Post Office Board Agenda
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27 March 2018
Start Time
Finish Time
11.00hrs
Room 1.19 Wakefield
16.00hrs
Present
+ Tim Parker ( Chairman)
+ Richard Callard
* Tom Cooper
+ Tim Franklin
+ Virginia Holmes
+ Ken McCall
+ Carla Stent
+ Paula Vennells
+ Alisdair Cameron
In Attendance
+ Jane MacLeod (Company Secretary)
+ Veronica Branton (Minute Secretary)
+ Micheal Passmore (Finance Director) (item 5)
+ Cem Oztoprak (Finance) (item 5)
+ Mark Ellis (Network Operations Director) (item 6)
+ Russell Hancock (Supply Chair Director) (item 6)
+ Owen Woodley (CEO — FS&T) (items 7 & 8)
+ Colin Stuart (Finance Director, FS&T) (item 7)
+ Martin Edwards (MD, Identity Services) (item 10)
+ Chrysanthy Pispinis (Head of Post Office Money) (item 8)
+ Debbie Smith (CEO — Retail) (item 9)
+ Andrew Goddard (Head of Payment Services) (item 9)
+ Paul Squire (Programme Manager) (item 9)
+ Rob Houghton (CIO) (item 11)
Agenda Item Action Purpose ad
Needed
41. POL Board and subsidiary board Ratification To ratify appointments of the POL, POMS and Tim Parker 11.00
appointments FRES Boards.
Zz Minutes of previous Board and Committee Decision Minutes formally agreed. Jane MacLeod 11.05
meetings including Status Report
3. CEO Report Noting CEO to update the Board on the report. CEO 11.10
4 Financial Performance Report Noting CFOO to update the Board on the report. CFOO / Micheal Passmore 11.30
5. Annual Strategic Plan & Quarterly Funding
5.1 Annual Strategic Plan 2018/19 Decision Board sign-off. CFOO / Micheal Passmore / 11.50
Cem Oztoprak
5.2 Quarterly Funding Request Decision For the Board to approve the quarterly funding CFOO / Micheal Passmore / 12.10
request. Cem Oztoprak
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Agenda Item Action Purpose Lead
Needed
6. Cash Efficiency Noting CFOO to update the Board CFOO / Mark Ellis / 12.30
Russell Hancock
LUNCH 13.00
7. FS&T Performance Noting To update the Board Owen Woodley / Colin Stuart 13.30
8. International Remittances Noting To update the Board Owen Woodley / 13.50
Chrysanthy Pispinis
9. Project Panther Decision To note progress and to approve setting up a Board Debbie Smith / Andrew 14.20
Sub-Committee Goddard / Paul Squire
10. Identity Noting & input To update the Board Martin Edwards 14.40
11. Microsoft Enterprise Agreement Decision To approve the renewal of the Microsoft Enterprise Rob Houghton 15.10
Renewal Agreement across 3 years
12. Postmaster Litigation Noting To update the Board Jane MacLeod 15.20
12.1 Terms of reference: Postmasters’ Decision For the Board to approve the terms of reference
Litigation Subcommittee
13. Board Committee Chair updates Noting To update the Board 15.30
(verbal) Carla Stent
13.1 ARC
14, Board Governance items Jane MacLeod 15.35
14.1 Delegated Authorities and Decision For the Board to approve revisions to the Delegated
authorised signatories Authorities and authorised signatories
14.2 Terms of reference Noting For the Board to note the annual review against terms
of reference
14.3 Register of Interests and Review For Board Directors to review their Conflicts of Interest
Conflicts of Interest and advise of any amendments.
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Agenda Item Action Purpose Lead
Needed
15. Items for Noting 15.45
15.1 Sealings Noting For the Board to be aware of the affixing of the seal Jane MacLeod
15.2 Health & Safety Noting To update the Board on Health & Safety CFOO
15.3 Future Meeting dates Noting For Board to note future meeting dates for 2018 Jane MacLeod
15.4 Forward agendas Noting For Board to note Jane MacLeod
16. Any Other Business 15.55
CLOSE 16.00
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POST OFFICE LIMITED BOARD DECISION PAPER
POL and subsidiary Board
appointments
Author: Veronica Branton, Head of Secretariat Sponsor: Jane MacLeod, Company Secretary
Meeting date: 27 March 2018
Executive Summary
i
Recruitment has concluded for Non-Executive Director appointments to Post
Office Management Services. The Nominations Committee has approved the
appointments of Tim Franklin and Andrew Torrance for ratification by POL. The
Remuneration Committee has approved the fees for these appointments.
Recruitment has concluded for the CEO - Retail Services and Debbie Smith took
up post in January 2018. The Nominations Committee has approved Debbie
Smith’s appointment as a Director to FRES and POL is asked to ratify this
appointment.
Recruitment has concluded for the CEO - FS&T and Owen Woodley moved into
his new role in February 2018. The Nominations Committee has approved Owen
Woodley’s appointment as a non-independent Non-Executive Director of Post
Office Management Services subject to FCA clearance and as a POL Director of
FRES. POL is asked to ratify these appointments.
The Secretary of State for Business, Energy and Industrial Strategy (BEIS) has
approved the appointment of Tom Cooper to POL, acting in his capacity as
Special Shareholder which allows him to appoint a Non-Executive Director. The
length of time in the role is determined by SoS but is subject to the usual
requirements to comply with POL’s terms of appointment. Tom Cooper will take
up post on 27 March 2018 when Richard Callard steps down. POL is asked to
note Tom Cooper's appointment to POL and to approve his appointment to the
Audit and Risk Committee.
Decisions
POL is invited to NOTE:
1)
The appointment of Tom Cooper as a Non-Executive Director of POL with effect
from 27 March 2018 and until such as time as the Secretary of State BEIS shall
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determine, subject to the appointee complying with his terms of appointment.
POL is invited to RATIFY:
2) The appointment of Tim Franklin as a Non-Executive Director of Post Office
Management Services for a period of three years from 20 March 2018
3) The appointment of Andrew Torrance as Senior Independent Director of Post
Office Management Services for a period of three years from 20 March 2018
4) The appointment of Debbie Smith, CEO - Retail, as a POL Director of FRES for
the duration of her time in post
5) The appointment of Owen Woodley, CEO - FS &T, as:
- anon-independent Non-Executive Director of Post Office Management
Services for the duration of his time in post following FCA clearance
- a POL Director of the FRES Board for the duration of his time in post.
The Board is asked to APPROVE:
1) The appointment of Tom Cooper as a member of the Audit and Risk Committee
for an initial period of three years with effect from 27 March 2018.
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MINUTES OF A MEETING OF THE BOARD OF DIRECTORS OF POST OFFICE LIMITED HELD
ON MONDAY 29TH JANUARY 2018 AT 20 FINSBURY SREET, LONDON EC2Y 9AQ AT
12.15PM
Present: Tim Parker Chairman (TP)
Richard Callard Non-Executive Director (RC)
Tim Franklin Non-Executive Director (TF)
Ken McCall Senior Independent Director (KM)
Carla Stent Non-Executive Director (CS)
Virginia Holmes Non-Executive Director (VH)
Paula Vennells Group Chief Executive (CEO)
Alisdair Cameron Chief Financial and Operations Officer (CFOO)
In Attendance: Jane MacLeod General Counsel & Company Secretary (JM)
Marla Balicao Minute Secretary (MB)
Tom Cooper UKGI Observer (TC)
Debbie Smith Chief Executive, Retail (DS) (items 5,6,7 & 8)
Cathy Mayor Finance Director, Retail (item 5 & 7)
Martin Kirke Group HR Director (MK) (item 6)
Julie Thomas DMB Programme Director (item 6 & 8)
Tom Wechsler Programme Manager Mediation Scheme (TW) (item 7)
Andrew Goddard Head of Payment Services (AG) (item 7)
Rob Houghton Group Chief Information Officer (RH) (item 9)
Apologies: None
ACTION
1. INTRODUCTION, CONFLICTS OF INTEREST, MINUTES OF THE PREVIOUS
BOARD MEETING INCLUDING STATUS REPORT
1.1. A quorum being present, the Chairman opened the meeting.
1.2 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.
1.3. Minutes of the meeting of the Board held on 23 November 2017 were APPROVED
and AUTHORISED for signature by the Chairman.
1.4 The actions status report was NOTED as accurate.
2. CEO’s REPORT
2.1 The Board NOTED the CEO report. In response to questions, the CEO made the
following additional points:
2.2. The CEO:
(a) noted the strong retail trading performance over Christmas, which would be
covered in more detail in the report from the CE, Retail later in the meeting.
(b) provided an update on Peregrine discussions following the conversations with
the new Bol CEO., as a result of which negotiations have been more positive.
Bol appear keen to do a deal and hope to get formalised through Heads of
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Terms by the end of February. The scope of discussions includes FRES
however they have flagged that they do not want to change the ‘contract
construct’ which we interpreted that they wish the contract to remain
evergreen.
(c) reported that the payroll module of Success Factors (“SF”) had gone live on
8th January with only a minor issues, and congratulated Martin Kirke and his
team for their work delivering to that timetable. Overall feedback has been
positive.
(d) advised that she had met Stephen Jones, CEO UK Finance in December in
relation to the Banking Framework. A further update would be brought to DS/M
the Board in May on the further development of the Banking K
Framework.
(e) noted that RMG have signed a deal with the CWU although details of this deal
still to be announced. Post Office was in discussions with CWU through ACAS
to seek to resolve the dispute about the move from weekly to monthly pay.
There are a number of other discussions ongoing with CWU in relation to
operational developments such as telemetry etc.
(f) noted that the L300 event was taking place the next day with three main areas
of discussion around IT Strategy, wider digitisation and people change, with a
focus on strategy and key priorities.
(g) informed the Board that due to Prime Minister's reshuffle, there is a new Postal
Minister - Andrew Griffith MP. This is still to be confirmed officially and PV is
still to meet him.
(h) reported that Martin Kirke, Group HR Director has announced his intention to
retire later in the year and a search for his replacement has started. Debbie
Smith joined as Chief Executive, Retail on 8th January.
The Chairman questioned whether Post Office would seek compensation from
Gemalto in relation to the disruption to our AEI services in December. PV responded
that contractual compensation had been discussed and that this had been reported
at the ARC earlier in the day.
FINANCIAL PERFORMANCE REPORT
The CFOO presented the P9 financial performance report covering December 2017.
The Board NOTED the financial performance report and in discussion the CFOO made
the following points:
(a) There had been strong Christmas trading however he noted that this only
added an extra £600k to EBITDAS reinforcing that mails are a low margin
business.
(b) EBITDAS for P9 was £6.8m, giving us a £1.7m upside against forecast, but
£1.5m adverse to budget, driven by strong mails trading, interest rate rises
supporting POCA performance and accelerated IT costs savings, offset by
additional agents pay.
(c) Balance sheet headroom in P9 was £127m which was £129m worse than P8&
due to Christmas trading, but £36m better than forecast.
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(d) POMS trading performance was behind by £(0.5)m predominately due to profit
share not being met.
(e) ATM performance is being watched as availability has fallen: 420 ATMs have
been experiencing issues resulting in 65% availability. This is partly due to the
introduction of new £10 notes. Both Bol and Post Office are reviewing
performance and seeking to understand the impact of the new interchange fee
structures. AC noted that ATMs would be part of the cash strategy
which would be coming to back to the Board in May. The Board
requested that this review also consider whether there was value in
talking to manufacturers, and review the location strategy.
Ds/
MK
The CFOO noted that the Scorecard was showing positive outcomes (slide 3 in the
Performance paper), and the following were discussed:
(a) Number of branches and ‘trapped Postmasters’ and PV responded that this, Ds
together with the ‘white space’ strategy would be coming back to
Board as part of the review of the retail strategy.
(b) Branch technology conversions are progressing however there is a need to exit
from BT and onto Verizon and this is affecting the shape of the delivery.
(c) Health & safety performance in Supply Chain was starting to cause concern.
There are no significant trends or particular issues requiring specific
intervention but rather a higher incidence of not taking care, especially on our
premises. This will be addressed through activities seeking to engage peoples’
hearts as well as their minds.
Other matters flagged by the P9 report included:
(a) Forecast EBITDAS for the year was still expected to be c£33 million, however
there were a number of issues that would need to be managed to achieve this
outcome.
(b) Project costs were much closer to forecast than they had been, apart from
changes in the timing of DMB announcements.
(c) There is still ongoing work to reduce network cash levels back to the pre-
Christmas levels, and branch cash are being managed more proactively.
KM queried the relationship between reductions in staff costs as franchising was
rolled out, and increases in agents pay, and queried whether costs were reducing at
the expected level? The CFOO noted that there were a number of factors affecting
agents’ pay including simplification and product mix. On staff and non staff costs,
the next step change required the deployment of new technology and this could not
be introduced scalably until the underlying systems programmes such as Back office
Transformation are complete. He expected costs to be broadly flat in 2018/19, falling
in 2019/20 and achieving more significant savings in 2020/21.
ANNUAL BUDGET 2018/19
The CFOO presented the Annual Budget for 2018/19 as set out in the paper which
was NOTED by the Board. The CFOO highlighted the following:
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(a) The focus of the paper was on EBITDAS. The GE had reviewed progress
during December and January and detailed budget reviews would start the
following week.
(b) IThe CFOO noted that in October, the Board had approved an EBITDAS target
of £40m for 2018/19. The impact of accounting changes including the
exclusion of the costs of the Group Litigation meant that £47m would be
consistent with the 3 year plan and was recommended. This represented
significant growth given that there was no profit share from the Bank of
Ireland (c£11 million), a significant Ofcom pricing challenge (c.£15 million
gross impact) and growth in marketing of c. £15m. The CFOO noted that the
gap still to close against the 2018/19 target was £12 million.
(c) IThe Board discussed the EBITDAS target and indicated that £47m now felt
conservative and the target should be at least £50m. It was noted that the
FS&T revenue lines were disappointing. The CFOO noted that savings
products were still being impacted by low interest rates, and POMS had been
struggling due to changes within Post Office relating to the withdrawal of
mortgage and financial specialists, and the delay in roll out of marketing
plans, as a result of which the ‘hockey stick’ uptick had been delayed. The
CEO noted that a new marketing director has been appointed for POMS which
should start to see a difference and she noted the new advertising campaign
which had just been launched.
(d) IThe Board commented that the portfolio should be reviewed to ensure that
Post Office could compete effectively in the financial services market, and
consideration should be given to focussing efforts in those areas where the
Post Office brand would allow us to compete most effectively. The Board
challenged whether the balance was right between short and longer term
objectives, and whether management were sufficiently ambitious for the
POMS business. The CEO undertook to come back to the Board to
update on the POMS acquisition strategy, and the Chairman noted it
would be helpful to get some wider background briefings from py
insurance experts.
(e) TP noted that he would like a target figure of at least £50 million for 2018/19,
that the Board needed to understand how the growth fund would contribute
to this, and there should be some contingency in the plans. He noted that he
was encouraged by initiatives however those projects that underpin the plan
- and deliver longer term benefits, will be key.
(f) The Board then discussed how other initiatives such as Panther, New Call
acquisition and Identity would contribute to the overall strategy. The CEO
noted that the strategy for the retail business was being reviewed by
the new Chief Executive, Retail who had only recently joined and pg
would be covered at the Board away day in June, however an update
would be provided at the March board.
The CFOO noted that proposals would be brought to the Remco at its meeting the
following week, for the STIP and LTIP measures. He noted that management's view
was that the measures for the two incentive schemes should be different, and that
following discussion at Remco, the recommended measures would be brought back
to the Board in March. He noted that the GE had debated supplementing a retained
EBITDAS with two critical pieces of delivery: (i) the replacement of legacy and
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outdated infrastructure including POLSAP, HRSAP and HNGX; and (ii) the delivery of
customer hub functionality with products available for customers in Travel and
Identity.
CE PERFORMANCE REPORT - RETAIL SBU
The Chairman welcomed Debbie Smith, the new Chief Executive, Retail and Cathy
Mayor and the Board NOTED the paper.
DS noted that she had attended the recent opening of the first 24 hour branch in
New Oxford Street.
CM reported on the following:
a) Christmas trading had been strong with increased customer sessions and trading
as compared with the previous year, although these had come through later in
the trading period, and reflected structural changes in the market.
b) Customer services levels had improved year on year, including customer effort
scores and wait time acceptability. The no queues at Christmas initiative had
brought wait times down by an average of 2 minutes, an improvement by 4%.
c) Mails performance was underpinned by continued growth in home shopping
returns and local collect which help offset ongoing decline in stamps.
d) Overall, the trading trends are positive and the current forecast is that Retail will
end the year £7m ahead of EBITDAS budget.
e) The Board brought up the discussion of Agents pay and it was agreed DS would
be looking into this and come back to the Board in June with a strategy.
The Board NOTED that transaction simplification was a key enabler for much of the
network and was materially important to the larger multiples. DS commented that
being able to convince retailers of the footfall benefits that Post Office could deliver
through the Banking Services Framework, click and collect, etc, was key to
leveraging the Post Office brand. Further work remained to be done on quantifying
the DPC of the various products - presently many of the central costs are not well
understood and therefore are not taken into account which may mean that products
look more profitable than they actually are.
DMB STRATEGY
The Chairman welcomed Julie Thomas and Martin Kirke to the meeting.
The following points were highlighted to the Board:
a) DS introduced the paper and noted that it was clear that DMB’s are not meeting
customers’ needs due to the restrictions on opening hours, and are not profitable
due in part to the significant central costs required to support them. Work is
ongoing to consider options to reduce costs including property options, reviewing
employment terms. franchising options etc; nevertheless exiting DMBs becomes
progressively more expensive due to the related central costs.
b) JT reported that the proposed revised franchising programme has been designed
to enable the franchise of all 227 DMB’s and staff over a three year period,
however at this point approval was only being sought for the first phase of the
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roll out. JT explained the model worked in two stages: (i) temporary operators
would be approached to operate a franchised DMB in the same premises, with
flexible lease terms. This should enable immediate staff cost savings while the
recruitment of the long-term operator and branch location is progressed in
parallel.
c) While there are currently 3 well established organisations who each can manage
approximately 30 branches on a temporary basis at any time, it is proposed that
a compliant procurement process should be undertaken for operators of
temporary branches across the network. The proposition should be attractive for
temporary operators as it is low risk and involves minimal investment.
d) The Chairman queried the impact on employees and whether union consultation
would be required? JT noted that under the current structures, it can take up
to six months to complete a franchise and that employees are often keen to
leave but are prevented from doing so because of the local consultation
processes. She advised that the plan was to start the staff consultation process
by telling staff about new Branches being advertised in the area and the strategy
of replacement of DMB’s over the next three years.
e) The Board queried the impact of the proposal on the underlying costs of the
business and JT replied that the benefits step down over time as set out in the
table on page 5 of the paper.
The Board was supportive in principal of the revised strategy however approval
was only sought for a one year roll out following which the strategy would be re-
assessed. APPROVAL was given on this basis including drawdown of the first
year of funding of £23.1m for 2018/19 which would allow the roll out of the
Franchise Programme to 56 branches.
7. PROJECT PANTHER
7.1. The Chairman welcomed Tom Wechsler and Andrew Goddard to the meeting.
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TW/
EUM
The Chairman welcomed Julie Thomas back to the meeting to present the business
case for EUM paper.
Debbie Smith introduced the paper which was noted by the Board.
a) JT explained that since the Board approved the initial EUM business case of
£7.8m in January 2017, it had become clear that a key design assumption that
all training could be delivered through Success Factors could not be delivered
and the current Horizon system does not support web-enabled training.
b) This updated Business Case requests £2.53m of additional funding to deliver:
new IT developments needed to ensure EUM will work for agents using the
current Horizon system.
c) Approval of funding will allow the programme to rollout to the entire network of
c11,600 branches by November 2018 with a workable design, allowing us to be
fully compliant with all relevant sales-related regulation and contractual
requirements.
d) To the extent possible, EUM had been designed to ensure compatibility with
HNGT.
e) Data collection regarding postmasters and their assistants was taking longer
than expected, however those branches which were critical for POMS sales were
being prioritised and it was still expected that the target of July 2018 which
POMS were relying on, would be achieved.
The Board noted their concerns over the delay in the roll out of this programme, and
queried what could be done to accelerate delivery to ensure delivery for POMS by
the July target date? The Board also commented that management needed to review
the project and understand what could have been done differently.
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It was RESOLVED to approve the revised scope and business case including the
further funding of £2.53m, including an immediate draw down of £1.3m. The
Drawdown of the balance £1.23m in due course should be brought to the Investment
Committee.
BACK OFFICE TRANSFORMATION
The Chairman welcomed Rob Houghton to the meeting and the CFOO presented the
replacement Back Office Transformation business case.
a) The CFOO gave an update on the progress of Back Office Transformation since
the last update in September and explained the proposed changes to the
Business Case with a request for a further drawdown of funds that will allow the
programme to complete Phase 1.
b) Phase 1 remains focused on ensuring we exit from POLSAP by June 2018,
delivering as much transformation as possible. In the next 2 months deliveries
include: Agent Remuneration process transformation & data migration from
HRSAP to CFS, and Cash Processing functionality migrated from POLSAP to
Transtrack for Belfast cash centre (soft launch).
c) It was noted that while costs have increased slightly by £0.3m to an expected
total of £21.2 million, the annualised IT benefits have reduced by £0.8m to
£3.1m as set out in the Board paper
d) RH noted that Credence had now transitioned and that this creates further
capacity in the Fujitsu environment, which of itself, decreases the risk.
The Board queried whether the CIO had now addressed the resourcing challenges in
his team, and whether he was confident in the capability and capacity of that team
to deliver the necessary changes required? RH advised that the Chief technology
Officer had been the last key role to fill however there now remained a challenge to
recruit the necessary IT architecture skills, although this was underway, with a much
better operational team in house now in place.
It was RESOLVED that the Board approve the revised business case and additional
£5m drawdown of budgeted spend to enable the completion of Phase 1, noting the
reduction in IT cost benefits.
BOARD COMMITTEE CHAIR UPDATES (VERBAL)
ARC
CS as Chair of the ARC noted that all directors other than VH had attended the ARC
which had been held that morning, and accordingly agreed to provide a separate
brief to VH.
ITEMS FOR NOTING
Sealings
It was RESOLVED that the affixing of the Common Seal of the Company to
documents numbered 1604 to 1636 inclusive in the seal register was confirmed.
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11.2 Health & Safety
The Board NOTED the report.
a) The CFOO noted that ‘across the pavement’ attacks were the greatest current
area of concern in Supply Chain. Supply Chain is trialling body cameras to test
usability: attacks are rare and they cannot be tested for impact. It is likely that
if workable the cameras would be rolled out across high risk areas.
b) The Board noted that the expansion of the Banking Services Framework would
result in increased cash in branches and that management would need to review
whether MI and technology were adequate to cope with increased risks and
demands.
Cc) The CFOO noted that work was underway to assess the impact of the expansion
of the banking Services Framework, and further that an external audit of the
Health and Safety framework had been commissioned, the results of which would
be shared with the Board once available.
d) The Chairman noted that it would be helpful if the reporting could separate
robberies and criminal activity from the more traditional health and AC/
safety measures, so as to enable management and the Board to prioritise MH
what needs to be done to reduce violence to employees.
11.3. Conflicts of Interest
The Board NOTED that the Company secretary would circulate details currently
held about other directorships and conflicts and that these would be updated and
presented to the March board.
JM
Meeting Dates and Forwards Agenda
The Board NOTED the future meeting dates and January’s agenda.
12. AOB
12.1 Bank Ring-Fencing Changes
The Company Secretary advised that the Board previously approved Post Office
entering into a Facilities Agreement dated 26 November 2015 with the Royal Bank
of Scotland plc (RBS) under which RBS makes available: a £400m intra-day facility;
a £350m overnight NRF facility (for the purpose of providing overnight collateral to
the Bank of England); and a £1m collateral facility used in connection with our crime
insurance (Facilities Arrangement).
As a result of the UK government's ring-fencing requirements which come into force
on 1 January 2019, RBS has to restructure their activities and legal entities (which
includes the National Westminster Bank plc (Nat West). Nat West will sit within the
ring-fence of retail & business banking within the RBS Group.
Consequently, POL needs to enter into an Amended and Restated Facilities
Agreement with RBS and Nat West to allow Nat West to provide the Facilities
Arrangement going forward.
12.2 IT WAS RESOLVED THAT:
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1) The terms of and the entry by the Company into the Amended and Restated
Facilities Agreement with RBS and Nat West (‘ARA’) and the other 2018 Ring-
fencing Documents, and all other documents which are required to be entered
into by the Company from time to time in connection with or pursuant to any of
the foregoing (the “Ancillary Documents”), be and are hereby approved;
2) The CEO or CFOO be and is hereby authorised for and on behalf of the Company
and in its name to agree such amendments (whether additions, deletions or
other changes) to the ARA and the other Ring-fencing Documents and the
Ancillary Documents as they shall deem appropriate subject to them being
satisfied that the credit standing of any new legal entity counterparty is equal to
or better than the existing legal entity (and whether such amendments are
agreed before such documents have been entered into or are agreed after such
documents have been entered into and are effected by entering into new
documents or otherwise);
3) The CEO or CFOO be and is hereby authorised for and on behalf of the Company
and in its name to execute and enter into (and in the case of any deed, to
execute and deliver) the ARA and the other Ring-fencing Documents and the
Ancillary Documents (including any and all amendments as detailed in the
preceding paragraph);
4) The CEO or CFOO be and is hereby authorised for and on behalf of the Company
and in its name to do all such acts and things as may be required in connection
with the ARA and the other Ring-fencing Documents and the Ancillary
Documents (and any such amendments thereto) and to carry into effect the
purposes of the resolutions passed at this meeting, and to give or execute any
notices, communications and other documents on behalf of the Company in
connection therewith;
5) The CEO or CFOO be and is hereby authorised for and on behalf of the Company
and in its name to approve and execute other documentation with any other UK
regulated bank which is of a similar nature and has a similar effect as the ARA
and the other Ring-fencing Documents and the Ancillary Documents, and to
which the Company and such other UK regulated bank (being one of the
Company’s bankers) is a party subject to the CFOO being satisfied that the credit
standing of any new legal entity counterparty is equal to or better than the
existing legal entity, and the terms of these resolutions shall be deemed to apply
equally to such other documentation as if passed specifically in respect of
thereof.
12.3 Postmaster Litigation Update
JM provided the Board with a verbal update on the Postmaster Litigation noting that
there was a procedural hearing scheduled for Friday 2 February. At that hearing the
Court would be requested to determine the scope of disclosure required to be given
by Post Office to support the trial in November 2018.
The Board NOTED the update and RESOLVED to establish a sub-committee for the
purposes of monitoring the development in and strategy for the litigation. The
members of that sub-committee would be the Chairman, Ken McCall and Tom Cooper
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Board Meeting
(once appointed as a director). JM was requested to provide the committee
members with details of the key dates mandated by the Court so that JM
appropriate time could be scheduled for the sub-committee to be briefed.
12.4 There being no further business the Chairman declared the meeting closed at
16:00pm.
Chairman Date
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29/01/18 To bring an update on the further development of the Debbie Smith 24" May 2018 Slot included on May Board agenda Open
CEO'S REPORT Banking Framework to the May Board. (Martin Kearsley)
29/01/18 (a) To include the value of talking to manufacturers anda Debbie Smith 24% May 2018 Noted for inclusion in the May Open
FINANCIAL review of location strategy as part of the paper in cash (Martin Kearsley) Board paper
PERFORMANCE strategy coming to the May Board.
REPORT
(b) To cover the issue of “trapped Postmasters” and “white Debbie Smith 26" & 27" June Noted for inclusion in the June Open
space” strategy within the review of retail strategy at the 2018 Strategy paper
June strategy session.
29/01/18 (a) To provide an update on the POMs acquisition strategy (it ‘Owen Woodley I 26" & 27" June PO Insurance will be presenting Open
ANNUAL BUDGET was suggested that it would be helpful to include wider 2018 strategic growth options at the POL
2018/19 background briefings from insurance experts). Board awayday in June, including
potential acquisition options.
(b) The CEO noted that the Mails strategy was being reviewed Debbie Smith 27" March 2018 Update now included on May Board Open
by the new Chief Executive, Retail, and would be covered agenda
in June at the away days; however an update would also
be provided at the March Board.
29/01/18 To look at agents’ pay and come back with a strategy to Debbie Smith 26" & 27 June Noted for inclusion in the June Open
CE PERFORMANCE the Board in June 2018. 2018 Strategy paper
REPORT — RETAIL SBU
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POST OFFICE BOARD
CEO’s Report
Author: Paula Vennells Meeting date: 27" March
Executive Summary
Context
Our target for 2017/18 is to achieve EBITDAS of £30m. Our 3 year goals are to:
~ Accelerate the transformation of the Post Office.
+ Secure commercial sustainability for the long term.
+ 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.
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
— P11 benefitted from continuing strong trading and delays in programme spend
versus forecast expectations. EBITDAS (excl. GLC) was £0.2m, £1.4m
favourable to forecast and in line with budget. YTD EBITDAS (excl. GLC) is
£20.1m, £4.4m favourable to forecast and £4.0m favourable to budget.
— Balance sheet headroom in P11 was £299m. This was £10m lower than prior
month as increases in cash holdings £66m and investment spend £22m were
funded through an increase in the bond facility. Cash holdings increased by
c.£40m due to the temporary impact of introducing high speed note counters in
cash centres. Headroom will tighten again as we approach Easter and move
more cash into the network.
— Retail P11 performance is strong and YTD on track. FS P11 performance
EBITDAS is £(1.3)m adverse to forecast. Revenue overperformance offset by
additional costs and different revenue mix in agents pay, annual mortgage
check fees and a reconciliation of full year performance on FRES.
¢ Financial Services
— The Savings book will end the year strongly at £14bn (vs expectation of
£12bn) following the base rate change in November and lower than expected
attrition on the back book. The new mortgage lead generation and
qualification model through the Chesterfield contact centre went live on 12th
March and our new mortgage proposition launches next month.
— Peregrine negotiations continue in depth following the arrival of the new BOI
Group Chief Executive in November. We are likely to be offered an enhanced
package across both the core products and FRES and expect to make a
recommendation to Board, with some independent advisor analysis, in May.
— Moneygram - work continues to improve our commercial terms and we have a
proposal which will be discussed later in this Board.
— The Q4 insurance campaign continues to perform in line with plans and is
showing a 300% increase in protection sales versus P11 16/17. Weare
building our new home insurance model and have released an invitation to
tender to underwriting companies to work with us on design and the customer
solution. We aim to have this in place by June and will then move to the
design phase.
— Telecoms - Project Galaxy [voluntary pricing agreement between BT and
Ofcom in the HomePhone only market; POL has 10% market share] has now
moved into implementation with around 100,000 customers already contacted
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and response levels under 10% and lower than expected, which is
encouraging. The agreement between BT and Ofcom is to reduce monthly
customer pricing by £7 per month (£18.99 to £11.99), Post Office have
agreed to offer eligible customers HomePhone customers, free Broadband or
the option of HomePhone only at £11.50pm to maintain price competition
with BT.
-—» Customer Hub: The first launch is targeted for May 2018. The initial
proposition is focused on the Travel Monday Card and Travel Insurance
products which will be served through a new Post Office Travel App. The
project is in development with both FRES and BOI. Following the launch, all
new TMC customers will be directed to the Customer Hub where we will also
be able to offer them travel and gadget insurance add-ons; this will be
introduced as part of our summer campaign.
¢ Retail
— Work continues on the Future of Cash business case to be presented at the
May Board. Following the recent reorganisations, both ATM and POCA
strategies will be included.
— Banking Framework continues to over perform with increased Business
Banking supporting performance above budget and forecast. Increased
engagement from banks as well as new engagement with Credit Unions helps
support our Financial Inclusion agenda. We continue to work closely with UK
Finance on a joint proposal to send to John Glen MP, Economic Secretary of
the Treasury, regarding the future plans for the framework.
— The VOC results remain very strong with YTD Waiting Time Acceptability
maintaining the all-time high of 94.2% against a target of 95% and Effort at an
equally impressive 80.6% against a target of 76%.
Mails
— Royal Mail re-entered the FTSE 100 on 19* March with shares closing at 564p
on the FTSE cut-off date; up more than 50% from a closing low of 370p in
November. The market has responded positively as the risk of industrial action
faded and the terms of the principle agreement with CWU became clear. The
deal was unanimously agreed by the CWU’s Postal Executive and will be
recommended to the union’s 110,000 postal members in a forthcoming national
ballot.
~ Discussions regarding the prospect of extending the current MDA have begun
and the Mails team will provide an update on progress at the May Board.
. IT
— Everest (Fujitsu negotiation) continue and there is good progress on application
maintenance, cloud migration and commercial contracts. The contract note on
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the principle of switching revenue from operational expenditure to capital
expenditure has been signed. FJ demonstrated good innovation and customer
journey ideas to the Group Executive at our recent GE meeting.
— The network and branch technology rollout continues and is going well. We
have passed the 10,000 branch level on network and hope to be virtually
complete and transitioned to Verizon by end of March. Branch rollout is around
7,000 counters and the Admin network is almost complete with a complex set
of issues overcome. There will be a high level of change taking place in the last
two weeks of March to complete these plans.
e¢ Our 101 digital innovation centre is fully active; we have employed our first
software engineers and developments in customer hub, agent portal and the
next generation Horizon (HNGT) are ongoing.
WHAT HAS NOT GONE WELL?
e Severe weather and impact on the Network
— Due to the recent snow and bad weather all branches were affected across the
network, but with minimal impact. 400 branches needed to close at some point
due to severe conditions, however a maximum 210 branches were closed at
anytime, which means at all time Post Office maintained around 98% of
branches open to the public. Supply chain was affected minimally. During this
time branch transactions were down as people chose not to travel.
— Royal Mail and ParcelForce were unable to collect and deliver in some areas and
special delivery guarantees were cancelled during this time. Our POMS call
centre in Scotland closed for two days and the NSBC closed early on two days;
no branches reported any issues with this. Our IT equipment continued to
operate as normal.
— Overall Post Office continued to operate as near normal throughout resulting in
little impact and no customer complaints. We estimate £200k in lost revenue.
¢ IT Transformation
— The full year target has slipped as a number of controls are currently actioned
to be delivered in June/July, these controls are reliant on the implementation of
the Security Operations Centre which will be fully commissioned in July. A
review of the TrAction Controls Management tool tool is currently underway to
ensure that control issues are being reported consistently.
e Branch safety
— There were two incidents in branches recently due to branch colleague
negligence with electrical appliances. An explosion in our DMB in Romford and
a fire in the Hounsditch branch; thankfully both branches were closed and no
one was hurt. Both issues were dealt with quickly and both reopened quickly.
We have issued new communications to all colleagues highlighting the
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importance of turning off equipment when the branch is closed as well as
reviewing and reissuing our white goods security policies.
Looking Ahead
FUTURE FOCUS
¢ Simplification
— Having assessed our change portfolio and the current strength of our
proposition with agents, we have changed our plans on Simplification. Phase
1 of Mails simplification is fully implemented and will deliver £4.6m of
recurring EBITDAS benefit through reduced remuneration. We have reviewed
Phase 2 (which would deliver further efficiencies and £6.5m recurring benefit)
and decided not to continue for three main reasons:
— 1- the agent reaction to this particular Simplification approach has been
as expected negative and we believe that implementing could put future
numbers at risk;
— 2- implementing Phase 2 would require a further £8.0m, (and the time of key
subject matter experts), which we can re-allocate to other change initiatives;
— 3- we need to minimise any further investment in our current codebase
‘HNGA’ given we are developing ‘HNGT’, which will radically simplify our
customer and user experience. Our message to agents will be that
simplification remains critical to our success and we are deferring, rather than
stopping, plans to reduce remuneration where we can create genuine savings
for agents.
« Back office Transformation
— The first phase of Back Office Transformation is live with agents now being
paid through the new systems. This was on time and on budget. However, the
remaining phases are signalling delay and our expectation is that the
programme will be re-planned to complete end September rather than end
June to avoid compromising testing, controls or management information.
The CIO's view is that the infrastructure can sustain this delay. However,
further delays would not be acceptable. The cash module has been more
complicated than anticipated and the Belfast pilot has successfully gone live,
2 months behind plan. We are also behind on design and testing of the sales
and finance workstream. A full re-plan is close to completion and will be
subject to independent challenge.
