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Post Office Board Agenda
Present in Altendance
‘Cathy Mayor (Finance Director — Retail)
(item 6)
30 October 2018 ‘© Tim Parker (Chairman) © Tom Cooper ‘© Veronica Branton (Minute Secretary)
Start Time Finish Time + Paula Vennells, + Tim Franklin * David Cavender QC (item 3) ‘+ Martin Kearsley (Banking Director)
* Ken McCall © Shirine Khoury-Haq_I * Andy Parsons (Womble Bond Dickinson) (item 3) (item 7)
* Alisdair Cameron * Carla Stent ‘* Mark Davies (Group Director Communications, ‘* David Gemmell (Programme Director —
Brand and Corporate Affairs) (item 3) LRG) {item 8)
11.45 hrs ‘© Mark Underwood (Head of Portfolio) (item 3) ‘* Rob Houghton (CIO) (item 9)
Location '* Debbie Smith (CEO ~ Retail) (item 6)
1.19 Wakefield
Agenda Item Action Purpose Lead
Needed
‘Welcome and conflicts of interest Noting To note any new declarat Chairman
2. I Minutes of previous Board and Committee meetings I Approval Minutes formally agreed. Veronica Branton 11.45- 11.50
including Status Report
"3. I Postmaster litigation update Noting and Input To update the Board on the litigation David Cavender QC/ Andy Parsons I 11.50~12.10
(we)
4. I CEO Report Noting and Input CEO to update the Board on the report. CEO 12.10 12.30
5. I Finance 12.30- 13.10
a) Financial Performance Report Noting and Input CFO to update the Board on the report. FOO
b) UKGI Quarterly Report Approval To seek the Board’s approval to submit the report to UKGI. I CFOO
Lunch 13.10 13.25
6. I Retail Performance Report Noting and Input To update the Board on Retail performance. Debbie Smith/ Cathy Mayor 13.25 - 13.50
7. I Future of Cash - Banking Framework 2 Noting and Input To update the Board on the negotiations with the banks on I Debbie Smith/ Martin Kearsley 13,50- 14.20
(to be presented at the meeting) Banking Framework 2.
Post Office Board Agenda
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8. Legal Enterprise Optimisation (LEO) Approval To seek the Board’s approval for the development of the David Gemmell/ Ben Foat 14.20- 14.50
corporate structure.
9. Belfast Exit Plan Business Case Approval To seek the Board's approval for the Belfast Exit Plan Rob Houghton 14.50- 15.10
Business Case.
10. I Conflicts of interest Policy Approval To review the Conflicts of Interest Policy and approve any Veronica Branton
changes proposed.
11. I Terms of Reference Remuneration Committee Approval To approve the revised Terms of Reference for the Veronica Branton
Remuneration Committee.
12. I Contracts Approval To seek the Board's approval of contracts.
13. I Items for Noting
13.1, Sealings Noting For the Board to be aware of the affixing of the Seal Veronica Branton 15.10- 15.20
13.2. Health & Safety Noting To update the Board on Health & Safety. ‘Al Cameron
13.3. Future Meeting Dates Noting For the Board to note the future meeting dates for 2018 and I Veronica Branton
2019.
13.4. Forward Agendas Noting For Board to note. Veronica Branton
14, I Any Other Business
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POST OFFICE LIMITED BOARD MEETING
Strictly Confidential
MINUTES OF A MEETING OF THE BOARD OF DIRECTORS OF POST OFFICE LIMITED HELD ON TUESDAY 25
SEPTEMBER 2018 AT 20 FINSBURY STREET, LONDON EC2Y 9AQ AT 11.30 AM
Present: Tim Parker Chairman (TP)
Paula Vennells Group Chief Executive (PV)
Ken McCall Senior Independent Director (KM)
Tom Cooper Non-Executive Director (TC)
Tim Franklin Non-Executive Director (TF)
Shirine Khoury-Haq Non-Executive Director (SK)
Carla Stent Non-Executive Director (CS)
Alisdair Cameron Group Chief Financial and Operating Officer (AC)
In Attendance: Jane MacLeod Company Secretary (JM)
Veronica Branton Head of Secretariat (VB)
Owen Woodley CEO - FS&T (OW) (item 7)
Debbie Smith Chief Executive Retail (DS) {items 8, 9 and 10)
Martin Kearsley Banking Director (MK) (item 8)
Tom Moran Network Development Director (TM)
{items 8, 9 and 10)
Andrew Clatworthy Retail (ACL) (item 8)
Mark Siviter MD Mails & Retail (MS) (item 9)
Rob Houghton Group Chief Information Officer (RH) (item 12)
Apologies: None ACTION
1. INTRODUCTION AND CONFLICTS OF INTEREST
a) Aquorum being present, the Chairman opened the meeting.
b) ‘The Directors declared that they had no conflicts of interest in the matters to be
considered at the meeting in accordance with the requirements of section 177 of the
Companies Act 2006 and the Company's Articles of Association.
2. I MINUTES OF PREVIOUS BOARD AND COMMITTEE MEETINGS INCLUDING STATUS
REPORT
The minutes of the meeting of the Board held on 31 July 2018 were APPROVED and
AUTHORISED for signature by the Chairman.
3. (CEO’s REPORT
a) Paula Vennells updated the Board on the following recent issues:
© the Annual Report and Accounts 2017/18 had been published. The coverage had
been predominantly positive. One negative story on pay had appeared in Private
Eye and a couple of emails had been received following that. The Guardian had
published an article on “scruffy” POs to which we had responded
Rob Houghton had taken charge of resolving the PCI Compliance issue. Some of
our credit card data was not encrypted end-to-end. This information included
some personal data such as names. 33,000 of our terminals were out of licence
but there were reasons not to replace them at this stage. A full report setting out
proposed solutions was going to be provided to the ARC in October 2018
«the price reduction on Verify and its impact had been discussed the previous day
but a briefing could be provided for any Board Director who had not been at the
session
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c)
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anumber of new staff had been appointed to the Retail Business Unit, bolstering
skills within the organisation, including digital skills
© our negotiations with WH Smith were progressing well. A further payment would
be made to WH Smith subject to them meeting their customer service targets
progress with the acquisition of the Payzone bills payment business was on track
and work was taking place to ensure that all necessary arrangements were in
place on day 1 of running the business. Ideally, we would complete the
acquisition on a month end and were hopeful that this would be the end of
October 2018.
A number of points were raised, including:
© our position on charging for the use of ATMs. It was reported that ideally we
would want ATM use to remain free
© whether there was a systemic issue resulting in our not meeting the ATM target.
It was reported that we were achieving the target now but that our partner was
not committed to the longer term delivery of this service. We needed a new
partner and new ATMs which would require investment, the proposals for which
would need to be considered by the Board
the session on the development of the Identity Business line held the previous day
had been worthwhile. It had been helpful to consider the strategic choices we
would have to make but a continuation of that discussion would be useful. Itwas VB
AGREED that another session would be scheduled
© The importance of developing our market in the private sector had been noted.
There had also been discussion about whether we had sufficient customer focus
currently. The test and learn approach we were taking was seen as appropriate.
Consideration should be given to how the development of the Banking Framework
might tie in the use of our Identity service by the banks. Board Members discussed
whether we were expanding our Identity services business as rapidly as we should.
The executive thought that the current approach was correct because we needed
to get the front end of the service right
© competition appeared to be increasing in many areas of the business e.g. Travel
insurance. Market disruptors were slashing margins and changing the shape of
some markets. The attractiveness of a particular business proposition could,
therefore, change very quickly. It was thought that we needed to spend more
time generally assessing our competitors to provide a thorough understanding of
our relative position
© The organisation structure chart would be sent to the Non-Executive Directors. vB
The Board NOTED the CEO’s report.
FINANCIAL PERFORMANCE REPORT
The CFOO introduced the report and highlighted a number of issues:
we were £4.7m ahead on EBITDA but expected this to reverse in the second half of
the year because of the cut in fees for Identity and the cost reductions in IT not
coming through in the second half of the year. The latter was partly due to delays
in the Belfast exit negotiations. The parcels market had been resilient
Travel money had underperformed against the plan; this was in part because of
period specific issues such as the extended period of warm weather and Brexit
that had affected the whole market but we were conscious of market disruptors
whose margins were minimal
Insurance was not achieving the volumes or the returns planned in all areas. There
were some specific reasons: the difficult summer in travel and delays in Customer
Hub. A review of marketing efficacy was underway
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c)
a)
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* Telco was likely to miss its income targets but meet its trading profits. We would
be returning to the Board to discuss the longer term strategy for Telco. Pricing was
higher out of contract and was going to be increased, while we remained
competitive on in-contract pricing. The strategic work would consider a variety of
options including sales, partnering, removing Fujitsu and the product range.
A number of points were raised, including:
© The position on former agents’ losses was discussed. It was noted that we were not
bringing prosecutions currently where these related to the Horizon system because
of the ongoing litigation. The increase in cash in branches further increased the
risks. We had improved our ability to identify branches with potential fraud issues
and target them for audits. Prosecutions could potentially start again after the
Horizon Trial (assuming a positive outcome), however as matters go “stale” after c6
months, it is unlikely that we would be able to prosecute retrospective cases
© Security in branch and in the supply chain was discussed. Introducing CCTV in high
risk branches had been and continued to be considered but there were costs
associated with this. Analysis had been done to identify high risk branches but this
covered a range of factors such as a branch handling high volumes of cash;
however, the correlation between high risk indicators and the location of thefts and
fraud was not high in practice
The physical management of cash in branches was going to be critical to the
business and it was thought that we should consider whether security provisions
such as CCTV were simply the cost of doing business. ATMs and closed cash systems
also formed part of this conversation on security measures and the safety of staff as
POs became increasingly the place to go for cash. It was reported that while we had
experienced health and safety improvements overall we had suffered a spate of
ATM rip outs. A Business case was being considered to roll out fogging devices to
many more branches. It was AGREED that an update on security measures would
be included in the Health & Safety Report to the Board. We needed torecognise AC
that this was an investment discussion where there was no immediate prospect of
return
It was reported that a project was being run on closed cash where the safe and till
were combined. Feasibility and cost were key issues and to be achievable might
require co-funding from the banks. An approach to the banks on investment would
have to be considered very carefully as we were proposing a significant increase in
fees through Banking Framework 2. We might consider a segmented approach
where equipment such as closed cash cartridges could be deployed in the top
branches for cash, with cameras for other branches
© Ourcash borrowing was discussed. We had made efficiency improvements in
branches on cash management but we were borrowing more than we had
expected.
The Board NOTED the Financial Performance Report.
FUNDING BEYOND 2021
The CFOO introduced the report and highlighted a number of issues:
we were six months into a three year funding plan and would not normally be
starting a conversation about the period beyond that plan at this stage; however,
UKGI and BEIS were preparing for the anticipated Government Comprehensive
Spending Review and we wished to provide them with some sensible placeholders
notwithstanding the significant degree of uncertainty in our plans beyond 2021.
Our baseline assumptions were:
- we should not need substantial investment funding if we are achieving our
trading profit targets
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- network subsidy would continue to be needed to keep unprofitable branches
open. Network subsidies were currently provided at around £50 m per annum
and we had to provide evidence of the costs required to meet the Services of
General Economic Interest (SGEI) set out in our Funding Agreement with
Government
- that we would need a borrowing facility.
work was being done on the costs of running the unprofitable branches, our
IT costs, the cost of re-investment in the network and regulatory changes etc.
A number of points were raised, including:
© that there were a number of moving parts with IT transformation, investment
requirements for business developments such as Identity, the need for funding for
loss making branches but with the prospect of the EBITDA figure being significantly
higher with the increase in fees with Banking Framework 2
we would need to consider whether we should be asking Government for a
contingency fund, how that conversation should be structured and the fund level
required
© that we could not expect indefinite funding from the taxpayer other than to run
unprofitable branches but that meant we needed to have the capability to borrow.
The preference would be to be able to access external funding. We needed to
consider our capital investment requirements, the returns we thought we could
get from these and any assets we might sell
© whether we should consider a symbolic drop in what we sought as the network
subsidy to show our intended direction of travel. It was noted that the reverse
argument was that inflation and the cost of managing cash in branches meant that
a £50m network subsidy was less in reality anyway and that there should be a fee
attached to providing an unprofitable service. To understand this better the Board
asked to see the costs associated with running the unprofitable branches.
The scope to retain the network subsidy but look at dividend payments was
discussed.
The Board NOTED the Report and endorsed the proposed approach of having open
conversations with BEIS and HMT to seek longer term alignment around future
government support.
FS&T PERFORMANCE REPORT
OW introduced the report and highlighted a number of issues:
© Telco - we were set to deliver on plan ona net basis but were having to account
for the FD11 error. The market place was very competitive, with significant
customer retention activity, and our assumed net numbers would go down slightly
because of the costs associated with implementing project Galaxy. We were
considering deploying marketing spend and had engaged consultants to consider a
number of issues such as what we might do at the end of the Fujitsu contract
@ PO Insurance — the environment was difficult but with signs of encouragement in
recent sales. We still needed to build our market capability and were
restructuring of our marketing and digital capabilities. We also needed to build
our analytics capability
© Ancile - the firm had appointed advisers and would be going to auction; however,
we were exploring the possibility of a non-binding bid and would have exclusive
access to the data room associated with the sale for a period of time
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Customer Hub — we were building capability and considering a customer home
proposition as we had a number of constituent parts which others in the market
did not
«there had been a session on Brexit planning at PO Insurance Board more detail of
which could be provided to the Board.
b) — Anumber of points were raised, including:
© whether the price increase proposed in Telco was sensible. The executive
confirmed that their view was that we should continue to stay in line with the
market and that the increase would maintain our income line while treating
customers fairly
«that Non-Executive Directors would find it helpful to understand the customer
research we had by product. PO was seen as less relevant to the younger
demographic and the executive was thinking about increasing this through
financial education positioning. Our culture change was directed at having greater
focus on customers, which was broader than a product focus. The approach to
attracting younger customers was discussed and it was reported that a digital
forum was being set up which would help us gain insight and that the on-line
registration process for Customer Hub app also gave us insight into customer
requirements
* the growth of the insurance business and the investment in marketing related
spend was discussed and it was AGREED that this would be included as an item on OW/VB
a Board agenda. The newly appointed Chief Marketing Officer (CMO) would be
invited to join this discussion
the CMO’s role was discussed and whether this involved looking at customer
acquisition across the piece. It was confirmed that this was the case but that we
needed to adjust the way we worked to maximise these opportunities
the shortfall in the Customer Hub volumes against plan and whether we had dealt
with the issues which had generated this result were discussed. It was reported
that we now thought that the original assumptions had been unrealistic but that
we had established the case for a digitally integrated proposition and needed to
drive the ongoing business. A number of lessons had been learnt in the process.
We had not appreciated the operational difficulties of working within a Joint
Venture Agreement (JVA) sufficiently nor of migrating from an existing app. Our
targets had been too ambitious. Work was taking place to review the CHUB
investment and learnings formally. These learnings and the next stage of
development of CHUB, including the mails proposition that was due to be
launched during the current financial year, would be brought back to the Board. © OW/VB
7. PEREGRINE UPDATE
a) OW provided a verbal update on the Peregrine negotiations. Bank of Ireland (Bol) had
held an investor day in June 2018 which had focussed on its cost reduction programme.
This had included a strategic review of its credit card operations in the UK. We had re-
started our negotiation process with Bol which would reach its final stage in October
2018.
Bol was claiming not to be making a profit on its joint venture with PO. Their figures
did not stand up to scrutiny and appeared to be a negotiating position rather than
genuine sharing. However, Bol was making less money than 18 months ago because
of the reduction in mortgage margins. We needed to know what their fixed costs and
average achieved margins were. We had always asserted that there was a mismatch
on FRES costs but Bol was now saying that there were several million pounds of
unallocated costs. Bol’s strategic intent did not appear to align with PO’s.
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Bol appeared to be intent on selling its part of the credit card book. We would like a
better partner on credit cards but had always said this would be part of the wider
Peregrine negotiations. Bol had written to us to notify us of its intent to proceed with
selling its part of the credit card book. At this stage it was felt appropriate for PV to
meet with the Group CEO of Bol to get a clearer view of Bol’s real strategic position.
PV had met earlier in the day with the outgoing UK CEO of Bol. The view from this
discussion was that the new Bol negotiating team were trying to get up-to-speed. The
UK market was more dynamic than the Irish so Bol learnt from developments here
making the view that Bol was seeking to get out of the UK less credible. Failing to do
a deal with PO would force Bo! to consider more niche parts of the UK market as
there was no credible replacement partner of our scale.
A number of points were raised, including:
© that the Irish economy was growing rapidly and it was feasible that Bol was
seeking to retrench in light of Brexit and its likely impact on UK economy
¢ that we should consider accelerating our work on “Plan B” in case the Peregrine ow
negotiations did not develop as we wished them to. Bol might be amenable to us
finding an alternative partner so a “friendly divorce” could be an option.
BANKING FRAMEWORK 2
The Chairman welcomed Debbie Smith and Martin Kearsley to the meeting. MK
introduced the paper and highlighted a number of issues:
© Banking Framework 2 was seeking to appropriately charge the banks a commercial
rate for our services which reflected the true value that PO offers the banks as
they reduce costs arising from branch closures
«¢ Anumber of variations to the original framework were being worked through. The
Framework Fee, transaction rates and Ad Valorem fee changes were being
proposed
© Issues regarding Automation, Balance Sheet funding and future cash volumes
impacting the Supply Chain were being work through by the team.
A number of points were raised,
¢ it was noted that Santander did not have a branch network for business customers
and this differentiated them from other banks
we could consider transitioning increased tariffs over a period of time and should
factor in what charges the banks would be prepared to pay to secure certainty for
a longer period of time. However, it was noted that we had greatest leverage now
as the banks had not developed strong alternative networks and cash transaction
volumes remained high. The increased tariffs proposed reflected savings to the
banks, our costs and investment requirements. It was also noted that the largest
growth area was business deposits and these were the most timing consuming
and problematic banking transaction for us so it was reasonable for our proposed
tariff increases to focus on that transaction
© the specialist advice we had received was discussed. It was reported that KPMG
had advised us on the savings being made by the banks through branch closures
but not on our pricing proposals. Andrew Clatworthy had been recruited to lead
on the negotiations with the banks. It was suggested that it would be worthwhile
engaging another third party to test our thinking and proposals on the
negotiations, including how the banks might view our proposals Ds/ MK
© whether the banks were aware of the likely scale of the pricing changes. It was
confirmed that the banks were aware that the increases would be substantial and
that this was justified
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« whether we had any red lines on the pricing. It was reported that the target rate
was viewed as a market sustainable rate.
The Board NOTED the report and supported the option of allowing the banks until 31
March 2019 to confirm or terminate their inclusion in the Banking Framework 2.
PROJECT SOLAR
The Chairman welcomed Tom Moran and Rob Houghton to the meeting. TM
explained that Project Solar was a strategic initiative to deliver greater access to Post
Office products and services through a range of devices owned and operated by
retailers, customers and the Post Office. To date, we had been working most closely
with McColls on this project.
The Board:
RESOLVED to APPROVE the £5.995m spent on the project to date to deliver HNGT
Lite
NOTED that a costed paper would be provided for the Board on the next phase of
the Project once the product roadmap had been developed.
MAILS STRATEGY UPDATE
Mark Siviter introduced the report and highlighted a number of issues:
© discussions with Royal Mail (RM) would begin formally in October 2018, which
would start to confirm our priorities and RM’s for the contract. The relationships
with RM had strengthened and there was trust between the two parties. We had
been having informal discussions about the contract since March 2018
our main priorities were acquiring the ability to sell Online and freedom to open
up the network up for click and collect
© our early view was that RM wanted a fixed fee reduction and the continued
benefit of business efficiencies
© the Board would be updated on the discussions with RM and Board approval
sought on our final contract proposals.
A number of points were raised, including:
© what our current arrangements were for click and collect. It was reported that
returns could be made to a PO but not then collected for re-delivery by a
competitor of RM. Our view was that at this point RM had already lost the sale to
a competitor so it did not make sense to stop consumers using PO for re-delivery
via another provider
* what RM’s focus was on cost efficiency. It was reported that we had held
discussions on aligning up our end-to-end processes and that RM was likely to
seek a reduction in the price for the overall contract; however, we did not think it
likely that RM would seek a signing fee. RM and PO were in a mutually dependent
position without viable alternative partners
© that there had been significant change in the RM leadership team. Nick Landon
would be leading the negotiations and was the consistent figure from RM in these
discussions
* that we should consider what developments in technology might mean for the
supply chain. For example, whether investment would be needed for self-drive
vehicles
«that we should be helping RM to understand the benefits of the contract to them
to assist their CEO in explaining this to the market
© whether online flexibility included all online options. It was noted that we wanted
to be able to create apps and sell online
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¢ whether retaining exclusivity in some areas of the contract could cause
competition challenges. It was reported that we were discussing the relevant
clauses of the contract with Linklaters but would not want to lose exclusivity in all
areas
« that we needed to avoid locking ourselves into a contract for too long a period as
the market was changing so quickly. It was reported that we were considering
carefully the break clauses in the contract.
The Board NOTED the update, the progress made to date and the intent to enter the
first round of formal negotiations.
PROJECT EDGWARE
DS updated the Board on the Project Edgware negotiations with WHSmith. The deal
was better than previous ones and drove customer care. WHSmith wanted to include
the announcement of the deal in their full year profits on 11 October 2018.
For this reason, the Board was asked to delegate authority to the Group Chief
Executive to sign the deal which would be concluded in the next couple of weeks. The DS/TM
Board would be briefed on the deal before the public announcement.
The Board RESOLVED to delegate authority to the Group Chief Executive to sign the
contract and accompanying documentation with WHSmith.
BACK OFFICE TRANSFORMATION
The Chairman welcomed Rob Houghton to the meeting. AC introduced the paper and
reported that testing through TRANSAP was taking longer than through SAP. We had
considered carefully whether we could migrate off POLSAP and go live in November
2018. However, this would have disrupted the cash forecasting solution before
Christmas. We were confident that we could go live with the new system in January
2019 and that the training requirements would have been completed. The only
reason we would have considered migrating earlier, given the risks of doing so, would
have been experiencing deterioration in POLSAP. The cost of the work from Autumn,
2018 to January 2018 was in the region of £10m and the incremental cost from
November 2018 to January around £2m.
The Board noted that the work was necessary to the running of the business and
RESOLVED to APPROVE the additional £9.4m drawdown.
MODERN SLAVERY ACT
JM introduced the paper:
© we had an obligation to publish a statement on our compliance with the Modern
Slavery Act (MSA) within six months of the end of the financial year. ARC
members’ comments had been reflected in the statement
© we had taken a range of steps to comply with the MSA, including reviewing
agents’ contracts, which contained a general obligation to comply with the law
and had also provided training for agents
© the agency network risk was our principal risk so the ownership of the MSA policy
was likely to sit with the CEO — Retail in future.
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The number of points were raised, including:
« that we needed traction in the next year on the actions we had identified so clear
ownership of the policy was important
whether we could audit our compliance with the MSA when our network was
predominantly operated by agents running their own businesses.
that we should change the wording of the statement to refer to due diligence for JM
‘on boarding but not for the subsequent operation of the business
© whether we carried out subsequent checks when we visited agencies. It was
reported that there was a vetting check when PMs took on staff. In order to
access Horizon, those checks had to have been completed and included checking
that the individual was a real person and eligible to work etc.
whether there was as retail consortium which produced a standard on modern
slavery which we could sign up to. It was noted this would be investigated
© that raising awareness through training was important. It was noted that we
would consider whether there was scope to strengthen our existing arrangements.
The Board RESOLVED to APPROVE the 2017/18 Modern Slavery Act Statement,
subject to incorporating the change agreed at the meeting, and endorse the proposed
actions for the business to take forward in the 2018/2019 financial year.
POSTMASTER LITIGATION (Confidential and subject to legal privilege)
JM updated the Board on the Postmaster Litigation. The first hearing for the Common
Issues would start on 5 November 2018. It was thought that the judgement was likely
to be published at the end of December 2018 or the beginning of January 2019. We
were preparing in parallel for the second trial on the Horizon system. Two experts
(one for each party) had been appointed to provide their view of the Horizon system
and had a series of questions to answer from the Judge. In effect the judge’s decision
would reflect which expert he believed.
We were preparing our communications approach and material. One Freelance
journalist was seeking crowd funding to be able to attend the trial.
Work on contingency planning was happening in parallel.
The Board NOTED the update.
ITEMS FOR NOTING
Sealings
The Board RESOLVED that the affixing of the Common Seal of the Company to the
documents set out against items numbered 1697 to 1710 inclusive in the seal
register was confirmed.
Health and Safety
AC reported that accident levels had decreased but incidents of violence had increased.
