rd Minutes 28/01/2020
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MINUTES OF A MEETING OF THE BOARD OF DIRECTORS OF POST OFFICE LIMITED HELD ON TUESDAY 28
JANUARY 2020 AT 20 FINSBURY STREET, LONDON EC2Y 9AQ AT 12:30 HRS
Present: Tim Parker
Nick Read
Ken McCall
Tom Cooper
Carla Stent
Zarin Patel
Alisdair Cameron
In attendance: Veronica Branton
Kathryn Sherratt
Chrysanthy Pispinis
Cathy Mayor
Owen Woodley
Dan Zinner
Meredith Sharples
Ed Dutton
Robin Nuttall
Mathieu Halpin
Ben Foat
Ed Tucker
Laurence O’Neill
1. Welcome and Conflicts of Interest
Chairman (TP)
Group Chief Executive Officer (NR)
Senior Independent Director (KM)
Non-Executive Director (TC)
Non-Executive Director (CS)
Non-Executive Director (ZP)
Group Chief Financial Officer (AC)
Company Secretary (VB)
Finance Director — FST&l (KS) (Item 5.1)
Post Office Money Director (CP) (Items 5.1)
Finance Director — Retail (CM) (Item 5.1)
Chief Executive Officer — Finance Services, Telecoms &
Identity (OW) (Items 5.1, 6 & 7)
Chief Transformation Officer (DZ) (Item 5.2)
Telecoms Director (MS) (Item 6)
Chief Executive Officer, Post Office Insurance (ED) (Item 7)
McKinsey (RN) (Item 8)
McKinsey (RN) (Item 8)
General Counsel (BF) (Item 9)
Project SME (ET) (Item 9)
Senior Legal Counsel (LON) (Item 9)
Action
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.
2. Minutes of Previous Board meetings including Status Report
The Board APPROVED the minutes of the Board meeting held on 23 November 2019.
The Board NOTED the action log and status of the actions shown.
Irrelevant
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4. CEO Report
Nick Read introduced his report and highlighted a number of issue:
Executive
Irrelevant
levant
© Itwas agreed that the Board needed to be kept abreast of the operational changes associated
with the Group Litigation Order (GLO), especially as a sizeable sum had been allocated to this in
the budget", It would be helpful to understand how these changes were altering the risk and
culture profile of the organisation. We had been reactive in our communications and this had
been detrimental to public perception. We needed to make sure that we were delivering in
accordance with the settlement agreement and in a timely fashion. NR noted that operational
implementation would be led by the Retail Franchise Director and the Operations Director. We
were also in the process of appointing an independent programme director to look after the GLO
Executive
1 £10-12m had been included in the P&L for agents’ pay and £10m for operational change.
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operational changes. It was AGREED that the GLO update would be provided for each Board
meeting
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5. Financial Performance
5.1 Financial Performance, 2019-20 outturn incorporating FST&I and Retail insights
Anumber of points were raised, including:
© Why did we think the changes to the Bank of England’s vault opening times were not having the
impact we had anticipated? It was reported that the change had only come into effect on 1
December 2020, our initial estimates had been optimistic but we were looking at week by week
projections and would see the benefits come through over time
Why had our profits in peak been less than in Q4 for retail? It was reported that the primary
explanation was that Banking Framework revenue was almost doubling with effect from 1
January 2020 so this was having a distorting impact on the profile of this year. This was
compounded by raising the associated agents’ remuneration earlier in the year. These rises had
been budgeted (part in agents’ remuneration, part in central GLO costs) so would not cause an
adverse performance versus full year budget. It was reported that this was an abnormal picture
driven by GLO costs running through our P&L before the effect of increases in fees from BF2 were
reflected
* Our market share in Verify had not yet increased but this would change as the effect of providers
exiting the service was reflected
* How could we “square the circle” of needing to spend on marketing while having to cut costs and
with underperformance in Telecoms and Insurance? It was reported that we shared 50/50
savings on reduced marketing spend with Bol. Once a decision was reached on the Telecoms
RFP/ sale we would need to look at the marketing position in that area again. The judgement on
DRTV for Insurance was finely poised; it had not driven the volume of sales we had hoped in the
first two weeks of January and we were analysing the reasons for that but the post-Christmas
Telecoms performance had been good
* What was the Return on Investment for new customers in Telecoms once we had factored in the
investment in fibre? It was reported that the positive return on that customer depended in part
on our assumptions on longevity. Revenue Per User (RPU) levels were on a downward trend and
this, plus the investment required in fibre and an aggressively priced market , would be significant
challenges if we did not sell the business. It was noted the one strand of the PSG was to make
money out of our non-core businesses and use these profits to support the network, while
individuals were often keen to grow their businesses and we needed to direct the right outcomes
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© That there ought to be opportunities for Post Office in upselling and that we should be aligning
Postmaster incentives in areas we wished to prom ote. It was reported that the hothousing
programme was showing encouraging results with sales up by 6 -8% in participating branches.
