POL00021556
POL00021556
I
I
I
POST
OFFICE
D BOARD MEETING
POST OFFICE LIN
MINUTES OF A MEETING OF THE BOARD OF DIRECTORS OF POST OFFICE LIMITED HELD ON TUESDAY 31
JULY 2018 AT 20 FINSBURY STREET, LONDON EC2Y 9AQ AT 11.45 AM
Present: Tim Parker Chairman (TP) I
Paula Vennells Group Chief Executive (PV) I
Ken McCall Senior Independent Director (KM) I
Tom Cooper Non-Executive Director (TC)
Tim Franklin Non-Executive Director (TF)
Shirine Khoury-Haq Non-Executive Director (SK) I
Carla Stent (by phone) Non-Executive Director (CS) I
Alisdair Cameron Chief Financial and Operations Officer (AC) I
In Attendance: Jane MacLeod General Counsel & Company Secretary (JM) I
Veronica Branton Minute Secretary (VB)
Cathy Mayor Finance Director, Retail (CM) (items 8&9)
Roger Gale Network & Sales Director (RG) (item 8)
Martin Kearsley Banking Director (MK) (item 9)
Ben Foat Legal Director (BF) (item 10)
Jonathan Hill Compliance Director (JH) (item 10) I
Angela Van-Den-Bogerd LRG (A VDB) (item 11) I
Owen Woodley CEO — FS&T (OW) (item 12)
Jeff Lewis IT (JL) (item 13)
Apologies: None ACTION I
INTRODUCTION AND CONFLICTS OF INTEREST
a) A quorum being present, the Chairman 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 requirements of section 177 of the
Companies Act 2006 and the Company's Articles of Association.
1. BOARD RE-APPOINTMENT
The Board NOTED the decision of the Department of Business, Energy and Industrial
Strategy (BEIS) to re-appoint Tim Parker as Chair of Post Office Limited for a four year
term until 30 September 2022.
The Board congratulated Tim on his reappointment. I
2. ANNUAL REPORT AND ACCOUNTS 2017/18 (ARA):
a) Report from the Audit, Risk and Compliance Committee (ARC)
Tim Franklin provided an overview of the discussion at the ARC meeting held earlier in 1
the day. Three adjustments had been approved and the EBITDAS figure for 2017/18
had been confirmed as £35.46m. The wording of the group litigation statement had I
been discussed and a slightly shortened CEO statement had been received.
Discussions had taken place with the auditors in the meeting and in the closed
session. I
Post Office Limited is registered in England and Wales. Registered No. 2154540
Registered Office Finsbury Dials, 20 Finsbury Street, London, EC2Y 9AQ PostOffice.co.uk I
Post Office and the Post Oifice logo are registered trade marks of Post Office Limited I
POL0000089
POL00021556
POL00021556
I
I
I
POST OFFICE LIMITED BOARD MEETING
The Board RESOLVED, on the recommendation of the ARC, to APPROVE the ARA
2017/18, subject to finalisation of the CEO’s report and other minor changes, and to
delegate signing authority to the Chairman, Group CEO and CFOO.
3. APPOINTMENT OF EXTERNAL AUDITORS
AC reported that EY had not participated in the tender process. Only PwC and Deloitte
had bid and based on the scoring criteria, PwC had ranked highest on both service
quality and cost. The Board noted the following potential conflicts and proposed
mitigations:
¢ PwC were remuneration advisers to Remco — based on the advice of the
Chairman of Remco this was not considered to be a material conflict
¢ The lead partner in the PwC team was also the lead partner at Morrisons
where Paula Vennells was a Non-Executive Director. To ensure that PwC
retained sufficient independence it had been agreed that an additional
partner would attend some PO Limited ARC meetings. PwC were also the
auditors for each of Bol and FRES (where Paula Vennells was the Chairman of
the Board). It was noted that each of those audits was undertaken by a
separate team and accordingly the Board considered that although there was
a potential conflict, this could be managed.
It was reported that PwC were not on the government framework so potential conflicts
with other advisory work were limited.
The Board RESOLVED, on the recommendation of the ARC, to APPROVE the
appointment of PwC as the provider of Post Office Limited external audit services and
to delegate authority to the CFOO and Micheal Passmore, Finance Director, to resolve
the minor outstanding contractual issues prior to signing the contract, and authorised
the signing of the Engagement Agreement.
