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POLB 16(9"")
POLB 16/72 — 16/84
POST OFFICE LIMITED
(Company no. 2154540)
(the ‘Company’)
Minutes of a meeting of the BOARD
held at 11.15 am on 24" November 2016 at 20 Finsbury Street, London EC2Y 9AQ
Present:
Tim Parker Chairman (TP)
Richard Callard Non-Executive Director (RC)
Virginia Holmes Non-Executive Director (VH)
Tim Franklin Non-Executive Director (TF)
Ken McCall Senior Independent Director (KM)
Carla Stent Non-Executive Director (CS) f
Paula Vennells Chief Executive (CEO) I
Alisdair Cameron Chief Financial Officer (CFO)
In Attendance:
Alwen Lyons Company Secretary (CoSec)
Martin Edwards Director of Strategy (ME) (Minute POLB 16/76 and 16/78)
Martin George Commercial Director (MG) (Minute POLB 16/78)
Mark Siviter Head of Mails (MS) (Minute POLB 16/78)
Tom Wasilewski Senior Product Manager - Mails (TW) (Minute POLB 16/78)
Nick Kennett Financial Services Director and CEO of POMS (NK) (Minute
POLB 16/79) I
Rob Houghton Chief Information Officer (CIO) (Minute POLB 16/80) I
I
Angela Van Den Bogerd _ Director of Support Services (AVDB) (Minute POLB 16/80)
POLB 16/72 INTRODUCTION
(a) A quorum being present, the Chairman opened the meeting.
(b) The Directors declared that they had no conflicts of interest in
the matters to be considered at the meeting in accordance with
the requirements of section 177 of the Companies Act 2006 and
the Company's Articles of Association.
POLB 16/73 MINUTES OF THE PREVIOUS BOARD MEETING AND COMMITTEE
MEETINGS INCLUDING STATUS REPORT
(a) The minutes of the Board meeting held on 25" October 2016
were approved as presented and the Chairman was authorised
to sign them as a true record.
(b) The minutes of the Audit, Risk and Compliance Committee
meeting held on 28 September 2016 were noted by the Board. I
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(c) The actions status report was noted as accurate.
(d) Action POLB 16/57 - The Board noted the update on the
opportunity to offer the NHS a drug distribution service.
POLB 16/74 CEO REPORT
(a) The CEO introduced the CEO Report focussing on the following
key points.
(b) Period 7 Results: The CEO was pleased with the performance
during the period and continued to be confident of delivering the
-£10m EBITDAS target, but stressed that good Christmas
trading would be crucial.
(c) Industrial Relations: The CEO explained that, to date, no further
strike notification been received from either the CWU or Unite,
but that the ballots remained active. The CEO had met both
Andy Furey and Terry Pullinger from the CWU.
The Board discussed the industrial relations at Royal Mail and
the effect any action would have on the Post Office. The Board
ACTION: MS asked the Executive to test the Royal Mail contract to see if
it allowed the use of other carriers in the event of a strike.
(d) Pensions: The CEO updated the Board on the pension briefing
sessions provided for those affected by the decision to close the
defined benefits pension scheme. The Pension Trustee
executive have agreed in principle that information on the
scheme surplus can be made available before Christmas.
(e) Parliamentary Activity. The CEO was pleased with the I
Westminster Hall debate and the support that Margot James, I
the Parliamentary Under Secretary of State, Minister for Small I
Business, Consumers and Corporate Responsibility, had given I
to the strategy and particularly the Directly Managed changes. I
ACTION: RC I
(f) The Board asked Richard Callard to circulate to the Board
the BEIS report on the Post Office.
(g) Supply Chain: The Board asked if the revenue loss from the
closure of the external business was in line with the forecast.
The CFO assured the Board that the revenue was in line with
projections and that the payment of final bills was being
monitored as it represented the next key risk.
(h) The Board asked for assurance that the focus on Health &
Safety had not been diluted during the Supply Chain changes.
The CFO reported a continued focus on Health & Safety as
drivers moved to new routes.
(i) The Board noted the report from the CEO.
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(c) The actions status report was noted as accurate.
(d) Action POLB 16/57 - The Board noted the update on the I
opportunity to offer the NHS a drug distribution service.
POLB 16/74 CEO REPORT
(a) The CEO introduced the CEO Report focussing on the following I
key points. j
(b) Period 7 Results: The CEO was pleased with the performance
during the period and continued to be confident of delivering the
-£10m EBITDAS target, but stressed that good Christmas
trading would be crucial.
