been asked to engage their
teams to highlight any areas where they saw decision making
as slow, and the GE were tasked to remove any areas within
their accountabilities as they thought appropriate.
(e) The Board asked how the Executive would ensure it could retain
talent within the organisation as there was a perception that there
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was little opportunity of internal promotion to senior roles. Neil
Hayward accepted that as the Business strengthened its capability
at Senior Leadership Team (SLT) level and above there had been
a necessity for external hires and only 3 internal people had been
promoted into the SLT. He explained that the talent and succession
planning being undertaken by each function should generate
stronger internal candidates for future vacancies. He acknowledged
that the work being done to ensure the Business recognised its
talent more broadly and considered cross functional succession
plans was less advanced but assured the Board that it would be
undertaken.
(f) I The Board asked if the fact that 46% of the SLT did not expect to
be with the Post Office in two years was a concern. Neil Hayward
recognised that this was a large percentage but explained that it
was not unusual to see a shorter time horizon during a
transformation.
(g) The Board asked whether work was in place to close the capability
ACTION: gaps which had been identified by the McKinsey work. Neil
General Counsel/ Hayward explained that all areas would be covered but that some
Neil Hayward were more advanced than others, including Financial Services
sales capability and Digital. Neil Hayward recognised that one area
which needed more work was Contract Management and explained
that the General Counsel was reviewing the end to end process.
The Board asked for a paper on Contract Management within the
Business with a review of capability and a plan to close any gaps.
(h) The Board asked what work was underway on sub-postmaster
engagement and Neil Hayward explained that increasing sub-
postmaster engagement formed part of his personal objectives for
2015/16 with a Business wide scorecard measure in 2016/17.
(i) IThe Board applauded the work on graduate recruitment and noted
that the new Government were also focussed on apprenticeships.
(j) I The Chairman reported the Nominations Committee debate on GE
talent and succession planning, and urged the CEO and HR
Director, to ensure any plans were rigorous.
(k) Having taken all of the discussion issues into account, the Board
noted the progress made and endorsed the People and
Engagement Strategy and plans for 2015/16 as they related to the
Talent Agenda for the Post Office.
(i) Neil Hayward left the meeting.
POLB 15/49 FINANCIAL PERFORMANCE
(a) The CFO circulated the flash financial performance results for
period 1. He explained that detailed analysis was still to be done
but that the first period was showing a performance favourable to
last year and slightly up on plan.
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POLB 15/50 THREE YEAR OPERATING PLAN
(a) The Chairman welcomed Martin Edwards, Strategy and Corporate
Planning Director, to the meeting.
(b) The Board discussed the paper setting out the financial projection
for the Business for the next 3 years ending in 2017/18, and
highlighted areas of focus for the June strategy away day.
(c) The Board asked the Executive to design the away day to enable
the Board to discuss the big strategic issues relating to:
¢ Major revenue drivers (Mails and Financial Services)
« Opportunities and risks (page 12 of the paper)
« Major cost reduction opportunities
« Investment opportunities
e Cash headroom
¢ Options on ownership
ACTION: (d) The away day should enable the Board to discuss the important
Martin Edwards decisions in the plan and their risks and rewards. Martin Edwards
agreed to circulate a new agenda and the strategic questions the
Board would be asked to consider.
(e) The Board also requested that any analysis of the existing plan
should include years 1 and 2 (2012/13 & 2013/14).
(f) The Board discussed the change in the timescale to achieving a
profitable EBITDAS, compared to the strategic plan. There were
differing opinions on the importance of breaking-even by 2016/17
although it was recognised that further debate was required.
(g) Martin Edwards left the meeting.
POLB 15/51 BUSINESS TRANSFORMATION
(a) The Chairman welcomed David Hussey, Business Transformation
Director, to the meeting.
(b) David Hussey emphasised that Business Transformation had now
moved to the delivery stage which meant that he was building a
detailed execution plan to enable him to identify and manage the
business dependencies. He assured the Board that the work David
Ryan had completed had built an excellent structure which he could
now use.
