POLB 17(1*)
POLB 17/01 — 17/14
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POST OFFICE LIMITED
(Company no. 2154540)
(the ‘Company’)
Minutes of a meeting of the BOARD
held at 9.30 am on 31% January 2017 at 20 Finsbury Street, London EC2Y 9AQ
Present:
Tim Parker
Ken McCall
Richard Callard
Tim Franklin
Virginia Holmes
Carla Stent
Paula Vennells
Alisdair Cameron
In Attendance:
Alwen Lyons
Jane MacLeod
Kevin Gilliland
Nick Kennett
Martin Edwards
Rob Houghton
Apologies for Absence:
None
POLB 17/01
POLB 17/02
POLB, 31 January 2017
Chairman (TP)
Senior Independent Director (KM)
Non-Executive Director (RC)
Non-Executive Director (TF)
Non-Executive Director (VH)
Non-Executive Director (CS)
Chief Executive (CEO)
Chief Financial and Operations Officer (CFOO)
Company Secretary (CoSec)
General Counsel (GC) (Minute POLB 17/02)
Chief Executive Retail (KG) (Minute POLB 17/05 to 17/08)
Chief Executive Financial Services and Telecommunications
(NK) (Minute POLB 17/05 to 17/08)
Group Strategy Director (ME) (Minute POLB 17/07)
Group Chief Information Officer (RH) (Minute POLB 17/09)
INTRODUCTION
(a)
A quorum being present, the Chairman opened the meeting.
The Directors declared that they had no conflicts of interest in
the matters to be considered at the meeting in accordance with
the requirements of section 177 of the Companies Act 2006 and
the Company's Articles of Association.
BALANCE SHEET
(a)
(b)
Jane MacLeod, General Counsel joined the meeting.
The CEO explained that the planned closure of the pension
scheme in March 2017 would remove from the Balance Sheet
the amount attributable to the pension scheme surplus. This
would result in a net liability
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The CFOO explained the background to the issue which had
arisen as a result of the combination of the Company's
accounting policies under which capital expenditure was
expensed (noting that c£400 million of capital expenditure over
the previous 3 years was not included in the balance sheet), and
IAS19 as a result of which the pension surplus had been shown
as an asset.
Assuming that the Trustee made the decision to close the
pension scheme with effect from 31 March, the surplus would
be removed from the balance sheet and this, together with the
effect of the Company's trading position, would result in a net
liability currently estimated to be c£200 million. He reaffirmed
that closing the scheme remained the right outcome and best
protected the Company going forward.
The CFOO noted that under the previous funding
arrangements, the Company had committed funding for 2017-
18 and that there was no reason to believe that the network
subsidy would not be agreed for the next funding period
covering 2018-2021. However at this stage the Company was
waiting for confirmation from the shareholder as to the timing of
the decision regarding the continuation of the Working Capital
Facility and investment funding. Both of these would be
relevant in any event to the question of going concern which the
Board would be required to consider in the normal way as part
of the approval of the Annual Accounts. The CFOO stated that
longer term commitments would need to be considered if the
decision regarding the Working Capital Facility and the
investment funding was delayed.
The GC agreed to discuss the personal position of the Directors
following the meeting.
The Chairman acknowledged that the Balance Sheet
insolvency was a technical issue and noted the importance of
ensuring that the Board members were able to discharge their
duties as directors.
The Board also instructed management to approach the
Shareholder and request that HMG provide a letter of support
to the Company to enable the Directors to have confidence that
debts, commitments and expenditure would be met in
accordance with contractual obligations.
The Board required comfort that the Company should continue
trading notwithstanding that the balance sheet changes would
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result in the Company have net liabilities. To this end, the Board
required the CEO to provide to the Board:
1. Weekly cash flow forecasts
2. assessment of discretionary spend over the next
few months pending certainty on the investment
funding
3. a paper from the CFOO setting out the options
available for recovery of the balance sheet
4. aplan for the next steps
ACTION: CFOO (k) The Board also stated that they wished to receive regular
updates on progress and to be informed of any material
developments that affected the position.
(I) The GC left the meeting.
POLB 17/03 MINUTES OF THE PREVIOUS BOARD MEETING AND COMMITTEE
MEETINGS INCLUDING STATUS REPORT
(a) The minutes of the Board meeting held on 24" November 2016
were approved and the Chairman was authorised to sign them
as a true record.
(b) The minutes of the Post Office Advisory Council meeting held
on 3" November 2016 were noted by the Board.
(c) The actions status report was noted as accurate.