We were looking at options to mitigate these risks including the roll out of fogging
devices in many more branches. There had also been an upsurge in attacks, particularly
‘on crews in Liverpool. Body cameras did not appear to have improved the situation
and we were not yet sure of the right response to the increase in ATM rip outs.
KM asked whether we have considered doing more in-night deliveries. It was
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reported that this might be beneficial if it happened some of the time but could prove
more dangerous for crews if night time delivery replaced day time though further
consideration would be given to the issue.
The Health and Safety report was NOTED. An update on security measures in branches
and in the supply chain would be included in the Health and Safety report for the Board.
Future Meeting Dates
The future meeting dates were NOTED.
Forward Agenda
The forward agenda was NOTED.
Meeting closed at 3.00 pm.
Date
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Future of Banking Framework
It would be useful to have a refresher on ATMs and
the history of POCa before coming back to the
Board on our developing strategy on these issues.
Debbie Smith
(Martin Kearsley)
January 2019
Report on ATMs will go to the Board
in January 2019.
Open
3. Bank of ireland negotiations
Board report on our options should we not be able
to re-negotiate the deal with Bol to our
satisfaction.
3a) Come back to the Board with a fact list on our “Owen Woodley I October 2018 ‘I To be added to the Bank of ireland _ To close
contractual terms. i CO I negotiations report to the Board,
3b) Include a “Plan B” inthe next Bank of Ireland. ‘Owen Woodley I November 2018 To be added to the report to the “Open
Board in November 2018.
This topic was also raised at the
Board meeting on 25 September
2018 under item 7 b)
Co
1. Retail Strategy
1.a) The ATM Strategy should factor in our whole Cash Debbie Smith November 2018 The Retail Strategy paper is going to. Open
Strategy. the November Board and will refer
(We needed to analyse an investment in cash to our work to join up and integrate
machines carefully looking at how far we would automation activity across Mails,
move to being a cashless society in the next 3-4 Banking and ATMs. :
years).
1.b) ‘Agent Remuneration Debbie Smith November 2018 The Retail Strategy paper is going to Open
the Board in November and will
include Agent Remuneration.
1d Rolling out of simple SSKs Debbie Smith I November 2018 The Retail Strategy paper is going to Open
(It was AGREED that an item would be included on the Board in November and will
the Board agenda about the costs associated with include SSKs,
rolling out cheaper, less sophisticated kiosks (the
Post Office Express Model).
2 FS&q Strategy in branches Owen Woodiey/ I November 2018 The Retail Strategy paper is going to ‘Open
Debbie Smith the Board in November and will
‘Owen Woodley would come back to the Board include the sale of FS&T products
with an integrated view of FS and Telco, working through the Retail network,
with Debbie Smith to make sure that the insurance
strategy and the retail strategy were integrated.
Strictly Confidential Page 1 of 3
Post Office Limited Board Actions as at 22.10.2018
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1. CEO’s Report The pricing information for Travel Money that was. I Owen Woodley —I October 2018 ~—‘I Updated information circulated to Toclose
I provided for the strategy day would be ie the Board on 11 October 2018. i
i i ae and circulated to the Board.
1. CEO’s Report
La) ‘A follow up session on the development ofthe I Veronica Branton I November 2018 A session is proposed for the 27" To close
Identity Business Line to be scheduled. II November 2018 in advance of the
Board meeting.
1b) The organisation structure charttobe sent to the I Veronica Branton I October 2018 ‘The organisation chart was Toclose
ee Non-Executive Directors. oo ____I circulated on 4 October 2018, i
"2. Finandal Performance — Tan Update on seauriy measures tobe included in I Aicamneion? ‘October 2018 Information on security measures To close
Report the Health & Safety Report to the Board. Martin Hopcroft and measures being considered is
I I a : a I I included in October Health and
Safety Report. In addition, the full
bi-annual report reviewing robbery
risks and violence is on the
November Board agenda.
3. Funding beyond 2021 Provide the Board with the costs associated with I Al Cameron / January 2019. ‘Added to the agenda for the January Open
running unprofitable branches. Debbie Smith Board meeting.
4. FS&T Performance Report
4a) Growth of the insurance business and the Owen Woodley/ I November 2018 Item included on the November ‘Open
investment in marketing related spend to be Veronica Branton Board agenda. Emma Springham
included as an item ona Board Agenda. invited to attend.
4.b) The learnings and next stage of the development I Owen Woodley/ I January 2019 Henk van Hulle and Jeff Smyth will ‘Open
of CHUB, including the mails proposition that was _I Veronica Branton be taking a reworked business case
due to be launched during the current financial to the Investment Committee
year to be brought back to the Board. before the end of the year and an
item has been added to the agenda
for the January Board meeting.
6. Banking Framework 2 Consider engaging a third party to test our thinking I Debbie Smith / November 2018 Oliver Wyman have been engaged ‘Open
and proposals on the negotiations, including how I Martin Kearsley and discussions held. The formal
the banks might view our proposals. proposal from OW has been
received and is being reviewed,
7. Project Edgware The Board to be briefed prior to serine the Debbie Smith /Tom I 10 October 2018 Board briefed and contracts signed. To close
i . contracts. Moran I I ee
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Page 2 of 3
Post Office Limited Board Actions as at 22.10.2018
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8. Modern Slavery Act
Change the wording of the statement to refer to
due diligence for on boarding but not for the
subsequent operation of the business.
Jane Macleod
October 2018
Wording updated,
To close
Strictly Confidential
Page 3 of 3
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POST OFFICE BOARD
CEO’s Report
Author: Paula Vennells Meeting date: 30" October 2018
Executive Summary
Context
Our target for 2018/19 is to achieve EBITDAS of £50m. Our areas for future
focus will be:
Our key market ambitions
* To remain number one in letter and parcels
* To build our position as a major challenger brand in financial services
and telecoms
* To be the UK's main provider of cash services and remain #1 in
travel money
* To lead the market for digital identity services
Our key measures of success
* Grow our network, doubling the number in town and city centres
* Become the partner of choice for convenience retailers
* Demonstrate digital innovation in every transaction
+ Deliver £100m profit to reinvest in our business and communities
Our five priorities to deliver these outcomes
Simplify the retailer proposition
. Build flexible and secure IT
. Modernise our products and services
Digitise and optimise the business
Trust our people to find the best way to do their jobs and help our
customers
vawNe
Input Sought
The Board is invited to note the report and highlight any issues where a future
discussion would be welcome.
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The Report
Looking Back
WHAT HAS GONE WELL?
¢ Financial Performance
~—» P6 revenue was £72.7m, £0.1m adverse to plan in the month. Year on year
revenue is +1% P6 and +2% YTD.
— This was driven by strong Retail trading, offset by poor performance in
Insurance. There was a one-off YTD catch up of £1.3m included in FS&T for the
annual minimum savings commission agreed with BOI, which offsets adverse
Telco performance.
— P6 trading showed a profit of £0.6m, £0.4m better than plan, due to the
closure of historic FS&T purchase orders in non-staff costs. YTD trading profit of
£20.8m is £5.2m ahead of plan, despite the £2.5m telco budget error.
~» Overall, we remain ahead of plan with a formal 2018-19 re-forecast underway.
The trajectory is challenged by Insurance, Telco customer numbers, Identity
re-pricing and H2 IT costs but we expect to deliver budgeted £50m trading
profit.
»* Customer Hub
— The Post Office Travel App was launched on 11th June 2018 and since then has
been successfully on-boarding new clients and taking top-ups. The FRES Travel
Money Card (TMC) App was retired for new clients on the 13th August 2018 as
per the stated intention to move all clients to a single App. We now have
c110,000 cards linked to the new app. The first release included features such
as TMC top-ups, Travel Insurance quote and buy, and Branch/ATM finder. A
currency convertor was launched in July. The next two releases are the
introduction of ‘mobile first’ (i.e. TMC on-boarding) in October and the
introduction of mid-term adjustments, renewals and policy documents for
existing Travel Insurance customers in December.
— The Innovation team is continuing with the development of the Mails app.
There are conversations with the Identity team to build a Post Office Identity
app onto Customer Hub, and with the FS team for a Youth product supported
by the Hub and Identity.
— Post Office Hub won its first Innovation award as the fastest go-to-market
mobile app at an international event in Amsterdam.
« Reaction to Edgware Announcement
— We confirmed the transfer of 74 DMBs to WH Smiths. Affected colleagues
responded with disappointment but within minutes were serving customers
professionally: I am grateful to them. Media interest has been limited. The
planned go live date will be end of January 2019. Initial union reaction has
been hostile but barely reported outside of their own media channels. We can
expect more pick-up in local press over the coming weeks, and further activity
as we move in to public consultation.
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POST OFFICE PAGE 3 OF 4
e Industrial relations
— We have resolved pay across all sectors (a two year agreement, 0.2% higher
than the initial Unite deal). Our new Director of IR has done an excellent job
and appears to have gained the confidence of the CWU. We are not complacent
and continue to review IA contingency plans, as we approach the Common
Issues trial, but at present the threat of industrial action seems low.
— Atri-partite collective agreement was signed with CWU and Unite to launch a
new Dignity at Work policy re-affirming our zero tolerance of any forms of
discrimination, harassment, victimisation and bullying.
¢ Awards
We were delighted to learn that three of our ‘cohort 4’ graduates - Sandy, Bintu
and Mohammed - have been shortlisted for a Business Culture award for the
work they have done around upskilling colleagues and creating Digital Stars
across the network. This was one of the projects the graduates came up with
as part of their “what would you do if you were CEO” task last year and we are
pleased to see that their hard work and tenacity has paid off. We have also
been shortlisted as a finalist for a Diversity and Inclusion award in recognition
of all the fantastic work we have done in this space. We will find out if we have
been successful at the event in November.
Ben Foat won the In-house Lawyer of the Year Award and the Post Office legal
team were finalists in the team category.
e Branch Counter refresh programme
— The understatement of the year: Branch Counter Refresh, new network, new
kit, new software, 25,224 counters in 10,327 branches, 4 branches remain.
Project is due to complete on 24th October. My admiration and thanks on
behalf of the Board, the GE and all our post offices to Rob Houghton and team!
WHAT HAS NOT GONE WELL?
¢ Potential POI Acquisition
— Progress has been delayed as a result of the availability of data from Ancile
(the major shareholder had an accident and is currently in hospital) so the date
has been pushed back to November. We are still being offered early access to
their data once available and have the option of making a pre-emptive bid.
During the period of delay, we are putting the project structures in place and
lining up the specialist resources to support the transaction.
e PCI
— Rob Houghton is heading a joint IT & Business steering group for PCI and is
working through a recommendation for the ARC. IT focus is on contract and
supplier position for compliance; retail, led by Andy Goddard, is focused on a
solution to fit with our emerging payment services strategy.
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POST OFFICE PAGE 4 OF 4
Looking Ahead
FUTURE FOCUS
« Communications and Public Affairs
— The Public Affairs team attended the Conservative, Labour and SNP party
conferences in September and October. We met senior stakeholders, including
the Chief Executive of the British Chamber of Commerce and the Director of
Government Affairs at UK Finance, in order to lay the ground for our public
affairs activity around the renegotiation of the banking framework.
— We have launched a pilot brand campaign - called ‘The When I Need It Most
Office’ - across the Midlands region, with London and the SE region to follow
next week. The objective of this campaign is to reposition the Post Office in a
positively surprising way, highlighting some of the products and services that
demonstrate the ways in which we are here for what matters for our
customers.
« Bank of Ireland Negotiations
— We engaged in a series of information share sessions in September with more
formal negotiations scheduled for October. The information sharing sessions
were productive, with an open and honest exchange of information. BOI
presented a bearish view of the UK market and wider macroeconomic
environment. They also highlighted a number of increasing challenges on the
economics for the Post Office book, including the asset & liability mismatch and
the lack of returns. A face to face CEOs meeting is now scheduled for 23rd
October to follow up. I will update at the Board.
« Race at Work Charter and Ethnicity Pay reporting
— We have worked with BEIS colleagues on Ethnicity Pay Reporting, and on the
wider Diversity and Inclusion agenda. To demonstrate our commitment to
improving race equality at Post Office, we are an early signatory to the
new Race at Work Charter. The Charter (along with 5 calls to action) was also
announced on the 11" October in response to findings from the Race Disparity
Audit, Race at Work Survey and McGregor-Smith review. In advance of these
announcements, we have begun working on collating our internal data in order
to review and submit it accordingly.
RISKS OR CONCERNS?
Group Litigation Order (GLO)
~— An update will be provided in the Board meeting.
~ Jane MacLeod, Al Cameron, Mark Davies and I met with the Minister and the
Permanent Secretary on 17" October to provide an update on the Group
Litigation Order (GLO). Jane will provide more detail.
Strictly Confidential
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BOARD DISCUSSION PAPER
September 2018 (P6) - Financial Performance
Author: Micheai Passmore Sponsor: Alisdair Cameron Meeting date: 30 October 2018
Executive Summary
Context
The purpose of this paper is to outline our financial performance in P6. A detailed
slide-deck is attached. Forward looking assessments of commercial performance are
dealt with in detail in the quarterly business updates.
How did we do in P6?
em
Actual Budget Variance YoY Actual Budget Variance YoY
Retail 424 413 09 % 2720 270.2 18 0%
FS&q (incl, insurance) 254 263 (4.2) 0% 160.7 106.4 (87) 4%
Telco overstatement 0.0 04 (04) nia 00 25 (25) Wa
Keentity 46 37 09 24% 297 260 37 12%
‘Supply Chain/Other 08 12 (02) -20% 64 70 (06) 8%
Total Revenue 727 729 (0.1) 1% 4688 © 472.0 (3.2) 2%
Cost Of Sales (10.4) (9.9) (0.5) 4% (627) (63.2) 05 5%
Net income 62.4 63.0 (0.6) 1% 406.1 408.8 27) 2%
Agents Pay Q77) 279} 02 -4% (175.3) (178.8) 31 7%
Staff Cost (148) (14.8) (0.0) 5% (930) (91.2) (1.8) 2%
Non staff Cost (241) (24.6) 05 5% (146.0) (181.2) 52 4%
FRES 38 35 03 33% 223 215 08 34%
Other income 4A 1.0 04 483% 69 62 0.7 310%
Trading Profit 06 02 0.4 413% 20.8 4157 52 704%
Network Subsidy Payment 46 46 00-14% 30.0 30.0 00-14%
EBITDA 53 48 04 21% 50.8 457 52 48%
Depreciation (7.9) 65) (24) nla (374) (28.0) 63) na
Interest 07) (0.5) (0.2) 50% (4.2) (32) (1.0) 104%
Change Spend (24.4) 47 (19.7) 234% (63.0) (45.4) (17) 10%
Investment Funding 169 169 0.0 190% 90.0 90.0 00 157%
Profit On Asset Sale 05 oo 0.5 -65% 13 oo 13-60%
Profit Before Tax (10.4) 14.0 (24.4) 331% 478 68.4 (10.8) 111%
P6 revenue was £72.7m, £0.1m adverse to plan in the month. This was driven by
strong Retail trading, predominantly offset by poor performance in Travel Insurance.
There was a one-off YTD catch up of £1.3m included in FS&T for the annual minimum
savings commission agreed with BOI, which offsets the continuing, adverse
performance of the Telco business. Overall, underlying revenue was £0.9m adverse in
P6 and £3.4m adverse YTD, when you also exclude the Telco budget overstatement.
P6 trading resulted in a profit of £0.6m, £0.4m better than plan. YTD trading profit of
£20.8m is £5.2m ahead of plan, despite the £2.5m telco budget error.
PO Insurance trading profit was £1.0m adverse in the period, as Travel insurance
volumes have been lower and also the 25% discounted pricing hasn’t been as successful
as hoped. Overall, P6 sales volumes were 8k (9%) behind budget, of which Travel
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POST OFFICE PAGE 2 OF 2
insurance accounted for 5k. Travel margins are lower than prior year as a result of the
increased discount supporting the summer campaign.
Travel money continues to track behind budget as Travel Money Online sales were
33% short of budget (P5: 28%). Although Travel Money Card shows a 7% positive
YoY trend in value terms, this is due to recognising fixed commission on a monthly
basis as opposed to at year-end in 17/18. Therefore, underlying Travel Money
revenue trend is -2% YoY. Travel Money Card is currently tracking 9% behind YTD
sales targets.
Telco customer numbers at end of period were 498,224, down 12,491 on budget, but
increased by 517 customers since P5. Underlying ARPU also contributed a £0.2m
adverse variance in period. Customers have now been informed of the November
price increase.
There is still strong growth in Home Shopping Returns as volumes are +9% to budget
and +20% YoY.
Banking services was favourable in period which included a catch up of c. £0.2m
relating to the prior period. YTD performance remains favourable predominantly due
to growth in auto deposit volume, 58% up YoY.
POCa revenue has continued to recover since the higher price has been triggered.
Verify has continued its strong growth, exceeding budget by £0.5m in the month, and
£2.1m YTD. YoY volumes have increased by 123% and are driven by Universal Credit
applicants who can now use Verify. Post Office is the market leader in LoA2 (Level of
Assurance level 2) with a market share of 53%, which has grown by 10% YoY. The
strong YTD performance will be offset after P6 when the new agreement with GDS will
be signed, reducing prices by 75%.
Network numbers (August) were 11,566, 66 above the commitment and an increase of
19 YTD. The reduction of 31 from July was driven by 31 temporary closures, 22 re-
openings and 13 new network locations.
Borrowing has decreased by £13m YTD, with cash efficiency gains offset by working
capital movements. This will be helped in P7 by the receipt of £50m investment funding
from BEIS.
YTD Change spend (Capex and Exceptional) was £122.5m, £22.2m more than forecast.
We are finalising our 6+6 profit forecast for 2018-19. While there are still some
questions to work through, the overall shape is a trading profit forecast up £1m at
£51m. This is after providing £1m centrally for Post Office Insurance: their plan is to hit
budgeted trading profit but this feels stretching. As a result, we do not see major
alarms in hitting plan this year, although we will need to see Christmas trading before
we can forecast with real confidence. That said, if this is the performance we deliver,
we will have missed budget in H2. Work on next year’s plan has started and was
discussed at GE this month.
Conclusion
Overall, we remain ahead of plan for 2018-19, challenged in H2 by Insurance, Telco
customer numbers, Identity re-pricing and H2 IT costs.
Strictly Confidential
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Period 6 FY18/19
Performance Review
30 October 2018
©
Post Office® Post Office Limited ~ Commercial in Confidence
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P6 Scorecard
Period 6 Year to Date
Full Year
Actual Budget Variance RAG Actual Budget Variance RAG Budget
Deliver Profit
Total Gross Income (excl NSP) £m 965.1
Trading Profit £m 0.6 0.2 0.4 @ 20.8 15.7 5.2 50.0
Headroom £m (vs Board minimum limit) 258 200 58 ® > £200m
Change benefit delivery £m (WIP) 3.0 26 0.4 © 16.9 15.7 1.2 @ 40.2
Mails - Total Labels Volume m 12.3 11.7 0.5 © 778 774 03 Ad 163.4
Mails - Home Shopping Returns Volume m 3.3 3.0 0.3 o 23.7 20.5 3.2 oe 45.0
Banking Volume (m) 10.0 9.7 0.3 ce) 73.0 63.6 95 @ 130.2
Closing Telecoms Customer Base (#) 498,224 510,715 (12,491)
Number of Branches (mth in arrears) 11,566 11,500 66 Oo LA.
New Network Branch 8 37 (29) @
Ease of Doing Business with (Effort ) 83.5% 82.0% 1.5% @ Ir 83.0% 82.0% 1.0% @ 82%
No. of Horizon Customer Sessions 39.5 0.0 259.4 0.0 0.0
# of Sev1/Sev2 Incidents 13 8 (8) @ 68 48 (20) @ < 96
Number of failed SLA’s (mth in arrears) 2 3 1 @ 24 15 @) @ <36
Actual Incident Volumes 7,841 10,000 2,159 @ 61,396 60,000 (1,396) ie) <120,000
@
Post Office® Post Office Limited ~ Commercial in Confidence
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P6 Scorecard
Year to Date Full Year
Actual Budget Variance RAG Budget
Period 6
Actual Budget Variance RAG
Digital Innovation - Customer
Trading income from customer Hub (£m) -BudgetI 0.0 0.4 (0.4) ol 0.4 06 (0.5) @ 12
Haeinaiiaid from customer Hub (£m) - 0.0 00 (0.0) @ 01 0.1 (0.0) 3 02
# of Registered customers on app 36,495 31,358 5,137 e@ 91,325 130,578 (39,253) @
# of All Product pages website visits 1,902,366 1,566,274 3360922 @ I 12,945,385 11,210,344 1,735,041 @ 20,461,075
Website Conversion ratio 9.9% 10.9% (1.0%) @ ¥ 9.8% 10.1% (0.3%) 2 10.0%
ee el
Line Manager Index! 59% 62% (3%) 62%
Female Representation in Senior Roles (3a & aboy 40.9% 41.3% (0.4%) Q LS 43.0%
BAME Representation in Senior Roles (3a & above} 9.5% 9.6% (0.1%) Qo 11.1%
Senior Vacancies filled by intemal Talent N/A 50.0% NIA 50.0% : 50.0%
Absence 34% 3.3% = (0.1%) 32% 338% 01% © 3.3%
Safety LTIFR 0.152 0.200 0.048 @ 0.200 0.200 0.000 oO 0.200
1. Line manager Index calculation is based on the weighted average results
2. Our ambition is to achieve 50% by 2020. Full year target of 43% is based on a linear increase over 3 years; this equates to replacing 16 Males with Females in Year 1
based on 460 population. Discussion to be held over changing Senior Roles to Level 4 and above (population would decrease 250 and female ratio would be 30%).
3. c.14% is the percentage of people in the UK who describe themselves as BAME. (Source: Most recent ONS Census, 2011). Our ambition is to achieve 14% by 2020. Full
year target of 11.1% is based on a linear increase over 3 years; this equates to replacing 11 white to BAME in Year 1 based on 460 population. Discussion to be held over
(3)
ar
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P6 Trading Profit +£0.4m v Budget; YTD +£5.2m
em Year to Date
Actual Budget Variance YoY Actual Budget Variance YoY
Retail 424 413 0.9 1% 272.0 270.2 18 0%
FS&T (incl. Insurance) 25.1 263 (1.2) 0% 160.7 166.4 (6.7) 4%
Telco overstatement 0.0 04 (0.4) na 0.0 25 (2.5) nla
Hentity 46 37 09 = 24% 23.7 26.0 37 12%
Supply Chain/Other 0.9 12 (0.2) -20% 64 7.0 (0.6) 8%
Total Revenue 727 729 (0.1) 1% 468.8 = 472.0 (3.2) 2%
Cost Of Sales (10.4) (9.9) (0.5) 4% 62.7) (63.2) 05 5%
Net income 62.4 63.0 (0.6) 1% 406.1 408.8 (2.7) 2%
Agenis Pay 27.7) (279) 0.2 4% (175.3) (178.5) 3.4 7%
Staff Cost (14.8) (14.8) (0.0) 5% (93.0) (91.2) (1.8) 2%
Non staff Cost (24.1) (24.8) 0.5 5% (146.0) (151.2) 52 4%
FRES 38 3.5 03 33% 22.3 215 08 34%
Other Income 44 1.0 O41 483% 69 62 0.7 310%
Trading Profit 0.6 02 0.4 -413% 20.8 15.7 5.2 704%
Key Themes:
* Retail - favourable due to trading; banking services includes element of prior period catch up
+ FS&T - Mainly impacted by one-offs +£1.3m for minimum savings commission catch up offset by (£0.3m)
Telco accrued income error adjustment
* PO Insurance adverse by £0.9m - Travel insurance continues to underperform
+ Identity - Continued strong growth in Verify volumes driven by universal credit; GDS price decrease from P7
* Cost of sales - catch up of POCa printing costs after DXC advised of undercharging
+ Agents Pay - £2.3m of YTD variance relates to initial payments accounted as exceptional
* Staff costs - Of the £1.8m staff cost overrun YTD, £0.9m is a set off with non staff costs (change opex)
+ Non staff costs - Favourable in period due to closure of historic FS&T marketing purchase orders
(4)
/
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®
Retail Scorecard
Mails volumes are holding up
Actual Budget Variance RAG Actual Budget Variance RAG Budget
Gross income £m 424 41.3 oo 68 272.0 270.2 18 @ 568.6
Trading Profit £m 79 79 oo 6 62.7 56.5 6.2. & 128.2
Mails - Priority Volume m 08 0.8 © 1” @ 4.8 5.5 (0. 6)” to 11.6
Mails - Total Labels Volume m 12.3 WT a) 178 774 03 @ 163.4
Mails - Click & Collect Volume m 03 0.4 0.1) @& 49 48 01 © 44
Mails - Home Shopping Retums Volume m 33 3.0 03 «@ 23.7 20.5 32 45.0
Banking All Transactions Volume m 10.0 97 0.3 o 73.0 63.6 95 @ 130.2
Ease of Doing Business with (Effort ) 83.5% 82.0% 15% 83.0% 82.0% 10% © 82.0%
Number of Branches (mth in arrears) 11,566 11,500 66 o 11,500
NNI. Builds 8 37, ) @ 123 150 QD 8 338
©)
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®
Retail: P6 Trading Profit consistent with budget; YTD +£6.2m
Favourable revenue driven by trading; POCa cost of sales catch up
i
fm ‘Aelia Budget Wananes ‘Actual I Buaget arian © poCa revenue continues to recover due
Mails Trading 25 202 93 13301337 = (0.7) to lower account volumes.
