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POST OFFICE BOARD
CEO’s Report
Author: Paula Vennelis Meeting date: 31% January 2017
Executive Summary
Context
Our goal for 2016-17 is to achieve EBITDAS of Our 3 year goals are:
(£10m) -
1. To accelerate the transformation
of Post Office.
2. To secure commercial
sustainability for the long term
3. To establish a business that can
ultimately fund investments and
the social purpose from profits
rather than subsidy.
In summary, our strategy is to secure our position as the UK’s number one
parcels and letters retailer, grow in financial services and protect our network
and social purpose — all supported by a much leaner central organisation.
Questions this paper addresses
1. What is on my mind? (successes, challenges, opportunities and risks)
2. What are the implications for our outlook and plans?
Conclusion
1. YTD EBITDAS at the end of P9 was £4.1m favourable to budget, reflecting
strong performance in mails trading through the peak period and continued
cost control.
2. The restructuring of the business continues and we have made
announcements on the appointments of direct reports to the Group
Executive, Project Finch and tranche 3 of franchising for directly managed
branches. As yet, we have had no notification of further industrial action.
3. Discussions on future funding continue with Government. A full update will
be provided in the Board meeting.
Input Sought
The Board is invited to note the report and highlight any issues where a future
discussion would be welcome.
Strictly Con
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The Report
Looking Back
(WHAT HAS GONE WELL? = = =
¢ Financial Performance - P9
—» EBITDAS in P9 and YTD is £4.1m favourable to budget; driven largely by
costs.
— Mails performance was particularly strong in P9 delivering a performance
£2.9m favourable to budget; £5.3m YTD. This was driven by labels and
priority services.
— Expenditure in P9 was £3.7m favourable to budget; £9.1m YTD. This is
driven in part by lower staff costs. Headcount of 5,647 is 208 lower than P8&
and 958 lower than the start of the financial year.
* Customer Measures
— Asin previous years, P9 has seen poorer performance against customer
measures. However, some measures still exceeded target, specifically:
o Effort scores were 72%, 4pp ahead of target but 3pp below YTD
performance.
o Wait Time Acceptability was 90%, 1pp ahead of target but 2pp below YTD
performance.
e Changing the Business
— The announcements of changes in the network (Tranche 3 franchising, FS
Sales) on 8 January have been delivered effectively with limited reaction to
date. Consultation processes are well advanced. The public affairs team are
working to address some of the union led briefing with e.g. Members of
Parliament.
— Appointments of direct reports to the Group Executive were announced on 5
January and briefings have been held in all teams to talk through their new
structures.
— The Pensions Roadshow programme started in Chesterfield on 17 January and
feedback so far has been positive
* Contact with Government
— I met with Lord Gardiner, Parliamentary Under-Secretary of State at the
Department of the Environment, Food and Rural Affairs on 11 January.
— This was a positive meeting and an opportunity to highlight our future plans.
We discussed Post Office’s contribution to rural communities and the banking
framework. The Minister expressed support for our approach.
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Project Iris
— The Phase 1 depots are now operating the new routes successfully and Phase
2 will start in February.
Support for colleagues
— You may recall that a colleague in our Supply Chain lost his parents in the
atrocity in Tunisia in 2015. The court hearing on these tragic events began
last week.
— Ihave been contacted by our colleague to thank Post Office for the support
we have been able to provide to him and his family at this difficult time. I am
pleased to report this example of our values in action.
Financial Performance — P9
> Despite strong performance in mails, gross income in P9 was £(0.5)m adverse
to budget; £(10.5)m YTD. However, Supply Chain revenue was £1.4m (YTD
£3.9 adverse).
~» The performance in mails was offset by continuing weak trends in lottery;
declining call volumes in homephone; and lower income from POca and Verify.
Customer Measures
> P9 saw performance miss target against three customer measures.
Specifically:
o Customer Satisfaction was 82%, 2pp below YTD performance and target.
NPS was +62, 4 points below YTD performance and 3 points below target.
FS NPS was +27, 2 points below YTD performance and 1 point below
target.
Back Office
~» As reported to the Audit Committee, we have seen a number of incidents
across the back office which have required additional work to manage and
require further improvements.
