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POLB 17(4'")
POLB 17/34 — 17/50
POST OFFICE LIMITED
(Company no. 2154540)
(the ‘Company’)
Minutes of a meeting of the BOARD
held at 10.30am on Thursday 25" May 2017
at 20 Finsbury Street, London EC2Y 9AQ
Present:
Tim Parker Chairman (TP)
Richard Callard Non-Executive Director (RC)
Tim Franklin Non-Executive Director (TF)
Virginia Holmes Non-Executive Director (VH)
Ken McCall Senior Independent Director (KM) I
Carla Stent Non-Executive Director (CS) I
Paula Vennells Group Chief Executive (CEO) (Except Minute POLB 17/45)
Alisdair Cameron Chief Financial and Operations Officer (CFOO) (Except Minute I
POLB 17/45)
In Attendance: I
Alwen Lyons Company Secretary (CoSec)
Martin Edwards Group Strategy Director (ME) (Minute POLB 17/37)
Nick Kennett Chief Executive Financial Services and Telecommunications (NK)
(Minutes POLB 17/38 and 17/39)
Kevin Gilliland Chief Executive Retail (KG) (Minutes POLB 17/38 to POLB 17/40
inclusive)
Mark Siviter Managing Director, Mails and Retail (MS) (Minute POLB 17/40)
Rob Houghton Group Chief Information Officer (RH) (Minutes POLB 17/41 and
17/42)
Apologies for Absence: None
POLB 17/34 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.
POLB 17/35 MINUTES OF THE PREVIOUS BOARD MEETING INCLUDING
STATUS REPORT
(a) Richard Callard asked that minute (POL17/22(f)) from the
previous meeting be clarified. The 2017/18 EBITDAS target
would remain at £28m with any possible relief to be discussed I
at the end of the year. I
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(b) The minutes of the Board meeting held on 28" March 2017 were
approved and the Chairman was authorised to sign them as a
true record.
(c) The actions status report was noted as accurate.
)
POLB 17/36 CEO REPORT
(a) The CEO introduced her report, focussing on the following key
points:
(b) I i
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ACTION: Kevin I
Gilliland/ Ken I ; I
McCall ! ! I
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(f) NSFP Conference
The CEO had attended the NFSP annual conference and was
pleased to report a more commercial focus than in past years,
with an alignment to the National Convenience Show giving the
retail agenda more prominence. The Executive took the
opportunity to discuss the simplification work and there was still
an anxiety about the effect of cutting postmasters’
remuneration.
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(g) The Board discussed the funding of the NFSP and asked for an
update on what they have provided for the investment. The CEO
explained that the NFSP were working with the business on
simplification and continued to support the Network
Transformation programme. Richard Callard reported that the
NFSP continued to lobby UKGI against the changes being
implemented but it was acknowledged that they continued
support the business in the public domain
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ACTION: Martin
Kirke I
(i) IT Security and Stability
The Board noted that the ClO would provide an update later in
the meeting.
(0) The Board noted the report from the CEO. I
POLB 17/37 FUNDING PLAN
(a) The Chairman welcomed Martin Edwards, Group Strategy
Director, to the meeting.
(b) The CFOO introduced the paper which set out the current
position with the funding documentation. The General Election
had made any decision in May implausible and consequently a
meeting had been arranged with the Permanent Secretary at
BEIS to reassess timelines.
(c) The funding document set out that Post Office was requesting
additional support over the plan period of £420m, reducing to
£290m by 2021.
This was split into three parts:
e Firstly, a further £250m of direct funding: £200m of
Government grant together with confirmation of the final
year of Network Subsidy Payment of £50m in 2020/21.
e Secondly, an additional borrowing in recognition of the
fact that the changes the Post Office needed to fund
were urgent and pressing. Post Office would start
repaying this in 2019-20, so the initial commitment of
£170m would reduce to a projected net commitment by
the end of the plan period of £40m. At no point would the
borrowing facilities reach the limit set for 2012-15.
¢ Thirdly, the Post Office would ask for BEIS’ security over
the Revolving Credit Facility to be extended, but
disconnected from the level of branch cash held,
incentivising Post Office to use its cash efficiently.
(d) Richard Callard explained the background to the funding
discussion and thanked ME and the CFOO for their input to
date. He recognised his person conflict of interest and explained
the process and expectation from the Minister that his
department would carry out due diligence and challenge to the
funding proposal before it was submitted.
(e) The Board discussed the funding proposal and the Board duty
to deliver value for the shareholder through a long term
sustainable business. The Government funding constraints
were acknowledged but the Board recognised that the many
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iteration to the plan had diluted the initial strategy agreed by the
Board.
