Group Executive Agenda
Ren
a
rember (a+vel) (otw) (p&o) & (cit) I
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16% January 2018
09.30hrs
16.10hrs
Room 1.19 Wakefield
1.
I Performance — Financial Results & Review
Paula Vennells (Chair)
Alisdair Cameron
Debbie Smith
Jane MacLeod
Rob Houghton
Martin Kirke
Mark Davies
Martin Edwards
For Information &
Marla Balicao
Owen Woodley
Micheal Passmore (item 1 & 2)
Natasha Wilson (item 2 & 5)
Julie Thomas (item 3)
Cathy Mayor (item 4)
David Ascott (item 5)
Tim White (item 6)
To review the Financial Results & the
Tom Wechsler (item
7813)
Andrew Goddard (item 7)
Michael Austin (item 8)
Andy Garner (item 9)
Henk Van Hulle (item
13.1)
Micheal Passmore
Nick Kennett
09.30 — 09.50
i
i
of Business Scorecard Input Business scorecard and discuss any i
areas which are show to have a RED ]
status. I
2. 2018/19 Budget Review & LTIP / STIP Discussion & Input To review the 2018/19 Budget and Al Cameron / 09.50 — 10.35
LTIP/STIP. I Michael Passmore /
I Natasha Wilson i
3. DMB Strategy Discussion & Input Final Decision paper ' Julie Thomas 10.35 — 11.35
i
BREAK 11,35 — 11.45
4. Performance Report — Retail SBU Input & Information For GE to note the Retail Performance i Debbie Smith/ 11.45 - 12.15
Report. I Cathy Mayor
5. Gender Pay Gap Discussion & Input Discuss and review the Gender Pay ] Natasha Wilson / 12.15 — 12.45
Gap. _ David Ascott I
re Future Change Approach & Governance Noting & Input Update on Future Change Approach & ; Rob Houghton / 12.45 — 13,05 I
I Governance. I Tim White i
LUNCH 13.05 — 13.35
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Group Executive Agenda
Remember (a+vei) (otw) (p&o) & (cit) I
7. i Project Panther Discussion & Input To update GE on Project Panther. Tom Wechsler / 13.35 — 13.55
Information & Input Strategy update Rob Houghton / 13.55 — 14.25
Michael Austin
9. Postmaster Portal ‘Information = Digital Self Service update Andy Gamer w 14.25 = 14.55
BREAK TT TT I abe eos
10. i Verbal update from Committees & For noting —_ Chairs of Committees to update GE ~ 15.05 — 16.30
/ Steering Groups
11.4 IRSG Martin Kirke
11.2 POAC Mark Davies
For noting and
‘0 update the GE on the actions taken ani
provide any information requested
Items for Noting For noting For GE to note the papers
15.40 — 15.55
i
I
12.
I 12.1 Health & Safety
I 12.2 Forward agenda
13. i AOB / / ~ : ~ ~ "48.55 — 16.05
I 13.1 Digital Pockit Update For noting Hane Van Hulle/Tom
i 13.2 Investment Committee Discussion
effectiveness of the sessions
144. I Feedback on meeting For input Review the agenda items and the 16.05 — 16.10
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December 2017
Financial Performance
Micheal Passmore
16 January 2018
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P9 EBITDAS £1.7m ahead of forecast, YTD EBITDAS £1.3m
ahead of budget.
Context
. YTD P8 EBITDAS performance was £6.4m. £0.2m favourable to forecast and £2.8m favourable to budget.
. At end of FY 16/17, cash in Network was £666m and balance sheet headroom was £189m
° Pg forecast EBITDAS was £5.1m, P9 budget EBITDAS was £8.3m. Balance Sheet headroom forecast was £(9)m. A temporary £100m
extension was agreed with the Board to cover the additional cash requirements during Christmas trading.
Questions
° How is our scorecard performance in P9?
° What is the financial performance of the business in P9?
. Are we appropriately funded?
Conclusions
. P9 EBITDAS £6.8m, £1.7m favourable to forecast, and £(1.5)m adverse to budget. YTD £13.2m; £1.9m favourable to forecast and £1.3m
favourable to budget.
. EBITDAS benefited from strong Christmas trading performance and accelerated IT cost benefits.
. High level 9+3 forecast suggests we will slightly overdeliver in 2017-18 with EBITDAS estimated at c.£31m v £28m budget target,
although early Mails performance in January was poor.
. P9 EBITDA performance in the month was £(1.5)m adverse to budget due to the incremental agents pay impact in the month from higher
revenue volumes and the delays in projects (e.g. simplification) to reduce these costs. Full year budget position not impacted in P5F due
to strong revenue trading performance and continued focus on cost saving to mitigate.
. Balance sheet headroom in P9 was £27m, £129m worse than P8 due to the Christmas trading period. During P9 the maximum loan
balance was £750m meaning that the additional £100m facility which was requested to cover peak Christmas trading was not requ ired.
Input Sought
° The GE is asked to note the financial performance.
(2
QO
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Branch compliance significantly behind in month and
Network numbers continue to fall
K Perf Indi P9 YTD Full Year
ey Performance Indicators Act Target Var. Act Target Var. Target
Growth
‘Total Gross Income (excl NSP) £m 89.3 88.7 713.5 701.9 945.0
EBITDAS £m 6.8 8.3 13.2 11.9 28.0
Headroom £m (vs Board minimum limit) 227, >100? 227, >100? > 200
Digital Net Income £m (digital team) 3.4 2.7 33.7 33.1 45.0
Net profit £m * 5.8 5.0 17.1 0.6 0.0
Customer
Customer Effort 81% 76% 80% 76% 76%
Net Promoter score Financial Services 26 25 25 25 25
Acceptable Wait Time % 93% 95% 94% 95% 95%
Branch Compliance - Financial Services - basket of 11 measures 4 120 <=50 51 <=50 <=50
People
Representation (Senior Managers) - Gender 39% 37% 39% 37% 37%
Attendance ? 96.1% 96.7% 96.3% 96.7% 96.7%
IT Lost Time (Number of Sev1/Sev2 IT incidents) 8 13 67 117 <156
Safety LTIFR 0.346 0.180 JMB) 0.260 0.180 0.180
Modernisation
Number of branches (one month in arrears) Same as YTD 11,546 11,670 >=11,700
NT and ND Branches Transformed in Year 17 14 372 317 400
HNGA Network Only Rollout 859 333 5,634 2,000 4,000
HNGA Branch Counter Refresh Rollout 36 0 1,525 3,500 8,000
IT Transformation (% of IT controls implemented) 66% 73% 66% 73% All high risk
gaps closed
1. Net Profit metric target based 5+7 forecast
2. Attendance P8 reported due to SAP lockdown on the 15th of Dec
3. Board agreed £100m buffer to target for December, reverting back to £200m at end of January
Explanations of key variances in slides 4 — 6
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Branch compliance down with issues in a number of areas
Growth
Net Profit
Net profit YTD is £16.5m favourable to budget due to EBTIDAS overperformance £1.3m, underspend on change activity £10.1m and profit on disposal
of assets £4.4m.
Customer
Acceptable Wait Time
Acceptable Wait Time scores decreased by 2% to 93% which was 2% below the stretch target but was better than the 4% drop in P9 last year. Within
the network DMB scores were in line with targets but were below targets for both Agency (88%) andWHSmiths (88%) branches.
Branch Compliance
Branch compliance is rated red in the month. YTD the rating is amber however there are a number of planned actions which aimto bring this back in
line with targets by P11. The key reasons for the red ratings in the month are:
Mystery Shopping:
1. 1 out of 3 mortgage specialist shops was graded ‘red’ and related to a ‘fact find' over the phone where insufficient detail was requested in relation
to the customer's budget. The specialist has been suspended pending re-training.
2. 4 out of 20 CRMs were graded red due to:
+ — Not using the tablet (leading to the risk that the CRM strays from the compliant introductory sales process).
+ — Not following the required introductory sales process
+ Providing information to a customer that was misleading or incorrect.
3. 6 out of 11 counter colleagues were graded red and further root cause analysis is required. Product knowledge is patchy, particularly in branches
where volumes of transactions are low. Encouragingly close to 100% of results showed that the customer is not pressurised to take out a product
there and then without giving the shopper time to read the product literature.
BOI reviews:
9 out of 52 branches reviewed by Bol in the three months to the end of November were rated red in relation to advertising and promotions. We are
working with Marketing, Network and Stock Services to review literature to ensure that it is up to date and that sufficient controls are in place.
We have also implemented a monthly Branch Focus communication, to support branches maintaining compliant literature for all FS products. The first
edition in November incorporated a full literature check of all FS leaflets.
In January 2018 we are looking to pilot a new process of a documented FS literature spot check. Initially we would look to undertake a pilot with all
DMBs and ‘handful’ of agency branches. fay
ar,
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2
Safety Incidents track below prior year YTD but LT in month
ahead of target.
People
Safety LTIFR
* There were 11 employee accidents in Post Office during P9 (December), and 91 YTD which remains on track to be lower than
last year.
* 6 employee related accidents in Directly Managed Branches in P9, 1 Lifting and handling, 2 indoor falls, 1 striking inanimate
object, 1 cut due to broken glass and 1 indoor assault. YTD there has been 39 incidents which remains below target and on
track. There was one lost time incident in P9 in DMBs due to an assault by a customer.
+ There were 5 employee related accidents in Supply Chain in P9, 2 on or around the Post Office vehicle, 2 outdoor falls and 1
striking inanimate object. YTD there has been 50 incidents with a slight improvement over the previous rolling quarter. There
was one lost time incident in P9 in Supply Chain where an employee parked on incline and vehicle door moved back and
struck wrist, causing fracture.
+ There were zero accidents reported across Network Operations and Support teams.
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Network numbers continue to decline but NT expected to )
exceed target by 450 branches by end of the year.
Modernisation
Network
+ Number of branches increased by 1 in the month and is now 11,546, 124 behind target. YTD xx branches remain closed
following postmaster suspension with the remaining gap due to higher churn.
+ Actions to open new premises continue to be considered and developed. The current Network Operations plan shows that
there will be additional openings over the remainder of the year (over and above future closures) with the closing network
numbers currently forecast to be 11,632.
NT and ND Transformation
* The number of branches transformed in the year is currently 372 with the number expected to the exceed the full year target
of 400 by the end on next month. Currently it is anticipated that c.450 branches will be transformed by the end of the year.
HGNA Network Only Rollout
* Target is that for February all remaining branches on the network will be completed by the target week (5'" March for network
transitions). Any failed branches will be revisited before the end of March 2018. Crown branches to be scheduled from 5"
February 2018 marking a major milestone of beginning to install new equipment in flagship branches.
HGNA Branch Counter Refresh Rollout
+ Due to issues encountered with the Branch Counter Product, Transaction Simplification contention and restrictions by the
business on particular branch types e.g. WHSmith the pace of deployment has been lower than anticipated. The current plan
assumes that 11,500 counters will be completed by August 2018.
IT Transformation
+ The percentage of controls implemented remains the same as prior month due to a delay in PWC training for TrAction tool and
PO user acceptance testing which needs to take place before the control testing commences.
+ The testing phase is expected to start the week commencing 8th Jan 2018 and finish by 15th Mar 2018.
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P9 EBITDAS £1.7m favourable to forecast.
Strong Christmas trading performance and IT cost savings
Revenue Direct Agents Cont.
FST Trading
Post Office Money 0.3 - (0.5) (0.2)
Moneygram (0.4) - 0.2] (0.2)
Banking Services 0.7 (0.0) (0.3)I 0.4
Telecoms 0S (0.0) 0.0 0.5
Postal Orders 0.0 0.0 (0.0), 0.0
[FsaT ia (0.0) (5) o6
Moneygram £(0.2)m — continuing shortfalls in volumes.
Banking Services +£0.4m — strong Christmas trading.
Telecoms +£0.5m — higher ARPU (slide 14).
Revenue Direct Agents Cont.
Retail Trading
Mails Trading 1.2 - (0.6) 0.6
Retail and Lottery 0.2 - (0.2) 0.1
Payment Services (0.6) : 0.2 (0.3)
Card Account 05 : - 0.5
ID - Assurance (Verify) 0.3 (0.1) - o.1
Other Retail 0.3 (0.3) 0.9) (0.0)
[Retail 19 (05) (0.5) 0.9
Mails Trading +£0.6m — strong Christmas trading
performance.
Payments Services £(0.3)m — reduced availability (slide
42)
Card Account +£0.5m — benefit of increase in interest
rates post forecast process. Benefit erodes from P10 due
to monthly statement regulatory requirement.
Agents Pay £0.3m — fixed pay savings v forecast
IT £0.7m — savings due to deal with Fujitsu. Timing only as had
been assumed in full year IT outturn.
Revenue Direct Agents] Cont.
POMS (0.5) (0.1) - (0.5)I
Revenue £(0.5)m — £0.3m of profit share forecast not
achieved
EBITDAS Bridge v/Forecast
VS
Trading Performance /
£'m
SE ~ w Oy 0 mm be =
PA S
fil s 54 2 gp £ % £ Fed
a Al o gee 3 ee =
& ity iz S = G
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5 a “iB o£ <=
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a > ko
& &
ZO
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2
P9 EBITDAS is favourable to Forecast £1.7m but £(1.5)m
adverse to Budget
£m
Gross Income
Direct Costs
Net Income
Staff Costs
Agents Pay
Non- Staff Costs
Expenditure
FRES - Share Of Profits
EBITDAS
Revenue
Retail
FS&T
POMS
Other
Total Revenue
P9 Performance against Forecast
+ Gross income — £2.4m favourable driven by strong Christmas
trading in Retail, Banking and Telecoms.
Act Var Var Var
Fest Bud PY ¢ Retail +£1.9m: Mails +£1.2m, Retail & Lottery +£0.2m,
— 4 ee TT Payment Services +£0.3m, POCA +£0.5m (interest rate
(9.9) (0.6) (0.0) (1.3) increase) and Verify +£0.3m. Offset by ATM £(0.9)m (£0.5m
79.4 1.7 0.6 0.7 due to trading performance (slide 12) and £(0.4)m (timing).
(15.0) (0.0) (0.8) 0.9 ¢ FS&T +£1.1m: Banking Services +£0.7m (strong trading
(38.0)) (0.8) (2.1) 1.8 performance) and Telecoms +£0.5m (higher ARPU —~ slide
(22.5) 0.8 0.9 (0.9) . ;
(75.4)I (0.1) (2.0) 18 15). Moneygram continues to underperform £(0.4)m but is
2.9 - (0.0) 0.5 offset by small gains across other areas.
6.8 1.7 (1.5) 3.0 * POMS £(0.5)m: profit share targets with supplier not met
£(0.3)m and volume shortfall (slide 16).
56.9 19 1.7 (1.0) + Agents pay — £(0.8)m adverse to forecast but moves in line
28.6 11 (0.4) 3.2 : : - P
27 (0.5) (0.5) 0.0 with revenue mix. £0.3m benefit in fixed pay partially offsets
14 (0.1) (0.1) (0.2) incremental variable cost.
89.3 2.4 0.6 2.0 * Staff costs — in line with forecast across all cost areas.
+ Non-staff costs — £0.8m favourable due to savings in IT spend
following a deal agreed with Fujitsu (timing only).
Performance against Budget
+ Performance against budget was £(1.5)m adverse in P9 but was
ahead of forecast expectations. We have confidence in delivery
of the full year outturn with a continuation of the strong trading
performance and focus on cost control. A high level view of full
year expectations is provided on slide 18.
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YTD, we remain ahead of budget
Revenue Direct Agents Cont.
Costs Pay
POMS (3.4) (1.5) (0.1) (5.0)
Revenue Direct Agents Cont.
Costs Pay
FST Trading
Post Office Money (4.8) - (0.3) (5.1)
Banking Services 2.9 (0.0) (0.2) 27 ne
Telecoms - Excl. New Call 69 Ot 0.2 7.2 25.0
New Call (5.9) 5.0 - (0.9)
Other FST (2.8) (0.0) (0.1) (2.9)
[fotal Fs&t (3.6) 5.0 (0.4) 0.9 20.0
Revenue Direct Agents
Costs Pay
Retail Trading eo om mw 8 4» £ tt & FSF & #8 2 & B
Mails 6.0 - (46) $2328 fe ¢e 5 Gee
Retail and Lottery 3.8 (0.7) (2.4) Fe FS & € 6 9 5 £ S F & oO g
Payment Services (1.0) - 07 = a g a & a g
Government Services 10.0 1a (3.0) g 3 & 2 2 6 3
Other Retail - 0.0 : a ” ©
[Total Retail 18.8 0.4 @.3) =
wo
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2
YTD EBITDAS is £1.9m favourable to forecast and £1.3m
favourable to budget
£m
Gross Income
Direct Costs
Net Income
Staff Costs
Agents Pay
Non- Staff Costs
Expenditure
FRES - Share Of Profits
EBITDAS
Revenue
Retail
FS&T
POMS
Other
Total Revenue
YTD
YTD Var Var Var
Act Fest Bud PY
713.5 4.5 11.6 1.3
(90.6) (0.4) 3.8 (6.5)
622.9 4.2 15.3 (5.2)
(137.2) 0.1 (7.5) 16.3
(283.5) (1.8) (8.8) 12.9
(214.8) (0.6) 2.4 (3.1)
(635.4)} (2.3) (14.0) 26.2
25.7 - (0.1) (2.7)
13.2 1.9 1.3 18.3
404.6 3.8 18.8 (23.4)
263.1 1.6 (3.6) 24.0
35.0 (0.8) (3.4) 2.4
10.8) (0.0) (0.2) (1.7)
713.5 4.5 11.6 1.3
Performance against Forecast
* Performance against forecast is ahead of expectations
following the strong Christmas trading performance:
+ Gross income - £4.5m favourable with Retail +£3.8m and
FS&T +£1.6m.
+ Agents pay - £(1.8)m adverse but in line with incremental
revenue performance ytd. Some savings on Fixed pay
partially offset incremental variable costs from trading.
+ Non staff costs - £(0.6)m adverse to forecast. Costs driven
by Finance and Losses £(1.3)m partially offset by savings in
other areas.
Performance against Budget
Gross income — £11.6m favourable.
* Retail +£18.8m with strong performance in Parcelforce, Labels, RM
Signed for, Lottery and Government Services against budget.
Significant year on year decline £(£23.4)m driven by Government
Services £(14.4)m and Mails non-trading (£4.5)m.
FS&T £(3.6)m adverse to budget driven by delays in New Call
launch £(5.9)m and continuing declines in Moneygram revenues
£(3.9)m due to drop in volumes following Brexit.
Strong performances in Banking Services +£2.9m ahead of budget
and the underlying Telco performance, partially offset these
declines.
POMS revenues £(3.4)m adverse to budget. Shortfalls in travel and
home insurance.
Staff costs — £(7.5)m adverse. Overspends in Retail £(4.5)m due to
delays in branch conversions, partially offset by reductions in agent
Pay.
+ Agents pay — £(8.8)m adverse and continuing to track in line with
YTD trends due to favourable revenue variances in Retail, partially
offset by fewer agents from delays in conversion c.(£2.7m).
Non-staff costs — £2.4m favourable to budget:
£1.2m underspend in marketing with full year savings anticipated at
£2.5m.
£3.8m savings from property (leases and rebates); offset by
+ £1.5m of IT cost savings
+ £1.5m of unbudgeted LTIP costs
£3.3m of finance and losses (agent losses £1.7m, FX £1.0m, Apprentice
Levy £0.7m)
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Retail: Strong Christmas trading and POCa interest rate interest
benefit.
Ps YTD
Revenue £1.9m favourable
em act] tet oud I A) reat Bud * Mails Trading: +£1.2m with strong Christmas
Parcelforce 28] 0.204 12) 0.20023 trading performance across the portfolio. P9
Special Delivery 4.7] 0.2 0.1 37.5} 0.3 0.7
Intemational Priority & Standard 5.6 (0.1) 0.2 26.5I (0.5) 1.2 ahead of YTD trends and forecast
Stamps (1st & 2nd) 6.3 0.3 (0.5) 18.8) 0.2 (1.3) .
Labels (1st & 2nd Class) 10.4] 0.3 0.4 70.2I 0.6 1.7 expectations.
RM Signed For 2.2 Oo. 0.3 17.5 0.2 2.3 . . .
tome Shopping Returns oo car ese Ss em + Payment Services: £(0.6)m with shortfall in
Cty os ATM £(0.9)m. Shortfall is partly due to trading
Retail (Inc Gif rds & Oth 2.9 0.0 0.4) 10.8] 0.1, 0.7)
Reta (ne Git cards & Other) 2.9) 0.0 (0-4) 10.8) (ot) (0.7) £0.5m and improved availability targets not
il 5.5 F Ee 34. 8 e
ith cently ete PF aan tae yet being met (slide 12) and £(0.4)m
ATM 2.3 (0.9) (1.0) 22.9) (1.2) (1.9)
AIM sung aaa Saeayel ith BS el auto) budgeted provision release held back
Card Account. Ss) os a I sao] (timing).
Djttot TD Serv URVE & Asym ref “cn oa I tia] “oa ta + Card Account: £0.5m due to continuing
Other Cae ces oo oe 00) jal os upside from BOE interest rate increase 100%
Gor it Servic 6.6) 1.0 Lt 71.2! 2.2 10.0 it i
TcnIRGGE eect ie a acne Ge ee EBITDAS benefit in the current month but the
= requirement to produce monthly statements
will start in P10, reducing the net benefit.
em fet] pest osu I A] rest ud
Gross Income 56.9 19 wy 404.6 38 9 18.8 Costs in line with forecast
Direct Costs (2.6) (0.5) 0.0 (22.4) (0.1) 0.5
Net Income 54.2 1.4 17 382.1 3.7 19.3
Agents Pay (32.4) (0.3) (1.8) (226.1) (1.3) (8.6)
Staff Costs (6.6) 0.1 (0.3) (62.1) 1.0 (4.5)
Non-Staff Costs (3.9) 0.2 (1.1), (26.8) (1.0) 23
Expenditure (42.8) 0.0 © (3.2) I (315.0)] (1.3) (10.9)
EBITDAS 11.4 14 (1.5) 67.1 25 8.4
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ATM availability has fallen from 94% in H1 to 92% in H2 leading to
revenue shortfalls v forecast.
ATM Volumes & Availability
10% Availability
* Of 2,370 live ATMs 1,950 are transacting at average
availability of 97.5% (i.e. 1.5% above 96% target)
09% + The remaining 420 ATMs have been experiencing average
son 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.
10 * This has led to a reduction in the overall availability reducing
om from 94% in H1 to 92% in H2 ytd. This reduction was not
anticipated in the full year forecast.
Mitigation
ATM income + ATM Service Manager is now in place and a team is being
ssogoee ~~ recruited to provide support to branches on a daily basis to
reinstate the support and intervention removed under OSOP
(4 heads and c.£0.2m cost).
+ Revenue shortfalls are still however anticipated against the
coo.000 forecast over the remainder of the year (£0.7m) and these are
included in the revised Retail risk and opportunities position.
Pa PS PH OPT FB
ie HR IOL7/AB FY forecast (latest) teFO7 forecast fon
som ZOLG/LT
N
—
. /
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FST: Gross Revenue £1.1m favourable vs Forecast in month
Po YTD
fm Act Var Var het Var Var
Fest Bud Fest Bud
Mortgages 0.2 0.1 (0.1) 19 0.2 (1.0)
Credit Cards and lending 0.2 01 (0.1) 15 0.2 (0.8)
Savings 3.4 0.0 0.0 30.3] (0.0) (0.0)
Travel Money 16 O.1 0.1 20.4 0.5 1.0
MoneyGram 2:3] (0.4) (0.6) 201] (1.3) (3.9)
Post Office Money oo 7a2l (ay G8)
Banking Services 7.4 07 0.3 65.2 1.0 29
Telecoms 123 0.5 0.4 112.4 08 1.0
Postal Orders tt 0.0 (0.1) 113 0.2 (1.1)
Other Income 0.0 0.0 (0.4) 0.0I (0.0) (1.6)
FS&T 28.6 1.1 (0.4) 263.1 1.6 (3.6)
P9 YTD
ém ct Var Var et Var Var
Fest Bud Fest Bud
Gross Income 28.6) ta (0.4) I 2684 1.6 (3.6)
Direct Costs (6.7)I (0.0) 0.2 (61.5) 0.3 5.0
Net Income 21.9 1.4 (0.2) I 201.6 1.9 as
Agents Pay (5.5)} (0.5) (0.3) (55.5)} (0.4) (0.2)
Staff Costs (4.0)) (0.1) (0.1) (9.2)], (0.7) (0.2)
Non-Staff Costs (4.5)) (0.8) (0.4) (33.4)) (1.4) (0.8)
Expenditure (11.0) (1.3) (0.7) (98.1) (2.5) (1.2)
EBITDAS 13.8 (0.2) (0.9) 129.2 (0.6) O14
Revenue £1.1m favourable
* Banking Services £0.7m favourable in P9 due
to strong trading over Christmas, up c.30%
year on year.
* Telecoms £0.5m favourable due to higher
average revenue per customer (ARPU) than
forecast (slide 14).
* MoneyGram £0.4m adverse due to continuing
market decline.
Margin £1.1m favourable
* Telecoms profit margin slightly ahead of
forecast (47% vs 45%).
Costs £(1.3)m adverse
« Agents pay £(0.5)m adverse in line with
incremental revenue.
* Staff Costs £(0.1)m adverse in P9 (staff for
new projects not included in the forecast).
* £(0.3)m adverse on Consultancy reflecting our
commitments under the agreement with Bol.
* £(0.3)m adverse on Brand & Marketing due to
the new Postal Orders marketing campai
alas
Post Office®
ar
Post Office Limited — Commercial in Confidence
POL00027267
POL00027267
Telecoms: £0.5m revenue overperformance in the month driven
by ARPU (average revenue per user)
Telecoms Revenue overperformance in month is due to £0.1m from additional customers and
£0.4m due to additional revenue per customers — driven by Homephone and New Call
Telecom Volume / Price analysis by Product
P9 Customers (#) P9 Revenue Impact (£'000)
Actual Forecast Var Vol Rate Total/Comment
Homephone 245,878 246,226 (348) (8) 208 200 IRate variance due to mix (packages & features and calls outside of plan)
Dual Premium 208,165 205,397 2,768 70 15 85
Fibre 5,166 3,889 1,277 38 (16) 22
Broadband 436 408 28 - - -
New Call 48,874 48,350 524 11 174 185 INew Call take up of welcome offer (only one month of data to rely on
when 5+7 submitted) - fewer customers signed up to contract
Total 508,519 504,270 4,249 111 381 492
Homephone ARPU Trend New Call
Homephone ARPU
oe ARPU overperformance due to less take up of
oy the welcome offer than anticipated v forecast.
26 This drove additional ARPU benefit in the month
25 as customers were maintained on the higher
eo ARPU over tariff v forecast expectations.
” “mm — performed v
o forecast
20 expectation
19
18
PL P2 B38 4 5 6 7 pg 9
ee 2016/27 mn 2527/8 me
WY
Post Office® Post Office Limited — Commercial in Confidence
POL00027267
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POMS: EBITDAS £0.2m adverse to forecast in P9
P9 Y1D Net Income £(0.5)m adverse
Revenue * Travel £(0.5)m adverse, £0.3m non-
Travel 0.7 (0.5) (0.1) 12.0 (0.9) (1.0) fi 5
te Oe oo Pa oe Oo 3 trading profit share not payable
Home 0.8 0.1 0.1 7.1 0.2 (0.3) © Home & Car £0.1m favourable
Life 0.3 0.1 0.4 5.0 0.3 0.1
Other 0.2 (0.0) ‘o 3 2.3 to. at 33) * Direct Costs / COS £0.1m adverse due
: : - - : - : to higher Direct Mail costs
Total Revenue 2.7} (05) (0.5) 35.0I (0.8) (3.4)
Staff Costs £0.1m favourable
Po YTD * £0.1m phasing of recruitment
ém Act reat bat Act reat bat Non-Staff Costs £0.2m favourable
Gee aco 27I (0.5) (0.8) 35.0I (0.8) (aia) *-—«£0.1m favourable in consultancy due to
Direct Costs (0.5) (0.1) (0.2) (6.5) (0.4) (1.5) costs reclassification
Net Income 2.21 (0.5) (0.7) eG) (02)
Agents Pay (0.1) (0.0) (0.0) (1.8) 0.1 (0.0)
Staff Costs (0.3) 0.1 0.1 (2.8) 0.2 os YTD and FY
Non-Staff Costs (0.9) 0.2 0.4 (12.1) 0.5 20 * YTD EBITDAS £13.6m (excl. allocation
Expenditure (1.3) 0.3 0.5 (16.8) 0.7 2.5 of agent’s pay) versus FY Feast of
£20.2m. A variety of initiatives will
EBITDAS 0.9 0.3 0.2 11.7 0.5. 2.4
iain ila caiaiiali drive revenue in Q4 such as Life DRTV
and Term Life product launch. A9+3
forecast will be performed to refresh
5+7 position in the light of substantial
number of risks and opportunities
We)
Post Office® Post Office Limited — Commercial in Confidence
POL00027267
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®
P9 and YTD Overheads by GE Member
Overheads Month YTD
Actual Var to Fest Var Actual Var to Fest
Bud
em Staff Other Total Staff Other Total Total Staff Other Staff Other Total
Costs Costs Costs Costs
DS Retail 6.6 3.9 10.4) 0.1 0.2 0.3 (1.4) 62.1 26.8 88.9 1.0 (1.0) (0.0)
NK FS&T 1.0 45 5.5I (0.1) (0.8) (0.9) (0.4) 9.2 33.4 42.6 (0.7) (1.4) (2.0)
NK = POMS 0.3 0.9 1.2 0.1 0.2 0.3 0.5 28 12.1 15.0 0.2 0.5 0.6
AC Finance & Ops 49 5.7 10.6) (0.3) 0.5 0.2 (0.7) 39.6 52.2 91.8 (0.7) 0.2 (0.5)
PV CEO 0.0 0.0 0.0 0.0 (0.0) (0.0) (0.0) 0.3 0.0 0.3 (0.0) (0.0) (0.0)
RH CIO 0.2 6.6 68 0.3 0.4 0.7 11 3.2 73.8 77.0 0.4 0.3 07
ME Strategy 0.1 0.0 0.1 (0.1) 0.0 (0.1) (0.1) 0.5 0.4 0.6 (0.0) 0.0 (0.0)
JM LRG 0.5 0.3 0.9 (0.0) 0.1 0.1 (0.1) 4.0 41 8.1 0.1 (0.1) 0.0
MK HR 1.5 0.4 1.9 (0.1) 0.0 (0.0) 0.2 13.8 45 18.3 (0.1) 0.1 0.0
MD ~— Communications 0.2 = (0.1) 0.1 (0.0) 0.4 0.4 0.3 1.3 21 3.4 (0.1) 0.6 0.5
Central (0.3) 0.3 (0.0) (0.0) (0.2) (0.2) 0.6 0.4 5.6 6.0 (0.0) 0.2 0.1
Total 15.0 225 37.4 (0.0) 0.8 0.7 0.1 137.2 2148 352.0 0.1 (0.7) (0.6)
Variances are based on YTD performance v Forecast
. FS&T: £(0.7)m staff costs overspend due to contractor cost catch ups £(0.5)m. Non staff costs overspend of £(1.4m) includes
£(0.9)m of marketing (timing) and incremental costs for BO! £(0.3) which had assumed to be capital in forecast.
