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Post Office Limited — Strictly Confidential
POLB 16(8") I
POLB 16/52 — 16/61
POST OFFICE LIMITED
(Company no. 2154540)
(the ‘Company’)
Minutes of a Board meeting held at 9.30am on 29 September 2016
at 20 Finsbury Street, London EC2Y 9AQ.
Present:
Tim Parker Chairman
Richard Callard Non-Executive Director
Tim Franklin Non-Executive Director
Virginia Holmes Non-Executive Director
Ken McCall Senior Independent Director
Carla Stent Non-Executive Director
Paula Vennells Chief Executive
Alisdair Cameron Chief Financial Officer
In Attendance:
Alwen Lyons Company Secretary
Martin Edwards Director of Strategy (Minute POLB 16/55 and POLB 16/57)
Rob Houghton Chief Information Officer (Minute POLB 16/56)
Kevin Gilliland Network and Sales Director (Minute POLB 16/57)
Kevin Seller General Manager Network Development & Transformation
(Minute POLB 16/57)
Apologies: None
POLB 16/52 INTRODUCTION
(a) The Chairman noted that a quorum was present and opened the
meeting.
(b) The Directors declared that they had no conflicts of interest in the
matters to be considered at the meeting in accordance with the I
requirements of section 177 of the Companies Act 2006 and the
Company's articles of association.
POLB 16/53 MINUTES OF THE PREVIOUS BOARD AND COMMITTEE MEETINGS
INCLUDING STATUS REPORT
Minutes
(a) The minutes of the Board meeting held on 25" July 2016 were
approved as accurate records and the Chairman was authorised to
sign them.
(b) The Board noted the Action Status Report.
(c) The minutes of the Audit, Risk and Compliance Committee meeting
held on 19" May 2016 were noted.
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(d) The minutes of the Audit, Risk and Compliance Committee meeting
held on the 5" July 2016 were noted.
POLB 16/54 CEO REPORT
ACTION: Nick Kennett
Transformation Report
(g) The Board noted the Transformation Report and that Transformation
risk would in future be presented at the ARC.
(h) The Board noted the CEO report.
POLB 16/55 FINANCIAL REPORT AND UPDATE ON THE DEVELOPMENT OF THE I
FIVE YEAR PLAN AND FUNDING REQUEST
(a) The Chairman welcomed Martin Edwards, Director of Strategy, to
the meeting.
(b) The CFO introduced the Financial Performance Report for Period 5,
September 2016. He explained the emerging income risks driven by
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underperformance in FS, Lottery and POca. The 2016/17
reforecasts had produced an EBITDAS challenge of £17m against
plan, £12m of which had now been mitigated without significant net
savings in agent’s pay. Further work was underway to close the gap
and despite the challenges, the CFO was still forecasting to deliver
the EBITDAS target.
(c) Network Cash had been increased by £250m as a contingency
during the strike, but this would be progressively reduced back to
normal levels by the end of September.
(d) Martin Edwards explained that the Executive had completed a full
update of the baseline forecasts, including trading performance and
market developments, for use in the five year plan. The reforecast
highlighted a continuing significant income deterioration, c. £70m by
2021, putting more pressure on delivering the initiatives to reduce
costs, accelerate FS growth and strengthen digital and network
capability. The Board stressed the importance of setting out a clear
counter factual case as part of the funding narrative.
(e) The Board discussed the paper which would be presented at the
October meeting and asked that it set out the baseline forecast,
which they recognised would change, a summation of the initiatives,
and the ongoing subsidy requirement for the 3000 loss-making post
offices. The CFO gave assurance that there would be time following
the October Board to ensure that the Board’s input was reflected in
the documentation.
(f) The Board discussed stakeholder influencing and engagement and
it was agreed that the approach to government engagement would
be agreed with Richard Callard.
ACTION: Mark Davies A stakeholder funding engagement plan would be presented at
the next Board. I
(g) The Board debated the options for the ongoing subsidy for loss-
making post offices and the possible setting up of a charitable trust
fund to safeguard the delivery of the SGEls through the last shops
in rural villages.
(h) Richard Callard explained that the Government consultation on
SGEls was likely to proceed in the next couple of months with results
in December or January. The consultation would be necessary as
part of the Government State Aid application.
(i) It was agreed that the Chairman and CEO would seek to meet the
Secretary of State to explain the strategy before the submission of
the funding request.
i) The Board noted the current financial projections, the next steps for
developing the full 5 Year Plan and funding request.
(k) Martin Edwards left the meeting.
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POLB 16/56 IT BACK OFFICE TOWER TRANSITON I
(a) The Chairman welcomed Rob Houghton, CIO, to the meeting.
(b) The CFO introduced the work on the IT Back Office Tower transition
and acknowledged that the transition was taking longer than the
original plan and at a higher cost. He explained that data storage
implications had delayed the project and noted that learnings on i
multi-year IT projects were being discussed at the ARC.
(c) The CIO updated the Board on the strengthening of the IT team and
the changes in the way that large IT suppliers were managed. He
explained the shift to a project management approach focused on
shorter time periods and smaller deliverables.
