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Post Office Ltd - Confidential
- GROUP EXECUTIVE Reference: GE 13.07.17
Date: 13.07.17 Venue: Finsbury Dials it Time: 09.30hrs to 16.00hrs i
Present: "In Attendance i Apologies I
Paula Vennells (PV) Tom Moran (™) Kevin Gilliland (KG)
Alisdair Cameron (AC) “Amanda Radford (item 2) (AR)
“Nick Kennett (NK) Julie Thomas (item 7) (JT)
"Jane MacLeod (JM) Tom Wasilewski (item 8 & 9) (Tw)
Alwen Lyons (AL) “Andy Parsons (item 10) (AP) I
Rob Houghton (RH) fl
Martin Kirke (MK) r i I
Mark Davies (MD) i i I
Martin Edwards (ME) I I i
CEO update to the GE
PV explained the followin:
. The Peregrine paper had been withdrawn from the meeting.
. The retail paper covered two things: a move to a concessions model which was a change in strategy and
offered new opportunities and risks, and the commercials of any deal, including controls in place to
manage the contract and the customer offer
. The Chairman had been briefed about the proposed delay to the Belfast Data Centre disaster recovery
testing, and was supportive of the approach. However contingency planning was required. A paragraph
would be included in the CEO report to the July Board and followed up at the ARC in September
. A letter had been sent to the Prime Minister to thank her for the support at PMQs and to stress the
continued importance of PO.
. The Taylor report on ‘modern workplace practices, may have an effect on the cash in the economy and in
branches.
. PV had met the new Marketing Directors and was impress by the calibre being appointed. The new
marketing structure would be discussed at a future GE meeting.
. The appointment of Martin Edwards and Mark Davies to full Group Executive members had been approved
by the NomCo & RemCo.
“The GE agreed the following actions:
° Provide a briefing note to the GE on the effect of the Taylor report on ‘modern workplace
practices’ on mainstream employment. MK
° Bring a paper on the new Marketing Structure to a future GE NK
DECISION: The NomCo And RemCO had approved the appointment of Martin Edwards and
Mark Davies as members of the Group Executive.
To review the Financial Results and the Business Scorecard and discuss any areas which are shown to have a
RED status.
AR joined the meeting
. AR reported the P3 performance against budget and the Business Scorecard.
. Although the report shows a favourable EBITDAS performance against P3 budget and YDT, the underlying
performance after allowing for timing difference is adverse by £1.2m in P3 and £1.8m YTD
Trading continues above budget but agents’ remuneration is being investigated.
The balance sheet headroom reduced in p£ to £116m.
The marketing underspend of £2m is a calendarisation issue and will unwind, NK to provide a note to AR.
Now getting flash reports for FRES so the data should be more accurate, however there was some
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concern about the trading although the FRES management remain confident that they will hit the targets.
The challenge is with digital sales.
. The number of branches has fallen significantly over the last 2 periods and was thought to have
consequences for bonuses and the funding agreement. However the white space strategy would help to
alleviate. There may be a need to discuss with BEIS if this target is driving the wrong decisions in the
short term.
. Is there a risk around the audits for HNGA revealing losses and driving more branch closures? 10% of the
pilot HNGA branches are being audited and to date this has revealed no systemic problems.
. There is a short term vulnerability as the work to identify and audit high risk branches pushes ahead.
. There may need to be a review of required opening hours for new contracts if the pressure on branch
numbers remains. Provide a paragraph for the CEO report to explain the pressure on branch numbers.
. Discussion on Gross Profit Margin and DPC (Direct Product Contribution), and the relevant reporting.
. Initial work on Temporary staff cost produced for the finance pack but allocations need to be checked.
. Biggest risk to non-staff costs is agents’ debt/losses, with some big amounts coming through. Work is
underway to reduce network cash and reengineer the debt recovery process. The budget assumed a £2m
provision release which now looks optimistic.
. Looking to use data analytics to see the most effective was to mine the data and highlight risks. Need to
recognise the AML work is an issue as well.
. Have we flagged the issue to George Thomson, NFSP as he has been helpful in the past at getting
messages out to the network that the Business is taking this seriously and changing its approach?