(c) Industrial Relations: The CEO explained that, to date, no further I
strike notification been received from either the CWU or Unite,
but that the ballots remained active. The CEO had met both
Andy Furey and Terry Pullinger from the CWU.
The Board discussed the industrial relations at Royal Mail and
the effect any action would have on the Post Office. The Board
ACTION: MS asked the Executive to test the Royal Mail contract to see if
it allowed the use of other carriers in the event of a strike.
(d) Pensions: The CEO updated the Board on the pension briefing
sessions provided for those affected by the decision to close the
defined benefits pension scheme. The Pension Trustee
executive have agreed in principle that information on the
scheme surplus can be made available before Christmas.
(e) Parliamentary Activity: The C! was pleased with the
Westminster Hall debate and-thé support that MargoWames, the -*
Post Office Minister, had given to the strategy and particularly
the Directly Marfaged changes.
ACTION: RC (f) The Board asked Richard Callard to circulate to the Board
the BEIS report on the Post Office.
(g) Supply Chain: The Board asked if the revenue loss from the
closure of the external business was in line with the forecast.
The CFO assured the Board that the revenue was in line with
projections and that the payment of final bills was being
monitored as it represented the next key risk.
(h) The Board asked for assurance that the focus on Health &
Safety had not been diluted during the Supply Chain changes.
The CFO reported a continued focus on Health & Safety as
drivers moved to new routes.
(i) The Board noted the report from the CEO.
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POLB 16/75 FINANCIAL REPORT
(a) The CFO introduced the Financial Performance Report for
Period 7, the EBITDAS for the period was £1.4m ahead with an
underlying favourable performance of £700k. The EBITDAS
forecast outturn was to deliver the target of -£10m and this now
included a provision of £1m for a possible HMRC fine.
(b) The 2017/18 EBITDAS target of £228m remained very stretching
which was why the CFO was focussed on the exit rate for the
current year and announcing cost reduction changes in
January, to start the 90 day union consultation process for
redundancies.
(c) The CFO would bring the budget proposal for 2017/18 to the
January Board.
(d) The Board asked why the lottery results continued to be below
target. The CFO explained the systematic trend caused by three
actions by Camelot; to actively move customers on line; to open
now outlets with the resultant reduction in Post Office market
share; and the lower prizes which has reduced customer
demand.
(e) The Board asked the CFO to include more commentary
ACTION:CFO from the business on revenue outturn and trends to enable
the Board to understand how the key business areas are
performing.
ACTION: CFO (f) The CFO agreed to consider whether FS and Mails would
be invited to report to the Board on a quarterly basis to
present the opportunities and challenges.
ACTION: KG (g) The Board asked the Executive to provide a paper for I
discussion at the Board on footfall trends, the relationship
to propensity to spend, and revenue.
(h) The Board noted the Financial Report from the CFO.
POLB 16/76 UPDATE ON FUNDING PROCESS
(a) The Chairman welcomed Martin Edwards, Director of Strategy,
to update the Board on the funding process.
(b) ME reported the meetings with KPMG and the work underway
on the baseline and strategic overlays of the funding document.
KPMG would now look at the sensitivities of the scenario
analysis provided.
(c) The Chairman and CEO had a meeting planned with the I
Minister to take her through the high level strategy, and the CEO I
and Communication and Corporate Affairs Director were I
planning to meet the Prime Minister's business advisors, to I
promote the public sectors turn around narrative.
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(d) The Board asked if the funding narrative needed to be
repositioned to take into account Brexit or the Chancellor's
Autumn Statement. ME acknowledged the need to ensure the
funding was aligned with the Government's industrial strategy
including; improved productivity; a SME focus; keep local
communities viable; and supporting those who are Just About
Managing.
ACTION: ME (e) ME would recirculate the final funding paper to the Board.
(f) The board noted the verbal update.
(g) ME left the meeting.
POLARC 16/77 BOARD EFFECTIVENESS REVIEW INTRODUCTION
(a) The Board received a report from the Company Secretary
explaining the process for the Board Effectiveness Review.
(b) The board noted the Board Effectiveness Review plans for
December 2017.
POLB 16/78 MAILS UPDATE
(a) I The Chairman welcomed Martin George, Commercial Director,
and Mark Siviter, Head of Mails, Tom Wasilewski, Senior
Product Manager, and Martin Edwards to the meeting.
(b) MS updated the Board on the trading position for Mails which
was £3m above budget at the end of period 7, with strong growth k
in international mail, home shopping returns and upselling to I
tracked products. Stamps continued to decline along with a I
switch from 1* to 2" class labels.