(c) He explained that he was strengthening the change capability
within the Business and focusing on the execution risks, both
aggregated and compound to ensure the programme could be
delivered safely and at pace.
(d) David Hussey recognised the importance of communication and in
early July 2015 would launch a 1000 day plan as a countdown to a
transformed business.
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{e) The Board noted the progress to date, the priority activities from the
coming quarter and further noted that an update was scheduled to
be reviewed in July 2015.
(f) I David Hussey left the meeting.
POLB 15/52 IT CONTRACT AUTHORITY
(a) The Chairman welcomed Lesley Sewell, Chief Information Officer,
to the meeting.
(b) The Chairman reported that she, Tim Franklin and Richard Callard
had met Lesley Sewell and the CFO for a briefing on the IT
Contract Authority.
FRONT OFFICE CONTRACT AWARD
(c) Lesley Sewell explained that the procurement for the front office
contract had been completed and that IBM UK Ltd. was the
successful bidder and recommended partner.
(d) The Board queried the Post Office costs related to the contract.
Lesley Sewell explained the costs of £43m were made up of two
parts, internal programme costs of circa £20m, and external costs
for Fujitsu and Accenture of £23m.The Post Office costs included:
all the training for the network, including auditing of branches as
they move to the new system and support whilst using the new
system, and;
« the cost of the programme teams
(d) The Business case also included a contingency of £20m which
would be held by the CFO and not the programme.
(e) The Board asked how the Business would ensure against the
system being obsolete on delivery. Lesley Sewell explained that the
proposal was very different to the existing system and used
common off the shelf applications which IBM was obliged to keep
updated. The contract also included a challenge to reduce costs.
(f) Having taken ail of these issues into account, the Board resolved to
approve the award of contract to IBM UK Ltd.
NETWORK TOWER CONTRACT
(g) Lesley Sewell explained that the procurement for the network tower
contract had been completed and that Verizon UK Limited was the
successful bidder and recommended partner.
(h) Lesley Sewell explained that Verizon had been a clear winner in
the procurement but because of its limited presence in the UK
market, she had undertaken additional due diligence to gain
comfort on their commercial; technical; implementation and service
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capability. She had met the Senior Vice President of the Global
business and had been pleased to note the importance and priority
being given to the contract.
(i) Lesley Sewell explained that the contract is leveraged through
parties the Post Office already has good experience of working
with.
(j) I The Board thanked Lesiey Sewell for her additional due diligence
on the contract and having taken all of the discussed issues into
account resolved to approve the award of the contract to Verizon
UK Limited.
FUJITSU CONTRACT EXTENSION
(k) Lesley Sewell explained the options and cost of extending the
Fujitsu contract beyond March 2017 and the importance of having
contingency in the plan. She stressed that Fujitsu were aware of
their contractual obligations to transition services safely and
securely and the discussion to date on any contract extension had
focussed on the expenditure required to maintain the Fujitsu data
centre.
(i) I The Board challenged the proposal to spend up to £62m to extend
the Fujitsu contract for a year. They discussed alternative options
and although recognising some additional money may need to be
paid to Fujitsu, the Board were uncomfortable with the level of
spend, preferring to invest more with IBM to strengthen their
delivery plan.
(m) The CFO explained that it was not clear that Fujitsu wanted to sign
the contract extension and the Post Office was currently using the
leverage of the Telco contract to keep them engaged. He feared
that any delay beyond a month might see the price increase.
(n) The Board asked the Business to consider if any additional
approaches were available.
(0) The CEO thanked the Board for their input and suggested that the
CFO & CIO re-evaluate the options, setting out:
a view of the Fujitsu contingency;
the phased capital expenditure investment plan for Fujitsu;
the governance for releasing this spend;
clarification of the Fujitsu contract and the legal position;
possible further incentivisation of IBM to help minimise the
Fujitsu costs; and
a timeline when decisions have to be made, taking into
consideration the Telco contract negotiations.
eoeee
ACTION: (p) The CEO proposed that a paper be circulated with this information
ClO & CFO and suggested a Board call if required.