¢ Government Affairs
— Iam meeting with the new Minister for Postal Services, Andrew Griffiths MP
on 19* March. Andrew was appointed Parliamentary Under Secretary of State
at the Department for Business in the January 2018 reshuffle. This is the first
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meeting we have had and will provide an opportunity to update the Minister
on our strategy and our key priorities.
— Iwill also be attending the first meeting of the Financial Inclusion Policy
Forum, jointly chaired by the Economic Secretary to the Treasury (John Glen
MP) and the Minister for Pensions and Financial Inclusion at the Department
for Work and Pensions (Guy Opperman MP). The purpose of the forum is to
ensure that individuals, regardless of their background or income, have
access to useful and affordable financial products and services.
— Debbie Smith will be attending the Future of the High Streets Forum, hosted
by Jake Berry MP the Ministry for Housing, Communities and Local
Government.
— The first phase of a brand activation campaign called #Commonunity -
celebrating communities and local activities, has been launched. The
campaign explores the changing nature of community in the UK, with the Post
Office telling the story in the context of modern Britain. We are giving Post
Offices the chance to win upto £1,000 bursary by nominating and highlighting
how community matters to them. Prize funds can be used for anything that
supports the community.
¢ Building an inclusive culture
— Ihave implemented a campaign internally which stresses the importance of
speaking out against bullying and harassment. On the back of this we have
received an increase in people coming forward to speak out, which is both
encouraging and worrying. I am committed to ensuring we provide a safe
and transparent workplace for our colleagues and that we remember and live
by our PO values: Care, Challenge and Commit.
e Personnel & Business unit changes
— Martin Edwards has formally moved into his role as Managing Director of the
newly created Identity Services business unit.
— Ihave created a new Strategy Group working to agile principles which will be
led by Tom Moran, who also retains his role as Network Development
Director. Tom will have a small central team reporting into him and they will
be responsible for the broader business strategy, as well as leading on
strategy for Retail and the preparations for the Board Away Day. There are
three key topics for that agenda: Retail, IT and Post Office Insurance.
— Nick Kennett left the business last month and I have made two changes to
the Retail and FS business units; Banking has moved into the Retail business
and I have promoted Owen Woodley to Chief Executive of Financial Services &
Telecoms (FS&T).
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RISKS OR CONCERNS?
e Postmaster Litigation
— Avverbal update will be provided in the Board meeting.
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BOARD DISCUSSION PAPER
February 2018 (P11) - Performance
Author: Micheal Passmore Sponsor: Alisdair Cameron Meeting date: 27 March 2018
Executive Summary
Context
YTD P10 EBITDAS, excluding Group Litigation Costs (GLC) £19.8m. £3.0m favourable
to forecast and £4.1m favourable to budget.
At end of FY 16/17, cash in Network was £666m and balance sheet headroom was
£189m.
P11 forecast EBITDAS (excl. GLC) £(1.2)m, budget £0.3m. Balance Sheet headroom
forecast was £286m from the facility limit, £86m from the Board limit.
Questions this paper addresses
1. What is the financial and scorecard performance in P11?
2. Does the performance highlight concerns over future delivery?
3. What are we anticipating for the full year outturn?
Conclusions
P11 benefitted from continuing strong trading and delays in BAU programme spend
versus forecast expectations. EBITDAS (excl. GLC) was £0.2m, £1.4m favourable to
forecast and in line with budget. YTD EBITDAS (excl. GLC) is £20.1m, £4.4m favourable
to forecast and £4.0m favourable to budget.
Balance sheet headroom in P11 was £299m. This was £10m lower than prior month as
increases in cash holdings £66m and investment spend £22m were funded through an
increase in the bond facility. Cash holdings increased by c.£40m due to the temporary
impact of introducing high speed note counters in cash centres. Headroom will tighten
again as we approach Easter and move more cash into the network.
Network numbers are 11,510 which is very close to the contractual minimum of 11,500
branches. A number of new openings are planned and we anticipate the year end
number will be closer to 11,600.
Change and capital spend of £28.6m, £3.0m more than 5+7 forecast suggesting
continuing improvements over control and delivery.
The full year outturn is now anticipated to be c£36m, £6m above forecast due to higher
Bank of Ireland Profit Share and release of Growth Fund.
Input sought
The Board is asked to note the financial performance.
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The Report
Scorecard
5 Pil YTD Full Year
Key Performance Indicators Act Target Var. I Act Target Var. Target
Growth
[Total Gross Income (excl NSP) £m 74.9 73.2 872.6 857.4 945.0
EBITDAS (excl. GLC) £m 02 03 20.1 16.0 30.0
Headroom £m (vs Board minimum limit) 499 > 200 499 > 200 > 200
Digital Net Income £m (digital team) 46 37 43.7 40.9 45.0
Net profit £m? (8.2) (0.1) 149 3.9 0.0
Customer
Customer Effort 84% 76% 81% 76% 76%
Net Promoter score Financial Services 26 25 25 25 25
lAcceptable Wait Time % 96% 95% 94% 95% 95%
Branch Compliance (FS - basket of 11 measures) 80 <=50 66 <=50 <=50
People
Representation (Senior Managers) - Gender 39% 37% 39% 37% 37%
JAttendance* E = = - - S 96.7%
IT Lost Time (Number of Sevi/Sev2 IT incidents) 9 13 81 143 <156
Safety LTIFR 0.000 _ 0.180 0.000 _ 0.180 0.180
Modernisation
Number of branches (one month in arrears) Same as YTD 11,510 11,700 >=11,700
INT and ND Branches Transformed in Year 58 30 4660371 400
NGA Network Only Rollout 1,484 700 7,091 3,400 4,000
NGA Branch Counter Refresh Rollout 461 1,500 2,456 6,500 8,000
IT Transformation (% of IT controls implemented) 77% 90% 77% 90% All high risk
gaps closed
1. Net Profit metric target based on 5+7 forecast for Depreciation.
2. Attendance: Data currently not available due to Success Factors implementation.
Growth
1. Headroom at P11 was £499m (£299m above the £200m board limit) and security
headroom was £223m. Ensuring facility headroom was higher than security
headroom was a key target of the cash work as set out in the summer.
2. Net profit YTD is £11.0m favourable to budget; EBITDAS (incl. GLC) up £2.3m.
Underspend on change charged to the profit and loss account is £3.9m and
unbudgeted profit on disposal of property of £4.6m drive the remainder of the
variance.
Customer
3. Acceptable Wait Time scores remain at 96% and continue to track above targets for
DMB, agency branches and W.H. Smith. Acceptable Wait Time is 1% below target
ytd.
4, P11 Branch compliance was rated Amber following 3 months of red ratings, YTD the
rating remains Amber. Improvement was due to Bol reviews of FS promotional
material held in branch that are no longer rated Red. Whilst this is encouraging we
need to maintain our focus to ensure these improvements have been embedded.
5. The overall rating is Amber due to Counter Mystery Shopping continue to produce
challenging results. The key reason for non-compliance was the failure to provide a
Savings Summary Box leaflet with the application pack as well as BolI’s assessment
of other compliance requirements. To address this we have published a Branch
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Focus communication, online training for completion by 7“ February and focussed
the Business Control Team to support the network with compliance issues.
People
6. Attendance Reporting: Still not available following the implementation of Success
Factors in P9. Absence and hours reports for P10 and P11 are being worked on but
a number of anomalies have been identified with the data. A fix has been identified
but has not been implemented.
7. Safety LTIFR: There were 7 employee accidents during P11 and 104 YTD v 112 for
the equivalent period last year. However, LTIFR which measures the severity of the
impact of accidents as a proportion of hours worked remains above budget.
Modernisation
8. Network: Network numbers are 11,510 which is very close to the contractual
minimum of 11,500 branches. A number of new openings are and we anticipate the
year end number will be closer to 11,600. YTD there have been 201 unplanned
closures with 104 branches remaining closed following postmaster suspension.
9. NT and ND Transformation: 466 branches have now been transformed in the
year exceeding the full year target of 400.
10. Branch Counter and Network Rollouts: Snow delays in the week commencing
26th February resulted in a 30% reduction to the weekly deployment. This will be
addressed in week commencing 19th March schedule where 83 branches will be
rescheduled. Project currently tracking green.
11. IT Transformation (% of IT controls implemented): The full year target is now
unlikely to be achieved as a number of controls will be implemented when the
Security Operations Centre is delivered in July.
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Period 11 Financial Performance
Pil YTD
Var Var Var YTD Var Var Var
= Act} rest Bud PY Act} Fest Bud PY
Gross Income 74.9 2.6 1.8 3.9 872.6 8.5 15.2 9.8
Direct Costs (9.9) (0.4) 0.2 (0.8) (112.2) (0.7) 3.9 (8.6)
Net Income 65.1 22 1.9 3.1 760.4 7.8 19.1 1.3
Agents Pay (28.7) (0.3) (1.1) (1.0) (343.1) (3.0) (10.5) 12.7
Staff Costs (15.3) (0.6) (1.9) 0.6 I (168.5) (0.3) (10.3) 18.2
Non-Staff Costs (23.2) 0.5 15 (2.2) I (260.5) 0.3 5.6 (6.7)
Expenditure (67.3)} (0.3) (4.5) = (2.7) I (772.1)I (3.0) (45.3) 24.2
FRES - Share Of Profits 25 (0.4) (0.4) 0.1 31.7] (0.4) 0.2 (1.5)
EBITDAS (excl. GLC) 0.2 1.4 (0.0) o5 20.1 44 4.0 23.9
Group Litigation Cost (GLC) (0.4) (0.2) (0.3) (0.3) (3.5). (1.3) (1.7) (2.2)
EBITDAS (0.2) 1.2 (0.3) 0.2 16.5 3.1 2.3 21.8
Network Subsidy 5.4 (0.0) - (0.8) 64.6) (0.0) (0.0) (9.2)
EBITDA 5.2 1.2 (0.3) (0.6) 81.1 3.1 23 12.5
Depreciation (4.8) (0.3) (0.3) (4.7) (45.3) (1.7) (1.7) (44.9)
Interest (0.3) 0.3 0.3 (0.6) (4.6) 0.4 1.8 (6.2)
Impairment - - - 1.8 - - - 88.6
Change Spend (14.1) (6.6) (7.7) 6.4 (85.1) 14.0 3.9 44.9
Investment Funding 5.8 - - (5.8) 64.2 - - (64.2)
Profit On Asset Sale (0.1) (0.1) (0.1) 0.0 4.6) 1.3 4.6 50.2
Profit Before Tax (8.2)I (5.5) (8.1) (6.2) 14.9 17.1 11.0 80.9
Retail 41.6 1.7 1.6 (0.5) 492.7 6.7 20.7 (25.9)
FS&T 27.8) 0.9 0.0 3.6 323.4] 3.0 (2.0) 33.6
POMS 4.5] 0.2 0.3 1.0 43.5) (1.1) (3.2) 4.0
Other 1.0] (0.1) (0.1) (0.2) 13.1 (0.1) (0.2) (1.9)
Total Revenue 74.9 2.6 1.8 3.9 872.6 8.5 15.2 28
EBITDAS
Retail 8.6 3.8 2.3 0.5 84.7 9.4 13.1 (7.7)
FS&T 12.3] (1.3) (1.6) 0.2 157.0 (3.0) (0.4) 24.7
POMS 21 0.2 0.3 0.7 17.4 (0.6) (2.0) (0.6)
Other (22.8) (1.3) (1.0) (1.0) (239.1) (1.3) (6.6) 7.6
EBITDAS (excl. GLC) 0.2 1.4 (0.0) os 20.1 44 4.0 23.9
12. P11 EBITDAS was £0.2m, £1.4m favourable to forecast with strong revenue
performance dropping through to the bottom line. Costs delays from programme
spend were offset by incremental costs in the month. The full year outturn is now
anticipated to be c.£36m, £6m above forecast due to higher Bank of Ireland Profit
Share and release of Growth Fund.
13. Retail performance driven by Government Services revenue overperformance
+£1.9m (POCA +£0.9m and Verify +£0.6m) and delays in programme spend
£1.1m until 2018/19.
14. FS&T shortfall due to true-up in FRES position £(0.4)m for full year given volume
shortfalls and annual mortgage check fees £(0.3)m not forecast.
15. POMS +£0.2m with strong response from the Q4 campaign (including DRTV)
driving incremental Protections revenues. Still anticipating to achieve full year
forecast position (less impact of Russet).
16. Other costs include the annual audit fee £0.4m (timing) a provision for losses
£0.5m and a £0.3m fine for non-compliance with AML regulations. Change spend
expenditure is £6.6m above forecast but this was shifted from capital spend in the
period.
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Pi YTD FY
Act Var Var Act Var Var Fest) Var Var
PSF Bud PSF Bud PSF Bud
IT & Digital 10.0} 1.2 (1.7) I 768] (2.7) 27.0 I 104.7] (9.5) 8.0
Network Development Programme 8.3] (2.6) (1.8) I 467] 26 9.5 I 49.4) 10.3 21.7
DMB Network Development 4.8I (2.0) (2.7) 29.4] 13.1 (9.7) 32.7} 11.5 (11.1)
Back Office Transformation 14I 0.0 01 I 146, 13 36 I 185] (1.0) 16
FS&T 1.8I (0.5) (0.3) I 148] 18 180 I 17.6] 08 167
Retail 0.4] 0.6 0.7 6.5] 2.7 105 I 101 - 8.0
LEAN Centre 0.4] (0.4) (0.4) 37, 05 05 35] 1.2 1.2
People and Engagement Transformation I 0.7] (0.6) (0.6) 5.6] (1.5) (0.7) 4.8] (0.7) 0.1
Property (0.5)} 09 09 25] 43 14 33] 08 06
POMS 01, 01 O41 3.3] (0.7) (0.1) 4.0] (4.2) (0.6)
Supply Chain 0.9} (0.8) (0.3) 3.6, 1.2 (0.0) 48 - (1.0)
Other Transformation (0.0)} 00 03 0.9] (0.9) 18 16 0.5 14
Corporate Services Transformation 0.0] 0.3 03 0.2; 09 16 13) 0.2 1.0
Identity -I 04 - -I 20 40 I (0.0) 26 47
Finance 0.3] (0.2) (0.3) 0.4, 01 O41 o4f 01 O01
Digital & marketing - - 0.2 - - 24 - - 23
Network Operations 0.0] 0.5 (0.0) 0.0] 21 18 2.3] 0.1 (0.5)
Total 28.6I (3.0) (5.4) [209.0] 23.8 71.3 [258.8I 15.8 54.5
Capital 14.6 3.7 0.8 I 123.9 24.7 80.1
Change 14.1] (6.6) (6.2) I_ 85.1] (0.8) (8.9)
Total 28.6I (3.0) (5.4) [209.0] 23.8 71.3
17. In month, the total capital and change spend was £28.6m, £3.0m higher than
forecast but continuing the trend of being much closer to forecast than prior
months.
18. The key programmes have a number of major milestones and cost trigger points
in P12 and it is currently anticipated that up to £35m of costs in the P5 reforecast
could fall into 2018/19.
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Balance Sheet and Cashflow
£m
Fixed Assets
Cash
Stock
Pension Surplus
Debtors (excl. Clients)
Creditors (excl. Clients)
Client Debtors
Client Creditors
Provisions
Loan
Net Assets / (Liabilities)
Capital and Reserves
Network Cash
Cash at Bank - POL
Gross POL Cash
Cash at Bank - POMS
Demonetised
Net Cash
Net Funding Position £'m
Government Loan
Demonetisation - NCS
Cash at Bank - POL
Net Funding
Headroom £'m
Government Loan - Available Amount
Government Loan - Drawn Amount
Headroom
Target Minimum Headroom
Headroom Above/(Below) Target
Security Headroom £'m
Total Security
Total Obligations
Headroom
Summary Cashflow £'m
EBITDAS less JV Income
Working capital - non client related
Network Subsidy Payment
Network cash inventory (gross)
Working capital - client related
Capital, investment and financing
Net cash inflow / (outflow)
Strictly Confidential
Pil Var Var Var
Fest P10 Piz
16/17
466.9] (12.8) 12.9 75.9
502.5 I (178.2) (14.7) (177.5)
7.2 (1.3) (0.2) (0.8)
1.7 0.1 0.1 0.7
164.2} (20.2) (3.4) (30.4)
(269.9) 9.8 10.4 23.4
132.1} (21.9) (2.4) (12.3)
(285.4)I 25.5 5.3 3.3
(65.0) 3.7 (5.4) 23.0
(451.0)} 213.1 (10.0) 110.0
203.3I 17.8 (7.4) 15.3
203.3I 17.8 (7.4) 15.3
761.8] (124.0) 65.6 (150.2)
0.4 0.4 (2.3) (0.2)
762.2 I (123.6) 63.3 (150.4)
10.8 (4.2) - (2.6)
(270.4)I (50.4) (77.9) (24.4)
502.6 I (178.2) (14.6) (177.4)
(451.0)] 213.4 (10.0) 110.0
(270.4)I (70.4) (77.9) (24.4)
0.4] (14.6) (2.3) (0.2)
(721.0)I 128.1 (90.2) 85.4
950.0 - - -
(451.0)] 213.1 (10.0) 110.0
499.0 I 213.1 (10.0) 110.0
200.0 - - -
299.0 I 213.1 (10.0) 110.0
74.2] (245.0) (22.4) (230.8)
(551.0)} 228.1 (15.3) 121.0
223.2 I (16.9) (37.8) (109.8)
(2.6) 1.6 (2.6)
2.8 0.3 (34.9)
(65.6)I (95.3) (310.8)
(2.9)I (22.6) (15.9)
(22.0) 3.0 1.9
(90.2)I (113.0) (362.2)
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19. Our net funding
position increased by
£90m to £721m in
P11 as cash in the
network increased by
£66m and £22m of
capital and
investment spend in
the month.
Cash in the network
increased primarily due
to an increase in Cash
Centres balances of
£39m. This is a
temporary increase as
the new note counting
machines were rolled
out.
21. The loan balance
with BEIS increased
by £10m but
headroom of £299m
above target is
maintained against
the facility. This is
anticipated to reduce
as we approach
Easter.
20.
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Appendices
1. EBITDAS Bridge v Forecast
2. Revenue by Pillar
3. Retail
4. FST
5. POMS
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1. EBITDAS Bridge v Forecast
EBITDAS Bridge v Forecast
20
.
:
—
(05)
(1.0)
(as)
Forecast. Retsil «FSET «POMS Agents Programme Losses POCA AuditFee Mortgage Other Actual,
Fixed Pay Postage (Timing) Fee checks
Agents Pay
Revenue Direct Costs Variable Net Cont.
Mails Trading 0.4 . (0.2) 0.2
Retail and Lottery (0.6) 0.4 (0.0) (0.2)
Payment Services (0.1) (0.0) (0.1)
Card Account 0.9 0.3 1.2
ID - Assurance (Verify) 0.6 (0.2) 0.3
Other Government Services 0.4 0.3 (0.2) 0.5
Retail 17 0.6 (0.4) 19
Post Office Money 0.4 - (0.1) 0.3
MoneyGram (0.0) - 0.0 (0.0)
Banking Services (0.3) 0.0 0.2 (0.2)
Telecoms 0.7 (0.7) (0.2) (0.2)
Postal Orders 0.1 0.0 (0.0) 0.0
FS&T 0.9 (0.7) (0.2) (0.0)
POMS 02 [© I = GD)
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2. Revenue by Pillar
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P11 YTD
—m act} Var Var Var YTD] var Var Var
Fest Bud PY Actual] Fest Bud PY
Parcelforce 1.5] (0.0) 0.1 0.1 18.3 0.2 2.6 13
Special Delivery 3.8 0.1 0.1 0.0 45.4] 0.5 0.9 (0.3)
Intemational Priority & Standard 2.4) (0.1) 0.0 (0.0) 31.7] (0.8) 1a 0.4
Stamps (1st & 2nd) 1.3] (0.0) (0.1) (0.1) 21.5] 0.1 (1.5) (2.1)
Labels (1st & 2nd Class) 6.9} 0.1 0.2 0.4 84.3] 0.6 2.0 4.4
RM Signed For 1.8 0.0 0.2 0.0 21.2I 0.2 2.7 0.2
Home Shopping Returns 1.3 0.1 0.1 0.3 16.2 0.5 0.9 3.2
Other Trading 13 0.2 0.1 (0.2) 14.6 0.4 (1.4) (3.9)
Total Mail Trading 20.3) 0.4 0.9 0.3 2a} 1.8 eS 3}3)
Fixed fee 3.8 0.0 0.1 (0.2) 46.0I 0.0 0.7 (2.7)
Mailwork & Mails non trading 0.8) (0.0) (0.1) (0.3) 9.2] (0.0) (0.9) (2.7)
Total Mail Non-Trading 47 0.0 (0.0) (0.5) 55.1 0.0 (0.3) (5.4)
Retail (Inc Gift cards & Other) 0.3) (0.7) (0.9) (0.6) 12.5] (0.8) (1.6) (0.4)
Lottery 2.5] 0.1 0.5 0.1 29.0) 1.5 5.3 (1.2)
Retail and Lottery 2.8] (0.6) (0.4) (0.5) 41.4 0.6 3.7 (1.5)
Payment Services 2.1 0.0 0.3 0.2 25.5] 0.8 2.1 (4.6)
AT 24] (0.1) (0.1) (0.2) 27.8] (1.6) (2.4) (2.7)
Payment Services 4.5] (0.1) 0.2 (0.0) 53.3] (0.8) (0.4) (7.3)
Motoring Services 0.6} 0.1 0.2 (0.1) 6.4 0.5 14 (1.1)
Card Account 3.9} 0.9 1.1 (0.6) 41.6 2.3 5.4 (15.1)
Passport Services 2.3I 0.1 (0.7) (0.0) 18.7] (0.1) 3.6 (1.4)
Digital ID Serv UKVI & Asylum 1.2 0.2 (0.1) 0.2 13.6 0.7 1.2 0.5
ID - Assurance (Verify) 13 0.6 0.5 0.7 8.4 1.3 0 (1.3) 3.3
Other Government Services 0.0} 0.0 (0.0) (0.1) 0.9 0.3 (0.1) (1.1)
Government Services 9.3} 1.9 0.9 0.1 89.6I 5.0 10.2_(14.9)
Total Retail 41.6 1.7 1.6 (0.5) 492.7 6.7 20.7 (25.9)
Mortgages 0.3 0.2 0.0 0.2 2.7 0.7 (0.9) 0.1
Credit Cards and lending 0.3} 0.2 0.0 0.2 2.1 0.5 (0.8) 0.1
Savings 3.4] (0.0) (0.0) — (0.5) 37.0] (0.0) (0.0) (4.2)
Travel Money 1.6 0.0 0.0 0.0 23.5] 0.5 1.0 0.9
MoneyGram 2.3] (0.0) (0.2) 0.2 24.2) (1.7) (4.6) (3.3)
Post Office Money 7.9} 0.4 (0.1) 0.1 89.5] 0.0 (5.3) (6.3)
Banking Services 6.4) (0.3) 0.2 2.2 80.4] 1.0 5.1 23.4
Telecoms 12.4] 0.7 0.6 1.4 139.9} 1.8 2.3 20.2
Postal Orders aii 0.1 (0.1) (0.2) 13.6 0.1 (1.4) (3.6)
Other Income 0.0} 0.0 (0.5) __(0.0) 0.0] (0.0) (2.7) _(0.0)
FS&T 27.8 0.9 0.0 3.6 323.4 3.0 (2.0) 33.6
POMS 45 0.2 0.3 1.0 43.5I (1.1) (3.2) 4.0
Total FS&T 32.3 1.1 0.3 4.6 366.9 1.9 (5.2) 37.6
Supply Chain 0.7/ (0.1) (0.1) (0.1) 9.8] (0.1) (0.3) (1.4)
Other Income 0.3I_ (0.0) _(0.0)_(0.1) 3.3] 0.0 0.0 (0.5)
Total Revenue 74.9 2.6 1.8 3.9 872.6 8.5 15.2 9.8
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3. Retail
Pit YTD
Var Var_—s Var Var Var Var
£m Act) Fest Bud PY Act) Fest Bud PY
Gross Income 41.6 1.7 1.6 (0.5) I 492.7 6.7 20.7. (25.9)
Direct Costs (1.8) 0.6 0.8 0.9 I (26.8) 0.8 17 2.2
Net Income 398] 23 24 04 I 465.9 7.5 22.3. (23.7)
Agents Pay (22.8) 0.1 (0.4) (0.0) I (273.9)) (4.6) (8.1) 14,7
Staff Costs (6.4)I (0.1) (0.8) 0.0 I (75.9) 17 (5.7) 8.8
Non-Staff Costs (2.0) 1.4 11 01 I (31.3) 1.8 4.3 (4.5)
Expenditure (31.3) 1.5 (0.1) 0.1 I (381.2) 1.9 (9.4) 16.0
FRES - Share Of Profits : : = - = - : -
EBITDAS a6] 38 22 O85 84.7 94 12.9 (7.7)
Revenue
Mails Performance 20.3 0.4 0.9 0.3 253.2] 1.8 7.3 3.3
Mails Non Trading 4.7] 0.0 (0.0) (0.5) 55.1 0.0 (0.3) (5.4)
Retail and Lottery 28] (0.6) (0.4) (0.5) 41.4I 0.6 3.7 (1.5)
Payments Services 4.5] (0.1) 0.2 (0.0) 53.3] (0.8) (0.4) (7.3)
Govt. (excl. Verify) 8.0] 1.4 05 (0.6) 81.2I 37° 11.5 (18.2)
Verify 13 0.6 0.5 0.7 8.4] 13 (1.3) 33
Total Revenue 41.6 1.7 1.6 (0.5) I 492.7 6.7 20.7 (25.9)
P11 EBITDAS £3.8m favourable to forecast driven by strong revenue performance and
delays in programmes spend until 2018/19 as identified as part of the P9 risks and
opportunities update.
Gross Income beat forecast by £1.7m:
Government Services +£1.9m with POCA +£0.9m (£0.5m Interest Rate, £0.3m closed
accounts, £0.1m volumes) and Verify +£0.6m due to strong trading performance with
volumes doubling to c.11,000 per month. Small volume gains in Passports & DVLA also.
Mails +£0.4m with continuation of recent trends.
Retail and Lottery £(0.6)m, being £(0.3)m shortfall for trading (timing with no impact
on full year) and £(0.3)m accounting impact for the new contractual agreement with
WHSmiths where margin only is recognised (minimal EBITDAS impact as offset in COS
also)
Agents Pay +£0.1m: In line with revenue mix. Revenue overperformance in products
with limited agents pay impact.
Non Staff Costs +£1.4m: Due to delays in programme spend (costs deferred until
2018/19) and delays in marketing spend, partially offset by incremental costs of
£(0.4)m in the month for POCA statements.
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4. FST
P11 YTD
fn xe var var var mee var var var
Fest Bud PY Fest Bud PY
Gross Income 27.8 0.9 0.0 3.6 I 323.4 3.0 (2.0) 33.6
Direct Costs (7.1)] (0.7) (0.2) (1.3) (76.8)} (0.5) 4.8 (7.1)
Net Income 20.8 0.2 (0.2) 2.3 246.5 25 28 265
Agents Pay (5.9)} (0.4) (0.7) (4.0) (69.1)} (1.3) (2.4) 1.0
Staff Costs (11)} (0.2) (0.1) (0.1) (11.0)} (0.6) 0.0 0.7
Non-Staff Costs (3.9)} (0.5) (0.2) (1.0) (41.1)} (3.3) (4.0) (2.0)
Expenditure (10.9)/ (4.1) (4.1) (2.1) I (121.3)] (5.1) (3.4) (0.3)
FRES - Share Of Profits 2.5] (0.4) (0.4) 0.1 31.7I (0.4) 0.2 (1.5)
EBITDAS 12.3) (1.3) (1.6) 0.2 I 157.0] (3.0) (0.4) 24.6
Revenue
Post Office Money 7.9I 0.4 (0.1) 0.1 89.5 0.0 © (5.3) (6.3)
Banking Services 6.4 (0.3) 0.2 2.2 80.4 1.0 51 23.4
Telephony 12.4] 0.7 0.6 1.4 139.9 1.8 2.3 20.2
Postal Orders 1a 0.1 (0.1) ~— (0.2) 13.6] 0.1 © (1.4) (3.6)
Other Income 0.0} 0.0 (0.5) — (0.0) 0.0] (0.0) (2.7) (0.0)
Total Revenue 27.8 0.9 0.0 3.6 I 323.4 3.0 (2.0) 33.6
P11 EBITDAS £(1.3)m adverse to forecast. Revenue overperformance offset by cost
pressures and a true-up of full year performance on FRES.
Gross Income +£0.9m better than forecast:
Post Office Money +£0.4m due to Credit Cards and Lending, Moneygram back in line
with forecast in the month.
Telecoms +£0.7m continues to over perform with higher ARPU and customer numbers.
Banking Services £(0.3)m (reversal of overestimate in prior month — no impact on next
year budget target)
Agents Pay £(0.4)m adverse: In line with revenue mix.
Non Staff Costs £(0.5)m: predominantly due to annual mortgage check fees £0.3m (not
accrued).
FRES £(0.4)m: adverse based on the revised full year expectation now anticipated given
decreasing volumes.
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5. POMS
£m
Gross Income
Direct Costs
Net Income
Agents Pay
Staff Costs
Non-Staff Costs
Expenditure
FRES - Share Of Profits
EBITDAS
Revenue
Travel
Car
Home
Life
Other
Total Revenue
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P11 YTD
me var Var Var el var var Var
Fest Bud PY Fest Bud PY
45 0.2 0.3 1.0 43.5I (1.1) (3.2) 4.0
(0.9)} (0.2) (0.3) _— (0.4) (8.1)} (0.6) (2.2) (3.2)
3.6] (0.0) (0.1) 0.7 35.3] (1.7) (5.3) 08
(0.3) 0.0 0.0 (0.0) (3.5) 03 0.7 (04)
(1.1) 0.1 0.4 0.0 I (14.5) 0.7 2.6 (1.1)
(1.5) 0.2 0.4 0.0 I (18.0) 141 3.3 (1.4)
21 0.2 0.3 0.7 17.4) (0.6) (2.0) (0.6)
1.0) (0.3) (0.1) 04 14.0} (1.7) (1.4) 2.4
0.9] (0.1) 0.1 (0.2) 10.7 0.3 0.7 (2.1)
0.8} (0.1) (0.4) 0.0 8.8 0.1 (0.5) 0.8
1.6 0.7 0.7 1.2 7.3 0.2 0.7 2.9
0.2 0.0 (0.2) 0.0 2.7 0.0 (2.6) (0.0)
45 0.2 0.3 1.0 43.5I (41.1) (3.2) 4.0
POMS has performed ahead of P5 forecast in the month and is in line with the updated
view performed at the end of P9 (comparatives above refer to the Board approved P5
reforecast). The full year EBITDAS target is £19.9m and management continue to
believe that this is deliverable (P5 forecast adjusted to remove the impact from the
removal of Mortgage Specialists £0.3m).
The decisive factor in POMS hitting its full year EBITDAS target is the continued
performance of the Q4 campaign which includes the Life Over 50’s DRTV test and learn
and associated activities. The campaign launched on the 22nd of January has achieved
a step change in performance. In P11 3,464 Protection (Life, Easy Life and Over 50's)
policies were sold which is 2,462 higher than P11 last year, an increase of 246%.
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BOARD DECISION PAPER
Author: Cem Oztoprak Sponsor: Alisdair Cameron Meeting date: 27 March 2018
Executive Summary
Context
The purpose of this paper is to finalise the annual plan for formal submission to Government. At its review
in January the Board requested EBITDAS of £50m, up from £47m.
RemCo has agreed on STIP targets and recommending a gateway criteria for STIP to remain above
11,500 branches, with incentives paid on three measures: EBITDAS; removing POLSAP, HRSAP and
HNGX from the business; and having the Customer Hub operational, serving customers in two pillars of
Travel and Identity.
Questions addressed in this report
1- How has the budget moved since the last Board meeting?
2- What is the 2018-19 change plan?
3- How are we proposing to manage the balance sheet in 2018-19?
Conclusion
There have been a number of moving parts within the budget which largely net off. We are not
recommending any change to the £50m EBITDAS target.
We are budgeting for a change plan of c. £255m.
We will maintain cash control staying within headroom limits in spite of the growing banking framework.
Input Sought
The Board is asked to approve the annual Plan for submission to Government as summarised in this paper
and detailed in the attached slides.
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The Report
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How has the Budget moved since the last Board meeting?
1. The Board paper in January proposed a number of changes to finalise the budget delivering £50m
EBITDAS. These changes have now been incorporated and the final proposed P&L is as following:
2017-18 2018-19
£m P5 Forecast* Budget Variance YoY
Gross Income 949 968 19 +2.0%
Cost of Sales (121) (121) -
Net Income 828 847 19 +2.3%
FRES 35 34 (1)
Agents’ Pay (369) (364) 5
Staff Costs (184) (182) 2
Non-Staff Costs (276) (285) (9)
EBITDAS 34 50 16 +66.7%
* Latest view on 2017-18 EBITDAS is £36m and overperformance vs budget is due to
underspend in growth fund and increase in Bol profit sharing which will not recur next year.
2. There are still a
it is anticipated
managed within
Retail:
FS&T:
number of moving parts which might have an impact on 2018-19 EBITDAS. However,
that these will not have a net negative impact on EBITDAS and expected to be
business unit targets.
Decision on not proceed with Simplification Phase 2 (£2.7m)
A decision not to implement network simplification Phase
2 which would reduce the agents’ pay by £6.5m pa
however materially increase our network risk through
increased resignations and disengagement of partners.
Moneygram Deal £2.0m - £3.0m
Negotiations to get additional guaranteed payments
against the reducing volumes and change the existing
exclusivity clause to allow us to pursue digital capabilities.
3. We don't have a deal with Bol and therefore no assumption has currently been made with regards to
the wider negotiations with BOI (Peregrine) and it was agreed with the Board in January that the impact
of this would lead to a change in the budget targets.
4. Although the growth on EBITDAS looks like only £14m YoY (from latest view of £36 to £50m). On a
like for like basis the growth is £54m.
17/18 expected EBITDAS £36m
Bol value share, not recurring next year as we don’t a deal with Bol (£13m)
Impact of Ofcom regulatory changes (£15m)
YoY Marketing increase, including £5m growth fund (£12m)
£40m Change benefits plus trading improvements £54m
£50m
18/19 EBITDAS Target
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What's the 2018-19 change plan?
5. 2018-19 is the first year of 3-Year Plan. The budgeted change spend for this year is £255m and the
expectation by strategic priority is as following:
Strategic Priority Forecast
Simplify the retailer proposition £55m to £65m
Build innovative, flexible and secure IT £80m to £90m
Modernise our products and services £70m to £80m
Digitise and optimise the business £15m to £20m
Modernise our skills, culture, HR policies and processes £4m to £6m
Regulatory & Group Litigation Costs £11m to£14m
TOTAL £235m to £275m
6. Among the projects planned for 2018-19, the below projects are crucial to deliver the EBITDAS target
given that these projects will contribute with ca. £40m in-year benefit.
2018-19 In-Year
Investment Benefit
Simplify the retailer proposition £61.5m £11.8m
- Further franchising DMBs £22.8m £1.6m
- Network Expansion £18.7m £2.0m
- Multi-year Crown Projects £17.9m £8.1m
- Self Service Kiosk Rollout £2.0m £0.1m
Build innovative, flexible and secure IT £33.8m £7.3m
- Branch Printer Replacement £3.6m £0.5m
- CDP re-procurement £1.4m £0.5m
- EUC Branch Deployment £6.4m £0.6m
- HNGT Lite £1.8m £0.9m
- PCl/Payments Hub £2.5m £0.2m
- Project Everest - Cloud enablement £15.2m £4.0m
- Project Nelson £2.5m £0.5m
- Software Asset Management £0.4m £0.1m
Modernise our products and services £19.7m £17.1m
- POMS Investments £11.3m £4.6m
- Project Galaxy £4.8m £11.6m
- Falcon — Travel Hub £3.6m £0.9m
Digitise and optimise the business £0.3m £3.5m
- Success Factors Ph1 Completion £0.3m £3.5m
Modernise our skills, culture, HR policies and processes £6.0m £0.5m
- Back Office Transformation £6.0m £0.5m
Group Litigation £9.0m (£9.0m)*
TOTAL £130.3m £31.2m
* Group Litigation costs will be reported as exceptional spend and will not impact EBITDAS. Please see
the appendix for YoY EBITDAS reconciliation.