POLB 17/04 CEO REPORT
(a) The CEO introduced the CEO Report focussing on the following
key points.
Period 9 Performance
(b) The CEO reported a good performance for period 9 and
explained that more detail would be provided by the Chief
Executives from the two new Business Units who would be
attending the Board on a quarterly basis to present their
rf rt
_ Irrelevant
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Postmaster Litigation
(e) The Group Litigation Order (GLO) came to court on the 26"
January Detailed information will need to be provided for each
claimant. The GLO is likely to return to court in the autumn for
further procedural directions.
Network Transformation
(f) The 7000 transformed branch had now been opened with
plans for Margot James, Parliamentary Under Secretary of
State at BEIS, to carry out the official opening in due course.
ACTION: KG
Post Office Card Account (POca)
(i) The Board asked for an update on POca which the CEO
ACTION: CEO promised to provide to the March Board.
(i) The Chairman thanked the CEO for her report. The Board noted
the report from the CEO.
POLB 17/05 CHIEF EXECUTIVE RETAIL PERFORMANCE REPORT
(a) The Chairman welcomed Kevin Gilliland, Chief Executive Retail,
and Nick Kennett, Chief Executive Financial Service and
Telecoms, to the meeting. The Chairman thanked the Chief
Execs for their reports and explained that the Board was keen
to spend more time understanding the operational performance
of the two new Business Units
P9 Retail Performance
(b) KG summarised his report and highlighted the strong Mails
performance over the Christmas period, 4% up on budget and
2.5% up year on year. The extended posting period for RMG
compared with other carriers had been a real advantage.
Government Services was above target by 5% year on year but
12% down on last year driven mainly by loss of POca and DVLA
work.
(c)
IRRELEVANT
Lenrerroreenurorroneuney rnp Eten one rtetunneenrennprurgrennreery:
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the payments market and asked for a session at the Board
away day in June to understand the strategic options in the
payments market and how aggressive the Business should
be defending the footfall in this area.
KG assured the Board of the Executive focus on payments and
the work underway to win whole estate deals with multiple
partners.
Network
KG updated the Board on the opening of the 7000" Network
Transformation branch, he was now sure that the both targets
would be achieved for the year.
Directly Managed Branch (DMB) conversions were behind the
stretch target set but there had been good interest in the next
tranche of offices advertised.
Network Development was on track to deliver £4m savings
through simplification but the benefits had to be sold to
postmasters to enable them to make the savings and counteract
the reduction in their remuneration.
KG explained that a new commercial pack had been
developed for use in promoting the franchise to
prospective postmasters, the pack would be circulated to
the Board for information.
KG also explained that he was looking at the potential to site
post offices into non retail environments such as large office
buildings.
KG was asked to consider approaching building
management companies (eg Mitie) who facilitate many of
the large buildings in city centres.
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ACTION: KG/ME
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ACTION: KG
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The Board asked that Network strategy be included on the
agenda of the June away day. To consider:
1.
2
3.
4,
What approach would PayPoint (PP) take if it ran the
Network
What offer would we need to combat the PP threat
and how quickly could we have it in place
What is the cost of mails complexity eg awkward
sized parcels
What would Post Office do if it had access to capital
The Board asked that future BU performance reports
include:
PAPeEns
Performance results, including contribution.
Short term metrics
Competitor information
Key priorities and drives of the BU (30/90 days)
IT priorities (30/90/180 days)
Education appendix to educate the Board on a topic
eg Collect+
The Board noted the report.
POLB17/06 CHIEF EXECUTIVE FINANCIAL SERVICES AND TELECOMS
PERFORMANCE REPORT
(a)
(b)
(c)
POLB, 31 January 2017
Q3 Commercial Performance
NK summarised his report and pointing out that despite Q3
being the quietest quarter for Financial Services (FS) he was
still on track to hit the FS target for the year. Life, Home and
Travel insurance products were delivering good performance,
but changes in Motor Insurance regulation and the market were
proving a challenge to the whole industry, and which POMS
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anking Ser
The Board congratulated NK on the Banking Framework
announcement and NK reported that the volumes were
increasing as expected. Approaches had been made by a
couple of the big banks covered by the banking framework to
see if the relationship could develop with Post Office providing
more services,
Challenges
Good progress had been made in the End User Management
(EUM) project and the POMS Board had agreed to continue to
accept the risk relating to Travel Insurance sales through to
September 2017, subject to regular reporting and continued
progress in line with the plan. The EUM progress would
continue to monitored until the technology solution was
delivered
Project Finch had been announced and 150 in-branch Financial
Specialists had been given notice which would have an effect
on the POMS performance and the sales of Life Insurance,
POMS would take an income hit of £2.6m pa, whilst the Post
Office Group would benefit by £5m.