(f) The Board asked if the Company would be given freedom to
raise money from other sources if the funding received form the
Government was inadequate. Richard Callard explained that
the Government would not allow Post Office to raise equity in
the market at the Group level, as by law it had to remain a wholly
owned Government entity, and to raise debt, although not
ACTION: Martin illegal, was also difficult to achieve. The Board asked if the
Edwards document could stress the need for access to alternative
finance if the adequate funding was not forthcoming.
(g) Richard Callard acknowledged the Board's frustration with the
process. He explained that the Secretary of State and
Permanent Secretary were concerned about the uncertainty of
the renegotiation with RMG and Bank of Ireland, and the digital
capability and its investment, particularly in financial services.
Richard Callard welcomed the revised document which gave a
greater degree of granularity on the proposals, which was what
Government was looking for.
Richard Callard also set out that the shareholder had
affordability constraints to consider, and this would impact the
key decision in Government as to whether it wished to invest
now to achieve full commercial sustainability, or whether it was
more affordable to invest a lower amount and accept longer
term subsidy requirements.
The Chairman stressed that the contract negotiation risk was
unavoidable but delaying or reducing the investment would
increase rather than negate the risk. The IT project delivery risk
understandable but the Board had put people in place to deliver
the strategy in the way it had delivered the pension scheme
closure and supply chain changes. POMS business was
delivered entirely digitally.
ACTION: Richard —(h) The Chairman stressed the need for support for the funding
Callard/ and suggested that he meet with Mark Russell, CEO UKGI
Chairman to explain the funding requirement, and the Board’s
reasons for the investment.
ACTION: (i) The Board asked the Executive to be more strident in the
Martin Edwards Executive Summary setting out, why the Board had made I
the decisions in the paper, and the consequences of the not
investing in the options.
0) The Board asked how the report was presented to the Minister
and the Chief Secretary of the Treasury. Richard Callard
explained the process, and the Board asked for assurance that I
the UKGI paper accurately represented the Board’s views.
Richard Callard stressed that the UKGI paper was a factual
document setting out the revenue projections and why Post
Office needed the investment at this time.
(k) The Chairman.thanked Richard Callard for the work he is doing
and recognised the frustration in the Board with the process.
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The Chairman asked Richard Callard to ensure that UKGI,
the Permanent Secretary, and the new SoS all understood
ACTION: Richard that the Board was wholeheartedly behind the strategy as
Callard presented, and if a meeting was required to emphasise this,
the Chairman and the CEO would be pleased to attend.
(I) Richard Callard left the meeting.
(m) After careful consideration and with the amendments proposed,
the Board: I
1. agreed the Funding document and accompanying slides for I
presentation to UKGI and BEIS;
2. noted the revised timetable for agreeing the Funding
documents;
3. approved the plans for 2018-21 subject to the funding I
received; and
4. approved the request for further funding as set out in the
Funding document.
(n) The Board received a paper from Martin Edwards which set out
the options available to the Business if the necessary funding
was not received from the Government. The Board recognised
that the options presented were suboptimal but needed to be
discussed. The options proposed were set out in three blocks
and the paper showed the effect on EBITDAS and cash
headroom for each proposal.
(0) The Board debated the paper and supported the options being
proposed.
(p) ME left the meeting.
(q) Richard Callard re-joined the meeting. I
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POLB 17/38 CHIEF EXECUTIVE FINANCIAL SERVICES AND TELECOMS
PERFORMANCE REPORT
(a) Nick Kennett, Chief Executive FS&T, and Kevin Gilliland Chief
Executive Retail, joined the meeting.
(b) NK presented his April 2017 report to the Board and focused on
the following key points:
(c) NK reported that after P1 results FS&T was holding to budget,
and although there were some challenges in the Telco area
plans were in place to ameliorate the position.
(a)
IRRELEVANT
_IRRELEVANT There would be a deep dive o
mortgages at the next Board meeting.
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(e)
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The CFOO explained the advantages and challenges of the
mixed product portfolio within the FS&T portfolio and the
choices this enables the Executive to make. NK stressed the
IRRELEVANT
NK was pleased that POMS was on track in period 1, with the
new customer management platform (Zeus) operational
enabling changes to pricing and more effective introduction of
ducts, I
lome and Travel insurance were both
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NK reported that Lloyds Bank had signed up to the banking
framework for its business banking customers. The CFOO
explained that the effect on supply chain was being monitored.