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7. In addition to the above projects, there are further key investments to secure either the current income
stream (income protection) or contribute to the future profitability beyond 2018-19.
Simplify the retailer proposition
- Agents/Postmasters Portal
Build innovative, flexible and secure IT
- Full Thin Client Deployment (Solar Full)
- End-of-Life Replacements
- Risk & Resilience
Modernise our products and services
- Identity Services Investments
- Banking Framework — Future of Cash incl. vehicles
- Mails Projects
- Falcon — Additional Verticals
- Property
ise and optimise the business
- Enabling supply chain and back office improvement
- Project Arrow (BI Strategy)
Regulatory
- GDPR
TOTAL
2018-19
Investment
£6.0m
£6.0m
£20.5m
£9.0m
£4.0m
£7.5m
£46.7m
£11.4m
£10.0m
£8.0m
£11.3m
£6.0m
£15.5m
£12.0m
£3.5m
£4.0m
£4.0m
£92.7m
Pro-Forma
NPV
TBD
TBD
TBD
TBD
£25.5m
£1.1m
£3.5m
£13.0m
TBD
£2.0m
TBD
(£4.0m)
8. The above project are currently either at their design stage or even initiation stage and therefore the
NPVs are high level estimates. All these projects are subject to Investment Committee/Board approval
before being kicked off.
9. The projects with in-year benefit (£130m) and further key investments (£93m) represents over 85% of
the planned spend for 2018-19. The remaining is made up of smaller projects and are also subject to
governance approval.
10. Current plan doesn’t reflect Project Panther costs. If this materialises, the project will be self-funded.
Strictly Confidential
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POST OFFICE PAGE 5 OF 5
How are we proposing to manage the balance sheet in 2018-19?
11. The Balance Sheet, Cash and Headroom positions have been prepared and are subject to update
following the final 2017-18 outturn position. The key assumptions made are:
« Government funding will be drawn down on a quarterly basis in line with the proposed spending
pattern and there will be no significant fluctuations in spend profile vs. drawdowns.
¢ Banking Framework is assumed to require an additional £36m of cash in the network (future of cash
paper is still in development)
¢ Branch holdings are reduced down to £486m, including the adverse impact of banking framework
by end of next year vs. 2017-18 ytd avg. of £550m.
e Cash centre balances are held at current levels, subject to seasonal fluctuations.
12. The net inflow for the year is ca.£60m leading to a reduction in the net funding position. Month-end
headroom is not expected to exceed the £750m threshold but as always will be tight over the Christmas
period and will need to be closely monitored.
Cash and Loan
1,200
1,100
1,000
900
= 800
“700
600
500
400
300
Pl P23 PCSOs PBC
2018 2018 2018 2018 2018 2018 2018 2018 2018 2018 2018 2018
== Gross Cash 18/19 ——Loan 18/19 ——=Gross Cash 17/18 ~——=Loan 17/18
Net Funding
4,000
950
900
850
800
E 750
700
650
600
550
500
Plo P2P3 PAS PHP PRPS
2018 2018 2018 2018 2018 2018 2018 2018 2018 2018 2018 2018
—Net Funding 18/19 ——=Net Funding 17/18
Strictly Confidential
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2018/19 Budget
Al Cameron
27 March 2018
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Na
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Overview of 2018/19
Income
Margin
Costs
FTE
POMS
Risks and Opportunities
Capital and Investment Spend
86600000600
Cashflow and Headroom
(2)
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Overview
2017/18 Another year of progress:
« We continue to modernise, over 7,500 branches now modernised. These branches are delivering longer opening
hours, more efficient ways of working and more attractive environments for customers in their local communities.
* Supply Chain rationalisation (Project Iris) implemented in early 2017 is now embedded into the organisation and
settling down as BAU.
* Back Office Transformation continues with Phase 1 implementation ongoing and expected to complete in Aug 18.
* IT transformation continues with the network change to Verizon expected to complete by Mar 18 and Branch
Technology upgrade in Aug 18.
* 3 year funding plan agreed and EBITDAS (excluding Group Litigation Costs (GLC) ahead of 2017/18 targets as we
continue to deliver momentum towards commercial sustainability.
But trading conditions look challenging:
* £50m EBITDAS (£3m ahead of funding plan*) in spite of challenging trading conditions in Retail, Telecoms and
Financial Services.
* 2018/19 will represent a year of stabilisation and delivery of key transformation projects as we set ourselves up to
successfully deliver the next round of significant cost reductions in 2019/20.
75
50
a
14
Sus en
(50)
(75)
* 3 Year Plan adjusted for to
125)
known changes. See 2013/14 2014/15 2015/16 2016/17 2017/18 2018/19
reconciliation on slide 7.
MEBITDAS (excl. GLC) ™ Growth Fund Release
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As identified in the 3 Year Plan the Post Office still faces ‘
major challenges that must be addressed to secure its
long-term sustainability
Comment
- Government services, payments and traditional mails products are all facing downward
pressure due to the continued shift to alternative channels and growing competition .
» While we have reduced costs significantly since 2012, because of legacy operating systems across
the business we still have more work to do to reduce costs which otherwise drag on our
profitability.
Income is declining
in our core markets
with more work to
do on costs + In the absence of further investment to complete the transformation we estimate that we will
revert back to an EBITDAS loss of nearly £30m by 2020/21, compounded by the fire sale of
assets to generate cash.
Our digital + Limited digital capabilities across our product range, with no single view of customer. We are
at risk of losing relevance to customers, with 60% of customers in our target segments saying they
prefer to access services online.
+ This is particularly crucial for financial services and identity, but even in mails many customers
want to be able to start their journey online, accelerated by developments like the roll out of eBay’s
online shipping platform.
capabilities are
insufficient to meet
consumer
expectations and
drive growth
machines to parcel services.
» While retailers see the value of hosting a post office, for many this is offset by concerns
around the operational cost and complexity and the prospect of declining direct remuneration.
» These issues are creating the potential for network instability, with 1,000-2,000 branches at
risk over the next few years if we don’t act.
We need to secure
the right retailers to
host our network
» We are approaching the sunset years of the current contract with Royal Mail, with an urgent
need to work more effectively together to respond to intensifying competitive pressures.
* The current relationship with Bank of Ireland is no longer delivering decent growth
prospects, due to a combination of their balance sheet constraints and the wide ranging exclusivity
which prevents us from working with new suppliers better equipped to support our commercial
plans.
Our major
commercial
partnerships need
to be realigned
Our IT systems need
modernising to
provide greater
stability, security
and flexibi
+ The core operating system used in the branch network (Horizon) was designed two decades
ago in a paper-based, non-networked world, and for a different purpose to the one we need today.
* Both our branch and back office systems are at the end of their life, leaving us unsupported by
suppliers or exposed to unacceptable cost demands and operational risks. We have suffered several
significant service outages in recent months, and these incidents will continue if we do not invest.
I » Retailers have more choice than ever for ancillary services which range from self-serve coffee
* Core retail revenues
declining
» Detailed cost reviews
ongoing
+ Budget assumes
continuing
investment spend in
line with 3YP
+ Customer hub
launched in 2018/19
with marketing
investment to
support. Benefits
expected in outer
years.
+ Continued network
transformation and
plan assumes
delivery of c300
additional sites in
2018/19
+ Negotiations ongoing
with Royal Mail
around Simplification
roll-out.
+ Plan currently
assumes no
agreement with BOI
+ Back office
transformation and
branch technology
roll out expected to
delivery by Au 18.
Significant IT cost
savings ii din
18/19 / 4 \
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Five strategic priorities address these challenges and
complete the transformation
POL00027257
STRATEGIC
PRIORITY
Simplify the
retailer
proposition
Build
innovative,
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
KEY INITIATIVES 2018/19 -— 2020/21
Simplification of product transactions and branch operations
Network expansion in urban areas to meet customer demand
Further franchising of DMBs (177 assumed in Plan)
Roll out of self service kiosks for agency branches, development
of more flexible POS solutions (via HNGT) and the creation of an
‘agent hub’ to digitise and simplify services to postmasters
Replace end-of-life branch hardware and invest in improving
security and addressing recurring outages and system failures
Transition Horizon to cloud based architecture with increased
business flexibility via development of ‘thin client’
Restructure IT operating model to take back control of core
functions at lower operating cost
Creation of integrated digital platform (the ‘Customer Hub’) to
drive growth across financial services and our wider product
range
Development of multi-channel mails services to deliver improved
convenience for both SMEs and consumers
Investment in capabilities to lead the market in digital identity
Further expansion of the Banking Framework
We will deliver a further 20% reduction in central staff costs by
streamlining and automating key processes across the
organisation and digitising our services to agents
Supported by transformation and replacement of back office
systems to deliver improves processes and the MI our people
need to run the business
Talent and career progression: provide an environment where
our people have a chance to learn, grow and thrive, with the
right succession planning and early career talent development.
Learning & Development: everyone who wants to learn and
develop will be fully supported through a range programmes.
Reward and Recognition: attract and retain the talent we need.
INVESTMENT
2018-2020 (£m)
£190 To
£210mM
£80M To
£90m
£90 To
£110mM
£30Mm To
£35
~v£5M
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BENEFITS & OUTCOMES 2018/19
~£36m pa benefits by 2020/21 C.£12m of
Increased retailer demand for post offices, —_ benefits from
strengthening our ability to attract and transformati
retain the best agents (at lower on in plan.
remuneration).
A better network for customers, with more
locations in areas of high demand
~£23m pa benefits by 2020/21 IT program
Operational risk profile shifted to within continues
with £9m
acceptable parameters. benefit
Flexible IT architecture to enable better
services for customers, agents and staff
~£31m pa benefits by 2020/21
10% of revenue base from new products &
propositions, stabilising overall top line
Digital innovation used to improve every
possible product transaction
~£16m pa benefits by 2020/21
Our people are able to focus more of their
time on serving customers and adding
strategic value - not doing processes that
are better performed by machines.
Underpins delivery of the above
Culture and talent in place to deliver the
next stage of the POL transformation
Improved staff engagement levels
50% of senior roles filled by internal
candidates
Customer Hub,
Identity
Services &
Banking
Framework
growth
included
BOT ongoing
in 18/19 with
cost
reductions
from 19/20
planned
Review on
going
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Strategic context and priorities
Income
Margin
Costs
FTE
POMS
Risks and Opportunities
Capital and Investment Spend
660000000
Cashflow and Headroom
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The 18/19 proposed budget delivers £50m EBITDAS. +£3m
ahead of 3 Year Plan target
Gross Income
Direct Costs
Net Income
Net Margin
Agents Pay
Staff Costs
Non- Staff Costs
Expenditure
FRES - Share Of Profits
EBITDAS (pre GLC)
GLC
EBITDAS
Target Reconciliation
Per 3 YP
Project Costs into BAU*
GLC (per 5YP)
Target pre GLC
Board Challenge
2018/19 Budget
2018/19
Bud
971.3
(125.7)
845.6
87.1%
(363.7)
(181.9)
(283.8)
(829.4)
33.8
50.0
(9.0)
41.0
2018 / 19
40.0
2.0
5.0
47.0
3.0
50.0
2017/18
PSF A
949.2
(1214.1)
828.1
87.2%
(368.5)
(184.3)
(276.0)
(828.8)
35.0
34,.3**
(2.4)
31.9
Var %
PSF Var
22.1 2.3%
(4.5) 3.8%
17.5 2.1%
(0.2%)
4.8 (1.3%)
24 (1.3%)
(7.8) 2.8%
(0.6) 0.1%
(1.2) (3.4%)
15.7 45.7%
(6.6) 275.0%
9.1 28.4%
* 3 Year Plan approved by the Board included a £5m adjustment for
project costs moving into BAU. Net adjustment in 2018/19 is £3m
leading to the “target” being increased by £2m.
* P5 Forecast updated to reflect assumed release of Growth Fund £3.9m.
** Latest view on 2017-18 EBITDAS is £36m and overperformance vs
budget is due to underspend in growth fund and increase inBol profit
sharing which will not recur next year.
Gross Income
* Revenue growth 2.3% despite continuing pressures in Retail underlying
trading, Telecoms pricing pressures (Ofcom) and removal of the profit
share agreement with Bank of Ireland.
Direct Costs
* Growth in costs driven by Telecoms and Government Services growth.
Slight margin decline.
Agents Pay
+ Reductions in agents pay with simplification savings offsetting
incremental costs from franchising DMB’s. Changing revenue mix
drives year on year improvements.
Staff Costs
* 3.0% payrise assumption impacts by c.£5m partially offset by £3m
pension saving.
* £8m benefit from franchising DMB network (offset by increase in agent
pay)
+ £4m Incremental investment to fund skills gaps identified.
Non Staff Costs
+ Marketing and growth spend, including a £10m growth fund (2017/18
estimated to be c.£5m) and £5m of incremental marketing year-on-
year.
Significant IT cost reductions of c.£10m.
+ Increase in regulatory costs from POCA £6m and £2m card processing.
FRES
* Reduced trading performance due to AML regulations.
Group Litigation Costs
Post Office®
Post Office Limited — Commercial in Confidence
+ Excluded from targets. Costs anticipated to be £7-£9m in 2018/19
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£16m year on year EBITDAS improvement achieved against
significant trading challenges
70 ' ' ; ;
aa
H H = I
- : El a
40 ' t u ;
I H 1 1
E 4 : ' i
a 30 I t—4
H H ' '
20 H ' ' '
1 1 I Hi
10 H H ' !
1 1 H ;
f H ' H
F I 3 id E S es 2 5 5 5 a3 2 3 3 8 ]
es zs a 33 4
2 ns .
i
Trading Programmes Invest
+ £7m growth from FST including growth from Banking Services due to inflationary increases and continuing growth in Banking Framework
+ £15m potential impact of Ofcom price reduction offset by volume growth and mitigating actions.
+ £11m BOI value share and guaranteed income excluded from 2018/19 (currently under negotiation).
+ Network Programmes deliver £14m of improvement — Network Transformation £9m and Simplification £5m.
+ Transformation of the IT cost base continues with significant year on year savings delivered.
+ Savings from Mortgage Specialists with announcement in January.
* £12m of incremental marketing costs (inc. Growth Fund) and £2m increase in marketing headcount.
Note: £34m is 2017/18 anticipated outturn as per the P5F adjusted for £2m impact of GLC and £4m anticipated release of the Growth Fund. (3)
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Key income drivers, initiatives & investments in 3 Year Plan
IDENTITY & BANKING
Mas GOVERNMENT SERVICES SERVICES PeYRERIS
KEY
DRIVERS
* Traditional mails volumes declining by 2-
3% pa due to increased digitisation and
competition. Our plan seeks to offset this
by tapping into faster growing segments
of the parcels market as set out below.
Overall income also held up by RPI linked
fee mechanism with RMG,
+ Legacy services in
continued decline, with net
income from POCA, DVLA,
UKVI & passports declining
from £62m to £33m. Plan
partly offsets this with
growth in digital identity.
Continued bank branch
closures (nearly 500 in
2017 alone) and increased
awareness of Banking
Framework driving growth
of c5% pa.
Traditional bill payments
market declining by >5%
pa due to shift to
alternative channels,
although our strategy seeks
to drive outperformance vs
the market.
Up to £40m invested to strengthen our + Launch of Digital Check Further enhancements to Targeting large clients
network coverage and multi-channel & Send for passports: the Banking Framework: directly and enabling the
capabilities, including through: improving the customer ongoing programme of technical capability
in + Drop & Go: growing the SME user base journey and supporting product innovation, such as required to leverage
> and improving the online service with HMPO’s aim to remove quicker deposit processes growing segments such as
Ee additional features like loyalty discounts. paper. Delivers c£12m for business customers. pre-pay smart metering and
< I-+ Click & Collect: improving the customer income by 2020/21. Discussions underway transport ticketing.
= journey for parcels collections and + Identity services: building with major banks around Project Panther currently
La) potentially extending to other carriers and the UK’s digital identity further extensions to the being assessed - seeks to
z platforms. market to improve security Banking Framework to accelerate improvements to
5. I * Multi-channel expansion and eBay & convenience for support more radical our network, retailer
() integration: enabling customers to start customers and reduce costs reconfiguration of their technology & product range
x transactions online and complete in for clients. Underpinned by network, which would (£15-20m investment).
branch, and potentially selling RMG c.£20m investment in necessitate additional ATMs: new contract
tracked services directly through our own digital platform and in- investment and financing required during Plan period
digital channels. branch technology. arrangements. - options under review.
* Significant uncertainty associated with + Up to £15m pa profit at risk Bill payments income and
7) both the pace of market developments by 20/21 if identity market New framework i sbeatlieti volumes subject to
(e.g. shift to eBay shipping platform) and does not evolve as planed. tha Banke before the end oF significant binary risk
tS] the outcome of negotiations with RMG - * Potential for additional the plan period, presenting associated with winning
[+4 impact of these events could worsen mails regulatory costs of £5-10m both risks & ’ runt large client contracts
income by £10-30m pa by 2020/21. pa on POCA. OLN FISKS & OPPortunities, against intense competition.
(9 \
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Key income drivers, initiatives & investments in 3 Year Plan
PO MONEY POMS TELECOMS
Bank of Ireland balance sheet constraints and * Against the backdrop of a competitive Fixed line net income -
re alignment of incentives are the major factors market, POMS plan seeks to deliver traditionally the mainstay of the
> w influencing outlook for PO Money product range - c£20m profit increase by 2020/21, by PO telco business — is set to
u> currently assuming £7m income drop from savings. building on the investments to date to decline, not least from impact of
x @ Offset by investment in own capabilities (see below). increase control of the value chain, retain Ofcom interventions. Our plan
Q): Plan assumes we maintain our c25% share of a more value and improve distributional seeks to offset this through growth
broadly flat travel money market. capabilities. in new products & customers.
POMS strategy review underway, reportin
Sepecenede with Peper ae et ill win to POMS Board in Nov 2017 - aesessing 8 Improving the efficiency of the
alm to recall rate FRE Arapegai parte emer wuld quan range of options for driving growth: current operations, driving
wo product sourcing flexibility and align sales incentives. . . ; - t
fi + Further increasing control over end- higher yield from more efficient
wi Outcome currently uncertain (see Sept 2017 Board a 7 ; an
> aper for further detail ) to-end product delivery to improve targeting of existing customers,
= Pe P 6: a ‘i C b’ value capture, including by re- channels and pricing propositions.
rd Building the digital platform ¢ saeoer Hy, ) negotiating (or exiting) the arrangement Broadening the customer reach
CG required fo iSuppore our future growth In financla with JBF (the intermediary for motor & to appeal to new customer
G services and other B2C product lines, delivering an home insurance). segments, leveraging the
z integrated proposition to customers to meet their . ‘ — feel ; eal
I needs. Requires investment of c£30m over the period. Tauriuparian watitasiel wo" plese Bubs
i Peveloplpgiis produekand propesiten roadmap analytics, leveraging the investment in portfolio to capture greater
x to put through the new platform, starting with those the wider Customer Hub. revenue and increase retention
which are already within our control like travel, in nal iii : A fi
‘ ‘ + ‘ A * Potential acquisition opportunities to rates - potentially including TV,
identity & insurance. Intention to launch retail rae Laren Fs 3
i i broaden distribution reach and move into energy and mobile.
investment products in 2019. oe Free
MGA / underwriting capabilities.
* POMS plan is predicated on ambitious
Inevitable uncertainty around our ability to gain profit growth — a combination of external Precise impact of Ofcom review of
7) traction in new product areas like investments factors (regulation, Competition, lereiit pa .
x : Fs an jandline pricing currently unknown
Hw (forecast to generate £8m pa revenue by 20/21). macroeconomics) and internal capability could add £5-10m pa risk
et As indicated above, relationship with Bank of Ireland is dependencies could put some of this Broadband market remains subject
[+ the key swing factor over the plan period, with both £20m growth at risk. The impact of éo Intense orice-led competition
risks and opportunities against our baseline forecast. Russet (£2.3m) and funding of additional PI .
central marketing costs are included.
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Key 2018/19 planning assumptions 2
¢ Bank of Ireland — No value share included (targets would change dependant
on outcome of negotiations). Prior year forecast had c.£11m impact.
* VAT — 9% irrecoverable rate assumed, no change from 17/18.
* Inflation — Where possible specified contract terms used, if not CPI at 2.6%
used.
¢ Interest — assumes rate remains constant
* Pay rises — c.£5m budgeted (3%).
* Bonuses (inc. Nl) — LTIP (£1.6m) and STIP (£16m) budgeted on a consistent
basis with 2017/18
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Overview of 2018/19
Margin
Costs
FTE
POMS
Risks and Opportunities
Capital and Investment Spend
Cashflow and Headroom
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£22m (2.3%) YoY increase in Gross Income despite ‘
significant reductions due to Ofcom pricing impact and no
Bank of Ireland income support.
2018/19 2017/18
Var % Var %
=m 18/19) 7/18 var I 17/18) 46717 Var
Mail Trading 288.4 16.0 5.9% QI ay 33 5.4 2.0%
Mail Non-Trading 55.8] (4.0) (6.7%) 59.8 (5.9) (9.0%)
Retail and Lottery 39.0} (5.2) (11.7%) 44.2 (2.1) (4.5%)
Payment Services 58.0 0.0 0.0% 58.0 (7.6) (11.6%)
Government Services 86.4 (5.8) (6.3%) 92.2 (22.0) (19.3%)
Total Retail 527.6 1.1. 0.2% I 526.5I (32.2) (5.8%)
Post Office Money 99.5] (7.9) (7.4%) 107.4] (10.0) (8.5%)
Banking Services 97.0 10.7 12.3% 86.3 19.0 28.1%
Telecoms 162.8 13.2 8.8% 149.6 19.5 14.9%
Postal Orders 12.3 (2.2) (15.3%) 14.5 (4.0) (21.7%)
Other Income (0.3) (1.5) (127.8%) 1.2 (0.1) (5.6%)
FS&T 371.3I 12.2 3.4% I359.1I 24.3 7.3%
POMS 57.9 8.7 17.8% 49.2 6.1 14.3%
Supply Chain 10.9 0.0 0.0% 10.9 (1.2) (9.6%)
Other Income 3.6] (0.0) _ (0.7%) 3.6] (0.2) (4.0%)
Total Revenue 971.3I 22.1 2.3% [949.2] (3.0) (0.3%)
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Retail: Mails Trading and Verify growth offsetting continuing
declines in Fixed Fees, Retail and Lottery
2018/19 2017/18 Mail
+ Overall trading flat with favourable variance driven
Var % Var % i iti
£m 18/19 47/18 var I 27/28 16/17 vay by RPI increase and additional week.
Parceiforce Die 26 16306 sed 12) ea, Fixed fee £4m decrease split between contractual
re . . 3% I . . es . .
Special Delivery 50.4 16 3.3% 48.8 (1.0) (2.0%) efficiencies and Annual Count reduction.
International Priority & Standard B75 2.4 6.9% BSa1 24.9 243.6% 2 ii i ial
Stamps (1st & 2nd) 22.1] (1.0) (4.2%) 23.0} (2.3) (9.3%) He vel icine i ies pricing
Labels (1st & 2nd Class) 95.2 4.5 5.0% 90.7 4.0 4.6% io be mitigated and will not impac' income.
RM Signed For 24.3 1.5 6.4% 22.8 0.0 0.0% r
Home Shopping Returns 21.6] 4.6 26.8% 17.0 29 20.6% Retail and Lottery
Other Trading 15.8 0.4 2.8% 15.3] (24.2) (61.2%) , F F
Total Mail Trading 288.4] 16.0 5.9% 272.3 5.4 2.0% Retaes impacted by DMB'closures offset by
Fixed fee 45.8] (4.0) (8.0%) 49.8] (2.9) (5.5%) new contract.
Mailwork & Mails non trading 10.0] (0.0) (0.0%) 10.0] (3.0) (23.1%) , A 9
Total Mail Non-Trading 55.8] (4.0) (6.7%) I 59.8] (5.9) (9.0%) Camelot lottery'sales declines by 9.5%.
Retail (Inc Gift cards & Other) 11.2] (3.1) (21.9%) 14.3] 0.6 4.3% ql
Lottery 27.8] (2.0) (6.8%) 29.8] (2.7) (8.3%) Payment Services
Retail and Lottery 39.0) (5.2) (11.7%) 44.2) (2.1) (4.5%) ~~ » ~HNGT Lite & new contract opportunities offsetting
Payment Services 26.8 0.5 2.0% 26.3} (6.3) (19.4%) avinients decline
ATM 31.2} (0.5) (1.6%) 31.7] (1.3) (3.9%) Pay! .
cam Services aa on CEES oa 3) CED * POCA decline reduces ATM usage. Improvements
rin ri ls le . fo, ye . 4%, : . an, 0, .
Cod ener: 30.1/ (3.1) (7.3%) 42.2I (19.0) (31.1%) in availability to 96% embedded in 2018/19.
Passport Services 14.5] (6.6) (31.3%) 21.1) (1.4) (6.2%) j
Digital ID Serv UKVI & Asylum 13.0] (1.0) (7.1%) 14.0] (0.1) (0.7%) Government Services
ID - Assurance (Verify) 12.9 5.1 66.3% 77) 2.1 37.9% . POCA interest gains partly offsetting volume
Other Government Services 0.7I (0.0) (5.1%) 0.7I (1.7) (70.4%) decli
Government Services 86.4] (5.8) (6.3%) 92.2I (22.0) (19.3%) eclines
Total Retail 527.6] 1.1 0.2% I 526.5] (32.2) (5.8%) .~ Passports decline led by HMPO announcement on
differential pricing that makes online applications
cheaper.
+ Verify expecting consistent YOY volume growth vs.
latest view of 17/18 exit
©
Post Office® Post Office Limited — Commercial in Confidence
POL-0023898
POL00027257
POL00027257
®
Mails: Fixed fee reductions offset by RPI increases. Growth
driven by home shopping returns ad Week 53.
_ 2017/18 to 2018/19 Budget Bridge
uo
Contractual Trading One-offs
339 17
H ' 1.0 '
229 ‘ Hl H
! ‘ =o (0.3) (0.0) '
324 : ‘ :
FYF 1748 Fixed fee Stamps Other Labels Home Shopping —-Parcelforce Week 53 RPI Proposed Budget
Returns 18/19
Decline Items Growth Items
+ Fixed fee reduction includes efficiency £(2)m and annual + Home Shopping Returns increasing 21%, reflecting growth
count £(2)m. No reduction in Mailwork fees budgeted. slowdown from latest 22% trend and broader industry trend
slowing.
+ Stamps declining by 6% in line with volume YTD trend.
. + Parcelforce increasing 4% in line with volumes YTD trend.
* Labels include 1s class £(0.4m) and 2"¢ class +£0.4m Parcelforce confirm Rewards4U promotion will continue.
trending in line with volumes YTD.
+ RPI rate assumed in budget was 4% (RPI-1% applied to
+ Other includes; special delivery £(0.8m), signed for calculate contractual rate increase).
+£0.3m, acceptance £(0.3)m and international +£0.6m.
(45)
©)
Post Office® Post Office Limited — Commercial in Confidence
POL-0023898
Mails: 5 priority in
itiatives to defend income and build improved
customer journeys as part of our strategy to be No 1 in mails and
parcels
POL00027257
POL00027257
®
. 2018/19 Mails initiatives are focused on retaining core income and profit streams in the marketplace segment while
preparing for the imminent renegotiation of the MDA with Royal Mail.
+ This includes proactive creation of optionality in the Click and Collect market inline with our strategic ambitions, and
ensuring we are able to react to the possible inflection point created by Royal Mail's response to eBay’s shipping
platform.
The scale and phasing of some initiatives have been revised as our strategy has progressed this year
[A
Mails Strategy Preparation, execution and To secure new agreement with Continued funding of dedicated £3.4m reduced from£4.9m ‘Secure mails income
implementation of MDA RM from 2020 that delivers best —_ project team and specialised (exceptionalised) of ~£330m p.a. for
renegotiation including POL value for Post Office resource. Includes provision for next 10 years
NBA legal and implementation costs
Small Continue technical High volume marketplace sellers Upgrading Drop & Go platform to £2.2m £1.2m p.a. recurring
Business development of Drop & Go account for ~£60m of POL reduce user attrition, provide user income retention
Club/Drop & and create of a dedicated parcels income and are visibility & MI allowing direct (£0.5m EBIT)
Go small business CRM vulnerable to competition & communication & incentive
programme online programme
Click and Increase POL's market share Defend core mails by preventing Improve existing customer joumey £3.6m £22m pa
Collect from 6% to 31% by 2025. ‘competitor building brand and and extend network to increase incremental income
user awareness & grow income capacity and convenience by 2025
stream including possible automation DPC at 22% =£5m
eBay/Online Arrange of responses to RM new Tracked Online service © Range fromdedicated eBay role £4.6m Minimises risk of
secure POL's relationship with & eBay shipping platform to acquisition of full online sales ~£16m pa income
high value e-Bayers challenges POL high value and pew platform. Includes POL (£15m exceptional deferred until (£6.5m EBIT) loss
depending on speed and scale sellers transactions building RM Tracked online trigger points reached) by yr 3 (from volume
ofcustomer migration plus joumey on horizon loss or rate ditution)
RM's response
Multi-channel In branch preparation to Some changes may be required Options include prepare online, £0.2m seed funding Retain £6-9m p.a.
customer accommodate online or part in customer joumeys, dependent complete in branch, in branch £5m capex deferred to 2019/20 income (£2.5 -3.6m
journey online customer journeys on the response to eBay above printing EBIT) by 2021/22
based on RM joint
strategy
(16)
Post Office® Post Office Limited — Commercial in Confidence “ew!
POL-0023898
Mails and Income Graphs
POL00027257
POL00027257
®
1000
1,950
1,750
1,550
1,350
1,150
950
Period 1 Period 2 Period 3 Period 4 Period S Period 6 Period 7 Period Period 9 Period 10Period 11 Period 12
wes FY 17/18
Period 1 Period 2 Period 3 Period 4 Period S Period 6 Period 7 Period 8 Period 9 Period 10Period 11Period 12
wom FY 17/18
Stamps
—e— Actuals 16/17
—e— Budget 18/19
Home Shopping Returns
Oe Actuals 16/17
O— Budget 13/19
= Week 53
= Week 53
Labels
10,500
10,000
9500
3,000
3,500
8000
7,500
7,000
6500
Period 1 Period 2 Period 3 Period 4 Period'S Period 6 Period 7 Period 8 Period 9 Period 10Period 11 Period 12
cme FY 17/18 Budget 18/19 Actuals 16/17 = — Week 53
Stamps — Continues to decline 7% YoY (excl. Christmas) due to e-
substitution and overall market decline. UK letters market decline is (5)%
including high volume business mail (statements and direct mail.(Note:
RPI formula doesn't apply to Stamps).
Labels - YoY income broadly flat with 1% decline in class volumes
and flat 2"4 class volumes.
2017/18 volumes have held up despite challenges from Hermes and eBay
price promotions and RM’s channel strategy (online price differential and
delivery confirmation)
Labels remains the main area of risk and opportunity going forward with
substantial challenges deferred from this year.
Home Shopping Returns - Continues to grow +21% inline with UK online
sales. Retailers facing growing economic pressure to reduce paid for
returns are challenged by growing customer expectation and competition
offering improved returns and refunding experiences
Post Office®
Post Office Limited — Commercial in Confidence
@
POL-0023898
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®
Continuing decline in Retail and Lottery. Gift cards continue
to grow over and above market.
Retail (excl. Gift Cards) Gift Cards
800 2,500
700
2,000
600
500 1,500
400
300 1,000
200
500 x4
100
Period 1 Period 2 Period 3 Period 4 Period S Period 6 Period 7 Period 8 Period 9 Period 10 Period 11 Period 12 Period 1 Period2 Period 3 Period 4 Period 5 Period 6 Period 7 Period 8 Period 9 Period 10Period 11Period 12
mee FY 27/18 Actuals 16/17 —O— Budget 18/19 = @ =m Week 53 meme FY 17/18 Actuals 16/17 Budget 18/19 = © = Wook 53
Lottery - Variabl Retail (Includes Photo-Me booths) - decline driven by DMB closures
oe (23 residual from 17/18 and 38 planned for 18/19). Retail sales income
ane reflects the new WHS contractual arrangement and assumes a sales uplift
~ of 40% due to new fit out and product range. c.£3m reduction in revenue
soon and cost of sales (minimal EBITDAS impact) as we move to recognising
i commission only.
2,500
2,300 Gift Cards — Continues to grow +10% YoY above overall market growth
2,100 (5% in 2016).* Predicted slowing of growth due to Amazon's departure.
1,900
— Lottery Variable — Continues to decline 8% YoY based on prior two year
cco’) Pond? Panos Pood PorodS Posi Penns? Poros # nad Ponow ADPePnS eee? —-- AVEFAge trend. The fixed fee for Camelot is assumed the same but is
subject to a new mechanism based on our success in audits of prize
mee FY 17/18 —@—Actuals 16/17 —@—Budget 18/19 —@— Week 53 ‘
payout tickets.
*Source: UK Gift Card & Voucher Association 2016 Summary H2
_—
{ 18 \
Post Office® Post Office Limited — Commercial in Confidence Nae
POL-0023898
POL00027257
POL00027257
®
Payment Services: ATM declines from POCA volume
reductions offset by increased availability and HNGT Lite.
em Net Income Bridge
59.00
(0.8) 4A
~ a
(1.4)
$7.00 os i I
a
56.00
56.00
54.00
53.00
52.00
51.00
50.00
Key Items FYF 17/18 Payments Decline ATM Decline HNGT LITE NewOpportunties 53rd Week Budget 18/19
+ Direct Clients budgeted at 8% YoY decline & reseller a decline of 6%. Currently both direct and reseller volumes are declining at 9% YoY.
+ Payment Services are expected to generate 102.5m (Bill Payments 95m + mobile top up 5m + 2.6m HNGT) transactions for 18/19 vs 104.4m in
forecast.
+ Decline in ATM resulting from a decline in POCa volume of (3.5)m withdrawals, partially offset by improved ATM availability from 94% to 96%
which increases withdrawals by 2.8m YOY.
. HNGT Lite business case assumes annual benefits of £2.3m, of which £0.3m will be realised in 18/19.
+ __ New Opportunities includes; Allpay exclusive £0.2m, smart £0.1m & payout £0.1m & BT payout £0.1m. (49)
Post Office® Post Office Limited — Commercial in Confidence
POL-0023898
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ATMs £(0.5)m Income driven by 10% volume decline
ATM Volumes ATM Availability
16,000,000 100%
14,000,000 oon
12,000,000 94%
10,000,000 92%
8,000,000 aon
6,000,000 Pa
4,000,000 84%
2,000,000 82%
80%
y Ab A> ab 2 9 29 Y
Pr Pe, & oF 2s eS
© G4 e &
Fa * rc "es & - cca eo’ & 3 ra - & & & FF oF oe & &
ee Kg ¥ & & &
mmm 2017/18 FY forecast (latest) —@=2016/17 FY Actuals =@=2018/19 Budget
—@— 16/17 Actual Availability @== 17/18 Actual Availability <@== 18/19 Budgeted Availability
s Decline in ATM resulting from a decline in POca volume of (3.5)m withdrawals, partially offset by improved ATM availability from 94% to 96% which
increases withdrawals by 2.8m YOY.
Availability issues:
. Of 2,370 live ATMs 2,110 are transacting at average availability of 98.2% (i.e. 2.2% above 96% target) @ P10 17/18
. The remaining 260 ATMs have been experiencing average availability of 65%. This is primarily being driven by a high number of cash dispenser
faults and cash jams following the introduction of polymer £10 notes.
. YoY reduction (10%) is driven by POCA (3.2%), Out of Grounds ATM (2.6%) , Reduction in cash transactions (2.3%), Service issues (2%)
+ 18/19 volumes will be supported through (i) service levels to remain above 96% target, (ii) £5 note dispense on additional 300 ATMs and (iii) 50
external ATMs to be installed in WHS
Post Office®
(20)
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Post Office Limited — Commercial in Confidence
POL-0023898
POL00027257
POL00027257
Government Services (excl. Verify) continues underlying decline. \
Interest and hedge benefit from POCA offset declines but also
impacted by additional regulatory costs
ei Net Income Bridge
.