Mailwork os 08 (0.0) 5.0 5.0 (0.0)
Mails Other oo 00 00 18 00 15 - I
RM Annual Fee 36 35 on 233 225 08 © Includes prior period catch up amount
totter °° af oe ao oe on of £0.2m. YTD performance favourable
Poca 27 28 +O) 155159 (05) driven by +4.2m auto deposit volumes
Payment Services 18 18 (00) 19-2304)
ATMs 22 (0.1) 146 185 (4.0) to budget.
Banking Services 76 oat 440 ATA 10
ae ae oe ETE oe. © Crystallisation of risk identified in
Cost OF Saies 21) 4) 09) (109) 00-23% previous months. DXC billing catch up
Nstincome. $0.9 98 288-1. 2688 i8 1% (were previously undercharging for
‘Agents Pay (23.3) 1) (474) (1499) 24(4) 20% p ;
Staff Costs 16.2) yay (39.2) (8.0) Cag) 6% OCa statement print costs)
Staff & Agent Related Costs 1) By) ay 12) 01 24%
Brand & Marketi 05) 3) 09) Gj 02-40% - a
Constancy & Alvsory Sences 00 00 3006% Ga fo eo. tm © £1.9m of YTD variance relates to initial
{T tnfrastructure & IT Services 05} 03) 87% 9 10) (9G) am payments. Remainder driven by
Managed Services - Penalties (0.4) 00 100% (24) (2.4) (0.0) -100% A .
Postage 04) at 56% 82 G2) 00-50% reduced mails volumes, partially offset
Finance & Losses (1.2) 00 67) 79) 42 a by increased banking volumes.
Change Opex 00 04 00 a4) 8 nla
Other 05) 1) 19) (05)
Genes. i uh ere ul 10) £0.8m YTD staff budget is included in
rading Prof z ; x : ,
change OpEx, £0.3m is for FS
specialists in branch, which is no longer
expected -siafvar P6 YD
Underlying Staff Var (0.1) (0.1)
Eagle (FS Specialists) (0.0) (0.3)
Opex. (0.2) (0.8)
TOTAL (0.4) (1.2)
© £0.8m of YTD staff costs, £0.6m of YTD
IT costs and £0.2m other costs are
budgeted as change opex.
Post Office® Post Office Limited ~ Commercial in Confidence
POL00026936
POL00026936
®
FS&T Scorecard
Telco and Travel Money under pressure
Actual Budget Variance RAG Actual Budget Variance RAG Budget
Value of Mortgage Applications (£m) 215 316 (01) @ 4,001 1.366 aes) @ 3,080
° Value of Mortgage Completions (£m) 98 224 (123) @ 464 956 432) @ 2135
g Total value of Savings balances (Em) 14,224 14,100 iu «68 14,224 14,100 im TBC
Number of new Credit Card applications 5,775 7,044 (1,26) @ 33,406 45,784 (12,378) @ 91,568
Credit Card application accept rate 74% 58% 1% ® 73% 58% 16% © 58%
Number of new Loan applications 4,843 5,404 (561) o 39,378 35,128 4,250 o 71,608
Loan application accept rate 51% 58% (6%) @ 57% 58% o% 58%
Travel Money Avg Trans. Value 293 266 a @ 293 266 a @ 266
Number of MoneyGram Send transactions 201,871 215,057 (13, 186) 8 1,357,845 1,384,868 (27,023) @ 2,895,484
Closing Telecoms Customer Base (#) 498,226 810,715 (12,491) O 498,224 510,715 (12,401) 494,823
Telecoms ARPU 24.4 25.5 an @ 24.7 25.5 os) © a
Telecoms Customer Chum (16.8%) (15.7%) (1.1%) @ (20.2%) (17.4%) (28%) @ (17.8%)
Net Telecoms customer additions 517 4.913 (1,398) @ (8.351) 11,302 (19,653) (4,590)
Number of Postal Orders sold 213,999 214.638 (3g), 1,431,125 1,455,764 (24.639) ® 2,800,000
©)
Post Office® Post Office Limited ~ Commercial in Confidence
POL00026936
POL00026936
FS&T: P6 Trading Profit +£1.5m favourable to budget; YTD (£0.6m)
Travel money and Telephony continue to track below budget due to lower value of sales and reduced customer
numbers
6 YTD
sm ‘Actual Budget Variance YoY Actual Budget Variance YoY
PO Money (Savings,Loans) 45 3.2 13 (O) 22% 22.6 244 15 1% woe . . .
Travel Money 28338) GH tet 181 @0)-~— 6% © G@) Minimum full year savings commission
MoneyGram 20 24 0.1) SA 16% 131 13.0 on 3% agreed (£40m) with BOI; YTD catch up
Telephony 11.2 12.0 (0.8) 1% 74.5 74 (2.9) 6% A
Telephony Overstatement 0.0 04 (04) (0) na 0 25 (2.8) na of £1.3m posted in P6.
Postal O« 10 09 00-10% 6560 04 (p)-14%
Total Revenue 21.3 22.0 (0.7) 1% 132.8 138.0 (5.3) 0%
Cost Of Sales (7.0) (7A) 0.2 4% (43.6) (45.3) 16 10% (0) Travel money underperformance due
Net income 143. 149 (0.6) 2% 09.4 92.8 G6) 1% to continued poor market trend. £0.1m
Agents Pay 8) 41) 93 nla (22.9) (23.8) 99 G) ne revenue for Travel Hub included in P6
Staff Costs (1.0) (0.8) (On) 13% (64) 4.8) (0.6) 5% ce .
Staff & Agent Related Costs (0.0) 0.1) 00 104% (0.3) 2) (0.1) 21% budget. YoY position is overstated as
Brand & Market 0. (12) 1.0 265% (44 (47) 06 AT%
Consstanay& Abviaor Services 3) on Oran Gn 83 S$ We started to account £3m annual I
net eee 00) Si ot. 300% 03) 8) oO: em fixed commission on a monthly basis
(1.9) (23) 04 @)-14% (128) (13.7) 08 9% as opposed to last month in 17/18.
Postage (0.2) (0.2) 0.0 86% (1.5) (4.5) (0.1) 31% (YTD -2%)
Finance & Losses (0.3) (0.2) {0.) 108% (4.8) (1.6) (0.3) 18%
Other (0.0) 00 (0.0) 18% (0.2) on (0.2) 52%
FRES 383503 33% 223218 08 34% +G) Telephony revenue includes -£0.3m
Trading Profit 10.5, 9.0 16 nia 60.9 61.5 (0.8) nla
accrued income error adjustment.
Underlying -£0.5m adverse variance
© YTD agents pay favourable variance driven by lower volumes due to increasing customer gap
in Travel money and Moneygram. £0.3m relates to initial
payments.
© Postal Orders volumes down on budget
YTD but income favourable due to
© £0.5m marketing purchase orders closed as part of GRNI higher values.
review. Remainder of variance due to timing of marketing
spend against budget.
@ Favourable due to reduced Telco galaxy customer numbers
and capitalisation of Technology refresh project costs.
(8)
ard
Post Office® Post Office Limited ~ Commercial in Confidence
POL00026936
POL00026936
Telephony Analysis
Customer gap is expanding; potential YTG risk of c. £320k
PL P2 P3 Pa PS P6 vo
_Jend of period customer 502,996 501,222 499,367 —«498,429~«A97,707 —« 498,224 P6 gap predominantly from volume —
8 avg. customer 508,785 $02,109 500,295 498,898" 498,068" 497,966 1,000.36] © 12k Customer gap (£290k)
S lareu 25.7 23.7 25.0 245 25.2 24.4 247
Revenue 14,939,259 10,976,713 11,518,232 14,079,313 11,535,746 11,180,403 74,229,667
P1 impact (adjusted in P2, YTD gap predominantly from rate -
Pa) (754,000) 600,000 0 177,889 0 o 23889! © £1.4m
Accrued Income
adjustment 300,000 300,000
Underlying Revenue 14,185,259 11,576,713 11,518,232 14,257,202 11,535,746" 11,480,403 74,253,556] YTG risk of c. £320k based on
Underlying ARPU 24.4 25.0 25.0 24.8 25.2 25.0 247} underlying customer gap at P6 and
__ [end of period customer 501588 502,652 504,617 507,026 «508802 510,715 restated budget ARPU (12,491 x £25.5)
Slave. customer 498,205 502,120 503,635 «505,821 507,914” 509,758 1,008,757
B IARPU 25.6 26.5 26.5 26.6 26.4 26.4 26I Planned pricing increase in November to
Revenue 14696979 12,246,631 12,275,725 15456042 12,387,584 12,374,307 79407268! mitigate ARPU could accelerate the
Impact in budget (432,499) (360,174) (375,550) (488,817) (406,504) (423,872) (2,485,415)]
Restated Revenue 14,264,480 11,886,457 11,900,176 14,967,225 11,951080 11,952,435 76921853) Widening customer number gap
Restated ARPU 24.9 25.7 25.7 25.7 25.6 25.5 25.4
(Underlying customer Gap 1,408.0 (1,430.2) (5,250.0) (8,596.9) (11,094.7) _(12,491.0)] (7,821.4)
Underlying ARPU Gap 08 (2.0) (0.7) (4.2) (04) Ga) (0.7)
Underlying Revenue gap (79.221) (309,744) (381,943) (710,022) (415,34) _(472,032)] (2,368,297)
lo/w volume 40,314 (33,857)__((124,050) (254,381) (262,056) _(292,880)} (925,908)
lo/wrate (119,535) (275,887) __ (257,893) __(455,642)__(154,278)__(179,152)] (1,442,388)
©
Post Office® Post Office Limited ~ Commercial in Confidence
POL00026936
POL00026936
PO Insurance Scorecard
Actual Budget Variance RAG Actual Budget Variance RAG Budget
Policies Sold: Post cooling off period (k) 87 9 632 653 a 2 997
Policies Renewed ¢k) 24 23 148 148 c 278
Policies in-Force "live" (k) 689 707 68s
Net Promotor Score (Post Office Insurance) 36 26 36
* Policies in-Force variance shows lower figure than total variances of policies sold and renewed as the policies
cancelled mid-term is doing better than expected by 5k.
©
Post Office® Post Office Limited ~ Commercial in Confidence
POL00026936
POL00026936
PO Insurance: P6 Trading Profit (£1.0m) adverse to budget; YTD (£1.1m
Travel insurance continues poor performance
£m P6 income underperformance on Travel of
Actual Budget Variance YoY Actual Budget Variance YoY ; - .
Travel Insurance 14 22 7) 16% 114 14.4 3.0) io, insurance driven by: .
Car Insurance 09 08 0.0 4% 55 2 03 9» * £0.1m from Customer Hub sales running
Van insurance 0.2 0.2 0.0 -3% 13 12 o4 5% at 20% of plan
Home Insurance 07 08 1) -3% Az 49 (0.2) 3% + £0.1m from not rolling out Spixii -
Life - Over 50s 04 05 (0.4) 38% 37 (0.2) 42% A
Life - SLI 02 02 1) 51% 12 (0.1) 23% chatbot technology - due to pilot
Other insurance on 0.0 0.0 3% O14 0.2 1% prod ucing no benefit
Total Revenue 38 47 (0.9) 1% 30.8 (29) o% * £0.2m from not initiating additional
ee — on m0 A at 2) s 3 18% marketing activity in the absence of
jet Income 5 . E Yo .. .! Yo 7 A . 4 A
Staff Costs 70.5) oe) 01 7% 7) OS 0% confidence in achieving required returns
Brand & Marketing (08) (06) 0.1) 57% 4.1) 1.2 -36% on investment
Consultancy & Advisory Services (0.2) (0.1) (O41) -214% (@.4) (0.2) 38% + £0.1m from impact of summer
tr infrastructure & IT Services. ° a ° > we “ e > oa e campaign -_ lower volumes and greater
Managed Services ) % ¢ 0. Yo A
Other oy Oot eee 8k 80% than planned use of 25% discount
Trading Profit O7 16 (4.0) nla 10.9 (4) na * £0.1m from delayed implementation of
price optimisation
+ £0.1m from impact of reduced market
demand for Travel Insurance - down c.
5% year-on-year
©
Post Office® Post Office Limited ~ Commercial in Confidence
POL00026936
POL00026936
Identity Scorecard
Strong UKVI and LoA2 volumes
Actual Budget Variance RAG Actual Budget Variance RAG Budget
Gross Income £m 46 37 0.9 @ 29.7 26.0 3.7 @ 47.3
Trading Profit £m 25 2.2 0.3 @ 17.8 15.0 2.8 @ 090
Paper Passport Volumes 97,520 66,653 30,867 @ 989,738 775,926 213,812 @ 4,325,118
Paper Passport Market Share 31% 28% 3% @ 26%
UKVI Volumes 56,161 36,376 =—19,785 @ 294,123 240,071 54,052 @ 402,998
Secure Collect Volumes 63,303 67,280__—(3.977) 9 173,978 168,055 5,923, S 301,080
Tax Renewal volumes 592,037 582,776 9,261 @ 3,871,573 3,719,619 151,954 @ 6,957,814
4Oyr Renewal Volumes 27,252 29,805 (2,553) @ 164,743 189,397 (24,654) 8 289,504
Service Penalties £ 29,876 44,000 (11,124) @ 245,537__ 246,000 (463) 500,000
LOA 2 Volumes 54,364 25,220 29,144 @ 325,532 216,207 109,325 e 390,408
LoA 2 Market Share 53% 50% 3% @ 53% 50% 3% @ 50%
LoA 2 Conversion rate 53% 55% (2%) @ 54% 55% (1%) @ 55%
Lo 1 Volumes 5,319 12,395 (7,076) ® 38,616 73,856 (35,240) @ 180,214
LoA 1 Market Share 28% 40% (11%) @ 32% 40% 8%) @ 40%
LoA 1 Conversion rate 75% 74% 1% @ 74% 74% 0% 74%
Re-Registration Volumes 0 1311 (4,311) @ 16,659 8,557 8,102 @ 30,790
Services Live 18 20 (2) @ 18 20 (2) @ 20
©)
Post Office®™ Post Office Limited ~ Commercial in Confidence
POL00026936
POL00026936
Identity: P6 Trading Profit £0.3m favourable to budget; YTD +£2.8m
Verify continues strong growth but YTD favourable variance to be eroded by price decrease
em y1D
BRR CRORE MARANON EI COSAMALLUURSRE Manan NETS io) UKVI BRP volumes have been strong in P6. This
22 s Co @ 8% “et “16% was expected in both P6 and P7 due to student
Os Os 0.0 3% 35 35
os o4 of 34% 27 24 admissions. There is a risk increased P6 volumes
ia os 08 wa 8S 84 relates to both months and these will be
ment Agency, 04 0.0 0.0 52% O7 06 . .
Total Revenue 46 $7 09 1% 20.7 26.0 ‘ monitored closely in P7.
Cost Of Sales (0.6) (0.4) (0.2) 103% 8.2) (2.5) (0.7) 71%
Net income 40 33 07 2% 26.5 23.4 3.0 1% @) LoA2 volumes continue to be above budget by
dacnes Pay on ae oo Pe “ vil 51% YTD. YoY volumes have increased by 123%
Managed Services - Penalties (0.0) 0.4) 0.0 0% (0.3) (0.4) ot 0% and are driven by Universal Credit applicants
peek oo oe we @ feos os ‘o 3 oe we who can now use Verify. Post office is the market
Trading Profit 25 22 03 11% 178 16.0 28 % leader in LoA2 with a market share of 53% which
has grown by 10% YoY.
© The strong YTD performance will be offset after
P6 when the new agreement with GDS will be
signed. GDS have provided updated pricing tiers
in accordance with the saving targets of 75%
from Treasury. Discussions are in place with our
supplier Digidenity regarding the current pricing
of the Verify product, as well as the launch of
our Digital Identity MVP which will be the future
income generator for Identity Services.
@® Overspend relates to backdated charges from
Royal Mail which have been accrued but are
being challenged.
©
Post Office® Post Office Limited ~ Commercial in Confidence
Identity:
Home office & Verify volumes
POL00026936
POL00026936
80,000
70,000
60,000
50,000
40,000
20,000
20,000
Petiod 1 Per
358,000.00
s9R080.00
20820K
190,000.00
109,000.00
SO,g000.08
UKVI Volumes.
1042 PeriodS Patiod 4 Period Period Period? Period Period 9 Perivd 10 Period 35 Period 12
‘BR UIC BRSecuse Cofect ~~ UWI BAP Budget -o~ Secure Collect Buciget
Passports Volume
Pevias 7 Ooi’ Reins 4 Aras
Besos? Resa Revd @ Becuae 2b evea UE Ohta 38
kad 2 Velome
Rene Pee
+ UKVI upside in P6 is attributed to the student surge period (Sept- Oct)
and the early effects of Brexit. This will be monitored in P7 as there is the
risk that the majority of student volumes came through in P6 and
volumes will cool down in P7 making this a one off event.
+ Passport YTD Volumes are higher than budget 4%, but due to them
coming from our Paper Channel rather than both Digital and Paper our
overall income is flat (due to £4 price difference). YoY volumes have
dropped by (30%). PO market Share YTD is 31% ( YoY/YTD drop (10%)).
DC&S has launched in P7 and we will monitor any channel and Market
share shift
+ LOA 2 volumes are trending at 121% of Budget driven by the roll out of
Universal Credit. YoY volumes are up by 50% (325k accounts in H1).
Volumes are project to grow compared to budget in H2 but the significant
price reduction will shrink considerably the Net margin by from £16 to an
average of £4 in H2
Post Office®™
©)
Post Office Limited ~ Commercial in Confidence
POL00026936
POL00026936
Finance & Operations: P6 Trading Profit (£0.2m) adverse to budget; YTD
(£1.6m)
sm
Actual Budget Variance YoY Actual Budget Variance YoY
Revenue 07 0.9 (0.20) -26% 47 5.2 (0.6) 2%
Cost Of Sales 0.0 0.0 0.0 nia 04 0.0 0.4 nla
Net Income 07 0.9 (0.2) 2% 48 5.2 (0.4) 1%
Staff Costs (44) (4.3) (0.1) -5% (25.7) (25.6) (0.0) -3%
Staff & Agent Related Costs (0.2) (0.2) (0.0) 43% (1.4) (1.3) (0.1) “1%
Property & Facilities Management (2.3) (3.2) 0d) 23% (17.8) (19.0) 122) 14%
Postage (0.5) (0.5) (0.0) 11% (3.6) (3.5) (0.1) 12%
Stationary (0.8) (0.3) (0.3) 41% (2.7) (1.8) (0.9) “21%
Finance & Losses (0.4) (0.8) 04 29% (4.7) (4.6) (0.0) -26%
Vehicles (0.2) (0.3) 0.4 16% (4.5) (4.8) 0.3 14%
Other (0.2) 0.6 (0.8(4) 245% (3.0) (1.5) (1.5) 8%
Trading Profit (8.2) (8.0) (0.2) 5% (55.5) (3.9) (4.6) 1%
@ Warehousing revenue budget based on pre discount amount; rate card reduction of 8.5% was agreed last
year, hence £0.4m adverse to plan YTD. Bank note distribution is down, less notes are being circulated and
CViT/CC are under performing in general.
@ £0.5m release on rent review accruals; BNP performed a review with the surveyors and there were properties
where a rent increase cannot be backdated. Also £0.2m transfer to capex in period.
©® £0.6m of YTD variance relates to provision for onerous lease.
@ Cost challenge included in P6 budget relating to closure of aged purchase orders. Exercise to review and
challenge all purchase orders over 6 months old is planned.
@)
Post Office® Post Office Limited ~ Commercial in Confidence
POL00026936
POL00026936
Operating expenses: IT
Actual Budget Variance YoY Actual Budget Variance YoY
Staff Costs 0.5 0.5 0.0 (25%) 2.9 3.0 0.1 (31%)
Staff & Agent Related Costs 0.0 0.0 0.0 7% 0.2 0.3 0.1 (81%)
IT Infrastructure & IT Services 6.6 7.6 1.0 1% 42.5 46.0 3.6 12%
Managed Services 0.1 0.2 0.1 310% 2.0 1.8 (0.2) 19%
Consultancy & Advisory Services 0.2 0.1 (0.0) (48%) 0.8 0.6 (0.2) (78%)
Other 0.0 (0.6) (0.6) 537% 0.0 (18) (1.8) 184%
Total Operating Expenses 74 7.8 040) 4% 48.3 50.0 1.6 G) 8%
© P6 consistent with prior periods as savings banked earlier than expected.
£0.11m Accenture BO costs transfer correction to projects, £0.15m Verizon old PO closures,
£0.06m Security SOC programme delay.
@ __ YTD favourable variance of £1.6m to be re-forecast to cover part of cost challenge in ClO IT
budget
- £0.45m underspent in licences
- £0.5m Security SOC programme delayed
- £0.5m BT credit for Networks offset by higher run rate than budget
This is expected to be utilised against future costs that will be incurred. Other staff cost savings
due to vacancies being filled later and recovery of CTO architect resources from projects.
ATOS incremental YTD volumetrics -£0.5m.
©
Post Office® Post Office Limited ~ Commercial in Confidence
POL00026936
POL00026936
Operating Expenses: HR, Communications, LRG, Central
HR staff costs in period and YTD variances resulting from incentive payments
ea Actual Budget Variance YoY Actual Budget Variance YoY (©) Reduction of FY18/19 bonus accrual
Staff Costs 110015 0.4G) 51% 92 88 — (0.5)@) 0% to reflect quarterly CSC and ASM
Staff & Agent Related Costs 0.2 0.2 0.1 218% 11 1.3 0.3 15% payments made in PS.
Finance & Losses 0.3 03 (0.0) (46%) 16 16 (0.0) (36%)
Other 0.0 O01 0.0 165% 04 04 0.0 17% A
Total Operating Expenses 16 24 0.5 53% 123 12.4 (0.2) (3%) ie) (nbudeeted one. ff incentive
payment and prior year under
Actual Burget Variance YoY Actual Budget Variance YoY accrual.
Staff Costs 06 06 0.0 (29%) 34° 35 0.0 (22%)
Staff & Agent Related Costs 0.0 0.0 0.0 (254%) O01 0.3 0.2 57%
Consultancy & Advisory Services 0.2 0.0 (0.2) (69%) 0.4 0.4 (0.0) (3%)
Legal Costs 01 01 0.1 480% 06 08 0.3 85%
Other 0.0 O01 0.1 (87%) 03 0.4 0.0 (65%)
Total Operating Expenses 09 09 0.0 (8%) 48 5.4 0.6 (10%)
‘Communications Actual Budget Variance YoY Actual Budget Variance YoY
Staff Costs 0.2 02 0.0 © (21%) 09 «09 0.0 (10%)
Staff & Agent Related Costs 0.0 00 0.0 © (27%) 01 0.0 (0.0) 69%
Brand & Marketing 0.2 0.4 0.2 104% 16 2.0 0.4 (10%)
Other 0.0 (0.1) (0.1) _ (179%) 0.1 (0.4) (0.5) _ (84%)
Total Operating Expenses 04 05 0.1 27% 2.7 2.6 (0.4) (411%)
oe Budget Variance YoY Actual Budget Variance YoY
Staff Costs 0.3 0.0 (37%) 19 1.9 (0.0) (27%)
Finance & Losses oo) 0.2 0.2 27841% (0.8) (1.0) (0.2) (29%)
Growth Fund 08 08 0.0 (100%) 48 48 — (0.0) (100%)
Brand & Marketing 08 02 (0.5) na 10 0.5 (0.6) (49%)
Other 1.0 0.0 (1.0) 54% 140.1 (1.3) 236%
Total Operating Expenses 29 16 (1.3) (32%) 8.3 6.2 (2.4) (26%)
©
Post Office® Post Office Limited ~ Commercial in Confidence
POL00026936
POL00026936
ae 4
Change Spend
YTD spend is overall on track with latest forecast but with key variances
in individual projects in Retail, POI, identity & IT.
Key Variances
is vs yrs
Actual Forecast wien Ee, Forecast Actual Budget
Underspend is due to stower than expected progression of various small projects relating to
Retail 22.0 13.9 27.0 435 (4.6) 83 oS new types of payments, There are also delays in projects PCi compliance and Smart Metering.