There was potential for the hothousing approach to benefit around half the network. The
programme was increasing the skills and knowledge of the area managers who in turn were
helping to increase the skills and knowledge of branch managers
© Itwas noted that the explanations within the report on activities such as Mystery Shopping were
very helpful. in addition, it would be hel pful for the financial and business performance reports to
include a summary of the key initiatives and priorities for each business and be able to
understand trends, where we did or did not have the scope to affect delivery and performance
and where so what our levers were, as well as our cost overheads. More attention should also be
given to the network (e.g. what was happening in the bigger branches, regional breakdowns etc. )
Less detail was needed for smaller contributors to revenue and trading profit.
To do:
Executive
5.2 Quarterly Change Report
The Quarterly Change Report was NOTED and APPROVED for submission to UKGI.
5.3 Draft Budget 2020/21
‘Al Cameron introduced the draft budget for 2020/21. We would normally be further ahead with both
the draft budget and the draft Five Year Plan than was the case but we needed the PSG outputs which
in turn needed to be translated through to staff costs. There were limits on what we could do to
accelerate cost savings because of the constraints on investment spend. The GLO operational spend
requirements were uncertain at the moment. Nevertheless, significant underlying work had been
done
A number of points were made, including:
© Anexplanation was requested on the BF contribution from the 2019/20 year to the 2020/21 year
and our previous estimate of the contribution versus our current assumption s; it would be helpful
to see the bridge between the two and to understand what wa s happening with the rest of the
cost structure that was bringing the contributions down overall. The same information was
requested for change spend. The impact of low profitability in the deposits business, higher IT
costs than estimated, GLO spend and other elements were discussed
* That we needed to understand where we were proposing revenue investment spend, noting the
limited funds available, the costs associated with the GLO and the impact on our security
headroom.
AC to arrange
for the
information
requested to
be provided.
5.4 Draft Five Year Plan and future funding
‘Al Cameron introduced the draft Five Year Plan and future funding request to Government.
We were working to align with the Government Spending Round and HM Treasury timelines. Unless
we could secure an agreement on working capital early we would not be in a position to review our
going concern in the Summer at the Audit, Risk and Compliance Committee. We wanted to have a
broader conversation with Government than the funding request.
Three risks to Post Office would be flagged: a high numbers of the convicted claimant cases proving
to have been unsound, a high of number workers’ rights (Starling) claims proving to have foundation,
and the Bank of England funding facility continuing to fall.
A list of requests would also been included, not all of which were financial, and the Board was asked
to comment on these. We would not be able to add to this list once submitted
To do:
AC
’
It was noted that approval of State Aid had to be agreed before the next loan was put in place. It was
not yet clear how this would work but Tom Cooper advised that there was limited appetite to seek
approval of the State Aid before the loan had been approved. TC also noted that the communication
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we were proposing to Government would be difficult because they would not differentiate the
subsidy requirement, investment spend requirements and loan requirements significantly.