58.0 a ——
(4.9)
52.0
46.0 I
FYF 17/18 Passport Services. POCaVolume UKVI&ID Decline UKW/BRP —-POCalnterest. + POCaHedge —Digital C&S 53rd Week Budget 18/19
Key Items Dedine
+ Assumed decline of £(6.5)m for Home Office pricing announcement. Continuation of current YOY run rate of 7% decline £(1.4)m.
+ POCa Active accounts are dropping YoY by 30% due to DWP migration of customers onto basic bank accounts £(4.9)m, income from overnight
balances is up YoY by £5.0m due to the uplift in LIBOR rate in Nov 2017 (following BoE increase in base rate).
+ Current UKVI contract due to expire October 18, expected to delay until December 18 £(1.9)m, partially mitigated by £0.3m from winning the
new Front End Service. Annualised volumes will decrease from 400k to 50k, with a price change from £16 to £25 per transaction. SIA and
Secure Collect contracts expire in July18. Budget assumes that will extend for a further year mitigating £1.7m net income exposure.
+ Planning to enter a 3-year interest rate swap, Libor hedged at 0.725% across the period. Assumption that actual Libor will be at 0.5% in April
18, increasing to 0.6% in March 19, resulting in annual hedging gains of £1.5m.
+ Digital Passport implementation P7 onwards £0.8m, with assumption of 50/50 split of volume paper to digital.
(21)
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Post Office® Post Office Limited — Commercial in Confidence
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Government Services Income Graphs
450,000
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
2,000,000
1,800,000
1,600,000
41,400,000
4,200,000
1,000,000
800,000
600,000
400,000
200,000
Period1 Period2 Period3 Period4 PeriodS Period6 Period7 Period8 Period9 Period 10 Period 11 Period 12
Passports
MNEFY17/18 —e—Actuals 16/17 —@—Budget 18/19
————
Period 1 Period 2 Period3 Period 4 PeriodS Period6 Period7 Period8 Period9 Period 10 Period 11 Period 12
mmm FY 17/18
POCA
eo Actuals 16/17
e- Budget 18/19
POL00027257
®
Motoring
1,200,000
41,000,000
800,000
600,000 ee
400,000
200,000
Period 1 Period2 Period 3 Period 4 Period Period6 Period 7 Period8 Period 9 Period 10 Period 11 Period 12
MEEFY17/18 —@—Actuals 16/17 —@—Budget 18/19 —@--53rd week
Passports - Budget has been revised and shows a year on year decline of
39%. The key driver of change is the HMPO announcement on differential
pricing that makes online applications cheaper than those made through
check and send. This change comes into effect at the start of the new
financial year and will therefore impact branch volumes.
Motoring - volume decline is planned at 9% YOY, in line with current
performance and reflects the slow down in decline over the past two
years. The volume decrease is prominently led by tax discs, 10 year
renewals are planned to remain static.
POCA - volumes are planned to continue to decrease steadily as account
holders are migrated onto bank accounts
Post Office®
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POL-0023898
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POCa — Income 30% volume decline offset by £6.5m Interest uplift
following interest rate increase in Nov 17.
(Note: No changes to interest rates have been assumed in 2018/19)
Active Accounts Interest Income on O/N balances
2,000,000 1,200,000
ibor dr
1,500,000 o°-— 00-00-9995 1,000,000 iba soana tn Libor
1,000,000 ——@- = @ 800,000 100.5% poore*teccce
500,000 600,000 I
400,000 ! ‘
y Vv > & \) © “ > 2 “S) yy 07
F PP Y >, py 2” 2” 200,000 bod
-
ee & & &
2 Pp © no Ww ON NM NM dD Dw OY
2
mmm Actuals 17/18 —@—Actuals 16/17 —@—Forecast —@—Budget 18/19 YM AM MN NM ON NM NY ON OM OY ON ON EN
Ry Se we ver oy re ¥ Se
+ Active accounts are dropping YoY by 30% due to DWP migration of customers onto basic bank accounts. The rate of migration has
been less than DWP targeted and therefore they have started to target young pensioners as well as working-age customers. This will
continue throughout this year as they attempt to hit their target of 720k customers (they are currently about half way through).
+ Income from O/N balances is up YoY by £5m due to the uplift in LIBOR rate in Nov 2017 (following BoE increase in base rate) and
additional £1.5m from the interest rate swap (approved by ARC).This is also helped by total balances remaining higher than originally
forecast although this is expected to return to forecast as pensioners are encouraged onto other products.
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Post Office® Post Office Limited — Commercial in Confidence aos
POL-0023898
POL00027257
POL00027257
®
. 0, .
Passports £(0.7)m Income driven by 7% volume decline
Passport Volumes Market Share
500,000 50%
400,000 40% =
i
300,000 30%
200,000 20% — Og OO gO
100,000 aps ae
- ‘ . ‘ i “ ‘ ‘ ‘ ‘ i j 0%
Period Period Period Period Period Period Period Period Period Period Period Period au a2 a3 aa at a2 a3 a4 2018
a @ 4 2 5 a el a0 & & 2016 2016 2016 2016 2017 2017 2017 2017
mmm Actuals 17/18 —=@=Actuals 16/17 (Forecast —@=Budget 18/19 @—Post office Counter Postal a
YY 17/18 FYF 18/19 Budget
Net Income
£21.1m
£20.4m
+ Budget assumes an 8% decline in volume YOY. The current trend shows a 7% YOY decrease which has been embedded into the
plan, with a further 1% reduction derived from new Home Office digital product launches expected in 2018/19.
+ Market share of passports has continued to decline between 0.2% and 0.5% per month in 17/18, with a market share of circa 37.5%
anticipated in March 18 compared to 44% in March 2017. HMPO have announced that PMA registered companies (Photo Me,
Timpsons etc) will be able to provide digital photographs to support online applications and also that the online service will be extended
to 16 -24 year olds. Both these actions are expected to impact 2018 volumes. We expect HMPO to increase the activity to promote
online services in Q4 17/18, which may see additional pressure in 2018.
Post Office®
Post Office Limited — Commercial in Confidence
fa
YY
POL-0023898
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Identity Services revenue in line with recent volume trends
150 02 7
—
a
™ “° I
™ " I I
aad
om
00"
ue, 2407
Le weprg
coun AU,
Net Income Bridge Key Items
Overperformance expected over the remainder of 2017/18 based
on recent month revenue trends.
Level of Assurance (LOA) 2 volume growth assumed to remain
static at 31% for 2018-19.
LoA2 margin improvement of £1.45 per transaction gained via
contractual volume achievements.
LoA1 was launched in P5 17/18, budgeted consistently with recent
trends circa 2,000 transactions per week.
Verify in branch anticipated rollout in P9, dependent on digital
passport implementation in P7, benefits phased with incremental
growth, steady state is £1.5m per annum.
Volume Key Items
Verify Volume
Verify volume growth is anticipated to remain static at 31% YOY,
this is in line with current year performance.
Post Office® Post Office Limited — Commercial in Confidence
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POL-0023898
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Verify +£3.1m Income driven by 31% volume growth
LoA2 Volumes
mmm Actuals 17/18 —@—Actuals 16/17 —@—Forecast —@—Budget 18/19
80%
60%
40%
20%
0%
Verify volume growth is anticipated to continue at 31% YOY, this is in line with P1-P8
2017/18 performance.
Growth will be driven primarily by the on boarding of new services, which is handled by
Government Digital Service. Improved conversion rate is the other driver, which itself is
driven by improved and new data sources.
LoA2 is still Verify's biggest income driver, contributing 93% of Verify income since
LoA1s launch in Week 20
LoA1s launch did not have the impact anticipated on LoA2 volumes mainly because
DWP (View your state pension) service hasn't migrated away from LoA2 yet.
Conversion rate has increased YoY from 46% to 50% and is expected to reach 58% in
2018/19
PO remains market leader with circa 40% market share. We will be looking to improve
this through marketing in 18/19, with an ambition of 47% during marketing campaigns
Market Share
-—~.
—@
Ql Q2 Q3 Q4 ai aQ2 Q3 Q4 2018
2016 2016 2016 2016 2017 2017 2017 2017
—@—PO —@—Competition
fe 17/18 FYF 18/19 Budget
Net Income £4.4m £7.5m
Conversion Rate
80%
60%
40%
20%
0%
Actuals 15/16 Actuals 16/17 Actuals 17/18 Budget 18/19
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Post Office®
Post Office Limited — Commercial in Confidence
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POL-0023898
FS&T: £12m growth despite removal of BOI £(11)m and
potential risk of Telecom pricing reductions c.£(15)m which
have been mitigated
POL00027257
POL00027257
®
2018/19 2017/18
Var % Var %
£m 18/19! 7/18 var I 17/28) 46/17 Var
Mortgages 1.8 (0.3) (15.0%) Z2yil (0.6) (21.7%)
Credit Cards and Lending 8) 0.2 9.6% tbad (1.2) (41.5%)
Savings S).5) (8.0) (16.8%) 47.2 (7.5) (13.8%)
Travel Money 31.1 3.3 11.8% 27.8 0.5 2.0%
MoneyGram 25.5] (3.1) (10.8%) 28.6 (1.2) (4.0%)
Post Office Money 99.5 (7.9) (7.4%) 107.4) (10.0) (8.5%)
Banking Services 97.0 10.7 12.3% 86.3 19.0 28.1%
Telecoms 162.8 13.2 8.8% 149.6 19.5 14.9%
Postal Orders 72,5} (2.2) (15.3%) 14.5 (4.0) (21.7%)
Other Income (0.3) (1.5) (127.8%) 1.2 (0.1) (5.6%)
FS&T 371.3I 12.2 3.4% I 359.1 24.3 7.3%
Savings - £9.5m reduction due to no Bank of Ireland income support not continuing into 2018/19 (Savings value share &
no Savings guaranteed income). Negotiations with Bank of Ireland are ongoing. Additional shortfall in other income for
£1.5m brings impact to £11m revenue shortfall y-on-y.
Moneygram - decline in volumes anticipated to continue into 2018/19. Our international money transfer contract is up for
renewal in 2018/19 and options being explored to mitigate downside risk.
Banking Services - £2m inflationary rate increase and continuing growth in Banking Framework (£7m) and 53" week
(£1m).
Telecoms - Impact of OFCOM pricing £(15)m mitigated by various initiatives (e.g. offering broadband, renegotiating
supplier contracts).
Post Office®
Post Office Limited — Commercial in Confidence
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Post Office Money: Bank of Ireland Savings and Value Share
reductions drive significant year on year reductions
110
29 ia
100
&m
95
2017/18 Moneygram Travel Money Week 53 Customer Hub BO! (no savings / value 2018/19
share)
Key Items
+ Moneygram year on year decline is a continuation of the current volume and value trends. No uplift included for any potential
mitigation through contract renegotiation.
+ Travel Money increase is due to higher transaction volumes, albeit at a lower average transaction value following the Anti
Money Laundering regulations.
* Customer Hub is anticipated to deliver incremental revenue from the initial product launches.
+ The impact of the BOI! Income support (value share, guaranteed minimum savings commission) is not continuing into 2018/19.
Negotiations with BOI are ongoing. Additional £1.5m shortfall in Other Income brings BOI impact to £11m.
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Post Office® Post Office Limited — Commercial in Confidence
POL-0023898
POL00027257
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Banking Services: Inflationary increases and continuing
growth from the banking framework agreement
100
13
—
95
90
2.0
= La
85 +
80
2017/18 Inflation Travel Money New Banks Week 53 2018/19
Key Items
* £2m Inflation is the impact of the contractual RPI increase (3% assumed) on the rate card which we charge to the banks.
+ Growth trends are driven by further bank closures and more customers using the service, including business banking.
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Post Office® Post Office Limited — Commercial in Confidence
POL-0023898
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£10m growth in Telecoms revenues despite c.£(15)m from
Ofcom price ruling
£m
165
160
155
150
145
140
135
130
Key
3.2
Se m7
68 I
1
: : : i a
2017/18 Closing Run Rate & Underlying decline in Annual Price Increase Impoact of Ofcome Mitigiatioin of Pricing Growth from Week 53 2018/19
New Call customer numbers Pricing Impact Marketing
Items
The full year impact of the New Call / Fuel acquisition (completed P4 2017/18) is £3.8m in 2018/19.
Telecoms numbers, particularly Homephone, are facing underlying decline, with a £(6.6)m impact in 2018/19 offset by £7.1m
incremental revenue from the annual price increases.
Impact of Ofcom price ruling is offset by mitigating actions.
Incremental marketing activity is driving £3.3m of revenue from additional customers.
Post Office® Post Office Limited — Commercial in Confidence
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re)
Strategic context and priorities
Overview of 2018/19
Income
Costs
FTE
POMS
Risks and Opportunities
Capital and Investment Spend
8600000
Cashflow and Headroom
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Post Office Limited — Commercial in Confidence
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Net Income margin remain stable due to changing product
mix
2018/19 Var
Comments
Rev cos Margin % Margin Lai Sos Margin % Margin ; .
fat Ted a a ee * Net margin remains stable at 87%.
Mail Non-Trading 55.8 55.8 100% (4.0) - (4.0) . .
Retail and Lottery 39.0 11 379 97% (5.2) 31 (24) 7% Retail
Payment Services 58.0 58.0 100% 0.0 00 0.0 0%
Government Services 86.4 22.1 64.3 74% (5.8) 3.7 (2.0) 2%
Retail 527.6 23.2 5045 96% 11 68 8.0 1% ¢ Retail reflects the new WHS contractual
Mortgages 1.8 - 1.8 100% (0.3) - (0.3) a .
Cet Cards and tending 8 ae ee arrangement and assumes a sales uplift
Travel Money 31d 311 100% 3.3 3.3 of 40% due to new fit out and product
MoneyGram 25.5 25.5 100% (3.1) (3.1)
Post Office Money 99.5 - 99.5 100% (7.9) = (7.9) - range.
Banking Services 97.0 13 95.7 99% 10.7 (0.2) 10.4 (0%)
Telecoms 162.8 92.6 70.2 43% 13.2 (10.9) 23 (2%) . .
Postal Orders 123 01 122 -99% «= (2.2) 0.0 (2.2) (0%) * c.£3m reduction in revenue and cost of
Other Ir (0.3) ” (0.3) 100% (1.5) ~ (1.5) . woe +
— 371.3 94.0 277.3 75% 12.2 (44.4) 11 (2%) sales (minimal EBITDAS impact) as we
POMS 57.9 8.5 49.4 85% 8.7 (0.2) 8.6 2% os . .
Supply Chain 10.9 10.9 100% 0.0 0.0 : move to recognising commission only.
Other Income 3.6 - 3.6 100% (0.0) (0.1) (0.1) (3%)
Total 971.3 125.7 845.6 87.1% 22.1 (4.5) 17.5 (0%) FST
Baur \ * Growth driven by Telecoms at lower at
“ a margin impacts overall POL position.
£840 2 —_
2017/18 LAL
Government Services
WHS Contract Change
Other Retail
Post Office Money
‘Banking Services
8
Postal Orders,
Poms
Other
2018/19
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Post Office Limited — Commercial in Confidence
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860000
Strategic context and priorities
Overview of 2018/19
Income
Margin
FTE
POMS
Risks and Opportunities
Capital and Investment Spend
Cashflow and Headroom
Post Office®
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Post Office Limited — Commercial in Confidence
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Cost control maintained but planned investment in marketing
and POMS growth plan
Agents Pay
Expenditure by Cost Area a “a ci tigi set ;
« Reduction in agents pay with simplification savings
450 offsetting incremental costs from changing network
400 shape. Changing revenue mix drives year on year
364 369 improvement
350
= 300 274 974 274 Staff Costs
“4250 * 3.0% payrise assumption impacts by c.£5m partially
200 182 184 5 offset by £3m pension saving.
150 * £8m benefit from franchising DMB network (offset by
400 increase in agent pay)
so * £4m Incremental investment to fund skills gaps
= Ss identified.
Agents Pay Staff Costs Non Staff Costs Growth Fund* Non Staff Costs
2018/19 m2017/18 m2016/17
* Marketing and growth spend, including a £10m growth
* Adjusted to include release of Growth Fund in 2017/18 fund (2017/18 estimated to be c.£5m) and £5m of
incremental marketing year-on-year.
* Significant IT cost reductions of c.£9m.
* Increase in regulatory costs from POCA monthly
statements £6m
ey
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POL-0023898
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Agents Pay: Reduction of £5m from £369m to £364m despite
increased revenue volumes and additional trading week
370 Fixed Variable
Movements
1 ome « NT conversions planned for next year include
ae 70 locals and 30 mains. Fixed cost savings
expected to be c. £1.3m
360 ¢ National Insurance will continue to fall in line
with the network transformation, but at a
slower rate as we convert contracts from a
355 C2l basis to C2C
Trading mix — £9.0m reduction in government
(POCA) and lottery variable costs
350
NI
Mix
Other
Savings from simplification broadly offsets
the incremental cost from changing the
network shape through further franchising.
2017/18
NT Programme
Outreaches
Simplification
NT Programme
cND
Programme
Week 53
2018/19
°
2018] 2017 2016 ,
/19 /18 /17 + Variable costs are now 87.2% of overall
Fixed 46.5] 48.9 59.2 agent spend as we continue to move from
Variable 317.2] 319.6 328.8 fixed to variable.
Total 363.7] 368.5 388.0
Fixed % 12.8%I 13.3% 15.3%
Variable % 87.2%I 86.7% 84.7%
©
Post Office® Post Office Limited — Commercial in Confidence
POL-0023898
Agents Remuneration — YOY By Pillar
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Pillar
Mails
A. Icovernment Services
17/18 F
18/19B
Agency Remuneration
Week 53
Budget
Adj for
52wks
Adjusted
Budget vs
17/18 %
0.1%
Net Income (Wk 52)
Budget vs Budget vs
17/18 (£)
17/18 %
2.0%
+ Mails — agents remuneration increasing less than income as it includes £5.0m of simplification
. Government Services — agents remuneration reduction led by passports (31%) YOY and anticipated loss of UKVI contract
. Payment Services — agent remuneration reduction led by reduction in rates due to contract renewals.
28.7 24 (7.7) (0.1) 21.0 (27.0%) (15.5) (25.0%)
Payment Services 25.7 248 (09) (0.5) 24.3 (5.4%) (1.1) (3.3%)
Retail & Lottery 24,7 22.9 (1.8) (0.4) 22.5 (9.0%) (28) (10.7%)
FS 60.4 578 (2.6) (1.1) 56.7 (6.2%) (3.7) (1.89%)
Poms 2.0 2.2 02 (0.0) 2.2 10.0% 85 20.7%
Telco 12 13 o1 (0.0) 13 8.8% 17 5.2%
Total Variable Rem 319.6 310.6 (9.0) (5.6) 305.0 (4.6%) (0.2) (0.0%)
Fixed 48.9 46.5 (2.4)
Total Fixed Agents Rem I 48.9 46.5 (2.4)
CND Programme 0.0 53 53
INT Programme 0.0 13 13
Total Agents Rem 368.5 363.7 (4.8)
. Retail & Lottery -reduction in agents remuneration driven by decline in Camelot volume, increase in gift card remuneration basecbn 10% expected
growth.
. FS&T — Agents remuneration falling faster than income led by mix, driven by Moneygram & Banking Services volumes.
Post Office®
Post Office Limited — Commercial in Confidence
A Government services income has been adjusted to remove POCa interest income which doesn’t attract agents pay.
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POL-0023898
Fixed Agents Remuneration By Component
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. 18/19 B
Fixed Remuneration Typ 18/19B 17/18F Var : :
Community
3
Assigned Office Payment 12
A
Le
[3
te]
Overscales
Holiday &Sickness Substitution I a
hard to place branches.
The £15.8m associated with hard to place branches is the future focus for
cost reductions to fixed agents remuneration.
Fixed Programmes -2.0
Overlays
Traditional branches -0.1
——- ; : ‘01 : Ol
The £46.5m fixed agents remuneration budget is built from £23.7m
community costs, £7.1m of income related Mailwork costs and £15.8m from
Fixed Remuneration Type 18/19 B £m
Fixed agents remuneration is
decreasing £2.4m YOY to £46.5m
ND/NT conversions planned for next
year include 70 locals and 30 mains.
Fixed cost savings expected to be c.
£1.7m
Planned to increase wage cost for
outreaches by 10% in H2 18/19
(£0.3m), this is due to a pay freeze
since 2013
National Insurance will continue to fall
in line with the network transformation,
but at a slower rate as we convert
contracts from a C2I basis to C2C
Post Office®
Post Office Limited — Commercial in Confidence
Community PANTS
Income Related (Mailwork) 7
Hard to Place Branches 15.8
Total 46.5
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Staff Costs reduced by £2.4m as DMBs continue to be
franchised. Investment in POMS to support future growth.
Wages and Salaries
£'m 2018/19] 2017/18 Var
Wages & Salaries 137.7 128.2 (9.4) Includes 3 % payrise assumption impact ceo.
‘I * Incremental investments of c£4m to fund skills
Pension 12.4 16.1 3.7 ; yeaa 4 en
I gaps currently identified in the organisation. £2m
Overtime . 5.9 48 (1.1) incremental support for Marketing heads.
Bonus & Productivity 14.0 13.7 (0.3). ¢1m increase in Central Staff costs due to
Employers NI 15.4 17.3 1.9 payrise partially held centrally awaiting final
Contractors & Temporary Resource 1.2 48 3.6 decision.
Staff Costs Efficiency Target (4.6) (0.6) 4.0 Pension
Staff Costs 181.9 184.3 2.4 + £3m reduction following the removal of the 1
Retail 763 83.6 73 4 htt following the closure
FS&T 10.6 11.3 07, wie B seems.
. . “" «Pension autoenrolement has limited impact in
POMS 74 4.2 (3.2) the current year.
Finance & Ops 51.6 51.5 (0.1) Bonus
CEO 0.4 0.3 (0.0) . Budget for STIP and LTIP consistent with current
clo 6.2 5.0 (1.2) year.
Strategy 0.6 0.6 0.0 Employers NI
LRG 6.0 5.6 (0.4) + Benefit from Network Transformation (Costs
HR 18.1 18.3 0.2 moved from Salaries to Agents Pay).
Communications 1.6 1.6 (0.0) Efficiency
Central 3.1 2.2 (0.9) ° £4.6m efficiency target to be identified in budget
Total 181.9 184.3 24 and detailed planning (primarily Finance & Ops).
(38
Post Office® Post Office Limited — Commercial in Confidence Wool
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£2m decrease in staff costs to £182m.
192
190
188 4
5
186
184
£'m
w
Bb
Bb
182
180
178
176
Ey 2 < 2 < © 2 4 0 . a
gs i 5 & 3 5 a %2 £ 2S 8 a 9
g as ) a9 2QeEg a= os ee x = Py
5 3 25 i 4 =s8 bo 6 ESS eS © 6 =)
2 a Ps ESS oe 3
=< o & - =g 5636 roars 2a 26 o
> =e 4 ao@ aga Sy 6° za 2
& 2 s = 26 Ee
Pay award at 3% c. £5m impact
Pension Savings of £3.2m following removal of 1 year uplift in 2017/18 following the closure of the Defined Benefit scheme.
Skills Gap Investment £4.0m to support Retail £1.4m, Digital Capability within FST £1.1m, F&O £1.0m for Supply Chain (revised
structure post OSOP) and LRG £0.5m for compliance team currently not resourced.
DMB Conversions savings of £8m (offset by incremental agents pay £6m)
IT £1.0m to bring security team inhouse as part of continuing IT transformation programme.
POMS £3.3m investment in POMS heads to support the investment business case. (30)
Post Office® Post Office Limited — Commercial in Confidence
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Non Staff Costs
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Consultancy & Advisory Costs
£'m 2018/19) 2017/18 Var
Staff & Agency Related Costs 10.3 10.2 (0.1) * Incremental contractual costs as part of the Bank
Consultancy & Advisory Services 9.6 3.6 (6.0) of Ireland agreement.
Brand & Marketing 22.8 18.2 (4.7) Brand and Marketing
Legal Costs 2.3 3.0 0.7» £4.7m increases in marketing includes:
Property & Facilities Management 40.1 41.9 1.8 + £4m to support POMS growth plan
Vehicles 41 37 (0.4) * £2m support for customer hub
IT Infrastructure & IT Services 86.0] 968 108 ania i
Finance & Losses 29.4 26.0 (3.4) * £(1)m reduction driven by customer insights
Other Operating Costs 79.1 72.6 (6.5) * Additional £5m increase in Growth Fund (Other
Non staff Costs 283.8 276.0 (7.8) Operating Costs) supports overall investment.
Retail 43.9 37.4 (6.5) —‘'T and Infrastructure
FS&T 47.5 41.4 (6.1) * Continuing cost savings from the IT
POMS 217 16.5 (5.2) transformation programme.
Finance & Ops 70.5 70.5 0.1 Other Operating Costs
CEO 0.0 0.0 (0.0) * Significant increase driven by POCA regulatory
clo 83.2 93.7 10.5 requirement to deliver monthly statements £6.3m
Strategy 0.2 0.1 (0.1) Growth Fund
LRG 3.0 34 0.1 * Growth Fund currently maintained at £10m in
HR. 6.5 63 (0.2) 2018/19 (2017/18: c.£5m).
Communications 3.2 3.2 (0.0)
Central 41 3.7 (0.3)
Total 283.8 276.0 (7.8)
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Non-staff costs increase £8m, but includes significant e
marketing investments, support for POMS investment case
and regulatory increases from POCA statements.
300
- oe
; os I .
285 as a 2
. oe
275
£'m
270
17/18 a
POCA
Card
Bol
Week 53
Other
18/19
Processing
Poms
Investment
Case
Growth Fund
Marketing
Investment
* POCA costs of £6.3m following the requirement to deliver monthly paper statements and technology
refresh.
+ Marketing increase to support POMS investment growth plan, customer hub and incremental Telecoms
volumes. Growth fund held at £10m (£4m challenge to reduce gross marketing increase).
¢ IT Transformation continuing significant cost savings from the IT transformation programme.
(ay
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Post Office® Post Office Limited — Commercial in Confidence
POL-0023898
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Strategic context and priorities
Overview of 2018/19
Income
Margin
Costs
POMS
Risks and Opportunities
Capital and Investment Spend
Cashflow and Headroom
Post Office®
(a)
Y
Post Office Limited — Commercial in Confidence
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FTE reductions driven by continuing programme to exit
DMB’s via franchising and temporary operators
™ 18 20 bi ao 16 12 770
4,200 a ===
4,100
4,000
3,900
3,800
FTE
3,700
3,600
3,500
3,400
3,300
~ A
17/18
Projects to
BAU
Marketing
Investment
clo
Inhousing
Mortgage
Specialists
Identity
Services
Poms
Investment
Exiting
DMBs*
Some planned investments in the year;
* c.18 heads identified as currently being project funded and moving to BAU
* Marketing increase to support POMS investment growth plan and move to digital capabilities. Current
marketing is under resourced.
* ClO continue to reduce overall cost base by in housing activities.
* Removal of mortgage specialists reduces FST headcount
* Investments to support Identity Services growth and POMS
(a)
Y
Post Office® Post Office Limited — Commercial in Confidence
POL-0023898
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Strategic context and priorities
Overview of 2018/19
Income
Margin
Costs
FTE
Risks and Opportunities
Capital and Investment Spend
600
Cashflow and Headroom
Post Office®
(a)
Y
Post Office Limited — Commercial in Confidence
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POMS — Exec Summary
®
18/19 will see POMS continue it’s transition. We will leverage developments delivered in
2017/18 and increase investment in product, pricing and direct sales capability. Each will
deliver benefits in year and provide a platform for long-term growth. We will being the
transformation of a new Home insurance model.
= POMS has 3 strategic objectives:
= Business Operating model designed for customer — led growth
= Distinctive customer offer
= Scalable customer management and distribution engine
= Our business operating model has evolved rapidly with Travel and Protection businesses being re-engineered generating
£5m of additional revenue from 16/17 to 17/18 after absorbing the losses arising from the removal of Financial Specialists
= It includes a number of new and previously untested initiatives which are forecast to achieve in year payback. The bottom
line impacts of these will be proactively managed through a series of test and learn activities with focus on hitting the
EBITDA target
= We will continue to organise the business to capitalise on the capabilities delivered by Project Zeus (Policy Admin
Platform) and Hera (Protection business model) as well as commence the development of a replacement Home insurance
business model
= Together with the development of our new Home insurance model, the investments support our growth ambitions and
drive revenue and group EBITDA contribution to £77.3m and £41.1m respectively (up 89% and 103% compared to
2017/18) by 22/23 whilst maintaining our group contribution of £20.3m in 18/19.
= As a result of proposed CAPEX spend a further capital injection will be required to ensure sufficient regulatory capital is
maintained (£5m in 18/19, £2.5m in 19/20)
= The submission aligns to the POMS 5 year growth plan
Post Office® Post Office Limited — Commercial in Confidence
()
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POMS -— Net Income Trajectory
22/23 v 16/17 CAGR
75 Headline +13%
Underlying +14%
65
55
45
35 ae
25
16/17 17/18 18/19 19/20 20/21 21/22 22/23
jm Underlying = Mortgage Specialists Financial Specialists
+ POMS has faced trading headwinds from the loss of Financial and Mortgage Specialists.
. Underlying income growth between 16/17 and 18/19 is +42%
. New Home model delivers 50% improvement in home margin from H2 19/20
. Underlying portfolio growth delivers increased re-occurring income from 19/20
. Optimised marketing investment and pricing supports on-going growth throughout the planning period
. Improved CVM generates £2.5m of income in 19/20, rising to £11.8m in 22/23
*Net Income is commission income and profit share less Cost of Sales (predominately aggregator costs) i>
a,
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POMS - Operating Costs Trajectory
40
22/23 v 16/17 CAGR
Headline +11%
35
30
25
20
15
10
16/17 17/18 18/19 19/20 20/21 21/22 22/23
+ Operating costs increase by £8.4m (+41%) 18/19 versus 17/18. This represents the investment in business
capability and marketing
* Cost growth beyond 19/20 (post launch of new Home model) is 5% PA
)
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POMS - Group EBITDA Trajectory
45
22/23 v 16/17 CAGR
4o Headline +13%
Underlying +16%
35
30
25,
20
1.6
15
10
16/17 17/18 18/19 19/20 20/21 21/22 22/23
I Underlying ™ Mortgage Specialists Financial Specialists
Underlying EBITDA growth between 16/17 and 18/19 is +21% during a year of transition.
Post the migration of Home from BGL in September 2019, EBITDA growth is driven by CVM and margin enhancements
from the new model
()
Post Office® Post Office Limited — Commercial in Confidence
POL-0023898
POMS Budget Submission Summary
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£m
Gross Income
Cost Of sales
Net Income
People Costs
Staff & Agency Related Costs
Consultancy & Advisory Services
Brand & Marketing
Legal Costs
IT Infrastructure & IT Services
Finance & Losses
Other Operating Costs
Non-Staff Costs
Operating Costs
Group EBITDAS
POL Commision & MSA
POMS EBITDAS
2018 / 19 Budget Summary
2016/17 2017/18
Act
43.0
(5.5)
37.5
(3.3)
(0.2)
(0.4)
(3.0)
(0.0)
(0.6)
(0.9)
(9.4)
(14.6)
(17.9)
19.6
(11.8)
7.8
%
18%
3%
21%
(80%)
(56%)
1%
(129%)
(146%)
(19%)
11%
(4%)
(31%)
(41%)
0%
(22%)
2018/19 IFY Budget V 2017/18
5+7 FY Budget £m
49.2 57.9 8.7
(8.2) (8.5) (0.3)
40.9 49.4 8.5
(4.2) (7.6) (3.4)
(0.4) (0.6) (0.2)
(0.7) (0.7) 0.0
(3.3) (7.5) (4.2)
(0.1) (0.1) (0.1)
(1.7) (2.0) (0.3)
(1.0) (0.9) O41
(9.4) (9.7) (0.3)
(16.5) (21.5) (5.1)
(20.7) (29.1) (8.4)
20.2 20.3 0.4
(12.7) (15.6) (2.9)
7.5 4.7 (2.8)
(37%)
Group EBITDA is held flat with investment
driving revenue growth and returns in future
years.
Net income is +£8.5m with growth driven by:
= Protection +£4.0m
= Travel +£5.2m
= Home +£0.7m
= Motor £(1.4)m
Post Offices investment in a number of
initiatives supports delivery of increased
revenue;
= Customer Hub
= CRM’s
People Costs are +£3.4m due to higher head
count with investment in marketing and
underlying capability.
Non-Staff costs are +£5.1m due to marketing
costs +£4.2m.
Business acquisition and new __ product
solutions remain under consideration and_offer
further growth potential 49
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EBITDAS in line with current year but investment of £8.5m to
support longer term growth.
35.0
30.0
52
25.0
6.2
(5.1)
200 elle
20.2 20.3
15.0
Ao o we ee o@h got oe as et ye
at oy 42 eo" ws wi oo oo ov agt
aid orr® e at ot
e pet® or gut
Protection income growth is driven by a combination of improved margin, expanding distribution (Aggregators and DRTV) and new
product initiatives (Easy Life)
Travel income growth is driven by additional marketing activity (including investment fund initiatives) coupled with distribution, product
and pricing actions
22 new hires in the year of which 10 are dedicated POMS staff in Post Office marketing team
Non-staff costs are driven by increased marketing costs (+£4.2m)
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POMS Resourcing Plans
80
The submitted budget includes 22 new hires (10 Marketing and 12 POMS)
10 Dedicated POMS Central Marketing Staff (£0.7m).
These staff allow POMS to deliver budgeted revenue (campaign delivery). The staff are split into Digital Optimisation,
SEO and CVM/ Lead capture. These staff will generate revenue with a life time value of £2.9m in 18/19
The POMS resource (annual cost £1.2m) is made up of:
+ 4 Pricing — for Travel and Home, pricing optimisation
+ 2 Marketing Analysis and Marketing Executive, 1 role held over from 17/18
* 2CVM-data analytics, cross product holdings etc.
* 2MlI-dedicated POMS MI team, current model not fit for purpose
* 1 Customer Proposition Manager (Product)
+ 1 Finance / Ops — focus on Duck Creek controls / recs
7 hires are in the plan for 20/21, then no further hires are anticipated.
Resourcing Costs
. I = I =
40 Er)
n
20
C) “ “ . i
1718 18/19 hires 18/19 - 19/20 20/21 hires 20/21 a va
ay,
Post Office® Post Office Limited — Commercial in Confidence
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POMS Non Staff Costs — YoY Movement
200 I +25, 1h
180
170
—s (0.4) 04
160
8 so « °
a " fad oo »* Cal wl Preid ww
SS
a gh’ i oe oe?
® ae wa Pr) a 8
gost * rad oo oo?
x a on
Key Items
+ Total year on year increase is £5.1m of which marketing is £4.2m. Increase supports revenue growth of 21%, see next slide for
full analysis of spend.
+ Other Operating costs and IT are volume related variable costs.
(52)
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Post Office® Post Office Limited — Commercial in Confidence
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POMS 18/ 19 Marketing Costs
£000s
Direct Channel Var vs
Branch Mail/EDM Search Web Expansion DRTV TOTAL 17/18
Travel 455 25 1,009 465 1,369 3,323 1,712
Over SOs 45 150 30 1,380 1,605 1,417
Life 200 25 200 510 650 1,585 1,018
Car 20 409 60 489 (151)
Home 25 353 60 438 116
Minor Products 22 75 97 133
767 962 1,404 975 2,049 1,380 7,537 4,245
Key Items
. Branch — covers in-branch leaflets and application packs along with campaign collateral for Travel and Life.
° Direct Mail / EDM — regular GI renewal mailings, plus 121 activity across Life and Travel and any costs associated
with lead-capture not already covered in the project.
. Search — included branded search, generics and SEO investment.
. Web — non-search media costs for display and social, conversion rate optimisation.
. Channel expansion — building on learnings from 2017 up-weighted marketing investment to support growth plan
including test and learn.