-> Fragility in IT applications such as Credence and POLSAP reduced the
availability of back office data and systems and required sales volume
summary MI tables to be re-built.
— Issues in cash forecasting required urgent deliveries to some branches across
Christmas (no branches cashed out) and an inter-company transfer of funds
which was not in line with POM’s delegated authorities.
~— Issues were flagged transparently and quickly; and remedial actions were
effective. The need for systematic learning is being built into existing
programmes of work on IT and cash.
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Looking Ahead
FUTURE FOCUS
Organisational Design
— Announcements for c20% reduction in support teams are on track for early
February. We will provide a more detailed verbal update at the Board’s
meeting.
Funding
— Supported by Richard’s team, we continue to press for a meeting with the
Secretary of State to discuss our funding proposals. We have held a positive
meeting with Conor Burns MP, Greg Clark’s Parliamentary Private Secretary,
who agreed to raise our case with the Secretary of State.
— Iam meeting Mark Russell and Chris Branningan (Prime Minister’s Director of
Government Relations) respectively, this week.
— Inthe meantime, detailed conversations continue at official level. We believe
decisions will be made as part of the spring budget, giving us a degree of
certainty. However, outcomes are unclear. We will provide a verbal update at
the Board’s meeting.
Mails
— The Joint Strategy work with Royal Mail is progressing to plan, with work
covering aspirational customer journeys, cost drivers, capability needs, the
value proposition and our operating model options.
— Ihad a positive review meeting with Moya Greene in December and we saw
an increasing level of ambition from RMG. However, until we move from
strategy development into a commercial negotiation we cannot say with
certainty what the likelihood will be of any acceptable new commercial
arrangements.
— RMG's share price is under intense pressure and its CFO has announced his
retirement. RMG has gone into consultation to close its pension scheme
— We plan to come to the Board in March 2017 to seek a formal mandate with
RMG. My next meeting with Moya is on 27th April.
— In summary, our critical success factors will centre on how we offer the best
in class proposition for our customers; support the long-term sustainability of
the network and our agent proposition; deliver profitable income over the
long-term for Post Office Ltd; and add value to our brand equity.
Banking Framework
— The Banking Framework is operational and to support the launch, a national
and regional print, online and broadcast campaign begins this week. MPs and
special interest groups will also be briefed.
— We will be emphasising the important role of the Post Office in providing
access to banking services especially where communities are some distance
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from a bank branch, or have experienced bank branch closures. An interview
with Nick Kennett will feature in the Financial Times.
— We are already in conversations with some banks to expand the range of
services provided.
e« Broadband
— A national and regional campaign is also going live this week to raise
awareness of Post Office broadband. The campaign will emphasise the value
we offer and seek to reassure customers on issues relating to security.
¢ Industrial Relations
~» We remain in dispute with both the CWU and Unite.
—> The GE held challenging but generally constructive meeting with
representatives of Unite on 22 December to share our business plans down to
2020/2021 with Unite. The CWU declined the invitation to a similar meeting
on 3 January.
—> We have not received official notice of any further Industrial Action taking
place since from either union.
-» However, we continue to plan on the assumption that further action will be
called. For example, RMG’s pension consultation could trigger further
industrial action and the Unions would seek to co-join action. Our industrial
action contingency plans are under review and remain in a good state of
readiness.
-» Transfer from weekly to monthly pay attracting noise from CWU but remains
on plan via direct engagement with c.800 impacted colleagues.
e Project Peregrine
— Aletter setting out our position (for the second time) was delivered to Bank of
Ireland before Christmas. We have not received a formal response yet.
e Project Sparrow
~ Application for the dispute to be heard via a ‘Group Litigation Order (‘GLO’)
will be heard on Thursday 26 January.
— Post Office will be consenting to the matters being heard under the GLO
procedure, although there are a number of aspects of the procedure that need
to be agreed.
— We expect that the postmasters will present any outcome as a victory for
them. Accordingly we propose to respond positively along the lines that Post
Office welcomes the Court's decision that the dispute should be heard under
the GLO provisions as this offers the best opportunity for the matters in
dispute to be heard and resolved.
> We will update the Board on the outcome following the hearing on Thursday
and we will provide a more detailed verbal update at the Board’s meeting.
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In Conclusion
Strietly Confidential