(q) The Board congratulated Lesley Sewell for the IBM and Verizon
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ntracts, and she left the meeting.
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POLB 15/54 ANNUAL REPORT AND ACCOUNTS
(a) The Chairman welcomed Mark Davies, Director, Communications
& Corporate Affairs, to the meeting.
(b) Alasdair Marnoch, Chairman of the ARC, reported that the ARC
had discussed the Report and Accounts and the Ernst & Young
(EY) report. He explained that a couple of policy decisions had
been taken:
* that the Business would not attempt to satisfy the Fair, Balanced
and Understandable criteria for reporting this year, although it
was heading in the right direction and;
e that the Business would not attempt to comply with the UK
Corporate Governance Code this year although it was heading
in the right direction and was comfortable that it complied with
the spirit of the code.
(c) He reported that, in a private session, EY had given positive
feedback on the executive. EY considered that the level of controls
in the Business continued to be in the 3° quartile with many manual
processes and interventions in place. Alasdair Marnoch
acknowledged that this point had already been raised by the CFO.
EY had discovered an incorrect journal entry for an exceptional
item of value £2.5m which had changed the accounts, but this was
not considered a material enough change to affect the EY report of
a clean bill of health.
(d) The CFO explained that he had decided not to make the agreed
adjustment to the Crown profitability for the costs of the financial
services specialists. As a result, the loss for the year was £12m
and the run-rate at year end £5m, which would have been about
£3m better if the FS adjustment had been made. As the
adjustment had already been communicated to Post Office people
and the unions, the internal measure of run-rate breakeven would
continue to be about six months earlier.
(e) Having taken all of the discussed issues into account, the Board
accepted the recommendation from the ARC and:
ACTION: e° Resolved to Review the Annual Report and Financial
ALL Statements and provide individual comments to Alisdair
Cameron and Mark R Davies by email by Tuesday 19 May
2015;
¢ Agreed the Going Concern status for Post Office Limited at the
full year;
« Agreed that it was appropriate for the Directors of Post Office
Limited to make the undertakings and statements in the
financial statements;
« Agreed that the Board should not voluntarily make the
statement that the Annual Report and Financial Statements was
‘fair, balanced and understandable’;
¢ Confirmed that, as individual directors, so far as they were
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POLB 15/55
ACTION:
Neil Hayward
ACTION:
Neil Hayward
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()
(9)
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aware, there was no relevant audit information of which the
auditor is unaware and that each director had taken all
reasonable steps to make themselves aware of any relevant
audit information and to establish that the auditor was aware of
that information;
« Approved the financial statements;
e Delegated authority for reviewing final amendments and
completing the Annual Report and Financial Statements on
behalf of Post Office Limited to a Sub-Committee, the quorum
for which should be comprised of any three of Alice Perkins,
Paula Vennells, Alisdair Cameron and Alasdair Marnoch;
e Authorised Alwen Lyons to sign the Directors’ Report and
Alisdair Cameron and Paula Vennells (or, in either’s absence,
Alice Perkins) to sign the balance sheet, each acting on behalf
of the Post Office Limited Board; and
e Approved the Letter of Representation to the auditor and
authorised Paula Vennells or Alisdair Cameron to issue it on
behalf of the Post Office Limited Board.
Mark Davies left the meeting.
The CEO and CFO left the meeting.
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ACTION: CFO
ACTION: H I
Neil Hayward ' '
POLB 15/56 BOARD COMMITTEES UPDATES
NOMINATION COMMITTEE
(a) Neil McCausland updated the Board on the process underway to
find the new Post Office Chairman, and that a panel would meet
four candidates on 1 June 2015.
ACTION: (b) The Chairman reported that Alasdair Marnoch had decided to
CoSec resign from the Board with effect from 1 August 2015. Alasdair
Marnoch explained that he was no longer able to fulfil the time
commitment since his move to Jersey. The Chairman thanked him
and explained that a role specification was being produced by
Russell Reynolds to start the non-executive director (NED) search.
