POL00026626
POL00026626
Post Office Limited — Strictly Confidential
POST OFFICE LTD BOARD MEETING (Company Number 2154540)
Meeting to be held at 9.30 am on 27" November 2013
in the Boardroom at 148 Old Street, London EC1V 9HQ
The meeting will be preceded by a NEDs’ breakfast from 8.00 am at the Zetter, 86 — 88
Clerkenwell Road, EC1M 5RJ
0930 1 Update on Horizon Chris Aujard/
Angela Van D-B/
Belinda Crowe
1000 2 Target operating model (including outsourcing) Chris Day/
Lesley Sewell
1040 3 Risk Update: Report from ARC Alasdair Marnoch
1105 BREAK
1120 4 First impressions from the Commercial Director Martin George
1200 5 Mutualisation Sue Barton/
e Public Purpose Statement Belinda Crowe
1230 BREAK
1245 LUNCH to be joined by Robin Budenberg
1345 6 FS/Network incentives for front line staff Nick Kennett/ Kevin
Gilliland
1410 7 Funding Update Sue Barton
1430 8 CTP & NTP update Kevin Gilliland/ Sue
« Locals income Barton
e Deployment of the new NT strategy
1445 9 Chief Executive's Report Paula Vennells
1510 10 Financial Performance Update including Cost Reduction Chris Day
1530 11 Minutes of Previous Meeting and matters arising Alice Perkins
Committee Minutes for noting
Status report update
1535 12 Items for Noting Alwen Lyons
« Managing External Resources
¢ Significant Litigation Report
e Health and Safety Report
e Sealings
1545 13 Any other business
¢ Personal Injury Referral Fees update Nick Kennett
Date of next meeting: 21 January 2014, to be preceded by a
Board dinner on 20 January 2014
1600 CLOSE
POL-0023267
POL00026626
POL00026626
Strictly Confidential - Subject to Legal Privilege - DO NOT FORWARD
POST OFFICE LIMITED - BOARD PAPER
Project Sparrow Update
1. Purpose
The purpose of this paper is to provide the Board with an update on Project Sparrow.
2. Background
2.1 In the last (October) CEO report to the Board, an update was given on the then
current status of Project Sparrow. The purpose of this paper is to provide a high level
summary of the project as it now stands, focussing on developments since the last
Board meeting.
3. Current Situation
3.1 Project Sparrow as initially conceived comprised two main initiatives, both of which
were launched in response to the Second Sight Report released in July 2013. The
first, and most time-critical of these initiatives was concerned with establishing a
mediation scheme (and related activities), whilst the second focussed both on
developing a business improvement program (BIP), aimed at assisting sub-
postmasters in their business dealings with Post Office, and on implementing
improvements to the overall control framework.
3.2 Until relatively recently these two initiatives were, for governance purposes, treated
as one project and were both being overseen by the Project Sparrow Steering
Group. The Steering Group has, however, recently agreed that the Post Office’s
interests would be better served, and greater focus would be achieved, by separating
these activities into two distinct projects with Belinda Crowe being appointed as
Programme Director for the first (the mediation scheme) and Angela Van Den
Bogerd acting as Programme Director for the second (the BIP).
3.3As at the date of the last CEO report the mediation scheme had received 64
applications from sub-postmasters. As of 18 November 2013 (the date on which the
scheme officially closed) some 140 applications had been received of which 82 have
been approved to proceed to the next stage (ie the stage at which the applicant
submits a “Case Questionnaire” setting out the details of his/her claim) and 9
applications had been rejected. The remaining 49 have been held over for
consideration at the next meeting of the “Working Group” scheduled for 22
November 2013.
3.4 As previously trailed, the Working Group that has been established to oversee the
operation of the scheme is chaired by Sir Anthony Hooper. It meets weekly by
telephone to discuss individual applications and holds face-to-face meetings once a
month for more detailed discussions, including discussions as to the overall efficacy
and operation of the scheme.
3.5 The scheme has received more applications than originally anticipated (140 as
against an initial planning estimate of 75) and, given this fact and the complexity of
some of the applications, additional resources have now been allocated to the
Project Sparrow Update Chris Aujard Page 1 of 2
21 November 2013
POL-0023267
POL00026626
POL00026626
Strictly Confidential - Subject to Legal Privilege - DO NOT FORWARD
project, principally aimed at ensuring that each application is investigated thoroughly
and professionally. It is expected that the full team will be in place by 6 December
2013.
3.6 The increased number of applications will also increase the overall costs of the
scheme, much of which will be incurred on a “per case” basis. Thus, an initial budget
of £1.3m (ex vat) based on 75 applications has been increased to £2.2m (ex vat) for
130 cases proceeding all the way through to a concluded mediation. This does not
include the costs of any financial compensation which may be offered to facilitate
resolution of individual cases (as to which, see para’s 3.8 and 3.9 below).
3.7 Notwithstanding this increase in resources, it is currently anticipated that the time
required to process all applications through the scheme will now extend into the Q2
2014. This will also extend Second Sight’s involvement in the Scheme given its role
of recommending whether a case is suitable for mediation after it has considered the
results of our investigations. This role was ascribed to Second Sight to add a level of
independence, and therefore creditability, to the scheme. The Working Group (and
the Chair in particular) remains tasked with ensuring that applications are efficiently
progressed through each stage of the scheme.
3.8 On 19 November 2013, ExCo considered a draft policy prepared by the project team
with a view to ensuring that our approach to resolving individual applications was
consistent across the piste. In developing this policy, however, it did become clear
that certain applicants are expecting significant financial settlements, and certainly
ones larger than those envisaged by our policy. Accordingly, work is now being
undertaken to see what sensibly can be done to bridge this “expectations gap”.
3.9 The project team will also continue to refine this policy as the applications progress
through the scheme into actual “mediations’”.
3.10 The first phase of the BIP (looking at improvements to our sub-postmaster
training and support processes) was launched in November, informed in part by the
new Branch User Forum, the inaugural meeting of which took place on 19 November
2013. The meeting was well represented by subpostmasters and Crown employees,
who fully supported the Forum's purpose and objectives. Forum meetings will inform
the wider plans for reforms to our organisational structure and culture over the next
6-12 months.
As foreshadowed in the last CEO report, a paper reviewing our overall policy for
investigating and prosecuting future (criminal) cases was presented to the ARC on
18 November 2013 and a verbal update on that matter will be given at the Board
meeting.
4. Recommendations
The Board is asked to note the update set out above.
Chris Aujard
21 November 2013
Project Sparrow Update Chris Aujard Page 2 of 2
21 November 2013
POL-0023267
POL00026626
POL00026626
Strictly Confidential
POST OFFICE LTD Board
Operating Model and Strategic Cost Reduction - November 2013
1. Purpose
1.1. The purpose of this paper is to update the Board on our approach to delivering the
strategic cost reduction targets that form part of our 2020 strategy.
1.2. The Board is asked to note this paper.
2. Background
2.1. The 2020 business strategy includes a number of challenging targets that will enable us
to become a commercially sustainable business. We must take 25% out of our
operating costs and significantly grow our income.
2.2. We have been through a tactical cost saving exercise and identified savings across the
business for FY2013/14 and FY2014/15. The scope of the savings does not deliver the
25% called for in our strategy.
2.3. In early 2013 we engaged Accenture and Capita to assess the potential efficiencies in
our current operating model and the savings they identified were also less than 25% of
our cost base.
2.4. To achieve our strategic cost-saving target we must think differently and this is why we
have proposed a new operating model. The new model is customer focussed and will
give us the opportunity for strategic cost reduction.
2.5. We will continue to focus on tactical cost reduction as we develop our strategic cost
reduction programme and deliver the new operating model.
3. Current Situation
3.1. Validating our operating model
« In September a Post Office delegation travelled to India to visit a number of
outsourcing organisations. The group were impressed by the maturity and capability
of the services offered by these organisations. Outsourcing has moved on from
being a cost takeout play, based on labour arbitrage; it now offers an opportunity to
improve processes, add value and grow income.
¢ In tandem with the visit to India, we engaged 6 major consulting and outsourcing
firms to challenge and validate our proposed operating model, with a particular
focus on the Service Delivery element of this.
e We have received majority validation of the operating model. The range of
responses tells us that there is an opportunity to take circa 25% out of our cost base
by implementing the new model.
e As part of the supplier responses we received excellent feedback on the customer
centric nature of our model. The suppliers cited this as a key enabler to drive up
income.
« Areas such as customer analytics, contact centre consolidation and driving
business-to-business sales were all identified by the suppliers as ways to increase
income.
“Operating Model and Strategic Lesley Sewell & Chris Day Page 1 of 3
Cost Reduction November 2013” November 2013
POL-0023267
POL00026626
POL00026626
Strictly Confidential
3.2. Delivering our operating model, strategic cost reduction and increased value to the
organisation.
e To ensure that we deliver the maximum value with our new operating model and to
strategically reduce costs, we must give careful consideration to how it is
implemented.
* The advice from the market testing (5 of the 6 suppliers) was that we should procure
a transformation partner to help us maximise the benefits of the operating model.
We do not have the capacity or experience in the business to deliver this on our
own.
e The transformation partner will bring the industry knowledge, process expertise and
dedicated focus that is needed to deliver this change.
e The transformation partner will determine the right sourcing option for each initiative
within the operating model. Business Process Outsourcing is not the only way to
address our cost challenge; we must also look at how we can streamline the
processes that we retain. Our transformation partner will provide and manage the
supply chain to deliver the change in the organisation.
¢ Before going to market to procure this partner there are a number of questions that
we need to answer to ensure we take the correct approach, with the right
commercial construct.
e We have established a project to look at the business case for engaging a
transformation partner, understand the preferred engagement model and prepare
for a partner selection exercise (assuming the business case is compelling). Brian
Deveney has been tasked with leading this study.
« We will be visiting a range of companies that have been through a similar process
and have experience of working with a large transformation partner.
« The support of the business units is vital to the success of this next phase. The
ExCo are fully supportive of this initiative and have committed to provide resources
to ensure its success.
e We must embrace this opportunity for change and allow the transformation partner
to look at all areas of the business.
e Our aim is to complete the next phase of work in time to engage the market early in
2014.
3.3. We have already engaged with a company that has successfully transformed their
business with the help of a partner. We met with Steve Owen, the Director of
Operations and Commercial management at National Savings & Investments. Some
key takeaways that will inform our approach were:
e NS&l started as an organisation of over 4,200 employees and are now 120 strong,
solely focussed on core business activity.
e Asa business we must be clear about why we are starting out on this journey and
what a successful outcome looks like. What are we transforming our business from
and to?
e We must trust our partner and foster an environment of complete openness.
« The commercial construct should be based on business outputs.
e Akey role of the transformation partner is to drive cultural change.
“Operating Model and Strategic Lesley Sewell & Chris Day Page 2 of 3
Cost Reduction November 2013” November 2013
POL-0023267
POL00026626
POL00026626
Strictly Confidential
4. Commercial Impact/Costs
4.1. The business case will be delivered as part of the next phase of work. From our market
engagement to date we believe that the new operating model can deliver the cost
reduction called for in the 2020 strategy. We also believe that the operating model will
be a vehicle to deliver Customer Insight and Analytics processes which could lead to
revenue generating opportunities.
5. Long term considerations — horizon scan
5.1.To derive full value from our new operating model we must ensure that the
transformation partner is correctly incentivised to deliver value, the contractual terms
being the mechanism to do this.
5.2. As a business we must be open to the changes that come with the new operating
model, if we limit the scope of the transformation partner or resist the changes that they
implement then we won't succeed. It is important that we work in a collaborative manner
and embed the new processes and knowledge in our retained organisation.
5.3. We will keep the board up to date with our progress and we will seek approval from the
board at key stages of the process (before issuing an OJEU, before naming a preferred
bidder etc.).
5.4. The next update that the board will receive is planned for February 2014.
6. Communications Impact
6.1. Clearly, due to the ramifications of a new operating model, we need to manage the
communications very carefully. Our communications team will be fully engaged
throughout the process.
6.2. Until we are ready to go to market, we will keep the working group to a minimum
although this will need to include representatives from each directorate.
6.3. As part of the activity that will define the go-to-market approach, we will deliver a full
communication plan to engage with key internal and external stakeholders.
7. Recommendations
7.1. The Board is asked to note the update and actions set out above.
Lesley Sewell (CIO) & Chris Day (CFO)
20 November 2013
“Operating Model and Strategic Lesley Sewell & Chris Day Page 3 of 3
Cost Reduction November 2013” November 2013
POL-0023267
POL00026626
POL00026626
Strictly confidential
POST OFFICE LTD BOARD
Risk Management Update November 2013
1. Purpose
The purpose of this paper is to:
44 update the Board on the ExCo assessment of risks facing Post Office in the
achievement of its strategic objectives; and
1.2 update the Board on the progress made with implementing a risk management
framework and developing a risk management culture in Post Office.
2. Key risks
2.1 ExCo has continued to refine its assessment of the key risks in achieving its
strategic objectives through an iterative process of workshops, facilitated by the
Risk Management function. As a result, ExCo has identified six critical risks
which require top management attention. These are:
2.2 Allegations relating to the integrity of the Horizon system
ExCo Owner: Chris Aujard
There is a risk that the allegations relating to the integrity of the Horizon system,
if not contained, could raise wider questions over the robustness of our core
systems and our ability to operate, damaging (amongst other matters) current
partnerships, new areas of expansion and public and government confidence.
Key Impacts: Reputational - Consumer Confidence I Long term brand damage I
reduced brand strength with potential partnerships/joint ventures I political
impact.
Key Controls & assurance: Project Sparrow and the related Business
Improvement Programme I Sparrow lessons learned work I Risk Function to
carry out review.
2.3 Failure to deliver top line growth in line with strategic plans
ExCo Owner: Martin George & Nick Kennett
Failure to meet our strategic imperative to protect channel income whilst growing
our retail business will ultimately prevent our ability to reach commercial
sustainability. In particular lack of growth in FS will have a detrimental impact on
delivery of the strategic plan. Non delivery of growth targets will reduce the
appeal of the franchise model impacting Network Transformation. There is an
immediate threat that long term growth targets could become unachievable if we
do not respond quickly to competitors.
Key Impacts: Inability to reach commercial sustainability I Reduces appeal of
Franchise model
Risk management update Nov 2013 Chris Aujard Page 1 of 5
21 November 2013
POL-0023267
POL00026626
POL00026626
Strictly confidential
Key Causes: Failure to respond to shifting consumer behaviour I Failure to
respond to the competitive market with pace I Capability of people I Operational
failures — process and systems I Brand damage/image, particularly significant to
FS business (with a growth target of 70% by 2020) I Overly optimistic planning
assumptions I poor industrial relations
Key controls & assurance: Quarterly performance reviews I Weekly Trading
Board I Commercial plan in place
2.4 Operating Model fails to deliver requisite cost savings
ExCo Owner: Chris Day
Reduction of costs and sustained cost management are imperative if we are to
generate the level of profitability required to make Post Office commercially
sustainable. A multi-faceted programme of transformation coupled with
challenging growth targets can conflict with a cost reduction programme.
Key Impacts: Inability to reach commercial sustainability
Key Causes: Failure/Pace of Network Transformation I Culture — not cost
conscious I Conflict with other priority programme e.g. NT I Fixed cost creep as
growth targets met I Union opposition
Key controls & assurance: Benefits realisation project I NAO value for money
standard I external benchmarking
25 Inadequate people capability or capacity to deliver transformational change
and the strategic plan
Exec Owner: Fay Healey
The capability of our people is critical to successful delivery of all facets of the
strategy. There is a risk that we cannot retain; recruit and effectively performance
manage our people to the level of capability required within the necessary
timeframe. Additionally, as we continue to grow our capability there is a risk that
the pool of existing talent is oversubscribed increasing pressure and reducing
their effectiveness.
Key Impacts: Transformation unachievable
Key Causes: Inability to retain talent — through poorly conceived or poorly
executed change management (overworked), Lack of engagement, lack of
development I Inability to attract talent — brand, pay etc I Ineffective training and
development
Key controls & assurance: tactical skills development I Talent development
programme I FS Academy Iperformance management I Carry out gap analysis
against the skills required to deliver the 2020 plan.
Risk management update Nov 2013 Chris Aujard Page 2 of 5
21 November 2013
POL-0023267
POL00026626
POL00026626
Strictly confidential
2.6 Non-delivery of Network Transformation Programme
Exec Owner: Kevin Gilliland
Short term issue regarding the successful engagement of the NFSP in supporting
NTP.
In the longer term, failure to deliver network transformation in a timely fashion
would result in a non-viable business model requiring additional subsidy from the
Government or closure of branches, neither of which are sustainable options.
There is an immediate risk that if we do not move quickly, we may find that we
cannot secure the retail partners we need to secure the future of our network.
Key Impacts: Increased Costs I Reduced Income growth I Unable to meet
Customer needs I Credibility of leadership.
Key Causes: Unattractive proposition I Poor project execution I Poor
communication/engagement with agents I Non-delivery of growth.
Key controls & assurance: McKinsey & BIS reviews I stakeholder engagement
plan I RM project audit I 2™ line risk review.
2.7 Strike action within supply chain could damage ability to distribute cash to
network (IR/CWU)
Exec Owner: Kevin Gilliland
Whilst there are multiple controls, and back up plans, in place to mitigate the risk
of a breakdown in cash distribution there is a risk that these will be insufficient to
deal with a with continued strike action. The impact of branches not receiving the
cash they need to serve our most vulnerable customers would be detrimental to
the Post Office reputation.
Key Impacts: Reputational Damage
Key Causes: Poor communication/engagement with unions I Union demands at
odds with strategic direction of becoming a commercially sustainable business
Key controls & assurance: internal & external communications plans I 3” party
contingency planning I Working group examining alternative carriers/ways of
working.
28 In addition to the above risks, ExCo identified three further risks which require
continuous monitoring, specifically:
. the risk of regulatory action or reputational damage from FS mis-
selling;
. the maintaining the security and integrity of Post Office data; and
. the successful delivery and operation following IT transformation
Risk management update Nov 2013 Chris Aujard Page 3 of 5
21 November 2013
POL-0023267
POL00026626
POL00026626
Strictly confidential
29 It is important to note that all nine of these risks are interdependent and should
be viewed collectively to determine the overall impact on the strategic plan.
In addition to the controls outlined above, the management of these risks is
reviewed by ExCo on a weekly basis to provide assurance that plans are
delivering the required outcomes.
3. Progress on implementation of a risk management framework
3.41 The following activities are complete in respect of the delivery of the risk
management plan:
. Recruitment of all current template roles is now finalised with two recruits
already in post and the remaining two starting over the next few weeks,
bringing the Risk Management function up to full strength;
. As referred to above, ExCo has carried out a risk identification and
assessment session, together with two subsequent reviews to refine this
assessment;
. Each directorate lead team (with the exception of Communications —
scheduled for 28" Nov and Corporate Services) has conducted a similar
risk workshop to identify risks at the next level down from the enterprise
view;
. The Risk & Compliance Committee has been restructured to focus on
management of risks in Post Office and to oversee progress against the
plan;
. The Risk Function has started professional training in risk management to
enhance their current experience and knowledge;
. On-going benchmarking with other organisations has been established;
and
° A review of the risk management software has been completed.