NK also noted that discussions were continuing with banks
expand the service:
The management of regulation and risk remained a key focus
for the Executive, with HMRC increasing its regulation on
bureau de Change transactions. The level at which a customer’s
data would need to be recorded was likely to reduce from
£2,000 to £850. Which would result in an additional 350,000
data records being captured in branches
The Board noted the report.
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POLB 17/39 CHIEF EXECUTIVE RETAIL PERFORMANCE REPORT
(a) KG introduced the retail commercial performance report for
period 1 and focussed on the following key points.
(b) Retail had finished the year with strong trading and this has
continued in P1. KG reported that the decline in branch footfall
which had been running at 3% had slowed with the last 10
period to show a decline of 1%. KG explained how footfall was
measured and that a piece of work was being undertaken to
understand footfall and its effect on cashflows and who is
benefiting from the footfall.
(c) KG reminded the Board that 60% of branch customers were I
undertaking mails products, 1% Class products were in decline I
as customers moved to 2™ class which were growing. Home I
shopping returns continued to increase although the rate of
growth had slowed. RMG had introduced a new free tracking
service which might reduce the sales of the SignedFor product
but there was no evidence of that to date.
(d) Government services had seen a strong start to the year as the
Passport Office’s new digital passport service had not seen the
growth expected with Post Office retaining the in branch sales.
A new Post Office digital service is being developed which will
need Passport Office agreement but could be ready in Q4.
(e) KG reported that following the update to the Board at the last
meeting positive progress had been made on Post Office Card
account (POca) procurement. Following a hard line approach
DXC (formerly HPE) had submitted a revised proposal removing
some of their transfer of costs and risks. We are now working
through this and it appears that this has halved the gap. We will
now use negotiations and other levers to attempt to fully close
the gap and get the contract to break-even.
(f) KG explained the importance of payments as a footfall driver for
the Business and the current bid for the BBC contract. The
migration from Paypoint to Post Office may be an issue for the
BBC and the BBC announcement was now two months late.
The Legal team were ready to make a challenge if it became
evident that the due Ojeu process had not been followed.
(g) KG updated the Board on the mails competitor environment and
his meetings with retailers to ensure they understood the effect
on their basket spend of footfall driven by RMG products.
(h) Discussion were also underway with Payzone to understand
whether there is a potential partnership in the bill payments
market. Once the opportunity is explored and a possible
business case developed this would return to the Board for
further debate.
(i) KG was pleased with the progress on Network development
with 7200 branches delivered and 350 still to transform.
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Conversions of Directly Managed Branches were taking longer
to deliver but 30 would be delivered in the year.
0) KG explained the progress with the ‘no queues at Christmas’
initiative and the focus on moving customers who post more
than 5 parcels onto the Drop & Go (D&G) service, enabling their
transaction to be completed in the back office. This work could
then be completed by casuals at a lower pay rate than a counter
clerk.
(k) The Board asked more could be done to enable customers to
drop parcels outside core hours. KG explained that D&G
customers were given advice on the best time to drop parcels
although they usually wanted to meet the RMG last collection
time.
(I) The Board asked if the Business measured waiting times, KG
explained that in the larger branches with queue management
systems the wait time was measured but in other branches it
was based on analysis of capacity and transactions. Ongoing
research is also used to provide waiting times.
ACTION: KG The Board asked the Executive to consider an adequate
sample of large branches measuring queue times to give
more rigour to measurement of initiatives.
(m) The Board asked for assurance that the casual labour used over
Christmas and for D&G would not be on zero contracts. KG
explained that these were not zero based contracts but were
flexible which often suited the Post Office and the employee.
ACTION: KG (0) KG was asked to present the work on whitespace branches
at the June away day.
(p) The Board noted the report.
(q) NK left the meeting.
POLB 17/40
Irrelevant
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POLB 17/41 BACK OFFICE TRANSFORMATION (BOT)
(a) Rob Houghton, ClO joined the meeting and introduced the
report.
(b) RH explained the HRSAP and POLSAP migration to CFS and
the ongoing risks of running POLSAP on old hardware. RH I
accepted that the hardware was likely to fail at some point but
believed that there was enough resilience in place to continue
without triggering the additional cost of early POLSAP
infrastructure migration at this point. He would continue to
monitor the situation and return to the Board in September at
which point the decision could be taken on POLSAP migration.
(c) The CFOO supported the approach and explained that a fully
updated business case with costs and benefits would be
presented at the September Board.
(d) The Board noted the update provided and approved the £7.16m
of additional funding drawdown, taking the cumulative
investment to £8.91m to progress the programme to
September.