. Deep dive on losses at the CRG
~The GE agreed the following actions:
. Check if the number of branches remains a gateway measure for bonuses and what the
target is MK
. Check if the number of branches is a requirement for the funding agreement and if so
clarify the target and the consequence of any breach ME
* Provide a paragraph for the CEO report to explain the pressure on branch numbers. ™
. Flagged the issue to George Thomson, NFSP as he has been helpful in the past at ™
getting messages out to the network that the Business is taking this seriously and
changing its approach.
Assessment of FS&T portfolio to confirm sectors of greatest value and opportunity to POL ahead of the
discussion at the Board.
The following questions came out of the Board awa)
1. Where are the biggest threats?
2. Where are the biggest opportunities?
3. Can we/ should we build a business with a small market share?
4. Is the Bol partnership the right relationship does it have the capability?
5. Why cannot we go and get a deposit business - there is a misunderstanding of balance sheet?
The FS portfolio is a high margin business and drives value for the business, the growth potential varies considerably.
Bol highest margin.
e Need to answer the Board's questions on market share, to challenge the view that success is only possible with large
market share. Give a view of the overall market, it is made up of a lot of small players? Get a sense of the market
dynamic, expand the analysis in the paper to give an overview market by market, including return on equity
e ACTION: check that the figures in the paper align with the funding strategy or explain why Could we draw out the
sense of the Brand and that POL are not paying dividends, difficult as Bol do pay a dividend.
e — Careful of the tone, not pushing back at the Board but explaining the difference of opinion. Eg you raised X,Y,Z this
our view and why Three core assumption to counter:
1. We can only be profitable at scale
2. Bol is a sub-optimal partner (Peregrine)
3. There is no need to balance assets and liabilities on the balance sheet.
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“The GE agreed the following actions
. NK to take the GE input into account in producing the paper for the Board NK
ital Roadmap and ATOS TOM update.
p ree require a change in capability and culture and a
move to a more digital self-help, self-enablement approach. This has to be business led so how do we
break into it and educate the leaders and give them a more external digital focus.
. Need to provide new tools and showcase what they can do, so that people ‘pull’ the services. Need to help
people think digitally, a lot of the GE have lists of areas they would like to change to a digital solution but
need help to do so
. First action to embed ClOs into teams, they need to help make things easier to digitise.
. Need to deliver credible digital improvements for agents to be taken seriously. Make sure things work for
locals (corner shops)
. Need to think about how GE and GE-1 think differently. (not a sheep dip programme)
. We will gravitate to apps and building digital propositions, but do we have the capability to build internally,
do we need to use people outside the business.
. Can take employee requests and digitise the list and will do this, but bigger gains in agent and customer
areas.
. How do we start and then keep the momentum going, should we bring to GE every quarter. Planned view
set out in section 6 of the paper but needs timeline added.
. Lots of areas which could be improved but we do not have the knowledge to take forward. Each area
should have its own digital strategy, and then use the APIs for a more agile flexible approach
. Only have 3 ClOs, what more do we need to invest, need to know what capacity and capability looks like,
what is the business case.
. Need more resource to embed digital, systems thinking leadership.
. We must not lose the momentum on the customer side
. Too early to come to the Board add to the Board agenda for September
The GE agreed the following actions:
. RH, MK, ME work out what is required to embed digital systems thinking into the
organisation RH/ME/MK
. GE session on social media landscape, to understand the cause, effect and value for
. MD
PO social media work
. IT Digital Roadmap to be added to the September Board agenda AL
. Circulate the paper on the ATOS TOM update for discussion on Monday 17" June RH
. — 5
To update GE on cash including:-
+ Walk through the scenarios used at the Board
+ Short term delivery this year
+ Explain what will be covered in the broader cash piece in October.
. AC explained the cash, funding and headroom using the position of March 2017 as an example.
. The paper showed:
Where PO cash was held;
How it was funded;
What was the facility headroom on the RCF (Revolving Capital Facility);
What was the security headroom on the RCF;
What was the actual headroom
. AC then explained the 5 areas being considered to improve the cash position:
Use £100m less cash in the branches
Secure an overdraft facility of £50m
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Use £100m less cash in the cash centres
Place an additional £50m on the NRF (BoE balance sheet) every day
The Board agree to manage with £50 less buffer
. AC explained the options and their effect on the cash and headroom, the GE asked for a note setting out
what had been explained
NK left the meeting
HVH joined the meeting
. ME explained the work with BEIS to try to secure a funding agreement. Unlikely to get an agreement
before recess but hope to work with officials over the summer and get agreement before the party
conferences season in the autumn.