3.2 By the end of the financial year it is expected that risk management will be active
at tier 1 (ExCo) and tier 2 (directorate lead team) with continuous support from
the Risk Function’s business partners who will act as full-time risk champions to
facilitate and monitor the approach. In this context, active means:
Risks are regularly reviewed;
Risks are owned by an accountable individual;
Risk appetite and target levels of risk have been agreed;
Controls and assurance measures for significant risks have been
established; and
° Action plans are in place to manage risks and are regularly monitored for
effectiveness.
eooee
3.3 In addition to the above, a road map for developing risk management in the Post
Office will be submitted to the ARC for approval in February 2014, setting out the
key milestones across a 1,3 and 5 year horizons.
Risk management update Nov 2013 Chris Aujard Page 4 of 5
21 November 2013
POL-0023267
POL00026626
POL00026626
Strictly confidential
4. Recommendations
44 The Board is asked to:
° Note the update and actions set out above; and
. Provide feedback on the actions outlined above.
Chris Aujard
General Counsel
21 November 2013
Risk management update Nov 2013 Chris Aujard Page 5 of 5
21 November 2013
POL-0023267
POL00026626
POL00026626
Confidential
Top Board Risks
FS — our plan depends on FS growth which is fairly risky due to the complexities of the
BOI relationship and our ‘uncertain’ shape of distribution channels
Financial Services does not deliver — weak implementation and unforeseen risks
Macro — Financial Service markets move more rapidly than anticipated in our current
plans and we are unable to respond in time
Failure to deliver FS strategy and maintain our reputation for ‘trust’
Banking partner — failure to provide pipeline of competitive FS products to deliver our
branded retailer ambitions
Financial Services compliance
The Financial services strategy fails to deliver the revenue requirements of the strategic
plan
Delivery of NT i.e. it is too slow/expensive/noisy
Inability to deliver network conversions in time: e.g. NFSP and inability to implement
conversions in a timely fashion and hence competitive pressure make business non-viable
NT does not work. We need it to transform the network into a viable competitive estate —
at good value for money for the taxpayer. It might not work — either because the strategy
is flawed or because it is badly executed
Failure to transform agency network effectively — missing the once in a generation
(lifetime!!) opportunity to optimise public value delivery
IT change — slippage/expense/security/reliability
IT transformation — cost over-runs/customer data inadequate
Weak IT/IT failure/digital offering weak
Systems
Top team capability and succession — specifically, pace and in transforming the
position
Lack of succession plan for the CEO
Top team - the people on our leadership team are not good enough/don't stay to do what
needs to be done
Insufficient management bandwidth and siloed thinking
Royal Mail — privatisation will change our contract/their priorities and endanger our plan
POL-0023267
10.
11.
12.
13.
POL00026626
POL00026626
Confidential
Royal Mail
Missing mails opportunity SME’S
Politics — our shareholder won’t make tough decisions for good political reasons (NT
especially)
Political — current political goodwill dissipates over time perhaps exacerbated by PO
mistakes (rather like the Police and now NHS) — AM
Slowing down of NT as a result of short-term stakeholder/political reluctance
Support from the Shareholder for our strategy, especially in relation to NTP and requiring
subpostmasters ‘ to choose’
Post Office is unable to convince stakeholders of the need to effect the changes required
to deliver financial sustainability
Government ownership
Operations issues - Fallout from Horizon issues seriously damages public and
government confidence in the Post Office
Further operational issues uncovered (but considered lower risk and lower impact)
Unforeseen shock (cf unexpected network problems, rainbow, SS) [Mitigation better
Horizon scanning and good forward looking KPI]
Brand reputation takes a serious blow and damages news areas of expansion, e.g. SME
Strategy - Post Office is unable to cope with the change required to deliver the strategy
unable to achieve growth targets
Execution —- management bandwidth limitations with a small number (507) critical to the
delivery of the PO strategy
Development of the digital channels happens too slowly and we fail to engage younger
customer groups and maximise our business opportunities in growth areas
Failure to deliver multichannel solutions/left as physical/exceptions channel
Cost reduction is too difficult to deliver due to union opposition
Financial — unable (unwilling) to reduce costs sufficiently quickly to both achieve targets
and also mitigate against revenue shortfalls
Failure to accelerate topline growth in mails and FS in the next 2/3 years, in order to
underpin the business ambitions
Competition
1A backdrop distracts management and hampers financial turnaround
POL-0023267
POL00026626
POL00026626
POL-0023267
POL00026626
POL00026626
First Impressions
¢ The opportunity is genuine and exciting
¢ Our people, brand, network and customers are real assets
¢ Strong sense across POL of what could be
* Momentum is gathering pace
* 2020 strategic direction is compelling
¢ Multi-channel, customer focused profitable retailer is a credible
destination and worth striving for
¢ Stakeholder engagement remains imperative
ol
POL-0023267
POL00026626
POL00026626
* 2020 strategy needs a more detailed Commercial agenda
¢ Commercial leadership and specialist capability must be significantly
strengthened - especially retail expertise
¢ Customer focus must be radically increased
* Cultural evolution must continue at pace (commercial, customer,
outcomes, teamwork)
¢ Less is more - we must focus on what really matters
* Transformation must be customer focused, adopting service profit chain
mentality
¢ Our future is about more than financial services
* Time is of the essence!
POL-0023267
POL00026626
POL00026626
WHAT ARE MY IMMEDIATE PRIORITIES?
Deliver Today
And
Create Tomorrow
Ds
POL-0023267
POL00026626
POL00026626
WHAT ARE MY IMMEDIATE PRIORITIES?
¢ Familarisation - Meet, listen, challenge, understand
¢ ExCo - Listen, challenge, understand, own
* Deliver - Today's numbers and key projects
¢ Brand - Role/purpose, narrative, target market
¢ Digital - In context of multi-channel retailer
* People - Leadership team, organisation, capability development (core
and differentiating)
* Customer - Scorecard, CVP’s, single view, lifetime value, share of wallet,
data
POL-0023267
POL00026626
POL00026626
THE CENTRALITY OF OUR BRAND
PRODUCTS
& BEHAVIOURS
SERVICE ES
COMMUNICATIONS ENVIRONMENTS
WHY DO WE EXIST? WHO FOR? WHAT NEEDS ARE WE ADDRESSING?
POL-0023267
POL00026626
POL00026626
WHAT NEEDS TO CHANGE
* Insight to identify key drivers of advocacy (to enable executive ownership)
* Consistent segmentation to inform proposition development
* Category leaders to own P&L (or at least contribution)
* Best practice retailer approaches must be adopted ( e.g. MIS, Trading Board,
sales promotion, P.0.S, culture)
* Selling and service approach to reflect customer needs - online; call centres; in-
branch (self service, transaction, consultation)
* Data to “frontline” to enable informed sales process and customer behaviour
change
* Customer journeys and customer experience to be blueprinted
* Partnership philosophy to be implemented with key suppliers
Communication must cause re-appraisal of Post Office
POL-0023267
POL00026626
POL00026626
OUTCOMES IN 2013/14
* Deliver P7 revenue forecast
* 2020 Commercial plan agreed (words and numbers)
* Key projects progressed (including energy, telephony, POca, retail, SME)
* Digital: Roadmap agreed and Q4 priorities delivered
* Brand: Purpose/role, narrative and target market agreed
¢ Leadership team, organisation and processes must be ‘fit for purpose’
¢ Customer profile radically increased
o
POL-0023267
POL00026626
POL00026626
HOW WILL I CONTRIBUTE?
* Team player: Leader, member, supporter
¢ Passionate, committed, resilient, innovative
¢ Outcome oriented
* Customer focused
¢ Values driven
¢ Learning mindset
¢ Bring outside in
POL-0023267
POL00026626
POL00026626
WHAT SUPPORT WOULD I APPRECIATE
FROM THE BOARD?
¢ Support and challenge
¢ Champion our customers and our people at all times
¢ No Compromise on pace and delivery!!
POL-0023267
POL00026626
POL00026626
Strictly Confidential
POST OFFICE LTD BOARD
Financial Services and Crown Incentive Schemes
1. Purpose
1.1. At the meeting of the Board in July 2013, directors asked management to
provide feedback on the review by Mercer Ltd (“Mercers”) of the financial
services branch incentive program, and provide an update on actions. The
review was subsequently extended to cover all Crown incentive schemes, and
other relevant Network Sales schemes.
1.2 The paper provides this update and also sets out the overall incentive proposals
across Financial Services (FS) and Crown sales.
1.3 This is a joint FS and Network & Sales paper and is tabled for noting.
2. Background
2.1 Key to building FS sales capability is that the incentives for their sale promote
and reward appropriate behaviour and compliant selling.
2.2 It is also critical to ensure that an incentive scheme meets the increasing
requirements of the Financial Conduct Authority (FCA) that such programs drive
outcomes that satisfy customers’ needs.
23 Post Office employed Mercers, a specialist remunerations consulting firm, to
review the current incentive schemes and make appropriate recommendations.
While the initial work related specifically to Financial Specialists, due to the inter-
relationship with the Crown Network, the scope was widened to cover Crown
incentives and the wider Network where financial services sales occur.
24 In 2011 we looked to make changes to the FS scheme. Whilst the CWU
supported these changes, it was rejected by colleagues under ballot.
2.5 The current incentive structure is not driving profitable outcomes, with financial
specialists having access to three separate payment opportunities being:
¢ £1,000 addition to base salary (this is quasi salary and is not at-risk);
. If the colleague sells products worth £1,750 s/he will receive a pensionable
uplift of £1,000 in the following year;
. In year 2 if the colleague delivers income of £3,500, a further £1,000 is
added in Year 3; however if this is not achieved the increment in year 3
reduces to £1,000. There is a maximum of an additional £3,000;
. In addition, the financial specialist can receive a bonus based on the
performance of the branch — the payment varies between £0 and £1,000.
2.6 In 2012/13:
e All financial specialists received the level 1 allowance of £1,000;
* 70 received the level 2/3 allowance of £2,000 - £3,000;
«The average branch performance payment was £960;
* The total scheme cost was £660,000, with an average payment of £2,200.
3. Key Findings from Mercers
3.1 Mercers concluded that the current FS sales incentive program is not fit-for-
purpose and does not recognise or differentiate between effective and non-
FS Incentive Scheme Prepared by Nick Kennett Page 1 of S 22 November 2013
POL-0023267
POL00026626
POL00026626
Strictly Confidential
effective performance (either in the quality of the sales process or in its
outcome). For example:
. Financial Specialists can receive a bonus despite not having achieved their
targets based on the wider branch performance; only 5 percent of the
2012/13 incentive paid related to financial services sales;
. Strong and weak individual performance does not result in a materially
different bonus outcome;
. The current structure is focused solely on sales volumes, with limited
requirement for compliance or customer satisfaction;
. Financial Specialists generally do not understand the incentive model and
how their performance can result in bonus payments.
3.2 Mercers are of the view that the current incentive program would likely be
deemed non-compliant by the FCA. However, it is so in-effective that it does not
encourage appropriate selling.
3.3. The weakness of the current program has been evident in savings:
. Over 54 percent of all FS’ sales are savings products, which are rate
dependent and often ‘sell themselves’;
. When interest rates are less competitive, overall FS sales performance
falls significantly, confirming that FSs focus on this ‘easy sell’, rather than
engaging with customers on their wider needs.
3.4 Mercers strongly recommended that the current program be withdrawn and
replaced. They were also of the view that their conclusions and concerns were
applicable to other schemes operating in the wider network.
4. New incentive schemes
44 The FCA has indicated that it is looking for financial institutions to set incentive
schemes to be focused on behaviours or satisfaction. While some banks (e.g.
Barclays) have stated that they are implementing a model based solely on
customer satisfaction, this would not be appropriate for the Post Office as the
business has little history of driving sales outcomes. A hybrid model was
proposed by Mercers.
4.2 The new incentive schemes have been developed with Mercers; they will be
aligned and implemented across the new financial services sales network, into
Crown branches and across the broader Network as appropriate.
43 The FS schemes set out in 2.5 above will cease and be replaced by a single
scheme. The base £1,000 uplift (not at risk) will be incorporated in base salary;
all the other components will be fully performance based.
44 The key components of the new scheme, which will be payable quarterly, are:
. Financial services compliance and quality of sales will be a ‘gateway’; if
compliance standards are not met, no bonus will be payable for the period.
. Area level roles will be scorecard driven. Whilst score cards are already
used for Crown Area Mangers, we are significantly changing the weighting
and aligning them for all Area teams. The scorecard covers three
components — customer services delivery, sales (both 40 percent) and staff
engagement (20 percent). Each individual on a score card scheme is given
a score out of 100 percent. They are then ranked against applicable peers
and then given a PDR rating accordingly, which will determine their
incentive payment.
FS Incentive Scheme Prepared by Nick Kennett Page 2 of S 22 November 2013
POL-0023267
POL00026626
POL00026626
Strictly Confidential
. Branch managers will also align to customer service delivery, profit
outcomes and staff engagement. The weightings of these will change
significantly.
. Individual seller and branch based roles will operate on a matrix payment
structure and be aligned to customer service delivery and relevant sales
outcomes. Once compliance gateway and minimum customer service
requirements are met for these schemes, a performance target of at least
100% must be achieved to be eligible for an incentive payment.
¢ The non-financial services schemes (e.g. Mails specialists) will have a
compliance gateway and then operate on a matrix payment structure,
driven by performance and customer service.
« For the Crown network, appropriate schemes will be aligned to the Crown
profit objectives and will be factored up or down based on Crown profit
performance. Currently Crown Area Managers are factored up or down
based on POL profitability.
. Incentive rewards will be paid as a fixed amount and not a percentage at
the end of each quarter for individual sellers and at the end of the financial
year for Area level roles.
45 The key measures of the scheme are:
¢ While some of the following measures operate in Crown the new incentive
scheme aligns them to ensure the delivery of the wider business.
« Customer service will assess customers satisfaction based on the Voice of
the Customer (VOC), customer waiting time and retail standards.
e Rather than measuring sales targets, individuals are targeted with customer
benefit measures (CBMs). The CBM targets will be set and the number will
be achieved by adding multipliers to each product set. The higher multipliers
are a reflection of a number of factors including income to the business,
product journey time for the colleague, the customer experience and the
strategy of the business. It is envisaged that this will evolve and drive
appropriate selling behaviours, improving the customer experience whilst
returning the business to a profitable, self-financing structure.
e Profit is measured using controllable costs and income generated from sales
performance.
4.6 For example: if the quarterly CBM for a financial specialist is 150 percent of sales
target achieved and the 150 per cent customer stretch target met, the colleague
could earn up to £1,875 for that quarter (potentially £7,500 for the year against a
salary of circa £21,000 - £23,000).
Exceptional
Below I sarge I SUCH I stretch
Target target af
mam 808 I oe I 50% 7 175% I 200%
Not Met AE Target
Bae 125% 0F I os, I zs V asox I 175%
5 Mites
Fam Torece I 0% I 00% I 125% I 159%
EI Below
ame ee 0% 0% 0%
Customer
= <—— Service
Stretch
FS Incentive Scheme Prepared by Nick Kennett Page 3 of S 22 November 2013
POL-0023267
POL00026626
POL00026626
Strictly Confidential
4.7 Whilst the final payment levels have not been finalised, the basic principle is that
we are looking to stretch the performance curve so that top performers get
greater rewards and under performers are not rewarded. Whilst we have not yet
agreed payment amounts, we are currently modelling to reward individuals on
the following basis:
. Area roles - between £0 - £25,000 per year.
. Branch manager — between £0 - £10,000 per year.
. Individual seller roles - between £0 - £10,000 per year.
. Product specialist roles - between £0 - £2,750 per year.
. Customer Service Consultants - between £0 - £2,500 per year.
48 In October one third of financial specialists were achieving the CBM target. Of
these, eight exceeded 150 per cent of the target and nine 125 per cent.
Assuming that sales performance continues and based on rates in 4.7, these
eight would receive and incentive payment of £4,500 and the nine £3,000 over
the year. The remainder would receive £1,500, while all other colleagues would
receive no payment;
4.9 The schemes have been shared with the Bank of Ireland (UK) plc, who as Post
Office’s principal has shared the key components with the FCA.
5. Implementation
5.1 On 1 October 2013, the FS Regional Managers, FS and Crown Area Managers
and Mortgage Specialist schemes were launched, supported by the CMA.
5.2 An ExCo sub-group is managing the roll-out of the remaining FS and Crown
incentive schemes. This group will confirm in early December the implementation
program including transition arrangements for CBMs.
5.3 While it is hoped to launch the remaining scheme from 1“ January 2014, to
ensure a successful launch and conscious of the current industrial relations
environment, the sub-group will consider whether it would be appropriate to run a
shadow program for Q4, with the goal of launching the schemes in Q1.
6. Commercial Impact/Costs
61 In the first year of operation, aggregate payments on the new incentive scheme
will be similar to the current business plan. Thereafter the scheme will be self-
financing as it drives increased sales, while poor performance is un-rewarded. As
a business, to ensure we are in a position to achieve our financial goals and to
hit the next financial year running, we aim to have all schemes in place from 1
January 2014.
6.2 If the scheme were to pay out considerably more, it would be due to a significant
over performance and the uplift in performance would significantly outweigh the
cost.
7. Key Risks - Industrial Relations
7.1 Under the existing collective arrangements, a new incentive scheme requires
concurrence from the trade unions. We have sought to actively engage the
CWU and CMA on the new programs.
7.2 The CMA has been fully engaged and provided a joint statement for the schemes
launched in October, where it has collective bargaining rights.
FS Incentive Scheme Prepared by Nick Kennett Page 4 of S 22 November 2013
POL-0023267
POL00026626
POL00026626
Strictly Confidential
7.3. To date the CWU has not responded to requests to meet. We continue to try to
arrange to meet them and are providing the documentation that would have been
provided.
7.4 While the CWU continues to refuse to meet, the ExCo sub-group is considering
whether it can, and should, deploy the new schemes ahead of engagement and
agreement with them.
9. Conclusion
9.1 The existing incentive schemes are not fit-for-purpose and need to be replaced.
9.2 The new schemes will create a best-practice structure, putting the needs of the
customer at the heart of sales measurement; it will recognise and reward strong
sales performance, discriminating against poor performance; and it will align
Crown branches to the delivery of the financial services and wider business
strategies.
10. I Recommendations
10.1 The Board is asked to note the paper.
Nicholas Kennett Kevin Gilliland
Director, Financial Services Director, Network & Sales
November 2013 November 2013
FS Incentive Scheme Prepared by Nick Kennett Page 5 of 5 22 November 2013
POL-0023267
POL00026626
POL00026626
Strictly Confidential
POST OFFICE LTD BOARD
Chief Executive’s Report
1. Financial Services (FS)
« The new FS sales and supervisory structure is now fully operational. Alongside the 242
Financial Specialists in place, we have now recruited 87 Mortgage Specialists and are on
track to reach our target of 100 by the end of December. All of them will complete
Mortgage Market Review training in anticipation of the new regime in April 2014, with
additional support for those promoted internally to attain a professional financial services
qualification. A separate paper on the new incentives scheme to support FS sales is
included in the Board pack.
e While over the year to date our mortgage applications performance is below target
(£0.8bn against a target of £1.2bn), the underlying trend is steadily improving. In October
we achieved £166m of mortgage applications - the best performance in 18 months.