We needed to consider the 5 year horizon. The GLO costs were exceptional but the business had
received transformation funding and needing to continue making returns on this investment and
grow. The absence of borrowing capacity was a constraint on our ability to deliver investment
returns and we needed to look at alternative sources of cash. Freeing up security headroom through
not including the Santander liability was seen as a sensible approach if it could be achieved.
Telecoms Update
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The Board RESOLVED:
* To APPROVE a 12-month Fujitsu (‘FIT’) Extension, should reasonable terms be agreed, ready
for contract signature by 7" February 2020
‘* That should a FIT extension not be acceptable, to provide authority to issue a Termination
for Convenience notice during week commencing 10‘ February 2020. This would secure Post
(I The interim service contract would be a sunk cost.
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Office the right to exit services and to extend the exit period to 24 months (from the date of
the termination notice)
© ToAPPROVE the Sale and RFP Decision Costs of £5.4m for the financial year 19/20 (following
approval at the Investment Committee on 21" November 2019)
* That MS should set out the different positions and options and show the potential costs and qs
risks associated with each
© That we should ask PIT to provide a refined valuation
* That we should explore further the appetite in the market to purchase our Telecoms
business (e.g. was it likely that there would only be two bidders?) vB
© That a Board call would be convened if required when were in a position to discuss the
additional information requested.
Insurance Strategy
Irrelevant
Purpose, Strategy, Growth
Irrelevant
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The development of our digital proposition was important and the digital offer combined with
physical locations was synergistic.
Pillar 1 was focussed on simplifying to improve our agility and delivery. There were around 130 active
projects and this needed to reduce significantly. The size of central functions, including the
commercial and franchising functions as well as traditional support areas like HR, needed to be the
right size and shape for the business. There was scope for further a utomation and use of analytics.
We needed to complete DMB franchising and futureproof branch structures, rebalancing through
converting mains to locals. A joint discovery process with Fujitsu on Horizon to determine how to
proceed after 2023 would start. NR was having conversations with Fujitsu about a sensible migration
plan, not discounting the possibility of a longer term relationship with Fujitsu post 2023. We were
recommending a close look at postmaster support and the financial cost of support for the network
Taking out products did not help to take out central costs and would reduce the absolute contribution
to the business. It was possible to move to a leaner operating model without cutting products
Project rationalisation was essential and we proposed to reduce to 20-30% of the current 130. A
number would be discontinued or put on hold with the associated resources stopped. We had looked
at a set of adjacencies that we did not recommend Post Office invest in such as energy supply.
Bill payments would be important for the maintenance of the network and to deliver SGEls but
investment to grow was not recommended and investment to grow digital identity from the current
model was not recommended.
Pillar 2 would focus on bolstering our core market and Pillar 3 on developing platform business
opportunities.
Anumber of points were raised, including:
If we rolled these proposals forward were we doing enough to reimagine what Post Office might
look like in the future? We needed to look further than a three year time horizon and build
flexibility into our strategy. It was reported th an this strategy was focussed on a timeframe of
around 5 years but we would need to continue to adapt
* We were evolving into a franchise business. We needed to be think about the impact of the
decline in cash. Growth in parcels could move quickly but it was difficult to predict the longer
term trajectory. We needed to have the flexibility to diversify but it was hard to buy full
optionality
* We needed to invest in our core areas where we had the capability and market share and had
further scope to digitise and automate. We needed to aspire to be the leader in mails and parcels.
We retained options because we operated in several markets. We had to create a more efficient
business and getting the IT right would make a fundamental difference to both cost and flexibility.