° CIO: Savings due to deal agreed with Fujitsu £0.7m benefit. Timing v forecast and full year risk anticipated at c.£(1.0)m
currently — see R&O (next slide).
. Finance & Ops: Staff cost overspend of £(0.7)m driven by incremental contractor costs £(0.2)m. Additional staff costs offset by
savings in non - staff costs (allocation v forecast assumption).
. Comms: £0.6m non-staff cost savings due to reallocation of marketing costs to Retail (Retail sales award). Saving will reverse
due to cost challenges in balance of year forecast.
=
an
G
Post Office® Post Office Limited — Commercial in Confidence
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2
Risk and Ops: Current view suggests over delivery of Budget
Risk Adj PSF Var Retail: Continuing trading overperformance,
View. Risk programme underspend (moved to 18/19) and interest
. 44.9 7 48 rates benefit from POCA partly offset by regulatory
Retail : , : impact of monthly statements from P10.
FST 257.0 258.5 (1.5)
nae el eee FST: Value share i ts £1.7m offset b
Fi RO (114.5)} (111.6) (3.0) : Value share improvements £1.7m offset by
CLO ps (0.4) ( (0.4) (0.0) reductions in FRES performance £(0.5)m and additional
clo 99.8) (98.7) (1.0) im responding to Ofcom pricing challenge
Strategy (0.8) (0.7) (0.0) . .
LRG (excl. Sparrow) (8.7) (8.7) 0.0
HR (24.8) (24.6) (0.2) POMS: £0.5m reduction but reliant on TV trial and
Comms (4.8) (4.8) - completing. Challenging upwards and completing a
Central (4.9) (5.9) 4.0 detailed bottom up 9+3 forecast.
Total (excl. Efficiency & Sparrow) 29.9 30.4 (0.4)
Efficiency Fund 3.9 - 3.9 Finance and Ops: includes £2.5m of maintaining
Total (excl. Sparrow) 33.8 30.4 3.5 prudent assumptions on provisioning.
Sparrow (3.0) (2.4) (0.6)
Total oe ee CIO: £1m net risk left of £3m challenge in PSF.
Complete review being conducted to full year outturn
Total (excl. Sparrow) 33.8 30.4
Budget (excl. Sparrow) 30.0 30.0
Variance 3.8 0.4
% 113% 101%
17
ard
Post Office® Post Office Limited ~ Commercial in Confidence
POL00027267
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Efficiency Fund currently assumes £3.9m of costs to be
released v forecast
Efficiency Fund £'m Spent
to P9
P9 Forecast 8.8
Retail - No Queues at Christmas (0.6) (0.2)
FST - Postal Orders (0.2) (0.2)
FST - Telecoms (1.6) -
POMS - Growth Plan (2.5) (0.2)
Growth Fund Release 3.9 (0.7)
£0.7m of efficiency fund spent year to date v £4.9m allocated to projects to date
Risk and Opportunities currently assumes release of £3.9m
POMS Growth Fund spend outlook being validated as part of detailed 9+3 forecast review (currently being
undertaken).
18
Post Office® Post Office Limited — Commercial in Confidence
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Depreciation catch up in the month following detailed °
review. Capital and Investment spend continues to track
below forecast and budget
P9 YTD
£m Act Var Var Var YTD Var Var Var
Fest Bud PY Act Fest Bud PY
EBITDAS 6.8 1.7 (1.5) 3.0 13.2 1.9 1.3 18.3
Network Subsidy 5.4 (0.0) - (0.8) 52.5 (0.0) (0.0) (7.5)
EBITDA 12.2 17 (1.5) 2.2 65.7 1.9 1.3 10.8
Depreciation (6.1) (1.8) - (6.0) (35.8) (0.9) (0.9) (35.4)
Interest (0.6) 0.0 0.0 (0.5) (3.7) 0.1 1.6 (4.8)
Discontinued Operations - - - - - - - 50.0
Impairment - - - 8.5 - - - 76.8
Change Spend (6.0) 12.3 1.9 4.2 (66.1) 18.1 10.1 37.0
Investment Funding 5.8 - - (5.8) 52.5 - - (52.5)
Profit/(Loss) On Asset Sale 0.4 0.4 0.4 0.0 4.4 1.2 4.4 2.8
Profit/ (Loss) Before Tax 5.8 12.6 0.8 3.0 17.1 20.4 16.5 84.6
. Depreciation catch up in the month following continuing review of assets (yet to be added to fixed asset
register). Full year forecast is now expected to be £2.0m over the P5 Forecast.
. Change Spend expenditure is £6.0m in the month and continues to spend below forecast and budget
expectations. In the month there is a £10.0m shortfall due to a delay in the announcement of closures of 89
DMB’s (now anticipated to be April 18).
. The change process is being amended with a stronger portfolio management function to address this.
. In period spend on capital assets was £11.9m (see next slide), £90.6m YTD.
Post Office® Post Office Limited ~ Commercial in Confidence
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Project Spend £14.5m below forecast due £10m impact of delay
in announcing closure of DMB’s (now anticipated for April 18)
PS Yip FY .
Transformation Spend
Act] Var Var Act] Var var I Fest] Var Var . I
PSF Bud PSF Bud PSF Bud * Transformation spend continues to track
IT & Digital 8.5] (0.7) 24 I 53.4] 1.3 33.9 I 104.7] (9.5) 8.0 oo. .
Network Development Programme 31] 18 16 I 35.3] 23 83 I 49.1) 10.3 21.7 significantly below budget and forecast in the
DMB Network Development 1.2) 111 1.3 I 23.3] 13.4 (7.9) I 32.7] 115 (11.1) month.
FS &T oo} 1.0 41.2 I 11.5] 24 181 I 18.5] (0.1) 15.9
Back Office Transformation 15] 04 04 11.4] 19 40 17.6) (0.1) 2.5 e An update on the Top 15 Projects is provided
Retail 07) 07 04 sal 18 9.4 I 101 - 8.0 :
LEAN Centre 0.2] (0.2) (0.2) 3.0} 1.2 1.2 35] 12 12 on the next slide.
People and Engagement Transformation 0.8} (0.1) (0.2) 4.3] (0.7) 0.3 4.8] (0.7) 0.1 oteanchoeese
Property 0.7] (0.5) (0.5) 2.8] 0.1 (0.0) 4.0) 0.1 (0.0) Total Transformation Spend
POMS 0.3} (0.1) (0.1) 2.6] (0.5) 0.1 3.3] (0.5) 0.1
Supply Chain 0.2] (0.1) 0.4 2.6] 1.4 (0.2) 4.8 - (1.0)
Other Transformation (0.1)} 0.3 03 os} 05 14 16] 05 1.4
Corporate Services Transformation 0.0] 0.1 4 0.2] 02 1.0 13) 0.2 1.0
Identity - -
Finance *
Digital & marketing 1
Network Operations ws
Central Adjustments so
Total
Capital 1 om 2 oe
Change
Post Office® Post Office Limited — Commercial in Confidence
Top 15 Projects Summary
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Month YTD Full Year q7h8
# Project Name Area Act Act Fest Var RAG _ Project Update ee
Bud
T Network Network 16 246 391 26 NT variances are driven by timings of seltiement agreements, these costs are under
Transformation Development review with ramp down of the programme and the cross over to ND. It is likely that
L Programme i FY spend could be as little as £35m in the year due to this. oo
2 CT vacant leasehoids DMB Network 03 153 15.3 (14.2) Overpsend v budget is due to no budget being identified for onerous leases due to 2.9
& CT onerous property Development DMB closures announced earlier in the year. £10m released in the latest forecast as
contracts the next announcements (of 89 branches) forecast for P9 are now anticipated to take
place from 1st April 18 (after Board sign off), thus incremental costs and benefits in
18/19.
3 EUC Branch iT & Digital 05 94 27828 Final hardware order now due to impact Mar-18, with implementation costs still in 04
Deployment 18/19.
4” Network Development Network 15 107° “10.7 18.4 FYF latest view broadly in iine with previous forecast submitted
Development
Programme i
5. IT Networks IT & Digital 3.6 C183" 24.8 (7.1): Full network move must be completed by end of year to avoid extension penalties. 0.8
6 Risk and Resilience IT & Digital 1.2 91 90 118
“7 Back Office Systems Back Office 14 96 153° 0.4
Transformation Transformation a
8 Telco - Acquisition of FS &T 0.0 78 10.1 02 Transfer of acquired customer base completed in August. Final cost estimate relates 0.6
New Call Customer to design and implementation costs incurred by Fujitsu and its contactors, amounts
Base being confirmed
9 Crown Network Shape DMB Network 08 5.2 12.2 (2.2) + £0.4m Holdover & dilaps removed from forecast as covered within the Onerous 14
Development Contract Provision.
‘I i + £0.9m phasing into next year on Settlement Agreement & Branch works
10 Network Paddington” DMB Network 02 a4 32°64 +°£2.6m Holdover & dilaps removed from forecast as covered within the Onerous 36
Project Development Contract Provision
+ (£0.2m) Slight increase in costs against WHS Smiths ATMs, P5 forecast
assumed rollout 40. & P7, assumes. rollout 50
11 IT for ITIT Operating IT & Digital : : 22°59 06
Model i
12 5YP initiative FS&T : : 503.0 The Falcon initiative is now known as Customer Hub. The £5m forecast is
overiays_PO Money - consistent with the numbers presented to the ESG at the end of October
Falcon
13 ProjectEverest IT & Digital _ 0.1 06 6.3. (0.0) Negotations now ramping up, required in year spend to be finalised in DecemI I
14 Payment Services PCI IT & Digital - 10°45 Delay of project to 18/19 whilst best commercial approach is agreed by busin
project _
18 POS Enhancements Retail o4 3.0 53 (0.1) EUM Project business case is currently being revised. Variances are driven by -
timings of IT supplier costs. Latest vew forecast has been rephased to reflect this.
RAG Status based on latest forecast for cost and delivery expectations
Post Office
Post Office Limited —- Commercial in Confidence
POL00027267
POL00027267
P9 balance sheet shows a net asset position of £205m E>
£m Dec 2017 Mar 2017 Variance
Fixed Assets 436.5 391.0 45.5
Debtors 381.5 339.0 42.5
Cash 772.4 680.0 92.4
Creditors (610.0) (582.0) (28.0)
Pension Surplus 1.6 1.0 0.6
Provisions (62.7) (88.0) 25.3
Other 8.4 8.0 0.4
Loan (723.0) (561.0) (162.0)
Net Assets/ (Liabilities) 204.7 188.0 16.7
Capital and Reserves 204.7 188.0 16.7
Debtors increase on year end is due to seasonality of Christmas and increase in Card and ATM settlement
debtors. Balances anticipated to reduce in the forthcoming months.
Reduction in provisions balance due to OSOP and agents’ compensation payments.
Cash and loan balance movements higher than year end due to peak Christmas trading requirement (see next
slide).
22 }
Post Office® Post Office Limited ~ Commercial in Confidence ~—
Loan balance didn’t breach the £750m headroom limit in P9
POL00027267
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4,000
950
900
850
800
750
700
650
600
550
500
Loan Balance by Day
Max facility £950m
Temporary limit £850m
Headroom limit £750m
OOo O00 09° 9 82 GO OO oe 9 o02 00 060 9 ¢ & Of fc cece
oOo OO OO OOH OC OD ooo oo Go Oo OO GF OTH HSS SE
B99998S49EGSGSSaGGSGGGaGGT eI ?e
ys BORQOnr AM +O OM Or NOE HOON MASer SABVSAL
oaoogdtrerre er ere Bra a NNN A aA Ao OOoOCS
omen Lan Balance
The POL Board agreed a
temporary increase in the
headroom limit from £750m to
£850m to support the increased
cash funding requirement over the
Christmas holiday period (subject
to the approval from the CFOO).
During the period the maximum
facility used was £750m meaning
that the additional facility was not
required to be utilised.
Post Office®
Post Office Limited — Commercial in Confidence
POL00027267
POL00027267
Network cash lower than forecast due to cash processing .
focus and initiatives
(1) Where was our cash?
im Branches cvit sant Total Performance against Prior Month {£88m higher than P8)
P9 - Actuals 703.7 97.4 “153.1 954.2 + Network cash is £88m higher than P8 mainly due to
P12 - Actuals 647.0 138.0 158.0 943.0 increases in Branches £79m, as a result of the holiday
Variance vs P12 - Actuals 56.7 (40.6) (4.9) 11.2 period. An increase in the branch values was anticipated
PQ - PSF 1,091.6 and additional collections have been planned in January to
Variance vs P9 - PSF (137.4) reduce this balance back to normal trading levels.
Pe . Actuals 624.3 100.1 144.5 865.9 . Cash Centres were £12m higher than P8 as we maintain
Variance vs P8 79.4 (2.7) 11.6 83.3 : a ra eae
emergency inventory for post holiday activity. Additional
(2) How was it funded? resources have been approved in January to efficiently
£m RCE Clients Total process the increased cash that will be recovered from
P9 - Actuals 723.0 (2.7) 954.2 branches.
P12 - Actuals 561.0 127.0 . 943.0
Variance vs P12 - Actuals 162.0 (129.7) 11.2 Performance against Forecast (£137m lower than forecast)
P9 - PSF 759.1 (2.5) 756.6 335.0 1,091.6
Variance vs P9 - P5F (36.1) (0.2) " (36.3) (101.1) " (137.4) + The lower cash is split £60m in cash centres and £61m in
P8 - Actuals 594.0 100.9 694.9 171.0 865.9 branches following the trends we have seen in recent
Variance vs P8 129.0 (103.6) 25.4 62.9 88.3 months.
(3) What was our facility headroom on the RCF? ° The lower cash centre balance reflects the lower inward
em cap Board et Limit RCF Fa rems which had conservatively been assumed to remain at
Buffer Headroom P6 levels. Rems were £60m lower than forecast (£14m
te ee ceo ooo, ee » (723.0) Flan outward rems and £36m inward rems) as we continue to
9 - PSF . sooo an . " manage the cash holding position.
950.0 (200.0) 750.0 (9.1)
P8 - Actuals 950.0 (200.0) 750.0 156.0 . Headroom under the loan was £27m, £36m higher than
(4) What was our security headroom on the RCE? forecast. This was due to lower than forecast network cash
(£137m) offset by lower than forecast usage of the NRF
tm Network Other Net —_Total RCE Security” (£101m)
‘Cash Assets Security Headroom -
P9 - Actuals 720.3 279.7 1,000.0 277.0
P12 - Actuals 688.0 210.0 898.0 , (561.0) 337.0
P9 - PSF 756.6 249.9 1,006.5 " (759.1) 247.4
P8 - Actuals 694.9 193.1 888.0 (594.0) 294.0
(5) What was our actual headroom?
Given we do not apply £200m buffer to Security headroom our actual headroom is £27m.
(lower of £27m facility and £277m security headroom)
Post Office® Post Office Limited — Commercial in Confidence
POL00027267
POL00027267
Appendices
Post Office® Post Office Limited — Commercial in Confidence
EBITDAS by Area and Variance to P5F
POL00027267
POL00027267
Actual Var
PSF
a a
° °
oS CJ
> vo _
= g 8 o g ‘ _ = g g & E fs =
ic} a i £ S e@ oO os = S
s e fo} ° o [U} i £ Pe e fo} [4 U) £
@ 6 2 ¢€ $s &@ 8 € 8 § © &€$e Petes sk € EF § § G
Gross Income 56.9 286 2.7 08 - = - . - -~ 03 9893 1.9 1.1 (0.5) (01) - . . - - - (00) 24
Direct Costs 26 67 OS - 01 99 (05) (0.0) (01) - - - - - = = (0.1) (0.6)
Net Income 54.2 219 2.2 08 - - - - - - 02 79.4 1.4 1.1 (0.5) (01) - - * - . - (01) 17
Agents Pay 38.0 - - - 0 (0) rr (0/:)]
Staff Costs 6.6 10 03 49 00 02 01 05 15 0.2 (0.3) 15.0 0.1 (0.1) 0.1 (0.3) 0.0 0.3 (0.1) (0.0) (0.1) (0.0) (0.0) (0.0)
Non-Staff Costs 3.9 45 09 57 00 66 00 03 O04 (0.1) 03 22.5 0.2 (0.8) 0.2 05 (0.0) 04 0.0 01 00 O04 (0.2) 08
Expenditure 484 55 12 106 00 68 01 O09 1.9 0.1 (0.0) 75.4 (0.5) (0.9) 0.3 0.2 (0.0) 0.7 (0.1) 0.1 (0.0) 0.4 (0.2) (0.1)
FRES - 29° - - ee i) Be
EBITDAS 5.8 19.3 1.0 (9.7) (0.0) (6.8) (0.1) (0.9) (19) (0.1) 0.2 68 09 0.2 (0.2) 0.0 (0.0) 0.7 (0.1) 0.1 (0.0) 0.4 (03) 17
a,
Post Office® Post Office Limited — Commercial in Confidence
POL00027267
POL00027267
EBITDAS profile for remainder of the year
EBITDAS Profile
20.0
Increase in P12 is due to BOI
value share c.£8.0m and
15.0 increased Easter Trading
10.0
is
gO
- Y
(5.0)
(10.0)
P1-8 P9 P10 Pil P12
@ Actual M@iForecast @Budget 16/17
Post Office®™ Post Office Limited —- Commercial in Confidence
POL00027267
POL00027267
YTD Gross Profit margin is on budget
Po Var YTD Var
Retail FS&T Other Total Retail FS&T Other Total Retail FS&T Other Total Retail FS&T Other Total
Gross Income* 56.9 31.3 1a 89.3 1.7 (0.9) (0.1) 0.6 404.6 298.1 10.8 713.5 18.8 (7.0) (0.2) 11.6
Directly Attributable* (2.6) (7.2) (0.1) (9.9) 0.0 0.0 (0.1) (0.0) (22.4) (68.0) (0.2) (90.6) 0.4 3.4 (0.2) 3.8
Agents Pay - Variables (29.3) (4.9) 0.0 (34.1) (2.1) (0.3) 0.0 (2.4) (196.6) (49.8) 0.2 (246.2) (9.2) (0.4) 0.2 (9.4)
Agents Pay - Fixed (3.0) (0.8) (0.0) (3.8) 0.2 O41 0.0 0.3 (29.5) (7.5) (0.2) (37.2) 0.6 0.2 0.0 08
Supply Chain (2.3) (1.2) - (3.4) (0.2) (0.1) - (0.3) (19.2) (10.0) - (29.2) (0.8) (0.4) - (1.2)
DMB Costs (4.5) (1.3) - (5.9) (0.2) (0.1) - (0.3) (43.0) (12.5) - (55.5) (2.8) (0.8) - (3.7)
Gross Profit 15.1160 1.0 32.4 (0.6) (4.3) (0.2) (24) 93.9 150.3 10.5 254.7 6.9 (5.0) (0.2) 1.9
Gross Margin % 27% 51% 36% (2%) (3%) (3%) 23% 50% 36% 1% (0%) (0%)
*- Allocation by product included on next slide
. Gross profit margin is on budget YTD at 36%. In P9;
. Retail gross margin is adverse to budget as revenue growth is in products which generate additional
agents pay costs and the non delivery of agents savings due to simplification.
. FS&T margin below budget due to strong performance in Telecoms (but incremental COS)
. Supply Chain costs continue to track slightly adverse to budget.
. Other income relates to Supply Chain and Gamma.
28
Post Office® Post Office Limited — Commercial in Confidence
POL00027267
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®
YTD Gross Profit margin is on budget
YTD
Actual Budget Var
£m Rev COS AgentsI Net Rev % Rev COS Agents) Net Rev % Rev COS Agents/ Net Rev %
Total Mail Trading 210.8 - 136.4 74.4 35.3% 204.6 - 131.8 72.7 35.6% 6.2 : (4.6) 1.6] (0.3%)
Total Mail Non-Trading 44.8 - - 44.8} 100.0% 45.1 - - 45.1 100.0% (0.2) - - (0.2) -
Retail and Lottery 34.5 3.3 19.6 11.6) 33.5% 30.7 2.6 17.2 10.9) 35.6% 3.8 (0.7) (2.4) 0.6] (2.1%)
Payment Services 43.2 - 18.8 24.4 56.5% 44.2 - 19.5) 24.7 55.9% (1.0) - 0.7] (0.3) 0.6%
Govemment Services 71.2 19.1 21.8) 30.3 42.6% 61.2 20.2 18.8 22.2 36.2% 10.0 11 (3.0) 8.1 6.3%
Total Retail 404.6 22.4 196.6I 185.61 45.9% 385.8 22.8 187.31 175.7I 45.5% 18.8 0.4 (9.3) 9.9} 0.3%
Post Office Money (excl. Travel) 33.8 - 11.3 22.4] 66.4% 35.6 - 10.4) 25.2 70.8% (1.9) - (0.9). (2.8)] (4.4%)
Travel Money 20.4 - 7.2I 13.1 64.5% 19.4 - 6.7 12.7, 65.4% 10 - (0.5) 0.5] (0.9%)
MoneyGram 20.1 - 7A 12.9] 64.5% 24.0 - 8.3 15.7 65.4% (3.9) - 1.2 (2.7)} (0.9%)
Banking Services 65.2 0.9 19.2 45.2 69.2% 62.3 Os 19.0 42.5 68.2% 2.9 (0.0) (0.2) 2.7] 1.1%
Telecoms 112.4 60.6 0.8) 51.0) 45.4% 111.4 65.6 1.0) 44.7 40.2% 1.0 5.1 0.2] 6.2 5.2%
Postal Orders 11.3 0.0 23 8.9] 79.2% 12.4 - 2.2 10.2 82.2% (1.1) (0.0) (0.1) (1.3)] (3.0%)
Other Income 0.0 - - 0.0] 100.0% 16 - - 1.6 100.0% (1.6) - - (1.6) -
FS&T 263.1 61.5 48.0) 153.6I 58.4% 266.7 66.5 47.6) 152.7] 57.2% (3.6) 5.0 (0.4) 0.9} 1.1%
POMS 35.0 6.5 17 26.9] 76.7% 38.4 4.9 1.6 31.9 83.0% (3.4) (1.5) _(0.1) (5.0)] (6.3%)
Total FS&T 298.1 68.0 49.7) 180.5) 60.5% 305.2) 71.4 49.2) 184.6) 60.5% (7.0) 3.4 (0.5)! (4.1)I 0.1%
‘Supply Chain 8.0 - - 8.0] 100.0% 8.3 - - 8.3 100.0% (0.2) - - (0.2) -
Other 27 0.2 37.2I _(34.6)I (1,271%) 27 0.2 38.1] _(35.6)I (1,331.0%) 0.1 (0.0) 09 0.9] 60.1%
Total 713.5 90.6 283.5] 339.4I 47.6% 701.9 94.4 274.6] 332.9I 47.4% 11.6 3.8 (8.8) 6.5] 0.1%
Post Office® Post Office Limited — Commercial in Confidence
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DISCUSSION PAPER
POST OFF
GROUP EXECUTIVE
Budget Update
Author: Iain Pickering / Micheal Passmore — Sponsor: Alisdair Cameron Meeting date: 16 January 2018
Executive Summary
Context
The GE reviewed initial budget submission in December. Initial budget papers will be
reviewed by the Board in January before being finalised in March.
The purpose of this paper is to:
« Update the GE on the progress of the budget following the December review
e Confirm the shape of the P&L and the EBITDAS target for 2018-19
« Answer questions and confirm assumptions
e Recommend an approach to STIP
« Agree next steps and actions
Questions this paper addresses
e What is the recommended 2018 / 19 EBITDAS target?
e What are the main assumptions and unanswered questions?
e How deliverable is the recommended plan?
e What is the 2018/19 change plan?
« What should our STIP focus be?
e What are the next steps to finalising the budget?
Conclusions
We are recommending a 2018/19 EBITDAS target of £47m, including a £3.5m benefit
from the 53 week. This shows underlying trading growth of more than £10m and
reconciles to the Strategic Plan position.
The key assumptions are listed in the report, including a 2.6% pay award (not all
visible), a £14m increase in marketing and growth spend, no assumed interest rate
change and no Bank of Ireland profit support.
This plan looks deliverable with a budget gap of c.£12m from the December
submissions. However, FD availability meant that F&O and other functions are a step
behind. This is not a significant gap compared to previous years and we expect to be
able to close it during the upcoming budget reviews.
The change plan requests are set out in the Appendices. We have an additional ECG on
15* to start reducing the submissions and prioritising.
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We are recommending a gateway criteria for STIP to remain above 11,500 branches.
The “earning” criteria proposed for discussion are EBITDAS at 50%, removing POLSAP,
HRSAP and HNGX from the business without significant trading detriment (30%) and
having the Customer Hub operational, serving customers in two pillars of Insurance and
Identity (20%).
The next steps are to submit a version of this paper and the underlying slides (attached
in draft with work to be done) to the Board and a STIP paper to RemCo. We will also
provide a reconciliation back to the 3YP to UKGI.
Detailed budget reviews are in diaries and we will seek to substantively agree the final
position at the February GE, finalising the last details in March. UKGI will be conducting
its review in February. The Board in March will approve the final budget, approve
RemCo’s recommendations on STIP and agree the first funding request to BEIS.
Input sought
The GE is asked to agree the target for 2018/19 and the STIP proposals, providing
challenge and questions.
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The Report
What 2018 / 19 EBITDAS target should we recommend?
1.
Strictly Conf
In the 3 Year Plan the Board agreed a Strategic Plan target for 2018/19 of £40m
EBITDAS. This was £5m less than the original 3YP submission, reflecting the
increased costs being crystallised as new roles in BAU following the conclusion of
material change projects such as Network Transformation.
Currently we believe that this shift to BAU will be less than £5m in 2018-19 and
we are more likely to be looking at £2-3. Taking £3m as the more prudent likely
answer, our target would increase by £2m to £42m.
The Board has asked us to explore accounting and target options to exclude the
costs of Sparrow from trading EBITDAS. Given that current estimates of the cost
of litigation and project support in 2018/19 have risen to £9m, we have
agreement in principle with our auditors to treat this as an exceptional item. We
are exploring whether it would be sensible to trigger this treatment by providing
for the estimated future liabilities this year. £5m was assumed for Sparrow costs
in the October Board paper. This would therefore increase the target to £47m
excluding Sparrow.
In tabular form this looks as follows:
EBITDAS 2018-19 (£m) October Current Variance
Underlying trading 60 60
Sparrow costs (5) - 5
New BAU costs (5) (3) 2
Growth Fund (10) (10)
Target 40 47 7
In December, there was concern to ensure that year on year EBITDAS growth
should be at least £10m excluding the benefit of the 53 week’s trading, which is
estimated at £3.5m (Appendix 1).
The 2017-18 budget has been increased from £28m to £30m to also exclude the
costs of Sparrow. The latest view of 2017-18 outturn is £35m, with £4m of growth
fund not expected to be spent and £3m of Sparrow costs excluded.
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EBITDAS, £m 2017-18 2017-18 2018-19 Variance to Variance to
Budget Latest Proposal 2017-18 2017-18
Forecast Budget Forecast
Trading 39 40 53.5 14.5 13.5
Growth Fund (9) (5) (10) (1) (5)
30 35 43.5 23.5 8.5
53" week - - 3.5 3.5 3.5
EBITDAS 30 35 47 17 12
7. On this basis the underlying trading demonstrates growth of £13.5m year on year
against our current forecast on a like for like basis.
8. Looking forward, £12m EBITDAS growth next year compares to £19m in 2019/20
and £24m in 2020/21. It was always in the plan to have more modest growth in
2017/18 as we deliver substantial enabling change such as getting off POLSAP,
delivering EUM, completing the branch rollouts and developing more of the
commercial strategies. The need to re-accelerate profit growth after next year
underpins the Future Shape paper circulated to GE. This will be summarised in
the January Board paper on the budget to reassure the Board that we are not
“aiming off”.
EBITDAS, £m 2018/19 2019/20 2020/21
Submitted Plan 40 60 85
Sparrow 5 5 5
New BAU spend (vs £5m per annum) 2 1 -
Target EBITDAS 47 66 90
9. We are therefore recommending that a £47m EBITDAS target to the Board,
excluding Sparrow and including the benefits of the 53% week.
Strictly Confidential
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What are the assumptions and unanswered questions?
10.
Strictly Confi
The following is a list of key assumptions and questions that have been included
in budget submissions to date. This list will be maintained and updated through
to March budget conclusion.
Question
Assumptions in current plan
Outstanding
1. What costs are being
moved from Investment to
BAU?
£3m in 2018-19
This will be finalised and
validated during January and
February.
2. What is the accounting
treatment for Sparrow?
Excluded either through
accounting treatment or target
adjustment.
Finalise treatment as an
Exceptional item. Should this
be provided for in full in
17/18?
3. Is the targeted year on year
profit growth in 18/19
sufficient given the
challenges in outer years?
The trading increase excluding
the growth fund increase and
the 53° week is £13.5m. We
are recommending this is
sufficient.
Subject to GE and Board
confirmation
4. What will happen to
interest rates?
Interest rates will remain
unchanged for next year.
5. Will we do the new deal on
POCA and execute the
swap?
Current plan assumes that we
do the new deal with POCA
and that the hedging strategy
is put in place.
Hedge agreed by the Audit
and Risk Committee.