Mortgage Specialists contributed £10.7m of applications, which also represented their
strongest monthly performance. We anticipate further strong growth in the final quarter of
the financial year when the majority of the new sales team will have completed their
training and we are through the seasonal decline in December. Our forecast is that for the
full year we will deliver a 36% year on year increase in mortgage sales and beat our
income target of £3.05m (partly supported by additional back book income), with a strong
pipeline of applications going into 2014/15.
¢ By 19 November the current account proof of concept had generated 1,800 applications
which had converted to 936 sales. Last week was our most successful since launch, with
57 sales representing a 90% increase on the average of the preceding 5 weeks. The
improved performance was driven by increased focus from the sales team and a local
marketing campaign. With this momentum we expect sales to reach 1,000 in December
and are discussing with Bol extending the proof of concept into neighbouring areas,
increasing the coverage from 29 to 100 branches.
e A key building block of a successful financial services business is the use of data to
understand customers’ needs and focus product offerings more effectively. To this end the
Post Office’s entire customer database has recently been assessed and micro-
segmented. We are using a specialist targeting tool to create direct marketing activity for
mortgages and credit cards, with an initial 240,000 direct mails to be sent by the end of
December. Initial anecdotal feedback is very encouraging. We are now building propensity
models for each product and to score every customer. This will enable us to understand
which products to offer, in which order and at what time of the year, leading to a better
customer experience and increased sales.
2. Mails
e The new ‘shoebox’ small parcel format launched at the end of October is already starting
to have a positive impact on sales: 1° and 2™ class labels have increased by around
130,000 items per week on average (relative to target). This is in line with our
CEO Report Paula Vennells Page 1 of 3
November 2013 21 November 2013
POL-0023267
POL00026626
POL00026626
Strictly Confidential
expectations at this stage, and with the full impact of our current advertising campaign still
to be factored in this leaves us on track to meet the target of an additional 225,000 parcels
per week (a c.6% increase) which we set in our sales recovery plan. The number of Drop
& Go customers is also continuing to grow steadily by around 500 per week, despite the
20% discount promotion ending in mid-October. We now have over 16,000 live accounts.
The service has generated £1m of income over the year to date (115% of target), and our
expectation is that this will grow to over £4m pa in future years.
3. Government services
We understand that DWP is likely to announce a two year extension of the POca contract
in the coming weeks. In parallel they are still considering the longer-term approach we
discussed at the last Board meeting which uses the Front Office Counter Services
framework, but a decision on this is not expected until January. We are continuing to
engage with them both directly and through political channels to support a solution which
provides us with as much long-term certainty as possible.
4. HomePhone and Broadband (HPBB) and mobile
We are now seeing some signs of improvement in the service that our HPBB customers
are receiving from the call centre. Last week 5% more calls were answered than the
previous week, which together with a 4% drop in the overall number of calls has had a
beneficial impact on abandonment rates and average speed to answer. However, there
are still some very long waiting times (over an hour in some cases) for the technical
support line in particular. 120 additional agents have been deployed since 2 September
with another 100 expected over the next 4 weeks. Duncan Tait, CEO Fujitsu, has also
committed to deploying a further 200 front and back office agents to ensure that our
customers are getting the standard of service we require by the end of November.
Customer billing will be back to business as usual levels by 21 November and the network
migrations will also be complete by the end of November. The completion of these
activities will further alleviate the pressure on the call centre. Weekly CEO meetings are
scheduled until satisfactory service levels are achieved.
As noted in last month’s report, we took the decision to disengage with Fujitsu in the
provision of a managed service for our mobile phone proposition, due to increasing
concerns about their capabilities in this area. Work is now underway to develop an
alternative approach, with the lead option being for us to contract directly with EE and the
other providers that would have been managed by Fujitsu on our behalf. Our initial view is
that this approach would still enable us to launch the service in summer 2014 and would
generate profits that are at least in line with and potentially higher than the Fujitsu option.
However, detailed work is underway to assess the delivery issues and risks and we will
provide a further update in January.
CEO Report Paula Vennells Page 2 of 3
November 2013 21 November 2013
POL-0023267
POL00026626
POL00026626
Strictly Confidential
5. Energy proposition
We are now entering into more detailed negotiations with the three remaining bidders
(British Gas, EDF and Scottish Power) for our potential white label energy proposition. In
parallel, as discussed at the last Board we are also reconsidering alternative options for
entering the energy market which entail a lower degree of brand and regulatory risk, such
as offering a smart switching service. We will set out our evaluation of these options in a
noting paper for the Board in January. In the meantime we have agreed to work with the
Department for Energy and Climate Change to support access to their ‘Big Energy
Savings Network’, which consists of 500 volunteer energy advisors deployed across the
country to help households to lower their bills. Our role would primarily be to signpost
customers to where they can go for further advice. While this initiative will not in itself
deliver a significant profit stream, our costs would be covered and it helps establish us as
a trusted name in an otherwise discredited market, thereby laying the foundations for our
longer-term commercial plans.
6. Christmas work experience for young people
Last month’s report set out the steps we are taking to ensure a successful Christmas
campaign. As part of this, for the second year running we have taken positive action to
attract individuals between 16-24 for our paid work experience programme in London
Crown offices. With support from A4E (a welfare to work provider) and the Prince’s Trust,
we have now recruited 41 individuals, including one who is wheelchair bound. All
candidates will be working with us to support our customers during the busy Christmas
period.
7. Information security
On 5 November we were informed by HP that an encrypted tape containing POca
personal data had gone missing from HP’s data centre two weeks earlier. By 8 November
it was confirmed that the tape had been found, in a broken tape drive that had been
securely removed from the data centre for destruction. We are working closely with HP to
understand what caused this breach of process and to identify what additional measures
are required to prevent it happening again. While it is concerning that this incident
happened at all, the reassuring point is how the business responded quickly and
professionally, learning the lessons from our past experience. A sub-committee of the
Business Protection Team was convened immediately to co-ordinate our management of
the incident, and the team were quickly able to identify the right questions to ask of HP
and the appropriate actions to pursue.
CEO Report Paula Vennells Page 3 of 3
November 2013 21 November 2013
POL-0023267
POL00026626
POL00026626
Strictly Confidential
POST OFFICE LIMITED
Performance Report
October 2013
Produced By : Financial Control and Compliance Team
For Queries & Comments Contact : Sarah Hall or Kam Bassra
CONFIDENTIAL
Commercially Sensitive and not for onward circulation
hat is likel c nt of unauthorised dis
ple who understand
ment
thin the Post Office
Period 7 Performance Pack - Chris Day 27th November 2013 Page 1 of 11
POL-0023267
POL00026626
POL00026626
Strictly Confidential ®
( >)
Contents
Page
Headlines 3
Profit & Loss Statement 4
CFO High Level Profit Forecast At Period 7 5
Crown Profit & Loss Statement 6
Cost Management update 7
Cashflow Analysis 8
Business Scorecard 9
Network Transformation Scorecard 10
Transformation Delivery Heat-map 11
\ )
Period 7 Performance Pack - Chris Day 27th November 2013 Page 2 of 11
POL-0023267
Headlines Strictly Confidential
October 2013
7
This report has been restructured to provide you with the key information in a shorter document with more focus on
forward looking projections. The more detailed pages are still available if required for further background and some will
be included as appendices on a quarterly basis.
Profit & Loss - YTD
+ Profit at P7 was £65.0m, which was £5.8m favourable to budget of £59.2m, and £7.3m adverse to prior year of
£72.3m. The month is £0.7m favourable, but within this, income was £6.9m adverse, offset by favourable costs which
are largely driven by a one off £3.7m VAT impact as a result of the recovery rate change and £1.8m agents pay
benefit relating to lower sales. The CFO forecast view is still to achieve the full year profit target despite the increasing
income gap.
+ Net income performance of £503.9m remains the key concern with an adverse variance of £24.9m compared to
budget (mainly Mails £16.0m and Lottery £4.3m). The risk on the Sales Recovery plan has increased - a risk of £5-
10m was highlighted through the Q2 FYF review and the P7 results have led to a refinement of the CFO forecast to
reflect the continued adverse performance in Mails and Lottery.
Staff costs have returned to budget in P7 mainly because the 02 sales bonus was below budget reflecting lower sales.
The budget for the managers’ lump sum pay award is covering a shortfall in Supply Chain efficiency savings but this
will unwind if a pay offer is made. The Cost Management Programme is implementing a series of savings activities to
drive the cost down - most will impact on 2014-15 with minor savings coming through in 2013-14,
* Agents’ costs were £20.7m favourable to budget, mainly due to lower sales income £11.9m, sales mix (parcels) £2.3m
and £1.6m due to WHS provision release (relating to the original contract). The favourable agents’ costs are projected
to be largely maintained but with anticipated mails segregation payments (£1.1m) and delays to locals conversions
reducing the full year upside.
Non people costs were £1.4m favourable to budget. The favourable position is driven by £3.7m VAT recovery relating
to Hi for changes in the VAT recovery rate, but masks the underlying adverse variance due to Horizon costs originally
budgeted for in the prior year. RM costs are now treated as non staff following the IPO and we believe there are still
some costs to come through. The VAT recovery has been taken to the CFO forecast (previously in opportunities).
Interbusiness expenditure, including Group overheads, was £5.4m lower than budget, driven by lower Official Mail costs
and property costs. IB charging ceased from 16th October 2013 following the RM IPO although some catch up costs
may still be incurred.
Project costs were £1.5m favourable YTD with the underspend driven by the movement of separation costs to
exceptional items. The current year customer engagement budget, which is yet to be incurred, masks the spend
delayed from 2012-13 into this year.
Cashflow
The YTD cashflow was an inflow of £197m which was £94m favourable to the £103m inflow budget (Period 6 was
£21m favourable), mostly driven by delays to NTP expenditure.
Crown P&L - YTD
The Crown loss is £0.9m adverse to budget. Income was £2.7m adverse driven primarily by Mails, partially offset by
Government Services. Costs are £1.5m favourable and share of JV is £0.4m favourable.
y
Period 7 Performance Pack - Chris Day 27th November 2013
Cumulative EBIT pre exceptionals
Actual Budget
100
80
60
40
20
POL00026626
POL00026626
Total Net Income - Budget to Actual Bridge
SEES ESSEESSESE
£m
528.8 == bid =
(20.5)
(44) (4.2)
2013-14 YTDMalls & Retail Financial Government Telephony Other 2013-14 YTD
Net Income Services Services Net Income
Budget ‘Actual
Year to Date
Financials Act Target Var
Total Net Income (excl NSP) £m (Bonus) 503.5 I 5288
Operating profit £m (Bonus) 65.0 59.2
Free cashflow £m 196.8 I 103.0
Crown Profit (Loss) £m (Bonus) (18.8) (47.7)
Non Financials
Queue time % < 5 minutes - Top 4k branches 84.1% I 79.5%
NT Conversions - (Mains & Locals) (Bonus) *** 2113 2025
Page 3 of 11
POL-0023267
Profit & Loss Statement becaheaeiliiaiaal
October 2013
Current Month Prior Year Period Year to Date Prior Year YTD Full Year Prior Year [Prior Year
lem Actual Budget Variance I Actual Variance I Actual Budget Variance I Actual Variance] 9% I Budget Variance I Outturn I Variance
FTOTAL GROSS INCOME $85 954 a) I 933 Ga) I S72 5964 565 (23.3) ro122
Cost of Sales Gos) 405) (03) 02 (673) (67.6) (693) 20 (112.2)
FTOTAL NET INCOME 777 846 (69) I 823 6) I 5039 5288 525.2 (21.3) '900.0
Staff Costs (222) (230) ag (230) 08 I (526) (4526) (269.7) (29) I (2592) (256.4)
Agents Costs (643) (46.2) 18 (439) (0.4) I (2642) (284.8) (2790) 150 I (4689) — (480.0)
Non-Staff Costs G25) 45a) (54) 26 (955) (96.9) (g99) (66) I (64.7) (4600)
interbusiness Expenditure 63) 78) 25 (7.4) 24 (44.9) (49.7) (ga) 3.2 I (27) 639)
Depreciation (oo) (0) oa 03 3) I (02) (06) 2 oo I (oa) 09)
Total Expenditure (pre POOC) (42) (924) ~—«78 oa) 49 ~~ (657.3) (584.5) 666.9) 9.7 I (9763) (980.8)
JFRES - Share Of Operating Profits 26 25 on 26 00 253 23.9 25 08 I 330 31.5
IEBIT Pre Overhead Allocations oO) 10 (2) 03 (282) (31.8) aay a0.) I (55.7) 9.2)
Group Overhead allocations (3) (5) (4.2) 06 (13) 03 (7.4) (a0) (5) a2 I 038) 43.8)
[EBIT - BAU (a) (63) 16 (5.5) 20 (35.5) (39.9) 43 (25.8) (9.7) [ (69.5) (63.0)
[One off Project costs (POC) 29 G9) 09) I 30) 4 (a87) (20.2) (247) 60 I (285) (350)
IEBIT = Post Project Costs 17.3) (8.0) 07 18.5) 42 (54.2) (60.0) 5.8 (50.5) (3.7) I (98.0) (98.0) I 7.8
[Network Payment 192 19:2 00 198 (os) I 92 119.2 1228 (3.6) I 2000 200.0
JEBIT pre exceptionals items a1.9 442 O7 44.3 06 65.0 59.2 5.8 72.3 (7.3) I 102.0 402.0 I 7.8
interest 04 05) 08 oa) 06 19 (25) (06) 26 20) 6.0)
impairment (7a) flea) 9.0 2 ea I @2 (eo) (355) (6.7) I (4400) (4675)
Exceptionals & Redundancy & Severance Costs 2a) (G13) 192 (G6) —@5) I 254 (4039) (75) 528 I (379) (486.4)
Government Grant Utilisation 1390-36576) I 52 137 I 182 2024 404 107.7 I 2534 3169
ProfitLoss) On Asset Sale 00 00 00 (a0) 00 25 00 (79) 305 I 25 00
Colleague Share/ Business Transformation Payments II 0.0 0.0 00 00 0.0 oo 00 00 0.0 0.0 0.0
[Total Profit/(Loss) Before Tax 22.0 (0.2) 222 96 25 200.8 2 125.6 2420 179.6 I a777 62.0 115.7 18.0 159.7
Periods. Budget ‘70 vs, Budget > (row Prieur >)
Operating profit (EBIT) of £11.9m was
£0.7m favourable to budget.
BAU was £1.6m favourable:
* Lower staff costs of £0.9m favourable in
the month, This is mainly due to lower 02
sales bonuses reflecting lower sales.
* Lower Agents costs of £1.8m mainly due
to reduced income,
‘+ Lower non staff costs of £2.6m due to VAT
recovery rate changes resulting in a £3.7m
benefit, and
‘* Lower interbusiness costs due to lower
Property charges from RM and IB ceasing
following the RM IPO.
Offset by:
* Lower income of £6.9m due primarily to
the continuation of the trend in Mails and
Retail and in P7 an adverse variance for
FS,
One-off variance of £0.9m adverse relates
to the brand expenditure being incurred later
than planned
Below EBIT
Impairments were favourable due to slower
progress than plan on NTP.
Operating profit (EBIT) of £65.0m was £5.8m favourable to budget
BAU variance of £4.3m favourable was mainly due to:
+ Lower agents costs of £20.7m mainly due to: £11.9m relates to lower sales income, £2.3m
sales mix (parcels). £2.6m WHS provision
* Lower non staff costs of £1.4m due to VAT recovery rate changes resulting in a £3.7m
favourable variance offset by Horizon costs originally budgeted for in prior year. but incurred
this year.
+ Lower IB (including Group overheads) of £5.4m driven by lower Official Mail and Property costs
‘and separation impacts for actuals moving to non staff, and
‘Higher FRES JV income of £1.3m,
Offset by
+ Lower income of £24.9m, mainly Mails £16.0m and Lottery £4.3m, Mails performance
continues to be impacted by lower parcel volumes folowing the RM price changes in Apri
New parcel formats have been introduced at the end of October which should reverse this
trend. Lottery continues to underperform, though the Camelot price increase was effective
from October and the Health Lottery was introduced in September.
Project One-off variance of £1.5m favourable. The underspend is driven by the movement of
‘Separation costs to exceptionals.
Below EBIT
Exceptional costs are favourable mainly due to a £102m credit relating to the change in
pensions terms. The underlying variance is due to slower pace of capital spend and operating
cexceptionals, including agents compensation, compared to budget. Government grant utilisation
follows this trend, but also included utilisation against the remaining 2012/13 exceptional costs,
The profit on sale related to the lease surrender of Midway House,
XN
Operating profit (EBIT) of £65.0m was £7.3m adverse to prior year,
Like for like BAU adverse variance of £9.7m was mainly due to:
‘Lower net income of £21.3m. The variance versus prior year is driven primarily by the
stamps buy forward last year and lower parcel volumes this year. Government Services also
decreased as a result of lower rates from the new DVLA contract and falling Card Account
customers, NS&I income fell as more customers have moved away from POL.
«Higher staff cost of £2.9m adverse to prior year due to higher pension costs. pay awards
and increased headcount, and
* Higher non staff costs of £5.6m due to increased IT costs (mainly Hrizon), timing of
‘marketing spend, and the removal of the FX bureau rebate received in Hi last year partially
offset by the increased VAT recovery rate this year.
Offset by:
‘Agents costs £15,0m favourable variance to POL; £9.3m due to lower sales, predominantly
Mails buy forward pre price increase, £2.5m lower fixed pay from unfreezing the Core Tier
Payment and roll out of Locals and £3.2m accrual release relating to the VLA rate
changes.
+ Lower IB of £4.4m favourable to prior year, due to services switching into POL fram RM,
and
* Higher JV income of £0.8m.
Non like for like favourable variance of £2.4m was due to:
* Lower project costs of £6.0m, and
+ Lower Network payment of £3.6m.