. DRTV -— this spend is subject to the results of the test and learn activities in Q4 17/18
(53)
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Post Office® Post Office Limited — Commercial in Confidence
POL-0023898
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Strategic context and priorities
Overview of 2018/19
Income
Margin
Costs
FTE
POMS
Capital and Investment Spend
oo
Cashflow and Headroom
Post Office®
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The 2018/19 budget plan is balanced through control over
expenditure on the Growth Fund
Area Total Weighted Comment
Risk Risk
Retail
FS&T 1.0
POMS 5.0
clo -
F&O 4.0
Total 14.5
Growth Fund (5.0)
Net 9.5
Key Items
. Net Risk identified of c.£5m.
1.0
2.5
2.0
7.7
(2.5)
5.2
Passports decline, Mailwork negotiation, Disintermediation
Current challenge to be identified
Trading risk due to growing activities from untested markets. Could be
mitigated through reducing investment but this would impact longer term
growth.
Detailed plans for savings delivery being finalised. Planning session on 20*.
Ungrounded plans for efficiency in H2 plus underlying trends
Investment could be held back to hit targets if trading results not
achieved.
. Budget excludes any benefits from potential negotiations with Bank of Ireland or potential increase in Interest rates.
Post Office®
Post Office Limited — Commercial in Confidence
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A
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Strategic context and priorities
Overview of 2018/19
Income
Margin
Costs
FTE
POMS
Risks and Opportunities
oe
Cashflow and Headroom
(56)
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Post Office® Post Office Limited — Commercial in Confidence
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The budgeted change spend for this year is £255m
Simplify the retailer proposition £55m to £65m
Build innovative, flexible and secure IT £80m to £90m
Modernise our products and services £70m to £80m
Digitise and optimise the business £15m to £20m
Modernise our skills, culture, HR policies and processes £4m to £6m
Regulatory & Group Litigation Costs £11m to £14m
TOTAL £235m to £275m
The anticipated spend profile is:
100
: '
BO '77m to 87m.
tL =
60 —PSsseess—— H '58m to 6sm }
. New Projects
49
~ I
o
™ Carry Forward
@
Post Office® Post Office Limited — Commercial in Confidence
POL-0023898
The following projects deliver in year benefit and are key to
delivery of 2018/19 budget target
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2018-19 In-Year
trategic Priorit
Simplify the retailer proposition
£61.5m £11.8m
- Further franchising DMBs £22.8m £1.6m
- Network Expansion £18.7m £2.0m
- Multi-year Crown Projects £17.9m £8.1m
- Self Service Kiosk Rollout £2.0m £0.1m
Build innovative, flexible and secure IT £33.8m £7.3m
sd Branch Printer Replacement £3.6m £0.5m
- CDP re-procurement £1.4m £0.5m
- EUC Branch Deployment £6.4m £0.6m
. HNGT Lite £1.8m £0.9m
- PCI/Payments Hub a Over
. Project E t— Cloud bl t £15.2m £4.0m
rojec verest — Cloud enablemen £2.5m £05m
- Project Nelson £0.4m £0.1m
- Software Asset Management
Modernise our products and services £19.7m £17.1m
= POMS Investments £11.3m £4.6m
= Project Galaxy £4.8m £11.6m
- Falcon — Travel Hub £3.6m £0.9m
Digitise and optimise the business £0.3m £3.5m
- Success Factors Ph1 Completion £0.3m £3.5m
Modernise our skills, culture, HR policies and processes £6.0m £0.5m
= Back Office Transformation £6.0m £0.5m
Group Litigation (Group Litigation costs will be reported as exceptional spend and will not impact EBITDAS.) £9.0m (£9.0m)
TOTAL £130.3m £31.2m
Post Office® Post Office Limited — Commercial in Confidence Vol
POL-0023898
Further key investments required to secure the current
income stream (income protection) or contribute to the future
profitability beyond 2018-19.
POL00027257
POL00027257
®
Strategic Priority pe MAY
Simplify the retailer proposition £6.0m
- Agents/Postmasters Portal £6.0m TBD
Build innovative, flexible and secure IT £20.5m
- Full Thin Client Deployment (Solar Full) £9.0m TBD
- End-of-Life Replacements £4.0m TBD
- Risk & Resilience £7.5m TBD
Modernise our products and services £46.7m
= Identity Services Investment £11.4m £25.5m
- Banking Framework — Future of Cash incl. vehicles £10.0m £1.1m
- Mails Projects £8.0m ae
- Falcon — Additional Verticals £11.3m :
P £6.0m TBD
- roperty
Digitise and optimise the business £15.5m
- Enabling supply chain and back office improvement £12.0m £2.0m
- Project Arrow (BI Strategy) £3.5m TBD
Regulatory & Group Litigation £4.0m
- GDPR £4.0m (£4.0m)
TOTAL £92.7m (£17.2m)
(59)
Post Office® Post Office Limited — Commercial in Confidence Vo
POL-0023898
POL00027257
POL00027257
re)
Strategic context and priorities
Overview of 2018/19
Income
Margin
Costs
FTE
POMS
Risks and Opportunities
Capital and Investment Spend
Post Office®
(60)
©)
Post Office Limited — Commercial in Confidence
POL-0023898
POL00027257
POL00027257
®
Headroom held at >£200m at month end but is likely to
breach intra month during Christmas trading
Cash and Loan + The current budget on cash includes the
1,200 following assumptions:
1,100 . .
SSA eee enn e rts. -_ = Government funding will be drawn down on a
1,000 7 .. quarterly basis in line with the proposed
900 spending pattern.
800
& 700 = Banking Framework is assumed to require
foo and additional £36m of cash in the network
ou (future of cash paper is still in development)
400 = Branch holdings are reduced down to £450m
300 by end of year. 2017/18 average ytd is
P1 P2 P3 P4 PS P6 P7 Ps Po P10 Pil P12 c.£550m.
2018 2018 2018 2018 2018 2018 2018 2018 2018 2018 2018 2018
—==Gross Cash 18/19 Loan 18/19 —=—=Gross Cash 17/18 Loan 17/18 . Cash centre balances are held at current
levels (subject to seasonal fluctuations)
Nethunding * Change spend at £255m is offset by
a. government funding of £228m (Subsidy:
00 £60m and Change: £168m).
850 + EBITDAS of £50m will fund movements in
eo working capital, finance costs and
a a continuing pay down of provisions.
650
600
550
500
P1 P2 P3 P4 PS P6 P7 Ps PQ P10 Pil P12
2018 2018 2018 2018 2018 2018 2018 2018 2018 2018 2018 2018
—Net Funding 18/19 ——Net Funding 17/18
@
Post Office® Post Office Limited — Commercial in Confidence
POL-0023898
POL00027257
POL00027257
®
Cash Efficiency improvements and EBITDAS generation
will drive reductions in Net Funding Position
£m
(500)
(550)
(650) 60
(700)
™ Zz
—.»—
(800) a 36
248 7
(850) 50 5 20 73
(900)
Net Funding EBITDAS (Cash) Investment Network Subsidy Change Spend Finance Costs Working capital - Working capital - Cash Efficiency Banking Network Cash Net Funding
bifwd Funding Payment client related non client related Improvements Framework (Other)
The current budget on cash includes the following assumptions:
* Government funding will be drawn down on a quarterly basis in line with the proposed spending pattern.
= Banking Framework is assumed to require and additional £36m of cash in the network (future of cash paper is still in
development)
= Branch holdings are reduced down to £450m by end of year. 2017/18 average ytd is c.£550m.
= Cash centre balances are held at current levels (subject to seasonal fluctuations)
Change spend at £255m is offset by government funding of £228m (Subsidy: £60m and Change: £168m).
EBITDAS of £50m will fund movements in working capital, finance costs and continuing pay down of
provisions. (62)
Post Office® Post Office Limited — Commercial in Confidence WY
POL-0023898
POL00027257
POL00027257
®
Balance Sheet
2018/19 2017/18 Var
£m
Fixed Assets 569.5 477.1 92.4
Cash 570.5 588.3 (17.7)
Stock 7.2 7.2 -
Pension Surplus 2.6 1.8 0.8
Debtors (excl. Clients) 201.3 212.2 (10.9)
Creditors (excl. Clients) (246.7) (256.0) 9.4
Client Debtors 147.4 147.4 -
Client Creditors (312.2) (307.4) (4.8)
Provisions (49.8) (63.6) 13.8
Loan (568.0) (586.3) 18.3
Net Assets / (Liabilities) 321.8 220.6 101.2
Capital and Reserves 321.8 220.6 101.2
*« — Minimial movements in balance sheet anticipated excluding the impact of change spend. Capital element
only £160m offset by depreciation of c.£67m.
(63)
©)
Post Office® Post Office Limited — Commercial in Confidence
POL-0023898
Appendices — P&L by Product
POL00027257
POL00027257
@
66660000600 60080
Mails
Retail
Other Retail & Lottery
Payment Services & ATM
Government Services
Identity Services
Mortgages
Cards and Lending
Savings
Travel Money & Fres
Moneygram
Banking Services
Telecoms
(a)
YY
Post Office®
Post Office Limited — Commercial in Confidence
POL-0023898
POL00027257
POL00027257
®
Mails is expecting to deliver income and EBITDAS growth in 2018/19
£m
Gross Income
Direct Costs
Mail Trading Income
Parcelforce
Special Delivery
International Priority & Standard
Stamps (1st & 2nd)
Labels (1st and 2nd Class)
RM Signed For
Home Shopping Returns
Other Trading
Mail Fixed Income
Fixed Fee
Mailwork
Net Income
Variable Agents Pay
Staff Costs
Non-Staff Costs
Consultancy & Advisory Services
Brand & Marketing
TT Infrastructure & IT Services
Other Operating Costs
Expenditure
EBITDAS
2018 / 19 Budget Summary - Mails
2017/18
FYF
332.1
2018/19
FY Budget
341.2
*Includes total staff costs for Mails, Retail and Lottery
FY Budget
vs 17/18
91
Week 53
5.4
2018/19
Budget adj
for 52 wks
335.8
Adjusted
Budget vs
17/18
1%
6%
0%
4%
6%
2%
3%
23%
0%
-8%
0%
1%
-2%
-37%
45%
19%
-199%
20%
0%
Mails EBITDAS is up £4.8m YOY to £157.2m
Despite contractual reductions of £4m,
Mails net income is +£12m YoY due
mainly to RPI (£7.7m), now confirmed at
net 3% (RPI-1%) and benefit of 53¢
week (£5.4m).
Excluding these benefits, underlying
income and EBITDAS are flat, reflecting
the change in mix (fewer letters, more
parcels)
Variable Agents Pay is +£7.5m on 17/18,
of which £3.3m relates to the 53% week.
The balance reflects the move from fixed
to variable costs resulting from DMB
closures and change in agent contracts.
Staff costs are +£0.2m on 17/18 due to
personnel transferring from projects
back to BAU.
IT costs reflect inclusion of £0.1m for
ongoing maintenance of Drop & Go.
Favourable £0.5m variance in Other
Operating Costs is due to a one-off loss
(fraud) on Parcelforce in 17/18.
Post Office®
Post Office Limited — Commercial in Confidence
(65)
©)
POL-0023898
Retail
POL00027257
POL00027257
®
2018 / 19 Budget Summary - Retail
ém 2017/18
FYF
Gross Income 79
Direct Costs 42
WHS Retail Sales
Royal Mint -
Net Income 37
Non-Staff Costs
Consultancy & Advisory Services 0.1
Legal Costs 0.1
Other Operating Costs 0.3
Expenditure os
EBITDAS 3.2
*Staff costs included in Mails P+L
2018/19
FY Budget
44
Retail Income (excl. Gift Cards)
FY Budget
vs 17/18
(3.5)
(3.1)
(os)
0.0
(0.2)
0.2
(0.3)
Week 53
0.1
0.0
O14
0.0
0.0
0.0
0.0
0.1
2018/19
Budget adj
for 52 wes
4.2
11
27
04
34
on
01
O1
0.3
2.8
Adjusted
Budget vs
17/18
47%
“17%
“54%
0%
76%
41%
“13%
Retail EBITDAS is down £0.3m YOY to
£2.9m
. Budget income reflects the new WHS
retail contract whereby stock is owned
by WHS and commission is earned on
sales revenue. Additionally there is a
direct contract with Royal Mint for the
sales of coins within DMB’s
° Closure of DMB’s results in
-£0.7m net income decline however is
partially offset by WHS contract which
provides a +£0.3m uplift.
. Direct costs (cost of sales) reduce by
£1.3m due to the change in the Retail
contract. £1.1m direct costs relate to
purchase of Royal Mint coins.
® YoY non staff costs decrease by
£0.2m due to procurement costs no
longer required going forward.
Post Office®
Post Office Limited — Commercial in Confidence
(66 )
©)
POL-0023898
Other Retail & Lottery
POL00027257
POL00027257
®
Gross Income
Direct Costs
Other Retail
Photo-Me
Gift Vouchers
Lottery
Variable income
Fixed fee
Net Income
Agents Pay
Non-Staff Costs
Consultancy & Advisory Services
Finance & Losses
Legal Costs
Other Operating Costs
Expenditure
EBITDAS
*Staff costs included in Mails P+L
70,000,000
2018 / 19 Budget Summary - Other Retail & Lottery
2017/18 I 2018/19
FYF
36.3
0.6
5.9
28.5
14
36.3
24.9
0.2
O41
25.1
11.2
FY Budget
34.8
0.4
6.6
26.7
14
34.8
23.9
0.0
0.1
0.1
0.1
24.4
10.7
FY Budget
vs 17/18
(2.5)
(0.2)
0.7
(1.8)
(0.3)
(1.5)
(1.0)
0.0
(0.1)
O41
0.0
1.0
(0.5)
Lottery values
Week 53
0.0
0.1
0.5
0.0
0.6
0.4
0.0
0.0
0.0
0.0
0.4
2018/19
Budget adj
for 52 wks
34.1
0.4
64
26.2
14
34.1
23.4
0.0
on
on
On
23.7
10.5
Adjusted
Budget vs
17/18
~6%
-37%
10%
8%
0%
6%
57%
-16%
6%
Other Retail & Lottery EBITDAS is down £0.5m YOY to £10.7m
Other Retail
Gift Vouchers +£0.7m - Continues to grow +10% YoY above overall
market growth (5% in 2016).*
. There is a predicted slowing of growth compared to 17/18 inGift cards
due to Amazon's departure.
+ Photo-booth revenue is also reduced due to the closure of DMB's and the
move onto a lower tier of commission payments
Lottery
. Variable -£1.8m - 8% decline on Camelot sales based on prior two year
average trend.
. Fixed Fee — No change for 2018/19.
. The fixed fee for Camelot is assumed the same but is subject to a new
mechanism based on our success in audits of prize payout tickets.
*Source: UK Gift Card & Voucher Association 2016 Summary H2
Gift Cards Income
60,000,000 00
50,000,000
1,500
40,000,000
30,000,000 ian
20,000,000
00 -
10,000,000 ~
ode ber n Period 1 Period? Periad 3 Period 4 Pe ciod 6 Period 7 Pericd & Period Period 10Pericd 11er
1219 Budget Frame Budget 16/19 = @— Week 53
Post Office® Post Office Limited — Commercial in Confidence
POL-0023898
POL00027257
POL00027257
®
Payment Services & ATMs
2018 / 19 Budget Summary
Payment Services EBITDAS is
down £1.4m YOY to £16.3m
£m 2017/18 I 2018/19 2018/19
FY Budget Budget adj I Adjusted HNGT lite benefits £0.3m & new
FYF FY Budget Week 53 Budget vs ~ .
vs 17/18 for 52. wks I “s7/18 opportunities of £0.5m are
Payment Services 26.3 26.8 0.5 0.5 26.3 0% offsetting underlying declines in
ATM 31.7 31.2 0.5 0.6 30.6 -3% the payments market, direct clients
Gross Income 58.0 58.0 0.0 1.4 56.9 -2% at (6) and resellers.at (6)%.
+ POCa accounts decline impacts
Direct Costs 0.0 0.0 0.0 0.0 0.0 0% ATM performance by 3.5m
withdrawals, this is partially offset
Payment Services 26.3 26.8 0.5 0.5 26.3 0% by planned improved availability to
ATM 31.7 31.2 -0.5 0.6 30.6 -3% 96%.
Net Income 58.0 58.0 0.0 1.1 56.9 “2% . Staff costs increasing with
investment of 4 new roles, 2 x bill
Variable Agents Pay 25.9 25.4 0.5 0.2 25.2 2% payments, 1 x non cash & 1 x
Staff Costs 0.9 1.2 -0.3 0.0 1.2 -28% ATMs.
Non-Staff Costs 13.5 15.1 -1.6 0.0 5.0 “12% I. Non-etaff costs increases ‘from
Expenditure 40.4 41.7 (1.4) 0.2 41.5 -3% card processing costs led by UK
: cash converting to card at a rapid
EBITDAS 17.7 16.3 (1.4) 0.9 15.4 13% rate and effective rate increases.
Payment Services & ATMs EBITDAS not representative as Non-Staff Costs include companywide card processing costs; 2017/18 at £11. 3m, 2018/19 at £12.9m.
(68)
©)
Post Office® Post Office Limited — Commercial in Confidence
POL-0023898
Government Services
POL00027257
POL00027257
®
2018 / 19 Budget Summary
£m 2017/18 I 2018/19 2018/19
FV Budget Budget adj I Adiusted Government Services EBITDAS is
FYF FYBudget I“), 7/8 Week53 I foros wus I Budget vs down £3.0m YOY to £21.2m
17/18
POCa Accounts 39.3 29.7 -9.6 0.0 29.7 -32%
POCa Interest 2.9 9.4 65 0.0 94 [ 227% + Net Income adverse by £(5.8)m
ol =f )9/ 7 "
Passports 21.1 14.5 6.6 0.1 14.4 46% YOY, led passport volume decline
Motoring 6.4 6.2 -0.2 0.1 6.1 -5% due to HMPO pricing
UKVI 14.0 13.0 -1.0 0.0 13.0 -8% \
Other Gov Products 0.7 0.7 0.0 0.0 0.7 -5% rao Nh athe interest
Gross Income 84.5 73.5 (10.9) 0.2 73.3 -13% income otisetung volume declines.
+ Agents pay reduction YOY in line
Direct Costs 22.5 17.3 5.1 0.0 17.3 23% with variable income.
POCa Accounts 17.3 12.6 (4.7) 0.0 12.6 -27% * Staff costs increasing with
POCa Interest 2.9 9.4 65 0.0 9.4 227% investment of 2 new roles, 1 x Snr
Passports 21.1 14.5 (6.6) 0.1 14.4 -32% Propositions Manager & 1 x
Motoring 6.4 6.2 (0.2) 0.1 6.1 -5% Propositions Manager .
URN 135 12.7 (0.8) 0.0) 1a7 Oi + Non staff costs higher YOY led by
Other Gov Products 0.7 0.7 (0.0) 0.0 07 -5% POCa contract costs: additional
Net Income 62.0 56.2 (5.8) 0.2 56.0 -10% postage £(4.0)m, JPM tech refresh
Variable Agents Pay 28.9 21.6 73 0.1 21.5 26% ECS), accitionay intermediary
Staff Costs 0.5 0.7 -0.3 0.0 07 -59% £(0.25)m e wally erisat Be
Non-Staff Costs 8.4 12.7 -4.3 0.0 12.7 -51% sap i
Expenditure 37.8 35.0 2.7 0.1 34.9 8% Heel in passport postage costs
yy volu i J
EBITDAS 24.2 21.2 (3.0) 0.1 24.1 -13%
(#)
Post Office® Post Office Limited — Commercial in Confidence
POL-0023898
POL00027257
POL00027257
®
Identity Services
2018 / 19 Budget Summary
Identity Services EBITDAS is up £2.5m
—m 2017/18 I 2018/19 2018/19 YOY to £6.9m
. I Adjusted
FYF FY Budget I FY Budget Week 53 I Budget adj I Budget vs ;
vs 17/18 for 52 wks 17/18 + LOA2 has continued volume growth of
Gross Income 7.7 12.9 5.1 0.2 12.7 64% 31% planned for 18/19, coupled with
margin improvement of £1.45 per
Direct Costs 3.3 47 (1.4) 0.0 47 -42% transaction gained via contractual
volume achievements.
Net Income 4.4 8.1 3.7 0.1 8.0 82% + Further EBITDAS improvement from
LOA1 income lapping and planned
Variable Agents Pay 0.0 0.0 0.0 0.0 0.0 0% launch of verify in branch in P9.
; -1009
Staff Costs 0.0 1.7 a7’ 0.0 1.7 100% + Implementation of team of 4; Sales
Non-Staff Costs 0.0 0.0 0.0 0.0 0.0 0% A
E dit 0.0 1.7 17 0.0 17 =5667% Director, Head of Partnerships, Product
mpendieure 5 : (es) Ie w e Manager & Business Analyst.
EBITDAS 4.4 6.4 2.0 0.1 6.3 43%
®
Post Office® Post Office Limited — Commercial in Confidence
POL-0023898
POL00027257
POL00027257
®
Mortgages: Yoy impacted by Project Russet
18/19Bud 17/185+7F Var —17/189+3F Var v 5+7F 1 Project Russet
Gross income 18 2A) (0.3) 2.3 0.2 . .
Cost of Sales 0.0 0.0 0.0 0.0 0.0 + Impact of removal of branch advised
FRES profit share 0.0 0.0 0.0 0.0 0.0 channel estimated to be £0.3m
Net income including FRES 18 24 (0.3) 23 0.2 + Investment in residual distribution
capability - CRA contact centre and FS
Direct Costs Capability Manager team
Agent's Pay (0.0) (0.1) 0.1 (0.1) 0.0
Staff Costs (0.1) (0.1) 0.0 (0.1) 0.0 2. Broker channel expansion — incremental
Staff & Agent Related Costs (0.0) (0.0) (0.0) (0.0) 0.0 opportunity
Vehicles (0.1) (0.1) (0.0) (0.1) 0.0 .
Brand & Marketing 0.0 0.0 0.0 0.0 0.0 . Broker ort agreement about to be
Other Non-Staff Direct Costs: (0.0) (0.0)” (0.0) (0.0) 0.0 signed with Bo
+ Expected 2018/19 volume of £0.5-0.8bn
Indirect Costs resulting in £0.5-0.8m of incremental
Staff Costs (0.0) (0.0) 0.0 (0.0) 0.0 income at 9bps
Non-Staff Indirect Costs: (0.1) (0.1)" (0.0) (0.1)" 0.0
Project Costs (0.3) (0.2)" (0.1) (0.3) (0.1)
FS&T Contribution 12 15” (0.3) 1.6 0.1
2.5
YoY gross income waterfall
2 oe
15
1.0 22
1.8
0.5
0.0
17/18 5+7F Project Russet 18/19 B
(7")
Post Office® Post Office Limited — Commercial in Confidence
POL-0023898
POL00027257
POL00027257
®
Cards & Lending: Personal Loans growing, but credit cards not
performing
18/19 Bud 17/18 5+7F Var 17/18 9+3F Var v S+7F . ifi ‘
SEE ATG of 7) 4D D 1. Significant growth in personal loan
Cost of Sales 0.0 0.0 0.0 0.0 0.0 volumes
ERES protitenere 00 vio oo Dio 0.0 + Improved risk appetite by Bol which
Net income including FRES 19 17 0.2 19 0.2 .
has led to increased volumes
Disolbes (01) ae (00) a 00 * Enhancement to the customer
Suarcoste on) fo) 00 (01) 00 journey including funds available to
Staff & Agent Related Costs (0.0) (0.0) (0.0) (0.0) 0.0 customer next day
Vehicl 00 0.0 00 0.0 0.0 . f .
rand’ MarkeGing Go od Ps 6d 6a + Loans income projected to increase
Other Non-Staff Direct Costs: (0.0) (0.0) " (0.0) (0.0) 0.0 from 17/18 of £0.5m to 18/19
budget of £0.8m
Indirect Costs
Staff Costs (0.0) (0.0) 00 (0.0) 0.0 ; I
Non-Staff Indirect Costs: (0.1) (0.1) " (0.0) (0.1) " 0.0 2. Poor performance in credit cards
ioTaeE Coste 2) 02)" @4) ©) ©.) * Bol risk appetite continues to be
FS&T Contribution 14 1% 04 14 04 limited
25 ; + Poor profitability resulting in the
YoY gross income waterfall likely loss of the profit share for the
2.0 ne Foeresecent es Coens) foreseeable future
15
1.0
17 19
05
0.0
17/18 5+7F Loans Initiatives Other Var 18/19 B
Post Office®
Post Office Limited — Commercial in Confidence
@
POL-0023898
Savings
POL00027257
POL00027257
®
Gross income
Cost of Sales
FRES profit share
Net income including FRES
Direct Costs
Agent's Pay
Staff Costs
Staff & Agent Related Costs
Vehicles
Brand & Marketing
Other Non-Staff Direct Costs:
Indirect Costs
Staff Costs
Non-Staff Indirect Costs:
Project Costs
FS&T Contribution
60.0
50.0
30.0
200 47.2
10.0
0.0
17/18 5+7F 53rd Week
18/19 Bud
39.0
0.0
0.0
39.0
(1.8)
(1.2)
(0.2)
0.0
0.0
(0.8)
(0.3)
(0.0)
(0.3)
34.5
17/18 5+7F
47.2
0.0
0.0
47.2
(2.2)
(1.7)
(0.1)
0.0
0.0
(0.8) ”
(0.5)
03"
(0.2) ”
42.0"
Var
(8.2)
0.0
0.0
(8.2)
04
04
(0.1)
0.0
0.0
0.0
0.2
(0.3)
(0.1)
(75)
YoY gross income waterfall
Growth Trends
17/18 9+3F
48.9
0.0
0.0
48.9
(22)
(1.7)
(0.1)
0.0
0.0
(0.8)
(0.5)
03
(0.3)
43.7
SO
Value Share
Var v 5+7F
1.7
0.0
0.0
17
0.0
0.0
0.0
0.0
0.0
0.0
0.0
(0.1)
1.6
39.0
18/19B
i
Strong performance in 17/18 under
Value Share
* Cost of funds (NIM) reduced
significantly, supported by Bol
wholesale funding activity and
November's base rate increase
+ Balances expected to reach
£14.5bn target by year end
Expiry of Value Share
+ Agreement ends in March, with
broader negotiation aiming to
replace it with an overall value share
* Current £39m budget income figure
represents the likely outcome based
on the current FSJVA model
Post Office®
Post Office Limited — Commercial in Confidence
@
POL-0023898
Travel Money & FRES: Financials
POL00027257
POL00027257
®
Travel Money
18/19Bud 17/185+7F
Gross income” 314
Cost of Sales 0.0
FRES profit share 34.1
Net income including FRES 65.2
Direct Costs
Agent's Pay (23.9)
Staff Costs (2.1)
Staff & Agent Related Costs (0.3)
Vehides 0.0
Brand & Marketing 0.0
Other Non-Staff Direct Costs: (2.0)
Indirect Costs
Staff Costs (0.5)
Non-Staff Indirect Costs: 0.0
Project Costs (0.3)
FS&T Contribution 36.2
278
0.0
35.0
62.8
(236)
(2.2)
(0.1)
0.0
0.0
(20)
(07)
03
(0.2)
34.3"
Var
3.3
0.0
(0.9)
24
(0.2)
0.1
(0.2)
0.0
0.0
(0.0)
0.2
(0.3)
(0.1)
1.9
17/18 943F Var v 5+7F
28.3
0.0
34.5
62.8
(23.6)
(22)
(0.2)
0.0
0.0
(2.2)
(07)
03
(0.3)
33.9
* Submitted 18/19 budget less distorting double count of Customer Hub income with POMS £1.5m
Strategy & Market
Economic uncertainty and rising inflation are putting pressure on consumers’
holiday finances. GDP is forecast to grow by 1.4% in 2018 but is slowing
The Travel Market is expected toremain flat and Consumer confidence is at
a low ebb of-13 (post Brexit it was -12).
Consumers continue to be price conscious so online and TMC are expected
to grow whilst on demand sales will fall by 5.7% due to reduced footfall and
new AML thresholds
Income and cost
+ Travel Money increases 12% yoy, of which 5% is due to CustomerHub
+ Contribution is impacted by agents pay increases due to higher turnover
Income and costs
Constituents of income
‘On Demand 13,619,161
+ Increase of HMRC Fee from £115-£130 per Branch Pre Order 521,834
Risks & Opportunities Click and Collect 980,000
; ; Home Delivery 0
Strengthening/Weakening of sterling — 687/190
+ Brexit Negotiations Euro on Demand 400,000
* Delay in launching customer hub capabilities TMC New Cards 1,901,528
9 . * . . TMC Top Ups 1,681,250
* 1% growth/decline in travel market impacts £14M in branch tumover Total Variable Fee I 19,790,963
Change Activity Customer Hub 1,355,000
* Customer Hub, eKYC , Combined Journey on TMO (currency and Fived. Fete! 10,000,000
card) Total income 31,145,963
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Travel Money & FRES: Volumes and transactions
This revenue table is representative of the following considerations:
Revenue £k 18/19B__17/189+3F Var + OnDemand sales/buys decline of ~5%
TMC 1,902 1,600 19% + TMO+9%
Top Ups iia) aed 316 I Footfal dec d switch fi tes to TMC
+ Footfall decline and switch from notes to
TWO 1,699 1,352 26% + Increase in sales/buy transaction fee £1.99 from £1.92
Network 14,458 13,900 4% * Travel market growth of 1%
Fixed Fee 10,000 10,000 0% + New AML eKYC ID&V requirements
’ ’ + Reduced impact of Easter ie early 2018/late 2019
Customer Hub 1,380 oO + ATV increase of 2%
Total Travel Money 31,139 * Blended product margin of 5.16%
; 120,000,000
Transaction Volumes vs. Values
—Turnover 2017-18
100,000,000
- —Total Target
ata 80,000,000
- 10 aw __ POL transactions have fallen,
on 4— J no benefitto POL with the
. I om umf increase ATV 60,000,000
i }
I _ “y 40,000,000
: i
. 20,000,000
a” mae eal —— 0+
: 1 6 14 1% 2 2% 31 3 41 46 52
(73)
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MoneyGram: Strategy, market and budget
MoneyGram Strategy & Market
18/19Bud 17/185+7F Var 17/189+3F Varv5+7F Moneygram and Western Union remain the two largest operators of the cash
Gross income 25.5 28.6 (3.1) 26.6 (2.0) to cash remittance market however digital providers continue to penetrate and
Cost of Sales 0.0 00 =—0.0 0.0 0.0 I grow marketshare. New AML regulations that came into effect in 2017 and the
fare profit ee FRES abe ae <i ae os continued uncertainty over Brexit and the strength of sterling is having an
etincome Ineuchng . . (Ss) . 28) adverse affect on both the ATV and number of transactions being conducted
Direct Costs oo. . .
Agent's Pay (11.6) (11.5) (0.1) (114.5) 0.0 We are currently in discussions with MoneyGram on new agreement terms as
Staff Costs (0.8) (1.0) 0.2 (1.0) 0.0 our existing contract requires us to confirm the existing agreement extending
Staff & Agent Related Costs (0.1) (0.1) 0.1) 0.6 0.7 through to 2021. Alongside these discussions we have engaged an outside
Vehicles 0.0 0.0 0.0 0.0 0.0 consultant to help us better underside the full market picture and capabilities
Brand & Marketing 0.0 0.0, 00 0.0 0.0 prior to making our recommendations to the GE
Other Non-Staff Direct Costs: (0.5) (0.5) (0.0) (0.5) 0.0
Dee 2018/19 Budget & YoY (Profit) 7 : ;
Staff costs (02) (0.3) 0.4 (0.3) 0.0 We are predicting that the market will see a continued decline in the balance of
Non-Statf ndlrack Costes 01 0.2" (0.2) 02” 0.0 2017/18 impacting our forecasted revenues by ~£400k so our 18/19 budget is
Project Costs 0.0 0.0 0.0 0.0 0.0 based off a declining baseline
FS&T Contribution 12.4 15.5" (3.1) 14.2 (1.3) Return on revenue is expected to decline to just below 50%
Income and costs
Post Office and MoneyGram have a commitment to contribute up to £250k each (£500k) towards joint marketing activity. PO willbe taking a more
active role in managing these marketing initiatives. (Awaiting Penny confirmation this is sitting in Marketing budget)
MoneyGram have given a short term commitment to fund an increase in remuneration for cash to account transactions to India. This funding
supports the postmasters as their remuneration will be the same as a cash to cash transaction. Following a review of these results we will be
looking to agree ongoing funding from MoneyGram and expand destinations.
Risks & Opportunities
Depending on the outcome of our strategic review, we would expect to improve our financial position through enhanced remuneration form
MoneyGram alternatively if we move to an RFP process we will have to increase our oversight of the relationship to ensure tha MoneyGram do
not divert their resources to the RFP. The RFP process is also expected to impact 18/19 as we do not expect M/Gram to deliverdigital capabilities
Opportunity We are working with MoneyGram to develop more direct marketing campaigns in 2018/19 to maximise penetration of existing
customer relationships. This focussed approach is also aimed at stabilising the current send and receive RPT.
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1 1 . . 9,
Banking Services: Income up £8.7m yoy; 10.1%
Banking Services f
18/19Bud = 17/18 5+7F Var 17/18.9+3F Vary S+7F 00.0 YoY gross Income’ waterfall
Gross income 95.0 86.3 87 88.0 47 64 20
Cost of Sales (1.3) (1.1) (0.2) (1.1) 0.0 90.0 —— so
FRES profit share 0.0 00 0.0 0.0 00 *
Net income including FRES 93.7 85.3 85 87.0 47
Direct Costs -
Agent's Pay (278) (29.3) 17 (29.3) 00
Staff Costs (05) (03) 0.2) (0.3) 0.0 "
Staff & Agent Related Costs (0.0) (00) 0)" (4) 4) 500 95.0
Vehicles 0.0 (0.0) 0.0 (0.0) 00 ng 863 ,
Brand & Marketing 0.0 00 0.0 0.0 00 7
Other Non-Staff Direct Costs (0.2) 00)" (0.2) (0.0) 00 = 390
Indirect Costs 200
Staff Costs (0.3) (7) 04 (0.7) 00
Non-Staff Indirect Costs: 02 07" (05) om ™ 0.0
Project Costs (07) 5) (0.2) (0.5) 00 -
FS&T Contribution 64.6 552° 94 565 13 Week53 Growth lation 18/198
Key elements
+ Versus the 5+7 forecast, gross income is up £8.7m (10.1%), which is £7.4m (8.5%) excluding the 53! week
+ £2m of the growth is due to tier increases in the framework fee due to volume increase which rises from £20.7m to £22.3.m, tgether with
£400k RPI increases on transaction rate cards from P10.
+ The remaining £5m is due to the ongoing volume increases resulting from Bank closure programmes and increased awareness. Whib is an
increase of 7.5% on 2017/18 transactional income base of £63.6m
+ Agents Pay has reduced YoY by £1.6m to £27.6m versus the £29.3m in the 5+7 Forecast
+ Other costs, are broadly flat YoY aside from £150k auditcosts.. £180k of marketing was charged to the Development Fund in 2017/18
Since the budget was submitted
+ Transactional income has exceeded forecast-— likely end of 17/18 will be c. 67m vs £63.6m in initial budget.
+ Trading in the period since the budget was submitted has been strong, and the expected outcome for 2017/18 is £1.7m better tan the 5+7
forecast. The growth in Business Deposits (18.43% in 17/18) is significant, andas a result we believe that there is upside of up to £2m income
versus the current submission, most of which is offset by measures to improve the agents’ situation, and marketing spend. Tkse are set out in
more detail in the following pages.
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Banking Services
Total volumes (all transaction types) by period
6 8 9 C) 11
—2016/17 —2017/18 5+7F —2017/18 Actual 2018/19 Budget
YoY volume growth 1 2 3 4 E} 6 7 8 9 10 11 2 TOTAL
2017/18 5+7F 36% I 36% I 36% I 36% I 36% I 36% I 36% I 36% I 36% I 36% I 36% I 36% I 36%
2017/18 Actual 36% I 36% I 36% I 36% I 36% I 36% I 40% I 40% I 40% I 40% I 40% I 40% I 38%
2018/19 Budget 16% I 18% I 21% I 22% I 23% I 23% I 19% I 19% I 19% I 19% I 19% I 48% I 22%
Volumes
* The graph shows the yoy increase on volumes incorporated in the 2018/19 budget submitted in November.