Mails Programmes ot 02) ot 04 (0.4) :
Cash & Banking Services - - - - (0.3) - - Bao] Key driver for Network Development's underperformance continues to be the reduced
Bill Payments Projects 04 (0.3) os 21 9) activity in press releases and marketing
Automation: 01 {0.2) 0.2 14 (0.4) : - Underperformance is mainly driven from i}Branch Opening Hours project delayed
ome w2 144G) 169 9 247 (4) 5708 termination due to change of projects scope generating more staff cost but lower
Network Development. 14 {L.0) 34 TA (14) 08 (00) termination & signage cost - project will be closing later than expected but with overatl
Network Transformation 32 18 3773 savings & ii) EUM project underspend as programme continues to catch up with original
Other Retail 08 03) 173s phasing -a revised approach and a project extension has heen discussed to be submitted with
ae a project extension to Jan 2039.
Financial Services & Telecoms os 33) 70 _ 116
Eagle 04 os 05 ‘Overspend in period is caused by Onerous Contracts provision accounting treatment finalised
Telecoms 02 22-50 in month but forecasted earlier in the financial quarter.
‘Other (0.2) {2.a) 42 6.0 Project Galaxy delivers more than expected benefits as less than expected customers have.
pot 4.0 19 so 52 taken free broadband product or opted out in home phone offer.
identity oa (2.0) oa 1.0 ‘Overspend is driven by payment to Accenture for Project Cronus and Nemesis within the
T & Digital 33. (07) 289 466 period - costs will be normalized in the rest of the year to bring the spend back to the initial
forecasted view.
EUC Branch Deployment (0.4) (2.2) 73 i1e
IT Back Office 24 0.2 64 112 Underspend relates to the wider identity Business case subrnission being rescheduled for mid
IT Networks (0) 0) 8} (5) October rather than August according to the original planning after the GDS price changes.
other IT os 44) ae (NEB) O40
Project Everest 3.0 30 37 5.2 3a (>) O4 (0.2) Project is delayed until January due to defects in the cash forecasting solution, coupled with
2 RER 02 (0.3) 40 58 20 - . tisk if full solution rolled over during change freeze period.
~ Reptacement of Counter Receipt Stip Printers 1s 0s 20 48 (0.7943) 0.3 03 Overspend relates to ASM Restructuring Credit payment committed to in month, ahead of
Solar 04 (06) 1942 fo. - - forecast with an overall increase in project's cost updated in 6+6 forecast.
Finance & Ops 08 (03) 25° 30 (1.0) : : ‘olar monthly development run rate slightly lower than forecast, vith underspend likely to
Finance 01 {0.0) Os AL On - - build through the year.
oroperty OS 02 os 0——«{02) . . Underspend relates to delays in mobilisation of projects Culture Change and Fit & Proper.
Supply Chain 02 02 oo (04) (0a) : - Variance is phasing related and have no overall impact in the delivery of the project.
Humen Resources. £2 {0.4) 25. 23. (4.0) 25. = Variance is related to PO's reconciliation with costs recognized in month and have no overall
Legal Risk & Governance 12 (0.5) 67 85 (03) = = impact in the delivery of the project.
central og 06 oz 08 04
Grand Total 37323 798 Gas uo) aes ae
‘Anticipated savings or slippages to FY19/20 77 23.2
‘Fatal Change FY 2016/19 378. 20.0, 7o8 1225 222 163, rey
ofw
Capex 13.5 (2.0) 438 69.5 4a
Exceptional 26a 220360 3.0 TBA (ae
g, Post Office® Post Office Limited ~ Commercial in Confidence
Cash Holding Position
POL00026936
POL00026936
Previous Finance Year Reporting
Year end Period Variances
Period 6 Period 12 Period 6 Previous
FY-17/18 FY-17/18 FY-18/19 Year Year End
Network Cash (before Demonet.)
Branch
£ Cash Holdings
FX Cash Holdings
Total in Branch
Cash Centres
Inward Rems
Outward Rems in Transit
Machine Room - Awaiting Processing
Old £1 Coins
548.1
103.9
112.9
543.2 4835 G) (646) (59.7)
60.0 82.0 (21.9) 22.0
603.2 565.5 (86.5) (37.7)
212 53.4 (28.9) 31.9
55.2 28.9 (11.6) (26.3)
35.4 144 (39.9) (21.0)
14 (4.0) (0.7)
Total in Cash Centres 1812 96.8 (844) (16.1)
Total - Buffer (cash centres) 118.2 134.5 65.5 (527) (69.0)
Total Other 444 312 24 (16.7) (3.8)
Network Cash (before Demonet.) 755.2 (240.3) (126.6)
Funding Position
- Cash Available to Treasury
- Government Loan
- NRF Usage
- WC Funding Network Cash
Net Funding Position
70 04 06 (6.4) 02
(7140) (623.0) (692.0)(2) 220 (69.0)
(189.0) (237.8) (156.6) 324 81.0
(99.5) (21.8) 928 1923 1144
(995.5) (381.8) (755.2) 2403 © 126.6
First time branch cash holdings reduced
below £500m.
Loan usage is higher than normal as we
haven't received £50m Q2 investment
funding from UKGI yet.
Post Office®
Post Office Limited ~ Commercial in Confidence
©
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Quarterly Delivery Report and Funding Request
Author: Cem Oztoprak Sponsor: Alisdair Cameron Date: 30 October 2018
Executive Summary
Context
As part of our funding agreement, the Board has to approve a quarterly report and request
investment funding. The Board approved £35m for Q1 and £50m for Q2, with all the funds
received.
Questions this paper addresses
1. What was Q2 change portfolio spend?
2. How does the 6+6 re-forecast compare to the plan?
3. What benefits have been delivered in Q2 and what is the full year expectation?
4, What is the change plan and funding requirement for Q3?
Conclusion
In Q2, we spent £80m (YTD £123m) out of a budgeted annual spend of £255m, of which BEIS will
contribute up to £168m. The total change spend in Q2 was £22m more than forecast. As we
improve the change process, we had seen several quarters where spend was delayed and had
therefore aimed off our submission by £20m.
We delivered Q2 YTD benefits of £16.9m (plan £15.7m) and are forecasting £38.9m of full year
benefits against a plan of £40.2m. The reduction in benefits is mainly due to delays in projects
including the move to cloud from the Belfast data centres.
Based on our recent 6+6 re-forecast, we expect to spend £62m in Q3. As projects are in delivery,
no major delays are expected.
Our current forecast of full year spend slightly exceeds the £255m and will either be prioritised
down or funded by Post Office where required.
We are requesting a payment of £60m for Q3, giving funding requested of £145m out of £185m
spending in the first three quarters.
We have been in close dialogue with UKGI on the request, the supporting documents and their
need for assurance, which will be discussed at the ARC. This dialogue may continue after the
Board.
Input Sought
The Board is asked to approve the request of £60m funding for Q3, giving delegated authority to
Paula Vennells and Al Cameron to finalise the precise details and supporting documents with
UKGI.
42 of 116
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The Report
What was Q2 change portfolio spend?
1. In Q2, £80m was spent as change against a £58m plan. UKGI funded projects were overspent by
£21m. As we improve the change process, we had seen several quarters where spend was.
delayed and had therefore we aimed off our Q2 submission by £20m.
Simplify the retailer proposition £23.0 £24.3 £1.3)
Build innovative, flexible and secure IT £12.2 £21.4 £9.2
Modenise our products and services £7.2 £11.9 £4.7)
Digitise and optimise the business £3.6 £3.6 £0.0)
Modernise our skills, culture, HR policies and procedures £3.7 £6.3 £2.6)
Regulatory & Group litigation £4.1 £7.1 £2.9I
TOTAL UKGI Funded £53.9 £74.6 £20.7)
TOTAL Change Spend £57.6 £79.8 £22.2)
Please see Appendix I for project level spend details and Appendix I! for variance explanation.
How does the 6+6 re-forecast compare to the plan?
2. For projects delivering in-year benefit, the recent reforecast (6+6) submission showed a spend of
£36m more than the budget of £124m. This is mainly driven by the approved increase in back
office transformation (£13m) and acceleration of DMB closures (£9m).
£m
Further franchising DMBs
Network Expansion 18.7 18.7 (0.0)
Multi-year Crown Project 9.6 98 (0.2)}
Self Service Kiosk Rollout 14 2.0 (0.6)
enelivinn a a
POMS Investments 123 113 10
Project Galaxy 18 48 {3.0)I
Pci/Payments Hub
EUC Branch Deployment
Branch Printer Replacement
Project Nelson
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e Further franchising DMBs: We announced more ambitious plans at the end of July (to
close 227 DMBs vs. 177 as per 3YP) creating additional onerous contract provisions. The
additional spend brings additional benefits in future years.
e Falcon — Travel Hub: Additional costs were incurred in accelerating the delivery of the
minimum viable product to allow closure of the FRES TMC app and the refinement of the
travel platform.
e Branch Printer Replacement: Subject to approval, we are forecasting to replace 100% of
branch printers previously planned at 70%.
« Back Office Transformation: As discussed at the board, the project is expected to overrun
by £13.2m with planned go-live date in January.
e Group Litigation: Costs increased following the negotiations with the legal firm some brand
protections work.
* Some projects such as EUC branch deployment and CDP re-procurement were not
captured in the 3YP as there were anticipated to be captured in 2017-18. No funding was
requested for this change in Q1
3. At the same time, we are likely to spend less on future-benefit delivering projects within this
financial year. Costs are now expected to be £88m, down from £104m.
lem
Agents / Postmasters Portal 3.8 6.2 (2.4)
Solar Full (HNGT) 82 10.8 (2.6)I
Falcon - Additional Verticies 8.0 (8.0)
Mails Projects 22 113 (9.1)
Identity Services Investments. 54 114 (6.4)
Banking Framework — Future of Cash incl. vehicles 12 10.0 (8.7)
Reclassification from capex to opex (5.0) 5.0
[Sale & Leaseback (20.0) 20.0
[Telephony Routers 24 24
Project Panther (integration costs only) 57 16 41
Falcon - Peregrine negotians and implementation 15 20 (0.5)
Digital Developments 16 16
Eagle 2.0 3.0 (1.0)
Other Smaller Projects 5.9 12 43
Risk and Resilience 73 75 (0.2)
End-of-Life Replacements 34 40 (0.9)
Project Trafalgar 22 40 (2.8)
Other Smaller Projects 3.2 11.7 (8.5)
1g Supply
Success Factors Phases 2&3 14
Property 33
Project Arrow (BI Strategy)
ct
Other Smaller Projects
[Total in year projects az
Prioritisation Review (18.8) (18.8)
10
Carry Forward Projects
Strictly
Bow
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The reduction in spending is a result of the changing landscape and priorities.
« Falcon — Additional vertical: Further assessments are being made over how we can utilise
the existing travel hub platform more effectively. Until then, the future spend has been
taken out of the forecast.
* Mails: We are not at a point in the RMG relationship where spend can be triggered
e identity Services: Due to time spent finalising the identity services strategy and product
roadmap, the planned spend has been delayed into next year.
¢ Banking Framework — Future of Cash: More of this spend is likely to be BAU opex, not
capital and has been as part of the opex re-forecast.
e Sale & Leaseback: Project is currently abandoned as the business case is not compelling.
« Enabling Supply Chain: Full detailed review is currently on going to optimise supply chain
and therefore planned spending has been delayed until the roadmap is crystallised.
4. Our current projection forecasts spend of £274m in year which will require us to deprioritise £19m
in order to bring the spending in line with the plan. A document on the prioritisation process has
been shared with UKGI and can be made available to other Board members. We will revert in
January with a 9+3 re-forecast reflecting the result of the above review including the benefits
implications.
Qi Q2 Q3 a4
£m Cumulative I I Cumulative I I Cumulative I I Cumulative
Change Plan Spend £65.0 £ 140.7 £ 201.1 £ 255.0
Change 6+6 Reforecast £428 £ 122.5 £ 184.1 £ 255.0
UKGI Funded Plan Spend £35.0 £ 90.0 £ 140.0 £ 168.0
UKGI Funded 6+6 Reforecast £ 35.0 £ 85.0 £ 145.0 £ 168.0
Benefits Plan £82 £157 £ 26.2 £40.2
Benefits 6+6 Reforecast £79 £ 16.9 £ 27.0 £ 38.9
5. We are requested to submit (Appendix III) a review of our spend to 2021 compared to the 3YP.
This shows a significant increase in requested spend. However, very little spend has been
committed for next years and we will review future spend in detail over the next 2 months,
reporting to the Board in January with next year’s change plan.
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What benefits have been delivered in Q2 and what's the current full year
benefits expectation?
6. Q2 projects delivered YTD benefits of £16.9m, slightly ahead of plan of £15.7m. In year benefits
are expected to be delivered broadly in line with the plan.
em
Further franchising DMBs
Network Expansion
ISolar Full (HNGT)
Multi-year Crown Project
Self Service Kiosk Rollout
the retailer proposition
PO Insurance Investments
Project Galaxy
Falcon - Travel Hub
lOther Smaller Projects
Project Everest - Cloud Enablement
PCI/Payments Hub
EUC Branch Deployment 04
Branch Printer Replacement 03
Project Nelson on
ICOP re-procurement
Sofware Asset Management
[Success Factors
Back Office Systems Transformation
FOTAL
The key variances are:
¢ Travel Hub: Due to 2 months delay in the launch of the hub, the benefits have been
delayed. Program has also been affected by the slow travel market.
e Project Galaxy delivers more benefits as fewer customers are taking up the free broadband
offer.
e Solar HNGT, PO insurance and Project Everest: Benefits reduced due to delays in
mobilising the projects.
Strictiy Co
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What is the change plan for Q3?
7. Weare forecasting spend of £62m in Q3, excluding the spend on Payzone acquisition which we
fund separately. We are requesting £60m UKGI funding. As of Q3, UKGI total funding will reach
£145m, leaving £23m to be requested in Q4.
Approval I Strategic
£m G3 Forecast) tus Prior I Stage
Further franchising DMBs incl. old Crown project £2.9 ¥ Execute
Network Expansion £6.1 ¥ Execute
Solar Full (HNGT) £19 ¥ Execute
Self Service Kiosk Rollout £03 ¥ Execute
Agents / Postmasters Portal €1t ¥ Execute
Other Smaller Projects £18
esign
POMS Investments £26 Execute
Identity Services Investments £14 Execute
Project Galaxy £0.1 Execute
Falcon - Travel Hub £2.2 Execute
Telephony Routers £0.7 Execute
Project Panther (integration costs only) £24 Execute
Falcon - Peregrine negotians and implementation I £0.7 Execute
Digital Developments £0.3 y Execute
Eagle £0.9 y Execute
Other Smaller Projects £7
Project Everest - Cloud Enablement £5.2 v Execute
Risk and Resilience £12 ¥ Execute
EUC Branch Deployment £2.0 ¥ Execute
End-of-Life Replacements £13 ¥ Execute
Branch Printer Replacement £1 Execute
Project Nelson £15 v Execute
CDP re-procurement elt v Execute
Project Trafalgar £0.7 y Execute
Enabling supply chain and back office improvemenI _£0.6 y Design
Property 63.7 Execute
Project Arrow (BI Strategy) £08 Execute
Success Factors £0.6 Execute
Other Smaller Projects £15
Back Office Systems Transformation £6.0 v Execute
GDPR £0.8 ¥ Execute
Group Litigation 2.4 ¥ Execute
Other Smaller Projects £14
Excluding Q3 Projects Panther spend
IQ3 Funding Request
. Approval at Gate 2 or beyond, development in progress
Approval at Gate 1, designing the project
hy Confidential
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APPENDIX I — Q2 Project level spend analysis
ém
Further franchising DMBs incl. old Crown project 170 16.9 (0.1) @
Network Expansion 34 34 0.1 e
Solar Full (HNGT) 19 19 0.0 @
Self Service Kiosk Rollout 03 aa 08
Agents / Postmasters Portal 05 O1 (0.4)I o
Other Smaller Projects 0.1 0.9 08 Ed
Mails Projects - 0.1 1 @
PO Insurance Investments 3.3 5.0 17 o
Identity Services Investments 7 04 (1.3) @
Project Galaxy 0.0 (0.1) (0.1) @
Falcon - Travel Hub 1.0 28 17
[Telephony Routers. 03 0.6 04 Py
Project Panther (integration costs only) - 08 08 @
Falcon - Peregrine negotiations and implementati 0.6 0.6 (0.1) @
Digital Developments 03 07 04 c)
Eagle 0.0 05 Os eo
Other Smaller Projects (0.0) 0s 05 @
Project Everest - Cloud Enablement 04 37 33 @
Risk and Resilience 14 4.0 26 8
EUC Branch Deployment 39 73 33 @
End-of-Life Replacements 2.0 19 (0.1) S
Branch Printer Replacement 2.0 20 O41 e
Project Nelson 1.0 09 (0.1) 9
COP re-procurement 12 14 03 ®
Project Trafalgar 04 08 05 e
Other Smaller Projects - (0.5) (0.5) 9
Enabling supply chain and back office improvemeI 0.0 01 OL @
Property 1.2 10 (0.2) 9
Project Arrow (Data warehouse/BI) 03 04 OL °
Success Factors 14 05 (0.9) @
Other Smaller Projects 0.6 16 09 Ss
Back Office Systems Transformation
IModernise our skills, policies and processes
IGDPR 16 °
Group Litigation 23 @
Other Smaller Projects 0.2 oS
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APPENDIX II - How major projects have performed in Q2?
Simplify the Retailer Proposition
Network Programmes
Overall, we plan to franchise 80+ DMBs this year and open 338 new branches at a cost of £82m,
including the onerous contract provision. At the end of Q2, we have franchised 12 DMBs (7 in Q1) and
opened 123 branches (83 in Q1) and spent £21m.
Lower spend due to negotiations with Fujitsu on DDS billing (now resolved), minimum viable product
(MVP) is currently expected in Feb’19.
Whilst Project Ph1 continues broadly on schedule, the funding and deliverables for Project Ph2 are
currently being agreed with Retail.
Build Innovative, flexible and secure IT
CBP re-procurement
Transition to Amazon Web Services (AWS) has been completed and the project is beginning to close
out.
EUC Branch Deployment
Delivery of 27,000 branch technology refresh is on track to be completed in late October/early
November.
Overspend has been caused as a result of ASM restructuring payment which was originally planned for
Q3. Next business case for cloud enablement is being worked but the initial view of the costs are higher
than the 3YP.
Modernise our Products and Services
Post Office Insurance
Post Office Insurance projects present an overall overspend of £1.7m and this was a result of finalising
of negotiations with Accenture and hence the timing of the spend as per the statement of work to migrate
Home insurance to Duck Creek system (Project Nemesis) due to increased focus on detailed design
which has moved the spend phasing back.
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identity Services
The HMPO Digital Check and Send project went live in 14 pilot sites on the 1st October and a further
133 pilot sites on the 15th October. The pilot has been broadly successful, generating 600+ digital
applications and a success rate of over 97%. The service is scheduled to be rolled out to the remaining
network of AEI sites (c.580) on the 29th October. The rest of the spend has been re-planned following
review of identity product strategy and roadmap.
Digitise and optimise the business
Data (Project Arrow}
The Data project, covering strategy, governance and delivery, has been passed pending the IT team
agreeing the future of Credence.
Modernise our skills, culture, HR policies and processes
Continued progress on replacement of POLSAP. The budget plan was June completion however due to
delays in the project, the current plan is to be completed in January which resulted in £13.2m of
increased costs.
Strictly Confidential
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2 UKGI Quarterly Report
POST OFFICE
APPENDIX Ill - Current 3 year spend forecast
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BOARD
PERFORMANCE UPDATE
Retail CE’s Report - October 2018
Author: Cathy Mayor Sponsor: Debbie Smith Meeting date: 30 Oct 2018
Executive Summary
Context
The Period 6 Retail Commercial Performance Report for the Board.
Questions this paper addresses
1. How are our sales and revenues performing against our targets and prior year?
2. What are the implications for our outlook and plans?
3. Competitor Information
Conclusion
1. Retail has started the year well, holding year on year income flat, ahead of Income
budget by £1.8m and ahead of profit budget by £6.2m. No further upside to budget
is anticipated in H2.
2. Network customer sessions have fallen -1.9% year on year in the quarter consistent
with BRC reported High St footfall decline, averaging 10.0m sessions per week vs
10.2m per week in Q1.
3. Customer service levels have continued to improve through the quarter across the
network driven by the focus on customer drivers. Year on year P6 Effort improved
+1.5% to 83.5% and the new Customer Driver score average is 87.1%.
4. In Mails, underlying trends continue with strong volume growth in Home Shopping
Returns +27% and premium services (Special Delivery) offsetting systemic decline in
stamps.
5. In Banking, volume growth trends continue with withdrawals +30% and deposits
+66% in Q2.
Input Sought Input Received
For the Board to review and note. RLT
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The report
Overview of Financial performance
vip FULL YEAR
Gross Income (£m) Actual vs Bud vs PY %Var PY Bud PY Var PY
Mails Trading 1346 0.9 6.7 8% 289.1 278.1 5%
Mails Non-Trading 28.3 68 (1.6) “5% 55.8 89.8 -7%
Banking Services 48.4 1.0 $3 18% 97.0 «87.8 10%
ATMs 146 (1.0) (0.9) 6% 34.2 30.0 8%
POCA 15.5 (6.5) (5.8) +27% 29.7 40.5 -27%
Payment Services 119 (04) (1.4) “11% 26.8 74 “1%
Retail & Lottery 18.8 68 (2.6) 742% 39.0 44.4 212%
Retail OPC (em)
Mails
Cash and Banking Services
Payment Services
Retail & Lottery
330.3 54%
35%
Retail Totel DPC
Fixed Agents Pay (20.5) LS 163.9 89% {43.9} (372.8) 88%
Network & Sales (36.8) (0.6) 32 8% 08.7) 03.6) ~hi%
Retail Programme Costs (3.2) o4 (4.2) -54% 8) (4.8) 55%
Retail Central Costs (2.4) 03 (0.7) 52% (6.0) (4,5) 22%
1. Retail has started the year well, holding year on year income flat, ahead of Income
budget by £1.8m and ahead on profit by £6.2m.
2. The £6.2m profit YTD upside is predominantly driven by more accurate Agents pay
methodology enabled by ART, £2.5m; conclusion of commercial negotiations with RMG
re SSK over-billing and stamps under-billing which facilitated the release of an £1.5m
accrual; a successful Mails annual count process generating £0.7m YTD (FY £1.6m)
and lower card processing fees, £0.7m YTD (FY £1.5m).
3. Excluding the £1.5m accrual release, overall income is -0.5% down on prior year.
Continuing positive trends in Home Shopping Returns and Banking deposits are
mitigating long term volume decline in most retail products.
4. As anticipated, the number of POca account balances dropped below the 1m tier
threshold in P4 so we are now seeing a small upside of £0.2m per month. This will
recover the YTD shortfall built up in Q1 before the year end, assuming the current rate
of account closures.
5. Looking ahead to H2, our view of opportunities balances risks, so full year we
anticipate profit upside of c£6m in line with the YTD actual.
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Market Update
6. BRC reported footfall decline of -1.4% total and -1.9% for high streets in the quarter,
with September worse at -1.7% total and -2.2% for high streets. The High Street
remains very challenging with Coast the latest casualty, going into administration last
week with 24 shops set to close.
7. The Competition & Markets Authority has agreed to progress, and fast track, the
proposed merger of Sainsbury and Asda to Phase 2 Review despite highlighting risks
to lower levels of competition at both a national and local level. Tesco also reported
strong progress on integrating with Booker in its half year results in October with
Booker contributing 11.8% to group sales growth and contract wins following the
collapse of Palmer & Harvey last year.
8. The Association of Convenience Stores issued its 2018 Local Shop Report in September
highlighting the continued strength of the UK convenience sector, predicting annual
sales growth of 2.6% for the year to December 2018. The report also highlights our
value to customers in this sector with the Post Office again being the service
recognised as having the ‘most positive impact on a local area’ and the third most
wanted service.
9. Royal Mail announced a profit warning to the financial markets on October 1st,
reducing trading profit expectation to £500-550m. Key drivers are efficiency targets
not being met, margin pressure in GLS and accelerated decline in marketing mail
(addressed mail declining -7%). This has resulted in a downward correction in the
share price dropping below its IPO price to around £3.50, from £4.77. The market
response to Royal Mail's profit warning indicates a growing shareholder awareness of
the challenges faced in delivering cost reductions and benefits from the recent pension
agreement, as well as setting a more challenging context for impending negotiations.
10. The GDPR related decline in marketing mail highlighted by RM was largely anticipated
by the market, although there is no consensus on the depth or duration of decline.
There is no expectation of a fundamental collapse in letter volumes as seen in markets
such as Denmark.
11. UK Mail, the parcel operator, has been rebranded DHL Parcel following its acquisition
by Deutsche Post in 2016, and have confirmed their purchase of the Pass my Parcel
network adding a UK PUDO network to its international capabilities.