Below EBIT
NT exceptionals including compensation were ahead of the equivalent pace in 2012/13,
2013/14 grant utilisation includes £30m against 2012/13 exceptional costs not covered by
the 2012/13 grant
wy,
Period 7 Performance Pack - Chris Day
27th November 2013
Page 4 of 11
POL00026626
PoLo0026626
POL-0023267
CFO High Level Profit Forecast At Period 7
October 2013
Period 7 Performance Pack - Chris Day
Strictly Confidential
£m Income JV Income Costs © NSP EBIT
[Budget 900 32 (2,030) 200 102
Downsides
Mails income (34) (34)
Gov't Services income (3) (3)
Telephony income 0 0
FS income (5) (5)
Other income/ POOC contingency (5) 5 0
Staff efficiency (2) (2)
Fujitsu costs (2) (2)
IT&C efficiency task (3) (3)
Interbusiness
Mails segregation penalty (1) (a)
Bonuses (a) @)
Agents pay ~ sales impact 20 20
NT Locals delays (2) (2)
Agents segregation payments (a) (1)
POOC overspend (2) (2)
Non staff savings task (a) (a)
Ls 0 10 0 (34)
Mitigating actions
Mails income - dangerous goods 7 7
Mails income - format changes/campaigns 6 6
Lottery price rise 2 2
UKBA Cost of Sales correction 1 1
volume trends 2 2
FS income - Santander volumes 2 2
FS income - Junction deal 3 3
FRES upside (higher ATV's) 1 1
PhotoMe income 1 1
IT&C savings 3 3
Telephony implementation 2 2
Agents mix 4 4
Agents DVLA timing 3 3
POOC 5 5
Contingency (3) (3)
Agents pay - sales recovery (8) (8)
Pay award 12/13 not consolidated 0
No pay award for 13/14 0
VAT upside 3 3
Bonus upside (for target failure) 0
(24 i 9 0 34
[Latest View at P7 880 33 (4.041) 200 102
Variance to budget (20) Fi 19 0 0
27th November 2013
POL00026626
POL00026626
Page 5 of 11
POL-0023267
POL00026626
POL00026626
Crown Profit & Loss Statement Strictly Confidential 4
October 2013
Period Prior Year Period Year To Date Prior Year YTD Full Year Prior Year
ém Actual Budget Variance I Actual Variance Actual Budget Variance I Actual Variance Q2 Forecast Budget Variance Outturn
Income and Distributions
Variable income
- Mails 37 42 (05) I 40 (0.3) 22.4 248 (24) I 264 (3.7) 44.2 43.2 (21) 448
- Financial Services 27 27 (ao I 29 (0.3) 176 175 O41 188 (1.2) 28.9 29.6 (0.7) 30.4
~ Government Services 20 17 03 23 (0.2) 13.0 120 10 15.2 (22) 208 199 09 26.4
- Telephony O41 O41 (oa) I 02 (0.0) 0s 06 (02) I o8 (0.4) 10 13 (03) 13
Fixed income 23 22 00 26 (03) 143 146 (03) I 170 (27) 25.5 248 07 28.2
Gamma/ Other 10 12 (02 I 14 (0.1) 59 72 3) I 62 (0.4) 113 148 (3.5) 109
Renewals and Retentions 14 14 00 08 06 113 98 16 46 68 187 165 22 144
[Total Income including Gamma/other I 13.2 13.6 (0.4) [ 139 (0.7) 85.0 86.5 (1.5) I 887 (3.8) 167.4 150.1 (2.7) I 153.2
Direct Product Costs (0.7) (0.6) 1) [I 04) ~~ (02) 3.8) G8) 00 (4.1) 03 (48) (6.0) 01 (8.3)
Branch costs
- Staff (103) (10.0) (03) I @o9) 06 (64.4) (642) ~— (0.3) I (69.2) 48 (105.8) (106.0) 02 (117.9)
~ Property (3.4) (3.8) 03 (24) (1.0) (255) (258) 03 I (453) (40.2) (35.2) (35.4) O41 (36.9)
- Other branch costs (0.4) (0.4) (0.0) (0.4) 01 (2.4) (2.2) (0.2) (3.5) 10 (4.3) (4.7) 04 (6.3)
Infrastructure costs (1.7) (1.9) O41 (23) 06 (21) (424) 03 I (43.0) 09 (22.7) (22.9) o1 (22.5)
Allocated central costs 01 (0.3) 04 (1.0) 10 (2.8) (2.8) (0.0) (5.1) 23 (9.0) (8.4) (0.6) (7.7)
Total Expenditure (16.4) (16.9) os [G76 14 (21.4) (411.2) 0. [ (110.2) (0.9) (181.9) (182.2) 0.3 (199.7)
JV Share of Profits 08 07 0.0 o7 O41 73 69 0.4 6.4 1.0 96 94 05 9.6
Statutory PBIT (2.4) (2.6) O41 (3.0) Os (18.8) (47.7) (4.4) _I (15.1) (3.7) (24.9) (23.0) (2.0) (37.0)
Summary
+ Income £1.5m less than plan
+ The impact of size based pricing has adversely impacted Mails with the following products being most affected: Priority Mails £0.3m, 1st class and 2nd class £1.0m, International Standard £0.6m. Retail
sales are also underperforming against target by £0.1m. The expectation is that the gap will reduce with the roll out of remedial actions, including the delivery of the ‘shoebox’
+ Main drivers of favourable Government income are UK Visa & Immigration (UKVI) (due to backlog in applications) £0.8m, ID Services £0.3m and Passports £0.2m, offset by Motorist services (DVLA Licences
and AEl) which are £0.4m behind target.
+ Financial Services now performing just above target following reduction in savings budget.
+ Costs are £0.1m less than plan
+ Staff overspend due to delays in CTP partially offset by savings from industrial action
+ Other Mainly driven by favourable variance in POOC as a result of separation costs moving to exceptional spend.
+ FYF is £2.0m adverse to budget reflecting the lower Mails income.
Period 7 Performance Pack - Chris Day 27th November 2013 Page 6 of 11
POL-0023267
Cost Management update
October 2013
Progress since P6 update
Value and confidence
+ Work in the month has identified new opportunities, firmed-up values, developed
implementation plans and resulted in confidence
+ The net impact on Value and Confidence is an upward movement in FY13/14 (£0.3m) and in
FY14/15 (£3.6m). Confidence has increased for both years
Delivery and governance
+ Additional opportunities identified include:
i. Weighing scales - there is an opportunity to reduce costs (up to £1m pa) by adopting a
“replace” rather than "repair" approach. Further savings are anticipated (c£1.5m pa) by
moving to industry standard dimensions for scales, rather than our current custom-
made requirement.
ii. Negotiations with Royal Mail to deliver lower Official Mail rates suggest a further £0.5m
of savings are available.
+ Announcements have been made in the HR service centre regarding staff reductions and
delivery is on track
+ FY13/14 benefits are built into the latest Q2 Forecast and are in delivery. FY14/15 initiatives
have been included in the Directorate level budget planning targets.
Enablers
A recommended approach to staff cost reductions has been agreed by ExCo, enabling work to
proceed on delivering staff cost reductions of £9m in FY14/15.
Strategic initiatives for FY15/16 and beyond
Work has continued within the Directorate teams and Finance to develop the strategic cost
management initiatives that will deliver the goals for FY15/16 and beyond. Development of the
new Operating Model continues and ExCo has agreed a plan of action to progress this. It is
anticipated that the two work streams will come together as the requirements of the Operating
Strictly Confidential
Cost reduction opportunities: Confidence and value FY14/15
£50m 4
£5m
Sep 13
Model become more defined.
£4m
£3m
£2m
£1m
£0m
Sep 13
Oct 13
Nov 13
£40m
£30m +
£20m +
£10m
£0m +
Oct 13 Nov13 Deci13 Jan14 Feb14 Mari4 Apri4 May14 O1Jun
mLow
= Medium
mi High
Cost reduction opportunities: Confidence and value FY13/14
mLow
™ Medium
@ High
Dec13 Jan14 Feb14 Mar14 Apri4 May14 O1-Jun
— Directorate I FTE aaa Significant changes since P6 update
(excluding CTP) impact I L M H__I Total
~ Procurement savings in Network and Supply Chain Network & 3.5 I 2.5 I 6.0 IIncrease in £0.5m from Official Mail rate reductions.
(£2.6m Facilities Management; £2.0m Fleet Maintenance; £1.0m Official Mails) Supply Chain Increased confidence (from M to H) on Fleet
Maintenance procurement
~ Reduce cash delivery frequency and move to single person operation Supply Chain] 50 18 1.8
- Marketing spend efficiencies Commercial 16 1.6
~ Reduce cost and volume of Official Mail Finance 15 1.5. I increased confidenced (Lto M) from volume reduction
- Restructure product and marketing to reduce duplication and increase customer focus] Commercial I 8 07 07
- Manchester Cash Centre Closure Supply Chain] 20 07 I 07
- Restructure Audit and Training team in the Agency network Network I 20 07 0.7
= Deliver remainder of Finance Roadmap Programme savings Finance I 15 0.7 I 0.7 IRe-phased programme agreed. Savings still targeted
= Restructure call centres transferring from Royal Mall and improve efficiency Network I 20 os I 06
Period 7 Performance Pack - Chris Day
27th November 2013
POL00026626
POL00026626
Page 7 of 11
POL-0023267
Cashflow Analysis
October 2013
YTD Cashflow 215
£m
197
200
6) ——
(8)
vo) = (eas)
(42)
7
eBITDAS
Redundancy.
ow fore Network Govt Funding Free cass flow
Strictly Confidential
Cashflow
The YTD cashflow was an inflow of £197m which was £94m favourable to the £103m
budgeted. The main variances are:
* Capital expenditure and exceptionals were a combined £67m favourable due to lower
than planned NTP and CTP expenditure.
‘* Working capital is £9m adverse to budget
‘* Client and Network Cash balances are £2m favourable to budget, and profit is £6m
favourable.
‘There is a favourable variance of £33m attributable to timing of the receipt of the FRES
Sutedy Payment
L \\ dividend, budgeted for in PB,
YTD Cashflow Variances Full Year
£m Q2Forecast_ Budget Variance
£m [Working Capital 102.0 102.0 0.0
67 Depreciation 09 09 00
I % Working Capital (41.2) (41.2) 0.0
3 Client Balances (11.4) (44.4) 33.0
6 Network Cash 114.6 114.6 0.0
re Le Dividends (4.5) (4.5) 0.0
[Capital Expenditure (140.0) (167.5) 275
Government funding 215.0 215.0 0.0
NSP in advance 0.0 0.0 0.0
TDBahe — Srmathonelt: I Clee eam ‘Worinetetalns EAS DMiend Newt dee Exceptional Items (144.8) (198.8) 54.0
boncone ter Pensions 23 23 0.0
XM Proceeds from asset sales 25 0.0 25
0.0 0.0 0.0
Free cashflow before interest, tax 95.4 (21.6) 117.0
Network Cash Interest (2.0) (6.0) 3.0
£m Prior Year I Mar-13 P7 Tax 103 103 0.0
°7 Opening I Actual Budget var Free Cashflow 103.7 (46.3) 120.0
Retail, Cash Centres 514 650 696 602 (94)
Bureau 67 59 70 66
Cheques, debit cards 119 161 117 125
Network Cash 700 870 883 793
[Opening I P7
Headroom (£m) 838 911
Period 7 Performance Pack - Chris Day
27th November 2013
POL00026626
POL00026626
Page 8 of 11
POL-0023267
POL00026626
POL00026626
Business Scorecard Strictly Confidential ®
October 2013
Key Perf iedlost: Current Month Year to Date Prior Full Year 2012-13
ey F Srormance Ineicators Act ‘Target ‘Var Act Target Var Year I a2F'cast Target Var _I Outturn
Growth
777 84.6 503.5 528.8 525.2 887.6 900.0 902.4
11.9 11.2 65.0 59.2 723 102.0 102.0 94.2
Earnings before ITDA and Subsidy £m* (7.3) (7.9) (54.0) (59.4) (50.3) (97.2) (97.2) (115.4)
Free cashflow £m 4.0 (69.0) 196.8 103.0 352.3 103.7 (16.3) 132.2
Customer
Customer Satisfaction** 86% 88% 88% 88% 86% 88% 88% 87%
1 with (E hie 37% 44% 44% 44% N/A 44% 44h N/A
Net Promoter score** (5) 5 (2) 5 N/A is} 5 N/A
Queue time % < 5 minutes - Top 1k branches 87.9% 84.7% 84.1% 79.5% 79.8% 81.0% 81.0% 80.7%
Horizon availability 99.9% 99.7% 99.9% 99.7% 99.8% 99.7% 99.7% 99.8%
Branch - Compliance (new basket) 99.6% 98.0% 98.2% 98.0% 98.2% 97.9% 98.0% 97.8%
People
e a year) is) 55% 56% 55% 56% 55% 56% 56% 55%
((No.) % of BME appointments over total recruits at senior leadership 20% is 12% it N/A “ “ NA
and senior manager
(No.) % of Female appointments over total recruits at senior 60% 40% 54% 40% WA 40% 40% A
leadership and senior manager
Modernisation
(2.4) (2.6) (48.8) (47.7) (15.1) (24.9) (23.0) (37.0)
243 172 2,113 2,025 290 3,000 3,000 1,450
179 158 1,274 1,452 N/A 1,950 1,950 507
ITDA Interest, Tax, Depreciation, Amortisation
** Monthly = 3 month average. YTD = 12 month average
*** YTD and FY = cumulative including prior years
Period 7 Performance Pack - Chris Day 27th November 2013 Page 9 of 11
POL-0023267
Network Transformation Scorecard Strictly Confidential
October 2013 Reporting prior months data (ie. one month in arrears)
Sample size is still small but provides a starting point to build on. All branches in the financial section have been operating for greater than 12 months to allow for
steady state, and branches that had previously received overscale / one off payments have been removed to provide a clean baseline.
, [Actual Sampl
oy eae eee game) eee ao 2 earn
MAINS:
Converted > 12 months 8
[Finance Approved Investment per Mains £000 (39) (39) 0 8 Mains
. ; Financial performance
[Total Income: Post vs Pre Conversion Total Income -Income has remained flatin branches over 24 months, This
Branches live 12-24 months (5) (3)% (aye 2 month has seen a decline for the branches live 12-24 mths, however as this is
7 : a much smaller sample size its as a result of only 1 branch
POL Branches live 24-36 months or (Ox 1” 6 Focus income - The control group is performing better against products such as
IFocus Income: Post vs Pre Conversion insurance and international priority when compared to branches opened for
longer than 12 months. The demographics of the branch will have an impact on
Branches live 12-24 months (ee kB 2 the result
Branches live 24-36 months % on m 6 Agents pay - Due to the small sample size of 2 branches in this group
remuneration appears to be in decline this month in line with total income but
t_ [sents Remuneration: Post vs Pre Conversion (20% 0% (2oye 2 Wil be inpacted by wt of prockicts,
3 loperator Feedback on Retail Sales Performance 1 3 109 Non financial performance
Customer satisfaction is consistently above 90% for both Mains and Locals.
average increase in Opening Hours 35x 2OkSSSCAB 580
Customer
customer Satisacton 9% Ok 1678
LOCALS Roca
Converted >12 Months 69 Financial performance
IFinance Approved Investment per Local £000 (a4) (aa) ti) 0 Income - The Local model assumption was that income would reduce by c5%
ITotal Income: Post vs Pre Conversion 0 due to the removal of certain products. Early Locals have shown a shift towards
simpler, more convenience-orientated products like cash withdrawals and bill.
POL Branches live 12-24 months a payments. Growth in these products - with associated footfall - has been offset
Branches lve 24-36 month oe oe 7 in income terms by poorer performance on more complicated products.
JAnnualised Agents Fixed Pay savings per conversion £000 10 10 0 0 Non financial performance
Customer sessions ~ Retailers are benefiting from greater footfall that should
[Customer Sessions 12- 24 months ra (a)e 6% 61 support their retail growth. The footfall is delivering quicker but lower value
Post Office sales which should allow the retailer to utlise their staffin a
eae ustorer Sessions 24- 36 months 17% (he bai i different way or reduce their staff costs.
IOperator Feedback on Retail Sales Performance: 12% % 3% n
Operator feedback, Customer Satisfaction and extended opening hours all
average increase in Opening Hours 15% 80k St 465 remain positive
Customer
customer Satisfaction ee 1.463
Financial targets reflect the equivalent performance of the control group (2519 Mains and 4918 Locals)
1928 lve branches within the 1870 contracts signed ~ September 2013
G51 Months (Qct 12 Sept 13) 840
12-24 Months (Oct 11- Sept 12) ~
> 24 Months (prior to Oct 2011) - Da
Note: The scorecard includes 64 branches of the 151 (12-24 months) and 13 branches of the 37 (24-36 months)
Branches with a break in customer session or branches that had previously received averscale payments have been excluded.
Period 7 Performance Pack - Chris Day
27th November 2013
Page 10 0f 11
POL00026626
POL00026626
POL-0023267
Transformation Delivery Heat-map Strictly Confidential
October 2013
Highlights heatmap status of key transformation programmes, and points of escalation to Transformation Board on sel
/ guidance. Also highlights wider points of discussion / action.
Programme Spend
Amber
Green Amber Red
Delivery to Baseline Milestones
O Colour of Circle reflects 13-14 financial benefits
—? = Shows movement from last period
Period 7 Performance Pack - Chris Day 27th November 2013
POL00026626
POL00026626
e
jected projects including resulting Transformation Board action
Transformation Board (TB)- Key Points of Focus
Wave - Fujitsu have been informed that POL will not be progressing the mobile opportunity with them.
Positive meetings have been undertaken with EE, 20:20, Lifecycle, AVNet about delivering mobile via an
alternative model with direct relationships with the suppliers. The team have received indicative proposals
from potential suppliers and these, along with the implications of the change in operating model, have been
assessed
[Separation - The Separation team continue to develop conclusions and recommendations following a joint
Post Office and Royal Mail review of the existing delivery approaches for the Separation projects. Meeting also
held with Catherine Doran to agree output. A review of the existing delivery structure and governance with
recommendations on revisions will be made late November.
‘Small Business & Online Mails - Online Mails procurement now integrated into Common Digital Platform
activity and is planned to form part of the first iteration of CDP capability. Three bidders have responded and
reviews are currently taking place. There are concerns from the Mails team that the bidders may not be able
to deliver Online Mails via CDP by March, with two out of the three bidders stating that to meet the March
delivery a ‘tactical solution’ needs to be in place. Further review of options with suppliers underway to
consider timelines versus costs and benefits for Online Mails.
Post Office Operating Model - ExCo meeting held to discuss market testing of approach to operating model
development and proposed next steps, with agreement to develop a short form business case to establish a
working team to progress and engage the market for a suitable partner to support.
[Payments Strategy ~ PSP services in partnership with Worldpay launched, with external PR and internal
Icommunications. Special promotion for Sub-postmasters planned to switch their own card services for the
retail section of their business.
FO0G: Maypole (POCA) - further to DWP discussions POL Board paper presented and approved to move
forward to fully costed proposal by the end of the Financial Year. Resource costs are being revisited as the
scale of the work has indicated a Programmatic approach is required to manage the complexity. However set
lup cost will be recovered from DWP.
IFO0G: IDA - GDS have informed all IDPs that the Government Departments lined up for the Beta pilot
(HMRC & DVLA) have slipped their go-live dates to January.
[Crown Transformation - 14 branches have been transformed under the programme with works underway in
all branches pre-Christmas . However the Self Service kiosks will not be piloted before Christmas - Royal Mail
concurrence is outstanding and is required in advance of rollout. The forecast for the 2013-14 financial year
is also over budget, driven by increases to the automation spend relating to the connection to Channel
Integration ~ however this is going to be partially offset by other costs moving into 2014~15 (e.g. some
forecast property, VR and Compromise Agreement costs).