Richard Callard asked that ShEx be involved at an early stage.
(c) The Board noted the oral update from the Committee Chairman.
(d) Neil Hayward left the meeting.
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REMUNERATION COMMITTEE
(e) The Board noted the oral update from the Committee Chairman.
AUDIT, RISK _AND COMPLIANCE COMMITTEE (INCLUDING
RISK MANAGEMENT,
(f) Alasdair Marnoch reported that progress had been made with risk
management but that this area still needed more focus at future
ARC meetings. He was pleased with the internal audit actions
where 6 of the 8 IT actions had now been completed.
(g) The Board noted the oral update from the Committee Chairman.
POLB 15/57 MINUTES OF THE PREVIOUS MEETING AND MATTERS ARISING
(a) The minutes of the Board meeting held on 25 March 2015 were
approved for signature by the Chairman.
ACTION: (b) Matters arising.
CFO The Board noted that following the discussion on Hawk at the
March 2015 Board, the CFO had met Richard Callard and Alasdair
Marnoch to explain the assumptions in the Hawk valuation. The
CFO suggested that he circulate the paper to all members of the
Board for their information. The Board would return for further
discussion on Hawk at their July 2015 meeting.
POLB 15/58 COMMITTEE MEETING MINUTES FOR NOTING
(a) The Board noted the minutes of the meeting of the Audit, Risk and
Compliance Committee held on 25 March 2015.
POLB 15/59 STATUS REPORT
(a) The Status Report, showing matters outstanding from previous
ACTION: Board meetings, was noted. It was agreed that the paper on FS
FS Committee sales, appended to the status report, be discussed at the FS
Committee.
POLB 15/60 RATIFICATIONS AND APPROVALS
RATIFICATION OF NON-EXECUTIVE DIRECTOR APPOINTMENTS
(a) The Board noted the presented paper and ratified the renewal of
the appointments of Virginia Holmes, for a three year term, and
Alasdair Marnoch, for a term expiring 31 July 2015, as
recommended.
APPROVAL OF FACILITIES AGREEMENT WITH ROYAL BANK OF
SCOTLAND
(b) After due consideration of all the circumstances and on being
satisfied that it is for the benefit of the Company and in the interests
of the Company for the purpose of carrying on its business to enter
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into a loan agreement between the Company and National
Westminster Bank Ple acting through The Royal Bank of Scotland
plc (the Agreement) in respect of facilities of up to:
i. £350,000,000, comprising an intra-day facility;
ii. £250,000,000, comprising an overnight NRF facility; and
iii. £1,000,000, comprising a collateral facility.
from National Westminster Bank Plc (the Bank) in the form now
produced, and incorporating the Bank's LIBOR Loan Terms, it was
resolved that Paula Vennells (CEO), Alisdair Cameron (CFO)
and/or Alwen Lyons (Company Secretary) (or any combination of
them as required) be authorised to sign on behalf of the Company
the Agreement and any other documents required by the Bank in
connection with the Agreement.
POLB 15/61 ITEMS FOR NOTING
(a) The Board noted the Health and Safety report.
(b) 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 1287 to 1310 inclusive in the seal
register was hereby confirmed.
POLB 15/62 ANY OTHER BUSINESS
(a) AGENDAS FOR JUNE 2015 AND JULY 2015
The draft agendas for the away days on 17 and 18 June 2015 and
the formal Board meeting on 15 July 2015 were noted and
approved.
FORWARD AGENDA TOPICS
(b) The forward agenda to May 2016 was noted and approved.
POLB 15/63 DATE OF THE NEXT MEETING
ACTION: (a) It was noted that the Board away days would be held on 17 and 18
CoSec June 2015. The Board were available to start the meeting earlier on
the 17" to facilitate a session with the new Minister.
(b) It was further noted that the next formal Board meeting would be on
15 July 2015.
Chairman ~~ Date
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