6. What pay award are we
assuming?
We agreed that we would
budget for 2% in business units
and 0.6% in a central reserve.
An increase to 3% would cost
c. £0.6m versus the planned
cost of £4.3m below:
£m
Closing 17/18 Cost I 181.2
(annualised)
2.6% inflation 47
Less: Unite (from 1 I (0.4)
Jun)
Controllable 43
7. What are FTE assumptions?
Reviews have been focussed
on EBITDAS position to date.
Detailed reviews in
January/February will review
headcount assumptions.
Compete FTE reviews, with all
template increases approved
by MK/AC.
dential
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Will we get any savings
support or profit support
from Bol?
Current plan assumes that
there will be no savings or
profit support from BO! which
has reduced EBITDAS by
£12.2m YOY.
Should we push FRES to be
more profitable in 2018-19?
Do we make a net profit
next year on FX?
FRES is currently budgeted to
deliver £34.1m next year v
£35.0m in 17/18.
Impact of Money Laundering
regulations are impacting
transactions >£1,000 thus
reducing the return from FRES.
in 2018/19.
Paula and Al will review the
overall contribution of FX and
the FRES contribution in a
planned budget review
encompassing Owen
Woodley’s strategic
assessment.
10.
In total, how much
marketing do we want to
budget for, including the
fixed and variable costs?
Brand and Marketing is
currently budgeted in the
businesses at £27.3m, an
increase of £9.2m (Appendix 2)
with an additional £10m
growth fund, £5m higher than
2017-18 expectations.
A review of Marketing has
been diarised for Paula and Al
to work through the plans for
2018-19. We can then assess
whether £37m is the right
budget assumption.
11.
What is the proposed
impact of simplification on
agents’ pay and what are
the options. Can we do
more to reduce fixed fees,
budgeted at £47m?
Simplification budgeted to
reduce variable agents pay by
incremental £5.6m in 18/19
(£12m annualised).
Fixed agents pay budgeted to
reduce by £2.6m from
NT/Churn with £0.4m to
increase Outreach payments
from Sept. (114 mains to
locals, 123 community to local
+ 300 new offset in churn).
Assess as part of the Retail
budget review. No more value
from future Simplification
changes is the right forecast
position.
12.
What is the plan to impact
and reduce cost of sales?
No changes assumed
Subject to budget reviews.
This area will certainly be part
of Future Shape.
13.
How do we optimise use of
the apprenticeship levy and
how do we structure to
deliver any change?
Budget currently assumes that
the Apprenticeship Levy will
be c.£1.0m with 50%
recovered.
We need a plan to deliver the
£0.5m. The question of p/I
accountability for training has
been flagged.
Strictly Confi
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14. Are we delivering the
capability shifts we will
need for the future and can
we self-fund — re-training,
fewer better people etc?
The plan currently includes
funding of £5.4m to fund know
gaps in the organisation. See
Appendix 3 for a breakdown of
costs.
Are there any other areas that
need to be addressed in Wave
1 that we haven’t picked up?
Can the business afford these
and if so what controls should
be put in place?
15. What is the net
contribution (after SC costs)
of additional banking
framework activity and is it
enough to justify the
additional focus?
£1.1m increase in 2018/19
increased by £0.7m in the
December submission.
Subject to detailed budget
reviews and alignment with
Supply Chain.
16. How are we funding a shift
change in MI and data
management and is that in
this budget?
Current budget includes a
permanent head of MI £0.2m.
Review the Project Arrow
assumptions to see if this is all
change funded.
17. What is the total change
spend in opex?
Budget currently includes
£5.3m of change spend. See
Appendix 4
Subject to budget reviews
18. What is the plan for DMBs?
Plan A. Budgeted to exit 25
within 18/19 and 72 in 19/20.
The January review is unlikely
to significantly change the
outcome in 2018/19.
January GE review of plans
19. Is it correct to remove the
MS from the business
Plan assumes that Mortgage
Specialists have been removed
from the business with the
exception of £1.0m of cost
remaining for MS still needed
to screen leads.
Announcement expected
January
How deliverable is the recommended plan?
11.
12.
Strictly Confi
Budget submissions in December totalled £35.4m of trading EBITDAS, excluding
Sparrow. This was in itself a significant improvement on the initial submission.
This left a gap to target of £12m, £3m higher than we estimated in December.
However, this is not a significant gap in historical terms and we expect to
identify it during the budget reviews, with an intention to largely finalise the
Position at the February GE. However, changes and headwinds do emerge and
we will remain flexible on the final target allocations until March GE. We do want
budgets finalised and loaded onto the system before the year-end.
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13. It is important to note that the functions working with Stuart Nesbit are a
challenge round behind the trading businesses. A substantial part of the
December shortfall will be made up from those functions including F&O.
14. Revised submissions have now been received in these areas (subject to detailed
reviews) as well as an update to Agents Pay and a move of £2.0m of costs in
Retail for Identity Services programme costs from BAU costs to the wider
programme. The current gap is currently therefore assumed at £3.3m (but is still
subject to validation and scrutiny).
EBITDAS
Retail
FST
Agents Pay
POMS
Finance & Ops
CEO
clo
Strategy
LRG
HR
Comms
Central
Total (excl Sparrow)
Var to Target
Strictly Confidential
Lea] a6)
2018/19) 2018/19 Var
Jan Dec
385.4 383.4 2.0
252.9] 252.9 :
(365.6) (368.3) 27
20.3 20.3 .
(113.5)} (115.5) 2.0
(0.4) (0.4) -
(88.2) (88.2)
(0.8) (0.8) -
(9.3) (9.9) 0.6
(25.0) (26.0) 1.0
(5.3) (5.3) -
(6.8) (6.8) -
43.7I 35.4 8.3
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15. The next round of submission reviews need to focus on operating costs and a
reasonable assumption is that we will seek to hold our operating cost base flat.
The current P&L shape is below (£3.3m short of target).
2018/19] 2017/18 Var
Bud PSF
Gross Income 971.2 949.2 22.0
Direct Costs (121.3)} (121.2) (0.0)
Net Income 850.0) 828.0 22.0
Agents Pay (365.6)I (368.4) 2.8
Staff Costs (186.5)I (182.6) (3.9)
Non-Staff Costs (excl. Market} (250.9)I (254.5) 3.6
Brand & Marketing (27.3) (18.2) (9.2)
Efficiency Fund (10.0) (5.0) (5.0)
Expenditure (840.3)I (828.7) (11.7)
FRES - Share Of Profits 34.1 35.0 (0.9)
EBITDAS (excl. Sparrow) 43.7 34.4 9.3
Note: 2017/18 forecast £28.0m adjusted to remove Project Sparrow costs £2.4m
and assumed £4.0m release of Growth Fund.
What is the 2018/19 Change Plan?
16. Part of the iterative process of finalising the budget is also to finalise the change
plan and to ensure that the assumptions on project delivery align with the profit
and loss account outcomes. The way we get change spend from the Government
changes next year. Each quarter we have to submit a change report via the Board
which gives a view of overall portfolio progress, summarises delivery of change
and benefits for Board approved investments and sets out expected spend in the
following quarter leading to a drawdown request.
17. The current list of change requests for next year is set out in Appendix 5. It totals
£315m including £28m of largely unplanned operating costs. This compares to
£238m assumed in the 3YP.
18. At the ECG on Monday 15* we will have a first collective review of the requests
and seek to narrow it to a workable list aligned with our p/I before the submission
of Board papers.
What should our STIP focus be?
19. The GE wants a new, balanced scorecard which we finalise together in March.
However, the Board does not welcome complex, multi-measure targets.
Strictly Confid
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20. Recently we have targeted EBITDAS and Cash Headroom but these measures are
captured in the LTIP submissions for the next three years and one of our design
principles is that there should be different targets between the schemes.
21. We need to have a first discussion in principle with the RemCo and the Board,
finalising the targets in March.
22. Our recommendation is that network numbers remaining above 11,500 should be
the gateway criteria, supported by three “earning” measures:
e EBITDAS at 50%
e Removing POLSAP, HRSAP and HNGX from the business without significant
trading detriment (30%)
e Having the Customer Hub operational, serving customers in two pillars of
Insurance and Identity (20%)
23. No one agrees on these things and this will attract debate. Views needed.
What are the next steps?
24. We will be submitting a paper and slide deck to the Board in January. The draft
slide deck is attached and it needs work. The paper will follow the logic of this and
the previous GE paper but will be substantially re-written to focus on the Board’s
concerns. These will include a view of the change plan after Monday’s ECG.
25. In addition, we will submit to UKGI a high level reconciliation of this plan
for next year compared with the October approved plan.
26. A short paper will be sent to the RemCo and summarised in the Board paper,
recommending STIP targets in principle.
27. Detailed budget reviews are largely in diaries and we will be finalising this
over the next couple of days. At the February GE we will seek to recommend
and agree the allocation of targets. We will likely seek additional GE time
to ensure that everyone is comfortable with the process and outcomes.
UKGI will be conducting its own reviews in February and we will seek their
agreement, including an agreement on funding drawdown by the end of
February.
28. At the March GE, we will finalise the plans allowing budgets to be loaded
onto the systems before year-end. The March Board will then approve the
formal budget, STIP targets as recommended by RemCo and the first,
quarterly funding request.
Strictly Con ntial
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Appendices
Appendix 1: Impact of Week 53 on Trading Performance
Area Revenue Costs EBITDAS
£'m £’m £’m
Retail 7.6 (1.5) 6.1
FS&T 5.5 (1.4) 4.4
Agents Pay - (5.5) (5.5)
Finance & Ops - (1.2) (1.2)
Total 13.1 (9.6) 3.5
Appendix 2: Brand and Marketing Spend by Area
Retail
FS&T
POMS
Finance & Ops
CEO
clo
Strategy
LRG
HR
Communications
Central
Total Marketing Spend
Strictly C
2018/19
Sub 2
41
11.0
7S
0.3
0.0
0.0
0.0
O12
0.2
3.6
OS
27.3
Var
Sub1
44
Var
17/18
(0.1)
(4.3)
(4.2)
(0.2)
0.0
O14
0.0
(0.0)
(0.0)
(0.4)
0.0
(9.2)
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Appendix 3: Skills Gaps being Funded in the Current Plan
Area Description £'m
Retail I Marketing (6 new roles - 2 perm, 4 temp) includes 0.3
temporary resource to review POS and branch
communications and additional roles to formalise
marketing support. 0.2
Government (6 new roles) additional resources to
manage existing, develop future propositions and 0.2
increase team capability
Bill Payments (2 new roles) - Increase team capability. 0.2
Assumes Panther is delivered. 0.5
Other - Non Cash payments (1 role), ATMs (1 role in
product, 3 in ops)
Identity - 4 new roles to support new incremental
revenue
FST Digital Capability 0.4
Marketing Capability 0.3
PO Money Capability 0.4
POMS I To support growth strategy:
- Marketing Support 0.7
- Pricing, Products 1.2
IT Security & Architecture, BP, Performance Portfolio 1.0
F&O Head of MI 0.2
F&O Network Ops - Post OSOP Review 0.8
Legal I Additional resources to support business requirements: 0.9
Company Secretariat (1 head)
Legal (1 head) IT / Commercial (previously to be funded
by Everest)
Legal (2 heads) - paralegal to support business growth
internally rather than externally
Internal Audit (1 head) - reduce external audit costs
Risk (1 head) -
Infosecurity (3 heads) - 2 x Data protection and 1 x
compliance.
7.3
Strictly Conf
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Appendix 4: Change Spend Currently Included in Opex
Area Description £'m
FS&T Customer Hub (Opex element only) 3.2
POMS I Investment Proposal (to be discussed separately) n/a
3.2
Appendix 5: Project List (Change Plan) 2018/19
Business Area FTor Project Opex Capex Exceptional Total
New Investment
Retail - Network FT Network Transformation 918 12,186 13,104
Retail - Network FT Network Development 2,730 15,979 18,708
Retail - Network FT Simplification (originally under ND) 13,626 13,626
Retail - Network FT —-HNGTLite 300 300
Retail - Network FT___ Branch Opening Hours 887 887
Retail - DMB FT Crown Network Shape 4,217 8,014 I 9,231
Retail - DMB FT Network Paddington Project 599 599
Retail - DMB FT CT vacant leaseholds & CT onerous property contracts 8,085 8,085
Retail - DMB FT DMB Strategy 2,476 11,472 13,948
Retail - DMB FT___ Sale Of Assets :
Retail-Commercial FT POS Enhancements 165 2,322 2,487
Retail-Commercial New Digital Check & Send 173 1,653 1,826
Retail-Commercial New POCA Implementation 695 695
Retail-Commercial FT Cheque Imaging 236 236
Retail-Commercial New Payment Regulatory & Trend Changes 750 1,545 2,295
Retail-Commercial New POCA Future & Government Strategy 1,000 1,000
Retail-Commercial FT —_Project Panther 1598 1,598
Commercial New Project ATM 300 300
Commercial New Identity Services 1,890 10,010 11,900
Retail-Commercial FT —_SSK Procurement 43a 43
Commercial FT _—_ SSK Simplification 278 2797 557
Retail-Commercial FT —_SSK Roll Out 4,000 4,000
Retail-Commercial FT Smart Metering / Real-time Bill Payment / Mult} 80 900 980
Retail-Commercial __New Mails - multi channel 200 5,000 5,200
Retail-Commercial New Mails - click & Collect 500 3,100 3,600
Retail-Commercial New Mails - small business club 400 1,800 2,200
Retail-Commercial FT —_Mails Strategy + Mails (Joint Neg) - Next Best Alternatives 4,900 4,900
Retail-Commercial New Mails - Ebay 600 4,000 25,000 29,600
Retail-Commercial New Mails - Peerto peer 300 300
Retail-Commercial New Mails - Market Place Collections 200 200
Retail-Commercial New Mails - Small Business Integrator 200 200
Commercial __New__Mails - Customer Identity 100 100
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Business Area For Project Opex Capex Exceptional Total
New Investment
IT & Digital FT Risk and Resilience 8421 8,421
IT & Digital FT R&R-IT for ITBuild SOC and Command Centre 4,000 4,000
IT & Digital FT Chameleon/HNGT Lite 8,500 8,500
IT & Digital FT {for IT Operating Model 5,000 5,000
IT & Digital FT Branch Printer Replacement 3,576 3,576
IT & Digital FT EUCBranch Deployment 2,681 2,681
IT & Digital FT Back Office Systems Transformation 9,000 9,000
IT & Digital FT IT Networks - - oa -
IT & Digital FT Project Everest 9,300 3,500 12,800
IT & Digital FT CDP reprocurement 41,400 1,400
IT & Digital New Al Refresh 2,600 2,600
IT & Digital New ITStrategy capability 2,000 2,000
IT & Digital New Information Services Replacement 1,000 1,000
IT & Digital New ITfor IT foundational architecture 1,350 1,350
IT & Digital New New Itron Card/Key Reader Boxes 41,400 1,400
IT & Digital New PCI/Payments Hub 2,500 2,500
IT & Digital New Paystation 2,500 2,500
IT & Digital New ePOS Capability in Branch Network 2,870 2,870
IT & Digital New Postmasters Portal 6,200 6,200
IT & Digital New __Multi-tier Service levels 41,000 1,000
IT & Digital New Digitisation of Mails 1,000 1,000
IT & Digital New Finch (Field Agent Systems) 1,000 1,000
IT & Digital New Innovation Environment 500 500
IT & Digital New _ Data & Analytics Strategy incl. CVM tools 3,000 3,000
FSQr FT Falcon- Travel Hub 21 1,609 1,630
Far New Falcon - Additional Verticles 171 14,190 14,361
FS&r FT Eagle 2,072 1,929 4,001
Far New Telco-VCOP 600 600
FS@r FT Telco- Tech Refresh & Routers 1,886 1,740 3,626
Far New Telco- Price Change 900 900
Far New Telco- Proposition 700 700
FS8r New Banking Framework - Cash Management 828 424 5,341 6,592
FS&r New _ Brands & Salesforce Procurement 637 637
F&O New Swindon Strategy - BOT?? - 3,000 - 3,000
FRO New AP- Procurement - BOT? P2P - 3,000 - 3,000
FRO FT Cash Management 342 1,188 584 2,114
FRO New Project arrow - 1,000 - 1,000
FRO FT Ops Transformation 205 2,490 434 3,129
F&O New Supply Chain : 3,700 - 3,700
F&O FT Network Ops - 500 - 500
FRO FT Property 986 6,209 - 7,196
F&O FT__Finance : 500 : 500
LRG FT GDPR 2,000 2,000
LRG FT Group Littigation 5,000 5,000
LRG Fr JM sa 51
HR FT Success Factors - Phase 1 321 321
HR FT SF/EUM Common Services 603 603
HR New Success Factors - Phase 2 2,594 2,594
HR New Vetting - fit and proper 1,100 788 1,888
HR New Senior Management - POMS 402 402
HR FT Projectiay 1,009 1,009
Central FT Transformation team 2,000 2,000
Central New _ Transformation budget (seed funding and new 1,000 2,000 2,000 5,000
[Total I 23,708 170,224 121,127 315,059
Strictly Confidential
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2018/19 Budget
This is a FIRST and INCOMPLETE DRAFT of the budget Board deck which will
be an Appendix to the main paper. This is directional only and is in the process
of being completed.
Al Cameron
xx January 2018
-)
C
Post Office® Post Office Limited — Commercial in Confidence
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Post Office Post Office Limited — Commercial in Confidence
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Overview of 2018/19
Income
Margin and Agents Pay
Costs
POMS
Risks and Opportunities
Capital and Investment Spend
Balance Sheet and Cashflow
Annex A: Transformation Plan
Post Office®
Post Office Limited — Commercial in Confidence
Overview
Update on key 17/18
items
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Another year of progress:
« We continue to modernise, a further x,xxx branches to be modernised taking the programme total to around x,xxx
(xx% of our network). These branches are delivering longer opening hours, more efficient ways of working and more
attractive environments for customers in their local communities.
« Lower cost, simpler business: total expenditure (excluding project opex) forecast to decrease from £942m in 2016/17
to £xxxm in 2017/18, a reduction of xx%.
* EBITDAS growth continuing and 2018/19 in line with latest funding targets as we continue to deliver the continued
momentum towards commercial sustainability.
The transformation continues with major challenges still to deliver
* IT, Network Transformation, Supply Chain (to expand)
But trading conditions are challenging:
« We have maintained our target of £47m EBITDAS, in spite of challenging trading conditions in Retail, Telecoms and
Financial Services
* 2018/19 will represent a year of stabilisation as deliver of the transformation projects and set ourselves up to
successfully deliver the next round of significant cost reductions in 2019/20
75
50
25
E (25)
(50)
(75)
(100)
{125}
2013/14
EBITDAS
2014/15 2015/16 2016/17
14
30
2017/18
a7
2018/19
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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 Link strategy into
18/19 budget Comment
Income is declining
in our core markets
with more work to
do on costs
Our digital
capabilities are
insufficient to meet
consumer
expectations and
drive growth
We need to secure
the right retailers to
host our network
Our major
commercial
partnerships need
to be realigned
Our IT systems need
modernising to
provide greater
stability, security
and flexibility
+: 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.
» 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.
+ 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.
+ Retailers have more choice than ever for ancillary services which range from self-serve coffee
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 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.
+ 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.
> Retail revenue
£(x.xm) Slide x
* Costs +£xm.
Reduction in 19/20
+ Budget assumes
continuing
investment spend of
Exxm (Slide x)
+ xXx
+ xx
ced
+ xx
+ xx
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Five strategic priorities to address these challenges and
complete the transformation Link strategy into
18/19 budget
STRATEGIC INVESTMENT
PRIORITY KEY INITIATIVES 2018/19 ~ 2020/21 bean BENEFITS & Ourcomes 2018/19
* Simplification of product transactions and branch operations : Pesonaedratailer demend for post offices * Slide x
. a .* Network expansion in urban areas to meet customer demand . ae '
Simplify the Further franchising of DMBs (177 assumed in Plan) £190 To strengthening our ability to attract and
retailer Roll out of self service kiosks for agency branches, development £210M retain the best agents (at lower
proposition . remuneration).
of more flexible POS solutions (via HNGT) and the creation of an : Abett twork fe St ith
‘agent hub’ to digitise and simplify services to postmasters etter network for customers, with more + Slide x #
locations in areas of high demand. of sites
+ Replace end-of-life branch hardware and invest in improving ow .
Build . security and addressing recurring outages and system failures . eam ae benefits by 2020/24 thi + Slide x
innovative, * Transition Horizon to cloud based architecture with increased £80M To eee ole ris ae lle shifted to within
flexible and business flexibility via development of ‘thin client’ £90mM acceptable parameters. + Slide x #
secure IT '+ Restructure IT operating model to take back control of core . Flexible TT architecture to enable better
functions at lower operating cost services for customers, agents and staff
Creation of integrated digital platform (the ‘Customer Hub’) to
drive growth across financial services and our wider product + w£3im pa benefits by 2020/21
Modernise our range £90MTo * ‘10% of revenue base from new products &® . slide x
products and Development of multi-channel mails services to deliver £110M propositions, stabilising overall top line
services improved convenience for both SMEs and consumers + Digital innovation used to improve every lid
Investment in capabilities to lead the market in digital identity possible product transaction + Slide x
Further expansion of the Banking Framework
+ We will deliver a further 20% reduction in central staff costs by + w£16m pa benefits by 2020/21 + Slide x
Digitise and streamlining and automating key Processes across the Our people are able to focus more of their
optimise the organisation and digitising our services to agents £30M To time on serving customers and addin ;
business Supported by transformation and replacement of back office £35M strategic vole not doing processes that * Slide x
/ systems to deliver improves processes and the MI our people
need to run the business are better performed by machines.
Underpins delivery of the above
Trust our + Talent and career progression: provide an environment where benefits
people to find I our people have a chance to learn, grow and thrive, with the + Culture and talent in place to deliver the + Slide x
the best way right succession planning and early career talent development. ~w£5M next stage of the Post Office’s
to do their + Learning & Development: everyone who wants to learn and transformation * Slidex
jobs andhelp I develop will be fully supported through a range programmes. + Improved staff engagement levels
our customers I! * Reward and Recognition: attract and retain the talent we need. + 50% of senior roles filled by internal
candidates
6
(6
eo)
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Strategic context and priorities
Income
Margin and Agents Pay
Costs
POMS
Risks and Opportunities
Capital and Investment Spend
Balance Sheet and Cashflow
Annex A: Transformation Plan
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The 18/19 proposed budget delivers £47m EBITDAS in line F omc N
with revised 3 Year Plan target High level review of
18/19 shape
2018/19] 2017/18 Var % Gross Income (Slide x)
Bud Por PSF very R th despite continuing decline in Retail
Gross Income 971.2I 949.2 22.0 2.3% evens grow P g :
: (£x.xm), pricing pressures on Telecoms following the
Direct Costs (121.3)) (121.1) (0.1) 0.1% Ofcom announcement to BT (£x.xm) and removal of
Net Income 850.0} 828.1 21.9 2.6% the profit share agreement with Bank of Ireland (BO!)
Agents Pay (365.6)I (368.5) 2.9 (0.8%) £(x.x)m.
Staff Costs (186.5)} (182.7) (3.8) 2.1% * Growth driven by xx, xxx
Non-Staff Costs (284.9)} (281.4) (3.6) 1.3% . .
Expenditure (837.0)I (832.6) (4.5) 0.5% Direct Costs (Slide x)
FRES - Share Of Profits 34.1 35.0 (0.9) (2.6%) ° *X
EBITDAS (pre Sparrow) 47.0 30.5 16.5 54.0% Agents Pay (Slide x)
Sparrow (7.0) (2.5) (4.5) 180.0% . xy
EBITDAS 40.0 28.0 12.0 42.8% .
” Staff Costs (Slide x)
* XX
Target Reconciliation so787 Non Staff Costs (Slide x)
19 * XX
Per 3 YP 40.0 FRES (Slide x)
Project Costs into BAU* 2.0 ° xX
Sparrow (per 5YP) 5.0
Target pre Sparrow 47.0 Sparrow
= xXx
*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.
=)
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EBITDAS year on year £xxm improvement achieved against
continuing trading challenges. To be updated for
2018/19 numbers
44 &
40
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+ Decline in income means that significant savings are needed in all other areas.
* Banking Framework has strong income generation, with a low level of associated costs.
* OSOP is playing a key role in hitting the £38m goal.
« Assumed that the New Call purchase goes ahead.
* Non-staff rise seen in initial submissions has been challenged.
Post Office®™ Post Office Limited —- Commercial in Confidence
Key income drivers, initiatives & investments (1)
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Update for final
submission
Pees
* 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.
KEY
DRIVERS
network coverage and multi-channel
capabilities, including through:
* Drop & Go: growing the SME user base
and improving the online service with
additional features like loyalty discounts.
Click & Collect: improving the customer
journey for parcels collections and
potentially extending to other carriers and
platforms.
Multi-channel expansion and eBay
integration: enabling customers to start
transactions online and complete in
branch, and potentially selling RMG
tracked services directly through our own
digital channels.
KEY INITIATIVES
i
i
'
i
i
I
'
Up to £40m invested to strengthen our I
:
i
i
i
I
i
i
I
i
i
i
'
i
i
Significant uncertainty associated with I
both the pace of market developments i"
(e.g. shift to eBay shipping platform) and
the outcome of negotiations with RMG —
impact of these events could worsen mails
income by £10-30m pa by 2020/21.
RISKS
IDENTITY &
GOVERNMENT SERVICES
I 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.
* Launch of Digital Check
& Send for passports:
improving the customer
journey and supporting
HMPO’s aim to remove
paper. Delivers cL12m
income by 2020/21.
* Identity services: building
the UK’s digital identity
market to improve security
& convenience for
customers and reduce costs
for clients. Underpinned by
c.£20m investment in
digital platform and in-
branch technology.
+ Up to £15m pa profit at risk
by 20/21 if identity market
does not evolve as planed.
Potential for additional
regulatory costs of £5-10m
pa on POCA.
io
“BANKING
I
I
I
Continued bank branch i
closures (nearly 500 in I
2017 alone) and increased I
awareness of Banking
Framework driving growth I
of c5% pa.
the Banking Framework:
ongoing programme of
product innovation, such as
quicker deposit processes
for business customers.
Discussions underway
with major banks around
further extensions to the
[
“Further enhancements to
Banking Framework to I
support more radical i
reconfiguration of their :
network, which would i
necessitate additional }
investment and financing i
i
arrangements.
New framework agreement
needs to be negotiated with
the banks before the end of
the plan period, presenting
both risks & opportunities.
PAYMENTS
Traditional bill payments
market declining by >5%
pa due to shift to
alternative channels,
although our strategy seeks
to drive outperformance vs
the market.
Targeting large clients
directly and enabling the
technical capability
required to leverage
growing segments such as
pre-pay smart metering and
transport ticketing.
Project Panther currently
being assessed - seeks to
accelerate improvements to
our network, retailer
technology & product range
(£10-15m investment).
ATMs: new contract
required during Plan period
- options under review.
ee Ie ee
Bill payments income and
volumes subject to
significant binary risk
associated with winning
large client contracts
against intense competition.
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Key i dri - eee ge Ri 2 Update for final
ey income drivers, initiatives & investments (2) submission
PO Money TELECOMS
>
iu
DRIVERS
KEY INITIATIVES
risks and opportunities against our baseline forecast.
Bank of Ireland balance sheet constraints and
alignment of incentives are the major factors
influencing outlook for PO Money product range -
currently assuming £7m income drop from savings.
Offset by investment in own capabilities (see below).
Plan assumes we maintain our c25% share of a
broadly flat travel money market.
Negotiations with Bank of Ireland ongoing, with
aim to recalibrate FRES value share, establish greater
product sourcing flexibility and align sales incentives.
Outcome currently uncertain (see Sept 2017 Board
paper for further detail).
Building the digital platform (‘Customer Hub’)
required to support our future growth in financial
services and other B2C product lines, delivering an
integrated proposition to customers to meet their
needs. Requires investment of c£30m over the period.
Developing the product and proposition roadmap
to put through the new platform, starting with those
which are already within our control like travel,
identity & insurance. Intention to launch retail
investment products in 2019.
Inevitable uncertainty around our ability to gain
traction in new product areas like investments
(forecast to generate £8m pa revenue by 20/21).
As indicated above, relationship with Bank of Ireland is
the key swing factor over the plan period, with both
Against the backdrop of a competitive
market, POMS plan seeks to deliver
c£20m profit increase by 2020/21, by
building on the investments to date to
increase control of the value chain and
improve distributional capabilities.
POMS strategy review underway, reporting
to POMS Board in Nov 2017 — assessing
range of options for driving growth:
Further increasing control over end~
to-end product delivery to improve
value capture, including by re-
negotiating (or exiting) the arrangement
with JBF (the intermediary for motor &
home insurance).
Deepening capabilities in pricing
management, digital sales and
analytics, leveraging the investment in
the wider Customer Hub.
Potential acquisition opportunities to
broaden distribution reach and move into
lities
MGA / underwriting capa
POMS plan is predicated on ambitious
profit growth ~ a combination of external I
factors (regulation, Competition,
macroeconomics) and internal capability
dependencies could put some of this
£20m growth at risk.
sneneenenennnnnnet
‘ed line net income —
traditionally the mainstay of the
PO telco business - is set to
decline, not least from impact of
Ofcom interventions. Our plan
seeks to offset this through growth
in new products & customers.
t
t
4
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ft
t
i
i
H
L
I
I
;
4
Improving the efficiency of the I
current operations, driving I
higher yield from more efficient I
targeting of existing customers, I
channels and pricing propositions.
Broadening the customer reach I
to appeal to new customer I
segments, leveraging the I
investment in the Customer Hub. I
Expanding the product I
portfolio to capture greater I
revenue and increase retention I
rates — potentially including TV, I
energy and mobile. I
4
é
Precise impact of Ofcom review of
landline pricing currently unknown -
could add £5-10m pa risk.
Broadband market remains subject
to intense price-led competition.