4, MINUTES OF PREVIOUS BOARD AND COMMITTEE MEETINGS INCLUDING STATUS
REPORT I
The minutes of the meeting of the Board held on 24" May 2018 were APPROVED and
AUTHORISED for signature by the Chairman and the notes taken of the discussions at
POL0000089
POL00021556
POL00021556
POST OFFICE LIMITED BOARD MEETING
the Strategy Day were NOTED. I
5. CEO’s REPORT
a) Paula Vennells updated the Board on of the following recent issues:
e the deployment of branch counter hardware was due to be completed in
September 2018 in line with the current 95%+ roll-out success rate. Jason Black
had driven through much of this work and the Board asked for their thanks to be
conveyed to him
«the Everest discussions had moved forward and change control notices were being
prepared for signature. Work was underway to operationalise these changes
*® ameeting had taken place with the CEO of Verizon who had agreed service credits
for delivery failures
Irrelevant I
¢ we had advised Bol that we would not discuss the sale of the credit card book until
we had agreed the wider negotiations. Bol had agreed that we needed to have
signed off a deal by the end of October 2018
b)
Nv
© next steps for the negotiations with RM. It was reported that Paula Vennells was
going to have a follow up meeting? with the new Chief Executive of RM to discuss
opportunities for developing the contract. PV was also meeting Sue Whalley, the UK
Chief Executive of RM, in the next week. RM had its next Board meeting in
September 2018 and were keen to have made progress with contract negotiations
by then VB
Irrelevant ‘a
« “Whether there had been a full shut down test of the Belfast data centre. it was
reported that there had not been a full shut down test and that we did not wish to RH
I
I
I
Oe I
1 The Chairman and Chief Executive had meet the Chief Executive of RM following his appointment to the role. I
POLO0000089
POL00021556
POL00021556
POST OFFICE LIMITED BOARD MEETING
do this until we had migrated off POLSAP. Shirine Khoury-Haq would discuss our hot VB to liaise
back-up arrangements with Rob Houghton with RH I
* an item on cyber security would be added to the Board agenda in October or I
November 2018 I
c) The Board NOTED the CEO’s report. I
6. FINANCIAL PERFORMANCE REPORT
a) The CFOO introduced the report and highlighted a number of issues:
© trading figures were on target taking account of the Telco budgeting error. Mails
were holding up well. FS&T should come back on plan. The higher fees for POca
had only just been triggered. Verify was trading well but Government had flagged
it wanted to reduce the fee. The main concern was IT costs where it had proved
harder to drive costs out than we had initially estimated.
b) The Board NOTED the Financial Performance Report.
7. UKGI QUARTERLY REPORT
a) The CFOO introduced the report and highlighted a number of issues:
* we were around £8m underspent against funding in the last quarter. We had
involved the Finance Directors from across the business in planning for the next
quarter. The nature of the portfolio was changing and we were aware of the need
to improve our change planning processes now that much of the work was cross
silo
¢ funding for Payzone would come out of trading profit and not funds provided by
UKGI.
b) The Board APPROVED the submission of a request for £50m of Q2 funding from UKGI.
8.
a)
b) i
Irrelevant I
2 It was reported that we had done an interest rate swap in the Spring so that around 50% of the impact of a rate change was
hedged; therefore, we would not gain as much from an interest rate rise as we would have done previously.
3 provided that we were not required to proceed to stage 2 of their process.
POLO0000089
b)
POL00021556
POL00021556
POST OFFICE LIMITED BOARD MEETING
- Irrelevant
The Chairman welcomed Martin Kearsley to the meeting. MK introduced the paper
and highlighted a number of issues:
framework every three years and we were
proposing to delay the renewal by three months. The contract operated ona
“IRRELEVANT
: I
A number of po I
* the potential total value of the develo} al
esti
'$ were raised, including:
‘al for us at
included individuals with relevant banking experience IRRELEVANT
POLO0000089
POL00021556
POL00021556
POST OFFICE LIMITED BOARD MEETING
IRRELEVANT
Lcneeerae nae nirneysnrnnggiee tee
© the banks would be looking at the end state and we only played pa
this: however..we needed to understand.their.end.state view. IRRELEVANT.
_IRRELEVANT , I
dpi
IRRELEVANT
* an an update was requested for the September Board Meeting and it was noted that
it would be helpful to have a timetable against which progress could be measured.
Tom Cooper and Tim Franklin should be involved in the discussions as our
negotiation proposals were developed.
c) The Board NOTED the report.
10.
a)
#/JH I
POLO0000089
POL00021556
POL00021556
POST OFFICE LIMITED BOARD MEETING
' Irreleva
14, POSTMASTER LITIGATION (including contingency planning) —Subject to Legal
Privilege
a)
In relation to the Postmaster Litigation, the GC provided the following update:
e witness statements were being gathered and were due to be exchanged during I
early August
© Following receipt and review of the witness statements our QCs would be able to
update the Merits Opinion
¢ The application for Security for Costs (arising from our view of the flawed terms in
the Claimants’ insurance policy) continued. We expected that this issues would be
addressed during September 2018
© the two IT experts continued to review documents relating to the issues to be
addressed for the Horizon trial. We expected the scope of the Horizon trail to be
agreed in the next month.
© contingency planning was underway stemming from an analysis of the likelihood
and impact of any of the implied contractual terms put forward by the claimants
being found against us. ‘Likelihood’ was assessed by reference to the legal advice
we had received and ‘impact’ a business based assessment.