+ The trend is in line with last year, rising from 16% YoY in Period 1 to 23% in period 6, after which the volume increases
from Lloyds and RBS seen in2017/18 annualise and growth settles to 19%.
* The large growth in Period 12 is driven by the 534 week.
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customer reaction to Galaxy proposition present the main
risk/opportunity
Strategy & Market
18/19 Bud} 17/185+7F_—Var_17/18 +3F + HomePhone - Market move by BT £7pm price reduction from
Gross income 160.4 149.6 10.8 180.7 01.04.18. PO implementation of Free Broadband (Galaxy) leads to
Fees ates ee) — re in increased revenue and cost, customer reaction to offer is unknown.
raat SE in FRES wi apy a5 * Broadband - Market will remain highly competitive in both ADSL and
9 . . ° FTTC*, with competitor mass marketing of high speed FTTH* products
Diectcost + Customer Strategy :
Agent's Pay (1.6) (14) (0.2) (1.4) . Gross Ads - activity phased in H1
Staff Costs (0.9) (05) (0.4) (0.5) + Online and Telesales increased focus (69% of tota)
Staff & Agent Related Costs (0.0) (0.0) (0.0) (0.0) + Branch network flat YoY
Vehicles 0.0 (0.0) 0.0 (0.0) + Churn — budgeted reduction from 0.44% to 0.33% per month
Brand & Marketing 0.0 0.0 0.0 0.0 + Call centre retention (51% to 70%) through enhanced call
Other Non-Staff Direct Costs: (31.0)} (293)" (1.8) (31.1) centre availability and agentcapability
Indirect Costs
Staff Costs (0.4) (0.5) 04 (0.5) 2018/19 Budget & YoY (Profit)
Non-Staff Indirect Costs: 01 05” (0.4) 05 * +7% YOY gross revenue
Project Costs (1.3) (0.3) (1.0) (0.3) * 46% YOY growth in net Income
FS&T Contribution 36.8 36.4" 03 35.7
Income and costs:
+ Increased costs in Homephone due to Project Galaxy decision (£7.39 cost now £10.31 blended), partially offset with lower ADSlpricing (~£1pm)
+ Price increase planned May '18 (£6.1m in year DPC benefit)
Risks
* £1.0m remaining risk, resulting from financial modelling (£2.4m) and Galaxy COS (£6.5m)
+ Project Galaxy assumptions highly sensitive to customer reaction, potential for positive or negative commercial impact
+ Mid year price rise subject to competitor pricing changes, PO rise will be reviewed at end Q1 when impact of Galaxy and Q1 tading is known
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Postal Orders: Income decline anticipated to continue at a similar
rate to 2017/18
18/19Bud 17/18 5+7F Var 17/189+3F Vary 5+7F
Gross income 123 145 (2.2) 148 0.3 Income as' Agents pay ae
Cost of Sales (0.1) 01 (02) 0.1 0.0 Profit structure (£k) I Volume eked Income (£k) (0 COGS (£k) Team (Ek) I Contributioy
FRES profit share 00 00 = 00 00 00 “
i including FRES 12. 14.6 4) 149 0.3
Net income including FRE! 2.2 (2.4) PTT] ‘ah am a TO 6 re a
Direct Costs {£5~- £9,99(£1.00) 208,758 168% 249 (713) (u) (4) (480)
Agent's Pay (29) @3) 04 (3.3) 0.0 - ‘
Staff Costs 00 00 = 0.0 0.0 0.0 E10- €8999(12.50%) I 2,142.53 12.5% 8138 (6181 (5) (8 1864
Staff & Agent Related Costs 0.0 0.0 0.0" (0.1) (0.1) }£100- £250(£12.50) 19031f 81% 2,254 (520) (5) (3) 1,724
Vehicles 00 0.0 0.0 0.0 0.0 Breakage 2,814,206 125% 1538 (75) (50) 1,414
Brand & Marketing 00 00 = 00 00 00
Other Non-Staff Direct Costs: 0.0 00" 00 0.0 0.0 5,628 415 1250 (8119) (150) (100} 33:
Indirect Costs
Staff Costs (0.1) (02) oO (0.2) 00 Profit structure
piciieileouiaadnaa Ot on Bh ai Aa The table above shows a graduated structure for fees depending on the
rolect Costs oe transaction size. For total transaction values in 2018/19 of £186.7m Post Office
FS&T Contribution 94 444" (1.9) 13 0.2 will take £10.8m fees (5.8%) and take the benefit of the 12.5% of Postal Orders
Postal Order Volumes not cashed (£1.5m).
Agents are paid a flat fee per transaction (preparation and encashment), which
: means that for transaction values less than £10Post Office loses money.
ee ee Overall, Post Office contribution is £3.9m after agents pay of £8.1m and other
costs of £0.2m. This equates to 70p on an average transaction of £33.18
Income and costs
— 2016/17, — 2017/18 5+7F
Costs are flat yoy. The £2.2m yoy income decline is driven by:
16.0 0.2 . is i
lac SS) gs) I An upside of £0.2m from the 53¢ week in 2018/19
12.0 a + £0.2m income from the 2017/18 instore advertising spend
10.0 YoY income waterfall + Anunderlying volume decline of 18% decline in volumes (compared to 20%
eo 14.5 in 17/18 £(2.7)m
60 12.3
AS Risks
20 + Mod has indicated that it will stop paper Postal Orders in prisons due to high
0.0 admin costs, but have asked PO for a solution. Timing for the withdrawal
17/18 5+7F Week 53 Marketing Growth Trends 18/19B expected is to be end 2018/19 at the earliest.
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BOARD DECISION PAPER
Quarterly Funding Request
Author: Cem Oztoprak Sponsor: Alisdair Cameron Meeting date: 27 March 2018
Executive Summary
Context
The Post Office is undertaking a complex transformation programme, designed to
modernise both its retail network and IT infrastructure whilst optimising the cost base
and creating a platform for customer-led growth. The strategic goal is to create a
commercially sustainable business within the next 3 years.
£210m of investment funding is available from Government, if needed, across 2018-19
and 2019-20. We have agreed to submit a quarterly report to Government on our
progress which will support a drawdown of funding. The first full quarterly report will
come to the July Board for approval with submission to UKGI following the Board
approval. The purpose of this paper is to request funding for the first quarter of the new
plan
Questions addressed in this report
What is the 2018-19 change plan?
What is the change plan details for Q1?
What funding is requested for Q1?
How does the future funding requirements look like?
Peper
Conclusion
The forecasted investment in Q1 of the 2018-19 financial year is £65m, £35m of which
will be government funded.
Input Sought
The Board is asked to approve a request of £35m of funding from government for Q1.
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The Report
1. As part of the latest 3-Year Plan, five strategic priorities have been identified to address
the strategic objectives with an investment ranging from £375m to £450m over the next
3 years.
e Simplify the retailer proposition (£170m to £210m)
e Build innovative, flexible and secure IT (£80m to £90m)
e Modernise our products and services (£90m to £110m)
¢ Digitise and optimise the business (£30m to £35m)
e Modernise our skills, culture, HR policies and processes (~£5m)
2. Over half of the investment will be funded from trading profits, with the remainder being
provided by £210m government investment fund over 2 years. Following this funding
period, Post Office will be on a run-rate to commercial sustainability.
What is the 2018-19 change plan?
3. 2018-19 is the first year of 3-Year Plan. The budgeted change spend for this year is
£255m and the expectation by strategic priority is as following:
Simplify the retailer proposition £55m to £65m
Build innovative, flexible and secure IT £80m to £90m
Modernise our products and services £70m to £80m
Digitise and optimise the business £15m to £20m
Modernise our skills, culture, HR policies and processes £4m to £6m
Regulatory & Group Litigation Costs £11m to £14m
TOTAL £235m to £275m *
*The details of the change plan is provided in the budget update paper.
4. The spend profile for 2018-19 is expected to be as following. Within that spend is c. £30m
of change activity deferred from 2017-18 which we will fund from the business and not
from the new investment funding. In addition, we will self-fund any investment in Project
Panther, which is not in the budget.
80
60
40 New Projects
Carry Forward
20
Q3 a4
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What is the change plan for Q1?
5. Q1 Spend is expected to be ca. £65m, including the carry forward from 2017-18 and will
be mainly consist of deliveries of the strategic projects which are already in execution
phase or being designed.
Qi Approval
Investment Status
Carry Forward projects from Q4 £30.0m
Simplify the retailer proposition £9.9m
- Further Franchising DMBs £4.7m v
- Network Expansion £4.3m v
- Agents / Postmasters Portal £0.6m v
- Other smaller projects £0.3m
Build innovative, flexible and secure IT £18.2m
- Branch Printer Replacement £1.8m v
- CDP re-procurement £1.1m Vv
- EUC Branch Deployment £2.9m Vv
- HNGT Lite £1.5m Vv
- Project Everest - Cloud enablement £3.3m a]
- Project Nelson £1.5m
- Risk and Resilience £1.9m v
- Software Asset Management £0.3m v
- Full Think Client Deployment (Solar Full) £0.8m v
- Other End-of-life replacements £1.2m Vv
- Other Smaller Projects £1.9m
Modernise our products and services £15.5m
- POMS Investments £2.3m v
- Banking Framework - Future of Cash incl. Vehicles £0.6m
- Project Galaxy £2.4m v
- Mails Projects £2.1m
- Digital Check & Send £1.2m v
- Property £1.5m
- Falcon - Travel Hub £1.5m v
- Other smaller projects £3.9m
Digitise and optimise the business £2.4m
- Project Arrow £1.5m v
- Success Factors £0.6m v
- Other smaller projects £0.3m
Modernise our skills, culture, HR policies and processes £0.9m
- Back office Transformation £0.9m v
Regulatory & Group Litigation £1.0m
- GDPR £1.0m v
Estimated to be delivered in Q2 (13.0)
TOTAL £65.0m
v Approval at Gate 2 or beyond, development in progress
vv Approval at Gate 1, designing the project
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What funding is requested for Q1?
6. To fund expected £65m change spend in Qi, £35m funding is requested.
How does the future funding requirements look like?
7. Based on the current spend profile, we expect to have the following funding requirements
Spend Funding _I Cumulative Funding
Qi I £65m (incl. 30m carry forward) I £35m £35m
Q2 I £65m to £75m £55m £90m
Q3 I £50m to £60m £50m £140m
Q4 I £60m to £70m £28m £168m
8. The above figures are indicative only and subject to change based on project delivery
performance. At the end of each quarter, we will provide delivery update and revise the
future outlook accordingly.
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BOARD DISCUSSION PAPER
Cash Efficiency
Author: Mark Dixon, Russell Hancock, Mark Ellis Sponsor: AlCameron Meeting date: 27 March 2018
Executive Summary
Context
Many of our customers want to transact in cash including the unbanked, people who
are resistant to technology, people who prioritise privacy and security etc. Our cash
enables our agents to support customer preferences and is, through Banking
Framework, a product in itself for small business.
We operate at scale, managing around £1.5b of cash in a typical day and moving
around £60b over the course of a year. The rules we operate under, set by BEIS and
the Bank of England, are unique. An explanation is set out in the Appendix.
At the last Strategy Awayday, we agreed that we would improve the efficiency with
which we use cash, creating future flexibility and improving our facility headroom to
be greater than our security headroom.
Putting cash to use with agents creates the risk that they will steal or lose it, creating
losses. Minimising cash availability reduces losses and it was agreed with the Board in
January that we would provide a combined update.
The purpose of this paper is to set out progress and next steps.
Questions addressed in this report
1. What progress has been made in improving flexibility?
2. What else can be done?
3. What is happening with agent losses?
Conclusions
We reduced cash in use by £180m by end January, reducing to £127m in February due
to the temporary impact of installing new High Speed Notes Counters. £24m extra was
borrowed from the Bank of England, giving a total balance sheet reduction of £151m.
This was partly offset because, as planned, we spent more on change in the period than
we received in funding. Borrowing from BEIS fell by £110m.
This improvement has been made in spite of growing Banking Framework activity and
is sustainable. We will always see seasonal impact, with an earlier Easter bringing
forward higher branch cash in March compared to last year.
Facility headroom under the BEIS facility increased to £299m and now exceeds security
headroom. We believe that a further £40m improvement should be possible without
significant investment.
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Security headroom reduced to £223m due to the net change spend. As forecast, using
less cash reduces the borrowing and the security without benefitting headroom.
However, with higher facility headroom we can monetise security headroom if we need
to.
To improve security headroom, we are about to trial using smaller denomination notes
in branches and are in discussions with the Bank of England about an amendment to
increase off-balance sheet funding. We are not pursuing any changes to the rules
governing security headroom as we do not believe we will make progress.
Reducing cash in branches can also reduce fraud. As the Board is aware, due to the
impact of the Postmaster Litigation, we are currently restricted as to the legal action,
including County Court proceedings, we are able to bring against Postmasters with
unexplained branch losses.
This is likely to remain the case for at least another year and is well known across the
network. To combat higher levels of loss we have reduced excess cash in individual
branches from £90m to £27m, improved conformance with cash declarations, improved
the speed and accuracy of fraud analysis and significantly increased the number of
audits. We now find a problem in 81% of directed audits with no significant issues
identified in random audits.
In spite of this, losses have risen and the inherent risk will continue to rise. We are
assessing whether we need to further increase resources.
We will focus on managing future impacts of the Banking Framework (the future of cash
work will be brought to Board in May) and improving our MI on the back of the POLSAP
replacement. A longer-term Phase will likely be created to introduce better technology,
possibly including the internet of things and/or smarter counter safes transforming our
knowledge of where cash is and reducing losses.
Our long term goal remains charging for cash delivery and inventory to align our
interests with those of agents. However, this is a major change and would only be
introduced as part of a package of measures. This will form part of the Retail Strategy.
Input Sought
The Board is asked to note the progress made and comment on the next steps.
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The Report
What progress has been made in improving flexibility?
1. We have c. £151m less cash on our balance sheet. We believe there is limited
seasonal impact in this comparison:
Cash position, £m Feb 2018 March 2017 Variance
Sterling 498 551 53
FX 57 85 28
Total Branch Cash 555 636 81
Inward REMs 48 83 35:
Outward REMs/Other 91 74 (17)
Total for Processing 139 157 18
Other, cheques, cards 68 120 52
Total Cash in Use 762 913 151
2. January's cash in use was even lower at £708m: the rise in February is primarily
due to £42m of extra cash in the machine processing rooms as we switch to the
new High Speed Note Counters.
3. This reduction reflects progress in a number of the planned areas. We worked with
3,000 branches to recover cash after Christmas. Branch Sterling has fallen by c.
£53m and as we will set out later in the paper, we believe this has been
successfully focused on branches with excess cash (£60m) and has not risked
trading through a general rationing of cash. We changed the way we provide Euros
and US Dollars to send the amounts we thought branches needed rather than the
amounts branches chose to order. FX holdings have fallen by £28m with at least
£20m due to this initiative.
4. The next significant area of focus was cash being processed back into bond.
Deploying overtime and 9 extra FTE in cash centres, inward rems are now £48m
versus £83m last year and a peak of £160m in Q1 as the Banking Framework
volumes increased.
5. We have spent £224m on capital and change while receiving £160m from trading
and Government support. As a result our net funding from client and other
creditors has fallen by £75m. We have borrowed more from the Bank of England,
enabling us to reduce borrowing from BEIS by £110m:
Borrowing position, £m Feb 2018 March 2017 Variance
Cash at bank - 1 (1)
BEIS Revolving Credit Facility (RCF) (451) (561) 110
Off balance sheet BoE Funding (NRF) (270) (246) (24)
Other (41) (107) 66
Total (762) (913) 151
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6. Our facility headroom on the RCF is measured against an effective limit of £750m:
the facility limit of £950m less the Board’s £200m internal cap. Our headroom has
increased by £110m to £299m.
7. Our security headroom is relatively unaffected by the improvement because
reductions in cash in use reduce both the limit and the balance. However, it is
affected by the drop in the net funding provided by other sources as follows:
Security Headroom, £m Net Security Usage (RCF) Headroom
March 2017 394 (561) 333
Reduction in branch cash (140) 140 -
Other (80) (30) (110)
February 2018 674 (451) 223
8. We agreed with the Board last summer that our immediate task was to ensure that
Facility Headroom increased above Security Headroom, creating flexibility. That
has been achieved.
What else can be done?
9. Overall, we estimate that a further c. £40m of cash can be removed by targeting
excess cash in individual branches (this will never be nil), analysing whether it
would be cost effective to bring back c. £10m of surplus foreign currency in less
used currencies held in small amounts across the network and continuing to
optimise the end to end process.
10.We identified four other potential opportunities last Summer. Firstly, reducing
overall borrowing by creating a £50m third party facility: this is with HMT for
approval. Secondly, creating additional capacity in the NRF: we have dialogue with
the Bank and trials which in combination could benefit security headroom by c.
£60m, partly by using lower denomination notes in branches.
11.Thirdly, we may be able to reduce our buffer if we forecast better. We are
forecasting more often and working with KPMG to understand what else we can do
in the current state of our systems. However, this has not yet led to a systematic
improvement. Once we have replaced POLSAP, we expect to work on re-basing
both our financial and cashflow forecasts on trends in the underlying £60b of
transactions, for which information is not easily available today.
12.Finally, we discussed the potential to change the security headroom rules with HMT
but believe they will not change as it could impact the way the loan is
characterised on their balance sheet. We have stopped this workstream.
13.As we revert with the Future of Cash work, the banking framework may lead to
further phases being required. In the long term, we would like alignment with
agents on their use of cash by sharing the drivers of our cost base and charging for
cash delivery and inventory.
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14.We have intentionally not made any progress in this area: we do not have
sufficient, reliable data to support any charge for inventory, which could be the
greatest driver of agent behaviour; and secondly, we can’t assess this in isolation
of the broader agent remuneration and retail strategy, due to the Board in June.
Whether we charge for services, offer different levels of service and how we
maintain people interested in taking and retaining Post Offices is complex and
finely balanced. Nonetheless, this would remain our preference.
What is happening with agent losses?
15.In the 11 months to end February, we saw an increase in debt provisioning net of
c. £4.3m - annualised c. £5m. This represented gross losses of £7.1m and
recoveries or £2.8m of which the bulk happen within a few days of the loss being
identified. This compares to net losses of c. £2.9m in 2016-17.
16.The pattern of rising network losses was discussed with the Board earlier in the
year. It is some years since we have felt able to routinely prosecute agents for
fraudulent activity and we are not now pursuing county court actions. This may
contribute to an increase in incidents: in the first quarter of the year we saw three
material losses of more than £300k each. We set out plans to improve
conformance with and simplify the cash declaration process, giving us better data,
to improve fraud analytics and to increase the number of audits.
17.We are working hard to combat the trend:
e Cash declaration conformance has increased steadily over the last year from 85%
in January 2017 to 91% in February 2018 with a continuing upward trend. This is
the result of thousands of phone calls.
e The project to simplify declarations is underway for delivery in July. It is taking a
long time because making changes to Horizon code is slow.
e We have reduced estimated excess cash at branches from £90m (£126m after
Christmas) to c. £27m. This does not represent a static population of branches.
e We have worked with a third party to improve the accuracy and speed of
identifying fraud. We have completed 594 risk audits YTD versus 425 for the whole
of last year. When the team request an audit there is a loss and /or excess cash to
return 81% of the time, 75% have some sort of cash loss. 97 random counts have
been carried out with 40 showing small losses totalling £18k, an average loss of
£450, highest individual loss £2.3k.
« YTD 143 postmasters have been suspended compared to 116 last year, with 101
branches remaining closed. The majority relate to audit issues.
18.The net impact is that the average loss has fallen from £24k in Q1 to £16k now but
that is a rising trend from Q2 at £9k. We are not seeing the very large losses - our
largest loss in Q4 is £130k
19.Within a future phase, technology options can be used to reduce theft, including
potentially using internet of things sensors on cash packets and new counter safes
pioneered by the Norwegian Post Office which reduce handling of and access to
cash. These are potentially game changing. The immediate systems priority
however is to manage the transfer of cash management from POLSAP to new
Transtrack software. We are working on improved data flows, analytics and
forecasting to flow from this core change.
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APPENDIX —- HOW DOES CASH WORK IN POST OFFICE?
The purpose of this Appendix is to remind people of the way we manage cash, the
rules we operate under and the jargon we use. For consistency, we are using the data
at the March 2017 year-end throughout.
Cash under our control
On that date we had £1,444m! of physical cash under our control. We operate as a
member of the Bank of England’s Note Circulation Scheme (NCS) which supports us
operationally and with funding in exchange for us distributing cash throughout the
country.
Cash we manage for other people but do not own
Of that £1,444m, £532m was in Bank of England (BoE) vaults in our Birmingham and
London cash centres or in a Clydesdale Bank vault in our Glasgow. Once the cash is in
the vaults, it belongs to the bank and not to us - neither the cash nor any related
borrowing appears on our balance sheet.
There are very specific rules that govern the operation of the vaults from opening
hours (broadly 9-5), to security to processing requirements. Either bank can and does
send teams in without notice to audit us: to date we have always passed.
Our main risks are the security of the cash and ensuring that the amount of cash held
does not exceed our insurance limits for that site or across our business. Limits can be
stressed by the build-up of £50 notes. Oddly, people across the world will take £50
notes in their original wrapping but not once they have been used even if they remain
in perfect condition (A-FiT). A-FiT £50s come in via FRES and tend to build up until we
can persuade the BoE to take them back. To date, they have done that (to the tune of
c. £210m this year) and we have not had to refuse FRES.
Cash we use in our business
Cash is used in our business from the moment it leaves the vault until it is paid to a
customer and from the moment it is paid in to our till until it is back in the vault.
Cash is considered branch cash from the point at which it is barcoded (remm’d) into a
branch as the Supply Chain driver delivers it. It is remm’‘d out when it is packaged for
return and the barcode swiped - it may then stay in the branch safe until Supply
Chain picks it up again.
Once it has been barcoded for return it becomes an Inward Rem. It will be picked up,
and returned to one of 15, local depots. It will then be put on larger lorries to be
“trunked” back to one of the cash centres. The cash is then counted by machine under
camera. We are currently replacing our old machines with High Speed Note Counters
that meet the BoE’s new rules for polymer notes. The cash is processed in alignment
Shown as £1,479m in June 2017 paper reflecting change in presentation of debit cards and
Clydesdale funding arrangements.
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with BoE rules and goes back into the vault at which point the cash is owned by BoE
and disappears from our balance sheet and funding requirement.
Cash will also be doing the same journey in reverse (Outward Rems) and we maintain
other cash between vault and branch for a variety of reasons - local stocks of coin to
speed up delivery, Scottish notes etc.
The cash in use in our business at year-end was therefore £913m, broken down as
follows:
Cash position, £m March
2017
Sterling notes and coin 551
Foreign currency notes 85
Total Cash in Branches 636
Inward REMs 83
Outward REMs/Other 74
Total for Processing 157
Other distributed inventory, cheques, cards 120
Total Cash in Use 913
Funding
That £912m of cash was funded as follows:
RCF Clients NRF Total
561 106 246 913
The NRF
£246m was borrowed from the BoE under a complex arrangement within the NCS
known as the Note Recirculation Facility (NRF). The BoE wants us to distribute cash
around the country preferably using smaller denomination notes. Every note we
process over the course of a year (October to October) creates capacity and the
smaller the note, the more capacity it creates. Over the course of a year, the notes
we distribute earn us capacity of some £250m every day.
We are allowed to sell that capacity to the BoE overnight. Effectively the cash sits in
our branches and would sit as borrowing on our balance sheet during the day. At end
of day, an amount is formally transferred to the BoE and both the cash and the
borrowing are removed from our balance sheet.
We only have to stay within our capacity over the course of the year - on a given day
we can sell capacity to the BoE up to a limit of £350m, giving short-term flexibility. If
we over-use the facility across a year, we have to pay the BoE an interest charge on
the additional amount. We work hard not to do this in case we risk the relationship.
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The BoE is not prepared to risk this money and it is guaranteed by RBS for which we
pay a small LIBOR related interest fee. The RBS arrangement works within an overall
commitment of £400m, used in various ways over a 24 hour period:
e £1m is used at all times as collateral with the Bank of England so support the £1m
self-insured element of our Crime Insurance.
e At 6:00 am we repurchase notes from the BoE. This is funded by an overdraft on
our RBS account. This can be up to £350m. We also pay the BoE for the amount
of Notes that we expect to take out of bond on that day. The combination of the
two can be no more than £399m. This means that our bank account with RBS can
be overdrawn by up to £399m during the day.
e At the end of the operational day (6:30 pm) we receive funds from the BoE for
notes demonetised (i.e. sold back within the NRF) and for any notes that we have
put into Bond during the day.
e Treasury have to fund the RBS bank account so that the balance at the end of the
day is zero.
e Shortly after RBS then allocate up to £350m from their collateral pool with the BoE
in favour of POL as collateral for the notes purchased by the BoE to back up POL’s
commitment to repurchase them the next day.
e At about 5:30 am the following day this collateral is then released by the BoE.
The borrowing under the NRF and the cash it relates to is held off-balance sheet. In
our ARA, the cash balance is not £947m but £947m minus £256m - £691m. We are
looking, as discussed at the last ARC, at increasing the transparency of the NRF in the
ARA.
Client Funding
£106m was funded by clients. Most of that was owed to Santander Bank whose
customers have longer and more substantial paying in relationships with Post Offices.
RCF and RCF Headroom
The remaining borrowing of £561m was from BEIS under its Revolving Credit Facility
or RCF.
We have to give BEIS 48 hours’ notice of how much money we want to borrow.
The facility is capped at £950m which was reduced from £1,150m in a previous
funding period and that has been confirmed through to March 2021.
The Board has taken the view that some funding availability should be held back in
case the position of the business deteriorates, to manage volatility and to enable us to
cope with shocks. As a result, we can only borrow above £750m with the Board’s
permission.
While the flow of client monies can create significant swings (in 2016-17 there were
10 days where our headroom deteriorated by more than £200m compared with the
previous day and 29 days where it deteriorated by more than £100m) we have sought
to manage that within the £750m. Only at Christmas in recent years have we
requested Board permission to extend the limit to £850m and in fact that was not
needed in 2017: we held at £749m of borrowing.
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Our facility headroom against that limit was therefore £750m less the balance of
£561m - £189m.
However, the RCF was designed to fund the working capital needs of the business and
is held on a different and less scrutinised part of the Government's balance sheet. The
use of the facility is not hypothecated or limited and our cash is fungible. However, to
ensure that we do not over-borrow against the facility for other reasons such as
investments, the RCF is also subject to another limit, being Security Headroom.
This requires the borrowing under the RCF to be less than the working capital needs of
our business. This is defined according to a formula:
Security Headroom fm
Cash in use in the business 913
Less: cash de-monetised under the NRF (246)
Branch cash 667
Other defined net client assets/debtors 227
Total security available 894
Less: borrowing under the RCF (561)
Security Headroom available 333
Managing Headroom
As set out in the main paper, and as forecast in the June Board session, reducing the
amount of cash in branches and in the cash process will increase the facility headroom
(we borrow less against £750m) but does not increase security headroom as the
security limit and the branch are both reduced equally.
We also have a separate security arrangement with Santander which has c. £90m of
headroom but which could presumably be managed within the overall relationship.
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GROUP EXECUTIVE PERFORMANCE UPDATE
Author: Owen Woodley Meeting date: 15 March 2018
Executive Summary
Context
This report provides an update to GE on the drivers of income and the current
performance of the products across FS&T together with a full year outlook.
Questions this paper addresses
1. How do we make money in FS&T?
What are our propositions for customers?
What contribution does each of our products make?
How are we performing?
apwhn
Where do we expect to be at year end?
Conclusion
e The FS&T trading portfolio (including Banking Services) has performed well against
headwinds and is expected to land £0.6m off the full year budget contribution.
« MoneyGram remains an area of concern given wider market conditions in advance
of Brexit. We are in detailed negotiations - see separate paper.
e The growth in the Bol product set continues to be constrained by the current
contract. Again, we are in detailed negotiations.
e Work is progressing well on the launch of the Customer Hub and Project Galaxy is
now into implementation in Telco to address the BT price regulation.
¢ FS&T Performance to P11:
Gross Income
Period 11 YTD Full Year
Actual 5+7Fest = Var Out-turn 5+7Fest Budget Bud Var
IFS&q incl PO Insurance (I 3185 317.2 13 I I 3615 3615 372.2 (10.6) I
Banking Services 80.4 79.4 1.0 874 863798 76
IFS&T, Poland BankingServices I I 3989 396.6 23 I I 4489 4478 ©4520 = (3.1) _I
FS&T Profit Co!
bution after Agents’ fees (:
Period 11 YTD Full Year
Actual 5#7 Fest Var Out-turn 5+7Fest Budget Bud Var
IFS&qT incl PO Insurance I I 1349 1374 (25) I I 159.9 © 161.4 167.1 (7.2)
Banking services 52.8 523 05 576 S71 510 66
Central Marketing (10.4) (10.1) ___(0.3) (12:3) (44.1) (11.3)___(.0)
[Total FS&T, Pol and Banking Sevices)} I (177.3. 179.7 (24) I I 2051 2075 = 206.7 (1.6) I
Input Sought
The GE is requested to review and note the report and approve it for Board submission.
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The Report
Balance Sheet Product Set
1. How we Make Money
* Mortgage income is based on the total completions value: 30bps for contact
centre/online and 9bps for brokers. Cards and Loans are based on transaction
volumes and balances - 45bps of total written lend value and £21 for each card sale.
e In Savings, under the current value share, we receive a fixed payment of £43m.
There is also variable income based on a Net Interest Margin (NIM) target of 55bps
in March 2018, with £0.55m of income for each additional 1bp below this target.
2. Core Proposition for our Customers
Today we offer good value, straightforward retail banking products but we need to move
away from being price-led into differentiated propositions that build long-term customer
relationships. The first will be two new mortgage propositions launching in April.
3. Product P&L P11 YTD
‘Actual SA7Fest Var Out-tu 547 Fest Budget Bud Var
Mortgages 27 207 28 2136 (09)
Credit Cards and Lending 24 «16 OS 2200477 (8)
Savings 37.0 370__(00) 522 47.2478
8/S Products as 406 42 57.2 540 552-20
Profit Contribution (£m)
‘Actual S47Fest Var Out-tum 547 Fest Budget Bud Var
Mortgages 20° 146 20001450032 (1L1)
Credit Cards and Lending 15 1203 46 1336 (20)
savings BAS 48 (0.3) 492 446 5803.2
Agent's Pay 22 21) (00) (24) 23) (2.3) (0)
8/S Products 338 353 OS 505 45.0 505 00
4. Review of Performance
Savings performance has been very strong, supported by the partnership’s pricing
responses to the base rate increase. We expect NIM to be c.46bps, leading to a
forecasted income level £4.4m above budget.
Mortgages are tracking ahead of last year but remain behind target in both apps and
completions. Price is the key driver which has restrained volumes but we are launching
two new propositions in April, backed by a major marketing campaign. Our unsecured
lending journeys are improving with higher accept rates (68% in cards/55% in loans).
5. Year-End Outlook
Contribution is expected to end the year in line with budget and £5.5m ahead of
forecast. We are not expecting to receive any profit share from credit cards (budget
£0.9m) or personal loans, however this will be offset by the additional savings income.
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Transactional Product Set
1. How we Make Money
¢ Our foreign currency products deliver income on a transactional basis (£1.92 per
‘normal’ FX transaction, 0.4% of ‘click & collect’ turnover, £4.58 per new ‘travel
money card’ sale and 0.625% of all top-ups) plus an annual fixed payment of £10m.
e« MoneyGram income is generated through three streams: the FX margin (c.34%),
customer fee (c.36%) and a fixed 65p per transaction. We get c£6.35 per Send and
£10.50 per Receive and there is also an additional £3m annual payment to POL.
e Postal Orders (“POs”) cost 50p for transactions 50p-£4.99, £1 for £5.00- £9.99 and
above that 12.5% capped at £12.50. We also recognise income from expired POs.
2. Core Proposition for our Customers
Post Office is the number one provider for in-branch foreign currency sales, with a
market share of 25% and online share of 17%. We also have the largest network of
money transfer branches in the UK and hold a c.13% share of cash money transfer
business. Postal Orders are in structural decline and subject to a wider strategic review.
3. Product P&L P11 YTD
Transactional Products: 93.4 945 (1.1) 104.4 105.9 109.8 (5.4)
MoneyGram 28 246 (17) 235 72 297 (4.2)
Agent's Pay (36.2) (35.5) (0.7) (39.1) (38.4) (37.8) (1.3)
Transactional Products: 49.6 52.3 (2.6) 57.2 60.4 64,3 (7.0)
4. Review of Performance
Travel Money & FRES revenue is £1m ahead of budget and £0.5m better than YTD
forecast, principally due to the performance of the TMC but also recently better volumes
in branch. However, AML limits are a risk to FRES profit (£2k+ transactions down 40%).
MoneyGram is behind its original income budget by £(4.8)m and YTD forecast by
£(1.7)m. Key drivers are migrant levels and uncertainty around Brexit, the value of £
and FX margins and stricter AML regulations requiring ID on higher value transactions.
PO volumes are declining by c.20% YoY and are 13% lower than budget.
5. Year-End Outlook
We are expecting Travel Money to end c.5% behind target due to competitive pricing in
the online market but this has been offset by the good performance of the TMC. We are
reviewing our remittances strategy and are in commercial dialogue with MoneyGram.
Postal Orders contribution is expected to end the year in line with the 5+7 forecast.
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Telco
1. How we Make Money
e We offer consumer telephony products (HomePhone, Broadband ADSL and Fibre)
and telephony services (voice calls, premium install, virus protection etc). The
products offer 3 contract lengths (12/18/24 mths) ensuring that new promotional
offers can be rotated to balance ASA compliance with avoiding “always on” offers.
e Customer monthly Average Revenue per User (“ARPU”) and average tenures vary
by product and promotional price points. In HomePhone, the average ARPU is £24.46
over 57 months and in Broadband it is £27.48 over 32 months. ARPU is a mix of
fixed contract income (c70%) and variable income from call packages etc.
2. Core Proposition for our Customers
Broadband (ADSL) & Fibre (FTTC): For Qi 18/19 we will be launching our most
competitive Standard Broadband price point at just £18pm through our key affiliate
partners (U-Switch, Moneysupermarket, Broadband Choices) and improving Fibre retail
prices from £32 to £31pm on our most popular tariffs. This increased aggression is
primarily supported through wholesale cost reductions negotiated with Talk Talk.
HomePhone: The base HomePhone offering will be reduced from £16.99 to £11.50 on
ist May in response to the OfCom’s market pricing intervention. We are also introducing
a £1.50 charge for paper billing for customers moving to the £11.50 tariff but we expect
POL to remain competitive vs BT with better value through free call features and rates.
3. Product P&L P11 YTD
Gross Income (£m)
Actual 547 Fest Var Out-turn 5#7Fest Budget Bud Var
Telecoms 1399 138018, 1521196 149.426
‘Telecoms Products 1239.9 1380 1.8 1521 149.6 149.4 2.6
Profit Contribution (£m)
Actual 547 Fest Var Out-turn 5+7Fest Budget Bud Var
Telecoms 35.1 35.3 (0.3) 369-380 31.2 57
Agent's Pay (13) (13)__—(0.0) (14) (2.4) (2.4) (0.0)
Telecoms Products 337 340 (0.3) 355 36.6 29.9 57
4. Review of Performance
Telecoms gross income is £1.8m better than forecast due to higher customer numbers
and greater ARPU. YTD contribution variance to forecast is (£0.3m) due to accounting
treatment of contract set-up costs, partly offset by higher customer numbers and an
early price increase and lower cost of sales, particularly for HomePhone only customers.
5. Year-End Outlook
Telco gross income should outturn c£2.6m ahead of forecast due to higher customer
take up and ARPU. At the same time, amortisation costs have increased since the 5+7
forecast through a changed accounting treatment adding £1.5m to the cost base.
Overall, Telco contribution is expected to outturn (£1.1m) adverse to 5+7 forecast.