Post Office®
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Expand for all key
Key 2018/19 Budget Programme Deliverables (1) projects with latest
view
ppt I p2 I po I pa I ps I Pe I 7 I Pe I Po I to I pat I az Ii
ATM go live Mar 18, Mails Nov 18 5.6
3 strategic partners (1 every 4 months) 0.5
9 Network : :
3 300 Whitespace, 114 Mains to Local 2.0
o Simplification -
2
£ Exit 25 DMB’s and open c.100 new Agency Branches 3.3
3)
2 Reach 7,660 conversions by end of year 0.7
a EUM -
o Back Office
S 14
S Branch Tech
o Network
(42)
SI
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The plan assumptions / impact are set out below E>
VAT ~ 9% irrecoverable rate assumed, no change from 16/17.
Inflation — Where possible specified contract terms used, if not CPI at 2.6%
used.
Interest — assumes rate remains unchanged at 0.50%.
Pay rises — £xxm budgeted (2.6%).
Bonuses - £xxm has been budgeted centrally for STIP and £1.6m for LTIP
13
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Strategic context and priorities
Overview of 2018/19
a
Margin and Agents Pay
Costs
POMS
Risks and Opportunities
Capital and Investment Spend
Balance Sheet and Cashflow
Annex A: Transformation Plan
Post Office
Post Office Limited —- Commercial in Confidence
£22m increase in Gross Income.
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Gross Income 2018/19 2017/18
Var % Var %
£m 18/19) 7/18 var I 17/28) s6y17 var
Mail Trading 285.4) 13.1 4.8% 272.3 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 59.2 1.2 2.0% 58.0 (7.6) (11.6%)
Government Services 91.4 (0.8) (0.9%) 92.2} (22.0) (19.3%)
Total Retail 530.8 4.3 0.8% I 526.5I (32.2) (5.8%)
Mortgages 1.8] (0.3) (15.0%) 2.1] (0.6) (21.7%)
Credit Cards and Lending 1.9) 0.2 9.6% 1.7 (1.2) (41.5%)
Savings 39.0] (8.2) (17.3%) 47.2I (7.5) (13.8%)
Travel Money 32.6) 4.8 17.3% 27.8 0.5 2.0%
MoneyGram 25.5) (3.1) (10.8%) 28.6 (1.2) (4.0%)
Post Office Money 100.8} (6.6) (6.1%) 107.4] (10.0) (8.5%)
Banking Services 95.0 8.7 10.0% 86.3 19.0 28.1%
Telecoms 160.4) 10.8 7.2% 149.6 19.5 14.9%
Postal Orders 12.3} (2.2) (15.3%) 14.5} (4.0) (21.7%)
Other Income (0.4)I (1.6) (136.3%) 1.2] (0.1) _ (5.6%)
FS&T 368.1 9.0 2.5% I 359.1) 243 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%) 3.6I (0.2) _ (4.0%)
Total Revenue 971.2I 22.0 2.3% I949.2I (3.0) (0.3%)
Retail +£4.3m (0.8%
Mails (Slide xx)
+ Fixed fee £4m decrease split between contractual efficiencies and
Annual Count reduction. Royal Mails request for changes to be
mitigated and will not impact 18/19 income.
* Overall trading flat with favourable variance driven by RPI increase
(3.2% less (assumed 3.2% -1)
Retail and Lottery (Slide xx)
* Retail sales impacted by DMB closures offset by new WHS contract
+ Camelot lottery sales declines by 9.5%
Payment Services (Slide xx)
+ HNGT Lite & new contract opportunities offsetting payments decline
+ Poca decline reduces ATM usage
Government Services (Slide xx)
+ UKVI contract ends in P8, expectation to provide a frontend solution
only in future.
+ Verify expecting consistent YOY volume growth vs. latest view of
17/18 exit
* POca interest gains included in Net Income
FST+£9.0m (2.5%)
Savings (Slide xx)
* Xx
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£24m fall in net income compared to 16/17. To be updated for
Underlying movement £43m fall. 2018/19 numbers
44 &
40
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* Comments and signpost key numbers
©
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Retail: net income decline includes £(11)m Mails fall and
continued downward trend in Retail & Lottery
2018/19 2017/18 Mail
% Var % ° Fixed fee £4m decrease split between
£m 18/19} Var var I 27/38) s6sa7 Var contractual efficiencies and Annual Count
reduction
Parcelforce 21.0] 1.5 7.5% 19.6 1.2 6.4%
Special Delivery 49.5 0.7 1.4% 48.8 (1.0) (2.0%) I * RMrequest for changes to Mailwork mitigated
International Priority & Standard 12.5) 1.2 10.5% 11.3 1a 10.5% and will not impact 18/19 income
Stamps (1st & 2nd) 21.1] (1.9) (8.3%) 23.0] (2.3) (9.3%)
Labels (1st & 2nd Class) 93.5) 2.8 3.1% 90.7 4.0 4.6% * Overall trading flat with favourable variance
RM Signed For 23.3 0.5 2.3% 22.8 0.0 0.0% driven by RPI increase (assumed 3.2% -1)
Home Shopping Returns 20.6 3.6 21.1% 17.0 2.9 20.6%
Other Trading 40.1 0.9 2.3% 39.2] (0.4) (1.0%) Retail and Lottery
Total Mail Trading 281.6 9.2 3.4% 272.3 5.4 2.0% ; ;
Fixed fee 45.8] (4.0) (8.0%) 49.8] (2.9) (5.5%) ° Retail sales impacted by DMB closures offset
Mailwork & Mails non trading 10.0] (0.0) (0.0%) 10.0} (3.0) (23.1%) by new WHS contract
Total Mail Non-Trading 55.8] (4.0) (6.7%) 59.8] (5.9) (9.0%) :
Retail (Inc Gift cards & Other) 11.5] (2.8) (19.8%) 14.3 0.6 4.3% °* Camelot lottery sales declines by 9.5%
Lottery 27.4I (2.5) (8.2%) 29.8] (2.7) (8.3%) .
Retail and Lottery 38.9] (5.3) (12.0%) 44.2I (2.1) (4.5%) Payment Services
Payment Services 28.0] 1.7 6.4% 26.3) (6.3) (19.4%) . ‘ “te amiti
ATM 31.2] (0.5) (1.6%) 317 (1.3) (3.9%) HNGT Lite & new contract opportunities
Payment Services 59.2 fo 2.0% 58.0] (7.6) (11.6%) offsetting payments decline
Motoring Services 6.2 (0.2) (3.1%) 6.4 (1.9) (22.4%) . q
Card Account 39.11 (3.1) (7.3%) 42.2I (19.0) (31.1%) Poca decline reduces ATM usage
Passport Services 20.44 (0.7) (3.2%) 21.1] (1.4) (6.2%) i
Digital ID Serv UKVI & Asylum 11.4] (2.6) (18.4%) 14.0) (0.1) (0.7%) Government Services
ID - Assurance (Verify) 13.6 5.9 76.1% 7.7 2.1 37.9% +» UKVi contract ends in P8, expectation to
Other Government Services 0.7 (0,0) (5.1%) 0.7, (1.7) (70.4%) i j i
GOUaAREAE Seniwes 91.5) (0.2) (0.7%) 99.9] (22.0) (49.3%) provide a frontend solution only in future.
Total Retail 526.9 0.5 0.1% I 526.5/(32.2) (5.8%) + Verify expecting consistent YOY volume
growth vs. latest view of 17/18 exit
* POca interest gains included in Net Income
(475
~
VY
Post Office® Post Office Limited — Commercial in Confidence
Mails Y on Y Income Movements
POL00027267
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tm 2017/18 to 2018/19 Budget Bridge
B28
I
328 4
wea
FYE a7a8 Fed tee Stamps Labets
Decline Items
+ Fixed fee reduction includes efficiency (-£2m) and annual
count (-£2m). No reduction in Mailworks fees budgeted.
+ Stamps declining by 6% in line with volume YTD trend
+ Labels include 1% class (-£0.5m) and 2" class (£0.2m)
trending in line with volumes YTD
° Other includes; special delivery (-£1m), signed for
(£0.2m), acceptance (-£0.2m) and international (£0.6m)
Home
Shopping - 1889
Feathers
Growth Items
. Home Shopping Returns increasing 20%, reflecting growth
slowdown from latest 22% PO trend and broader industry
trend slowing.
. Parcelforce increasing 4% in line with volumes YTD trend
+ RPl rate assumed as 3.2% (minus 1% applied to calculate
contractual rate increase)
Post Office® Post Office Limited — Commercial in Confidence
POL00027267
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Mails and Income Graphs
Starmips Labels
Ce ee ete ee ee ee
Stamps — Continues to decline 10% YoY due to e-substitution and overall
market decline.
Labels — YoY income broadly flat with 1% decline in ' class volumes
offset by 0.5% growth in 24 class volumes.
Home Shopping Returns - Continues to grow +18% inline with UK online
sales.*
“Source: ONS UK Retail Bulletin (October 2017) internet statistics; textile, clothing and
footwear category
sabe
(13)
Y
Post Office®™ Post Office Limited —- Commercial in Confidence
POL00027267
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Need bridge for Retail
Retail and Lottery Y on Y Income Movements and Lottery
———
tm 2017/48 to 2018/49 Budget Bridge
Sate
La 25 (ey
_ RAR
384 + “1
PYF 78 i
Shopeing 1849
Hearteers,
Decline Items Growth Items
+ Fixed fee reduction includes efficiency (-£2m) and annual * Home Shopping Returns increasing 20%, reflecting growth
count (-£2m). No reduction in Mailworks fees budgeted. slowdown from latest 22% PO 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 1% class (-£0.5m) and 2" class (£0.2m)
trending in line with volumes YTD + — RPl rate assumed as 3.2% (minus 1% applied to calculate
contractual rate increase)
° Other includes; special delivery (-£1m), signed for
(£0.2m), acceptance (-£0.2m) and international (£0.6m)
(20)
ae
Post Office® Post Office Limited — Commercial in Confidence
POL00027267
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Retail and Lottery Income Graphs
Retail (excl. Gift Cards) Gift Cards
so LAR
sine 2.98
Retail (Includes Photo-Me booths) - decline driven by DMB closures
(23 residual from 17/18 and 38 planned for 18/19). Retail sales income
reflects the new WHS contractual arrangement and assumes a sales uplift
of 40% due to new fit out and product range.
Gift Cards — Continues to grow +10% YoY above overall market growth
(5% in 2016).*
Lottery Variable —- Continues to decline 8% YoY based on prior two year
average trend.
*Source: UK Gift Card & Voucher Association 2016 Summary H2
abana
(21)
Nar,
Post Office®™ Post Office Limited —- Commercial in Confidence
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Payment Services Y on Y Income Movements
em Net Income Bridge
$0.00
44
58.00 «
$7.50
84,00 « e688
PYF 1718 Payments Gecline ATM Decline HNGT LITE New Opportunties: 83rd Week Budget 18/19
Key Items
* Direct Clients budgeted at 8% YoY decline & reseller a decline of 6%. Currently both direct and reseller volumes are declining at 9% YoY.
. 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 £1.5m will be realised in 18/19.
. New Opportunities includes; Allpay exclusive £0.2m, smart £0.1m & payout £0.1m & BT payout £0.1m. (9
ae
Post Office® Post Office Limited — Commercial in Confidence
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. Trends graphs
Payment Services Income Graphs required
+ As per Retail Presentations
Nea
Post Office
Post Office Limited — Commercial in Confidence
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Government Services YoY income movements
Em Net Income Bridge
84.00 +
(8.6)
ee 3)
6200 «
66.00 =
$6.00
et
56.00
54.00 =
$2.00 + “- “ a “es
PYF 1718 Passport us UKVEBRE POCA Hedge = Digital CAS. Sided Week Bucigat 16/19
Key Items Services Dectine
° Continuation of current YOY run rate of 7% decline £(1.4)m. Assumed decline of £(0.2)m for expected Home Office digital product launches.
. 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. Associated risk as requires Treasury approval.
. Digital Passport implementation P7 onwards £0.8m, with assumption of 50/50 split of volume paper to digital.
(24)
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Post Office® Post Office Limited — Commercial in Confidence
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. Customer & Interest
Government Services Income Graphs rate benefit of POCA
reqd.
Passports Motoring
209,000
Period i Period 2 Period 3 Peviod4 PeriodS Period & Period? Pericd 8 Period9 Perind 10 Period 11 Pernod 22 Period 1
BARE FY A7/1S meson Aceals 16/17 ae Banlger 48/19
POCA
Passports - Budget assumes an 8% decline in volume YOY, the current
trend shows a 7% YOY decrease which has been embedded into the plan,
the further 1% reduction has been derived from new Home Office digital
product launches expected in 2018/19.
2,000,000
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.
Period 7 Patiod® Pariod9 Pe riod 12 POCA - volumes are planned to continue to decrease steadily as account
REE EY 17/12 mmpictvals 16/17 — ome Bud holders are migrated onto bank accounts.
2016-17 2017-18 Variance
-—I think we need to split P&L for
=POCA to show interest v volume (25)
in Confidence
POL00027267
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Identity Services Y on Y Income Movements
Net Income Bridge Net Income Key Items
. Expectation to out perform forecast, based on P7 & P8 actuals.
a
+ LoA2 volume growth assumed to remain static at 31% for FY1819.
+ 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.
WOU BEERS
seamen 29
otieageye
csi
La wh
Volume Key Items
Verify Volume
+ — Verify volume growth is anticipated to remain static at 31% YOY,
this is in line with P1-P8 2017/18 performance.
Other
. Project costs of £4.8m
* 4 additional BAU FTE will be required to deliver the plan not yet
included (£560k) to focus on acquiring new business outside of
the Government space. (96)
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Update
rset ‘a
2018/19 2017/18
Var % Var %
£m 18/19) 17/18 var I 17/18) 16/17 Var
Mortgages 2.1 (0.0) (0.7%) 2.1 (0.6) (21.7%)
Credit Cards and lending 1.9 0.2 9.6% 1.7 (1.2) (41.5%)
Savings 38.4] (8.8) (18.6%) 47.2I (7.5) (13.8%)
Travel Money 28.1 0.3 1.1% 27.8 0.5 2.0%
MoneyGram 25.5] (3.1) (10.8%) 28.6 (1.2) (4.0%)
Post Office Money 96.0} (11.4) (10.6%) i i674 (10.0) (8.5%)
Banking Services 93.1 6.8 7.9% 86.3 19.0 28.1%
Telecoms 158.5 8.8 5.9% 149.6 19.5 14.9%
Postal Orders 12.3] (2.2) (15.3%) 14.5} (4.0) (21.7%)
Other Income (0.4)I (1.6) (134.2%) 1.2] (0.1) (5.6%)
FS&T 359.5 0.4 0.1% [359.1I 24.3 7.3%
Savings - £10m reduction due to reductions in Bank of Ireland income (no Savings value share & no Savings guaranteed
income).
Moneygram - continuing decline in volumes anticipated to continue into 2018/19. Contract up for renewal in 2018/19 and
options being explored to mitigate downside risk.
Banking Services - £2m inflationary increase and continuing growth from Banking Framework (£5m).
Telecoms — Impact of OFCOM pricing £(xx)m mitigated by various initiatives xx £xxm, etc. See slide xx for further details.
Post Office® Post Office Limited — Commercial in Confidence
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Savings Y on Y Income Movements
€m 2017/18 to 2018/19 Budget Bridge
112
3.0 9.5
110
108 :
106
104
102
0.3 0.3
RR sree
100 T r T 7 r 7 1
FYF 17/18 Closing Run Rate (New Week 53 Customer Hub Bol (no Savings value Loans Initiatives Other Projects Budget
Call FY Impact) share & no Savings 18/19
guaranteed income)
Key Items
. XX
Post Office® Post Office Limited — Commercial in Confidence
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Banking Services Y on Y Income Movements
£m 2017/18 to 2018/19 Budget Bridge
100
98.
96
0.4
92
90
2.0
. __
FYF 17/18 Inflation Growth Trends New Banks Week 53 Budget
18/19
Key Items
. XX
©
Post Office®™ Post Office Limited —- Commercial in Confidence
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Telecoms Y on Y Income Movements
em 2017/18 to 2018/19 Budget Bridge
165
160
155
150 a
145
66
140
FYF 17/18 Closing Run Rate (New Growth Trends Week 53 Telco Initiatives Other Budget
Call FY Impact) 18/19
Key Items
. XX
ue
3)
€
Post Office®™ Post Office Limited —- Commercial in Confidence
Telecoms Split by Product
POL00027267
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Net Income £m 2017-18 2016-17
Budget Forecast Variance
HomePhone/Dual 57 59 (2)
Other Telephony 3 3 0
[Underlying Telecoms I 60 i 62 Ce
New Call 5 0 5
[Total Telecoms Budget 6s l 62 I 3 ]
Something required on Churn and
price assumptions and impact of
Telecom mitigation plans.
Post Office®
* Telecoms £3m increase including
New Call:
* Traditional Homephone
customer base is declining.
* Underlying Telecoms income
has reduced by £2m.
* ARPU assumptions for 17/18
have been revised
downwards for HP and Dual
as a result of a review of
actual performance.
Post Office Limited — Commercial in Confidence
(:
—
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Slide on Telecoms Mitigations to offset price decline E>
#)
3
Post Office® Post Office Limited — Commercial in Confidence
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Strategic context and priorities
Overview of 2018/19
Income
Costs
POMS
Risks and Opportunities
Capital and Investment Spend
Balance Sheet and Cashflow
Annex A: Transformation Plan
Post Office
Post Office Limited — Commercial in Confidence
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®
* 0 .
Net Income Margin Improvement of x% driven by Revenue
Mix
2018/19 2017/18 Var
Rev COS Margin % Margin Rev COS Margin % Margin Rev COS Margin % Margin
£m £'m £'m £'m £'m £'m é'm £'m £'m £'m £'m £'m £'m
Mail Trading 285.4 - 285.4 100% 272.3 - 272.3 100% 13.1 - 13.1 -
Mail Non-Trading 55.8 - 55.8 100% 59.8 - 59.8 100% (4.0) - (4.0) -
Retail and Lottery 39.0 Ll 37.9 97% 44.2 4.2 40.0 91% (5.2) 3.4 (2.1) 7%
Payment Services 59.2 - 59.2 100% 58.0 0.0 58.0 100% 1.2 0.0 1.2 0%
Govemment Services 91.4 21.8 69.6 76% 92.2 25.8 66.4 72% (0.8) 4.0 3.2 4%
Retail 530.8 22.8 507.9 96% 526.5 30.0 496.5 94% 4.3 2.2 114 1%
Mortgages 1.8 - 1.8 100% 21 - 2.1 100% (0.3) - (0.3) -
Credit Cards and Lending 1.9 - 1.9 100% 1.7 - 1.7 100% 0.2 - 0.2 -
Savings 39.0 - 39.0 100% 47.2 - 47.2 100% (8.2) - (8.2) -
Travel Money 32.6 - 32.6 100% 27.8 - 27.8 100% 4.8 - 4.8 -
MoneyGram 25.5 - 25.5 100% 28.6 - 28.6 100% (3.1) - (3.1) -
Post Office Money 100.8 . 100.8 100% 107.4 + 107.4 100% (6.6) . (6.6) .
Banking Services 95.0 1.3 93.7 99% 86.3 LA 85.3 99% 8.7 (0.2) 8.5 (0%)
Telecoms 160.4 88.5 71.9 45% 149.6 81.7 67.9 45% 10.8 (6.8) 3.9 (1%)
Postal Orders 12.3 0.1 12.2 99% 14.5 0.1 14.4 99% (2.2) 0.0 = (2.2) (0%)
Other Income (0.4) - (0.4) 100% 1.2 - 1.2 100% (1.6) - (1.6) -
FS&T 368.1 89.9 278.2 76% 359.1 82.9 276.2 77% 9.0 (7.0) 2.0 (1%)
POMS 57.9 8.5 49.4 85% 49.2 8.3 40.8 83% 8.7 (0.2) 8.6 2%
Supply Chain 10.9 - 10.9 100% 10.9 - 10.9 100% 0.0 - 0.0 -
Other Income 3.6 - 3.6 100% 3.6 (0.1) 3.7 103% (0.0) (0.1) (0.1) (3%)
Total 971.2 121.3 850.0 88% 949.2 121.1 828.1 87% 22.0 (0.1) 21.9 0%
Notes:
* Card Account: Margin improvement due to interest rate increase however additional costs due to
34
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Post Office® Post Office Limited — Commercial in Confidence
POL00027267
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Agents Pay continues to fall with savings in x.
Agents Pay
Expenditure by Cost Area * Reduction of £xm from £x mto £xm.
* Fixed cost Reductions of £xm due to
450 * Variable pay reduces from £xm to Exm.
388
400 368 369
350
283
300
272 274
250
& 200
w
150
100
50
Agents Pay Staff Costs Non Staff Growth Fund
Costs
2018/19 2017/18 m 2016/17
35
Post Office Post Office Limited — Commercial in Confidence
Agents Pay Bridge
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ese
wou
Ee
eine
Fixed Pay (Slide x)
« Xx
« Xx
* XX
«= Xx
Variable Pay (Slide x)
° Xx
“xX
* xX
2018/19 2017/18 2016/17 Total (Slide x)
Fixed Pay * Xx
Variable Pay 368 369 388
Total Agents Pay 368 369 388
Fixed Pay 0% 0% 0%
Variable Pay 100% 100% 100% a
Post Office®
Post Office Limited — Commercial in Confidence
POL00027267
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Strategic context and priorities
Overview of 2018/19
Income
Margin and Agents Pay
ce
POMS
Risks and Opportunities
Capital and Investment Spend
Balance Sheet and Cashflow
Annex A: Transformation Plan
Post Office®™ Post Office Limited —- Commercial in Confidence
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2
Staff Costs
£'m 2018/19] 2017/18 var Wages and Salaries
Wages & Salaries 138.1 128.2 (9.9) * Includes x% payrise assumption impact by
Pension 12.3 16.1 3.8 £xm.
Overtime 6.0 4.8 (1.1) ° Incremental investments of £xm to fund skills
Bonus & Productivity 14.4 12.0 (2.5) gaps currently identified in the organisation.
Contractors & Temporary Resource 15.4 17.3 1.9
Employers NI 1.2 48 3.6 Pension
Staff Costs Efficiency Target (0.3) (0.6) (0.3) . £xm reduction following the removal of the 1
Staff Costs 187.2] 182.6 (4.6) year uplift in contributions following the closure
e'm 2018/19] 2017/48 var of the DB scheme.
Retail 774 83.6 6.3 * Pension autoenrolement of Exm has limited
FS&T 10.6 11.3 0.7 impact in the current year.
POMS 7.6 4.2 (3.4) Bonus and Productivity
Finance & Ops 55.8 51.5 (4.3) » includes £xm for STIP in line with the current
CEO 0.4 0.3 (0.0) year and £x.xm for LTIP (as per current year)
cn 6.2 5.0 (1.2) Employers NI
ed ee ee oo * Includes £xm for STIP in line with the current
. . (0.8) year and £x.xm for LTIP (as per current year
HR 18.5 18.3 (0.2)
Communications 1.6 1.6 (0.0)
Central 2.2 0.5 (1.7)
Total 187.2) 182.6 (4.6)
38
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Post Office® Post Office Limited — Commercial in Confidence OS
POL00027267
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The £48m saving in staff cost is driven by planned initiatives
with some small investments in capability Needs updating for
2018 / 19 budget
RBATSYE — Comseraecsat Cowen esos: Suagonat
‘Shaft Cots sic sae Pensaied — Fhasicheeng C808 Baga net PORES Otter Nehwirhe ITA Gpmations Cartes! Servs Sere
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fa
POMS increase for compliance capability, reduced from £(4)m in previous submission as Junction exit delayed to 18/19.
IT staff cost base has increased by £(1)m reflecting the recruitment of in house capability to significantly reduce 3rd party
expenditure from the current outsourcing model.
Central staff increase due to inclusion of £(2)m pensions auto-enrolment cost from May 2017. £3m has been budgeted for
a pay rise ‘pot’ which is flat year on year. This is CP] based.
Bonus accrual of £13m has been incorporated in submissions assuming a £28m target: this represents a £5m reduction
from 16/17 due to lower headcount with £3m delivered by OSOP.
Post Office Post Office Limited — Commercial in Confidence
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Update to include all
areas
Staff: Addressing our resource & capability gap <7
We have identified the requirement for c26 additional Retail heads. Some of these are currently roles funded by projects whist others are
required to “fix” issues arising from capability or capacity. There are 4 roles identified in the Payments area which are stort term increases to
enable the longer term replacement of underperformers.
Requirements include the following:
Retail Marketing - 7 roles (3 perm + 4 temp) — includes temporary resource to review POS and branch communications and2 roles to formalise
marketing support for the Commercial Partnership teams which is currently dispersed across numerous Post Officeteams and project funded
Government - 5 roles (3 are currently project funded)— additional resource to manage existing current workload, develop future propositions
and increase capability of the team
Bill Payments - 2 roles — assumes Panther is delivered and reflects the need to strengthen the commercial capability within thisteam and
enable long term replacement of underperformers
Other - Non-Cash Payments (1 role), ATMs (1 product role), Mails (2 roles transferring out of project), Network Development (3 consultation
roles currently project funded)
HR 1 new role - Apprentice role to support the HRD on BAU people (NB current shared resource needed 100% on project that funds her.
Identity - 4 new roles have been identified
No of roles temp perm £m
Transfers from Project to BAU 10 1 9 0.6
New roles 12 3 9 1.1 includes Identity
Roles to upskill existing teams and be longterm 4 4 03
replacements for underperformers :
26 2.0
a
Post Office® Post Office Limited — Commercial in Confidence
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Headcount Bridge by area
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1
Post Office® Post Office Limited — Commercial in Confidence
Non Staff Costs
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Additional slides for
Marketing and IT
£'m 2018/19} 2017/18 Var
Staff & Agency Related Costs 10.6 10.2 (0.4)
Consultancy & Advisory Services 7.0 3.6 (3.4)
Brand & Marketing 27.3 18.2 (9.2)
Legal Costs 9.5 5.4 (4.1)
Property & Facilities Management 40.1 41.9 1.8
Vehicles 4.2 3.7 (0.4)
IT Infrastructure & IT Services 85.1 96.8 11.7
Finance & Losses 26.8 26.0 (0.8)
Other Operating Costs 89.7 84.2 (5.5)
Non Staff Efficiency Target (8.3) (5.9) 2.4
Non staff Costs 291.9} 284.1 (7.9)
Consultancy & Advisory Costs
« Includes x% payrise assumption impact by
£xm.
* Incremental investments of £xm to fund skills
gaps currently identified in the organisation.
Brand and Marketing (Slide x)
« £xm reduction following the removal of the 1
year uplift in contributions following the closure
of the DB scheme.
* Pension autoenrolement of £xm has limited
impact in the current year.
Legal Costs
« Includes £xm for STIP in line with the current
year and £x.xm for LTIP (as per current year)
IT and Infrastrcutures
* Includes £xm for STIP in line with the current
year and £x.xm for LTIP (as per current year
Post Office®
Post Office Limited — Commercial in Confidence
(42)
}
Z
POL00027267
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. Needs updating for
Non-staff costs show a £1m saving year on year 2018 / 19 budget
EI
ROSH? EYE Comenercist Banking ‘Resmnek — Lewets PASE sort: ‘uaes: Penge & ive Budigat Hon
Dot Stat teens Fess Cant Faaabowe ei Prnseans — Deiaicgenetyd matt WHS. # peachy POMS Qeher Netwon Engayseient Gpmrations — Cention Stat
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4
a wy in
* Commercial projects
* £2m Mails projects including Click & Connect, Small Business Club and eBay shipping platform.
+ £2m cost of Monetisation (screen advertising in branch), against Other net income of £2m on Slide 6. No
EBITDAS benefit of Monetisation seen in 17/18 but expected in 18/19.
« £2m of cost associated with Identity projects (Digital passports/UKVI ~ IAC). EBITDAS benefit of £4m.
+ New Call managed services and contact centre costs, against the £5m net income noted on Slide 16.
* Banking Framework non-staff cost marketing and higher security vetting costs.
* Pensions cost is new life assurance and group income protection due to closure of DB scheme.
©
Post Office®™ Post Office Limited —- Commercial in Confidence
POL00027267
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Brand and Marketing Spend is forecast to increase to £47.9m
driven by Bank of Ireland, POMS and Customer
POL Group is forecast to spend £47.9m on Brand and Marketing in FY18/19 (+£16.6m on FY17/18) primarily
driven by Bank of Ireland, POMS and Customer Hub.
9.0
if Adjustment breakdown FYI718 = FY18/19 Var
45
20 os oa 02 02 aa seems evereyedt 18.1m 27.3m 9.2m
EE Bank of ireland (recharged) 8.0m —17.0m 9.0m
4 — FRES (recharged) 3.4m 3.4m 0.0m
FS&T - Digital Budget 07m 0.0m -0.7m
FS&T - Prior Year Adj 0.9m 0.0m 0.9m
FS&T - Cost Efficency 0.0m -0.2m -0.2m
POMS - Affiliates (COS) 0.2m 0.4m 0.3m
Growth Fund TBC TBC
Adjusted B&M 31.3m 47.9m 16.6m
Adjusted FS&T - FS&T -Other Comms Retail Other POMS Bol Adjusted
FY17/18 Customer
Hub
FY18/19
FY 18/19 uplift in spend is driven by additional investment in:
+ Bank of Ireland (+£9.0m) due to underspend in FY16/17 and FY17/18 carried forward to deliver Mortgages multichannel launch;
+ POMS (+£4.5m) reflecting the first year of POMS 5 year plan; and
+ Direct POL (+£3.1m) primarily due to investment in Customer Hub (£2.0m) within FS&T.
*For further detailed breakdown on 17/18 and 18/19 spend, refer to Appendix 1.
28 additional FTE are forecast across:
+ Retail (+8 FTE) which includes 4 FTE permanent and 4 FTE fixed term contract resources — refer Appendix 2 for breakdown;
+ FS&T (+10 FTE) all permanent roles supporting PO Money (+3 FTE), Digital (+3 FTE), Customer Marketing (+3 FTE) and Customer Hub (+1
FTE) - refer Appendix 2 for breakdown; and
* POMS (+10 FTE) which includes 10 FTE permanent dedicated POMS staff within the Central Marketing team which POMS will pay for.
NB. In addition to the above, POMS will also hire 2 Marketing FTE which will report under their hierarchy and be paid for by POMS.