. Another session at the start of the Board without the shareholder representative to understand what the
options are if we receive less funding.
. Would be unhelpful if the funding were not hypothecated and tied to specific programmes, and any
discussion on this point at the Board would need Richard Callard in the room.
. After funding State Aid clearance still needs to be sought.
. Retail team would like to announce the white space initiative before the end of July which they recognise
is before the funding has been agreed
. Discussion as to the positioning of any announcement to the unions. Could carry on with White Space
without an announcement.
. Need to aware of the pressure on the timing with the funding agreement and the political pressure of any
announcement which would effect DMBs
° Need to get ministerial support for opening more white space POs. The narrative, improving customer
access.
. It will effect DMBs, probability of redundancy higher in the new plan.
. Have looked at the optimal solution for the 48 branches in the plan, for 40 the white space is the right
solution, as it fill gaps in the network and enhances customer access. A franchise could work but white
space is the preferred solution. Analysis of each branch has been done, but until they are advertised and
we understand the interest we cannot finalise a plan.
. Out of the 177 DMB branches 92 areas would benefit customer access through the white space solution if
the right opportunity arose
. The narrative should focus on the 150 white space initiatives and improving customer access, then look at
how this effects the DMBs, be straight forward and honest about what the outcome might be
. Come back to explain to the GE how the plan is being taken forward
. Retail team are looking at whether there is a business case for PO to run small branches under a more
agile model, and learn from the retail experience.
. Deloitte are considering a hybrid where PO works as its own franchisee.
. JT left t i
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“The GE agreed the following actions
. Provide for the final draft of the narrative for the white space solution, including the
effect on DMBs in the area for PV and MK.
Return to GE with the plan on how the white space initiative will be taken forward
JT
JT
fe)
. FT article had highlighted the pressure on RMG share price.
. Change in the RMG team negotiating with POL, Nick Landon has taken over, probably good news as he is
a different character who will make decisions, but he is no longer a direct report to Moya.
. Progressing with the mandate, it will be challenging, introduced Amazon and accessible market, but it was
not well received.
. Nick Landon needs more time to get up to speed with the Joint Strategy work. RM now producing an
update on their strategy and beginning to understand that they need to make changes.
. RM may want to bring forward the full negotiation, POL not proposed as do not want to appear to hungry
for this to happen, but planning in case RM suggest this.
° The team do not have a mandate to start negotiation
To review the proposed change in retail strategy
i
. This would be a change of strategy from a retail supplier whose products we would sell in DMBs to a
concession within the store.
. Challenge to the numbers in the paper as one of the options feels very optimistic.
. Do not want to be railroaded by one of the suppliers to sign before the end of July, it needs to be the right
solution
. If we bring to the Board we need to be clear we are asking for a change in strategy to a concession model.
Then we would consider the WHS offer, we would need to be sure of the quality of the products (especially
packaging), and that controls were in place to ensure the sale of appropriate stock.
. Ask the Board to sign off the change and delegate authority to PV and AC to sign a contact.
. Risk of not meeting the July deadline is that the incumbent supplier's contract runs out in January 2018, so
the new supplier needs to be ready by that date.
. New contract term is 5 years with a 6 month termination for convenience clause with some penalties.
__W left the meeting
The GE agreed the following actions
. Rewrite the Board paper to focus on the change of strategy, setting out the opportunities Tw
and risks. Asking for delegated authority to the CEO and CFOO to enter into the most
beneficial contract.
To update GE on the Sparrow Litigation.