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Post Office Insurance (“POI”)
1. How we Make Money
¢ Travel Insurance (“TI”): Revenue is through commission income. 84% of sales
are single trip policies with one-off revenue. The rest are Annual Multi-Trip (AMT)
policies which builds annuity income. AMT retention is c18%. There is an
underwriting profit share; returned as revenue or rate reduction.
e Life & Over 50s: Income is generated through commission, reflecting the lifetime
value of the sale to POI and is subject to clawback for policies cancelling within the
indemnified period (up to 48 months). An annuity income stream is received monthly
for all policies that continue beyond the indemnity period and a monthly income
stream of 2.5% of premiums is paid to POI as commission on these policies.
« Home, Car & Van: Revenue is generated through a combination of commission
income, add-on margins (e.g. Legal Expenses, Roadside Assistance etc), service
fees, instalment income and First Notification of Loss income. Policies generate an
annuity income stream from both new sales and renewals, plus a profit share.
2. Core Proposition for our Customers
POI propositions are simple to understand, easy to access and offer good customer
value while not being the cheapest in the market. Propositions for Travel and GI remain
mass market with limited differentiation although plans to refresh this are in
development. Protection products are evolving at pace, providing the platform to
successfully build a material share of the growing direct to consumer protection market.
3. Product P&L Pi1 YTD
Budget
Actual S47 Fest Var Out-turn S+7Fest Budget VN
Travel Insurance wo 157 (17) Ba 17066 (1.1)
Life & Over 50s 73-202 87 80722, 8
Home, Car, Van & Other m2 24 09 B08 8B (3.9)
PO Insurance Products a5 441 (06) ‘oa 537-526 (35)
FS&q Profit Contribution £m
547 547 Budget
Actual "Var Out-tun 7 Budget VN
Travel Insurance g9 104 (15) 99 m2 td (1.2)
Life & Over 50s 44046 (05) S10 5450
Home, Car, Van & Other Pr 2 wi 98 04
PO Insurance costs a (53) (65)__(48)__ (0.6)
PO Insurance Products 75 176 (0.4) 199202 213 (1.8)
4. Review of Performance
Q4 protection campaign continues to build momentum. Marketing is delivering above
expectations driving response for over 50’s into all channels. We are seeing early signs
of success in respect of our 1 on 1 customer communication and digital marketing for
Life insurance. Month on month digital sales of protection are up by 323% (P10 to P11).
Renewal retention for car insurance continues to outperform plan by 2%. We continue
to track behind plan for Travel Insurance sales volume across multiple channels.
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5. Year-End Outlook
POI forecast group EBITDA outturn is £20.2m, prior to a £0.3m risk from Project Russet.
As of P11 YTD EBITDA was £17.5m. The continued strong performance of Life Over 50’s
DRTV, Life sales and Easy Life will be critical in hitting the year end number.
Customer Hub
1. Programme Plan Summary
The Customer Hub is targeting a first launch in May 2018. The initial MPV is focused on
the TMC and TI products which will be served through our own Travel App. The project
is in its product development sprint cycle, application build and API integration with
both FRES and POI. FRES now has dedicated development, test and production
environments and we are now working on a clear, POL-wide Hub operating model.
2. Achievements to Date
We have introduced Agile Ways of working to support rapid product and application
development - learnings which will need to be shared more widely in POL. The Post
Office Digital Innovation Centre has been launched and key people recruited. The
procurement of the OutSystems platform & development is ongoing. UI/UX prototyping
for TMC is now completed, and continuing for TI.
3. Launch Proposals
Following launch in May, all new TMC customers will be directed to the Customer Hub
where we will also be able to offer them TI and Gadget Insurance as add-ons. Sales
support kits and call centre briefings are being prepared.
4. Expected Take Up and Usage
Assumptions for the first MPV are based on an approach of co-existence with the current
FRES TMC App initially. This will be followed by a period of migration for existing TMC
customers to the Travel Hub (expected to complete by the end of Q4 2018/19). We also
intend to migrate existing TI customers into the Hub at their renewal point and from
this base, we will cross-sell TI, TMC, Gadget Insurance and Identity products. Regular
usage is critical via personalisation, velocity of new services and some key capabilities:
e Active customer management based on data analytics, e.g. nudging.
e Additional functionality to increase self-serve (e.g. insurance add-ons, Mid-Term
Adjustments, Claims, Chat bot, TMO, onboarding TMC etc)
e Improved propositions (e.g. affinity arrangements such as HolidayExtras).
5. The Future
We are developing a process to include additional verticals in the future. This process
will be discussed and approved in the Customer Hub Steerco and brought to GE for
information.
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Appendix - Brief Market Overview
Mortgages
Current market size c£1.4bn; POL’s total stock c£5.4bn; market share c0.38%.
Mortgage lending has been growing consistently over recent years, with accelerated
growth in 2016 compared to 2014 and 2015 but base rate rises would impact the market
over the coming period. The dominant players in the market are Lloyds Banking Group,
Nationwide, RBS, and Santander. Digital channels are most important when customers
are researching a product, but many customers still value face-to-face advice at the
application stage. The intermediary channel continues to grow in importance.
Savings
Current market size £1.45trn; POL’s book size c£14.5bn; market share c.1%
Savers have been disadvantaged by extremely low interest rates for a number of years
and as such customers have often been turning to interest-bearing current accounts
instead as a means of bolstering their savings income. The major retail banks together
with Nationwide and NS&I remain the largest providers of retail savings accounts.
Personal Loans
Unsecured loans market size c£38bn; POL written lending c£120m; market share 0.3%
The unsecured lending market grew by 40% between 2012 and 2016, reaching £260
billion by the end of the period, with estimates from Mintel showing a further 5% growth
for 2017, spurred on by low interest rates making repayment levels more affordable.
Credit Cards
Current market size 36m (vol); POL active accounts 406k (vol); market share 1.12%
Credit card lending has maintained growth levels of 5-10% over the last five years. Low
interest rates have driven hard competition with increasing balance transfer offers and
rewards. The number of credit cards in circulation has been roughly stable at 60 million
over the last five years. Barclaycard remains the largest provider with an estimated
market share of 16% followed by LBG at 15% and HSBC at 11%.
Travel Money
Market transaction value £9-12bn; POL transaction value £2.5bn; market share 25%
UK residents spent £43.4 billion abroad in 2016. However the Brexit vote led to an
immediate fall in the value of the pound which has yet to recover its pre-referendum
levels. This has significantly reduced consumer spending power abroad and as a result,
consumers are paying closer attention to exchange rates and are much more likely to
spend more time shopping around to find the best deal. Fintechs like Revolut are
performing well in the pre-paid multi-currency card arena.
Telco
Homephone only market c2m households and POL market share is 10%; Broadband
market is c25m households and POL market share is c1%
There are four major providers in the Telco market - BT, Sky, Virgin and TalkTalk. All
are focused on fibre broadband to support fully converged 3 or 4 play offers. Fibre offers
lower margin returns, but which these are offset by converged offers of TV and Mobile
by most of the big four. ADSL broadband (up to 17mb) is still in over 9m UK homes,
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and remains highly attractive to value seeking or smaller households. Over 50% of
customer switching is now happening online and through affiliate websites such as U-
Switch.
Travel Insurance
Market Gross written premium c£730m; POI’s GWP is c£50m; market share 6.8%
Steady market growth predicted with the current market size of £730m written premium
forecasted to grow to 920m over the next 5 years. This will lead to the continuation of
intensified price competition from a crowded market. Annual Multi Trip continues to be
c.40% of the overall TI market, but this is inflated by policies offered by Banks/Credit
cards. Market share of packaged accounts with travel insurance is on the decline with
customers expected to revert back into the direct travel insurance market.
Motor Insurance
Car insurance market GWP c£11.5bn; POI’s GWP is c£80m, market share 0.7%
Whole car market growth is estimated at cl1%pa to 2020 with aggregator expected to
grow at the same rate. There is little to no impact from insuretech/fintech in motor
given high entry barriers and costs and business/product model highly commoditised.
The short term outlook for motor is favourable with a short and shallow drop in rates
expected as some providers move for growth.
Home Insurance
Market GWP c£5.7bn; POI’s GWP is c£98m; market share 1.7%
Insurable households currently total 20.1m and expected to fall by an average of 2%
p/a over the next 3 years (eBenchmarkers). This reflects changes in home ownership
especially for younger segments. Aggregator share is still expected to grow by 7% pts
between now. The home market is likely to be more challenging in the short term as
traditional insurers have not sufficiently adjusted their business models to reflect
increased competition from aggregator distribution.
Term Life
Total non-advised market 250k new policies pa, £70m APE; POI’s market share 2.5%
There remains a significant protection gap in the UK market - very difficult to scale but
believed to be multiple £bn. Mintel forecasts 1-2% market growth per year over next 3
years with a trend for direct to consumer new business comprising an increasing portion
of the market. Aggregator growth is expected to continue too at c10% pa.
Over 50's
Market is 280k new policies pa; £55m APE; POI’s market share 7%
The market is expected to be flat in 2018/19 with potential for limited growth in 19/20
and beyond. It should be noted however that market size has shown a strong historical
correlation to the TV advertising expenditure of the market leader, Sun Life.
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BOARD DECISION PAPER
International Remittances
Authors: N. Boden / C. Pispinis Sponsor: Owen Woodley Meeting date: 27 March 2018
Executive Summary
Context
« Following on from the Remittances paper presented to the December GE, Post Office
Money has completed its review of our current contractual obligations with our in-
branch cross border payment provider, MoneyGram (MG).
« Money Transfer Operators (MTOs) have seen continued impact to consumer
spending caused by a number of key factors —- Brexit, falling immigration rates, the
weakness of sterling and continued focus on AML requirements - all of which will
remain ongoing considerations over the short to longer term.
e The financial impact to POL continues to be challenging with double digit YOY decline
in transaction numbers. Our 2017/18 YE income outlook is £26.2m, £2.4m adverse
to the 5+7 forecast.
e Digital capabilities, in contrast to the traditional cash-to-cash send and receive
transactions, continue to increase in popularity with remittance customers. It is
estimated that digital remittances have grown from 5% of the UK market to around
20% over the last three years. Currently, our existing agreement with MG contains
an exclusivity clause removing our flexibility to operate in this digital arena with
other providers, yet this is not a strength for MG’s European operations.
e Our current exclusive contract with MG runs to September 2019, with the option
(requiring confirmation by 30'* March 2018) to extend to September 2021.
Questions addressed in this report
1. What is the size of the current market and estimated share by MTO within the UK?
2. What would be our key RFP considerations and how would these balance against
improved value from an extended MoneyGram contract?
3. What is our current 3-year forecast and how does it compare to the negotiated
outcome with MoneyGram?
4. What are our recommendations and next steps?
Conclusions
1. As digital activity continues to build in the remittances market, and growth in the
total market remains flat at best, we expect cash-initiated remittances to see single
to double digit decline over the next three years. Further changes in AML transaction
thresholds and lower immigration into the UK will exacerbate this decline rate, as
! Please refer to the December ‘International transfer and remittance’ paper in the Reading
room for further background on the market & competitive landscape, and contractual set-up
with MG.
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we have seen following the current £800 limit introduced in 2017 and Brexit. Our
future revenue expectations will therefore be under growing pressure unless we have
access to a complementary digital solution.
2. Our discussions in the market would suggest that we are unlikely to get an enhanced
offer on our branch proposition from an alternative provider and critically, any new
agreement would only commence in late 2019 by which point we expect the digital
market to have moved even further. We believe we need to act sooner than that.
3. We do not believe that it is feasible for POL to own the full value chain for the
foreseeable future, given the need for a global network of correspondents: current
branch, online and digital providers operate in >100 countries and come with
recognised and trusted brands. We also believe that a multi-partner branch
proposition would be untenable given differing provider tariffs and exchange rates,
and would be potentially less beneficial commercially.
4. Based on the above and our earlier analyses, we have two primary choices:
« Option 1: Move to RFP - this would corroborate, or otherwise, the sense we are
getting from the market and determine whether MG would provide enhanced terms
from late 2019 onwards under competitive pressure. However, this would certainly
delay our ability to launch a digital proposition until early-mid 2020. Furthermore, it
is expected that any new provider would be seeking a significant new contract period
and likely request full exclusivity across branch and digital.
e Option 2: Negotiate better commercial terms through to September 2021 and
remove exclusivity on digital capability with MG immediately. This would keep the
focus and continuity on our current branch product; help protect against any further
declines in performance from the political landscape affecting immigration (our core
customer base); and enable us to develop our digital product offering and test the
market faster than if we had to wait to go to RFP.
5. We believe option 2 provides better customer and business outcomes, particularly
with a clear commitment from MG to build out their non-European corridors; as such,
we have sought and secured an improved guaranteed income stream from our
existing branch channel which will mitigate against any further revenue decline. This
amounts to a net income of £5.6m over the life of the extended MG contract to 2021.
We have also secured MG’s consent to give us more flexibility on digital remittances,
including full freedom on pure digital transactions. We think this is a compelling offer
which helps to mitigate our market risk over the next three and a half years and we
therefore recommend that the MG contract is extended to September 2021, subject
to legal terms.
Input Sought
The Board is asked to support the recommended next steps.
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The Report
What is the current size of the UK market, estimated share by
MTO and product differentiators?
1. The UK is an outbound market with send transactions accounting for 90% of all
transactions. We estimate the send market to be c£6bn p.a. with 21m send
transactions in 2017 by MTOs for walk-in and online business. Share by operator
(banks excluded) is as follows:
a. Western Union (“WU”) 43%
b. MoneyGram 19%* (*POL represents 70%)
c. RIA 8%
d. World Remit 7%
e. Transferwise 5%
f. Others 18%
2. POL is the largest single network with a UK market share of 13%.
3. WU primarily operates across a network of independent operators, similar to RIA;
RIA commenced a pilot with Asda in 2017 for a white-label online solution, the
success rates of which are unknown. RIA’s owner, Euronet, also owns HIFX and XE
who are competitors of POL in the digital sphere.
4, The three largest MTOs — WU, MG and Ria - are all US companies and between them
have over 1m send and receive locations globally. They also operate in most
countries and territories. They all offer a 10-minute person-to-person cash send/pick
up service, as well as bank account deposits and deposits to mobile wallets in certain
markets. These markets are growing and a key focus of each operator. The very
broad and established network locations in ‘receive’ countries are the main reason
why POL would not be in a position to become a provider in its own right over the
short to medium term, and therefore is better off partnering with an existing,
recognised branded network.
5. FinTech MTOs operate simple internet/mobile low cost models and provide an
alternative to the walk-in cash-to-cash models, by signing agreements directly with
banks and mobile operators. Similar to the cash-to-cash providers, these digital
operators are also focussed on owning the customer data to directly market their
new services and influence customer behaviour, e.g. through prompt and
personalised notifications of exchange rate movements.
6. We believe there is a significant opportunity for POL to engage in the digital space
by partnering with a FinTech - either the established names, such as Azimo,
Transferwise or Revolut - or the less established, such as Smallworld or TransferGo.
There are also opportunities for POL to disrupt the market in terms of a more simple
pricing structure which we will be exploring further.
What are core RFP considerations and how do these balance
against improved value from an extended MoneyGram contract?
7. WU and RIA are expected to require a minimum five-year agreement as this
timescale is currently a recognised payback period for signing fee, branch rebranding
and marketing investments for a partner with our branch footprint. We would also
expect to be required to accept an exclusivity clause for this time period consisting
of cash-to-cash and digital capabilities.
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8. Additionally, we think that an RFP would result in loss of focus from MG on the core
business during the critical period in the run up to Brexit, which would likely further
impact POL's decline in revenues over the next 18 months. MG’s current agreement
expires at the end of September 2019, unless POL requests an extension through to
September 2021, to be requested by 30" March 2018.
9. Whilst the recent ANT Financial planned purchase of MG was blocked by US
authorities, MG remains open to further takeover bids. If this situation was to occur,
POL would have a right to terminate if MG were acquired directly or indirectly by an
entity outside of MG’s group, provided we can explain our motives, which must be
reasonable.
10.Of course, an RFP would give us the opportunity to engage with the market leader,
Western Union. This has its benefits, though we should also consider:
o The market is changing rapidly; waiting for the RFP, which means we would
not be contracting with a (new) party until October 2019, would further
exacerbate the current declining income trend, by less focus on the business
given diversion of resource to the RFP, and further falling behind in the digital
space.
o Informal engagement with WU indicates they could provide digital capability
within 3-4 months, subject to POL tech; the negotiating approach we have
taken with MG (i.e. more digital flexibility) would still give us the opportunity
to partner with WU in the digital space.
o WU has also indicated they would not be prepared to give us access to customer
and behavioural data; this would limit the wider payment capability we are
looking to leverage across POL, and through Customer Hub specifically. This
would apply to physical and digital transactions
o Whilst some of the points above could be negotiated, WU, as any new provider,
would most likely be looking for exclusivity for a minimum of five years to
ensure payback; this would take us out to late 2024.
11.Other areas we have considered in moving to an RFP process include: timescale to
complete; opportunity cost of the RFP process, including senior management, legal
and procurement resources and cost; unknown financial impact to October 2019
(date from which a new agreement would run and by which time the digital part of
the market is likely to have continued its rapid growth); removal of existing signage
and rebranding of our branches; employee training; and system investments.
12. As such, we devised a negotiation strategy with MG, developed on the basis of three
key objectives: (i) protect against current revenue decline, (ii) release/reduce our
current “exclusivity” contractual obligations to allow us to develop/partner on new
digital capabilities and, (iii) create a financial benefit for POL if MG is unable to deliver
against a pre-committed new market and product development schedule. Through
our negotiations we have made significant progress against the first two of these
objectives. MG’s reliance on third party agreements to deliver against the schedule
means that they are not willing to agree on the third objective.
13. To help MG get to their final offer, we have actively supported a review of their cost
base and received a 12-month new market and product development plan.
14. The table overleaf shows a summary of MG's offer and our commentary. It is
important to share at this point that we do not think that the cost reductions MG has
proposed to part-fund the additional fixed payment will exaggerate further revenue
decline, except for point 3 which is expected to impact our gross income by £0.2m
p.a.
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MoneyGram offer Post Office comment
This is in addition to the current anniversary and network access fees, increasing
our guaranteed income. We have some flexibility in terms of how we stage this
1. Additional fixed payment of £6m over the term _ and depending on wider POL business requirements, e.g. could take £3m in
of the extended contract 2018/19 and £3m in 2019/20
2. Reduce global marketing investment from £1.5m
to £1m, saving MG £0.5m p.a. POL has no control over this spend so the annual benefit falls directly to MG
Effective from Ast October 2018; the saving is based on MG not renewing their
HMRC licence at these branches. Their is little opportunity in those branches, as
their demographics do not lend themselves to remittances. MG records show
that only 2 branches of the 4,000 have fixed signage, which MG will remove and
3, Reduce footprint of PO branches to c. 6,000; this _ make good. All other signage is portable and MG will work with POL on removal
is about removing c.4,000 branches that conduct _program between Oct 18nd March 19. Should the population demographics
less than 2 send transactions p.m., saving MG change in the future MG and POL to work together in line with current program
£0.52m p.a. for new branches.
4, Remove existing MG sales team and engage POL.
netwok sales team (in place pre current MG Requires co-operation of Network Sales team. This would be effective October
agreement). Estimated saving to MG of £0.2m p.a. 2018, giving us time to socialise and engage to minimise any sales impact
5, Reduce annual branch signage budget from Network is currently fully branded, so no impact expected on exisiting network.
£0.5m to £0.1m, saving MG £0.4m p.a. Any new locations will be assessed on a case by case basis
6, More flexibility in the digital space: This outcome works well for POL:
a. for pure digital transactions, POLto have non _- the pure digital freedom gives us the optionality of both parterning and M&A to
exclusive capability from Ast April 2018 support wider POL capability in payments and ID
b. for stage & pay transactions, i.e. digital - MG already has stage & pay capability in other countries, incl. Australia and the
transaction preparation with cash fulfillment in _US; this means we'd be able to introduce this for POL customers earlier than if we
branch: MG and POL commit to deliver by Dec 2018, had to contract with a new provider altogether; and the ‘exclusivity’ would drop
and MG has exclusivity for three months post off before the current contract expiry of September 2019
launch
7. Development of new market capabilities to
penetrate bank accounts and wallet (See table in MG will not reimburse POL should timescales not be met as they are reliant on
Appendix 1) third-party actions
15.In summary, MG will reduce its annual costs by £1.6m p.a. and pay POL an additional
guaranteed payment of £6m (£5.6m net) over the life of the extended agreement.
MG has also confirmed that POL has the freedom to source a new partner or develop
its own product for digital remittances, providing a new revenue stream and
enhancing the Travel Hub and ID propositions.
16.Whilst the recent acquisition of MG by ANT financial has been blocked, MG continues
to develop its direct relationship with ANT which is a critical development to gain
penetration against the existing strength of WU in the Asia-Pacific market. The table
in Appendix 1 represents MG’s 2018 market development roadmap, all of which will
be accessible to POL through its branch network, pending any system developments.
This roadmap should significantly improve MG’s competitive strength in these
regions.
What is our current three-year forecast and how does it
compare to our negotiated outcome with MoneyGram?
17.MG has offered an additional £6m fixed payment over the term of the extended
contract; on taking the extension payment over 2018/19 and 2019/20:
o Any decline in FS&T Contribution is protected by £5.6m over the next two
financial years as it is a guaranteed payment, not a variable payment.
o A sensitivity check against a 10% decline in sales in 2018/19 and 2019/20
would provide FS&T a contribution value of £13.8m and £11.9m respectively,
based on the new financials.
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MoneyGram Current Extension Forecast MoneyG otisted Extension Forecast
167 1718F 1849 1920 2021 1617 17 1819 1920 20721
Variable Income 247 22 20.4 19.4 18.2 m7 212 201 194 18.2
Branch Closure (c.4,000) oo 00 00 oo oo oo oo 22 02 02
Annual Fed Payment” 30 30 30 30 30 30 30 30 30 30
Network Acces s Fee 21 20 20 20 24 21 20 20 20 24
Exters ion Payment oo 00 00 oo oo 00 90 30 20 00
Gross income 28 m2 1 m1 BE ms 22 279 BS Bh
Total Direct Costs 129 124 430 430 -130 429-124 120-130-4300
Total Indirect Costs 2 -o1 " -04 04 a2 a1” “04
20.4 oA OA
FS&T Contribution 167 137 10.5 67 I (137 (us) 103
*If the agreement is not extended then the annual fixed payment reduces from £3m to £1m and the
Network access fee reduces from £2m to £1m in the 2019/20 budget bringing our contribution down to
£8m
The table above assumes the additional £6m ‘extension payment’ is equally split over two years, 2018/19
and 2019/20; this could be flexed differently depending on POL’s wider business requirements.
NOTE: The extension of the agreement would also run for the first six months of our 2021/22, for which
MG is not proposing any additional payment; in line with current agreement we would only receive a
network access fee at a value of £1.08m (no fixed payment)
18.With the removal of digital capabilities from the current exclusivity clause with MG,
POL will have the freedom to realise new revenue streams by developing the right
capabilities to capitalise on its ambition in this arena. If the digital market grows to
£2.1bn (35% share of the total remittance market) and POL can penetrate 10% of
that market at a margin of 1%, it could drive c.£2m gross income p.a., subject to
commercial negotiations. We will formally engage with digital providers as soon as
we are contractually able, to assess the size of the opportunity.
What are our recommendations and next steps?
19. Following our successful negotiations with MG in securing additional guaranteed
payments totalling £6m gross, and the change in the existing exclusivity clause to
allow us to pursue digital capabilities (whether with MG or elsewhere), we
recommend extending our existing agreement with MG through to September 2021.
This is a finely balanced decision since it defers a competitive tender from MG for
two years, but it enables POL to pursue other avenues for digital, whilst keeping
momentum in the cash-initiated business without the distraction brought by an RFP,
also allowing us to focus our resources on other business priorities.
20.A two-year extension with MG would give us additional guaranteed income and the
ability to test the digital opportunity and reality; this would put us in a much stronger
position in 2021, when we go out to the market at the end of the extended MG term.
21. We would also undertake the following next steps:
o Engage legal to draft the required MG contract changes and initiate the business
case process as appropriate
o Engage with a selection of FinTech and online specialists, with the aim of
understanding their strengths, the market and digital fit with POL. Review
opportunities of a JV with or acquisition of a FinTech or online specialist
o Continue engagement with Innovation and Identity to assess opportunities of
developing a digital remittances proposition within our new app, whilst
supporting our aspiration to eKYC every customer once for all products
o Develop a comprehensive digital deployment roadmap (please refer to
Appendix 2)
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Appendix 1 - MoneyGram market development roadmap
The table below represents MG’s 2018 market development roadmap, which should
significantly improve MG’s competitive strength in regions they have struggled to
penetrate before and thereby start to mitigate MG’s current over-reliance on Eastern
European corridors.
Philippines Gcash DR 2Mwallets, Philippines Gcash DS 2Mwallets,
() expectedto expected to
triple in 12 mo! triple in 12 mo!
China Alipay DR 520m wallets I China Alipay DS 520m wallets
Korea Kakao DR+DS 50m wallets
Thailand TrueMoney DR+DS
India PayTM DR 280m wallets I India PayTM DS. 280m wallets
Bangladesh DS to all banks + 30m users
wallet
Pakistan DR+DS to wallet
Ghana DS to all banks I 12maccounts_I Ghana DR+DS to all mobile 22m wallets
wallets
Benin, Burkina Faso, Kenya DR+DS to all banks 42m accounts
Cote d'Ivoire, Guinea-
Bissau, Mali, Niger,
Senegal, Togo DSto all
banks
Nigeria DSto all banks =} 37m accounts
DR = Directed receive; DS = Directed Send. MG has advised that the India PayTM is
ready for launch subject to Bank of India granting the required licence to PayTM.
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Appendix 2 - Indicative digital remittance deployment roadmap
There are two elements to the development of digital remittance capabilities we will be
exploring in parallel.
1. The first pertains to our ability to introduce stage & pay transactions, i.e. digital
transaction preparation with cash fulfilment in branch. Below is an indicative timeline
for the introduction of the stage & pay solution with MG.
et Date Over Dey cies. Status
‘Submit CR for 15.12 including Staging MoneyGram to provide CR
‘Completion March 2018 MoneyGram document Complete
MoneyGram to provide API
15.12 API's PDF's available April 2018 MoneyGram documentation to POL
MoneyGram to provide Spec
for companion app/MGO
staging. POL/MoneyGram to
‘Commence Design Calls with POL and MoneyGram/POL/Dev formulate staging completion
Development Partner May 2018 Partner design.
Functional Specification May/June 2018 POL POL to develop spec
Functional Specification Sign Off June 2018 POL POL to sign off spec
Development June —October 2018 POL/MoneyGram POL to develop software
October — November
Certification 2018 MoneyGram/POL POL/MoneyGram to certify
POL to train tellers and
Teller Training/Pilot November 2018 POL organise pilot
Rollout January 2019 POL POL to roll out service
2. The second relates to how we exploit the ‘pure’ digital remittance opportunity. As
mentioned earlier, we'll need to decide how we deploy that capability, e.g. through
a partnership with or acquisition of an existing online specialist. Other considerations
will include wider Customer Hub developments, broader payment capabilities
(including Payment Hub), and digi-identity.
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STRATEGY PAPER
Identity services: priorities for 2018/19
Sponsor: Martin Edwards Authors: Bryn Robinson Morgan, Elinor Hull Meeting date: 27% March 2018
Executive Summary
Context
Identity Services was established as a separate business unit in February 2018, with
an objective to lead the market for digital identity. This paper outlines the immediate
priorities for the new unit over the year ahead.
Questions addressed in this report
1. What is the opportunity and vision for Identity Services?
2. What is our product strategy for 2018/19?
3. How should we re-engineer our supplier ecosystem to support the delivery of our
strategy?
Conclusions
1. Digital identity is a major growth opportunity for the Post Office, with an estimated
addressable UK market in excess of £1.5bn pa (based on the costs of identity
checking under existing business models). While there are a broad range of
prospective players looking to take a slice of this profit pool, the competitive
advantages of the Post Office put it in a unique position to lead the market.
2. We see 2018/19 as a critical foundation year in this context, with an urgency to
accelerate customer acquisitions and launch the products that will enable us to
target new clients rapidly and cost effectively. We are proposing a c£8m
investment programme in eight priority projects to lay these foundations, which
will be reviewed via Investment Committee over the coming weeks and months.
3. While our existing contract with Digidentity has served us well since 2015, we now
need to re-engineer our supplier arrangements to align to the much broader
ambitions of our new strategy. We therefore propose an accelerated process of
negotiations with Digidentity and other short-listed suppliers over the next 3
months to establish new ‘backbone’ capabilities, but architected with flexibility to
evolve with other suppliers over time.
Input requested
The Board is asked to: a) provide any steers on the overall shape of the proposed
delivery programme for 2018/19, before specific funding requests are taken to IC;
and b) note the proposed negotiating approach with suppliers, indicating any
preferences between the different commercial models outlined in this paper.
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1. The full year revenue budget for our existing GOV.UK Verify service is £10.5m in
2017/18 (£5.8m of profit contribution), which we exceeded five weeks before
year end. We expect to deliver 66% income growth over the full year. This strong
performance has been driven by three main factors:
a) successfully persuading HMRC to give more prominence to Verify for the
Self-Assessment peak in January, and backing this up by running our own
social media campaign targeted at self-employed small businesses;
b) product improvements to support more customers to complete the process
of assuring their identity, which have enabled us to maintain the best
conversion rates out of the seven Verify providers; and
c) the roll-out of Universal Credit and other new services such as online
criminal record checks, driving a significant increase in new registrations.
. At present our product is limited to the 15 government services connected to
Verify, with no private sector clients. Across the Verify federation there are
currently 2 million registered users - around 45% with Post Office - representing
just 4% of the UK adult population. The imperative for 2018/19 therefore is to
supplement the organic growth of Verify (budgeted to increase to £12.9m in
2018/19) with additional decisive actions to lay the foundations for our long-term
success, set out in further detail below.
The broader market opportunity and our vision for identity services
3. Across the economy there are a broad range of transactions which require
customers to prove their identity before they can access a service. These checks
are typically performed on a siloed basis, requiring customers to prove who they
are again and again relying primarily on physical documentation like passports,
driving licences and utility bills. The cost to the UK economy is estimated to be
at least £3bn pa, split between the direct cost borne the organisations performing
the checks and the indirect costs for customers. The table below summarises the
key areas of demand for high assurance identity services in the private sector.
Opportunity Transactions Costs (£m)
Bank account opening 2m 134
Travel (includes pre-flight checks and car hire) 78m 102
Age verification & retail >2,000m 557
Gambling 20m 95
Property rental 23m 151
Health (access to health records, home care worker ID) 914m 138
Sharing economy 4m 21
Legal (conveyancing, divorce, wills) 3m 15
Insurance 60m 45
Pensions & asset management (e.g. share certificates) 72m 111
Employment vetting 38m 206
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4. Digital identity disrupts the traditional Know Your Customer (KYC) market by
providing individuals with an efficient and reusable means of proving who they
are according to recognised standards. Consumers benefit from increased
convenience and greater security and control of their personal data.
Organisations benefit from reduced acquisition costs and drop-out rates, creating
a substantial commercial opportunity for us to monetise.
5. The Post Office is uniquely well placed in the UK to lead the development of this
new market, building on our existing leading position under GOV.UK Verify. This
ambition - to lead the market for digital identity - is now reflected in the Post
Office’s overall North Star. Annex A provides the Identity Business Unit’s own
North Star to distil its vision and measures of success for the next three years.
The 3 Year Plan assumes £15m of net income growth from digital identity services
by 2020/21, on top of a baseline of £5.8m this year. Bottom-up modelling is
underway to chart a course to deliver these outcomes.
6. In pursuing this vision we need to contend with a broad range of competitors,
including:
a) the KYC Incumbents - Credit Reference Agencies provide much of the
data driven transactional identity market today. With the shift to consumer
owned identity this is a threat to their core business. At present they are
keeping an active interest in supporting the digital identity market to re-
purpose their operating model for data.
b) Payment Incumbents - MasterCard and Visa have experience of
integrating and creating interoperability across national borders and market
segments. With their market reach they have the ability and motivation to
own the infrastructure on which identity runs in much the same way.
Cc) Tech giants - Alibaba, Amazon, Apple, Facebook, Google, Microsoft and
WeChat all offer federated log in services. As they expand into more
regulated markets, such as payments, they have the ability to disrupt the
identity market through their customer and market penetration. The risk is
they do identity themselves; the opportunity is they look to be consumers
of digital identity.
d) Tech Challengers - The personal information economy has spurned some
well-funded start-ups such as Yoti, Digi.Me, Evernym. They currently lack
adopted standards or customer volume, though are pushing hard on both.
Product strategy for 2018/19
7. As indicated above, the UK digital identity market is still in its infancy, with the
Post Office currently only servicing the GOV.UK Verify market. Our ambition for
2018/19 therefore is to launch an identity product that works across a broader
range of channels and markets, positioning us firmly ahead of the competition.
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8. To achieve market penetration, we have set the following 2018/19 targets
underpinned by a c£8m project portfolio (see Annex B) driving the product build
and client acquisition.
i. Develop a market ready product: We will: a) develop our product on a
modularised rather than bespoke basis, enabling us to serve new clients quickly
and cost effectively; b) provide an extensible menu of identity checks,
continually evolving to meet increasing market and regulatory needs; c) enable
our service to be seamlessly integrated into customer on-boarding journeys;
and d) develop standardised contractual terms including limitation of liabilities.
ii. Prove the case internally: to build momentum and establish our credibility
with the external market we need to demonstrate that we have sufficient
confidence in our identity solution to use it for our own products and services.
We are embedding identity as one of the key horizontal capabilities in the
Customer Hub, starting with the Anti-Money Laundering (AML) checks required
for travel money. This generates two-way benefits: accelerating growth in our
identity user base with up to 1 million additional registrations by 2020/21; and
providing the Customer Hub with one-click access to the 1 million ‘pre-qualified’
customers who have already registered for Verify. We are also developing plans
to embed our identity service into the vetting process for new Post Office
employees and postmasters, reducing our costs and increasing advocacy.
iii. Link branch and digital: our Verify service is currently a purely digital offering,
with no option for customer to register or use their identity across our branch
network. We are missing a major opportunity to accelerate adoption and
differentiate from our competitors. We are pursuing three initiatives in 2018/19
to rectify this: i) launching in-branch support of customer registration; ii) giving
customers of our new digital passport application the ability to create an identity
account as part of the service; and iii) introducing a digital notarisation service,
to replace the existing paper-based service, with the option for customers to
create a re-usable identity account as part of the process. We will equip counter
colleagues with the right sales messages to explain the benefits of a digital
identity account to customers, linking to both internal and external use cases
and testing incentives such as Travel Money Card credits. Based on the 18%
conversion rate which Australia Post have achieved for similar initiatives, this
has the potential to generate nearly 1 million additional users by 2020/21.
iv. Build the external market: our priority sectors for 2018/19 are: a) travel,
covering both Post Office travel products and external services such as car hire
and airline Advance Passenger Information; b) retail age-verification, leveraging
our existing relationships with retailers (including the Panther network) and self-
service kiosk manufacturers; and c) banking, co-ordinating efforts to influence
the regulators to recognise the use of digital identity to meet KYC requirements
and promoting our new digital notarisation service as a precursor product that
can reduce the need for banks to serve customers in their own branches.
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Re-engineering the supplier ecosystem to support the delivery of our strategy
9. At present we have a very thin role in the digital identity value chain, essentially
just being a brand. We rely on our Dutch partner, Digidentity, to provide us with
an end to end identity service. This provided us with a low cost, low risk way to
enter the market, and has generated over £15m of cumulative net profit to date.
10.Our contract with Digidentity expires at the end of the calendar year. We are
now at an inflection point in our strategy and it is appropriate to review our
supplier arrangements to ensure we are set up for long-term success.