44
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aed
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POL00027267
POL00027267
Retail:
+ FY17/18 B&M £3.9m to deliver the Xmas campaign (£1.3m), branch product marketing (£0.3m) for point of
sale promotions, Retail Transformation and Design (£0.3m), Mails (£0.2m), POTV (£0.2m), One 4 All gift cards
(£0.2m), other product area spend (£0.4m) and central marketing overlays (£1.1m) which is an agreement with
Central Marketing to support ‘Drop and Go! campaign and format design (customer journey). Brand and Marketing Resource
. Fytaite Bam £4.1M (+£0.2m) reflecting an uplift in Government Services and slight increase in Network Group Breakdown virus pyagiag Var Friis Fria9 Var FIEType
evelopment, FY18/19 vs. FYA748 1748 Costs FTE Costs FTE Costs FTE Perm FTC
FsaqT:
+ FY17/18 B&M £8.3m to deliver Telecoms (£2.1m) and Travel Money (£0.9m) campaigns), Consultancy Retall 3.8m Atm 0.2m tm 20 Om: 100) Om 8 4.0 4.0
(Oystercatchers) (£0.4m), MoneyGram (£0.3m) and other prindesign activity (£0.5m). FS&T also holds the FsaT 83m 108m 2.5m 2.5m 32.0 3.6m 420 1.1m 10.0 10.0 00
budget for central agency retainer fees (2.9m) and Digital (£1.3m) but these are in service of the entire Communications 3.2m 36m 0.4m 4.6m 4.6m 0.0m
organisation. Central 05m 05m 0.0m
+ FY18/19 B&M 10.8m (+£2.5m) reflecting investment in Customer Hub (+£2.0m) and slight uplifts in mystery ° ° :
shopper (+£0.3m), digital (+£0.1m), subscriptions (+£0.1m) and other (£0.1m). Other Areas: 04m 0.6m — 0.2m
Communications: POMS: 3.5m 7.9m 4.5m 0.2m 2.0 1.0m 12.0 0.8m 10.0 10.0 0.0
+ Spend within this division is predominately for PR, Insights and research which is coded to financial accounts POL and POMS 19.9m 27.5m 7.6m 44m 36.0 6.9m 64.0 2.5m 28.0 24.0 4.0
which is reported under the Brand and Marketing general ledger summary FRES 34m 34m 0.0m
Central and other areas: . . 7 BO 8.0m _17.0m 9.0m
+ FY17/18 B&M £0.9m to support the British Postage Museum (£0.5m) which is a historic sponsorship FRES and Boi {tam Roam bom om be om om OOO
agreement with the Museum and Royal Mail. Other areas includes: HR (£0.2m), CIO and Legal, Risk and
Governance (£0.1m). Group Total 31.3m__47.9m 16.6. 44m 36.0 6.9m 64.0 2.5m 28.0 24.0 4.0
+ FY18/19 B&M £1.1m (+£0.2m) reflecting an uplift mainly in Finance and Ops.
FRES:
POMS:
+ FY17/18 B&M £3.4m to deliver Summer Travel campaign (£0.6m), in branch (£0.5m), 121 (£0.1m), plus annual
plan of digital marketing (£2.0m), Easter TMC {£0.1m) and annual PRComms (£0.2m).
+ FY18/19 £3.4m (flat) reflecting plans for a similar level of activity, with channel and activity split to be agreed
following campaign development.
Bol
+ FY17/18 B&M £8.0m depioyed to deliver Credit Cards (£1.6m), Loans (£1.3m), Savings (£3.0m), Mortgages
(£1.2m), Current Account (£0.1m), and activity to support the partnership, including NPS tracker (£0.2m), PR
(£0.5m) and other (£0.2m). BO! planned to spend £14.5m incorporating £12m annual budget, plus an additional
£2.5m carry over from FY 16/17 to support the Mortgages launch which is now launching MarMay 18. Of the
forecasted underspend versus plan ¢£6.5m), £5m will be carried forward to support Mortgages and £1.5m is
planned underspend which will not roll forward into FY 18/19
+ FY18/19 B&M £17.0m (+£9.0m) reflecting the annual budget (£12m) and carryover (£5.0m). Planned
deployment is toward Mortgages multichannel launch and annual marketing plan (£7.5m), Savings campaigns,
new proposition support and annual sales plan delivery (£4m), Personal Loans campaigns and sales plan
delivery (£1.6m), Credit cards sales plan delivery (£1.6m), PR (£0.5m), Broker marketing (£0.8m), new
proposition support (£0.5m), NPS (£0.2m) and other (£0.4m).
+ FY17/18 B&M £3.5m split across insurance product portfolio: Travel insurance (£1,6m), Car_ Insurance
(£0.6m), Protection (£0.8m) and Home Insurance (£0.3m). This drives net income of £40.9m (up 9%
YOY). In addition to the POMS B&M spend a number of marketing initiatives are being funded by POL via
the Growth Fund in FY17/18, £1.7m of Growth Fund spend is allocated for Life Over 50's DTV, Search
Engine Optimisation and In Branch Data Capture Optimisation. These activities continue in FY18/19 as a
POMS cost
+ FY18/19 B&M £7.9m (+£4.5m) reflecting the first year of POMS 5 year plan, Additional marketing
investment in digital, Customer Value Management (CVM) and Search Engine Optimisation (SEO) focused
on POMS core products of Protection, Travel and Household, An additional 10 marketing roles dedicated
to and funded by POMS are required to execute these activities (headcount included in central marketing
submission). This will drive £8.5m of additional net income in FY 18/19 (up 21% YOY). Sales of some
travel and all home & car policies generate recurring revenues via the renewals cycle resulting in certain
investments in B&M being repaid over multiple years.
Post Office
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©)
Post Office Limited —- Commercial in Confidence
POL00027267
POL00027267
FY18/19 Uplift Vacancy
Incremental FTE Incremental Role Role Specifications orNew FTcorPerm Band
Staff (£) FTE
+1 FTE Marketing Analyst Current vacancy within FY17/18. Vacaney Perm 3a
+1 FTE Marketing Planner Co-ordinating the branch in marketing calendar and acting as the gatekeeper of what we are asking New Perm 3a
from branches while liasing closely with the Communications team.
+1 FTE Equipment Development Manager To support modernising the existing locals and mains formats, and support new format developments. New Perm 3a
+1 FTE CategoryManager Owns the marketing of the Post Office proposition to our retail customers - current, new and future. New Perm 3a
Owns the annual plans and briefs comms manager ref priorities
Facilitate delivery of new POS strategy, bring new ways of working with agility which can be used for
other Retail marketing initiatives.
Enhance controls over customer messaging through POS points and develop segmented, customer-
led messaging and more ‘always on' marketing collateral
NT and ND require additional support to help market their branches {ocally to ensure we maintain/grow
+1 FTE Retail Marketing Campaign Manager _footfall and deliver profitable branches. Role will help build a toolboxof parts that can be easily New FTC,12months 3a
deployed and personalised
Review the large volume of information sent into branches - particularly from retail and marketing
+1 FTE Branch Communication Project Manager Review exsting digital platforms for branches and work closely with other platform teams to decide the New FTC, 6months 3b
one stop shop go to moving forwards.
Retail 0.5m 4.0 +1 FTE Branch POS Scrum Master New FTC,12months 3a
+1 FTE Branch POS Change Project Manager New FTC,12months 3a
+1 FTE PO Money New Perm 3a
+1 FTE PO Money New Perm 3a
+1 FTE PO Money New Perm 3a
+1 FTE Digital New Perm 3a
+1 FTE Digital New Perm 3a
FS&T 1.4m 10.0
+1 FTE Digital New Perm 3a
+1 FTE Customer Marketing New Perm 3a
+1 FTE Customer Marketing New Perm 3a
+1 FTE Customer Marketing New Perm 3a
+1 FTE Customer Hub New Perm 3a
Post Office®™ Post Office Limited —- Commercial in Confidence
POL00027267
POL00027267
Dedicated POMS resource within central marketing will
increase by 10 FTE but will be paid for by POMS
. Vacancy Cost - Cost - LTV
Marketing area Incremental Role or New FTC or Perm Resurce Media Total Cost Benefit
+1 FTE Web Editor New Perm
Search Engine F
Optimisation (SEO) +1 FTE Copywriter New Perm 0.2m 0.4m 0.6m 0.4m
+1 FTE SEO Manager New Perm
+1 FTE CVM Manager New Perm
Lead Capture +1 FTE Campaign Manager Cross-sell New Perm 0.2m 0.3m 0.5m 1.4m
+1 FTE Data Analyst/Executuive New Perm
+1 FTE CVM Manager New Perm
Customer Value 0.2m 0.2m 0.4m 0.7m
Management (CVM) i . . . .
+1 FTE Digital Manager New Perm
Digital +2 FTE CRO Specialist New Perm 0.1m 0.3m 04m 0.9m
(a7
Post Office®
Post Office Limited
~ Commercial in Confidence
POL00027267
POL00027267
IT Cost Reduction programmes continues with £10.5m y-on-y l post §
benefit Format and comments
£m
103
+ Comments.
Post Office® Post Office Limited — Commercial in Confidence
POL00027267
POL00027267
Strategic context and priorities
Overview of 2018/19
Income
Margin and Agents Pay
Costs
Risks and Opportunities
Capital and Investment Spend
Balance Sheet and Cashflow
Annex A: Transformation Plan
Post Office
Post Office Limited —- Commercial in Confidence
POL00027267
POL00027267
POMS 5 Year Plan: Executive Summary
* Since the last POMS strategy was developed 18 months ago, there has been a significant number of changes across
the market, the Post Office Group and in the POMS business
» The review responds to the need to refresh POMS's 5 year strategy in light of thesechanges, detailed product deep
dives and challenges received from our Shareholder
Context » Two financial scenarios have been modelled. A base case building on current business models with optimised
marketing capability and an investment scenario enabling the development of a homeinsurance (Gl) model supported
and through enhanced customer value management (CVM)
» The review incorporates an examination of a changing market context, M&A review, target customer needs, business
approach operating model, marketing, distribution and customer management, pricing and our change plans
= It outlines how we will continue to transform our insurance business towards a more scalable and controllable
customer-centric growth focused organisation
* The plan sets out the context, goals, strategies and initiatives which reflect the needs of our target customer segments,
including changes to business operating models, product focus, distribution capabilities, change plan andisks
* The UK insurance market remains attractive from both a customer and commercial standpoint
» POMS needs a distinctive customer positioning in order to compete effectively
* Increasing innovation and the right business operating model will be required to respond effectively
. * The existing franchise of both POL and POMS represents a substantial area of opportunity that hasn't been fully
Main unlocked
conclusions » Unlocking value is dependent on changing the GI operating model, investment in the customer proposition, in new
capabilities, marketing permissions and the capture and use of data by both POMS and POL.
* POMS growth is partially dependent on Post Offices initiatives and capability
(Customer Hub, CRM's, Marketing, etc.)
» Acquisition and disruption options are under consideration and offer further growth potential
wa
Post Office® Post Office Limited — Commercial in Confidence
Financial Summary
POL00027267
POL00027267
Key financials
Adopting the Growth Investment Case will drive an additional£36.4m pa in income in 2022/23 (total income£77.3m)
versus 2017/18 - a 89% growth rate. Note impact of potential loss of MS's income now factored in
Group EBITDA will climb to £41.9m, 107% increase on 17/18. POMS EBITDA will climbto £17.6m, 133% on 17/18
CAPEX spend of £25.6m over 5 years, £11.1m Nemesis
£10m capital injection required covering development costs whilst meeting regulatory capital requirements and internal
commission structures
Increase in direct FTE over the period of 19, from 50 to 69 (growth investment case, excludes POL resources.
Increase in 10 FTE in POL marketing to support existing investment fund initiatives in to future years and further
marketing activities (£0.7m)
Base case scenario
Growth investment case scenario
17/18 = 18/19 19/20 20/21. 21/22 22/23 17/18 = 18/19 19/20 20/21. 21/22— 22/23
Net Income - £m 40.9 49.4 51.5 54.7 58.4 62.0 Net Income - £m 40.9 49.4 55.6 63.1 70.0 773
Group EBITDA - £m 20.2 22.2 23.6 25.8 28.4 31.0 Group EBITDA - £m 20.2 21.0 24.7 30.7 36.3 41.9
POMS EBITDA - £m 75 67 73 8.4 9.9 11.2 POMS EBITDA - £m 75 54 7.2 10.8 14.3 17.6
CAPEX - £m 3.5 3.1 24 18 14 14 CAPEX - £m 35 113 8.7 2.8 14 14
Group EBITDA Margin 49% 45% 46% 47% 49% 50% Group EBITDA Margin 49% 43% 44% 49% 52% 54%
CAGR Income 9% ICAGR Income 14%
CAGR Group EBITDA 9% iCAGR Group EBITDA 16%
Post Office®
Post Office Limited — Commercial in Confidence
POL00027267
POL00027267
Conclusions and Recommendations
» Adopt a new vision, mission and customer promise to guide POMS towards its proposition development
» Focus the POMS business behind 3 major strategic pillars: (1) Business operating model designed for customerled
growth, (2) Distinctive customer offer, and (3) Scalable customer distribution engine
* Continue the execution of the travel and protection strategies, refining with additional learning and capabilities
Key * Proceed with developing enhanced insurance capability. Secure commitment from PO re marketing capacity and focus
on data capture and permissions
» Proceed with bringing the Home model inhouse (project Nemesis). Re negotiate / re tender motor
* Invest in CVM (Customer Value Management) to allow POMS to capture a greater sharing of existing customers’
insurance wallets
» Continue to explore a range of smaller options that have been identified
» Seek Group funding to explore launching a ‘disruptive play’ into themarket-— Separate business case
» Pursue all identified additional opportunities
recommendations
* High levels of branch sales volumes of 240k in 18/19 and reducing thereafter
* Marketing capabilities and resources— including CVM, 10 additional FTE (£700K)
POL dependencies * Delivery of key POL projects — Customer Hub, Analytics capabilities, CVM, Enhanced CRM tablet capability
» Maximised level of marketing permissions and sufficient access to POL customers, their data and channels
=» £10m capital injection required covering development costs whilst meeting regulatory capital requirements and internal
commission structures
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wh
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—
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Post Office® Post Office Limited — Commercial in Confidence
POL00027267
POL00027267
Strong financial forecast under the base case
»» Key assumptions
= No deterioration in market conditions and no further regulatory
27/18 = 1B/19 19/20 20/22 2/22 22/23 shocks
. Based on existing activities and known initiatives
= Current model for general insurance with recent margin and
Group EBITDA - fim 20.2 222 22.6 25.8 28.4 31.0 retention performance remaining
. Protection product developments fully implemented
Base case scenario*
Net income — fm 40.9 aad 5L5 S47 58.4 62.0
POMS EBITOA - Em 75 67 73 a4 ao U2
CAPEX- £m 35 at Ti 128 ta 14 . DRTV for Life (Over 50's) validated in test & learn
. 18/19 step change in Agg. sales (+41%) and Web (+38%)
Group EBITDA Margin 4% AB ABM 4% AB SOK = supported by higher marketing spend and improved journey
CAGR income 2% * Investment in Pricing, Product and Marketing functions
CAGR Group EBA 8%
Commentary Key dependencies on POL
Branch can deliver 240k sales in 18/19, reduces to 200k in
. Potential impact of loss of MS revenue factored in 22/23
* Scenario excludes the impact of developing the new GI model, . Travel summer campaign with 25% discount (18/19)
acquisition and disruption “ 10 FTE growth in PO Marketing Team (£700K)
. Plan shows a significant change in product and channel mix over the
planning horizon
. Modest CAPEX demand
“ Web sales uplift required SEO delivery, FRES support, Travel
integration, delivery of customer Hub
Post Office Post Office Limited — Commercial in Confidence
POL00027267
POL00027267
Growth investment case unlocked by a different GI model and
CVM
Growth investment case scenario* ™ Key assumptions (in addition to Base)
WS 1B/M9— 19/20 BYAL— aAf22_— 22/23 " Duck Creek configured for Home
Net Income « fm 409 Aa 556 634 70.0 73 « Coreasangement terminated for Home, noticed served in
Geoup EBITDA - fr 202 216 34.7 307 36.3 41g = Home new business on Duck Creek from Sept 2019
POMS EBITDA - £m 18 4 12 108 143 176 = Home back book (200k policies) migrated on renewal over 12
months from Sept 2019
CAPEX~ int 3S 113 87 2.8 i4 i4 = Value released by eliminating Junction take out partially
Group EBITDA Margin 49% AWS 4% 49% 55% $485. ow reinvested in POMS capability e.g. call centre, Ops costs
. a Car and Van terms assumed to be same as Junction— possible
CAGR Income 14% upside if retender
CAGR Group EBITDA 16%
Commentary Key dependencies on POL (as Base)
* Potential impact of loss of MS revenue factoredin . Branch can deliver 240k sales in 18/19, reducing down to 200k
. Significant CAPEX above base case— Nemesis £11.1m, CVM £4.7m in 22/23
. CVM revenues (increased product holding) drives £2.5m of revenue . Travel summer campaign with 25% discount
in 19/20 rising to £11.8m in 22/23 ‘ paig} aa ;
. Margin released from terminating BGL deal partially reinvested in . Marketing Team Expanded and improved delivery
POMS new operating costs " Web sales uplift required SEO delivery, FRES support, Travel
integration, Customer Hub
.)
I
Post Office Post Office Limited ~ Commercial in Confidence
Growth investment case unlocked by a different GI model and
CVM
POL00027267
POL00027267
Base Case
17/18 18/19 19/20 20/21 21/22 22/23
Net Income - £m. 40.9 49.4 51.5 54.7 58.4 62.0
Group EBITDA - £m 20.2 22.2 23.6 25.8 28.4 31.0
CAP EX - £m 3.5 3.1 24 1.8 14 14
Investment
17/18 18/19 19/20 20/21 21/22 22/23
Net Income - £m 41 8.3 11.6 15.3
Group EBITDA - £m (1.2) 14a 49 7.9 10.9
CAP EX - £m 8.2 6.6 1.0
Growth & Investment Case
17/18 + =18/19 19/20 20/21 Ss 21/22 22/23
Net Income - £m 40.9 49.4 55.6 63.1 70.0 77.3
Group EBITDA - £m 20.2 21.0 24.7 30.7 36.3 41.9
CAP EX - £m 3.5 11.3 8.7 2.8 14 14
Growth & Investment Case Group EBITDA Variance
Versus Group 0.4 (5.9) (9.0) (10.6)
Versus June R/Fresh (1.0) (3.9) (6.9) (4.9) (2.9) (1.4)
Key points
= 18/19 is a year of transition, additional operating costs
are incurred as new operating model is brought on line
ahead of Sep 2019 go live for travel on Duck Creek.
* The £8.2m of incremental CAPEX spend relates to:
« — £5.7m for Nemesis
« —£2.5m CVM and concierge
» Total additional CAPEX spend is £15.8m made up of:
« £11.1m Nemesis
« —£4.7m CVM and Concierge
» The net income increase is predominantly CVM
(increasing product cross holdings and retention within
the POMS customer base) augmented by Nemesis
benefits
= Potential loss of MS revenue factored into Base and
Investment Case (£2.3m if 18/19 rising to £3.1m in
22/23
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Post Office®
Post Office Limited — Commercial in Confidence
ar
POL00027267
POL00027267
Strategic context and priorities
Overview of 2018/19
Income
Margin and Agents Pay
Costs
POMS
Capital and Investment Spend
Balance Sheet and Cashflow
Annex A: Transformation Plan
Post Office Post Office Limited — Commercial in Confidence
POL00027267
POL00027267
The plan contains net risk
Insert R&O Table including weighting.
Post Office® Post Office Limited — Commercial in Confidence
POL00027267
POL00027267
Strategic context and priorities
Overview of 2018/19
Income
Margin and Agents Pay
Costs
POMS
Risks and Opportunities
Balance Sheet and Cashflow
Annex A: Transformation Plan
Post Office® Post Office Limited — Commercial in Confidence
POL00027267
POL00027267
17/18 Income statement
2017-18
ro id 016-17 017-185 Variance to .
‘eveed I F Ferrrisn 20ie1yeve Varionce wEvr
Budget
Net Income 823 847 828 (24) (5)
Expenditure (830) (892) (834) 62 4
FRES 35 35 34 ie} 1
EBITDAS 28 (10) 28 38 [)
Government Grant 140 220 140 (80) 0
Capital & Exceptional expenditure (179) (323) (174) 144 (5)
Depreciation (2) (1) (1) (1) (1)
Interest and tax 3 4 1 (1) 2
Net loss (10) (110) (6) 100 (4)
* Net loss for 17/18 of £(10)m driven by capital and exceptional spend.
* Government grant falls from £220m to £140m, a reduction of £80m.
* Depreciation, interest and tax largely consistent.
Post Office® Post Office Limited — Commercial in Confidence
POL00027267
POL00027267
Capex and Exceptional spend of £179m budgeted for in
17/18 compared to £323m in 16/17
Base Case Overlays Total
em 2016/17 2017/18 2016/17 2017/18 Total 2016/17 2017/18
Remaining
YTD Actual FYE spend P10-
P12
Network Development Programme 71) (94) (23) 0 @) (23) (26) (97) (23)
Back Office Transformation 5) (9) 4) 6) 0 (9) 6)
IT & Digital 41) (75) (34) (31) (4) (54) (58) (79) (85)
PRE (16) (20) (4) (4) 0 (20) @)
LEAN Centre (1) (4) (0) 0 0 (16) (16) (1) (16)
Directly Managed Branches (Crown (28) 43) (15) @) 1 (i) (10) (42) (14)
Network Development)
Project Finch 0 6) 6) 0 0 6) 0
Commercial (O) (2) (4) (0) (11) (10) (21) (12) (10)
Financial Services (1) (3) (2) (1) (4) (10) (11) (4) (11)
Property (2) 5) (3) (3) 0 (5) (3)
Supply Chain (0) (5) (5) (1) 0 6) (1)
Corporate Services (1) (2) (0) (3) 0 (2) (3)
Central Q) 6) 0 3) 0 (3) (0)
Total Excl IRIS (172) (267) (95) (55) (18) (123) (142) (285) (179)
IRIS (39) (37) 2 0 0 (37) 0
Total Incl IRIS (211) (304) (93) (55), (18) (123) (142) (323) (179)
» Base case projects
* 16/17 YTD spend at average of £19m p.m. remaining 16/17 spend of £93m would require £31m p.m.
« Risk that circa £28m of spend will move into 17/18.
* 17/18 base case budget is £55m, business cases have been approved for the majority of this.
* 17/18 spend is net of an assumed £30m release of agents compensation provision which will be subject to
auditor review.
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oS
Post Office® Post Office Limited — Commercial in Confidence
POL00027267
POL00027267
Strategic context and priorities
Overview of 2018/19
Income
Margin and Agents Pay
Costs
POMS
Risks and Opportunities
Capital and Investment Spend
coupon
coun
Annex A: Transformation Plan
Post Office Post Office Limited — Commercial in Confidence
POL00027267
POL00027267
Cashflow, Headroom and Balance Sheet
Cash Flow
fm + Change in WC/other (£153m outflow) — mainly reflects higher
EBITDAS 28 cash (£116m), with Easter Sunday on 2 April in 2018
Deprn/amort. 2 compared to 16 April in 2017, and provisions payments
Change in WC/other (153) (£36m), relating to the agents’ compensation.
Interest (7) . .
, * Capex and exceptional spend (£179m outflow) — See Slide
Capex and exceptional spend (178) 25. Any variances to the projects budgets will have a direct
(309) impact on cash flow.
Netw ork payment 70
Non-NSP funding 70
Headroom
Net cash outflow (169)
+ Balance sheet headroom remains narrowly within the £200m
Balance sheet headroom: Board imposed limit in each period, with pressure points at
- 31 March 2018 55 Christmas and Easter.
- Minimum (Dec. 17 and Mar. 18) 55 * Management of Network Cash will continue to be key at
these pressure points.
Balance Sheet
* The group Balance Sheet will move to a net liabilities
position, largely driven by the closure in 16/17 of the DB
pensions scheme.
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a,
Post Office® Post Office Limited — Commercial in Confidence
POL00027267
POL00027267
Strategic context and priorities
Overview of 2018/19
Income
Margin and Agents Pay
Costs
POMS
Risks and Opportunities
Capital and Investment Spend
Balance Sheet and Cashflow
Post Office Post Office Limited — Commercial in Confidence
POL00027267
POL00027267
YOY EBITDA Bridge by area required
Key Items
£m
78.00
76.00
74.00
(0.6)
(0.5) 01)
72.00
70.00
ce tt tye itt a cat teat th ath it
or" a in and ot wa en
Network Programmes deliver £12m of improvement - Simplification £5.6m, 25 DMB branch conversions £3.3m, 300 locals in ND £2.0m, 100 NT Conversions £0.7m and HNGT Lite £0.6m
Underlying income net decline reduces EBITDAS by £(2.5)m driven by Mails Fixed fees £(4)m and volume declines in Stamps and Lottery
. NB Volume/Income positive growth trends in RPI, Home Shopping Returns, Parcelforce, International and Verify
New POCa contract has net +£0.2m impact inc £1.5m hedged interest uplift. Potential £4m upside if regulator removes PSD2 monthly statements requirement
26 new roles (£1.4m) included to fill operational delivery gaps in Product and Marketing. NB Martins Identity £0.6m requirem ents not included
Opex includes £4.4m for Product projects, mainly revenue protection, £2.1m moved from Government Services to Identity and C&S righ thand column. £0.5m to be removed from Mails
spend.
(sa)
)
Post Office®™ Post Office Limited —- Commercial in Confidence
POL00027267
POL00027267
YOY EBITDA Headcount Bridge Required.
75.00
73.00
71.00
69.00
06
9) 02 SN
67.00
a ee oe! we co a oe o wo ont or® w oe oP al we
x! e e
Key Items
XXX
Post Office®™ Post Office Limited —- Commercial in Confidence
POL00027267
POL00027267
POST OFFICE PAGE 1 OF 9
GROUP EXECUTIVE
Directly Managed Branch (DMB) Programme
Author: Julie Thomas GE Sponsor: Debbie Smith Date: 10th January 2018
Executive Summary
Context
Despite significant recent improvements in our DMBs, our analysis still proves
conclusively that a full franchise operation would give a better commercial return,
even if staff costs could be substantially reduced (appx1). Replacing a DMB with one
or more agency branches is also consistent with our Retail Strategy which aims to
expand our network in urban areas, providing more choice and convenience for
customers.
Following the current Crown Network Development Programme (CND) which continues
into 2018/19, we will have a residual network of 227 DMBs.
Franchising is a lengthy and often controversial process, with a ‘drop-out’ rate of
c20%. Using recent experience of franchising on-site to trusted strategic partners,
along with our success in opening more Local branches, we believe it is possible to
divest all DMBs over a 3-year period, delivering an incremental £27.1m P&L benefit.
Questions addressed in this report
1. Should we continue franchising DMB branches?
2. What gives us confidence we can continue to find franchise partners to support
this plan?
3. What options have been considered for the future of the DMB network?
4. What is the total business case investment (including sunk costs) and what
funding is requested at this stage?
Conclusion
1. The franchising programme should continue. Exiting DMBs improves customer
convenience, simplifies our operating model and creates a more sustainable
network. Exiting all DMBs would provide £27.1m incremental benefit to the
business.
2. We have successfully adapted the franchise process over the past year and
understand the most challenging aspects. Our new strategy will incorporate
existing, experienced, temporary operators to first franchise branches on-site,
followed by the subsequent appointment of permanent operator(s).
3. We have considered retaining c.50 of the most profitable DMBs, but the central
overhead of c£6m driven by having even a small DMB network may in future call
into question the commercial sense of retaining these.
4. The ‘franchise all’ case would require £135.5m of investment, or £117.1 net of
disposals proceeds, for £27.1m EBITDAS benefit, 6.4 year payback, £(35.2)m NPV
over 5 years. The total draw down request of £23.1m will allow us to continue
franchising DMBs during 2018/19, with future years subject to refreshed business
cases to enable all options to be considered on an annual basis.
Strictly Confidentiat One Best Way ~ Deliv
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GROUP EXECUTIVE
Project expenditure (Em/i Opex Capex Excontional Girt Funded Total
Sunk Costs 7 5 37 37
2017/18 Current request [approved Nov'17] d i7ig} 1718)
2017/18 Future request Ez ZI
Future Request (beyond 17/18) oj 1,468 21,370] 22,838)
Total Expected costs 76a] Bsa q 35,109
Costincluded in Plan 3,702
Variance toPlan Baa
Benefits (£m/l Income Growth I Income Protection I _CortSavings* I Cost Avoidance Total
invear
Steady State (¥r.2024,) 125,604] 34329 Bee 705
Hurdles [NPV 35:55]
Payback (yrs) 6.4)
TBITDAS * P03
Input Sought Input Received
GE input and approval to progress to Group Executive 19* Oct, CAG and
POL Board, including year 1 draw down GE IR Steering Group 9" January
The Report
What is the need or opportunity and why now?
Financial imperative: DMBs have high staff costs (17/18 staff cost budget of £79m)
with inflexible contracts and fixed property costs (17/18 property cost budget of £24m)
and they drive complexity leading to other central overhead costs, est. £6m.
Customer imperative: Agency branches offer our customers extended opening hours at
a more affordable, variable, cost to Post Office. Retailers give access to Post Office
services across their retail opening hours, often 7 days a week.
Strategic alignment: Franchising, increasing opening hours, and expanding our network
through ‘whitespace’ activity are all key parts of the Retail Strategy approved by the
Board in June 2017. This DMB plan complements and helps deliver the strategy.
Available funding: These plans are dependent on UKGI funding. With this funding
confirmed we can now continue our activity to exit DMBs over the approved funding
period.
What do we propose to do and why?
Our analysis and experience show that only franchising can deliver full and sustainable
cost savings. Our challenge has been to devise a way to mitigate some of the delivery
risks that previous franchising programmes have encountered, including:
e Large retail chains (multiples) are wary of any risk (however small) of taking on
staff under TUPE due to current expensive Post Office pay and terms and
conditions. This is true even if with financial indemnity against the risk.
e Local campaigns during consultation create negative PR for potential new operators
and for landlords, both of whom sometimes back out of deals.
e Our larger DMBs have diseconomies of scale for potential partners when franchising,
often consuming over 50% of valuable ground floor retail space.
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e The difficulty of synchronising whitespace and franchise activity in a local area,
meaning the franchise needs to be the final move so that the remuneration quoted
can be based on recent evidence for the franchisee’s business plan.