12. LINK trial with Paypoint for cash withdrawals continues, now added to by a further
‘pilot’ scheme for Business banking being run by a combination of RBSG, LBG and
Barclays with Cardtronics and Vaultex. This may challenge our business banking
volumes from 2020 onwards as these trials are evaluated and then roll-out.
13. Bank closure announcements continue, with a further 300 RBSG branches now being
closed in 2018/19.
Customers
14. Network customer sessions have averaged 10.0m per week for the last three months,
a -1.9% reduction year on year, and in line with BRC reported High St footfall decline.
tial
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CURRENT LAST P6 I Year or
PERIOD PERIOD Periog YTD last I Year get
(P6) (Ps) change Year
+15
Effort (% saying Post
Office is Easy to do voc
business with)
83.5%
84.4% -0.9 83.0% 82% 82%
Wait time Acceptability voc 95.9% 96.2% -0.3 95.7% 94% +19 N/A
15. Network Effort has seen continued strong performance. With branches focusing on
Drivers we can see the benefit feeding through to the Effort score, +1.5% ahead of
target and +1.5% YOY. Wait time acceptability continues its strong performance at
95.7% YTD which is +1.9% YOY.
Customer Drivers (CDS) (Measured for the first time this year)
Current Period
Period ue yr
(6) 2
Overall Customer Driver voc 87.7% 88.0% 0.3% 87.1%
Score
Friendly voc 87.8% 87.7% -0.1% 86.9%
Professional voc 88.1% 88.2% 0.1% 87.3%
Knowledge voc 88.7% 89.2% 0.5% 88.3%
Understanding voc 88.8% 89.2% -0.04% 88.4%
Expectations voc 86.6% 87.3% -0.7% 86.3%
Efficiency voc 86.2% 86.3% -0.01% 85.5%
16. The Mails workshops are underway across the Network in preparation for the peak
Christmas trading period. They are focussing on increasing customer satisfaction and
sales income by the effective use of the customer drivers in the same way as the
successful Travel workshops earlier in the year.
Mails performance
17. Trading income is up +3.7% vs PY with improvements seen in Labels and Parcelforce
products following relatively weak performance in P4. P4 saw a temporary weakening
in performance reflecting the wider tough trading conditions experienced by UK retail
as a whole, with P5 showing a recovery to earlier performance levels. Parcel volumes
grew +1% and income +5% in H1 compared to Royal Mail UK parcel volumes and
income growth of +6%. International products remain below last year partly due to
changes in migration in advance of Brexit.
18. The recent investments in Drop and Go have seen continued improvements with active
accounts +15% at ~15k customers per week and transactions +12% at 50k per
week.
Cash & Banking performance
19. Overall cash withdrawals across the market (ATM and counter) continue to reduce at
an increasing rate (-7% YoY in Q2 vs -5% in Q1). This is impacting our ATM volumes
slightly less (-4%), but the impact is now noticeable and continuing. However counter
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volumes through the Banking Framework are holding well above budget so overall
banking services are up +14% YTD to £48.4m, +£1.0m vs budget.
20. The UKF/EST 5-point marketing plan has been completed and a new campaign in North
West England and South East Scotland is underway, supported by a Post Office
network-wide campaign.
21. Future of Cash pricing is under active development based on ‘pricing for value’ to the
banks rather than ‘cost plus’ for submission to the October and November Board
meetings.
22. In POca, DWP pressure on customers to migrate from POca accounts has now stopped.
We are still seeing c.30,000 customers per month migrate, increasingly onto Basic
Bank Accounts, which can also be serviced in any Post Office. Work on a formal POca
replacement is developing well.
23. ATM transactions have been slowing further through Q2, mirroring the general
reduction in cash withdrawals across other ATM networks (Q2 LINK volumes -7% YoY).
Availability issues are being addressed with availability now approaching 95% (vs 96%
budget). With c.2,100 of the 2,350 network consistently achieving 97% availability,
actions targeted at the c250 persistent offenders are having a positive impact.
Payment Services performance
24. The CMA has given an unconditional approval of the Post Office acquisition of the
Payzone bill payment business. Both organisations will complete the formal signing
of legal agreements by 24 October. Payzone Bill Payments Limited will operate as a
subsidiary of Post Office Limited, with Debbie Smith as Chair, Andrew Goddard as
Managing Director and Cathy Mayor as Finance Director.
25. Preparations for Day 1 ownership of the business are in final stages of completion,
across key Finance, IT, Commercial, HR, Marketing & Communications, and Risk work-
streams. Extensive Day 1-100 plans are also in place to manage the transition
between new and legacy Payzone businesses, and commence the immediate execution
of the business plan.
Retail Strategy
26. Development work on the Retail Strategy is ongoing and an update will be presented
at the November Board to include:
a. New formats being developed for pilot
b. Latest progress on our new, franchise model to include recruitment, on-boarding,
capability development, field leadership structure ,communication and engagement
and performance measures/data
c. Analysis of how the Strategy will improve our customer offer and ability to maintain
our network with fewer fixed cost outreach branches and temporary operators,
including a updated approach to agent pay
d. how we move from strategy to trial to roll-out
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27. In parallel we have been taking practical steps to implement the new approach across
our existing network. Examples include the ongoing franchise activity (see following
DMB section) and a review of all planned Network Transformation and business as
usual activity. This review led to 35 locations previously advertising for Mains being
changed to Locals, resulting in a £250k/annum saving on future agent pay.
Network Transformation Programme
28. The NT programme continues to perform strongly, having delivered 7,670 openings
and 7,756 contracts to date. 82 branches have already been converted this year and
a further 34 are planned in, meaning we will over-achieve our 2018/19 target of 100.
The programme will close in March 2019.
Directly Managed Branches (DMB) Programme
29. The DMB Programme is on track to conclude the Network Shape business case in
2018/2019, with a further 28 DMB exits and £4.6m of benefits to be delivered. We
are on track to deliver our in-year benefits, having exited 12 branches, progressed a
further 15 to contract stage or beyond and with one branch in the application process.
30. We also concluded a deal with WH Smith on 9th October to franchise a further 73
branches. We plan to franchise 41 branches in Q4 and the remaining 32 in Q1 19/20,
giving an overall P&L improvement of £4.7m per annum. The Edgware deal was
agreed on better commercial terms than Paddington and also includes, for the first
time, contractual provisions to incentivise better customer service standards across
the entire WHS PO estate.
31. Media reaction so far has been localised, reflecting MP and CWU statements. A small
number of local campaigns and petitions are underway. Publicly, 15 MP have
expressed concerns which we are addressing individually. Additionally the All Party
Parliamentary Post Office Group has convened a meeting to discuss our proposals with
us and there have also been calls for a Commons debate.
32. Our advertisement for temporary operators across our network, which was a
prerequisite for our starting the process to exit DMBs at pace where there is no
permanent solution available, went live at the end of August. We have had a good
response, allowing us to plan 10 exits on this basis for Q4.
Network Development Programme
33. We have opened 133 new Local branches so far this year. Our full year target is 338
and we are slightly behind schedule but aim to be back on track by the end of the
year. We are pleased to have agreed a deal with McColls for 37 new branches, which
reflects our improved relationship with our largest Multiple. Our pipeline of new
operators continues to be relatively strong with a total of 362 potential new branches
in the recruitment process. Despite this, securing enough good quality operators
remains a challenge and we are focusing on improving our recruitment and on-
boarding process to try to reduce the drop-out rate.
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Appendix 1 - Retail Scorecard
P2018
inca Wensum a 4
dees ineore om aa I aa lo as ae I mmo lo m2 ame sane
* Paty 2,784 2822, 13,756, : 14,278
sesch Minter + user I anes I9 aust ste 11300
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Appendix 2 - Retail Income by Product
vio FuLt YEAR
Income (&m) Act ot wr x¥ar PY Bud PY x¥arPY
Parcelforce 34 (04) o4 5% 27188
Special Delivery 246 00 o4 2m 0g 433 2%
International Priority & Standard #9 (12), (04) 2% 36 42 ™
Stamps 86 00 (02) a% 21 234 8%
Labels (Ist & 2nd Class} 448 (07) i % 7 ot ey
FIM Signed For 13 (05) o4 % 24 230 ex
Home Shopping Returns 108 08 28 Ea 221178 26%
Other Trading 102 29 27 3% se 18S ox
Annual Fee 233 08 (18) 1% 58498 8%
Mailwork & Mails non trading 50 00 oo wo 100
Retail (Inc Gift cards & Other)
Gift Vouchers branch 13 02
WHS Fietail Sales 06
Lottery Variable rey 14 (0.3) 2K 265 235 10%
Camelot Fixed ot a2 (0.0) “Ke os a9 fen
Health Variable of (0.0) (0.1)
Ith Fined 00 oo 0.0
Banking Services 484 10 59 Wx
Card Account 165 (0.5) (5.8) 2%
P:
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BOARD DECISION PAPER
Legal Entity Optimisation
Author: David Gemmell Sponsor: Jane MacLeod Meeting date: 30° October 2018.
Context
We have previously outlined to the Board the rationale for the creation of a HoldCo over Post
Office Limited based on the evolving Group Strategy.
Following detailed assessment of the strategy against the existing corporate structure, this paper
outlines the proposed optimum legal entity structure for Post Office going forward.
We are seeking Boards approval in principle to the proposed legal entity structure, to execute
the creation of a HoldCo, the movement of Post Office Limited, POI (trading as POMS) & Payzone
Bill Payments Limited to be subsidiaries of the HoldCo and detailed production of a Target
Operating Model & Execution plan to implement the proposed new entities, a Post Office Financial
Services entity and a Post Office Service Company.
Questions this paper addresses
What is the proposed Legal Entity structure & why?
What will this mean for Board & GE structures?
What other options did we consider?
What are the costs & timeline for establishing this structure?
AWN rE
Conclusions
1. Our assessment has confirmed, on a principles basis, the imperative to make some
amendments to the legal structure, including the creation of a HoldCo, a new PO Financial
Services entity and optimising the other existing entities (POI & Payzone) under HoldCo. It
is also proposed to create a PO Service Company to optimise the revised structure.
Our assessment found that the existing legal entity structure could not support the strategy
for Financial Services, as such the proposed structure is driven predominantly by the FS
Strategy:
« The FS Strategy includes the growth of POI including through acquisition.
* Bols increasing intent to exit the current relationship will drive us to exit Financial
Services or execute Peregrine. Peregrine anticipates Post Office being able to distribute
FS products manufactured by other firms on its behalf in addition to/other than Bol.
« In each case, the current structure will not be viable to allow such developments (this
is drawn out in more detail in the supporting pack) and therefore we propose to address
this through a phased restructure:
o Insertion of a HoldCo above POL, transfer of POI & Payzone BP to HoldCo.
o Establishment of a new FS entity and creation of a service company.
2. Our principal has been to only make those changes that are necessary, there are further
optional changes that could be made, but at this stage no compelling reason to do so
(establish separate entities for Identity, Telco or Hub; or move the interest in FRES), and
there would be potential tax disadvantages to doing so.
Strictly Confidential
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We also reviewed several options for Group services, selecting a Service Company as the
optimum option from a cost and complexity perspective.
3. We would seek to implement the proposed structure in phases:
i. Costs:
i. Phase 1: Initial Analysis phase has now completed (£297K)
ii. Phase 2 & 3: Establish HoldCo, movement of POI & Payzone BP (est £600K)
iii. Phase 4 & 5: Create ServCo & Post Office Financial Services (est £2,373K) -
You would only do this if you are going to execute the Peregrine strategy.
ii. Timeline
i. Phase 1: August 2018 - October 2018. (complete)
ii. Phase 2: November 2018 - February 2019 subject to SoS & FCA approvals.
iii. Phase 3: February 2018 - July 2019 subject to FCA approvals.
iv. Phase 4 & 5 Detailed Design & Planning: November 2018 - March 2019
v. Phase 4 Execution: April 2019 - October 2019
vi. Phase 5 Execution: April 2019 - April 2020 subject to FCA timelines.
Input sought
The Board is asked to approve:
1. The creation of the HoldCo above Post Office Limited, and transfer of POI & Payzone BP.
noting that further approval would be sought before operationalising the new structure, e.g.
transferring / restructuring employees, assets, governance, subsidiaries etc.
2. In principle; the proposed Legal Entity Structure and associated costs.
3. The detailed planning of Phases 4 & 5, with an expectation of further approval prior to their
execution,
Strictly Contidentiai
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The Proposal
1. What is the proposed Legal Entity structure & why?
Holico
Legend: Ml Es WH Joint Ventre Ml Proposed New Entity
11 HoldCo (Post Office Group): The creation of another regulated entity under Post Office
Limited would at best mean that Post Office Limited would have two inverted
Appointed Representative (AR) relationships with its subsidiaries, which would further
exacerbate conflicts of interest and may result in the FCA looking to have greater
oversight of Post Office Limited. Alternatively it could result in the FCA rejecting our
requests to execute part of the strategy within Financial Services. As such the
optimum approach is to create a new Holding Company which would sit over Post
Office Limited and the new subsidiary.
1.2 Post Office Insurance: POI (POMS) is currently a separate regulated legal entity and
would have to stay as such to execute its existing business and its strategy which
includes acquisition under project Nike. The strategy of growth will bring increased
regulatory oversight which may drive the FCA to seek to regulate all of PO or reject
our plans for growth & acquisition. POI currently has an inverted AR relationship with
Post Office Limited which would be resolved by moving POMS to sit under the HoldCo,
removing some conflict of interest & complexity from the existing model. The POI
Board & Governance will be reviewed to ensure it is optimum and remains fir for
purpose. The Group CEO would no longer be the Approved Person for the AR of POI,
instead we would propose this to be the Chief Executive of Retail, who would need to
become a Board member of Post Office Limited.
1.3 Payzone Bill Payments: As Payzone Bill Payments is a currently a separate legal entity
and there is no proposal under LEO to change that. It is proposed that Payzone Bill Payments
would be a subsidiary of the HoldCo and not Post Office Limited, for simplicity. Leaving
PayzoneBP under POL would create a more complex triple tiered structure with the
HoldCo Board two layers removed from the PayzoneBP Board.
Strictly Contidenti,
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1.4 Post Office Financial Services entity: The proposed strategy for Financial Services as
outlined under Peregrine would see Post Office Limited selling financial services
products, manufactured on its behalf by multiple different firms as opposed to today
where we exclusively sell BoI products. Our analysis, supported by external advice,
concludes that this cannot be done under the existing structure without FCA seeking
to regulate all of PO or rejecting our plans to operate with multiple principles. As such
it is proposed to create a new Post Office Financial Services regulated intermediary
entity which would be the enabler for expanding beyond non-Bol products. As it will
take up to 18 months to get a new, fully FCA regulated entity in place, it is imperative
that LEO and POFS entity setup commence now to allow Peregrine to be executed
through 2019/20.
1.5 ServCo (Post Office Services): The new Group companies must continue to operate
as one Group serving customers under one brand. Four options were considered for
how each company consumes Group services (HR, Finance, LRG, IT, Marketing, Brand
& Communications etc).
1.5.1 POL owns all of these functions and provides them as a service to each entity.
(Least costly but more complex as POL would be Service Company & AR to two
regulated entities, also creates conflict of interest between POL and its regulated
sister companies as both consumer and provider of the services)
1.5.2 HoldCo owns all of these functions and provides them as a service to each entity.
(Slightly more costly, complexity of services being provided by parent to regulated
entities)
1.5.3 Anew Service Company owns all of these functions and provides them as a service
to each entity. (Slightly more costly, least complex operating model)
1.5.4 Each entity has its own functions for these services. (Most costly & complex)
Following review of these 4 options the proposed optimum option is the creation of a
Service Company. The service company would have to be in place before the creation of
the new POFS entity for optimum efficiency.
2. What will this mean for Board & GE structures?
¢ The existing Post Office Limited GE & Board will be moved up to the HoldCo.
« Non Regulated entities would have a Board which would consist of existing Post Office
management members.
« Regulated entities would have a fit for purpose Board defined to meet FCA requirements.
This would include a review to ensure the POI Board is optimum and remains Fit for
Purpose.
3, What options did we consider?
Other options considered included
3.1 Potential other entities
3.1.1 Identity Services: There is currently no regulatory reason for Identity
Services to be a separate legal entity. Further to that the strategy for
Identity Services, as currently understood, can be executed with Identity
Services as a part of Post Office Limited without being a separate legal
entity. Creation of a separate entity would remove Identity Services from
being able to write off profits against historic Post Office Limited losses.
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3.1.2 TelCo: There is currently no regulatory reason for TelCo to be a separate
3.1.3
legal entity. Further to that the strategy for TelCo, as currently understood,
can be executed with TelCo as part of Post Office Limited without being a
separate legal entity. There are pros and cons to TelCo being a separate
entity from an optimisation perspective outlined in the supporting paper.
Should Ofcom regulation change this may require review in future. Creation
of a separate entity would remove TelCo from being able to write off profits
against historic Post Office Limited losses.
Customer Hub: There is currently no regulatory reason for Customer Hub
to be a separate legal entity. Further to that the strategy for Customer Hub,
as currently understood, can be executed with Customer Hub as a part of
Post Office Limited without being a separate legal entity. Should the Hub
move beyond servicing Post Office customers into regulated Payment
Services, Open Banking or Utility provision for Customers of other suppliers
then this situation would need to be reviewed. Creation of a separate entity
would remove Customer Hub from being able to write off profits against
historic Post Office Limited losses.
No other potential entities were tabled or identified during the review.
3.2 Consideration was also given to several areas which could be “Red Flags” to a
new entity structure:
3.2.1
3.2.2
3.2.3
Strictly Contidentiai
VAT: There is some potential for both positive and negative implications
from a VAT perspective but not material enough to change the proposed
approach. Further details will be worked through to maximise the VAT
position within the revised structure.
Corporation Tax: Any potentially profitable entity which is removed from
Post Office Limited will risk having to pay tax without being able to offset
against Post Office Limited’s historic losses. This doesn’t apply to POI &
Payzone who cannot access this today. It would include ServCo & PO
Financial Services.
As ServCo is likely to be a “cost + 5-10%” model then its potential profit is
limited. There may be some opportunity to allocated part of the historic tax
losses to ServCo but this has yet to be confirmed.
PO Financial Services makes a profit today and all of its future profits could
be subject to tax without access to pre April 2017 historic losses to write
off against (it can write off against in year Group losses & £5M+50%
against post April 2017 Group losses). Prior to creating the POFS entity it
will be essential to map out the current and potential profits against the full
tax implications and the declining Financial Services business if we don’t
execute Peregrine.
This tax position strengthens the argument not to carve out other profitable
businesses like TelCo & Identity Services from Post Office Limited unless
necessary to execute a more profitable strategy which outweighs the tax
implications.
Governance & Control: There is nothing within the Governance & Control
area that would prevent the execution of this proposal. A minimum change
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approach has been taken but ensuring appropriate spans of control for the
Group.
3.2.4 Pensions: There is nothing within the pension’s space that would prevent
the execution of the strategy. There is a chance that the Pension Trustees
will seek guarantees against any potential future shortfall in the DB scheme
from HoldCo and/or other companies in the Group. This isn’t perceived to
be an issue.
3.2.5 Unions: Current CWU & Unite are recognised within Post Office Limited but
not in Payzone or POI. It is expected that they will not be recognised in
HoldCo or the new FS Entity but will be recognised in ServCo.
4. What is the cost & Timeline for establishing this structure?
Phase Activity Est Cost Timeline
Phase 1 Initial Analysis £297K 10 wks
Phase 2 Creation of HoldCo above Post Office Ltd £295K 3-6 mths
Phase 3 Movement of POI & Payzone under HoldCo £305K 3-6 mths
Phase 4&5 Detailed analysis, TOM & Imp Plan for ServCo £1,033K 3-6 mths
and PO Financial Services
Phase 4 Implementation of ServCo £664K 6-9 mths
Phase 5 Implementation of new Financial Services £676K 9-12 mths
entity
We are requesting the funding to implement Phase 2 & 3.
If the Board also confirm that there is intention to stay in Financial Services post the Bol exit
and as such execute Peregrine, then we would seek funding to Design Phases 4 & 5 with a view
to reverting after the Phase 4 & 5 Design with further detail on execution of those phases.
The expectation would be to fully complete all aspects of implementation by April 2020, subject
to approval to progress now, confirmation of intent to execute Peregrine and all subject to SoS
& FCA approval timeline.
SoS will need to approve the creation of the HoldCo and the movement of Post Office Limited to
underneath the HoldCo along with any changes to where the Special Interest Share is held and
the Articles of Association for both HoldCo and Post Office Limited. SoS would also have to
approve the approach to funding HoldCo (more detail in the supporting paper)
The FCA shall need to approve the change of ownership of POI, this can take up to 3 months.
The FCA shall need to approve the regulation of the new PO Financial Services entity. It could
take up to 18 months to achieve full regulatory operational approval including the approval of
individuals under the Senior Management Certification Regime.
NB: Please note that there is a full supporting pack in the Reading Room which outlines the detail
behind these recommendations.
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Design principles
Design Principle
1)
Proof points
Better for
customers
°
The subsidiary structure should be invisible to customers - for them
it’s just the Post Office.
Our ability to offer joined-up customer propositions across a number
of product categories should be strengthen not diminished.
Clients and postmasters should also benefit from joined-up account
management — they don’t want to be dealing with each subsidiary
separately.
2)
Simpler to run
Decision making should be accelerated not slowed
No proliferation of governance - e.g. unless required for regulated
entities and contractual JVs, we would streamline the number of
additional subsidiary Board meetings as far as possible.
Single approach to capital allocations and change management
maintained
Wherever appropriate support structures and technology should be
shared across the group — we are too small to duplicate costs within
each subsidiary
3)
Great place to
work
Employees benefit from a clear sense of customer purpose and a
more entrepreneurial culture
Flexible career structures across the Group, alongside the
opportunity to specialise
4)
Tax /
Financial
Engineering
The corporate structure should not be designed solely for tax or
similar financial engineering reasons.
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Appendix 2 —- Key detailed assessment criteria (not exhaustive)
1)
2)
3)
4)
5)
6)
7)
8)
9)
Customer ownership - Ability to ‘own’ the customer and share data across the various
businesses where appropriate, and within customer permissions and regulatory
boundaries
Regulation — Consideration of insulation from ‘contagion’ of regulatory obligations, and
potential for regulatory conflicts (e.g. POMS)
PCR / other government legislation - Applicability of, and issues relating to, relevant
legislation, e.g. the Public Contracts Regulations (ability to contract with internal and
external parties), Freedom of Information Act, etc.
Access to external capabilities / funding - Ability to access external capabilities and
funding (debt / equity); impact on existing funding & State Aid.
Attractiveness to potential partners (commercial and strategic) taking into account
Post Office Limited ownership structure
Liabilities - Ability to contain liabilities (corporate debts, fines, pensions liabilities, etc.)
Governance and control - Strategic and operational coherence, efficiency and
effectiveness of governance structures across group
Strategic agility - Agility to develop and implement strategies / respond to market and
competitor developments
Dividend and cash traps, use of legacy tax assets, VAT etc.
10) Operating model - implications relating to which entities employ Post Office people,
own corporate assets, provide intra-group services, etc.) and an assessment of increased
operating costs arising from the structure
11) Costs and transition requirements to implement the broader future corporate
structure
ictly Confidential
POST OFFICE
Appendix 3 - Current Corporate Structure
=
Post Olfice
Legend: MExisting Entity {i Joint Ve
Appendix 4 ~ Proposed Future Corporate Structure
[
Post Otic
Limited
Legend: WExisting Entity — Joint Ventuze lf Proposed New Entity
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POST OFFICE LIMITED DECISION PAPER
BOARD
Business Case - Belfast Data Centre Exit
Author: Jason Black Sponsor: Rob Houghton Meeting Date: 30/10/2018
Executive Summary
Context
e Our strategy is for Fujitsu to migrate their fixed Belfast data centre to a managed
Microsoft Azure cloud infrastructure. This delivers a transparent and consumption
based operating model with greater resilience and “evergreen” technical currency.
It also avoids significant Fujitsu committed data centre refresh costs and helps
meet the contractual spend commitments with Fujitsu.
e The Belfast Exit is an intrinsic part of the Fujitsu contract renegotiation (Project
Everest), which will deliver at least 30% Opex savings against the 2017/18 run
rate.
e The overall business case will cost £38-46m with predicted benefits realisation of
£13.6-£16.5m over the term and a contractual spend/cost avoidance of £28.4m.
e Upon completion of the migration the infrastructure costs would be approx. £10m
per annum, a 29% reduction on current spend.
e Weare exploring additional opportunities with Fujitsu to further reduce run costs
and limit change costs. The 2022/23 run costs will be the benchmark level for the
re-procurement of infrastructure services post Fujitsu contract.
e This request is for the next drawdown of funds of £6.7m bringing the total budget
request to date to £11.6m. The overall Horizon migration is planned in 6-8
migration releases.