11.It is critical that our commercial relationship with our identity supplier(s) enables
us to move rapidly in the market and seamlessly integrate with the wider Post
Office digital architecture. To support this objective, we propose to re-engineer
our supplier arrangements based on four key design principles:
i. Closer control of customer experience - consistent with the approach
we are taking across the business, we need to fully own our customer -
brand, experience, data and interfaces.
ii. Modular flexibility - we need the flexibility to source ‘best of breed’
components on an evolving basis from multiple suppliers at competitive
rates.
iii. Continual innovation - the technology to support identity moves on at
Pace; as does the threat landscape for identity fraud and cybercrime. Our
supply chain must support continued innovation to address this rapidly
evolving environment. We need responsiveness and flexibility to meet our
ongoing market needs.
iv. ‘One team’ operating model - it is essential that we have close
alignment with our key suppliers, creating an agile, holistic and responsive
mode of working together with shared priorities for product innovation,
driven from market insight.
12.The technology and ‘manufacturing’ side of the digital identity market is relatively
well supplied, with a broad range of providers offering scalable capacity and a
steady stream of innovations in data and analytics. Over the past few months
we have met with over 20 of prospective suppliers, supported by desk-based
analysis of a longer list through our specialist consultants.
13.However, for the foreseeable future GOV.UK Verify remains our cornerstone
market and there are only six suppliers currently qualified to meet the specific
technical requirements set by Government: Avoco, Digidentity, Experian, GBG,
Idemia, and Verizon. Our principal supplier must therefore be one of these six
companies, while preserving the flexibility to add in others as our broader market
propositions evolve.
14.We have ruled out building the end-to-end solution in-house on the grounds that:
a) it will take at least 18 months to build an accredited solution so we would not
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have market-ready capabilities in place until 2020, by which time the key
opportunities will be lost; b) our design principle of continual innovation means
we need the flexibility to source the right technology from the market as it
emerges, rather than being encumbered with maintaining our own legacy,
custom technology.
15.To meet our design principles we need the right commercial construct with our
principal supplier. We have assessed four different models, with varying degrees
of direct ownership for Post Office:
a) a strategic alliance via a contractual relationship, with growth and
outcome based incentives for the supplier;
b) a technology joint venture, co-investing in a new entity which has a
primary mandate to provide services into Post Office’s identity business;
c) a market facing joint venture, giving our supplier a minority stake in
our identity business (set up as a subsidiary) in return for them injecting
technology and other assets; and
d) a partial or full acquisition of a supplier.
16.Inevitably those options which entail greater direct ownership of the technology
assets provide us with increased control and stronger alignment of incentives -
but with the trade-off that we either need to invest upfront (in options b and d)
or share more of our upside value (option c). Joint ventures and minority stakes
obviously also come with additional governance complexity.
17.As the table at Annex C sets out in more detail, these commercial models are not
equally applicable to all six of the short-listed companies. Based on our pre-
tender assessment, we view three lead options as the best fit strategically for
Post Office: a) a strategic alliance or joint venture with Digidentity; b) an
acquisition of Avoco; or c) a contractual arrangement with GBG. In all cases we
would propose sourcing the supplier via an SPV rather than direct from Post Office
Limited.
18.We are now commencing a 3-month accelerated procurement process inviting
the short-listed suppliers to participate in an evaluation of their technological
capability and commercial alignment to meet our design principles and product
needs. The technology assessment will be undertaken through a combination of
traditional due diligence activities and use-case based hackathons, providing a
better indication of technical competence, cultural alignment, speed and agility.
19.We expect to be in a position to make a firm recommendation to the Board by
July, setting out non-binding heads of terms and any additional investment
requirements.
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Identity services strategy:
supporting slides
March 2018
Post Office®
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Who are we?
What we are
here to do
Our key market
ambitions
Key measures
of success by
2020 / 21
Our five
priorities to
deliver these
outcomes
We are a commercial provider of identity services, with a social purpose
To lead the market for digital identity services
To be the number one
provider of citizen
identity assurance to
government
Grow our customer base
of reusable assured
identities to 5m users
Simplified experience,
with customers at the
heart, owning their
identity
To build our position as a
trusted provider of
identity services to the
private sector
Generate sustainable
profit with an annual net
revenue of £4 per user
Have the best in
breed secure
Create a
To increase
accessibility to digital
services for customers
Have an active customer
base, with an average of
3 identity transact
per user per annum
Accelerate the
compelling adoption of
technology client standards for
platform proposition interoperability
Provide trusted identity
to every Post Office
transaction that requires
know your customer
Reduce our own cost of
identity by 15% through
reuse of persistent
customer owned identity
Use identity to
transform customer
experience across the
Post Office
Post Office®
IN THE STRICTEST COMMERCIAL CONFIDENCE
1
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Annex B: 2018/19 Project Delivery
Project Description & Benefits Costs
1. Account creation from digital Enabling creation of a re-usable identity account when using Post Office’s new digital passport application service. £0.3m
passport application
2. Customer Hub Identity
Integration
3. Post Office
FX AML+
4. Post Office HR vetting
5. Digital notarisation
6. In-Branch Verify
7. POCA / Verify project
8. NHS Digital
Estimated additional 700k additional identity accounts by 20/21— with added value of ICAO compliant photo
Full integration with Customer Hub, meaning customers have a single identity account which spans Post Office services, e.g.
TMC (500k accounts by 20/21) and external connected services
Creation of additional app-based tools which enable customers to share elements of their verified identities (e.g. proof of
age) in order to access the services they want, online and inbranch— opens up broad range of market opportunities
Functionality for customer to: a) create a reusable digital identity when proving identity for a Post Office FX transaction;
and b) re-use an existing digital identity next time they want to access FX.
Provides credibility of product when selling KYC services to external FS providers
Integration of digital identity service into the onboarding of Post Office employees, postmasters and counter colleagues
Development of market leading capabilities to sell to other employers (£200m+ addressable market)
Notarised digital copy of an identity document, which can be shared with 3rd party clients through web interface. Ability to
link to identity account— c.150k additional new users pa
Establishes basic digital identity service for banks, creating commercial relationship ahead of regulator endorsement of full
KYC product
In-branch registration options for customers (c.100k) who are unable to complete Verify journey online.
Promotes digital inclusion
Leveraging account data and branch contacts to help POCA customers (c.200k) through the Verify process, e.g. to apply for
UC or state pensions
Promotes financial and digital inclusion, strengthens relationship with DWP
Provision of digital identity service enabling customers to access digital health records.
NHS committed to 2018 launch— early foothold in emerging digital health market
£2.5m
Already
funded
£0.2m
£2.0m
£0.4m
£0.5m
£1.5m
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Pos
purposes
Full Acquisition
Full control of the capabilities
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Annex C: Commercial Options vs Supplier Short-list
Commercial Option Avoco Digidentity I Experian GBG Idemia Verizon
Contractual Relationship
A flexible contract to cover the full (es
range of identity use cases with
nw — = <I ln
modular pricing of the component
capabilities.
Technological Services JV
New JV formed to provide ‘back C) a 4.
office’ technology services into Post re
Office Identity als —
Market Facing JV
PO and Supplier combine a broader
set of assets to form a new UK 4. 4. C)
business set up for commercial — a
required to support our long-term
ambitions
Notes
DD
Desire to sell
business — 15
UK based
employees
100% owned
by Solera, a
$1bn revenue
US car
insurance firm
FTSE 100
company. See
Post Office as
a direct
competitor
O
FTSE AIM 100
company.
Provide for 2
other GOV.UK
Verify brands
Sp
*ID&V platform only
Group owned,
global
presence.
Failing UK IDP
business.
Global
conglomerate
Verify supplier
to Barclays.
Poor track
record in UK
ID market.
3
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BOARD DECISION PAPER
Postmaster Litigation
Subcommittee
Author: Veronica Branton, Head of Secretariat + Sponsor: Jane MacLeod, Company Secretary Meeting date: 27
March 2018
Executive Summary
Context
The Board approved the establishment of a Postmaster Litigation Subcommittee at its
meeting on 29 January 2018 and agreed its membership.
The Board is invited to approve the terms of reference for the Subcommittee which
are at appendix 1.
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Strictly Confidential — Subject to Legal Professional Privilege
Postmaster Litigation Board Subcommittee
Purpose & Responsibilities
11 Post Office is the defendant in Alan Bates & Others v. Post Office Limited, High Court
of Justice Queen’s Bench Division, Claim No. HQ16X01238 (the “Claim”).
1.2 Asubcommittee of the Post Office Limited Board is established toreceive legal advice
on the Post Office’s Defence in the Group Litigation as it proceeds to final resolution.
13 The subcommittee will be disbanded at the final resolution of the Group Litigation, or
upon the instruction of the Board, whichever is sooner.
Membership
2.1. At its meeting no 29 January 2018 the Board appointed Tim Parker (Post Office
Chairman) Chairman of the Subcommittee, Ken McCall (Senior Independent Director)
and Tom Cooper (Non-Executive Director and Shareholder Representative) as
members, together with Paula Vennells (Group Chief Executive) and Alisdair Cameron
(Chief Finance & Operating Officer).
2.2 The Company Secretary (Jane MacLeod) will act as Secretary to the subcommittee and
may nominate a deputy in her absence.
Organisation
3.1 The subcommittee shall meet as often as required.
3.2 The quorum shall be two Non-Executive Directors.
3.3. The subcommittee may meet in person, by telephone or by electronic means so long
as each member can contribute to the business of the meeting simultaneously.
3.4 Meetings may be convened by the Secretary, at the request of the Chairman, or by
any member at any time. Notice of each meeting shall be given to all members and,
unless there are special circumstances, shall be given at least three working days
before each meeting.
3.5 The Secretary (or a nominated deputy) shall attend meetings and keep minutes. Other
Post Office employees and or relevant external consultants and lawyers may attend
for part or the whole of the subcommittee meeting at the invitation of the Chairman.
3.6 The Secretary shall be accountable to the Chairman for the provisions of relevant and
timely information and for ensuring regular reporting from the subcommittee to the
full Board.
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Eee NOTING PAPER
Committee Terms of Reference
Evaluation Reviews
Author: Veronica Branton, Head of Secretariat 1 Sponsor: Jane MacLeod, Company Secretary
Meeting date: 27 March 2018
Executive Summary
Context
The UK Code of Corporate Governance recommends that clear Terms of Reference
(‘ToR’) should be in place for the Remuneration; Nominations; and, Audit, Risk and
Compliance Committees and that an evaluation against these should take place
annually. This paper provides POL with oversight of those evaluations. The full
evaluations are available in the BoardPad Reading Room.
Questions addressed in this report
1. Has each Committee fulfilled the requirements of its respective ToR during
2017/18?
Conclusion
2. The analysis for each Committee has concluded that the requirements of the
respective ToR have been met in 2017/18 with the exception of carrying out
Committee effectiveness reviews. It had been decided that effectiveness reviews
should be held over until the new Non-Executive Directors of POL were on board
and had concluded their induction process.
Input Sought
3. POL is asked to note the conclusion of the Committee evaluations against
Terms of Reference for the Nominations Committee; Remuneration Committee;
and, Audit, Risk and Compliance Committee. The full evaluations are available
in the BoardPad Reading Room.
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The Report
Nominations Committee and Remuneration Committee
4. The Secretariat has reviewed the agenda and minutes of the Nominations and
Remuneration Committees for 2017/18 against their terms of reference. Both
Committees were found to have fulfilled their requirements to the Board!,
specifically that:
a. The purpose of each Committee was clear having been previously
approved by the Board in March 2015 and amended in November 2015 to
incorporate Post Office Management Services (POMS)
b. The composition and terms of office had been adhered to throughout
the year
c. The meetings had been convened in accordance with the TOR
d. All duties and responsibilities with regard to the Company had
been discharged
e. All duties and responsibilities with regard to POMS had
been discharged.
Audit, Risk and Compliance Committee (ARC)
5. Secretariat has reviewed the agenda and minutes of the ARC Committee against
its terms of reference. It was found to have fulfilled its requirements to the
Board?, specifically that:
a. The purpose of the Committee is clear having been previously approved
by the Board in September 2015 (including amendments to incorporate
areas of risk previously covered by the Pensions and Financial Services
Board Committees)
b. The composition and terms of office have been adhered to
throughout the year
c. The meetings have been convened in accordance with the TOR
d. All other governance responsi’ ies have been discharged
e. Auditing services are provided by Internal and External Auditors and
both the Head of Internal Audit and the External Auditors attend every
ARC meeting. Internal and External audit plans are agreed by the ARC.
f. The CFOO attends the ARC and has time on the agenda to provide a
regular update on the ‘Accounting, Financial Control and Financial
Reporting.
With the exception of ca
With the exception of cai
ng out Commi
ying out a Corr
‘e effectiveness reviews, a
eness review, as
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POST OFFICE LIMITED BOARD
Register of interests/ conflicts of
NOTING PAPER
interest
Author: Veronica Branton, Head of Secretariat
March 2018
Sponsor: Jane MacLeod, Company Secretary Meeting date: 27%
Executive Summary
Context
Directors are asked to note the appointments listed for them at Companies House and
any additional information we hold on their register of interests (Appendix 1) and
advise of any changes or additions that need to be made.
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Post Office Limited Board of Directors — Register of
Interests
Richard Callard
No declared interests
Alistair Cameron
Company Name Country Position Appointed
Dover Harbour Board United Kingdom Director :
Timothy Franklin
Company Name Country Position Appointed
Enville Court Management Limited United Kingdom Director 13/04/2016
PCF Bank Limited United Kingdom Director 22/05/2017
PCF Group PLC. United Kingdom Director 06/12/2016
Topaz Finance Limited United Kingdom Director 12/10/2017
HM Land Registry United Kingdom = =
Firstsource United Kingdom : :
Virginia Holmes
Company Name Country Position Appointed
British Airways Pension Investment United Kingdom Director 01/01/2016
Management Limited
British Airways Pension Services United Kingdom Director 01/10/2015
Limited
British Airways Pension Trustees United Kingdom Director 01/10/2015
Limited
Intermediate Capital Group Plc United Kingdom Director 31/03/2017
Jupiter European Opportunities Trust United Kingdom Director 07/11/2017
Plc
The Investor Forum CIC United Kingdom Director 10/12/2014
USS Investment Management Limited United Kingdom Director 30/06/2011
Ken McCall
Company Name Country Position Appointed
SUSTENIR Group PTE LTD Singapore Chairman 01/01/2016
Europcar Groupe S.A. Various Various Directorships -
of Group Companies
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Post Office Limited Board of Directors — Register of
Interests
Tim Parker
Company Name Country Position Appointed
Samsonite International S.A. United Kingdom Chairman -
The Brand Foundation United Kingdom Chairman 18/11/2015
The Grange Festival United Kingdom Director 27/03/2017
The National Trust United Kingdom Chairman 08/11/2014
Royal Academy of Music United Kingdom -
Carla Stent
Company Name Country Position Appointed
JPMORGAN ELECT PLC United Kingdom Accountant 20/04/2015
Littlefish FX Limited United Kingdom Director 01/02/2013
Malherbe Limited United Kingdom Accountant 09/05/2016
Marex Sprectron Group Limited United Kingdom Director 09/12/2014
MCS Advisory Limited United Kingdom Accountant 27/02/2014
Power To Change Trustee Limited United Kingdom Director 23/01/2015
Savernake Technology Limited United Kingdom Director 30/08/2014
This Is The Big Deal Limited United Kingdom Accountant 20/02/2014
Power to Change (Charity) United Kingdom - -
Octopus Group United Kingdom - -
Paula Vennells
Company Name Country Position Appointed
HYMNS ANCIENT AND England Director 11/11/2008
MODERN LIMITED
MIDASGRANGE LTD United Director 08/02/2007
Kingdom
ROYAL MAIL HOLDINGS PLC_ I England Director 18/10/2010
WM Morrison Supermarkets Plc I United Director 01/01/2016
Kingdom
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Post Office Limited Sealings
Author: Jane MacLeod Meeting date: 27 March 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
1637 to 1657 inclusive in the seal register.
Input Sought
For the Directors to resolve that the affixing of the Common Seal of the Company to the
documents set out against items numbered 1637 to 1657 inclusive in the seal register
is hereby confirmed.
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Date Register of Sealings Company Number
15.03.2018 21554540
‘Seal Number Date of Date of Persons Attesting Destination of
1 File Ref. Sealing Authority I Description of Document To Document Document
1637/TR1 22/01/2018 18/01/2018 I TR1 in relation to the transfer of 3 Victoria Square, Droitwich WR9 8BZ,__ Jane Fahey, Deputy Company Jean Reynolds
Form Post Office Limited is the Transferor. Transferee is Baljinder Dhadda. _ Secretary
1638 7 22/01/2018 79/01/2018 I Agreement for sale in relation to 143-145 Terminus Road, Eastbourne, Jane Fahey, Deputy Company Jean Reynolds
Agreement for BN21 3NS. Post Office Limited is the transferor. Kirk Bryson & Co Secretary
sale Limited is the transferee
7639/ TRI ‘2210172018 79/01/2018 I TR1 form associated with agreement for sale in relation to 143-145 Jane Fahey, Deputy Company Jean Reynolds
Form Terminus Road, Eastbourne, BN21 3NS. Post Office Limited is the Secretary
transferor. Kirk Bryson & Co Limited is the transferee
1640 T Capital 22/01/2018 79/01/2018 I Capital Allowances Election in relation to agreement for sale in relation I Jane Fahey, Deputy Company Jean Reynolds
Allowances to 143-145 Terminus Road, Eastbourne, BN21 3NS. Post Office Secretary
Election Limited is the transferor. Kirk Bryson & Co Limited is the transferee.
16417 26/01/2018 25/01/2018 I Counterlease of Part Ground and First Fllors (known as unit 7) at Jane Fahey, Deputy Company Jean Reynolds
Counterlease Wyndham House, Wyndham Street, Bridgend, Wales. POL is the Secretary
tenant. Lexton Investment Limited is the landlord.
76427 Form of I 29/01/2018 26/01/2018 I Form of Election in relation to 10 High Cross Street, St Austell, PL25 Jane Fahey, Deputy Company Jean Reynolds
Election 4AA. POL is the seller. Tempophase Ltd is the buyer. Secretary
1643 / 29101/2018 26/01/2018 I Underlease of whole relating to Ground Floor, 37 Church Lane, Jane Fahey, Deputy Company Jean Reynolds
Underlease Pudsey, LS28 7LB. Landlord is POL. Tenant is TNB Training Limited. I Secretary
Other parties are Mark Butcher of Whitehorn House, 52 Valley Drive,
likey, West Yorkshire and Carol Butcher of Whitehorn House, 52 Valley
Drive, llkey, West Yorkshire, LS29 8PA (together guarantors)
76447 Deed of I 05/02/2018 05/02/2018 I Deed of removal and appointment of trustees to the Post Office Limited Victoria Moss, Deputy Company ‘Company Secretariat Contract
removal & Life Assurance Trust. (Alwen Lyons Retiring Trustee and Roger Gale, _ Secretary Repository
appointment New Trustee). Deed between Post Office Limited and Roger Gale,
Natasha Wilson, Sean Leahy and Martin Edwards. CAF number 882.
T6457 TRI {2702/2018 72/02/2018 I TR1 form in relation to disposal of Enfield Wash Post Office Jane MacLeod, Company Secretary I Jean Reynolds
reversionary freehold. Transferor is POL. Transferee is Sunstar Group
Limited
7646] Tenancy I 13/02/2018 72/02/2018 I Tenancy agreement in relation to 12-14 London Road, StLeonards on Jane Fahey, Deputy Company Jean Reynolds
Agreement Sea, TN37 6AA. Landlord is POL. Potent Solutions is the tenant. Secretary
1647 I Deed of 79/02/2018 75/02/2018 I Deed of Surrender in relation to Part of 130C Lord Street, Southport, Jane MacLeod, Company Secretary I Jean Reynolds
Surrender PR9 OAA between Property Letting & Development Limited and Post
Office Limited.
16487 20/02/2018 79/02/2018 I Underlease of whole relating to Post Office Premises, County Square, I Jane Fahey, Deputy Company Jean Reynolds
Underlease Ulverston, Cumbria, LA12 7AA. POL is the Landlord. Tenant is Peall Secretary
and Hughes Ltd. Other party is William Richard Hughes of 27 Fair
View, Marton, Ulverston LA12 ONH and Barry Edward Peall of Sunny
Crest Lindale, Grange over Sands, LA11 6QR (together as
guarantors).
Register of Sealings
Jane MacLeod
Page 2
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Date Register of Sealings Company Number
15.03.2018 21554540
‘Seal Number Date of Date of Persons Attesting Destination of
1 File Ref. Sealing Authority I Description of Document To Document Document
16497 01/03/2018 01/03/2018 I Agreement for sale relating to Galatea House, 1 Narvick Road, Jane Fahey, Deputy Company Jean Reynolds
Agreement for Kingston Upon Hill, Hull, HU7 OAB. Post Office Limited is the seller. Secretary
Sale Essential Estates Limited is the buyer.
7650/ TRI 01/03/2018 01/03/2018 I TR1 relating to agreement for sale relating to Galatea House, 1 Narvick Jane Fahey, Deputy Company Jean Reynolds
Road, Kingston Upon Hill, Hull, HU7 OAB. Post Office Limited is the Secretary
seller. Essential Estates Limited is the buyer.
T6517 06/03/2018 01/03/2018 I Agreement for the sale of 51 London Road North, Lowestoft, NR32 Jane MacLeod, Company Secretary I Jean Reynolds
Agreement for 1AA. Post Office Limited is the seller. Waveney District Council.
sale
1652/ TRI 06/03/2018 01/03/2018 I TRT in relation to agreement for the sale of 51 London Road North, Jane MacLeod, Company Secretary I Jean Reynolds
Lowestoft, NR32 1AA
16537 08/03/2018 08/03/2018 I Renunciation of Units 34,35 and 36 Piazza Centre, Paisley. New River I Jane MacLeod, Company Secretary I Jean Reynolds
Renunciation Retail (Paisley) Limited = Landlords. POL = tenants.
1654 / Option 73/03/2018 72/03/2018 I Option Agreement relating to 113 Market Jew Street, Penzance, TR18 Jane Fahey, Deputy Company Jean Reynolds
Agreement 2LB. Post Office Limited is the seller. Bost Developments Limited is the I Secretary
buyer.
T6557 TRI 73/03/2018 72/03/2018 I TRT in relation Option Agreement relating to 113 Market Jew Street, Jane Fahey, Deputy Company Jean Reynolds
Penzance, TR18 2LB. Post Office Limited is the seller. Bost Secretary
Developments Limited is the buyer.
7656 / License 73/03/2018 72/03/2018 I License relating to Post Office, 28-30 Cowgate, Peterborough between I Jane Fahey, Deputy Company Jean Reynolds
Edwin Victor Davis (Landlord) and Post Office Limited (Tenant) Secretary
7657 I Deed of 73/03/2018 72/03/2018 I Deed of Settiement in relation to a dilapidations claim between CIP Jane Fahey, Deputy Company Jean Reynolds
Settlement Property Limited and Post Office Limited Secretary
Register of Sealings
Jane MacLeod
Page 3
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POST OFFICE PAGE 1 OF 4
POST OFFICE BOARD
Performance Review - Health and Safety
Authors: Martin Hopcroft Sponsor: Al Cameron Meeting date: 27" March 2018
Executive Summary
Context
1.1 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.
1.2 Our Health & Safety performance has improved significantly in the past 6 years and we
have a rolling 3-year plan to drive compliance, targeting a reduction in safety metrics
including accidents; lost time accidents; days lost; and personal injury claims. Our H&S
reporting and safety management system is measured against the externally recognised
standard, OHSAS 18001. We also recognise the importance that wellbeing can play in
creating engaged and motivated employees.
Questions this paper addresses:
2.1 It has been agreed to provide a monthly performance report to the Board for noting
and a more in depth Health & Safety deep dive report 6 monthly.
Conclusion:
3.1 There has been a recent decrease in the total number of accidents and absence related
accidents reported by Directly Managed Branches during periods 10 and 11 following an increase
in December. Whilst the number of incidents year to date in Supply Chain are in line with
2016/17, the rate per 1000 employees has risen. Investigations have been undertaken and
accountabilities reviewed with a safety plan agreed for which includes the introduction of a Safety
Forum and Safety Champions. Other initiatives are being developed to strengthen a ‘hearts and
minds’ safety culture.
32 Benchmark data indicates that overall Post Office performance is favourable. HSL/HSE
have reported that the POL Safety Management System is very strong.
3.3 Road risk is being reduced through a number of initiatives in Supply Chain eg. Telemetry,
Alcolock, winter driving advice and online awareness training for those driving for work, including
those using personal cars for business.
3.4 Whilst CViT attacks remain lower, Post Office robberies have increased over the last 12
months, however, the trend has reversed and decreased over the last quarter. A number of
initiatives are being deployed in hot spot areas.
3.5 Due to an increase in violence across the industry, a review including a horizon scan of
risk across the industry and the Post Office is taking place and a report will be provided to PO
Board in May. This review will also look at the increase of violence and abuse from customers.
3.6 The overall level of Property risk is predominantly low. An Independent Assessment of
high risk building fabric (including signage) is complete, with remedial works completed in March.
Medium risk assessments have commenced and will be completed by April. Current property
statutory compliance is good at 96.70%.
a) A serious gas explosion took place at Harold Hill DMB on Sunday 4th March and was
reported in the local press. There were no injuries and no investigation by HSE or local
authority likely. A swift response from Operational teams and CBRE engineers who
completed gas, electric and structural surveys enabled the branch to reopen at 13:30
Monday. The collective view of the Fire Brigade, Police and engineers was that the cause
of explosion was likely to have been due to a gas cooker being left on with a low flame
that extinguished over the weekend, allowing a slow build-up of gas which was ignited
by an electric supply to the microwave LED, which was extensively damaged. Engineers
have been instructed to check all appliances at their next monthly maintenance visit,
remove all gas cookers from our branches asap. An instruction has been given to all
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Managers that gas cookers must not be used if an alternative means of cooking is
available. There is no evidence of faulty kitchen appliances.
b) There was also a fire reported at Houndsditch DMB involving a Portable Heater. The site
was evacuated and the fire extinguished. The Fire Brigade were called and declared the
site safe and the fire risk assessment checked and passed. CBRE have been instructed
to remove all similar make and model heaters on the next monthly check, as well as
instructing all managers to check their heaters and report damage or wear and tear to
the Property helpdesk and not to leave heaters unattended at any time.
3.7. An independent audit with HSL / HSE has been undertaken to review the Post
Office Safety Management System. Initial feedback confirms that we have an excellent safety
management system in place with a focus from Group Executive to frontline. There are a few
areas to strengthen in order to reach best in class:
. Recognition - we should celebrate where we do this well and there should be greater
discussion, visibility and recognition communicated in team meetings and 121s
. Broader training - to raise competence across the business. Higher level health and
safety training to be provided where the risk is higher.
. Greater awareness and management of verbal abuse in stores. This is a general
area of concern for the HSE and an expectation that businesses will do more to
mitigate risk through training, support, policies, recording and monitoring of cases
to assess risk. Whilst we have a policy and training brief and we assess risk, our
approach should be reviewed and updated with more training for frontline
colleagues.
The Head of Health & Safety will receive a report and will circulate for discussion with GE in April,
prior to Post Office Board in May.
3.8 Absence data is not robust following migration to Success Factors but we expect to report
accurate year end data from the end of the month.
There has been a positive uptake of free flu vaccinations offered to Support Centre
and Supply Chain colleagues and early indications are that flu related absences are
below the current industry level.
° Mental health related absence remains the most common cause of long term
absence. Proactive activity includes ‘positive mental health awareness’ sessions for
colleagues, Mental Health Awareness Workshops for line managers and the
introduction of approx 50 Mental Health First Aiders who have received training to
provide proactive support to colleagues.
. The new Wellbeing portal has been linked to peoplehub and has now been formally
launched to bring all Occupational Health services together in one place to raise
colleague awareness. www.postoffice-wellbeing.com
Input Sought
The Post Office Board are requested to note the current health safety performance and content
of this report.
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The Report - H&S Metrics
Summary of Safety Performance - YTD Period 11 (Feb 2018)
Number of Employee Accidents — Monthly - Period 11 Directly Managed Branch
(Target to achieve a 5% year on year reduction) Accidents P11 YTD.
ml 70
= Number of accidents o
20 50
40
15 30
20
10 10
0
5 Year to Date
r 915/16 ot
ee —— 616/17 49
Pl P2 P3 Ph PS PE P7 PB PS PIO Pil aia -
016/17 2017/18 m17/ bs
Supply Chain
Accidents are forecast to outturn lower than 2016/17. There have been 104 Accidents P11 YTD
accidents YTD compared to 112 at P11 in 2016/17. Causation is consistent with %
previous years in DMBs and due to falls indoors, lifting and handling and 70
stepping and striking. Whilst stepping and striking and non RTA vehicle related 60
accidents have increased in Supply Chain recently, lifting and handling related 50
incidents have reduced. Following an increase in recent accidents and a serious 40
near miss, an action plan has been developed to mitigate future risk. A Safety 30
Forum and safety Champions are being set up to share best practice and 20
discuss lessons learnt and promote safety culture. 10
There was 1 lost time accidents reported in P11 with 19 lost time accidents 0 ,
YTD 2017/18 and 448 total lost days. Cumulative Trends can be seen per 000 _ Year to Date
employees in the graph below. Total lost time has risen by 53% YTD v 16/17 m15/16 71
but 32% lower than 15/16. Trauma related total lost days, following an attack, m16/17 38
are 97% down (4 days 17/18 v 137 in 16/17). wi7/i8 a
Days lost due to accident / 000 employees- Cumulative
150.0
Road Traffic Incidents - P11 Cumulative
100.0 ia
50.0
140
0.0
Pl P2 P3 P4 PS P6 P7 PB PS P10 Pil 20
01516 ois ors
Post Office total lost days: 2 in Period 10 and 8 in Period 11 (February)
DMB total lost days P11 YTD: 233 (96 - 16/17) 1 step/strike, 1 lifting, 2 fall, 1
assault. Supply Chain total lost days P11 YTD: 209 (191 - 16/17) 3 vehicle, 3 II sp
falls, 2 lifting. Support teams total lost days P11 YTD : 6 (6 in 16/17)
Road Risk - P11 Road Traffic Collisions
- 8 Road Traffic Incidents in P11 0
- 3at fault, 5 not at fault
There were 81 RTCs YTD in 2017/18 v 145 (16/17), a 44% reduction YTD.
At fault RTC’s were 91 in 2016/17 and have reduced to 48 in 2017/18, a 47% I I 0
YOY reduction. Initiatives include:
* An overarching Road Risk Policy, with improved training and compliance
checks is being developed by the Fleet Management team to cover Commercial I I 20
Fleet, Business Cars and Personal Car use.
* Driver Training has been developed and launched on Success Factors for all lh I
employees who drive on business and a check across all business areas is being I I 0
undertaken by the H&S BPs. PL P2 P3 PA PS PG PT PR PO PLO PIL
* Road Risk Manager is working closely with the road safety charity Brake, our
Insurers, QBE and Fleet providers, BT Fleet and Inchcape and Cranfield
University to benchmark and pilot initiatives to mitigate risk.
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0.977 0.971
0.794
0.956
0.67
0.50
0.66
0.49 0.
033
0.18
0.00
0.35
0.18
8:8
0.00
0.27
018
0.00
0.27
o1s “8:
jan 0,000
0.18 0.18
0.000
0.18
0.00,
0.18
0.00
0:18
0.00,
Post Office CViT Robberies - P11
There were 2 incidents reported in Feb v 1 in 2016/17 and there have been 20
incidents v 23 over 12 rolling months. Trend is being monitored closely.
Violence has been used in 6 incidents this year with 3 injuries incurred. 7 used
weapons v 6 in 2016/17 YTD.
+ Merseyside currently a hot spot area industry wise, Security Manager
attends local Operation Guardian meeting to share intelligence with police
and carriers and determine mitigating activities.
+ 23 Cross Pavement Observations undertaken during period by Security
Managers with 283 completed YTD.
+ 20 further body camera units in process of being procured and will be
deployed as appropriate in high risk areas.
+ 2 Operation Stripe tests undertaken by Security managers during period
to test Depot resilience to unforeseen threats or occurrences.
+ Partnership activity agreed with Flying Squad to use depot facilities to run
CVIT ‘incident test’ this will raise Police awareness of our operation. Hoped
to mirror this engagement with other forces in other areas.
Aoling Number of Weapons Rolling Number of Injures
ow ee eB BERe
mA RR RR mm Dom ARRAN Om
easel Rg Mt ata Me Cane ig Mes wating ante
Rolin Robbery Incidents Roling CT nies
MARR RB
amet eg Mena sutRag 12 Mer
Supply Chain
LTIFR P11 YTD
YTD P11 - 0.956
2016/17 out turn - 0.590
2017/18 target - 0.500
Benchmark - 0.600
Absence accidents/000 SiP
13.54 YTD v 9.52(16/17)
All Post Office - Employee
LTIFR P11 YTD
YTD P11 - 0.267
2016/17 out turn - 0.168
2017/18 target - 0.180
Benchmark - 0.300
Absence accidents/000 SiP:
3.75 YTD v 2.58 (16/17)
Post Office (All branch types)
Robberies:
Sep - 13 incidents v 9 (16/17)
Oct - 14 incidents v 6 (16/17)
Nov - 9 incidents v 17 (16/17)
Dec ~ 11 incidents v 20 (16/17)
Jan ~ 12 incidents v 22 (16/17)
Feb - 12 incidents v 15 (16/17)
132 robberies YTD v 135 in 2016/17
146 compared to 143 in rolling 12mth
P11 2017/18
Violence - 1 vs 4 last year
Injuries - 1 vs 3 last year
9 injuries YTD v 13 (2016/17)
Weapons - 11 (4 firearms, 5 blades) vs 14
last year (2 firearms, 7 blades). 107 YTD
(56 blades) v 107 in 16/17 (55 blades)
Trend is downwards over last quarter with
35 incidents v 57 incidents in 2016/17.
The percentage of attacks targeting open
plan remains at a similar level to last year,
55% vs 60% last yr, 76% of these involving
weapons. Despite an increase in weapons
and robberies, injuries remain fairly static
year on year. Torch visits scheduled in
north east during next few weeks to advise
and mitigate against recent spike in
robberies in that area. The number of
attacks involving weapons remains static
year on year with YTD 107 vs 107 last yr,
although the percentage of robbery
incidents involving a weapon has slightly
increased from 79% to 81%.
8 of the incidents involving a weapon
resulted in injury compared to 9 the
previous year with 38% of these injuries
due to staff members resisting vs 33% last
yr. The deployment of fogging and IP
cameras is aimed to reduce robberies and
the associated risks, as noted with zero
injuries where activated.
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POST OFFICE BOARD
Post Office Limited Board Meetings
Author: Jane MacLeod
Executive Summary
Context
Meeting date: 27 March 2018
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PAGE 1 OF 1
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
Date Time Notes
Thursday 24 May 2018 11.15 - 16.00
Tuesday 26 June 2018 TBA Board Away Day
Wednesday 27 June 2018 TBA Board Away Day
Tuesday 31 July 2018 11.45 - 16.30
Tuesday 25 September 2018 11.45 - 16.30
Tuesday 30 October 2018 11.45 - 16.30
Tuesday 27 November 2018 11.45 - 16.30
Board March 2018
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Draft Board Agenda for meeting on 24" May 2018
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Minutes of previous Board and Committee meetings 5 Board action from Jane MacLeod Jane MacLeod For noting
including Status Report previous meeting
CEO Report Including IR update 20 Standing item CEO Paula Vennells, CEO For Noting
Financial Report. 20 Standing item CFOO Al Cameron, CFOO For Noting
CE Performance Report - Retail 20 Standing item Debbie Smith Debbie Smith For Noting
RM Negotiation Update 20 Standing item Debbie Smith Mark Siviter For Noting
Customer Hub Update 20 Periodic action from I Rob Houghton Jeff Smyth For Noting
forward planner
Postmaster Litigation 10 Standing item Jane MacLeod Jane MacLeod For Noting
Future of Cash 30 Board action from Al Cameron Mark Ellis/ Mark Dixon/
previous meeting Russell Hancock
Health & Safety (to include a report on Robberies and 20 Standing item Al Cameron Martin Hopcroft For Noting
Violence)
SSK Procurement Plan 20 Reserved decision Debbie Smith Decision
Mail Strategy Update 20 Standing item Debbie Smith For Noting
POMS Regulatory Capital 10 Reserved decision Al Cameron Simon Parr Decision
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