Page 11 of 11
POL-0023267
POLB 13(13")
POLB 13/97 - 13/115
POL00026626
POL00026626
Post Office Limited — Strictly Confidential
POST OFFICE LIMITED
(Company no. 2154540)
(the ‘Company’)
Minutes of a Board meeting held on 31 October 2013
at Camden High Street Branch, 112-114 Camden High Street, London NW1 ORR
Present:
Alice Perkins
Neil McCausland
Tim Franklin
Virginia Holmes
Susannah Storey
Paula Vennells
Chris Day
In Attendance:
Alwen Lyons
Sue Barton
Nick Beal
Timothy Warley
Andrew Thompson
Sharon Bull
Tom Moran
Kevin Seller
Apologies for Absence:
Alasdair Marnoch
POLB 13/97
POLB 13/98
ACTION:
Sue Barton
(a)
(a)
(b)
(c)
Chairman
Non-Executive Director
Non-Executive Director
Non-Executive Director
Non-Executive Director (for items 13/97-13/99)
Chief Executive Officer
Chief Financial Officer
Company Secretary
Strategy Director (items 13/98 & 13/110-13/111)
Head of Network Development (item 13/98 only)
Camden High Street Branch Manager (items 13/100-13/101)
Crown Regional General Manager (items 13/100-13/101)
Head of Network Finance (item 13/100-13/101)
Crown Transformation Programme Manager (item 13/102 only)
Head of Government Innovations Programme (item 13/103
only)
Non-Executive Director
INTRODUCTION
A quorum being present, the Chairman opened the meeting,
welcomed everyone to the Camden High Street Crown Office and
gave Alasdair Marnoch’s apologies for absence.
GOVERNMENT FUNDING AND STRATEGIC PLAN
The Board welcomed Sue Barton, Strategy Director, and Nick Beal,
Head of Network Development, to the meeting.
The Board noted the progress report on the Government Funding
and Strategic Plan and discussed the Memorandum of
Understanding (MoU) with the NFSP.
Sue Barton updated the Board on the negotiations with the NFSP-
to date. The Board sought assurance that the review mechanism in
POL-0023267
POL00026626
POL00026626
Post Office Limited — Strictly Confidential
the MoU had the strength required to break the agreement if the
NFSP reneged on the changes required of them. The Board asked
the Business to ensure that the final legal framework agreement
included specific termination rights.
ACTION: (d) The Board asked for written legal advice on two issues:
General Counsel
(i) to give them comfort that the MoU or proposed framework
agreement did not breach any general law or regulation
applicable to the Post Office; and
(ii) to explain how the Post Office could exercise termination rights
under the MoU and final legal framework agreement to protect
itself from NFSP default.
ACTION: (e) The Board discussed the merits of the Chairman writing to the
Alice Perkins Secretary of State to explain that Board's position and it was
agreed that a possible draft would be shared with the Board.
(f) The Board endorsed the position the team had negotiated, and
approved the next steps outlined in the paper subject to the written
legal advice received from the General Counsel.
(g) Sue Barton and Nick Beal left the meeting.
POLB 13/99 ROLE OF THE BOARD AND RELATIONSHIP WITH SHEX POST
FUNDING
(a) The Board discussed the role of the Board and its relationship with
the Shareholder and potential improved ways of working. The CEO
explained the Business’s interaction with ShEx officials and
assured the Board that this did not undermine their role.
ACTION: (b) The Board noted that Will Gibson would soon be leaving ShEx and
Alice Perkins the Chairman agreed to discuss his replacement and the ShEx
representative on the Board with Mark Russell, Chief Executive,
ShEx.
(c) Susannah Storey left the meeting.
POLB 13/100 ANALYSIS OF THE ECONOMICS OF THE CROWN NETWORK
MODEL
(a) The Board welcomed Sharon Bull, Head of Network Finance,
Timothy Warley, Branch Manager of Camden High Street, and
Andrew Thompson, Crown Regional General Manager, to the
meeting.
(b) Sharon Bull explained the economics of the Crown network model
and the effects of the Crown Transformation Programme. She
reported that even when the Crown Network achieved breakeven,
ACTION: 50% of the Crown branches would still be loss making. The Board
Sharon Bull asked for an analysis of this 50% to show the current state key cost
drivers and the projected costs post network transformation.
POL-0023267
POL00026626
POL00026626
Post Office Limited — Strictly Confidential
(c) The Board agreed that automation was critical to the transformation
and asked the Business to consider introducing more automation
on a faster timescale if possible, including at non-Post Office sites.
ACTION: The Board asked for a note on the testing and deployment of the
Harry Clarke new machines including where they will be available to visit.
(d) Sharon Bull explained that the transformation plan did not include
automation and an open plan environment at every branch. The
CEO stressed that she would like all Crown branches to be
ACTION: transformed to the new modern image but recognised that the short
Harry Clarke term objective was to achieve breakeven. The Board asked the
Business to consider more radical solutions post 2015 to drive
automation and further reduce the property requirement.
ACTION: (e) The Board asked for an update on the development of the Retail
Martin George Offer available in Crown Branches, including the possibility of
introducing a third party offer or renting out the space.
POLB 13/101 PRESENTATION BY THE BRANCH MANAGER CAMDEN HIGH
STREET
(a) Timothy Warley gave a presentation on the opportunities and
challenges of running Camden High Street Branch. He explained
his involvement in the changes in the Branch and the challenge of
leading the team. He recognised the changes in the Business since
many of his team had joined and the need to support their
development, but found the performance management tools
available cumbersome. His vision was for the branch to be more
customer-focussed with additional automation, lower staffing levels
and a drive to get rid of paper.
(b) The Board asked what could be done to ensure the right people
leave through redundancy and performance management. The
CEO explained that the current redundancy exercise was voluntary
but that she had started a piece of visioning work with the CWU to
look at a 2020 Crown Branch and challenge all the staffing
agreements and procedures.
(c) The Board thanked Sharon Bull, Timothy Warley and Andrew
Thompson for their presentation and they left the meeting.
POLB 13/102 INDUSTRIAL RELATIONS UPDATE
(a) Tom Moran joined the meeting and gave an oral update on the
current position regarding Industrial Relations.
(b) He explained that the CWU had cancelled their Royal Mail strike
scheduled for Monday 4" November after an improved offer from
RMG. The Post Office strike was still scheduled to go ahead
although talks still continued. The Business could not afford to
move towards a similar offer to that made by Royal Mail.
(c) Tom Moran explained the two areas of visioning underway with the
POL-0023267
POL00026626
POL00026626
Post Office Limited — Strictly Confidential
CWU: to find a redundancy solution which exits the right people
from the Business and introduces more effective performance
management; and to trial a new branch model outside the existing
staffing arrangements. The Business and CWU would work
together to run a number of offices which had been earmarked as
franchise branches to see if they can be made to breakeven
without a change of ownership.
(d) Tom Moran reported that 18 of the targeted 35 franchise branches
had now been announced and were in consultation with more
announcements expected over the coming weeks.
(e) Tom Moran left the meeting.
POLB 13/103 PROJECT MAYPOLE
(a) Kevin Seller, Head of Government Innovations Programme, joined
the meeting.
(b) The Board:
(i) Noted the progress made to date in developing options for the
future of POca;
(ii) Agreed the proposed approach and noted the key risks and
business interdependencies associated with the Business’
preferred option;
(iii) Noted the income variation against Strategy Plan projections;
and
(iv) Agreed that the proposed approach be delegated to the
Executive Committee with updates being provided to the
Board at regular intervals.
ACTION: (c) The Board asked for a future agenda item on the effect of Universal
Martin George Credit on the Business.
POLB 13/104 CHIEF EXECUTIVE’S REPORT
(a) The Board noted the Chief Executive's report and discussed the
following specific items:
(b) Mails
The new pricing for the ‘shoebox’ size packet was now in place and
was already having a positive effect on mails volumes. Plans for
Christmas were underway, focussing on queue-hosting to help the
customer with the new formats and the Dangerous Goods
requirements.
(c) ATM
The increased rates for a property with an ATM are likely to come
into force in November with a possible risk of £14m and an ongoing
cost of £6m per annum. The Business is supporting a likely legal
POL-0023267
POL00026626
POL00026626
Post Office Limited — Strictly Confidential
challenge from retailers.
(d) DWP
The CEO was invited to a Digital Identity conference at 10 Downing
Street, chaired by Francis Maude, Minister for the Cabinet Office
and Paymaster General, and was pleased with the more positive
attitude express towards the Business.
(e) Energy
ACTION: The CEO had been contacted by Edward Davey, Minister for the
Martin George Department of Energy & Climate Change, to discuss the use of
branches to give energy information to vulnerable customers.
An Energy paper would be presented at the November Board.
(f) Project Sparrow
Sir Anthony Hooper has now been appointed as Chairman of the
Horizon Working Group. The Business was working to prepare the
team of people to work on the mediation and case information
necessary as there were likely to be up to 150 cases put to the
Working Party for a decision on whether they progress into the
mediation process.
(g) Financial Services
ACTION: The new FS incentive scheme will be presented at the November
Nick Kennett Board. The Board asked for confirmation that the Bol will share the
incentive scheme with the FCA.
The Board were anxious about the drop off rate for current account
applications and asked what could be done to improve the
situation. The CEO explained that a new ID process was now in
place which should see an improvement in accounts opened,
although despite the introduction of 7 day switching, there is still
considerable inertia in the current account market.
(h) Sue Barton
The CEO told the Board that Sue Barton had resigned and would
be leaving the Business. The Board asked the CEO to try to ensure
that Sue Barton remained until the NFSP legal deal was completed.
POLB 13/105 INTERIM REPORT AND CONDENSED FINANCIAL
STATEMENTS FOR 2013 — 2014
(a) The Board received the draft Interim Report and Condensed
Financial Statements for 2013-2014.
(b) The Board discussed the inclusion of the segmental income report
and pillar commentary in the front half of the interim report. It was
agreed that the CFO and CEO would decide whether or not to
include this analysis after taking input from RMG and ShEx.
(c) The Board:
(i) Approved the approach to Going Concern, and agreed the
Going Concern status for the Company at the half year;
POL-0023267
ACTION:
CFO/CEO
ACTION:
Chairman/CEO/CFO/
Chairman of the ARC
ACTION: CEO/CFO
POLB 13/106
ACTION: CFO
ACTION: CFO
ACTION:
Kevin Gilliland
ACTION: CFO
POLB 13/107
POLB 13/108
POL00026626
POL00026626
Post Office Limited — Strictly Confidential
(a)
(b)
(c)
(d)
(e)
(f)
(a)
(a)
(ii) Approved the Interim report, confirmed that the interim
financial statements have been prepared in accordance with
IAS34_ ‘Interim Financial Reporting’ and delegated
responsibility to CEO and CFO to sign the Statement of
Directors’ Responsibilities on behalf of the Board;
(iii) Agreed to delegate authority for reviewing final amendments
and completing the Interim Report on behalf of the Company
to a Sub-Committee, the quorum for which to be comprised of
any three of the Chairman, CEO, CFO and the Chairman of
the ARC; and
(iv) Approved the Letter of Representation to the Auditor, and
authorised CEO or CFO to issue it on behalf of the Board.
FINANCIAL PERFORMANCE UPDATE
The Board received the financial performance update for
September 2013, the 2013-2014 Q2 full year forecast and the
2014-2015 Budget look-ahead.
The CFO explained that the expected recovery in the second half
of the year meant that the EBIT target looked secure, but his
concern was that the revenue and exit rate trajectory for revenue
growth would not be at the level required to hit next year’s targets.
The Board asked for a detailed report as part of the financial report
tracking the second half of the year with more detail on costs.
The Board recognised the need to grow the revenue and agreed
that any EBIT upsides should be reinvested on activity which would
drive current year revenue back to the £900m target. The CFO
reported that he had tasked the commercial/sales teams with
closing the gap.
The CFO was asked to include two measures for Network
Conversions on the scorecard showing ‘network conversions’ and
‘contracts signed’.
The Board noted the Network Transformation scorecard and the
income decline for locals and asked for a note to the Board in
November to explain trend.
The CFO explained the £40m budget gap for 2014/15 and the need
to implement the cost reduction activities necessary. A more
detailed budget debate would come to the January Board.
MINUTES OF PREVIOUS MEETINGS AND MATTERS ARISING
The minutes of the Board meeting held on 25 September 2013
were approved for signature by the Chairman.
STATUS REPORT
The Status Report, showing matters outstanding from previous
POL-0023267
POL00026626
POL00026626
Post Office Limited — Strictly Confidential
Board meetings, was noted.
POLB 13/109 FINANCIAL SERVICES BOARD SUB-COMMITTEE TERMS OF
REFERENCE
(a) The Board approved the draft Terms of Reference for the Financial
Services Board Sub-Committee, but re-emphasised that key FS
decisions and actions would still come to the Board.
(b) The Chairman explained that, after consideration by the
Nominations Committee, it had been agreed that Virginia Holmes
would Chair the sub-committee and that Tim Franklin would be a
member.
(c) It was proposed that the Bank of Ireland Finance Director be invited
to the sub-committee to present the Capital and Liquidity report.
POLB 13/110 MUTUALISATION UPDATE
(a) Sue Barton joined the meeting.
(b) The Board received an update on the progress of the mutualisation
timeline.
ACTION: (c) The Post Office Public Purpose statement would revert to the
Sue Barton Board in November.
(d) The Board noted the mutualisation update and actions, and agreed
that an update detailing the progress and activity as set out in the
paper be sent to BIS for information on a monthly basis.
POLB 13/111 POST OFFICE ADVISORY COUNCIL
(a) The Board received a paper on the establishment of a Post Office
Advisory Council.
(b) The Board reviewed the Terms of Reference for the Post Office
Advisory Council (POAC). It was agreed that:
(i) the Council would be more effective if restricted to around 20
members;
(ii) the Business should consider whether payment of a small fee
for attending a meeting as well as expenses would be
beneficial;
(iii) the Business would review the membership rule of asking a
member to stand down if they missed two meetings; and
(iv) an inaugural dinner and then an annual dinner was preferable
to dinner before each meeting.
(c) The Chairman explained that after consideration by the
Nominations Committee, it had been agreed that Tim Franklin
POL-0023267
POL00026626
POL00026626
Post Office Limited — Strictly Confidential
would Chair the Post Office Advisory Council and that Neil
McCausland would be a member.
ACTION: (d) The Board asked Sue Barton and Tim Franklin to agree any
Sue Barton/ changes and finalise the Terms of Reference.
Tim Franklin
(e) The Board:
(i) Approved the Terms of Reference and arrangements for the
establishment of a Post Office Advisory Council, subject to any
changes agreed by Sue Barton and Tim Franklin;
(ii) Agreed a budget allocation of £40K per annum to establish
and run the Council; and
(iii) Agreed that the POAC Chairman work with the Secretariat to
establish to Council, in line with the proposals outlined in the
paper, with the aim of holding a first Council meeting in early
2014.
(f) I Sue Barton left the meeting.
POLB 13/112 ANY OTHER BUSINESS
(a) Authentication of the Post Office Limited Company Seal
The Board approved that the affixing of the company seal may be
authenticated by any one of the following: a current Director of the
Company; the Company Secretary; the Assistant Company
Secretary; the General Counsel; and Piero D’Agostino, Principal
Lawyer.
POLB 13/113 ITEMS FOR NOTING
(a) The Board noted the Significant Litigation report.
(b) The Board noted the Report on Sealings and resolved that the
affixing of the Common Seal of the Company to the documents set
out against items numbered 1075 to 1085 inclusive in the seal
register was hereby confirmed.
POLB 13/114 NEXT MEETINGS
(a) It was noted that the next Board meeting would be held on 27
November 2013, and that the next Board awayday would be held
on 10-11 June 2014.
POLB 13/115 CLOSE
There being no further business, the meeting was then closed.
POL-0023267
REMCOM
13/32-13/39
POL00026626
POL00026626
Strictly Confidential
POST OFFICE LTD
REMUNERATION COMMITTEE
utes of a meeting of the Remuneration Committee of the Board
held at 148 Old Street, London EC1V 9HQ on 4 July 2013
Present:
In Attendance:
REMCOM
13/32
REMCOM
13/33
ACTION:
Paula
Vennells
ACTION:
Fay Healey
(a)
(a)
(b)
(d)
Neil McCausland (Committee Chairman)
Virginia Holmes
Alice Perkins
Susan Crichton (SC) HR and Corporate Services Director
Fay Healey (FH) Chief HR Officer
Alwen Lyons Company Secretary
OPENING OF MEETING AND CONSTITUTION OF COMMITTEE
A quorum of two directors being present, the Chairman of the Committee
opened the meeting and welcomed those attending.
APPOINTMENT OF CHIEF COMMERCIAL OFFICER
The Committee received a paper from FH on the proposed appointment
of Martin George (MG) as the Chief Commercial Officer.
Alice Perkins had met the candidate and was impressed by his relevant
experience, energy and good ideas. She had spoken to Bob Ailing who
had been very complimentary describing him as an ‘excellent Marketing
Directory and inspirational leader’. The Committee asked for confirmation
as to why MG had resigned from BUPA, and asked the CEO to speak to
the CEO of BUPA for a reference.
The Committee discussed the appointment as a likely successor for the
CEO. Alice Perkins was unsure if there was enough evidence that he
could become the CEO of such a complex organisation and the
Committee did recognise that this could leave a succession issue for the
Business
MG holds several NED appointments and the Committee agreed that his
contract needed to be clear about the time he would have available for
non-Post Office commitments.
It was agreed FH would come back to the Committee with clarity around
which NED position MG would retain, as well as his reason for resigning
from BUPA. Support for the appointment of the Chief Commercial Officer
would then by sought by correspondence.
Page 1 of 2
POL-0023267
POL00026626
POL00026626
Strictly Confidential
REMCOM MINUTES OF PREVIOUS MEETING AND MATTERS ARISING
13/34
(a) The minutes of the meeting held on 1 May 2013 were approved for
signature by the Chairman of the Committee.
REMCOM UPDATE ON SHORT TERM INCENTIVE PLAN (STIP) TARGETS
13/35,
(a) The Committee noted the scorecard targets and the fact that they would
ACTION: be incorporated into the final submission to the Special Shareholder in
Fay Healy respect of the remuneration framework for 2013/2014. It would be made
clear that the NT targets for 2013/14 were still not resolved.
REMCOM UPDATE ON CEO AND CFO OBJECTIVES
13/36
(a) IThe Committee noted the personal objectives for the CEO and CFO for
ACTION: the financial year 2013/2014, and the fact that they would be
Fay Healey incorporated into the final submission to the Special Shareholder in
respect of the remuneration framework for 2013/2014.
REMCOM LONG TERM INCENTIVE PLAN (LTIP) AWARD DATE APRIL 2013
13/37 PAYMENT FINANCIAL YEAR ENDING 2015/2016
(a) IThe Committee considered the performance condition target for the LTIP
award date April 2013, payment date March 2016. These performance
conditions would be tested during the financial year 2015/2016.