The approach we are setting out is a new one, designed to decouple the external
dependencies on potential operators, landlords and, to a lesser extent, local stakeholder
handling, which have caused delays to franchising in recent years. It is designed to
deliver each franchise in the 9 months required for recruitment, public and employee
consultation. Franchising remains an inherently complicated and controversial process,
but one over which we would have far greater control.
The new process will sequence the DMB exit first by using the current DMB property
estate with flexible lease terms to host interim franchise branches using temporary
operators as a first step. This will enable immediate staff cost savings while the
recruitment of the long-term operator and branch location is progressed in parallel.
Subsequent change can follow in a considered way; with the DMB and its staff exited,
we believe further change is far less likely to attract union or locally-driven campaigns.
This also creates more certainty for our staff once we have announced our intention to
exit the DMB as we will be able to time our DMB exits more precisely by working with
temporary operators who can step in as soon as the on-site property arrangements are
in place. There is no need to run the usual lengthy recruitment process for temporary
operators and on-site franchising does not require a full public consultation process.
We have tested the market and found existing temporary operators who are keen to
support our plans. We would allocate a retail support fund of ave.£25k pa per site to
underpin the business case for temporary operators to help them as they are not
expected to invest significantly in a retail offer due to their role being short-lived in
these schemes (c.18 months).
We propose advertising around all 227 branches for interested retailers either on or off
site, and we would progress permanent solutions as a priority. Where more time or
more complex network solutions are needed, a temporary operator will be used. Once a
temporary operator is installed, we can continue our Locals opening activity at pace,
creating greater convenience for customers in the local area whilst also reducing the
size of the remaining branch to one that is more “franchisable”.
We assume we will franchise the 32 DMBs currently hosted within WH Smith to them,
securing an acceptable deal for POL. We are confident WHS will wish to retain the
footfall the Post Office brings, making this achievable.
BNP Paribas have provided advice on potential property disposal strategies, including a
lease liability transfer deal, however, the cost and time to establish this is expected to
outweigh any advantages. A sale and leaseback arrangement could release value from
our 24 freehold properties earlier to help fund the programme of work. A valuation
exercise is recommended during 2018/19 at a cost of £100k to better inform our
disposal approach.
Risks and mitigations
The risk of adverse local, political and union reaction, including industrial
action (Impact: High, Probability: High). This case assumes advertising all DMB
Strictly Confidential ~ Delivering
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GROUP EXECUTIVE
branches in April to allow both permanent and temporary franchise opportunities to be
explored. A draft communication plan has been prepared and the key narrative is at
appendix 4. The communication plan and its timing will be subject to a GE decision,
following discussion at GE IRSG during Q4.
The risk of a 2 step process causing confusion to customers and stakeholders
and therefore increased CiTA scrutiny (Impact: Medium, Probability: Medium).
CiTA have been engaged on the proposed approach to first flood an area with smaller
branches and later close the main DMB branch. They understand both our need to do
this and that we could not be clear during consultation about our longer term plans to
close the DMB or temporary operated branch. The consultation process, timelines and
all documents are under review to support this approach, led by Patrick Bourke.
The risk of income loss due to franchising (Impact: Medium, Probability: High).
This business case assumes 81.8% of total income will migrate to the new branches;
observed migration levels following franchise activity in the last 2 years is 84% and this
represents a more conservative estimate given the 2 step approach. The case has also
allowed £1.5m investment in migration support and marketing activity which can be
directed to product specific marketing, CRM support or local awareness activity.
What options did we consider?
The table below shows the outcome of the modelling for each option considered:
Business case table
1 2 3 4 5
Retain all DMBs, [Franchise 135 /[Franchise 177 /I Franchise all 3 Franchise all 2
replace 30% of I retain 92 retain 50 years years
staff with new
T8C’s
Investment G07) (427.0) (226.5)
Central 0) (8.5) 6.5)
Total Investment (20.7) (422.7) (35.5) (35.1)
[Assumed Freehold disposals 12.5 18.4 18.7
Funding Required (0.7) (110.2) G74) (16.4)
Recurring EBITDAS benefit 3.9 23 14.3 125 12.5
Central Costs savings 0.0 23 33 6.1 64
[Avoided costs 0.0 6.3 8.5 8.6 8.5
Total 39 21.0 26.4 27.4 27.0
NPV G38) 5.2) 4.9
Payback 57 6.4 6.2
1. Retain and improve 227 DMBs - not recommended
Within this option, we considered introducing new terms and conditions for future
DMB recruits to bring these in line with market norms. However, very low churn rates
(<2%p.a.) mean a ‘voluntary early departure’ scheme would be needed to achieve
this. The economic case is poor, even assuming 30% of posts could be replaced at
lower pay rates, the run-rate P&L for DMBs would be £(18.7)m p.a. by 2024/25
(steady state), compared to £18.5m p.a. if run as agency branches. The union
position in such a move could create equivalent union discord to franchising.
2 & 3. Franchise 135 or 177 branches and retain 92 or 50 - retain as an option
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Branches would only be retained due to the poor case to franchise driven by high
property holdover and staff release costs. Whether kept as DMBs or franchised, Post
Office has the ongoing liability of the property costs. Once properties are vacant, BNP
Paribas would act to defray some of this cost exposure by sub-letting, so franchising
would improve the position.
4.Franchise all 227 branches - retain as an option
This approach would divest all 227 DMBs over a 3-year period. This is the only option
which allows us to simplify our operating model, including the release of c£6m of
central costs driven by the administration of people management tasks, property
maintenance, sales MI and bonuses and a line management support team. These
savings could be taken as an EBITDAS benefit or (part) re-invested in customer and
sales support, including marketing.
5.Franchise all 227 branches in 2 years - retain as an option
This has been scoped as an option, however our two step approach is unproven at this
scale, although we have completed market testing with likely operators in order to give
confidence to our plans.
What do we need to do next to progress and deliver these objectives?
We propose advertising all 227 branches in early April 2018, once the supporting
communication and stakeholder plan has been approved by the GE. This would allow us
to progress the first year’s activity and set up framework deals with franchise partners
potentially allowing us to accelerate in years 2-3. We would also explore the potential
to sell and leaseback our freehold properties to inform future annual business cases to
confirm the latest position and opportunities and allow subsequent years funds to be
drawn down. This would also enable GE to allocate funds on an affordability basis and
to keep the retention of some DMBs as an option if needed.
e Jan 2018 - business case approved
e Mar 2018 - Comms plan and procurement approach complete and agreed
e Apri 2018 - Advert launched
e Jan 2019 - franchising starts
The investment and benefits are shown below vs the 3 year plan and the investment
Investment Investment
including Property Disposal Excluding Property Disposal
request to UKGI.
One off costs
Oct 17 Strat Plan 69 398 39.2 69 398 41S.
Latest version 22.8 523 39.0 25.1 646 42.3
Var (26.0) (42.5) 0. (18.3) (24.8) (0.8)
Benefits
Oct 17 Strat Plan (2.8) 28 120
Latest version 16 7277
Var 4a 120 15.7
Benefits excluding Property savings to avoid double count with the Onerous Contract Provision (OCP)
Oct 17 Strat Plan / Budget (28) (03) 40
Latest version 16 13.1209
Var 44 416.9
*Oct 17 Stat plan was also the October 17 business case and used for Budget 18/19 submission 1
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GROUP EXECUTIVE
What would the impact be of delaying or rejecting the decision to progress?
e Loss of or delay to EBITDAS benefits - the funding is expected to be available only
within a 3 year period.
e Inability to break up large DMBs into many more smaller branches, giving customer
convenience and responding to competitive threat from other mails providers.
Scope
In Scope
* Developing and implementing area plans around our DMBs, including recruiting new
temp, permanent and Local operators.
e Development of a communication and stakeholder plan and resources to support the
change across the three years.
Out of scope:
« Implementation of the supporting property disposal or optimisation strategy. This is
managed by Steve Norris, Head of Property.
e Implementation of any central cost reduction, should it be appropriate. It is
recommended this is managed through wider POL existing efficiency programmes
and activity.
What are the key (external) dependencies?
Timely availability of Government funding. Project will be unable to deliver the change
activity, in particular the settlement agreement and property disposal costs.
Concurrences
Finance Director
Cathy Mayor The business case has a longer payback at 6.4 years than the oh Jan
hurdle rate and as such has a negative 5 year NPV. However, the I 2018
long term recurring annual benefit is very significant at £27.1m
pa warranting the significant cost. It is considered necessary to
fully divest the remaining DMB network to facilitate central
operations simplification and cost reductions (NB case includes
indicative £6m central cost savings).
Design Authority
Ben Gray The project proposes a well-developed solution to 9 Jan 2018
exit/franchise DMBs, but it is unclear from the case
whether this is the best solution to the wider
problems/challenges associated with improving the
profitability of Retail.
IT Portfolio Office (assessment of IT capacity and capability)
I concur subject to an IT impact assessment being completed by 10" Jan 2018
Andy Garner.
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POST OFFICE
GROUP EXECUTIVE
PAGE
Appendix 1 - comparison of options on P&L run-rate
DMB Options
ém
Cost of Change
227 branches with 30% Jay take up
Current P&L
Potential staff savings from Project Jay
Total P&L *
October Business Case
Recurring benefit excl avoided costs
Proposed new business case
Recurring benefit excl avoided costs
Notes
(20.7)
(110.2)
(117.8)
1) Current P&L is adjusted for inflation on Staff & property coste at 2.5% pa
2) Savings from Project Jays adjusted for staff costs inflation at 2.5% pa
(3.9)
(3.9)
0.0
0.0
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2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 2023/24 2024/25 2025/26
(6.6) (8.6) (10.7) (12.8) (15.0) (17.2) (19.5) (21.8)
37-36 0 38S 3.4 3388.2 8B
(29) (5.0) (7.2) (9.4) (11.7) (14.0) (16.3) (18.7)
(28) 28 101 198 195 182 176 17.6
12 1230 Ly aS 208 is aks aS
Appendix 2
The savings in the table below are based on work by KPMG in Sep 2016, refreshed for
this business case as a desktop exercise by the Retail FD.
One off,
Description Sub-bucket I BenefitekI 0" Comments Direct?
Cost £kI
SSK Running costs iT 1,167] Ojit is assumed the SSKs in the DMBs will either no longer Direct
Ibe in use or transferred to Agency Branches (where their
maintenance/running cost has been captured).
PRE costs HR 874] 1,311ICost relates to employee relations basic salaries. Cost I Indirect
Isaving sensitised by 50% as it is not considered that all
costs will be able to be reduced.
Finance Finance 212) 345/3 Finance heads (1x14, 2xL3b) directly working on DMBs Indirect
lidentified to cease.
HRSC HR 494] 741I2800 DMB staff of 5300 Total POL Staff is 53%. HRSC pay is I Indirect
l£1.9m. This saving assumes 26% saving of pay cost so
\circa half of the 53% saving.
IABMs and BDMs Retail 955} 2,615IRemoval of Branch Management and Area Management Direct
Network & Sales Director Team-I Retail 750} _1,125IThere are Elm worth of Channel admin costs not includedI Indirect
Staff lin the already included Channel Admin staff saving and
Iwe have assumed 75% of this should be able to go after
IDMB removal.
Network & Sales Director Team - Retail 825) 1,238IChannel Admin non-staff weren't included in the original I Indirect
Non-Staff savings and we think of the £1.3m budget we can remove
c£0.8m
Property Team Property 780) 1,170}Projects and Facilities management of the DMBs no Indirect
longer needed.
Total 6,056] 38;
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Appen 3 - Business Case
Investment
&k Sunk 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 Total
Capex [) () 1,468] 5,004] 8,699 2,808] 0) 17,979
Exceptional 317] 1,993} 21,370 47,336] 30,308] 11,326 4,885) 417,535
Opex i) i?) Oj i) ) Y) 0] oO
Client Funded ) 9 0} ty) 9 0 0 o
‘Total POL
22,838 39,007 14,134 135,514
Investment
Drawdown Request
Approved
Por Approved New New
47/18 18/19
Capex I C) oI 1,468] 1,468
Exceptional 317 1,718 275] 21,370 23,681
Opex 0 ol 0 o °
Client Funded 0 t) 9 o C)
‘Total Drawdown
Request 25,149
Total New Request 23,113
Impact on EBITDAS
£k 2016/17 2017/18 2018/19 2019/20 2020/21 2021/22 2022/23 Total
Net Income ° (91)] (2,188)} (7,036)} (11,808)I (13,631)] Fastener)
Direct Product
= 0 1,159] 9,848] 14,087} 12,507] 10,890) 48,490
Cost Saving ol si] 2,736] 9,604] 14,650] 15,205] 42,246
Recurring Costs I I 0 450I 4,309] 11,004] 16,440 16,873] 49,076
‘Total Impact on
ers 1,568 14,705 27,658 31,788 105,058
Other cash items 0 0 2311 12,303 3,288 544 18,413
Total Cashflow (317) (4,993) (21,270) (35,323) 954 20,942 24,9649) (12,044)
NPV @ :
: Payback Recurring Steady
Economics 12% over § EBITDAS EBITDA bu
yearsim
>£2m pa
incremental
HHurde Rate I ne I years I Maernetle NA NA
state
Business 35.2 64 yes £27.4m 2024
case
ictly Confidential
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Appendix 4 - Communication narrative (draft)
New DMB Business case messaging
¢ Over the last few years it’s become increasingly clear that the model of running a standalone
large Post Office is not commercially sustainable and does not meet the needs of customers
who want local and convenient access through more, smaller branches. This is a trend we’ve
also seen on the high street with many large supermarket chains opening a number of
smaller branches so that they can meet the needs of existing customers and tap into new
markets.
e Moreover our mails strategy rests on convenient access for customers who don’t want to
travel to a large town centre post office during the working day to post items or return on line
shopping. The only way we can compete and grow our mails business is by offering the kind
of convenience that customers want - especially in urban areas where we know there is
potential to grow our customer base.
e This means that we will be running a general advertisement to see if there is in interest in
opening up a number of new branches in 227 areas across the country where we currently
have a Directly Managed Branch - the focus of this is to ensure we offer customers
convenient access to allow us to grow and protect our business and to tap into new customer
demand.
e We really don’t yet know what the interest will be so it’s difficult for us to be clear about the
timescales but our intention is to move to replacing directly managed branches with more,
smaller Post Offices over the next three years. This means we can offer customers access to
the same wide range of services through a larger number of branches near where they live
and work offering convenience and allowing us to tap into new customer demand.
« At this stage it’s very difficult to be certain around the level of interest we'll get to our
advertisements and what the best mix of branches will be for each location. For the vast
majority of places we want to open more smaller Post Offices but there will be some locations
where we could see a one on one franchise or retaining the DMB until we have another
service to meet local customer demand.
HR/people messages
e We know that for many of our people working in directly managed branches there has been
concern and uncertainty of the future of the network.
We want to be open and honest with you which is why we’ve taken you through our retail
strategy and what we think this means for the future of these branches. While we want to
replace many of our DMBs over the next three years we can’t be certain that this will be
possible in all locations or at this stage confirm a timescale for your branch.
« We really want to reduce uncertainty for all colleagues working in directly managed branches
and we'll make sure that you are kept up to date on local developments and what this means
for you. It’s really difficult to give general advice on the options open to colleagues in
individual branches as local circumstances will vary - we've got a long history of manging
change and of treating our employees fairly and we will make sure that all colleagues hear
news first and that there is support to look at individual preferences. There are no plans to
change the current settlement arrangements.
Strictly Confidential One Best Way ~ Deliveri
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PERFORMANCE UPDATE
Retail CE’s Report - January 2018
Author: Cathy Mayor Sponsor: Debbie Smith Meeting date: 9" January 2018
Executive Summary
Context
The Period 9 YTD Retail Commercial Performance Report for the Board.
Questions this paper addresses
1. How are our sales and revenues performing against our targets and prior year?
2. I What are the implications for our outlook and plans?
3. Competitor Information
Conclusion
1. Christmas trading strong, temporarily reversing recent trends, with 57.4m Customer
sessions in P9, +4% on 2016, as consumers appear to leave things later.
2. Customer service levels during peak trading much improved. Year on year P9 Effort
+9% to 81% and Wait time acceptability +4% to 93% as Mails Simplification and No
Queues at Christmas initiatives helped reduce average wait times by 2 minutes.
3. In Mails, continued strong volume growth in Home Shopping Returns and Local Collect
is helping offset the ongoing decline in stamps.
4. We have converted our 7,500" Network Transformation branch.
Retail is forecasting to beat EBITDAS Budget by +£7m, with further upside expected.
Input Sought
For the Board review and note.
2018
vonfidential Debbie Smith, 9 Janua
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The report
Overview of Financia! performance
Actual vsFest YoY Actual vsFest © YoY ‘Forecast Budget PY YoY%
Mails Fixed 47 0.0 (8.9)% 8 0.0 (9.1)% 59.8 60.1 65.7 (9.0)%
Mails Variable 35.4 12. 2.7% 210.8 15 13% 272.3 264.7 2713 0.4%
Government Services 5.9 0.7 (15.6)% 65.9 16 (19.8)% 84.5 772 108.6 (22.2)%
Payment Services 4.7 (0.6) (18.5)% 43.2 (0.7) (13.1)% 580 57.9 65.6. (11.6)%
Retail & Lottery 5.5 0.2 7.7% 345 0.8 (2.8)% 44.2 40.9 46.3 (4.5)%
Verify 07 0.3 106.6% 53 06 52.9% 27105 5.6 37.9%
Retail Total [569 19 _(1.7)%I [4046 38 (55)%I [ 5265 5113 563.1 _(6.5)%]
Actual vs Fest YoY Actual vs Fest YoY Forecast Budget PY YoY%
Mails 17.1 0.6 (11.6)% 116.5 04 (6.4)% 155.5 149.6 157.1 (1.0)%
Government Services 15 10 7.6% 19.4 1.9 (33.1)% 20.7 15.1 38.8 (46.6)%
Payment Services. 0.6 (1.2) (55.6)% 125 (1.7) (28.6)% 18.2 15.7 23.9 (24.0)%
Retail & Lottery 26 (0.2) 31.2% 11.2 (0.1) (0.2)% 13.7 14.1 15.1 (9.2)%
Verify 0.7 0.3 106.6% 5.3 0.6 52.9% 77 10.5 5.6 _ 37.9%
Retail Total DPC [224 05 (7.8)%I [1648 11 (11.2)%I [215.9 205.0 240.6 (10.2)%]
Fixed Agents Pay (3.0) 0.2 13.6% (29.5) 0.2 19.1% (39.0) (41.6) (47.6) 18.0%
Sales & Trade Market (6.4) O1 13% (60.2) 07 10.7% (80.2) (74.2) (88.1) 9.1%
Retail Programme Costs (0.8) (0.1) 61.4% (4.1) 0.4 (34,0)% (7.3) (4.4) (2.8) (161.8)%
Retail Central Costs (0.7) 0.8 (207.1)% (3.9) 0.5 (62.3)% (5.8) (7.7) (2.9) _(97.8)%
Retail Profit [ina 15 _(48)%I [67.2 2.8 (12.0)%I [83.7 7A 99.1 _(15.5)%]
1. Whilst most areas are in volume decline, Retail continues to perform well versus
budget and forecast. Mails income is benefiting from price effects; in particular higher
levels of barcoding items than expected and the failure of delivery confirmation to
reduce Signed For volumes. All key Home Office services continue to perform ahead
of budget.
N
The income trends are projected to continue for the remainder of the year and fully
mitigate the £5.5m programme benefit in year delivery gaps and other downsides,
with Retail currently forecasting +£7m net upside. With +£2.8m upside to forecast
already achieved, Retail is confident further upside to budget will be delivered.
Market Update
3. The convenience market in which most agents compete has seen recent growth, cost
and consolidation trends continue this quarter. The Competition & Markets Authority
(CMA) unconditionally approved Tesco’s merger with Booker (supplier to c5,000
symbol stores), Nisa’s c1,000 independent retailers voted in favour of a Co-op
takeover and Palmer & Harvey, the UK's biggest delivered wholesaler with sales of
£4.4bn, was put in to administration (Co-op has taken on some of its contracts).
These changes will bring better prices and ranges to symbol operators, increasing
pressure on independents.
Stri
Confidential Debbie Smith, 9 Janu
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4. The IGD’s recent review of the convenience sector showed it to be one of the strongest
growth areas in the UK economy with annual growth of 3.3% by value and 0.5% by
store numbers. Analysts continue to forecast solid growth in the convenience channel,
with the sector projected to add a further £6.9bn in value over the next five years.
5. These market changes, combined with key trends such as increasing automation and
‘till-less’ checkouts, underline the importance of Post Office investing in new models
to supplement existing Local and Mains offering, particularly to Multiple partners.
Project Panther and the trialling of ePOS integration and self-service kiosks in agency
branches are crucial to providing an attractive retail value proposition.
6. Consumer buying behaviour over the peak period (Oct-Dec) continues to evolve with
Black Friday eroding physical footfall in that week (-1.3%) and challenging the
traditional retail pattern including Boxing Day sales (-4.5%).
7. Online sales grew 10% in Nov and now account for 13% of total non-food retail in the
UK, driven by clothing and footwear (+22%). As price inflation exceeds volume
growth, e-commerce parcel volumes over peak period are expected to grow slower at
@12%. E-commerce growth remains central to the continued strong performance of
our home shopping returns service.
8. Carriers are yet to announce individual peak performances but Hermes indicated
growth rates of 7% over Black Friday. Hermes also reported their latest results which
saw volumes grow 9% to 256m items, income +10% to £564m but profits only +4%
to £35m reflecting the impact of increased operating costs and investment. They have
also continued their joint promotional activity with eBay/Shutl offering a 10% discount
for items bought on the platform in December. Evolution of eBay’s shipping platform,
which presents a real challenge to RMG and Post Office, remains slow and we have
increased our engagement with them in order to improve our understanding and
influence.
9. The likelihood of imminent Industrial Action by the CWU in its dispute with RM has
receded following mediation. Both have agreed to further discussions on the key
recommendations made on pension reforms, pay and working week, delivery times
and future changes. Whilst not finally resolved, investor confidence has improved with
the share price recovering to 455p following its low in November (370p). RM will
release their latest trading update on 18th January.
10. Amazon is now delivering 175m items a year through its own UK delivery operations
making it the 4th largest operator after only 4 years. This rapid growth has not come
without challenge as the ASA announced an investigation in to Amazon’s one day
delivery promise after an outbreak of complaints over the Christmas peak.
Mails performance
11. Underlying volume growth in Home Shopping Returns (P9 +24%, YTD +22%), Local
Collect (P9 +35%, YTD +19%) and 2C labels (P9 +2%, YTD flat) is offsetting ongoing
decline in stamps (P9 -10%, YTD -12%).
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12. Asin 2016, there was evidence of consumers waiting later in the period before posting
items, reflecting less emphasis on last posting dates and increasing confidence in
delivery reliability.
Governments Services performance
13. The POca procurement completed in December with signed agreements in place with
both DxC and JP Morgan. The project now moves into the implementation phase with
work commencing on scoping of both potential additional services and a long term
replacement for the current product. DWP activity to migrate customers from POCa
to bank accounts continues and we expect 40k account closures around the 8th
January.
14. All key Home Office services continue to perform ahead of budget. Market share of
passports continues to decline between 0.2% and 0.5% per month, with a market
share of circa 37.5% in March 18 anticipated compared to 44% in March 2017. We
expect HMPO to increase the activity to promote online services in Q4, this may see
additional pressure in our numbers during the period and as we move into Q1 2018.
Payment Services performance
15. Bill payments continues to be a significant footfall driver for the Post Office and we
have processed 73.2m transactions to date, 78% of our full year target.
16. We are delivering the warm home discount pay-out campaigns for British Gas, E.on,
Npower and Scottish Power that will see circa 2.5 million prepaid energy customers
visit our branches to claim their discounts and top up their pre-paid energy
meters. The British Gas pay-out campaign is a significant win for Post Office (Paypoint
have been awarded this business for the last five years), generating an additional one
million visits to Post Offices over the winter period and up to three million prepaid
energy top up transactions.
17. A senior level meeting was held with the British Gas procurement team before the
Christmas break and further engagements are due to take place in the New Year ahead
of the planned tender exercise in March 2018. Similar engagements are due to take
place with Npower ahead of their planned tender in Q2 2018. Payzone have formally
been awarded the Thames Water business with permission to add Post Office as an
extended network, enabling us to wrap this in to the Project Panther transaction. A
bid for the Scottish Power Smart Meter business was also submitted and feedback is
expected in early 2018.
18. Further to the update on Project Panther at the November Board, we have commenced
formal negotiations with PayZone and have reached a potentially acceptable
commercial position, subject to respective Board approvals. Draft Heads of Terms
have been exchanged and subject to final legal due diligence and internal review, the
intention is to seek approval to proceed at the January GE and Board meetings. In
parallel, sales purchase agreement documentation will be drafted alongside
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preparatory transition work and market reaction planning in order to prepare for
Competition Markets Authority submission. Further details will be provided in the
January GE and Board papers.
Network Transformation Programme
19. The programme remains ahead of target, having recently achieved the major
milestone of our 7,500"° modernised branch (Glyn Ceiriog in north Wales). We have
over-delivered our contracts target (159 against a target of 93) and nearly delivered
our openings target (335/350). We are likely to end the year on c410 openings,
leaving c80 conversions to complete in 2018/19, which we will do through our existing
field team, delivering c£800k of additional recurring benefit. Network Transformation
will close as planned at year end and we are confident we can redeploy c150 of the
210 employees currently working to Network Development or elsewhere, retaining
knowledge and experience in the business.
Directly Managed Branches (DMB) Programme
20. On track to deliver 17/18 in year benefits of £2.2m (£4m Annualised), with 12
completed and 15 scheduled in Q4. We are also on track to deliver the remaining 25
activities in the Network Shape business case in 2018/19: 6 franchise contracts; 4
franchises carried forward from 2017/18; 5 branches in the engagement/recruitment;
and 10 Network Solutions planned.
21. We advertised for Local or Main operators close to 46 DMB branches (£5.4m annual
benefit) in July 2017, this being the next phase of our DMB programme. 209
businesses formally registered their interest and 17 potential new operators are
already in the recruitment process with 3 Local contracts already signed. The first
new Local branches are scheduled to go live in April 2018 in Manchester and Cardiff.
We have submitted a proposed approach for all remaining DMBs to the January Board
meeting.
Network Development Programme
22. The 2017/18 target of 150 new network locations (‘whitepace’) remains challenging,
with many scheduled openings close to year end. Year to date is behind schedule,
with 37 openings versus target of 77.
23. 126 contracts are signed against a Q3 cumulative target of 185 and the pipeline of
potential new Postmasters remains strong for this year and 2018/19. In addition to
the 126 contracts, we have appointed a further 57 applicants subject to contract. The
focus is currently on completing these contracts and scheduling works in February and
March to achieve the target.
24. Phase 1 of Mails Simplification was introduced at the end of September, shortening
mails transactions by over 10,000 hours per week across the network and securing
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25.
£2.3m of in-year saving (£4.6m annualised). Reaction from agents has focused on
the 3.1% reduction, but has been quieter than expected. Multiple partners have also
been negative and we are working with them to agree branch-by-branch plans to
realise the cost savings available.
Operational Simplification is on track to launch in March 2018. Automating ATM
balancing will save 24% of the current time spent (2 hours per month in 2,300
branches), with an associated £565k remuneration reduction. Simplifying end-of day
branch balancing will save time in all 11,600 branches (up to 17 minutes per month)
with no change to remuneration. Given agent dissatisfaction on remuneration, it is
imperative we continue to make the Post Office easier to work with to bolster support
and retain the value of our proposition.
Customers
Effort (9% saying Post Office
Current Prior Period I Prior Year Year
Source Period Period Cine (P9) on YTD Target
{P9) (P83) es Year
VOC 81% 84% 3% 72% 9% 80%
is Easy to do business with)
Wait time Acceptability voc 93% 95% -2% 89% 4% 94%
26.
27.
28.
Network customer sessions, which had been stable at approximately 10.3m per week
in the year to date, rose to 14.4m per week during P9 (+4% on 2016), peaking at
16.0m in week 38.
P9 has seen a strong year on year improvement in customer service measures driven
by the No Queues At Christmas initiatives. Effort is up 9% to 81%, Wait time
acceptability has improved 4% to 93% and the average wait time reduced by two
minutes to four minutes on each of the busiest trading days (sampled over 30,000
customer visits every day across all branch formats).
The success across the network was largely driven by the reduced mails journey times
on Horizon and SSKs resulting from Mails Simplification which saved over 55,000
hours in P9 (8% reduction, average 6 seconds per transaction). Whilst hard to isolate,
it’s clear the NQAC initiatives also contributed significantly, particularly in DMBs and
WHSmiths. Early recruitment of seasonal workers to support Drop & Go roll out,
earlier and more innovative digital communications and targeted Christmas Making all
helped increase the network capacity and thus reduce queue times during the peak
trading season. A full review will be conducted in January and further changes to
product journeys on Horizon and SSKs are being developed for the New Year, to
continue the improvement in waiting times and customer service.
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76%
95%
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GROUP EXECUTIVE NOTING PAPER
Gender Pay
Author: Natasha Wilson Sponsor: Martin Kirke Meeting date: 16 January 2018
Context
The requirement to report the gender pay gap is a positive leap forward to diversity.
We will benefit from understanding where we need to take action and use this as an
opportunity to tell our story about how we are going to achieve a more diverse
workforce.
Whilst the reporting of our gender pay gap is a mandatory requirement, this is not the
same as equal pay legislation. Gender pay looks at average remuneration at a specific
point in time with the aim of identifying any mean hourly pay gap between males and
females across an organisation. Equal pay is concerned with pay differences between
men and women who are paid differently for ‘like work’, ‘work of equal value’ or ‘work
rated as equivalent’ e.g. female shop workers versus males working in distribution
centres at Asda.
This paper confirms the data we are required to publish as part of the gender pay
regulations. It also sets out our strategy to address any gender pay gap, identifying
action plans currently in place as well as new initiatives going forward. The
communication of these will form the basis of our supporting narrative for both internal
and external consumption.