The Board noted the report.
POLB 17/07 FUNDING UPDATE
(a)
()
(c)
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POLB, 31 January 2017
The Chairman welcomed Martin Edwards, Strategy Director, to
the meeting.
ME provided a verbal update on the funding process.
The Board discussed the funding plan and the specific
investment required to convert DMBs. Richard Callard pointed
out the long payback period on some of the DMB closures and
acknowledged that this might be an area of concern for
Ministers and Treasury. The CFOO explained the high one off
costs of closing DMB branches, which could be mitigated by the
challenging option of renegotiating MTSF terms. KG explained
that if MTSF terms were reduced this would have a knock on
effect on the appetite of franchisees to take on branches, as
TUPE would apply and their costs would increase.
The Chairman understood the challenge and political unease
but stressed that the structural changes to the DMB network
were a fundamental part of the business restructure to right size
the cost base. The Board asked for assurance that BEIS were
presenting the case to Ministers and Treasury as approved by
the Board. The Chairman gave assurance that the Executive
and BEIS were working closely to present the strongest case
possible; both he and the CEO were meeting Ministers and
advisors. The Board took comfort from this approach.
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The CFOO stressed the importance of retaining flexibility within
the funding package to enable the Business to deliver the
agreed returns. Changes to the cash facilities rules could enable
the use of network cash to fund a small proportion of the
restructuring costs.
The Board noted the verbal update.
ME left the meeting.
POLB 17/08 2017/18 BUDGET AND SCORECARD
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POLB, 31 January 2017
The CFOO presented the 2017/18 EBITDAS plan and explained
that after rigorous debate the GE had agreed to recommend an
EBITDAS target of £28m for 2017/18.
The decline in legacy income decline would continue, leading to
a £43m reduction in underlying net income. However long term
cost saving initiatives already in place would deliver a year on
year improvement of £49m. The plan had been structured to hit
an aggressive £38m target generating a contingency of £10m
to be spent in the second half of the year to support growth.
The Board were disappointed by the FS growth in the plan and
hoped that the £10m growth fund would be available to realise
the potential growth in FS.
The Board asked for assurance that the plan was not too
ambitious and would not mean taking regretted decisions. The
CFOO recognised the challenges in the plan but supported the
decision reached by the GE, who believed that it was right to
aim for £28m the number agreed in the current funding.
NK and KG reported the discussion at GE and the time taken to
debate the risks included in the plan.
STIP Proposals
The Board discussed the Bonus proposal presented as a
strawman by the CFOO and agreed that the bonus structure
should be discussed and agreed by the Remuneration
Committee (RemCo) on the 9" Feb. The Board were
comfortable with the RemCo considering some relief in the
EBITDAS target for known, quantifiable one-off risks such as
pension costs and postmaster litigation.
The Board approved the recommended EBITDAS profit of £28m.
for 2017-18, and the Chairman thanked the CEO and CFOO for
presenting an ambitious budget.
KG and NK left the meeting.
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POLB 17/09 TECHNOLOGY STRATEGY UPDATE
(a)
(b)
(c)
(d)
(e)
ACTION: ME
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The Chairman welcomed Rob Houghton, Group Chief
Information Officer, to present his report.
RH explained that negotiations were underway with the five key
technology suppliers.
ATOS
Discussions were proceeding to bring some of the services back
in house either through a partial or full termination of the contact.
The decision and timeline should be known within the next few
weeks. Partial termination would help mitigate potential TUPE.
RH stressed that the Business should not be afraid of full
termination if that proved the right solution. Moving away from
ATOS would help to simplify the interface with vendors.
Computacenter & Verizon
Negotiations to move to a Price x Volume model are progressing
well, this will enable variable service levels for different branches
in future.
The CEO proposed that the proposition that postmasters be
offered differing support levels be included for discussion
at the Board Away day in June.
Accenture CDP
The Accenture contract is due for renewal in August 2017. The
COI in each BU will need to ensure the necessary challenge to
reduce the complexity in the Business as the new contract is
negotiated.