(c) The Board asked what additional income would be generated
with an improvement in upselling. MS explained that the aim was
always to sell the right product to fulfil the customer need but I
thought that if this was done consistently in the network this
might generate an additional £2-5m.
(d) KM offered to share information on a company he had
worked with who had expertise in the area of upselling. MS
ACTION: MS thanked him and would ensure that Owen Woodley, Sales
Director, contacted KM.
(e) MS explained that before the start of the peak Christmas period
improvements had been made to home shopping returns and
Post & Go processes.
(f) The Board discussed the changes in the mails market and the
Royal Mail Group (RMG) half year results. MS explained the
joint strategic work underway with RMG and admitted that RMG
had taken some time to engage in the process. He was now
pleased that the work was underway and sponsored by the
CEOs of both businesses. RMG had agreed to work on a joint
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vision and strategy, before any longer term structure or contract
was discussed.
(g) The Board agreed that the Executive should continue to develop
the twin track of working with RMG whilst understanding the next
best alternatives for both Post Office and RMG. The Executive
would need to be ready to act quickly in the event of a change
of RMG policy.
(h) The CEO did not think that a JV or financial partnership with Post
Office was currently on the RMG agenda or that they had a plan
B which excluded the Post Office, however she stressed the
importance of continuing to manage the business as usual
agenda and the RMG strategy work, whilst working separately
on the options for Plan B.
(i) MS explained that legal advice was being taken on the
exclusivity clause in the RMG contract to understand the
constraints on soliciting a third party mails provider.
0) The Board asked for an update on the Small Business Club
which was allowed by the current RMG contract and recognised
as a way of building a customer data base. MS explained that
some progress had been made but that further IT developments
were required. The CEO promised that as soon as the
technology solution was available the work would commence.
(k) The Board discussed the RMG Industrial Relations landscape }
and the effect strikes would have on the Post Office. I
(i) The board approved the approach and next steps proposed in
the report. I
@) MG, MS, TW and ME left the meeting.
POLB 16/79 POMS HALF YEAR REPORT TO THE SHAREHOLDER, & UPDATE
ON PROJECT PEREGRINE.
(a) The Chairman welcomed Nick Kennett, CEO of POMS and
Group Director Financial Services of POL to the meeting.
2016/17 POMS Half Year Report to the Shareholder I
(b) I NK (POMS CEO) presented the half year results to the Board I
and was pleased that POMS was now well established; ahead
of the original Hawk business plan; and on course to hit its long
term targets albeit adverse to the EBITDAS target in the year. I
(c) NK explained that the key risk and regulatory concern for POMS
remained the operational oversight by POL of its branches. NK
also had concerns about prospective changes to the Financial
Specialist sales model and its potential impact on POMS’
revenue. The Board asked for more information from a POL
perspective and NK (as FS Director) explained the economics
of the Financial Specialists which is significantly loss making;
Network is seeking to replace this fixed cost with the variable
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cost CRM model in agency branches. He recognised the
economic challenge of the loss making FSs but recognised that
it could have an adverse effect on POMS.
(d) The Board asked if moving to the CRM model reduced the
conduct risk for POMS and POL and NK explained that the CRM I
was a guided sales model and therefore had a reduced risk as
long as the CRMs followed the model correctly.
ACTION: NK (e) I The Board asked that the CRM model risk be picked up at the
ARC meeting.
(f) The Board asked if the tie up between products such as Foreign
Exchange (FX) and Travel Insurance were effectively
coordinated between POMS and POL. NK assured the Board
that the products were coordinated and that the current FX
budgets for next year are being agreed with FRES. He added
that by example the travel insurance campaign this summer was
tied to purchases of travel insurance.
(g) The Board asked if FRES had looked at partnerships with
airlines or airports. NK explained that both areas had been
ACTION: NK explored but that the economics had not worked, but recognised
that rental companies may be an area for FRES to reconsider.
(h) I The Board asked what had changed against the original Hawk
plan and the CFO explained that as the plan had been delivered
the value chain accretion had become clearer and driven a more
accurate forecast of future value.
(i) The Board noted the half year POMS report.
Project Peregrine update
@ NK was disappointed, but not surprised, by the Bol response to
the Peregrine proposal. He planned to approach Bol again to
reiterate the need for change, whilst using the existing contract
to drive as much change as possible and to push Bol to deliver
their commitments.
(k) The Board stressed that NK should be the single point of contact
with the Bol and supported the approach to Peregrine.