Questions this paper addresses
1. I What are we required to report, by when and what does our data tell us?
2. What are our commitments to bridge the gap?
3. How will we manage the risk of pay claims?
Conclusions
1. The Post Office mean gap is 17.5% compared to the ONS reported UK gap of 18.1%.
Very few retailers have reported their gender pay gap, Phase Eight has a gap of
close to 65% whilst in Financial Services, the Co-Op Bank is running at just over
30% and Virgin Money has a gap of 32.5%.
2. Gender Pay legislation requires us to report the following numbers by 5 April 2018:
mean gender pay gap - 17.5%
median gender pay gap - 13.1%
mean bonus pay gap - 49.5%
median bonus pay gap - 16.8%
Proportion of men receiving a bonus - 91.8%
proportion of women receiving a bonus — 93.2%
Poeoanc®a
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g. proportion of men and women in each pay quartile:
Quartile Male % Female
%
Bottom 25% 29% 71%
25% to 50% 28% 72%
50% to 75% 49% 51%
Top 25% 62% 38%
TOTALS 42% 58%
3. We will publicly report these numbers in the second half of March along with a
supporting narrative to help explain, through our values, the reasons for the gap
and what we are doing to bridge the gap.
4. Experience from other organisations particularly the BBC has shown that
undertaking an internal communication exercise by explaining the difference
between gender pay and equal pay is vital. Our aim is to educate our people to
understand that our mean gender pay gap of 17.5% does not mean that male
employees are paid 17.5% more than female employees carrying out an equivalent
role.
Input Sought
The Group Executive is asked to note the outcome of the analysis and agree the
commitments made.
Report
What does our data tell us?
1. The data shows there are two distinct reasons for the gender pay gap at Post Office
and this will be reflected within our supporting narrative. It is more commonly
known as the demographic gap:
a, the number of men working in senior management
b. our lowest paid roles are typically occupied by females
2. The 17.5% gap can largely be attributed to lower paid roles within the organisation
being filled by females. Out of a population of just over 5,000 employees:
a. We have 1,961 employees working as Customer Service Consultants,
which is 40% of our total employee population, 77% of which are filled by
females. It is important to note that CSC’s are already paid above the
market rate and any move to address this will have an adverse effect on
our gender pay gap.
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b. There are 106 Customer Advisors, 60% of which are filled by females
Only 15% of all females are paid in the top pay quartile, compared to
nearly 40% of males. Our advisor suggest this profile is fairly typical in
many organisations.
3. Analysis has been completed by Function and Grade and is detailed in Appendix 1.
Again, our results are typical of other organisations particularly within the Financial
Services and Technology sectors. Tellingly however the gap by grade at the senior
manager and SLP levels are over 10% with the headcount approaching a 2:1 male
female ratio.
4. Overall our results are consistent with other organisations that have reported so
far. See further reporting from other organisations in the Reading Room.
What are our commitments to bridge the gap?
Our commitments are centred on our values - care, challenge and commit. To explain
how we will bridge the gap, we will provide a supporting narrative that highlights the
great initiatives and policies we currently operate such as:
e Women in Leadership network
¢ accessibility and fairness
¢ modern working practises and policies - flexible and agile working
¢ talent and early careers
¢ reward and remuneration
However, there is more to be done and we will make four commitments publicly in our
supporting narrative to close the gap:
1. We are committed to filling 40% of senior manager roles with women through
gender balanced shortlists by 2020. We are on track and have achieved 39%
thus far.
2. We will continue to support our female talent through our successful mentoring
and coaching schemes to make meaningful progress on gender parity in our
business.
3. We are committed to promoting our internal talent to fill 50% of our senior roles
by 2020.
4. We have invested in our digital infrastructure to give our people the choice of
flexible working and we are committed to improving capabilities through
education and training.
Although not part of the narrative, we also plan to address our gender pay gap in
the following ways:
¢ Our private medical insurance policy provides the choice of medical insurance or a
cash alternative. Under the policy, part timers choosing to take the cash option
have their allowance reduced according to their hours worked. This is not best
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practice and could be deemed to be discriminatory. Furthermore, this is
inconsistent with other similar policies. We will remove this reduction.
¢ Our LTIP policy could be deemed as discriminatory in that a change of hours is not
taken into account when calculating LTIP awards. We propose to use the same
methodology as that used in STIP calculations, by taking into account changes in
hours in the first year of the 3 year performance period. This proposal will be
submitted to the Remuneration Committee for ratification.
How will we manage the risk of pay claims?
Engaging employees positively through the usual channels, networks and forums
will be key to ensuring there is a good understanding of the reporting requirements
and to minimise any grievances around pay. We have clearly defined pay policies
for both unionised areas. The non-managerial grades have agreed set salaries and
any pay differentials by role are at a minimum. The salaries and grades covered by
Unite were set back in 2008 with broad salary bands. Since the start of 2017, our
reward strategy of fair and equitable pay has been underpinned by a gender neutral
job evaluation process. This approach was recently ratified by Unite as part of the
review of the 2008 Broadbanding Agreement.
Nonetheless, we will conduct a full equal pay audit later this year to fully identify
any equal pay risks. The outcome of this audit and associated costs will come back
to the GE.
A spot check of equal pay by role is currently underway. Initial results will be shared
with the GE as part of the gender pay agenda item.
POST OFFICE
Appendix 1
Statistical analysis
Mean gender pay by GE Area
Mean Gender Pay
GE Area Gap
Post Office 17.5%
Chief Finance & Operations
Office 9.3%
Retail 14.9%
cIo 24.9%
Communications 16.1%
Financial Services & Telco 31.7%
General Counsel 18.5%
Human Resources 9.4%
Strategy Office 21.6%
Mean gender pay gap by grade grouping
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Female
Grade Male mean mean
grouping hourly rate hourly Pay Gap Males Females Totals
rate
Post Office 17.4 14.3 17.5% 2,134 2,982 5,116
Non-
13.6 12.9 5.4% 1,275 2,337 3,612
managers
Middle-
eae 16.0 15.3 4.9% 595 493 1,088
managers
POST OFFICE
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Senior
32.2 26.7 10.8% 226 135 361
managers
SLP 67.3 60.5 10.1% 30 14 44
RemCo 108.7 120.6 -10.9% 8 3 iL
Pay quartiles by gender
Quartile Male Female Number I Number of
% % of Males Females
Bottom 25% 29% 71% 365 914
25% to 50% 28% 72% 357 922
50% to 75% 49% 51% 623 656
Top 25% 62% 38% 789 490
TOTALS 42% 58% 2,134 2,982
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Post Office Limited
Group Executive
16 January 2018
Post Office Change Capability
Status Update
Post Office
IN THE STRICTEST COMMERCIAL CONFIDENCE
Executive Summary
Post Office - Change Operating Model
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Context
On 13 November 2017 GE endorsed the proposals
contained within the Change Operating Model
and Portfolio Office paper, namely:
To appoint a Portfolio Office Lead and Transition project
team to:
+ Validate the design of the high-level target Change
Operating Model including establishing a Strategic
Portfolio Office.
+ Assess current status of Change competencies.
+ Build phased transition plan to implement new model
including new teams where necessary.
+ Develop investment business case.
+ Identify, implement and deliver Quick Wins including
supporting 2018/19 business and budget planning.
+ Provide monthly updates to GE.
+ Seed Investment = £500k.
Questions Addressed in this Report
1. What is the current status of the project.
2. What are the key activities for the next 2 months.
Conclusion
+ Tim White has been appointed as Strategic Portfolio
Office Lead taking over the management of the
current Change capability team as of 15 November
2018.
+ Anassessment of the current Change competencies
has been initiated.
+ I AChange Delivery Partner, PA Consulting, has been
engaged to deliver two key deliverables over the next
8 weeks:
+ Design Strategic Portfolio Office Operating Model
including detailed implementation plan including
delivering Quick Wins.
* Build Portfolio and Roadmap for 2018/19 including
key artefacts, a repeatable process and supporting
governance.
+ 2018/19 business and budget planning is being
aligned with and supported by the project team.
+ First Investment Committee scheduled for
22 January.
Input Sought
For information purposes only.
Post Office®
IN THE STRICTEST COMMERCIAL CONFIDENCE
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Status Update E>
I
_* Tim White has been appointed as Strategic Portfolio 4 bids received from approved consultancy list:
Office Lead taking over the management of the — PA Consulting
current Change capability team (slide 8) as of - KPMG
_ 15 November 2018 ~ Boston Consulting
” An assessment of the current competency levels is — Concerto
_ underway. PA Consulting selected
I « The first Investment Committee has been scheduled 2 Key Deliverables:
_ for the 22 January. A terms of reference is being — Design Strategic Portfolio Office Operating Model
_ produced for approval. I including detailed implementation plan I
I = Key Dependencies: — Build Portfolio and Roadmap for 2018/19 including
I =Strengthen the Design Team and Governance key artefacts, a repeatable process and
I ~Enhance Vendor Management and Governance supporting governance
Project commences 15 January 2018
/ — duration 8 weeks
©)
Post Office® Confidential - not to be distributed
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Supporting Slides
Post Office® IN THE STRICTEST COMMERCIAL CONFIDENCE 4
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Strategic Portfolio Office Operating Model — PA’s Framework
Portfolio Lea Key principles!
nt information = Strategy through to delivery approach
enables strategic ambition to be converted into a
Delvers Contitence Portfolio comprehensive set of change initiatives - to deliver that
Management ambition. Critically it allows these to be successfully
Offce planned and delivered, with focus on business benefits
and outcomes.
= Delivery assurance, governance and
leadership approach helps establish consistent,
non-bureaucratic delivery practices, governance and
leadership to make delivery more predictable, help
develop delivery confidence and provide a mechanism
to identify issues early.
Portfolio Assurance
Delivery Framework
©)
Post Office® ‘Extract from PA Consulting report Confidential - not to be distributed
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Strategic Portfolio Office Operating Model - Context
Effective Change requires a Strategic Portfolio Office as part of an integrated approach’
Business model and customer value
petitive
onments, geographies and
+ Welldefined fut
customer/patient e
+ identification
performane
+ Fulure state
Post Office® ‘Extract from KPMG report Confidential - not to be distributed
Draft Plan - commences 15‘ January 2018
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‘We expect to develop a number
of additional artefacts, which we
abcde lente I [7 Wewoutd be reasonable to expect the
Key Porttolio A I Investment Committee process to
Artefacts i II expenence incremental improvements
I ‘over 8 longer period of time
Transition I
Plan
Transfer
‘Develop Improved pr
‘and implement
[The Fe The TOM design is split intotwo I
I) parts. nigh levet and detailed. -
I The first part provides an input Quick wins wilt be pioted /
tothe Investment Commitiae I I II _ienplementes where and when.
— 4 I possible threagh the duration of
1
Phase 2 = NOT covered by this proposal
62.0
Contest for the Meech @ eset
eovestment Comeratton ‘even points
refinement
Post Office®
Confidential - not to be distributed
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Portfolio Office — Interim Organisation — 12 January 2018
TOTAL 32 106 138 23%
@)
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POST
OFFICE
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Cover note - Context
= The Post Office IT landscape has evolved over the past years resulting in a
diversified hosting environment running our applications
= This diversity results in duplication, complexity, data silos, increased costs
and information security risks
= We are investing in a Post Office Cloud Platform that will become the
primary hosting location for home grown applications and (where
appropriate) off the shelf packaged applications
= This document provides an overview of “Cloud” and our current
investment in it
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What is cloud computing
= Delivery of computing resources (networks, servers, storage etc.) ....
= accessible over the internet
= charged on a pay-as-you-go basis
= with no up front investment to consume
= with rapid elasticity with no user or application impact
= delivered on demand through customer self-service
= The alternative is to buy our own computing resources and find some
where to host them, our own data centre or a 3 party
= This is largely what we do today
=" We have to pay to refresh/replace these resources every 3-5 years
@
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Types of cloud services ..... “Car” analogy
On Premise Infrastructure asa Platform as a Service Software as a Service Computing
Service - laaS PaaS ~ SaaS Resources
Car I Car L Car I
Depreciation I Depreciation Depreciation I
Servicing Servicing I I Servicing I
Renewables I Renewables I
Insurance I I Insurance I
RoadTex I I RoadTax I
Garage Garage I "Storage
vel I Driver I
Car Owned Car Leased Car Hired Taxi
— ®
Managed by
anaged by Client fi wn! Service Provider
4
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What is POL target cloud platform
Build, Maintain &
Manage Applications Pn)
" Branch Users
Servers Partner Users
Partners a
(Fujitsu) Storage
Platform nage Office Users
ae LUN SOSLLLLLL
rd
Others! Orchestration Consumption Operations { (I
Parties Services Services Services
Customers
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What are the benefits
= Less time, effort and money is spent creating and managing our own hosting facilities
and duplicating facilities across 3"¢ party providers.
= The location, technology and vendor used to host IT solutions can be changed more
easily.
= Information is more secure.
= IT costs are directly proportional to business activities.
= Time to market for business services is reduced, increasing opportunities
= IT costs can be more accurately estimated.
= The total cost to operate our IT estate is reduced and optimised.
= [T solutions are quicker and easier to create, deliver and operate.
= IT solutions are more reliable.
= Our business costs will scale up and down in-line with its customer demand
= End users can access their IT solutions whenever and wherever they require.
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What are the risks
= We lack the governance and control to ensure we exploit and optimise our
cloud platform
=" We don’t invest is consolidating other hosting services into our cloud
platform resulting in higher cost and duplication
= We get locked in to the cloud services of a single provider restricting us
from exploiting price differentiation in the market
= Our business units create other cloud services as opposed to extending our
cloud platform
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How do we get from here to there
Cloud Platform Pivot to Cloud
HNGT / Solar
~O
lyse and Plan /
ration of Belfast
"4
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Cloud platform vision
Vision
A reliable, scalable and ubiquitously accessible technology platform used universally across Post Office to efficiently
create and deliver IT solutions. A rich, flexible and cost-optimal platform of technology capabilities available on
demand through self-service, in a measured, transparent, secure and governed manner.
10
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Current landscape and what’s where
‘Global Payments OC
Navisive BC
POL Swindon Ut
‘Aare yaecentuare)
‘ComputaCenter (P/S)
11
ingenico OC
RAPP (PS)
POL Swindon US
Accontare DE (P/5)
Fujtsu Beltast (R/S
‘Uk Cloud «R/S
SalesForce BU
Paragon BC
ATOS Eindisoven
-ATOS Eindtioven
‘Digidentity (NL)
Aebaerties OC
GAP Cloud BC12
POL Cash Centres xd
POL Cash Centres 23
Microsott 0365
Proniety OC
BF Alrwatcy Cloud
SC Cloud
‘Amazon AWS
aoc
‘Fleetbdatics DC
Fajisu $8
Azure
‘Wanzon UKA&S
We have between 100 and 150
applications used across the
business located in over 30 hosting
facilities
These are mainly managed services
where we pay for hardware and
infrastructure
Some are SaaS for example
SalesForce and SuccessFactors
Some are in our own facilities
Broader and deeper analysis is
required to surface opportunities
and risks
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GROUP EXECUTIVE DISCUSSION
PAPER
Horizon Self Service (HSS)/Agent Portal
Author: Andrew Garner & Gayle Peacock — Sponsor: Alisdair Cameron Meeting date: 16" January 2018
Executive Summary
Context
Our back office processes which provide support and management information to our
postmasters and branch colleagues are complex and manually intensive, adding
unnecessary cost into their operation and ours. Developing a digital self-service
solution to perform these essential business tasks and access information in a much
easier and simpler way will reduce overheads and make the overall agent proposition
more attractive. This will enable postmasters to focus on growing their income whilst
becoming less reliant on Post Office support teams in the running of their business.
Questions addressed in this report
1. What is the vision and purpose of our agent self-service strategy?
What are the customer and business benefits?
What is the approach to building the plan and prioritising the functionality?
How do we ensure a high adoption rate?
How do we propose to deliver the functionality?
WUPWN
Conclusion
1. Our vision is to enhance our proposition and make things simpler and quicker for
agents by replacing myriad manual systems with a digital self-service portal.
2. Our customers benefit from a more intuitive and simpler to use tool to access
support services. Business benefits include a strengthened proposition to market,
supplier cost reductions, process efficiencies and improved branch compliance.
3. Customer value drives the product roadmap and prioritisation of the software
functionality. User cases are qualified against the customer/business benefit they
realise, its strategic importance, cost and complexity of delivery.
4. The ethos of the HSS project is to create applications which access services much
easier than existing processes. This will hopefully encourage high early adoption of
the portal and in turn enable legacy processes/systems to be decommissioned.
5. The software development is to be released through agile methodology. Customer
review/feedback prior to go-live creates confidence and credibility in IT delivery.
Input Sought
The Executive Committee is asked to support the approach to the development of the
HSS; i) the overall product vision, ii) phased benefit realisation and request for
funding and iii) the agile methodology to delivering change.
Confidentia Horizon Self Service
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The Report
What is the vision and purpose of our agent self-service portal?
e Our vision is to deliver an enhanced customer experience and process efficiencies
through the digital automation of the service support model. This will be initially to
agents, retailers and Directly Managed Branch Managers; longer term, this will
include making the portal available to all branch colleagues. It will become the
channel of choice and replace traditional methods of contact. It is not something to
be developed on Horizon.
e The end goal is that all support processes we provide to branches are simplified,
automated wherever possible and accessed through the self-service portal. The
business outcome is that branches have a paperless relationship with Post Office
and only need to have a conversation with someone about their critical issues.
e A digital front end and simplification of downstream processes is fundamental in
delivering operational efficiencies, reduced operating costs and reliance on staff
resources.
What are the customer and business benefits?
e Each development sprint will have qualified benefits with KPIs to track the
realisation. Existing change and financial approval processes will be followed.
« Customer benefits are:
e income growth from more effective use of real time sales performance data,
which is available to all branches
e the customer groups are directly involved in the design and test of the front
end portal to ensure users find it easy to use and genuine administration
activities are removed,
e time and effort saved in administrative processes to focus on serving the
customer. Initial feedback from retailers indicate they receive c. 15
individuals reports from Post Office and individual e-mails from branches
noting their Branch Trading results,
¢ positions will not have to close to perform back office tasks
« Business benefits are:
e potential significant cost reduction through process efficiencies within back
office operations through reduced demand into the system or (eventually)
entire removal of processes (ie cash ordering),
e reduced supplier costs e.g. removal of ‘subspaceonline’ (hosted by Ingleby
which is currently £300k per year for little usage), and prevention of further
systems being developed to fill operational gaps which are costly but also
complex to unpick. Early adoption by users will enable us to realise these
benefits as quickly as possible.
e improved compliance by making non-sales processes easier to do, thereby
removing the excuse not to comply.
Confidentia Horizon Self Service
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What is the approach to building the plan and the prioritised backlog?
e The project will develop a product roadmap and prioritise user stories based on
customer need, benefit delivery, strategic importance and level of complexity.
e The priority for the first two sprints are real time provision of sales/trading MI and
consolidation of branch report communications.
e The current backlog of user cases includes, but is not limited to, a) ordering of
cash/stock, b) hosting of Horizon on-line help, c) opening hours change requests,
d) single branch communications channel and e) raising and tracking IT incidents.
e The project will also be using the pilot to identify the required support model
needed to deliver the portal.
How do we ensure a high adoption rate?
e Following the hackathon, postmasters and multiple partners continue to provide
their requirements and input into the solution design. The functionality being built
must be chosen by the customer to ensure there is a business need to ‘pull’ rather
than the need for Post Office to ‘push’ data. A response such as “why wouldn’t I
use the portal, it is so much easier than the previous process?” must be our goal.
e Our initial focus is on the "pull" and this will avoid the obvious and lengthy debate
about devices that the Postmaster uses to access the portal. We want this to be a
self-served capability without continuous consultation on device access. If the
value is obvious Postmasters will find a way to access the portal (evidence is usage
of WhatsApp in Postmaster communities to interchange ideas). If we "push" and
enforce, the lengthy internal debates will prevent anything being delivered quickly.
However, the project recognises that there will need to be a decision made about
devices at the appropriate within the digital roadmap.
How do we propose to deliver the functionality?
« The Project Everest commercial negotiation (Digital Development Services)
includes the standing up of a persistent digital change delivery team across Post
Office and Fujitsu.
« This team is responsible for the evolution of the software functionality which will be
delivered through small repeatable releases (agile methodology) and not through a
large waterfall change programme.
e The Product Owner in the Branch and Customer Support Team in Network
Operations will agree the business priorities and will ensure the respective
business teams are ready and able to support the changes.
e Seed funding (£180k) has been approved by CAG and will deliver the sales/trading
MI and consolidation of branch communications functionality. A second business
case will be produced to deliver next phase of the product backlog from April 2018.
Appendix
1. Agile - Product development and delivery
Strictly Confidentiat Board Intelligence Hub template
POST OFFICE
PAGE 4 OF 4
Appendix 1 - Agile — Product development and delivery
Develop Product Ba
Hog includes
sales MI
Y Search Transaction & Event information
Y Trading performance by branch & user
Y Integrate & trend Sales reports
¥ Compare trading to similar branches
Y View Remuneration report by branch
Y View Penetration report by branch
¥ View Branch Targets
Online ‘Help’
Y — Aecess to ‘help’ & training collateral
Y Export Help manuals to pdf files
Y Access to Knowledge Base
Communications
¥ ‘Single location for information’
Y —‘Aecess Branch Focus online
¥ View branch stock levels
Y — Online chat, ‘chatbot’, messaging
Y Push important notifications/updates
¥ Personalized user profile comms
Other
Make online cash & branch declarations
‘Online stock code catalogue
Online stock ordering & tracking
View branch stock levels
Update contract branch opening hours
‘Temporary change to opening hours
Push non-compliance notifications
Push fraud notifications
SENN 86458
Define Requirements
* Prioritise the product backlog with business
* Quantify customer and financial benefits
{release cycle 1)
© Quantify customer and financial benefits
{release cycle 2+)
* Forecast the 3 year HSS funding requirement
+ Present release cycle 2+ business case to CRG
in Feb 18,
Confidential
START SPRINT 1
1. Initiate Project
Evaluation of ‘As Is’ processes:
Discovery phase - Automation
Customer engagement
Hackathon
Prototype developed
REGULAR CUSTOMER FEEDBACK
& REPEAT CYCLE
Horizon Self Service
4.
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Sprint Pre-Planning
Scrum team recruited (blended
on & off shore (Seville)
Scrum team location Chesterfield
Sprint 0 completed
User stories groomed &
estimated (release cycle 1)
Infrastructure high level design
Technical blockers (architecture,
date, security)
Customer engagement workshop
Develop, integrate & Tes
Sprint 1 completed, tested &
production ready
User stories groomed &
estimated (release cycle 2+)
Customer feadback
Go-Live Service Delivery
UAT of KS cloud architecture
Business processes updated
Service support model/resources
Customer pilot scope & duration
Device strategy
GDPR
Back Office transformation
Redesign of business processes
‘and removal of legacy process
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GROUP EXECUTIVE
Venue: Finsbury Dials
14.12.17 I 12.30pm I
Present In Attendance Apologies ae
Paula Vennells (PV) Michael Passmore (item 1) (AR)
Alisdair Cameron (AC) Owen Woodley (item 3) (OW) I
Nick Kennett (NK) Meredith Sharples (item 4) (MS) I
Jane MacLeod (JM) Martyn Lewis (item 6) (ML) I
Rob Houghton (RH) Neil Crowther (item 6) (NC) _ _ _ _
Martin Kirke (MK) Ross Duncan (item 6) (RD)
Martin Edwards (ME) Lesley Davis (item 6) (LD)
Mark Davies (MD) Marla Balicao (MB)
Kevin Gilliland (KG)
To review the Financial Results and the Business Scorecard and discuss any areas which
are shown to have a RED status.
AR presented the results for P8 and reported the following:
. On track for the month but Christmas trading has been slow so far and expect next
week to pick up.
e Home shopping is up but down on 1* and 2™ class stamps as expected. These are
high volume, low margin sales.
. Queuing times the best they have ever been.
. Positive feedback on white space branches. KG noted that 120 scheduled for Q4 and
open another 300 next year.
. RH reported that HGNA will be rolled out next year to the branches, and HGNX
withdrawn. A note would go out in February/March time. PV asked that MD should
possibly look to do some communications before Christmas.
. AC noted that MoneyGram has been the hardest hit on trading but Cash has
maintained better performance which was encouraging.
. NK explained that the amber and red ratings for branch compliance related :
1) to branches with out of date brochures on products and agreed with KG that
branches will receive some communications to ask them to check their brochures.
2) was a non-conformance issue with CRMs. CRMs are supposed to read out agreed
scripts to inform customers but they are not using the tablets with the correct
KG noted that CRMs needed to be retrained and that further products
need to be loaded to the tablet to reduce the dependency on brochure and leaflets. PV
information.
suggested that branches could self-certify as the integrity of the brand is at stake.
The GE discussed ways the branches could look at self-certifying and an automated
system to record.
pos.
For GE to review and discus:
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AC presented his paper on the budget and noted it was not going to be agreed today but
wanted to take the GE through the paper for their input and thoughts.
. AC started by going through the table on page 2 of the report to go through the target
reconciliation and then progressed to the table starting on page 5 going through the key I
assumptions and questions point by point. I
. AC noted that the Growth Fund was at £10m and people would still continue to bid for. I
. BAU cost covered new activities once projects ceased and this still needed to be worked
through.
. AC noted that Sparrow has been added back but as a non-trading item and has agreed this
with E&Y. It will also be excluded for bonus purposes as the Board requested.
° AC noted that target EBITDAS was £45m which was £10m more than expected due to
growth element. He added that it was the lowest since being independent but this was due
to IT spends as so much to do. NK asked if we were balancing back. For instance with
Telco. PV enquired if we could take some out of this year? AC responded that it was best
to see how Christmas trading goes and then narrow down and work out.
. AC reported that more detailed budget reviews would be undertaken in January and
February and still to work through banking Framework and Supply Chain.
. AC noted that the Growth Fund and Marketing spend conversations were taking place and
question around costs still being considered. NK commented that we should be building
momentum and balancing in investment in year against the Growth Fund. PV noted that
she was keen on investing in Customer Hub, Banking Framework and Identity but cost
savings needed to be built in and again needs to see more details on.
. NK suggested also looking at 2019/20 to help with understanding as he noted it would be a
tricky year ahead and we need to be prepared for. AC noted he could refresh in
government plan submitted. ME commented that he could easily refresh the waterfall in I
plan. I
. PV stated that we need to know what is going to deliver them, cost piece to work out what
to do and deliver with some IT challenges. PV noted that the thinking piece was missing.
AC noted that this was being worked on. Some IT savings and noted it was not about
delivering them it is a question of the speed of delivery.
. PV asked if Agents Hub and Colleague Hub would produce IT savings. AC explained that I
there would be a radical shift in the way of working, with taking activity out of back office I
and basic automation from new systems. AC was currently working with RH on what new
technologies could bring. For instance could we drive Agents to go paperless? Q4 would I
work through to plan and deliver by second half of next year.
. RH noted that SucessFactors roll out next year would certainly have an impact. I
. RH commented that the targets set are too low and AC response was that people have put
initial submissions with no detail reviews yet and collectively still too high. RH noted that I
targets have not been stretched enough and AC responded that there is still work to be I
done and not ready to sign off yet. I
. RH commented that he expected Agents pay to go down but it is looking the same. AC
response was that with new branches Agents pay will go up but noted that Agents pay line
is flat and if strategically could we afford this. RH commented that the figures are not
matching the story. KG added that with lighter models this will impact. PV stated that they
were not going to change the 3 year plan and that we need to push on and think about the
way we work. Budget cannot be submitted without the waterfall and it being gone through
line by line.
. AC explained that they needed to bring in more stronger and better people into the
business to bridge the skills gap but also bring in fewer people. PV added they should also
take more risk and make decisions faster and change the way they work for instance with
legal. JM noted that the areas PO is looking to go into are more regulated and more
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need to look at the support cost associated. NK added that the risk appetite versus
outcomes needs to be established with a commercial view on legal, decisions should be
made in isolation. JM noted that with Identity if we got this wrong wold have an adverse
effect on customers. AC expressed that this was the perfect opportunity to work on this
and look at the Fujitsu relationship and use as a test case on how to work differently,
looking at an agile way of working.
e KG added that when programmes come to an end the business case might stack up but do
we consider head office costs and the knock on effect.
e With regards to POCA AC noted that the deal was signed yesterday and the execution of the
swap would take place in January and any revisions would go through the ARC.
. AC asked if the GE were comfortable at the recommended percentage of pay award for next
year at 2.6% or an average of 2.2% or the same as RM at 2%. MK reported that last year
the pay award was 2% and that questioned if it was sustainable for a commercial business.
He believed the CWU would push for at least 3% and this would be for April and Unite in
June. KG noted from his conversations within branches the 2% went down well this year.
Various percentages were discussed for different reasons and for now it agreed that 2% be
budgeted for and some contingency built in just in case.
° AC highlighted the FTE Assumptions and raised the question should we be retaining I
headcount or reducing in 18/19. MK note grade inflation in the market and that some roles I
would need to change as we would be overpaying. AC asked that in January this should be I
looked at again and challenged.
° Saving or profit support from BOI. AC noted he was comfortable with and NK reported he
had met with BOI yesterday and some sort of deal or package would be made and
possibility of a one year deal.
. It was noted that FRES profit has been reducing and was becoming marginal. NK reported
that numbers have not been discussed within FRES as yet but seems flat year on year. I
Wider conversations on Peregrine and allocated costs to be had. AC noted he would re-run I
the numbers on P&L. I
. Marketing and Brand budget. AC noted that a £9m increase and questioned if we could
spend this well or should we invest elsewhere like IT. PV asked that Louise to jointhe _
January budget conversation on this. MD explained that PO could do something radical
and innovative to market the business. I
. AC asked that the Capability gap this needed to be clear to fix this in this budget and £5.4m I
has been provided to fund this. He explained more details provided in appendix 4 but still
needs more work on. AC was having conversations with Angela on succession and MK
noted the Deep Dive on succession talent by Amber. I
. MK asked if OPSOP was working well. It was noted that not in everyplace yet and still to I
work on the structure. AC noted that the OSOP structural piece needed no budget but I
needed to fit somewhere and that MK and AC would pick up on. I
¢ Point 15 - it was noted it should be £1.1m EBITDAS not revenue. I
. PV expressed that everyone should have a 10% contingency in their plan. AC reported that I
the budget didn’t seem to be in bad shape and wanted to note his thanks to teams for all
their hard work on so far. NK asked what the next steps were. AC in responded that a note
would go out in the next couple of weeks.