What do we propose to do and why?
The purpose of this Business Case is:
e To approve drawdown of £6.7m of investment to continue the Belfast Exit
Programme. This delivers phase 3 which creates the infrastructure, systems and
tooling required to support the migration and transition of identified early adopter
applications. E.g. Agent Portal, HNGT and CWS.
High Level Financials
e The business case financials assume a most likely total programme cost of £43.9m
for calculation purposes (in line with the range of £38m-£46m shown above). This
is made up of £35.9m build costs and £8m of Cloud dual run costs.
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FUNDING DRAWDOWN OVERVIEW
Existing Approval New Request
Total
Total New Total
lem Prior Years FY18/19 Approved FY18/19 FY19/20 FY20/21 Request Project
Opex 0.0 0.0] 0.0) 0.0 0.0 0.0) 0.0) 0.0)
Exceptional 0.0 0.0] 0.0} 09 0.0 0.0) 0.9) 0.9)
Capex 18 3.4] 49 5.8 0.0 0.9} 5.8] 10.7I
Total Funding 18 3.1] 4.9) 6.7 0.0 0.0} 6.7] 11.6
BUSINE ASE FINANCIAL:
Income 0.0 0.0 0.0 0.0 0.0) .
Cost of Sales 0.0 0.0 0.0 0.9) 0.09)
Total Direct Contribution 0.0 0.0 0.0 0.0 0.0)
Operating Expenses (OpEx) 16 4.2 4.0 0.9) 13.6]
Trading Profit 1.6 4.2 4.0 0.0 13.6]
Trading Profit [%] 0.0 0.0 0.0 0.0 0.0
Total Project Spend +20.9 0.0 0.0 0.0] -43.9I
Capital Expenditure 716.7 0.0 0.0 0.0) -35.9]
Exceptional 4.2 0.0 0.0 0.9) -8.0)
Cost Avoidance 14.2 0.0 0.0 0.9) 28.4]
Net Cash Flow 5. 4.2 4.0 0.0) -1.9)
with
Intangible tangible
benefits benefits
Discount Rate [%] c 12.0%] 12.04
NPV / Net Present Value (5 years) 6.9] -30.8]
IRR / Internal Rate of Return [%] 3%! - 40%]
PBP / Payback Period [years] 4 14
Appendix 1 provides greater comparative detail on the costs and benefits between
the January 2018 IC submission and this October 2018 submission
Input Sought Input Received
e The Board is requested to approve e Previous Funding Approvals:
the drawdown of a further £6.7m of e Phase 1 - £0.3m
funding, in addition to e Phase 2 - £3.0m*
acknowledging an ultimate *decision in Phase-2 agreed to
Programme financial commitment of postpone deployment of Verizon Core
c£38-46m. Network (£254K retained)
¢ Further the Board is asked to reject e Phase 3 Interim - £1.6m. Investment
alternate options described below Committee approval to continue work
on Fujitsu proposal and business case
preparation June18 to September18
¢ Current Paper approved by the following
groups Group Exec and appropriate
boards
Strictly Ce
idential
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The Report
WHAT IS THE PROBLEM BEING SOLVED AND HOW ARE WE
DELIVERING AGAINST IT?
1. Our strategic hosting strategy is to move our systems to operate in a cloud
architecture. This provides more consumption-based charging, greater resilience
and maintains “evergreen” technical currency.
2. Cloud technologies also enable dynamic, accelerated and agile Build, Release,
and Operate (BRO) as a result of automated provisioning and release processes.
This will improve and accelerate current waterfall operations.
3. The plan is to manage this programme in funded phases, with clear deliverables
and beneficial outcomes. We will use strong commercial pricing (retentions, fixed
price) to maintain strong performance and financial control.
4. The reasons for “why start now”
e to avoid significant capital expenditure on an “Horizon Data Centre Refresh
2” Programme within the current funding period;
e to deliver the ongoing cost base for Horizon infrastructure in line with IT
business strategy;
e to ensure greater supplier competition at the end of the Fujitsu agreement.
e to maintain the integrity of the Fujitsu contract restructure;
HOW DOES IT LINK TO AND DELIVER OUR STRATEGIC GOALS?
5. This project is closely aligned with the North Star target to “Build flexible and
secure IT”, and also closely aligns to the internal IT strategy pillar around cost
reduction and move to a more consumption-based model.
WHAT ARE THE FINANCIAL AND NON-FINANCIAL BENEFITS AND
WHO ARE THEIR OWNERS?
6. Cost avoidance in period of £28.4m of capex costs. £16.4m minimum contracted
infrastructure refresh costs plus, £4m Oracle upgrade, and £8m internal resource
and other 3rd party costs. Note that the previous data centre refresh in 2016/2017
cost £32m.
7. The total estimated cost for the programme should be considered as a range £38-
46m. Cost estimates are inclusive of Fujitsu Networking, Equipment, Resourcing,
POL Resourcing, Verizon Networking and Resourcing costs.
8. The estimated direct financial benefits and revised run costs for the Belfast Data
Centre are:
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POST OFFICE PAGE 4 OF 6
Infrastructure Cost Analysis 2018/19 2019/20 2020/21 2021/22 2022/23 Total Ena-state
fm fmm fm Em Em Savings
Pre Trinity Contract
Trinity Savings:
Contracted Infrastructure Costs
Caleulated Cloud Savings (before incremental network uplift costs)
New Infrastructure Costs
Networking Uplift (Fujtsw/Verizon)
Revised Infrastructure
Allfiguresin above table include WAT
28.9%
9. Additional run costs benefits being explored are:
e further standardisation and automation of the Fujitsu service wrapper;
e refinement of the Networking Uplift; and
e the phasing of the cross-over from old to new services.
10. Potential for further infrastructure consolidation, and standardisation of multiple
Infrastructure services e.g. POL systems hosted outside of Belfast and/or not
supported within Fujitsu-serviced Azure Cloud.
11. The main intangible benefits of the data centre migration are:
e the enablement of digital transformation;
*® a separation of the architecture to enable a much greater velocity of change/
delivery and meet our customer demands;
e a fully resilient, secure infrastructure with evergreen commodity technology in
the cloud components;
e variable charging in development and testing environments; and
e anend state run costs acting as the benchmark for the future hosting contract
charges once the existing agreement expires.
KEY RISKS THAT MAY HAVE AN ADVERSE IMPACT ON BENEFITS
REALISATION
Current Target
I (Impact) 1 (Impact)
L (Likelihood) L (Likelihood)
Curren rargs
I L_ ItScoreI I L Score
1-5) 2-5 (Ixt)/a-5/2-5) “yy
L)
FUJITSU Early engagement of 3”
identifi Party Partner & Customer
Technical I FUJITSU identified that groups, share migration
Interfaces I POL inability to engage Jans & seek their Ongoing
with Key _ I effectively with critical eoeport During
cl customers added two 4/5 4 (16/20) 3 I 3 9 support. i"
ustomers I (9) venre to previous Discovery of legacy migration
Groupe years to pret connectivity from 31.01.20
systems migration e.g. Bh ting to identify
inefficient / I RMG, Bank of Ireland jueprinting to identi
ff potential risks &
ineffective mitigating actions.
FUJITSU have not
level POL demand to ;
Onclode March 2020 detailed resource plan
Strictly Confidential
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POST OFFICE PAGE 5 OF 6
Obligations and
timescales contracted to
share “fail” risk
R Other POL Projects and Aggregated resource plan
oauemmn 4 Fi 1 Declaration in plan of
contention I Change Freezes wil request for “other ir
create resource 4 4 I 16 I3I4 12 Ongoing
for change” freezes e.g.
contention for FUJITSU
FUJITSU Belfast ONLY change
delaying delivery periods
suppl Sia meee cape wee Work already initiated
Supply within Everest and Cloud
Ecosystem I system, POL IT & POL Enablement to create
Interfaces usiness that the 5 3 15 3 2 6 "Cloud Service Operating I 31/12/19
Operations team will ‘0
for Model’
re, not keep pace with
‘Service
accelerated
programme delivery
WHAT OPTIONS DID WE CONSIDER?
12. Option 1 -Horizon applications remain hosted by Fujitsu in Belfast. Option
rejected due to the requirement for further contractual capital costs within the
current term to 2021/22 and cancellation of Everest deal. The risk is that the value
of the second refresh is likely to be circa £30-35m plus current run-rate Opex costs
continue at the current rate of £13-14m per annum.
13. Option 2 -Retender for an alternative cloud provider as a strategic partner (i.e.
Amazon, Accenture, IBM). This was rejected due to: i) We are in a captive hosted
contract with Fujitsu to a minimum of 2021; during this time any other cloud
development work or acquisition cost is INCREMENTAL to the cost with Fujitsu
instead of REPLACING the cost with Fujitsu, 12-18 months and, even after
procuring, the migration of Horizon would be impossible without significant cost to
Fujitsu after 2021 - effectively barring a digital transformation of Horizon for three
years. iii) Significant stranded costs (estimated £35m for ongoing upgrades &
future refreshes) associated with Infrastructure refresh in Belfast that is projected
in addition to the current Data Centres refreshes.
14. Option 3 - Build new application in the cloud and migrate over time into new
application i.e. bill payments first, then increased functionality. This is a compelling
and standard approach. Rejected due to: i) Incremental operational and capital
cost during the migration activity to 2023. ii) The Everest deal would be nullified
iii) It is complex to reconcile and audit transactions across two core systems in
parallel. iv) Takes significant time to procure the new application and the Systems
Integration partner. It is our plan B if we are unable to proceed with Fujitsu.
15. Recommended Option 4 - This business case; evolve the current Fujitsu Hosting
Service in Belfast to migrate Horizon Applications to Fujitsu-serviced Azure Cloud.
WHAT ARE THE KEY DATES AND MILESTONES?
16. Appendix 4 details the Programme key dates and milestones.
WHAT WOULD THE IMPACT BE OF DELAYING OR REJECTING THE
DECISION TO PROGRESS?
17. Delay of benefits realisation associated with cheaper end state.
18. I The current financial model provisions for a delay in Belfast data centre exit to
December 2020. (Contingency cost is capped at £1.2m.) Delay beyond this would
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POST OFFICE PAGE 6 OF 6
mean increased as-is run costs and potentially incremental costs associated with
short-term Belfast lease extensions.
19. Any material time gaps between phases run the risk of key 3rd Party teams being
redeployed, therefore delaying the overall project whilst teams are built back up.
20. As a result of current delays, Fujitsu are identifying a need to remediate some
legacy systems intended to go straight to Cloud. We assume minimal investment
in legacy estate whilst this project delivers. If timescales extend, costs may be
required to keep/extend the legacy estate's service levels. Fujitsu are confirming
application remediation requirements and when in the schedule these may impact.
21. Delays in delivery of the previous infrastructure refresh programme mean that
another whole infrastructure refresh would need to commence in 20/21 If POL
were to avoid risk and costs of a wholesale infrastructure refresh
SCOPE - WHAT IS IN SCOPE AND OUT OF SCOPE?
22.Key external Programme dependencies are detailed in Appendix 3.
SPECIFY THE INTENDED DELIVERY APPROACH?
23. The programme is split into 9 phases as detailed in Appendix 4. The Programme
will drawdown funding against these releases as the delivery progresses.
24. Internal resource deliverables are provided in Appendix 5.
1. Concurrences
Finance Director
Alistair Roman Approved 4/10/2018
Design Authority
Design Authority Group Endorsed. 05/09/2018
IT Portfolio Office (assessment of IT capacity and capability)
David Gemmell From an IT Portfolio perspective, you have my concurrence I 5/10/2018
Strictly Contidentiai
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POST OFFICE LIMITED PAGE 1
Appendices
1 Financial Cost and Benefits movement summary:
i. The benefits must be considered within the context of the overall Fujitsu Project
Everest negotiation. Estimates in January, in advance of a quotation from Fujitsu,
were provided in this context and in line with targets agreed with Fujitsu.
Subsequently the P2C component have been separated into its own business case.
2. The latest estimated end-state savings we expect to achieve on the data centre
run costs are £3.5m which includes a like for like run cost reduction of £4.5m, less
additional networking costs of £1m per annum. This equates to approximately
28% savings against as-is run costs.
3. Activities are underway to deliver additional benefits, targeting standardisation
automation and networking, with an aim to increase overall savings to 30-40%.
These will be completed by January 2019.
4, The build targets contained within this paper are in line with the original Belfast
component of the January paper, with specific identified additions.
Belfast Exit Costs: £m
Jan 18 Submission 32-38
Incremental Azure Run Costs 3.5
PCI added to Scope 2.0
Contingency 25
Oct 18 Submission 38-46
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POST OFFICE LIMITED
2 Programme Key Dates & Milestones
Overall Value roadmap
@88Q 889
; BA, BM,
2 Hips WU ca os a A
5 rs. nos capabity
prod & non-prod environments, Azces
@rc wntg
DBI Not Available: no service wrag, no ac
oun POL sie
MVP Commenca ear adoptars davlopment
owe, Roos, os
in Acre where agreed
MVP: Eariest posse paint to mave KS apps
conto Azute hyd and remove app fom KB, but
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oes
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Apps Migration prep parent = rnin
released andremoved fom KS
@ 05 live on Azure @ betast 0€' ex gal sooo!
3.and removed from KS
MVP commence aaiyadopiers
implementation where agraad, with
© Build Azure service
ro Azure services accruing
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POST OFFICE LIMITED
3. Key External Programme Dependencies
Phase-4 (Previous) HNGT/Solar - Proof-of-Concept must be
provides Infrastructure for supported.
HNGT/Solar Project - HNGT deployment in
Production
- HNGT full deployment is
dependent on Infrastructure
being delivered part of Phase-4
and subsequent scalability for
the rollout in Branches.
BEX architectural design PCI programme Increased costs to ensure PCI
needs to support a future compliance of the Horizon
optimised PCI scope. application and specifically
separation / segmentation of
BAL.
4. Programme Phases
Description
Number
1 Service Delivery Workstream Delivery of project ways of working, standards, service, release
and deployment processes
2 Common Infrastructure Delivery of common infrastructure tooling, core networking
Workstream capabilities and management tooling
3 Common Application Services _I Delivery of Horizon specific shared services.
4 Branch Services Workstream Delivery of Horizon application services that have been identified
as primarily supporting the branch environment e.g. branch
database
5 Banking and Payment Services I Migration of 300 banking agents and reconciliation services and
includes PCI accreditation
6 ‘Audit Workstream Replacement and delivery of audit solution to use NetApp
solution
7 Batch Workstream Development and delivery of new batch system
8 External Services Workstream I External services that can be subdivided into interactive (web
services) and non-interactive (PODG)
9 Decommissioning and Decommissioning and remediation of Belfast and K5
Remediation
Strictly Contidentiai
6 of 116
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POST OFFICE PAGE 4
5. Internal Resource Deliverables
« Assurance Governance & delivery of agreed milestone & benefits
e Governance & quality assurance of Fujitsu products & services delivered to
POL security & compliance standards.
« Review & quality assurance/validation of artefacts by 3rd parties including
Fujitsu, Verizon, Computacenter to ensure they meet POL Standards
‘Business Design’
« Identification, review & management of Risks & issues to ensure the current
Services are protected and impact on POL business is minimised.
e Design & implementation of Service Operating Model, Service Processes, and
Transition of complex Services, including design & standards
« Business & Operational readiness for migrations & transition of Services
e Complex change management, coordination& delivery alignment between
POL, Fujitsu, Verizon, Computacenter, and dozens of Banking, Payments,
Credit Cards and other partners.
« End to end testing of complex interfaces between POL, Fujitsu, Verizon,
Computacenter, and dozens of Banking, Payments, and other partners.
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POST OFFICE PAGE 1 OF 2
BOARD
Review of Conflict of Interest Policy
Author: Veronica Branton, Head of Secretariat Sponsor: Jane Macleod Meeting date: 30 October 2018
Executive Summary
Context
The Post Office Group Conflict of Interest Policy has been reviewed and no changes of
substance are proposed. The last review was in November 2016 and the Policy was
approved by the Post Office Audit, Risk and Compliance Committee at its meeting on
17 November 2016. The Policy was adopted by the Board of Post Office Insurance at
its meeting on 26 January 2017'.
The Board reviews the register of Conflicts of Interest for Board Members each March
and it is proposed that this is aligned with the annual review of the Policy. The March
review will also include a review of the controls set out in the Policy and whether there
are any gaps.
Questions addressed in this report
1. Are any changes required to the Policy?
Input Sought
The Board is asked to:
e Approve the Post Office Group Conflict of Interest Policy
e Approve the alignment of the policy review and controls review with the review of
the register of interests in March 2019.
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POST OFFICE PAGE 2 OF 2
The Report
1.
PO Limited is required under the Companies Act 2006 and through other
legal and regulatory requirements to manage its conflicts of interest. The
Group Conflicts of Interest Policy applies to all Post Office Group statutory
directors, employees, officers, contractors, casual workers and agency
workers.
Statutory Directors’ letters of appointment set out the requirements for
disclosure of outside interests, conflicts of interest and potential conflicts of
interest. A register of interests is maintained and reviewed formally each
March.
Employees and contractors are required to read PO Limited’s Code of
Business Conduct when they join PO; this includes the principles and
requirements for managing conflicts of interest and related policies, such as
gifts and hospitality and anti-bribery and anti-corruption.
The Policy with track changes is at Appendix 1. No changes of substance
are proposed but reflect the change in the policy owner and implementor
and the wording of the FCA guidance on Conflicts of Interest.
Once approved, the Board of PO Insurance will be asked to adopt the
revised Policy.
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Post Office Group
Conflict of Interest Policy
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Contents Page
Document Control Sheet..
Section A. Introduction.
Section B. Context.....
About this Policy...
What is a conflict of interest?...
Legislative and Regulatory Background...
Risk Appetite...
How do we organise conflicts of interest? ...
Who is responsible? ...
Who must comply and how?
Section C. Policy Details ..
Policy Statement...
Our Controls
How do we monitor compliance? ...
Section D. Governance
How do you raise a concern? ..
Contact us and more information ...
Key Terms...
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Document Control Sheet
POLICY SUMMARY.
GE Policy Policy Owner Policy Implementor Policy Approver
Sponsor
Company
Company Secretary Secretary
Post Office Board
Version and Policy Review Effective from
Status: Period
EANew
Annual from
effective date
Draft or Final
V1.545
November 20186 ¢
Rolicies- BGL6
DOCUMENT REVISION HISTORY
Version Reason For Change
Draft V1.1 01/07/2016 Victoria Moss Initial draft
Draft v1.2 06/07/2016 Mark Rodgers/ Policy standards and Head of
Mike Morley-Fletcher Risk review
Draft v1.3 06/07/2016 Susie Hayward/ POMS review and review of
Victoria Moss proposed changes in v1.2
ADraft I 7/11/201604/40/2018
1016 Annual reviewC
od
following §
Draft v1.5 04/10/2018 Veronica Branton ‘Annual review
POLICY APPROVAL
Role/Forum
Executive Owner and Sponsor
pee
5 Executive Committee
Board or Board Committee Post Office Board
PO. S Board
DOCUMENT DISTRIBUTION STATUS
Distribution Document Sensitivity
(Mark x as appropriate) (Mark x as appropriate)
Internal Only Non-sensitive
External Only Sensitive
[ QUALITY STATEMENT ]
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Next review
date
Quality Control
This document is periodically reviewed and at least once each year starting
from the last effective date. This policy has been reviewed against the latest March 20197
Post Office Group Policy Standards.
Section A. Introduction
f Chief Executive’s Note D
Post Office is committed to doing things correctly. Our Business Standards
are our code of behaviours that represent the conduct we expect. This policy
supports this code by ensuring the highest standards of managing conflict of
interest risk are maintained.
This policy sets out what is and what is not acceptable in general terms but if
you have any doubts or questions, these should be referred in the first
e Mack 1
instance to -Alwen Lyo! lac <, Company Secretary, who oversees
compliance with this policy. It is essential that you read this policy.
(i aeducion by the Group Executive
Policy Owner: Company Secretary
As Post Office’s Company Secretary and the Group Executive Policy Owner I
have overall accountability to the Group Executive and the Board for ensuring
that any potential conflicts of interest are identified, recorded and managed
appropriately. This policy is reviewed on a regular basis and Post Office’s
Board and its Audit, Risk and Compliance Committee consider and are
oo on conflict of interests as necessary. y
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Section B. Context
About this Policy
The purpose of this policy is to manage Post Office’s risks associated with any conflict
of interest. Post Office is committed to the principle that the decision making of its
directors, members of its Group Executive or any of its employees should not be
improperly influenced by outside interests, including those of related parties.
This policy sets out what we must all do to identify, record and manage the risks
associated with any conflict of interest. This includes apparent and potential conflicts
which may increase reputational risk.
This policy should be read and used in conjunction with the Post Office Group Anti-
Bribery and Anti-Corruption Policy (incorporating the Gifts and Hospitality Policy) and
other Post Office key policies and procedures including, but not limited to, specific
areas of its business such as procurement.
This policy enables us to comply with our obligations under applicable legislation and
with regulatory requirements. It also promotes compliance with the Nolan Seven
Principles of Public Life, encouraging adherence to high ethical standards in all that
we do.
This policy's effective date will be determined by the date on which final approval is
given by the appropriate governance forum.
What is a conflict of interest?
Acconflict of interest can arise when the interests of Post Office, its subsidiaries, its
directors, employees, agents or third party suppliers conflict with another of these
parties or are different from those of our customers.
In relation to conflicts of interest, Post Office is required to comply with legislation
including the following:
« Companies Act 2006,
¢ Post Office Articles of Association,
¢ Post Office Management-Services-imited-Insurance Articles of
Association,
e Financial Conduct Authority Handbook,
e Public Contract Regulations 2015.
Post Office also strives to comply with the Nolan Seven Principles of Public Life in
conducting its business.
Conflicts of interest can take many forms including: actual, apparent, potential and
political. These conflicts can arise in different ways, for example:
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e conflicting roles and responsibilities of individuals in the duties they perform —
those directors or members of staff who have roles within both Post Office and
POMS In. 2 may be conflicted in how they discharge their responsibilities for
each organisation;
e the manner in which individuals are remunerated may influence how duties are
prioritised or performed - sales volumes may be emphasised over quality of
service;
e long term or preferential relationships with third party suppliers — this may
influence, or be perceived to influence, procurement procedures, contractual
negotiations, or management of contractual relationships; or
¢ accepting hospitality or gifts from third party suppliers or customers - this could
lead to bias or undue influence, or the perception of such, in how individuals
exercise their duties and responsibilities.
This list is not intended to be exhaustive.
[ Legislative and Regulatory Background
There are a number of legislative and regulatory requirements and principles in
relation to conflicts of interest which Post Office and its subsidiaries must comply
with.
Post Office statutory directors (executive or non-executive) and any statutory
directors of any subsidiaries within Post Office Group, are subject to section 175 of
the Companies Act 2006 Duty to avoid conflicts of interest. This section states
that:
$175(1) A director of a company must avoid a situation in which he has, or can have, a direct or
indirect interest that conflicts, or possibly may conflict, with the interests of the company.
$175(2) This applies in particular to the exploitation of any property, information or opportunity (and it
is immaterial whether the company could take advantage of the property, information or
opportunity).
Companies Act 2006 section 176 Duty not to accept benefits from third parties and
section 177 Duty to declare interest in proposed transaction or arrangement are also
applicable.
Statutory directors must notify the Company Secretary of all transactions or potential
transactions in which they, or a related party (see definition on page 9), have an
interest and any situation or activity which may involve a conflict of interest. This will
then be reported to the Board for consideration as to effect of the conflict and how
the conflict should be managed.
The Post Office Articles of Association (Articles 82 and 83) sets out the process for
exceptions for statutory directors, including authorisation by the Board.
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ance
The PO. Articles of Association (Article 13) sets out the process for
exceptions for statutory directors, including authorisation by the Board.
For the provision of its financial services and insurance products, Post Office is an
approved appointed representative (AR) 0 of Bank of Ireland (UK) plc (Bol) and Pest
e i The FCA handbook i
As an AR, Post Office is obliged to comply with these requirements.
Post Office is subject to the Public Contract Regulations 2015, from which
Regulation 24 deals with conflicts of interest:
Public Contract Regulations 2015, Regulation 24 "(1) Contracting authorities shall take appropriate
measures to effectively prevent, identify and remedy conflicts of interest arising in the conduct of
procurement procedures so as to avoid any distortion of competition and to ensure equal treatment of
all economic operators.
"(2) For the purposes of paragraph (1), the concept of conflicts of interest shall at least cover any
situation where relevant staff members have, directly or indirectly, a financial, economic or other
personal interest which might be perceived to compromise their impartiality and independence in the
context of the procurement procedure.