FUJITSU (FJ
There are three current issues:
1. The long term contract is very favourable for FJ
2. The operational risk is outside our risk appetite
3. There is a need to re-architect and to move to the cloud;
ideally through assisted transformation with FU
RH is continuing to have discussions at a senior level within FJ
to try to challenge the existing contract and get FJ comfortable
with a declining revenue stream offset by payment for assisted
transformation. The commercial negotiation and the
procurement risk of changing the contract are both challenging.
Work is underway to produce the timeline for moving to the cloud
before the Belfast datacentre lease expires.
The Board asked RH if he was getting the support and resource
he needed to deliver a very challenging plan, and whether he
would benefit from help with the negotiation. RH explained that
he had already brought in two procurement experts to help with
the strategic negotiations.
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ACTION
RC
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ACTION: KM
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(k) The Chairman offered to meet the FJ Chairman if that would
be helpful and asked Richard Callard to determine the
status of any relationship with FJ within government.
() The Board asked RH if he needed technical expertise to
challenge his ideas and thinking. RH assured the Board that the
GE provided good challenge in non-technical areas and that he
was strengthening his team by introducing a Chief Technical
Officer who would have the IT architectural skills to both
challenge his thinking and support the delivery.
(m) The Board noted the update, supported the proposed strategic
direction, and thanked RH.
(n) The Board requested a further update to be submitted to the
Board for consideration in July 2017.
(0) RH left the meeting.
BOARD COMMITTEE CHAIR VERBAL UPDATES
Audit, Risk and Compliance Committee (ARC)
(a) It was noted that all Board members other that VH had been at
the ARC, and were therefore aware of the matters discussed. It
was agreed that CS would brief VH separately.
BOARD EFFECTIVENESS REVIEW
(a) KM and CoSec presented the Board Effectiveness report and
the proposed actions to the Board.
(b) The Board endorsed_the actions:
1. Business Unit Chief Execs to provide quarterly updates
to the Board
2. A training session on the Mails Market, was requested,
possibly at the June away day
3. The ARC agenda should ensure appropriate time and
focus is spent on Internal Audit work.
(c) The Board discussed the fourth proposed action, to provide an
independent advisor to the Board to review IT strategy and give
assurance to the Board. Some Board members recognised the
advantage of such independent assurance but it was agreed to
defer the action for six months and then reassess the proposal.
(d) Reconsider the proposal for an independent advisor to the
Board after the IT strategy presentation at the July Board
meeting.
(e) The Board noted the results of the Board Effectiveness Review,
and the Chairman thanked KM and CoSec for the work.
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POLB 17/12 BOARD DECISION RATIFICATIONS
(a)
(b)
(c)
(d)
(e)
The Board received a report from the Company Secretary.
The Board noted the decision taken by email on (9/12/16) to
approve the Treasury Policy.
The Board noted the decision taken by email on (15/12/2016) to
approve a temporary reduction in the facility buffer from £200m
to £100m, increasing POL effective working capital facility to
£850m until the end of January 2017.
The Board noted the decision taken by email on (22/12/2016)
relating to Project Finch, namely that POL should move away
from the Financial Services Specialists in the Directly Managed
Branches and focus on improving capabilities through the CRMs
across the Network.
The Board noted the decision taken by email on (22/12/2016) to
invest in the EUM (End User Management Project) to enable
POL to demonstrate appropriate vetting and training of
colleagues. This request was for investment before the January
Board as part of the full business case for £7.8m.
The Board noted the decision taken by email on (22/12/2016) to
issue a letter of intent to Computacenter, for a capital payment
of £6.4m in 2016 and a contract extension of one year to 2021.
In doing so, the Board had sought clarification that the £6.4m
was committed spend and therefore the net benefit was £7.8m,
which the CFO had agreed. The Board had also asked for
assurance that the contract extension compared favourably with
what could be negotiated from another provider in March 2020,
and that the CFO and CIO had confirmed their view that the
extension of the contract would be equivalent to any potential
market solution.
POLB 17/13 ITEMS FOR NOTING
(a)
(b)
(c)
(d)
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EUM Business Case
The Board noted the EUM Business Case which has supported
the approval given by the Board on 22 December 2016.
Sealings
The Directors resolved that the affixing of the Common Seal of
the Company to documents numbered 1462 to 1482 inclusive in
the seal register was confirmed.
Health and Safet
The Board noted the safety and wellbeing performance, risks
and mitigating activity within the Health and Safety report.
Meetings Dates and Forward Agenda
The Board noted the future meeting dates and proposed Board
forward agenda.
1
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POLB 17/14 ANY OTHER BUSINESS
(a) There being no further business the Chairman closed the
meeting.
Chairman Date
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