(d) The Board asked for assurance that the plan, including the additional
capital, was now realistic. The CFO stressed that further changes
may need to be made to the IT transformation, and that
conversations were underway with the IT suppliers, as he would be
willing to trade contract longevity for more flexibility and cost savings.
(e) The Board recognised that they had little choice but to approve the
additional budget. }
(f) The Board approved a capital budget increase of £1.25m (from
£15.3m to £16.55m) and recognised the reduction in annual benefits I
of £1m. I
(g) The CIO left the meeting.
POLB 16/57 NETWORK STRATEGY AND FUNDING 2017-21 i
(a) The Chairman welcomed Kevin Gilliland, Director of Network and
Sales, Kevin Seller, General Manager Network Development and
Transformation, and Martin Edwards, to the meeting.
(b) Kevin Gilliland introduced the Network Strategy and explained the
proposals highlighted in the paper building on the ideas discussed
at the Board away day in June. He emphasised the need to simplify,
automate and standardise products and processes to enable
postmasters to reduce their costs. The Board challenged whether
sharing half of the savings with the postmasters was too generous.
Kevin Gilliland explained the rationale and that each branch would
need an individual plan to realise the savings and be incentivised to
take action. Without this incentive the change would been seen as a
reduction in remuneration and this would risk destabilising the
network.
(c) The Board asked how dependent the Network Strategy was on the
IT strategy and was assured that although Horizon simplification I
would help the network, the strategy was not dependent on major IT
changes.
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(d) The Board discussed the Post Office franchise and the change in
positioning from a Post Office with a linked retail to a retail offering
with a linked post office which drove footfall rather than income for
the franchisee. The Board recognised that rural communities valued
a post office, a bank and a convenience store and that adding a Post
Office to a rural shop could provide all three.
(e) The Board debated the proposed options for the Directly Managed
network. The previous analysis and option to franchise all Directly
Managed branches was predicated on the reduction of both the
direct and the central costs this would achieve. It was now clear that
central cost had a direct and proportional relationship to the number
of Directly Managed branches, and this enabled a different approach
to branch numbers. Kevin Gilliland stressed that the Directly
Managed strategy had been developed to maximise EBITDAS and
that this could be achieved by retaining some of the profitable }
Directly Managed branches. The CFO explained that the cost base
analysis would be included as part of the October Board paper. I
(ff) Kevin Gilliland clarified that the 15 biggest loss-making branches
were in central London and that the plan would be to cannibalise the
work from these branches by opening up other Post Offices close by
which would reduce the floor space needed and enable a conversion
to a franchise or a smaller Directly Managed site. A new sales force
with a B2B sales capability would be needed to sell the franchise.
(g) Kevin Gilliland recognised that the conversion of Directly Managed
branches to maximise the EBITDAS would impact income, and
particularly FS income, but this loss, based on previous experience
of franchise performance, had been included in the business case.
(h) Kevin Gilliland reported the decline in standalone Post Offices in the
rural community which cost c.£8k a year to run. He proposed
replacing these with an offer in some of the 5 to 6 thousand rural and
community retailers who were currently without a Post Office and
supplementing with mobile Post Offices where appropriate. }
(i) The Board discussed the opportunity of offering a service to the NHS
for drug distribution through Post Offices in rural communities, as \
this would be a good fit with the social purpose and might solve a
problem area for the government. 3
ACTION: Martin The CEO agreed to look at the opportunity.
George
(0) The Chairman thanked Kevin Gilliland for the work to date and asked
him to look at the pace of delivery to see if the timescale could be I
reduced to deliver within 4 years.
(k) Richard Callard asked if the NFSP were engaged with the proposed
changes. Kevin Gilliland explained that the NFSP were yet to be
engaged in the process, and that they were likely to ask for
compensation for Post Masters effected by the changes. Kevin
Gilliland believed that delivery of the plan would need some
transition payments, although no compensation.
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()) The Board approved the proposed network interventions which will
be included in the overall 5 Year plan 2021.
(m) _ Kevin Gilliland, Kevin Seller and Martin Edwards left the meeting.
POLB 16/58 UPDATE FROM BOARD COMMITTEE
Audit Risk and Compliance Committee
(a) Carla Stent, the Chairman of the ARC gave a verbal update to the
Board on the ARC meeting held on 28" September.
(b) The ARC had considered the Anti- Bribery & Anti-Corruption Policy
and recommended it to the Board. The Board approved the policy.
(c) The ARC had considered the Anti-Money Laundering and Counter
Terrorist Financing Policy and recommended it to the Board. The
Board approved the policy.
(d) The ARC had considered the Insurance renewal paper and
discussed the option to self-insure. It had been agreed that the
renewal would be recommended for this year but that the CFO I
would consider self-insurance again before any renewal next year.
(e) The Board approved the insurance renewal.
POLB 16/59 ITEMS FOR NOTING
Sealings
(a) The Directors resolved that the affixing of the Common Seal of the
Company to the documents numbered 1432 to 1450 inclusive in the
seal register was confirmed.
POLB 16/60 ANY OTHER BUSINESS
POLB 16/61 CLOSE
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