(b) I The Chairman explained that the pay strategy for the incentive plan was
to continue to move the target cylinder ‘to the left’ reducing the payment
below plan and increasing the payment for stretch performance. The
Committee supported this approach.
(c) It was further noted that both the Board and ShEx required a target for
NT conversions as well that already agreed for NT contracts signed,
although this would not be an additional bonus measure or condition, but
sit as a target outside the incentive plans.
(d) The proposed targets for EBITDAS for the 2013 LTIP award were
ACTION: approved. The Committee noted that the performance conditions and
Fay Healey targets for the 2013/2016 LTiP would be incorporated into the final
submission to the Special Shareholder in respect of the Remuneration
Framework for the CEO and CFO.
REMCOM ANY OTHER BUSINESS AND DATE OF NEXT MEETING
13/38
(a) The next meeting of the Committee was scheduled for 10 September
2013.
REMCOM CLOSE
13/39
There being no further business, the meeting was closed.
Page 2 of 2
POL-0023267
POL00026626
POL00026626
Strictly Confidential
POLARC13 (5")
13/27-13/35
POST OFFICE LIMITED
(Company no. 2154540)
(the Company)
Minutes of a meeting of the AUDIT, RISK AND COMPLIANCE SUB-COMMITTEE held
on Thursday 12 September 2013 at 148 Old Street, London, EC1V 9HQ
Present:
Alasdair Marnoch Chairman of Committee
Neil McCausland Senior Independent Director
Tim Franklin Non-Executive Director
In attendance:
Alice Perkins Company Chairman
Paula Vennells CEO
Chris Day CFO
Alwen Lyons Company Secretary
Hugh Flemington Head of Legal
Malcolm Zack Head of Internal Audit
David Mason Head of Risk Governance
Julie George Head of Information Security (item 13/31 only)
Sarah Long Financial Accounting Governance Manager (item 13/32 only)
POLARC INTRODUCTION
13/27
A quorum being present, the Chairman of the Committee opened the
meeting and welcomed all those present.
POLARC MINUTES OF THE LAST MEETINGS AND MATTERS ARISING
13/28
(a) The Committee approved the minutes of the meetings held on 20 March,
21 May and 5 June 2013 for signature by the Chairman of the Committee.
He thanked the CFO and those involved in producing the Annual Report
and Accounts, and congratulated them on the document.
ACTION: (b) I The Committee noted the actions list dated 5 September 2013, and asked
CFO that action A2 concerning Business regulatory risk be clarified to include
the regulatory regime for financial services.
(c) The Committee received and noted an update from Susan Crichton,
General Counsel, on the key issues covered by the Risk & Compliance
and Regulatory Risk Committees.
POLARC RISK MANAGEMENT
13/29
(a) The Committee received a paper and presentation on the Risk
Management Strategy 2013-2014 from the CFO and David Mason, Head
of Risk Governance, highlighting the current status of the Enterprise Risk
Management (ERM) framework in the Company. The Committee sought
assurance that the work would capture cross functional risks and the CFO
explained that cross business risks were captured by a PMO as well as at
the Executive Committee level.
Page 1 of 4
POL-0023267
POL00026626
POL00026626
Strictly Confidential
(b) The Committee recognised the work that had been done to date and
ACTION: asked the Business to have the risk identification work completed by the
CFO/DM next ARC meeting in November. The Committee recommended that the
focus be on identifying the few (possibly 10-12) higher level risks which
were critical for the Business.
ACTION: (c) I The Committee noted the paper and that more detailed work would be
ARC reviewed by the ARC in November before a discussion at a subsequent
Board.
POLARC INTERNAL AUDIT
13/30
(a) The Committee received updates on the Company's Internal Audit from
Malcolm Zack, Head of Internal Audit. This included the outcome of the
final audit activity conducted by Royal Mail Group Internal Audit on behalf
of the Company, the Company's internal audit activity and the planned,
requested and proposed audit and advisory work for the third quarter of
the year.
(b) The Committee discussed the current Branch Audit function which
currently carries out branch audit and training work. Malcolm Zack
explained that the audit work focussed on cash and stock reconciliation
and he believed that there was an opportunity to make the team more
professional and efficient. The CEO explained the history of the existing
structure and agreed that changes needed to align with the business
support process review being carried out by Angela Van-Den-Bogerd,
Network Change Operations Manager. The Committee questioned the
reporting line and asked for this to be considered as part of the review.
ACTION:
AVDB
(c) The CEO suggested that Angela Van-Den-Bogerd should attend the
November ARC to give an update on her work and its impact on business
risk.
ACTION: (d) The CFO thanked the Committee for their input and agreed to conclude
CFOIMZ the branch audit work and report back changes at the November ARC.
(e) The Committee received and noted the status of agreed internal audit
ACTION: actions and asked that this information be incorporated into the Board
MZ performance pack.
(f) The Committee questioned the SPMO audit and wondered if the report
ACTION: should have had a red status as the risk highlighted was fundamental to
MZ the SPMO delivering their role. Malcolm Zack defended the findings but
agreed to ensure reports were rigorous and challenging.
ACTION: (g) I Malcolm Zack was asked to confirm via a note to the Committee when the
Mz two overdue actions highlighted in the audit tracker would be complete.
(h) Malcolm Zack also presented a technical update for the Committee. The
update covered Financial Reporting Council updates to the direct use of
internal audit resources and increasing transparency of external audit
work and the new codes of guidance from the Chartered Institute of
ACTION: Internal Auditors for internal auditing standards in the financial and public
Mz . sectors. Malcolm Zack was asked to circulate the document to the
Page 2 of 4
POL-0023267
POL00026626
POL00026626
Strictly Confidential
Committee.
(i) I The Committee noted these updates and endorsed Internal Audit's
suggested approach to these changes. The CFO was asked to organise
a short “teach in” for the ARC on all current recent accounting changes
ACTION: and the implications for the Business, in time for the Company's year-end
CFO (financial quarter 4). He was also asked to produce a summary note for
the Board.
POLARC INFORMATION SECURITY UPDATE
13/31
(a) The Committee welcomed Julie George, Head of Information Security, to
the meeting.
(b) Julie George presented an update on developments, progress and future
plans for Information Security. She informed the Committee that she had
received confirmation that the Business had achieved 1!SO27001
Certification for Front Office of Government Services, and was on
schedule for renewal of its PCI certification at the end of September.
(c) Julie George explained that the Business had developed a standard on
Information Security and Data Protection, which would need to be met in
any new supplier contract. The Committee asked how these standards
were being enforced and audited in existing contracts and asked the
Business to progress the issue with existing suppliers.
(d) The CEO asked whether the Brands Database would comply with the
new standards, as this was by far the largest database used by the
Business and in her mind the greatest risk. Julie George reported that the
supplier knew that they were failing to meet the required standards and
the Business would need to move to a different supplier if they did not
ACTION: improve. The Chairman asked for a follow up note to the Committee
JG assessing the Brands Database risk and explaining how the Business
was planning to mitigate it, including what could be achieved by the end
of the calendar year.
(e) I The Committee noted the good progress made in Information Security to
ACTION: date and the key areas of focus for the next three months. They agreed
JG that an update should be provided to the ARC by mid-December,
including the plan and timescales for the contract changes.
Julie George left the meeting.
POLARC THE INTERIM REPORT
13/32
(a) The Committee welcomed Sarah Long, Financial Accounting and
Governance Manager, to the meeting.
(b) I Sarah Long invited the Committee to review the template for the
Company's Interim Report for the half year ended 29 September 2013
(the Report) and to consider the key messages, highlighted in Section 3.3
of the Interim Report Committee Paper, which the Report should contain.
(c) I The Committee discussed the options for the interim report and agreed
that the CFO would include a recommendation in his Financial
Page 3 of 4
POL-0023267
POL00026626
POL00026626
Strictly Confidential
presentation at the September Board which would enable input from the
Board and final view by the end of September. The Committee asked the
CFO to taking into account the views expressed and work with Mark
ACTION: Davies, Communications Director, to feed in the expected
CFO/MD communications environment at time of publication.
(d) Sarah Long left the meeting.
POLARC DATES OF NEXT MEETINGS
13/34
(a) Date of next meeting: Wednesday 6 November 2013 14.00 -16.30.
(b) I The Committee discussed the proposed meeting dates for 2014 and the
Company Secretary proposed moving the ARC to the eve of the main
ACTION: Board meeting. The Committee agreed in principle and asked the
COSEC Company Secretary to check availability.
POLARC CLOSE
13/35,
There being no further business, the meeting was declared closed.
Page 4 of 4
POL-0023267
POL00026626
POL00026626
Strictly Confidential
PC 13/30-13/39 POST OFFICE LTD
PENSIONS SUB-COMMITTEE
Minutes of a meeting of the Pensions Sub-Committee of the Board
held at 148 Old Street, London EC1V 9HQ on Tuesday 10 September 2013
Present: Virginia Holmes (VH) Chair
Chris Day (CD) CFO
In Attendance: Susan Crichton (SC) General Counsel
Ken Potter (KP) Pensions Adviser
Natasha Wilson (NW) Head of Reward and Pensions
lan McKnight (IM) RMPTL (for item 13/37)
Tim Giles (TG) AON Hewitt (from item 13/37)
Zoe Taylor (ZT) AON Hewitt (from item 13/37)
Gill Catcheside (GC) Secretariat
Apologies for Absence: Susannah Storey
PC 13/30 OPENING OF MEETING
A quorum being present, VH opened the meeting.
PC 13/31 MINUTES OF PREVIOUS MEETINGS AND MATTERS ARISING
The minutes of the meetings held on 1 May, 5 June and 1 August 2013
were approved for signature by VH.
The actions list as at September 2013 was noted.
The following matters arising from the minutes were discussed:
a) PC 13/12 — It was noted that a longer time frame for Investment
Managers’ Performance had been included in the Investment reports.
b) PC13/23(a) — VH noted that a transition plan had not been received
from the Trustee, and it was agreed that the matter be discussed with
IM later in the meeting.
PC 13/32 PROJECT ROBIN
KP reported that the consultation for Project Robin had opened on 21 June
2013, and closed after 60 days on 25 August 2013. It was noted that in
general, the response from the workforce had been low key with less than a
dozen relevant phone calls, and feedback in writing being mainly technical
queries which had been responded to individually. Several meetings had
been held with the trade unions, chiefly with the CMA (Communications
Manager's Association). The CWU (Communication Workers Association)
had published and printed postcards for members to send in to its
employing company with a “Hands off our Pensions” message. Post Office
had received a 20% response from its members, with Royal Mail having a
slightly lower response rate proportionately.
KP advised that comments from the consultation were being considered,
together with a late amendment which had been proposed by Royal Mail
Group following consultation with the RMPP membership and the Unions.
Page 1 of 5
POL-0023267
POL00026626
POL00026626
Strictly Confidential
Royal Mail was hoping to send out a decision note to members in the week
commencing 16 September. It was noted that it was important that the
Schedule of Contributions (SOC) and Statement of Funding Principles
(SFP) should be signed by 30 September 2013 for submission to The
Pensions Regulator.
It was noted that if Project Robin went ahead the Scheme rules would
require amendment to take account of the change in definition of
ACTION: KP/SC _ Pensionable pay together with consequential amendments. It was agreed
that the proposed SFP, and the amended rules together with an executive
summary, be circulated to the Committee for its agreement.
CD reported that the RMPP Trustee Board would be meeting on 26
September where it was hoped that the Rule change effecting Robin, and
the SOC and SFP, would be approved. It was noted that over the summer,
a series of engagement meetings had been held with the Trustee
Executive, who now appeared to have accepted that there was no other
option available apart from Robin or closure of the Scheme. The Trustee
Executive would therefore be recommending approval of the Rule change
for Robin and would seek a final proposal from Royal Mail and Post Office
by mid-September ideally to include tacit or implicit agreement from the
Unions. CD advised that this was unlikely to be achieved.
The Committee considered the potential Robin amendment which related to
the treatment of pensionable salary increases and “promotions” or
movements within the pay bands. It was noted that the Unions had not
asked for concessions from the Post Office although the CMA had
commented that Robin disadvantaged their members disproportionately. It
was noted that the proposal would have the effect of reducing the time for
which the surplus would last by approximately two years, at a cost of
around £15m on a worst case basis.
CD advised that the potential Robin amendment had been debated by the
Executive Committee (ExCo) earlier that day, and it had been agreed that
the concessions could be made but that there was concern that it would be
viewed as a “give” when it had not been requested by the Unions and might
not help with the wider IR issues being debated. SC advised that there
was no “Guarantee” on the table from Post Office although the intention
remained to try and keep the Scheme open whilst commercially viable.
VH commented that she did not think that the Pensions Committee had the
delegated authority to make a decision on the proposed late amendment,
and that she would be uncomfortable linking strategies with RMG when the
impact of the decision was unknown. It was agreed that it should be an
ExCo decision, and that the Pensions Committee would support ExCo if it
deemed it appropriate that the late amendment be included in the
negotiations with the Unions. The financial implications of the possible
amendments (only) were considered acceptable to the Committee however.
PC 13/33 PENSION IMPLICATION OF SALE OF RMG
The paper on the pension implications arising from the sale of RMG was
considered by the Committee.
KP advised that the scenario had changed since the last meeting, in that
the sale would be in the form of an IPO and therefore the impact on the
Page 2 of 5
POL-0023267
POL00026626
POL00026626
Strictly Confidential
Post Office participation in RMPP was likely to be much more certain, at
least for the foreseeable future, compared to a sale to an individual
investor.
It was noted that RMPP (Royal Mail Pension Plan) was sectionalised and
that there were protections for Post Office as an Employer in RMPP.
However, there were some issues with the Post Office’s Participating
Employer status in the Defined Contribution scheme which meant that it
was relatively tied to RMG strategy, and could incur expensive alteration
fees with Zurich Life on, for example, contribution rates.
KP reported that Procurement had agreed that approaches to potential
providers regarding an initial assessment of DC options should be
undertaken on an informal basis with a signed Non-Disclosure Agreement
in place to maintain confidentiality within the market.
VH advised that the main players in the auto-enrolment DC market on the
basis of price were L&G and Standard Life. It was noted that careful
attention should be paid to new business within their businesses as this
could constrain initial service levels.
VH declared an interest in Standard Life, being a director of Standard Life
Investments.
The Committee:
(i) noted the update following on from more clarity concerning the RMG
sale transaction since the last meeting;
(ii) agreed that no action should be taken now to initiate full separation of
the plans and for so long as the working relationship with RMG remained
ACTION: NW/KP __ the same;
(iii) agreed that KP would discuss with RMG the possibility of an extension
ACTION: NW/KP _ to the notice period to leave RMPP from 3 months to (at least) 1 year;
(iv) agreed that a cost benefit analysis for RMPP should be prepared during
ACTION: NW/KP _ the course of the year showing the costs of separation compared to the
benefits of doing so (which could be prepared internally); and
(v) agreed that an initial assessment should be carried out in connection
with Defined Contribution options for pension provision within Post Office.
PC13/34 PROFESSIONAL FEES FOR HALF YEAR REPORTING
The Committee noted the professional fees incurred to date for the
Scheme, and discussed the proposed fees for Towers Watson in
connection with the half year accounting and reporting.
It was agreed that:
(i) a fixed fee of £13,000 for be approved for work in respect of the half year
accounting and reporting; and
ACTION: SH (ii) SH to investigate flexible costing with Towers Watson for future work.
PC13/35 MEETING DATES
The Committee discussed meeting dates for 2014. It was agreed that the
meetings should tie in with the availability of the quarterly investment
ACTION: GC/KP __ reporting, with maybe a fifth meeting scheduled for discussion of more
general matters. GC/KP undertook to ascertain when quarterly reporting
was available from IM, and propose meeting dates for 2014.
Page 3 of 5
POL-0023267
POL00026626
POL00026626
Strictly Confidential
It was noted that the meeting scheduled for 4 December might be moved to
a date when the half year investment report was available.
PC13/36 HALF YEAR REPORTING
The Committee noted that the half year end was on 29 September and a
high level revaluation under IAS19 would be carried out for inclusion in the
Interim Report. CD reported that the key assumptions of discount rate, RPI
and CPI would be revisited, but that other assumptions would be left at the
year-end assumption. It was noted that early discussions with Royal Mail
indicated that no changes to approach were planned. A view would need to
be taken on whether Project Robin was included.
A telephone meeting on 4 or 7 October for 30 minutes was requested to
ACTION: GC confirm the assumptions, and GC undertook make the necessary
. arrangements.
PC13/37 INVESTMENTS
lan McKnight of RMPP and Tim Giles and Zoe Taylor of AON Hewitt joined
the meeting.
IM presented the RMPP Investment Strategy Update. The report showed
the agreed current investment strategy as set out in the Statement of
Investment Principles (SIP). It was noted that the report showed a
contingent allocation as there was a caveat in the SIP that the strategy was
subject to further review if Robin did not happen. IM advised that the figure
for Liability-hedging assets, derivatives and collateral should read 52%.
As at 30 June 2013, assets totalled £225.8 million and the investment
allocation at that date remained overweight in credit and cash. IM advised
that the credit had not been physically rebalanced at 31 August 2013, but
would be a trade with Royal Mail at the end of September resulting in a
Zero overweight in credit.
VH asked if there was a transition plan as referred to in the previous
minutes to ensure that the Post Office strategy was fully recognised. IM
undertook to circulate the investment allocation as at today’s date, together
with a copy of the transition plan.
ACTION: IM
The Investment Performance, which was gross of fees, was noted. The
Post Office section of the Scheme had performed well against benchmark
since the implementation of the Pensions Solution. IM stated that all the
underlying managers had out-performed their benchmarks.
It was noted that there had been one pricing error at the end of June
ACTION: IM which had only been advised on 9 September. The Committee felt the
delay was unacceptable, and IM undertook to forward details of the error.
The Committee was concerned to see that the report included reference
to a six year liability hedging strategy, when Post Office had agreed a
three year strategy to 31 March 2015 which had been fully implemented.
IM advised that the Trustee wanted the Plan to survive for as long as
practical, and had set an objective of six years to hedge strategically, and
the POL Implementation Working Group would be meeting on 16
September to discuss the possibility of extending the period. TG advised
the Committee that there was an obligation to consult with the Post Office
Page 4 of 5
POL-0023267
POL00026626
POL00026626
Strictly Confidential
regarding any changes to investment strategy, and IM confirmed that
nothing would happen without full consultation with the Employer.
A report on the Growth Asset Risk Attribution for the Post Office section
was tabled and noted by Committee members. It was noted that the
report was based on the premise that Robin would go ahead.
It was noted that the Trustee had agreed to use an L&G property fund for
some of the assets.
The Investment Projects overview for the Trustee Executive relating to
investment strategy for 2013/14 was noted.
VH requested much more visibility on how well individual managers are
doing against benchmark.