()) NK left the meeting.
POLB 16/80 BACK OFFICE TRANSFORMATION (BOT)
(a) I The Chairman welcomed Rob Houghton, ClO and Angela Van
Den Bogerd, Director of Support Services to the meeting.
(b) I The CFO introduced the BOT and explained the three options
which had been considered. The ClO stressed that the proposed
approach would develop and test the project in stages, and that
each development would not be released until it was proven to
work.
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(c) I AVDB explained that the programme was business led with
support from the technical team.
(d) The Board asked if SLAs were in place to ensure that Accenture
delivered their work on time.
ACTION:CIO (e) The CIO acknowledged that SLAs and time penalties had
not yet been agreed with Accenture and recognised the
need to ensure that Accenture were incentivised to deliver
on time.
ACTION: All (f) The Board asked that in future any governance structure
charts contained in papers include the names of those
accountable for the work.
(g) The Board discussed the probity of the Financial reporting
system and the risk of double counting as products migrate onto
the new system. The CFO explained that as the systems
developed all the data and settlement would be done by one
system which would reduce the need for manual intervention.
The change would be done product by product to enable the
overall project lead to monitor the migration.
(h) The Board approved the preferred Option 3 budgeting for costs
of £20m as detailed in the report.
(()) The Board noted the approved spend to April 2017 and
requested an update together with any future funding requests
in March-April 2017.
(k) I The CIO and AVDB left the meeting.
POLB 16/81 THE ACQUISITION OF BROADBAND CUSTOMERS FROM NEW
CALL
(a) The board received a report from the Company Secretary.
(b) The Board ratified its decision to delegate authority to the Chief
Executive Officer and the Chief Financial Officer to proceed with
negotiations and sign a contract for the acquisition of 78,000 I
Broadband customers from New Call, which trades under “Fuel
Broadband”.
(c) The CFO explained that the Executive were still negotiating the
deal with New Call and would return to the Board if the final
economics differed by more than 10% from the business case I
ratified by the Board. I
POLB 16/82 ITEMS FOR NOTING
Sealings
(a) _ The Directors resolved that the affixing of the Common Seal of
the Company to documents numbered 1454 to 1461 inclusive in
the seal register was confirmed.
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Health and Safety
(b) I The Board noted the safety and wellbeing performance, risks
and mitigating activity within the Health and Safety report.
The Board asked if cameras were used in Supply Chain
cabs to ensure that drivers were following the rules not to
ACTION: CFO use mobile phones whilst driving. The CFO was asked to
check what monitoring was in place.
Date of Next Meetings I
(c) The Board noted the future meeting dates. I
POLB 16/83 BOARD COMMITTEE CHAIR VERBAL UPDATES
Audit, Risk and Compliance Committee (ARC)
(a) I The Chair of the ARC (CS) updated the Board on the meeting
held on 17 November.
Good progress had been made on financial controls, director
attestation, contract management and perimeter controls.
However the ARC had now asked to see less reports on process
and framework and more of a focus on the top risks for the
business.
The ARC had received its first report on Transformation Risk.
Two policies were approved and one, the Treasury policy, was
recommended to the Board.
Nominations Committee (NomCo)
(b) I The Chairman of the NomCo (TP) briefed the Board on the I
meeting held on the morning of 24"" November, at which the HR i
Director Appointment had been confirmed.
The CEO circulated the proposed new Group Executive
structure which had been discussed at the NomCo and
explained the changes, which were noted by the Board.
Remuneration Committee (RemCo)
(c) The Chairman of the RemCo (KM) briefed the Board on the
meeting held on the morning of 24" November, at which the
salary for the HR Director had been confirmed, and STiP and
LTiP had been discussed.
PwC the new remuneration advisors had attended the meeting
and presented a new remuneration comparator group based on
40% mails group, 40% social purpose group and 20% financial
services group.
Post Office Advisory Council (POAC)
(d) I The Chairman of the POAC briefed the Board on the meeting
held on 3 November, at which 4 new members had joined the
Council. The meeting had received an update on the Banking
Services Framework and had participated in a working session
on making Post Office ‘Simpler to run’.
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POLB 16/84 ANY OTHER BUSINESS
(a) The CEO updated the Board on the two legal cases:
¢ Sparrow which was expected in January.
* Choice Money who had lost their case against the
Business. The supply chain service would cease on the
26" November, and although Choice Money could
appeal this was unlikely to be successful.
(b) There being no further business the Chairman closed the
meeting.
31 donueuy 201% .
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