POLB 17/42 CYBER ATTACK & HORIZON OUTAGE
(a) RH appraised the Board of the action taken following the recent
cyber-attack which had notably affecting NHS systems. He
reported that the Post Office was in a strong position and that
likelihood of a breach had been very low.
(b) The Board thanked RH and his team for their vigilance.
(c) RH updated the Board on Horizon outage and explained that the
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root cause had now been identified as engineer failure in Fujitsu.
FJ did not believe it was in any way malicious but have put
additional controls in place.
(d) The Board noted the update.
(f) RH left the meeting.
POLB 17/43 FINANCIAL REPORT
(a) I The CFOO presented the financial performance report for period
April 2017/18.
(b) The CFOO reported that the Group Executive had been
allocated budgets for the year and these included many
challenges with £13m yet to be grounded in plans.
(c) Period 1 had produced a strong scorecard, with branch numbers
being the only area of slight concern. The numbers had slipped
back slightly since year end but KG was confident that with
momentum in the white space plan and the whole estate deals
with the multiples, albeit towards the end of the year, the
numbers would be achieved.
(d) The Board noted the financial performance report for April
2017/18.
POLB 17/44 ANNUAL REPORT AND ACCOUNTS (ARA)
(a) The CFOO introduced the paper and explained the delay in
signing the ARA because of the lack of clarity about funding.
Work was continuing to be ready for a July signing but if this was
not possible then it would be likely to be November.
(b) I The Board debated the stakeholder response to a delay in
signing the ARA, but agreed that it could not be signed without
funding being in place.
(c) Carla Stent, the Chair of the ARC explained that the ARC were
comfortable with the Going Concern statement even if the ARA
could not be signed until November, although the delay did not
help with the net liabilities position as it had no impact on the
balance sheet. The only part of the audit which EY had
challenged was the discount rate used for the pensions’
calculation, which they considered to be too prudent, but which
the ARC were happy to support.
(d) I The CFOO explained that the EY would undertake a subsequent
events review and update which would be more complicated
with a November signing.
(e) The Financial Statements were presented with a change to the
treatment of fixed assets moving to an impairment basis.
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(f) The Chair of Audit was pleased to report that EY had recognised
the improvement in the Financial. Controls which they believed
had moved a long way ina year, while recognising the
challenges and risks imposed by old systems.
(g) The Chair of Audit explained that the front half of the ARA had
not been written as the narrative would depend on the funding
agreement.
(h) The Board noted the draft financial statements and POL Briefing
Book for the year ended March 2017.
POLB 17/45 1 H }
Irrelevant.
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ACTION: Natasha (h) I
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ACTION: Ken @ I
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POLB 17/46 BOARD COMMITTEE CHAIR VERBAL UPDATES
(a) The CEO and CFOO re-joined the meeting.
(b) — Audit, Risk and Compliance Committee
The ARC Chair provided an update on the business of the ARC
which had met a week before the Board. Four points were noted:
1. The Tax Strategy would come back to ARC in the autumn
including the treatment of R & D credits as the Business
moves into profit
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2. The IT audit report had revealed a lack of ownership and
control for joiners, movers and leavers. I
3. Asmall amendment had-been made to the Modern Slavery I
Statement which would be publish on the Post Office
website. The ARC had challenged the Executive to be more
proactive where possible especially with postmaster
assistants
(c) The CEO assured the Board that she now had a detailed plan to
mitigate the risk highlighted by the IT audit. The CFOO
acknowledged that the position was not good enough but
reported that of the 1000 people who had left the Business
through OSOP a very few had been left on the system for a short
period of time, 4-5 days. A small overpayment of £23k gross and
£12k nett had been made through payroll which was being
recovered.
The problem had arisen because line managers had not
completed the correct leavers’ procedure but additional plans I
were now being out in place for all joiners, movers and leavers. I
(d) Remuneration Committee
KM provided an update on the Remuneration Committee which I
had met earlier in the morning. I
(e) Nominations Committee I
TP provided an update on the Nominations Committee which I
had met earlier in the morning I
POLB 17/47
POLB 17/48
POLB 17/49 ITI
(a)
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(b) Register of Sealings
The Directors resolved that the affixing of the Common Seal of
the Company to documents numbered 1502 to 1521 inclusive in
the seal register was confirmed.
I Irrelevant I
(d) Meeting Dates and Forward Agenda for June 2017 Away Day
The Board noted the future meeting dates and proposed forward
agenda.
POLB 17/50 ANY OTHER BUSINESS
(a) There being no further business the Chairman closed the
meeting.
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Chairman Date
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