Actions:
. More detail to be provided in January with further context on the budget
submission.
e STIPs to be covered in January meeting.
. Louise to join the January budget discussion in relation to Marketing and
Brand.
OSOP structural
jece AC and MK to ku
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To update GE on the issues facing the business and explore where there is value in the I
market and considerations of overarching strategy in cross-border payments. I
NK presented his paper with OW and the following comments were made
. MoneyGram performance has been down since the announcement of Brexit and the
long-term effects could have a continuing impact. This has been exacerbated by the
resultant depressed exchange rate and MoneyGram’s primary focus on Eastern
European corridors.
. Regulatory oversight of money transfers are tightening and the £800 Anti-Money
Laundering (AML) limit now in place has already impacted on transaction volumes and
values.
. Dialogue has been started with FRES in relation to Moneycorp and could be a useful
opportunity to wrap together.
. NK noted that there is still a lot of work to do to bring this forward. ME noted that
the team should speak to Alibaba with the links of expanding to the UK. OW explained I
the major problem is that the market is digitising at a fast pace and we need to
develop a clear combined digital and branch strategy with specialist support. In the
meantime, we are focusing on tactical opportunities including a win back campaign.
The FRES Moneycorp relationship needs to be brought into the strategy too but PV
asked that the strategy work focuses on the core MoneyGram product set for now.
. The current contract with MoneyGram expires on 30‘ September 2019 but we could
extend for another two years on the same terms if notice is given in March 2018. KG I
asked what we would get if we went with Western Union. OW responded that it would I
likely be very similar as they have similar models. NK recommended that we didn’t
agree to extend the contract at this point whilst we consider our longer term options.
AC asked that they let Barbara know before Christmas so it was on her radar from a
procurement perspective.
. ME raised that Identity should integrate with IP piece and ME and OW to
follow up on.
. AC asked who the GE lead on Digital wallets was and NK responded that he was and
would be coming back to GE in March with an update. AC asked for a strategic
planning piece be included.
. ME also added that an Identity update would also be provided in March.
Actions:
. MoneyGram and International payments to be brought back to the GE in
March.
e ME raised that Identity should integrate with IP piece and ME and OW to
follow up on.
. Digital Wallets and strategic piece to come to March GE. (NK)
e Identity to also come back to GE in March.
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To update the GE on what is proposed in light of regulatory changes that come in to force
on 1* April 2018
NK pre: ted the T I
regulatory changes. He reported that in October a voluntary agreement between I
OFcom and BT was announced to offer Landline only customers a new price of £11.99 I
per from 1* April 2018. This would impact DPC by around £15m over 3 years. I
. MS explained that currently we have 265k landline customers and 250k broadband I
customers and by dropping the price to match our usual discount to BT, our forecast
for 3 year DPC declines significantly from £79 to £39. I
7
i
e MS reported that we plan to remain competitive in the market by responding to BT’s
voluntary move but also to ensure we mitigate any negative impact on DPC. This will
be done by increasing call and package prices, but ensure that we are never more
expensive than BT and offer great value to our customers and leverage our brand. In
order to achieve this we would:
a) Reduce our monthly rental for new landline customers from £16.99 to £11.50
b) Increase the price of our calls packages, connection and out-of-bundle charges
across our customer base.
. MS reported that 4 options have been considered to respond to the BT
announcement.
1) Do nothing and maintain price of £16.99 but this will not deliver commercially and
would put us at a disadvantage.
2) Auto migration and move customers to £11.50 but this will still leave us with a
deficit of £10m.
3) Opt-in which would involve writing to our customers and asking them to contact us
if they want to be moved to better deal. However, this could have brand and
reputational implications.
4) Free broadband offer at no extra cost to this segment only or £11.50 for landline
only. We have recently had a good commercial discussion with Talk Talk (TT) to
move our customers from BT to them. This would help with our margin.
. RH raised that the execution piece is missing from this report. MS explained that we
would use the same team who undertook the Jaguar migration. He also explained
that BT could only migrate 4000 a week so if we were to do we would need to start in
January. PV asked if RH could ‘Black Hat’ after Christmas. RH asked that once
a plan was finalised he would go through with MS in the first week of
January.
. PV noted that there were two questions here for our customers:
1) How long will this take for our customers; and
2) TT would need to honour our arrangement if they were bought out.
. PV also asked if TT should also pick up the £10 postage and packaging cost of router
or at least pay half. MS to review Post and Packaging charges to ensure they remain
fair and aligned with competitors.
e PV stated that a marketing campaign should be planned to highlight the free
broadband and to get the messaging right. MD agreed and would work with
MS on.
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Action:
. GE approval given to pursue inclusive broadband pricing for all
current Landline only customers - migration orders will commence
from mid Jan 18, and customer communications will happen from
Mid-March 18, final migration in May 18. I
. RH to review final plan in the first week in January and ‘Black hat’. RH/MS I
. MD and MS to review customer communications strategy, to ensure MD/MS
clear customer message and evaluate if a positive external message I
can be created with
out risk.
«¢ To update GE and seek approval of POMS MSA and a discussion on Senior Managers
iscussi
. NK have gone through the process but AC had not had time to review and therefore
wanted to defer and take off line.
. JM noted that the paper requested approval in principle and delegated authority to
finalise the MSA. She noted that it would be helpful if one person could assume
responsibility for oversight of delivery of services to POMS, however there were
different options as to who this should be.
. JM noted that there were no substantive changes but both the MSA and DA were
being updated to reflect current arrangements.
I
I
I
I
1
I
I
I
: . I
Hill who was familiar with the agreement. AC/MP I
I
To provide the with a demo of Successfactors which would be rolled out to the business I
MK introduced Neil Crowther, Ross Duncan, Lesley Davis and Martyn Lewis who would be
presenting the Sucessfactors demo.
RD presented the demo and the following was highlighted:
. Personal data could be amended by individuals and on new joiners could populate
their own information and provide signed documents back to HR through the system.
Contract will be issued through Adobe sign in the future.
. Company phone directory but would be down to individuals to complete.
. Organisational charts of teams and reporting lines.
. Will be able to manage annual leave and the buying of extra days, team absences,
and emergency contacts which can feed into grapevine. AC asked if people could sell
back holidays and MK agreed he would look into. He also added that the annual leave
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carried over would be done manually with managers but next year would be on this
system.
. PV thanked the team and noted how great it looked. I
° PV left the meeting and AC took over as Chair.
. The question of if expenses could be done through this system but MK noted that
another system was being launched at the same time for expenses.
. MK reported that RMG and staff both might be opting for a deal.
. MK gave a verbal update on the weekly to monthly pay appeal and this related to the
compensation being challenged.
7.2 EUM
. Julie Thomas provided a verbal update and noted that she was currently updating the
EUM business case to go to ECG in January. JT reported that there were a number of
issues ranging from re-design issues and technical changes and mandatory
compliance testing if not completed systems were being switched off. JT explained
there has been a significant overspend and the business case will be looking to ask
for £10.4m from the original £7.8m. AC stated that this would need to go to the
Board in January for approval.
ction: I
« The updated business case for EUM to go to Board in January for JT/DS
approval.
fam 6 : — —
To update the GE on the actions taken and provide any information requested.
. ce
. Health & Safety Report
. Forward agenda -GE January 2018
. MB was asked to circulate the agenda for Board for January 2018.
To discuss any additional items raised
10.1 Directors Induction
. JM noted some changes to Board members and that Cosec is coordinating in the on
boarding process and inductions. There would be a new NED to replace Virginia
Holmes in April 2018. Richard Callard would be replaced by Tom Cooper in March
2018. Tim Franklin would be joining the POMS Board.
10.2 POL Glossary of Terms
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. This would be circulated in due course.
10.3_GDPR
° Jane provided an update as to where we were in terms of GDPR and noted that there
was still a lot of work to be done. Customer data, agency and then employee being
the priorities. GDPR training had been booked for POL Board members for January
2018.
The meeting closed at 12.30pm
Last updated 11/01/2018 at 16:25
Strictly Confidential
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Key
Outstanding actions for discussion at GE and to close
Completed and action closed since last meeting
Post Office Limited Group Executive Action Log Actions in white not due
REFERENCE ACTION Action Owner (GE Member) Due Date: STATUS:
IGE on 17th January 2017
17/01/201 IT ISet up a skype GE meeting. ‘Rob Houghton / Jane Macleod GE on 14th December _ I Still ongoing - challenges with network bandwith being investigated, ‘OpenI
[Strategy / Action 10 2017
IGE on 17th May 2017
17/05/17 + HR IBring a session on regulation, the timetable and effect Martin ITBC 2018 [Suggest GE discussion on ownership. Update 07.11.17 - To be considered Carried)
[Strategy (Part 1) / lof new regulation, accountability and cost back to the with POMS MSA. ForwardI
Action 7 ce.
IGE on 14th June 2017
4/06/17 : include KG and NK in the work on product profitability, ‘Al Cameron / Kevin Gilliland / Nick Kennett 30th November 2017 I Due to fixed asset reinstatement work and ongoing audit work, product To closeI
Performance - Iwith FDs and Michael Passmore. profitability in current state system environment has been delayed and will
Financial Results & Istart again in early September. This will run concurrently with the hierarchy
Review of Business Iand chart of accounts work in back office transformation.
Scorecard / Action 2
4/06/17: Set up a review on the Santander security rules ‘Al Cameron lanuary 2018 - TBC (Underway. ‘OpenI
cash Management /_ftowards the end of the calendar year.
Action 1
14/06/1 [Develop an online training package highlighting the Al Cameron December 2017 It has been agreed that the best way forward would be to manage this as a To Close}
cash Management / _ importance of cash. Comms piece as it is not a training need. This should be a high level central
[Action 2 communication around the scorecard, along with an ongoing campaign on
Ithe importance of cash (working with Doug Brown for DMB), especially in
Ithe lead up to Christmas. Update 12.10.17 - One notes will be sent out over
the next two weeks,
IGE on 13th July 2017
13/07/17 + Return to GE with the plan on how the white space Tom Moran / julie Thomas December 2017 Update produced on whitespace progress — Tom Moran (Retail) is updating. To Close}
ICrown Network initiative will be taken forward. this to provide a broader update on the legal issues which has been
Development / Action requested by PV and produced by Ben Foat (Legal) to take account of latest
2 Jdevelopments, specifically the recent postmaster challenge re: Berryden
whitespace. This will be provided to PV in w/c 11 Sep. Update 12.10.17 - The
whitespace initiative is part of Network Development and the business case
for this is being presented to ECG in October 2017 prior to submission to
Board in November 2017.
Last updated 11/01/2018 at 16:25
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REFERENCE ACTION Action Owner {GE Member) Due Date ‘STATUS:
13/07/1: JGE noted the briefing and requested that a further Jane Macleod IGE on 13th November [To be covered in GE on 13th November 2017,
ISparrow Update /_I update be provided to GE and the Board following the 2017
JAction 1 ICase Management Conference. This update should
include an assessment of the potential impact on Post
Office and its business and operations of the range of
possible outcomes, based on the issues to be
Jconsidered through the Lead Cases,
IGE on 14 September 2017
{14/9/2027 ISN to report back to GE with the proposed plans for FO. ‘Steve Norris December 2017 Update 16.10.17 - 1. Plannin ‘Open
Finsbury Dials Review - Jin due course and confirm that implications of Ipeak use at FD to review if extra capacity investment is needed
JAction 1 successful outcomes of Project Panther had been 2. Business case being built
considered as part of space planning 3. Piloting the new style CTO at South Shields
14. Awaiting HR decision on Bark Street exit date
[14709/2017 Mik was requested to lead the development of a Martin Kirke [lune 2018 - TEC Discussion is required to take place at the GE Awayday, in order to clarify Open
Finsbury Dials Review- Istrategic proposal as to the longer terms people [and link it with the " Talent Acquisition Strategy".
'14/09/2017 INK proposed a paper in early 2018 to look at POCA and Nick Kennett March 2018 UPDATE 5/10/17: in progress (HVH & ME looking at this) ‘Open
Digital wallet initiatives
[14/09/2017 IGE requested that minutes & actions be reviewed to, Jane Macleod ‘O1-Jan-18]To be circulated to GE 2018 To closeI
Feedback on meeting make then more proprtionate. They also requested a
glossary of terms be developed.
IGE on Leth October 2017
19/10/17 Paper to be reviewed — including development of ‘Plan Debbie Smith/ Julie Thomas ‘Jan-18]To be covered in GE in 16th January 2018. To Close
DMB Business Case I’ and brought back to GE in January 2018, ahead of
being submitted to the January Board.
19/10/17 MK to bring updated paper to GE in November for Martin Kirke January 2018 MK to bring update paper to GE January. To CloseI
Project Jay further discussion and defer bringing to the Board till
panuary.
IGE on 13 November 2017
{13/11/2017 Future [The GE approved the Change Approach proposal and Martine Kirke January 2018 - TBC To CloseI
[Change Approach _asked that the skills gap be picked up and progress is
Proposal (7) taken to 1300.
{13/11/2017 Future [Amore detailed proposal to be brought back to GE in ‘Angela Van Den Bogerd/Tim White/Rob Houghton Jan-18] included in Janauary Meeting To CloseI
Jchange Approach —_I/anuary 2018
Proposal (7)
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REFERENCE ACTION Action Owner {GE Member) Due Date ‘STATUS:
13/11/2017 IGE December 2017
IGE December 2017 (9)
Icovernment Services should be changed to be called March 2018 Moved to March
the Future of Poca Options and jointly owned by KG, Jane Macleod
IME and NK.
INK to confirm is mortgage distribution would need to Hac 2018
be on the agenda. Nick Kennett
Poca and Digital Wallets to be included with Cash Nick Kennett March 2018 Open
Strategy and deferred to March agenda
IGE on 14 December 2017
14/12/2017 First + More detail to be provided in January with further
Review of the Budget I context on the budget submission.
(2)
+ sTIPs to be covered in January meeting, »
Al Cameron/ Michael Passmore 16" January 2018 To closeI
* Louise to join the January budget discussion in
relation to Marketing and Brand.
+ oso? structural piece AC and MK to pick up.
fra7iz2017
MoneyGram and + MoneyGram and international payments to be
international Payment I brought back to the GE in March.
) + ME raised that Identity should integrate with IP
J y er Nick Kennett/Owen Woodley
piece and ME and OW to follow up on. 14 March 2018 Open
* Digital Wallets and strategic piece to come to
March GE. (NK)
+ identity to also come back to GE in March.
14/12/2017 * GE approval given to pursue inclusive broadband
Helco Update 5
i pricing forall current Landline only customers -
migration orders will commence from mid Jan 18,
and customer communications will happen from
Mid-March 18, final migration in May 18
+ RH to review final plan in the first week in January Nick Kennett/ Meredith Sharples/Rob Houghton Py 2018 Mey Open
and ‘Black hat’.
Last updated 11/01/2018 at 16:25
REFERENCE
ACTION
+ MD and MS to review customer communications
strategy, to ensure clear customer message and
evaluate if a positive external message can be
created without risk,
Action Owner {GE Member)
Due Date
‘STATUS:
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{14/12/2017
POMS MSA Approval
]AC to review POMS MSA agreement with MP. NK
offered the help of Jonathan Hill who was familiar with
Al Cameron/ Michael Passmore
16" January 2018
(7.2)
To close
Ks) the agreement,
14/12/2017
[The updated business case for EUM to go to Board in "
smith/Julie The
lum anuary for approval Debbie Smith/Julie Thomas 29" January 2018, Open
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POST OFFICE PAGE 1 OF 4
POST OFFICE GROUP EXECUTIVE
Performance Review — Health and Safety
Authors: Martin Hopcroft Sponsor: Al Cameron Meeting date: 16" January 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 health and safety compliance, targeting a reduction in
four key safety metrics: accidents; lost time accidents; days lost; and personal injury
claims. Our H&S reporting and safety management system is measured against the BSI
standard.
Questions this paper addresses:
A It has been agreed to provide a monthly performance report to GE for noting and a more
in depth Health & Safety deep dive report 6 monthly.
Conclusion:
3.1 There has been a recent increase in the number of accidents (P8 and P9), including
absence accidents following 3 incidents in DMBs and Supply Chain. Investigations are
being undertaken and accountabilities reviewed (see Report-H&S Metrics). Benchmark
data has been received from suppliers / insurers and overall Post Office performance is
favourable. Post Office has also participated in a BSIA exercise to benchmark Supply
Chain performance across the industry and should receive a report from BSIA very soon.
3.2 Whilst mitigating action has reduced road risk across the Commercial Fleet over recent
years and RTCs remain low, a new overarching policy is being developed for all business
drivers (company and personal cars) to further reduce risk. Online awareness training
has been issued via Success Factors and the Mobile Phone whilst Driving Policy reiterated.
3.3 Whilst CViT attacks remain lower in 2017/18 with 14 v 20 (2016/17), Post Office
robberies have increased. A number of initiatives are being deployed in hot spot areas.
Due to this increase in violence, the Board and GE have requested a review of employee
and agent security, following an ONS report that shop theft is increasing across the
industry, as are the number of robberies in branches. A report will be provided to GE
during Q4 following a review of current procedures, equipment and analysis of robberies,
attacks and losses whilst also considering the impact of change on the risk profile.
3.4 The overall level of Property risk is predominantly low, however, there are some high
risk exceptions that are being reviewed. We are amending our FM contract to move to a
proactive fabric management regime. Current property statutory compliance is good at
98%.
3.5 A number of actions are being progressed following the GE H&S deep dive review,
including a review of road policy, guidance for lone workers, safety of vacated buildings,
competency and statutory compliance. A 3" Party Audit has been commenced with HSL
to review the Post Office Safety Management System.
3.6 A number of initiatives are being developed to raise awareness of mental health support
and resources, including MH Awareness Workshops and the introduction of MH First
Aiders to provide proactive support to colleagues across the business.
Input Sought
The GE are requested to note the current health safety performance.
Strictly Confidentiai Health & Se eport Jan 2018
The Report —- H&S Metrics
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Summary of Safety Performance - YTD Period 9 (December 2017)
Number of Employee Accidents - Monthly - Period 9
(Target to achieve a 5% year on year reduction)
Directly Managed Branch
Accidents P9 YTD
L i
PG PT
2016/17 2017/18
PB PA PS
Accidents are forecast to outturn lower than 2016/17. There have been 91
accidents YTD compared to 101 at P9 in 2016/17. Causation is consistent
with previous years in DMBs and due to falls indoors (2 in P9), lifting and
handling (1 in P9) and stepping and striking (1 in P9). There was also a rare
incident whereby a customer assaulted a DMB employee. Whilst stepping
and striking (1 in P9) and non RTA vehicle related accidents (2 in P9) have
increased in Supply Chain recently, lifting and handling related incidents have
reduced (0 in P9). Following an increase in accidents P8 and P9 investigations
are being carried out to understand causation and action plans agreed by
local management to mitigate future risk. A Safety Forum is being set up to
share best practice and discuss lessons learnt and promote safety culture.
There were 2 lost time accidents reported in P9 with 17 lost time accidents
YTD 2017/18 and 364 total lost days. Cumulative Trends can be seen per
000 employees in the graph below. Total lost time / 000 employees has risen
by 50% YTD. Trauma related total lost days, following an attack, are 97%
down (4 days 17/18 v 137 in 16/17).
Days lost due to accident / 000 employees- Cumulative
100.0
80.0
60.0
40.0
20.0
——F
a
Pi PZ PB PA PS PGPT BPD
2016/17 me 2017/18
Post Office total lost days: 29 in Period 9
DMB total lost days P9 YTD : 202 (96 in 16/17) - 1 step/strike, 1 lifting, 2 fall, 1 assault
Supply Chain total lost days P9 YTD: 199 (191 in 16/17) 3 vehicle, 3 falls, 2 lifting
Support total lost days P9 YTD : 6 (6 in 16/17)
Post Office CViT Robberies ~ PS (Nov 17)
There were zero incidents reported in Nov v 1 in 2016/17 and over a rolling 12
mth period there have been 14 incidents v 20 in 16/17. Trend is being
monitored closely. 3 incidents YTD have used violence with 1 injury. 4 used
weapons v 6 in 2016/17 YTD. 70 Cross Pavement Observations have been
undertaken by Security Managers during period. 3 ‘Operation Stripes’
undertaken to test resilience of depots, and to ensure unauthorised access is
not given, regardless of circumstances. 17 other depot visits undertaken by
security during period to engage with Supply Chain staff and promote security
best practise.
Supply Chain
Accidents P9 YTD
40
30 2
20
10
0
Year to Date
15/16 55
@ 16/17 33
m17/18 50
Post Office (All branch types)
Robberies - P8 (Nov 17)
There were:
June - 8 incidents v 11 (16/17)
July - 4 incidents v 8 (16/17)
Aug - 8 incidents v 12 (16/17)
Sep - 13 incidents v 9 (16/17)
Oct - 14 incidents v 6 (16/17)
Nov - 9 incidents v 17 (16/17)
97 robberies YTD v 74 in 2016/17
170 compared to 112 in rolling 12mth
Violence - 2 vs 4 last year
Injuries - 1 vs 2 last year
8 injuries YTD v 8 (2016/17)
Weapons - 6 (1 firearm, 3 blades) vs 14
last year (4 firearm, 7 blades)
There has been a 10% increase in bladed
robberies and a 2% reduction in firearm
robberies over rolling 12 month period.
TORCH visits are being made to hot spot
branches to verify for compliance to
security standards. A review is being
undertaken to assess personal safety risk
to employees and agents and to look
forward to consider potential change to
the risk profile of branches and CViT
operations.
Strictly Confidentiai
Health & Safety Report Jan 2018
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LTIFR - Lost Time Incident Freq Rate
2.50
2.00
1.50
1.00
0.50 a
0.00 a s
Pa P2 P38 P4 PS 6 °7 P38 Pg
LTR OME mom TIFRSUppHy Chain meme TIFR Post Office mmm THR Target
Lost Time Injury Frequency Rate (LTIFR) — Period 9 YTD
Supply Chain All Post Office - Employee
YTD P9 - 0.896 YTD P9 - 0.293
2016/17 out turn - 0.590 2016/17 out turn - 0.168
2017/18 target - 0.500 2017/18 target - 0.180
Absence accidents/000 SiP 11.08 YTD v 9.24(16/17) Absence accidents/000 SiP: 3.37 YTD v 2.53 (16/17)
Road Risk
P9 Road Traffic C
ions
Road Traffic Incidents - Cumulative
* 7 Road Traffic Incidents in P9
« 4 at fault, 3 not at fault 140
Comparing 17/18 v 16/17
There were 66 RTCs YTD in 2017/18 v 129
(16/17), a 49% reduction YTD. 120
At fault RTC’s were 78 in 2016/17 and have
reduced to 42 in 2017/18, a 54% YTD 100
improvement. Initiatives include:
* An overarching Road Risk Policy, with
improved training and compliance checks 20
is being developed by the Fleet
Management team to cover Commercial
Fleet, Business Cars and Personal Car use.
* Driver Training has been developed and
launched on Success Factors for all
employees who drive on business.
* Road Risk Manager is working closely with 40
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,
60
P30 PA PS PEPT PR
WAN IG/17 WAH LT/I8 w wALFault 16/27 mAt Fault 17/38
Strictly Confidentiai Health & Safety Report Jan 2018
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Summary of Wellbeing Performance - YTD Period 8 (Nov 2017/18)
* The overall Post Office attendance level remains stable at 96.4% YTD P8 (November 2017/18). Short
Term absence is 1.0% YTD and long term absence is stable at 2.6% YTD. There has been a positive
uptake of free flu vaccinations offered to Support Centre and Supply Chain colleagues during P8.
« Mental health related absence remains the most common cause of long term absence. Some additional
analysis is being undertaken by our Occupational Health and HR Service Providers to understand
trends and areas of concern to target intervention by business area.
« Proactive activity includes ‘positive mental health awareness’ sessions for colleagues, additional Mental
Health Awareness Workshops being piloted for line managers and the introduction of Mental Health
First Aiders with 39 trained in November and an additional 20 planned for training in Supply Chain in
January, followed by a review and launch of the initiative across the business in late January.
Business Area Absence Performance v Target - P8 YTD 2017/18
2017/2018 Sick Absence %ge
CHIEF FINANCE & OPERATIONS OFFICE
FEN: SUPPLY CHAIN.
FIN: CHANGE MANAGEMENT
FEN: HRSC
FIN: NO CONTACT CENTRES
FEN: NETWORK OPERATIONS:
RO: NETWORK DEVELOPMENT
[COMMUNICAT TONS & CORPORATE AFFAIR:
[HUMAN RESOURCES
[GENERAL COUNSEL.
FINANCIAL SERVICES & TELECOMS
FST: PO MONEY PRODUCTS
[GHIEF INFORMATION OFFICE
[Post Office Ltd
Strictly Confidentiai Health & Safety Report Jan 2018
Group Executive Draft Agenda for meeting on 21% February 2018
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TT TT 7 — TT e —
TT 7 ~) TT oveitael 7
: : . : ae :
Te ti ~ :
Lo i ae LL co
Performance ~ Financial Results & Review of 20 Standing item Al Cameron Michael Passmore Input & Information
Business Scorecard
2018/19 Budget Review 30 Periodic action from Al Cameron Michael Passmore Discussion & Input
forward planner
Cash Efficiency 30 GE action from Al Cameron
previous meeting
CSR Policy 20 Periodic action from All
forward planner
Brand Strategy 20 Periodic action from Louise Fowler
forward planner
Overall Network Strategy 30 Periodic action from Martin Edwards I Tom Moran
forward planner
HR - Training Strategy and Plan 20 Periodic action from Martin Kirke Natasha Wilson
forward planner
HR - Performance Management 20 Periodic action from Martin Kirke Natasha Wilson
forward planner
ATOS Decision (Service Operating Model) 20 Periodic action from Rob Houghton Approval
forward planner
Verbal update from Committees & Steering Groups 25 Standing item Noting
Contracts for Approval 10 Standing item Jane MacLeod Approval
Review of GE Minutes, Action Points and Updates 10 Standing item Jane MacLeod Noting & Input
Items for Noting 10 Standing item Noting
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Group Executive Draft Agenda for meeting on 14°" March 2018
co c TT : J co ce
) Sponsor / :
: , I (Pea o
I . I ‘ tem/ . fro! 2 the
Performance ~ Financial Results & Review of 20 Standing item Al Cameron Michael Passmore Input & Information
Business Scorecard
Performance Report —- FS&T SBU 30 Periodic action from Nick Kennett Colin Stuart Input & Information
forward planner
Future of POCA Options and Cash Services 45 GE action from Nick Kennett Debbie Smith & Martin Discussion & Input
previous meeting Edwards
Identity 290 I GEaction from Nick Kennett
previous meeting
POAC update 19 _I Periodic action from Mark Davies
forward planner
ATM's 20 GE action from Nick Kennett Martin Kearsley
previous meeting
Quarterly report to UKGI 20 Periodic action from Al Cameron Martin Edwards
forward planner
Overall Government Services Strategy 30 Periodic action from Debbie Smith Tom Wechsler
forward planner
Verbal update from Committees & Steering Groups 25 Standing item Noting
Contracts for Approval. 10 Standing item Jane MacLeod Approval
Review of GE Minutes, Action Points and Updates 10 Standing item Jane MacLeod Noting & Input
Items for Noting 10 Standing item Noting
AOB 10 Standing item
Personal Payments Capability
(formerly known as ‘digital wallet’)
GE 16/01/18
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- There are several initiatives in different areas across the business which require a co-ordinated
view on the provision of a personal payments capability (formally referred to as ‘digital wallet’).
- The current initiatives in FST and Government Services are:
1. Customer Hub: the option of introducing portable payments and to take over the basic
functions of a current account
2. POCA: the requirement to develop a next generation proposition to replace POCA as
Universal Credit roll-out continues
3. Postal Orders: the need to digitise Postal Orders
- We have been approached by Pockit and after subsequent conversations they might be a
solution meeting our needs.
- Bank of Ireland is looking into an alternative which is a current account solution.
- In addition, there has been an engagement by Crown Commercial Service to procure a set of
payment solution providers (see appendix A).
- Apaper will be presented at the March GE which will cover the feasibility of the delivery
solutions.
. Context
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2. Delivery solutions
- We are looking into following options:
1. Building a Post Office pre-paid programme (e.g. as part of Customer Hub). This
solution would require an e-money licence.
2. Partnering/investing: Pockit, PCT, U Account
3. Taking out the option from DXC to offer POCA+
4. Developing a new current account with Bank of Ireland
- Main assessment criteria to consider:
1. Timing
2. Quality of solution
3. Feasibility of solution (migration/transition)
4. Costs/commercials
5. Degree of ownership/control of proposition
6. Degree of satisfying a POL wide solution (POCA, Postal Orders, Banking Framework...)
7. Risk appetite (e.g. regulation)
8. Current contractual obligations (eg FSJVA)
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3. Our ask to GE
1. To note the short term opportunity with Pockit.
2. To provide authority to the team to investigate the opportunity further
and undertake due diligence work to assess their capabilities.
3. To mandate the team to have those conversations within specific
markers owned by Group Strategy (buy out options, minimal
ownership/control levels,...).
4. To note the formation of a working group led by FST within existing
budget resource to assess the delivery options.
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APPENDIX
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Appendix A: Crown Commercial Procurement exercise
Crown Commercial Service (CCS) is developing a new multi-supplier framework for the provision
of payment solutions and associated services that will be available to both Central Government
and the wider public sector.
CCS have issued a Prior Information Notice (PIN) and invited interested suppliers to initial
engagement events during January 2018 with the publication of the OJEU planned for April/May.
The PIN describes three Lots under the framework. We believe that Lots 1 and 2 are focused on
purchasing card solutions (in line with the current framework) and don’t provide opportunity for
Post Office to add value.
However Lot 3 is envisaged to be for the provision of pre-paid accounts and associated services
including exception disbursement and payment services. We believe this framework could be
used for the future provision of a POCA-like solution by DWP and provide access to wider public
sector organisations who require pre-paid account solutions.
Post Office has registered interest and is seeking to attend the initial engagement event.
Following the initial engagement event the Government & Payment Services team will work with
Financial Services and Telecoms and Group Strategy to develop our sales and bid approach.