Action:
(i) IM to send the ISC dates to KP and GC;
ACTION: IM (ii) IM to send through the Investment Performance report for the period to
ACTION: IM 30 June 2013 following the ISC meeting on 13 September;
(iii) IM to send through details of the pricing error which occurred at the end
ACTION: IM of June;
(iv) IM to provide much more visibility on how well individual managers are
ACTION: IM doing against benchmark net of all fees.
PC 13/38 REVIEW OF INVESTMENT POSITION
TG and ZT gave a verbal update to the Committee on the Investment
Position. It was noted that the focus around asset allocation was consistent
with the original Post Office request in terms of strategic asset allocation
and also that the liability hedging was where the Committee had asked to
be but that reporting was well below standard.
It was agreed that Aon Hewitt should closely monitor the final split of assets
ACTION: ZT/IM which was to be agreed by end September. ZT would liaise with IM to
obtain the JP Morgan report on the final split
AON Hewitt undertook to draft a letter to the Trustee setting out Post
Office’s expectations of reporting for the half year position and in the future.
AON Hewitt would then be able to give an idea of set-up and on-going
costs for their qualitative reviews. The letter would be sent to Chris Hogg
by CD and an assurance would be requested on how the Trustee intended
to manage the working relationship with Post Office relative to Royal Mail
Group.
TG suggested that as the current liability hedging position was as
requested and market conditions were now right, it might be a good time to
extend the hedging period. CD advised that until Robin had been concluded
nothing could be finalised.
PC 13/39 CLOSE
There being no further business, the meeting was declared closed.
Page 5 of 5
POL-0023267
POL00026626
POL00026626
Strictly Confidential
PC 13/40-13/43 POST OFFICE LTD
PENSIONS SUB-COMMITTEE
Minutes of a meeting of the Pensions Sub-Committee of the Board
held by telephone conference on Monday 7 October 2013
Present: Virginia Holmes (VH) Chair
Chris Day (CD) CFO
In Attendance: Sarah Hall (SH) Head of Financial Control and Compliance
Ken Potter (KP) Pensions Adviser
Natasha Wilson (NW) Head of Reward and Pensions
Billy Weir (BW) Towers Watson
Martin Reilly (MR) Towers Watson
Gill Catcheside (GC) Secretariat
Apologies for Absence: Susannah Storey
PC 13/40 OPENING OF MEETING
A quorum being present, VH opened the meeting.
PC 13/41 PROJECT ROBIN
CD gave a verbal update on Project Robin. It was noted that ten days ago,
the RMPP Trustee Board had agreed the changes proposed by Royal Mail
Group but had asked Post Office to evidence its meaningful consultation
with employees and unions on the potential Robin amendment before
agreeing to the changes. CD advised that such evidence had been
submitted the previous week, and confirmation had been received today
that the RMPP Trustee board had now accepted Post Office’s proposed
rule changes. It was agreed that this was good news as it meant the
Scheme could be kept open whilst commercially viable.
CD confirmed that there had been no change to the potential Robin
amendment since the last Committee meeting, and that the financial
implications were the same.
PC 13/42 APPROVAL OF ASSUMPTIONS FOR HALF YEAR REPORT AND
ACCOUNTS DISCLOSURES UNDER IAS19
The Committee considered the proposed IAS19 and FRS17 assumptions
for the financial half year ending 29 September 2013.
The assumption for Salary Increases was discussed by the Committee.
Towers Watson advised that there were two distinctive parts to the Salary
Increases assumption (a) 2012/13 and 2013/14 Pre Robin; and (b) April
2014 onwards which would include the impact of Robin.
For (a) 2012/13 and 2013/14 Pre Robin, Towers Watson explained that the
year end assumptions had been:
Page 1 of 2
POL-0023267
POL00026626
POL00026626
Strictly Confidential
2012-13 Supply Chain and Admin 3.5% as per agreed pay deal,
and the remainder (Crown and Management) nil.
For 2013-14 Supply Chain and Admin 3.25% as per agreed pay
deal, and the remainder (Crown and Management) RPI +1%.
The Committee discussed whether an alternative assumption should be
used of the Valuation basis, which used RPI -1% for Crown and
Management for 2013-14. Towers Watson advised that the difference in
surplus between these two bases would be in the region of £10 million.
For (b) April 2014 onwards, it was noted that the assumption for pay
increases awarded in respect of Final Salary benefit would be the lesser of
RPI or 5% in line with Robin. SH advised that the impact would be a one-
off gain of approx. £100 million which would be put through the Profit and
Loss Account as an exceptional item, once all the Robin documentation
had been signed. However, SH undertook to check with Ernst & Young if
ACTION: SH the gain should be recognised at the half year as a post Balance Sheet
event. NW asked how promotion rises were covered and Towers Watson
advised that there was an allowance included in addition to the pay
assumptions discussed.
The Committee agreed the following assumptions
¢ Discount rate of 4.6% per annum.
¢ Inflation RPI 3.3% per annum.
¢ Inflation CPI 2.3% per annum.
e Pension increases for benefits subject to RPI increases subject to an
annual cap of 5% RPI -1%. It was noted that this was consistent with
Project Robin.
¢ Other pension increases in line with RPI or CPI as appropriate.
e Salary Increases:
e 2012/13 to remain the same as for year end;
e 2013/14 Supply Chain and Admin to remain the same as for year
end, and RPI -1% for Crown and Management.
e April 2014 onwards the lesser of RPI or 5% in line with Robin for
Final Salary benefit.
¢ Commutation and Other Demographic assumptions — the same as for
year end.
PC 13/43 CLOSE
There being no further business, the meeting was declared closed.
Page 2 of 2
POL-0023267
POL00026626
POL00026626
Strictly Confidential
POST OFFICE LIMITED BOARD
Status Report
No. I REFERENCE ACTION BY WHOM STATUS
rik f and Crown Offices i
iy’ fo
POLB 13/100(b) I making to show the current state key cost drivers and the projected costs post
network transformation
1c I October 2013 Provide a note on the testing and deployment of the new automated machines, I Harry Clarke User acceptance testing of
POLB 13/100(c) I including where they will be able to visit. the new NCR kiosk and
associated functionality has
completed. This enabled the
kiosk to be deployed in the
Branch Model Office at 148
Old Street on 1°' November
and it is able to be visited at
most times during the
working day. The kiosk has
progressed since then with
live proving, and as at
19/11/13, no significant
issues have yet been
encountered. The
programme is now working
with Royal Mail to gain their
concurrences to the technical
quality of stamps printed by
the kiosk, and the processes
for mails segregation. These
concurrences are all
expected to be in place by
Status Report at 20 November 2013 Alwen Lyons Page 1 of 6
POL-0023267
POL00026626
POL00026626
Strictly Confidential
the end of January 2014. The
rollout plan shows c240
kiosks will have been
installed and switched on in
branches by the end of Q4
2014.
1d I October 2013 Consider more radical options post-2015 to drive automation and further reduce I Harry Clarke The CTP programme,
POLB 13/100(d) I the property requirement. together with the Crowns
network team, will review the
post-2015 Crowns strategy
once detailed planning for
FY14/15 is finalised, and
report back in Q4. An update
will be provided to the
February Board.
te I October 2013 Provide an update on the development of the Retail Offer available in Crown I Martin George Update to the January Board
POLB 13/100(e) I branches, including the possibility of introducing a third party offer or renting out
the space.
2a I July 2013 Produce analysis to explain economics of the Crown and agents network Chris Day Crown Complete (October
POLB 13/48(g) models and set up a workshop for those NEDs who would find it helpful. Board).
Agents — a workshop will be
scheduled for Q4 (date tbc).
Status Report at 20 November 2013 Alwen Lyons Page 2 of 6
POL-0023267
POL00026626
POL00026626
Strictly Confidential
2e I October 2013 Provide a detailed report as part of the financial report tracking the second half I CFO The report is being
POLB 13/106(b) I of the year with more detail on costs. developed and will be
included in the January
Board pack.
2h I October 2013 A detailed budget debate to come to the January Board. CFO An interim view will be
POLB 13/106(f) provided at the January
Board meeting; this will give
as full a picture as possible at
this stage in the budget
process. A Board Budget
briefing session will be
booked ahead of the March
Board meeting.
3c I September 2013 I Provide a paper for November Board covering the opportunities in the Energy I Martin George January Board
POLB 13/87(e) & I market.
October 2013
POLB 13/104(e)
3d I October 2013 Provide an update on the effect of Universal Credit on the Business. Martin George An update will be provided at
POLB 13/103(c) the November Board
meeting.
October 204 im that tft ck in FSino
Status Report at 20 November 201 Alwen Lyons Page 3 of 6
POL-0023267
Strictly Confidential
POL00026626
POL00026626
POLB 13/98(c)
termination rights.
il sociation
a
5a I May 2013 Present the detail of the subpostmaster engagement satisfaction measure when I Kevin Gilliland January
POLB 13/33 available.
5b I September 2013 I Continue negotiating the MoU between Post Office and the NFSP, taking into I Sue Barton MoU on both NT Programme
POLB 13/81(f) account the Board discussions and their desire to reduce the longevity of the and specifically and also on
deal or tie it to the timescales for funding with exit clauses if the services future FED agreed in
provided by the NFSP did not reach desired standards. principle with NFSP in line
with Board Mandate. Will not
be signed before the NFSP
conference on 26 November.
5c I October 2013 Ensure that the final legal framework agreement with the NFSP includes specific I Sue Barton End January 2014
Se
September 2013
POLB 13/81(c) &
October 2013
POLB 13/98(e)
Draft and share with the Board a letter writing to the Secretary of State to
explain the Board’s position in relation to the NFSP MoU, Government funding,
the strategic plan and the cliff in response to the Board’s concern that in 2015
any new Government will reconsider the cliffs introduction.
Sue Barton/ Alice
Perkins
Letter drafted to be sent after
the NFSP conference on 26
November.
Status Report at 20 November 2013
Alwen Lyons
Page 4 of 6
POL-0023267
Strictly Confidential
POL00026626
POL00026626
6a
July 2013
POLB 13/51(g)
September 2013
POLB 13/95(b)
eport to be provided to ARC explaining how we
awarded and managed the contract and include an internal ‘lessons learned’
review for Project Sparrow.
Belinda
Crow/Alwen Lyons
Lessons learned review to
take place
October/November. Interim
report to ARC by
correspondence.
B 13/:
6b I September 2013 I Produce a noting paper to clarify whether any claims on the Business from the I CFO/Alasdair Appropriate notification to
POLB 13/93(b) Horizon work would be covered by Professional Indemnity or Directors & I Marnoch underwriters has been made.
Officers insurance and whether we had alerted our underwriters. Ensure that Work assessing claims is on-
the appropriate notifications are made. going, with an update due
end December after claims
for mediation received.
nin
BE
7a I July 2013 Advise Board members of dates of SLT Quarterly Business Updates Alwen Lyons Dates will be circulated once
8c
September 2013
POLB 13/95(a)
Consider the wider effect of the RMG transaction on the Post Office and our
lines of defence for any dispute, and specifically any direct obligations contained
in the MSA/MDA.
CFO/Hugh
Flemington
rial new
obligations identified to date.
On-going, no m
Status Report at 20 November 2013
Alwen Lyons
Page 5 of 6
POL-0023267
POL00026626
POL00026626
Strictly Confidential
APPENDIX A
Following the completion of CTP at March 2015, it is envisaged that c50% of the remaining 292 Crown branches will still be loss making. The main reasons
for this are:-
¢ High staffing levels in relation to income — a result of smaller branches that require minimum staffing levels
e High property costs in relation to income — a result of high lease costs, either driven by size or location of branch
¢ Combination of the high staffing levels and high property costs
The average cost to income ratios for the branches that are anticipated to be profitable are:-
e 0.78 for staff cost to income (£0.78 of staff costs for every £1.00 of transactional income)
¢ 0.23 for property cost to income (£0.23 of property costs for every £1.00 of transactional income)
Note: The net position of non-transactional income and other business wide costs is positive, hence profitable branches.
Using these ratios as a benchmark, the branches that are expected to be loss making fall into the following categories:
¢ 20% due to high staffing levels
¢ 6% due to high property costs
¢ 74% due to a combination of both
A branch by branch review of each loss making branch is planned for Q4, to establish the best route to profitability post March 2015 (or earlier). The review
will follow the current VR exercise that will provide a more accurate view of the staffing levels in each branch.
Status Report at 20 November 2013 Alwen Lyons Page 6 of 6
POL-0023267
POL00026626
POL00026626
Confidential
POST OFFICE LTD BOARD
Managing External Resources — November 2013
1. The purpose of this paper is to:
Describe the governance processes adopted by the Post Office to realise value from
external resource.
2. Determining the need for external resources
Our strategic plan will rely on a mixture of external resources to deliver our goals. It is
important that these resources are not only effectively engaged and managed but also
that we can demonstrate the value they bring and transfer into the Post Office.
Alongside our current options for external resource, the service integrator model to be
introduced in 2014 will provide additional flexibility in IT & Change resourcing.
Going forward, Directorates and Programmes need to effectively assess their need for
external resources and then plan, procure, manage, report on, evaluate and
continuously improve their use.
3. Engaging with consultants
3.1 Determining the need
Consultants should provide great benefit to the Post Office. They provide access
to skills that it is not necessary, sensible or economic for the Post Office to build
or maintain itself, but it comes at a premium cost.
Our primary reasons to bring in consultancy services are:
« Process — knowledge on how to approach a new activity to the Post Office or
where we require a new approach of an existing process to drive business
performance.
* Perspective — an independent view; new innovative thinking.
3.2 Cost of consultants
In 2012/13 we spent £8.7m on consultancy services, by P7 13/14 we have spent
£13.0m with a FY forecast of £15.4m.
3.3. Best practices for governance of consultants
To ensure that we effectively engage and realise the value of consultants, the
following practices are to be adopted by ExCo Directors and Programme Boards.
« A business case will be submitted to ExCo Directors and Programme Boards
to understand the need for consultants, identifying:
(i) The purpose and need of the assignment
(ii) A review of alternative options, including internal skills assessment
(iii) Justification of the value which the specific consultancy will bring
Managing External Resources Chris Day Page 1 of 3
21 November 2013
POL-0023267
POL00026626
POL00026626
Confidential
(iv) Assessment of costs
(v) Assessment of deliverables
(vi) Division of work, and dependencies on internal resources or other
external resources
This business case is a separate document to the investment decision; its
purpose is to demonstrate the need for the consultancy.
e ExCo Director and Programme Board to sign off terms of reference.
e Procurement of consultants using the GPS framework rates.
e All consultants above £10k to be signed off by the CFO, prior to engagement
or extension.
e Realising the value of consultants via:
(i) Mid & Post assignment reviews, completed by the
Directorate/Programme and reported back to Finance and
Directors/Boards/Programme
(ii) Exit plans to transfer skills/knowledge into the business
4. Engaging Interims & Contractors
4.1 Determining the need
The use of interims and contractors is another non-permanent staffing option
that, in the same way as consultants, we should utilise to build capability and
address skill gaps.
Our main reason to engage interims and contractors is on a short-term basis
where we have an immediate skills gap which cannot be addressed by training
and development. It is therefore required in areas such as:
* Projects and Programmes (covered by business cases)
« Cover for BAU template vacancies e.g. maternity cover
* Business critical short-term non-template roles
4.2 Cost of interims & contractors
The cost of interim and contractors is £11.4m YTD, with a full year outlook at
£17.2m.
4.3. Existing Policy and best practices of control for interims & contractors
The Post Office interim and contractor policy was written by HR and updated in
May 2013. The policy outlines the governance for:
. Hiring Interims and Contractors through the ICAF approval process,
ensuring that there is:
(i) Finance Sign off
Managing External Resources Chris Day Page 2 of 3
21 November 2013
POL-0023267
POL00026626
POL00026626
Confidential
(ii) HR sign off
(iii) Director Sign off
. Engaging interims and contractors using our preferred agencies Alexander
Mann and Brook Street.
« A maximum tenure period of 12 months with exceptions managed by HR
(e.g. for longer term transformational programmes).
. Rates controlled through approved rate cards and exceptions routes via
HR.
. Performance management processes with clear deliverables.
. Exit plans.
5. Engaging agencies
Agencies are strategically important in the Post Office achieving its goals. It is
important that as our business grows we have the right amount of governance in place
to afford the agencies the degree of control and creative flexibility that enables us to
react to market trends quickly, but at the same time we need to be able to justify the
value they add and the return on investment.
We are therefore embarking upon a review of the governance process over the
lifecycle of agency engagement.
6. Recommendation
The Board is asked to note the processes for managing external resources.
Chris Day
November 2013
Managing External Resources Chris Day Page 3 of 3
21 November 2013
POL-0023267
NOVEMBER 2013
Strictly Confidential
POST OFFICE LIMITED MATTERS — DISPUTE RESOLUTION
PRIVILEGED AND CONFIDENTIAL — CLAIMS OVER £500K OR THOSE OF A SENSITIVE NATURE
POL00026626
POL00026626
NAM
(CASE
STATUS
xSP
HO
& i
Horizon claim
(aka Project
Sparrow)
POL/HF/R
Ww
Angela van den
Bogerd
This is the subject of a separate paper
and update for the Board meeting.
POL has received various claims from
subpostmasters (SPMs) alleging defects
in the Horizon system and POL’s
internal processes.
These allegations were initially made in
5 claims brought through solicitors
Shoosmiths. Similar allegations have
been made through:
- SPMs’ MPs;
- the “Justice for Subpostmasters
Alliance” (JFSA);
- defences to court proceedings
brought by POL to recover debts
from SPMs; and
- direct contact with POL.
An independent investigator Second
Sight Support Services Ltd (Second
Sight) has been reviewing these
allegations in consultation with James
Arbuthnot MP and JFSA.
On 08.07.13, Second Sight published a
Following the Second Sight Interim
Report, on 27.08.13 POL launched a
Mediation Scheme aimed at finally
resolving individual complaints made
about Horizon.
Some 140 applications were received
before the Scheme closed to
applications on 18.11.13, which are
now being progressed through the
Scheme.
Second Sight is continuing to
investigate the SPMs’ concerns.
POL has also reviewed past and
present criminal prosecutions brought
against SPMs to ensure they continue
to satisfy the evidential, public
interest, and disclosure standards
required for prosecutions. This review
will be completed by the end of
November 2013.
POL is not issuing any new criminal
summons pending the instruction of a
new, independent expert who can
give evidence to support the Horizon
Bond
Dickinson
Significant Litigation Report
Chris Aujard
21 November 2013
Page 1 of 4
POL-0023267
Strictly Confidential
POL00026626
POL00026626
Report finding shortcomings in POL’s
internal training and support to SPMs on
the Horizon system, but no systemic
problems with Horizon itself.
system. The process of identifying
this expert is underway.
To date, no claim has been made
against POL in the civil courts, and no
appeal has been made to the Court of
Appeal against any conviction
obtained in the criminal courts,
following the Interim Report.
Claim
Judicial
Review
for
POL/HF/R
W
Significant Litigation Report
Angela
Van-Den-Bogerd
A former subpostmaster (SPM) sought
“judicial review” of POL’s decision to
terminate his SPM contract.