Andrew Parsons, Partner from Bond Dickinson, joined the meeting
e JM and AP briefed GE on the proposed Defence that would be filed on behalf of Post Office on 18 July in
the Postmaster litigation.
e The following points were made:
e« Mr Parsons described the role of the Defence document in the proceedings, and noted that the document
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would be signed by the General Counsel on behalf of Post Office.
e The accuracy of the factual statements included in the Defence had been reviewed internally by those Post
Office staff with knowledge of the relevant facts.
e Mr Parsons summarised the key themes arising in the litigation and the approach to those themes in the
defence.
e Freeths were still advertising for additional claimants however the window for applicants to apply to join the
litigation would close on 26 July and Post Office would receive details of the total number and names of
applicants shortly thereafter. Present indications suggested that the total number of claimants in the
proceedings would be 400-500.
e The Claimants have the opportunity to respond to Post Office's Defence in a formal document called a
Reply. This is due to be served on Post Office and filed with the Court on 20 September 2017. It is not
mandatory for the Claimants to serve a Reply but given the complexity and importance of this case it is
expected that they would do so.
e ACourt hearing, called a Case Management Conference, will take place on 19 October 2017. This hearing,
and the preparation for it, will provide an opportunity for Post Office and the Claimants to agree further
steps leading up to trial, including the selection of those postmasters' cases which the parties wish to put
forward as Lead Cases; disclosure of documents; witness evidence and expert evidence. Once selected,
the Lead Cases will be examined in greater detail by the Court at mini-trials with the aim of using those
cases to determine points of principle or fact that apply broadly to many cases. To be able to do this, the
parties will need to set out their positions in relation to these Lead Cases in further, case-specific
Particulars of Claim, Defences and Replies.
AP left thi
The GE agreed the following actions
. GE noted the briefing and requested that a further update be provided to GE and the
Board following the Case Management Conference. This update should include an
assessment of the potential impact on Post Office and its business and operations of the JM
range of possible outcomes, based on the issues to be considered through the Lead
Cases.
eRe ce TT I
Chair of Committees to update GE.
. The Business has imposed a 2% pay deal on CWU grades, with the expected adverse reaction form the
CWU. Feedback from colleagues has been more about the imposition rather than the deal
. Letters to colleagues homes on the 14" July, no media reaction to date
. Pay discussions ongoing with UNITE.
. Not unreasonable for people to want an above inflation pay deal especially if they are paid below the
market rate. Need to consider as part of Project Jay as part of the wider remuneration package
. Project Jay continues with implementation by the end of March 2018.
Operations Board
. The notes form the last Ops Board were circulated to the GE. The next Board is w/c 17/7 and the notes
will be circulated in due course
CRG
. Discussion had taken place about the use of contractors and temps. Since OSOP HR have controlled
employee and contractor recruitment, they will take over the recruitment of Temps as well.
. EUM had now been deployed in the model office. There were some challenges, but these were being dealt
with and the pilot rollout from the 26" July was on track with a decision on further rollout to be taken on
the 8" August.
° Pick up SuccessFactors at the ECG on the 17" July
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To update the GE on the actions taken and provide any information requested.
. Minutes agreed.
. Operations Action 5 - closed
For GE to note the papers.
HEALTH & SAFETY
. Increase in accidents down to carelessness, communication going out to people.
. 4 Multi-storey buildings in the estate have cladding, which has been sent for testing. Finsbury Dials,
Doncaster, Dundee and Houndsditch. Make sure that the fire escapes in these buildings are working
. Check that the fire escapes in the 4 clad multi-storey buildings are working AC
To discuss any additional items raised.
.ondon Accommodation
ce A review of the accommodation across London has been undertaken, including analysing the usage of FD
with the possible outcome of moving to 2 floors.
. Steve Norris to discuss the options with GE members and attend the August GE. Need a full discussion to
ensure that the £2m is worth any disruption.
. Need to ensure we factor in any change in the establishment eg digital resource
Chall hy i k
. All GE members to let Steve Norris know of any additional desk requirements, and any ALL
planned changes, copy in MK
. Steve Norris to discuss the options with GE members and attend the August GE. Need a ACISN
full discussion to ensure that the £2m is worth any disruption.
Review the agenda items and the effectiveness of the sessions.
REVIEW
+
. Important strategic conversations
. Good contribution
. Pragmatic to pull paper if right to do so
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Too long — a bit of a meander
Sparrow too long
Pulling papers at the last minute not helpful
Retail paper past minute — significant paper needed earlier
Papers are not coming in on time
Not always thinking about the customer perspective, retail and white space papers not much mention of