"(3) In paragraph (2) ‘relevant staff members’ means staff members of the contracting authority, or of
a procurement service provider acting on behalf of the contracting authority, who are involved in the
conduct of the procurement procedure or may influence the outcome of that procedure; and
‘procurement service provider’ means a public or private body which offers ancillary purchasing
activities on the market.”
Ethical considerations
The Nolan Seven Principles of Public Life apply to anyone working to deliver
public services, considered to be both servants of the public and stewards of public
resources. The seven principles are: selflessness; integrity; objectivity;
accountability; openness; honesty; and leadership. All of these principles are at risk
if conflicts of interest are not managed and therefore this policy addresses these
principles and encourages Group-wide adherence to high ethical standards in all that
we do.
86 of 116
ab
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Risk Appetite
The Post Office risk appetite is averse for not complying with law and regulations or
deviation from its business conduct standards. This policy reflects this appetite and
sets out controls to reduce and/or mitigate any such risks.
How do we organise conflicts of interest? I
This policy sits within a broader corporate governance family policy structure. It is
one within a suite of policies and each should be read in conjunction with the others.
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Fhe-Cod i Standards -Neit Hayward;-Group-Peoepie Director
I Who is responsible? }
Post Office’s Board of Directors has overall responsibility for ensuring that Post Office
has a framework to ensure compliance with legal, regulatory and contractual
requirements. The Board is kept abreast of relevant matters relating to the
management of conflicts of interest by reports from its committees including its
Audit, Risk and Compliance Committee. The key individuals and their specific
responsibilities in relation to this policy are:
e The Company Secretary is a member of the Post Office Group Executive team
and is the Group Executive Owner and policy Sponsor, accountable to the Board.
e The POMS Insurance Board has responsibility for Monitoring I PO
compliance with the policy, especially in regard to PO I
requirements as a regulated entity.
particular
e The Company Secretary is the policy Owner who is responsible for the overall
implementation of and compliance with this-peiey-and-is
Implementer who is responsible for and accountable to the policy Owner for the
day to day implementation of the policy (including monitoring).
e The ®@MS-PO Insurance Director Head of Risk and Compliance is
responsible for the day to day implementation of the policy (including monitoring)
within PO_i S and is accountable to the policy Owner.
Within the Business:
e¢ Members of the Post Office Group Executive are responsible for managing all
conflict of interest risks within their respective areas.
¢ Members of the PO! S Executive Committee are responsible for
managing all conflict of interest risks within PO {
8
suranceMS.
e The Post Office Director of Procurement has particular responsibility for the
management of conflicts of interest relating to procurement activities.
Who must comply and how? }
Compliance with this policy is mandatory for all Post Office Group statutory directors,
employees, officers, contractors, casual workers and agency workers. This policy
applies wherever in the world Post Office’s business is undertaken. All third parties
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who do business with Post Office Group, including consultants, suppliers and business
and franchise partners, will be asked to agree contractually to this policy or to
comply with their own equivalent policy.
This policy also applies to related parties which means, for a statutory director or an
employee:
* spouse or civil partner and children
« — other relatives who share their residence
e trust of which they are a Trustee or Beneficiary
. partnership of which they are a partner
e a business entity of which they are a director or officer or in which they hold
a similar position
* a business entity of which they own or control, directly or indirectly five per
cent or more.
It is important that you read, understand and comply with this policy. Your actions,
behaviour and conduct to apply the provisions of this policy are your responsibility.
You must adhere to all parts of this policy. You should avoid any activity which may
lead to a breach of this policy. We may request your confirmation of agreement to
this policy. You must notify your line manager, in the first instance, as soon as
possible if you reasonably believe or suspect that a breach of this policy has occurred
or may occur.
You may request a policy exception or waiver to this policy, but you must follow the
Post Office’s exceptions and waivers procedures, a copy of which can be obtained
from the Policy Owner, the Company Secretary. The Post Office’s Articles of
Association, Articles 82 and 83, and the PO Jn Articles of Association,
Articles 13.3 and 13.4, sets out the process for directors to notify conflicts to enable
the respective Boards to determine whether and how to manage the conflict.
If non-compliance with this policy and/or its controls is/are identified the matter
must be referred to the Company Secretary. Any investigations should be carried
out in accordance with the Investigations Policy. If the cause is found to be due to
wilful disregard or negligence, it will be treated as a disciplinary offence.
Adherence to this Policy does not in any way relieve any person to whom this policy
applies from complying with any laws, statutes, regulations, by-laws or rules applicable
to a particular transaction.
Section C. Policy Details
[ Policy Statement
General Responsibilities for all Employees
All Employees must:
e Make all business decisions in the best interest of their employer. For the majority
10
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of employees this will be PO Limited; however for some it will be PO Insurance.
Except in certain limited cases, the duty to act in the best interest of Post Office
Limited or PO Insurance will be aligned. Where such a conflict or perceived conflict
arises, employees must discuss this with their line manager or with the PO Limited
or PO Insurance Company Secretary.
Avoid engaging in any private or personal business interest that may conflict with
the duties and responsibilities owed to Post Office.
Avoid any business or other interest outside Post Office which creates excessive
demand upon the time and effort of the employee and thereby deprives Post Office
of the employee's best efforts.
Declare to line manager and the Company Secretary any transactions or potential
transactions in which they, or a related party, have an interest and any situation
or activity which may involve a conflict of interest.
Declare to line manager and HR Services and the PO Limited or PO Insurance
Company Secretary (whichever is relevant), any outside employment, directorship
or material shareholding, as these may be contrary to PO Limited of PO Insurance’s
commercial or regulatory interest or bring it into disrepute.
Review continuously their individual situations to avoid becoming involved in a
conflict of interest situation where no such conflict previously existed.
Employees must not:
Engage in any transaction or pursue any activity directly or indirectly in competition
with Post Office, unless prior written authority has been obtained from the
Company Secretary.
Be employed by or accept a position as director or officer of or acquire a substantial
ownership interest (five per cent or more) in any other company or other business
entity, without prior written approval from the Company Secretary.
11
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Our Controls
Post Office has legal and regulatory obligations to implement systems and controls to
prevent and manage conflicts of interest.
The design of these controls aims to establish a framework to:
e reasonably identify, deter, prevent and manage any potential conflict of interest;
e respond to the risks of conflict of interest in a comprehensive and proportionate
manner; and
e align to this policy and to related policies, such as the anti-bribery and anti-
corruption policy.
Contract approvals and
execution process
The contract approval process is managed by the
Company Secretary's office and requires separation
between the ‘contract owner’ who approves the contract
for execution and the ‘authorised signatory’ who signs
the contract.
Directors’ declarations
All statutory directors are required on appointment to
disclose any outside interests. They are further required
to confirm these interests on an annual basis or when
any changes occur.
Directors are asked to declare any sew conflicts at the
beginning of each formal meeting and these are
recorded in the minutes.
If a conflict arises within a meeting the Board will
determine whether the director in question should
absent themselves for the appropriate period or, in
accordance with the relevant Articles, be permitted to
remain, and whether he/she may participate in the
discussion giving rise to the conflict. Any decision or
action will be recorded in the minutes and the register.
Register
Post Office maintains a conflicts of interest register in
which actual and potential conflicts of interest are
recorded as they arise as well as the measures taken to
address each such conflict.
Gifts and hospitality
All statutory directors and employees are made aware of
and expected to comply with the gifts and hospitality
procedures as set out in the anti-bribery and anti-
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corruption policy.
Incentive Payments If Incentives are made to staff, systems and controls
must be are put in place to assess the risk and monitor
behaviours and conduct.
Procurement processes I All procurement and ongoing supplier management must
be carried out in accordance with Post Office
procurement processes.
Reporting All those covered by this policy must report immediately
and in writing any situation or activity which may
involve a conflict of interest. This report should be
made to their line manager who will report to the
Company Secretary and-the-issue-may-be-es: ted-to-
the-€ SS (for more information please see
Section D below). These will be recorded in the register.
Training and Training is a mandatory part of induction. All employees
competence and contractors must be trained on what constitutes a
conflict of interest and the steps to be taken where one
is identified.
It may be appropriate for specific training to be received
by those working in certain areas, such as Procurement
or PO an
Governance Appropriate governance controls are in place and
documented to manage potential conflicts, including
regular reporting by the Company Secretary to the Risk
and Compliance Committee and an annual overview to
Audit, Risk and Compliance Committee and Board.
Section D. Governance
[ How do we monitor compliance? ]
The Company Secretary will ensure that this policy is implemented, reviewed and
remains effective. Post Office internal systems of risk control ensure that conflict of
interest controls in this policy are regularly independently assessed for effectiveness
suitability and adequacy. Post Office Internal Audit retains independent third line
oversight with regard to this policy.
We assess compliance with this policy on a regular timely basis and regular conflict of
interest reports will be issued by the Company Secretary to the Post Office Risk and
Compliance Committee and the PO { & Risk, Compliance and Conduct
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Committee and escalated if appropriate. An annual overview will be submitted to the
Post Office Board and its Audit, Risk and Compliance Committee, prior to which a
POMS rance overview will be submitted to its equivalent committee.
We require our third parties to have at least equivalent arrangements, systems and
controls to this policy.
I How do you raise a concern?
Any Post Office employee who has concerns about a failure to comply with this policy
has a duty to:
e discuss the matter fully with their line manager;
e discuss it directly with their head of business unit;
e bring it to the attention of the Company Secretary; or
e bring it to Post Office’s attention independently of management, via the Speak Up
Line (see Section E ‘References’ for more information).
The matter will then be reported to the Company Secretary-a=
th nerat 4
[ Contact us and more information
If you need further information about this policy or wish to report an issue
in relation to this policy, please contact-Aiwen-Lyous.
Company Secretary, at jane.macieodeiwen-iyor:
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Section E. Key Terms and References
Key Terms
Term or Acronym
Description
HR
Post Office Management Services Limited
Financial Conduct Authority
Human Resources
References
Description
1, Business Standards
3. Post Office Group/Post Office
4. Whistleblowing policy
Post Office Group rules of behaviour setting out at high level
the conduct it expects of its staff in all Post Office
undertakings.
Post Office Limited and all subsidiaries and entities within the
Post Office Group.
In case of concerns staff may contact their line manager, a
senior member of the HR Team, or if either or both are not
available staff can contact Post Office’s General Counsel,
Jane MacLeod who can be contacted by email on:
whistleblowing¢ } Alternatively.staff can use
the Speak Up service available on __ GRO brviaa
secure on-line web portal:
http://www. intouchfeedback.com/postoffice
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POST OFFICE LIMITED PAGE 1 OF 1£
BOARD
Terms of Reference
Author: Veronica Branton Sponsor: Jane MacLeod Meeting date: 30 October 2018
Executive Summary
Context and proposal
1. The Remuneration Committee reviewed its Terms of Reference (ToR) at its last meeting
on 25 September 2018 and seeks the Board’s approval of the revised ToR (revised ToR
Appendix 1; current ToR at Appendix 2).
2. The only substantive change proposed to the Committee’s responsibilities is to add
approval and review of a framework for non-executive fees for PO Insurance. Other
changes are stylistic to bring to the fore the Committee’s responsibilities, highlight
whether it is taking a decision, making a recommendation to the Board or Shareholder or
receiving information and assurance on topics within its remit. The sections on
composition and governance and meetings have been moved to the end of the ToR!.
3. The current ToR includes responsibilities for PO Insurance executive remuneration but
not non-executive remuneration. The following addition is proposed:
“Remuneration Strategy PO Insurance: Non-Executive
2.20 a) To approve the remuneration framework within which the fees for
Non-Executive Directors of the Post Office Insurance Board may be paid
where an appointment is recommended by the Nominations Committee.
b) To review annually the remuneration framework for Non-Executive fees for the
Post Office Insurance Board.”
Input Sought Input Received
1. The Board is asked to approve the 2. Remuneration Committee
revised ToR on the recommendation of 3. Group Director of HR and the Director of
the Remuneration Committee. Reward and Pensions.
ictly Confidential
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Terms of Reference of the Remuneration Committee
The Remuneration Committee (the “Committee”) is a Committee of
the Post Office Limited Board (the “Board”), from which it derives its
authority and to which it reports after each meeting.
1. Role
The Committee’s main role is to:
i) make sure that appropriate group remuneration strategies are in place
for PO Limited and its subsidiaries to be able to attract, retain and
motivate the executive management required to run the Company
successfully’ without paying more than is necessary
ii) approve and recommend for approval, where required, the remuneration
packages of senior executives and fees for Non-Executive Directors
iii) recommend for the approval of the Shareholder, the criteria for, and
outturn of performance related pay arrangements for Executive
Directors and executives who report directly to the Chief Executive
(STIP)
recommend for the approval of the Shareholder, performance related
incentive schemes and changes to these for Executive Directors,
executives who report directly to the Chief Executive and any other
eligible employees (LTIP)
v) have oversight of the group remuneration strategy for the wider
organisation.
iv
2. Responsibilities of the Committee
Remuneration Strategy for PO Limited: Executive
2.1 a) To recommend to the Board for approval the remuneration strategy for
the Chief Executive, executive directors and those executives who report
directly to the Chief Executive, taking into account the remuneration policy
set for other employees.
b) To review the group remuneration strategy annually and recommend any
changes to the Board for approval.
2.2 To approve the remuneration package in respect of new hires proposed by
the Nominations Committee. This shall align with the group remuneration
strategy approved by the Board. In the case of the Chief Executive and other
1 In doing so, regard will be paid to the views of the Shareholder and other
stakeholders; all relevant legal, regulatory and corporate governance requirements; the
risk appetite of the Company and alignment to its long-term strategic goals, structuring
of a significant proportion of remuneration to link rewards to corporate and individual
performance and designed to promote the long-term success of the company.
2.3
2.4
2.5
2.6
2.7
2.8
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executive directors, the remuneration package shall, as set out in the
paragraph below, be recommended for approval by the Shareholder.
To recommend to The Secretary of State for Business, Energy and Industrial
Strategy for approval, each element of the total individual remuneration
package of the Chief Executive and other executive directors, both existing
and for new hires, including any increases in salary (whether or not resulting
from company-wide pay increases), pension provision and the outturn of
performance related pay arrangements and incentive schemes. The
recommendations shall align with the group remuneration strategy approved
by the Board.
To approve the elements which will form the remuneration package for an
individual in the above group, which may include, but shall not be restricted
to:
base salary
short term incentive (annual bonus)
Long Term Incentive Plan
pension provision
benefits such as car or car allowance, private health, holidays
contractual terms such as notice periods.
The recommendations shall align with the group remuneration strategy
approved by the Board.
To keep under review the contractual terms applicable to executive directors
such that payments adhere to the group remuneration strategy approved by
the Board.
To receive information on each element of the remuneration package and
total remuneration for new hires and any internal promotions and
appointments which are proposed to carry a salary in excess of the lowest
salary of any executive who reports directly to the Chief Executive.
To review annually the overall total remuneration of the Senior Group
(defined as the Chief Executive, executive directors and those executives who
report directly to the Chief Executive) compared both with external market
comparators and with the remuneration of other employees in the Group.
a) To recommend for approval by the Shareholder the implementation of, or
changes to, performance related incentive schemes for the Executive
Directors, executives who report directly to the Chief Executive and senior
managers eligible to be invited to participate in the Post Office Long Term
Incentive Plan (LTIP).
b) To review annually the performance related incentive schemes for the
executive directors, executives who report directly to the Chief Executive
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and senior managers eligible to be invited to participate in the Post Office
Long Term Incentive Plan (LTIP).
2.9 a) To recommend for approval by the Shareholder, the criteria for, and the
outturn of, performance related pay arrangements (STIP) for executive
directors and executives who report directly to the Chief Executive, subject
to authorisation from the Shareholder.
b) To review annually the criteria for, and outturn of, performance related pay
arrangements (STIP) for executive directors and executives who report
directly to the Chief Executive.
2.10 To receive information on the total outturn of performance related pay
arrangements across the business.
2.11 To approve the exit package for any individual with a salary above the lowest
salary of those executives who report directly to the Chief Executive, where
the exit package would be in excess of contractual obligations.
2.12 To undertake any other function delegated to the Committee by the full
Board.
Remuneration for Non-Executive Directors
2.13 To recommend to the Board for approval by the Shareholder fees for
Non-Executive Directors of PO Limited.
PO Insurance Board?
Remuneration Strategy PO Insurance: Executive
2.14 a) To approve the remuneration strategy for PO Insurance on the
recommendation of the PO Insurance Board.
b) To review annually the remuneration strategy for PO Insurance following its
review by the PO Insurance Board.
2.15 To approve the remuneration package for executive appointments to the PO
Insurance Board on the recommendation of the Nominations Committee. The
recommendations shall align with the remuneration strategy for PO Insurance.
2.16 To approve the elements which will form the remuneration package for an
individual in the above group, which may include, but shall not be restricted
to:
base salary
2 Registered name: Post Office Management Services Limited.
3
2.19
3.1
4.1
4.2
4.3
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short term incentive (annual bonus)
Long Term Incentive Plan
pension provision
benefits such as car or car allowance, private health, holidays
contractual terms such as notice periods.
To keep under review the contractual terms applicable to executive directors
of PO Insurance such that they adhere to the remuneration strategy for PO
Insurance.
To review annually the overall total remuneration of the Senior Group
(defined as any members of the PO Insurance Board) compared both with
external market comparators and with the remuneration of other employees in
the Group.
To review annually the criteria for, and the outturn of, performance
related pay arrangements for executive directors of the PO Insurance
Board. These should align with the remuneration strategy for PO
Insurance.
Remuneration Strategy PO Insurance: Non-Executive
a) To approve the remuneration framework within which the fees for
Non-Executive Directors of the Post Office Insurance Board may be paid
where an appointment is recommended by the Nominations Committee.
b) To review annually the remuneration framework for Non-Executive fees
for the Post Office Insurance Board.
Annual Review
The Committee will undertake an annual review of its own performance and the
Terms of Reference and recommend to the Board any necessary changes.
Composition and Governance
The Remuneration Committee is constituted as a sub-committee of the Board
and its Chairman shall be appointed by the Board. If considered independent
at the time of appointment, the Chairman of the Company may be a member
of the Committee, but shall not chair it.
Members of the Committee shall be appointed by the Board, acting on the
recommendation of the Nominations Committee and in consultation with the
Chairman of the Remuneration Committee.
The Committee shall be made up of at least two independent Non-Executive
directors. Only Non-Executive directors shall be eligible to be members of the
4
4.4
4.5
4.6
4.7
4.8
4.9
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Committee such that no individual shall be involved in determining their own
remuneration.
In the absence of the Chairman of the Committee at any meeting, the
Committee members present shall determine who shall chair the meeting.
Members of the Committee will normally serve for a period of three years.
Their appointment may be renewed for a further three year period but no
director shall serve as a member of the Remuneration Committee for a period
of more than six years.
Only members of the Committee have the right to attend Committee meetings.
The Chief Executive and the Group HR Director (or the holder of any equivalent
position) shall be informed of the date of each meeting and may be invited by
the Committee Chairman to attend all or part of any meeting, as and when
appropriate.
The Company Secretary shall not be a member of the Committee but shall act
as Secretary to the Committee and shall keep minutes and records of each
meeting and ensure regular reporting by the Committee to the full Board.
Minutes of each meeting will be circulated to all members of the Committee
and, once agreed, to those members of the Board who have no personal
interest in the matters discussed. Where a conflict of interest exists, the
Company Secretary will provide sufficient information to the full Board to
provide an understanding of the matter(s) considered.
If so requested by the Board or by the Shareholder, the Committee shall
provide an annual report on its activities.
The Committee shall have access to sufficient executive time and resources in
order to carry on its duties, including access to the Company Secretary and
members of the HR team.
The Committee shall be authorised to seek any information it requires from
any employee of the Company in order to perform its duties.
The Committee shall be exclusively responsible for establishing the selection
criteria, selecting, appointing and setting terms of reference of remuneration
consultants and have authority to appoint remuneration consultants and to
obtain, at the Company's expense, legal or other professional advice on
matters within its terms of reference as required, up to a financial limit
determined by the Board.
If there should be disagreement between the Remuneration Committee and
the full Board, the Chairman of the Board shall make time available for
discussion of the issue so that the matter may be resolved. Where any such
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disagreement cannot be resolved, the Remuneration Committee shall report
the issue as part of any annual report on its activities required by the
Shareholder.
4.14 Training will be provided by the Company for members of the Committee, as
required. Such training may take the form of internal briefings, attendance at
formal courses and conferences and/or sessions with external advisers.
4.15 Members of the Committee shall conduct an annual review of the Committee's
performance.
5. Meetings
5.1 The Committee shall meet as often as required but not less than three times
each year. The Committee may meet in person, by telephone or by other
electronic means, so long as each member can contribute to the business of
the meeting simultaneously.
5.2 The quorum necessary for the transaction of business shall be 2 members.
5.3. Meetings may be convened by the Secretary to the Committee, at the request
of the Committee Chairman, or by any member of the Committee, at any time.
5.4 Notice of each meeting shall be given to all members of the Committee and
any other person required to attend, at least 3 working days before each
meeting.
Recommended by: Approved by: Version: I Effective from:
Remuneration Committee PO Limited Board V1 [2]
Remuneration Committee PO Limited Board v2 25 March 2015
Remuneration Committee PO Limited Board v3 25 November 2015
Remuneration Committee PO Limited Board V4 [30 October 2018]
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TERMS OF REFERENCE OF THE REMUNERATION COMMITTEE AS AGREED
BY THE BOARD ON 25" NOVEMBER 2015 AND REVIEWED BY COMMITTEE
ON 12** APRIL 2016
PURPOSE
The purpose of the Remuneration Committee is to recommend to the Board the
remuneration strategy and any changes to individual elements of the remuneration
package for executive directors of Post Office Limited (the Company); members of
the Group Executive who report directly to the Chief Executive; other significant
senior level appointments with comparable remuneration; and to provide an
oversight function for the remuneration of the directors of the Post Office
Management Services Limited (POMS) board, as determined by the Board. Any
changes in remuneration for directors of the Company must be approved in advance
by the Shareholder. The remuneration of the Chairman and of non-executive
directors will be set by the Shareholder.
A. COMPOSITION AND GOVERNANCE
1. The Remuneration Committee is constituted as a sub-committee of the Board and
its Chairman shall be appointed by the Board. If considered independent at the
time of appointment, the Chairman of the Company may be a member of the
Committee, but shall not chair it.
2. Members of the Committee shall be appointed by the Board, acting on the
recommendation of the Nominations Committee and in consultation with the
Chairman of the Remuneration Committee.
3. The Committee shall be made up of at least two independent non-executive
directors. Only non-executive directors shall be eligible to be members of the
Committee such that no individual shall be involved in determining their own
remuneration.
4, In the absence of the Chairman of the Committee at any meeting, the Committee
members present shall determine who shall chair the meeting.
5. Members of the Committee will normally serve for a period of three years. Their
appointment may be renewed for a further three year period but no director shall
serve as a member of the Remuneration Committee for a period of more than six
years.
6. Only members of the Committee have the right to attend Committee meetings.
The Chief Executive and the Group People Director (or the holder of any
equivalent position) shall be informed of the date of each meeting and may be
invited by the Committee Chairman to attend all or part of any meeting, as and
when appropriate.
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7. The Company Secretary shall not be a member of the Committee but shall act as
Secretary to the Committee and shall keep minutes and records of each meeting
and ensure regular reporting by the Committee to the full Board.
8. Minutes of each meeting will be circulated to all members of the Committee and,
once agreed, to those members of the Board who have no personal interest in the
matters discussed. Where a conflict of interest exists, the Company Secretary will
provide sufficient information to the full Board to provide an understanding of the
matter(s) considered.
9. If so requested by the Board or by the Shareholder, the Committee shall provide
an annual report on its activities.
10.The Committee shall have access to sufficient executive time and resources in
order to carry on its duties, including access to the Company Secretary and
members of the HR team.
11.The Committee shall be authorised to seek any information it requires from any
employee of the Company in order to perform its duties.
12.The Committee shall be exclusively responsible for establishing the selection
criteria, selecting, appointing and setting terms of reference of remuneration
consultants and have authority to appoint remuneration consultants and to obtain,
at the Company's expense, legal or other professional advice on matters within its
terms of reference as required, up to a financial limit determined by the Board.
13.1f there should be disagreement between the Remuneration Committee and the
full Board, the Chairman of the Board shall make time available for discussion of
the issue so that the matter may be resolved. Where any such disagreement
cannot be resolved, the Remuneration Committee shall report the issue as part of
any annual report on its activities required by the Shareholder.
14. Training will be provided by the Company for members of the Committee, as
required. Such training may take the form of internal briefings, attendance at
formal courses and conferences and/or sessions with external advisers.
15.Members of the Committee shall conduct an annual review of the Committee’s
performance.
B. MEETINGS
1. The Committee shall meet as often as required but not less than three times each
year. The Committee may meet in person, by telephone or by other electronic
means, so long as each member can contribute to the business of the meeting
simultaneously.