The SPM claimed that POL’s
termination process was flawed and
infringed his Human Rights. He asked
the court to review POL’s decision and
find that it was unlawful and/or an
abuse of power.
If successful, the claim could have
forced POL to reconfigure its
relationship with subpostmasters to be
consistent with public law obligations, at
a_ significant cost in terms of
management time and money.
Chris Aujard
21 November 2013
An agreement to settle was reached
on 29 October 2013 and is now being
finalised.
Page 2 of 4
DAC
Beachcrofts
POL-0023267
POL00026626
POL00026626
Strictly Confidential
Significant Litigation Report Chris Aujard Page 3 of 4
21 November 2013
POL-0023267
POL00026626
POL00026626
Strictly Confidential
PART (B) — PRINCIPAL CRIMINAL CASES BROUGHT BY POST OFFICE LIMITED
és
Sub postmaster accused of theft of £78,660.63.
Defendant pleaded guilty on 05/02/13 and was sentenced to 2 years’
imprisonment.
On 12/07/13 a Confiscation Order was made in the sum of £59,500. The
Defendant has 6 months to pay that sum or receive a further 19 months’
imprisonment.
Subpostmaster accused of two offences of theft of £175,260 and
£9,999.43, and two offences of false accounting regarding the
same sums.
On 11/10/13 the Defendant was convicted of theft of £175k and
sentenced to 2 years’ imprisonment. As a consequence of this conviction,
no evidence was offered with respect to the theft or false accounting of
the £10k.
Confiscations proceeding have been initiated by POL and are proceeding
to a timetable set by the Crown Court. The next hearing of this matter will
be on 04/04/2014.
Subpostmaster accused of fraud of £115,172.11.
Defendant pleaded guilty and on 03/05/13 was sentenced to 16 months’
imprisonment.
POL has recovered £61,000 to date, with the outstanding sum being dealt
with under a Consent Order. Confiscation proceedings will be withdrawn
by POL once the Consent Order has been signed.
Subpostmaster accused of theft of £197,107.36.
Defendant pleaded guilty on 01/08/13 and was sentenced to 16 months’
imprisonment. POL has made full recovery of the £197,107.36.
Significant Litigation Report Chris Aujard Page 4 of 4
21 November 2013
POL-0023267
POL00026626
POL00026626
Confidential
POST OFFICE LTD BOARD
Health & Safety Report
1. Purpose
The purpose of this paper is to:
-1 Provide an update on safety performance.
1.2 Outline risk reduction activities.
2. Current Situation
2.1 Injury accidents, up to period 6, are showing a favourable trend against last year,
and against the target reduction of 5%. Accidents involving absence have
decreased from 25 to 15 compared to the same period last year. The “per 1000 staff
in post” comparison indicator, which takes account of head count fluctuation year on
year, is showing a favourable trend for both ‘all accidents’ and ‘absence’
accidents. (Table 1)
Table 1 All Injury accidents and those resulting in absence (Cumulative)
350
300 a
250
o 2 —— 2012/13 All
& 200 2013/14 All
2 150 = 2012/13 Absence
2 2013/14 Absence
100
S = I
ie}
P1 P2 P3 P4 PS P6 P7 P8& P9 P10 P11 P12
Period
2.2 The number of days lost due to accidents is showing a significant reduction
compared to the same period last year and against a target reduction of 5%.
This reduction is predominantly due to the absence of major injuries and
indicates that not only is there a favourable trend in the frequency of accidents
there is also a favourable trend in a reduction of the severity of those accidents.
(Table 2 below refers)
Health and Safety Fay Healey Page 1 of 6
November 2013
POL-0023267
POL00026626
POL00026626
Confidential
Table 2 Days lost resulting from injury accidents (Cumulative)
—— 2012/13
= 2013/14
P1 P2 P3 P4 PS P6 P7 P8& P9 P10 P11 P12
Period
2.3. The total number of road traffic collisions (RTCs) up to and including period 6 is
down 11.7% on last year. The number of incidents where the Post Office driver
is ‘at fault’ is down 14.9% down against the same year to date period as last
year. (Table 3) Road risk reduction opportunities continue to be the subject of
analysis at the Road Risk Forum with a view to identifying improvement
activities in addition to those already in place. (3.1 below) Injuries as a result of
road traffic collisions are infrequent. Road traffic collisions account for less than
3% of the overall number of injury accidents, however they have the potential
for high impact in terms of injury and loss.
Table 3 Road Traffic Collisions (cumulative)
250
200
3
E180 —— 2012/13 All
5 = 2013/14 All
5 2012/13 ‘at fault
2 100
= —— 2013/14 ‘at fault
2 50
ie)
P1 P2 P3 P4 P5 P6 P7 PB PO P10 P11 P12
Period
Health and Safety Fay Healey Page 2 of 6
November 2013
POL-0023267
POL00026626
POL00026626
Confidential
24 The majority of accidents currently fall into three main categories: lifting and
handling, stepping and striking and outdoor falls. These are high frequency
events with, in the majority, relatively low severity. The lower frequency types of
incident can carry the potential for very high impact, for example, assaults and
road traffic collisions. .
25 Robberies on Post Office Cash and Valuables in Transit (CViT) crews are down
2 from 22 to 20 cumulative for the past six months. Physical injuries during
robberies, of which there have been 3, a reduction of 3 on last year, remain
relatively minor in severity. Five of the twenty robberies were enabled by the
presence and/or threat of use of fire arms however on no occasions were the
firearms discharged. Risk reduction activities are identified at 3.2. (Appendix 1 —
Significant Incidents refers)
2.6 Robberies and attempted robberies on the Post Office network, cumulative to
period 6, are lower than last year — 44 compared to 51 — 17 of the 44 were
successful. Injuries sustained during robberies are down from 14 to 9.
Robberies take place predominantly at sub post offices. Supporting activities
have been introduced to continue to mitigate this risk and are identified at 3.2.
(Appendix 1 — Significant Incidents refers).
Burglaries and attempted burglaries (which do not involve personal attack) have
increased from 33 to 38 compared to the same six month period last year — 7 of
the 38 incidents were successful.
3. Activities
3.1 Road Risk
Current activities to mitigate road risk are:
¢ Road risk forum in place to scope and develop road risk reduction initiatives
and activities
« Analysis of effectiveness of face to face training given to top 50 high risk drivers
has indicated that accidents amongst this community have reduced significantly
following the refresher training
* Eye sight checks for operational drivers are in place
* Technical accident reduction interventions on new vehicles e.g. Reversing aids
Analysis and evaluation of data (e.g. risk profiles) to determine further accident
reduction interventions
Introduction of coloured ‘high visibility’ seat belts on new vehicles
Safety team input and concurrence for vehicle specification and changes
Safe driver of the year award
Weekly case conferences to ensure consistent approach to accident
investigation, follow up activity and sharing of best practice
.
eoee
3.2. Robbery/Burglary Risk
Current activities to mitigate robbery and burglary risk are:
« Active liaison activities with the police and increased police support activity
e Liaison with Met. Police on the increase in gun enabled robberies
«Introduction of new deterrent technologies e.g. Smartwater — a solution that
contains a unique identifier that is released automatically in the event of a
robbery, spraying those involved and enabling identification of the individuals
involved in the robberies
Health and Safety Fay Healey Page 3 of 6
November 2013
POL-0023267
POL00026626
POL00026626
Confidential
e Significant reduction in opportunities for duress type robberies linked to the
introduction of single person vehicles
Increased security support visits to Post Offices in ‘hotspot’ areas
‘Darker nights’ security awareness campaign
Increased use of crime alert communication techniques to Post Offices
Trialling new point of transfer arrangements to reduce exposure
Increased use of surveillance vehicles
A three month ‘Crime stopper’ campaign in the West Midlands has
commenced, aimed at reducing cash in transit robberies
3.3 Health and Wellbeing
Current activities to enhance wellbeing
« Programme of visits to all Post Office sites to offer and encourage the use of
health check equipment that provides a wide range of indicators on physical
wellbeing
e Plans in place to re-visit all Post Office Crown Branches and Supply Chain sites
within 18 months
Health and wellbeing ‘Team Talk’ modules
Health and wellbeing poster themed campaigns
Online wellbeing monitoring tool to support health check initiative
Enhanced Occupational health service provision from January 2013
coocee
3.4 Safety
The Post Office occupational health and safety management system (OHSMS)
was recently certified by external auditors as meeting the standards required by
British Standard OHSAS 18001.
4. Residual Risks
4.1 Driving activities have the potential for high impact/loss and therefore remain as
a significant residual risk. However, the actions identified above are aimed at
mitigating that risk and improving performance.
5. Recommendation
The Post Office Ltd Board is asked to:
5.1 Note the overall safety performance
5.2 Note the risk reduction activities.
Fay Healey
November 2013
Health and Safety Fay Healey Page 4 of 6
November 2013
POL-0023267
Confidential
POL00026626
POL00026626
Appendix 4
Significant Incidents (Period 6)
Crowns and Network
Location Loss Circumstances Physical Injuries Any further details
Kislingbury SPSO £1,325 Saturday 14/09/2014, 11:00. Three males attacked Bruising
Northampton SPMR’s wife and forced her to open the secure area,
NN7 4AD using a knuckle duster and weighted sock.
Kings Langley £1,887 Thursday 26/09/2013, 11:15. Distraction robbery None
SPSO whereby 3 males entered and during the confusion a
Kings Langley WD4 tussle broke out where Sterling and Euro cash was
8BJ stolen.
Parkhead PO £305 Monday 23/09/2013 9:25, Two males armed with a None
Sheffield knives demanded cash, they were refused and they
$11 9PU took contents of the combi till.
Rough Hay SPSO Nil Wednesday 25/09/2013, 11:30. SPMR was None
Wednesdbury WS10 threatened with a shotgun in the retail area and
8NW ordered into the secure area to open safe. SPMR
went into secure area pressed the panic alarm and
ducked down. The offender fled empty handed.
Devonshire Drive Nil Monday 03/09/2013, 16:50, A male wearing a None
SPSO hooded top entered the Post Office with what was
Derby suspected to be a gun under his coat and demanded
DE3 9HN cash. The male pushed an envelope under the
counter saying "fill this or I will shoot". Staff pressed
the panic button and ducked down. The male fled
empty handed.
Supply Chain (Cash, delivery and collection)
Larkhams Garage, £12k Monday 23/09/2013, 11:26. Crew member was No injuries, but crew
Ilminster, Yeovil, attacked whilst delivering to a customer and member was advised
TA19 9BG. threatened with a firearm. Ibox was taken and to go to hospital as a
assailant fled. precaution due to high
blood pressure.
Health and Safety Report
Fay Healey
November 2013
5 of 5
POL-0023267
Confidential
POL00026626
POL00026626
Cleveleys MSPO, 93
Victoria Road West,
Flyde, FY5 3LD.
£1,300
Tuesday 10/09/13, 10:55, The incident took place
outside the office when the crew member had
delivered the fob & coin, he had returned to the van
to take a bureau pouch & stock. A man at the bus
stop approached the crew member and snatched the
pouch and ran off,
None
A number of arrests have
been made in relation to this
incident.
Health and Safety Report
Fay Healey
November 2013
5 of 5
POL-0023267
POL00026626
POL00026626
POST OFFICE LIMITED BOARD
Sealings 23 October — 20 November 2013 inclusive
Register of Sealings
The Directors are invited to consider the seal register and approve the affixing of the Common Seal of the Company to the documents set out against
items numbered 1086 to 1096 inclusive in the seal register.
“The Directors resolve that the affixing of the Common Seal of the Company to the documents set out against items numbered 1086 to 1096 inclusive in
the seal register is hereby confirmed.”
Alwen Lyons
Company Secretary
20 November 2013
Register of Sealings Alwen Lyons Page 1 of 3
20 November 2013
POL-0023267
Date
20/11/2013
POST OFFICE LIMITED
Register of Sealings
POL00026626
POL00026626
Company Number
2154540
Seal
Number
/ File Ref.
Date of
Sealing
Date of
Authority
Description of Document
Persons Attesting
To Document
Destination of
Document
1086
1087
1088
1089
1090
1091
1092
23/10/2013
28/10/2013
31/10/2013
© 31/10/2013
31/10/2013
06/11/2013
06/11/2013
22/10/2013
28/10/2013
31/10/2013
31/10/2013
31/10/2013
01/11/2013
05/11/2013
Rent deposit deed for 399 High Road, Wembley, HA9
6AA between Primeleaf Properties Limited, POL,
Nilkanth Enterprises Limited, Wembley Enterprises
Limited and Ajay Kukadia
Agreement for Lease relating to Ground Floor, 190
Kensington Church Street, London between POL and
Halco Lifestyle Limited
Underlease of premises at Part Ground Floor 190
Kensington Church Street, London W8 4DP between
Post Office Limited and Halco Lifestyle Limited.
Rent Deposit Deed relating to premises at Part
Ground Floor 190 Kensington Church Street, London
W8 4DP between Post Office Limited and Halco
Lifestyle Limited.
Licence to Underlet relating to Ground Floor 190
Kensington Church Street, London W8 4DN between
Chestnut Estates Limited, Post Office Limited and
Halco Lifestyle Limited.
Counterpart Renewal Lease relating to 82A Chorley
Road, Swinton, Greater Manchester between The
Trustees of the Sheffield Mutual Friendly Society and
POL
Rent Deposit Deed relating to premises at The Post
Office forming part of the premises known as
Okehampton DO/MSPO, Castle Street, Okehampton,
Devon, EX20 1HW between POL and Hafiz Ameer
Gill Catcheside
Alwen Lyons
Gill Catcheside
Gill Catcheside
Gill Catcheside
Gill Catcheside
Gill Catcheside
Jean Reynolds
Jean Reynolds
"Jean Reynolds
Jean Reynolds
Jean Reynolds
Jean Reynolds
Jean Reynolds
Register of Sealings
Alwen Lyons
20 November 2013
Page 2 of 3
POL-0023267
POST OFFICE LIMITED
POL00026626
POL00026626
pate 12013 Register of Sealings Company Numper
Seal Date of Date of Persons Attesting Destination of
Number Sealing Authority I Description of Document To Document Document
/ File Ref.
Azam Gul
1093 06/11/2013 I 06/11/2013 Licence to assign premises at The Post Office Gill Catcheside Jean Reynolds
forming part of the premises known as Okehampton
DO/MSPO, Castle Street, Okehampton, Devon, EX20
1HW between POL, Allenton Leslie Benjamin Fisher
and Hafiz Ameer Azam Gul
1094 06/11/2013 I 06/11/2013 Licence to carry out works relating to 3rd adn Part 4th Alwen Lyons Jean Reynolds
Floors, 120 Bark Street, Bolton I
1095 07/11/2013 I 06/11/2013 Lease of Ground Floor and Basement of 43/44 Alwen Lyons Jean Reynolds
Albemarle Street, London W1 between POL and
Primerock Property Group Limited
1096 15/11/2013 15/11/2013 Lease of Ground and First Floors 117 West Street Alwen Lyons Jean Reynolds
Fareham Hampshire PO16 OAA between POL and
Kaye of York Limited
Register of Sealings Alwen Lyons Page 3 of 3
20 November 2013
POL-0023267
POL00026626
POL00026626
Post Office Ltd — Strictly Confidential
POST OFFICE LTD BOARD
Personal Injury Referral Fees Update
1. Purpose
1.1. The Board asked management to provide an update on the impact of the ban on
referral fees for Personal Injury (Pl) claims, how this has affected Post Office
customers and the market and how the changes are managed within BGL/Junction,
Post Office’s motor insurance broker.
1.2. The Paper is tabled for noting.
2. Background
2.1. In September 2011 the Government announced a ban on referral fees in relation to
personal injury claims in an attempt to curb the “compensation culture” and reduce
motor insurance premium inflation.
2.2. In anticipation of these changes Post Office Insurance undertook a review of the
practices employed by BGL and its legal firm, Minster Law, to ensure that Post Office
customers were receiving the appropriate service and that agents were not
incentivised to make inappropriate referrals. The review concluded that:
. Incentives were effectively monitored and dis-incentives were in place for
inappropriate referrals;
° Call quality monitoring was in place that provided effective and consistent on-
going evaluation of call centre agent performance.
2.3. A separate audit completed by Post Office Insurance concluded that:
° Appropriate controls were in place, and these controls are being managed
effectively so the risk of inappropriate referrals as a direct result of the incentive
program was felt to be low and managed;
° Further audit and monitoring activity would be conducted on a regular basis to
provide on-going assurance. These have occurred and no issues have arisen.
3. Legal Aid, Sentencing and Punishment of Offenders Act 2012 (LASPO)
3.1. In April 2013 the ban of referral fees was implemented under LASPO. Provisions in
part two of LASPO make it a regulatory offence to pay or receive referral fees in
personal injury cases. This directly affects insurers, solicitors and claims
management businesses and is under the monitoring of the Solicitors Regulation
Authority, Financial Conduct Authority and Claims Management Authority.
3.2. Since the implementation of LASPO, The AA British Insurance Premium Index has
reported a decline in car premiums of c10 percent. This is the largest and most
prolonged (6 consecutive months) fall in car insurance premiums since the index
began in 1994 and is heavily influenced by the changes to PI management. This
suggests that the market has responded as anticipated to the regulatory changes.
3.3. Over the same period, the percentage of reported Post Office motor insurance claims
resulting in a Pl claim has remained relatively static - supporting the good working
practises noted at BGL. The income per motor insurance policy to Post Office in
respect of the claims service has, however, declined from £10 to £3, equating to
c£1.5 million of lost revenue to Post Office in 2013/14.
3.4. The reduction in market premiums has led to improving retention rates to Post Office
(up 3 percent) and margins ameliorating to some extent the decline in income.
Personal Injury Referral Fees Nick Kennett Page 1 of 2
21 November 2013
POL-0023267
POL00026626
POL00026626
Post Office Ltd — Strictly Confidential
4. Audit of Junction/BGL
4.1. Recent audits have confirmed that the incentive programs used by BGL/Minster Law
remain unchanged following LASPO and based upon previous work Post Office
remains satisfied that they do not unduly influence referral rates.
4.2. In October, Post Office Insurance concluded a re-negotiation of the contract with
BGL. The new arrangements enshrined specific provisions to enable audits of the
BGL operations and work practises. This will enable Post Office to ensure that
customers continue to receive an appropriate and relevant service.
5. Conclusion
5.1. The consequence of changes in regulation pertaining to referral fees has had the
desired effect on the market. The impact on income from claims management has
diminished leading to a decline in the number of claims management firms.
5.2. Insurers have lowered rates, allowing consumers to enjoy lower car insurance
premiums.
5.3. A reduction in Post Office income has largely been recovered by increasing volumes
and margins.
5.4. Audits of BGL/Junction incentive schemes and operating model confirm that Post
Office customers are not being incentivised to unnecessarily seek PI referrals.
6. Recommendation
6.1. The Board is asked to note the paper.
Nicholas Kennett
Director, Financial Services
November 2013
Personal Injury Referral Fees Nick Kennett Page 2 of 2
21 November 2013
POL-0023267