Addressing pillars 1 and 2 would give us the ability to progress with pillar 3 and focus on the
highest return platform options
© That we were basing the strategy on the current market position but there were potential market
disruptions and the demand for such an extensive physical network in the future was uncertain
* We still needed to understand more about what we would not be doing. It was noted that a small
number of people were working in the areas generating the majority of the contribution. We
needed to stop activities which did not add contribution and drive accountability and not waste
resource and management time in areas where this was disproportionate to the benefits
© That network developments were significant and fast moving. We needed to make our networks
agile as well as automated and efficient. The scope for offering a “Post Office in a Box” was
promising and could enable us to respond quickly in the event of a partner going into
administration or withdrawing from the franchise. The market was driven by convenience so we
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needed to be able to access customers in densely populated areas and deliver convenience. Our
view of the network had been one dimensional but there were opportunities to re-think and re-
design with modular and bolt-on options, pop up locations and with more retailers attracted by a
simpler, less space demanding Post Office proposition
Further work was needed on the numbers and aligning these with the Five Year Plan. The Board
would like to see more detail on both numbers and sequencing
Whether there were any off the shelf options for replacing Horizon. It was reported that the
diagnostic work planned jointly with Fujitsu would be critical to our understanding of this
We needed to be alert to the fact that the strategy proposed would spur new projects while we
were seeking to reduce the burden overall. We would need to ensure that we had the right
resource to deliver the projects and be determined to stop activities. In addition, maintaining a
large number of products and product lines drove complexity because of the regulatory and
compliance burdens.
Subject to Legal Privilege - DO NOT FORWARD
BS/ ED/ LON
Approvals
Articles of Association and Framework Document
The Board APPROVED the following resolutions:
(i)
(ii)
the Framework Document and the obligations therein were approved for execution by Post Office
Limited (POL) with effect from 1 April 2020;
the requirement for performance of the obligations within the Framework Document from 1 April
2020 was noted;
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10.3
10.4
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11.2
11.3
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(iii) any director or the secretary was hereby authorised to sign (by wet signature or electronically)
the Framework Document for delivery to the Shareholder and Shareholder Representative;
(iv) the written resolution passed by BEIS approving the adoption of the new Articles of Association
for POL was hereby noted as effective from 1 April 2020;
(v) it was noted that the implementation and ‘operationalisation’ of the Framework Document and
Articles of Association for POL, Post Office Management Ser vices Limited (Post Office Insurance,
PO!) and Payzone Bill Payments Limited (PZBPL) would take place following the execution of the
Framework Document and adoption of the Articles of Association for POL.
(vi) that the template Articles of Association for Post Office Insurance and Payzone Bill Payments
Limited were hereby approved by POL as Shareholder;
(vii) the CEO or CFO and General Counsel (GC) had delegated authority to finalise and approve the
Articles of Association for Post Office Insurance and Payzone Bill Payments Limited for adoption
with effect from 1 April 2020; and
(viii) any director or the secretary was hereby authorised to sign two separate special written
resolutions adopting the finalised Articles of Association for Post Office Limited and Payzone Bill
Payments Limited respectively, to be effective from 1 April 2020, on behalf of POL as Shareholder.
These resolutions were subject to: a) Shareholder (BEIS) approval of the FD and AoA and b)
Shareholder (BEIS) adoption of the AoA for POL by way of written resolution.
Payzone Bill Payments Limited - Capital Equity Injection Request
vant
Global Payments Contract Exten:
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GDPR Spend
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Noting and governance items
Health & Safety Report
The Board NOTED the Health & Safety Report.
Sealings
The Board APPROVED the affixing of the Common Seal of the Company to the documents set out
against itemsnumber 1854 to 1900 inclusive in the seal register.
Future Meeting Dates
The future meeting dates were NOTED.
Forward Agenda
The forward agenda was NOTED.
Date of next meeting
24 March 2020. An additional Board meeting had been scheduled for 10 March 2020.
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29/04/2020
DATE
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Voting Results for Board Minutes 28/01/2020
The signature vote has been passed. 1 votes are required to pass the vote, of which 0 must be independent.
Vote Response Count (%)
For 1 (100%)
Against 0 (0%)
Abstained 0 (0%)
Not Cast 0 (0%)
Voter Status
Name Vote Voted On
Parker, Tim For 18/05/2020 23:27
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