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Post Office Ltd - Confidential
GROUP EXECUTIVE Reference: GE 13/05/2016
Date: 13/05/2016
‘Present: In Attendance Apologies
Paula Vennells (PV) Tom Wechsler (TW) None
Alisdair Cameron (AC) Mark Davies (MD)
Neil Hayward (NH) Aidan Alston (AA)
Kevin Gilliland (KG) Jonathan Cormack (JC)
Jane MacLeod (JM) Dave Carter (DC)
Martin George (MG) Kevin Seller (KS)
David Hussey (DH) Martin Edwards (ME)
Alwen Lyons (AL) Julie Thomas (JT)
Nick Kennett (NK)
Agenda =
To agree the minutes and review the action log.
. Corporate memory- There is a check list in place to ensure effective hand over before people leave the
business. NH to circulate for discussion at Monday GE, in the context of Business Continuity and retaining
corporate memory.
° IRIS — briefing material for colleagues, supper briefers, GE and Board prepared. Going ahead on the 17
The GE agreed the following actions
. Minutes agreed
. ATOS performance paper to be circulated by AC to close an existing action. AC 27/5
. Cheque imaging no budget in place, holding back awaiting industry decision. Action
closed
. NH to circulate for discussion at Monday GE, in the context of Business Continuity and NH 27/5
retaining corporate memory.
. MD to circulate material to GE MD 16/7
To review GE and GE-1 Succession Plans.
joined the meeting
2015/16 Bonus Structure
. NH explained that it was too late to change the bonus process for 2015/16 and that that the overall size of
bonuses were driven by the bonus budget pot.
. AC pointed out that this had increased by £7m since the previous year.
° NK explained that he had a specific issue in his area and would work with NH to see if a solution was
available within the current structure
. It was agreed that a small pot of money would be set aside as a CEO award to top up bonuses for exceptional
performance.
Talent
e Notes of discussion taken by AA. AA to follow session with 121’s with each GE member to agree way forward
for people on the succession plan
AA & JC left the meeting
The GE agreed the following actions:
. GE to let NH know of any people who might qualify for a CEO award, recognising that this
would be for exceptional performance L ALL 20/5
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. Circulate the Sales Directors CV to the GE i KG 20/5
ee . a
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« ARAvwill be published in early July with sign off by the ARC at the end of June.
. Need to ensure that there is enough time post the year end to complete the necessary reconciliations
. EY have an issue on POMS current value which is being discussed, although they are happy at a Group
level.
° EBITDAS likely to land around the (£24m) mark which will trigger the LTIP. Significant year on year
improvement in EBITDAS.
. Going Concern agreed, although long term sustainability still uncertain so capital expenditure is still written
off in the year
. EBITDAS achieved (£24m) because of exceptionals underlying profitability outturn (£34m), underlying year
on year trend (£32m) explained in section 8 of the briefing book.
° HAWK goodwill taken below the line in POL, still need agreement on the impairment in the POMS accounts.
UK Corporate Governance Code
. When POL was set up a statement was made in the ARA that it complied with the Code, but as the Code
has tightened over last 2 year the ARA stated that POL complied with ‘the spirit of the Code’. After debate
at the ARC & Board we are now no longer referring to the spirit of the Code. EY have identified areas which
can be amended in light of this decision. - no segmented accounts; reduced Directors remuneration
disclosure, reduced governance and risk sections. The ARA has been rewritten and will be discussed at the
ARC.
. The front half now looks unbalanced. Comments: has it been future proofed; do not close down the need for
future government investment as we may need investment funding; nothing about the USP ( including cash)
or customers; play up what is unique; Banking framework only mentioned in one place; make sure cover
cashflow effectively.
. The Chairman has taken out all reference to Crowns but because of the transformation Crowns are included
in CEO section
. Build on message that need to get beyond breakeven to become cash generative. Building profitability and
sustainability.
. GE to provide any further comments to Mike Granville
DC left the meeting
The GE agreed the following actions
. AC to brief NK on the POMS goodwill, to enable a briefing and decision at the POMS I AC/NK 16/5
Board i
. Provide any comments on the ARA front half to Mike Granville ALL 20/5
. Provide some words on banking framework to be included in the ARA CEO report _ NK 20/5
. AC to agree cashflow words with PV EAC 20/5
. KG 20/5
KG to check if building sustainability is coming through strongly enough in the narrative — I
building profitability an sustainability not breaking even i
Update Pre-Board
JT, KS & ME joined the meeting
. Paper to update the Board on the strategy before the June Away Day. KPMG modelling and budget numbers
still to come, but the paper updates the options including the radical option for Crowns, which could deliver
an additional £18m EBITDAS. Assumptions around central cost reduction, MTFS and continued retailer
appetite for conversions have been included. The strategy has to align with StRN with more automation
(smaller footprint SSKs), and a simpler model.
GE questions & input
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e Need to include the practical reality alongside the theoretical modelling, to include political/public landscape.
Look through that lens and recognise the complexity.
e What are the assumptions around staff costs? If we reduce staff costs would we keep more Crowns? Number
of branches may sit around the tipping point and a different cost base may lead to a different decision.
e KG we have approached by looking at optimising profit and even a profitable crown could be more profitable
as a franchise.