2. The quorum necessary for the transaction of business shall be 2 members.
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3. Meetings may be convened by the Secretary to the Committee, at the request of
the Committee Chairman, or by any member of the Committee, at any time.
4. Notice of each meeting shall be given to all members of the Committee and any
other person required to attend, at least 3 working days before each meeting.
C. DUTIES AND RESPONSIBILITIES WITH REGARD TO THE COMPANY
The main duties and responsibilities of the Committee with regard to the Company
are:
1. to recommend to the Board the remuneration strategy for the Chief Executive,
executive directors and those members of the Group Executive who report
directly to the Chief Executive, always taking into account the remuneration
policy set for other employees.
2. in determining such strategy, take into account all factors which it deems
necessary including relevant legal and regulatory requirements, the provisions
and recommendations of the UK Corporate Governance Code (the Code) and
associated guidance. The objective of such strategy should be to attract,
retain and motivate executive management of the quality required to run the
Company successfully without paying more than is necessary having regard to
views of shareholders and other stakeholders. The remuneration policy should
have regard to the risk appetite of the company and alignment to the
company’s long strategic term goals. A significant proportion of remuneration
should be structured so as to link rewards to corporate and individual
performance and designed to promote the long-term success of the Company.
3. review the ongoing appropriateness and relevance of the remuneration
strategy.
4. with the consent of The Secretary of State for Business, Innovation and Skills,
determine each element of the total individual remuneration package of the
Chief Executive and other executive directors, both existing and for new hires,
including any increases in salary (whether or not resulting from company-wide
pay increases), pension provision and the outturn of performance related pay
arrangements and incentive schemes.
5. to determine the elements which will form the remuneration package for an
individual in the above group, which may include, but shall not be restricted
to:
base salary
short term incentive (annual bonus)
Long Term Incentive Plan
pension provision
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benefits such as car or car allowance, private health, holidays
contractual terms such as notice periods
6. to keep under review the contractual terms applicable to executive directors
such that payments made are fair to the individual and to the company, that
success, rather than failure, is rewarded and that the duty to mitigate loss is
fully recognised.
7. to work with the Nominations Committee in respect of new hires, such that
the Remuneration Committee can recommend to the Board an appropriate
level of remuneration which will attract talent but not be excessive.
8. to receive information on each element of the remuneration package and total
remuneration for new hires and any internal promotions and appointments
which are proposed to carry a salary in excess of the lowest salary of any
member of the current Group Executive.
9. to review the overall total remuneration of the Senior Group (defined as the
Chief Executive, executive directors and members of the Group Executive)
compared both with external market comparators and with the remuneration
of other employees in the Group.
10.to review and recommend to the Shareholder the implementation of, or
changes to, performance related incentive schemes for the executive
directors, Group Executive members and senior managers eligible to be
invited to participate in the Post Office Long Term Incentive Plan.
11.to review and agree the criteria for, and the outturn of, performance related
pay arrangements for executive directors and Group Executive members,
subject to authorisation from the Shareholder.
12.to review the total outturn of performance related pay arrangements across
the business.
13.to approve any exit package for any individual with a salary above the lowest
salary within the Group Executive membership, where the exit package would
be in excess of contractual obligations.
14.to undertake any other function delegated to the Committee by the full Board.
D. DUTIES AND RESPONSIBILITIES WITH REGARD TO POMS
The main duties and responsibilities of the Committee with regard to POMS are as
follows, to provide an oversight function for remuneration of senior executives within
POMS:
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1. to ensure the remuneration strategy for and any appointments to the POMS board
is consistent with remuneration policies within the Company, always taking into
account the remuneration policy set for other employees.
2. to ensure each element of the total individual remuneration package of the
executive directors of POMS, both existing and for new hires, including any
increases in salary (whether or not resulting from company-wide pay increases),
pension provision and the outturn of performance related pay arrangements and
incentive schemes is consistent with remuneration policies within the Company.
3. to ensure the elements which will form the remuneration package for an individual
in the above group, are consistent with remuneration policies within the Company
and may include, but shall not be restricted to:
base salary
short term incentive (annual bonus)
Long Term Incentive Plan
pension provision
benefits such as car or car allowance, private health, holidays
contractual terms such as notice periods
4. to ensure the contractual terms applicable to executive directors of POMS such
that payments made are fair to the individual and to the company, that success,
rather than failure, is rewarded and that the duty to mitigate loss is fully
recognised.
5. to work with the Nominations Committee in respect of new hires to the POMS
board such to ensure that levels of remuneration will attract talent but not be
excessive and will be consistent with remuneration policies within the Company.
6. to review the overall total remuneration of the Senior Group (defined as any
members of the POMS board) compared both with external market comparators
and with the remuneration of other employees in the Group.
7. to ensure the criteria for, and the outturn of, performance related pay
arrangements for executive directors of the POMS board is consistent with
remuneration policies within the Company.
—E. ANNUAL REVIEW
1. The Committee will undertake an annual review of its own performance and
the Terms of Reference and recommend to the Board any necessary changes.
2. These Terms of Reference were last reviewed by the Committee on 12" April
2016.
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POST OFFICE LIMITED PAGE 1 OF 3
BOARD
Post Office Limited Sealings
Author: Veronica Branton Sponsor: Jane MacLeod Meeting date: 30 October 2018
Executive Summary
Context
The Directors are invited to consider the seal register and to approve the affixing of
the Common Seal of the Company to the documents set out against items number
1711 to 1728 inclusive in the seal register.
Input Sought
For the Directors to resolve that the affixing of the Common Seal of the Company tothe
documents set out against items numbered 1711 to 1728 inclusive in the seal register
is hereby confirmed.
Strictly Confidential
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POST OFFICE LIMITED g
Date Register of Sealings Company Number é
18.09.2018 21554540 “
Seal Number Date of Date of I Persons Attesting Destination of
/ File Ref. Sealing Authority Description of Document To Document Document
1711 /Licence to I 01/10/2018 26/09/2018 I Licence to Assign in respect of 44 Sydenham Road, Lewisham, London I Jane MacLeod, Company Secretary Jean Reynolds
assign SE 26 5QX between the Mayor and Burgesses of the London Borough of
Lewisham and Post Office Limited and ZCO Limited and Potent Solutions
Limited. Seal 1711(x4). I
17127 04/10/2018 26/09/2018 I Agreement for sale in respect of leasehold of 44 Sydenham Road, Jane MacLeod, Company Secretary Jean Reynolds
‘Agreement for Lewisham, London SE 26 SQX between Post Office Limited and ZCO
sale Limited
1713 / S198 01/10/2018 ~~ —«-26/09/2018 Notice of an election to use an altemative apportionment in accordance Jane MacLeod, Company Secretary
Notice of an with section 198 Capital Allowances Act 2001 in respect of 44 Sydenham
0 election Road, Lewisham, London SE 26 5QX - leasehold interest. Seller Post
g I_ Office Limited, Buyer ZCO Limited. I I
5 1714 / Deed of 04/10/2018 ~~ —-26/09/2018 Deed of rectification between the Mayor and Burgesses of the London Jane MacLeod, Company Secretary Jean Reynolds
g rectification Borough of Lewisham and Post Office Limited in respect of a lease dated
27 April 2018 - 44 Sydenham Road, Lewisham, London SE 26 5QX. Seal
no 1714 (x2).
1715/71 01/10/2018 26/09/2018 I Transfer of whole registered title in respect of Ground Floor, 44 Jane MacLeod, Company Secretary I Jean Reynolds
Sydenham Road, Lewisham, London SE 26 5QX from Post Office Limited
I to ZCO Limited (09033841). Limited Title Guarantee.
4746 / Access o1i0/2018 28/09/2018 I Access Licence relating to Post Office, Towngate, Ossett between Royal I Jane MacLeod, Company Secretary Jean Reynolds
Licence Mail Estates Limited and Post Office Limited and Mohammed Jassat.
1717 / Licence 01/10/2018 28/09/2018 Licence for alterations relating to Ossett Delivery Office, Towngate, Jane MacLeod, Company Secretary Jean Reynolds
for alteration Ossett WF5 9AA between Royal Mail Estates Limited and Post Office
Limited and Mohammed Jassat.
1718 / Licence 01/10/2018 28/09/2018 Licence for alterations relating to Post Office, Towngate, Ossett between = Jane MacLeod, Company Secretary Jean Reynolds
for alterations Post Office Limited and Mohammed Jassat. i
1719/TR1 01/10/2018 01/10/2018 TR1 in respect of 113 Market Jew Street, Penzance TR18 2LB. Transferor I Jane MacLeod, Company Secretary Jean Reynolds
Post Office Limited. Transferee Bost Developments Limited 09352782.
Transfer with limited title guarantee.
1720 / Capital 01/10/2018 01/10/2018 Capital Allowances Election Notice in respect of 113 Market Jew Street, Jane MacLeod, Company Secretary Jean Reynolds
Allowances Penzance TR18 2LB. Seller Post Office Limited. Buyer Bost
Election Developments Limited. Accompanied by a signed letter from the
Company Secretary confirming that, in relation to the debenture in favour
of the Secretary of State for Trade and Industry dated 17 October 2003,
none of the events that would give rise to crystallisation of the debenture
have occurred.
1721 04/10/2018 04/10/2018 Deed of surrender and release relating to a lease of premises known as Jane MacLeod, Company Secretary Legal
Great Dunmow Crown Post Office, High Street, Great Dunmow, CM16
4AL
1722 10/10/2048 10/10/3018 ~~ Master Franchise Agreement between Post Office Limited and WH Smith Paula Vennelis, Chief Executive
High Street Limited Officer
(CAF : 1081) I
1723 10/10/2018 10/10/2018 Fourth Deed of variation of the collaboration agreement between POI, WH Paula Vennelis, Chief Executive
Smith High Street Limited and WH Smith Travel Holdings Limited. I Officer
Strictly Confidential Page 2 of 3
POL00026936
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POST OFFICE LIMITED 8
Date Register of Sealings Company Number é
18.09.2018 21554540 “
Seal Number Date of Date of Persons Attesting Destination of
1 File Ref. Sealing Authority Description of Document To Document Document
(Seal x 3)
CAF: 1081 I
1724 70/10/2018 10/10/2018 I Deed of variation of the framework agreement for the operation of post Paula Vennells, Chief Executive
office concession at WH Smith Stores. (Post Office Limited, WH Smith Officer
High Street Limited, WH Smith Retail Holdings Limited).
(Seal x 3)
CAF: 1081 I
1725 10/10/2018 40/10/2018 I Deed of variation of the Paddington Master Franchise Agreement Paula Vennelis, Chief Executive
between Post Office Limited and WH Smith High Street Limited Officer
(Seal x 2)
7 I CAF: 1081 I
e 1726 16/10/2018 15/10/2018 I Renewal lease by reference to an existing lease relating to 18 John Jane MacLeod, Company Secretary legal
ba Street, Llanelli
g 1727 16/10/2018 15/10/2018 I Transfer to whole of registered titles relating to 18 John Street, Llanelli Jane Macleod, Company Secretary Legal
7 1728 18/10/2018 18/10/2018 I Licence to occupy relating to the Turntable at 7/8 St Martin's Place, Jane MacLeod, Company Secretary Legal
London.
Post Office Limited and Best Effort Ventures Lid
Strictly Confidential Page 3 of 3
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POST OFFICE LIMITED PAGE 1 OF 2
BOARD
Performance Review — Health & Safety
Author: Martin Hoperoft Sponsor: Al Cameron Meeting date: 30" Oct 2018
Executive Summary
Context
Keeping our employees healthy and safe is fundamental to Post Office success. This is
reflected in the Post Office Board’s legal responsibilities and members of the board have
both collective and individual responsibility for health and safety.
We have a rolling 3-year plan to drive compliance, targeting a reduction in safety
metrics including accidents; lost time accidents (LTIFR); days lost; and personal injury
claims. Our H&S reporting and safety management system has been externally audited
and we also recognise the importance that wellbeing can play in creating engaged and
motivated employees.
Questions addressed in this report
What are the trends on accidents and on violence across Post Office?
Conclusion
The prevention of accidents has improved materially year in year. Whilst we have seen
a reduction in the volume of incidents during September and early October, a spike in
August and a recent increase in violent robberies and ATM rip-outs have raised our
concerns. There has been a reduction in CViT incidents during the period August to
October (2) compared to the previous 3 months (8).
Whilst there is some recent concern regarding Post Office robberies, overall there has
been a 35% annual decrease (50 incidents in 18/19 vs 77 incidents in 17/18). However,
injuries have shown a slight increase compared to last year (8 in 18/19 vs 6 in 17/18),
all of which were relatively minor assaults. There has been a 35% decrease in all types
of weapons carried during robberies (41 in 18/19 vs 63 in 17/18) and a 55% reduction
in the number of blades and knives being carried (17 in 18/19 vs 38 in 17/18).
ATM attacks are currently showing an overall 88% increase, 15 (2018/19) vs 8
(2017/18). We have developed an ATM Risk model which shows 707 of 2545 ATMs as
high risk. 67% of all ATM crime this year has occurred in the high risk bracket.
There have been a number of successes following installation of mitigating upgrade
equipment. For example, of the 90 fogging kits installed in 2017/18, only one branch
suffered a robbery which was prevented when the fog was activated by the post master.
To mitigate risk further, the Security team have used risk profiling models to identify c.
1200 high risk branches in the network and we have approved £3m spend on rolling
fogging and IP cameras out to these branches. There was also an attempted ATM gas
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POST OFFICE PAGE 2 OF 2
attack where the gas suppression system prevented any build-up of gas. The 3G and
Pinhole cameras have also resulted in 3 arrests to date. A number of initiatives have
been agreed for Chester CViT, following the recent increase in violence, including
scoping an ‘ink degradation of notes’ system for iBoxes, route planning and variation,
external security escorts for cross pavement, higher number of live stream cameras on
vehicles in Liverpool area with vehicle wrap appealing to community to report crime.
There has been an increase in accidents reported in P6 (12), with 9 reported in Supply
Chain, mainly due to a lack of attention and incorrect procedures being followed. One
resulted in lost time of 2 days. There has been a 28% reduction in accidents reported
in 18/19 compared to 17/18 (20 v 38) mainly due to a 47% decrease in Supply Chain
(20 v 38 YTD). Accidents per 1000 employees have reduced by 25% with Supply Chain
reducing to 24.4 from 46.8 (-48%). Lost time accidents have reduced (LTIFR P6 YTD
is 0.200 vs 0.283 in 17/18. Lost days have also reduced by 65% (110 vs 310 in 17/18).
The external HSL audit action plan is progressing, including H&S training workshops
for DMB and Supply Chain Managers with similar training planned for Network
Operations teams in November. The Supply Chain safety plan is progressing well with
safety champions attending workshops, undertaking self-audits, identifying hazards and
improving culture. We are also reviewing risk assessments and safe systems of work.
Whilst we have seen a reduction in road traffic accidents in line with the reduction in
fleet size, we are hoping to see further improvement through the introduction in Supply
Chain of Telemetry (tracking and analysis of driving performance) and Alcolock
(breathalyser integration with key management). The Road Risk Policy has been
approved by Safety Board. We will work to strengthen driver safety training with the
help of Brake and include guidance on how to alleviate fatigue whilst driving.
The overall risk for property statutory compliance remains low at 96.28%
e Fabric Surveys have been completed, showing our premises are mainly in a
satisfactory condition with all high risk actions completed.
e Landlords’ compliance across 138 sites has been checked. Sites with unsatisfactory
responses have been audited no significant issues identified.
e The Fire Risk Assessment inspections have been completed for 2018 and 89%
actions have been closed out. The Risk Profile has reduced significantly.
e We have confirmed our signage inspection policy meets the national signage
consortium best practices. We have also confirmed that POL are liable to inspect
¢.3800 ‘local’ agency signs, mainly low risk lozenge signs. This will commence in
18/19, starting with signs over 3 years old (c. 50%) and in harsh weather areas.
° 98.67% waste was diverted from landfill and recycled/recovered in September
Input Sought
The Post Office Board are requested to note the current health safety performance
and content of this report. A more detailed report and further discussion on Violence
and Robberies is planned for the November Board meeting.
Safety
POST OFFICE
Appendix 1
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Health & Safety Metrics - P6 (Sept) 2018/19
Number of Employee Accidents — Monthly - Period 6
(Target to achieve a year on year reduction)
Directly Managed Branch
Accidents P6 YTD
25
20
PL P2 P3 P4 PS 6
2016/17 2017/18 2018/19
There were 12 employee accidents in P6 18/19 compared to 5 in 2017/18 and
47 YTD 18/19 v 65 YTD 17/18.
DMBs ~ Accidents are about the same level as last year at 23 YTD.
Causation has been due to stepping/striking objects. However, there has been a
reduction in lifting / handling related accidents and falls on the premises.
Supply Chain ~ There has been a marked reduction in Supply Chain accidents to
20 YTD 2018/19 from 38 in 17/18, a reduction in vehicle related accidents (non
RTA) and stepping/striking related accidents with a slight increase in
lifting/handling related incidents and injuries following assault.
The H&S and L&D teams are updating the H&S training modules, inc manual
handling, for issue to Supply Chain colleagues from Q3.
The Supply Chain Safety Plan is also progressing, 3 workshops have been
attended by Safety Champions and a fourth booked in November to share best
practice, lessons learnt and promote safety culture. IOSH Managing Safely
training courses have been attended in Q2 and a self-audit tool is being used by
champions to support their local PiCs. A number of improvement opportunities
have been identified by the Champions eg tail lift and loading and unloading,
safe system for manual rotation of Personnel Transfer Units (trapping hazard).
Overall, there have been 5 lost time accidents in POL in 2018/19, incurring a
total of 110 lost days, a 65% reduction when compared with 2017/18.
Days lost due to accident / 000 employees -
100.0 Cumulative
50.0
oo Musca full, nul. will bil, li
PL «2015746 2016/37 w2017Pa8 w2018PH
NEAR MISSES - A total of 3 in P6 (Sep). DMBs - 1 reported. 2 intoxicated
homeless customers entered branch and passed out, endangering themselves.
Supply Chain - 2 near misses recorded in September. 1. Briggs Engineer
collided with barrier when servicing Kombi (large) vehicle in Swindon SS. Comms
sent to all drivers at this site advising to take extra care.
2. Commercial Driver jumped amber light. Interviewed, verbal warning given.
30
25
20
15
10
5
0
Year to Date
16/17 28
17/18 24
418/19 23
Supply Chain
Accidents P6 YTD
25
20
15
10
5
0
Year to Date
16/17 26
wi7/18 38
918/19 20
Road Risk
P6 18/19 — A total of 10 RTCs
Blameworthy - 7
There has been a 10% reduction in
blameworthy road traffic collisions in
18/19 compared to 17/18
Non Blameworthy ~ 3
Initiatives include:
- A new overarching Road Risk Policy
has been developed and signed off
by Safety Board, with improved
training, compliance checks and
maintenance checks to cover
Commercial Fleet, Business &
Personal Cars.
- Road Risk and H&S teams are
scoping products to alleviate fatigue
and improve journey planning.
Online driver training has been
provided to employees who drive on
business with ongoing support from
the H&S BPs.
= Crash investigation courses have
been provided to Transport
Managers and H&S BPs.
Safety
POST OFFICE
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LTIFR - YTD Lost Time Incident Freq Rate
All Post Office - Employee
ee LTIFR OMB muna LTIFR Post Office
sme LTIFR SC Target
nanan LTIFR Supply Chain
= LTIFR POL Target
Post Office CViT Robberies - P6
There was zero incidents reported in Sep v 3 in 17/18 and there have been 20
incidents v 17 over previous 12 rolling months. There were no incidents of
violence or any injuries reported.
Current mitigating activity:
* Work well underway to deliver Crimestoppers campaign in October in West
Midlands following a number of CViT (and branch) robberies during the
calendar year.
* Police meeting with Police Scotland at Glasgow Depot included walk through
for greater clarity and understanding of operation.
+ 204 Cross Pavement Observations (CPOs) undertaken by Security Managers
during period, including 34 on Merseyside by local Security Manager.
* Security Manager also working closely with Merseyside Police to cover off as
many deliveries in high risk areas as possible between them at present.
+ Working to ensure most up to date equipment is deployed as quickly and
comprehensively as possible on high risk Liverpool routes.
Rolling CVIT incidents
PS Aug - 18 incidents. Violence- 4 vs 0 last year, Injuries ~ 2 vs 0 last year
(bruising from baseball bats). Weapons - 16 (9 firearms, 4 blades) vs 7 in
16/17 (0 firearms, 4 blades). P6 Sep ~ 5 incidents. Weapons - 4 (1 firearm,
3 blades inc machete). Injuries 1 (cut leg).
LTIFR P6 YTD
0.900 YTD P6 - 0.200
0.800 2017/18 out turn - 0.271
0.700 i a 2018/19 target - 0.200
0.600 Benchmark - 0.300
hone Absence accidents/000 SiP:
Oos00 1.43 P6 YTD v 2.17 (17/18)
0.200 —— —
0.100 a ns Supply Chain - Employee
0.000 ~ LTIFR P6 YTD
ve YTD P6 - 0.615
2017/18 out turn - 0.820
2018/19 target - 0.500
Benchmark 0.600 (BSIA update Q2)
Absence accidents/000 SiP
6.11 P6 YTD v 7.38 (17/18)
Post Office Robberies - last 6 mths:
Apr ~ 6 incidents v 12 (17/18)
May - 7 incidents v 14 (17/18)
June ~ 8 incidents v 11 (17/18)
July ~ 6 incidents v 18 (17/18)
Aug - 18 incidents v 8 (17/18)
Sep - 7 incidents v 13 (17/18)
There have been 121 robberies current
rolling 12 mths v 170 previous period.
It is a concern that the level of violence
increased in P5 and the presence of
firearms (not discharged) has also
increased. P6 returned to normal levels.
Mitigation
- Drafting article on Security Ops
Manual availability and adherence.
- 36 Torch visits conducted in
numerous areas, many at branches
in close proximity to robbery targets.
- 16 DMB visits undertaken and full
security reviews incorporated.
- Meetings held with Staffordshire and
Hampshire Police to discuss closer
links and future strategies.
- The deployment of fogging and IP
cameras is aimed to reduce robberies
and the associated risks, as noted
zero injuries, where activated.
- Security presentations delivered at
regional NFSP meetings and for
franchise partners.
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BOARD
Post Office Limited Board Meetings
Executive Summary
Context
The Directors are requested to note the future meetings dates scheduled in respect of
Post Office Limited Board meetings.
Input Sought
The Board is requested to note the future meeting dates.
The Report
2018/2019
Tuesday 27 November 2018 11.45 - 16.30
Tuesday 29 January 2019 11.45 - 16.30
Tuesday 26 March 2019 11.45 - 16.30
Tuesday 28 May 2019 11.45 - 16.30
Tuesday 30 July 2019 13.00 - 18.00 Away Day
Wednesday 31 July 2019 08.30 - 16.00 Away Day
Tuesday 24 September 2019 11.45 - 16.30
Tuesday 29 October 2019 11.45 - 16.30
Tuesday 26 November 2019 11.45 - 16.30
Strictly Confidential
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Draft Board Agenda for meeting on 27 November 2018
Minutes of previous Board and Committee meetings 5 Board action from Jane MacLeod Decision
including Status Report previous meeting
CEO Report 20 Standing item CEO For Noting
Financial Performance Report 20 Standing item CFOO For Noting
Cyber Security 30 Update Rob Houghton Veronica Branton For Noting
Future of Cash - Banking Framework 2 30 Decision Debbie Smith Martin Kearsley Decision
Retail Strategy 45 Decision Debbie Smith Tom Moran Decision
Postmaster Litigation 15 Update Jane MacLeod For Noting
Bol Negotiations 30 Decision Owen Woodley Chrysanthy Pispinis Decision
Marketing Effectiveness and Customer Insight 30 Update Owen Woodley Emma Springham For Noting
Health and Safety Report (including a review of 15 Update Al Cameron Martin Hopcroft For Noting
robbery risk and violence)
Draft Board Agenda for meeting on 29 January 2019
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Debbie Smith
Minutes of previous Board and Committee meetings 5 Board action from Jane MacLeod Beas
including Status Report previous meeting
CEO Report 20 Standing item CEO For Noting
Financial Performance Report 20 Standing item CFOO For Noting
2019/20 Budget (first draft) 20 Update Al Cameron For Noting
Telecoms Strategy 30 Update Owen Woodley Meredith Sharples For Noting
ATM Partner 30 Decision Debbie Smith Martin Kearsley Decision
Costs 20 Update Al Cameron/ For Noting
Debbie Smith
Customer Hub Strategy and Business Case 20 Update Owen Woodley Henk Van Hulle / Jeff
FS&T & Retail Quarterly Update 30 Update Owen Woodley / Smyih