The GC referred to the development of a contingency planning paper — an example of
which was shown to the Board. This categorised four potential areas of response to
each risk identified: contractual changes; communications; operational changes (e.g
training); and system changes (e.g. Horizon). The contingency planning would
identify what responses could and should be implemented ahead of receipt of the
trial judgement irrespective of its outcome, as well as those that would only be
implemented following receipt of an adverse judgement. The Board would be
provided with updates at subsequent meetings.
c) The Board NOTED the update.
A
A
Mm
rr
<
>
=
—I
POLO0000089
b)
c)
13.
a)
POST OFFICE LIMITED BOARD MEETING
EVEREST
The Chairman welcomed Jeff Lewis to the meeting. JL introduced the report and
highlighted the following:
The objectives for Project Everest (being the re-negotiation of the Fujitsu
relationship) had been delivered and were now being operationalised. In
particular:
the decision to move from Fujitsu’s proposed K5 platform to Microsoft Azure.
Change notes had been signed which would begin to deliver savings
an update on the move from the Belfast Data Centre would come to the
September Board
Fujitsu had agreed to move £3m spend from opex to capex although we had been
aiming for £5m.
POL00021556
POL00021556
POL0000089
I
I
b)
¢)
14.
a)
POST OFFICE LIMITED BOARD MEETING
The following points were discussed:
e JLexplained that we were working together with Fujitsu to develop digital delivery
capability. Fujitsu were not advanced in this area but were developing quickly and
bringing in new people with expertise in agile
e JLreported that we were having workshops with Fujitsu regarding the Belfast exit
plan. We had received a proposal from Fujitsu which set out a very cautious
approach with a long delivery time. We had asked to look at other options.
e The current contract continued until 2023 but moving to cloud architecture and
our ownership of the intellectual property gave us much greater scope to choose a
different path in the future.
whether the penalty measures for any failure by Fujitsu to deliver were
appropriate and sufficiently onerous. JL reported that we had built in penalty
measures/ service credits but that these were not perfect; however, we were ina
good position on intellectual property rights. The risk of non-renewal would
become a more effective bargaining chip over time
* whether we were ensuring a modular build such that we would transition more
easily to one or more new suppliers over time, and whether there were exit
provisions that allowed this. It was noted that the exiting the Belfast data centre
and moving onto the cloud was a critical component of being able to move to a
new provider in the longer term.
The Board NOTED that we would:
© close Everest as a project, complete transition and embed the new service models
and operating processes
© separate out the Belfast data centre refresh/transition to cloud, and run this as a
programme for which would seek separate approval from the Board.
The Board had already agreed the principle of moving to variable cost and migration
to cloud architecture and the Belfast exit programme would set out how and when
this should take place.
BACK OFFICE TRANSFORMATION
AC introduced the report and highlighted a number of issues:
© we had said at the May Board that September 2018 was the earliest feasible
migration date from POLSAP and we were now targeting October 2018
e integration testing was underway. Some elements including agents’ pay and cash
processing had already been transitioned from POLSAP and were now being run
on different systems. Issues identified in the internal audit report were being
addressed. DMW had not identified any red items and most ‘amber’ items were
turning green. We would be testing against 120% of our peak volumes. Prior to
go-live we would be getting additional assurance from Accenture’s QA team over
the deployment plans and would ask DMW to validate test results against our
go/no-go criteria. The go live plan has several roll back opportunities.
© Contingency planning was being addressed. POLSAP was not customer facing and
would not impact Horizon performance. There were known manual work arounds
in place already to deal with specific types of failures. We therefore anticipated
that operational activity could continue through manual interventions and these
would allow key processes to continue albeit via labour intensive processes. Cash
reconciliations across the Network would become more challenging and in all
POL00021556
POL00021556
JL
POLO0000089
POL00021556
POL00021556
POST OFFICE LIMITED BOARD MEETING
likelihood we would need to further fund the network on a temporary basis in the
event of issues. Increased resources in the Bristol cash centre were also being
considered, and we were working with Accenture to review whether we could use
their offshore resources to build a reconciliation team
* Should it be determined that we could not safely migrate in October, it would be
most likely that migration would be delayed until January or February 2019. This
was an unattractive proposition as it would cost a further c£5m to run the project
that long. We had POLSAP spares for a period of time but would have to look at
building more if we were run to February 2019 and this would cost a further £5-
6m. RH/ AC
«the report would be circulated to the Board.
b) The Board NOTED the report.
15. ITEMS FOR NOTING
15.1 Sealings
The Board RESOLVED that the affixing of the Common Seal of the Company to the
documents set out against items numbered 1682 to 1696 inclusive in the seal
register was confirmed.
15.2 Health and Safety
The Health and Safety report was NOTED.
15.3 Future Meeting Dates
The future meeting dates were NOTED.
15.3 Forward Agenda
The forward agenda was NOTED. An update on the Banking Framework would also be
included on the September agenda and Mails Strategy would be covered under the
Retail Strategy item.
Meeting closed at 3.30 pm.
POLO0000089