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« What do we know about successful Crowns why are they trading well? Any best of the best examples? I
e Nervousness about the effect on income from Retail, Government Services, Telephony, Photome. I
e Are we convinced we could not find a joint solution with the CWU? I
e Are we making decisions on the numbers and delivery risk or do we have any strategic benefits of having I
Crowns, any philosophical reason to need them I
e Draw out for the Board the political noise likely to happen, especially around urban deprived branches
e Challenge around the timing of the paper to the Board, as the work is not finished I
e How will be manage issues in London, mails capacity and USO obligation. I
¢ If we are reducing to 50-100 why not move to a full agency network? I
e How do we know we are not selling the family silver, could anything make crowns profitable? I
e Are we sure automation will work, how have we moved on since the Post & Go machine in Ludgate Circus
Response from the Network Team
e Will draw out the political landscape in the paper, aware how painful it will be, need to decide if the £18m prize
is worth the pain. That is why there needs to be a Board discussion to understand their appetite for any change.
Also need to understand the timing and Government's appetite for ‘pain’ in the run up to an election.
e Need to put Crowns and ownership into the network strategy and understand alongside StRN. At the moment
relatively ambiguous about the ownership. KPMG are looking at overheads to help understand what drives
costs into the Business, and the effect of Crown branches.
e We are investigating if there is brand benefit to having Crowns, after Paddington there will 227 Crowns; 97
lose money, 129 would be more profitable as franchises. So are Crowns worth the additional costs.
e Recognise that the income in some areas will reduce and this is included in the projections along with a 20%
drop in turnover, although currently this has reduced down to 10% loss through customers not moving to the
new branch.
e Assumptions on the effect on products will available w/c 16/5 which should help understand what makes a
Crown important.
e Property and people costs make the case for Crowns very difficult, are we prepared to sacrifice £18m?
e Do we have any areas like London where we do not have a choice?
e The Board will be asked to consider the value of owning part of the network, and the questions and issues,
including the pain of any changes. Is the value of an owned network more than £18m?
e Why is it difficult to make the argument politically? Led by the CWU as ‘downgrading’, historically seen as
diminishing a town if it did not have a Crown post office, privatisation by the back door. Need to bring the
emotion out in the Board paper.
e If we are moving to an agency only network what are the plans for FS, and any other contracts which require
a Crown, how do we manage London
e 15 biggest loss making offices in London, which need a solution. These are big mails branches, need to be
mindful of how RMG will respond to any proposed solution.
e Paper needs to start with the customer proposition and then consider ownership.
e Difficult issue for the CWU. Could share with them the rational for the future size and shape, but they are
unlikely to agree with the conclusions.
e Should explain the strategic direction to both unions; explain the economics; make an offer to look for
compromises.
« Need to consider PO Money shops, and trial a few to see if the concept works
e Self-service Kiosks are now much more reliable than the original Post & Go machines, could install card only
kiosks in host retailers
e Challenge of whether we are selling the family silver, can we out a price on the value we are would to pay to
keep the Crowns
e Network Team looking at levers to reduce the 6 year payback period, including reducing property costs and
MTFS.
e MTFS is a contractual obligation, only 2 options; 1 serve notice on agreement, 2 ignore & issue new contracts
of employment.
JT & KS left the meetin.
The GE agreed the following actions
° KG and the team to take the input from the discussion and amend the strategy paper for KG/KS 17/5 I
the Board I
° NK and KG to consider a PO Money shop trial. _NK/KG July I
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To review next steps and action points from the meeting
. Strategic topics for discussion at June away day have been agreed.
After away day possible conference call first week of July to agree an opening position on funding to be
shared informally with Government, before the summer recess.
IT strategy will come to the July Board.
Financial and Operational plan to September Board
Funding in October signed off in November
The shape of the funding will be shared with the GE on the 6" June, subgroup set up to work on the Funding,
Martin to invite Henk and Mark Siviter.
. Mike Morley Fletcher invited to weekly meetings to ensure that risk and risk appetite are included in the
discussions.
. Make sure we are not using the current risk appetite to constrain the thinking, need unconstrained thinking
and then to flag up where this is not in line with risk appetite.
Transformation risk champion also involved in the meetings
Present a sense of the choices at the GE on the 6" June for a working session
Need to include identity Strategy as part of June debate
Tim Parker has asked that we include branch sustainability as part of the June work; a health check on the
Network; to understand the economics of the branches; when and how many are likely to fall over if we take
remuneration decisions (TAP); should we have retail offer to sell them as part of the franchise; could we
own or partner with a symbol group.
The GE agreed the following actions:
. Invite representatives from Commercial and FS onto the Funding subgroup. _ ME 20/5
. Present a sense of the choices at the GE on the 6" June for a working session ME 6/6
. Provide a list of accountable actions to each GE member so that they understand what ME 20/5
they and their teams need to deliver and by what date
Include identity Strategy as part of June debate
GE to go back to their teams to ensure they understand what they need to deliver for June
Martin to flag up any concerns about delivery to the GE member concerned
Include branch sustainability as part of the June work; a health check on the Network; to
understand the economics of the branches; when and how many are likely to fall over if
we take remuneration decisions (TAP); should we have retail offer to sell them as part of
the franchise; could we own or partner with a symbol group. Look at retailer services and
acquirer services as part of the work
ME left the meeting
ME 6/6
ALL 20/5
ME 20/5
ME 6/6
6.1 Health and Safety Report
6.2 Flexible Holidays
6.3 Apprenticeships
AOB
Pensions. Information circulated to the GE, who have been invited to the Pensions deep dive on the 24" May.
Sparrow. JM gave a verbal update on the Sparrow litigation
The GE agreed the following actions:
6.1. Health & Safety on the June agenda
6.2 DECISION: the recommendations in the Flexible Holiday paper were agreed. Rejection
of the option to enable colleagues to sell holiday. Agreement to increase the number of
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days of leave which can be carried over leave from 5 to 10 days, which must be taken by 7 ]
the end of June the following year. I
6.3 Apprentices paper — noted I